Year ending December 31, 2020

Year ending December 31, 2020 Second Quarter of FY2020 Nonconsolidated Financial Results

August 5, 2020
(All financial information herein has been prepared in accordance with accounting principles generally acceptedin Japan. This document is an English translation from the original Japanese-language document. This translation
is not subject to auditing standards in the U.S.)
Listed company name:
Code number:

Original Engineering
Consultants Co., Ltd.
4642

Stock listing:Tokyo Stock Exchange, Second
Section(URL https://www.oec-solution.co.jp)

Representative:
Contact person:

Title President & Representative Director
Name: Nobuhiko Suga
Title Director & General Manager ofName: Kaoru Kira
Financial Affairs Division
Planned submission date of quarterly earnings report:
August 6, 2020
Date of scheduled payment of dividends:
Quarterly earnings supplementary explanatory documents: None
Quarterly earnings presentation: None

Tel: (03) 6757-8800(Amounts less than ¥1 million are truncated)
1. NON-CONSOLIDATED FINANCIAL RESULTS FOR THE SECOND QUARTER OF FY 2020 (January 1,
2020 to June 30, 2020)(1)
Non-Consolidated Operating Results (cumulative)(Percentages represent year-on-year changes)
Net sales
Six-month period
ended June 30,
2020
Six-month period
ended June 30,
2019

Six-month period
ended June 30,
2020
Six-month period
ended June 30,
2019
(2)

Operating income

Ordinary income

Million yen%

Million yen%

Million yen

%

3,632

-3.0

694

-19.8

662

-22.2

431

-23.4

3,745

2.4

865

-5.9

852

-6.7

562

-5.9

Profit per share forthe quarter
Yen

Profit per sharediluted for the quarter
Yen

74.18

74.14

93.28

93.03

%

Non-consolidated Financial Position
Total assets

Net assets

Million yen

Million yen

As of June 30, 2020
7,493
5,748
As of December 31,
7,007
5,506
2019
(Reference) Shareholders’ equity: As of June 30, 2020: ¥5,748 million
2.

ProfitMillionyen

Shareholders’ equity
ratio
%
76.7
78.6
As of December 31, 2019: ¥5,506 million

DIVIDENDS

Dividends per share
End of first
End of third Fiscal year(Record date)
Interimquarterquarter
end
Yen
Yen
Yen
Yen
FY 2019
0.00
30.00
FY 2020
0.00
FY 2020 (Forecast)
32.00(Note) Revision to the recently announced forecast of dividends: None

Full year
Yen
30.00
32.00

3.

FORECAST OF NON-CONSOLIDATED RESULTS FOR FY 2020 (January 1, 2020 to December 31, 2020)(Percentages represent changes from the same period of the previous fiscal year)
Net sales
Operating income
Ordinary income
ProfitProfit per share
MillionMillionMillionMillion
%
%
%
%
Yen
yen
yen
yen
yen

Full
-0.1
-2.0
6,400
1.0
800
800
year
(Note) Revision to the recently announced forecast of results: None

470

-2.4

81.11

* NOTES(1) Application of accounting treatment unique to the preparation of quarterly non-consolidated financial
statements:: None
(2) Changes in accounting policies, changes in accounting estimates and retrospective restatements:(i) Changes in accounting policies in accordance with revision of accounting standards:: None(ii) Changes in accounting policies other than (i) above:: None(iii) Changes in accounting estimates:: None(iv) Retrospective restatements:: None
(3) Number of outstanding shares (Common stock)(i) Number of shares outstanding at end of period, including treasury stock
As of June 30, 2020: 7,796,800 shares
As of December 31, 2019: 7,796,800 shares(ii) Number of shares of treasury stock at end of period
As of June 30, 2020: 1,975,103 shares
As of December 31, 2019: 2,003,465 shares(iii) Average number of shares outstanding for each period (cumulative second quarter)
As of June 30, 2020: 5,814,503 shares
As of June 30, 2019: 6,035,291 shares* The summary of quarterly financial results is not subject to quarterly reviews by certified public accountants or
audit corporations.
* Note regarding forecasts and forward-looking statements
The Company has not modified its forecast of the results for fiscal 2020, which it announced on February 7, 2020.
The forecasts presented above are based on information available to the Company at the present time, and,accordingly, actual results may differ from any future performance expressed herein due to various factors. For
matters relating to results forecasts, please refer to “(3) Explanation Regarding Future Forecasts such as Forecasts ofResults” on page 4.

Index of the Attachment
1.

QUALITATIVE INFORMATION REGARDING SECOND QUARTER FINANCIAL RESULTS .............. 2(1) Explanation Regarding Business Results.......................................................................................................... 2(2) Explanation Regarding Financial Position........................................................................................................ 4(3) Explanation Regarding Future Forecasts such as Forecasts of Results ............................................................ 4

2.

QUARTERLY FINANCIAL STATEMENTS AND PRIMARY NOTES ........................................................... 5(1) Quarterly Balance Sheets .................................................................................................................................. 5(2) Quarterly Statements of Operations .................................................................................................................. 7
Cumulative Second Quarter .............................................................................................................................. 7(3) Quarterly Statements of Cash Flows................................................................................................................. 8(4) Notes Regarding the Quarterly Financial Statements ....................................................................................... 10(Matters Affecting the Assumption of a Going Concern) ................................................................................. 10(Notes Regarding Significant Changes in Shareholders’ Equity) ..................................................................... 10(Segment Information)...................................................................................................................................... 10

1

1.
QUALITATIVE INFORMATION REGARDING SECOND QUARTERFINANCIAL RESULTS(1)

Explanation Regarding Business Results

According to the Bank of Japan’s Tankan survey in June 2020, the diffusion index (DI) for major
manufacturing firms dropped 26 percentage points from the March 2020 survey to minus 34 percentage points, and thatfor major non-manufacturing firms dropped 25 percentage points from the previous survey to minus 17 percentage
points. The DI for small and medium-sized manufacturers dropped 30 percentage points from the previous survey tominus 45 percentage points, and that of non-manufacturers dropped 25 percentage points to minus 26 percentage points.
The forecast DI for the next three months is minus 27 percentage points for major manufacturers and minus 14
percentage points for major non-manufacturers. Despite the lifting of the state of emergency declared in response to the
COVID-19 pandemic, the number of companies that are concerned about the economic outlook is increasing sharply as
the world faces an unprecedented crisis and there is no end in sight to the pandemic.
Despite the above-mentioned economic conditions, the overall budget for public works projects of the Ministryof Land, Infrastructure, Transport and Tourism (MLIT), with which the Company has a close business relationship, forfiscal 2020 was approved by the Cabinet meeting. The totals earmarked for “disaster prevention and safety subsidies”
and “general social infrastructure development subsidies” are almost at the same level as in fiscal 2019, or at 96% of
the previous year’s level. Separately from this, a total of ¥29,659 million, an increase of 90% from the previous fiscal
year, is earmarked for the budget for expenses related to sewerage works, including individual subsidies for flood
control measures. In addition, a total of ¥340 billion is appropriated for the sewerage works as emergency response
measures based on the “Three-year emergency response plan for disaster prevention, disaster mitigation, and building
national resilience” for critical infrastructure over the three-year period from the second supplementary budget for
fiscal 2018 to fiscal 2020.
According to a provisional calculation of the Cabinet Office, Japan’s water and sewerage infrastructure assets
amount to approximately ¥130 trillion, which indicates that the water and sewerage infrastructure stock is the second
largest infrastructure stock in the country by sector after the road infrastructure stock. Among these, most of the
population has access to water supplies, with the total length of water pipes reaching around 670,000 kilometers acrossJapan. However, the national average annual rate of renewing water pipes is as low as 0.75%, which means that it willtake almost 130 years to renew all of these pipes. The statutory useful life of water pipe is 40 years, but they are
expected to deteriorate further due to the slow progress in renewing the water pipe infrastructure, much of which wasbuilt during the high-growth period. Therefore, renewing aged water pipes has become an important issue for the stablesupply of safe water.
Meanwhile, 91.4% of the population of Japan has access to sewage treatment facilities (as of the end of
FY2018), but only 79.3% has access to sewers, which means nearly 11 million people still live without access to
sewage treatment facilities; promoting sewage services needs to be accelerated. While the need to construct new
facilities is on the decrease, a great number of water and sewage facilities that were rapidly built during the highgrowth period are reaching the end of their useful lives every year. Maintenance and renewal of these infrastructure
assets, which are indispensable for ensuring a safe, secure, and culturally strong living environment, are thus in demand.
In addition, needs are growing for flood control measures to protect human lives and assets from localized torrential
rainfall and large typhoons, which have occurred frequently in recent years, anti-seismic measures such as quakeresistant toilet facilities, and measures for reinforcing water and sewerage systems to make them tsunami resistant.
Amid the COVID-19 pandemic, the effectiveness of hand and finger disinfection as well as hand washing andgargling as measures to prevent infection has been widely recognized in Japan. As a precondition, since, generally, tapwater in Japan is effectively disinfected with chlorine and other chemicals, it is unlikely that people will become
infected with COVID-19 from appropriately chlorinated tap water. In addition, according to the latest findings related
to COVID-19, it is becoming clear that viral genes may exist in wastewater in communities where infection is
occurring. Therefore, it has been reported that wastewater-based epidemiology may be useful in judging COVID-19’s
penetration into specific communities, epidemic situation, molecular epidemiology, and when the epidemic will end.
According to the World Health Organization (WHO), although data has not been obtained yet, COVID-19 has a lower
survival rate in the environment compared to an enteric virus and may be fully eliminated/inactivated with the current
water purification and sewage treatment processes. Amid the COVID-19 pandemic, which has no sign of ending, the2water and sewage businesses in Japan, which are primarily owned and operated by local governments, are regarded as
one form of essential work and the core of public health that is controlling the rise in the number of infected persons,which remains extremely low compared to other countries.
The Company, in this operating environment, has been working aggressively to win orders mainly in the watersupply field, particularly for services related to asset management in line with the Water Supply Division of the
Ministry of Health, Labour and Welfare’s new water supply vision that focuses on the key words of “safety, strength,
sustainability, collaboration and challenge.” In the sewerage field, the Company pursues orders in line with the sevenmajor themes set by the Sewerage and Wastewater Management Department of MLIT: Strengthening earthquake
recovery and reconstruction support and implementing national measures for safety and peace of mind; early reductionof areas lacking sewerage infrastructure; promoting water environmental management; improving facilities
management and operations; strengthening sewerage management; promoting measures to achieve a low-carbon,
recycling-oriented society; and, promoting international water businesses through globalization and private-public
initiatives. We also make efforts to obtain orders for services related to support by the Ministry of Internal Affairs andCommunications for introducing local public enterprise-based accounting into small-scale water supply and sewerage
operations, in accordance with the Local Public Enterprise Act, as well as operations including sewerage operations
management strategy formulation operations. In overseas markets, the Company has been working to win orders bytapping into projects in emerging nations through public-private partnerships.
With regard to its internal work environment, the Company has provided 90 percent of its employees withsmartphones and notebook PCs and created an office environment in which a free address system and a wireless LAN
system are available to introduce a telework environment, allowing employees to work anywhere not only in the office
but also outside the office. The Company has worked to distribute profits to employees and increase revenue by
boosting productivity and reducing costs through the following measures: facilitating prompt information-sharing
between different levels, on which the Company has worked to raise awareness internally; speedily responding todepartmental issues by checking management benchmarks by department when necessary; conducting appropriate
budget management, process control, progress management, and outsourcing management for orders received for
projects; upgrading in-house engineers’ skills; securing and fostering young employees who will lead the next
generation; reducing overtime to comply with the revised Labor Standards Act; promoting health management;utilizing internal systems, such as a staggered working hours system and promoting the use of paid leave, that allow
each employee to work flexibly according to his/her own circumstances.
During the quarter under review, the government declared a state of emergency in all prefectures in response toa sharp increase in the number of persons infected with COVID-19 in Japan. The Company has continued its business
operations while giving due consideration to employees’ safety and security by developing and applying “special work
arrangements” for “special alert prefectures” and other prefectures and implementing infection prevention measures ineach prefecture according to COVID-19 infection risks. In addition, since the telework environment has been in placeand everyone is familiar with remote work, the Company has implemented measures to maintain productivity without
employees coming to their respective offices.
While the Company has paid close attention to the status of budget execution by each local government during
the period, budgets have largely been executed as planned. However, the government’s requests to stay home andrestrict movement between prefectures have caused face-to-face discussions with customers and field studies to be
postponed and/or restricted.
As a result, orders received during the cumulative second quarter under review amounted to ¥2,421 million, an
increase of 21.4% compared with the same quarter of the previous fiscal year, and net sales decreased 3.0%, to ¥3,632
million. Operating income amounted to ¥694 million, a decrease of 19.8% compared with the same quarter of theprevious fiscal year, and ordinary income decreased 22.2%, to ¥662 million. Profit amounted to ¥431 million, adecrease of 23.4% compared with the same quarter of the previous fiscal year.
Results by operating division were as follows.
[Engineering Consultant Department]
The Engineering Consultant Department received orders totaling ¥2,260 million during the quarter underreview, an increase of 27.9% compared with the same quarter of the previous fiscal year. Sales by the department3

decreased 3.6%, to ¥3,312 million.

4

[Information Processing Department]
In the Information Processing Department, orders received decreased 29.0% compared with the same quarter ofthe previous fiscal year, to ¥161 million. Sales by the department increased 3.9%, to ¥319 million.

(2)

Explanation Regarding Financial Position

1)
Status of Assets, Liabilities and Net Assets(Current assets)
Current assets for the first six months under review amounted to ¥6,100 million (up 9.6% from the end of theprevious fiscal year). The main factors contributing to this change included an increase in cash and deposits due to thereceipt of payment for operations and a decrease in accounts receivable-completed operation.
(Noncurrent assets)
Noncurrent assets for the first six months under review stood at ¥1,392 million (down 3.2% from the end of theprevious fiscal year). The main factors contributing to this change included a decrease in investments and other assets
as a result of a decline in the stock market.
(Current liabilities)
Current liabilities for the first six months under review stood at ¥1,568 million (up 19.7% from the end of theprevious fiscal year). The main factors contributing to this change included increases in income taxes payable,
advances received on uncompleted contracts due to the receipt of payment for operations, and others due to the postingof accrued expenses for summer bonuses.
(Noncurrent liabilities)
Noncurrent liabilities for the first six months under review stood at ¥175 million (down 7.0% from the end of
the previous fiscal year). The main factors contributing to this change included a decrease in provision for retirement
benefits.
(Net assets)
Net assets for the first six months under review amounted to ¥5,748 million (up 4.4% from the end of theprevious fiscal year). The main factors contributing to this change included an increase in retained earnings.
2)

Status of Cash Flows
Cash and cash equivalents stood at ¥4,633 million at the end of the first six months under review. Significant
factors contributing to this change included the posting of profit before income taxes for the quarter and decreases innotes and accounts receivable—trade.
The main factors contributing to changes in cash flows during the first six months under review were as
follows:(Cash flows from operating activities)
Net cash provided in operating activities amounted to ¥1,832 million (decreased 18.5% compared with thesame quarter of the previous fiscal year). The main factor contributing to this change was the posting of profit before
income taxes for the quarter and a decrease in accounts receivable trade.
(Cash flows from investing activities)
Net cash used in investing activities amounted to ¥49 million (decreased 60.2% compared with the samequarter of the previous fiscal year). This was mainly due to the purchase of property, plant and equipment andintangible assets.
(Cash flows from financing activities)
Net cash used in financing activities amounted to ¥177 million (decreased 84.0% compared with the samequarter of the previous fiscal year). The main factor contributing to this change was the payment of cash dividends.

(3)

Explanation Regarding Future Forecasts such as Forecasts of Results

The Company has not changed its financial results forecast, which was announced on February 7, 2020, butwill promptly release a revised forecast when any correction is needed after examining various factors.
5

2.

QUARTERLY FINANCIAL STATEMENTS AND PRIMARY NOTES(1) Quarterly Balance Sheets

Category

FY 2019(as of December 31, 2019)
Amount(thousand yen)

2Q under review(as of June 30, 2020)
Amount(thousand yen)

AssetsCurrent assets
Cash and deposits

3,743,180

5,349,470

Accounts receivable—completed
operation

1,750,203

670,581

75,13980,511

5,568,523

6,100,563

Property, plant and equipment

434,503432,879

Intangible assets

125,755

139,272

Investments and other assets

878,330

820,514

1,438,589

1,392,666

7,007,113

7,493,230

Other
Total current assets
Noncurrent assets

Total noncurrent assets
Total assets

6Category

FY 2019(as of December 31, 2019)
Amount(thousand yen)

2Q under review(as of June 30, 2020)
Amount(thousand yen)Accounts payable—operating

170,388

91,669Lease obligations

22,20522,783

Income taxes payable

230,950

263,843

Advances received on uncompleted contracts

344,578

496,413

Provision for bonuses

40,302

71,106

Provision for loss on order received

9,044

10,643

Provision for share benefit

12,707

12,513

Other

481,108

599,987

1,311,285

1,568,961

Provision for retirement benefits

94,78280,464

Provision for share benefit

15,226

14,839Lease obligations

22,92824,185

Asset retirement obligations

49,46749,769

Other

6,720

6,720

189,125

175,979

1,500,410

1,744,940

Capital stock

1,093,000

1,093,000

Capital surplus

2,876,083

2,865,729

Retained earnings

3,112,909

3,368,059

Treasury stock-1,610,179-1,587,352

Total shareholders’ equity

5,471,813

5,739,436

Valuation difference on available-for-sale securities

34,5108,853

Total valuation and translation adjustments

34,510

8,853

378

-

5,506,702

5,748,289

7,007,113

7,493,230

Liabilities

Current liabilities

Total current liabilities
Noncurrent liabilities

Total noncurrent liabilities
Total liabilities
Net assets
Shareholders’ equity

Valuation and translation adjustments

Subscription rights to shares
Total net assets
Total liabilities and net assets
7

(2) Quarterly Statements of Operations
Cumulative Second Quarter
Previous cumulative second Cumulative second quarter
quarterunder review(from January 1, 2019 to(from January 1, 2020 toJune 30, 2019)
June 30, 2020)
AmountAmount(thousand yen)(thousand yen)

Category
Contracts completed

3,745,229

3,632,679

Cost of completed work

2,229,345

2,284,797

Gross profit

1,515,883

1,347,882

Selling, general and administrative expenses

650,648

653,556

Operating income

865,234

694,325

144

119

Interest on securities

3,325

50

Dividend income

3,893

4,280

-

6,108

Gain on valuation of investment securities

7,988

-

Commission fee

1,215

1,215

-

128

Other

2,024

2,620

Total non-operating income

18,591

14,522

Interest expenses

1,250

741

Expenses for securities transactions

29,542

5,782-

39,455

Foreign exchange losses

614

-

Other

356

162

31,764

46,142852,061

662,705

Loss on retirement of noncurrent assets

1,121

966

Total extraordinary loss

1,121

966

Profit before income taxes for the quarter

850,940

661,739

Income taxes

current

293,038

236,957

Income taxes-deferred-5,051-6,562

Total income taxes

287,987

230,394

Profit for the quarter

562,953

431,344

Non-operating income
Interest income

Dividends from silent partnerships

Foreign exchange gains

Non-operating expenses

Loss on valuation of investment securities

Total non-operating expenses
Ordinary income
Extraordinary loss8

(3) Quarterly Statements of Cash Flows
Previous cumulative
second quarter(from January 1, 2019 toJune 30, 2019)
Amount(thousand yen)

Cumulative second
quarter under review(from January 1, 2020 toJune 30, 2020)
Amount(thousand yen)

Profit before income taxes for the quarter

850,940

661,739

Depreciation and amortization

40,875

48,694

Increase/decrease in provision for bonuses

20,29230,804

Increase/decrease in provision for loss on order
received-6,820

1,598

Increase /decrease in provision for share benefit

-299

-580

Increase/decrease in provision for retirement benefits-20,343-14,317

Interest and dividends income-7,363-10,559

Interest expenses

1,250

741

1,254,849

1,079,621-7,848

3,069-115,214-78,719

120,069

151,835

Other

219,674

151,152

Subtotal

2,350,061

2,025,080

Interest and dividends income received

7,367

10,563

Interest expenses paid

-1,250-741

Income taxes paid

-107,080-202,127

Net cash provided by (used in) operating activities

2,249,098

1,832,774

Category
Cash flows from operating activities

Increase/decrease in notes and accounts
receivable trade
Increase/decrease in costs on uncompleted services
Increase/decrease in notes and accounts
payable trade
Increase/decrease in advances received on
uncompleted contracts9Previous cumulative
second quarter(from January 1, 2019 toJune 30, 2019)
Amount(thousand yen)

Cumulative second
quarter under review(from January 1, 2020 toJune 30, 2020)
Amount(thousand yen)-690

-6,445Purchase of intangible assets-23,687-37,657

Payments for lease and guarantee deposits-1,136-2,774686

759-100,333-100,000-

100,000

Other payments-3,338-4,552Other proceeds

4,650

1,393

-123,849-49,276-1,000,000-36-12,529-12,530-

11,550-95,467-176,194-1,107,997-177,211-71-27

1,017,179

1,606,258

3,736,554

3,027,137

4,753,734

4,633,396

Category
Cash flows from investing activities
Purchase of property, plant and equipment

Proceeds from collection of lease and guarantee
deposits
Purchase of investment securities
Proceeds from redemption of investment securities

Net cash provided by (used in) investing activities
Cash flows from financing activities
Purchase of treasury stock
Repayments of lease obligations
Proceeds from exercise of share options
Cash dividends paid
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash
equivalents
Net increase/decrease in cash and cash equivalents
Balance of cash and cash equivalents at beginning of theyear
Balance of cash and cash equivalents at the end of thequarter10(4)Notes Regarding the Quarterly Financial Statements(Matters Affecting the Assumption of a Going Concern)
No applicable items.
(Notes Regarding Significant Changes in Shareholders’ Equity)
No applicable items.
(Segment Information)
Previous cumulative second quarter (from January 1, 2019 to June 30, 2019) and cumulative second quarter
under review (from January 1, 2020 to June 30, 2020)
Since the Company’s business operations comprising engineering consulting and related services are conductedwithin a single business segment, segment information is omitted.

11