Laying the Groundwork
Net sales by the Engineering Group in fiscal 2018 decreased ¥1.7 billion, to ¥84.8 billion (US$798.4 million), a 2.0% decline from fiscal 2017. The group’s net sales accounted for 10.3% of Tosoh’s consolidated net sales, a decrease of 1.42 percentage points. Operating income likewise decreased, down 5.4%, to ¥4.9 billion (US$45.8 million), resulting in an operating margin of 5.7%, a decrease from 5.9% in fiscal 2017.
Active capital investment, primarily in Japan and China, drove increased sales for the Engineering Group’s water treatment business to the electronics manufacturing industry. But the completion of a number of large industrial projects in fiscal 2017 contributed to the decline in the group’s net sales overall. Investment in Japan in electric power, water supply, and sewage treatment and plans for investment in Southeast Asia were either running into delays or being cancelled, and this, too, contributed to the group’s drop in sales and profitability.
Robust activity in LCD, semiconductor, and organic EL plant construction in China and elsewhere in Asia contributed to Organo receiving many orders in fiscal 2018. But the time lag from project start to completion and settlement resulted in a delay before the financial dividends could be officially recorded. The decreases in net sales and profits recorded by the Engineering Group in fiscal 2018 are not reflective of the degree of business activity. Settlements for orders received in fiscal 2018 will largely be reflected in the fiscal 2019 financial results, and significant increases in net sales and profits are forecast.
Organo forecasts increased sales domestically but sees domestic orders declining slightly, due primarily to an expected decrease in orders from electronics manufacturing clients in Japan. It expects overseas operations to grow, however, as it pursues aggressive expansion. It forecasts increases in orders and sales for all regions and estimates that overseas sales will account for 25.8% of the group’s consolidated net sales, up from 21.5% last year.
In fiscal 2018, Organo introduced two small standard water treatment systems. It intends to take one or two such systems to market each year as part of efforts to fortify its solution business. Sales of these systems are primarily to domestic customers, but the systems have been well received by overseas clients.
Organo’s solution business sales are expected to remain essentially the same in fiscal 2019 as in fiscal 2018. It forecasts significant growth, however, for its plant business, where sales are seen increasing 32.7%, to ¥37.7 billion. But it foresees the portion of water treatment engineering sales accounted for by its solution business decreasing from 54.4% in fiscal 2018 to 47.3%, in fiscal 2019.
The construction subsidiaries of the Engineering Group recorded increases in sales in fiscal 2018.