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

May 2023

Taisei Corporation

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

Financial Results Briefing for FY2022

1. Summary of President's SpeechOverview of the Medium-Term Business Plan

• Regarding our forecast for the fiscal year 2023, which is the final year of our medium-term business plan, we expect that group net sales of 240 billion yen, operating income of 76 billion yen, and net income of 55 billion yen, will not be achieved.

Reasons for failure to achieve target operating income

• The first was a delay in the rebuilding of the production system. Envisaging that a certain amount of income could be maintained, the current Medium-Term Business Plan intended to earn additional income through business expansion, but we could not improve productivity or secure personnel as we had expected.
• The second was the effects of several large low-profitability projects. Since the projects had become large, intensifying competition, the several projects for which we had won orders while acknowledging their low profitability pushed down our overall income.
• The third was the delay in passing on the sharp rises in the prices of construction materials onto clients. We could not make much progress in passing onto clients the sharp rises in the prices of construction materials in the design and construction projects that required considerable time, from the selection of a constructor to the start of construction, as well as the sharp rises in oil prices at certain group company, and this lowered the profit ratio.

Measures for the Final Year of the Medium-Term Business Plan and the Next Medium-Term Business Plan

• Based on the above factors for not achieving our numerical targets, we would like to inform you of the measures we will take from this fiscal year for the next Medium- Term Business Plan.
• Regarding "to secure appropriate business volume and rebuild the production system," we will promote the business with a focus on the balance between the work volume and profitability in consideration of the employees' working environment.
• We will also reduce workloads and reorganize the work environment so that employees will be able to maximize their abilities while maintaining a high level of

engagement from them as the overtime regulations is expected to be applied in the fiscal year 2024.

• Reflecting on the decline in profitability due to intense competition after the Tokyo Olympics and Paralympics, we are re-enforcing our "profit-oriented principle" through applying careful scrutiny procedures at the time of receiving orders, assigning human resources to the priority fields, and so on.
• We will persistently continue price pass-through negotiations for inflated prices with our clients in order to recover profit margins.
• In FY2023, as in FY2022, the profit ratio is expected to remain at a low level. This is because the low-profitability domestic building construction projects for which we won orders in the fiercely competitive environment after the Tokyo Olympics and Paralympics will progress, occupying a higher percentage of total sales, and in addition, as the price of building construction soars, we cannot expect to improve profitability as we anticipate. Furthermore, we expect to a certain extent that the profitability of large new project for which we are currently discussing prices with the client may become worse, and this is another reason the overall income has lowered.

Investment plan

• The invest plan remains to be 250 billion yen as initially planned. Current progress of investment is approximately 50%.
• In the FY2022, we have started operation of the buildings of Yokohama Branch and Kansai Branch that we own, after converting them to ZEB through renovation works. Those buildings are filled with our environment-related technologies and also serve as showrooms to introduce to our customers the "Green Renewal ZEB" that we are promoting.
• For the fiscal year 2023, in addition to the acquisition of large office buildings in central Tokyo, we also plan to invest in overseas real estate projects.
• We will also continue to develop environment-related technologies, including the establishment of the Group's Next Generation Research Center and the development of construction technologies for offshore wind power generation.

Shareholder returns

• For the next term, we plan to maintain a dividend of 130 yen per share. The payout ratio is 53.7%, which is much higher than the target of 25% included in the Medium-Term Business Plan, and this is based on Taisei's basic policy of "long- term stable dividends."

• We have decided to acquire 20 billion yen's worth of share repurchase. We would like you to interpret this as our stance of making continuous efforts to improve our capital efficiency and increase net income per share, even in the harsh business environment.
• The policy of the Taisei Group toward cross-shareholdings is to sell appropriately at the right time shares that are considered to be inconsistent with the purpose of cross-shareholdings in terms of medium- to long-term economic rationality and future growth potential.
• In the future, in order to clarify sales goals under this policy, we aim to decrease the percentage of cross-shareholdings to less than 30% of consolidated net assets by the end of FY2026 and to less than 20% by the end of FY2030 as we plan to reduce cross-shareholdings gradually.

Case related to the ongoing construction project undertaken by the Sapporo Branch

• Finally, we regrettably failed to meet the steel erection accuracy requirements in the ongoing construction work for the Sapporo North 1 West 5 Project undertaken by our Sapporo Branch. We deeply apologize to the client, our shareholders, and all other stakeholders for the great inconvenience and trouble that have been caused by this incident.
• We are currently finding out the causes of the incident and devising measures to prevent the recurrence of similar incidents through the special compliance committee and the technical verification committee, which include third parties. By establishing a new independent quality control organization, we also plan to strengthen the system in order that Taisei's quality control process will be performed without fail.
• I personally take this situation seriously and am determined to do my utmost to ensure that similar incidents never happen again and to regain the public's confidence in Taisei.

2. Main Questions and Answers

1. Please tell us about profitability when you win orders for building construction.

1. Profitability on order acceptance has improved since it bottomed out in FY2020. We expect, however, that it will be in FY2025 and thereafter that the effects of improved profitability at the time of order acceptance are specifically reflected at the profit level. This is due to the time difference between order acceptance and the progress of construction work. Since the soaring building construction prices have only recently settled down, it will still be difficult to see positive effects in FY2023 and FY2024. But we expect that we will be able to achieve a profit ratio of 8 to 9% in FY2025

1. You explained that forecasts of construction gross profits in FY2023 included concerns about the profitability of newly won large projects. Do you have one or more such projects? When you accepted such projects, did you expect that their profitability could be improved?

1. We have only one large new project regarding which we have profitability-related concerns. We acquired the right of priority for negotiations in FY2021, when the order environment was harsh. Currently, we are in the process of final design, etc., and plans call for construction work to beginFY2023, but since we do not expect profitability to be improved, such concerns are included in the plan.

1. It is expected that the provision for loss on single construction contracts increased substantially in FY2022 and that in reaction to this, such substantial increases may contribute to improvements of the profit level in the current term, but why is the range of improvement in FY2023 small?

1. In addition to the above-mentioned newly won large project, the low-profitability projects won when the order environment was harsh are still in progress. The profit ratio has not improved partly because of the high prices of materials. For these reasons, it is difficult to escape from low profit ratios.

1. Does that mean that loss from the newly won large project was due to be disposed in FY2022 but its disposition has been delayed until FY2023?

1. Since the large project is scheduled to start in the second half of the current term, the loss from it cannot be reported in FY2022, to begin with.

1. Please tell us about the profit ratio level in the building construction business, excluding the newly won large project, and about the future pace of recovery in the profit ratio from a medium-term perspective.

1. We cannot give figures for projects other the newly won large ones. We would prefer to refrain from giving specific explanations because we have not won the project yet.

1. In addition to the projects of concern included in the current plan, are there large construction projects for which a provision for loss on construction contracts may be reported?

1. Since FY2022, we have reconfirmed our policy of emphasizing profitability, including winning projects with a high profit ratio, and we are working to win orders so that the reporting of a provision for loss on construction contracts is avoided.

1. What is your opinion about the environment for building construction business? How much progress have clients made in understanding the recent high prices of construction materials and the regulations for the upper limit on overtime work, which will begin in FY2024?

1. Price indexing is the most important theme, so we are working to win orders while explaining it so that clients' understanding may be obtained. Since the private sector place many orders for building construction projects, it is difficult to pass price rises onto the project price even though the price indexing concept is understood, but we have to do so. Relatively speaking, clients have a better understanding of the effects of the 2024 problem on the construction process involving the labor environment more than price indexing.

1. The gross margin ratio for the civil engineering segment alone in FY2023 continues to be high, at the 18% level. What are your forecasts of the gross margin ratio in the future?

1. Since civil engineering business consists mostly of public works projects and infrastructure projects close to them, we can obtain clients' understanding of price indexing, enabling us to maintain a high level profitability. We also believe that backed by initiatives to achieve national resilience and reduce disaster risks, there are quantitative expectations for these projects.

1. Taisei Rotec plans to improve its operating income in FY2023. On what opinion is this plan based?

1. Financial results depend on whether Taisei Rotec can pass prices rises onto its clients. In FY2022, as it struggled because of the fiercely competitive environment, the company could not pass sharp rises in materials prices onto its clients.

1. Please provide updated information on the progress of M&A.

1. We cannot speak in concrete terms, but we are advancing M&A projects in a proactive manner, and our M&A policy remains unchanged.

1. In the future, are you going to accelerate the pace at which you reduce your percentage of cross-shareholdings? What is the policy to utilize the funds gained by selling such shareholdings?

1. This is the first time we have set numerical reduction targets (We plan to reduce the percentage of cross-shareholdings to less than 30% of consolidated net assets by the end of FY2026 and less than 20% by the end of FY2030). We will increase the pace of reduction in the future. In FY2022, we reduced cross-shareholdings approximately by two billion yen (one billion yen for listed shares and one billion yen for unlisted shares). After securing funds on hand, we will allocate the funds gained by selling shares to growth investments first and then will return the remainder to our shareholders.