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Message from the President ︱Operating Environment Surrounding Sanki and Business Results for Fiscal 2022

Message from the President

Sanki Engineering,
centered on people andtechnology, will be theenduring company ofchoice for society.
Hirokazu Ishida
President

he COVID-19 pandemic, which has had atremendous impact on the global economy overthe past few years, is finally coming to an end, anda gradual recovery is underway in social and economic
activities in Japan. Throughout the pandemic, a cloud of
uncertainty hung over the domestic construction market,
which constitutes a major focus for the Sanki EngineeringGroup. Demand itself, however, remained firm, led bylarge-scale urban redevelopment projects in major cities
and capital investments in semiconductors, automobiles,and other manufacturing industries, fueling expectations ofcontinually expanding investment in the years ahead.
On the other hand, delays in equipment delivery andthe surging cost of materials and labor have remained a
drag on our profits. Although we have been working hard
to minimize impact through measures such as ordering
materials and equipment well in advance, the situation has
remained difficult to control. Moreover, given that Japan’s
revised Labor Standards Act for capping long working
hours will be enforced in the construction industry fromApril 2024, and as construction work carried over from theT▎Business Performance (Billions of Yen)

185.8
168.5

6.8

191.1
170.1

7.4
4.6

2016

217.0
212.3
11.2
9.0

207.6
11.2

previous year continues to accumulate on the back of afavorable flow of orders, appropriately responding to thesedevelopments will be major challenges.
As the above-mentioned circumstances prevailed infiscal 2022, the Sanki Engineering Group secured ample
balance carried forward due to a robust flow of orders forlarge-scale projects in our mainstay Facilities Construction
business. In our Machinery Systems business, there are signsof a recovery in orders received due to demand linked toautomation and labor-saving needs. Although orders fell in
our Environmental Systems business in the wake of receiving
fewer orders for large-scale projects than in the previousyear, there is ongoing demand for construction work arisingfrom the Japanese government’s national resilience policy.
Net sales fell, due in part to delays in some construction
work in the Facilities Construction business and a decreasein construction work carried over from the previous year in
the Machinery Systems business. And while profit tends toimprove with the completion of construction work, fewer
works generating completed sales in fiscal 2022 hobbled any
improvement in profit, causing gross profit to fall.

195.5

202.2

194.0

190.0

7.5

8.1

193.1
9.8

5.9

6.4

3.9
2017
Phase1

2018

2019

2020
Phase2

2021

228.5
190.8

6.2

● Orders received● Net sales■ Ordinary profit■ Profit
attributable toowners of parent

4.72022（FY）
Phase3

Status of the Medium-Term Management Plan “Century 2025” Phase 3
he Sanki Engineering Group is currently engaged
in “Century 2025” Phase 3 (FY2022–2025), thefinal phase of the Medium-Term Management
Plan for realizing the long-term vision “Century 2025”
by its 100th anniversary. In Phase 1 (FY2016–2018), we
designated strengthening core businesses, promoting
growth strategies, and enhancing the Sanki brand as
key initiatives under the concept of enhancing quality.
In Phase 2 (FY2019–2021), we added disclosing financial
and capital policies and reinforcing the disseminationof information as key initiatives for enhancing reliability.

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Throughout both phases, we consistently focusedon refining technical skills and human resources toraise the levels of quality and reliability. In Phase 3, wewill endeavor to become the company of choice forour stakeholders by promoting the new initiatives ofcontributing to the sustainability of society, accelerating
work style reforms, and investing toward the next era, inaddition to measures we have been working on to date.
The way we address these three new measures willhold the key to success in Phase 3. First, with regard tocontributing to the sustainability of society, we will focus

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Message from the President ︱on concrete efforts for realizing carbon neutrality by
2050 based on Sanki’s Carbon Neutral Declaration. Overthe years, we have been cultivating energy conservationand decarbonization technologies through total
engineering as the source of our strength. Initiatives
that effectively apply these technologies to broad areas
including construction and plant facilities are directly
linked to promoting carbon neutrality and therefore
fully aligned with resolving social issues through ourmain line of business. As part of these initiatives, in fiscal
2022 we raised the conversion rate for the SANKI YOU
Eco Contribution Point system, promoted Companywide, in which we convert points, based on energysaving solutions offered to customers, into donations
to environmental conservation. We will actively
promote this system along with the development of
new technologies that save energy for customers. We
have also embarked on new capital investments for
decarbonizing our own corporate activities, includingsolar power purchase agreement (PPA) projects.
Furthermore, in a notable development over the past
few years, the AEROWING energy-saving air diffuser, ourstrategic water treatment product, has been gaining
recognition overseas, as evidenced by its adoption foruse in large-scale sewage treatment plants in Denmark
and Australia. We will further expand sales of AEROWING
as a core product for overseas business development
to spearhead our efforts toward achieving carbon
neutrality.
Accelerating work style reforms is an urgent issue
for applying the revised Labor Standards Act mentionedearlier. Sanki Engineering has been taking action toeliminate long working hours through the Smile Project,
and the infrastructure for reforming work styles is now
in place, including the launch of a new operating system
and introduction of new tools at construction sites. We18SANKI REPORT 2023

also established a DX Promotion Division in April 2023
and are creating a digital infrastructure that ensuresthat all Group employees are “connected” so we cansteadily and rapidly execute reforms in our operations
and work styles. However, we are aware of the needto analyze our operations once again and implement
thorough measures to achieve our targets. We are
seeking to enhance the quality of our work within
given time constraints, and in that sense, employee
mindsets must also change. Additionally, as we develop
total engineering as the source of Sanki’s strength, thedetermination of which business operations should
remain analog and which parts digitalized will be vital.
Although we have been steadfastly striving to improve
work efficiency and secure human resources, we can only
do so much on our own. The entire construction industry
is struggling to eliminate long working hours, and wewill address the challenge by broadly cooperating acrossthe board, from the facilities sector to customers andconstruction companies.
Finally, we will launch a full-scale effort to invest
toward the next era starting in fiscal 2023. This includes
growth investments to identify and nurture areas thatwill drive future business as well as investments inhuman resources, R&D and ICT, as the foundation forbusiness sustainability, and we plan to invest around20.0 billion yen during the Medium-Term ManagementPlan. Meanwhile, in the Facilities Construction business,there is a growing momentum toward using BIM, whichis slated to revolutionize the construction industry. In
response, in July 2022 we acquired a company thatspecializes in creating design and construction drawings,
inputting attribute information, and assisting in creating
drafts using 3D scanners. We fully intend to growtogether as a strategic partner in promoting BIM.
Our business portfolio strategy disclosed in Phase 3
designated facility systems and machinery systems as
growth businesses. To expand our business scope, weare considering collaborating with startup companies in
the Facility Systems business and acquiring companies
that possess elemental technologies to approach
the market for the Machinery Systems business. In
the second half of fiscal 2022, we launched the EarthMIRAI Project to solicit applications from employees toexplore new technologies, and we received more than
100 applications. We will continue to scrutinize theseapplications in order to carefully select and nurture
promising proposals as investment projects that will
open the way to Sanki’s future.

Achieving Sustainable Growth for the Sanki Engineering Groups a total engineering company, the SankiEngineering Group is committed to realizing
its Management Philosophy, “We create
comfortable environments through engineering andwidely contribute to social development.” It also remains
committed to advancing sustainability management byincorporating sustainability into management strategy
decisions to simultaneously realize our own sustainablegrowth while addressing social issues. Today, there is a
growing emphasis on corporate disclosure of information
related to sustainability, and we believe that suchdisclosure also reduces internal and external information
gaps. In our initiatives and disclosures, we will pay due
consideration to public expectations and stakeholder
needs in order to further advance our sustainabilitymanagement.
We have been striving to effectively implement theSanki Corporate Governance Guidelines throughout
our operations with the conviction that constantly
improving the quality of corporate governance isessential for sustainability management. The diagramof Sanki Engineering’s efforts shows how we willaddress social issues, enhance corporate value over themedium and long term, and strengthen management
capabilities by addressing key themes in the prevailing

Abusiness environment, based on the Sanki Engineering
Corporate Governance Guidelines, which are subject
to ongoing and periodic reviews. At Sanki Engineering,
the effectiveness assessments of the Board of Directors
have been highly successful, and each assessment has
discussed new aspects of implementation, leading toenhanced conversations on sustainability and revitalized
deliberations on the management plan.

Effectivenessassessment ofBoard ofDirectors
Managementplan

Cost of capital

Officerremuneration

Sanki Engineering
CorporateGovernance
Guidelines

Diversity of Boardof Directors

SustainabilityRiskmanagement
Enhanceddissemination ofinformation

Becoming the Enduring Company of Choice in 2050
became president in April 2020, when the COVID-19
pandemic was in full swing, and over the past
three years I have experienced the challenges ofcommunicating with each other. We are engaged in a wide
range of businesses backed by a diverse array of elemental
technologies, which tends to erect high barriers between
divisions and give rise to the danger of sectionalism.
I believe that my role as top manager is to maintainthe connections among decisions and bring everyone
together as colleagues in the same Group moving forwardin the same direction. In fiscal 2022, for the first timesince assuming office, I was able to hold CCU* discussion
events as president, and toured business bases across thecountry to exchange opinions with many executives andemployees. I realized anew the importance of listening
directly to the voices of employees and conveying theCompany’s direction in my own words. At the same time, Iwas able to sense the immense potential of our Group.

I

With the milestone of our 100th anniversary in 2025,
we will fulfill our mission as a total engineering companyby devoting our management resources to actions that
address the materiality of the Sanki Engineering Group.
While all of the items identified as our materiality are vital,
I believe that technology represents our competitive edge
and that our people are the prerequisite for the survivalof our business. To ensure that our total engineering
contributes to society and leads us into the future, we must
reaffirm our commitment to being a technology-centeredcompany, devote ourselves to pursuing happiness forcolleagues, including our subcontractors, and overcome thefast-approaching challenge of the revised Labor Standards
Act. By moving beyond this challenge, we will achievesustainable growth and the trust of our stakeholders torealize our ultra-long-term vision of becoming “Sanki, The
Enduring Company of Choice” by 2050.

*President’s CCU (Century Communication Up): Discussion events named after the long-term vision“Century 2025,”in which the president andemployees engage in a direct exchanges of views.

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