We are working hard on “Strengthening the Business Foundation and Accelerating Company-wide Transformation” under the medium-term plan, which ends in FY2026. The medium-term plan promotes three fundamental strategies: strengthen and expand the foundation of the construction business, innovate technologies and businesses, and expand the business portfolio for sustainable growth. We aim to use the meduim-term plan to build a business foundation that can generate stable profits in order to improve profitability.

Regarding the first strategy of strengthening and expanding the foundation of the construction business, we have reaffirmed our commitment to safety and quality as the most important management priority, and will thoroughly instill this commitment not only within the Group but also among everyone who engages in our construction business across the supply chain. Meanwhile, we will also work to enhance productivity, strengthen our capabilities in marketing and provision of added value, expand our construction value chain, and extend our construction service domains. As for the second strategy of innovating technologies and businesses, we are trying to identify new business opportunities in the carbon neutrality and well-being areas to help create new customer value. On the third strategy of expanding the business portfolio for sustainable growth, we are injecting management resources into our five business domains: domestic construction business, overseas construction business, real estate development business, green energy business, and new business initiatives. We are also strengthening our management approach by placing a firmer focus on capital efficiency and fortifying our risk management efforts.

We are determined to put the Group on a firm path toward achieving the sustainable expansion of corporate value by strengthening our human resources and organizations and focusing on DX and technology development to strengthen our management platforms.

We declared a medium-term target of 5% or more for return on invested capital (ROIC) as a performance indicator in the medium-term plan, and had been pursuing management with an emphasis on capital efficiency. However, the Board of Directors and the Directors’ Roundtable Meeting have engaged in discussions over the past year recognizing the need for a management approach that focuses even more strongly on capital efficiency in order to further enhance corporate value and achieve sustainable growth. After reaching agreement on the content, in March 2024, the Group announced a partial revision to the capital policy laid out in the medium-term plan.

The revision is motivated by the need to accelerate the adoption of a management approach that focuses even more strongly on capital efficiency so that we can pursue greater corporate value and sustainable growth. This is based on our continued commitment to the medium-term plan’s fundamental policy of “Strengthening the Business Foundation and Accelerating Company-wide Transformation,” as well as on making necessary investments for such purposes as enhancing production capabilities to improve ROIC. Specifically, after examining the capital structures of our construction business and other related Group businesses, we set the necessary equity at around ¥1 trillion. In addition to achieving the existing 5% ROIC target by improving profitability, we decided to also aim for a return on equity (ROE) of 10% by the final year of the medium-term plan in FY2026 by implementing a strategic capital policy.

Given the steady movement in our share price since the announcement of the partial capital policy revision, I feel that the capital market has appreciated the Group’s new capital policy to a certain degree. We will work hard to achieve sustainable profit growth and strategically offer shareholder returns based on this capital policy.

Furthermore, in May 2024, we announced an addendum to the Obayashi Group Medium-Term Business Plan 2022, “Strengthening the Business Foundation and Accelerating Company-wide Transformation,” with particular reference to the following commitments.

• Continuation of thorough measures to strengthen the foundations of the construction business
• Partial revision of performance indicator targets
• Additional measures for accelerating transformation for sustainable growth

We decided it was appropriate to partially revise the performance indicator targets, cash allocations, and other aspects in the medium-term plan based on current earnings forecasts. Our decision was made in light of factors including the fact that we have achieved some success in reducing costs through improved productivity and new technologies, as well as in our order acceptance strategy emphasizing profitability, while society as a whole is growing more positive about passing on price increases in an appropriate way.

In our long-term Obayashi Sustainability Vision 2050 formulated in 2019, we explained that we must give consideration not only to nature but to society and people as well, and that achieving a balance among these aspects is essential to the sustainability of the planet. We then went on to define the ideal vision for 2050 as one in which the sustainability of the planet, society, and people is ensured. To realize this ideal, the Group set three targets for the period spanning 2040 to 2050, namely “Decarabonization,” “Provide valuable spaces and services,” and “Co-creation of a sustainable supply chain.” I firmly believe that by 2050 society will have achieved harmony with a natural environment that is fully carbon neutral. To help bring about such a society, our mission is not only to construct and supply buildings and infrastructure that help achieve carbon neutrality, such as net zero energy buildings (ZEB) (*1), but also to work with our supply chain to pioneer greater decarbonization in the procurement, manufacturing, and transportation of materials and equipment in addition to in the construction phase. Indeed, the future of the Group and the whole construction industry depends on realizing this future landscape.

To realize this ideal vision, I believe it is essential to improve the Group’s corporate value and that we must also expand the scale of our business. When moving forward on the medium-term plan, I am always thinking about the future scale of our business, the right strategies for achieving that scale, and the best management approaches to take. As a business manager and Group leader, I believe it is important to paint a future vision of the Company and its dreams, to enthusiastically convey those dreams to employees, and to encourage all employees to share those dreams and hold the Group to a high standard of achievement.

As part of its aim to help bring about a sustainable society, the Group has identified six ESG-related material issues as priority areas. Materiality considerations have been incorporated into the medium-term plan, and I believe that our efforts to make steady progress on these material issues will help generate medium- to long-term growth for the Group and help bring about a sustainable society. Let me illustrate this point in relation to two of our material issues, namely conducting responsible supply chain management and developing and retaining human resources.

Discussions on the “2024 problem” resulting from the application of regulations limiting overtime work in the revised Labor Standards Act have focused primarily on the logistics industry, but it is also an important issue that needs to be addressed by the construction industry. The primary principle of the standards revision is to thoroughly control overtime work and working on holidays. The Group has always focused on the importance of achieving a good work-life balance, and has often instructed employees to spend time with family and friends and to set aside time to pursue their own hobbies so that working hours consequently remain within the limits stipulated in the revised act. In other words, rather than developing measures to address the 2024 problem fully in response to government requests, we have chosen to explore how we can achieve a good work-life balance as an organization, and made that a key challenge for the Group. We want everyone to enjoy more fulfilling time, daily activities, and lives in working environments that comply with government and societal demands and that give employees and business partners true satisfaction in their jobs.

Employees of the Group are undeniably the driving force behind our attempts to increase the Group’s corporate value. The platform development strategy set forth in the medium-term plan includes work experience reform as part of its human resource strategy. This overlaps somewhat with what I was talking about before regarding work-life balance. However, it is also important to feel a sense of joy not only in your personal life but also in your professional life and your relationships with your managers, colleagues, and staff. You cannot effectively develop human resources unless they achieve a good work-life balance and enjoy good relationships with their fellow workmates. Instead of accepting a situation where managers dominate their subordinates, it is better to cultivate relationships in which people with different experiences and expertise work together to ascertain how to tackle and solve specific issues in each job. Fostering these kinds of relationships will also strengthen our organization. For that reason, any form of harassment in the workplace is absolutely unacceptable. Often, the larger the organization, the harder it becomes to respect the opinions of minority groups. However, to encourage each person to act on their own will, it is extremely important that everyone is aligned about respecting individuals.

It is for society as a whole to address the issue of how to achieve employee well-being through the promotion of diversity and inclusion that enables diverse human resources to play an active role, reinvigorates organizations, and improves corporate value. It is therefore important that the Group addresses this issue as a broader social challenge rather than focusing solely on employees of the Group and its suppliers and subcontractors. Of course, this cannot be achieved overnight, but I believe we should all strive to change our mindset and work hard to achieve these aims. This approach complements our “MAKE BEYOND: Transcending the art and science of making things” brand vision. In addition to the making of things, this vision also illustrates the importance of creating something on your own with the power of vision, the power of creation, and the power of people.

DX is a key concept for inspiring major changes in the Group business activities and the construction industry as a whole. The Group has stipulated a DX strategy in the medium-term plan and is promoting DX initiatives designed to strengthen business foundations and accelerate Company-wide transformation. More specifically, in addition to pursuing business process re-engineering (BPR) (*2), we are working on DX initiatives in both operational and management areas. This includes the introduction of construction production and management systems that utilize 3D electronic data, such as building information modeling (BIM) and construction information modeling (CIM) (*3). In 2022, we established the Digital Transformation Division as an organization tasked with driving digital transformation. The division is responsible for everything from the formation to the promotion and management ofdigital strategies that dovetail with our overall management strategy. 

The Group’s DX strategy is formulated by backcasting from our 2050 vision. It seeks not only to strengthen existing businesses by enhancing information security and reforming business processes, but also considers the development of new businesses and the transformation of business models. I believe that promoting this DX strategy will help the Group improve profits and expand its business portfolio over the medium to long term.

Even back when DX was not a common term, the Group always sought to introduce cutting-edge technologies and transform operational activities and business administration processes. But even the best digital tools are useless if people don’t know how to use them properly. It is therefore important to develop digital human resources that can carve new paths and to make digital tools accessible to all employees.

The Group’s highest priority is to ensure safety in its business activities. It is also important for employees and their families to remain in good health, so we need to think more deeply about what needs to be done to ensure employees can do their work safely and stay healthy.

Once safety-related issues are resolved, our next priority is improving quality and productivity. FY2024 marks the halfway point for our medium-term plan, which espouses the theme of strengthening business foundations and accelerating Company-wide transformation. Going forward, we will design specific measures to improve profitability as part of our drive to achieve the plan’s ¥100 billion consolidated operating income performance target.

We also need to actively visualize and improve work productivity if we are to help employees achieve an appropriate work-life balance. We are consistently addressing this issue together with employees of the Group and its suppliers and subcontractors. If we want to achieve concrete results, it is not enough to simply convey the words or rely on willpower alone. Instead, we have to encourage employees to sense any obstacles  
for themselves. Furthermore, it is vital not only for each employee to identify why they have difficulties in their daily work, but also to understand any underlying preconceived ideas and the organizational culture causing those difficulties and to promote change. My key challenge and mission is to use these efforts to raise awareness in the workplace and generate concrete results.

Meanwhile, we have been able to successfully  lay out a clear capital policy, which is a significant development for the Group management and all its stakeholders. Going forward, we will seek to share the Group’s value creation story by being more proactive in providing stakeholders with information on our growth strategy, our approach to strengthening our business portfolio, and progress of our ESG and SDGs-related initiatives, and by promoting continued dialogue with our stakeholders.

I hope you enjoy following our efforts to steadily advance the three Obayashi Group fundamental strategies and further improve corporate value.