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Summary of President's speech / Main questions and answers 2Q FY2012

Financial Results Briefing for 1st half of the fiscal year ending March 2013

Summary of President's speech

Construction market conditions and reception of orders

  • Due to the cautious attitude of Japanese companies toward domestic investment, the Japanese construction market remains sluggish relative to the earthquake-related demand for debris removal and decontamination. As a result, we continue to be faced with intense market competition.
  • Against this background, the number of orders that we have received in Japan during this interim period exceeded our original goals in both the civil engineering and building construction businesses. Consequently, despite a large number of contracts in transit outside Japan due to delays in the placement of orders as well as the high exchange rate, we were able to receive a total number of orders exceeding our goal.
  • As there is likely to be a decrease in the number of major projects throughout this fiscal year against the background of the low domestic demand, it may not be easy to achieve our annual order targets. However, we will bring our collective resources together and strive to the utmost to achieve our goal for this fiscal year.

Restoration demand

  • In Miyagi and Iwate, orders for all available debris removal projects have been placed, and the decontamination in Fukushima is proceeding to the full-scale decontamination phase.
  • In some areas, such as Onagawa-cho and Higashi Matsushima City, restoration projects based on a construction management approach are being launched, raising expectations for restoration projects to shift into full swing.
  • We are determined to continue contributing to the restoration of the affected areas with still greater commitment and creativity.

Financial results

  • Due to a decrease in sales, we fell short of achieving our gross profit goal for this interim period. However, in both the civil engineering and building construction businesses, the profit margin ratio of construction works has increased relative to the goal.
  • The major reason for the increase in profit margin ratio was that both market competition and increases in purchase costs were less serious than expected.
  • However, the risks predicted at the beginning of this fiscal year remain high, including the risk of labor cost increases.
  • Therefore, although our profit margin ratio has shown a greater increase than expected during this interim period, we have not revised our original financial goals for this fiscal year in view of the current state of competition as well as the potential risk factors.

Overseas business

  • Qatar's Doha International Airport will be nearly complete by the end of this fiscal year. Meanwhile, we have started the construction of a second terminal for Noi Bai International Airport in Vietnam.
  • We will continue our efforts to win orders for projects in areas where we have proven track records and competitive advantage, such as the Noi Bai Airport construction project, in order to make our overseas business account of a significant proportion of our income.

Main questions and answers

Q:
We have been told that capital investment is being shifted from China to other Southeast Asian countries. What is the amount of orders for Taisei's local Southeast Asian subsidiaries?
A:
Our local subsidiaries are mostly in Thailand, Indonesia and Vietnam. In the second quarter of this fiscal year, our local subsidiaries in these countries have each received orders of an amount of about 5 billion yen, all exceeding our original expectations. Our business in these countries is therefore growing.
Q:
What are your current and future policies regarding the acceptance of orders in the face of serious price competition?
A:
We will strive to win orders for projects in accordance with the number and characteristics of engineers available, rather than purely focusing on the volume of orders.
Q:
Could you tell us more about your policies regarding local business development in and outside Japan?
A:
In Japan, we have established a Marketing & Sales (West Japan) Division in order to enhance our sales performance in Western Japan, including Nagoya, and have had some positive effects so far. Overseas, we plan to focus our efforts on areas where we have proven track records.
Q:
There seems to be some room for optimism for the Japanese economy?for example, increased demand for national security and safety, and the possibility of building the main line for an electromagnetic linear Shinkansen as well as the hosting of a Tokyo Olympics in the near future. How would you assess the current Japanese market?
A:
We are always ready to meet the available market demand, and also expect an increase in domestic demand. However, considering the local economic conditions and Japan's financial situation, we cannot afford to be too optimistic about the future.
Q:
What are the respective amounts of orders in the civil engineering and construction businesses? And what are the prospects for the fiscal year as a whole?
A:
We have received orders of a combined total amount of 60 billion yen in our civil engineering and construction businesses by the end of the second quarter. Out of this total amount, approximately 45 million yen was civil engineering business orders and approximately 15 million yen was construction business orders. Including the amount carried forward, we have an estimated 80 billion yen of sales for this fiscal year as a whole.
Q:
What is the difference between the current increase in labor costs and that during Japan's bubble economy?
A:
During the bubble economy, labor costs increased in all areas of Japan. In contrast, labor costs are increasing this time only in certain limited regions, including the affected areas. That is a major difference and we must accordingly tackle this increase in a different way.