Introduction
With regard to the SMCC Group's financial results for fiscal 2021, both non-consolidated and consolidated results were in the red due to the worsening profitability of large-scale construction projects. We deeply apologize to our stakeholders for any concern or inconvenience this may have caused.
In fiscal 2021, consolidated net sales decreased by 18.3 billion yen from the previous year to 403.3 billion yen. As for profit and loss, we reported an operating loss of 7.5 billion yen (operating income of 15.6 billion yen in the previous year), ordinary loss of 8.3 billion yen (ordinary income of 13.1 billion yen in the previous year), and net loss attributable to owners of parent of 7.0 billion yen (profit attributable to owners of parent of 8.7 billion yen in the previous year).
The loss in fiscal 2021 was due to a combination of unforeseen factors involving a large construction project that forced a major change in the construction method, and we chose to account for the expected future loss in a lump sum in the current period. In light of the fact that the main cause was insufficient prior technical review, we have strengthened our system to ensure strict screening prior to receiving orders. Also, we have further enhanced the organizational and personnel structure for the support system to the worksites after receiving orders. In addition, specific measures were taken immediately, including the establishment of a front-loading system for the early identification of construction risks and the reflection of such risks in construction plans.
External Environment of the Company
Although the Japanese economy showed signs of recovery as the severe conditions caused by COVID-19 gradually eased, the situation remains unpredictable due to waves of reemerging disease caused by variants, soaring raw material prices, and global supply constraints.
Looking ahead, the economy is expected to recover as economic and social activities move toward normalcy, partly due to the effects of various policies and improvements in overseas economies. On the other hand, at the global level, the situation in Ukraine and other factors are causing increasing uncertainty, with repercussions being felt in international financial and capital markets, resource prices, and trends in overseas economies, requiring us to take a more cautious approach.
In the domestic construction market, public works investment, including measures to strengthen national resilience, is expected to remain firm. On the other hand, competition in private sector is expected to become even tougher, although there are signs of recovery in private capital investment.
The SMCC Group intends to secure stable earnings by conducting sales activities aimed at securing orders for high-quality construction projects while steadily completing the large volume of projects in hand, which is now in excess of 700 billion yen.
We are determined both to ensure a recovery in business performance in fiscal 2022 and to regain the trust of our customers.
Our Strengths for Sustainable Growth in Corporate Value
Next, I would like to discuss the strengths of our business foundations and areas of focus as we work to secure sustainable growth toward the realization of Vision 2030, which is the Group's goal.
The civil engineering business maintains a strong competitive edge through its industry-leading technical capabilities, including prestressed concrete (PC) bridges and large-scale renewal projects, for which it maintains the top market share in Japan. In addition to further strengthening our competitive edge, we will continue to focus on profitable and productive areas such as tunnels and shields.
The building construction business has long focused on the field of multi-unit residential buildings and boasts sophisticated technical capabilities and extensive experience in the construction of high-rise residential buildings in particular. By further refining the precast construction method and rapid construction technology that we have cultivated over the years, we will strengthen our competitiveness in the building construction field.
The Group's market competition for orders is expected to become even tougher, but we are working to strengthen our on-site support system to enhance profitability, and the results of these efforts are beginning to show in the civil engineering business. In the building construction business as well, we are making major changes to our organizational structure during fiscal 2022, and we are implementing initiatives for business activities that are more focused on profitability. In addition, we intend to further strengthen our relationship with the partner-composed Shineikai, the Group's subcontractor organization, to enhance our cost competitiveness through the creativity and ingenuity of both parties.
In the overseas business, we have actively pursued business development since our entry into Thailand in 1971 and boast an extensive construction track record in Asia east of India. Backed by a solid construction track record, we have built relationships of trust with clients and local partners and established an overseas business foundation. However, while overseas markets are expected to show a stronger recovery trend going forward, geopolitical risks are increasing due to such factors as Russia's invasion of Ukraine, and we need to develop our business while paying close attention to the political situation in various countries and taking thorough measures to prevent COVID-19 infection. In addition, for our overseas business to achieve dramatic growth, it is important to firmly strengthen our business foundation, particularly with regard to human resource development. Through our Human Resource Development Centers (HDCs), we will focus on nurturing global human resources, including via the recruitment, training, and promotion of local employees to key positions.
In the New Business & Construction Peripheral Business, we have undergone a reorganization and in fiscal 2022 established a new Business Creation Division to further strengthen our focus on creating and promoting businesses that contribute to the realization of a sustainable society. In the renewable energy-related business, which is already in the process of commercialization, we are working to expand operations with an eye to post-FIT (Feed-in Tariff) initiatives in the floating solar power generation business and to diversifying our electric power business to include small-scale hydroelectric power, wind power, and other forms of power generation. We are also working to create new businesses in the areas of carbon neutrality and next-generation production system, while utilizing our own technologies and know-how.
In Group management, Sumitomo Mitsui Construction Steel Structures Engineering and DPS Bridge Works, which became part of the Group in 2020, are beginning to show synergistic effects. In February 2022, Antara Koh, a Singapore-based company, joined the Group, and we are striving to create synergies with them, particularly in the Overseas Business and civil engineering business. We will continue to aggressively pursue initiatives to strengthen the Group's business foundation, including through M&A.
As the only general construction company in either the Mitsui Group or the Sumitomo Group, we will continue to maintain the traditional business spirit and steadily implement our growth strategy by leveraging the strengths of the SMCC Group, as described here, while utilizing the networks of both parent groups.
Supporting and Connecting "People" and "Communities" with New Value
To contribute to the realization of a sustainable society and achieve sustainable growth for the Group, in 2019, we established Vision 2030 with the goal "To be a construction company that globally supports and connects 'People' and 'Communities' with new value." Our keywords for creating new value are: (1) Revolutionize the construction process-- Next-generation construction production system-- (2) Diverse services extended from construction, (3) Sustainable technology, and (4) Global human resources.
In December 2021, we also established our Basic Policy on Sustainability in light of the growing public awareness of sustainability in recent years. Based on this policy, we have formulated a Carbon Neutral Roadmap on the environmental side, and are aiming to become virtually carbon neutral by 2030 with regard to Scope 1 and Scope 2, including via renewable energy generation projects that help reduce greenhouse gas emissions. On the social front, we have established a Human Rights Policy and will assess the impact of our value chain on human rights, address risks, and foster a corporate culture based on respect for human rights.
In March 2022, we reviewed our priority issues and identified the following material issues (materiality) to be addressed: (1) realization of a sustainable society, (2) realization of a safe and comfortable society, (3) creation of an attractive work environment and securing and developing human resources, and (4) strengthening of our management foundation. Going forward, we will continue to engage in business activities that contribute to the resolution of issues by implementing a PDCA cycle based on key performance indicators (KPIs) for materiality.
Our business model is based on the strengths described above as the source of our business growth, and we are working to expand the value we provide through sustainable technology, DX, and diversity and inclusion (D&I) as the three elements that will create further strengths.
While continuing to meet society's demands for sustainability is our social mission, it also represents a new opportunity for our business. We will strive to take the initiative in technological and business development to provide value to society, based on a firm grasp of social trends and needs.
With regard to DX, we aim to transform production and business processes through the use of digital technology to improve productivity and operational efficiency. We will aggressively and boldly take on the challenge of introducing new technologies and will also focus on developing and securing digital human resources, for example, through improved IT literacy throughout the Company, in order to master these technologies.
We believe that the source of the Group's value creation is its people, and that improving employee happiness is the first step toward corporate growth. To this end, we believe it is essential to realize D&I as soon as possible, and we have newly established a dedicated D&I promotion department in fiscal 2022. Through the realization of D&I, we will create a work environment in which all employees have equal opportunities for growth and success, and in which diverse human resources can demonstrate their individuality and play an active role.
Start of the Mid-term Management Plan 2022-2024
The Mid-term Management Plan 2019-2021, the first stage toward Vision 2030, was based on the theme of "Accelerate changes."
In fiscal 2022, Mid-term Management Plan 2022-2024, was launched as the second stage toward Vision 2030. Based on the business environment surrounding our group, our social mission, and management issues, we have chosen the theme "Toward new growth: realization of a sustainable society." In line with this theme, we are pursuing specific measures in line with three basic policies: (1) Improve profitability, (2) Take on challenges in growth areas, and (3) Strengthen our human resources base. In addition, we have established a clear policy of strengthening shareholder returns and investing in sustainable growth, looking to future profits as a source of funds.
The seventh Mid-term Management Plan was created by a large contingent of executives and employees. The number of employee participants exceeded 100 and includes many women, younger individuals, and staff working in regional offices. I am proud to say that the seventh Mid-term Management Plan, which incorporates many of these aspirations, is a plan that each and every one of our executives and employees can take pride and have confidence in, and it is one they each can personally lead the way in implementing. We would also like to become a company in which people can experience personal growth and happiness at work every day, a factor that, in turn, leads to corporate growth.
Through the steady implementation of the seventh Mid-term Management Plan, we will strive to sustainably increase our corporate value and proceed toward 2030, now eight years away, in a more concrete and sure manner.
Thoughts about Vision 2030
The social mission of the SMCC Group is to contribute to the creation of a sustainable society for the future by enriching the lives of as many people as possible through the continuous provision of value and inspiration to society through the power of technology that we have continued to refine and people that we have continued to nurture.
Sumitomo Mitsui Construction's corporate statement is "Bridges, Towns, and People" (Connects "People" and "Communities" with new value). We believe in that it is important to carry out both monozukuri, the creation of infrastructure that supports safe and secure lifestyles, as well as hitozukuri, the development of human resources. Through these activities, we believe that we can inspire passionate excitement, hope for the future, and smiles on people's faces.
We will continue to meet the expectations of our stakeholders, and we look forward to your continued support and encouragement.
October 2022
Shigetoshi Kondo
Representative Director, President