Main Questions and Answers at the Briefing on Financial Results for the Fiscal Year Ended March 2021 and "Midterm Business Plan 2023"
The following are the key questions and answers from the briefing on the financial results for the fiscal year ended March 31, 2021 and the "Midterm Business Plan 2023" held on April 27, 2021.
What is your projection for achieving the sales target of 140 billion yen in the final fiscal year (FYE 3/'24) of the Midterm Business Plan 2023?
In FYE 3/'21, both orders received and order backlogs posted new record highs. We view that the target for FYE 3/'24 is achievable because sales growth based on the order backlogs can be expected.
I understand that the water business emits CO2 in the process of water treatment. Please tell us about your Company's decarbonization efforts?
Taking incinerators for example, biosolids have low thermal calories, making energy creation difficult. Recently, however, by combining sewage sludge with a dewatering device, it has become possible to create energy by using the thermal energy generated when the biosolids are incinerated. In addition, although conventionally heavy oil has been used as the fuel for combustion, we are also conducting researches such as switching this fuel to ammonia.
President Nakamura is scheduled to retire as of the ordinary general meeting of shareholders in June. Please indicate just one matter that the President has left unfinished and wishes to have the new President Yamaguchi take over.
The Company launched Water Business Cloud (WBC) and has been working to implement IT in the water infrastructure industry. For example, establishing a remote network environment will help those who have not been able to be in the field to participate in society. We view that this will lead to resolving major social issues, such as offering a sense of security for workplaces that suffer from labor shortages.
I would like to step out of our METAWATER framework a little and contribute to improving the quality of social infrastructure by utilizing information and communications technology (ICT) throughout Japan's water infrastructure industry.
President Nakamura has been making efforts to accumulate data using WBC.
I would like to utilize these pieces of data to make concrete proposals that will greatly contribute to our customers and citizens. The water environment business is expected to grow steadily in spite of a population decline and other issues.
In the future, performance orders (DB: Design Build, DBO: Design Build Operate) rather than specification orders will increase more and more. To prepare for a shortage of engineers in the future, the Company will invest in the recruitment and education of human resources for the next two to three years and build a system to respond to performance orders. I will follow the intentions of President Nakamura and steadily implement Midterm Business Plan 2023.
When do you expect the Kumamoto Ariake/Yatsushiro industrial waterworks operation project and the Miyagi-Prefecture public-partnership management project to start contributing to sales and profits?
The Kumamoto Ariake/Yatsushiro industrial waterworks operation project is expected to record sales and profits from this fiscal year. The Miyagi-Prefecture public-private partnership management project is not included in the plan since we have just been selected as a priority negotiator at this time.
In the overseas business in which M&As are pursued, what is the contribution to profits excluding goodwill?
In FYE 3/'21, our overseas business posted sales of approximately 15 billion yen and secured an operating income margin of about 10% to 11% on the basis of excluding goodwill.
Under Midterm Business Plan 2023, we anticipate recording an operating income margin of approximately 6%, including goodwill, due in part to the impact of COVID-19. The average amortization period of goodwill is 15 years.
I understand that it is difficult to achieve sales of 200 billion yen in FYE 3/'28 through organic means excluding M&As. To what extent are you considering M&As? Also, what is the scale of overseas sales at that time?
We envisage recording sales of about 160 billion yen from organic growth and about 40 billion yen from M&As. Overseas sales are expected to range from 30 billion yen to 50 billion yen (including M&As).
Which product do you think is the bestseller among the number-one products developed under Midterm Business Plan 2020?
The most recommended product is the "final filter" which is a system in which a filtration cassette that has twice the level of treatment capacity as that of conventional models is installed in the final sedimentation tank of wastewater treatment afterwards. Because treatment can be performed without accumulating sanitary wastewater, the energy required for treatment is greatly reduced, and this system is expected to also contribute to carbon neutrality. In addition, the filtration cassette can also be manufactured at the plant, which helps to shorten the construction period. Furthermore, by installing the filtration cassette together with the high-speed filtration part of the primary sedimentation tank, it is possible to make the sewage treatment plant compact, making it ideal for the downsizing of sewage treatment plants.
My favorite is the "high-grade water purification ceramic membrane system." This system combines ozone technology and ceramic membrane technology. By adding ozone and flocculation pretreatment, we have managed to achieve a ceramic membrane flux of 6 to 7 meters, which is three times the capacity of conventional fluxes. This compact and low-cost system is suitable for accommodating demand for upgrading the existing sand filtration equipment.
How do you envision your operating and investing cash flows over the next three years?
We expect operating cash flow to be between 5 billion yen and 6 billion yen each year, and investing cash flow to be between 10 billion yen and 12 billion yen, including large investments and development investments, over the next three years.
How would you like to use the cash?
We will carefully consider a favorable balance among dividends, growth investments and retained earnings.
On page 20 of the briefing outline document, there was a discussion on the Cyber Physical System (CPS). Could you elaborate on this?
Various types of data are collected and simulated by CPS, and the final form of a plant, system or other facilities is illustrated to be utilized for design, manufacture and construction. Checking the data on the CPS enables us to make persuasive proposals to customers