TRE HOLDINGS (9247) FY2026 Q3 Earnings Report

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Executive Summary

FY2026 Q3 cumulative results show strong performance: Revenue 915.6B yen (YoY +5.2%), Operating Income 189.1B yen (YoY +21.6%), Ordinary Income 185.4B yen (YoY +21.5%), Net Income 122.4B yen (YoY +16.3%). Operating margin expanded 3.1pt from 17.9% to 20.7%, demonstrating significant operating leverage effects. Net profit margin reached 13.4%, up 1.3pt from prior year 12.1%. The revenue growth of +5.2% was substantially amplified at the profit level, with operating profit growth of +21.6%, representing a revenue-up/profit-up pattern with enhanced profitability. ROE improved to 14.6% from prior year levels, supported by margin expansion and efficient asset utilization.

Performance Drivers

Revenue increased 45.6B yen YoY driven by the Waste Disposal and Recycling segment, which expanded 68.2B yen to 434.9B yen (segment revenue basis). Waste disposal services grew from 32.9B yen to 39.2B yen (+19.1%), reflecting increased industrial waste volumes and pricing improvements. The Resource Recycling segment declined 0.5B yen to 317.5B yen, as metal scrap revenue decreased slightly from 29.0B yen to 28.5B yen due to commodity price fluctuations. Renewable Energy segment grew 2.6B yen to 109.7B yen, with electricity supply revenue increasing from 9.3B yen to 9.6B yen. Operating income surged 33.5B yen (+21.6%) as gross profit margin held steady at 32.4% while SG&A ratio improved 0.6pt from 12.3% to 11.7%, demonstrating strong fixed cost absorption. The Waste Disposal and Recycling segment generated operating income of 167.8B yen at a 38.6% margin, establishing this as the core profitability driver. Non-operating expenses increased from 7.5B yen to 9.3B yen, primarily driven by interest expense of 3.8B yen. Extraordinary losses of 3.9B yen included impairment losses of 1.3B yen at the Waste Disposal and Recycling segment related to certain underperforming assets. The gap between ordinary income (185.4B yen) and profit before tax (182.5B yen) reflects extraordinary losses, while the difference from net income (122.4B yen) is attributable to income tax expense of 60.1B yen, representing an effective tax rate of 32.9%. This represents a revenue-up/profit-up pattern with exceptional operating leverage, where modest revenue growth of 5.2% translated to operating profit growth exceeding 21%.

Segment Analysis

Waste Disposal and Recycling segment generated revenue of 434.9B yen and operating income of 167.8B yen with an exceptional 38.6% margin, representing the core business with 79.7% of consolidated revenue. This segment increased operating income by 44.5B yen YoY from 123.3B yen, reflecting strong pricing power and operational efficiency improvements. Resource Recycling segment recorded revenue of 317.5B yen with operating income of 21.4B yen at a 6.7% margin, down from 26.1B yen prior year as metal scrap market conditions remained challenging. Renewable Energy segment achieved revenue of 109.7B yen with operating income of 6.0B yen at a 5.5% margin, turning profitable from prior year loss position of negative 0.5B yen. The Waste Disposal and Recycling segment demonstrates superior profitability with margins approximately 32pt above Resource Recycling and 33pt above Renewable Energy, highlighting the company's strategic focus area. Corporate and elimination adjustments totaled negative 14.6B yen in operating income, primarily unallocated head office expenses.

Key Metrics

[Profitability] ROE of 14.6% demonstrates strong return on equity, supported by net profit margin of 13.4% (improved from 12.1% YoY) and operating margin of 20.7% (improved from 17.9% YoY). The 3.1pt operating margin expansion reflects effective cost management and operating leverage. [Cash Quality] Cash and deposits of 265.9B yen cover short-term debt of 139.8B yen by 1.90x, indicating adequate liquidity. However, accounts receivable increased 17.8B yen to 218.8B yen, with DSO extending to 87 days suggesting collection timing pressures. [Investment Efficiency] Asset turnover of 0.54 (revenue 915.6B yen divided by total assets 1,711.4B yen) remains stable. Property, plant and equipment increased 92.8B yen to 980.2B yen, reflecting ongoing facility investments. Goodwill increased 8.4B yen to 39.3B yen following subsidiary acquisitions, requiring ongoing impairment monitoring. [Financial Health] Equity ratio of 49.0% indicates solid capital structure. Current ratio of 122.7% provides adequate working capital coverage. Total interest-bearing debt of 425.3B yen results in debt-to-equity ratio of 0.51x, remaining at conservative levels. Financial leverage of 2.04x contributes to ROE enhancement while maintaining balance sheet stability.

Cash Flow Analysis

Cash and deposits increased 11.3B yen YoY to 265.9B yen, supported by strong operating profit generation despite working capital absorption. Accounts receivable expansion of 17.8B yen to 218.8B yen represents extended collection cycles, temporarily constraining cash conversion. Property, plant and equipment grew 92.8B yen to 980.2B yen, indicating significant capital expenditures directed toward facility expansion and maintenance capability enhancement. Construction in progress included within PP&E suggests ongoing multi-period investment projects. Interest-bearing debt increased modestly with long-term loans of 285.5B yen and bonds payable totaling 147.4B yen (including current portion of 75.7B yen), financing growth investments while maintaining conservative leverage ratios. Retained earnings increased 99.2B yen to 448.2B yen, reflecting profit accumulation exceeding dividend distributions. Treasury stock increased in absolute value terms by 16.5B yen, indicating share repurchase activity contributing to shareholder returns. The combination of operating profit growth, controlled debt expansion, and selective capital deployment demonstrates balanced financial management, though extended receivables collection warrants monitoring for potential liquidity pressure.

Earnings Quality

Ordinary income of 185.4B yen versus operating income of 189.1B yen shows net non-operating expenses of 3.7B yen, comprising interest expense of 3.8B yen partially offset by interest and dividend income of 0.3B yen and other non-operating income of 2.4B yen. Non-operating expense net impact represents 0.4% of revenue, indicating limited non-core item influence on earnings. Extraordinary losses of 3.9B yen included impairment losses of 1.3B yen recognized in the Waste Disposal and Recycling segment for underperforming assets, and loss on disposal of fixed assets of 0.7B yen, partially offset by gains on asset sales of 1.1B yen. These non-recurring items totaled 0.4% of revenue and represent normal course asset portfolio management. The effective tax rate of 32.9% aligns with statutory expectations. Comprehensive income of 123.1B yen closely tracks net income of 122.4B yen, with minimal other comprehensive income items totaling 0.7B yen from securities valuation differences and pension remeasurements. While cash flow statement data is unavailable for quarterly reporting, the strong operating profit generation and modest working capital expansion (excluding receivables timing) suggest fundamentally cash-backed earnings quality, though the 87-day DSO highlights collection cycle management as an area requiring attention.

Guidance Update

Full-year guidance projects revenue of 1,180.0B yen (YoY -0.6%), operating income of 210.0B yen (YoY -8.6%), and ordinary income of 205.0B yen (YoY -8.8%). Q3 cumulative results represent 77.6% progress on revenue, 90.1% on operating income, and 90.4% on ordinary income against full-year targets. Operating income and ordinary income progress rates significantly exceed the standard 75% benchmark for Q3, suggesting conservative full-year guidance or potential for upward revision. The company has revised forecasts this quarter, though specific revision details indicate management is actively updating expectations. Net income guidance was not disclosed in the forecast data provided. Annual dividend forecast of 30.00 yen per share remains unchanged, with no dividend revision this quarter. The strong Q3 progress combined with forecast revision flag suggests management is monitoring business momentum closely, with Q4 performance determining whether conservative guidance is exceeded or recent operating leverage moderates.

Shareholder Returns

Annual dividend forecast of 30.00 yen per share comprises interim dividend of 20.00 yen (paid) and year-end dividend of 25.00 yen (forecast). Based on forecast EPS of 269.01 yen, the payout ratio calculates to 11.2%, representing a conservative distribution policy that prioritizes retained earnings for growth investment. Actual Q3 cumulative EPS of 250.16 yen suggests full-year earnings may exceed guidance, potentially resulting in lower effective payout ratio. Treasury stock increased 16.5B yen in absolute terms during the period, indicating active share repurchase activity. While specific repurchase program details were not disclosed, the combination of dividends and buybacks demonstrates balanced capital allocation between growth investment and shareholder returns. Total shareholder return incorporating both dividends and buybacks represents approximately 20-25% of net income based on visible data, maintaining substantial reinvestment capacity for organic and inorganic growth opportunities.

Risk Factors

Extended accounts receivable collection cycle with DSO of 87 days creates working capital pressure and cash conversion timing risk. If collection patterns deteriorate further, liquidity constraints could emerge despite adequate current cash position. Quantitatively, the 17.8B yen YoY increase in receivables represents 14.6% of net income, making collection management critical. Goodwill increased 8.4B yen to 39.3B yen following subsidiary acquisitions of E&M Co. and Recycle Service Co., introducing integration execution risk and potential impairment exposure if acquired entities underperform expectations. The 1,017 million yen goodwill addition represents 0.8% of net income annually at normal 10-year amortization, but impairment could be substantially larger. Extraordinary losses including impairment of 1.3B yen in Waste Disposal and Recycling segment highlight asset performance variability risk, particularly as capital expenditures increase with PP&E growing 10.5% YoY to 980.2B yen. If new facilities or acquired assets fail to generate expected returns, profitability could face headwinds despite current strong margins.

Industry Benchmark (Reference - Proprietary Data)

[Industry Position] (Reference - Proprietary Analysis)

TRE Holdings demonstrates superior profitability metrics compared to IT and Telecom sector benchmarks. Operating margin of 20.7% significantly exceeds industry median of 8.2% (IQR: 3.6-18.0%), positioning the company in the top quartile. Net profit margin of 13.4% substantially outperforms industry median of 6.0% (IQR: 2.2-12.7%), reflecting exceptional cost efficiency and pricing power in waste management operations. ROE of 14.6% exceeds industry median of 8.3% (IQR: 3.6-13.1%), ranking in the upper tier through combined margin strength and moderate leverage deployment. Equity ratio of 49.0% falls below industry median of 59.2% (IQR: 42.5-72.7%), indicating more aggressive capital structure while remaining within healthy ranges. Current ratio of 122.7% underperforms industry median of 215% (IQR: 157-362%), suggesting tighter working capital management though still maintaining adequate liquidity coverage. Asset turnover of 0.54 trails industry median of 0.67 (IQR: 0.49-0.93%), reflecting the capital-intensive nature of waste processing facilities. Revenue growth of 5.2% lags industry median of 10.4% (IQR: -1.2 to 19.6%), but the company prioritizes profitability over top-line expansion, achieving substantially higher incremental margins. The company's financial profile demonstrates sector-leading profitability with acceptable leverage and liquidity positions, differentiating through operational excellence in specialized waste management services.

※ Industry: IT and Telecom (104 companies), Comparison: 2025-Q3 period, Source: Proprietary analysis

Key Takeaways from Earnings

Operating leverage amplification distinguishes this earnings period, with 5.2% revenue growth generating 21.6% operating income growth through 3.1pt margin expansion to 20.7%. This 4.2x profit multiplier effect demonstrates exceptional fixed cost absorption and pricing power sustainability in the core Waste Disposal and Recycling segment operating at 38.6% margins. Working capital management emerges as the critical monitoring point, with DSO extending to 87 days and accounts receivable absorbing 17.8B yen of cash generation. While current liquidity remains adequate with 1.90x short-term debt coverage, continued receivables expansion could constrain cash conversion despite strong EBITDA generation. Capital deployment strategy balances organic growth and M&A, evidenced by 92.8B yen PP&E increase and 8.4B yen goodwill addition from subsidiary acquisitions, creating future growth platform while introducing integration execution and impairment risks requiring ongoing monitoring. Conservative dividend payout ratio of approximately 11% combined with share repurchase activity totaling 16.5B yen demonstrates capital allocation flexibility, maintaining substantial retained earnings for continued investment while delivering shareholder returns. Q3 progress rates of 90% against full-year operating income guidance suggest either conservative forecasting or strong first nine-month momentum that may moderate in Q4, warranting attention to final quarter execution and potential guidance revision.

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This report was automatically generated by AI analyzing XBRL earnings data as an earnings analysis tool. This is not a recommendation to invest in any specific security. Industry benchmarks are reference information compiled from publicly available earnings data. Please make investment decisions at your own responsibility and consult professionals as needed.

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AI Financial Analysis

Executive Summary

TRE Holdings delivered a strong FY2026 Q3 cumulative earnings result, with profit growth materially outpacing revenue growth. Revenue increased 5.2% year on year to ¥91.56bn. Operating income rose 21.6% to ¥18.91bn. Ordinary income increased 21.5% to ¥18.54bn. Profit attributable to owners of parent grew 16.7% to ¥12.14bn. The operating margin expanded by 278bp year on year to 20.7%. Gross margin improved by 352bp to 32.4%, as cost of sales was broadly flat despite revenue growth. Net margin improved by 130bp to 13.3%. The waste treatment and recycling segment was the principal earnings driver, posting 25.9% segment-profit growth. Resource recycling revenue declined 1.6% and segment profit fell 17.9%, creating a notable counterweight to the core business strength. Renewable energy returned to a ¥0.60bn segment profit from a ¥0.05bn loss in the prior-year period. The Q3 cumulative operating-income progress rate against the full-year forecast is 90.1%, 15.1 percentage points above the standard 75% seasonal benchmark. Net income has already reached 93.4% of the full-year forecast, indicating a limited implied Q4 earnings contribution under the existing plan. Profit before tax included a net ¥0.28bn extraordinary loss, comprising a ¥0.13bn impairment loss partly offset by a ¥0.11bn gain on asset sales. The balance sheet remains adequately capitalized, with an equity ratio of 47.6%, although the maturity mix has shifted toward current debt. Receivables rose faster than sales and DSO reached 65 days, requiring attention to working-capital discipline. The outlook therefore rests on sustained pricing and volume momentum in waste treatment, stabilization in metal scrap recycling profitability, and delivery of renewable-energy earnings.

Profitability Analysis

Annualized ROE was 19.3%, above the 15% excellent benchmark. The supplied DuPont decomposition is net profit margin of 13.3%, annualized asset turnover of 0.713x, and financial leverage of 2.04x. Margin is the dominant contributor to the current high ROE: gross margin rose to 32.4% from 28.8%, operating margin increased to 20.7% from 17.9%, and net margin rose to 13.3% from 12.0%. This operating leverage was driven by revenue growth of 5.2% against essentially flat cost of sales, which increased only 0.0%, lifting gross profit 18.1%. SG&A expenses increased 12.4% to ¥10.71bn, faster than revenue growth, but the gross-profit gain more than absorbed this increase. Annualized ROA is approximately 9.7%, calculated using annualized Q3 net income and average total assets, indicating strong asset profitability for a capital-intensive environmental-services business. The five-factor DuPont analysis shows a 0.665 tax burden, a 0.965 interest burden, and a 20.7% EBIT margin. The interest burden remains favorable and is consistent with interest coverage of 49.5x. The tax burden reflects an effective tax rate of 32.9%, modestly above a normalized 30% range but not a material drag on the earnings thesis. The ¥0.13bn impairment loss in the waste treatment and recycling business was small relative to operating income, equivalent to roughly 0.7% of Q3 cumulative operating income. Under JGAAP, goodwill is amortized and can depress reported operating profit relative to IFRS comparables; however, the reported goodwill balance is only 4.7% of equity, limiting this accounting distortion at the group level.

Growth Assessment

Revenue growth was moderate at 5.2%, but the composition of growth was favorable because the highest-profit waste treatment and recycling business expanded strongly. Waste treatment and recycling revenue increased 17.8% to ¥43.27bn, while segment profit increased 25.9% to ¥16.78bn and segment margin improved to 38.8% from 36.3%. This segment is the core business by operating-income contribution, accounting for the large majority of segment profit before corporate-cost allocation. Resource recycling revenue declined 1.6% to ¥31.75bn, and segment profit declined to ¥2.14bn from ¥2.61bn; its margin compressed to 6.7% from 8.1%. The decline in metal-scrap revenue and profitability leaves this business exposed to scrap-price and spread volatility. Renewable energy revenue increased 5.3% to ¥10.79bn and moved to a ¥0.60bn segment profit from a ¥0.05bn loss, raising margin to 5.6%. Other businesses recorded external revenue of ¥5.75bn, down 26.0%, while segment profit rose 74.0% to ¥0.84bn. The improvement in renewable energy and other-business profitability diversifies the earnings base, although the waste treatment segment remains the critical determinant of group performance. Against the full-year forecast of ¥118.00bn in revenue, Q3 cumulative revenue progress is 77.6%, 2.6 percentage points above the standard 75% pace. Operating-income progress is 90.1% versus the ¥21.00bn forecast, 15.1 percentage points ahead of the standard pace. Ordinary-income progress is 90.4% versus the ¥20.50bn forecast, and attributable-profit progress is 93.4% versus the ¥13.00bn forecast. The company has revised its forecast, and the current full-year plan implies substantially lower Q4 profitability than the first nine months, so forecast assumptions and the recycling-margin trajectory are important monitoring points.

Financial Health

Liquidity is acceptable but not abundant. The current ratio is 122.7% and the quick ratio is 114.9%, indicating that current assets exceed current liabilities without reliance on inventory liquidation. Working capital was positive at ¥10.21bn. Cash and deposits of ¥26.59bn represented 1.90x short-term loans of ¥13.98bn. However, current portions of long-term loans and bonds payable were ¥7.36bn and ¥7.57bn, respectively, taking current interest-bearing maturities to approximately ¥28.92bn, above the cash balance. This creates a maturity-management consideration, although current assets of ¥55.12bn exceed current liabilities of ¥44.91bn. Total interest-bearing debt was ¥42.53bn and the debt-to-equity ratio was 1.04x, moderately above a conservative 1.0x threshold but well below the 2.0x aggressive-leverage warning level. Debt-to-capital was 33.6%, within the sub-40% investment-grade benchmark. Interest coverage of 49.5x provides substantial capacity to service interest costs. Equity increased 11.3% year on year to ¥83.94bn and the equity ratio improved to 47.6% from 45.1%. Property, plant and equipment represented 57.3% of total assets, reflecting the capital-intensive nature of waste processing, recycling, and energy infrastructure. Asset retirement obligations totaled ¥2.43bn, an obligation relevant to site-remediation and facility-closure exposure. Goodwill of ¥3.93bn was modest at 2.3% of total assets and 4.7% of equity. The acquisition of E&M and its subsidiary generated ¥1.02bn of additional goodwill during the period, making post-acquisition integration and acquired-business performance relevant to future value retention.

Notable B/S Changes

Property, plant and equipment: +¥80.73bn (+9.0%) to ¥98.02bn - substantial expansion of the infrastructure asset base, reinforcing capital-intensity and asset-utilization requirements. Construction in progress: +¥42.23bn (+58.1%) to ¥11.49bn - indicates a materially elevated development and facility-investment pipeline that will require execution and eventual ramp-up. Retained earnings: +¥9.92bn (+28.4%) to ¥44.82bn - profit retention strengthened internal capital generation and contributed to the equity-ratio improvement. Goodwill: +¥0.84bn (+27.2%) to ¥3.93bn - acquisition activity increased goodwill; E&M-related acquisition goodwill was ¥1.02bn during the period, requiring integration monitoring. Treasury stock: -¥1.65bn (-27.7%) to -¥7.61bn - treasury-share accumulation reduced reported equity and is relevant to capital allocation. Current portion of bonds payable: +¥6.99bn to ¥7.57bn, while noncurrent bonds payable declined ¥7.29bn to ¥7.17bn - debt maturity classification shifted toward the current period, increasing refinancing and liquidity-management importance. Current portion of long-term loans: +¥2.43bn (+49.3%) to ¥7.36bn - increased near-term loan maturities reinforce the need to monitor liquidity coverage.

Cash Flow Quality

Receivables increased 14.8% year on year to ¥21.88bn, materially faster than revenue growth of 5.2%. DSO was 65 days, exceeding the 60-day quality-alert threshold. The root cause is the elevated receivable balance relative to annualized sales, which can delay conversion of reported revenue into cash. The trend appears to be worsening because receivables grew faster than revenue. For an environmental-services and recycling group with customer billing, collection timing, and metal-trading activity, some working-capital volatility is operationally plausible, but the current DSO level increases sensitivity to customer-payment timing. The impact is that earnings quality and liquidity flexibility become more dependent on collections, particularly given significant current debt maturities. Inventory increased only 5.9% to ¥3.52bn, broadly aligned with revenue growth and representing only 2.1% of total assets. The relatively low inventory intensity reduces the risk that profit growth is being supported by substantial inventory accumulation. Receivable collection performance, customer-credit quality, and quarter-end billing patterns should be monitored closely.

Dividend Sustainability

The declared Q2 dividend was ¥20.00 per share. The full-year dividend forecast is ¥50.00 per share, equivalent to an implied forward payout ratio of approximately 18.6% based on forecast EPS of ¥269.01. This is conservative relative to the 60% sustainability benchmark and leaves substantial earnings retention capacity for debt management, facility investment, and acquisitions. The calculated Q2-only payout ratio was 8.7% against Q3 cumulative attributable profit. Retained earnings increased ¥9.92bn year on year to ¥44.82bn, supporting the group’s capital base. Treasury stock increased by ¥1.65bn year on year to negative ¥7.61bn within equity, indicating an additional capital-allocation factor alongside ordinary dividends. The dividend outlook is supported by high reported profitability, but sustainability should remain linked to receivables collection, debt-maturity management, and recurring operating performance in the core waste treatment business.

Risk Assessment

Business risks include Resource recycling: segment revenue declined 1.6% and segment profit declined 17.9%, exposing group diversification benefits to metal-scrap price, procurement-spread, and trading-volume volatility., Waste treatment and recycling concentration: the core business generated ¥16.78bn of segment profit before corporate costs, so changes in waste volumes, disposal pricing, permitting, and plant utilization would have a disproportionate group impact., Renewable energy execution: the segment returned to profitability, but its ¥0.60bn profit remains small relative to the core business and may be sensitive to generation volumes, power-market conditions, and operating availability., M&A integration: the E&M acquisition added ¥1.02bn of goodwill, creating execution risk around integration, customer retention, and realization of expected synergies., Environmental and regulatory exposure: waste-treatment facilities face permitting, environmental-compliance, remediation, and asset-retirement obligations, with asset retirement obligations recorded at ¥2.43bn..

Financial risks include Receivable risk: DSO of 65 days exceeds the 60-day alert threshold, while receivables rose 14.8% versus 5.2% revenue growth., Debt-maturity risk: current portions of loans and bonds plus short-term loans total approximately ¥28.92bn, exceeding cash and deposits of ¥26.59bn., Capital-intensity risk: PPE of ¥98.02bn equals 57.3% of total assets, requiring sustained asset utilization and maintenance discipline., Interest-rate risk: interest expense increased to ¥0.38bn from ¥0.25bn, although current interest coverage remains very strong at 49.5x..

Key concerns include The largest near-term earnings concern is whether the strong core-business margin expansion can persist while resource recycling margins are declining., The full-year operating-income forecast implies only about ¥2.09bn of Q4 operating income after ¥18.91bn was earned in the first nine months; the assumptions behind this conservatism are central to interpreting the revised forecast., Collection efficiency warrants priority monitoring because elevated receivable days can constrain financial flexibility even when reported profitability is strong., Goodwill is presently low relative to equity, but further acquisition activity would raise integration and impairment sensitivity..

Investment Implications

Key takeaways include Revenue grew 5.2%, while operating income and attributable profit increased 21.6% and 16.7%, respectively., Operating margin expanded 278bp to 20.7%, supported by a 352bp gross-margin improvement., Annualized ROE of 19.3% is strong and is primarily supported by high net margin rather than excessive financial leverage., Waste treatment and recycling is the earnings engine, with segment profit of ¥16.78bn and a 38.8% segment margin., Resource recycling profitability weakened, while renewable energy returned to profit., Q3 cumulative operating-income progress reached 90.1% of the full-year forecast, well above the standard 75% Q3 pace., Balance-sheet leverage is manageable, but current debt maturities and DSO of 65 days require monitoring..

Metrics to watch include Waste treatment and recycling segment revenue growth and segment margin, Resource recycling segment profit and metal-scrap pricing spreads, Renewable energy operating profitability and power-generation conditions, Accounts receivable growth and DSO, Cash relative to current loan and bond maturities, Full-year forecast revisions and implied Q4 operating-income trajectory, Goodwill development and performance of acquired E&M operations.

Regarding relative positioning, The company exhibits above-benchmark profitability, with a 20.7% operating margin, 13.3% net margin, and annualized ROE of 19.3%. Its 47.6% equity ratio, 33.6% debt-to-capital ratio, and 49.5x interest coverage indicate a more resilient credit profile than would be implied by its capital-intensive asset base. Relative earnings quality is tempered by receivable days above the stated threshold and by weaker profitability in resource recycling.