Main Questions and Answers from the Second Quarter Financial Results Briefingfor the Financial year Ending March 2024
Date: November 10, 2023 (Friday) 13:30-14:30
Presenters: Representative Director President,（CEO） Kazunari Kibe
Executive Officer Yuji Hatakama, Takao Nakanishi, Masaji Nagumo, Ryuji Endo, Masaaki
Shioiri, Yasuo Kato

Q．The profit margin of the civil engineering segment is very high. I would like to know thebackground behind this. I would also like to know the outlook for the next financialyear.
A． The profit margin is higher as a result of revisions to our results, including thosefor prior years, due to difficult design changes and more efficient construction for thelarge-scale projects to be completed this quarter. Those large-scale projects were veryrisky, and we had initially expected the risk to be high, but since we are on track toeliminate the risk, we recorded a profit amount in the second quarter.
Although the profit margin for this financial year was significantly higher than inprevious years, we believe that this is a one-time event and that the outlook for thenext financial year will remain at the level of the previous financial year and the two
previous financial years.

Q．I would like to know your policy on the sale of Ozu Biomass in the next financial year
and beyond. I would also like to know the current status of the pipeline for thedevelopment of renewable energy projects.
A． We are currently considering a sales policy in consultation with potential sellers,with both a lump-sum sale and a partial sale in mind. If a lump-sum sale is made, only
the amount of profit in a single year will be very large, so we are considering thisaspect as well.
As for the pipeline for the development of renewable energy projects, we are also
considering offshore wind power, but due to the current depreciation of the yen andsoaring material prices, profitability cannot be expected, and it will be difficult for
the time being. Therefore, we would like to focus on biomass and onshore wind power.
Large-scale projects are still ahead of us, but in the next financial year, we are in asituation where small- and medium-scale onshore wind power is in the pipeline forrenewable energy projects.

Q．Regarding the full-year plan for the current financial year for the building construction
segment, please tell us the background behind the upward revision of net sales but
downward revision of gross profit. Also, you plan to increase construction completions in
the next financial year, but what level of gross profit do you expect?
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A． The most significant reason for the upward revision of net sales and downward revisionof gross profit for the current financial year is that we were unable to pass on higherprices and obtain additional construction work. In addition, it was difficult to placeorders at lower prices. We believe that we will be able to achieve gross profit of 25
billion yen for the current financial year by thoroughly managing all construction sites
and ensuring that no work is left undone.
Since the "Ozu Biomass Power Plant," a large project that is expected to be highly
profitable, will be recorded on a completed basis, we expect both sales and gross profit
to increase in the next financial year as well, and we believe that the gross profitmargin for the full year will be around 10% as sales and gross profit will be recorded
together.

Q．This will be the last year of the medium-term plan for the next financial year, and I
would like to know the level of certainty you have in achieving the goal of 59 billion inoperating income.
A． Although we will consider the sale of Ozu Biomass and other options in light of thesituation in each segment, we currently expect to achieve an operating income of 59
billion yen.

Q．Regarding the infrastructure management segment, I would like to know again the
difference between concession projects, PFI projects, and comprehensive privatecontracting, as well as the scale and profitability of each project. I would also like toknow the outlook for the next three to five years.
A． Contractual risks differ greatly among concession projects, PFI projects, andcomprehensive private contracting.
Concession projects have the highest risk and the greatest scope of responsibility. The
risk is greater because it involves work as an ordering party that was previously
performed by the government, but it also allows for greater management freedom and makes
it easier to implement reforms that can generate a large return.
In PFI projects, the private sector handles the financing, but basically continues toplace orders based on the government's specifications, so there is a little more risk
than in comprehensive private-sector outsourcing, but not much risk and not much profit.
From the perspective of the client, it is currently used in Japan as a tool totemporarily replace money with the private sector.
Comprehensive private contracting is a type of outsourcing in which work is outsourced
to the private sector due to a shortage of manpower on the part of the government. Since
the private sector is entrusted with the work of the government, there is no risk to theprivate sector, but there is almost no freedom to reform operations, so profitability is
not expected to be high.
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As for the future outlook, I personally believe that PFI projects in their current form
will decline. I believe that Comprehensive private contracting will increase in thefuture as a preliminary step to transition to concession projects. Comprehensive private
contracting will form a pipeline with the administration, and at the same time, it willlead to a change in the administration's awareness, which will eventually evolve into aconcession project. Therefore, we are currently working to increase the number of orders
for comprehensive private contracting .
Since concession projects are relatively large projects, we cannot expect to receive 10to 20 more per year, but we think it would be ideal if we could receive 3 to 5 more peryear. Comprehensive private contracting may increase by 10 projects per year.

Q．Regarding shareholder returns, the target dividend payout ratio in the medium-term
management plan is 30% or more, and it is still significantly higher at 43%. Although themedium-term management plan does not indicate a target for the total payout ratio, it iscurrently at a high level of 76%.
A． We would like you to understand that the target level of the mid-term management planis just one guideline and is a minimum number. Actively returning profits to shareholders
will lead to an increase in market capitalization and corporate value, and it can also
lead to an advantage over the competition. We also believe that employee motivation isimportant, and the "J-ESOP system" that we will introduce in the next financial year,
under which all Group employees will receive shares of our company's stock, will have asynergistic effect on motivating our employees. In this way, from various perspectives,
we intend to actively maintain a high level of shareholder returns.

Q．Regarding the Ozu Biomass Power Plant, there was a wildfire in Ozu City, and I would liketo know the impact of the fire. I would also like to know about the impact of procuring
pellets from overseas.
A． There is absolutely no impact on the site. As for pellets, as the plant is currently
under construction and we have not yet imported any pellets, there is no impact.

Q．In the building construction segment, orders have been increasing steadily for the past
five years, but I would like to know if there will be any impact on the capacity toincrease the amount of work completed in the next financial year and beyond as the reformof work styles progresses. In addition, please tell us if it is correct to say that youare currently responding adequately to the reforms in the way you work.
A． We have large-scale projects in the next financial year and beyond. For example, wehave a project in Nishi-Shinjuku that will be worth more than 150-billion-yen next year,
and we believe that the performance of the building construction segment will continue togrow steadily.
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In terms of construction capacity, we are aggressively forming JVs with other companies
in the same industry, and our fairness in terms of JV ratios and profit sharing has been
well received. We intend to continue to increase our construction capabilities by forming
alliances with other companies.
We have already implemented work style reforms for projects scheduled to beconstructed in the next financial year and the year after next.
Q．Just the other day there were reports of M&A by general contractors. With the shortage ofworkers and engineers becoming even more serious, if you were approached with a proposal
to join the Infroneer Group, would there be a possibility of reorganizing your company totransition from a semi-major to a major general contractor in the future?
A． Firstly, as a general contractor, we are not considering increasing our sales orelevating our stage. In addition, with significant changes in the market, we are seeing anincrease in design-build projects in our building construction segment and civilengineering segment, and we expect the proportion of such projects to continue growing. In
such a case, I think it is necessary to make our technical and laboratory capabilities
more advanced than the number of on-site personnel and the structure of oursubcontractors. In other words, rather than reorganizing to increase sales, we would liketo consider reorganizing to increase our capabilities as an integrated infrastructureservice company, which is our philosophy.

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