Message from the Management

-- To all our shareholders and investors --

Takeo Higuchi Chairman and CEO Naotake Ohno President and COO

The Group's net sales and operating income both set new records for the fiscal year ended March 31, 2016 (the final year of our Fourth Medium-Term Management Plan)

Daiwa House Industry was founded in 1955 with the corporate mission of achieving the "industrialization of construction." In April 2016, when we marked the Company's 61st anniversary, the Group had grown to comprise 172 companies with around sixty-thousand employees.

The Daiwa House Group operates in a wide range of business areas, centered on the core fields of Single-Family Houses, Rental Housing, Condominiums, Existing Homes (renovation, real estate agency services, etc.), Commercial Facilities, and Logistics, Business and Corporate Facilities (logistics, medical and nursing care, and residential services for senior citizens, etc.), and also reaching out to encompass resort hotels, fitness clubs, city hotels, and home centers, among others.

Under our motto of being "a group that co-creates value for individuals, communities, and people's lifestyles," we work to create businesses that are needed all around the world and will be of service to many people. At the same time, in line with our catchphrase Asu Fukaketsuno (Indispensable for Tomorrow) – which is composed of the initial syllables of the Japanese words for safety & comfort, speed and stock, welfare, the environment, health, information-communication technology, and agriculture – we are engaged in businesses involving the environment and energy, as well as in robotics, agriculture, and other new business operations. We are also committed to proactive involvement in overseas markets. In these and other ways, we are striving to further diversify and expand the Group's operations.

Under the Group's Fourth Medium-Term Management Plan (FY2013–2015), in our housing business we focused on expanding sales of our high-end single-family house model, the xevoΣ (xevo sigma), and in October 2015 we enhanced our lineup of products with the launch of our new "skye" range of three- four- and five-story houses.

In the three business fields of Rental Housing, Commercial Facilities, and Logistics, Business and Corporate Facilities, which we earmarked as priority investment-target areas, we conducted active investment in real estate development to open up new growth opportunities for the Group as a whole. Particularly in our Logistics, Business and Corporate Facilities Business, we actively invested in the development of advanced logistics facilities capable of meeting the growing needs of e-commerce.

In the business field of products and services targeting the needs of senior citizens, in addition to undertaking the construction of facilities under contract, we also sell robotics equipment to assist people in their daily lives, and have started up at-home nursing care services. In the area of business involved in environmental protection, we focused efforts on the construction and operation of photovoltaic power generation facilities, and on the development and marketing of in-house power generation facilities.

In overseas developments, following on from our development of condominiums in China, we embarked on the development of rental housing projects in the United States and a multipurpose development project in Australia. We also developed industrial parks in Vietnam and Indonesia.

As a result of these initiatives, both net sales and operating income on a consolidated basis set record highs for fiscal 2015, which was the final year of our Fourth Medium-Term Management Plan. Net sales amounted to ¥3,192.9 billion – the first figure ever recorded in excess of three trillion yen by any enterprise in the Japanese home-building, construction, or real estate industries – while operating income came to ¥243.1 billion.

●Capital policy and stance on returning profits to shareholders

Turning to the Daiwa House Group's capital policy, we have positioned return on equity (ROE) as one of the most important management indicators, and in line with this, our Fourth Medium-Term Management Plan specified the Group's ROE target level at ten percent or higher, with a debt-equity (D/E) ratio of approximately 0.5. Additionally, we have adopted a proactive but at the same time cautious stance on investment. Our aim is to produce a healthy balance between realizing growth in enterprise value and maintaining fiscal discipline.

With regard to the return of profits to shareholders, our fundamental policy is to conduct investment in areas essential to growth – including real estate development, overseas projects, M&As, research and development, and production capacity – thereby raising earnings per share (EPS), so as to enhance the Group's shareholder value. We have set the dividend payout ratio at 30 percent or higher, and aim to maintain a stable dividend while returning profit that is linked to business performance. The annual dividend for fiscal 2015 was increased by \20 to \80, including a commemorative dividend of \10 to mark the 60th anniversary of the Company's foundation, and the payout ratio came to 51.2 percent.

As part of our shareholders' special benefit program, with effect from fiscal 2016, we are further improving our return of profit to shareholders through changes to the qualifications for receipt of shareholders' complimentary coupons (valid as tickets for entry to facilities operated by the Group).

Going forward, in line with the Corporate Governance Guidelines issued in May 2015, we will continue working to achieve a sustainable improvement in enterprise value, as well as enhanced shareholder value.

Group's Fifth Medium-Term Management Plan started from April 2016
Keeping alive the spirit of our founder, we will continue to create new value

Under the Daiwa House Group's Fifth Medium-Term Management Plan (FY2016–2018), we are working to create an operational base that will realize four trillion yen in annual sales by meeting customer demand in the Japanese market and preparing the Group to face the environmental changes that await us in the future. Our main targets for fiscal 2018 – the final term under this plan – are net sales of ¥3.7 trillion and operating income of ¥280 billion.

We aim to continue expanding the scale of our core business operations by taking full advantage of domestic market demand, while investing actively in real estate development. At the same time, to lay down the foundations of future growth we will accelerate our overseas expansion, develop Plus 1 and Plus 2 businesses, and work to foster future core businesses.

To ensure that our business is always on a sound footing, we will take steps to strengthen our human resource development and our monozukuri skill set. We aim to achieve a return on equity (ROE) of at 10% and higher while maintaining management efficiency and financial stability, and in this way to achieve sustainable growth in shareholder value.

We look forward to the continued support and encouragement of our shareholders, investors, and all other stakeholders.

Chairman and CEO Takeo Higuchi President and COO Naotake Ohno

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