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Summary of President's speech / Main questions and answers 4Q FY2009

Financial Results Briefing for the fiscal year ended March 2010

Summary of President's speech

1. Present market situation and future prospects

  • Japan's construction market continues to be sluggish due to the decline in private capital investment and the stagnant real estate market caused by the economic recession. There is little chance that private investment in construction will fully recover during the fiscal year ending March 2011, and public investment is also unlikely to increase which leads us to believe that market demand will continue to decrease.
  • Meanwhile, investments in overseas construction markets are expected to increase, with the economies of emerging countries in East Asia and elsewhere booming despite concerns over Western economies.
  • Against this background, we have set a goal regarding the amount of orders expected by Taisei for the fiscal year ending March 2011 on a non-consolidated basis at a level slightly higher than the results for the fiscal year ended March 2010.
  • Although the achievement of this goal will not be easy, as in the area of both civil engineering and building, we believe that it is not unattainable.

2. Policy aimed at maximizing profits

  • Winning orders and increasing profits at the same time is very difficult in the current unfavorable economic climate. However, we will continue to pursue our basic policy aimed at maximizing profits by increasing the amount of orders we receive with high added value.

3. State of overseas projects

  • Taisei's earnings from overseas projects carried forward as of April 1, 2010 were approximately 265 billion yen. Thus, the amount of ongoing construction work is slightly greater than 250 billion yen, which was the goal set in our medium-term business plan. This is due to a large increase in additional work related to existing construction contracts despite the successful completion of ongoing construction.
  • Demand in the Japanese construction market is unlikely to recover in the near future, leaving us no choice but to seek opportunities for business expansion overseas. Therefore, we intend to make overseas business central to Taisei's profitability without fail, based on effective risk management.

4. Improvement in our financial position

  • Our new medium-term business plan emphasizes the need to improve our financial position. We believe that it is all the more important to make the necessary improvements in this current unfavorable economic climate.
  • Taisei had a particularly large amount of interest-bearing loans in comparison to the scale of projects undertaken by our company group. We were able to achieve our initial goal regarding these loans in the last fiscal year. This goal was achieved not only by implementing our profit plan but also by improving the balance in our construction work and by selling investment securities in order to improve our financial position in accordance with our business plan. We will continue to reduce our amount of interest-bearing loans and to increase our equity capital.

Main questions and answers

All construction companies reported a decrease in the amount of orders they received during the fiscal year ended March 2010. They expect to increase the amount of orders by about 10% during the fiscal year ending March 2011. Do you plan to increase the amount of orders you receive to the level of 1 trillion yen?
We are not particularly concerned about doing that. Rather, we would like to place greater emphasis on the content and quality of construction orders we receive. Although the amount of orders we received fell below the level of 1 trillion yen in the fiscal year ended March 2010, we could have achieved that level if we had not been concerned about the quality of our construction orders. We believe that we will be able to achieve our numerical target for this fiscal year by adopting the same approach as we used last fiscal year.
I have been under the impression that there is a repeated cycle of improvement and deterioration affecting the profit margin for overseas work. Could you tell us whether the current state of affairs will continue?
I have repeatedly told the members of Taisei not to make the same mistake we made in the past regarding the profit margin for overseas work. The Board of Directors has passed a resolution to follow strategies for the continued development of overseas projects based on past experience. We have also created a system designed to check overseas projects based on regular reports on these projects submitted to the Board of Directors. We would like to continue to use the know-how that we have acquired through our past experience for long-term business development.
There was a large reduction in selling, general and administrative expenses. What was the reason for that?
We have been reducing selling, general and administrative expenses continuously over the past three years. This is basically the result of a decrease in the number of our employees, which was achieved through efforts to do jobs ourselves that we had previously outsourced to other companies, without increasing our workload. Reducing selling, general and administrative expenses is a perennial challenge for Taisei and the challenge will continue even after the fiscal year ended March 2010.
There has been a steady decrease in the amount of corporate real estate you hold. Will you continue to follow the same policies in the future?
Liquidation of assets is one of our goals with regard to the improvement in our financial position as mentioned in the medium-term business plan, and we will continue our efforts to decrease our amount of corporate real estate.