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Corporate Vision and 10-Year Plan Background

• The company aims to become a global engineering company contributing to a sustainable society, with two core strategic pillars: Innovative Engineering integrating GX (Green Transformation) and DX (Digital Transformation), and Global Inclusion deepening its 19-country, 28-location global network.
• Over the past three years since the current CEO took office, the company has grown steadily amid a solid market environment for plant construction, built a more open, challenge-focused organizational culture, and advanced 5 years of internal discussion to lay the foundation for the 10-year plan.
• Management opened the TISA technical center in Kanagawa and expanded use of the Indian R&D base to visualize its engineering capabilities, increasing organizational confidence in its technology and driving order growth.

Core Strategy Focus

• Eight strategic priorities are outlined: 1) focus on growth sectors, 2) accelerate global expansion, 3) full-scale outreach to non-Japanese customers via co-creation with customers at R&D bases, 4) strengthen intellectual capital, 5) strengthen human capital, 6) improve strategic execution, 7) strengthen governance, and 8) advance DX to drive new value creation including full plant automation.
• Five priority focus markets were selected based on market growth and the company's competitive position: semiconductors/electronic components, mobility, batteries, bio/pharmaceuticals, and data centers.

Environmental Systems Business Strategy

• Target growth in four core high-growth segments: semiconductors/electronic components (driven by AI, EV, and supply chain restructuring), batteries (long-term growth from EV shift, leveraging synergy with coating systems for clean dry room requirements), bio/pharmaceuticals (driven by next-gen medicine and emerging market growth), and data centers (driven by generative AI, with new cooling technology opportunities).
• A new regional strategy structure will launch next fiscal year with five regional strategy offices: East Asia (expand semiconductor customer relationships centered on Taiwan, leveraging the TSMC Japan Phase 1 project base), ASEAN (grow non-Japanese orders in pharmaceuticals, food, and data centers, strengthen legal governance), India (target high-growth HVAC markets for semiconductors, EV batteries, and data centers via strategic partnerships and M&A), North America (expand HVAC business leveraging existing coating systems bases, starting with battery and data center projects serving Japanese companies), and Domestic Japan (improve productivity and expand construction capacity via end-to-end process improvements).
• Domestic productivity improvements include front-loading project management, advancing unitization/prefabrication integrated with BIM, and launching 4D scheduling in April 2026 to visualize construction timelines and improve process efficiency.

Coating Systems Business Strategy

• Growth targets in Japan, North America, India, Europe, and China, leveraging five core strengths: process engineering, open-architecture automation integration, cross-business synergy with environmental systems, global network, and DX capabilities.
• Regional four-wheeler mobility strategy: North America acquired a Detroit 3-focused automation firm last year, already won a mid-sized project from one of the Detroit 3, and will close its domestic North American factory in May 2026 to enable more flexible sourcing, lower costs via work sharing with other global locations, and support environmental systems entry into North America; India has a red-hot automotive market, the company holds top market share and targets capturing new Japanese OEM factory construction while growing European OEM orders via its new European hub; Europe's new German subsidiary's large non-Japanese project is progressing with a minor schedule adjustment, the company has won a mid-sized Japanese project in Czechia, and is expanding resources to insource previously outsourced work.
• Dry decoration (a carbon-neutral alternative to wet painting) has completed quality validation for Japanese OEMs, is now in the test line stage with ongoing improvements, and a demo line will be installed at the company's North American automation subsidiary to serve North American OEM requests.
• Non-four-wheeler market expansion: targets rail and aerospace (already won domestic JR automated polishing projects, Cairo/Manila subway depot projects, Indian rail parts manufacturing contracts, North American private jet and Brazilian regional jet coating line projects), residential building materials (dry decoration may commercialize earlier than automotive, cooperating with film material manufacturers targeting the North American market via the company's North American lab), and cross-business synergy projects including new drug development labs (combining clean room environmental technology and automation) and data center liquid cooling (combining environmental systems thermal control and coating systems fluid distribution technology, targeting a 10 trillion yen global market by 2030).
• Battery business synergy: despite near-term EV slowdown delaying some OEM battery factory investment, long-term demand growth is clear driven by carbon neutrality and localization. The company has won 1 domestic, 2 North American, and 1 European battery case line project this fiscal year, and invested in the joint venture SwiftfabEnergySystems to build a cross-industry platform for integrated battery manufacturing facilities targeting a 780 billion yen market opportunity, with the company serving as a core partner leveraging its miniaturized environmental technology and prefabrication expertise.

Human Capital Strategy

• Introduce global human capital portfolio management linked directly to corporate strategy, targeting planned development of 7,200 total professional employees by 2035, with a focus on developing global leaders to drive transformation, expanding the domestic executive training program to the entire group.
• Address the aging skilled engineer workforce by implementing structured skill tracking via "technology health records", on-the-job practical training, and planning for a dedicated specialized education institution. Global local staff are offered study and training opportunities in Japan to build and pass on engineering capabilities locally, with a long-term goal of having local staff serve in group executive roles.

DX Strategy

• Target transitioning from a labor-intensive business to a capital-intensive, high-profit business by building a BIM-centered digital infrastructure. The company will eliminate analog work from estimation to inspection, integrate BIM with cost management systems to expand automation, and use AI for global cost management and design/construction to reduce costs and enable new business opportunities including AI and robotics.
• Investment will shift gradually from initial BIM and digitalization to higher-value advanced analysis and co-creation, with the domestic BIM/DX infrastructure rolled out to the global platform to enable cross-border data sharing and process improvement.
• Governance is strengthened via a new Digital Innovation Committee chaired by an outside director, with an executive-led Digital Strategy Committee implementing the strategy via five specialized subcommittees. DX talent is developed in three stages: company-wide literacy training, practical skill building for business problem solving, and cross-functional leadership development, with global best practice sharing to improve overall productivity.

Capital Allocation (Medium-Term Plan)

• Total growth investment is increased to 38 billion yen, with 22 billion yen allocated for M&A and business alliances. M&A will remain a core growth pillar for automation expansion into new industries, with priority investment in India for additional HVAC market acquisitions after fully acquiring a local panel manufacturer.
• Shareholder returns will maintain the existing DOE (Dividend on Equity) framework with a gradual step-up toward the 10-year target, and annual share buybacks of 5 billion yen will continue through the medium-term plan.

• The 10-year plan (fiscal 2026 March year-end through fiscal 2035 March year-end) sets a final target of over 500 billion yen in completed construction revenue (double the current size), ROE of 12% or higher, DOE of 5% or higher, and limits employee headcount growth to 36% to drive the shift from labor-intensive to capital-intensive operations.
• For fiscal 2026 (the first year of the medium-term plan), order revenue for Environmental Systems is expected to come in below the initial forecast due to project timing delays, but completed construction revenue and all profit targets are on track to meet the initial first-year medium-term plan targets. Current project profitability has improved, and the medium-term plan's final fiscal 2028 ordinary income target is currently on track to be achieved, with an upward revision under consideration that is still being finalized.
• The 10-year plan's 500 billion yen completed construction target is an ambitious goal that incorporates non-continuous growth, which cannot be achieved by only expanding existing core business, and requires growth from expansion into new customers/segments and development of a third core business line beyond the two existing segments.

1. Environmental Systems Business: No current period absolute revenue or percentage contribution figures were provided in the transcript. The domestic order environment remains favorable with strong investment in the company's core focus areas; while some Japanese companies have revised their overseas investment timing, orders from local non-Japanese and Western customers are growing. Profitability is currently lower than domestic operations, but management targets improvement through digital transformation, productivity gains, and higher exclusive order rates. 2. Coating Systems Business: Before exiting an Italian subsidiary in 2023, the business had total sales of 70 billion yen, with 50 billion yen from operations excluding the Italian subsidiary. After exiting the unprofitable subsidiary, sales grew to over 100 billion yen (double the prior base) last fiscal year, and management targets continued constant revenue growth above 100 billion yen from this fiscal year onward. Current revenue breakdown: coating process business accounts for over 60% of total coating systems revenue, the European market only accounts for 5% of coating systems revenue. By 2035 (end of the 10-year plan), management targets expanding the European market share to ~15%, growing absolute revenue twofold in India and North America while maintaining their current weight percentage, and shifting the business mix to 40% coating process business and 60% higher-margin automation, dry decoration, and battery factory projects.

• Current overseas profitability is lower than domestic operations due to stiffer competition with local and global subcontractors, though management is working to improve profitability over time.
• An ongoing labor market shift is moving skilled labor away from plant manufacturing toward the IT industry, creating resource constraints for the company's North American operations, which management addressed via a decision to close the local factory and move to flexible outsourcing and global work sharing.
• Near-term EV market slowdown has led to delayed battery factory investment from automotive OEMs, though management views this as a temporary delay and confirms long-term demand growth remains intact.
• The company acknowledges it has not yet built a track record for Environmental Systems in the North American market, so expansion remains in the exploratory stage as of the call.

Q: What is the long-term target for revenue mix by region for the Environmental Systems business, and which regions have the highest growth potential?

A: Specific numerical targets for regional revenue share are not disclosed. The new regional strategy offices are structured as follows: 1) East Asia Strategy Office was established to capitalize on growing ties with semiconductor companies, and will act as a hub to support sales expansion across Asia, domestic Japan, and North America. 2) ASEAN Strategy Office is focused on growing non-Japanese customer orders, and targets increasing the non-Japanese customer share to match the current size of Japanese customer business, driven by growing order volume from non-Japanese customers in data centers and other segments. 3) India Strategy Office is strengthening its HVAC business structure, and targets growing HVAC to a size equal to or larger than the existing panel business, leveraging strong market demand for the company's core focus segments. 4) North America Strategy Office: Environmental Systems business is still in the exploratory stage, but the large regional HVAC market offers significant opportunity, and the company will target expansion leveraging synergy with the existing Coating Systems business. 5) Domestic Japan Strategy Office is focused on improving productivity and expanding construction capacity to address current labor shortages and enable order and completion growth. Both India and North America have particularly large growth potential for the Environmental Systems business.

Q: [Additional follow-up] Is India the fastest growing region for Environmental Systems?

A: Both India and North America have large room for growth.