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CEO Message

Yoshiharu Yoshikawa, President and Representative Director

I am pleased to express our greetings to all of our shareholders, along with our appreciation for your continued loyal support.
Below, I would like to report on our operating highlights for the 114th term (period from April 1, 2017 to March 31, 2018).


Business Climate in the Year Under Review

During the fiscal year under review, Japan's business climate saw a steady recovery overall, driven by moderately increasing capital expenditures, a recovery in exports, increased production, and improving employment situation on the back of growing corporate earnings.

As for the global economy, there continues to be uncertainty about the future, but as a whole the global economy is recovering steadily thanks to sustained economic growth in the United States and the recovery in Europe, China and Southeast Asia.

As for the general business climate, in Japan's petroleum industry, where our main customers are located, companies have pursued integration and reorganization, resulting in a new system for oil distribution and the formation of three major corporate groups. Companies in the industry have also announced plans to suspend or decommission production facilities aimed at rebuilding the production and supply systems in order to achieve the effects of integrations and to cope with falling demand for petroleum products in Japan in the future.

Also, two refineries in Japan were certified under the Ministry of Economy, Trade and Industry's "Super-certified Facilities" system where plants are able to operate continuously for up to eight years. Meanwhile, in Japan's petrochemical industry, ethylene plants continue operating at high utilization rates, driven by strong demand for petrochemical products carried over from the previous fiscal year and continued growth in general purpose chemicals and high performance products.

Business Results for the Year Under Review

The Shinko Plantech Group saw a drop in works completed over the previous fiscal year due to a decline in turnaround maintenance which peaked previous fiscal year and was an off-peak season, despite steady growth in modification work for stable operation as well as work for plant resilience measures and to address aging facilities.

In terms of profits, with a shortage of workers and pressure from rising wages due to high concentration of turnaround maintenance, the entire Group worked continuously to lower costs by reinforcing revenue management, increasing work efficiencies, and reining in direct and indirect costs. Nevertheless, the drop in revenue had a major impact on earnings, as all profit indicators, including gross profit on works completed, were below the previous fiscal year.

On a consolidated basis, new contracts (engineering business) fell 4.6% year on year to 91,601 million yen, and net sales declined 12.1% year-on-year to 89,611 million yen.

The breakdown of engineering works completed shows that petroleum and petrochemical related projects accounted for 65,458 million yen, while general work projects for general chemicals, pharmaceuticals, foods and electric power customers totaled 24,005 million yen.

As for the Group's bottom line, operating income dropped 19.3% year on year to 6,375 million yen, ordinary profit declined 16.4% year on year to 6,634 million yen, and net profit attributable to owners of the parent dropped 6.2% year on year to 4,452 million yen.

Business Climate for the Next Fiscal Year

The petroleum and petrochemical industries are expected to see a further drop in demand for petroleum products in Japan in the coming years. Following the wave of integration and reorganization, companies in these sectors will likely work on business restructuring aimed at increasing revenue in Japan and reinforcing competitiveness in global markets.

Next fiscal year, demand for turnaround maintenance is expected to recover and increase over this fiscal year, which was an off-peak season, while demand is expected to be strong for plant resilience work, countermeasures against aging facilities, and modification work for stable operations. At the same time, there will be continuing demand for new plant construction for producing high performance products. We will strive to capture orders for these types of work, but we expect the revenue outlook to be challenging given the shortage of workers and pressure from rising wages due to high concentration of turnaround maintenance, among other factors.

Nevertheless, the safe and stable operation of plants is essential to maintaining a stable supply of products and optimal production system. We will take full advantage of the Group's long-standing strengths in maintenance and engineering to satisfy the future needs of our customers.

Dividend

The Group's business focuses on maintenance for petroleum and petrochemical plants. This industry is order-focused and affected by changes in private-sector capital expenditures.

Given the nature of this business, seeking to reinforce our corporate structure and building a stable management foundation in preparation for changes in management environment and future business developments represent the keys to increasing corporate value. This will also enable us to secure the future interests of stakeholders, including shareholders, customers, business partners, and employees.

Under this basic policy, we recognize that providing dividends to shareholders is the most important task of management and that our dividend policy should reflect our earnings. With full attention given to the continuity and stability of dividends, we have established a target dividend payout ratio of 40% or greater (consolidated basis) based on establishing a robust business foundation and securing retained earnings needed to fund future business growth.

The year-end dividend for this fiscal year was 39 yen per share, representing a consolidated dividend payout ratio of 40.5%. In this regard, I deeply appreciate the understanding, support and cooperation of stakeholders and shareholders.

We plan to offer a year-end dividend of 32 yen per share next fiscal year pursuant to our dividend policy, representing a consolidated dividend payout ratio of 41.1%.

80th Anniversary

Shinko Plantech will mark its 80th anniversary in July 2018. On behalf of the company, I would like to offer my appreciation to the strong support from shareholders who have supported the company since its initial public offering and who have made this major milestone possible.

We will continue working to become a "Total Plant Maintenance Company" that will be able to support all plants with engineering capabilities, for the benefit of people's lives and society in general.

In closing, I look forward to the continued support and understanding of our shareholders going forward.

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