Key Questions and Answers at Press Conference and Briefing for Fiscal Year Ended March 2019
The following is a summary of key questions and answers at the press conference and earnings briefing held on April 25, 2019.
What was the ratio of overseas sales in consolidated net sales for the fiscal year ended March 2019? What is your plan for the fiscal year ending March 2020?
The ratio of overseas sales was about 10%. The majority of overseas sales came from Aqua-Aerobic Systems, Inc. (AAS) and others were mainly from ODA-related business. We expect no major changes for the fiscal year ending March 2020.
How are you going to roll out the BCP method (tentative name) in the future?
The BCP method (tentative name) is intended to support the Public-Private Partnership (PPP) business and we are making preparations in time for full-scale launch of PPP. We will brush up the three center concept that supports the BCP method (tentative name) under the Medium-Term Business Plan 2020.
Investor and Analyst Briefing
Based on the earnings forecast for the fiscal year ending March 2020 announced today (operating profit of 8.0 billion yen), what is the probability of achieving operating profit of 9.0 billion yen, the target for the fiscal year ending March 2021 set out in the Medium-Term Business Plan 2020?
Given the gradual recovery of earning power in the Plant Engineering Business and Service Solution Business, we believe it feasible to achieve operating profit of 9.0 billion yen at the moment as set out in the Medium-Term Business Plan 2020.
Despite increases in cash on hand and a prediction that free cash flows will remain relatively strong, you kept the dividend forecast at 62 yen. How are you going to use the cash?We plan on implementing M&A both in Japan and abroad with the goal of generating net sales of 200 billion yen in 10 years.While we kept the dividend forecast at 62 yen, we will carefully consider dividend increases if our business performance remains positive.
In line with the amendment of the Water Supply Act, competition is expected to intensify in the areas of PPP and concession. Will you be able to maintain the current policy to secure projects’ average gross profit margin of 30%?
I have the impression that the number of large-scale projects, mainly PPP, is on the rise. Are there changes in the market trend?
The market trend has not changed drastically. In some years we receive a large number of orders for PPP projects, while in other years we don’t. Increases in orders for PPP projects are expected to reduce fluctuations.
What is the breakdown of forecast of fiscal 2019 for orders received, net sales, and operating profit by segment?
The Plant Engineering Business has forecasted orders received of about 70.0 billion yen, net sales of slightly over 70.0 billion yen, and operating profit of slightly over 3.0 billion yen. The Service Solution Business has forecasted orders received of about 50.0 billion yen, net sales of slightly over 50.0 billion yen, and operating profit of slightly below 5.0 billion yen.
While net sales are expected to increase sharply in the plant engineering business in the fiscal year ending March 2020, an increase in operating profit remains slight. Is it affected by the impact of some of the large-scale projects producing low gross profits as was explained earlier?Yes.
In “Operating profit growth factors and contraction factors (vs. actual performance level for fiscal year ended March 2019)” (P.25 on “Outline of Financial Results for the Fiscal Year Ended March 2019), decline in profit due to the impact of some of the large-scale projects with low gross profit of 1.0 billion yen and SG&A expenses increase of 500 million yen are stated as “Under review.” Does this mean that the operating profit forecast of 8.0 billion yen for the fiscal year ending March 2020 may improve or deteriorate?We will carefully review our construction progress forecasts for projects for which orders have been received, and announce the operating profit forecast for fiscal year ending March 2020 when releasing financial results for the second quarter of fiscal 2019.
In order to accelerate measures against aging facilities and wider area management, increasing water charges seems necessary.
Price increases are occurring for electric power charges and others. If one region moves to increase water charges, this prompts momentum for further price hikes.
In the waterworks business, price differences are noticeable according to region due to differences in the quality of raw water and the population served. Since there are regions that require large-scale replacement while others need small-scale replacement, it is not feasible to treat them together.
It is important to devise creative ways such as setting priorities for replacement depending on the situation in each region. We are determined to engage in work with a solid policy, such as how to provide care in the event of serious disasters, how many days should be spent on recovery, and what kinds of facilities are needed to make that happen.