Annual Report 2018

The activities of the Engineering Group are driven mainly by water treatment engineering specialist Organo Corporation. Tohoku Denki Tekko Co., Ltd., and other group companies involved in construction also contribute to the Engineering Group’s bottom line.

Organo’s business is focused in three areas: its plant business, which entails the sales of water treatment systems to customers in the electronics, chemical, energy, food and beverage, paper and pulp, and healthcare industries; its solution business, which provides system maintenance and management, energy efficiency and environmental impact consulting, and water treatment outsourcing services; and its functional products business, which handles the sales of water treatment systems and chemicals and of materials used in food processing.

The primary business of Tohoku Denki Tekko is construction. It builds various types of plants and furnishes electrical design, production, installation, and diverse other construction services. Tosoh places orders with Tohoku Denki Tekko for work on some of its facilities.

Laying the Groundwork

Net sales by the Engineering Group in fiscal 2018 decreased ¥1.7 billion, to ¥84.8 billion (US$798.4 million), a 2.0% decline from fiscal 2017. The group’s net sales accounted for 10.3% of Tosoh’s consolidated net sales, a decrease of 1.42 percentage points. Operating income likewise decreased, down 5.4%, to ¥4.9 billion (US$45.8 million), resulting in an operating margin of 5.7%, a decrease from 5.9% in fiscal 2017.

Active capital investment, primarily in Japan and China, drove increased sales for the Engineering Group’s water treatment business to the electronics manufacturing industry. But the completion of a number of large industrial projects in fiscal 2017 contributed to the decline in the group’s net sales overall. Investment in Japan in electric power, water supply, and sewage treatment and plans for investment in Southeast Asia were either running into delays or being cancelled, and this, too, contributed to the group’s drop in sales and profitability.

Robust activity in LCD, semiconductor, and organic EL plant construction in China and elsewhere in Asia contributed to Organo receiving many orders in fiscal 2018. But the time lag from project start to completion and settlement resulted in a delay before the financial dividends could be officially recorded. The decreases in net sales and profits recorded by the Engineering Group in fiscal 2018 are not reflective of the degree of business activity. Settlements for orders received in fiscal 2018 will largely be reflected in the fiscal 2019 financial results, and significant increases in net sales and profits are forecast.

Organo forecasts increased sales domestically but sees domestic orders declining slightly, due primarily to an expected decrease in orders from electronics manufacturing clients in Japan. It expects overseas operations to grow, however, as it pursues aggressive expansion. It forecasts increases in orders and sales for all regions and estimates that overseas sales will account for 25.8% of the group’s consolidated net sales, up from 21.5% last year.

In fiscal 2018, Organo introduced two small standard water treatment systems. It intends to take one or two such systems to market each year as part of efforts to fortify its solution business. Sales of these systems are primarily to domestic customers, but the systems have been well received by overseas clients.

Organo’s solution business sales are expected to remain essentially the same in fiscal 2019 as in fiscal 2018. It forecasts significant growth, however, for its plant business, where sales are seen increasing 32.7%, to ¥37.7 billion. But it foresees the portion of water treatment engineering sales accounted for by its solution business decreasing from 54.4% in fiscal 2018 to 47.3%, in fiscal 2019.

The construction subsidiaries of the Engineering Group recorded increases in sales in fiscal 2018.

Strategic Collaborations

Organo has joined the Murugappa Group of India in a joint venture in that country called Murugappa Organo Water Solutions. The venture’s mission is to provide clean water at an affordable price. Organo’s water treatment technologies are expected to contribute to resolving issues related to wastewater treatment and water processing for industry and eventually to play a role in providing potable water. Water regulations are becoming increasingly strict in India. Under India’s “zero liquid discharge” initiative, the joint venture is applying Organo technologies to refine water used in manufacturing processes and to reuse it without discharging it into natural water sources.

New Philosophy and Vision

Organo has redefined its philosophy and long-term vision. While retaining some principles of its previous philosophy, Organo is embarking on new directions in the development of the separation, purification, and manufacturing technologies it has accumulated through its long experience in the water treatment business. Those new directions include a host of non-water fields. Organo also plans to expand its operations beyond Japan and Asia to other parts of the world.

Water Treatment

In its functional products business, Organo is focusing on the development of products such as standard systems and water treatment chemicals, the furthering of its overseas operations, and the strengthening of its food product manufacturing technologies. It will pursue the development of water treatment chemicals for sale to customers for non-water applications and in the electronics industry, while also developing and rolling out IoT- and AI-based products.

Organo will look to expand its share of the electronics manufacturing market in China, where capital investment continues at a robust pace. It will also establish a presence in the electronics manufacturing industry in India. In addition, it plans to reconfigure its solution business with the goal of improving profitability and expanding the business abroad.

Organo’s development of new businesses include separation and purification technologies for applications related to the manufacturing of lithium-ion batteries and sophisticated technologies for electronic material production—particularly nanoscale semiconductors—and for biopharmaceutical applications, such as medicinal ingredient extraction.

Construction

Outside its core construction businesses, Tohoku Denki Tekko is developing innovative products. It recently acquired a patent for a new Coanda injector for filter bags that offers greatly enhanced collection capability. It has also developed a solar-powered white LED streetlight that has been well received by public- and private-sector clients.