We are pleased to inform you that METAWATER has formulated the Medium-Term Business Plan 2020, which is a medium-term business plan covering the three years through the fiscal year ending March 2021.

1. Background and Objectives of the Formulation of Medium-Term Business Plan 2020

In Japan's water and sewage market, while it is becoming apparent that local governments operating water and sewage businesses face declining revenues and a shortage of engineers against the backdrop of a population decrease, there is an urgent need to implement measures for aging facilities and equipment developed during the era of rapid economic growth, as well as measures for large earthquakes and localized downpours, or so-called "guerrilla rainstorms."
As part of these measures, the Act on Promotion of Private Finance Initiative (hereinafter referred to as the "PFI Act") was enforced in 1999, and Public Private Partnerships (hereinafter referred to as the "PPP") using private funds, technologies, and expertise have been facilitated. As a result of partial amendments to the PFI Act in 2011 and government policies, the use of private companies and the expansion of areas involving private companies in water and sewage businesses are expected to further accelerate.
In overseas water and sewage markets, on the other hand, there are calls to take measures for aging facilities and equipment, tighter environmental regulations, and the occurrence of disasters, mainly in the US and Europe, as well as on-going development of water and sewage infrastructure in other regions. Globalization, with water and sewage infrastructure technology and expertise in Japan deployed worldwide, will make a further progress with support from Japan's central and local governments.

In May 2015, the Group developed a medium-term business plan that ends in the fiscal year ended March 2018 (hereinafter referred to as the "Previous Medium-Term Business Plan"), with the basic policy of continuing sustainable growth together with society as the first water, environment, and infrastructure company listed in the "Electric Power & Gas" industrial classification of the Tokyo Stock Exchange. The Group has been reinforcing its EPC*1 and O&M*2 segments in Japan, which form our core field, in an effort to expand the PPP *3 segment and overseas businesses, which are positioned as our growth field.
As a result, although numerical targets were not achieved, mainly due to an increase in long-term projects, delays in the timing of revenue recognition caused by labor shortages in civil engineering and construction works, and the fact that no M&A has taken place, consolidated orders and the consolidated order backlog for the fiscal year ended March 2018 hit a record high due to increases in orders for PPP projects and the acquisition of a US engineering company, which became a subsidiary. The Group has made progress in building the foundations for medium- to long-term growth.
Based on the status of the water and sewage businesses in Japan and overseas, and the achievements and the challenges carried over from the Previous Medium-Term Business Plan, the Group defined what we should be 10 years from now as a long-term vision taking an opportunity of the 10th anniversary of it establishment. The Medium-Term Business Plan 2020 was developed as the first stage to solidify the corporate structure that will make the long-term vision a reality.

Long-Term Vision and Outline of Medium-Term Business Plan 2020

(1) Long-Term Vision

The Group aspires to become a corporate group that is trusted by its consortium (joint venture) partners, meets the expectations of local governments, and is sought out by society to maintain the sustainability of its water and environmental infrastructure. To that end, the Group meets face-to-face with local communities, accepting their issues and challenges as a one-stop provider of services, and aims to become a water and environment business operation company that continues contributing to business solutions with its people, technologies and information. As a result, the Group will achieve consolidated sales of 200 billion yen and an overseas sales ratio of 20% within ten years, which is our long-term vision.

(2) Outline of Medium-Term Business Plan 2020

Based on the achievements and the challenges carried over from the Previous Medium-Term Business Plan, the Group positions the Medium-Term Business Plan 2020 as the first stage in enhancing the corporate structure that will make its long-term vision a reality.

Labor shortages affecting civil engineering and construction works are a continuing concern. However, as the order backlog of long-term projects begins to contribute to revenue in and after the fiscal year ending March 2019 and completions of highly profitable projects increase, the Group's earnings are expected to recover.
Over the next ten years, significant environmental changes are expected such as a further increase of long-term projects centering on comprehensive projects and the emergence of projects for wider area management including a concession system*4. Anticipating such market changes and solidifying the corporate structure that will make its long-term vision a reality, the Group will add "strategic development investment" to existing development investment, and invest a total of 7-8 billion yen over three business years, which is equivalent to a 40% increase from the amount under the Previous Medium-Term Business Plan.
Furthermore, under the Medium-Term Business Plan 2020, the Group will pursue steady growth of the O&M segment in Japan, a stock-type business as well as reinforce the EPC segment in Japan by taking advantage of renewal demand. Besides, with a regional strategy and a partnership strategy based on past achievements, the Group will endeavor to expand the size and business domains of the PPP segment in Japan and the overseas business as growth fields.
In addition, the Group will actively engage not only in social contribution through business activities that are highly beneficial to the environment, but also in reducing environmental burdens, as well as activities that contribute to local communities, in order to achieve the Sustainable Development Goals (SDGs) advocated by the United Nations. Concerning corporate governance, since the closing of the Ordinary Meeting of Shareholders held in 2017, the Group has had nine directors including five outside directors; three of the outside directors are independent officers. In addition, the Group will strive to achieve a highly dependable and transparent management through active dialogs with each stakeholder, as well as work on improving the efficiency of the management system, while strengthening it.

Business Targets of Medium-Term Business Plan 2020

Business targets (on a consolidated basis) of the Medium-Term Business Plan 2020, including costs associated with the "strategic development investment," are compared to the results of the Previous Medium-Term Business Plan as follows.

	Fiscal year ended March 2018 (Actual) (Billion yen)	Fiscal year ending March 2019 (Forecast) (Announced on April 25) (Billion yen)	Fiscal year ending March 2021 (Target) (Billion yen)
Orders	131.6	120.0	140.0
Net sales	110.9	120.0	128.0
Operating profit	6.7	7.0	9.0
Net income	3.9	4.7	6.2
ROE	7.3%	−	10.0% or more

* Figures for the fiscal year ending March 2019 and the fiscal year ending March 2021 do not include the effects of M&As if they are carried out.

Business Targets of Medium-Term Business Plan 2020

(1) Strategic Development Investment

The Group, adding strategic development investment to its existing development investment, will invest a total of 7-8 billion yen over three business years in product development, solution development, and new business development, which are necessary for medium- to long-term growth. Specific themes are as follows.

• Promote an economy-of-scale management system that responds to needs for further comprehensive and wider area water and sewage services
• Reduce construction costs, improve maintenance and management efficiency, and improve safety by employing advanced technologies, including AI and ICT
• Develop groups of number-one products (water droplet-type products (water droplets collect other droplets to make a large pool): products with exceptional characteristics) and new businesses
• Create value-added through Work Style Reforms led by the Japanese government

(2) Business Strategy

Continuing from the Previous Medium-Term Business Plan, the Group will reinforce and expand its businesses, taking the EPC and O&M segments as the core fields and the PPP and overseas business as growth fields. Specific themes are as follows.

Strengthening Core Fields

1) EPC segment

• Ensure progress of construction work of the backlog projects (PFI^*6 / DBO^*7)
• Expand the business scope and implement scale-of-economy management
• Enhance the capacity to make technological proposals for medium- to long-term growth and consortium management capability

Overseas business

• Expand business in North America centering on Aqua-Aerobic Systems, Inc., a US subsidiary
• Reinforce business in Europe with a partnership strategy
• Promote globalization toward medium- to long-term growth

(3) Continuous ESG Activities

The Group will actively promote environmentally beneficial activities and social contribution activities, and reinforce corporate governance. Specific themes are as follows.

• Promote environmental contributions through reducing environmental burdens and group's businesses
• Improve and expand environmental education and local contribution activities
• Work on BCM^*8 and improve the effectiveness of BCP^*9
• Further improve and reinforce the management system
• Facilitate active dialogs with each stakeholder

4. Basic Policy for Profit Distribution

The Company's basic policy is to return profits to shareholders consistently in accordance with its business performance, while maintaining the necessary internal reserves for sustaining growth and responding to changes in the business environment.
The Company, in principle, distributes dividends of surplus twice a year, as interim and year-end dividends.

[Notes]

• EPC: Design and construction of facilities and equipment
• O&M: Maintenance and operation of facilities and equipment
• PPP: A concept called Public Private Partnership that refers broadly to methods by which the private sector is involved in the provision of public services in an attempt to improve the efficiency and the quality of public services using private funds, technologies, expertise, and management capabilities
• Concession system: Concession system: A method where the ownership of public facilities is not transferred, but operating rights for public facilities are granted to private companies for long periods
• DB: A method to make good use of the private sector in the design, construction, maintenance, and operation of public infrastructure, as well as the fund-raising needed for those activities
• DBO: A method to use the private sector for the design, construction, maintenance, and operation of public facilities.
• BCM: Business Continuity Management
• BCP: Business Continuity Plan