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Transcription of 2Q/62nd (2024) Financial Results Presentation

Date and time: August 20, 2024 (Tue) 10:00 - 11:20
Representative Director and President, CEO - Tatsuya Nishimura（hereinafter “Nishimura”）
Nishimura：
I would now like to go over the financial results for the second quarter of fiscal year 2024.
Today’s presentation will proceed in the order outlined here, starting with the financial results forthe second quarter of fiscal year 2024, followed by the end of fiscal year forecasts, and lastly, an
overview of the challenges and outlook for the second half.
Allow me to start with the financial results for the second quarter of fiscal year 2024.

Nishimura：Page 4 contains the second-quarter financial highlights and the results for the various metrics oforders received, sales, operating income, and net income attributable to owners of the parent.
Of these, only sales posted year-on-year growth, with orders received and operating income
recording a slight decline during the same period.
First half results came in above Company forecasts and this led us to raise guidance by revising
the full-year forecast.
We will be going over the details of this revision in a moment.

Nishimura：
Next are the progress results versus the forecast.
The column on the right shows the revised forecasts for fiscal year 2024 and, as of the end of thesecond quarter, the progress rate for orders received and sales stood at 58.0% and 52.3%,respectively.
Regarding the income line items, the progress here stood at just above 70%.

Nishimura：
Next is the results outline for the consolidated profit and loss statement.
We registered 54.5 billion yen in orders received, 50.7 billion yen in sales, 6.79 billion yen inoperating income, an operating income margin of 13.4%, 6.85 billion yen in ordinary income, andlastly, 4.88 billion yen in net income attributable to owners of the parent.
Circling back to what I said earlier, only sales were up on a year-on-year basis, with the remaining
line items recording a decrease during the same period.

Nishimura：
The graph on page 7 shows the trend in second quarter results between fiscal years 2020 and2024.
While we did see a slight year-on-year decline in orders received and operating income in fiscal
year 2024, this nevertheless represents an increase compared to fiscal year 2022 results.
To wit, we posted very strong results in fiscal year 2023 and this made for a difficult performance tobeat, hence the year-on-year decrease in fiscal year 2024.
Lastly, operating income margin decreased due to an increase in the number of employees, wageincreases, price increases, etc.

Nishimura：
Next is the trend in first and second-quarter sales and operating income results over the past threeyears.
As a general trend, CTI tends to deliver rather significant sales and operating income results in thefirst quarter, and this is usually followed by a slight quarter-on-quarter decrease in the secondquarter.
More specifically, this decrease in operating income in the second quarter of the ongoing fiscalyear was the result of a slight increase in SG&A expenses due to higher personnel costs.
Another factor was slightly higher costs of sales percentage associated with completed workprojects.

Nishimura：
Next is a year-on-year comparison of the consolidated balance sheet.
Total assets stood at 85.8 billion yen, up 4.6 billion yen on a year-on-year basis.
Current and fixed liabilities together come to a total of 26.4 billion yen, down 2.9 billion yen on ayear-on-year basis.
Lastly, the net worth ratio stood at 68.9%, up 5.3 percentage points.

Nishimura：
Next is the results outline by segment, starting with the Domestic Consulting Engineering business.
As you can see from the chart, orders received through to the end of the second quarter stood at
38.1 billion yen, sales at 35.5 billion yen, operating income at 6.49 billion yen, and the operating
income margin stood at 18.3%.
As stated earlier, only sales grew on a year-on-year basis.

Nishimura：Continuing the performance overview for the Domestic Consulting Engineering business, thecharts on page 11 detail the orders received amount by source and the order received amount bycontract method.
Looking at the figures on the left, in 2024, we have seen a slight decrease in order amounts from
the Ministry of Land, Infrastructure, Transport and Tourism and from public corporations andfoundations. Conversely, amounts from local government and the private sector increased.
As you can see from the vertical bar graph on the right, we saw a slight overall year-on-year
decline in the orders received amount through to the end of the second quarter.
The breakdown remains more or less the same, both in terms of amount by source and contract
method.
In other words, the relative percentage share for each source remained more or less the same, as
it did for the various contract methods.
Regarding these, the Proposal and Comprehensive Evaluation methods account for around 60% ofsales for CTI, as we are a Company with a competitive advantage in proposals with a strong
technical element.

Nishimura：
I would now like to go over the orders received amount by sector for the Domestic Consulting
Engineering business.
As you can see from the vertical bar graph on the left, the orders received amount coming from theWater & Land sector decreased slightly on a year-on-year basis.
This slight decrease was a result of an order in our Rivers business, which was carried over into
the second half of the fiscal year.
Results for the Transportation & Urban sector remained mostly unchanged or grew slightly yearon-year, as did our operations within this sector, related to urban planning and PFIs and PPPs.
Lastly, we registered a slight year-on-year decrease in orders received in the Construction
Management Sector, due to the fact that we had carried out a multi-year project last year, which did
not recur this year.

Nishimura：
I would now like to go over the results in the Overseas Consulting Engineering Business in thesecond quarter.
This business recorded 16.4 billion yen in orders received, 15.25 billion yen in sales, approximately
300 million yen in operating income, and an operating income margin of 1.9%.
As in the Domestic business, sales were up on a year-on-year basis while orders received andoperating income were down slightly.

Nishimura：
Next is the trend in the orders received amount in the Overseas business.
The sections colored navy and light blue correspond to Waterman’s private and public-sector
related businesses.
The orders received amount for Waterman was in line with last fiscal year’s levels, while theamount for CTI Engineering International saw a slight decline on account of a delay in winning anorder for a large-scale project in the Philippines.
We expect to record this in the second half, hence the decrease in the first half.
Waterman has been impacted by a slow pick-up of the economy in the United Kingdom andAustralia, so we expect this to weigh down on results in the second half.
That said, the order balance is as shown on the vertical bar graph on the right, so we don’t see
much reason for concern in terms of sales.

Nishimura：
I would now like to go over the raised financial guidance for fiscal year 2024.
This slide shows the revised end-of-fiscal-year forecasts, on both a consolidated and nonconsolidated basis.
On a consolidated basis, the revised forecast calls for 97 billion yen in sales, 9.6 billion yen in
operating income, an operating income margin of 9.9%, and 6.9 billion yen in net income
attributable to owners of the parent.
On a non-consolidated basis, the revised forecast calls for 59 billion yen in sales, 8.4 billion yen in
operating income, an operating income margin of 14.2%, and 6.5 billion yen in net income
attributable to owners of the parent.
As you can see on the rightmost column, which shows last fiscal year’s realized results, we haverevised the sales forecast for 2024, as we believe we will be able to achieve year-on-year growthon this front.
Regarding operating income and the other line items, we expect a slight year-on-year decrease.

Nishimura：
Next are the end-of-fiscal-year forecasts for each segment: domestic and overseas.
We have raised guidance in both segments.
We invite you to review the forecast figures, but, in summary, we expect year-on-year sales growth
and a slight decrease in operating income.

Nishimura：
Last, allow me to discuss the challenges and outlook for the second half.
When announcing the 2024 Management Plan, we went over two key topics.
The first is advancing structural transformation and preventing errors, while the second isenhancing investment.
Allow me to give you a progress update on these two fronts.

Nishimura：
Regarding our first challenge of further advancing structural transformation and preventing errors,
we are carrying out business structure reform.
Here, circling back to what I said earlier, while we have seen an increase in orders frommunicipalities and the private sector, we intend to continue expanding orders through cooperation
between the technology and sales departments.
Another target is the expansion of services and fields.
Here, we have seen an increase in energy, PPP, and green infrastructure, but we still don’t
consider current levels to be sufficient, so we will aim for further business expansion.
In terms of error prevention, we have put in place a dedicated organization for double checking
work and created tools to support double checking and checking one’s work.
These efforts have borne fruit, with the number of complaints caused by mistakes having
decreased by about 50% on a year-on-year basis.
Going forward, we will continue to ensure checks by thoroughly implementing project managementwith sufficient time for checks and by increasing the number of personnel.

The second challenge is enhancing investment.
Here, we will continue active recruitment, and we expect to hire about 100 new graduates in fiscal
year 2025.
Furthermore, recruitment of mid-career hires is currently taking place at a pace faster than last
fiscal year and the year before that.
In terms of employee training, we introduced basic technology training for new employees starting
this fiscal year, and we continue the systematic training of young engineers through the IPDsystem.
Regarding productivity improvements, we expect CTI’s implementation of generative AI and an
automatic system capable of detecting work errors to be complete by the end of the current fiscal
year, so we believe these tools will help boost productivity next fiscal year and beyond.
Regarding improvements to competitiveness, CTI seeks to expand research areas for thedevelopment of digital technologies like AI and IoT, and actively invest in fields with future potential.

Nishimura：This is a repost from the slide presentation for the first quarter.
We have now raised the sales forecast to 59 billion yen, and we expect a year-on-year decrease insales per employee due to reduced workloads.
On this topic, we aim to create a virtuous cycle by reducing workloads as investment in humancapital.

Nishimura：
The state of progress made in this area is as detailed here.
First, within the scope of greater productivity, we are reducing sales per employee, which are down
4.2% versus 2023 levels.
Second, in terms of successful recruitment, the total engineer headcount as of June 30th, 2024,
was 1,669.
The forecast target for 2024 is 1,670, so we have already more or less achieved this target and willcontinue working to grow the headcount.
Third, we have been making good progress in reducing working hours, which were down 3.1%
year-on-year as of June 30th, 2024.
Lastly, regarding the engagement score, this score is scheduled to be measured this winter.

Nishimura：
We identified inappropriate cost management practices in the Group’s accounting for last fiscal
year, which we disclosed to stakeholders.
Since then, we have formulated and - on June 27th of this year - disclosed a set of measures toprevent recurrence.
This plan contains four items covering the concrete measures shown here on the column on theright.
All of these measures have already started to operate, so we will be carefully monitoring thecorrect implementation of these.
This concludes today’s financial results presentation.
Thank you for your time.