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Summary of President's speech / Main questions and answers 2Q FY2013

Financial Results Briefing for the 1st half of the fiscal year ending March 2014

Summary of President's speech

Current Situation of the Domestic Construction Market

  • As for new orders for building construction, it increased drastically due to the rush demand mainly from medical facilities before the rise in consumption tax, though the situation of private sector investment have not fully recovered as we expected.
    Also, large-scale infrastructure investment is expected to start after the next fiscal year, therefore, it will take some time before it leads to our net sales and profit.
  • As a supplier of works, it is required to be cautious when taking new orders due to the situation of shift in construction cost from deflation to inflation, and sense of tightness to digest works on hand.
  • We keep the full-year target for new orders unchanged because the order situation have not yet recovered, and also, we have strong will to maintain our role to emphasize on profitability when taking new orders.

Prospect of profit

  • The gross profit for this term exceeded the target due to the acquisition of additional works and also the slower rate of inflation than we expected.
  • However, the construction cost is definitely on rise and will accelerate to rise. The high inflation risk is inevitable when considering upcoming growth in demand.
  • For that reason, there is high possibility of difficulty to respond with inflation risk which we took in consideration in the beginning of this fiscal year.
    Taking into account all relevant circumstances, we made downward revision of full-year target of building construction, and also lowered the rate of gross profit of civil engineering and building construction of the 2nd half of this fiscal year.

Medium- and long-term prospect

  • The rehabilitation and reconstruction works related to the Great East Japan Earthquake are behind the schedule.
  • We are putting our best effort to secure the maximum degree of personnel to engage in related works such as disposal work of disaster waste, decontamination work, relocation to the higher ground, and more. Also, the related technical development is in process. But it is unavoidable for rehabilitation and reconstruction works to become prolonged.
  • We will continue to focus on contribution to the earthquake disaster reconstruction, as it is our mission that is specified in “Medium-term Business Plan”.
  • On the other hand, there are positive note in construction industry, such as Tokyo Olympic in 2020, new Shinkansen using maglev, and more. Also, as it is evident from the top sales of Prime Minister Abe, the exportation of infrastructure is becoming more likely.
  • The current term is severe in trend of profit, but the construction demand is expected to recover in next few years. We will continue to undertake works with high value and also put our best efforts to reduce construction costs. Our profit capacity should improve gradually if the situation of price competition is relaxed and price pass-through move forward.

Main questions and answers

Q:
After accompanying the top sales of Prime Minister Abe, which is you target region/country?
A:
We do not make any distinction between domestic and international. We decide whether our high value of technical abilities is recognized or not. If so, we will undertake any projects in any areas.
Q:
How are you going to improve your productivity for upcoming growth in demand?
A:
We are planning to improve the productivity by promoting factory production of construction modules. As a consequence, we are putting our efforts on development of technologies such as ultrahigh strength concrete. Also, we are considering to increase employment.
Q:
The reason for profit gap between 1st and 2nd half of fiscal year, in spite of the percentage completion method.
A:
We had relatively less impact of rise in construction cost due to early procurement of construction materials of projects which are recorded on sales of 1st half of fiscal year.
Q:
There is an impression that the cash flow to be downward?
A:
It is because the last day of previous fiscal year was on holiday. The management of operation capital is making a steady improvement through reimbursement of contract amount and saving of advance money. We are expected to achieve the interest-bearing debt target specified in “Medium-term Business Plan”.