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Management and Operations Overview

Achieving our long-term vision
In May of last year, we announced the "Mid-Term
Management Plan 2020". What future challenges will
METAWATER face in starting these new initiatives toachieve its long-term vision?
We invited professional analyst Shusaku Nishikawa tointerview President Nakamura.

Shusaku Nishikawa
Graduated from the University of Tokyo Facultyof Law in 2008 and joined the Daiwa Institute of
Research Ltd. as an analyst. In 2013, he was put incharge of the power and gas sectors. In 2014, he
was put in charge of the power, gas, and oil sectors.
In August 2016, he began covering METAWATER.

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9

Yasushi Nakamura

Mr. Shusaku Nishikawa

METAWATER Co., Ltd.
President and Representative Director

Daiwa Securities Co., Ltd.
Senior Analyst, Equity Research Department"Mid-Term Management Plan 2020"

Please summarize the fiscal year ended March

It seems as though current business performance

2019, the first year of your "Mid-Term Management Plan

is steady, and that the probability to achieve theEstablishing a business structure that can realize our long-term vision

2020" (FY ended March 2019 to FY ending March 2021).

"Mid-Term Management Plan 2020" is increasing.

Key measures

For the fiscal year ended March 2019, sales increased

What are your thoughts on this?

thanks to strong domestic EPC, O&M, and PPP performance.

The "Mid-Term Management Plan 2020" has final year

1 Expansion of strategic development investments

2 Strengthening and expanding business

Operating profit, ordinary profit, and net profit increased(ending March 2021) targets of sales of 128 billion yen anddue to improved gross profits from an increase in sales, all

Enhancing development of products, solutions, and new businesses
that are essential for medium- to long-term growth

Promoting efforts to strengthen core areas and expand growth areas

an operating profit of 9 billion yen.

of them exceeding the initial plan.

This plan is based on a long-term vision of achieving sales ofIn terms of orders received, domestic EPC performed

200 billion yen. This must be achieved after implementing

well, becoming the second highest recorded sales after

our "strategic development investments", which are a 40%

the previous year's record high. The order backlog, which

increase over the past three years compared to traditional

indicates the potential for future growth, was able to reachdevelopment investment, as well as our normal developmenta record high as well.

investment, such as new product development and the

The difficulty faced since 2016 regarding sales and revenue due

incorporation of cutting-edge technology such as AI and ICT.

3 Engaging in continued ESG initiatives

to long delivery times and an increase in large-scale projects

Looking at our current situation, our order backlog as ofcontinues, but during this period we have made steadyMarch 31, 2019 was a record high 142.4 billion yen thanks

Promoting activities that contribute to the environment and local communities,
as well as actively strengthening corporate governanceefforts to reduce costs and improve project process management

to a trend toward larger projects and longer construction

accuracy using ICT. From FY2019 on, we should be able to escapeperiods. If we can make steady progress and complete

the slump we've been experiencing, as we expect long-term

these orders, and reduce the costs of design, construction,delivery projects to begin contributing to sales, efforts tooperation, and maintenance, we believe this will increase

reduce costs by completing construction work to progress, etc.

the accuracy of us achieving our goals.

METAWATER REPORT 2019

Promoting a management structure based on economies of scale toenable more comprehensive and wider area business operations● Reducing construction costs by adopting leading-edge technologies
such as AI and ICT, streamlining maintenance, and improving safety● Developing topline products and new businesses● Creating added value through work-style reforms

Plant engineering business

Service solution businessCore areas

Reinforcement ofdomestic EPC business

Reinforcement ofdomestic O&M business

Growth areas

Reinforcement and expansion ofoverseas business foundations

Expansion ofdomestic PPP business●

Promoting the reduction of environmental burdens andcontributing to the environment through business activities● Expanding environmental education and activities that contribute to local communities● Working on BCM and improving the effectiveness of BCP● Further streamlining and strengthening the management structure● Promoting proactive communication with stakeholders●

Goals of the Mid-Term Management Plan
(Consolidated)

FY Ended March 2019

FY Ending March 2021

Orders received

123.8 billionyen

140 billion
yen

Sales

117.3 billionyen

128 billion
yen

Operating profit

7.6 billion
yen

9 billionyen

Net profit

5.2 billionyen

6.2 billion
yen

ROE

9.1%

10.0% or more

(Results)(Target)METAWATER REPORT 201910

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the efficiency of operations and management, which up

billion yen in the long-term vision?

to now has relied on people's experience and intuition.

METAWATER Group's long-term vision is to achieve sales ofSuch systems will include "wide-area monitoring" of data

200 billion yen for the 20th anniversary of the company (yearsuch as the operational status of each facility, water level,

ending March 2028).

water quality, water pressure, etc., and optimizing "asset

Sales for the French company Veolia, considered one of the

management" by consolidating data such as operations,world's largest companies in the water business, is about 3

failures, and maintenance information of facilities andtrillion yen, while the French water company Suez has sales

equipment owned by local governments.

of 1.4 trillion yen, and the UK's Thames Water has sales ofIn the future, advancement of AI and Cyber Physical300 billion yen. The METAWATER Group is currently ranked

Systems (CPS)* 1 will allow us to predict the rainfall andabout 30th in the world, but if our sales can reach 200

flow of rainwater in a region, making it possible to madebillion yen, we will enter the top 10.

advanced judgments and giving instructions such as where

In a few years, a cycle will come where demand will

and in what order sluice gates should be closed so that we

increase for the renewal of facilities and plant equipment

can control the flow of water into equipment.

we delivered in the early 2000s. In addition, bids will

In addition, each local government has different

increase for projects taking advantage of PPP and PFI, suchcircumstances depending on location, such as mountainous

as those represented by concessions, and M&A will beareas, beaches, river basins, urban areas, rural areas, andrequired both in Japan and overseas.

climate and weather as well, such as if it is a cold or warm

At that time, it will be important for us to be prepared

area, if there is heavy snow or rain, etc. Hence, we want tofor making new proposals and establishing businessincorporate the concept of "resilience", that is, recovery andmanagement systems unique to our company so that we

restoration, into the infrastructure.

can achieve our long-term vision.

One thing I realized after the Great East Japan Earthquake■ Promoting a management structure based on economies of scale to enable morecomprehensive and wider area business operations
In order to respond to the increasing need for further comprehensiveness and wider area management, the ICT platform will
be further expanded, and various systems will be constructed, including a system for training operators in charge of operating
equipment in each region, a system for supporting the accumulation, sharing, and handing down of project operations
knowledge for the different entities in each region, and a system unifying the procurement and supply of repair parts, etc.

Engineering functionality
Design and construction

Training center for
facility operators

Management and Operations Overview

What is the significance of having sales of 200

Supply center for parts

BCP method (tentative name)Concepts for design, construction, operations, and maintenance centered
Procurement
around quick recovery in the event of a disaster
Training the operators responsible forCentralization of procurement and supply
Knowledge center
equipment operation in each regionof repair parts, etc.

Operation and maintenanceOperation
Supporting the accumulation, sharing, and handing down of project
operations knowledge for the different entities in each region

People / Information / Goods

in 2011 was that there is no infrastructure that will neverPublic-private partnerships (PPP) are a growing

fail. Additionally, heavy rains and floods in western Japan

area and are expected to intensify competition.

during the summer of 2018 resulted in tremendous damage

Please describe what measures you'll take to differentiate

to the water infrastructure for the various regions affected.

yourself in the future and to secure profits.

That is why an important point in the philosophy for

As PPP and concession projects increase, numerous companies

infrastructure development that we are currently working

will enter the field and competition may increase. However,on should be to "think about how quickly we could recover

An ICT platform for sharing information inreal time, as well as for analyzing andutilizing collected information

we're striving to improve profitability by promoting the threecenters concept, operating using AI and ICT, streamlining
maintenance and management, and reducing costs.

Facility A

Facility D

The three centers concept is centered around the "Training
center for facility operators", "Supply center for parts", andFacility B

Facility C"Knowledge center", which are bases for educating local
operators, simplifying procurement by sharing necessary

Response training in the eventof a major earthquake

parts, and improving operational efficiency by sharing
knowledge, experience, and know-how, respectively.
Through these, we are keeping all of our water andenvironmental infrastructure data stored in the WBC(Water Business Cloud) and building systems to improve

11

METAWATER REPORT 2019

Training on sharing information between ourhead office and the Kyushu Office using videoconferencing systems and the WBC

Training center for facility operators

Knowledge center

Supply center for parts

Currently training human resources responsible forfacility operation throughout the country. Began
constructing a universal design for daily inspections
so that new operators can perform complex
inspection tasks efficiently.

The "Innovation center" was established on
April 1, 2019. Under that umbrella, "knowledge
center" functionality has been established toaccumulate, share, and hand down project
operations knowledge.

The "Supply center for parts" promotes thecentralized organization and management ofparts information, allowing the optimization andsharing of parts held.

*1 Services and systems that analyze events traditionally dependent on experience and intuition,using them for effective operation

METAWATER REPORT 201912

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water- and sewage-related investments equal about 40"ensure availability and sustainable management of water

it is important to consider drinking water (water supply)

to be robust, but for plant design and development in thebillion dollars a year. Many of the facilities there are quiteand sanitation for all ", and the "for all" part of that in particular,

and sanitation (sewage). As our business expands, wefuture, we will focus on resilience, differentiating ourselves

old, giving us a lot of room to introduce our own equipment

resonates deeply with us. The population with access to piped

are confident that we will be able to contribute to theand reducing costs.

and facilities. Up to now, we have struggled in the U.S. duewater in Japan is 97.9% (as of the end of 2016), and those with

development of a prosperous and sustainable society.

to different business customs compared to Japan, but withaccess to a sanitation system is high as well at 90.9% (as of

Additionally, with regard to "ESG"* 2 which have recently

AAS at the center, I feel that we can now sketch out new

the end of 2017). Globally, 2.1 billion people (about three out

been attracting attention, we are actively engaged inwhich is another growing business?

strategies for growth.

of every 10 people worldwide) do not have access to safe

activities to reduce our environmental impact and contribute

For overseas business, we believe that developing U.S.

On the other hand, the demand for water supply facilities

water at home, and 4.5 billion people (6 out of every 10) do not

to the community, which I think contributes to SDGs as well.

operations is our top priority. In January 2016, we madeis also increasing in emerging countries. In places such as

enjoy proper sanitation with regard to using the bathroom.

Going forward, we will continue to operate our business

the U.S. water treatment engineering company Aqua-

Asia, we are promoting initiatives related to infrastructure

That is why our goal is to ensure access to clean water andcontributing to the creation of a better society throughAerobic Systems (AAS) a subsidiary. As a result, in addition

development projects using Official Development Assistancesanitation for all. We thus want to create a place wherecollaborations with local governments, citizens, and partner

to gaining a strong sales channel covering the entirety of(ODA). Overseas, there are several major companies thateveryone can continue to live comfortably and with peace ofcompanies. Thank you everyone for your continued support.

the United States, we have also strengthened our productprovide everything from water infrastructure facilities tomind. It is our belief that these efforts can only be achieved

lineup in order to meet a wider range of customers' needs.

operation services, and companies in China and Souththrough partnerships with partner companies, citizens,

The U.S. is a large market with numerous competitors, andKorea are expanding their businesses leveraging low costs.

local governments, and local companies. The nature of

Our aim is to expand business by taking full advantage ofour business lends itself to social and environmental

being "Japanese company-esque", something that can only

contributions. We are currently looking into specificbe achieved by Japan and our experience with the Great

initiatives that take advantage of METAWATER's unique

East Japan Earthquake.

abilities in order to achieve these three SDGs.

What is the outlook for overseas business,

Management and Operations Overview

from a disaster". Infrastructure equipment is often required*2 Environmental, Social, and Governance.

SDGs the METAWATER Group is focusing on
Mobile ceramic
membrane filtrationequipment

56% of Japanese companies are contributing to"Clean Water and Sanitation"

Delivering mobile water purifiers to emerging countries
in Asia, Africa, etc., ensuring a safe water supply evenin the event of a natural disasterW h a t c a n y o u t e l l u s a b o u t M E TAWAT E R ' spolicies regarding the Sustainable Development

When asked about what SDG-based initiatives Japanesecompanies are currently taking and which of the 17 goals they
are focusing on, results were similar to last year's survey, with
56% working toward "6. Clean Water and Sanitation" (thehighest of all contributions). Following that was "9. Industry,Innovation, and Infrastructure" at 51%, and "7. Affordable andClean Energy" at 35%.
Source: Keizai Koho, June 2019 "Questionnaire Regarding SDGs"

Goals (SDGs) proposed by the United Nations?
Taking into account business characteristics and social
missions, the Group is focusing on achieving three of the 17
SDGs: "6. Clean Water and Sanitation", "11. Sustainable Cities
and Communities", and "17. Partnerships for the Goals".
We specialize in water and the environment, and so Goal 6,13

METAWATER REPORT 2019

Finally, do you have any message for shareholders,investors, and other related parties?
We are engaged in work to provide safe water not only tothose in Japan, but to everyone all throughout the world.
When thinking about the future development of the world,

METAWATER REPORT 201914