Top CommitmentTop Message (President,CEO and COO)

Expanding business opportunities deriving from social issues

On behalf of the management of the Daiwa House Group, I would first like to express our appreciation for the understanding and support shown by our stakeholders.
Amid the current situation, in which the global economy is being heavily impacted by the COVID-19 pandemic, it is increasingly important for the managements of business corporations to make continuous efforts to raise corporate value from a long-term perspective. During the sixty-five years that have elapsed since the founding of Daiwa House Industry Co., Ltd., we have positioned social issues at the core of our business operations. Now, more than ever, I believe that we must—in every way possible—display the spirit that motivated our establishment, enabling us to tackle social issues head on.

Maintaining a good balance between vigorous growth and stability

I sincerely apologize for the anxiety caused to our stakeholders by the series of improprieties that came to light during the fiscal 2019 business year. These included the use of off-specification components in some of our single-family houses and rental housing properties, which was announced in April 2019. This was followed violations of our compliance rules, specifically, the revelation that certain employees took the nationally administered operation and management engineer qualifications tests without adequate work experience, and the discovery that a Group employee had entered nonexistent orders for construction materials onto our books.

We have taken the occurrence of this series of improprieties very seriously. In addition to redesigning our compliance system, in November last year we announced a number of measures to enhance governance, which we regard as a key component of our growth strategy.

As the Group’s consolidated net annual sales now exceed ¥4 trillion, we must have the humility to admit that our governance is not keeping pace with our rapid operational growth. Back when the Group’s consolidated net sales passed the ¥1 trillion mark, the management at that time announced their goal as “maintaining a good balance between vigorous growth and stability.” This management stance has served as the basis on which we have achieved our growth to date. Now, we are once again implementing that policy so as to achieve further growth.

Four basic policies aimed at enhancing governance

Amid our various measures to enhance our governance, we have, in particular, set forth the following four basic policies: 1. Review management structure and state of management 007 DaiwaHouseGroup Sustainability Report 2020 Business Philosophy Guided by Our Founder’s Spirit and supervision, 2. Enhance agile business execution and risk response structure, 3. Strengthen risk information gathering and sharing, and 4. Strengthen environment for supporting sustainability and implementation.

Under Basic Policy No.1—Review management structure and state of management and supervision— to raise the effectiveness of our Board of Directors and enhance the diversity of outside directors sitting on the board, we decided to appoint a director to the Board who has extensive experience of doing business globally. The purpose of this was twofold: to ensure that the members of the Board possess diverse values, to facilitate the monitoring of business execution from multiple perspectives, and to enable the Board to make use of expert knowledge acquired outside the Group.

Under Basic Policy No.2—Enhance agile business execution and risk response structure—in fiscal 2021 we started full-scale operation of a business division system. This system clearly assigns responsibility for the entire business performance of each division, and for all risk management relating to that division, to the director in charge.

We also established the Compliance Promotion Department in November 2019 to promote effective risk management as well as legal and ethical compliance at worksites operated by the Group. This department not only oversees risk management and compliance across all our operations, but also provides support in these areas to all business operation divisions.

Regarding Basic Policy No. 3—Strengthen risk information gathering and sharing—by setting up a whistleblowing contact point within an external law firm, we have created expanded opportunities for the gathering of riskrelated information. This create a structure that employees can unhesitatingly use for reporting in the event of an emergency.

Finally, we have set forth Basic Policy No. 4— Strengthen environment for supporting sustainability and implementation. Under this policy, we plan to strengthen our operational systems through a digital transformation (DX) process that makes full use of such technologies as Building Information Modeling (BIM).

Going forward, to enhance governance, we will extend the reach of these four basic policies throughout the entire Daiwa House Group.

Demonstrating our core strengths through win-win-win (everyone benefits) relationship

Looking back on fiscal 2019, the consumption tax rate was raised in October and this was followed by a number of natural disasters. As a result, the Japanese internal economy suffered adverse impacts. Meanwhile, the global economy was beset by a number of negative factors, principally uncertainty stemming from US-China trade friction, among other issues. Finally, in the fourth quarter business activity was overshadowed by the COVID-19 pandemic. In my startof- the-year address to our employees, I stated that we had now entered a period in which reform, transformation and innovation would be crucial. Now, as the world reels from the shock of the COVID-19 pandemic, it is all the more important that we squarely face the necessity of change.

Amid this very difficult business environment, despite differences in business performance among the Group’s various sectors, we have succeeded in posting business results roughly in line with our projections, particularly in two businesses—Commercial Facilities; and Logistics, Business and Corporate Facilities. Consequently, both sales and profits for fiscal 2019 reached record highs.

A major factor behind this excellent performance is that, since we started up our Retail & Wholesale Facilities Business, we have built up a business relationship that benefits all three parties involved—the landowners, the tenants, and the Daiwa House Group. During the current business year, too, we look forward to demonstrating our core strengths through this ideal triangular relationship.

Succession planning for future growth

To make future growth possible, the most vital factor is the nurturing of human resources. As part of our Basic Policy No.1—Review management structure and state of management and supervision—which is aimed at enhancing governance, we have decided to diversify our hiring of outside directors and also to introduce a mandatory retirement age for in-house directors. In principle, the maximum age for serving as representative directors of the Company shall be sixty-nine, while the maximum for directors shall be sixty-seven. We believe that, to facilitate the nurturing of the next generation of top management staff, they would be more highly motivated if the dates of retirement of their predecessors in the top posts were previously determined and known, and it is for this reason that we have decided to adopt a mandatory retirement age.

In parallel with the introduction of this system, we will also be changing our methods of nurturing human resources. Since the early days of Daiwa House, we have followed a policy of training staff both within the Company and at external institutions and so on, while giving them the opportunity to learn the job and simultaneously develop a sense of responsibility through the process of trial-anderror. Going forward, we will entrust the managements of the nearly 400 companies in the Daiwa House Group to nurture—through a process of friendly competition—the sort of human resources who can be entrusted with the management of the Group.

Our mission is to make dreams come true

Of our three core businesses—1. Single-Family Houses; 2. Rental Housing; and 3. Commercial Facilities and Logistics, Business and Corporate Facilities—the third business (which accounts for approximately forty percent of the Group’s net sales) is posting good business results. In the field of suburban housing development, we are currently pursuing projects that combine construction with measures that take the natural environment into account. Up to now, the Daiwa House Group’s main strength has been its ability to offer comprehensive, start-to-finish services by leveraging its wide-ranging business portfolio. Going forward, however, we will also leverage the value-added made possible by our Environmental Energy business, and pursue the suburban housing development business under the banner of our “3 Rs” catchphrase. The 3 Rs in question are “Reality,” “Renewables,” and “Resilience.” One such project being planned is our Ko “Re”kara City.

A representative example is the Funabashi Grandoasis, a large-scale multi-purpose development started up in July 2019 in the city of Funabashi in Chiba Prefecture. This is the first urban development project in Japan to use electric power generated entirely from renewable sources, right from the start of construction up to post-completion residence. The Daiwa House Group is mobilizing all its resources to provide everything from the construction of buildings to the supply to the entire development of electric power generated from renewable sources.

Going forward, we will be opening up new possibilities by pushing ahead with suburban redevelopment projects by developing a new type of project in which housing is combined not only with commercial facilities but also with logistics facilities.

What we are aiming for is to imagine a better future and to make that dream come true here and now. At the Daiwa House Group, we are determined to make this project a success, and then to go on to further refine that “dream come true” by engaging in more of the same type of project in fiscal 2020 and beyond, which will be engaged in by our branch offices all across Japan.

In global markets, our business is generally holding firm, and operations focused on environmental needs in Southeast Asia are doing particularly well. Additionally, we have entered the field of the construction and operation of logistics facilities that meet local needs, such as constructing a “cold chain” that allows both fresh food and frozen food to be transported at pre-determined temperatures from producing areas to the areas where consumers live, thereby helping to address social issues. From both a medium-term and a long-term perspective, we plan to continue helping each region address its social issues.

Seriously addressing social issues, come what may

It goes without saying that the business environment in the current 2020 fiscal year will be extremely difficult. Nevertheless, we cannot excuse a slump in business performance by laying the responsibility entirely at the door of an external factor—in this case the COVID-19 pandemic. We are firmly resolved to secure adequate business results based on the resources we have built up, and will work steadily toward that goal during the current business year, too.

As the Group’s business portfolio is diverse, we anticipate being able to demonstrate our strengths no matter what changes occur in the overall economic environment. However, we recognize that the Group possesses certain weaknesses that have been exposed by the unprecedented challenge presented by the COVID-19 pandemic. Based on this recognition, we must we further strengthen our business portfolio so as to be able to fulfill our corporate mission of addressing social issues.

We fear that while the COVID-19 pandemic lasts, it will be a very trying time for the Group, but we also view it as an opportunity for us to make some of the changes needed to face the future. For example, we have become convinced that as the COVID-19 pandemic causes severe damage on a global scale, this is the time to invest in major growth in our Environmental Energy business, where the impact of the pandemic will be minimal. Moreover, precisely because the business environment is very difficult, we have a renewed appreciation of the importance of our Livness brand, which is part of our Existing Homes Business.

While working to expand our business operations under the Livness brand name, we believe that these operations will play an important role in addressing the various social issues that will arise due to the major negative demographic 009 DaiwaHouseGroup Sustainability Report 2020 Business Philosophy Guided by Our Founder’s Spirit trends in Japan—a decreasing population, a falling birthrate, and a rising average age.

Specific examples include the Livness Town Project, in which we tackle the redevelopment of suburban housing developments that were initially constructed by Daiwa House many years ago. Currently, the locations of such housing developments—which are of an experimental nature and range widely in type—include the municipality of Miki in Hyogo Prefecture, as well as the major city of Yokohama in Kanagawa Prefecture. Going forward, we expect the demands of the home-buying public to change with respect to the features they require, amid the growth of teleworking and other changes in work styles. In particular, whereas up to now couples with young children have put emphasis on easy commuting factors—such as homes in the inner regions of major cities or close to the railway stations of smaller municipalities in the outer suburbs—the focus of demand is expected to shift to more spacious single-family houses, and especially to homes in new housing developments in the outer suburbs. As we move into such a new era, in which we will be required to adapt to the emergence of new residential demands, and in which the advantages of suburban living are being reassessed, we at Daiwa House will continue to propose and implement the development of new residential communities that meet these needs.

Hitherto, the Group has always attempted to look farther into the future before taking action. No matter how severe the operating environment may have been in any particular generation, we have sought out new routes to success and given birth to new opportunities for growth. This time will be no different. No matter what happens, as the Company's top management official, I will not be swayed from my determination to focus on addressing social issues.

Confronting the risk of serious climate change, nurturing environment-friendly businesses

Many institutional investors have expressed serious concern about the issue of climate change as it relates to long-term and continuous measures to enhance enterprise value. The Daiwa House Group has identified seven materiality* of particular importance, the first of which is maintaining a good balance between reducing the environmental impact of our business activities on the one hand, and securing adequate corporate profits on the other.

The basic idea underlying this is to leverage our knowhow in the fields of energy conservation and the generation of energy from renewable sources—acquired in our business operations—to create new business opportunities. The Group is participating in international initiatives such as the EP100, RE100, and SBT (Science-Based Targets), under which we are improving energy conservation measures at existing facilities and building new “net zero energy” facilities. Additionally, we have taken the decision to generate in-house from renewable sources all the electric power we consume by the target year of 2040. While this is a high bar to clear, we are steadily working toward a target that has been calculated by working backward from the company we want to become in the future. I am determined to bring the realization of this plan forward as much as possible. At the same time, with respect to our products, we are speeding up the process of application of energy conservation targets to our products. For example, from April of this year all single-family houses conform to ZEH (net zero energy house) specifications. Going forward, we will promote ZEH and ZEB (net zero energy buildings), will expand the scope of our Environmental Energy business, and will develop the Ko “Re” kara City and Livness Town projects. By facilitating collaboration among these various efforts, we will focus on expanding our environment-friendly business operations.

The Group places the concept of materiality at the top of the list of areas in which we plan to expand business opportunities deriving from social issues. This is at the root of all the operations we have single-mindedly pursued for the sixty-five years of our corporate existence. Now, as the global economy reels under the impact of the COVID-19 pandemic and other developments, we must tackle the problems of society head-on. On the basis of this, we are resolved to achieve growth over the medium and long term.

At the Daiwa House Group, we will not allow the global impact of the current pandemic to divert us from our course. We will continue to look further ahead into the future, and will work to enhance our corporate value through business operations that help solve social issues. As we do so, I hope that we will continue to receive your unswerving support.

*For further details, please refer to our Integrated Report 2020 Page 4.


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