FY03/19 Financial Results Briefing
May 17, 2019

Contents

FY03/19 Financial Results Briefing

1．Overview of FY03/19 Financial Results
2．Full-Year Outlook for FY03/20
3．Toward Our Ideal Vision of Ourselves
This briefing material includes ourearnings forecasts and projections.
Please note that these reflect forecasts
and estimates based on information
available to the Company as of the dateof release of this document, and contain
uncertainties.
1

Financial Results Briefing

1. Overview of FY03/19 financial resultsConsolidated net sales exceeded the year-earlier level, reaching a record highOperating income and ordinary income also reached record highs supported byan increase in completed construction gross profit and other factors
Orders received increased to ¥263.0 billion, surpassing the initial forecast by¥23.0 billion

2

１ Business Environment
Business environment in FY03/19
1．The Japanese economy remained on a gradual recovery path supported by improvements in corporate
earnings and the employment and income environment despite some weakness in exports and production.
2．The construction market was strong thanks to robust construction investment fueled by improvement incorporate earnings.
3．Construction costs remained within the expected range despite higher construction materials/equipment andlabor costs .

Prospects
1．The Japanese economy is expected to gradually recover as corporate earnings and employment and income
environments continue to improve although an impact from the next consumption tax hike is a concern.
2．The construction market is projected to hold strong on an increase in government spending on construction,
but we still need to be aware of capital spending trends in the private sector in light of overseas environment.
3． There are concerns over sharp rise in construction costs driven by tightening supply/demand condition
attributable to large-scale redevelopment projects (mainly in metropolitan areas). The construction industry
also faces a range of supply side challenges presented by an escalating labor force shortage, reduction oflong working hours, and work-style reform.
3

１ FY03/19 Full-Year Results (Consolidated)
Consolidated net sales exceeded the year-earlier level, reaching a record high.
Regarding profit and loss, profit attributable to owners of parent fell below the year-earlier
level due to increases in tax expenses and other costs, but operating income and ordinary
income reached record highs.
(Millions of yen)
FY03/19

Items

FY03/18

Tokyu
Construction

Subsidiaries

Consolidated

Differencecompared
to previous
year

Rate ofchangeNet sales

320,711309,946

23,810331,437

10,725

3.3%

Gross profit

35,72033,3702,960

36,073353

1.0%Selling, general andadministrative expenses

14,303

13,571876

14,086(217)(1.5%)

Operating income

21,416

19,7982,084

21,987570

2.7%

Ordinary income

22,12820,084

2,057

22,932804

3.6%

Profit (losses) attributableto owners of parent

16,118－－15,504(614)(3.8%)

Consolidated subsidiaries
Token Industry
Tokyu Renewal
Tokyu Construction Indonesia
Golden Tokyu Construction
Plantaardig farm (formerly Purantaru farm)
Osaka Firefighting Private Financial Initiative (PFI)Consolidated subsidiaries total

Profit (losses)
attributable toowners of parent

22
1,330
3
13
(69)
6
1,307

Equity-method affiliates
Seikitokyu Kogyo
Tokyu Green System
Ch. Karnchang-Tokyu Construction
Asuka Soken
Equity-method affiliates total

Equity-method
profit (losses)

697
3
(13)
102
790
4

FY03/19

１ Factors Affecting Net Income (Consolidated)
Although completed construction gross profit grew, SG&A expenses declined, and equitymethod income increased, profit attributable to owners of parent fell below the year-earlier levelon an increase in tax expenses
Increase inequityIncrease in Decline in 持分法投
methodcompleted
SG&A 資損益のinvestment
販管費
construction
gains
完工総利 expenses
増加
の減少
gross
profit益の増加

774

16,118217(Millions of yen)

Increase in
tax
税金費用の
expenses
増加 Decline inreal estate
1,062 不動産利income
益の減少

135

Decline in Improvement
in non営業外
extraordinary
特別損失 operating
収支のlossesの減少
income
改善

111

97

420

Increase inprofitattributableto
非支配株主にnon-controlling
帰属する当期interests
純利益の増加130

Decline in
特別利益
extraordinaryの減少
income337

FY03/18
Profit attributable toowners of parent

Profit increase

15,504

FY03/19
Profit attributable toowners of parent

Profit decline
5

FY03/19

１ FY03/19 Full-Year Results (Non-Consolidated)
Net sales declined 0.8% year on year, and net income declined 9.8% due to a drop in gross profit.
The year-on-year decline in net sales reflected a consolidation of building renovation business inthe metropolitan area into a subsidiary.
(Millions of yen)

FY03/19

Items

FY03/18

Results

Ratio(%)

Differencecompared
to previous
year

Rate ofchangeCompleted construction sales
Civil engineering
Building construction

310,761
73,863236,898

308,623
70,381
238,241

[100]
22.8
77.2

(2,138)(3,481)
1,343(0.7%)(4.7%)
0.6%

Completed construction gross profit

Civil engineering
Building construction

34,767
7,198
27,56833,316
9,892
23,423

10.8
14.1
9.8

(1,450)2,694(4,145)(4.2%)
37.4%(15.0%)

Real estate sales
Real estate gross profit

1,725
534

1,323
54

[100]
4.1

(402)
(480)

(23.3%)(89.8%)

312,487
35,301

309,946
33,370100
10.8(2,540)(1,931)(0.8%)(5.5%)

13,851

13,571

4.4(279)(2.0%)

Operating income

21,45019,7986.4(1,651)(7.7%)

Ordinary income

21,51420,084

6.5(1,429)(6.6%)Net income

15,555

14,025

4.5(1,530)(9.8%)Net sales
Gross profit
Selling, general and administrative
expenses

6

FY03/19

１ Net Sales (Non-Consolidated)
Completed construction sales fell year on year due to consolidation of the building renovation
business in the Tokyo metropolitan area into a subsidiary, amid continuing robust demand forlarge-scale construction.

Net sales(Millions of yen)¥309.9 billion(-0.8% YoY) Completed construction sales
Civil engineering¥70.3 billion(-4.7% YoY)

236,305

 Real estate sales¥1.3 billion(-23.3% YoY)

309,946

1,725

1,323

5,569
236,898

238,241

69,84573,86370,381

FY03/17

FY03/18

FY03/19

Building construction ¥238.2 billion(+0.6% YoY)

312,487

160,890

Real estate
Building
Construction
Civilengineering

7

FY03/19

１ Gross Profit (Non-Consolidated)
Gross profit surpassed the original forecast of ¥32.4 billion.
The profit margin of civil engineering sharply exceeded historical levels, increasing 4.4pp
driven by an unexpectedly high number of design change and addition projects inJapan and improved margins of completed overseas projects.
The profit margin of building construction fell 1.8pp due to a sharp rise in construction
costs and an impact from margin erosion of some construction projects.
Civil engineering
土木

Gross profit¥

33.3 billion

13.2%(-5.5% YoY)

Building construction
建築

14.1%

11.6%

+4.4pp-1.8ppCompleted construction gross profit
Civil engineering

9.9%

23.4 billion¥(-15.0% YoY)Real estate gross profit ¥0.05 billion

9.8%(Millions of yen)

¥9.8 billion

35,301(+37.4% YoY)

Building construction

9.7%

29,821534

1,638

33,37054

27,56823,423

6,917

7,198

9,892

FY03/17

FY03/18

FY03/19

21,266(-89.8% YoY)

Real estate
Building
Construction
Civilengineering

8

FY03/19

１Financial Position and Cash Flow (Consolidated)
Net assets increased ¥13.8 billion to ¥92.9 billion on an increase in retained earnings, and theequity ratio rose to 35.0%. Cash flow was positive thanks to a drop in trade receivables.
[Consolidated Financial Position](Millions of yen)
YoY change +13,806

March 31,2017

March 31,2018

March 31,2019

Rate ofchangeTotal assets

204,813249,756

264,996

6.1％

・Profit attributable to owners of the parent ＋15,504

Total liabilities

138,433

170,581

172,0140.8%

・Valuation difference on available-for-sale securities

4,804
3,082
1,721

1,721
83
1,638

1,638
80
1,557

(4.9％)(3.5％)(4.9％)Net assets

66,38079,17592,981

17.4％

Equity ratio

32.3％

31.6％

35.0%

3.4pp

Items

・Dividends of surplus -3,307+1,854, etc.

Interest-bearing debt
(Short-term debt)(Long-term debt)[Consolidated Cash Flow]

Equity ratio+3.4pp
32.3%

35.0%

31.6%

Net
assets(Millions of yen)

Items

FY03/17

FY03/18

FY03/19

Cash flows from operating activities(23,545)

16,226

29,694

Cash flows from investing activities(1,717)(3,383)(5,786)

Cash flows from financing activities(2,788)(6,457)(3,575)

Effect of exchange rate change on
cash and cash equivalents

(40)

(102)

(52)

92,981
66,3804,804

Net increase (decrease) in cash
and cash equivalents(28,091)

6,283

20,279Cash and cash equivalents at endof year22,582

28,86549,145

79,175

1,721Interestbearing
liabilities
1,638

March 31,

March 31,

March 31,

2017

2018

2019

Tokyu Construction has adopted the Partial Amendments to Accounting Standard for Tax Effect Accounting, etc. (“the Standard”) from the start of the current fiscal year, andthe Standard has been retroactively applied to the figures as of March 31, 2018.

9

FY03/19

１ Orders (Non-Consolidated, Company-Wide)
Orders exceeded the initial forecast of ¥240.0 billion (which was based on construction capacity)by ¥23.0 billion.
Despite an increase in overseas orders driven by large-scale ODA projects, the Tokyu Group
posted 9.7% year-on-year drop in orders, reflecting a difficult comparison with the previous fiscal
year that saw large-scale projects.
291,337(Millions of yen)

FY03/19284,888

Differencecompared toprevious
year

Rate ofchangeCompany-wide

Domestic
public50,411(9,287)(15.6%)

Domestic
private

189,638(35,047)(15.6%)

Generalprivate155,028

6,952

23,00331,622
74,05834,610Overseas198,170
150,6264,401

263,0532.9%

155,028

Tokyu
Group
PrivatePublicTokyu Group
companies

34,610(39,448)(53.3%)

Overseas

23,003

16,050230.9%

263,053(28,283)(9.7%)

55,304

59,69850,411(208)△
208
FY03/17

FY03/18

FY03/192017年3月期 2018年3月期 2019年3月期
10FY03/19

１ Orders (Non-Consolidated, Civil Engineering)
Orders rose modestly year on year to ¥77.7 billion.
Overseas orders grew on large-scale ODA projects in Myanmar.

76,784(Millions of yen)

FY03/19

5,315

Differencecompared
to previous
year

Rate ofchangeCivil engineering

28,185(17,768)(38.7%)

Domestic
private26,592

1,077

4.2%

Generalprivate12,096

Tokyu Group
companies

14,49515

0.1%

Overseas

22,98817,672332.4%

77,766982

1.3%

22,98865,711
10,470

Domestic
public77,766

9,920

14,48011,033

14,495
12,0961,062

9.6%
45,573

Note: Ratio of domestic orders received as a joint venture subcontractor was 24.7%.

45,95428,185

Overseas
Tokyu
Group
PrivatePublic△(252)
252
2017年3月期
2018年3月期
FY03/17
FY03/18 2019年3月期
FY03/1911

FY03/19

１ Orders (Non-Consolidated, Building Construction)
The order volume was deliberately held down by considering construction capacity.
The Tokyu Group posted a drop in orders reflecting the comparison with the high level of largescale projects recorded in the previous fiscal year. In the domestic public sector, local government
projects increased.
(Millions of yen)

FY03/19

Building construction

Domestic
public22,225Rate ofchange

8,481

61.7%

163,046(36,125)(18.1%)

Generalprivate

142,932

3,339

2.4%

20,114(39,464)(66.2%)

15(1,621)(99.1%)

185,287(29,265)(13.6%)

Overseas

214,552

44

1,636

21,151

Differencecompared
to previous
year

Domestic
privateTokyu Group
companies

219,176

59,578185,287
15
20,114

188,250

139,59142,9322

9,730

13,744

Overseas
Tokyu
Group
PrivatePublic22,2252017年3月期
2018年3月期
2019年3月期
FY03/17
FY03/18
FY03/1912

FY03/19

１ Shibuya Redevelopment Project Initiatives
Construction activity for the large-scale redevelopment of Shibuya Station area is approaching its peak.
Going forward, Tokyu Construction will gear up to handle the increase in office demand for IT companies
in the broader Shibuya region centered on the area around Shibuya Station.
Construction
work
Civil engineeringwork
New construction for Shibuya
Station District East Tower(To open in November 2019)

New construction for the Shibuya Station
South District Project(To open in September 2018)

Pedestrian bridges replacement
construction of Shibuya Station
East Exit

Construction of train shed for
Ginza Line Shibuya Station
Construction of new building for
Ginza Line Shibuya Station

Construction of Shibuya Station
West Exit Underground
Pedestrian bridges replacement
construction of Shibuya Station
West Exit

Upgrade construction for
Ginza Line Shibuya Station
East Building Construction Site
Meiji Dori Construction Site
Tunnel Entrance Construction Site

Infrastructure of Shibuya
Station East Exit
(Construction site I)(Photograph provided by Tokyu Corporation)

13

FY03/19

１KPIs in Mid-Term Management Plan
Tokyu Construction is making steady progress to achieve its mid-term management plan 2018–2020 “Shinka
2020,” and toward its ideal vision for the future. The Company introduced “employee engagement” index as a
new indicator from FY2018.

KPI

FY2017FY2018 actual

FY2020

FY2026

Basic policy

KPI

Transform
human
resources andthe organization• Employee Engagement
Survey (*1)
• No. of days work sites
are closed (*2)

(Introduced
from FY2018)

ＢＢ

ＢＢＢ

Ａ

Closed for 4 to 5 days /4 weeks

Closed for 5 to 6 days /4 weeks

Closed for 7 to 8 days /4 weeks

Closed for 8 days /4 weeks• Customer satisfaction (*3)

95%

95%

100%

100%

• Safety index (*4)

0.20

0.43

0.10 or less0.10 or less• Emission of CO2 (*5)

23.9 ton-CO2 / ¥0.1 billion(19% down)（in FY2016)17.2 ton-CO2 / ¥0.1 billion(42% down)（in FY2017)23.2 ton-CO2 / ¥0.1 billion(22% down)

20.0 ton-CO2 / ¥0.1 billion(32% down)• Consolidated operating
income margin

6.7%

6.6%

6.3%

7.0% or more

¥320.7 billion¥331.4 billion¥312.0 billion¥350.0 billion

22.2%

18.1%

13% or more

10% or more

¥78.9 billion¥92.6 billion¥110.0 billion¥150.0 billion

or moreor moreEnhancedomestic
construction
business

Diversify
revenue sources
Enhancemanagement
and financial
foundations• Consolidated sales• ROE• Consolidated core
capitalor more*1: “Motivation Cloud” engagement rating by Link and Motivation Inc. The survey covers all employees of the entire Tokyu Construction group, including subsidiaries. “BB” is the fifth highest level on ascale of 11 levels.
*2: Our target covers new work sites of Tokyu Construction (parent company) starting from FY 2018 (excluding the offices in which application is difficult).
*3: Rate of customer satisfaction for Tokyu (parent company) in private sectors (answering “Yes, we are definitely happy to order / Yes, we can also order.”): Average 95% during FY 2014-16.
*4: Safety index of Tokyu (parent company): √ (Frequency rate x Strength rate)*5: Specific energy consumption (base unit) per construction sales of our parent company Tokyu (ton-Co2 / ¥0.1 billion) (The reduction rate is compared to that of our FY 1990.) The standard value of
Tokyu (parent company) in FY 1990 is calculated based on the figures recorded in FY 1990 in the “CO2 Emission Survey Report” issued by Nikkenren (Japan Federation of Construction Contractors). 14

Financial Results Briefing

2. Full-Year Outlook for FY03/20


Consolidated net sales expected to decline 5.0% year on year to ¥315.0 billion
Profit expected to fall sharply below the year-earlier level due to one-time
factors
Forecast dividend of ¥30, unchanged from the year-earlier level as medium tolong-term earnings outlook remains unchanged15

２ Full-Year Outlook for FY03/20[Consolidated profit/loss]¥315.0 billion(-5.0% YoY)
Profit or loss attributable toowners of parent ¥8.7 billion(Consolidated)

Consolidated net sales expected to decline 5.0% year on
year to ¥315.0 billion
Profit attributable to owners of parent expected to fall
43.9% year on year to ¥8.7 billion

Net sales[Breakdown of non-consolidated sales and gross profit](-43.9% YoY)

[Non-consolidated profit/loss]¥293.0 billionNet salesOperating income ¥10.4 billion
Profit attributable to owners ofparent¥7.0 billion[Dividend forecast]¥30 (interim ¥10, year-end ¥20)

Net sales
Completed construction sales
Civil engineering
Building construction
Real estate sales

Gross profit(YoY change)¥293.0 billion (-5.5%)¥291.8 billion (- 5.5%)¥77.4 billion (+10.0%)¥214.4 billion (-10.0%)¥1.2 billion (-9.3%)¥24.9 billion (-25.4%)

Completed construction gross profit ¥24.2 billion (-27.4%)
Civil engineering¥6.0 billion (-39.3%)
Building construction¥18.2 billion (-22.3%)
Real estate gross profit¥700 million (ー%)16Full-Year Outlook for FY03/20

２ Factors Expected to Affect Net Income (Consolidated)
Profit attributable to owners of parent expected to fall sharply below the year-earlier level due toa temporary yet significant drop in completed construction gross profit

持分法投
equity-method
不動産
investment
資損益のIncrease in
利益の
gains
増加
real estate income
Decline in
税金費用増加
tax expenses
348
の減少
627
3,294
Increase in(Millions of yen)

Decline incompleted
完工総construction
gross
利益の
profit15,504減少
9,401

Increase in

SG&A
販管費
expensesの増加
1,214

FY03/19
Profit attributable toowners of parent

Profit increase

Profit decline

Deterioration
営業外 innon-operating
収支のincome

悪化
476

8,700
FY03/20
Profit attributableto owners ofparent17

２ Completed Construction Sales and Gross Profit
Full-Year Outlook for FY03/20(Non-Consolidated, Civil Engineering)

Initial forecasts call for gross margin of 7.8%, reflecting the dropout of temporary factors (such as an unexpectedly
high number of design change and addition projects) and progress with many low-margin work (work as a joint
venture subcontractor, etc.). Tokyu Construction looks to improve orders going forward by securing additional
construction work, and although it does not anticipate overseas projects, it will aim to secure domestic projects inconnection with the “creation of a resilient national land” government policy and other initiatives.

[Civil Engineering]

Profit margin

14.1



Completed construction sales¥77.4 billion(+10% YoY)Completed construction gross profit¥6.0 billion(-39.3% YoY)



%
9.7%

7.8%

Completed construction profit margin 7.8％

(Reference) Construction work carried forward
FY03/18
Orders76,784

FY03/19

77,766(Millions of yen)

FY03/20(outlook)

54,000Completed
construction
sales

73,86370,381

77,400Construction
carried forward to
next fiscal year

134,620

142,004

118,604

73,86376,784
FY03/18

70,381
77,766
FY03/19

77,40054,000Completed
construction
sales
Orders

FY03/20
outlook18

２ Completed Construction Sales and Gross Profit
Full-Year Outlook for FY03/20(Non-Consolidated, Building Construction)

Completed construction sales are expected to decline due to near-completion large-scale projects and controlled
orders received by considering construction capacity. Gross profit is expected to fall due to the decline incompleted construction sales, cost hike, and lower profit margin for construction work carried forward from theprevious fiscal year attributable to a focus on strategic orders. Tokyu Construction aims to tap solid market
demand this fiscal year by leveraging construction resources that have become available now that construction
activity for large-scale projects has peaked out. It will aim to reduce costs and improve profit by enhancing its
production systems through further increased orders and construction efficiency.

[Building construction]
Profit margin

Completed construction sales¥214.4 billion(-10.0% YoY)Completed construction gross profitCompleted construction profit margin 8.5%

11.6%

9.8%

¥18.2 billion(-22.3% YoY)

8.5%
(Millions of yen)

(Reference) Construction work carried forward
FY03/20(outlook)

FY03/18

FY03/19

214,552

185,287

200,000

Completed
construction
sales

236,898

238,241

214,400

Construction
carried forward to
next fiscal year

264,206

211,253

196,853

Orders236,898

238,241

214,400

Completed
construction
sales
Orders214,552

FY03/18

185,287

FY03/19

200,000

FY03/20
outlook19

Full-Year Outlook for FY03/20

２ Non-Consolidated Orders
Orders¥254.0 billion(-3.4% YoY)

Civil Engineering(Millions of yen)
FY03/20(Outlook)¥54.0 billion
Domestic public

33,00017.1%¥200.0 billion

Domestic private

21,000(21.0%)

General private

11,000(9.1%)

Tokyu Group
companies

10,000(31.0%)－(100.0%)54,000(30.6%)

Domestic public

20,000(10.0%)

Domestic private

176,000

7.9%

General private

146,000

2.1%

Tokyu Group
companies

30,00049.1%

Overseas

4,000－

200,000

7.9%

254,000(3.4%)(+7.9% YoY)

Overseas

Orders2,913(100 millions of yen)

2,630
230

2,129

2,540
40
Overseas

1,852

1,960

714

547

540

2018年
FY03/18

2019年
FY03/19

2020年
FY03/20

3月期

3月期

3月期予想
Forecast

Domestic
Building
Construction
Domestic
Civil
Engineering

Building
Construction

69

Rate ofchange(-30.6% YoY)
Civil
Engineering

Building Construction

Orders are expected to decline overseas but exceed the year-earlier
level in Japan. Tokyu Construction will continue to tap demand in therobust markets for civil engineering and building construction byleveraging construction resources that become available asconstruction activity on large-scale projects winds down.

Total

20

２ Dividend Forecast for FY03/20
Project dividend of ¥30 in FY03/20 (interim ¥10, year-end ¥20), unchanged from the previous
fiscal year
Earnings are expected to decline sharply in FY03/20, but Tokyu Construction regards the downturnas temporary, and believes it will not have a major impact on its medium to long-term earnings
outlook in the next fiscal year and beyond or on its goal of establishing healthy financial foundations.
The Company is committed to ensuring stable and continuous profit returns to shareholders, andplans to maintain the FY03/20 dividend at the year-earlier level of ¥30.
In addition, the Company remains convinced of the importance of building healthy financial
foundations that will enable it to adapt to changes in the business environment, and therefore makes
no changes to its existing stance on capital policy, including its dividend policy for the next fiscal
year and beyond.
[Annual dividend per share and consolidated payout ratio]
Dividend per share (¥)
Payout ratio (consol.)
60

20.0%

20.3%

20.5%

36.8%

[Reference] Basic policy on profit distribution(Mid-term management plan 2018-2020“Shinka2020”)

Above
20.0%

20.6%

40.0%

30.0%

50

20.0%

40

30

25

26

31

30

30

10.0%

0.0%

-10.0%-20.0%

20-30.0%-40.0%

10-50.0%-60.0%

0

FY2015FY2016FY2017FY2018FY2019FY2020(Est.)(Plan)

Tokyu Construction believes it is important toenhance retained profits for investment aimed atincreasing corporate value and further
improvement of the financial structure inpreparation for mid-to-long term risks.
It also regards the stable and continuous return ofprofit to shareholders as an important measure,and is committed to perform flexible profit returns
based on performance, including the continuous
dividend payment with the target of theconsolidated dividend payout ratio of morethan 20% and share buyback.
21

Financial Results Briefing

3．Toward Our Ideal Vision of Ourselves22３Intensifying Labor Shortages in Construction Industry
The impact of the aging population in Japan is particularly pronounced in the constructionindustry, where the departure of the baby-boomer generation from the workforce is intensifying
labor shortage.
Growth projection for skilled construction workers

Breakdown of construction industry worker by age group

Even after factoring in productivity improvements, it is projected thedomestic construction industry will require 2.93–3.15 million skilledworkers in FY2025. At the same time, the workforce is expected to
decline by roughly 1.3 million workers over the same period as many
baby boomers exit the workforce and due to other factors, raising thepossibility of a shortage of 770,000–990,000 workers.

Compared with other industries, the aging population is having amore pronounced impact on the construction industry, where
workers aged up to 29 comprise roughly 10% of the total workforce
and workers aged 55 and above over 30%.

335

338

341

293~315
77~99

216

・・・

2012

2013

2014

Number of Number ofworkers employedrequired in workers in
2025
2025

Number ofadditionallyrequired
workers

Labor shortage and the aging population will prompt companies to strengthen hiring of foreign andyoung workers, but may also trigger industry realignment aimed at securing human resources
Source: “Toward Revitalization and Evolution: Long-Term Vision for Construction Industry” issued by Nikkenren (Japan Federation of Construction Contractors)

23

３ Growing Renovation Demand
The overall construction market is projected to contract modestly over the medium
to long term, but growth in renovation and maintenance demand is accelerating
Breakdown of infrastructure
more than 50-years old

Domestic construction investment

Building renovation demand

Demand for new construction is expected to peakout over the medium to long term; however thisdoes not mean new construction will enter a
sharp downtrend but rather enter a gradualdeclineRenovation demand is expected to continue
expanding going forward centered on nonresidential construction, with seismic andenvironmental factors acting as a tailwind(Trillion yen)
Gradual contraction
11.0
+4.0%

60
50

30

57

？
7.8

42

4.2 3.8

9.9

3.0

8.4 8.5
3.0 3.1

4.1

9.0
4.8

3.8

3.3

・・・

7.7

20

4.8 5.4 5.4

10

3.9

8.5 8.7 9.2

5.7 6.2 6.1

0
98 00 02 04 06 08 10 12 14 16 18

25

09 10 11 12 13 14 15 16 17 18

Non-residential

40

13.1
12.7 12.6
11.8

Residential（Trillion yen)
80
71
70
-4.3%

The proportion of aging company infrastructurethat was originally established after Japan’s
period of rapid economic growth is growing at a
rapid pace, and this is expected to further
expand demand for maintenance and repairs

FY03/13

FY03/23

FY03/33

Roads
andbridgesRoughly Roughly Roughly
18%
43%
67%

Tunnels

Roughly Roughly Roughly
20%
34%
50%

River
management
facilities

Roughly Roughly Roughly
25%
43%
64%

Sewer
pipes

Roughly Roughly Roughly
2%
9%
24%

Wharf
walls

Roughly Roughly Roughly
8%
32%
58%

Against the backdrop of a market contraction and an accelerated expansion in renovation demand,reforms are required that entail a shift to recurring-revenue businesses and to a more flexible order approach
Source: “Construction Investment Outlook” issued by the Ministry of Land, Infrastructure, Transport, and Tourism

24

３ Growing Need for Productivity Improvements
The adoption of digital solutions and the modularization of building materials are gaining traction as a way
to dramatically improve productivity in the face of labor shortages. In the next five to 10 years, investment
in systems and factory-based construction is poised to increase substantially, and this development may
drive stronger capital consolidation.

Adoption of digital solutions

Modularization of
construction materials

BIM・CIM

i-Construction

Precast concrete construction method• Centralization of three-dimensional
information on building shapes andattributes• Facilitates consensus building between
construction-related players, andcontributes to efficiency improvement ofdesign and construction work

• Ministry of Land, Infrastructure, Transport
and Tourism promotes utilization of ICT inconstruction production processes ranging
from surveying and measurements to design,
construction, and inspections• Manufacture reinforced concrete
construction parts in a factory, and joinvarious parts together on construction
sites• Improve productivity on construction
sites by leveraging technology such as
drones for measurements and ICT for
construction• Enable reduction of necessary on-site
workers, reduction of costs, and stablesupply of high-quality concretebuilding parts

Stronger capital consolidation facilitates the advantages of scale, and this may drive M&A deals
25

３Strategic Direction Based on Changes in Business Environment
Business
environmentchangesⅠ

Intensifying labor shortage

Expansion of renovation demand (qualitative changes in demand)

Growing need for productivity
improvements

Promotion of alliances and
M&A aimed at securing
construction workers

Focus on shifting from onetime to recurring-revenue
businesses

Shift from labor-intensive tocapital-intensive operational
model

Ⅱ

Tokyu Construction’s strategic direction

Rapid response toconstruction resource
shortages• Secure construction resourcesfrom a medium to long-term
perspective through strengthened
cooperation (alliances or M&A)
with local top-tier generalcontractors and partnercompanies

Expansion anddiversification of businessportfolioⅢ

Utilization ofcomprehensive strengthsof Tokyu GroupⅣ Enhancement of on-site• Target business portfolio resilient
to changes in environment byactively engaging in businesses
with a strong recurring-revenue
aspect, such as renovations• Strengthen proposal and project
origination capabilities in order to
respond to various needs, suchas utilization of land, renovations,and increasing property values• Innovate operations throughinvestment in and early adoptionof cutting-edge technology froma medium to long-term
perspective, and aim for further
improvement of on-site
capabilities

Customers

Tokyu Construction

Utilize comprehensive
capabilities of Tokyu Group

Enhance sophistication of constructionindustry through early adoption of
cutting-edge technology

Increase recurringrevenue businessTokyu Construction
Secure construction
resources via cooperation
with other companies

Regional blue-chip
general contractors, etc.

Utilization of strengths toadopt a more active orderapproachConstruction
subcontracting(One-time revenue
businesses)

Group
cooperation
Tokyu
Construction

capabilities throughoperational reforms

New
construction
methods

IoT
Tokyu
Group

Partner company network

AI

Robot

Ideals forthe future

Flesh out and promote “urban solutions business”
26

３ Fleshing out Urban Solutions BusinessIn addition to enhancing cooperation within the Tokyu Group, which is a strength for Tokyu
Construction, shore up the earnings power of the Group by reinforcing necessary solutions andbuilding a comprehensive value chain through active personnel hiring, the formation of alliances,and M&A
General picture of the urban solutions business and necessary action
Project
sourcing

Property
proposals

Tokyu Construction
functions

Tokyu Groupfunctions

Business overview by step

Ensure interaction with customers
from upstream

local informationand customer
networks

Proposal capabilities
other than design andconstruction

Design,construction

Tenant leasing

Maintenance andmanagement

Renovation

Areas to strengthen
going forward

Tokyu
Construction

Tokyu Group

Flexible construction
capabilities

Leasing

Required action

Collect information on
challenges and needsof local companies andlandowners

In addition to designand construction, makeproposals on property
utilization (leasing, etc.)

Secure partners to takeon small-scale projects
that are difficult for Tokyu
Construction to handle

 Consolidate local
information ofvarious Tokyu
Group companies

 Make joint
proposals with
Tokyu Group
companies

 Form alliances withlocal top-tier generalcontractors andengage in M&A

 Form alliances withlocal top-tier generalcontractors andengage in M&A

 Hire humanresources withproperty leasing
expertise Enhance on-site
capabilities throughoperational reforms

Ensure continuousinteraction with customers

Tokyu Renewal

Tokyu Group
Construction
capability

Leverage comprehensive
capabilities of Tokyu Group to
support all aspects throughoperation

 Hire personnel withproperty leasing
expertise Strengthen
cooperation within
Tokyu Group Strengthen
cooperation within
Tokyu Group

Handle all aspects
through renovations,and ensure long-term
contact with customers

 Engage in M&A ofrenovation specialists
and other business
operators
 Enhance on-site
capabilities throughoperational reforms

27

[Inquiries]
Nishida/Yamaguchi
Corporate Planning Department, Corporate Strategy Division
TEL: +81-3-5466-5008
URL: webmaster@tokyu-cnst.co.jp