Deteriorating profitability due to price competition when securing orders and loss-making construction projects

「Regarding the outlook from the third quarter onward, ... additional expenditures to meet construction schedules and rising raw-material prices remain challenges in terms of earnings, so we will continue to assess the situation cautiously. ... The provision for construction losses ... increased by ¥116 million」

「Provision for construction losses 14,892 13,874」

「In the Special Civil Engineering and Other Business, orders received and revenue declined due to plan revisions and delays in starting work on urban redevelopment projects. In terms of earnings, difficult construction conditions caused by hard ground, together with extended construction periods, machinery breakdowns and increased staffing, resulted in the recording of unprofitable construction projects that substantially exceeded the budget.」

「However, in the Construction Business, a court issued a preservation order in connection with the bankruptcy proceedings of a subcontractor, resulting in the suspension of construction and an extended construction period. This led to increased labor and rental costs during the work stoppage and the recording of a construction loss following the conclusion of a contract with a new subcontractor. In the Special Civil Engineering and Other Business, construction losses were also recorded because construction periods were extended due to constraints on construction conditions and working hours in a series of projects with different ordering parties by work section, and construction machinery broke down under excessive loads caused by harder-than-expected ground.」

「In urban redevelopment construction under the Special Civil Engineering and Other Business, repeated encounters with underground obstructions forced a substantial extension of the construction period, resulting in the recording of a construction loss.」

「Under these circumstances, we worked to ensure safe, high-quality construction by thoroughly managing budgets and schedules and holding regular construction meetings for both work in progress carried over from the previous fiscal year and newly commissioned projects.」

「For construction projects we were commissioned to undertake, we held regular construction meetings from before construction began through handover and worked to ensure safe, high-quality construction.」

「We also held regular construction meetings before and during work on projects received, and worked to provide safe, high-quality construction. As a result, this led to fewer construction-related problems and also enabled us to expand profitability.」

「Provision for construction losses 3,500 5,820」

「Provision for construction losses 3,500 8,316」

「Meanwhile, construction meetings held before work commenced were becoming established, awareness of high-quality construction increased, and the profit margin improved.」

「Provision for construction losses - 30,003」

「Provision for construction losses - 1,528」

「Provision for construction losses - 4,320」

「In the housing-related construction business, there were losses from a decline in the number of detached-house ground-improvement projects carried out due to weak personal consumption and from repairing projects carried out in prior fiscal years, but」

「The loss resulted from a decline in ground-improvement work for detached houses and other properties, as well as additional costs incurred for subsidence-repair work on ground-improvement projects carried out in the previous fiscal year.」

「Segment profit also declined because an additional estimate of construction losses for the East Japan region was recorded.」

「The Company has thoroughly managed construction sites, including by holding construction meetings for highly complex projects, with the aim of eliminating unprofitable construction projects.」

「In the construction industry, public investment and private-sector capital investment remained firm and continued to trend upward. Although the upward trend in construction-material prices and labor costs weakened, competition over order prices remained intense and profitability continued to face difficult conditions. Against this backdrop, we began pursuing a medium- to long-term goal of becoming a company with ¥15 billion in revenue, supported by a sales structure divided into the East Japan, Central Japan and West Japan regions, with a target of ¥5 billion per region. During the cumulative second-quarter period, order value grew steadily and reached its highest level in the past 5 years in terms of order backlog. However, profitability was affected by the occurrence of unprofitable construction projects.」