Impact of the Global Spread of COVID-19 on Business Operations and Demand

「In addition, the Group's China business continued to face challenging conditions, as various aftereffects of the pandemic persisted, including lost sales opportunities caused by the strict COVID-19 prevention measures implemented 2 years ago and the subsequent shift of apparel production for Japan away from China. These conditions were compounded by uncertainty over the outlook for the Chinese economy, and there were no signs of recovery.」

「In particular, the Group's business in China remained challenging because of various aftereffects of the pandemic, including lost sales opportunities resulting from the 2-month suspension of operations at the Chinese subsidiaries under the COVID-19 measures implemented in the Shanghai area 2 years ago, followed by the shift of apparel production away from China.」

「Against this backdrop, the recovery trend in the apparel and fashion industries, which are closely related to the Group, began to slow, while the handicraft-related industry also remained sluggish and concerns about the outlook grew. In addition to these conditions, the Group's Chinese sales subsidiaries continued to face a challenging environment because of various aftereffects following the 2-month suspension of business caused by last year's lockdown in Shanghai, China.」

「In the apparel and fashion industries in which the Group operates, apparel production generally continued to increase as a result of the rebound from production cuts during the pandemic and the recovery in consumption. Orders for the Group's apparel sewing thread also continued to recover. However, various aftereffects of the suspension of business caused by last year's lockdown in Shanghai, China, weighed on operations, delaying the recovery in orders at the Chinese sales subsidiaries.」

「In addition, fixed costs of ¥80 million incurred during the approximately 2-month suspension of operations at 4 Chinese subsidiaries due to the lockdown in Shanghai, China, were recorded as an extraordinary loss. As a result, the quarterly net loss attributable to owners of the parent was ¥134 million, compared with a loss of ¥112 million in the same period of the previous year.」

「The Chinese subsidiaries Shanghai Fujik Seisen Co., Ltd., Shanghai New Fujik Seisen Co., Ltd., Shanghai Fujik Trading Co., Ltd., and Shanghai F拓線 Trading Co., Ltd. suspended operations for approximately 2 months because Shanghai, China, was subject to a lockdown to prevent the spread of COVID-19 from 28 March to 1 June 2022. Fixed costs incurred during the suspension were recorded as an extraordinary loss.」

「In China, infections remained contained during the period and the Group's consolidated subsidiaries generally operated under near-normal business conditions. However, at the production subsidiary whose main business is sewing-thread manufacturing, production of sewing thread for apparel for Japan remained sluggish. Immediately before the end of the quarter, a lockdown was imposed under the zero-COVID policy following a rapid increase in infections in the Shanghai area, making the outlook for business activities at the Chinese subsidiaries, including the production subsidiary located in the affected area, uncertain.」

「Accordingly, the Company's consolidated subsidiaries Shanghai Fujik Seisen Co., Ltd., Shanghai New Fujik Seisen Co., Ltd., Shanghai Fujik Trading Co., Ltd., and Shanghai F拓線 Trading Co., Ltd. suspended operations during the lockdown, resulting in lower revenue.」

「In the industries related to our Group, domestic apparel consumption showed signs of recovery, although unevenly. Production nevertheless remained cautious, and orders for sewing thread remained sluggish both in Japan and overseas in the handicraft-related field, partly due to the reversal of the increase in orders in the same period of the previous year.」

「In the closely related apparel and fashion industries, domestic apparel consumption remained weak because of requests to refrain from going out and sluggish consumer sentiment. Amid uncertainty over the outlook, production of apparel for Japan both domestically and overseas recovered unevenly, and orders for apparel sewing thread remained challenging overall.」

「During the cumulative first quarter of the current consolidated fiscal year, Japan's economy again entered a situation in which the outlook was difficult to forecast as the resurgence of COVID-19 led to the issuance of priority preventive measures and states of emergency in various regions.」

「COVID-19 continued to create an uncertain outlook, with priority preventive measures and a third state of emergency declared in various areas from April 2021 onward. Orders for industrial sewing thread, which had declined during the current consolidated fiscal year, were not expected to recover for the time being either in Japan or overseas. Orders for household sewing thread, which had remained elevated because of stay-at-home demand, were also trending lower. As a result, the business environment in the next consolidated fiscal year was expected to be even more challenging than in the current consolidated fiscal year.」

「During the cumulative third quarter of the current consolidated fiscal year, the number of COVID-19 cases, which had been declining, began to rise again from the previous autumn. In December, the government's Go To Travel Campaign and other initiatives were suspended, restaurants and other establishments were asked to shorten their hours, particularly in major metropolitan areas, and renewed requests were made to refrain from nonessential outings. As a result, uncertainty about the outlook rapidly increased again amid concerns about the collapse of the healthcare system.」

「In the apparel and fashion industries, with which the Group has close ties, weaker consumer sentiment and changes in purchasing preferences continued, further intensifying the trend toward reduced production of apparel for Japan both domestically and overseas. The Group's orders for its core industrial sewing thread became increasingly challenging. Meanwhile, demand for home-based handicrafts, driven by requests to refrain from going out and other factors, remained firm, and orders for household sewing thread used in handicrafts remained at elevated levels.」

「At our Group as well, the trend toward reduced production of apparel for the Japanese market that had continued since last winter intensified further. In China, business activity was severely constrained by the extension of the Lunar New Year holiday and travel restrictions, causing industrial sewing thread orders and production conditions to deteriorate both in Japan and overseas. Meanwhile, in Japan's handicraft-related industry, orders for household sewing thread surged as shortages of disposable masks and voluntary restraints on going out prompted increased demand for handmade masks and similar products. The impact of the spread of COVID-19 was substantial, resulting in unprecedented market conditions.」

「The unprecedented global spread of COVID-19 had a severe impact on the global economy, and domestic economic indicators and business sentiment also fell sharply. As the outlook remained uncertain, it was impossible to foresee further damage to the economy or prolonged aftereffects. Within the Group, orders for household sewing thread were temporarily trending higher because disposable masks were in short supply and demand for handicrafts increased as people refrained from going out. In the apparel business, however, production was expected to remain on a downward trend for an extended period because stores were closed and consumer sentiment had weakened. If these conditions continue, they may affect the Group's financial position and operating results.」