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Summary of President's speech / Main questions and answers 2Q FY2011

Financial Results Briefing for 1st half of the fiscal year ending March 2012

Summary of President's speech

Construction market situation and new orders

  • Although some domestic demand related to the recent Great East Japan Earthquake was seen, reconstruction projects have yet to get into full swing. In the meantime, a slowdown in domestic investment is unavoidable due to pressure from the strong yen and concerns about Japan's power supply. In these circumstances, competition in the domestic construction market is intensifying.
  • We have received a sizable number of domestic building construction orders in the second quarter under review. However, this could not make up for a significant short fall in orders for overseas projects due to the delay in issuing orders and the effects of the yen's appreciation. As a result, we were unable to achieve our overall target for new orders for the second quarter under review.
  • The environment for orders has become tougher since the beginning of the year due to the slowdown in demand and intensifying domestic competition. Although achieving our goal for the year is far from easy, we will strive to do so.

Profit forecasts

  • Gross profit margin for the second quarter under review exceeded the target thanks mainly to our strenuous efforts in domestic building construction.
  • This result illustrates that our policy of securing reasonable profits has borne fruit. We will continue to maintain that policy.
  • In the meantime, however, renewed price competition is beginning among major construction companies in Japan amid the shrinking domestic private market.
  • For this reason, despite the profit margin for the second quarter increasing, as a result of our taking into consideration the current competitive environment and uncertainty factors, our profit goal for the year remains at this time unchanged from the beginning of the year.

Status of overseas projects

  • The balance of the amount of overseas construction work carried forward decreased due mainly to delays in schedules of large overseas projects, from which we had been expecting to receive orders.
  • However, as the current situation is that a recovery in domestic private demand cannot be expected, we need to regard overseas projects as a certain source of profits. We will continue to maintain a fixed level of amount of overseas business focusing on countries in South East Asia in which steady investment in infrastructure can be expected in the future, while carrying out appropriate risk assessments

Main questions and answers

Q:
The amount of the provision for loss on building construction contracts has increased. Is this due to any orders that the company had received for strategic reasons? Or, does this reflect the harshness of the domestic market?
A:
There are some orders that we received for strategic reasons, but we did so after determining that each one of them will be profitable at the bottom line.
Q:
Do you expect material and labor costs to be unfavorable?
A:
We expect that both of these will trend upward.
Q:
Was there any change during each quarter in the decline of business confidence in terms of domestic capital investment?
A:
Some of our customers had previously informed us that they had no choice but to postpone investment, but we did not see any significant changes in their capital investment decisions throughout the first half.
Q:
What are your responses to the manufacturing industry shifting their facilities overseas?
A:
Expanding business operations requires the building of a reliable supply chain. We plan to expand into this area by providing such supply chains.
Q:
Is there an increase in the demand for construction to prepare for earthquakes following the recent Great East Japan Earthquake?
A:
As the economy grows weaker, customers are becoming more cost conscious, and so the demand for such construction is growing more slowly than we expected.
Q:
I have heard that large infrastructure investment projects will be launched in Qatar. What are you plans for these projects?
A:
We will commit to these projects so that we can receive orders for the successful projects among them.
Q:
I think your company progressed in restoring its financial soundness and has achieved relatively high levels of profit. Isn't this an opportunity for your company to become more aggressive and engage in real estate development or in M&A activities?
A:
Now we are confident that we will be able to achieve the financial targets set in our medium-term business plan, we have currently been considering what are our next steps will be.