Enhancing Production Capacity and Reducing Costs in the Steel-Frame Business

「In the steel frame division, demand for steel frames remained sluggish as construction plans were reviewed and start dates postponed, reflecting cautious private-sector construction investment amid persistently high material prices and an uncertain outlook. Orders in the steel frame division were ¥2,110 million, down 52.1% year on year.」

「Steel frame construction declined substantially from the same period of the previous year because there were no new orders and the Company only worked through previously awarded projects.」

「At the Company, the recording of provisions for construction losses on large-scale steel frame construction projects in the Tokyo metropolitan area and elsewhere substantially depressed profit. Completed construction revenue was ¥20,670 million, up 5.5% year on year, and the operating loss was ¥540 million, compared with operating profit of ¥420 million in the same period of the previous year.」

「In terms of profitability, higher costs due to personnel expenses, fuel costs and other factors became apparent, generally depressing margins on bridge construction. In steel frame construction, the recording of a substantial provision for construction losses on a large-scale high-rise building project significantly depressed profitability for the segment as a whole.」

「Amid expectations of a medium- to long-term decline in orders for new bridges, we have positioned work on ultra-high-rise projects in the Tokyo metropolitan area as a challenge equivalent to launching a new business. We will steadily establish our internal structure while making capital and personnel investments, coordinate with group companies expected to be acquired through M&A, and pursue steady growth.」

「In the steel frame division, production increased substantially from the previous fiscal year as large-scale steel frames became the focus. In terms of profitability, provisions for construction losses were recorded for certain large-scale bridge and steel frame projects because deterioration in profitability was expected. However, at subsidiaries, improvement in construction profitability and progress on highly profitable projects resulted in completed construction revenue of ¥13,960 million, up ¥3,310 million, or 31.1%, year on year, and operating profit of ¥100 million, compared with an operating loss of ¥6 million in the same period of the previous year.」

「In steel frame construction, the increase in carried-over construction projects and design changes made a significant contribution, resulting in a substantial increase from the same period of the previous year. In terms of profitability, high costs due to higher material and personnel costs, among other factors, continued, but operating profit increased because the factors driving higher revenue had a substantial impact.」

「On the other hand, operating profit declined due to higher material and personnel costs, among other factors.」

「As actions toward fiscal 2023, the final year of the new medium-term management plan, we will continue securing civil engineering and construction engineers and other personnel, as in the previous fiscal year. In terms of facilities, we will reorganize the production system at the head-office factory by separating the production lines for bridges and steel frames, while also renewing processing equipment such as welding machines and presses, to improve productivity and profitability.」

「Our factory operations remained strong, resulting in an increase in construction output.」

「Recovery in our factory operations」

「The impact of COVID-19 was limited, and the operating level of our factory increased by approximately 20% year on year. The burden of indirect costs and other expenses is also gradually returning to pre-COVID levels.」

「As actions toward fiscal 2022, the second year of the new medium-term management plan, we will strengthen recruitment of civil engineering and construction engineers and secure the personnel required as the foundation of our management resources. We will also work to reduce the burden of fixed costs and restore profitability, which has declined, by recovering factory operations to pre-COVID levels and improving production efficiency.」

「At the Company, factory operations recovered to normal levels from the second quarter onward as the COVID-19 situation temporarily subsided. However, the trend of higher costs on a full-year basis has continued, and we believe that improving the income statement will take time.」

「Because orders for construction projects linked to factory production have been weak since the previous fiscal year, sales declined and the fixed-cost ratio for indirect costs and other expenses increased, although」

「The factory operating rate, which had remained low through the first half due to the impact of COVID-19, has been gradually recovering, and this trend is expected to continue. The impact of design changes recorded in the six-month period ended the second quarter was substantial, resulting in completed construction revenue of ¥9,450 million, up ¥220 million, or 2.5%, year on year, and operating profit of ¥100 million, compared with an operating loss of ¥410 million in the same period of the previous year.」

「Although the decline in the factory operating rate and other factors resulting from COVID-19 increased the fixed-cost ratio of manufacturing costs, design changes were recorded for certain expressway projects. As a result, completed construction revenue was ¥6,450 million, up ¥470 million, or 7.9%, year on year, and operating profit was ¥6 million, compared with an operating loss of ¥260 million in the same period of the previous year.」

「Regarding quarterly results, measures to prevent COVID-19 and other factors kept the factory operating rate at approximately 50%, resulting in a substantial decline in production volume. The allocation of common costs, including indirect costs, consequently pushed up production costs. Completed construction revenue was ¥2,490 million, down ¥500 million, or 16.8%, year on year, and the operating loss was ¥280 million, compared with an operating loss of ¥40 million in the same period of the previous year.」

「During the fiscal year, capital expenditures included panel-line straightening machines at the Company in the steel structure manufacturing business and plasma cutting machines at subsidiary Marusada Sangyo Co., Ltd. in the materials sales business. As a result, total capital expenditures were ¥581 million, comprising ¥519 million in the steel structure manufacturing business, ¥61 million in the materials sales business and ¥0 million in the machine tools manufacturing business.」

「Regarding quarterly results, in addition to the results through the second quarter, the Company was affected by lower-than-expected profitability on long-term, large-scale construction projects, among other factors. However, its subsidiaries recorded revenue steadily, resulting in completed construction revenue of ¥9,220 million, up ¥610 million, or 7.2%, year on year, and an operating loss of ¥410 million, compared with an operating loss of ¥160 million in the same period of the previous year.」

「However, operating results were affected by the recognition of a provision for construction loss due to deteriorating expected profitability on certain bridge projects, as well as deteriorating profitability in private-sector steel-frame projects. As a result, the business recorded an operating loss of ¥260 million, compared with an operating loss of ¥20 million in the same period of the previous year.」

「In quarterly earnings, factory operations and on-site construction remained stable, but outsourced costs, including transportation expenses, were affected by higher labor costs resulting from labor shortages, leading to an overall increase in costs. In addition, higher costs associated with new production equipment and the relocation of a subsidiary's office had a slight impact. As a result, completed construction revenue was ¥2.99 billion, up ¥310 million, or 11.6%, year on year, and the business recorded an operating loss of ¥40 million, compared with an operating loss of ¥180 million in the same period of the previous year.」

「The principal increases during the period were as follows: Machinery and equipment: purchase of a traveling crane, ¥125 million; machinery and equipment: purchase of a steel-frame welding robot, ¥85 million.」

「In quarterly earnings, profitability deteriorated on large-scale steel-frame projects because of higher transportation and other costs, resulting in the recognition of a provision for construction loss. In addition, as on-site construction volume declined from the same period of the previous year, completed construction revenue was ¥2.68 billion, down ¥570 million, or 17.6%, year on year, and the business recorded an operating loss of ¥180 million, compared with operating income of ¥130 million in the same period of the previous year.」

「In the steel-frame segment, efforts to selectively accept orders with an emphasis on profitability, as in the previous fiscal year, resulted in orders for projects including thermal power plants. Order intake in the steel-frame segment was ¥2.82 billion, an increase of ¥1.44 billion, or 105.1%, year on year.」

「As the increase in fabrication man-hours incurred on certain large-scale projects subsided from autumn onward, the deterioration in profitability was brought under control, and the factory recovered to generally normal operating levels.」

「In the steel-frame business, while continuing to make orders for power-related projects a core focus, we will restructure our production facilities and staffing structure to make maximum use of our subsidiary's capabilities in order to address the steady construction demand related to the 2020 Tokyo Olympics, the Chuo Shinkansen maglev line and other projects, as in the previous year, and will work to enhance production capacity and reduce costs.」