Senior Managing Executive Officer
Basic Policies under Medium-Term Business Plan 2017
The Obayashi Group adopted its five-year Medium-Term Business Plan 2017 for realizing our "Vision for the Future." The basic policies it enshrines include further enhancing our financial base as we aim to maintain and expand our current level of profit and thereby "building a strong management foundation" which can withstand any changes in the business environment. It also calls for strategic growth-oriented investment as a means of "preparing the way for the future."
Obayashi's Performance in FY2019.3
Construction investment remained largely robust in Japan and overseas in FY2019.3 (fiscal year ended March 2019). Obayashi benefited from a favorable business environment, productivity-enhancing measures at construction sites and business units, and measures to cut costs and otherwise improve earnings. Previous investments also began to pay off. Consolidated net sales set a new record for the fifth straight year, surpassing ¥2,000 billion for the first time in FY2019.3. Operating income set a new record for the fourth straight year and profit attributable to owners of parent also reached a historic high.
We anticipate similar performance in FY2020.3, as we foresee the high level of projects in hand continuing in the future. Both the FY2019.3 results and FY2020.3 forecast meet the PL targets established in Medium-Term Business Plan 2017. We look forward to steadily maintaining and expanding on this performance in order to create greater corporate value.
Equity and the equity ratio stood at ¥768.9 billion and 34.7% respectively, at the end of FY2019.3. This puts us within sight of our Medium-Term Business Plan 2017 targets of ¥900 billion and 40%. As such, we are on our way to "building a strong management foundation."
Cash flow from operations in FY2019.3 was down ¥69.8 billion from the previous fiscal year, in part because we implemented better payment conditions for our suppliers and subcontractors. Even so, the figure was a positive ¥44.2 billion thanks to income from a thriving construction business and other sources. We used this to enhance our financial base (for example, by lowering interest-bearing debt) and secure the capital to invest in growth. We forecast cash flow will continue to be strong in FY2020.3.
Major Management Indicator Targets of Medium-Term Business Plan 2017
|Targets for March 31, 2022||Results as of March 31, 2019|
|Net interest-bearing debt
|Targets for FY2022.3||Results for FY2019.3|
|Net sales||Around ¥2,000 billion||¥2,039.6 billion|
|Operating income||Around ¥150 billion||¥2155.4 billion|
|Profit attributable to owners of parent||Around ¥100 billion||¥113.1 billion|
|Profit attributable to owners of parent per share (EPS)||Around ¥150||¥157|
|Return on equity （ROE）||Over 10%||15.6%|
Capital Expenditure Plan for Achieving "Vision for the Future"
Medium-Term Business Plan 2017 includes a capital expenditure plan of ¥400 billion over five years as a means of "preparing the way for the future" to achieve our "Vision for the Future." Priority investments include building next-generation production systems that will use IoT, AI, and robotics to dramatically increase productivity.
Another focus is R&D that could lead to new business areas. Other initiatives seek to diversify and stabilize our earnings sources. To that end, we continue to invest in our real estate leasing business and renewable energy business. We pursue M&A when there is opportunity. We are also stepping up alliances with startups that have leading-edge technology.
Cumulative capital expenditure from the start of Medium-Term Business Plan 2017 through FY2019.3 have reached about ¥189.4 billion. We plan to invest another ¥100 billion in FY2020.3. We are also working actively to take advantage of other good investments without being bound by our capital expenditure plan.
In July 2019, we installed the new Investment Committee to comprehensively evaluate Group investing activities before the Board of Directors debates them. The evaluations range from establishing investment policies to performing monitoring after it is decided to launch a business. In addition, when Obayashi makes a critical investment, this committee assesses the investment risk and whether the return would be greater than the capital cost. Another focus is whether the investment would help increase Obayashi's competitiveness and corporate value.
Progress on Capital Expenditure Plan (FY2018.3-FY2022.3) of Medium-Term Business Plan 2017
|Five-year plan||Cumulative through FY2019.3||FY2020.3|
|R&D of construction technologies||¥100 billion||¥41.5 billion||¥20 billion|
and business facilities
|¥50 billion||¥19.8 billion||¥10 billion|
|Real estate leasing business||¥100 billion||¥74.2 billion||¥40 billion|
business and others
|¥100 billion||¥27.3 billion||¥25 billion|
|M&As and others||¥50 billion||¥26.6 billion||¥5 billion|
|Total capital expenditure||¥400 billion||¥189.4 billion||¥100 billion|
Policy on Shareholder Returns
Our basic policy on shareholder returns is first to try to sustain stable dividend payouts over the long term. We consider the need to enhance our financial base and build up internal reserves for future investment. Then, we aim for a consolidated dividend payout ratio of 20% to 30%. Our dividends for FY2019.3 were set at a total annual dividend of ¥32 per share (consolidated dividend payout ratio of 20.3%), up ¥4 from the previous year. In FY2020.3, we again anticipate a total annual dividend of ¥32 per share. We will continue endeavoring to increase shareholder returns as we work to ensure that current growth investment boosts future profits.
Profit Attributable to Owners of the Parent per Share (EPS) and Dividends per Share
Promoting ESG Dialogue with Shareholders and Institutional Investors
FY2019.3 saw a rapid expansion of ESG-focused investment around the world. In October 2018, Obayashi issued green bonds, funds from which can only be used in our renewable energy business and green buildings. We followed in June 2019 with sustainability bonds, funds from which can be used more widely for social investment. This includes developing skilled workers to work in the construction industry. These issues have expanded our field for fundraising as we appeal to investors with ESG concerns. We held several ESG engagements with shareholders and institutional investors in FY2019.3. In the future, we will more proactively disclose ESG information, led by the ESG & SDGs Department newly established in January 2019.
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