91福利

The following are the key questions and answers from the briefing on the Financial Results Briefing for the Second Quarter of the Fiscal Year Ending March 31, 2022.

Revision of full-year earnings forecast for the fiscal year ending March 2022, and revision of "Midterm Business Plan 2023" targets

Does the revised target for Midterm Business Plan 2023 (fiscal year ending March 2024) reflect only the consolidation of the SPC for the Miyagi Prefecture Public-Private Partnership Management Project for Integrated Water Supply, Industrial Waterworks, and Sewerage, or does it also reflect the review of other projects?

Most of the impact is attributable to the new consolidation of SPC.
As for the performance of the SPC, there will be fluctuations, but we estimate that sales of 5-6 bn yen and the Operating profit margin at the same level as our company.

Operating income of 8.5 bn yen (excluding the impact of SPC) in the full-year forecast is a decrease of 0.6 bn yen from the previous year, but given that the 1H results were a loss of 3.2 bn yen (+0.2 bn y-o-y); isn't there some room for improvement in the 2H?

As explained on pg 21 of today's presentation material, "Composition of Sales for FYE 3/'22 (non-consolidated)," 85-90% of the annual sales plan (non-consolidated) consists of orders received at the end of the previous FY and up to the 2Q, so the sales forecast for the current FY (non-consolidated) is more or less predictable at this point. Regarding expenses, the rise in personnel expenses as explained at the beginning of the term has been factored into the 2H.
Therefore, we believe that the revised forecast is firm as long as no unexpected accidents or complaint charges arise.

I forecast that METAWATER's operating income for the FYE 3/'23 will be 9 bn yen.
Today' s revision of the forecast for the FYE 3/'24, which is the final year of the "Midterm Business Plan 2023", from 10 bn yen to 10.5 bn yen will result in an increase of 1.5 bn yen compared to 9 bn yen.

As for the forecast for the FYE 3/'23, we plan to finalize the details in January and February next year, and while it is not easy to comment on the details, we envision a rising trend toward 10.5 bn yen in the FYE 3/'24.
We will gradually clarify the forecast as the process of orders becomes more predictable, but at this point, we believe that 10.5 bn yen for FYE 3/'24 is not an unachievable figure.

What should we expect in terms of sales and profits for the FYE 3/'23 for the SPC related to the Miyagi Prefecture Public-Private Partnership Management Project for Integrated Water Supply, Industrial Waterworks, and Sewerage (hereinafter referred to as the "Project")?

Estimations for the FYE 3/'23 have not yet been made, but we expect to secure the same operating profit margin as our company on sales of 5-6 bn yen. Only the FYE 3/'22 will be a loss.

What will be the measure of the success of this Project?

We believe that our success lies in maintaining the water quality and gaining the understanding of the residents.　After three, four, or five years, when the locals, newspapers, and the assembly say, "You're doing a great job," I think we can say that we have gained their trust.
I apologize for the extremely qualitative way of putting this, but this is my honest feeling.

I believe the Project still has to be approved by the Ministry of Health, Labor and Welfare in the future; is there any risk of delay?

We expect to receive approval from the Ministry of Health, Labor and Welfare and conclude the implementation contract in early December at the latest.

Others

Since President Yamaguchi assumed the presidency, have you seen any changes in the internal or external landscape or impressions you have of the company?

First, since becoming president, I have had more opportunities to meet with investors. Nowadays, people talk about ESG and "Triple-win(*)", but I have come to believe that we need to include investors in this concept and make it a "Quadruple-win".
I would like to realize these goals not by focusing on one of them, but by firmly rooting them in our business. To add more about the "S" word, the construction industry used to be called the "3K"(**) industry, but from now on it will be the new 3K: "Kyuryou (salary)," "kyuka (vacation)," and "Kibou (hope). We must break away from the labor-intensive business by making full use of systems, such as new ways of working using data and simulating in cyber-physical space to eradicate design errors and on-site construction errors. I think it will be interesting and challenging to find the answers.

(*) Triple-win ("Sanpo Yoshi") is a Japanese business philosophy, in which the buyer, the seller and the society all win
(**) Traditional "3K" in Japanese is known as the 3Ds in English (dirty, dangerous, and demeaning)

Is there any risk of slowing down the growth of the domestic water and sewage infrastructure market due to climate change, politics, or local government behavior?
I also hope that the success of the Miyagi Prefecture Public-Private Partnership Management Project for Integrated Water Supply, Industrial Waterworks, and Sewerage, for which you have been selected as the preferred bidder, will set the future trend for the water and sewage industry; could you tell us your thoughts on this?

We were concerned that the budget for the facility renewal of water supply and sewerage systems would become tighter as many municipalities were experiencing exhaustion due to the Covid-19, but the project was executed almost exactly as requested. The current EPC market in Japan has not changed much, but we are striving to receive as many orders as possible in the form of DB or DBO for work that has been carried out by local governments beyond their budgets.
The Miyagi Prefecture Public-Private Partnership Management Project for Integrated Water Supply, Industrial Waterworks, and Sewerage has been the subject of opposition from local residents, as well as heated debate among local governments, and has required considerable preparation and burden.
Therefore, for some time, we expect an increase in the number of projects that are not concessions, but rather conventional DBOs or comprehensive consignments that include planning and decision-making work. There may be a slight deviation from the timeline you are expecting, but I believe it is important to execute the project steadily, step by step.

Why is the retirement of treasury stock being done at this time?

In December 2019, we conducted a stock repurchase through tender offer, and have held approximately 16% of the outstanding shares to be used for strategic investments. We have determined that this is the best time to use the funds, as we can determine the use and needs of the funds, including the Miyagi Prefecture Public-Private Partnership Management Project for Integrated Water Supply, Industrial Waterworks, and Sewerage.
The remainder of approximately 9% is still under consideration for use as a strategic investment.