The Obayashi Group aims to generate sustainable growth by establishing a business portfolio centered on the domestic construction business and in which other businesses generate performance equal to or greater than that of the domestic construction business.
Toshimi Sato
Representative Director
President and CEO
The Obayashi Group boasts a diverse workforce of around 20,000 that includes a large number of world-class construction engineers. We seek to provide solutions to social challenges and help bring about a sustainable society by creating new value in every space through the provision of high-quality construction services underpinned by world-leading technological expertise. Having been appointed President and CEO in April 2025, my primary duty is to lead the Obayashi Group into its next stage of growth and build an even better corporate group to hand on to future generations. I intend to accelerate efforts to strengthen our business foundations and implement Company-wide transformation to ensure that we always play an indispensable role in realizing a sustainable society.
The Obayashi Group has operated in accordance with the Obayashi Three Pledges to quality, value, and efficiency since its foundation, and passed these pledges down through the generations. Each of the Three Pledges specifically guides our approach to construction, procurement, and productivity, serving as a universal spirit underpinning our craftsmanship even today, when entire supply chains are required to be sustainable. We, too, must uphold and pass on to future generations the spirit of the Three Pledges, which have served as the bedrock of all efforts to secure growth for the Obayashi Group since its founding.
The Obayashi Basic Principles encompass the Obayashi Three Pledges, the Obayashi Philosophy, which defines our vision and mission in society, and the Obayashi Code of Conduct, which comprises guidelines in our efforts to realize the Obayashi Philosophy and achieve the trust of our stakeholders. Based on these fundamental principles, we will constantly strive to become ever more indispensable to the formation of a sustainable society by earnestly seeking to improve corporate value and achieving sustainable growth for the Group.
Boasting well over 8,000 world-class construction engineers of different ages, Obayashi Corporation has been providing high-quality construction services underpinned by exceptional technological expertise. Through such services, we have created new value in every space, sought to provide solutions to social issues, and contributed to bringing about a sustainable society. In the process, thanks to the unstinting efforts of our predecessors, Obayashi Corporation has been fortunate to become one of the leading companies in the Japanese construction industry and to create the solid business foundations necessary to drive global business expansion as the Obayashi Group. However, to ensure sustainable growth, we need to further develop our business model to avoid heavy reliance on the domestic construction business, diversify business domains, and promote global expansion.
The Obayashi Group has already built a highly refined organizational management framework centered on its core domestic construction business. We are steadily establishing a business portfolio that will facilitate sustainable growth for the Group, within which overall management capital is allocated not just to the domestic construction business. Rather, it is spread across a wide range of businesses, including overseas construction with its long track record in North America and Asia; the real estate development business, which helps develop environmentally responsible cities; the green energy business, which meets decarbonization needs; and new business initiatives, which open up new growth opportunities. I believe that, to achieve sustainable growth on a global scale, it is essential to constantly bear capital efficiency in mind, while also accelerating the implementation of autonomous management in each individual business. My mission as the corporate leader is to further strengthen the Group's management foundations, elevate the level of management, and build an organization that is centered on the domestic construction business, and in which other businesses generate performance equal to or greater than that of the domestic construction business.
I myself have been deeply involved in formulating management strategies for Medium-Term Business Plan 2017 and Medium-Term Business Plan 2022, so my appointment as president is unlikely to result in any major reviews of how we define the ideal Obayashi Group or the management strategies for continuing to achieve that ideal. I believe that we must maintain our unwavering determination and continue to steadily promote the management measures to which the Group has dedicated itself.
Medium-Term Business Plan 2022 (announced in March 2022) was based on the judgement that strengthening the Group's business foundations and accelerating Company-wide transformation were vital to solving specific management issues. When it was formed, the plan envisaged an initial two-year period for efforts to strengthen the foundations of the construction business, and the remainder of the time through FY2026 was to be spent establishing a medium- to long-term growth path by accelerating Company-wide transformation. However, part of the content of the plan was reviewed and an addendum to Medium-Term Business Plan 2022 was announced in May 2024 to reflect various issues. These included larger-than-anticipated changes in the business environment, such as soaring construction material prices, an increase in Japanese construction demand that exceeded our ability to meet production capacity expansion, changes in the renewable energy market, international political and economic turmoil, and global supply chain disruptions. Other issues included our inability to eradicate all serious accidents and the continued occurrence of quality defects that could not be ignored.
In the addendum, we reaffirmed that ensuring safety and quality was a top management priority as well as our commitment to continuing efforts to strengthen the construction business foundation. At the same time, to further promote management with a focus on capital efficiency, we raised our ROE target for FY2026 from 8% to 10%, assuming cost of shareholder's equity for the Obayashi Group of between 8% and 9%, and recognizing that achieving that minimum ROE level was vital for the future of the Group.
On the other hand, if we look at the situation from a medium- to long-term perspective, the Obayashi Group needs to urgently formulate and implement effective strategies and measures to address structural issues such as the shrinking Japanese construction market due to the declining population, and the shortage of engineers and workers. Furthermore, with AI and other technological innovations progressing much faster than expected on a global scale, the Group could reach a major turning point on the path to sustainable growth if it can view these developments as growth opportunities. We will engage more proactively than ever in promoting digital transformation (DX) through growth investment in productivity-enhancing technological development and the radical transformation of our operations. We also intend to further expand our business portfolio in areas outside the domestic construction business to help consolidate sustainable growth. In these ways, we will improve ROE and capital efficiency. Specifically, we will strive to achieve profit growth on a global scale based on our solid business foundation. This will be achieved by harnessing our core strength in advanced technologies and also by using M&A to pursue business opportunities that will help solve social issues relating to carbon neutrality, water, energy, and food, and developing them into new pillars of business, as well as by expanding our overseas construction business.
Furthermore, in light of the current situation in which the business environment that formed the basis for our current medium-term plan has changed significantly, we feel we cannot validate our current situation simply by achieving the plan's key performance indicators. For this reason, we are working to revise Obayashi Sustainability Vision 2050, our long-term vision formulated in 2019 to pursue the sustainability of the planet, society, and people, and of the Obayashi Group, as well as to review our backcasting methods. I would like to share our revised long-term vision when we announce our next medium-term business plan.
To increase the Obayashi Group's corporate value while also striving to secure steady growth, it is essential that we achieve a level of ROE that exceeds the cost of shareholder's equity expected by stock markets (currently assumed to be 8% to 9%). We are aware that a positive equity spread is what enables us to achieve an investment-driven cycle of growth.
The necessary level of equity for the Obayashi Group has been set at ¥1 trillion based on its current business portfolio. We made this decision taking into account factors including changes in the scale of our business through FY2026 (the final year of the current medium-term plan), the implementation of growth investments, changes in construction business revenue and expenditure, revised payment terms to suppliers and subcontractors, the reduction of cross-shareholdings, and the use of leverage in the real estate development business. Based on our shareholder return policy, which emphasizes long-term stable dividends, we will pay ordinary dividends with a dividend on equity (DOE) ratio of around 5% and conduct share buybacks to the scale of ¥100.0 billion during the current medium-term plan period in order to appropriately control the level of equity. Beyond the period covered by the current medium-term plan, we will continue to appropriately control the level of equity by reviewing DOE and conducting share buybacks based on such factors as the status of current business portfolios and growth investments.
We adopted return on invested capital (ROIC) as a performance indicator in the current medium-term plan to promote management that emphasizes capital efficiency. The aim is to achieve ROIC of 5% or more over the medium term. To ensure effective ROIC management, we have introduced ROIC reverse trees into the setting of goals for individual employees, helping them to understand how the work they do can boost Obayashi Group performance through contributions to capital efficiency and, ultimately, operating income. ROIC is considered an important indicator for determining business continuity and expansion, especially in our real estate development and green energy businesses, where the amount of invested capital is directly linked to the scale of profits, so we are striving to guarantee and improve the capital efficiency of our businesses.
As we prepare for the next medium-term plan, we will determine the bottom line for ROE and ROIC based on the capital requirements for each of the Obayashi Group's business areas and the cost of capital in each business and market. Based on those figures, we will appropriately assess the profitability and capital efficiency of each business area and work to achieve sustainable growth. At the same time, I hope to build a system in which discussion by the Board of Directors on the ideal business portfolio for the Obayashi Group is based on these kinds of executive initiatives, thus ensuring that optimal management decisions are made. We aim to achieve sustainable growth in the medium to long term as a corporate group unfettered by the conventional frameworks of general contracting business, both in terms of the composition of earnings-generating assets and their profitability.
I want to present our shareholders and investors with information on ROE and ROIC levels for each business, as well as the level of return on assets (ROA) that the overall Obayashi Group should achieve, along with our future growth strategy.
We will continue to entrench our sustainable creation of corporate value by pursuing a strategic capital policy that focuses on capital efficiency and strive to steadily enhance the Obayashi's corporate value and shareholder value.
I have already mentioned how having talented engineers working at Obayashi is one of the Group's greatest strengths. Our solid position as one of the leading companies in the Japanese construction market and our highly talented human resources are irreplaceable assets for the Obayashi Group, and these assets constitute a precious source of competitiveness to fuel global growth.
The Obayashi Group boasts a diverse workforce of roughly 20,000 people, primarily comprising construction engineers. Talented future leaders of all ages are currently playing an active role in their respective fields. I believe one of my most important responsibilities as president is to build a solid management platform that enables talented individuals to grow into effective leaders in various fields. These leaders will identify business opportunities in helping to solve social issues, support the Obayashi Group's sustainable growth, and drive it to become an indispensable player in the formation of a sustainable society. I want to create an Obayashi Group that can keep on recovering after setbacks by encouraging its future leaders to consistently tackle challenges and to persevere and try again after every failure, motivated by the spirit of the Three Pledges.
Since joining the Company, I myself have been able to gain experience in various roles at different ages, which has proved a great asset. Although Obayashi Corporation was the latest market entrant among Japan's five major general contractors, it has become a leading company in the several decades since its founding and is still generating growth today. One reason is that we have always created opportunities for young employees to play an active role. They have participated extensively, fueled by a sense of responsibility for the development of the Obayashi Group and unhindered by the fear of failure. I myself was afforded that opportunity and used it as a chance to grow.
I hope young Obayashi Group employees who will lead the future of the Group can also gain varied experiences that will contribute to future personal growth and to growth in their respective jobs. One of my own tasks as a leader is to steadily advance the formulation of growth strategies that enable employees to practice craftsmanship with a spirit of endeavor and fulfillment and help create a vibrant and energetic corporate cycle in which employee endeavor produces results, job satisfaction rises, efforts are appropriately remunerated, and corporate value is enhanced. In conjunction with this, I will also pursue strategic human capital investment and organizational and personnel system reforms.
For personnel to perform at their full potential, the Company and its personnel must share an unwavering relationship of trust and ensure that the Obayashi Group vision and the ideal corporation envisioned by each employee are aligned. Those are the prerequisites for corporate management. With all my heart, I truly want to create a company in which all employees feel they are indispensable to the formation of a sustainable society and enjoy great pride in their work. I will continue to clearly convey in detail the Group's future vision and my own approach as a manager to our shareholders, investors, and all other stakeholders.
I hope you will all watch with interest how the Obayashi Group develops as we do our utmost to strengthen our business foundation and accelerate Company-wide transformation under the new management team.
October 2025