Disruption to economic activity, production and supply chains caused by COVID-19

「If factory facilities or other assets are affected by unforeseen events such as earthquakes, tsunamis, fires or the spread of infectious diseases, disrupting our production system, this could affect the operating results and financial position of our group.」

「In China, the impact of COVID-19 has subsided, and the restrictions on total financing for real estate developers, commonly known as the Three Red Lines, have effectively been abolished, but」

「During the third-quarter cumulative consolidated period (January to September), at the beginning of the year we expected an economic recovery and an improvement in real estate market conditions following the complete lifting of the zero-COVID policy. However, the effects of the zero-COVID policy and the former restrictions on total financing for real estate developers (the Three Red Lines) have been substantial, and conditions remain difficult.」

「Although the previous Chinese government policies of total financing restrictions for property developers, known as the Three Red Lines, and the zero-COVID policy had ended, the impact of both policies remained significant, and the economy and property market in China remained in a difficult situation despite expectations for an economic recovery.」

「In China, the zero-COVID policy, which had been in place for approximately 3 years to thoroughly contain the spread of COVID-19, ended. Although this led the company to expect an economic recovery and improvement in the property market, the side effects of the prolonged policy had a direct impact on corporate earnings, while employment conditions deteriorated further and the unemployment rate among young workers aged 16 to 24 reached a record high of 20.8%.」

「During the first half of the year in China (January to June), the business environment remained such that more than 50% of activities could not be carried out. In the second half (July to December), strict disease-control measures remained in place in areas where sporadic infections continued even after the prolonged lockdowns in the first half, and the economy remained sluggish due to the effects of the protracted zero-COVID policy.」

「In China, during the third quarter, from January to September, the zero-COVID policy continued even after the extended Lunar New Year holiday and prolonged lockdowns across China from late March to early June 2022. Both the movement of people and logistics stagnated, continuing to significantly affect factory operations. The company also struggled amid factory shutdowns and disruptions to logistics.」

「In China, during the second quarter (January-June), the long Lunar New Year holiday had been factored in, but COVID-19 infections became frequent across the country from the latter half of January. In particular, the area around Shanghai in southern China was subject to a prolonged lockdown through the end of May, and the shutdown of the movement of people and logistics significantly affected not only delays in residential construction but also operations at factories that were major production bases for raw materials. COVID-19 infections continued to occur frequently in various parts of China after June.」

「In China, during the first quarter (January-March), in addition to the annual Lunar New Year holiday (24 January to 9 February), COVID-19 infections began to increase gradually in March. In particular, a citywide lockdown was imposed in Shanghai on 27 March, shutting down all movement of people and logistics. Many of the Group's key raw-material suppliers for adhesives and surface materials are located in eastern China, and the disruption to supply chains affected not only the Kunshan plant but also the Qingdao and Yichun plants.」

「From around July, China imposed strict travel restrictions under its “zero-COVID” policy. In addition, as the government tightened financial regulations to curb the real estate bubble, the debt crisis among major property developers came to the surface, leaving some in serious difficulty. In December, some cities, including Tianjin and Xi'an, were placed under lockdown. Although the Company has a substantial order backlog, it will continue to pursue sales activities cautiously.」

「In China, COVID-19 infections remained sporadic from around January, and although travel restrictions remained in place, market conditions improved significantly.」

「In addition, the global spread of COVID-19 caused disruption to production activities and supply chains. Some of the Group's production sites also experienced temporary shutdowns, but they are currently operating normally. However, the COVID-19 pandemic has not yet been fully contained. The situation remains uncertain with regard to a possible further spread of infections, and it is difficult at this point to forecast the impact on business results.」

「In China, during the first quarter (January-March), in addition to the Lunar New Year holiday from the latter half of January, COVID-19 forced the factories to remain in a state close to closure through the end of March. In the second quarter (April-June), the factories reopened, but all operated under significant restrictions, including daily temperature checks, mask distribution, and 2-week quarantines and activity-history checks for people returning from other regions.」

「In China, during the first quarter (January-March), in addition to the long Lunar New Year holiday that began on 18 January, factory closures continued through the end of March due to the impact of COVID-19. In terms of sales, restrictions on travel between provinces, the non-arrival of construction materials and parts at construction sites, and workers' failure to return to the sites frequently delayed the resumption of construction work. The impact of COVID-19 continued into the second quarter (April-June), but by the latter half of April the factories had returned to normal operations and most construction sites had reopened. However, from May to June, flooding occurred in various locations, particularly in the southwest, due to heavy rain, resulting in construction work being suspended and products being unable to ship. After the effects of the flooding subsided, all factories have been operating at full capacity.」

「Although conditions varied somewhat by province due to the COVID-19 pandemic, factory reopenings were subject to a suspension period through 10 February. Even thereafter, daily temperature checks, mask distribution and mandatory 2-week quarantines for people returning from other regions were required, and none of the factories reached full-scale operations in February. In terms of sales, restrictions on travel between provinces, along with the failure of workers to return to construction sites and the non-arrival of construction materials and parts, frequently delayed the resumption of construction work.」

「The global spread of COVID-19 caused disruption to production activities and supply chains. Some of the Group's production sites also experienced temporary shutdowns, but they are currently operating normally. However, the COVID-19 pandemic has not yet been fully contained. The situation remains uncertain with regard to a possible further spread of infections, and it is difficult at this point to forecast the impact on business performance.」