Schedule delays and widening losses in the cruise ship construction project

「As a result, the amount recorded as an extraordinary loss in the current consolidated fiscal year for the provision for losses related to the cruise ship business was ¥34,323 million.」

「In the fourth quarter, following final agreement with the customer on the delivery date, we brought forward the planned schedule and steadily carried out the work required for delivery, including interior work and inspections, commissioning of various items of equipment and sea trials. However, in light of the expected excess over the construction budget due to rush work undertaken in part to secure the new schedule, as well as new additional costs arising from the final commercial discussions with the customer, we recorded ¥17,842 million as an extraordinary loss, representing the additional expected losses reasonably estimated as of the end of the fourth quarter of the current consolidated fiscal year.」

「Delivery of the first vessel to the customer was completed in March 2016, and construction of the second vessel is now in full swing. Hull outfitting work on the second vessel, including the installation of piping and ducts, is almost complete. Electrical work, painting and interior work will be the main focus going forward, and construction is proceeding steadily with due attention to the schedule, costs and quality control.」

「Under these circumstances, for certain sections of the interior work, we had initially planned to use the same domestic contractors as for the first vessel. However, although costs would increase, we prioritised securing the schedule and strengthened the construction structure by transferring the work to skilled overseas contractors during the second quarter. This increased site costs. In addition, costs deteriorated because improvements and other matters reported in the first vessel's operating performance since May this year were fed back into the second vessel, and the yen's appreciation since the start of the current consolidated fiscal year also had an impact. As it became expected in the second quarter that future losses would exceed the amount already provided, we recorded ¥16,481 million as an extraordinary loss, representing the additional expected losses reasonably estimated to the extent possible as of the end of the second quarter of the current consolidated fiscal year.」

「For the cruise ship business, we believe that reasonable provisions for losses, to the extent possible based on facts that have already occurred, have been completed. However, because we are still discussing the construction schedule for the second vessel with the customer, among other matters, the amount of losses to be incurred in the future may differ.」

「For the construction of the first vessel, we deployed additional personnel after the start of the current consolidated fiscal year and have proceeded with the work together with the customer. However, because the delivery date had to be postponed to address design changes arising toward the end of construction, defects identified while the final processes were under way, rework required during the final finishing stage of the interior work and matters requiring coordination with the customer, we recorded ¥30,953 million as an extraordinary loss in the second quarter and ¥22,108 million in the third quarter of the current consolidated fiscal year.」