FY2025 Financial Results Briefing (Teleconference) Main Q&A

Q1:How much has profitability at the time of order received improved? Furthermore, given the current environment for receiving orders-which is also affected by the situation in the Middle East-is it difficult to achieve further improvement?

A1: At present, we have projects with visible order prospects, and we believe we can secure a certain level of profitability if the impact of the situation in the Middle East does not persist. Regarding profitability at the

time of order received, we will continue our policy of making order decisions only after rigorously scrutinizing factors such as construction plans to ensure profitability.

Q2:Is it feasible to achieve forecast profit margin of 13.9% or higher for non-consolidated domestic architectural construction in FY2026 over the medium to long term?

Q3:The forecast profit margin for non-consolidated domestic architectural construction in FY2026 is 13.9%, which is a high level, but to what extent does this figure reflect the profit improvement resulting from

securing design changes? Also, please provide the profit margin level excluding design changes.

both existing large-scale and medium-scale construction projects are steadily improving. Regarding existing projects, our forecast incorporates a certain degree of the profit improvement expected during the period, based on the current status of negotiations with customers regarding additional construction work and the current cost situation. In FY2026, many large-scale construction projects are scheduled for completion, and the prospects for profit improvement are strong. Furthermore, while unprofitable projects accounted for approximately 20% of construction contract in FY2025, this figure is expected to decrease to around 15% in FY2026, which is also contributing to the rise in profit margins.

Q4: The forecast profit margin for non-consolidated architectural construction in FY2026 incorporates some improvement in the profitability of current projects. However, since there are particularly no special

factors, can we assume that further improvement is expected from FY2027 onward, creating an environment where a margin of 15% or higher can be achieved?

say whether profit margins will continue improving. In FY2026, there are many large-scale construction projects scheduled for completion, and significant profit improvement is expected; however, the number of such projects scheduled for completion will decrease in FY2027. On the other hand, the impact of existing unprofitable projects will also decrease, so we aim to use this to improve overall construction profitability.

Q5:

We are hearing concerns from investors that profit margins of architectural construction may have

peaked. Could you please share your outlook for future profit margins? Additionally, could you tell us which sectors you believe will see growth moving forward?

continue to improve. However, due to uncertainties such as the situation in the Middle East, we cannot say with certainty that rising profit margins will continue.

We believe that demand for projects such as semiconductor-related and data centers will remain strong and that these are sectors poised for further growth. Furthermore, in the medium to long term, we anticipate an increase in renovation projects. Since renovation projects generally offer good profitability, we believe it is necessary to focus our efforts on them, and we expect this to lead to improved profit margins.

Q6:

Regarding profit margins in the domestic civil engineering, while the downward pressure on profit

margins in FY2025 due to cost recovery standards is expected to be offset in the future by an upward effect on profit margins when design change contracts are concluded. How has this been factored into the FY2026 forecast? Also, given that many of the projects secured in recent years appear to be relatively profitable, is it possible to expect further improvement in profit margins?

A6:

In FY2025, the profit margin for domestic civil engineering was reduced by approximately 1.2% due to the

cost recovery standards. Since the impact of the cost recovery standards for FY2026 is currently unknown, it has not been factored into the forecast. Furthermore, because there are few large-scale construction works nearing completion and handover, the forecast at the beginning of the fiscal year is conservative and does not factor in profit improvements resulting from design changes.

Q7:

Regarding profit margins in domestic civil engineering, while the potential for improvement in the

architectural construction appears to be nearing limit, I believe there is still room for improvement in the civil engineering sector. I understand that a recovery will take time, but could you please provide an update on the current situation and indicate when we can expect margins to improve to levels comparable to those of other companies, such as 18% or 19%?

A7: Regarding our existing large-scale construction works in the domestic civil engineering, we do not expect profit improvements resulting from design changes in the final stages of construction until FY2027 or later.

Therefore, conditions will remain challenging until then, but we anticipate a profit margin of at least 15% thereafter.

Q8:

We understand that the balance of the reserve for expected losses on construction contracts at the

end of FY2025 is 63.1 billion yen. What is the forecast reduction in this balance by the end of FY2026? Additionally, please provide your outlook for the proportion of unprofitable projects within domestic architectural construction contracts starting from FY2027.

A8:

We currently expect the balance of the reserve to be approximately 19 billion yen at the end of FY2026. The proportion of unprofitable projects relative to total construction contracts is expected to be around 20% in FY2025 and around 15% in FY2026, and we anticipate it will decline further in FY2027.

We expect the balance of the reserve for domestic architectural construction to be eliminated by the end of FY2026.

Q9:

In your earnings forecasts for the domestic architectural construction and civil engineering, how have

you factored in the risks of project delays and rising costs due to the situation in the Middle East?

A9:

We believe that rising crude oil prices will have a significant impact on the domestic building materials market through higher costs for oil-derived materials and transportation. In particular, concerns are beginning to emerge regarding not only price hikes but also shortages and delivery delays for naphtha and aluminum ingots. While there has been no major impact on construction progress at this time, we are concerned that if the current situation persists, it will affect construction profit and loss. As a company, we will make efforts to secure supplies. However, if delivery delays or rising material costs become unavoidable, we intend to request extensions of construction period or cost adjustments from our customers. At this stage, we are merely taking a conservative view of the performance of some subsidiaries and have not factored in any major impact. We believe the uncertainty surrounding the situation in the Middle East will continue for some time, so we will continue to monitor the situation closely.

Q10: Regarding the investment amount for real estate development business, if we subtract the actual figure from the Mid-Term Business Plan<2024-2026> target of 200 billion yen, is it correct to understand that the company plans to invest between 90 billion and 100 billion yen in FY2026?

Q11:

Regarding shareholder returns, company has previously conducted share buybacks using proceeds from

the sale of security holdings. However, given that net income has increased significantly, considering whether I expect you should further increase shareholder returns by raising the dividend payout ratio and total payout ratio. Please explain the future policy for shareholder returns.

A11:

Regarding shareholder returns, the Board of Directors is currently engaged in various discussions and deliberations. In particular, we plan to announce a new Mid-Term Business Plan in FY2027, and we intend to determine our policy by monitoring the surrounding circumstances and the external environment.

Currently, our minimum dividend is set at 20 yen, which is significantly lower than the current dividend level. Taking this into account, we would like to explore what we can do to strengthen shareholder returns.

Q12:

Although the timing of the sale of security holdings has been reviewed, the sales will continue. While

the company has stated that it will not conduct share buybacks at the start of FY2026, please provide further details regarding the future policy and approach to shareholder returns.

we have decided to see share buybacks off at this time in order to firmly secure funding sources for investing for growth initiatives, including M&A.

Q13: Are the financial results of Aomi Construction Co., Ltd. and American Engineering Corporation already considered into the earnings forecast for FY2026? Additionally, while a slight decline in earnings is

projected for THE NIPPON ROAD CO., LTD., is there a further risk of profit decline due to rising raw material prices for asphalt mixtures resulting from the situation in the Middle East?

A13: Since Aomi Construction Co., Ltd. was a consolidated subsidiary in FY2025, it has been included in the earnings forecast for FY2026. We expect the company's net sales for FY2026 to be just under 40 billion yen, with operating profit of approximately 1.5 billion yen.

American Engineering Corporation is currently undergoing licensing and approval procedures related to Its acquisition and is therefore not included in the earnings forecast at this time.

Regarding the risk of profit decline at Nippon Road Co., Ltd., this depends on how long high crude oil prices persist; however, we have conservatively estimated earnings improvements across all subsidiaries, including this one, and believe these will offset the impact.

Q14: The civil engineering was strengthened through M&A activities in FY2025. Could you tell us which sectors you aim to strengthen going forward?

continue to explore opportunities both domestically and internationally while identifying areas where we are lacking and assessing potential synergies.

Q15: Regarding the capital and business alliance with Seiwa Building Co., Ltd., could you provide details on the scale of the stock acquisition and the expected contribution to financial performance?

portfolio, including the renovation of office and residential properties owned by Seiwa Building Co., Ltd., particularly those in Tokyo and Osaka.

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