Financial Data

Explanation and Analysis of Business Results

TAISEI CORPORATION and Consolidated Subsidiaries
Years ended March 31, 2014 and 2015

Explanation and Analysis of Business Results

Status of Results

The Japanese economy during this fiscal year continued a moderate recovery reflecting improvement of the basic conditions such as corporate earnings, employment and income conditions, etc. irrespective of the demand decrease, etc. after the last-minute demand prior to increase of consumption tax rate.
The domestic construction market was kept strong as public investment remained in a high level while the non-manufacturing sectors showed weak trend.
Under these circumstances, the Company and its affiliated companies reported consolidated results of its operations as follows:
orders received of 1,765.7 billion yen, 7.3% increase compared to the previous fiscal year, net sales of 1,573.2 billion yen, 2.6% increase, operating income of 70.4 billion yen, 31.0% increase, and net income for the year of 38.1 billion yen, 19.0% increase compared to the previous fiscal year.

In this financial year the Japanese economy continued its gentle recovery against the background of improving fundamental conditions such as company profitability and employment and income environment, although some downturn from the rush demand associated with the rise in consumption tax was evident.
In the case of the domestic construction market, although the nonmanufacturing sector was weak, public works investment continued at high level, so the market remained firm.
Under these circumstances, the business results of our Group was as follows.
New orders received increased by 7.3% compared with the previous consolidated financial year to 1.7657 trillion yen, and sales increased by 2.6% year on year to 1.5732 trillion yen.
Regarding profitability, operating income increased by 31.0% compared with the previous consolidated financial year to 70.4 billion yen, ordinary income increased by 31.2% year on year to 74.4 billion yen, and net income for this term increased by 19.0% year on year to 38.1 billion yen.

Results according to reporting segment, etc., are as follows (the results for reporting segments include internal transactions between segments).

1. Civil Engineering

In our Group, sales increased by 5.1% compared with the previous consolidated financial year to 471.0 billion yen, due to the increase in sales for the company. Also, operating income increased by 1.7% year on year to 33.1 billion yen, due to the increase in sales.

2. Building Construction

In our Group, sales increased by 6.4% compared with the previous consolidated financial year to 1.172 trillion yen, due to the increase in sales for the company. Also, operating income was 24.4 billion yen (in the previous consolidated financial year 8.9 billion loss), due to the increase in sales and an improvement in the gross profit margin.

3. Real Estate Development

In the real estate sales market, the business environment is solid in the condominium market as the contract rate remains high due to interest rates and anticipation of higher real estate prices, although the trend towards higher construction costs continues. Also, in the real estate rental market, the vacancy rates in office buildings has improved, and there is a trend towards higher rents in some buildings, so signs of recovery can be seen.
In our Group, sales have decreased by 23.9% compared with the previous consolidated financial year to 143.4 billion yen, due to the effect of sales from large projects in the previous term. Also, operating income has decreased by 56.2% year on year to 12.2 billion yen, due to the decrease in sales and a reduction in the gross profit margin.

4. Others

In our Group, sales have increased by 21.0% compared with the previous consolidated financial year to 14.4 billion yen, and operating income has decreased by 37.3% year on year to 300 million yen.

(Consolidated) Results for Orders received / (Consolidated) Results for Sales

Cash Flow

1. Cash Flow from Sales Activities

A net income before tax of 66.9 billion yen was earned this term, resulting in excess revenue of 24.0 billion yen (excess revenue in previous consolidated financial year was 138.7 billion yen).

2. Cash Flow from Investment Activities

An excess revenue of 16 billion yen was achieved from the sale of investment securities, etc. (expenditure of 4.7 billion yen in previous consolidated financial year).

3. Cash Flow from Financing Activities

An expenditure of 30.4 billion yen was incurred for repayment of interest-bearing loans, etc., associated with procurement of finance (expenditure of 68.8 billion yen in previous consolidated financial year)
As a result of the above, cash and cash equivalents at the end of this consolidated financial year was 337.1 billion yen (a decrease of 17.2 billion yen compared with the previous consolidated financial year), and the balance of interest-bearing loans associated with procurement of finance was 273.2 billion yen (a reduction of 43.2 billion yen year on year).

Cash Flows Status

Financial Status, Business Results and Analysis

1. Overview

The business results for this consolidated financial year achieved the predictions at the beginning of the financial year for all items:
orders received, sales, operating income, normal income, and current net income.
In addition to the current net income, net assets increased to 492.1 billion yen due to effects such as the increase in valuation difference on available-for-sale securities due to the rise in the stock market and issue of new shares for appropriation to repayment of subordinated loads, so the ratio of capital to assets increased by 4.3% compared with the previous consolidated financial year to 28.2%.
Also, interest-bearing loans associated with procurement of finance reduced by 43.2 billion yen to 273.2 billion yen, so the D/E ratio improved by 0.3 points to 0.5.
As a result each of the management numerical targets for the final financial year of the Medium-term Business Plan (operating income 47.0 billion yen, interest-bearing debt less than 300 billion yen, D/E ratio 1.0) have been achieved.

2. Financial Status

(1) Status of Assets

As a result of an increase in investment securities due to the rise in the stock market and accounts due on completed construction, total assets increased by 8.5% or 136.1 billion yen compared with the previous consolidated financial year to 1.7352 trillion yen.

(2) Status of Liabilities

Although there was a reduction in interest-bearing loans associated with procurement of finance, total liabilities increased by 2.3% or 28.2 billion yen to 1.2431 trillion yen, due to an increase in accrual of electronically recorded monetary claims.
Note that the balance of interest-bearing loans associated with procurement of finance at the end of this consolidated financial year was 273.2 billion yen.

(3) Status of Net Assets

Net assets have increased by 28.1% or 107.9 billion yen to 492.1 billion yen compared with the previous consolidated financial year, as a result of an increase in valuation difference on available-for-sale securities due to the rise in the stock market, etc.

3. Operating Results

(1) New Orders and Net Sales

Orders received have increased in Civil Engineering and Building Construction, increasing by 7.3% to 1.7657 trillion yen compared with the previous consolidated financial year.
Also, sales increased in Civil Engineering and Building Construction, increasing by 2.6% to 1.5732 trillion yen compared with the previous consolidated financial year.

(2) Operating Income and Ordinary Income

Although operating income was reduced in the real estate development as a consequence of the sales on large projects in the previous term, profit was increased due to the increase in gross margin rates in the building segment. Sales costs and general management costs were generally the same as the previous year, so operating income increased by 31.0% compared with the previous consolidated financial year to 70.4 billion yen.
Ordinary income increased by 31.2% compared with the previous consolidated financial year to 74.4 billion yen, due to an improvement in non-operating profit and loss resulting from a reduction in interest paid.

(3) Net Income

Net income increased by 19.0% compared with the previous financial year to 38.1 billion yen, due to the increase in ordinary income, although the tax burden increased due to liquidation of deferred tax assets associated with the reduction in corporate tax.

Dividend Policy

The company has a fundamental long term stable dividend policy, enhancing retained earnings in preparation for future business development, and issuing special dividends when results are good, etc., to return the profits to the shareholders.
Taking into consideration that the results have greatly exceeded the initial plan in the final year of the Mid-term Business Plan (FY 2012 to FY 2014), and the overall business environment in the future, it has been decided to increase the dividend by 2 yen compared with the previous term, or a dividend of 8 yen per year per ordinary share is allocated (of which 3.00 yen is allocated as an interim dividend).
The Articles of Association of the company permit an interim dividend to be allocated, in accordance with Article 454-5 of the Companies Act, with dividends allocated twice every year, at the middle and at the end of the financial year. These dividends are decided by the shareholders meeting for the end of term and the Board of Directors' Meeting for the interim dividend.
Also, it is the policy to utilize retained earnings to promote next generation technology development, etc.

Total Dividend Amount and Dividend per Share

Medium Term Company Management Strategy and Issues To be Dealt With

The future business environment, in the medium and short term, is expected to remain strong reflecting expectations for the 2020 Tokyo Olympics and Paralympics as well as the increasing awareness of prevention and reduction of disaster.
In the long-term, however, we recognize that underlying issues are widespread, such as the drop and the qualitative change in demand and securement of employees and labors in the context of decreasing population.
Recognizing these circumstances, the Taisei Group has started its Medium-Term Business Plan (2015-2017) from FY 2015 and we are working with full force toward achieving our management goals listed below.

Medium-Term Business Plan (2015-2017) (Outline)

Basic Policy
Deep cultivation of our primary business of construction

[Corporate vision]

  • To obtain high customer satisfaction through quality and safety assurances
  • To pursue growth in a steady and continuous manner
  • To promote transformation to a high value-added business structure
  • To obtain a high level of credibility and appraisal from all stakeholders

Management Goals
1. Undertaking strategic approaches regarding focused projects

  • Participating in national projects
  • Participating in large-scale projects by private sectors
  • Participating in exportation of infrastructures

2. Actively contributing to improving infrastructures

  • Participating in projects of the major infrastructures for public security, safety, and convenience
  • Participating in projects for a steady supply of electricity
  • Actively contributing to earthquake disaster reconstruction projects

3. Promoting the development of next-generation technologies

  • Developing construction technologies for the next generation
  • Upgrading technologies for earthquake-related problems
  • Developing technologies for differentiation in fields of environment, nuclear power, etc.

4. Establishing next-generation business models in the focused fields

  • Renewal and replacement
  • Nuclear power
  • Environment
  • Engineering
  • Urban development

5. Strengthening domestic construction projects

  • Improving construction capabilities
  • Strengthening quality and safety management systems
  • Expanding design and construction projects
  • Improving procurement capabilities

6. Developing the structure for healthy growth of overseas projects

  • Structuring a business system for participating in exportation of infrastructures
  • Advancing projects focusing on the important areas and fields
  • Strengthening a business system of overseas subsidiaries

7. Improving the total strength of the Taisei Group

  • Advancing residential business strategies of the Taisei Group
  • Developing new renewal technologies related to earthquake strengthening and the like, of infrastructures
  • Strengthening cooperation among companies in the Taisei Group regarding sales, procurement and construction

8. Advancing the business foundation

  • Establishing corporate governance for the next generation
  • Maintaining and improving a strong financial basis
  • Nurturing and improving human resources
  • Promoting diversity management
  • Utilizing ICT

Risk Information

The main items of risk for the business of this Group which are considered to have the potential to have an important effect on the decisions of investors are as follows. The Group recognizes the possibility of occurrence of these risks, and intends to take measures to avoid these risks, and deal with them when they occur.
Matters described relating to the future are the judgment of the Group as of the end of this consolidated financial year.

1. Trends in the Construction and Real Estate Markets

If the construction or real estate markets suddenly shrink or if the competitive environment becomes severe, it could affect out results.

2. Risks Associated with Overseas Projects

We carry out projects in many countries throughout the world, so terrorism, war, violence, etc., could occur, the circumstances in the country could worsen, there could be sudden fluctuations in the economic situation, there could be large fluctuations in the exchange rates, and changes in laws and regulations could change without notice, and if it is not possible to hedge these risks through the contract, our results could be affected.

3. Customer Credit Risk

Normal contracts in the construction industry involve a large contract amount in a single transaction, and in most cases contracts are concluded on the condition that a large amount of the construction fee is paid when the constructed object is handed over. Therefore, if the customer runs into credit problems before the construction fee is received, it could affect out results.

4. Fluctuations in Material and Equipment Prices

If the price of raw materials suddenly increases, and if it is difficult to reflect this in the contract amount, our results could be affected.

5. Asset Holding Risks

Assets such as real estate and tradable securities, etc., are held out of necessity for sales activities, so our results could be affected by fluctuations in the present market price.

6. Retirement Benefit Obligations

If there are changes in the assumptions for calculating the retirement benefit obligations, such as a drop in the value of retirement assets, investment yield, discount rate, etc., our results could be affected.

7. Fluctuations in Interest Rates

If interest rates suddenly increased, our results could be affected.

8. Defects on Construction Products or Services

If we become liable for a large amount of compensation based on liability for defects caused by the Group's work or product liability, our results could be affected.

9. Ancillary Related Project Risks

The Group operates ancillary projects associated with PFI projects, leisure projects, as well as civil engineering, building, and real estate development projects. The project period for most of these is long, so if the project environment changes greatly in the future, our results could be affected.

10. Legal Controls Over the Civil Engineering and Building Construction Business

The civil engineering business and the building construction business are subject to legal controls such as the Construction Industry Act, the Building Standard Act, the Industrial Safety and Health Act, and the Anti-Monopoly Act, etc., and if these laws or regulations were amended or abolished, or if new laws or regulations were enacted, and if we were subjected to administrative disciplinary action in accordance with these laws or regulations, our results could be affected.

11. Occurrence of a Major Accident

If a major accident involving human injury or loss or life or damage to a structure occurs in the civil engineering or building construction fields, our results could be affected.

12. Large Scale Natural Disaster, etc., Risk

If a large scale earthquake, a large scale natural calamity such as wind or water damage, etc., or if an infectious disease became an epidemic, our results could be affected.

Consolidated Financial Statements(PDF)

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