FY2025 3Q Financial Results Online Briefing (FY ending March 2026) Date: February 12, 2026
Speakers: Eiji Hosoi, Representative Director, President & CEO; Yasuo Miyokawa, Director, CFO
Questions | Answers |
1. Brazil Project | |
Q1. Compared with 2Q, what changed over the past three months, and what was the biggest factor behind the need to significantly increase the loss estimate? | A1. The key change over the past three months was the progressive deterioration in cash collection. Following the customer's claim for delay-related liquidated damages (LDs), contract payments gradually slowed and were fully suspended in October 2025, resulting in a significant increase in the accumulated amount of payments withheld. In addition, changes in the customer's financial situation required us to reassess recoverability more conservatively, which led to this decision. |
Q2. Does the JPY 20.5 billion Brazil-related loss assume no recovery of withheld payments and the amounts under dispute in arbitration, or does it incorporate some expected recovery? | A2. Please understand that we have taken a conservative view. We will continue to present our case appropriately in the arbitration proceedings and take all necessary steps to protect and enforce our contractual rights. |
Q3. Should we regard this level as the "worst case," and should we assume no further cost increases toward completion? | A3. We believe the impacts that are foreseeable at this point have been reflected on a conservative basis. In other words, we recognized the risk prudently and recorded the necessary amounts accordingly. |
Q4. Can we assume the possibility of further cost increases is zero? | A4. Based on our current assessment, we do not currently expect further cost increases beyond what has already been reflected in these results. |
Q5. From a management perspective, were internal concerns raised at the time you decided to pursue this project, given the risk profile? | A5. At the time of contract award, we made the decision based on an overall assessment of the project scope and available information on the customer. That said, we acknowledge that there were shortcomings in how certain contract terms were assessed. In addition, the customer's financial situation evolved as the project progressed. |
Q6. Do you view the root cause primarily as insufficient diligence at contract negotiation, or as deterioration after contract execution? | A6. Our view is that both factors contributed. Accordingly, we are tightening our pre-award review process and strengthening ongoing monitoring to prevent recurrence. |
Q7. Does this mean you will strictly enforce disciplined order selection going forward? | A7. Yes. We are prioritizing disciplined order selection focusing on projects where risks are appropriately understood, managed, and priced. |
Q8. Since when you have strengthened this disciplined order selection initiative? | A8. We strengthened the framework starting in FY2023 by introducing stricter internal guidelines. |
Q9. Is it correct that the Brazil project was awarded before these stricter processes were established? | A9. Correct. This project was awarded in July 2022, before the enhanced framework was fully established. |
Q10. You plan to deploy experienced technical and PM resources to Brazil. Will that reduce resources for other projects? | A10. We do not expect a material impact. The project is scheduled for completion in April 2026, and we believe the incremental resource requirements will be limited in duration. |
Q11. Do you expect completion in April to include handover and full closeout? | A11. Yes, that is our current expectation. |
Q12. Typically, change-order events trigger renegotiation and re-contracting. How was it handled in this case? | A12. Change-order events did occur, and we engaged in frequent discussions with the customer. However, we were unable to reach final agreement, which ultimately led to arbitration. |
Q13. Does the lack of progress in arbitration indicate an unfavorable outlook? | A13. The arbitration has only recently begun. We are still at an early stage, including the exchange of submissions, and we currently expect a timeline of approximately four to five years, which is typical for arbitration in Brazil. |
Q14. Why did you not suspend construction when initiating arbitration? | A14. The customer asserted delay-related LDs and suspended payments on that basis. We believe those claims are not justified under the contract. We also believe that continuing to perform in accordance with the contract strengthens our contractual position and supports our claims in arbitration. |
Q15. Given broader industry issues with lump-sum contracts, will you continue to take lump-sum projects? | A15. Lump-sum contracts can take different forms. We may continue to consider lump-sum structures where risks are fully identified, transparently discussed with the customer, and appropriately managed. However, we will avoid accepting arrangements that require us to absorb excessive risk without adequate protections. |
16. You have other projects linked to Brazil, such as FPSOs. Could similar issues occur there? | A16. We do have FPSO-related work involving Brazil, but execution is primarily conducted in Singapore and/or Malaysia, with module fabrication largely performed at yards outside Brazil. The risk profile is therefore materially different from a Brazil onshore construction project. |
Q17. You mentioned "multiple contributing factors." Can you elaborate, including whether Brazil-specific practices played a role? | A17. In EPC projects, performance depends on how responsibilities are executed by both parties, and there are also external factors such as weather. In this case, factors attributable to the customer, factors on our side, and external factors interacted in a complex manner, resulting in the current situation. |
2. Biomass Projects | |
Q1. At 2Q you said the remaining projects were in the final commissioning stage, but additional deterioration occurred. What is the status as of 3Q-end? | A1. We recorded further deterioration of approximately JPY 1.8 billion; however, the situation has now stabilized, and the projects are in the final stage. |
Q2. Do you expect completion within this fiscal year? | A2. Yes, that is our current expectation. |
3. Other Topics (1) FY2025 Results Overview | |
Q1. Why did SG&A expenses appear to increase versus the full-year outlook disclosed at 2Q? | A1. While SG&A appears higher compared with the outlook disclosed at 2Q, certain reductions were reflected in different line items such as cost |