Risk of fluctuations in economic conditions, weather and procurement prices in electricity sales

「株式会社ホープエナジー (hereinafter, “ホープエナジー”), which operated the energy business that had had a significant impact on our group’s operating results, filed a petition for commencement of bankruptcy proceedings on 25 March 2022, and a commencement order was issued on the same date. Accordingly, we have withdrawn from that business.」

「On 25 March 2022, we filed a petition for commencement of bankruptcy proceedings, and a commencement order was issued on the same date. Accordingly, our group decided to withdraw from the energy business.」

「However, because Japan Electric Power Exchange market prices have continued since October 2021 at levels higher than we initially expected, and because settlement terms have not been acceptable to our group, it has become difficult to secure through individual bilateral transactions the volume of power procurement assumed in our risk management policy.」

「However, because Japan Electric Power Exchange market prices have continued since October 2021 at levels higher than we initially expected, and because settlement terms have not been acceptable to our group, it has become difficult to secure through individual bilateral transactions the volume of power procurement assumed in our risk management policy.」

「The surge in JEPX market prices from mid-December 2020 through late January 2021 represented the materialization of this risk, affecting the operating results of our group, and may continue to do so in the future.」

「As a result, our electricity procurement prices were also materially affected, and an insufficient imbalance charge of approximately ¥6.5 billion including tax was incurred for January 2021. We recorded a substantial operating loss in the third quarter.」

「During the cumulative second-quarter period, electricity trading prices on the Japan Electric Power Exchange (JEPX) continued to surge from mid-December 2020. We believe this unprecedented surge resulted from multiple successive factors affecting the electricity supply environment, including increased electricity demand due to an unexpected cold wave, insufficient inventories of liquefied natural gas (LNG), which accounts for much of the fuel used for power generation, increased LNG purchases by countries in East Asia, equipment failures in gas-producing countries, and delays in customs clearance at the Panama Canal caused by the spread of COVID-19. This had a significant impact on our operating results.」

「As a short- to medium-term strategy toward achieving this objective, in addition to continuing the existing growth strategy centered on winning contracts through bidding, we are addressing the risk of fluctuations in electricity procurement prices by appropriately combining electricity procurement through individual bilateral transactions at fixed prices with procurement at market prices in the wholesale market.」

「In the current fiscal year, in addition to the increase in sales volume, wholesale electricity market prices continued to decline as supply-demand imbalances persisted, partly due to the effects of COVID-19. As a result, cost of sales decreased and segment profit substantially exceeded that of the previous fiscal year.」

「Because the volume of electricity traded is affected by economic conditions and weather, including extremely hot or cold weather, the business is subject to seasonal fluctuations in quarterly results.」

「During the cumulative second-quarter period, no new business or other risks arose. In addition, there were no significant changes to the business and other risks described in the securities report for the previous fiscal year.」

「During the cumulative first-quarter period, no new business or other risks arose. In addition, there were no significant changes to the business and other risks described in the securities report for the previous fiscal year.」

「The electricity retail market may be affected by economic conditions and weather, including extremely hot or cold weather, which may cause fluctuations in the volume of electricity traded. It is also exposed to price volatility in the wholesale electricity market due to increases in electricity procurement prices and fuel prices, as well as supply-demand imbalances.」

「During the cumulative third-quarter period, no new business or other risks arose. In addition, there were no significant changes to the business and other risks described in the securities report for the previous fiscal year.」

「During the cumulative second-quarter period, no new business or other risks arose. In addition, there were no significant changes to the business and other risks described in the securities report for the previous fiscal year.」

「During the cumulative first-quarter period, no new business or other risks arose. In addition, there were no significant changes to the business and other risks described in the securities report for the previous fiscal year.」

「The electricity retail market we entered in the current fiscal year may be affected by economic conditions and weather, including extremely hot or cold weather, which may cause fluctuations in the volume of electricity traded. We are also exposed to price volatility in the wholesale electricity market due to increases in electricity procurement prices and fuel prices, as well as supply-demand imbalances. These factors may affect our financial position and operating results.」