Kanadevia Corporation (7004) Earnings Call Transcript & Summary

Thank you for attending our financial results briefing today. I'd also like to take this opportunity to thank you for your continued support of our company. I will now explain our financial results for fiscal year 2022 and our forecast for fiscal year 2023. Please turn to Slide 4. Here are the key points of the financial results for fiscal '22. One, we were able to receive continued high level of orders in Japan and abroad. Two, we achieved year-on-year increases in both sales and income in all segments. Both net sales and operating income increased for the fifth consecutive year. Please turn to Slide 5. Order intake was JPY 737.5 billion, up JPY 59.6 billion year-on-year and a new record high. EPC orders for waste-to-energy plants in Japan and overseas made a significant contribution. Net sales increased in all segments, reaching JPY 492.6 billion, up JPY 50.9 billion year-on-year. Operating income also improved in all segments, rising JPY 4.5 billion year-on-year to JPY 20 billion. However, due to cost of fixing defects at domestic plants and also due to foreign material prices, we could not increase operating income commensurate with the sales, and the year-end figure was same as the beginning of the year forecast. As a result, operating income margin was 4.1% lower than the initial forecast of 4.5%. Ordinary income increased JPY 6.1 billion to JPY 17.8 billion, mainly due to an increase in operating income. After adjusting for extraordinary gains and income taxes, profit attributable to the shareholders increased by JPY 7.7 billion to JPY 15.5 billion. As a result, ROE was 11.5% as shown in the margin. I will omit the explanation of Slides 6 and 7. I'll explain the details on Slide 8 and onward. Here are the details of the Environment business. Please turn to Slide 8. This is the Environment business, excluding Inova. Order intake increased by JPY 46.2 billion year-on-year due to our winning all 5 EPC projects that we were quoting on in Japan. AOM orders also increased by JPY 58.9 billion due to the receipt of orders for 5 retrofit works and 4 DBO projects for operations. EPC net sales were flat year-on-year. An increase in construction and waste-to-energy plants in Japan was offset by lower biomass related projects. For AOM, sales increased by JPY 12.5 billion, mainly due to JPY 4.3 billion increase in environment AOM and operations, JPY 3.3 billion increase in electricity sales business and the JPY 5.2 billion increase in water business. Operating income worsened due to EPC expenses for additional measures against defects continuing on from the previous year at the biogas facility, furnace and boiler in Kyoto as well as inclusion of expenses to deal with failures and delivery delays at the biomass plant. On the other hand, improved earnings from other construction projects and at group companies offset these negatives, resulting in a JPY 900 million year-on-year decline in overall EPC earnings. In AOM business, electricity sales income declined JPY 700 million in the first half due to an increase in procurement costs from the market. In addition, AOM long-term operations and others saw a JPY 600 million drop in operating income. Meanwhile, water business income increased JPY 700 million due to profitable construction projects, and AUM income as a whole was down JPY 800 million year-on-year. Next is about Inova Group. Order intake increased by JPY 46.9 billion in EPC due to 3 large construction projects in the U.K. and order for Steinmüller and others. AOM was down year-on-year because we had O&M projects in Dubai and Westfield that year before, but was well above the forecast made at the beginning of the fiscal year. Net sales increased by JPY 17.7 billion in EPC due to the steady progress of each construction project. In AOM, sales increased by JPY 10 billion due to contributions from Steinmüller and other group companies. Operating income in EPC increased JPY 2.9 billion due to increased sales and improved operating margin. And in AOM, operating income increased JPY 1.4 billion due to increased income at Inova itself and Steinmüller turning a profit, and that contributed significantly to earnings. Steinmüller exceeded breakeven in fiscal '22 and was able to achieve profitability 1 year ahead of schedule. Please take a look at Slide 9, Machinery and Infrastructure business. Order intake for press machines recovered to the pre-COVID level, but orders for other products declined due to the large order intake in the previous year and a decrease in semiconductor-related orders in the second half of the fiscal year. Net sales increased in press machines and in Precision Machinery. Sales of the materials business and the semiconductor-related equipment business at group companies continue to grow. Operating income increased JPY 5 million in press machines and also increase for VTEX and IMAX, while infrastructure income fell. Overall operating income increased by JPY 1.2 billion. Turn to Slide 10, please, carbon-neutral solution business. Order intake increased by JPY 33.2 billion due to recovery in process equipment orders and an order for a large onshore wind EPC at Mutsu-Ogawara in our Moli prefecture. Net sales increased JPY 6.7 billion, mainly due to a JPY 1.7 billion increase in engines stemming from unit growth and a JPY 5.4 billion increase in sales of process equipment to Shell Canada and others. Operating income was down JPY 800 million in engines, mainly due to material price surge, but improved by JPY 1.1 billion in process equipment, leaving the total operating income unchanged. Slide 11. Order backlog at the end of March '23 was JPY 1,317,700,000,000. This was an increase of about JPY 300 billion from the end of the previous fiscal year. In terms of order backlog by sales recognition year, net sales for fiscal '23 are fixed up to JPY 405.5 billion. Slide 12 shows the breakdown of changes in operating income from fiscal '21. The breakdown of the changes are indicated in the boxes. As for others, there was an increase in income at logistics subsidiaries and a reduction in fixed costs for shared services. Inova Group operating income increased JPY 4.3 billion year-on-year, JPY 1.5 billion higher than the initial forecast. If you go to the right a bit, the environment EPC, excluding Inova, was minus JPY 900 million, a deterioration of JPY 3.8 billion from the initial forecast. Although environment business, excluding Inova, was down, the Inova Group, Machinery and Infrastructure and other businesses were up, resulting in -- our achieving the operating income forecast. Slide 13 shows nonoperating income and loss and extraordinary profit and loss. In nonoperating income and loss, foreign exchange gains and losses will be minus JPY 100 million, mainly due to a minus JPY 200 million at hits and JPY 700 million improvement at Inova. Extraordinary profits come from the sale of fixed assets, and the partial transfer of shares in a logistics subsidiary extraordinary loss is due to impairment loss at an Inova subsidiary and provision for litigation loss at an affiliated company. Slide 14 shows the consolidated balance sheet. Total assets increased by JPY 18.5 billion from the end of the previous fiscal year to JPY 479.6 billion, mainly due to an increase in cash and deposits and an increase in operating assets resulting from business expansion, while tangible and intangible fixed assets decreased due to sales of fixed assets and partial transfer of shares of a logistics subsidiary. Total liabilities increased by JPY 10.1 billion to JPY 338.3 billion. Advances received and contract assets increased by JPY 13.7 billion due to strong orders while bank borrowings fell by JPY 5.4 billion due to repayment of borrowings. Total net assets increased by JPY 8.4 billion from the end of the previous period to JPY 141.3 billion, mainly due to an increase in retained earnings. Shareholders' equity ratio increased 0.6 percentage points to 29.1%. Net interest-bearing debt was JPY 100 million, as noted in the margin. Slide 15 shows the consolidated cash flows. Cash flows from investing activities was a negative JPY 2.5 billion due to proceeds from the partial sale of shares in our logistics subsidiary, purchase of tangible fixed assets and investment in EST Industries. Cash flows from financing activities amounted to negative JPY 7.8 billion, mainly due to repayment of long-term debt and dividend payments. As a result, cash and cash equivalents at the end of the period increased by JPY 18.9 billion to JPY 84.8 billion. Slide 16 shows the forecast for fiscal '23. Order intake, JPY 530 billion; net sales, JPY 520 billion; operating income, JPY 22 billion; operating income margin, 4.2%; ordinary income, JPY 18 billion; profit attributable to shareholders, JPY 12 billion. ROE is projected to be 8.3%. I will skip over Slides 17 and 18. I will explain the business forecast from Slide 19 onwards. Please turn to Slide 19. In the environment business, excluding Inova, order intake is expected to total JPY 199 billion. In fiscal '23, for domestic EPC, we expect no large-scale projects and 3 small-scale DBO projects. Market orders for domestic waste incineration plants are also expected to be 2,800 tonnes per day, about 70% of the previous year's level. As for AOM, we expect about 4 retrofit works this fiscal year, down from 5 last year. In addition, 4 long-term operation projects are expected. Net sales will go up in EPC, but go down in AOM, and so will be at the same level as the previous year. As for operating income, a provision for cost overruns in the previous year has already been made in EPC, but we will closely monitor the progress of construction. In EPC, we expect operating income increase of JPY 2.15 billion year-on-year. In AOM, we expect a decrease in operating income due to a decline in profitable projects in the water business. For electricity sales, we expect to achieve breakeven due to our policy of selling electricity within the scope of procured power sources this fiscal year. Inova order intake is expected to fall by JPY 52.3 billion year-on-year to JPY 192 billion. For waste to energy, we will aim to win orders in business areas other than Europe, such as the Middle East and Australia. In renewable gas, we're also working to acquire specific projects outside Europe, such as in the U.S. and Canada. In AOM, we're aiming to win orders for large-scale projects in the U.K. We also have a 30-year O&M project in the Middle East. Net sales are forecasted to grow by JPY 28.6 billion year-on-year to JPY 168 billion, due to steady progress in projects. Operating income is projected at JPY 9.2 billion, up JPY 2.2 billion year-on-year, due to increased income from AOM. Slide 20 shows the Machinery and Infrastructure business. Order intake, net sales and operating income for this segment are all expected to be lower than the year before. In particular, in Precision Machinery, orders for semiconductor-related business are expected to hit a trough in fiscal '23, and operating income is also expected to decline due to lower sales and higher costs from persistently high raw material costs. However, demand for a semiconductor-related business is expected to increase again from fiscal '24 onwards. Please look at Slide 21. This is the carbon-neutral solution business. In this business, we have made organizational changes in line with the spin-off of the engine business that's explained in the margins. Orders are expected to go down by JPY 24.7 billion, a significant decrease from the previous year when we had onshore wind EPC order intake. Net sales expected to increase by JPY 10.4 billion year-on-year, including JPY 8 billion in EPC sales for onshore wind power and other revenue increases. Operating income is expected to increase JPY 800 million with JPY 200 million profit expected for engines. Slide 22 shows the breakdown of changes in operating income from fiscal '22. The factors for the changes are shown in the boxes. The key point for fiscal '23 is JPY 2.15 billion improvement in environment EPC, excluding Inova. The decrease in others is mainly due to the logistics subsidiary, which is deconsolidated. Slide 23 shows financial results for fiscal '20 through fiscal '22 and the forecast for fiscal '23. While maintaining a sound financial position, we aim to expand and create growth businesses through business investments, which is our Forward 25 strategy. Total assets are expected to be JPY 500 billion, up 4.3% year-on-year, and shareholders' equity is expected to be JPY 148.6 billion, up 6.4% year-on-year. As a result, shareholders' equity ratio is forecasted to increase 0.6 percentage points year-on-year to 29.7%. Cash and deposits are expected to fall, and interest-bearing debt is expected to grow due to aggressive business investment plans during this fiscal year. ROE is projected to be 8.3%. This concludes my explanation of financial information. We appreciate your continued support and guidance. Thank you very much. Next, President Mino will explain the management and business information.

This is Mino. First, I'd like to thank you for taking time out of your busy schedules today to attend our financial results briefing. I would also like to take this opportunity to thank you for your continued interest in and support of our company. Thank you so much. I will now explain the management and business information of our group. First, I'd like to explain the orders received and the status of each business segment. Page 25 shows major orders received in Japan, and Page 26 shows the same for overseas in the second half of fiscal '22. First, please look at Page 25. In fiscal '22, there were more orders for new domestic waste incineration plants than in previous years. There was 1 order received in the first half of the year and 4 more orders for the construction of waste incineration plants in the second half, as shown here. In addition, as shown in the bottom row, in March, we received an order for the construction of an onshore wind power generation plant in Mutsu-Ogawara Aomori Prefecture, which we have been collaborating on with ITOCHU Corporation. So it was a very strong year. Please look at Page 26. Overseas, Hitachi Zosen Inova and Hitachi Zosen Inova Steinmüller, which we acquired in February last year, steadily won contracts for construction of waste-to-energy plants and supply of major equipment. Inova was awarded 3 large-scale EPC projects in the U.K., including North London and Edenholt, which were awarded in the first half of the year. Hitachi Zosen also received an order for supply of major equipment and dispatch of supervisors for a BOT waste-to-energy facility in Taiwan. On Pages 27 and 28, we show again the orders received for the first half of the fiscal year, which we presented at the time of the first half results briefing. Please look at Page 29. These are major projects in the environment business, excluding Inova. There are some projects that experienced some delays in delivery due to the need to secure shipping containers for overseas procurement, but delays could be absorbed within the contract period and will not have a significant impact on our business performance. Overseas, 2 projects in India, Bidadi and Moshi. The construction of these 2 projects in India has been slightly delayed due to COVID and heavy rains, and we are reviewing the scheduled completion dates. Page 30 shows Inova's major projects. In fiscal '22, construction work at Dubai and Slough and others progressed smoothly, contributing significantly to Inova's sales and profit. On the other hand, the delivery of the Rockingham project in Australia is expected to be delayed by more than 1 year due to procurement and local construction delays caused by COVID. We are currently discussing extending the delivery date with customers and consortium partners. The impact of the Rockingham project on EPC's business performance has mostly been factored in. Next, I will explain the status of each business. Page 31 shows our environment business, excluding Inova. In fiscal year 2022, the market order volume for waste treatment plants in Japan exceeded 4,000 tons per day, and we were able to capture a very high level of orders. On the other hand, in the highly profitable retrofit works, demand has run its course and the number of projects is declining. In the water business, we received strong orders for new sludge reclamation treatment centers, and we're able to secure a 50% share of the market. In the future, we aim to increase orders for retrofit works in addition to these new projects. In the electricity sales business, earnings in the retail electricity business deteriorated in the summer due to soaring market procurement prices, but the deficit narrowed in the second half due partly to market prices coming down. In fiscal year 2023, we expect to breakeven by securing necessary power sources while closely monitoring the supply-demand balance in each region. As for initiatives, as written here, we will strive to lower costs on new construction work orders, have inflation control, including revision of terms based on the slide close and reduce defect costs to improved the profit margin. Also, towards mid- to long-term growth, we will promote DX technology development and expansion of business areas. Page 32 is the status of the Inova Group. Inova continuous market leadership in EPC for waste treatment plants in the European and Middle Eastern markets. In fiscal year 2020 and '21, Inova's share of orders in the European and Middle Eastern markets exceeded 50%. In fiscal year 2022, the Inova Group was able to secure EPC business orders of over JPY 200 billion, a record high for the Inova Group. In addition, to build a stable profit structure, Inova is aiming to accumulate smaller projects, such as equipment supply and operation and maintenance. In line with this strategy, Steinmüller, which we acquired favorably last year, has been receiving orders steadily in Scotland and Finland and has been able to achieve profitability in fiscal year 2022, 1 year ahead of the plan at the time of acquisition. In Europe, plans have been announced to significantly increase biogas production in response to the energy crisis triggered by the Russia-Ukraine issue. Due in part to this market environment, orders received in fiscal year 2022 related to the biogas business doubled from the previous fiscal year to approximately JPY 15 billion, and we are aiming for JPY 30 billion in orders this fiscal year. While paying attention to risk management, we will also expand our ownership and operation of biogas plant. Page 33 is the Machinery and Infrastructure business. In press machines, order intake recovered to the pre-COVID level of JPY 20 billion as domestic automakers capital investment recovered. In Precision Machinery, sales of semiconductor manufacturing-related equipment, such as vacuum valves and lapping plates, were very strong. The semiconductor market has plateaued since the second half of 2022, but is expected to grow steadily again from 2024 onward. Regarding the Infrastructure business, we expect market volumes for bridges to remain unchanged year-on-year. In water gates, we anticipate revitalization of redevelopment projects for existing dams. And in chimneys, we expect an increase in demolition work amid the trend toward decarbonization. As for initiatives, in the area of press machines with rising diffusion of EVs, the challenge will be to respond in production for EV parts and lightweight materials. In addition to metal materials such as aluminum alloys, we will work with automakers to handle carbon, fiber and other new materials. In Machinery, we will work to improve profitability through the development of standardized models. For water gates, we will actively work on overseas projects, particularly ODA projects. Page 34 explains the carbon-neutral solution business. Hitachi Zosen Marine Engine, which was established by spinning off the engine business, started operations in April and is now collaborating with Imabari Shipbuilding. In the shipbuilding industry, developing zero-emission ships towards carbon neutrality is an urgent issue, and fuel conversion is becoming an essential element. Through correlation with Imabari Shipbuilding, we will accelerate the development of clean energy compatible products, expand sales by securing sales volume and reduce costs by leveraging our material procurement capabilities, thus creating synergies through collaboration and improved profitability. In process equipment, capital investment in petrochemical plants has recovered to pre-COVID levels. And capital investment in LNG, hydrogen and ammonia for decarbonization is also expected to increase. For nuclear power-related equipment, our business has been focused on the U.S., but we intend to strengthen our response to domestic demand as nuclear power plants are restarted. In October 2022, we established total Midi to manufacture decommissioning related products in Fukushima Prefecture. In the decarbonization systems, which was renamed from PtG, in April this year, we are working on the practical application and early social implementation of hydrogen and methanation through demonstration projects using the Green Innovation Fund. In wind power, as I mentioned earlier, in March, we were awarded a construction contract for an onshore wind power generation project in Aomori Prefecture. We are also developing an offshore wind power generation project in Aomori Prefecture. This area is currently designated as a promising area. And after receiving promotion area designation and bidding process, we will aim for closing. Next, I'd like to introduce some recent developments and company topics. Please turn to Page 35. First, I will explain our onshore wind power generation project. This project involves the construction of a wind farm with an interconnection capacity of 57,000 kilowatt in an area facing the Pacific Ocean in Locascio Village, Kamikitagun Aomori Prefecture, and will be one of the largest onshore wind farms operated by an EPC firm in Japan. In December 2019, together with ITOCHU, we established Mutsu-Ogawara Wind Power LLC and have been jointly making preparations. Recently, the LLC signed a loan agreement with Mitsubishi UFG Bank and the Development Bank of Japan, and we were awarded the EPC contract. We are working to develop wind power generation as one of our growth business to make it a pillar of our business in the future. In onshore wind power, we will differentiate ourselves by offering a full range of services from project development to construction and operation. In offshore wind power generation, we will develop technologies for both bottom-fixed and floating wind turbines and conduct demonstration tests, aiming to become a top runner in offshore wind power foundation engineering. Page 36 explains our nuclear power, spend fuel, transportation and storage equipment business, which is conducted mainly by our U.S. subsidiary, NAC International. In January of this year, we acquired a North American company that comprehensively manages low-level radioactive waste. Our Group has supplied many casks and canisters, which are containers for spent fuel for nuclear power plants, mainly through NAC. And this M&A allows us to expand the areas we cover. In the future, in cooperation with NAC we will aim to provide solutions for safe and secure transportation and storage of spent fuel in Japan as well, to become the #1 supplier of storage containers and other products related to radioactive waste. Page 37 is a topic related to the growth of renewable gas business. Power to Gas business that uses Inova Group company, Schmack's biomethanation reactors, has received an award from the Swiss Federal Office of Energy as an innovative Swiss company or an organization taking on the challenges of the energy future. The award was presented through the first commercial biomethanation plant in Europe that uses microorganisms to convert hydrogen and CO2 contained in digested sewage sludged into methane. The methane produced by the project is carbon-neutral and can be used as an alternative fuel to natural gas equivalent to demand of about 2,000 households, reducing CO2 emissions by about 5,000 tons per year. Our group will continue to promote technological development related to CO2 capture and reuse and contribute to the early realization of a carbon-neutral society. From Page 38, I will provide supplementary explanation of our medium-term management plan and long-term vision announced in March. Please look at Page 38. In the new medium-term management plan, Forward 25 announced in March of this year, we have set a goal of 10% operating margin and approximately JPY 900 billion in business volume toward net sales of JPY 1 trillion. Let me explain our thinking on how we will build up sales and earnings toward that goal. First, we aim to build up sales and profit, as shown here, by making domestic EPC profitable in existing businesses, growing AOM and overseas businesses and working to create and expand growth businesses such as renewable gas, resource recycling and carbon-neutral solution businesses. In fiscal 2022, our net sales were just under JPY 500 billion, but by 2030, we plan to increase sales from existing businesses to JPY 570 billion, to which another JPY 330 billion will be added from growth businesses. Particularly, large growth is expected in the field of resource recycling, including the expansion of Inova's biogas business and entry into the domestic industrial waste business. Wind power generation and PtG businesses are also expected to contribute to earnings from the latter half of the 2020s. In the water business, a nuclear power-related equipment business, we will strive to increase earnings by strengthening cooperation with overseas group companies. Please turn to Page 39. In fiscal year 2022, as shown in this chart, AOM accounted for 42%, and overseas sales was 38% of net sales. As KPI for fiscal year 2025, we have set the share of 50% AOM and 40% overseas sales. As shown in the pie chart on the left, about 70% of AOM sales in fiscal year 2022 came from the environment business, excluding Inova, which means that there is still much room for growth in other segments and overseas businesses, including Inova. In all of our businesses, we will promote various policies to expand AOM since we can expect high profitability and stable sales. In overseas operations, toward the 50% share of sales and profits by overseas business, we will strengthen cooperation with group companies in each region, strengthen risk management and governance, create a global business strategy for the group and the structure to promote those initiatives with the aim of achieving 40% in 2025. Please continue to Page 40. I'd like to explain the 3-year investment plan of the medium-term plan Forward 25. Under Forward 25, we plan to invest JPY 140 billion over 3 years. The main part of the JPY 75 billion investment is expected to be in Waste to X related businesses such as biogas and recycling. In Europe and the United States, Demand for biogas plants is emerging, and we plan to take advantage of this opportunity to invest approximately JPY 40 billion, not only in EPC, but also in projects that we own and operate. In Japan, we intend to expand business in the recycling field, including industrial waste and also invest in wind power projects as well. In addition, in the water business and in nuclear power-related equipment business toward global market expansion, we intend to actively consider any promising M&A projects. In terms of R&D, we will promote development utilizing funding like the Green Innovation Fund for next-generation WtE, waste-to-energy technologies, including post-combustion, cost reduction in offshore wind-power projects and larger water electrolyzers. In addition, investment in information technology, which is the foundation of these businesses as a whole, is essential for adding value to our businesses and products. We intend to increase the amount of such investment in line with business expansion. Although not shown on this slide, we will also aggressively invest in people to secure, train and retain the human resources necessary to realize our growth strategy through business investment. Please turn to Page 41. Finally, I'd like to talk about shareholder returns. To date, our basic policy has been to provide stable dividend shareholder returns. In the next 3 years, we plan to aggressively invest in growth to increase future shareholder value. Based on this thinking, as described here, our basic shareholder return policy will be to continuously and stably distribute dividends while working to strengthen financial position and the management base through growth investment, R&D investment and capital investment in order to enhance the long-term shareholders' value. As for the dividend amount, since the business results for fiscal year '22 greatly exceeded the forecast at the beginning of the fiscal year, we have decided to increase the dividend by JPY 3 from JPY 15 per share to JPY 18 per share. We will propose this at the General Meeting of Shareholders. We also forecast a dividend of JPY 18 per share for the current fiscal year. I will take the lead in implementing the measures described, so that we can continue to meet the expectations of our shareholders. This concludes my explanation. We will continue to strive to meet your expectations, and I'd like to ask for your continued support. Thank you.

Thank you. We will now begin the question-and-answer session. The first question is from Mr. Ito from Mizuho Securities.

This is Ito of Mizuho Securities. Can you hear?

Yes, we can, please.

I have 2 questions. First, I would like to confirm past business results. That will be Page 8 in your presentation material. It is about the result of the environment business. Forecast for the operating income of new EPC business for the second quarter was a negative JPY 1.5 billion, but I think it has landed at negative JPY 3.8 billion. I think you mentioned several items, but could you please explain what was the biggest factor? And let me confirm that the impact of the negative factors has basically been contained in the current fiscal year. That's the first question.

Kimura will respond.

First, regarding the change in the domestic EPC results from the third to the fourth quarter, the biggest factor is the defect and the delay in delivery at 2 domestic plants. We have explained these problems at the third quarter earnings call. However, the defect response made in the third quarter were not fully effective, and it was decided. Continued response is necessary for Kyoto, so we are continuing such efforts in the fourth quarter. Also the biomass-related business is a large-scale plant that incorporates overseas equipment. And we had some issues in handling such first-time equipment, and we are continuing our response to the situation from the third quarter to the fourth quarter. As a result, the delivery date has been delayed. And for these 2 projects, we have made provisions for the expenses that we currently can foresee in the current fiscal year. We will continue to check the effectiveness of the measures we have taken during this fiscal year. That is all for myself.

A follow-up, if I may. When are these 2 projects scheduled to be completed?

For Kyoto, the response will mainly be during fiscal '23, but part of the work will take place in fiscal '24 as well. So mainly '23 and a little spillover to '24. The biogas project, I think we can get confirmation about the completion time, around the first or second quarter of fiscal '23.

Understood. My second question is, could you tell us your views on the profitability of products in the new fields? I want to ask mainly 2 points. One is your foundations for offshore and onshore wind power. What is the current profitability of these foundations that you supply? Since the price of steel has been rising, I would like to know if there are any concerns about profitability in the short term. Another thing, I think you mentioned renewable gas. Please tell us a little bit more about the medium- to long-term contribution of earnings from these business. For example, can we assume that this business will basically come with O&M as in the waste treatment business? Or can you expect very high profitability at the time of doing this as EPC business? Also you talked about the possibility of investing and operating yourself. Is that feasible as a business? Sorry for the long question, but I was wondering if you could tell us more about that.

About the foundations for wind power, I think we're talking about 2025 and beyond. We expect revenue that will be sufficient to achieve our target margin of 10%. For renewable gas, that is methane fermentation, we are already working on various projects in Europe. This is less EPC and more operation type of business. Of course, we will deliver our facilities in EPC, but it is a business that encompasses the operation business. In Europe, the introduction of renewable gas is being promoted rapidly, and we are expecting a very high rate of return on our investment. Does that answer the question?

When you say high rate of return, do you mean the level you are aiming for in the wind power business?

No, we think we can aim a little higher.

I understand.

The next question is from Mr. Taninaka of SMBC Nikko Securities.

This is Taninaka from SMBC Nikko Securities. Can you hear?

Yes, we hear you. Please.

I have 2 questions. First, when I look at the breakdown of changes in operating income for the new fiscal year, in the environment business, for example, there is no mention of increased revenue due to new waste incineration plants being completed like last year. Now order intake for the fiscal year just ended was very strong. So I wonder how that will affect fiscal '23. Is it that demand for new construction or an increase in completed projects will not have much of an effect this fiscal year?

Well, for example, Page 29 shows the status of projects in Japan, excluding Inova. As you can see, the projects for which orders were received last fiscal year are those in Kuki, Hiroshima, Surudmi Osaka, Higashi Osaka and Hashima Gifu. They are projects with very long lead times. So it will be 2025, 2026 when we will start to see sales posted from these projects.

Can we not expect to see an increase in completed construction projects and some kind of reserve fund carryback in fiscal '23?

We plan to complete 3 projects in fiscal '23: Nagaoka, Gretauki and East Saga.