Good morning. I am the President, Kuwahara is my name. This April, I was appointed President and COO. I ask for your continued support. We have already released our financial results last Friday, so I believe that you have already had a chance to look through them. I will therefore focus on just the main points in my presentation and then fill in the details by answering your questions afterwards. Let me then start with the financial information part. The key points of our FY 2023 results are shown here. We achieved increases in both net sales and operating income for the sixth consecutive year. Order intake, net sales, and operating income were as shown here. Order intake was down 3% year-on-year, but net sales and operating income were up 12.8% and 21.3%, respectively. We were able to exceed targets for the first year of the medium-term management plan.
In light of this, we have increased our dividend per share by JPY 5 to JPY 23 for the fiscal year ended March 2024, and plan to pay out JPY 23 for FY 2024 as well. This slide shows the overview of the results for FY 2023. I have already mentioned order intake, net sales, and operating income. Add to that, ordinary income and net income also increased by JPY 7.8 billion and JPY 3.4 billion, respectively, over the previous year. Since the separation of the shipbuilding business in 2002, we have achieved the highest performance in all categories except for order intake. For your reference, for order intake, last year's JPY 737.5 billion was the historic high after separation of shipbuilding. This slide shows the FY 2023 results by segment.
I will discuss segment information in the part talking about FY 2024 forecast, so I will skip the details here. Let us jump to page 11.
The slide shows the status of order backlog. The order backlog at the end of March 2024 was JPY 1,543,400,000,000 , compared to JPY 764.4 billion at the end of March 2021. It has grown by about 4x . The lower part of the graph shows breakdown of order backlog by sales recognition year. It is JPY 407.8 billion in fiscal 2024, which is 71.5% of the planned net sales for fiscal 2024, which indicates that sales have already been confirmed to a considerable extent. The slide on page 12 shows the breakdown of changes in operating income. Starting from JPY 20 billion in fiscal 2022, environment AOM, mainly retrofit works and electricity sales pushed up operating income by JPY 3.8 billion. Inova contributed JPY 2.9 billion, and another JPY 1.4 billion came from the carbon neutral solution business. On the other hand, environment EPC, machinery and infrastructure, and others had a negative impact to operating income.
Major cause of lower profits in environment EPC was a significant cost increase for biomass power plants. This slide shows non-operating income and expense and extraordinary income and loss for fiscal 2023. In fiscal 2023, non-operating income was JPY +1.3 billion, an increase of JPY 3.5 billion from the previous year. The main factors were gain on investment by equity method and foreign exchange gain. The gains on investment by equity method were a result of performance improvement at equity method holdings such as Naikai Zosen, Steel Plantech, and others. Foreign exchange gains improved by JPY 1.4 billion due to yen depreciation, and also at Inova, there was impact of appreciation of the Swiss franc. In fiscal 2023, we recorded an extraordinary loss of JPY 1.6 billion. This is mainly due to impairment losses on aging dormitories and other facilities, as well as provisions for demolition costs. Page 14 shows the balance sheet.
Compared to the previous fiscal year, total assets increased by JPY 53.9 billion. This is an increase of about 11%. Considering that sales have grown by about 13%, I would say that the increase in total assets is commensurate with sales growth. One major development for this fiscal year was the elimination of trade notes in fiscal 2023. The impact of this has appeared in the form of a decrease in cash and deposits and a decrease in notes and accounts payable. There is also similar impact on the cash flow statement. Specifically, cash flow from operating activities has decreased significantly. This is strongly impacted by the elimination of trade notes. The forecast for fiscal 2024 is shown on this slide.
We are projecting for fiscal year 2024 order intake of JPY 620 billion, net sales of JPY 570 billion, operating income of JPY 26 billion, ordinary income of JPY 22 billion, and net income of JPY 16 billion. The slide on page 17 shows these figures by segment. I would like to show the key points on this in a later slide as well. I would like to move on to the breakdown of changes in operating income. This shows the breakdown of the change from JPY 24.3 billion in fiscal 2023 to JPY 26 billion in fiscal 2024. First, there is an increase of JPY 3.6 billion in environment EPC. This is due to the fact that the impact of the biomass power plant in fiscal 2023 will be gone in fiscal 2024, and also due to the increase in profit at the Inova group.
On the other hand, for Environment AOM, we expect a JPY 2.2 billion decrease in operating income due to a decrease in highly profitable projects such as retrofit works. One of the characteristics of this fiscal year is the increase in fixed costs. We expect an increase of JPY 2.2 billion. As we will explain later, we are reviewing the executive remuneration system and the managerial personnel system. These will result in an increase in labor costs. In addition, as we will change the name of the company in October of this fiscal year, we expect expenses for associated branding activities. Including these expenses, we expect fixed costs to increase by JPY 2.2 billion. Page 23 is financial information. I hope you will take a look at it later on. Page 24 is the return on capital and cost of capital slide.
On the left are ROE and cost of equity, and on the right are ROIC and WACC. Regarding ROE on the left, we have assumed a cost of equity in the range of 8%-9%. We have achieved a steady improvement in ROE since 2019, but unfortunately in fiscal 2024, we expected to decline to 9.5%.
Regarding ROIC and WACC, we have assumed WACC in the range of 6%-7%. ROIC was 7.4% in fiscal 2023, but is expected to decline to 7% in fiscal 2024. This is because we plan to increase business investment in line with our growth strategy, and as a result, we expect ROIC to decline to 7%. This slide shows our shareholder return policy. As I mentioned at the outset, we paid a dividend of JPY 23 for fiscal 2023 and planned to pay JPY 23 again for fiscal 2024. I will now move onto the management and business information. Page 27 shows the major orders received. First, for Japan. These are the major orders we received in fiscal 2023. Page 28 shows major orders received globally. Page 29 is a list of major projects in the environment business. Please note that the list includes only the projects for Hitachi Zosen.
I talked about the biomass power plant projects earlier. They appear on the second and third lines on this table, namely Tokushima Tsuda Biomass and Kamisu Biomass. Both projects were completed and delivered in fiscal 2023, so we do not expect any impact from these projects in fiscal 2024 onward. Page 30 lists the major projects in Inova Group's environment business. The bottom two, the Seoul and Abu Dhabi, as well as the two long-term operations, Slough in the center and Earlgate, where orders received during the last fiscal year. What I would like to draw your attention to is this chart. Orange lines are increasing. I think you can see from this that we have been shifting from a business structure that previously were skewed to EPC, to a strategy of expanding to O&M after completion. Page 31 onwards show the status of each business.
The top half shows charts and figures of order intake, net sales, and operating income. The bottom half explains market topics and highlights. Page 31 shows the environment business excluding Inova. Comments on the overall market for waste-to-energy facilities are given in the first bullet point on the bottom half. The market size will trend in the range of 2,500 tons-5,000 tons per year. Naturally, there are some fluctuations from year to year. In fiscal 2023, the market size was around 2,500 tons, which means it was at a low- level. We currently estimate that the market size will be at the 3,000-ton level in fiscal 2024. The key point in the upper chart can be seen in the operating income section. The dark green line shows EPC or new construction.
It shows that we hit bottom in fiscal 2023, and from fiscal 2024 onward, we will be on an improving trend. The construction of biomass plants I mentioned earlier were completed and delivered in fiscal 2023, so we expect to move to an improving trend. Page 32 is a slide of the Inova group. If you look at net sales and operating income, you can see that we are steadily moving in an upward trend. I would also like you to focus on the trend for AOM business, shown in light green. If you look at the sale figures for AOM business, it was JPY 11.5 billion in fiscal 2020, and now it is JPY 45 billion in fiscal 2024, a growth of about 4x This has led to the AOM businesses increasing contribution to operating income as well. This is a machinery and infrastructure business. First, let's look at machinery.
The most characteristic is the sales figures. In fiscal year 2022, sales were JPY 61.9 billion, but they declined to JPY 56 billion level in fiscal 2024. This mainly reflects the poor order intake of this segment, which is strongly affected by the sluggish semiconductor market. As a result, operating income has fallen from the JPY 3 billion level in fiscal 2022 to the JPY 2.2 billion level in fiscal 2024. As shown in the lower part of the slide, we expect semiconductor demand to recover during this fiscal year, and the key will be whether we can secure orders. For infrastructure, you can see that we are on a relatively stable trend. This is a carbon neutral solution business. This segment is strongly influenced by the trend of the social system transitioning toward a decarbonized society.
On the other hand, this segment is positioned as a growth business in the medium- to long-t erm. Please pay attention to the topic notes in the bottom half. For instance, in the case of engines, we received an order for dual fuel test engine for green methanol. In the area of process equipment, we are seeing an emergence of demand for alternative fuels in storage and transportation for CCS. In the area of decarbonization systems, we have signed a memorandum of understanding for the demonstration of the commercialization of methanation. In the area of wind power, institutional support for commercialization of offshore wind, such as additional Green Infrastructure Fund project applications and the GX economic transition bonds are starting to materialize. This is the segment in which we need to respond to these developments.
Page 35 shows performance targets and basic policies of Forward 25. I explain the current status of basic policies and priority measures shown below in the next page and onward. On page 36, please refer to the expanding overseas business first. We set our KPI of overseas sales as 40% for 2025, but as the chart below shows, due to the prominent contribution by Inova, we already achieved 45% in 2023. As for O&M service, shown on the right, we set this KPI as 50% for 2025. The result was 39% in 2023, and it decreased from the previous year. This is because of the prominent growth of Inova EPC business sales shown on the left, and O&M service sales proportionally declined. As the bar chart indicates, its gross sales have been increasing steadily.
We will continue to sustain this trend in the next fiscal year and onwards. Initiatives in promoting structural reform are shown below. As shown in the middle, we executed M&As in Canada, Thailand, and Italy in 2023. Page 37 shows expansion of overseas businesses. The pie chart in the upper part show the order market share of waste-to-energy business in EMEA market. Our share in 2018 was 26.6%, but in 2022, share of Inova was 55.3%, and share of HZI Steinmüller that became a part of our group was 11.1%, and we secured over 66% in total. Below, the expansion of value chain is illustrated. In FY 2017, we focused on EPC and European market, but now we developed strategy to cover global market and the full value chain.
Specifically, we have a project in Dubai and Abu Dhabi. Page 38 shows the overview of a project in Abu Dhabi that I just mentioned. Methanation demonstration project in Oman that I touched upon in the carbon neutral solution business. Page 39 shows the investment for the creation and expansion of growth businesses. We plan to invest approximately JPY 140 billion in three years from FY 2023 to FY 2025 in the Forward 25 Plan. In FY 2023, we invested JPY 38.4 billion. Out of JPY 140 billion in three years in total, we plan to invest JPY 75 billion in business, and we are currently steadily filling the pipeline of business investment. Next page shows some examples. Projects in Germany and Italy shown on this slide are all for biogas or biomethane.
REPowerEU, shown below, is the ambitious roadmap to strengthen energy security and accelerate the transition to renewable energy. This aims to produce 35 billion cubic meter of biomethane by 2030, which is estimated to be translated into 5,000 new biomethane production facilities. Page 41 shows KPIs in promoting sustainable management and results in FY 2022 and 2023. Activities in human capital and DX are shown below as well. Page 42 shows strengthening human capital. We are implementing personnel system reforms in earnest. We are now promoting review of the executive remuneration system and review of the managerial personnel system. In the review of the executive remuneration system shown above, we introduce performance-based compensation further and long-term incentives. This concludes my presentation, and we'd like to invite your questions and comments. Thank you.
We will now begin the Q&A session. First, Mr. Ito of Mizuho Securities, please.
This is Ito from Mizuho Securities. Thank you for this opportunity. Thank you. First question, could you explain your outlook for order intake for this fiscal year, especially about the environment business? You are forecasting JPY 470 billion for the environment business this term. Can you explain how that stacks up? For example, if you break it down by domestic and overseas, what is the pipeline you see? Is this number reasonable as the order intake target for this fiscal year? Or depending on how the pipeline is built up, is there a possibility that it could go higher? Could you explain about that first?
Yes. Thank you for the question. Please show slide 18. That was a question about order intake. We forecast order intake for fiscal 2024 to be JPY 470 billion. Compared to the previous fiscal year, that's a decrease of JPY 88.8 billion. The breakdown is JPY +56.2 billion for EPC and minus JPY -145 billion for AOM. Please turn to page 19. This shows the breakdown of the environment business into excluding Inova and Inova Group. First, in the domestic environment business, we are projecting an increase of JPY 25.4 billion in EPC. In terms of new projects, we expect three projects in Japan this fiscal year.
In the previous fiscal year, fiscal 2023, we had just one project. So that difference is manifested as the JPY 25.4 billion. AOM is forecast to decrease by JPY 71.4 billion. But this is due to most of the retrofit works being completed in the previous fiscal year, and there are almost no large-scale projects in this fiscal year. For Inova, we forecast order intake to be JPY 279 billion, down JPY 42.8 billion year-on-year. The breakdown is an increase of JPY 30.8 billion in EPC and a decrease of JPY 73.6 billion in AOM. As I indicated earlier in the major projects section, there were two EPC orders in fiscal 2023. We are planning to receive three EPC orders this fiscal year. As for AOM, we expect order intake to fall by JPY 73.6 billion in reaction to our receiving an order for long-term operation project in the U.K. in fiscal 2023.
Order intake fluctuate greatly from time to time. Winning or losing a single project can affect the number greatly, so our position is that we have no choice but to be conservative in our estimates. If the best of best case scenario holds, we can expect to see a large increase from this. Depending on the progress we see in the first or second quarter, we will revise this forecast as necessary. With that, I would like to conclude my response.
Thank you for your explanation. My last and second question. I'm looking at page 40. I want to ask about the biogas investment. I would like to ask you to explain again, if it's okay, how do you assess the level of IRR for your investments in biogas today? Is there a potential for it to become a more profitable business?
Or conversely, do you feel that it is lacking if the IRR for a project is falling below 10%? Also could you please explain about the business investment in biogas for fiscal 2024? What would be the approximate size of that investment?
Yes. Thank you. Regarding the IRR level, the two projects in Germany are in the upper teens range, and the project in Italy is around 8%, as shown. For your reference, the U.S. and Swedish projects in the upper rows are in the low teens range. We are in the startup phase of this new type of business model, so I think it is inevitable that we start in the teens.
However, if you ask me, would we be satisfied with a level below 10%?, I would say that of course we would not be, and our target would be to have IRR in the upper teens at a minimum. In any case, we believe that the most important thing during the startup period is to accumulate a track record of results. So we think that there may be a phase in which we will need to prioritize accumulation of projects first even if the IRR is in the low teens or occasionally under 10%. Regarding the plan for fiscal 2024, in terms of the level that we have in mind Let me answer this one later.
Okay. That's fine. Understood.
Mr. Ito, was that okay?
Thank you.
Now we would like to move on to the next person's question. Mr. Odaira from Tokai Tokyo Securities.
I hope I've read your name correctly. Please.
Yes, this is Odaira of Tokai Tokyo Securities. Can you hear?
Yes, we can.
Thank you as always. I have two questions. One is about Inova, and the other, I want to get your sense about the business portfolio. First, in terms of Inova's earnings environment, on page 38 of the presentation you mentioned Abu Dhabi and Oman. As you expand horizontally, I'm sorry, this is an unprecise question, but how do you see the opportunity and the threat risk picture here? Do you see opportunities and threats in the same way as before, or are you seeing some new opportunities and/or new risks that are emerging? Can you comment on this first, please?
Yes. Thank you. You asked about the risk or opportunity regarding projects in the Middle East.
Thank you for the question. Actually, the project that contributed to Inova's earnings in fiscal 2022 and 2023 was Dubai. Dubai progressed as a very profitable project. It was a different model from the U.K.. In Dubai, we have a consortium, and we work with local partners with respect to civil engineering. In the past, we experienced huge losses arising from civil engineering work in the U.K., but in the Middle East, we have a scheme where we have a partner to take on the civil engineering risk. In Abu Dhabi, we are also working with partners in the same way. Based on our experience in Dubai and Abu Dhabi, we have accumulated a considerable amount of knowledge and expertise in project execution or are in the process of acquiring that knowledge in the case of Abu Dhabi, which is yet to be started.
In terms of opportunities, I think that the demand for waste-to-energy in the Middle East will continue to increase in the future. In Africa, for example, we are already seeing the emergence of such demand in countries such as Morocco. I believe that our track record in the Middle East will contribute to our competitive advantage in those new markets. Also, the methanation project in Oman that is shown on this slide, as you can see at the bottom. This project is a collaboration between Hitachi Zosen, Inova, and Osmoflo, our Australian subsidiary. Hitachi Zosen provides the methanation technology. Inova provides project execution and engineering expertise centered around the Middle East. Osmoflo will be in charge of seawater desalination. I think we shall see more of these kind of group-wide collaboration opportunities to emerge in the future.
Understood. Thank you. Second question.
Mr. Kuwahara, since you assumed the presidency recently, I would like to ask you about your thinking on Hitachi Zosen's overall business portfolio. For example, about 10 or 15 years ago, when the earnings environment was extremely tough, investors were telling you to sell this or that or to downsize. In the end, there were some things that you could do, some things you couldn't. This time, while profits have been growing at a respectable rate, you do have some unprofitable and low-profit businesses. Forgive me for pointing that out, and I want to ask what you plan to do about them. May we assume that you will continue the approach of keeping those businesses and working to revive their profitability? Or will you aim to improve profitability by, for example, selling them or restructuring them?
I want to confirm how you see this issue of the total business portfolio. This is my second question.
Yes, thank you. I have recently been appointed as President, and my own personal view is that one of the critical missions assigned to me is to further accelerate the growth of our overseas business centered on Inova. Another one is to promote the business portfolio that you just mentioned. We prepared slides on return on capital and the like. It is basically ROIC management. For this, we only showed high-level indicators at the company level, but I believe that in the future, we will be asked to disclose ROIC by segment, and I think we will have to oblige. I believe that under this kind of management approach, we also need to improve the balance sheet and portfolio. I would like to leave it at that for today.
Understood. I will probably ask a follow-up question sometime in the future. Please indulge me then. Thank you.
Thank you.
Thank you, Mr. Odaira.
Now to the next question. Mr. Noguchi of SBI Securities, please.
Thank you for taking my question. I am Noguchi of SBI Securities. Can you hear me?
Yes, we can.
Thank you. First question. Let me ask you about the results for the fiscal year that just ended. Could you turn to slide six? It is about the order intake. According to the forecast made three months ago in February, order intake for fiscal 2023 was supposed to land at JPY 620 billion, but in fact, it ended up more than JPY 90 billion higher at JPY 715.1 billion. I think this is mainly due to better-than-expected results in the environment business. What was behind this? Did you suddenly receive an unplanned project? It seems that is not the case and rather it was some fiscal 2024 project coming in early.
But since the outperformance was quite large, can you talk about what led to this?
Yes, thank you. You are asking about the outperformance in order intake. As you can see from the chart, the upswing occurred basically in the environment business. Please look at slide eight. As of February, we were forecasting Inova's order intake to be JPY 249 billion, but the final figure came in significantly higher at JPY 321.8 billion. EPC in particular was JPY 156.2 billion, an increase of JPY 40 billion over plan, and AOM was JPY 165.6 billion, an increase of a little less than JPY 30 billion. Foreign exchange impact was certainly a part of this. We believe that foreign exchange factors accounted for about JPY 10+ billion of the upswing. And then the Abu Dhabi project was finalized at the end of March within the fiscal year.
Since we did not know until the very end whether the Abu Dhabi project would be included in this fiscal year, we were a little conservative in our projection. The Abu Dhabi project contributed significantly to the result for fiscal year 2023. Those I believe are the major factors.
I understand. Thank you. Also in the domestic environment business excluding Inova, was there an order intake outperformance of about JPY 25 billion mainly from AOM?
Yes. Thank you. In the domestic environment business this fiscal year, there was an irregular or, irregular is probably not the right word, a project that we did not anticipate in the budget and that was a large scale renovation project for the city of Nara. This one project alone brought in about JPY 12 billion in orders which was outside the budget.
In addition to these, I think that some of our conservative forecasts have led to the deviation. Thank you.
I apologize for my long question. Can you jump to page 19? The plan for this fiscal year is on the far right, and it shows that AOM order intake will drop by more than JPY 70 billion, from JPY 198.4 billion to JPY 127 billion. You also explained that retrofit works will decrease. But may we assume that excluding Inova in the best case scenario, there is a possibility that an unexpected project worth tens of billions of yen could come in again? Of course, some things you don't know, but is it correct to assume that the possibility is not zero? Thank you.
As for the domestic environment business, our main customers are local governments, so basically there will not be such a big change.
I think that last year's project with City of Nara was a special case. The city of Nara itself had not originally planned this project, but they encountered frequent problems caused by aging, and the city was forced to place an unplanned order. This is not to say that such cases will not come up, but at this point we do not anticipate any such case, and so I do not think that we can expect much of an upside here.
I understand. Thank you very much. Finally, the second question. Could you please show their carbon neutral solution business on page 21? You plan an increase in net sales of JPY 19.8 billion, about JPY 20 billion, but expect operating income to drop by JPY 500 million. A projection of higher net sales and lower income doesn't sit well with me.
Is it just that you are forecasting conservatively, or is it because some subsidies will be reduced? The nature of this business is upfront investment, so I don't really expect profits, but it is a bit worrisome to see sales increase and profits decrease. Please explain this and also give me your outlook for the future.
Yes. Thank you. Of the JPY 19.8 billion net sales increase in fiscal 2024, wind power accounts for JPY 10.2 billion. The bulk of the JPY 15 billion net sales in fiscal 2024 for wind power is the Mutsu-Ogawara onshore wind power projects. This project will reach its peak in fiscal 2024. However, the Mutsu-Ogawara Project is a loss-generating project. We secured the order accepting that this will generate a loss. Therefore, although net sales will increase for wind power, there will be almost no contribution to profit.
On the other hand, the process equipment, there were foreign exchange factors in the previous fiscal year and also factors such as the elimination of warranty work, which we had had until two fiscal years ago. Therefore, in fiscal 2023, there was a gain on the reversal of warranty work provision. This special factor will be removed in fiscal 2024, and this is why we are forecasting a decrease in operating income. Having said that, processing equipment is certainly on a trend of profit growth, and this is a segment that benefits from yen depreciation, so I personally expect an improvement here.
Well understood. Thank you. That's all.
Yes, thank you very much. Now the next question. Mr. Tsuge, please.
I am Tsuge from Nikkei. Can you hear me?
Yes, we can. Thank you. Please.
First question. On page 39 in the basic policy two, creation and expansion of growth businesses, you mentioned that the actual investment for 2023 was JPY 38.4 billion, including JPY 15 billion for business investment and JPY 9.6 billion for CapEx. What is your outlook for the current fiscal year to the extent you can comment? Broadly speaking, how much do you plan to invest for business, CapEx, R&D, and DX? Could you share your basic thinking about this?
Thank you for the question. Regarding capital investment and R&D investment, please refer to slide 23. The third and the second lines from the bottom show the planned R&D and capital investment. In fiscal 2024, we are planning JPY 12 billion for R&D and JPY 13 billion for capital investment.
Going back to the previous page, as for business investment, leaving aside whether the plan itself will be realized or not, if we add up the projects that have been accumulated so far, we are looking at a level of over JPY 30 billion. This may also serve as an answer to Mr. Ito's earlier question, but this is the sense of scale with which we are projecting for fiscal 2024. Thank you.
Could you break us down, to the extent possible, what is inside the business investment and capital investments?
In terms of capital investment, I don't think there were any large-scale individual projects. We are planning to expand clean room facilities related to the precision machinery business, but basically, there are no major capital investments. We understand that most of the investments will be for the renewal of facilities.
As for business investment, I think that the main investments will be in biogas-related projects centering on Inova. At the same time, we are also looking at possibilities of M&A for the development of the biogas business or the expansion of the AOM business. Basically, I think our investments are centered on Inova.
I understand. Thank you. One more question, if I may. In the section on the increase in fixed costs, you mentioned branding costs associated with the company name change. Could you tell us what specific branding activities you are planning with the name change?
Thank you for the question. As for the specific branding activities accompanying our company name change, we'd like to maintain some element of surprise, so please spare us from sharing the specific details.
We have already started to put up a large display next to the scoreboard at Kyocera Dome in Osaka, and we have also started to display the company name near the dugout at Jingu Stadium. Naturally, we will also be running newspaper ads and the like, and we are currently planning a variety of other activities.
I understand. Thank you.
Thank you very much, Mr. Tsuge. The next question is from Ms. Ike of Nikkan Kogyo Shimbun. Over to you.
This is Ike of Nikkan Kogyo Shimbun. Do you hear me?
Yes.
Thank you. My first question is about slide 36, overseas business future plan. I think your long-term plan for 2030, overseas sales ratio is set at 50%, and you said that you already achieved 45% in 2023. Given the robust growth of Inova, I think it is likely for you to achieve the target of 50% in 2030 earlier. What is your take on this? This is my first question. Thank you.
I think your observation is correct, and I think we need to achieve the target earlier than the plan. Otherwise, it will be hard to achieve JPY 900 billion in 2030 or the path for JPY 1 trillion would be difficult to see. Thank you.
My follow-up question is: do you think you have upside from 50% in 2030?
When we realize the size of sales that I mentioned now, I think we need to exceed 50%. As for the number, we have not gained authorization yet in the company, so I hope you to take this as my personal view. To reach the targeted level of sales, I think we need to exceed 50%. Thank you.
Another follow-up question. We grow overseas business centering on Inova, and recently EPC, AOM, and Business Development have been very robust with successful orders. For the mid to long term toward 2030, what business will be the key for you? As for region, you also said in the plan that you like to expand globally including any potential market. Please let us know more specifically. Thank you.
We continue to grow globally centering on Inova, as you mentioned. The key to expand the global business or Inova business is biogas business, as shown here. The biggest key is that we grow this with business development. On this slide, Inova's acquisition of Schmack Biogas, a biogas business mainly in Italy, is listed as an example. Acquisition of the business of Schmack Biogas is, of course, the objective of the transaction. I think the essential objective of this acquisition is to secure human resources. The potentials of biogas business, mainly in Europe, is still very large. To leverage this, human resources are still in short supply. Therefore, the speedy and steady implementation of the business reform, mainly in Europe, is one of the greatest challenges.
I said before that investment for M&A is in our consideration, and to secure human resources is one of the key points in the consideration. To secure human resources who are capable of business development is my prime interest. Does that answer your question?
Thank you. May I confirm one number in your answer to the question from Nikkei? The investment for the business in this fiscal year. Did you say that the investment for business has over JPY 30 billion?
Yes, exactly.
Thank you.
Is the amount for business development separate from R&D and CapEx?
Yes.
Thank you. That's all from me.
Now I'd like to take the second round of questions. Mr. Ito of Mizuho Securities, over to you.
Thank you for taking my question again. This is Ito of Mizuho Securities. I have one question.
From the viewpoint of biogas business investment, securing human resources through M&A or securing business relating to this, how is Hitachi Zosen engaged with Inova? Of course, depending on the project size and importance, it would vary. But how is your company involved in terms of type of schemes and in due diligence or business scrutiny?
Thank you. Basically, in the case of M&A by Inova, the task force of M&A and M&A investment is established, hiring local specialists. Of course, for each project, we are regularly reported by Inova. This is frequently asked question in the Board meeting as well by the outside directors as to the governance structure, whether it is aligned well with the rapid growth of Inova. The Chairman is the dispatch from Hitachi Zosen over there. Another chairman, the new department of Chairman's office launched from this year.
It includes members in charge of internal control, internal audit, and project risk management, and the promotion of integration with Hitachi Zosen. We launched a structure to ensure governance directly under the Chairman. Through the collaboration between the chairman's office, Environmental Business Division, and Overseas Business Division, we ensure effective governance. I'm not too sure whether the point of Mr. Ito's question was governance, but for your reference, I explained our governance structure. Thank you.
Thank you very much.
Next question is from Mr. Noguchi of SBI Securities. Over to you.
Thank you for taking my question for the second round. I have one question. Excuse me for asking about number. On page 19, the plan for this year, excluding Inova, is shown above.
Looking at net sales and operating income of AOM, sales will increase by JPY 8.1 billion, but operating profit will be down by JPY 3 billion, posting sales increase and profit decrease. The mixed deterioration might be a part of the reasons. An OP margin is around 8%, and given FY 2022 was around that level of OP margin, I agree to some extent. But would you let us know the background of the sales growth and profit decline, and the room for the upside? Thank you.
Thank you. I think you suggested it hard to understand why profit will be down despite the sales growth in AOM. I wish you to understand that in our business, profitability varies substantially year by year due to the project mix.
As mentioned in the presentation, I think it is most appropriate to explain in qualitative manner, saying that major reason for the deteriorated profitability is a completion of high-margin project. May I explain with some specific numbers? There were six completion of retrofit of core facilities project in FY 2023, while in FY 2024 it will be four cases. As I said before, the profitability of each project varies, so only the number of the finished project cannot tell you the entire story. This is a part of the quantitative data. As for the potential for the upside of profit, I think there is sufficient room for the upside in AOM. The answer may not be sufficient, but that is all I can say now.
I understood your intention. Thank you.
Thank you very much. As explained before, overall corporate fixed cost increase is allocated for each business.
Please see page 22 later for more information. Are you fine with one question?
May I ask one more question, if I may? On page 22, this year it says that fixed cost, including branding and personal cost, will push down profit by JPY 2.2 billion. Can you share with us the mix between personal cost and branding cost? The point of my question is that whether the branding cost of, say, JPY 1 billion this year, will that continue in the next fiscal year, or whether it will normalize next year, and whether that will be a positive profit contributor in the future. I would appreciate if you can tell as much as you can. Thank you.
The mix of JPY 2.2 billion between branding and personnel cost, sorry, I cannot tell you this. Excuse me.
We will continue our branding activities in the next year and onward to improve the recognition of our company name and to improve branding status. Not only in this fiscal year, but also next year and onward, we will continue to spend a certain level of branding cost.
Understood. Thank you. That is all from me.
Thank you. Next question is from Ms. Ike of Nikkan Kogyo Shimbun.
Thank you again. This is Ike of Nikkan Kogyo Shimbun. I would like to ask about the size of the investment for R&D cost for FY 2024. I may have missed this, so please let me know the contents of R&D cost again.
I did not mention specifically about the contents of R&D cost before. The R&D cost is more skewed for environment and carbon neutral solution. I would like to refrain from disclosing the breakdown here.
As a specific example, we are promoting the offshore wind power demonstration test utilizing Green Infrastructure Fund, and high CO2 concentration incineration, working with Tokyo government using an incineration plant in Shinagawa. We are promoting R&D with other organizations as well. This may not be the sufficient answer. Did I answer your question?
Yes. Thank you. Thank you very much.
Though we have little time left, as we do not have further question, I would like to close Q&A session here. If you missed any points, please contact our IR staff later. At the end, Mr. Kuwahara will say a few words for closing.
Thank you very much for taking time to participate in our financial results meeting today. If you find anything unclear in the presentation, as Sugimoto mentioned before, please do not hesitate to contact us. In the first year of Forward 25, we are off to a good start.
We believe that the action in this year and the next year will lead to the growth in the next midterm plan. We would like to make these two years solid to ensure the growth in the next midterm plan. I would appreciate your further support and cooperation. Thank you very much today. I will conclude the financial results meeting with this. Thank you very much for your participation today.