Main Questions and Answers at the Financial Results Briefing for the Second Quarter of the Fiscal Year Ending March 31, 2021
The following are the key questions and answers from the financial results meeting held on October 28, 2020.
Impact of COVID-19
It was explained that due to the spread of COVID-19, sales and profits in the overseas business fell below the previous year's levels - Could you give us the specific details?
Due to shipment delays in overseas transactions, sales and earnings declined slightly in the second quarter. This does not mean that the sales were lost, and we do not anticipate a problem for the full year.
Would the spread of the new coronavirus pose a risk of infection to employees, and could sales and service activities be affected?
The Group employees involved in the design and construction, operation, maintenance, management, and operation of water and sewage systems and recycling facilities may be exposed to the risk of contracting the novel coronavirus. Therefore, our head office backs the employees at the site by providing them with masks, screens, alcohol disinfectant and other necessary items to ensure thorough prevention of infection.
Regarding the impact on the Group's business, we have been conducting on-site hearings and there has been no significant impact so far. We are grateful to our customers for their efforts.
Orders received were strong, exceeding the previous fiscal year's results by 7.8 billion yen. What are the prospects for achieving the annual plan of 140 billion yen with respect to the profitability of orders, the order environment, competition, and other factors?
We have received orders as a result of our focus on proposals to our customers and their approval. We manage the profitability of projects in detail and have been able to secure the expected gross profit at the order stage.
Regarding the competitive environment, we are relatively well positioned. Moving forward, we will continue to introduce new products and secure our superiority.
Will orders continue to exceed sales in the coming periods?
We are accelerating our development in anticipation of the future. Together with the development of new business, we intend to expand incoming orders. We anticipate major environmental changes ahead, but we have no negative view of it.
Do you see any changes to domestic water and sewage policies from the government? Can we expect to see increased investment in construction and increased sales over the next two to three years as the Olympic-related construction is completed?
The government is pushing ahead with its IT policy, including the creation of the Digital Agency. We have accumulated expertise in asset management and wide-area monitoring services through the Water Business Cloud (WBC), and we expect that a new stage will arrive where such services will be the focus of attention.
On the other hand, it is difficult to predict the construction investment in relation to the overall government budget.
In view of the impact of the new coronavirus, there were a number of cases in which the opinions of the governors of each prefecture were strongly reflected; we will continue to monitor how well the local governments will formulate and implement their visions.
Full-year earnings forecast revision
Please explain the upward revision to the full-year earnings forecast and the sale of shares contributed to the retirement benefit trust that led to the upward revision.
Reducing volatility of the pension funds has been on the agenda for some time.
As these shares were classified as deemed equity holdings, it was also necessary from the perspective of complying with the Corporate Governance Code. We have determined that the time has come to resolve this issue and have decided to sell the shares.
Next Medium-Term Management Plan
We have learnt that the company has a good prospect of achieving the goals of the "Medium-Term Management Plan 2020". When will the next medium-term management plan be announced as well as the plan's duration and focus points?
As a long-term vision, we are aiming for sales of 200 billion yen in fiscal year 2027 (ending March 2028), the 20th anniversary of our founding. Basically, the next medium-term management plan will be the second stage of our business expansion toward fiscal year 2027.
Regarding the period of the plan, since it takes five years to receive and sell a major project, three years is a short time frame; however, there are also concerns that five years will put us halfway through the fiscal year 2027.
We would like to consider various factors in a comprehensive manner.
Assuming that operating income for the fiscal year ending March 31, 2021 is 10.5 billion yen, as announced today, would you be confident that the next medium-term management plan will see profits from the core business exceed this figure?
Or should the starting point be the 9.1 billion yen in operating income from the core business?
We suggest that 9.1 billion yen is the starting point.
We believe, as we roll out a series of measures currently under consideration, it will naturally bring us closer to the fiscal year 2027 target, and we recognize that 10.5 billion yen should come in sight as part of the process.
What is the business outlook for CPCM (Container Packaged Ceramic Mobile)?
Customers have responded that it is an interesting initiative and that they would consider using it.
First, we need to have them use the system in large cities so that they can experience the advantages of it.
In addition, taking into account the leasing cost, the total cost of installation, electricity and chemicals, etc., will require an additional 30 yen per person per month*. (*for a water supply of 30L/capita to 20K people)
Once the above conditions are met, we expect to be able to expand it eventually.
Reading the Annual Report (METAWATER Report 2020), the ESG materiality does not seem to have been identified or disclosed.
The important themes are listed under " METAWATER Group's ESG activities" on page 38 of the integration report, and it was pointed out that specific KPIs have not been set. We can set goals, for example, to go paperless or reduce office energy consumption, but what we really need to do is to create products and systems that contribute to the environment.
Forced targets may lead to distorted results, so we would like to find a solution by tackling them in a straightforward manner.
Is there a goal to address climate change, for example, to make the business carbon neutral in the future?
Although we do not have specific targets at this point, there are some urgent issues related to climate change that are closely linked to our company, such as wind, flood, and other major disasters. While meeting these urgent matters, we also intend to provide solutions to important subjects such as CO2 reduction and ocean plastic issues.
Please tell us how you plan to use the own shares you bought back last year.
Due to the Coronavirus outbreak, the future situation is difficult to read; we would like to keep monitoring the situation a little longer.