Tsukishima : Kikai Group Integrated Report 2022(12.8MB)

Tsukishima Kikai Group

Integrated Report 2022

Contributing to the world through

environmental technologies

Contributing to the world through environmental technologies

Tsukishima Kikai Co., Ltd.

Address inquiries to:

Public Relations Office, Corporate Administration Division

3-5-1 Harumi, Chuo-ku, Tokyo 104-0053

Tel: [phone]

Fax: [phone]

Tsukishima Kikai Corporate Website

https://www.tsk-g.co.jp/en/

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At a Glance

In 1905, Tsukishima Kikai got its start as a domestic manufacturer of sugar refining equipment.

At a time when Japanese industry typically imported its industrial machinery and equipment, we quickly moved on to the domestic manufacture of machinery and equipment for foodstuff and chemical production.

Founded	Employees (consolidated)
1905	(as2,765of March 31, 2022)

Delivering safe,	Delivering industrial technologies
comfortable water environments	to enrich people's lives
Water Environmental	Industrial Business
Business

Contents

At a Glance ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・1

Value Creation Story

Message from the Chairman・・・・・・・・・・・・・・・・・・・・・・・・・・・・3

Special Feature /

Tsukishima Kikai's business model for creating a recycling-oriented society

Overview of the recycling-based society Tsukishima

Kikai is striving to establish ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・11

Value Creation Process ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・13

Tsukishima Kikai's Strengths ・・・・・・・・・・・・・・・・・・・・・・・・・・・15

Tsukishima Kikai's Business Domains ・・・・・・・・・・・・・・・・・17

Tsukishima Kikai's History of Value Creation・・・・・・・・・・・19

Global Business Development・・・・・・・・・・・・・・・・・・・・・・・・・・21

Strategies and Performance

Medium-term Management Plan ・・・・・・・・・・・・・・・・・・・・・・・23

Transition to a Holding Company Structure・・・・・・・・・・・・25

Financial Strategies

Advancing Continued Strategic Investment

ESG Strategies ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・29

Financial Data / Nonfinancial Data

Business Overview

Water Environmental Business ・・・・・・・・・・・・・・・・・・・・・・・・・33

Industrial Business ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・39

Value Creation Foundation

R&D ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・43

The Group's strengths in R&D ・・・・・・・・・・・・・・・・・・・・・・・・・・44

FY2021 Results・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・45

Human Resources, Worker Safety・・・・・・・・・・・・・・・・・・・・・・47

Quality and Environmental Management・・・・・・・・・・・・・・・49

Risk Management ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・50

Corporate Governance

Corporate Governance・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・51

Director and Corporate Auditor Selection Procedures

and Policies・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・52

Board of Directors・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・53

Executive Compensation System ・・・・・・・・・・・・・・・・・・・・・・54

Dialogue with Shareholders and Investors・・・・・・・・・・・・・55

Compliance ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・56

Executive Team・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・57

Company Information ・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・・58

Financial Data

Consolidated Financial Data・・・・・・・・・・・・・・・・・・・・・・・・・・・・59

Consolidated Balance Sheet Consolidated Statement of Income

Consolidated Statement of Comprehensive Income・・・64 Consolidated Statement of Cash Flows ・・・・・・・・・・・・・・・65

Machinery, plants, and

operation management for

water purification and

sewage treatment plants

59.0billion yen

Sewage treatment plant biogas power generation business

No.1

market share in Japan

Sewage sludge to fuel conversion

No.1

market share in Japan

Net sales
93.1	Machinery and plants to support
billion yen	the chemicals, steelmaking,
foodstuff, and other industries
	Waste treatment plants to
	preserve the environment
	34.1	billion yen

(FY2021)

Waste liquid combustion systems

70%

market share in Japan

Fully automatic batch type centrifuge for sugar refining:

Cumulative

total of 1,000

more thanunits

Independent Auditor's Report ・・・・・・・・・・・・・・・・・・・・・・・・・・67

Terminology

EPC: Engineering, Procurement, and Construction of plants and machinery O&M (Operation and Maintenance):

Aftersales services including operation management, repairs, and parts supply PFI (Private Finance Initiative):

Method for efficiently providing public services, using private sector funding and expertise in the design, construction, maintenance, and operation of public facilities and other projects DBO (Design Build Operate):

Business method similar to PFI under which the public sector is responsible for raising funds while the private sector handles design, construction, and operation

* Market shares based on Tsukishima Kikai research

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Valuelue CreationCreationStoryStory

Message from the Chairman

As our shares have moved to be listed on the Tokyo Stock Exchange Prime Market, we need to adapt to the amended Corporate Governance Code while meeting the high governance standards required for companies listed on the Prime Market. In 2019, we established the Nomination and Remuneration Advisory Committee chaired by an outside Director to increase the independence, objectivity, and transparency of decisions on matters such as the appointment and remuneration of directors. We also released a skills matrix clearly showing the correspondence between the skills required of the Board of Directors and the skills possessed by each Director. We also plan to continue enhancing Group oversight functions and corporate governance structures as we strive to achieve sustained growth and medium- to long-term growth in corporate value.

We will take steps from this point forward to address the issues of human resource diversity and responding to climate change risks. We recognize the need to secure diversity

among our Board and management. Toward this end, we must develop comfortable internal working environments and promote human resource development.

In FY2020, we launched new workstyles to help stop the spread of COVID-19. While we continue making further progress in areas such as development of systems for working from home, we recognize the need for initiatives to achieve even more flexible workstyles. We must also disclose information on climate change risks based on the TCFD* and other initiatives. While we are already responding to climate change through technologies in areas like energy conservation and energy creation, we plan to develop organization-wide structures for formulating and implementing initiatives related to climate change risk, and commence preparations for systematic disclosure of related information.

* Task Force on Climate-related Financial Disclosures

Value Creation Story

Tsukishima Holdings will strive to achieve solutions to social challenges through environmental technologies

We strive to achieve sustained growth in corporate value by delivering technological solutions to social challenges and by enhancing corporate governance based on our corporate policy of contributing to the world through environmental technologies.

Sustained growth in corporate value by enhancing corporate governance

To date, we have pursued our business activities while accurately investigating and responding to the changing times and the needs of society, under our corporate policy of contributing to the world through environmental technologies. In recent times a number of social challenges have emerged, such as the political and economic turmoil caused by Russia's invasion of Ukraine, increasingly severe global environmental harm caused by factors such as climate change and loss of biodiversity, and water pollution spurred by rapid economic growth and urbanization in certain regions, including Southeast Asia and China. Japan, too, has come face to face with conditions that make it difficult to secure field engineers

materials used in lithium-ion secondary batteries for electric vehicles. It also is investing in the development of AI, IoT, and other technologies to improve efficiency and save labor in the operations, maintenance, and management of machinery and plants. All these measures seek to ensure the sustainability of the social infrastructure that supports our way of life.

Under the new management structure set to launch in 2023 with our transition to a holding company structure, we will enhance cooperation within the Group and respond dynamically to current needs by leveraging the strengths of each Group member company. We will strive to strengthen corporate value and achieve sustained growth by giving

We've contributed to industrial progress and solutions to global environmental challenges through technologies and services developed and accumulated in the 117 years since our founding.

The current global business environment is characterized by significant political, economic, and social turmoil, due in part to Russia's invasion of Ukraine. But even in times of such uncertainty and dramatic change, it is vital to properly identify and swiftly adapt to change, and to allocate resources accordingly, to achieve sustained growth as an organization and strengthen corporate value.

To promote dynamic business execution amid the rapidly changing global business environment, we have

decided to transition to a holding company structure and change the Company name to Tsukishima Holdings Co., Ltd. in April 2023. We've chosen the operating company names of Tsukishima Aqua Solution Co., Ltd. for the Water Environmental Business company and Tsukishima Kikai Co., Ltd. for the Industrial Business company.

These moves are intended to improve the efficiency of Group management and advance the governance structure through accelerated decision-making. To this end the operating companies are to focus on business execution and the holding company is to concentrate on Group strategies and corporate management.

due to the nation's chronic low birth dates and aging population, while its water and sewer facilities as well as other infrastructures age.

The Group will apply the technologies and services accumulated to date to achieve solutions to these social challenges. The Water Environmental Business addresses climate change by producing carbon neutral solid fuel from the biomass resource of sewage sludge and through other activities. It seeks to contribute to safe, reliable water environments by exporting sludge-treatment technologies to Asian markets, where environmental pollution is growing. The Industrial Business is also helping to establish a carbon- neutral society by providing technologies for producing the

back to society through the growth and progress of our two core businesses, the Water Environmental Business and the Industrial Business.

We are grateful for the continuing support and understanding of all our stakeholders.

Kazuhiko Yamada

Chairman & Representative Director

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Message from the President

Expanding the Industrial Business from lithium-ion secondary batteries to new domains

Value Creation Story

The Russia-Ukraine conflict has intensified debate on energy supply stability. The shift away from fossil fuels toward renewable energy sources and the electric vehicles powered by them is growing, centered on markets like Europe and China. The Industrial Business is focusing on developing manufacturing processes for lithium-ion secondary batteries ("secondary batteries" hereinafter) used in applications such as electric vehicles and renewable energy power-generation facilities, accumulating a strong track record in this area. It will provide to an even wider range of customers in Japan and abroad the advanced technologies needed to manufacture secondary batteries in the future.

We believe our technologies for secondary batteries are applicable for other high-value-added domains besides batteries. The Industrial Business has built up a track record in the organic chemicals domain for manufacturing high volumes

of plastics and resins from petroleum, primarily for chemical industry customers. Looking ahead, we foresee even greater demand in the domains of inorganic chemicals and resource recycling, due in part to the movement away from disposables and plastics. In addition, existing facility customers in

the chemical, steelmaking, and foodstuffs fields demand improvements in efficiency and labor-savings solutions, for which we will propose solutions that integrate technologies and know-how from various Group member companies.

In FY2021, the Industrial Business saw strong orders awarded in the incineration field for solid waste and other materials. We will continue to contribute to safe and appropriate waste treatment by responding to the need to upgrade aging facilities and growing volumes of waste generation in emerging markets.

We will strive to find solutions to global environmental challenges and to build a recycling-based society through the application of our technologies toward meeting society's needs.

Responding to global water issues and climate change in the Water Environmental Business

A look back and a look forward to the new organizational structure

In the area of climate change, individual companies are making progress on adopting clean energy and advancing technological innovations to achieve carbon neutrality by 2050. However, as noted above, achieving decarbonization will require a shift from fossil resources toward a recycling- based society in both energy and materials.

creation. We believe we can contribute to the world through environmental technologies by promoting the development and use of energy-creating technologies.

We will play an even more significant role in moving to identify solutions to global environmental challenges through

A look back at FY2021 business results shows we achieved our announced targets. Nevertheless, I believe the challenges we face in achieving continued growth were made clear in the Water Environmental Business and the Industrial Business.

In the Water Environmental Business, as we expect growth in orders and project scale in the long-term contracting businesses based on cooperation between the public and private sectors, like PPP and PFI, we will need to enhance our resources, including techniques, know-how, and human resources, to effectively meet the demands posed. Based on this understanding, we are moving forward with discussions on a merger with JFE Engineering Corporation's water engineering business segment. Together, the two companies will play a leading role in Japan's water and

sewer industry, backed by their expertise, track record, and technologies in PPP and PFI operations, as well as their wealth of highly skilled human resources.

The Industrial Business has a history of expanding in scale and across business domains through M&A activities. We must make Group management still more efficient. Against this backdrop, we have decided to transition to a holding company structure by April 2023. We will strengthen governance Groupwide by accelerating decision-making by each operating company, while the holding company concentrates on drafting strategies and plans and making investment decisions. We plan to study the next Medium-term Management Plan based on these organizational changes and the issues that have emerged under the current Medium-term Management Plan.

Our Water Environmental Business is engaged in collecting biomass such as sludge and food waste generated in the community, using it to generate electricity, heat, and fertilizer, and thereby returning it to the community. The concept of local production and consumption of energy will be key to building a recycling-based society. Since local production and local consumption contributes to energy self-sufficiency, this is an especially important initiative for Japan given the issues concerning energy security brought to light by the Russia-Ukraine conflict. Given these conditions, in addition to promoting the use of next-generation energy- conserving sludge incinerator systems, we are also investing in the development of energy-generating dewatering incineration systems. Essential in our response to climate change is a shift from energy conservation to energy

environmental technologies that meet the needs of society. We remain grateful for the continuing understanding and support of all our stakeholders as we set out on the path that will result in a new organization and structure in April 2023.

Yoshiyuki Fukuzawa

President, Representative Director

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Tsukishima Kikai's business model for creating a recycling-oriented society

Based on our policy of contributing to the world through environmental technologies, Tsukishima Kikai has leveraged the technologies built up over more than 110 years to provide a broad range of services that enable safe, reliable water supply, resilient infrastructure, and decarbonization. By supporting the water, energy, and resource cycles through such services, we make significant contributions to realizing a sustainable and recycling-oriented society.

Restoring clean water to the sea and rivers

Value Creation Story

Water cycle

Safe, reliable water supply

Safe water supply

Water purification	P38
facilities

Safe, reliable water supply

Purifying sewage
Purifying sewage at sewage
treatment facilities
Putting sewage sludge generated
to effective use
Sewage treatment facilities	P35-38

Safe, reliable water supply

Contributing to the water supply and comfortable water environment essential to human life

Recycling-

oriented

society

Resilient

infrastructure

Contributing to more resilient water and industrial infrastructures, the foundations for human and industrial activities

Resilient infrastructure

Operating and managing water

purification and sewage

treatment facilities

P38

Sewage sludge

Energy

Decarbonization conservation

Reducing greenhouse gas emissions

from sewage treatment facilities

Improving the power efficiency of machinery

used in sewage treatment facilities

Reducing greenhouse gas emissions

generated in the treatment process

P37-38

Contributing to a carbon-neutral society through use of electric vehicles

Contributions to EV production through equipment related to secondary battery production for which we received orders in FY2021

Approx.100,000 vehicles

Decarbonization

Contributing to a carbon neutral society through energy conservation and renewable energy technologies

Energy Renewable

conservation energy

Energy/resource cycle

Decarbonization

Producing biogas from sludge

Producing carbon neutral biogas from sewage sludge

Converting sludge to carbon neutral fuel

Converting sludge to solid fuel

P35-36

Renewable
Decarbonization energy
Decarbonization
Biomass power generation	Providing machinery and plants
	for manufacturing secondary
		battery materials

Use at power plants
and other facilities	Supplying
	electricity
	to the
	community
	P35-36	P41-42

GHG reduction effects from the sewage sludge-to-fuel conversion and digestion gas power generation businesses

Equivalent to approx. 48 Tokyo Domes

Note: Calculated based on GHG emissions reductions of 115, 700 t-CO2/year (p.10) and the Tokyo Dome's capacity of approx. 1.24 million m3

Electricity supplied from waste power generation

Resilient infrastructure

Appropriate waste treatment,

generating power from waste heat	P34

Enough to power

approx. 2,800 households

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