Sekisui House : Section２ Mechanisms and Catalysts for Creating Value

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Section 7

SEKISUI HOUSE Value Report

30

Value Creation Story

Mechanisms and Catalysts

Strategies and Initiatives

Mid-Term Management Plan

Management Foundation

ESG Management

Data

CONTENTS

for Creating Value

for Sustainable Growth

2Section

Mechanisms and Catalysts for Creating Value

1. Value Creation Process
2. Sekisui House's Operating Environment, Risks and Opportunities
3. Management Resources

1. Core Competencies
2. Business Models
3. Value Chain

39 Stakeholder Engagement

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Section 7

SEKISUI HOUSE Value Report

31

Value Creation Story

Mechanisms and Catalysts

Strategies and Initiatives

Mid-Term Management Plan

Management Foundation

ESG Management

Data

CONTENTS

for Creating Value

for Sustainable Growth

Value Creation Process

The Sekisui House Global Vision Page 8

Love of humanity is Sekisui House's core corporate philosophy, and we have drawn on our philosophy, technology and people to achieve numerous innovations. Our history since our founding can be broken down into 30-year phases. We emphasized safety and security during the first phase, then comfort and eco-friendliness during the second phase. We are now emphasizing health, connectedness and learning in our third phase.

• Based on our love of humanity, which is essentially the DNA of Sekisui House, and the three phases of our corporate story, we will identify risks and opportunities in our operating environment and use resources effectively and efficiently to expand our businesses and accelerate growth with the goal of creating corporate value and achieving our global vision.

Make home the happiest place in the world

Propose happiness	Make Sekisui House
through the integration of Become a leading company	technologies the global

Page 32

Sekisui House's

Operating

Environment

Megatrends

Opportunities

Risks

Pages 33-34

Management Resources

People

(Human capital, investment in human resources)

Includes Group employees, female managers, and first-class architects

Tangibles

(Manufacturing capital and natural capital)

Includes production bases in Japan and overseas, and the Resource Recycling Centers

Capital

(Financial capital)

Includes healthy finances, cash flow generation, and ongoing investment in the foundation for growth

Intellectual and Social Assets

(Intellectual capital and social/relationship capital)

Includes patents, design rights, the Comprehensive Housing R&D Institute, cumulative number of dwellings built, and partner building contractors

Page 13 / Pages 15-22

Material Issues

Creation of

High-Quality

Housing Stock

Contributing to a

Sustainable Society

Diversity and

Inclusion

Page 36

Business Model

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technologies, lifestyle	in ESG management	de facto standard
design and services
	The Sekisui House Concept of Happiness
			Customer happiness
				The creation of high-quality
			housing stock is our objective.
business			We therefore focus on safety,
	security, comfort and beauty in
providing housing of value in which
	customers can live for generations.
Expand
			Societal happiness
businesses
and accelerate		Our social mission as a housing

growth	manufacturer is to contribute to
a sustainable society through
	our businesses with a perspective
	that encompasses people,
	communities and the Earth.

The Building of Sekisui House-			Phase 3: Health, Connectedness			Employee happiness
Phase 1: Safety and Security	Phase 2: Comfort and Eco-Friendliness	Initiatives to make the workplace a
Our Corporate Story
and Learning		happy home away from home for
Pages 9-12
				employees, ensure diversity and
						inclusion and help our people
	Corporate Philosophy of Love of Humanity, and Corporate Governance		autonomously develop their careers.

Page 6

Pages 69-82

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Section 7

SEKISUI HOUSE Value Report

32

Value Creation Story

Mechanisms and Catalysts

Strategies and Initiatives

Mid-Term Management Plan

Management Foundation

ESG Management

Data

CONTENTS

for Creating Value

for Sustainable Growth

Sekisui House's Operating Environment, Risks and Opportunities

Social conditions continue to change rapidly, so we consider formulating plans to create value through businesses based on current predictability to be an inadequate approach. The Sekisui House Group analyzes medium-to-long-term issues that affect value creation with relation to sustainability, identifies risk factors, and positions them as opportunities for future business development. These solutions are then reflected in medium-to-long-term strategic business planning.

Megatrends

Climate change	• Acceleration of decarbonization due to concerns
about global warming
Biodiversity	• Initiatives to protect biodiversity from the effects
of global warming
conservation	• Demand for effective use and re-use of
	water resources
Resource recycling	• Demand for effective use and re-use of resources
• Change in awareness, moving toward a society
	without plastic
	• Response to pandemics
Economic and	• Promotion of workstyle innovations
• Acceptance of foreign workers
policy changes	• Extension of loan deduction, expansion of
	housing benefit
	• Increase in consumption tax
Globalization	• Acceleration of business globalization
• Increase in foreign visitors to Japan
	• Inadequate number of hotel rooms
	• Coming of a super-aged society
	• Total population reduction
Changes in population	• Concentration of population in urban areas
• Social participation of the millennial generation
movement
• Escalation of the issue of nursery school waiting lists
	• Coming of a long lifespan/high death rate society
	• Rising health consciousness
Technological	• Coming of an IoT/AI era
innovation	• Advances in robotics technology

Specific Risk Scenarios

Impact of extreme heat on lifestyles

Impact of extreme heat on business (production, construction sites, etc.)

Impact of increasingly severe natural disasters

Increased costs due to introduction of carbon tax

Changes in growing ranges and areas suitable for plants used for afforestation

Demand for the introduction of water conservation business and facilities

Demand for higher-quality recycling

Increased processing costs for plastic waste materials derived from fossil fuels

Global spread of infectious diseases

Reduced workforce due to declining employee satisfaction, turnover, and work-hour regulations should reforms not go ahead

Turnover and reduced productivity due to worsening working conditions

End of support measures for home purchases

Downturn in demand after the last-minute purchasing ahead of tax rate increase, and move away from home ownership

Intensification of competition

Changes in demand due to lost opportunities and changes in circumstances

Accidents in the home, lack of care services

Decline in the number of new housing starts, decline in the occupancy rate of properties under management, worsening problem of unoccupied houses

Decline of rural areas

Lost opportunities due to an inability to respond to the needs of the millennial generation

Delay in employees returning to work

Increasing complications and trouble with asset inheritance

Competition to be first in advanced health-related technology

Loss of business opportunities, growing need for security measures

Discontinuity in transfer of construction techniques

Specific Examples of Opportunities Created

Promoting net zero energy houses (ZEH)

Promoting net zero energy buildings (ZEB)

Popularizing highly durable (long-lasting) homes, etc.

Growing adoption of renewable energy

Effective landscaping proposals for shrubs and trees

Popularization of water-saving housing facilities

Promotion of recycling business through the use of high-level, thorough sorting and "wide-area certification"

Development of technologies for preventing the spread of infectious diseases in the home

Improved productivity due to better employee satisfaction, recruitment of talented personnel

Ensuring a high-quality workforce through improvements in the working environment

Increased orders due to appropriate funding advice

Various government support measures for home purchasing

Development of overseas business

Capturing long-term demand

Expanding platinum business, providing health-conscious housing

Provision of good-quality housing

Increased need for regional revitalization

Expanding digital marketing opportunities

Increased opportunities for nursery school intake, improved child support systems

Increased circulation of existing housing and need for real estate management trusts

Promoting the sale of housing that contributes to health

Providing highly convenient housing

Improving construction efficiency

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Section 7

SEKISUI HOUSE Value Report

33

Value Creation Story

Mechanisms and Catalysts

Strategies and Initiatives

Mid-Term Management Plan

Management Foundation

ESG Management

Data

CONTENTS

for Creating Value

for Sustainable Growth

Management Resources

People

(Human capital/Investment in

human resources)

Based on our core philosophy of love of humanity, we formulated and

Tangibles

(Manufacturing capital and natural capital)

Manufacturing capital

Natural capital

announced the Sekisui House Group Human Rights Policy and we aim to create workplaces where all employees can practice "innovation and communication." In our business operations, we proactively hire and train human resources with various qualifications and skills, including national qualifications required by law, and improve the skills of employees through an in-house certification system. The sharing of information throughout the Group helps us to properly deploy these qualified personnel.

In our domestic businesses, we have production bases (factories) with production lines that are the key to production involving different specifications for each home in the built-to-order business, and distribution bases that deliver materials to construction sites nationwide. We are working to reduce the environmental impact of our distribution methods through a modal shift to rail transport. To improve production efficiency in the custom detached houses, rental housing, and houses for sale businesses, we are making capital expenditures centered on production equipment for materials. We are conducting capital investment in the urban redevelopment business.

We conduct sustainable CSR procurement. In addition to procuring Fair Wood, we pursue sustainability on the basis of coexistence and co-prosperity with our suppliers through measures including due diligence for imported lumber and promotion of local production for local consumption of domestic lumber. In the field of energy, we expect to achieve our original target of employing 100% renewable energy for the electricity used in our business activities (RE100) by 2030, substantially ahead of our 2040 target, through the efforts of Sekisui House Owner Denki, a program in which we purchase surplus electricity from Sekisui House homeowners' photovoltaic power generation systems for use in the Group's business operations. In addition, our Resource Recycling Centers recycle 100% of the waste materials collected from our construction sites.

Consolidated employees		Authorized First-Class Architects	Chief Architects*
28,821		3,311			266
	Chief Constructors*	Structural Planning Specialists*
• Sales representatives:		156			172
7,153		Platinum Specialists*	CS Meisters*
• Technical staff: 8,282
41			84
Female employees in
Employment rate of persons with
managerial positions	disabilities (non-consolidated basis)
273	2.90%		Diversity and Inclusion
* Internal qualifications (excluding ineligible employees such	as those taking	maternity/
childcare leave, those who have changed their job type and retirees)
Pages 48-49: Human Resources Strategy		Page 143: In-house certification programs
Pages 145-149: Diversity and Inclusion

Capital expenditure	Production bases	Distribution bases	Sustainable wood	CO2 emissions
¥89.5	6	40	procurement rate	88 thousand t-CO2
97.2%
billion	5 in Japan
	1 overseas		Waste emissions
		1,022 thousand tonnes
			• Sekisui House Owner Denki
			• Resource Recycling Centers
Pages 37-38: Value Chain		Page 122: Supply Chain Management
Page 182: Environmental Data ⑩		Page 106: Promote RE100 through Sekisui House Owner Denki	Page115: Resource Recycling

Section 1

Section 2

Section 3

Section 4

Section 5

Section 6

Section 7

SEKISUI HOUSE Value Report

34

Value Creation Story

Mechanisms and Catalysts

Strategies and Initiatives

Mid-Term Management Plan

Management Foundation

ESG Management

Data

CONTENTS

for Creating Value

for Sustainable Growth

Management Resources

Capital

(Financial capital)

Intellectual and Social Assets

(Intellectual capital and social/relationship capital)

To support sustainable growth, we must establish a strong financial base, preparing for various risks in the market environment, and maintain the financial capacity to make swift and flexible investment decisions. As a standard for evaluating financial health and an appropriate level of financial leverage, we have set a target D/E ratio of 0.45 or less, premised on maintaining our credit rating. We will strive to improve the balance sheet with an awareness of cost of capital and asset efficiency, with the intention of promoting investment and raising asset efficiency.

Intellectual capital

We conduct various types of development at our advanced research facilities, which include the Comprehensive Housing R&D Institute, a base for development of cutting-edgehousing-related technologies and R&D for universal design based on ergonomic studies, and the Human Life R&D Institute, Japan's first institute specializing in research into well-being. We also hold and manage numerous patents and design registrations, which are intellectual property rights related to Sekisui House's product technology, research and development, design or other areas.

Social/relationship capital

A solid customer base built from the industry's highest cumulative number of dwellings built, together with the construction capabilities required to achieve it-these are two of our core competencies, which in turn are integral to the Sekisui House Group's connection with society. One factor in building long-term relationships with owners after delivery is the after-sales service system we have established at our customer service centers. For construction, we have established a design-build system with construction companies in the Sekisui House Group, and since our founding we have shared the spirit of a community with a common destiny that includes our partner building contractors.

D/E ratio	Free cash flow
0.37	¥4.3 billion

Real estate investment

¥1,161.3 billion / ¥1,890.0 billion

(61.4% progress)	(during Fifth Mid-Term
	Management Plan)

Research and	Number of	Number of design	Cumulative number
development expenses	patents held	rights held	of dwellings built
¥9.4 billion	716	343	2.54 million
• Comprehensive	• Human Life
Housing R&D Institute	R&D Institute

Number of partner building contractors involved in essential construction processes for Sekisui House

About 2,650 companies

Interest-bearing debt

¥549.8 billion

Pages 42-45: Financial and Capital Strategy	Pages 197-200: Financial Analysis

Page 4: Business Portfolio

Comprehensive	Human Life R&D Institute
Housing R&D Institute
(Japanese only)
(Japanese only)
Pages 37-38: Value Chain	Pages 129-130: Customer Initiatives, Technology Development and New Business Creation
Page 50: Technology Development Strategy	Page 160: Benefits programs for partner building contractors and working with the Sekisui House Association