Daiwa House Industry : May 29, 2023 Q&A Session (Summary)

Daiwa House Industry Co., Ltd.

Q&A Session at Presentation on Management Policies (Summary)

Date and time: From 16:30 to 17:30, Monday, May 15, 2023

Speakers: Keiichi Yoshii, President and CEO

Takeshi Kosokabe, Executive Vice President and CFO

Yuji Yamada, Managing Executive Officer and

General Manager of Finance and IR Departments

【Q1】

Your FY2023 earnings forecasts call for operating income of ¥380bn and growth of 3.1% excluding actuarial differences. This year's growth seems a little behind the target in your seventh medium-term plan. Are you taking a conservative view?

(Reference) Presentation on Management Policies P.5 "FY2023 Full Year Plan"

【A】

• I think FY2023 earnings forecasts are conservative. In November we upgraded our FY2022 forecasts. Since the start of 2023, January-April orders for US single-family houses have been extremely strong. I would like to consider upgrading this year's earnings forecasts with an eye on May and June orders, and we are managing the Company with sales of ¥5tn in our sights.

【Q2】

You have announced a share buyback. Please share your thoughts on achieving ROE of 13.0% through further buybacks and profit growth.

(Reference) Presentation on Management Policies

P.6 "Progress of 7th Mid-Term Management Plan"

【A】

• Management benchmarks figures excluding actuarial differences when targeting ROE. It was in the
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11% range in FY2022 on this basis. We would like to look into further buybacks in the future to achieve ROE of 13% or more. Regarding timing, we would prefer to hit the benchmark earlier than the last year of the plan.

【Q3】

You explained that you are investing aggressively while also tightening your investment criteria. Currently in the US business, while orders are recovering, interest rates remain high. You have positioned the US business as a growth business. Please tell us about the current state of investments there.

Also, you have invested to build modular construction plants in Europe. Does the business model not require land procurement for real estate investment as in the US or ASEAN?

(Reference) Presentation on Management Policies

P.9 "Basic Policy FY2023 (2) Continue proactive investment for sustainable growth"

【A】

• The US Single-Family Houses Business is primarily built-for-sale business, and obtaining land is important for ongoing profit generation. The three companies involved in the Single-Family Houses Business have virtually enough land to achieve their earnings targets until FY2026.
• Trumark develops residential communities, mainly in California. We are looking for earnings growth as it makes solid progress in acquiring sites, leveraging its experience and knowledge in land development, where its strengths lie.
• The US market environment currently features still remain high interest rates. I think there will be a temporary economic slowdown rather than a recession. Because inventories of preowned homes are low, I think prospects are for ongoing solid growth in the newbuild residential market. Based on materials released by local loan companies, roughly 60% of all home buyers are millennials, and tend to be keen on home purchases at mortgage rates below 7%. They are running their businesses with interest rate discount campaigns in places to reach consumers who are eager to make a purchase. As evidence, in January-April we have achieved strong contract numbers at CastleRock in particular, where the figure for these four months total exceeded that for all of last year. We are looking forward

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to next year with great anticipation.

• Daiwa House Modular Europe mainly provides buildings such as student dormitories with construction methods that connect modular units, and does not procure land typically used in real estate development. Its products and services are gradually finding market acceptance, and we opened a new plant in Germany. We plan to offer products across Europe in the future.
• After visiting the Netherlands and Germany to inspect the business, I have high hopes. Large numbers of Ukrainians have fled to the Netherlands, and we are building about 800 units for refugees at their request. We want to expand our business throughout the continent, making best use of Europe's contiguous nature. In FY2023, we transferred the company from the Single-Family Houses segment to the Rental Housing segment, and hope that you will keep an eye on its growth in that segment going forward.
• Considering that over the five years of our seventh medium-term plan we plan to spend ¥2,200bn on real estate development, or ¥440bn per year on average, we are lagging slightly at the current pace. We plan to steadily roll out investments with a view to profit growth in our seventh and eighth medium- term plans.

【Q4】

You talk about strengthening wooden construction, something I don't associate Daiwa House. Could you let us know your thoughts on the strengths of wooden construction and background to your wooden construction strategy?

(Reference) Presentation on Management Policies

P.10 "Basic Policy FY2023 (3) Strengthening Wooden construction"

【A】

• In 2001, we merged with wooden house builder Daiwa Danchi, which had sales of about ¥60bn in its wooden construction business. Wooden single-family house sales are currently about ¥13bn, partly because the mainstay Daiwa House products are steel frames.
• Our rationale for strengthening this business is increasing numbers of customers looking into wooden products when they come to our housing exhibition halls amid heightened interest in carbon neutrality.

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We plan to meet such customer needs by making best use of the wooden building construction expertise and personnel from the Daiwa Danchi era.

【Q5】

In the domestic Single-Family Houses Business, you have initiatives to capture new information digitally, improve the ZEH rate and strengthen built-for-sale business. Could you let us know of any other initiatives you have for improving profit in the domestic business and any results?

(Reference) Presentation on Management Policies P.19 "Strengthen cost competitiveness"

P.24 "Value Co-Creation in the Single-Family Houses Business (Topics)"

【A】

• We have mentioned group purchasing initiatives to cut costs as a medium-term plan goal. However, in FY2022 our first priority was to obtain materials amid yen weakness, shortages, and soaring prices. With materials prices having settled down recently, we expect margins to improve if we press on with our centralized purchasing initiatives. I'm not satisfied with our margins of Single-Family Houses Business. We will work hard to lower the cost ratio to boost margins.
• In addition to cost reductions from economies of scale through group purchasing, the amount of cost savings referenced in the materials also includes the effect of cost-cutting and curtailment measures. We intend to accelerate our group purchasing efforts in FY2023.

【Q6】

Have you made any progress in transferring Daiwa House expertise with a view to expanding your US Single-Family Houses Business? California has enacted laws regarding solar power equipment installation. Have you been able to transfer any environmental expertise?

(Reference) Presentation on Management Policies

P.12 "Progress in overseas business: U.S. areas"

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【A】

• Last month, management of Daiwa House and the three US companies got together in New York. We shared updates about our businesses, and the area of most interest to US managers was Daiwa House's expertise in industrialization. Industrialization lowers costs, allows us to supply uniformly high quality products, and resolve labor issues stemming from employee shortages. Stanley Martin has already launched arrangements to manufacture off-site, with about 50-60% of wall panels made away from the construction site, and is working to do the same with floor materials. In addition to Daiwa House technological teams and procurement department, we are working with suppliers on these initiatives to provide support in the US.
• US customers are also increasingly environmentally aware, and we are thinking about environmental initiatives in the US and targets in collaboration with three US companies.

【Q7】

Please let us know about FY2021 sales results at the Livness business and forecasts for FY2023. Please also tell us which segments are growing sales.

(Reference) Presentation on Management Policies P.17 " Expand a circular value chain"

【A】

- Sales for Livness business

Fiscal Year	2021	2022	2023
Net sales	263.9 billion yen	320.7 billion yen	297.0 billion yen

- The Single-Family Houses Business accounts for a large share of Livness sales, coming to ¥127.4bn (+10.8% YoY) in FY2022. We are focusing on renovation in this business.

- Sales are growing rapidly in the Commercial Facilities Business. In FY2022, sales were up 49.5% YoY. When the rental agreement between building owner and tenant expires at commercial facilities that we have built, we purchase the building, revitalize and sell it, or keep it and rent it out to grow the business.

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