External Environmental Risks Including Weak Domestic Industrial Production and Weak Recycled Fuel and Lead Prices

「During the interim consolidated accounting period, the Japanese economy maintained a gradual recovery and positive growth, supported by increased demand related to AI and semiconductors, improving employment and income conditions, and expanded capital investment. However, uncertainty has persisted regarding the outlook due to risks including soaring resource prices amid heightened tensions in the Middle East and foreign exchange market volatility.」

「During the interim consolidated accounting period, domestic industrial production remained sluggish due to inflation caused by higher raw material and labor costs, instability overseas, and the impact of higher tariffs resulting from U.S. trade policy.」

「The operating environment was affected by soaring energy prices, including crude oil, and raw material prices resulting from changes in political conditions, as well as continued inflation. However, social and economic activity showed signs of a gradual recovery due to increased inbound demand resulting from yen depreciation and improvements in employment and income conditions. In addition, as social awareness of environmental issues increased and the global shift toward carbon neutrality gained momentum, social recognition of the Group's recycling-focused treatment methods and recycled fuel continued to strengthen. Regarding the situations involving Ukraine and Russia and the Middle East, the global economy could become unstable and it is difficult to predict the impact at this time, but the company believes there will be no significant impact on its operating environment.」

「During the interim consolidated accounting period, the normalization of social and economic activity progressed as the impact of COVID-19 eased, supported by increased inbound consumption and improved employment and income conditions. However, the outlook remained uncertain due to soaring energy prices, including crude oil, and raw material prices resulting from changes in political conditions, as well as the effects of global monetary tightening and inflation.」

「During the three-month period ended this first quarter, social and economic activity showed signs of a gradual recovery as COVID-19 subsided and inbound demand recovered. However, the outlook remained uncertain due to soaring energy prices, including crude oil, and raw material prices resulting from changes in political conditions, as well as the effects of global monetary tightening and inflation.」

「The operating environment was affected by soaring energy prices, including crude oil, and raw material prices resulting from changes in political conditions, as well as the impact of global monetary tightening and inflation. However, social and economic activity showed signs of a gradual recovery due to the transition of COVID-19 to Category V and improvements in income and employment conditions. Regarding the situations involving Ukraine and Russia and the Middle East, the global economy could become unstable and it is difficult to predict the impact at this time, but the company believes there will be no significant impact on its operating environment.」

「During the nine-month period ended this third quarter, there were no new business or other risks, nor any material changes to the business and other risks described in the securities report for the previous fiscal year. The Group will continue to closely monitor developments in the situation involving Ukraine and Russia and its impact on the Group's business.」

「During the six-month period ended this second quarter, there were no new business or other risks, nor any material changes to the business and other risks described in the securities report for the previous fiscal year. The Group will continue to closely monitor developments in the situation involving Ukraine and Russia and its impact on the Group's business.」

「During the three-month period ended this first quarter, there were no new business or other risks, nor any material changes to the business and other risks described in the securities report for the previous fiscal year. The Group will continue to closely monitor developments in the situation involving Ukraine and Russia and its impact on the Group's business.」

「During the fiscal year, social and economic activity showed signs of recovery as restrictions on activity related to COVID-19 were eased. However, the outlook remained uncertain due to the impact of soaring energy prices, including crude oil, and raw material prices resulting from the prolonged situation involving Ukraine and Russia, as well as foreign exchange fluctuations such as yen depreciation.」

「During the nine-month period ended this third quarter, social and economic activity showed signs of recovery as restrictions on activity related to COVID-19 were eased. However, the outlook remained uncertain due to the resurgence of COVID-19, soaring prices of energy resources such as crude oil and raw materials resulting from the prolonged situation involving Ukraine and Russia, and concerns about foreign exchange fluctuations, including the rapid depreciation of the yen.」

「During the six-month period ended this second quarter, the impact of COVID-19 temporarily eased, but the end of the pandemic remained unforeseeable due to the emergence of a highly infectious new variant. In addition, inflation caused by the rapid depreciation of the yen amid the prolonged situation involving Ukraine and Russia intensified its impact on economic activity, leaving the outlook uncertain.」

「During the three-month period ended this first quarter, the economic outlook remained unpredictable as social and economic activity was restricted due to the prolonged spread of COVID-19, while the situation involving Ukraine and Russia and inflation caused by the rapid depreciation of the yen continued to affect economic conditions.」

「Regarding the situation involving Ukraine and Russia, the global economy could become unstable and it is difficult to predict the impact at this time. However, the company believes that there will be no significant impact on its operating environment.」

「On the other hand, uncertainty about the global outlook continued due to the emergence of new variants. In addition, domestic industrial production, which had been recovering, began to decline from August onward due to the global semiconductor shortage and supply chain disruptions.」

「However, the business environment remained unable to fully recover to pre-COVID conditions due to the postponement of maintenance projects and other work caused by the state of emergency and declining automobile production due to semiconductor shortages.」

「During the three-month period ended this first quarter, social and economic activity remained significantly restricted due to the continuing spread of COVID-19 from the previous year, and uncertainty about the outlook persisted, including the issuance of Japan's third state of emergency in April 2021. However, the global economy gradually began to recover as COVID-19 vaccinations progressed worldwide. As a result, domestic industrial production recovered to a level close to that before the COVID-19 shock, while resource prices, including crude oil and nonferrous metals, which had fallen sharply, began to rise.」

「Despite these economic conditions, the Group's core industrial waste treatment business, primarily involving factory wastewater, gradually recovered its order volumes from the summer onward as domestic industrial production continued to recover after bottoming in May 2020. Crude oil prices, which had plunged at the beginning of the year, also recovered from the summer, bringing renewed stability to the prices of recycled fuel sold by the company. In response to these changes in the external environment, performance began to recover after bottoming in August.」

「Domestic industrial production bottomed in May 2020 and has continued to recover, although the recovery lacks strength. Crude oil prices also plunged at the beginning of the year but have since remained stable at low levels. Prices of recycled fuel sold by the company bottomed in the summer and have remained flat. In response to these changes in the external environment, contracted volumes for industrial waste treatment also bottomed in the summer and have gradually begun to recover, although they remain at a low level.」

「Under these economic conditions, the Group's core industrial waste treatment business, primarily involving factory wastewater, saw a sharp decline in waste generation and order volumes as domestic industrial production fell substantially. Sales volumes of recycled fuel also declined due to lower fuel prices and reduced demand, and prices remained weak. As a result, sales and profits declined.」

「Under these economic conditions, the Group's core industrial waste treatment business, primarily involving factory wastewater, experienced a substantial decline in order volumes as domestic industrial production fell sharply from mid-April onward. The decline in operating rates at customers' factories and in employee attendance also resulted in the postponement or cancellation of maintenance work and other projects. In addition, recycled fuel prices sold by the company fell due to lower crude oil prices, weighing on performance. As a result, for the three-month period ended this first quarter, sales were ¥13,451 million, down 0.7% year on year; operating profit was ¥2,562 million, down 7.3%; ordinary profit was ¥2,682 million, down 4.5%; and quarterly net profit attributable to owners of the parent was ¥1,497 million, down 17.3%.」

「During the fiscal year, the Japanese economy continued to recover moderately against a backdrop of solid corporate performance and employment conditions. However, in the second half, concerns about adverse effects on the Japanese economy and uncertainty about the economic outlook increased as global instability intensified due to trade issues between the United States and China and the United Kingdom's Brexit issue. In addition, from the beginning of 2020, concerns about the real economy rapidly increased worldwide as the novel coronavirus infection spread globally.」

「During the nine-month period ended this third quarter, the Japanese economy became increasingly uncertain as the global economy weakened due in part to expanding trade friction between the United States and China, with signs of weakness emerging in domestic industrial production and exports.」

「During the six-month period ended this second quarter, the Japanese economy lacked strength due to increasing uncertainty in the global economy caused by expanding trade friction between the United States and China and the United Kingdom's Brexit issue, sluggish exports and declining capital investment as signs of an economic slowdown became increasingly pronounced.」

「The lead recycling business, which posted a loss in the previous fiscal year due to a sharp decline in lead prices, secured performance above plan despite lead prices falling by more than 10% from the beginning of the fiscal year, owing to increased production and lower raw material costs.」

「Although the lead recycling business continued to post losses due to falling lead prices, production remained steady. Capacity for increased production from the fourth quarter was in place, and lead prices, which had continued to decline, had become almost flat. Profitability therefore gradually improved, creating conditions in which the business was expected to become profitable from the fourth quarter.」

「During the six-month period ended this second quarter, concerns about the outlook for the global economy emerged due in part to escalating trade friction between the United States and China, but the Japanese economy continued to recover moderately. Against this backdrop, orders for the contracted treatment of industrial waste, primarily factory wastewater, continued to increase steadily, supported by strong domestic industrial production. Recycled fuel selling prices also rose and demand expanded as crude oil prices remained high and the dollar-yen exchange rate stabilized. On the other hand, the soil contamination treatment business operated by Daiseki Environmental Solution Co., Ltd. secured treatment volumes, but profitability deteriorated as order prices declined from the beginning of the year. As conditions remained below plan, the full-year earnings forecast was revised downward. In addition, the lead recycling business recorded a loss due to falling lead prices, while the cleaning business for large tanks and other facilities recorded a loss for the six-month period as completion of projects was expected to be concentrated in the second half.」

「During the three-month period ended this first quarter, uncertainty in the global economy increased due in part to the impact of protectionist policies in the United States, but the Japanese economy continued to recover moderately as corporate earnings and employment improved. Domestic fuel prices remained high against a backdrop of elevated crude oil prices, and prices of recycled fuel and other products sold by the company remained firm.」

「During the fiscal year, the Japanese economy continued to recover as domestic industrial production expanded steadily and corporate performance and employment conditions continued to improve. Domestic resource prices, including crude oil and metals, also showed signs of recovery as international prices recovered and the dollar-yen exchange rate stabilized. At the same time, economic expansion brought labor shortages and rising transportation costs.」

「During the nine-month period ended this third quarter, the Japanese economy continued to show a moderate recovery, with improvement trends in corporate earnings and employment. Resource prices, including crude oil and metals, and the dollar-yen exchange rate also remained stable, while domestic industrial production turned upward. The external environment surrounding the Group therefore remained solid.」

「Under these economic conditions, resource prices, which had continued to decline through the previous fiscal year, stabilized, while the foreign exchange rate also stabilized at a weaker-yen level. As a result, prices of the recycled products manufactured by the Group stabilized, and its market share in its core industrial waste treatment business continued to increase steadily. The Group's performance therefore remained solid.」

「In the company's core business of intermediate treatment and recycling of industrial wastewater, the customer base continued to expand as a result of proactive sales activities, and orders increased as domestic industrial production gradually recovered. In addition, stable crude oil prices and foreign exchange rates caused domestic fuel prices to move relatively steadily after bottoming around the middle of the previous year, and prices of recycled fuel and other products sold by the company turned upward after declining. As a result, the company posted higher sales and higher profits. Similarly, the lead recycling business became profitable as operations at the delayed new plant stabilized and weak domestic lead prices recovered.」

「In the first half of the fiscal year, orders stagnated due to weak domestic industrial production, while the price of recycled fuel manufactured by the company fell sharply because of lower crude oil prices. The company was therefore exposed to a difficult external environment, and performance remained weak. Even under these conditions, it worked to expand its customer base and increase its market share. In addition, as foreign exchange rates and crude oil prices improved in the second half, performance gradually began to recover.」

「However, the outlook for the economy remains uncertain, given the slowdown in economic activity, particularly in emerging economies, as well as the increasing threat of terrorism and growing political instability, especially in Europe. Prices for the recycled fuels and metals manufactured by our Group, which had remained depressed due to falling global resource prices and the appreciation of the yen, have gradually begun to rise in response to the recovery in resource prices. As a result, despite the challenging external environment, our Group’s performance also began to improve and entered a recovery trend.」

「There were signs that domestic resource prices, including petroleum products and metals, which had continued to decline, had bottomed out. Accordingly, selling prices for recycled products were beginning to stabilize. As a result, the recycling business was in a position where performance was expected to recover from the second half onward. On the other hand, although crude oil prices had moved above their early-year lows, they had not risen significantly, and domestic recycled fuel prices therefore remained depressed. Consequently, the external environment continued to be challenging, as in the previous fiscal year. Similarly, the lead recycling business remained under severe pressure as lead prices continued to languish and the yen continued to appreciate.」

「Orders stagnated due to the impact of weak domestic industrial production, resulting in sluggish sales. Although crude oil futures prices rebounded from their lows, the recovery lacked strength. In addition, the continued appreciation of the yen caused domestic recycled fuel prices to remain depressed, leaving us exposed to a challenging external environment, as in the previous fiscal year. Similarly, the lead recycling business remained under severe pressure as the prolonged slump in lead prices continued.」