91福利

The following are the key questions and answers from the Financial Results Briefing for the Fiscal Year Ended March 31, 2022.

About the FYE 3/'22 results and the FYE 3/' 23 forecasts

On page 6, in the "Factors for the changes in operating income (vs. FYE 3/'22 forecast)", how much of the favorable turnaround in consolidated subsidiaries is attributable to the SPC (special purpose company) in the Miyagi Prefecture Public-Private Partnership Management Project for Integrated Water Supply, Industrial Waterworks, and Sewerage (hereinafter referred to as the Miyagi Project) as well as to the overseas business?

In the forecast for the FYE 3/'22 announced on October 27, 2021, the upfront costs for the Miyagi project were estimated at 1 billion yen. However, the actual amount improved by 0.3 billion yen. In the overseas business, North America improved by about 0.2 billion yen, while other areas were down 0.2 billion yen.

What is the breakdown of operating income forecast of 9.3 billion yen for the FYE 3/'22, by segment?

The Plant Engineering business accounts for 45% and the Service Solutions business for 55%.

Under the current circumstances, fuel and material prices have been rising significantly. Given that your company is fabless and also engages in O&M, should there be concern about cost inflation and other risks?

While the prices of aluminum, SUS, and other steel-related materials have risen by less than 1%, we have already factored these costs into our forecast for FYE 3/'23. We are more concerned about delivery and shipping delays than costs, which we intend to offset by accelerating the design process and procuring parts through bulk purchases.

You mentioned that steel prices are rising. What percentage of the overall construction cost is the cost of steel in the plant constructions?

It varies depending on the type of work, and ranges from below 1% to 5%.

Are there any concerns that the budgetary trends of local governments will become more severe, and that this will affect the environment for orders from your company in the future?

We feel that the budgets at local governments are ceasing to fall quite a bit, and we expect the current fiscal year's budget to be at the same level as the previous fiscal year. Although there are negative factors such as Covid, we believe that there will be a gradual support such as the supplementary budget for national land resilience measures by the Ministry of Land, Infrastructure, Transport and Tourism.

Please tell us about demand trends overseas (North America and Europe).

In North America, shipments tended to be pushed back a little due to the difficulty in securing parts and materials under the influence of Covid. Demand was on a downward trend, but orders received have been favorable due to the sales efforts of each firm. The same is true for Europe, where the supply chain has been disrupted, but this has been factored into the budget.

About "Medium-Term Business Plan 2023, ESG Initiatives, and Others

Sales of 145 billion yen in the final year of the "Medium-Term Business Plan 2023" (FYE 3/'24) will be lower than the 149 billion yen in the previous year (FYE 3/'23) - any reason for the decline?
Also, what is the probability of achieving the operating income target (10.5 billion yen for FYE 3/'24)?

As for the sales target for FYE 3/'24, please consider it as a reference given that it is necessary to accumulate detailed estimates based on the client's budget trend, related construction status, and our engineering process.
Regarding the operating income target of 10.5 billion yen, however, we are determined to achieve it by any means necessary. As I explained on slide pg. 20, the ratio of low gross margin projects is declining, and complaint-handling expenses and additional costs are also decreasing, so we are quite confident about our operating income forecast of 9.3 billion yen for FYE 3/'23.

Now that the Miyagi project has started, do you see any other similar projects underway?

We believe that it will take about 4 to 5 years for the Miyagi Project to be recognized by the people of the prefecture as "working well," and the surrounding municipalities will evaluate whether to use concession or comprehensive outsourcing in about 2 years, based on " advantages" and " points to be improved" and other factors. We do not expect to see much change at this point.

Regarding your overseas business, would you consider expanding into the Middle East, where oil money can be expected?

In the Middle East, there is a demand for potable water, and we believe there is an opportunity. Unfortunately, for seawater desalination, the major methods are evaporation and RO membranes, and although we have tried to introduce our ceramic membrane technology to the market several times in the past, we believe it is difficult at the present.　As for our priorities in overseas business, we are targeting the U.S., where it is tends to be easier to expand our products, and Europe, where environmental regulations are strict.

On page 29, "Materiality Case Study - Reduction of Greenhouse Gas Emissions" - what is your company's advantage in achieving its goals?

Generally, burning sewage sludge at higher temperatures reduces larger amounts of N2O, but this consumes more energy than necessary. Our thermal operation-related products and systems, such as multi-layer combustion that utilize our machine-electric integration technology, have the advantage of reducing both energy consumption and N2O by optimally controlling the air volume according to the combustion temperature range. We believe that we can achieve our reduction target through solid marketing efforts at existing machine sites.

I assume that M&As are necessary to achieve the sales of 200 billion yen, which was set as the long-term vision (FYE 3/'28). Please tell us about the situation.

We are thinking of overseas rather than domestic markets. Without a sales network, it is difficult to sell products overseas even if they are high-quality products, customized to local specifications. Therefore, M&A is necessary to ensure sales growth in the future, even if it costs a little goodwill.
In terms of scale, organic growth will bring sales to 160 billion yen, and the remaining 40 billion yen will come from M&A. We hope to identify this during the next five to six years.