91福利

The following is a summary of the main questions and answers from the briefing on the financial results for the fiscal year ended March 31, 2024 and the "Mid-Term Business Plan 2027" held on April 24, 2024.

Financial Results for FYE 3/'24

The graph on page 21 of the handout about the consolidated orders received (3-year average) shows a significant increase over the past 5 years. Though you mentioned that the government's budget for capital improvement has not increased; could it be that your company's domestic market share has been growing?

According to the government released documents, the national budget for water supply and sewerage projects is on an increasing trend resulting from the addition of disaster recovery-related budgets, but we do not see an increase in the budget for facility improvements that are related to our business. In recent years, orders have been placed in some cases to include related tasks such as fee collection and planning, which have traditionally been handled by local governments, due to the decline in the number of municipal engineers and staff involved in water and wastewater services. This has led to an increase in the size of projects. Due to the lack of data statistics on these sections, it is difficult to comment, but in a broad sense, I believe that our market share is increasing.

Net sales for the FYE 3/'24 were approximately 10bn yen higher than the plan, presumably a large contribution to profits. On the other hand, on page 5 of the material, it is stated that "0.3bn yen from sales increase and cost reduction". What was the background to this?

The impact of yen depreciation and low gross margin on ongoing sales, together with increased labor costs and M&A investigation expenses, as noted in the document, were also recorded. Unfortunately, no M&A transactions were concluded, and we regard this as a future task.

Wouldn't the 400mn yen for M&A investigation expenses be a "+" factor in the FYE 3/'25 forecast?

M&A investigation expenses were only for the FYE 3/'24 and will not be incurred in the FYE 3/'25, so we did not include them.

What are the details of the large increase in SG&A expenses in the 4Q, other than M&A investigation expenses? Is it correct to say that SG&A expenses will continue to be heavy, especially in the 1H of the FYE 3/'25?

A large portion of the increase in SG&A expenses in the 4Q was due to labor costs and a small increase in IT-related expenses and other items. We also expect labor and depreciation expenses to have an impact regardless of quarters.

Mid-Term Business Plan 2027

Orders have been high, and I believe that the lead time until the posting of sales tends to lengthen due to the impact of larger orders and longer delivery times. Can we expect to achieve the 200bn yen in net sales set forth in the "Mid-Term Business Plan 2027" in the middle of the period of the plan, or in the latter half? Also, how long do you think the gap between orders and sales will continue?

Sales are taking a longer duration due to projects becoming larger in size and other factors. We assume that 200bn yen target will not be achieved ahead of schedule, considering the budget situation of our clients and the engineering process of the entire project, among other factors to forecast net sales. As for the gap between orders and sales, we believe the situation will continue.

I believe one of your company's strengths has been the concept of " integration of mechanical and electrical" since its establishment. I think that the environmental engineering business ("EE business") and the system solution business ("SS business") are divided into "mechanical" and "electrical" segments. How should we regard it?

After 15 years of establishment, the company has entered a maturing stage, and the integration of "mechanical" and "electrical" services has been functioning well. On the other hand, "mechanical" and "electrical" orders are often placed separately. In order to maximize value, we have focused on proposing and building an optimal LCC (EPC + Maintenance) using data linkage, starting from services such as maintenance and repair. In the operation business, we believe that a new " mechanical and electrical integration" from the operation perspective will work by collaborating with the EE and SS businesses. In the recent trend of water PPP, we decided that it would be the right time to change in view of the 20th anniversary of the company's establishment.

What are some of the factors that have increased the competitiveness to win orders by implementing the engineering system on page 14 of the handout?

For one thing, designers can use common engineering tools for process design, basic engineering, and digital engineering so that they can streamline their designs and minimize inefficiency during on-site implementation. This is done to shorten the construction period by shortening the process and designing units that are suitable for the site. In addition, the use of data facilitates efficient operations, inspections, maintenance, and repairs.

Using this system, will there be little difference between the estimates at the time of design and the actual results when construction is completed?

The idea is that while a certain amount of contingency funds were considered at the time of design, it actually didn't have to be used (= cost reduction progressed).

Are there any assumptions for the target of 13bn yen in operating income and 6.5% operating margin for the FYE 3/'28, which is the final year of the "Mid-Term Management Plan 2027", that there will be some upfront costs and additional costs as there are in the current term?

The backlog of orders currently exceeds 270bn yen, so we expect net sales to exceed 190bn yen organically. We believe that we can achieve our operating income target through engineering reforms and other streamlining measures.

The cash allocation in the "Financial Policies to Support the Business" on page 29 of the handout shows a return to shareholders of 20bn yen over 4 years, which would be 5bn yen per year. Is it correct that the current dividend payment expenditure is about 2bn yen annually and the payout ratio is 30-40%, meaning that the difference will be used for share repurchases?

The Company's policy is to acquire treasury stock flexibly while monitoring the situation.

I believe that at the end of last year, the Tokyo Stock Exchange (TSE) requested that Quasi-Controlled Listed Companies enhance disclosure of information regarding the protection of minority shareholders and group management. What kind of response does your company plan to take?

We plan to disclose this information in our corporate governance report and other documents.
＊In the "Matters Concerning Controlling Shareholders, etc." disclosed at the end of the Ordinary General Meeting of Shareholders held in June each year, we disclose "the Company's position in the corporate group of the parent company, etc. and other relationships between the Company and the parent company, etc.". We intend to reflect this in our Corporate Governance Report as well.