To our shareholders
In the first half of the fiscal year ending on June 30, 2019, orders received were up 8.9% from one year earlier to ¥38,887 million. First half orders were expected to decline because of the large volume of orders from Metropolitan Expressway Company in the first quarter of the previous fiscal year. The primary reason for the increase is two large orders in the second quarter totaling about ¥10,000 million from Central Nippon Expressway Company Limited. The steady receipt of orders from the national government and expressway companies raised the order backlog by 23.8% to ¥49,797 million at the end of the second quarter. First half sales increased 6.4% to ¥29,635 million due to steady progress at the large volume of ongoing projects.
As in the first quarter, there was an increase in expressway companies’ orders for additional work caused by design revision in the second quarter. These orders improved the gross profit margin for construction projects, resulting in an increase of 9.3% in gross profit to ¥7,573 million. Operating profit increased 6.7% to ¥5,615 million, ordinary profit increased 7.0% to ¥5,775 million and profit attributable to owners of parent increased 7.3% to ¥3,868 million.
The environment for receiving new orders remained favorable in the second quarter. The order backlog has been climbing steadily and we expect this growth to continue in the fiscal year’s second half. The main reason is the outlook for new orders in the third quarter funded by the second supplementary government budget that was approved in fiscal 2018. Given this operating environment, the forecasts for our performance in this fiscal year have been increased. As we expect the gross profit margin for construction projects to be higher than originally anticipated, we have raised our operating profit forecast from ¥11,100 million to ¥11,400 million and our profit forecast from ¥7,600 million to ¥7,800 million. Furthermore, the annual dividend forecast for this fiscal year has been increased by ¥3 from ¥127 to ¥130 per share because we plan to maintain a consolidated payout ratio of 45%, which is one of the commitments of our Medium-term Business Plan.
With our announcement of first half results of operations today, we also announced that SHO-BOND and Mitsui & Co., Ltd. will establish a joint venture for expanding business operations overseas. About a year and a half ago, we started performing overseas infrastructure maintenance market surveys with Mitsui & Co. Now, the decision has been made to establish a company in April to start full-scale operations. The new company will conduct two primary businesses. One is the sale of SHO-BOND maintenance work methods and construction materials, which have proven record of reliability in Japan, in other countries by using the overseas network of Mitsui & Co. The other is the use of SHO-BOND’s expertise for investments and acquisitions involving companies in Japan and overseas that have innovative technologies and products. The joint venture will then be used to sell the products and services of these companies worldwide. SHO-BOND has spent considerable time to create a strategy for growth outside Japan. By reaching this agreement with Mitsui & Co., which is an ideal partner for us, we are now in an excellent position to finally advance to the stage of translating this strategy into actions. Infrastructure maintenance is a business that requires many years to prevail and capture orders. As a result, we do not foresee a significant contribution to our earnings from this joint venture in the near future. However, I believe our long-sighted efforts in partnership with Mitsui & Co. will generate a performance that meets the expectations of our shareholders.
Building a stronger business foundation is a central goal of the Medium-term Business Plan. In one step to accomplish this goal, we established two committees involving management in November 2018. One is the Nomination and Remuneration Advisory Committee, which will improve the independence, objectivity and accountability of the Board of Directors. The other is the Asset Management Committee. This committee is responsible for overseeing the management of pension fund assets as the owner of these assets and for strengthening the oversight of cross-shareholdings. All group companies will continue to vigorously implement numerous measures in order to achieve more growth of our corporate value. We sincerely ask for your continued understanding and support as we take the actions needed to accomplish our goals.
President and Representative Director
SHO-BOND Holdings Co., Ltd.