Taisei : Summary of President’s Speech and Main Questions and Answers at Financial Results Briefing for first half of FY2022

November 2022

Taisei Corporation

Summary of President's Speech and Main Questions and Answers at

Financial Results Briefing for first half of FY2022

1. Summary of President's SpeechRecognition the business environment

• In the current business environment, the stiff price competition, mainly for large projects, seems to have eased. However, the fiercely competitive environment surrounding some of the small and medium-sized projects, which are exposed to bids from a large number of companies, will take a little more time to settle down.
• Taisei's policy is to continue to maintain a stance of emphasizing profitability while closely examining individual projects.
• Soaring construction costs that I have never experienced in the past 40 years, mainly for steel materials, are presenting a challenge for the whole construction industry. As a result, general contractors are finding it difficult to absorb sharp rises in costs through their own initiative. In fact, construction costs are now so exorbitant that we cannot help but pass them on to clients.
• In terms of passing price rises on to clients, there is an index-linked system for civil engineering projects, primarily for public works projects. But for private building construction projects, we are currently striving to have clients understand the need to reflect such rises in estimated costs and make such costs index-linked rather than simply asking clients to review construction prices. We are doing this by presenting price rises together with value engineering and other plans that make the most of our technical capabilities.
• Construction industry-wide initiatives are starting to bear some fruit, and we will be making every effort to improve profitability based on them.

Prospects for the current fiscal year

• Backed by abundant demand and the large amount of construction work on hand, orders and sales for the first half of the current term grew compared to the same period last year. Since the percentage of large construction projects whose orders were won in the harsh competitive environment rose, however, the profit ratio declined, lowering income for the first half.
• In the building construction business, we have decided to revise sales forecasts for the whole year downward by 30 billion yen due to the effects of delays in the time when orders for large domestic construction projects were accepted and the

interruption of overseas construction projects, but at each income level, we expect to maintain the initial forecasts.

• Although the business environment is harsh, we will persist with price negotiations and concentrate on winning orders for additional construction work as quickly as possible to achieve the planned financial results.

Shareholder return

• The acquisition of 50 billion yen's worth of share repurchase in this fiscal year is progressing satisfactorily, and we will finish acquiring and cancelling all shares by the end of the current term as planned.
• At first glance, investment in ongoing growth and efforts to return profits to shareholders look like a trade-off, but I believe that both are indispensable to enhancing shareholder value, and in the future, we will continue to be flexible and agile in our approach to both goals.

Progress of the Medium-Term Business Plan

• We are midway through the Medium-Term Business Plan, but the improvement in the order environment has been slower than expected. Furthermore, partly because of recent extraordinarily sharp rises in construction material prices it is extremely difficult to meet the business plan's goals.
• However, the various initiatives included in the Medium-Term Business Plan, such as expanding the renewal field, such as ZEB (zero-emissions building) renewal and the like against the backdrop of efforts toward carbon neutrality, strengthening the engineering business in which Taisei is strong, and improving expressway renewal technology in civil engineering projects, have produced satisfactory results. As such, we will continue to forge ahead to achieve the goals of the business plan's final year.
• By the end of current fiscal year, we plan to have implemented a little more than 60% of the three-year,250-billion-yen investment plan. In general, the plan is progressing as expected.
• During the first half of the term, one of the business-related investments, namely the acquisition of large downtown office buildings, and construction work to renew the Yokohama and Kansai Branches and Taisei U-LEC Kawagoe Factory and turn their buildings into ZEBs as part of the technological development investment program, have progressed smoothly.
• The project to renew the Yokohama Branch and turn its building into a ZEB was adopted as one of the Ministry of the Environment's test projects, attracting much

public attention. In the future, we will continue to step up environment-related investments to help bring about a decarbonized society.

M&A investments

• There have been no concrete results to date, but we are actively continuing our efforts in this area even today, and there are no changes to the targets and policy.
• Our policy is to further build our technical and sales strength and target functional M&As that will make up for our weaknesses and bring synergistic effects.
• To help achieve carbon neutrality, an urgent issue for the construction industry to address, and improve productivity through digital transformation (DX), we need to promote collaborations, including open innovation, with various stakeholders such as other industries, local governments, and academic circles without being bound by the conventional frameworks. We believe that a strong financial structure and technical capabilities high enough to meet the demands of these times in a realistic way is needed.
• Recognizing this, we intend to conduct significant M&As as soon as possible that will not only complement our own growth strategy but also serve as catalysts for industry restructuring.
• At present, the entire Japanese economy, including Taisei, is facing difficulties due to the weak yen and soaring prices, but we will intensify our efforts in the second half of the Medium-Term Business Plan to become a leader in helping to create a resilient society while driving changes toward a next-generation construction industry.

2. Major Questions and Answers

1. Please tell us about the interruptions of overseas construction projects.

1. We are going through procedures to cancel contract for a project.

1. Will the interruptions of overseas projects affect profits and losses?

A: At present, there is no prospect of additional losses.

1. Please tell us why you revised the forecast of the gross profit margin for the building construction business by 0.1 percentage point compared to the initial one, and explain your forecasts of future profit ratios.

1. Since negotiations to apply an index-linked system are underway as inflation progresses, some of the uncertainties are reflected on our revised forecast. While there are uncertainties, we are moving ahead with the aim of exceeding the revised forecast, and this figure is not likely to decrease in the future.

1. To what extent are the effects of inflation on materials and equipment during the second half of the term included in the current financial result forecasts?

1. The current forecasts reflect our estimates for construction work at hand to a certain extent, but not all of it. We have created a somewhat conservative forecast of orders we expect to win in the future. As such, we are concentrating on absorbing the effects on profitability during the current term through procurement that is as early as possible, but it is true that there are many uncertain factors such as sharp price fluctuations compared to the trends in the second half of the average year.

1. Why did the profit ratio for civil engineering fall from the April-June to July-September periods? Will this affect financial results for the second half?

1. This is due to the effects of individual domestic and overseas projects in which we reported the provision for loss on construction contracts during the second quarter. The profit ratio for the second half will not be affected because additional construction work is expected during the second half as usual.

1. Is it reasonable to expect that since profitability at the time of order acceptance

improved during the first half, improvement of the profit ratio for building construction will lead to improvement of the gross profit margin in the next fiscal year?

1. Profitability at the time of order acceptance is certainly better than several years ago when it was at its worst, and we expected to see favorable effects on financial results in the next term and thereafter. However, this will be reflected in financial results for the second half of fiscal 2023, partly because it depends on negotiations for an index- linked system as the prices of materials soar.

1. Since the April-June period, deficits at Taisei Rotec have not improved, but forecasts for the whole year have stayed the same. Progress compared to the same period of the previous year looks grim, but what is the actual situation?

1. Efforts to pass cost increases on to clients have failed to keep pace with such rises. We expect the Company to make gradual progress during the year in passing them on to clients.

1. What are you forecasts for sales and profitability of condominiums at Taisei-Yuraku Real Estate in the next fiscal year and the one after that?

1. We believe that profitability will not be bad if sales of condominiums on hand progress. But since it is extremely difficult to purchase land for condominiums due to sharp rises in land prices, the prospects for purchasing much land and selling many condominiums are dim.

1. What are your forecasts for the future competitive environment in the building construction business and the pace of improvement in profitability at the time of order acceptance in the second half of the term and thereafter?

1. As construction demand in the private sector is continuing to grow, we predict that the competitive environment will ease in the future. In addition, since there are customers who postpone orders to the next term or thereafter as prices rise sharply, we estimate that the private sector's demand for construction will grow further and that the competitive environment will improve in the next term and thereafter if the soaring prices ease to a certain extent.

Q: Please tell us about the profitability of future large projects.

1. Negotiations to apply an index-linked system to large projects for which we have accepted orders are under way. For projects we plan to compete for, we will take prices rises into account and emphasize profitability irrespective of project scale when submitting a tender.

1. As prices rise, should we expect a decline in the profit ratio of large projects for which you have already accepted orders?

1. We are negotiating with clients to apply an index-linked system, including proposals for value engineering, so that the profit ratio does not fall below the initial forecasts.

1. Please tell us whether you are making progress in achieving the building construction sales goals included in the Medium-Term Business Plan as initially planned.

1. The forecasts for building construction sales during the current term have been revised downward by 10 billion yen for domestic and 20 billion yen for overseas, for a total of 30 billion yen. At present, however, there are no further changes expected.