KYUDEN GROUP INTEGRATED REPORT 2023

Table ofContents

1 Overview of the Kyuden Group

2 Value Creation Story

3 Strategy and Performance

Message from the President

Message from the President

Having all preparations for growth in place,
we will make great strides toward achieving
sustainable improvements to our corporate value
as an industry leader in decarbonization.

Kazuhiro Ikebe
Member of the Board of Directors
President & Chief Executive Officer

4 Creating Value through Business

5 A Foundation for Creating Value

6 Data Section

11

KYUDEN GROUP INTEGRATED REPORT 2023

Table ofContents

1 Overview of the Kyuden Group

2 Value Creation Story

3 Strategy and Performance

4 Creating Value through Business

5 A Foundation for Creating Value

6 Data Section

12

Message from the President

Where are we heading?
The Kyuden Group’s top priority right now is achieving carbon neutrality.

promoted under Japan’s renewable energy feed-in tariff (FIT) scheme.

in all sectors of Japan. This transition is not only happening in theGoing forward, we will continue to proactively utilize power sources thattransportation sector, where we see a shift to electric vehicles, but also

do not emit CO 2.

in the industrial, commercial, and household sectors.

All of the Group’s strategies are focused on becoming carbon neutral,and by executing these strategies, we will enhance our corporate value
in financial and non-financial terms.

Given this push for electrification and other factors, it is certain that
■ Kyushu EP’s Ratio of Zero-Emission or FIT Energy Sources*1 (FY2019*2)

current level, which is now at around 25%. Regarding Japan’s overall

Other 2%
*1:

The Kyuden Group aims to achieve carbon neutrality by 2050 and plans

LNG
11%

to achieve “carbon negativity” as early as possible before 2050. The
latter is realized by both reducing greenhouse gas (GHG) emissions frombusiness activities across the entire supply chain to net zero, as well as
by undertaking activities that help reduce GHG emissions across society,such as promoting electrification and other measures. P08

This year

Coal
29%

Ratio includes energy produced andpurchased by Kyushu EP and represents
the value before Non-Fossil Certificate

Nuclearpower
35%

trading*2:

During this period all four nuclear
reactors were operating (82.0%
utilization rate)

Note: For amounts for which Non-Fossil

FIT Renewableelectricity energy
14%
23%

Certificates were not used, there isno value for renewable energy or
zero-CO 2-emission energy sources, andso these are counted as national average

we became the first major energy company in Japan to be certified
under the Science Based Targets initiative (SBTi) for our GHG emission

the share of electricity in the final energy consumption will grow from its

58% (incl. FIT electricity)

CO 2 emissions for electricity production,
including that generated from fossil fuels

reduction targets, which were set based on the level of our environmental

electric power demand, I personally believe that by 2050, it will be about
double the current level, and in fact may well exceed it. Furthermore,as digitalization gains speed and the amount of electricity required toprocess this data grows exponentially, there may even be concerns
about a shortage in the electricity supply. This is particularly relevant
in Kyushu, as in the prefecture Kumamoto there will be a concentrationof semiconductor fabrication plants along with business facilities andin the area of Kitakyushu one of Kyushu’s largest data centers will be
constructed. If demand for electricity outgrows supply, it is not as if
power plants and power lines can be built overnight. The construction

We intend to continue to lead Japan and theOn the other hand, thermal power generation is essential to compensate

of a new power plant can take anywhere from several years to several

industry as a whole as an industry leader in low-carbon and carbon-free

for fluctuations in output from renewable energy sources such as solar

decades. Yet another key factor in ensuring a stable supply of electricity

efforts.

power, which cannot be generated at night and is affected by weather

is creating an attractive business environment for new entrants in theconditions. At our company we are continuously working to maintain andpower generation sector. For this reason, I believe that it is critical for thethe two pillars of carbon reduction / decarbonization in power

improve overall thermal efficiency from the perspective of reducing CO 2

government to present a vision for the next 20 years or so, based on how

sources, i.e., producing electricity with technology that does not emit

emissions and fuel consumption. In addition, we are exploring measures

it plans to encourage Japan’s future electrification through policy means.

CO 2, and promotion of electrification, i.e., using energy in the form ofsuch as co-firing of hydrogen/ammonia and biomass, as well as carbon

I am confident that this path to carbon neutrality not only have a directelectricity.

capture and storage (CCS) technologies. P44

targets for FY2030. P42

In order to achieve carbon neutrality, we will do our utmost to advance

To promote power generation that does not emit CO 2, we must firstIn order to increase the use of electricity and advance electrification,

expand renewable energy and work steadily to ensure the safe and stable

Japan needs to push ahead with policies to promote electrification

operation of nuclear power plants. Doing so will enable us to cover about

nationwide, and such policies are just beginning to take effect. Thanks

60% of our energy mix with power sources that do not emit CO 2, such as

to government subsidies, tax incentives for heat pumps and all-nuclear power and hydro, geothermal, solar, and wind, including thoseelectric homes, and other measures, electrification is advancing rapidly

impact on the expansion of electricity demand but also lead to enhanced
corporate value for the Kyuden Group, considering our extensive
experience and expertise in the power supply sector.

KYUDEN GROUP INTEGRATED REPORT 2023

Table ofContents

1 Overview of the Kyuden Group

2 Value Creation Story

3 Strategy and Performance

4 Creating Value through Business

5 A Foundation for Creating Value

6 Data Section

13

Message from the President

Toward Sustainable Enhancement ofCorporate Value

ROIC-Based Management
Last year we introduced ROIC as a new management indicator. In April
2023, we announced the Group-wide ROIC targets of 2.5% or higher for

We will continue to make management efforts by outlining our corporate

FY2025 and 3.0% or higher for FY2030 (consolidated basis). P25

value through sustainable growth and improvement of capital efficiency,

As we work towards achieving our target of ¥150 billion inwhile taking into Tokyo Stock Exchange’s request for companies to takeconsolidated ordinary income by 2030 (as outlined in our Management“action to implement management that is conscious of cost of capital

Vision 2030), we are investing in expanding our Growth Businesses.

and stock price” by analyzing their cost of capital and market valuation,

However, reducing interest-bearing debt to restore and strengthen ourand to disclose their targets and plans for improvement. Although thedamaged financial foundation is also a challenge. By implementing

Kyuden Group’s price-to-book ratio (PBR) is currently close to 1, we

ROIC, we aim to enhance corporate value through capital-efficientbelieve there is room for improvement.

management, meet the expectations of the capital market, and achieve

PBR can be broken down into return on equity (ROE) and priceearnings ratio (PER). We believe that improving ROE, an indicatorof capital efficiency, and PER, an indicator of confidence in oura balance between expanding our Growth Businesses and strengthening
our financial foundation.
In the short term, we are focusing on improving capital efficiency byManagement Vision 2030 and Growth Businesses

performance and growth potential, is essential for our shareholders andensuring that employees are aware of its importance and can incorporate

investors to evaluate the Group’s corporate value, and for us to achieve

it into their specific tasks. Each business department has created andIn terms of progress towards the realization of the Management Vision

sustainable improvements to our corporate value (a PBR above 1) overanalyzed ROIC trees, and investment decisions are made with a focus on

2030 and the steady expansion of our Growth Businesses, we havethe medium to long term. P24

ROIC for each project. I noticed that ROIC-based practices are starting to

set an interim target for FY2025 of achieving a consolidated ordinary

be implemented on the ground level.

income of ¥125 billion or more (Domestic Electricity Business: ¥75

First, with respect to improving capital efficiency, we will achievea return on capital higher than the cost of capital by promoting

From a medium to long term perspective, ROIC also serves as abillion; Growth Businesses: ¥50 billion). P21

Regarding the Domestic

management that is conscious of return on invested capital (ROIC). Withdecision criteria for making changes to our business portfolio. One ofElectricity Business, we have completed installation work of Specificrespect to improving confidence in our performance and growth potential,

our management targets in our vision is to earn half of the ¥150 billion

Safety Facilities (SSFs) at nuclear power plants, and can expect towe will use the current turnaround in business performance to improvein consolidated ordinary income from Growth Businesses. We cangenerate income from high utilization of nuclear power plants in thefinancial stability and thoroughly return the profit to our shareholders.

focus on the more profitable business areas by promoting ROIC-based

future. As for our Growth Businesses, we expect to achieve our targets

At the same time, we will communicate to our investors that we as amanagement. We would also like to explore building a business portfolio

through income from investment projects that we have already initiatedcorporate group will do our utmost toward decarbonization while creatingthat goes beyond the framework of electricity, so that everyone will bein our Overseas Business and Renewable Energy Business. Therefore,

further growth over the long term. Making improvements in each ofable to recognize that our company is engaged in more than just the

I believe that it is very likely that we will achieve our financial objectives

these areas will enable us to achieve sustainable improvements to ourelectricity business.

for FY2025, and then our management targets for FY2030, in terms ofcorporate value (a higher PBR).

income.

KYUDEN GROUP INTEGRATED REPORT 2023

Table ofContents

1 Overview of the Kyuden Group

2 Value Creation Story

3 Strategy and Performance

4 Creating Value through Business

5 A Foundation for Creating Value

6 Data Section

14

Message from the President

billion of Class B preferred shares in August 2023, and are currently

Our people are also the driving force that will lead the way in an

steady progress toward reaching our target of developing 5,000 MW

in the process of building up capital. I believe we are within reach ofera characterized by a drastically changing business environment thatby FY2030. If we include projects we have already invested in, we haveachieving a 20% equity ratio, one of our financial objectives, as longcalls for disruptive innovation. A company in which each employee

achieved close to 80% of our interim target (4,000 MW by FY2025).

as we maintain a high level of profit under our four nuclear power

enthusiastically takes initiative to act autonomously in which the

Furthermore, by integrating hydro and geothermal power generation

units and use our resources efficiently to reduce interest-bearing debt

organization harnesses employees’ energy to enhance productivity andinto Kyuden Mirai Energy, the Group’s renewable business arm, andthrough ROIC-based management. Once we are on a clear path togenerate innovation. I am determined to transform the Kyuden Group

strengthening our business operation structure, we aim to accelerate ourreaching an equity ratio of around 20%, we intend to enhance returns to

into such a company. To achieve this, under the strong leadership of ourefforts to make renewable energy our main source of power generation,

shareholders, including promptly resuming dividends of ¥50 per share.

senior management, we are building an organization in which diverse

More specifically, in our Renewable Energy Business, we are making

as the only operator in Japan that owns all five renewable energy
sources (solar, wind, hydro, geothermal, and biomass), and one of thetalent can thrive and innovate continuously.

Enhancing Our Human Capital

top operators in terms of capacity owned domestically.

Organizational flexibility and flexible thinking, as well as the innovationthat springs from it, will be key as we tackle carbon neutrality and other

The key players in achieving sustainable improvements to our corporate

future challenging issues. The Kyuden Group has launched the KYUDEN

MW by FY2025) has already been secured, and we are moving forward

value is talent. In order to keep growing sustainably despite constanti-PROJECT, a project led directly by the president, to provide employeeswith projects with the aim of reaching 5,000 MW in equity output bychanges in the business environment, it is essential to maximize thewith opportunities to consider new businesses and services inspired by

FY2030. We are actively working to lower the carbon intensity of andpotential of our talent and to improve our productivity and capabilities as

flexible ideas that go beyond the framework of our existing organization

decarbonize the energy sources in the areas in which we operate throughan organization. P67

and operations. P69

In our Overseas Business, more than 70% of our interim target (4,000

In other words, part of the significance of thissubsea transmission projects and collaboration with other renewableenergy developers.
As for our ICT Service Business, in the rapid digitalization of society,we will reinforce services such as digital transformation (DX) proposals
for enterprises and municipalities in addition to our core services in fiber
optic broadband internet and data centers.
As for our Urban Development Business, in addition to reinforcing ouroverseas operations, we will grow our earnings by developing high valueadded urban development projects that leverage the Group’s collective
capabilities in decarbonization and digital technology. At the same time,
we will help to sustainably develop local communities and society bycreating vibrant communities and to increase their pull factor.
Meanwhile, with regard to our financial foundation, we issued ¥200

Our rugby team Kyuden
Voltex was promoted
to Division 2 in theJapan Rugby League One

KYUDEN GROUP INTEGRATED REPORT 2023

Table ofContents

1 Overview of the Kyuden Group

2 Value Creation Story

3 Strategy and Performance

4 Creating Value through Business

5 A Foundation for Creating Value

6 Data Section

15

Message from the President

project is nurturing flexible mindsets. I believe that the employees who

companies, and then return to our company once again with additional

recovery from the previous year’s losses due to delayed gains from theparticipated in this project will be able to apply what they learned throughexperience. I believe this is the best scenario.

fuel price adjustment system. I consider FY2022 to have been a year in

the project at their respective workplaces, leading to greater innovation
throughout the organization. We are already seeing the results.
As competition for talent intensifies, we must manage our businesses

We need to actively recruit experienced personnel and acquire

which we have been setting the foundation for recovery, making all theoutside perspectives and knowledge. I think we should flip the term

preparations necessary to make the jump toward exponential growth in“human resources” into “resourceful humans”. My vision of human

FY2023 and beyond.

with the assumption that there will be increased upward pressure on

resources development is to nurture specialists with talents and abilities

Japan’s per-capita labor costs, which have been lagging behind otherin their respective fields in order to boost the competitiveness of theOn the other hand, Kyushu EP and Kyuden Mirai Energy received

countries. It will therefore be essential to promote DX and leverageorganization as a whole.

cease and desist orders and a surcharge payment order based on thegenerative AI to fundamentally change the way we work and alter ourbusiness processes to achieve greater productivity.
The Kyuden Group has been working to develop frameworks to

Antimonopoly Act from the Japan Fair Trade Commission (Kyuden Mirai

Review of the Past Fiscal Year andManagement Vision 2030

promote DX. In FY2022, we established the DX Promotion Division

Energy received only a cease and desist order). After carefully reviewing
and confirming the details of each order, we concluded that “there wasno agreement regarding the cartel activities,” and filed a lawsuit seeking

and announced the Kyuden Group DX Vision, with the aim of bringing

FY2022 was a year marked by significant impacts from the external

the revocation of the order. We will explain our position in the revocation

about corporate transformation. Looking ahead, we will accelerate theenvironment, such as rising fuel prices and the rapid depreciation of thelawsuit and seek a fair judgment from the court going forward.

development of digital talent and implement measures to improve laboryen. As there is a three-month lag between the increase in fuel prices

Nevertheless, we take these orders very seriously. We are steadily

productivity and value added per employee. P71

and its reflection in electricity charges through the fuel cost adjustment

implementing measures to ensure compliance with the Antimonopoly Act

It is true that in order to ensure a stable supply of electricity, somesystem, we experienced a negative turn in profits for the fiscal year. In

so that we will never again invite such allegations in the future.

departments require technology and skills that have been acquired over aaddition, external factors, such as an increase in the price of electricity

long period of time. However, on the flip side, an organization that lacks

purchased from other companies due to higher wholesale electricity

customer information. We regard this incident as a serious problem thatdiversity and fluidity becomes stagnant and will reach a dead end due tomarket prices, have impacted us significantly. Another factor that

could undermine fair competition, which is the basis of the liberalization

its rigid way of thinking. While we often refer to employees as “humancontributed to the deterioration of our finances was the increase in fuelof the electricity market. The fundamental cause was the lack of

capital,” I believe that rather than confining talent within a company andcosts as we could not fully utilize nuclear power due to the installation

awareness on the part of senior management at the time of the spin-off,making them fixed “capital,” a better approach would be to increase thework of SSFs at Genkai Nuclear Power Plant. For the first time in eightas they decided on business operations that had the potential to cause

mobility of talent throughout society and allowing individuals with diverse

fiscal years, the company posted a net loss.

problems. In addition to establishing systems to prevent recurrence, it

experiences to circulate.

The installation of SSFs at Unit 4 of Genkai was completed in

There was also an incident involving the improper handling ofis critical that we create a workplace culture that refuses to overlook

February 2023, marking the end of installation work at all of our nuclear

inappropriate behavior and enables whistleblowing. Senior managementcompany is gratifying, and it is equally wonderful to have talented people

power plants. Looking ahead, we expect stable operation of all four

will take the lead in ensuring compliance with laws, regulations, and

who were trained at other companies join us and play an active role.

reactors, which allows us to secure profits on an ongoing basis. In

rules, and will work to create a workplace with an atmosphere ofMoreover, people who we have trained at our company are hired by otheraddition, FY2023 will see a significant improvement and a V-shaped

openness and trust. P83-85

The fact that other companies want to hire people trained at ourKYUDEN GROUP INTEGRATED REPORT 2023

Table ofContents

1 Overview of the Kyuden Group

2 Value Creation Story

3 Strategy and Performance

4 Creating Value through Business

5 A Foundation for Creating Value

6 Data Section

16

Message from the President

Factors such as Russia-Ukraine conflict and the effects of a weak yen

for the Kyuden Group for the future. Since our work is originally in theworking together with local communities to solve social issues, while

have caused fuel and wholesale electricity market prices to soar. This

infrastructure business, we have strong networks and relationships

maintaining a mutually beneficial relationship with our business partners

has had a significant impact on our income and expenditures, andof trust that we have fostered by supporting the lives and economies

through our Partnership Declaration.

the possibility of a power crunch has made securing a stable supplyof local communities and developing together with them. For thisIn order to achieve our management vision and carbon neutrality,of energy a major priority for the entire country. Precisely because ofreason, I believe that we are well positioned to work together with

we will continue to meet the expectations of all of our stakeholders bythese circumstances, we are reaffirming the Kyuden Group’s Mission

communities to solve local issues. For example, we are participating inpromoting various initiatives together with our employees, the Group’s

to Enlighten Our Future. We have long been committed to the electricity

airport management projects to increase the number of visitors, andimportant and closest stakeholders.

business as a social infrastructure company that supports people’s lives

we have concluded partnership agreements with local governments

and contributes to the local community by ensuring a stable supply of

to cooperate in local carbon neutral initiatives. In this way, we hope toelectricity. After WWII, we were the first company in Japan to achieve

think together with the local community and contribute to solving social

a stable demand-supply balance, and we have cultivated our strengths

issues. I have always said, “Without the development of Kyushu, thereby helping to solve social issues while maintaining a stable supply.

can be no development of the Kyuden Group”. Co-creation with the local

With these strengths at our core, I am confident that we can transform

community is at the heart of realizing our management vision.

unprecedented changes in the business environment into opportunities
that will lead to future growth. P17-19

To Our Stakeholders

Having said that, I would like to reiterate that we have been able to set

I would like to remind our shareholders and investors that although weforth a solid strategy that draws on our strengths our Management Vision

recorded an ordinary loss for FY2022, our efforts to date have left us2030, providing a direction for our efforts toward growth. P08

well prepared for growth in FY2023 and beyond. Regarding dividends,

Strategy I in this management vision is Developing the Energy

we will continue to strive to resume dividend payments of ¥50 as soon

Service Business, and there is no doubt that energy services will be aas possible within the financial objective period (ends in FY2025).

major driver of growth within the overall picture. Based on the strengths

Our senior management will also take the lead in actively engaging in

we have cultivated through our energy service business centered indialogue with the market regarding our efforts to sustainably improve our

Kyushu, namely stable supply technology and a high ratio of zero-

corporate value, as outlined in this message. Through such dialogue, weemission energy sources, we are now making steady progress toward

hope you will come to appreciate how the Kyuden Group is transforming

achieving the challenging goal of carbon negativity as soon as possible.

into a new format by expanding beyond the Domestic Electricity Business

Strategy II, Building a Sustainable Community Together, is about
working to resolve local community issues together with everyone in thecommunity. I think that Strategy II will be the most important strategy

to include Growth Businesses such as renewable energy, overseas
business, ICT services, and urban development.
We will contribute to the development of Kyushu and other regions by

We look forward to your ongoing support as we move forward.