Returning to Nikkiso’s purpose of “continuing
to support the evolution of society through
manufacturing” and realizing long-term
sustainability management

Toshihiko Kai
President & Chief Executive Officer
March, 2023

I would like to express my sincere gratitude to our shareholders for their continued support.
Let me give you an overview of Nikkiso’s business results.

Results for the year ended December 2022

The year 2022 was a year in which the Nikkiso Group’s manufacturing activities were severely constrained due to shortages in raw materials and components as a result of rising resource prices caused by the prolonged Ukrainian crisis, an increase in policy interest rates accompanying the acceleration of inflation particularly in Europe and the U.S., and China’s zero-COVID policy.

Under such circumstances, we completed the transfer of all shares of LEWA and Geveke, which were our major subsidiaries, and recorded a gain on transfer of shares of approximately 36.8 billion yen.
Meanwhile, in the Healthcare Business, we recorded a write-down of approximately 4.6 billion yen on inventories and other assets for the full year due to sluggish sales caused by a decline in demand for stationary equipment, which was the main reason for the deterioration in earnings of the Medical Business.

As a result, our Group’s financial results for the fiscal year ended December 2022 were as follows: Orders received totaled 205.1 billion yen (up 10.8% year on year), revenue was 177.1 billion yen (up 5.6% year on year), operating profit was 34.2 billion yen (increase of 31.0 billion yen year on year), profit before tax was 32.6 billion yen (increase of 28.7 billion yen year on year), and profit for the year attributable to owners of the company  came to 13.6 billion yen, an increase of 13.4 billion yen from a year earlier.

On the financial front, a portion of  the transfer proceeds  of approximately  97 billion yen from the transfer of shares of LEWA and Geveke was used to reduce interest-bearing debt in an effort to reduce management risk associated with rising interest rates and improve the capital adequacy ratio. Consequently , our financial position improved significantly, with capital adequacy ratio increasing from 30.8% at the end of the previous fiscal year to 39.9%, and the net debt-to-equity ratio improving from 1.1 times to 0.2 times at the end of the fiscal year ended December 31, 2022.

Medium-term business plan "Nikkiso 2025 Phase 2"

The new medium-term business plan, Nikkiso 2025, which was launched in the fiscal year ended December 2020, has seen a dramatic change in the business environment caused by the pandemic since its first year, and management issues that the Company must address have also changed significantly, such as reviewing our business model, restructuring our supply chain, and addressing the working styles of employees.

On the other hand, significant business opportunities for a low-carbon and decarbonized society have also come about, and as part of a review of our business portfolio, we have transferred all shares of our major subsidiaries, LEWA and Geveke. In order to respond to these changes in the business environment and management issues, as well as to return to our purpose of “continuing to support the evolution of society through manufacturing” and realize long-term sustainability management, we revamped our medium-term business plan for the latter three-year period starting in 2023 as “Nikkiso 2025 Phase 2.”

Under Nikkiso 2025 Phase 2, we have set out a basic policy to enhance our technological capabilities, restructure our business portfolio, and reinforce our management base. We will work to strengthen our management base, which serves as the foundation for improving our profitability. At the same time, we will proceed with the optimal allocation of management resources by picking up the pace of selecting and focusing on businesses based on their affinity with our core businesses and our Group’s competitive advantages.

We will achieve long-term sustainability management by building a business portfolio that focuses on capital profitability and establishing a structure to appropriately rotate the cycle of investing the funds and management resources acquired through improved profitability in growth areas and research and technology development aimed at creating new markets. In the fiscal year ending December 2025, the final year of Nikkiso 2025 Phase 2, we plan to generate revenue of 210 billion yen, operating profit of 14 billion yen, and profit for the year attributable to owners of the company of 10 billion yen.

Outlook for the Fiscal Year Ending December 2023

In the fiscal year ending December 2023, the first year of Nikkiso 2025 Phase 2, the Industrial Business is expected to continuously expand investment related to LNG, hydrogen and ammonia by securing energy and promoting low carbon and decarbonization. We expect sales and profits to increase, particularly in the CE&IG Group. In the Aerospace Business, while it is taking time to rebuild the supply chain for the entire industry, demand for medium-sized aircraft is on a recovery trend in addition to the preceding demand for small aircraft, and we aim to return to profitability in operating profit.
In the Medical Business, we expect to see an increase in equipment sales as demand for hemodialysis machines in Japan and overseas is strong and there are signs of an end to supply constraints for components. In terms of earnings, as we project the soaring prices of raw materials and others to remain high, we will continue optimizing sales prices and reducing costs. However, we expect that it will take some time for profitability to fully recover, considering the upfront expenses related to obtaining sales licenses for hemodialysis machines for the U.S. market and other expenditure.

For the Group as a whole, although the one-time costs in 2022, such as the write-down of inventories and other assets in the healthcare business that were processed in 2022 and removal costs for fixed assets at domestic plants, will disappear, there will be an impact from exclusion of both LEWA and Geveke from consolidation. Hence, we are positioning this period as a time to solidify our foothold for full-scale earnings expansion in 2024 and beyond. In the fiscal year ending December 2023, we plan to generate revenue of 180 billion yen and operating profit of 4 billion yen.