Kurita Water Industries has cut its profit forecasts for the year to March 2027 after one large water-treatment project in the United States ran into design and quality problems. The company said the project's estimated total cost now exceeds its order value, and it has booked a loss provision.
What went wrong
The project is a large water-treatment plant for the electronics industry, under construction by Kurita's US consolidated subsidiary. Kurita said meeting US-specific standards, design certification and customer requirements brought design delays and quality problems. That required a redesign, extra procurement of parts and the rebuilding of modules.
As design work advanced, quantities and remaining work became clearer, and Kurita re-examined unit prices, fabrication methods and on-site construction. It then raised its estimate of total project cost "substantially". The project uses percentage-of-completion accounting, so the lower progress rate reduced the revenue and profit booked so far. Kurita's notice does not name the customer or the project.
The revised numbers
Kurita put the project's hit against its previous forecast at ¥20bn for the half year to September and ¥23.6bn for the full year. Business profit, Kurita's own measure of sales less cost of sales and overheads, is now forecast at ¥6.2bn for the half year, down 73.6% from the earlier forecast. The full-year figure falls 35.0%.
| Measure | Period | Previous forecast | Revised forecast |
|---|---|---|---|
| Sales | Half year | 198.0 | 206.8 |
| Business profit | Half year | 23.5 | 6.2 |
| Profit attributable to owners of parent | Half year | 24.6 | 7.3 |
| Sales | Full year | 425.0 | 455.0 |
| Business profit | Full year | 61.5 | 40.0 |
| Operating profit | Full year | 65.5 | 43.5 |
| Profit attributable to owners of parent | Full year | 50.7 | 28.7 |
Sales guidance went the other way. Kurita raised its full-year sales forecast to ¥455.0bn from ¥425.0bn, citing progress in its chemicals business and equipment orders. The dividend forecast is unchanged. The notice does not reconcile the ¥23.6bn project hit with the smaller ¥22.0bn cut to the full-year operating-profit forecast.
Two separate losses
Kurita's extraordinary report to the Kanto Local Finance Bureau, filed the same day, puts the loss to consolidated profit in the half year at ¥18.4bn. That figure combines lower revenue, the construction-loss provision booked in cost of sales, and an impairment of related fixed assets after the company revised its business plan for the project.
A second charge sits only in the parent's own accounts: a ¥36.2bn writedown on its shares in the US holding company that owns the subsidiary. Kurita said it is eliminated on consolidation and does not touch group results, so it should not be added to the project loss.
What management says next
Kurita said it will tighten project management, push the project to completion, and apply the design and certification lessons to later equipment projects. It left its mid-term plan targets for the year to March 2028 unchanged and said it will explain the project at an earnings briefing on 6 November.
The company also filed an amendment to its bond shelf registration on the same day, listing the extraordinary report as a reference document. The registration covers ¥50.0bn of planned issuance, with ¥30.0bn still available.