Earnings Call: Q4 2026

May 14, 2026

Summary

FY26 delivered record net sales and parent-attributable profit, with operating profit slightly ahead of forecast. FY27 guidance targets JPY 638.5 billion in sales and JPY 47 billion in operating profit, while Middle East risks remain excluded from forecasts.

My name is Kimihiro Nakamura, and I am the CEO. Thank you for your continued support for Sankyu and for attending the financial results briefing today. I would like to start by explaining and providing a brief overview of the financial results and key topics for the fiscal year ended March 31, 2026. This is a summary of the latest financial results. Firstly, I will discuss the impact on the company of Middle East-related developments, which have recently had a significant effect on domestic and international conditions, as well as our initiatives with an awareness of capital markets. Following this, Mr. Kitami, our CFO, will explain the results for the fiscal year ended March 31, 2026, and the outlook for the fiscal year ending March 31, 2027. With that in mind, we have revised Vision 2030 for the year 2030. I will then come back to provide a brief overview of the revised vision. I would like to discuss the situation in the Middle East, which has recently raised concerns regarding its significant global impact. May I first say that regarding our current operations, neither our Jeddah headquarters nor our customers' on-site locations have been directly affected by the war, and operations are continuing as normal. We have over 1,300 employees in the Middle East, and we are continuing to provide services while prioritizing employee safety. From a revenue perspective, approximately 60% of our service contracts are lump-sum contracts, or so-called fixed total contracts, so there is no short-term impact at present. Regarding the future outlook in the Middle East, the plant maintenance services market in the region is worth approximately JPY 340 billion, and we see the Middle East as a growing market. This slide outlines the domestic and overseas direct and indirect impacts. One of the direct impacts is the rising fuel price on operating costs. Last year, the group's annual power fuel costs were a little over JPY 5 billion. While we have not seen a significant impact from cost increases at this time, costs may increase by approximately 20% compared with the previous fiscal year. On the other hand, some of our major customers, including chemical manufacturers, have already announced production cuts. Nonetheless, as of March and April, as shown in the lower row, this is not a major concern for the company at this point. Nevertheless, the situation in the Middle East is far from over, and we intend to closely monitor future developments. Furthermore, while we have not currently factored these impacts into our earnings forecasts, we plan to make timely disclosures when we announce our first-quarter results or at any other point when a significant impact is anticipated. Next, I would like to provide an explanation regarding our IR activities and projects related to stock liquidity. This slide shows the trends in opinions and concerns raised during IR meetings. We recognize that the low level of interest in human capital, which is the foundation of our management, remains a challenge. In our revised Vision 2030, we have enhanced disclosure, including setting numerical targets for employee engagement to improve the reproduction of human capital. We will continue to strengthen the cycle of reflecting investor feedback in our management and information disclosure. In the previous fiscal year, we created various opportunities for dialogue, and I would like to sincerely thank you all for participating in these opportunities. We also held our first meeting with external directors, as well as a site visit to the Middle East. Going forward, we will continue to create opportunities for dialogue that meet the needs of our investors. From a governance perspective, we plan to appoint an additional female external director with business experience after the general meeting of shareholders in June. Furthermore, from the perspective of strengthening governance at our overseas bases, we plan to appoint an external audit and supervisory board member who has many years' experience in overseas management at a general trading company. As a company, we have been strengthening management and disclosures focused on investors' perspectives through our IR activities. In recognition of these efforts, we were highlighted by the Tokyo Stock Exchange as a best practice in the previous fiscal year. Going forward, we will continue to enhance disclosure focused on investors' perspectives. As a result of our past IR activities, we have received numerous comments and questions regarding the liquidity of our shares, employee engagement, and the expansion of our investor base, among others. In response, we decided to launch a comprehensive stock liquidity improvement project. The first step, as disclosed today, is to conduct a five-for-one stock split. Our aim is to broaden participation among individual investors and improve stock liquidity. We are also preparing measures that we hope to implement promptly, including enhanced IR activities for individual investors and increased incentives in the employee stock ownership plan. Going forward, we intend to address these issues while continuing to provide appropriate information disclosure regarding ongoing considerations. Now, I would like to explain the results for the fiscal year ended March 31, 2026, and our forecasts for the current fiscal year. Given the overall volume of information, I will move through the presentation fairly quickly. Regarding the final results for the previous fiscal year, operating profit slightly exceeded the previous forecast. As a result, both net sales and profit attributable to owners of parent reached record highs. In addition, we maintained ROE in the 10% range and executed share buybacks as initially planned. Nonetheless, given the uncertainty in global conditions and industry trends, we recognize the need to remain vigilant. Regarding trends by segment, firstly, in the logistics business, although unit price revisions were implemented, they did not fully offset rising costs, and operating profit came in slightly below the previous forecast. In the plant engineering business, despite it being a minor year, some businesses achieved their targets ahead of schedule, resulting in record-high net sales and an upward revision of operating profit by approximately JPY 1 billion from the previous forecast. Firstly, regarding the breakdown of the logistics business, while 3PL and general logistics saw increased profits, partly due to structural reforms in our China business and price revisions, port operations and global logistics experienced a decrease in net sales and profit overall, owing in part to delays in structural reforms. Regarding on-site logistics and on-site operations, profitability improvements overseas offset the impact from delayed work volume and price pass-through in the domestic market. I will explain future initiatives later in this presentation, together with the earnings forecast. In the plant engineering business, net sales increased due to the acceleration of some projects, despite it being a minor domestic SDM year. However, this did not contribute to profits. Facility work benefited from an increase in environmental-related construction, and despite an increase in costs overseas, net sales and profit increased overall. Regarding M&A, the full consolidation of Sanyou Kogyo at the end of 2024 added approximately JPY 5 billion to net sales and approximately JPY 400 million to operating profit. Next, let's take a look at the overall price pass-through situation. In the logistics business, while some progress has been made in passing on price increases, we have not been able to fully absorb the increase in costs, including personnel expenses and outsourcing costs, and we will continue to aim for further improvement in this area. On the other hand, price pass-through in the plant engineering business is generally progressing well. We plan to continue negotiations regarding future projects. This slide shows the trends in orders received and order backlogs in the plant engineering business. The fiscal year 2025 was a transitional phase for large-scale projects, and the order backlog for the second half of the year was at a similar level to the fiscal year 2023. While large-scale projects in the steel and chemical industries, which account for a major part of our overall order backlog, will enter a transitional phase, we will also see a large number of small and medium-sized projects related to environmental infrastructure and energy. Therefore, we intend to focus on securing orders in these new areas to maintain revenue overall. Next, I'll explain our financial results forecast for the current fiscal year. I would like to explain our earnings forecast for this fiscal year. We are projecting net sales of JPY 638.5 billion, operating profit of JPY 47 billion, and profit attributable to owners of parent of JPY 33 billion, aiming to achieve the target for the final year of our Medium-Term Management Plan. In terms of dividends, we are considering a dividend payout ratio in the 40% range and a five-for-one stock split, and our aim is to increase the annual dividend to JPY 264. As I explained at the start, we have not yet factored in the impact of Middle East-related issues. Our intention is to make timely disclosures as the situation changes, either at the time of our first quarter earnings announcement or once the situation becomes clearer. This slide shows performance figures by segment. Slide 20 shows the segment breakdown for the logistics business. In port operations and global logistics, we do not expect to see a recovery in volume and therefore anticipate a slight increase in net sales and profit through price revisions and cost control. In 3PL and general logistics, we anticipate a relatively high profit contribution from the reduction of unprofitable businesses and the realization of structural reforms overseas. In on-site logistics and on-site operations, we expect a decrease in net sales but an increase in profit as we prioritize structural reforms, including the workforce composition. This will be a year of writing and implementing prescriptions tailored to the challenges identified in each business segment. Overall, however, our aim is not so much to significantly increase net sales, but rather to improve profitability through cost structure reforms. I will now explain our specific strategy for the logistics business. In the previous fiscal year, we focused on unit price revisions with customers, and while we achieved some degree of success, the significant impact of increases in labor costs, outsourcing costs, and material costs limited the contribution to profits. Therefore, we intend to further advance the structural reforms we have been working on. Looking back to the previous fiscal year, we focused on three strategic themes: selection and concentration, reskilling, and the elimination of multiple structures and costs. Based on these themes, we implemented concrete measures. Given the limited results, this year, we will resolutely pursue price adjustments, with business withdrawal being one of the options. In addition, we are further advancing reskilling and optimizing our human resources. We also intend to move toward asset-light operations, including logistics facilities, and we plan to disclose details of this as soon as possible. This year, as a result of these efforts, we intend to improve profit by JPY 1.5 billion and increase our operating profit margin. Regarding the plant engineering segment, the maintenance business is expected to see an increase in net sales and profit, with SDM being a major focus this year. In the facility work business, we anticipate a decrease in net sales, partly due to a decline in overseas spot projects and a decrease in revenue caused by the decline in spot projects. However, we anticipate slight profit growth as a result of the TTCL provisions in Thailand in the previous fiscal year. Here, I will explain our medium-term strategy for the plant engineering business. Our basic concept is to maintain the revenue base in the steel and chemical industries while promoting portfolio transformation through M&A and expansion into new areas. Following our M&A of Sanyou Kogyo and Hino Kensetsu, we have now completed M&A of Maruei Sangyo and SWTS with the aim of establishing and strengthening a foundation for portfolio transformation. We have executed M&A totaling approximately JPY 20 billion during the Medium-Term Management Plan to date. We will now transition to an order expansion phase aimed at the end of the fiscal year ending March 2031. Specifically, we will consider total investment of approximately JPY 100 billion, including the execution of M&A for road and sewer infrastructure companies, aim to develop and acquire over 120 specialized talent, anticipate synergic benefits of over JPY 3.0 billion through collaboration with group companies. In addition to M&A, we have also outlined concrete plans for building a human resources base to support growth businesses. Please take a look at the chart on the left. To promote workforce mobility for steel and chemical personnel, we will advance centralized management across branches and global rotation. Our initial goal is to train 300 hybrid personnel. Now, let's look at the chart on the right. In terms of strengthening relationships with partner companies, we are working on enhancing workforce mobility through Sankyu Plant Engineering Liaison Association with a target of 650 partner companies and 7,000 partner company employees. We will utilize our personnel management system in an effort to improve productivity. Regarding our logistics and plant engineering businesses, we have previously outlined our initiatives. Today, I would like to focus specifically on our overseas operations. Our fundamental approach is to pursue selection and concentration, thereby strengthening overall profitability. In the previous fiscal year, we implemented structural reforms in our China business and closed unprofitable operations in Europe. However, in light of significant changes in the external environment, we will continue structural reforms in China and further extend similar measures to other regions. This includes addressing unprofitable businesses and reducing expatriate personnel. In addition, as provisions related to Thailand are expected to normalize, and in combination with these initiatives, we aim to achieve a V-shaped recovery in the current fiscal year. Looking ahead toward the final year of our Vision 2030 plan, we will advance initiatives aimed at achieving returns commensurate with the risks associated with our overseas businesses. Finally, regarding capital investment, in order to sustainably enhance corporate value, we have actively pursued strategic investments such as M&A and capital investments that contribute to growth while being mindful of an asset-light approach. M&A for this fiscal year already includes the approximately JPY 11 billion investment in SWTS, a joint venture with ITOCHU Corporation, which has already been announced. While focusing on capital efficiency, we are steadily strengthening the allocation of capital to growth areas and will continue proactive investments going forward. Regarding overall cash allocation, we anticipate a slight increase in cash in, partly due to a strong performance and the securitization of receivables. On the other hand, in terms of cash out, we are broadly considering M&A opportunities as they arise, and we also plan to allocate funds to system investments aimed at improving security and productivity. We plan to implement a dividend for this fiscal year at a level that will effectively be an increase, including a stock split, and we also plan to implement a share buyback to the tune of JPY 20 billion, similar to the previous fiscal year. This concludes my explanation of performance-related matters. I would now like to explain the Vision 2030 revision for the year 2030. Based on the Medium-Term Management Plan 2026 review, which was announced in May 2025, we have re-examined our long-term policies and updated Vision 2030, which was disclosed in January 2023. Allow me to explain the reassessed positioning and role of each medium- to long-term management plan, including the Vision 2030 revision. The Company has aimed to evolve into a regrowth company through management structural reforms based on a balance between investment and shareholder returns, centered on realizing gratitude to people, society, and the environment through our business. During the course of this fiscal year, we will focus on formulating our Medium-Term Management Plan 2030, and will postpone the announcement of Vision 2040 until next year. I apologize for retracting what we communicated in the previous fiscal year. In the Medium-Term Management Plan 2030, which will be announced in May next year, we plan to disclose more detailed information about the specific content and effects of our existing business strategies. Next, I will explain the revision of our policies, which forms the core of this update. Vision 2030 set forth five business environments surrounding the Company and three corresponding policies. This update, which takes into account changes in the business environment, reorganizes our new policies for becoming a regrowth company, with a focus on three axes, business, financial, and non-financial, from the perspective of clarifying the relationship between challenges and policies. This is a summary of Vision 2030 revision. To achieve a record-high ROE, we have redefined our policies from business, financial, and non-financial perspectives as we approach 2030, the final year of Vision 2030. Firstly, regarding business, we have increased net sales for the final year to over JPY 750.0 billion by actively challenging growth markets. Furthermore, we will promote cost structure reforms with a focus on management costs. We will transition our internal organization to a structure focused on essential functions while eliminating overlapping operations and processes in internal management and controlling management costs, including intermediate department costs other than selling, general, and administrative expenses. Next, regarding financial, we have revised our target for equity, which was announced last year, from JPY 270 billion to JPY 300 billion as of March 31st, 2031. However, we aim to achieve ROE of 14.6%. Finally, regarding non-financial, as society experiences progress in work style reforms and changes in the work environment, we will promote the creation of systems that enable employees with diverse backgrounds to maximize their potential. We will also continue to promote digital investments to differentiate our business and enhance our operations. We anticipate investing a total of approximately JPY 30 billion over the eight-year period from the fiscal year ending March 31st, 2024, to the fiscal year ending March 31st, 2031. Here you can see the breakdown of Vision 2030 by business segment. In addition to improving business performance based on existing businesses, we will also work to expand our business scale through M&A. Regarding our M&A policy, we have traditionally implemented M&A that served as renewal investment to maintain existing businesses. Going forward, we will also execute M&A aimed at acquiring services that could become new businesses, taking into consideration target markets, existing industries, and the future. To achieve this, we will consolidate M&A consideration and execution functions that are currently dispersed throughout the company, thereby creating a more flexible execution system and aiming for further performance improvements. Finally, I would like to explain our human capital utilization policy with a view to further improving productivity. Firstly, regarding the quantity of human resources, we aim to move away from the traditional securing human resources and start to systematize a circular structure of human resources. To this end, we will strengthen our management capabilities regarding our human resources portfolio, including the age distribution, placement, and skills of our human resources. In addition, we have a system in place to quickly enable the operational capability of human resources through the establishment of a structured training program. We will build a global system for reproducing this human capital and further advance our efforts to connect the value of people’s work to the enhancement of corporate value. The contents I have explained today will be disclosed in a more detailed implementation plan in our Medium-Term Management Plan 2030. This concludes my presentation.