Kurita Water Industries reported first-half business profit of ¥6.29bn, down 74.0%, even as sales rose 9.3% to ¥206.9bn. The company puts the gap on one large electronics water-treatment plant order in the US. Its business profit margin fell to 3.0% from 12.8% a year earlier. Kurita described the project in an earlier disclosure too (Earlier Tokyo Brief coverage); the interim results show how the hit was built.
Three entries, one project
The provision is only part of the hit. Kurita books this order on a percentage-of-completion basis, so progress is the share of actual costs in the estimated total. Once Kurita sharply raised the estimated total cost, that share fell, and revenue and profit already recognised were reduced. Because the estimated cost now exceeds the order value, Kurita also booked the expected loss as a construction-loss provision in cost of sales.
The third entry is an impairment of fixed assets, including right-of-use assets, at the water-treatment equipment plant of Kurita America (electronics). It sits in other expenses. Together the three cut operating profit, pre-tax profit and interim profit by ¥18.4bn each. That total includes the ¥8.8bn provision and the ¥1.6bn impairment. The release does not itemise the revenue reversal.
Kurita's profit bridge for business profit, which excludes other income and expenses, separately shows ¥20.0bn of additional costs on the US project in the first half. Excluding those costs and currency effects, business profit was ¥2.0bn above Kurita's August forecast.
What went wrong on site
Kurita says the order was its first US electronics project. It limited its scope to design, procurement and module manufacturing, and sent staff from Japan to lead design and project management. At the first-quarter stage it put the cost impact at about ¥3.0bn. After specialists firmed up quantities and remaining work, it raised the figure to ¥23.6bn.
The release blames US-specific standards, design certification and customer requirements, which produced design delays and quality problems. The extra work covers redesign, additional procurement of materials and remaking of modules. Kurita's briefing deck adds outside resources and on-site construction to recover the schedule. The release does not name the customer or give a completion date.
Segment and guidance effects
Electronics booked a business loss of ¥5.97bn and an operating loss of ¥2.72bn. The operating loss is after a ¥5.02bn translation gain, recognised on the completed sale of Pentagon Technologies Group, that Kurita booked in other income. Group operating profit was ¥9.54bn, down 62.5%. Profit attributable to owners of the parent fell 56.9% to ¥7.40bn. That figure combines continuing and discontinued operations, and the discontinued Pentagon business contributed a profit of ¥3.67bn.
For the full year to March 2027, Kurita now guides to business profit of ¥40.0bn, down from ¥61.5bn in its August forecast. Excluding the ¥23.6bn of additional costs, the revision would be a ¥2.1bn increase. The interim dividend is ¥67 per share and the full-year forecast is ¥134. Kurita says its PSV-27 plan targets and growth strategy are unchanged.