Bridge Report:（8061）Seika fiscal year ended March 2022

President Akihiko Sakurai	Seika Corporation (8061)

Company Information

Stock Information

*The share price is the closing price on June 8. Each number is based on the result in the term ended March 2022.

Earnings Trend

*Unit: Million yen. Net income is profit attributable to owners of the parent. “The Accounting Standard for Revenue Recognition” has been used since the term ended March 2022, and was only applied for the sake of comparison in the term ended March 2021.

This report outlines the overview of Seika Corporation for the fiscal year ended March 2022 earnings results. 

Table of Contents

Key Points
1．Company Overview
2．Fiscal Year Ended March 2022 Earnings Results
3. Fiscal Year Ending March 2023 Earnings Forecasts
4. Conclusions (Long-Term Vision “VIORB2030”)
5.Topics
<Reference: Regarding Corporate Governance>

Key Points

• The orders received in the term ended March 2022 were 134,261 million yen, down 1.5% year on year. Sales stood at 85,307 million yen, up 18.6% year on year. While the sales in the Power Plant and Industrial Machinery Businesses decreased, the total sales increased by the recording of the full-year performance of Seika Daiya Engine, which became a consolidated subsidiary in the previous term, in the Chemicals and Energy Plant Business, rising selling prices of textile materials for China contributing to a growth in sales in the Global Business, etc. and resulting in an increase in sales. Moreover, operating income reached 3,824 million yen, up 48.2% year on year, significantly exceeding the forecast of 2,850 million yen at the beginning of the term. Affiliated companies made a considerable contribution. Net income was 2,246 million yen, down 17.5% year on year.

   

• Regarding the earnings forecast for the term ending March 2023, the company expects a number of orders received of 170 billion yen, up 26.6% year on year, sales of 95 billion yen, up 11.4% year on year, an operating income of 3.7 billion yen, down 3.3% year on year, and a net income of 2.5 billion yen, up 11.3% year on year. The quantitative goals for the term ending March 2023, which is the last fiscal year of the mid-term business plan “Re-SEIKA 2023” on which the company has been working since April 2020, are deemed possible to achieve. The company plans to pay a dividend of 70 yen/share, up 5 yen/share from the term ended March 2022. The estimated payout ratio is 33.6%.

   

• The term ending March 2023 is the last fiscal year of the mid-term business plan “Re-SEIKA 2023” and it is projected that an operating income of 3.7 billion yen and a net income of 2.5 billion yen will be achieved. Meanwhile, expectations are held also regarding to challenges in new fields, such as the inspection of production equipment by drones and Seika Digital Image’s device for checking the quality of filling materials, in addition to growing contributions by consolidated subsidiaries (Seika Daiya Engine and Shikishima Kiki), for achieving the long-term vision “VIORB2030” announced on May 27, 2022.

   

1. Company Overview

Under the corporate philosophy “To Contribute to Society Through the Expansion of Business,” Seika Corporation sells equipment, devices, etc. and offers services in the fields of electric power, chemistry, energy and industrial machinery, as a general machinery trading company.
Its three characteristics and strengths are sales capability thoroughly versed in fields, extensive expertise in each business, and a wide network including 103 business bases both inside and outside Japan.

1-1 Corporate History 

While proceeding with the mid-term business plan “Re-SEIKA 2023” in the term ending March 2023, the company announced the long-term vision “VIORB2030” for the year 2030 on May 27, 2022.

1-2 Corporate Philosophy, etc. 

In order to promote unity and group management, Seika Corporation has also established the “Group Policy,” “Code of Conduct,” and “Group Mission,” and each company belonging to the Group and each employee working therein share these policies and link them to daily actions, aiming to improve the corporate value of the entire Group.
  

1-3 Business Description 

As a general machinery trading company, Seika Corporation sells machinery, equipment, devices, and ancillary products and offers services in the fields of electric power, chemistry, energy, and industrial machinery.
The segments to be reported are 4 segments, which are “Power Plant,” “Chemicals and Energy Plant,” “Industrial Machinery,” and “Global Business”, from the fiscal year ending March 2021.

The clients of Seika Corporation are electric power companies in western Japan, including The Kansai Electric Power, Kyushu Electric Power, The Chugoku Electric Power, Shikoku Electric Power, Power Development Electric Power Company, and joint electric power companies. The company sells and provides after-sales services for industrial power generation equipment, such as boilers and gas turbines, as well as environmental conservation equipment for treating discharged water and exhaust gas.
The company also sells anti-crime and anti-disaster equipment, such as security equipment and fire extinguishing equipment for nuclear plants.
Furthermore, the company provides power-generation equipment for renewable energies such as small-sized water, wind, and biomass, and after-sales services.
The suppliers are mainly a group company of Mitsubishi Heavy Industries (MHI), and Seika Corporation possesses the distributorship for thermal power generation equipment of the company`s group.

(taken from the company’s material)

Seika Corporation sells in-house power generation equipment, such as boilers and turbines, environmental conservation equipment for treating discharged water and exhaust gas, etc. and offers after-sales services to companies in oil refining, chemical, paper, and steel industries. As in the power plant business, the company procures these mainly from a group company of Mitsubishi Heavy Industries (MHI).
In addition, the company sells products that reduce environmental burdens, as well as equipment and fuel for biomass power generation.

(taken from the company’s material)

Seika Corporation provides clients in a broad range of industries with textile equipment, food processing equipment, brewing equipment, various plant machinery, liquid crystal-related equipment, environment-related apparatus, uninterruptible power systems (UPS), printed circuit boards for electronic mea, etc. produced by Japanese or foreign manufacturers. The company also supplies measurement instruments that make full use of advanced technology, such as laser measurement instruments and pore size measurement equipment, to government agencies and research institutes.
In addition, the company sells lithium ion battery-related equipment and motor manufacturing equipment for electronic vehicles (EVs) in China.
The company’s subsidiary Nippon Daiya Valve manufactures and sells various industrial valves.

(taken from the company’s material)

While selling industrial robots to automotive customers in the automotive field, Seika Corporation sells and leases submersible pumps used in public construction, etc. in the social infrastructure field. These products are procured mainly from Japanese manufacturers.

(North America)
As for the automotive field, the company sells Japanese-made industrial machinery in the PCB surface mount production line mainly to the automotive parts industry.

(Asia)
As for the industrial machinery field, the company sells Japanese-made machinery and equipment to companies within the automotive, textile, chemical industries, and also procures raw materials outside Japan and sells them to textile manufacturers.

(2) Sales in each region
It looks like the ratio of overseas sales soared due to the change in the accounting standard from the term ended March 2022, but actually, it improved by about 0.7 points. Successively, the development of overseas markets where there is significant room for growth and expanding overseas sales ratio are challenges for the company. 

Ratio of sales in each region in term ended March 2022	Variation in overseas sales

1-4 Characteristics and strengths 

(1)Hands-on sales capability
The capability of hands-on sales nurtured in their more than 70 years’ history is the company's greatest strength.
By building relationships of trust through meticulous customer services and forming personal connections, Seika Corporation is able to obtain a steady stream of orders.

(2)High level of expertise in each business
Seika Corporation has garnered excellent reputation as an essential business partner with a high level of expertise, including profound information gathering capabilities and the ability to develop proposals that stay one step ahead of clients.

(3)Extensive network comprised of 103 bases in Japan and overseas
Owing to M&A, they did not only expand their bases domestically, but also have been rapidly expanding the number of bases in Europe and Southeast Asia in anticipation of globalization. The speed and comprehensiveness of information have increased further, and by utilizing this, the company hopes to further improve its corporate value.

(4)Measures to strengthen employee education and sales capabilities
Seika Corporation primarily uses on-the-job training to develop its employees. Senior staff and those with more experience teach newer employees the essentials for business, and the company also focuses on overseas training programs and seminars for each skill level.
Nowadays, the company requests the former staff of manufacturers and client companies to provide its employees with consultation services and hands-on support for sales.
The advice the company receives allows them to further improve their expertise and sales capabilities.

1-5 ROE analysis 

Sales in the term ended March 2022 are the results of applying the “Accounting Standard for Revenue Recognition.”

1-6 Efforts for ESG

<E: Environment>
The company holds up the basic philosophy of “making efforts to conserve and improve the Earth environment and contribute to the realization of a sustainable society as a creative partner bringing value to industry” as their environmental policy. Under this policy, the company obtained the ISO14001 certificate in 2005, and is promoting environmentally-friendly products.  

The company will continue to contribute to the conservation of the earth environment through business activities, and not merely from the perspective of social contribution.

(taken from the company’s material) 

<S: Social Responsibility>

“Promotion of women’s active participation in the workplace” 
●To recruit more women in the main career track 
●To support female employees in developing their careers 
●To appoint female managers 

“Enhancement of health of employees” 
●To adopt Premium Friday (Casual day at the same time) 
●To promote the use of paid holidays  
●The company bears the expense for marker tumor in a health checkup 
●The company bears the cost of influenza vaccinations 

“Personnel development” 
●Training at each level 
●Overseas training system 

<G: Governance>
In accordance with the Corporate Governance Code revised in November 2021, initiatives for all subjects are disclosed on the company’s website.
The website of the company discloses the activities for each item of the Corporate Governance Code.
The effectiveness of the board of directors in the term ended March 2022 corresponds to the Corporate Governance Code, and the Nomination Examination Committee and the Remuneration Examination Committee, which are composed of outside directors and outside auditors, were established under the board of directors as an arbitrary system.
In addition, the company translated some convocation notices into English, produced the English versions of reference material for briefing financial results and fact books, and has adopted a platform for electronic exercise of voting rights.
In order to grow sustainably and improve its corporate value in the mid-to-long term, the company will strive to strengthen corporate governance, and pursue a sound, transparent management system.

1-7 Shareholder return 

2．Fiscal Year Ended March 2022 Earnings Results

(1) Consolidated Business Results 

*Orders received and order backlogs are before application of accounting standards. Transaction amount is the sales amount under the previous standard.
*Unit: million yen. Net Income is profit attributable to owners of parent.

Sales increased and profit considerably increased. 
The orders received in the term ended March 2022 were 134,261 million yen, down 1.5% year on year. Sales stood at 85,307 million yen, up 18.6% year on year. While the sales in the Power Plant and Industrial Machinery Businesses decreased, the total sales increased by the recording of the full-year performance of Seika Daiya Engine, which became a consolidated subsidiary in October of the previous term, in the Chemicals and Energy Plant Business, rising selling prices of textile materials for China contributing to a growth in sales in the Global Business, etc. and resulting in an increase in sales. Moreover, operating income reached 3,824 million yen, up 48.2% year on year, significantly exceeding the forecast of 2,850 million yen at the beginning of the term. Affiliated companies made a considerable contribution. Net income was 2,246 million yen, down 17.5% year on year.

(2) Overview of business performance in each segment 

*Unit: million yen. Sales are the sales to external clients. The composition ratio of profit means the rate of profit to sales. 

① Power Plant 
Sales decreased while profit was unchanged from the previous term.  
Although large-scale business negotiations concerning safety-improving works, etc. for power plants in the Tsuruga District were recorded in sales, delays in the regular repair of power plant facilities, facility upgrades, etc. in the thermal plant field led to a decrease in sales. Profit was almost unchanged from the previous term.

② Chemicals and Energy Plant 
Sales and profit considerably increased. 
Sales significantly grew owing to the contribution of Shikishima Kiki’s performance in addition to the recording of the full-year performance of Seika Daiya Engine, which deals with engines for ships and was turned into a consolidated subsidiary in October of the previous term (performance of 3 months was recorded in the previous term). Profit considerably grew in step with the increase in sales. 

③ Industrial Machinery
Sales decreased while profit was unchanged from the previous term.  
Despite the recording of large-scale business negotiations concerning new biomass-related equipment for beverage manufacturers in sales, sales of industrial machinery, etc. for textile and engineering companies in Japan fell, resulting in a decrease in sales. The profit of this segment slightly dropped in spite of Nippon Daiya Valve’s steady performance due to expenses in some transactions with China.

④ Global Business 

(3) Financial standing 

◎Main BS 

*Unit: million yen. Interest-bearing debt does not include lease obligations. 

Net assets grew 1,212 million yen from the end of the previous term to 31,101 million yen due to the increase in retained earnings, etc.
Capital-to-asset ratio standing at 28.7%.

3. Fiscal Year Ending March 2023 Earnings Forecasts

◎Consolidated Earnings Forecasts 

*Unit: million yen. The estimates were announced by the company. 

Increase in sales and decrease in profit forecast
Regarding the earnings forecast for the term ending March 2023, the company expects a number of orders received of 170 billion yen, up 26.6% year on year, sales of 95 billion yen, up 11.4% year on year, an operating income of 3.7 billion yen, down 3.3% year on year, and a net income of 2.5 billion yen, up 11.3% year on year. The company plans to pay a dividend of 70 yen/share, up 5 yen/share from the term ended March 2022. The estimated payout ratio is 33.6%.

4. Conclusions (Long-Term Vision “VIORB2030”)

The vision was formulated in order to contribute to the realization of a prosperous society by implementing the purpose of “supporting sustainable energy creation and industrial activities in harmony with the earth environment.”

◎Purpose of the company
As a corporate group centered on trading companies strong in the energy and industrial infrastructure fields, Seika Group would like to support sustainable energy creation and industrial activities in harmony with the earth’s environment.

◎Priority business domains in terms of business
Decarbonization: Quickly develop insight into users' needs related to decarbonization and technological innovation to commercialize solutions
Energy and Resources conservation: Expanding support of permanent needs in the industrial circles for energy and resources conservation
Circular economy: Accelerate progress and actions towards a circular economy
DX: View digital transformation from a broad perspective to seek business opportunities

◎Key management measures
①Improve cash management mechanisms to maximize funding capacity
②Invest around 10 billion yen in businesses to deepen existing businesses and expand business domains
③Establish 1 billion yen fund to support businesses and activities working to achieve the SDGs
④Streamline the organization and increase productivity to introduce human resources in priority domains
⑤Clarify strengths based on the unique characteristics of individual group companies and concentrate company resources

◎ Index for gauging achievements
120 billion yen in green innovation-related orders received in fiscal 2030.

◎ Consolidated net income goal
4 billion yen in consolidated net income as the goal to be reached in fiscal 2030

5. Topics

◎ Drone Business
Expanding inspection services by drones equipped with ultrasonic examination devices－Initiative for saving energy and resources
Utilizing the ultrasonic examination function allows for the reduction of time and costs for the inspection of tanks, chimneys, boilers, etc. as it is unnecessary to set up scaffolding.
The service was launched in March 2021, with both demand and expectations on a rise, steadily achieving results.
The Seika Group invested in and concluded an exclusive representative contract in Japan with Terra Drone. (March 23, 2022)
The initiative has been highly regarded at worksites related to power, steel, petroleum, chemistry, etc. and the company believes that it will contribute to the “Smart Industrial Safety” of plants and manufacturing facilities.

(taken from the company’s material)

◎Embankment material quality test system
Seika Digital Image (100% subsidiary of the company) developed an embankment material quality test system utilizing image processing technology in cooperation with Nishimatsu Construction Co., Ltd., which allows for efficient on-site management of the quality of earth and sand used in general civil works. (May 12, 2022)
Conventionally, performing an on-site granularity examination required setting up a laboratory and over 2 days of examination time, leading to issues such as the need for large-scale labor, expenses and human work. Introducing this device enables a significant reduction of time required for measuring granulation to tens of minutes (per one sample) and also makes it possible to measure multiple types of earth and sand in one day.

(taken from the company’s material)

<Reference: Regarding Corporate Governance>

◎Organization type, and the composition of directors and auditors 

At the annual general meeting of shareholders held in June 2020, the number of independent outside directors increased by one (to a total of three), securing more than one-third of the board of directors. The company is working to strengthen its governance.  

◎Corporate Governance Report 
Last update date： November 5, 2021 

Our corporate philosophy is “To Contribute to Society Through the Expansion of Business.” We are committed to improving corporate value over the mid-to-long term while establishing a good relationship with all stakeholders. We believe that “soundness and transparency of management” and “prompt decision-making and action” are critical for achieving these goals, and we continually strive to strengthen corporate governance.
In addition, our company intends to strengthen its supervisory structure by appointing independent outside directors and independent outside corporate auditors.

<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)> 

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