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Summary of President's speech / Main questions and answers 2Q FY2008

Financial Results briefing for the Year Ended November 13, 2008

Summary of President's speech

1. On Market Perception and Forecasts of Full-Year Business Performance

[Market perception and our stance]
  • The Japanese construction market weakened more than we had anticipated at the beginning of the current fiscal year because of reduced corporate confidence in capital investment caused by the business slowdown domestically, and stagnant real estate market conditions. I believe this trend will continue into the next fiscal year.
  • Our concern is that pricing competition may intensify in these circumstances. However, Taisei believes that the greatest condition for corporate survival is achieving appropriate profits through providing customers with added value. We will keep asking our customers to evaluate the added value we offer, and, at the same time, persist with our profitability-focused measures.
[Business performance forecasts for the current fiscal year]
  • With regard to new orders, we expect to achieve our initial target for the year.
  • With regard to net sales, we anticipate that results will fall below the initial target due to order acquisition delays attributable to the tendency for price negotiations with customers to take longer in domestic construction projects. We would appreciate if such results were viewed as a reflection of our efforts to secure profits.
  • With regard to profits, we announced downward revisions of our performance targets for the current fiscal year on September 25. There are three reasons for the revisions: profit deterioration in civil engineering operations overseas, loss related to emerging developers and weaker results for Yuraku Real Estate, our consolidated subsidiary.
  • With regard to domestic construction operations, we expect profits to decline in line with a fall in net sales. However, the gross profit ratio has remained at the level forecast at the beginning of the year. Both gross profit and gross profit ratio have been rising steadily for our domestic civil engineering operations.

2. On civil engineering operations overseas

  • The biggest cause of the deterioration in our performance in our civil engineering operations overseas was prioritizing order volumes ahead of profit. In view of this, we are currently attaching top priority to achieving profits in our overseas operations, as we have done in our domestic operations, and advancing our operations in limited regions and volumes that ensure profits.
  • We have not changed our perception that Taisei should focus on overseas markets. We firmly believe that our new initiatives will begin to produce results in the form of profit contribution from the next fiscal year onward.

3. On the Medium-term Business Plan

  • With regard to the Taisei Group Medium-term Business Plan, which will enter its final year in fiscal 2009, we regret to advise that we believe it has become almost impossible for us to achieve our targets.
  • To deal with this situation, we have recently started mapping out a new business plan based on the current business environment, which has changed radically from about two years ago when the current Plan was developed.

Main questions and answers

You explained that delays have occurred in domestic construction starts. Is there a possibility that this trend could make it more difficult to meet construction timeframes and lead to cost increases?
We basically ask our customers to push completion dates out when groundbreaking dates are delayed. We consider that it is a basic rule to add the cost of shortening the construction period to the amount of the contract if customers do not agree to move completion dates back.
Is your construction capacity causing delays in construction starts?
No, that is not the case.
Have you set a minimum new order volume for domestic construction as you continue profitability-focused measures?
We have not set a minimum level in our new order plan. We consider it best to achieve targets as a result of accumulated sales efforts. We don't believe in obtaining orders by disregarding profitability for the sake of achieving targets.
Would it be acceptable for new domestic construction orders to fall to a level of around 700 billion yen as a result of such a stance?
We do not think that orders will decline to that kind of level.
Is there any difference in the competitive environment for construction and civil engineering in overseas markets?
The shrinking domestic civil engineering market is causing our competitors to seek new opportunities overseas in the same way. Because of this, competition tends to be a little tougher in civil engineering than in construction, for which a market of a certain size still exists in Japan.