Interim Closing of Accounts for Fiscal 2009 and Performance Forecasts for Current Term

August 27, 2009
Takenaka Corporation

As a result of the world financial and economic crisis that originated in the United States, corporate income during this interim consolidated accounting period significantly worsened. Although some initial improvement can be seen in export-oriented companies after stock adjustments, severe conditions continue with worsening unemployment and stagnant personal consumption due to the feeling of uncertainty with the future, and fears that there may be a resurgence in the financial crisis.
With the construction industry, a bottoming out in the decreasing trend in public investment is being anticipated due to the effects of the government economic measures, but with private investment, the number of new housing starts continues to drop. As there are drastic reductions in plant and equipment investment reflecting corporate business results, acceleration can be seen in severe competition among companies to win orders. In addition, there are continuing concerns about recovering construction fees for works due to the faltering of emerging developers and funds, resulting in extremely severe movements in the business environment.
Against the backdrop of this situation, the Takenaka Group has implemented sound management, placing priority on strengthening our corporate culture and quality management based on the group's long-standing principle of "trust first," and has worked to improve its performance by implementing a customer-oriented stance, strictly obeying legislation and social norms, strengthening safety management, and reducing production costs. In these conditions, interim net profit increased by 29.6 percent securing 9.3 billion yen, but these figures took into account the exclusion of dividend gross revenue from foreign subsidiaries, due to amendments in the tax system. There has been a drop in the number of orders received because of the severe competition to win orders, and the rising cost price of works due to the rising costs of materials since last year. In addition, because of the worsening of the income of overseas subsidiaries, compared to the previous interim consolidated accounting period, sales dropped by 14.0 percent to around 580.7 billion yen, operating profit dropped by 28.0 percent to around 8.0 billion yen, and ordinary profit dropped by 17.3 percent to around 10.5 billion yen.

1. Overview of Interim Closing of Accounts for FY2009

(1) General Overview： Except for consolidated interim net profit, both Takenaka Corporation and the Takenaka Group recorded lower income and declining profits.

The actual figures and comparisons to the previous interim period for the main categories are shown in the table below.

*1 Figure for "Actual figure" shows the profit ratio for completed work, and figure for "compared to previous interim period" shows the percentage increase and decrease.
*2 Figure for "Work carried forward" to the following period is in comparison to the end of the previous period.

(2) Overview of Major Categories

1) Orders Received:

• Orders received fell by 34 percent from the previous interim period for the Takenaka Group, and by 38 percent for Takenaka Corporation.
• Orders received for overseas construction projects were 42.4 billion yen (accounting for 10.0 percent of consolidated construction orders received).

(Takenaka Corporation)

In addition to severe competition between companies to win orders centering on the private construction market, as a result of promoting the selection of good quality proposals, there was a drop of 38 percent compared to the previous interim period to 357.6 billion yen.

(Takenaka Group)

In addition to the drop in orders received by Takenaka Corporation, orders received by overseas construction affiliates fell by 48 percent from the previous interim period to 28.7 billion yen, resulting in a drop across all operations of 34 percent compared to the previous interim period to 457.4 billion yen.
Orders received for overseas construction projects, including overseas projects for Japanese companies, fell by 56 percent compared to the previous interim period to 42.4 billion yen.

2) Sales:

• A drop in sales for both Takenaka Corporation and the Takenaka Group
• Sales for overseas projects (including development projects) was 48.7 billion yen (a drop of 8.4 percent compared to the previous interim period.

(Takenaka Corporation)

The severe competition between companies to win orders led to a drop in orders received by 10 percent to 474.9 billion yen compared to the previous interim period.

(Takenaka Group)

In addition to the drop in sales of Takenaka Corporation, there was a drop in sales for overseas construction subsidiaries centering on Europe (the completion of large-scale works in Europe in fiscal 2008) by 14 percent to 580.7 billion yen.

3) Gross Profit on Sales:

• Sales profit fell for both Takenaka Corporation and the Takenaka Group.

(Takenaka Corporation)

Intense competition to obtain contracts and rising construction costs attributable to a sharp increase in construction material costs meant that despite efforts to improve production efficiency and reduce costs, the profit rate on completed work fell by 0.1 points from the previous interim period to 5.4 percent. The profit on completed work was down by 12 percent from the previous interim period to 25.1 billion yen with the result that gross profit on sales fell by 11 percent from the previous interim period to 27.1 billion yen.

(Takenaka Group)

The profit rate of completed work in the construction business increased by 0.3 percent to 6.1 percent. However, in addition to the significant drop in profit of Takenaka Corporation and overseas construction subsidiaries, the profit of completed work dropped by nine percent to 33.5 billion yen compared to the previous interim period.
The effect of the world economic slump caused a significant decrease in profit for development works both within and outside of Japan, and gross profit on sales dropped by 11 percent to 41.7 billion yen.

4) Operating Profit:

• Operating profit fell for both Takenaka Corporation and the Takenaka Group.

(Takenaka Corporation)

A slump in profit on completed work pushed operating profit down by 61 percent in relation to the previous interim period to 1.7 billion yen.

(Takenaka Group)

In addition to the drop in profit for Takenaka Corporation, the drop in profit for development projects both within and outside of Japan resulted in a drop of 28 percent to 8.0 billion yen compared to the previous interim period.

5) Ordinary Profit:

• Ordinary profit fell for both Takenaka Corporation and the Takenaka Group.

(Takenaka Corporation)

Although the effect of currency gains due to the cheaper yen resulted in an increase in nonoperating profit by 1.2 billion yen compared to the previous interim period, because of the drop in operating profit, the company recorded a drop in ordinary profit of 22 percent to 5.6 billion yen.

(Takenaka Group)

As with Takenaka Corporation, currency gains due to the cheaper yen were realized, the drop in dividend income resulted in an increase in nonoperating profit of only 900 million yen compared to the previous interim period, unable to offset the drop in operating profit, leading to a drop in ordinary profit by 17 percent to 10.5 billion yen.

6) Interim Net Profit:

• Consolidated interim net profit increased as a result of amendments to the tax system, but interim net profit for Takenaka Corporation dropped.

(Takenaka Corporation)

Interim net profit dropped by 91 percent to 400 million yen compared to the previous interim period because large amounts of bad debt reserves were declared as extraordinary losses against construction fees for works due to the faltering of emerging developers.

(Takenaka Group)

Although large amounts of bad debt reserves were declared by Takenaka Corporation, the group recorded an increase of 30 percent to 9.3 billion yen compared to the previous interim period because of reversal of deferred tax liabilities taking into account the exclusion of dividend gross revenue from foreign subsidiaries, due to amendments in the tax system.

2. Performance Outlook for Fiscal 2009

The performance outlook for fiscal 2009 (year ending December 2009) is as follows.
The environment in which the construction industry finds itself is one where various topics must be addressed, such as the shrinking market, unstable material costs, the aging of skilled workers and a shortage in human resources, uncertainty about recovering work payments, and sophisticated and diversified requirements by clients. The outlook is therefore a movement toward an even more serious level of conditions.
In such an environment, the Takenaka Group will strive to improve profitability by strengthening its ability to provide solutions centering on the group's design and engineering strength, the continuation of quality management through reforms to business processes, and strengthening its competitiveness by cutting costs in each phase of project activities.

(1) Takenaka Group

(2) Takenaka Corporation

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