Presentation of Financial Results FYE
June 30, 2018 andMedium-Term Management Plan
“NK-Innovation 2021”
2018.8.29

Nippon Koei Co., Ltd.
Representative Director and President
Ryuichi Arimoto

I:

Accounting Report(July 2017 - June 2018, FYE18/6)

Results for FYE June 30, 2018
Although changes in revenue recognition standards resulted in higher sales and higher profits,
net sales and operating income fell short of targets






Orders received:

Orders received were lower than the level of the previous year, in which some large projects were booked, but thiswas in line with forecasts.
Net sales:
Net sales grew year on year due to changes in revenue recognition standards, but weakness in International
Consulting and Power Engineering resulted in targets being not achieved.
Operating income: Net sales grew year on year due to changes in revenue recognition standards, but weakness in International
Consulting and Power Engineering resulted in targets being not achieved.
Ordinary income:
Although ordinary income grew year on year, it failed to hit forecasts due to the undershoot at the operating income
level.
Profit attributable to owners of parent: Although profit attributable to owners of parent grew year on year, it failed to hit forecasts due to theundershoot at the operating income level.

(Millions of yen)

FYE17/6 FYE18/6
Results Results

YoY Change
Amount%FYE18/6
Plan

vs. PlanAmount%117,442
Orders（単位：百万円）

104,350-13,09188.9%

103,000

1,350

101.3%Net sales

101,338

106,023

4,685

104.6%

114,000-7,97693.0%

Gross profit
Operating
IncomeOrdinary
Income30,93732,3591,421

104.6%

32,900

-540

5,464

6,561

1,097

120.1%

7,700

5,958

6,721

763

112.8%

3,288

4,555

1,267

138.5%

Profit attributableto owners ofparentReference
ValuesFYE18/6*

YoY
Change

-

-

98.4%

94,68593.4%-1,13885.2%

29,671

95.9%

7,800

-1,078

86.2%

3,874

70.9%

4,900

-344

93.0%

* Planned amount of grossprofit for FYE18/6 wascorrected from Supplements
for the Summary of Financial
Results announced on
August 13.

* Starting FYE June 30, 2018, the Group has changed the primary method of revenue recognition from the completed-contract method
to the percentage of completion method. For this reason, the results for the FYE June 2018, which were calculated using the former
method (method used until FYE June 2017), are presented for reference purposes.
3Consolidated Profit and Loss Summary(Millions of yen)

FYE17/6
Results

FYE18/6
Results

Ratio

Ratio

101,338

100.0% 106,023

70,400Gross profit
SG&A

Reference
YoY Change
ValuesFYE18/6* Amount%YoY Change

AmountOrders117,442 (vs sales) 104,350 (vs sales) - 13,091

Net sales

%
88.9%

-

-

-

100.0%

4,685 104.6%

94,685- 6,652

93.4%

69.5% 73,664

69.5%

3,264 104.6%

65,013- 5,386

92.3%

30,93730.5% 32,359

30.5%

1,421 104.6%

29,671- 1,265

95.9%

25,472

25.1% 25,797

24.3%

324 101.3%

25,797

Operating income

5,464

5.4%

6,561

6.2%

1,097 120.1%

3,874

Non-operating
income/expenses

493

0.5%

159

0.2%

- 334

Ordinary income

5,958

5.9%

6,721

6.3%

763 112.8%

Extraordinary
income/loss- 764- 0.8%

443

0.4%

1,208

Profit attributable toowners of parent

3,288

3.2%

4,555

4.3%

1,267 138.5%

Cost of sales

324 101.3%- 1,590

70.9%

32.3%

-

4

Profit/Loss Analysis(Millions of yen)

■Profit factor ■Loss factor
Increase mainly fromchanges in revenue
recognition standards

-68
+510
-9

+1,276-324+1,4303,288

Increased
FYE17/6
2017年6月期
sales
NetProfit
当期純利益

-704
-389

4,555

+303

-334

Increase in
extraordinary income
due to gain on sales of
non-current assets

Improved cost of Selling,
Non-operating
sales ratio
general andbalanceadministrative
expenses

Extraordinary Extraordinary
income
loss

Taxes
税金等
increased

FYE18/6
2018年6月期
Net Profit
当期純利益

5

Results by Business Segment
FYE17/6
Results

FYE18/6
Results

Orders117,442

Domestic Consulting(Millions of yen)

YoY Change

vs. Plan

104,350

Amount-13,091%
88.9%

Amount1,350%
101.3%

48,26548,529264

100.5%

2,529

105.5%

International Consulting

41,573

26,716-14,85664.3%-3,283

89.1%

Power Engineering

14,087

15,943

1,856

113.2%-56

99.6%

Urban & Spatial Development

13,46012,855

-605

95.5%

855

107.1%

55

305

249

548.2%Net Sales

101,338

106,023

4,685

104.6%-7,97693.0%

Domestic Consulting

43,516

46,595

3,079

107.1%

-604

98.7%

International Consulting

24,491

28,8894,398

118.0%-2,91090.8%

Power Engineering

17,577

15,762-1,81589.7%-5,437

74.4%

Urban & Spatial Development

14,347

13,040-1,306

90.9%

1,040

108.7%

Energy/Real Estate Leasing/Others

1,405

1,735

330

123.5%-64

96.4%

Operating income

5,464

6,561

1,097

120.1%-1,13885.2%

Domestic Consulting

3,298

4,279

981

129.7%

779

122.3%

International Consulting

1,887

2,649

761

140.4%

249

110.4%

Power Engineering

2,683

1,873

-809

69.8%

-1,626

53.5%

81

173

92

213.8%

123347.6%-2,485-2,414

70

-

-664

-

Energy/Others

Urban & Spatial Development
Energy/Real Estate Leasing/Others

6

Domestic Consulting- Orders received grew year on year and overshot forecasts, due to an increase in national projects.
- Although net sales rose year on year due to an increase in projects carried forward from the previous fiscal
year, and changes in revenue recognition standards, results undershot forecasts.
- Operating income exceeded both the previous-year level and forecasts due to the impact of changes inrevenue recognition standards and reductions in unprofitable projects resulting from improvements in quality.
(Millions of yen)

FYE17/6
Results

FYE18/6
Results

YoY
Change%FYE18/6
Plan

Amountvs. Plan%

Reference
ValuesFYE18/6*

YoY
ChangeOrders48,265

Ratio(vs.
Sales)

48,529Ratio(vs.
Sales)

100.5%

46,0002,529

105.5%--Net sales*

43,516100.0%

46,595100.0%

107.1%

47,200

-604

98.7%

43,02098.9%

Cost of sales 31,834

73.2%

33,74372.4%

106.0%

35,100-1,35696.1%

30,78096.7%

12,240104.8%

8,571

102.3%

3,668

111.2%

Gross profit

11,681

26.8%

12,85127.6%

110.0%

12,100751

106.2%

SG & A
Operatingincome

8,383

19.3%

8,571

18.4%

102.3%

8,600

-28

99.7%

3,298

7.6%

4,279

9.2%

129.7%

3,500

779

122.3%

Orders

Net sales

Operating income(Millions of yen)7

International Consulting- Orders received were lower than the level of the previous year, in which some large projects were booked. In
addition, results undershot forecasts due to slippage in contract periods for major projects.
- Although net sales rose year on year due to changes in revenue recognition standards, results undershot forecasts
as a result of slippage in contract periods for major projects.
- Operating income rose, and overshot forecasts, due to the impact of changes in revenue recognition standards.

(Millions of yen)

FYE17/6
Results

FYE18/6
Results

YoY
Change%FYE18/6
Plan

Amount%vs. Plan

Orders

41,573

Ratio(vs.
Sales)

26,716

Ratio(vs.
Sales)

64.3%

30,000-3,28389.1%

Net sales*

24,491100.0%

28,889100.0%

118.0%

31,800-2,91090.8%

Cost ofsales

17,95073.3%

21,191

73.4%

118.1%

24,400-3,208

86.9%

6,540
4,653

26.7%
19.0%

7,698
5,049

26.6%
17.5%

117.7%
108.5%

7,400
5,000

298
49

104.0%
101.0%

1,887

7.7%

2,649

9.2%

140.4%

2,400

249

110.4%

Gross profit
SG & A
OperatingincomeOrders

Net sales

Operating income

Reference
ValuesFYE18/6*
22,951
16,776
6,175
5,049
1,126

YoY
Change
93.7%
93.5%
94.4%
108.5%
59.7%(Millions of yen)

8

Power Engineering–––

Active efforts to win orders bore fruit at electric power companies other than TEPCO, and at public sector projects, so that PowerEngineering increased year on year and was roughly in line with forecasts.
Due to delays in the timing of the receipt of orders for hydroelectric equipment and facilities, which resulted in lower sales, net sales
declined year on year and undershot forecasts.
Operating income fell significantly, and undershot forecasts, as a result of falling sales in high-margin areas, as well as deteriorating
profitability caused by demands for cost cutting.

(Millions of yen)

FYE17/6
Results

FYE18/6
Results

YoY
Change%FYE18/6
Plan

Amountvs. Plan%

Orders14,087

Ratio(vs.
Sales)

15,943

Ratio(vs.
Sales)

113.2%

16,000-56

99.6%

Net sales

17,577100.0%

15,762100.0%

89.7%

21,200-5,437

74.4%

Cost of sales 11,885

67.6%

10,835

68.7%

91.2%

14,300-3,46475.8%

Gross profit

5,692

32.4%

4,927

31.3%

86.6%

6,900

-1,972

71.4%

SG & A
Operatingincome

3,009

17.1%

3,053

19.4%

101.5%

3,400

-346

89.8%

2,683

15.3%

1,873

11.9%

69.8%

3,500

-1,62653.5%

Orders

Net sales

Operating income

Reference
ValuesFYE18/6*

YoY
Change--14,123

80.3%

9,717

81.8%

4,405

77.4%

3,053

101.5%

1,352

50.4%

(Millions of yen)

9

Urban & Spatial Development- Orders received exceeded forecasts due to strength in the UK operations.
- Because BDP’s previous fiscal year consisted of 15 months, net sales declined year on year but wereabove forecasts.
- Operating income rose year on year, and exceeded forecasts, due to strength in the UK operations.
(Millions of yen)

FYE17/6
Results

FYE18/6
Results

Orders13,460

Ratio(vs.
Sales)

12,855Net sales

14,347
7,678
6,668
6,587
81

100.0%
53.5%
46.5%
45.9%
0.6%

13,040
6,957
6,082
5,909
173

Cost of sales

Gross profit
SG & A
Operating income

Ratio(vs.
Sales)

100.0%
53.4%
46.6%
45.3%
1.3%

vs. PlanYoY Change%

FYE18/6
Plan

Amount95.5%

12,000855

107.1%

90.9%
90.6%
91.2%
89.7%
213.8%

12,000
6,200
5,800
5,750
50

1,040
757
282
159
123

108.7%
112.2%
104.9%
102.8%
347.6%%*The actual exchange rate applied to the results for the fiscal year ended June 30, 2018 was 1 GBP = 148.65JPY (the assumption used in the full-year forecast was 1 GBP = 139.56 JPY)
*Amortization for the Urban & Spatial Development business in the fiscal year ended June 30, 2018 was approx. 1 billion JPY (goodwill of approx. 400 million JPY, and otherintangible fixed assets of approx. 500 million JPY).
*Results for the Urban & Spatial Development business in the year ended June 30, 2017 were affected by the consolidation of BDP’s results for a15-month period(from April 2016 to June 2017).
*BDP had previously been using the percentage of completion method, so the impact of the changes in revenue recognition standards had a negligible effect on the Urban &Spatial Development business, and details are accordingly omitted here.

Orders

Net sales

Operating income(Millions of yen)

10Balance sheet
・ Physical fixed assets increased due to the construction of a new head office building, etc.,
while investment and other assets decreased due to sales of securities.
・ Current liabilities declined due to the decrease in advances received caused by changes inrevenue recognition standards, and non-current liabilities dropped due to the repayment oflong-term loans payable
・ Net assets increased due to the increase in retained earnings and cancellation of treasury
stocksFYE17/6
FYE18/6
YoY(Millions of yen)
Results*
Results
Assets

113,865

114,506

641

Current assets

54,79855,258459

Physical fixed
assets

24,53527,624

3,088

Intangible assets

13,90012,964- 935

Investments andother assets

20,63018,659- 1,970

Liabilities

58,99155,057- 3,934

Current liabilities

30,341

28,441- 1,899

Non-current
liabilities

28,65026,615- 2,034

Net assets

54,87459,4494,575
11

Cash Flows・ Net cash provided by (used in) operating activities was negative due to the increase inaccounts receivable and decrease in advances received
・ Net cash provided by (used in) investing activities was positive mainly due to sales ofphysical fixed assets and securities
・ Net cash provided by (used in) financing activities was negative mainly due to the repaymentof long-term loans payable(Millions of yen)

Net cash provided by(used in) operating
activities
Net cash provided by(used in) investing
activities
Net cash provided by(used in) financing
activities
Net increase(decrease) in cash andcash equivalents
Cash and cash
equivalents at the endof period

FYE17/6
Results

FYE18/6
Results

YoY

6,376

- 602

- 6,978- 4,172

977

5,150

4,846

- 3,062- 7,908

6,925- 2,709- 9,635

17,083

15,233- 1,849
12

II: Medium-term Management Plan
(NK-AIM) Summary

Medium-Term Management Plan (NK-AIM) Evaluation
Weakness in International Consulting and Power Engineering in the final year resulted innumerical targets not being achieved.
However, both net sales and operating income steadily grew over three years.
Moreover, the construction of a target business portfolio was achieved, due to thecreation of the Urban & Spatial Development business, launch of Energy business, etc.,
upon the inclusion of BDP in the group.
FYE18/6 Results(Millions of yen/ %)Net sales
Operating margin

Results

Plan

Net sales¥106billion¥114
billion-¥8 billion

Operatingincome¥6.6billion¥7.7
billion-¥1.1 billion

Operatingmargin6.2%

6.8%-0.6pt

ROE

8.1%

8.7%

-0.6ptOperating income
ROE
14

Key Challenges Review
Advance globally- Accelerate global expansion
AdvanceBusiness was strong with the steady development of growth base
▪ Boost market share in ODA business  Business expanded steadily against the background of the infrastructure-exporting
policy▪ Establish region-based order taking and production system  Orders received as an integrated group increased steadily▪ Recruit and train regional engineers  In progress despite a slight delay from the initial plan
▪ Develop hydroelectric power generation business overseas  Only at the examination stage overseas in preparation for
implementation despite developments in Japan

Make Intense efforts in Japan Secure stable profitability
Intense

System development was insufficient from the long-term perspective▪ Improve operational quality and profitability by bolstering production structure  Delays from the plan with problems inrecruitment▪ Provide solutions to build national resilience and extend useful lives of infrastructure  Business expanded strongly in priority
strategic areas▪ Step up initiatives for projects ordered by municipal governments (alliances, etc.)  Still small in size
▪ Beef up price competitiveness in power engineering business  Reduced costs and focused on proposal-based marketing

Demonstrate our true Merit - Generate new business areas
Merit
Created 2 businesses, a big step for growth▪ Provide new solutions to deepening urban problems by employing the combination of civil engineering and architecture Entry into new fields achieved with the acquisition of BDP▪ Create synergy effects from engineering consulting business and power engineering business Created Global Strategy Headquarters in 2017 and strengthened the functions for marketing and business development▪ Gain know-how on new business through investment (contribution) thereof  Created Energy Business Division and developed
its structure
15

Companywide measures to address key challenges Reflection• Human Resources Strengthen human resource recruitment and training
Steady progress in strengthening staff structure and human resource training,although still in progress• Level of the initial plan was not achieved despite the efforts to strengthen staff for further businessexpansion• With careful examination, the early stage of reform in personnel system, etc., was completed• Promote trials and introduction of various measures to realize work-style reform•Technology • Develop next-generation core technologies, Further improve
technical strengths and productivity
Development of technologies is behind the initial plan despite its progress• R&D Center was reorganized in FYE18/6 to accelerate research and development• Progress varied for 12 themes of technological policies• Organization Promote collaboration and enhance corporate governance
Organizational reform progressed steadily for globalization and synergy creation• Strengthened governance by developing internal control of group companies and introducing global
accounting• Steadily implemented measures for creating synergies, including the establishment of Global Strategy
Headquarters and development of Singapore Office.
16

III: New Medium-term Management Plan
“NK-Innovation 2021”

Goals of Nippon Koei GroupSmartsocietyGroup Vision
To provide services that areof value in building safe andreliablesocial infrastructure andcomfortable living spaces.

NipponKoei
Group

To play a role in society by proving solutions taking advantage of thesuperiority and uniqueness of Nippon Koei Group to achieve the goals ofsociety Track records in 160 countries and networks
 Technologies and know-how social infrastructure and living space Professional human resources active in each area

Socialissues/changes

Rapid urbanization

Technological progress

Higher geopolitical risks

Demographic change

Climate change and lack ofnatural resources18Roles Nippon Koei Group Will Play
Move to a 5 business structure by adding the Energy and Urban & Spatial
Development businesses in response to more complex needs.
Promote businesses with the integrated efforts of the NK Group by concentrating
investment in the three areas of “Railway,” “Urban Development,” and “Energy” tostrengthen mutual cooperation and collaboration.

Domestic
Consulting

R&D
CenterInternational
Consulting

Innovation
Power
Engineering

In the development process towards a smart society, we will offer uniquesolutions, utilizing our technologies as a construction consultant accumulated
over the years as well as newly acquired know-how.
19

New Medium-term Management Plan “NK-Innovation 2021”(FYE19/6 - FYE21/6)- NK-Innovation 2021 Three years of tackling various innovations to become a truly global company
FYE2021/6 Plan (IFRS assumed)
Net sales

Operating income

Operating margin

ROE (Return on Equity)¥140 billion¥12.6 billion

9.0%

12.7%

Basic Objective
Continue to evolve into a global consulting and engineering firm
Business strategy
Enhancement of operating
system for Railways Business

Overseas expansion of Urban &Spatial Development Business

Creation of businesses and overseas
expansion of Consulting Business

Establishment of Energy
Business

Product development and overseas expansion ofPower Engineering BusinessGroup-wide measures
Establishment of one-stop marketing system / Investment in technologies and humanresources / Enhancement of group governance20

Priority investment area (1)Enhancement of operating system for Railways BusinessMain related segments
International Consulting

Domestic ConsultingNK-Innovation 2021 investment: about ¥5 billion•
Marketenvironment

•
•

Our
strengths

Strategy••

Higher demand for railways due to a rapid population growth and urbanization in emerging countries in
Asia
Super large projects in the railway area under way in many countries, with the prospect of further
increase
Japanese government’s “Initiative for expanding high-quality infrastructure exports” firmly maintained
Abundant track record in projects and networks in emerging Asian
countries
Entered overseas railways early•

Develop and strengthen the production system in alliance, etc., with local
companies (group companies staff about 1,700 in FYE18/6  about 3,000
in FYE21/6)•

Improve project management ability by further evolution of IT tools•

Strengthen technological abilities of regional engineers with teachingmaterials from the head office and the implementation of OJT Improve operational speed and profitability in response to an increase inorders received

Increase sales of the railway area to no less than 1.5 times thepresent size by 2021

Government of partnercountry
Private sector

JVInternational Consulting
Overseas Group
Company
Domestic Consulting＋
Cooperating Local
Company
IT tools
System development

Technology
Headquarter21

Priority investment area (1) Project Introduction
India Western Dedicated Freight Corridors (WDFC) Construction Project
Total extension: about 1,500 km
No. of stations: 58
Designed max speed: 100 km/h
Initially scheduled date for starting operations:
March 2020 (Phase 1 section about 914 km)
Funds: Yen loan

(1,500km)(1,450km)

This is a new project to newly develop dedicated freight railways between
Delhi and Mumbai for a total extension of about 1,500 km. It will contributeto the economic advancement of India, which has been progressing rapidly,
by developing automated signal and telecommunication systems,
introducing double-stack containers--which enable high-volume and highspeed transportation--and freight trains with a maximum extension of 1500
m to deal with the rapidly increasing demand for freight transportation andimprove the efficiency of distribution networks. Nippon Koei has been
involved since the feasibility study in 2006, and is currently engaged inconstruction supervision of phase 1 (about 914 km) as a JV leading
company.

On August 15, the Independence
Day of India, there was a grandceremony for the trial operationof the 192 km to be in service infirst.
22

Priority Investment Area (2)Overseas expansion of Urban & Spatial Development Business■Main related segments
Urban & Spatial Development

International Consulting

Domestic Consulting■NK-Innovation 2021 investment: about ¥5 billion•

Urbanization is under way in emerging Asian countries, creating demand for large-scale comprehensive
development•

Expansion of smart city development•

Comprehensively deal with a wide range of needs as a total consultant•

BDP’s architectural design technology•

Develop a cooperative structure between the NK Group and BDP local
subsidiaries (Singapore, India and China) to win urban development
projects in Asia and specific projects

Marketenvironment

Ourstrengths•

Strategy•Strengthen the superiority and uniqueness in smart city development byaccumulating track records of projects combining civil engineering andarchitecture
Construct cooperative structures with each segment and R&D Center
led by domestic divisions for the acceleration of global expansion
utilizing domestic know-how （mainly the urban transportation area andwater/transportation-related asset management area）

Accelerate global expansion through strengthened cooperation
between the NK Group and BDP

Private sector(Developer)
Government of partnercountry
MarketingGlobal Strategy
Headquarters

International
Consulting

Urban &
SpatialDevelopment

Provide support fortechnologies andknow-how

Domestic Consulting
23

Priority Investment Area (2) Project Introduction
Myanmar: Design Supervision of National Water Resources Committee
Headquarters and Hydrology Information Center
Location: Mayagon Township, Yangon Region
Funds source: World Bank
Design period: Jun 2018 – Jun 2019
Construction period: Jul 2019 – Jun 2020
Features of the project
Cooperation project between Nippon Koei’s local subsidiary in
Myanmar and BDP.
Development plan for buildings of Hydrology Information Centerand National Water Resources Committee Headquarters. The
following are required for planning a complex consisting of
offices, meeting places and exhibition halls.
1) Realization of a green building2) Design in consideration of harmony with the surrounding
environment3) Design in view of possible future expansion
We will strive to make it a model of sustainable architecture in
Myanmar.
Business contents
Supervision of architectural design. We will engage in concept
design, basic design, detailed design and bidding procedures inthe design phase (Phase 1), and construction supervision in the
supervision phase (Phase 2).

Completion image
24

Priority Investment Area (3)Establishment of Energy Business Major related segments
Power Engineering

EnergyInternational Consulting

Domestic Consulting NK-Innovation 2021 investment: about ¥15 billion
Marketenvironment

Ourstrengths•••

Demand for electricity is increasing in Asia due to local production for local consumption
Energy reform is under way in preparation for smart society
In Japan, the market will change significantly from 2020 due to the electric power system reform•

Know-how of electric power business (consulting, manufacturing andconstruction)
Track record of small-scale hydraulic electric power generation
business in Japan••

Strategy•••

Engage in investment and business in Europe where liberalization ofelectric power is under way to accumulate the know-how for energy
management in anticipation of electric power system reform (Storage
battery EPC service, etc.)
Construct a supply chain by securing overseas manufacturing basesof water power products
Develop products by international standards (mainly equipment fortransformer substations)
Develop and operate distributed power sources in Japan and Asian
regionElectric power company
Transaction market
Private sector, etc.

EnergyPower
Engineering

Domestic
Consulting

International
Consulting

Establish a business model at an early stage,aiming to contribute to profit in 2021 and after25

Priority Investment Area (3) Establishment of Energy BusinessSupply & demand
adjusting market

Wholesale market

Power supply
business operators

Non-fossil value
marketCapacity market

Ancillary service (mainly frequency adjustment)

Retailers

Negawatt trading (supply & demand adjustment)

Aggregator service

Renewable energies
Distribution-type renewable energy powerbusiness

Storage battery system

Factories/companies

Storage electricity business

Consumers
Energy management

EPC service
Operation/maintenance （O/M） service➜Energy business field
26

Priority Investment Area (3) Project Introduction
Established a SPC “Ruien Energy Storage NV” for storage battery utilization businessjointly with Belgian company YUSO
Promote the development of storage electricity projects
Location:
Site:

Business size:
Service offered:

Waregem, Belgium
Oost-Vlaanderen, Belgium
On the premises of former coal-fired powerplant
Adjacent to electric power systemtransformer substation
25MW/25MWh electricity storage system
Ancillary service
Arbitrage service

Established a special purpose company “Ruien Energy StorageNV” in collaboration with YUSO, a company which engages inaggregator business and is headquartered in Belgium.
Through this company, conduct joint project development including
an ancillary service utilizing storage batteries (frequency
adjustment service).
In this project, Nippon Koei will be involved from the project
development stage, to accumulate know-how about storage
batteries by conducting technological management including EPC(undertaking all construction) and project maintenance.

Power supply business
operators

Ancillary service
Frequency adjustment for the
introduction of renewable energies
Provision of supply reserves
Arbitrage service
Transactions to make profit byaggressively storing electricity whenelectric prices are low and releaseelectricity when prices are high
SPC (owning storage
batteries/25MW)

Ruien Energy Storage

Aim to start operations in early 2020 by undertaking a preengineering (design, addition, system connection consultation,etc.) in this year.

27

Domestic Consulting / International Consulting•

While public works budget is almost flat, priority allocations continue
for national resilience, longer life, and maintenance businessExaminations of industry structure have become more specific due tothe progress in work-style reform
Progress in i-Construction and BIM/CIM

Market•environment

Domestic Consulting•

Net sales/operating profit/operating margin(million yen/%) Reinforcement of domestic management base and support
for the promotion of global strategies•

Reconstruction of order-receiving and production systems, securing andimprovement of quality and effective business management
Support for overseas expansion in cooperation with overseas consultants and R&D
center• Promotion of priority business areas•

Disaster-prevention/mitigation. Modal connect, local/urban revitalization,
information/energy areas

 Business creation•

Creation of new businesses centered on management techniques to improve thevalue of infrastructureInternational Consulting••
Marketenvironment

Net sales/operating profit/operating margin(million yen/%)ODA project budget increased to around ¥2 trillion
Robust demand in developing countries for railways remains
unchanged, with railways being the largest growth sector for
yen loans Strengthen production system centered on railways
 Project volume in non-ODA areas expanding•

Concession projects, PPP projects, active approach to private companies

 Reinforcement of risk management•

Thorough profit management, reinforcement of group governance, thorough compliance28Power Engineering / Urban & Spatial Development•

Marketenvironment•

Power Engineering

Continuation of cost reductions aiming to achieve global
standard consignment cost of sales
Expansion of business opportunities by electric power system
reforms and digitalization

Net sales/operating profit/operating margin(million yen/%) Development of new products/services and expansion ofoverseas business•

Expansion of machine/electricity consulting business by offering services relating
traffic transportation and maintenance/management, etc.

 Achievement of synergies through cooperation with othersegments•

Information collection and entry into new areas of electric power companies andprivate sector through cooperation with those in Japan Reinforcement of price competitiveness and improvementof productivity in existing business areas•

Organizational reform for integrated production and sale (implemented in July 2018)as well as renewal and reinforcement of factory facilities

Urban & Spatial Development

Marketenvironment••

Net sales/operating profit/operating margin(million yen/%)Uncertainties to increase in U.K. due to the effect of Brexit
Robust demand for urban development in emerging
countries centered in Asia

■ Reinforcement of profit base outside U.K.
•

Increase in earnings in cooperation with a local architectural design firm in the
Canadian market with the prospect of securing profits for the time being■ Urban and Spatial Development Business for the Future•

Entry into smart building design and smart community business as its integration

29

Energy <<New / Established in April 2018>>
Marketenvironment•

Increased demand for renewable energies due to low
carbonization and distributed electric power sources•

Expansion of ancillary markets

Net sales/operating profit (loss)/operating
margin(million yen/%) Electric power generation business

Energy•Securing profit for development projects at an early stage••

Efficient O&M （Operation and maintenance）
Winning EPC/PFI businesses in Japan•

Joint development with partners in each country centered on hydraulic power Energy management business•

Accumulate know-how by engaging in business in Europe, aiming to provide
ancillary services globally and offer one-stop VPP services•

Develop off-grid/mini-grid business in Asia region including renewableenergies* Ancillary services： System operation services provided by electric power system operators to maintain the quality of electric
power (frequency and voltage)* VPP services： Abbreviation for “Virtual Power Plant.” Sophisticated energy management utilizing IoT (Internet of Things).
It functions as if one power plant, through aggregation, and remote and integration control, using technologies.

30

Common Measures for All Companies
Construction of one-stop marketing system••

Improve customer satisfaction by providing solutions utilizing products and services in all segments
In the long-term, aim to create businesses in smart society (targeted business area) through cooperationand integration with other segments.
Domestic
infrastructure market

Examination

Overseas
infrastructure market
Electric power
infrastructure market

Urban & spatial
development market

Collection ofneeds

Energy market

・ Sorting out of
information
・ Matching of resources

Problem solvingtype marketing
proposals

・ Investment judgement,
etc.

Reinforcement of group governance•

Develop a group governance system, introduce global accounting, and continue dealing with IFRS・BEPS

31

Common Measures for All Companies
Investment in technology and human resources

Human Resources

Technology
Develop new technology utilizing AI/Big Data, while promoting thedevelopment and spread of next-generation core technologies.
(Jul 2018 established Research Planning Office, Advanced R&D Center)

Aim to increase staff in Japan and overseas by 1.4 times by maintaining
and securing professional human resources through improvement of thelabor environment with personnel system reform

For this, make investments of 1.5 times more than those in 3 years in theprevious Medium-term Management Plan Personnel system reform Initiatives for new businesses•

Development of new business models with new technologies

 Reinforcement of recruitment activities

 Strategic technology development for existing
business expansion

 Promotion of work style reform

•

•

•

Sophisticated development to secure superiority in the existing
marketResponse to new needs of customers including
maintenance/management, and i-Construction services•

 Promotion of technology policies (14 themes)

Develop the work place for improved productivity（Spring 2020: New Head Office Building to be completed）
Expansion of remote work, at home work system, measures for childraising/long-term care, etc.

(1)

Development of technologies in response to climate change(8)

PM-ＩＴ system development(2)

Development of technologies for disaster prevention/mitigation system(9)Study of BIM system(3)

Creation and expansion of architectural, urban and traffic areas(10) Establishment of high-quality and efficient production system(4)

Promotion of the creation of smart city/town/village(11) Development and use of innovative artificial intelligence technology (new)(5)

Development of data network technologies(12) Development of new research methods for land, environment, water quality, etc.

(6)Development of technologies contributing to efficientmaintenance/management and longer life of social infrastructure(13) Development of resilience technology (new)(7)

Expansion of new analysis/design technology and sophistication oftechnical proposals(14) Utilization of social infrastructure big data ( new)32

Capital Policy/Dividend Policy
Capital policy•••

Investment of about ¥7.5 billion is expected for the construction of the new headquarters building
in addition to those in priority areas
Maintain an equity ratio of no less than 40% even in the concentrated investment period, with thetarget of 50%
Improve enterprise value by improving capital efficiency and growth investment

Securing offinancialsoundness

Enhancementof corporate
value

Stable dividends/
enhancement ofshareholder returns

Improvement of
capital efficiency

Investments for
future growth— Dividends (yen)— Payout ratio (%)

Dividend policy••

Stable dividends and enhancement of shareholder
returns according to the level of profits
Target medium-term payout ratio is 30%✓ Planning to pay a dividend of ¥75.0 for FYE 19/6.
2016.62017.62018.62019.6(forecast)*Past dividends are recalculated based on the ratio after share consolidation.
33

NK-Innovation 2021 Plan by Business Segment(Millions of yen)OrdersDomestic Consulting
International Consulting
Power Engineering
Urban & Spatial Development

EnergyNet sales
Domestic Consulting
International Consulting
Power Engineering
Urban & Spatial Development
EnergyReal Estate/Others
Operating Income
Domestic Consulting
International Consulting
Power Engineering
Urban & Spatial Development
EnergyReal Estate/Others
Ordinary income
Profit attributable to owners of parent

FYE18/6
Results
104,350
48,52926,716
15,943
12,855
179
106,023
46,59528,88915,762
13,040
354
1,381
6,561
4,279
2,649
1,873
173
- 18
- 2,396
6,721
4,555

FYE19/6
Plan
125,000
46,00044,00014,00016,0004,000
115,000
44,00031,00020,00016,500
2,500
1,000
6,200
3,500
2,400
2,600
600
- 100
- 2,800
6,100
4,100

FYE20/6
Plan (IFRS)
125,000
49,00036,20015,80018,0005,900
125,000
45,50036,50020,50018,000
3,500
1,000
7,900
3,500
3,100
2,600
1,700
0
- 3,000
5,200

FYE20/6
Plan (IFRS)
140,000
52,00039,70017,00023,8007,300
140,000
50,00040,00022,00023,0004,000
1,000
12,600
3,600
3,400
3,200
2,500
1,700
- 1,800
8,700

Introduction of International Financial Accounting Standards (IFRS) is scheduled for FYE20/6, and plans for FYE20/6 and FYE21/6 show IFRS-applied figures.
34

NK-Innovation 2021
Continue to evolve into a global
consulting and engineering firm

NK-Innovation
2021
Net sales ¥140 billion
Operating income¥12.6 billion

To provide services that areof value in building safe andreliablesocial infrastructure andcomfortable living spaces

2030 Social
Development Goals(SDGs)(IFRS)

Rapid progress of urbanization
Climate change and lack of natural resources

Changes in demographics
Progress in technologies
Higher geopolitical risks

Concentrated
investment areas
Common measures
for all companies
35appendix

Corporate Profile
Corporate NameNIPPON KOEI CO., LTD.
Date of Foundation
June 7, 1946
Capital¥7,393 million
Number of Employees 4,923 (consolidated)
Consolidated Subsidiaries 62
Businesses Domestic Consulting
International Consulting
Power Engineering
Urban & Spatial Development
EnergyManagement Philosophy
Act with integrity and contribute to society throughtechnology and engineering.

 Founder

Yutaka Kubota (1890-1986)

Before WWII, Yutaka Kubota was engaged
in the development of hydropower
resources (e.g. Suiho Dam/700MW, in the
Korean Peninsula, one of the world’s
largest at that time).

After the War, in a bid to work toward therestoration of Japan and reconstruction ofcountries damaged by the War, he founded
the Company at the age of 56.
Known as the “Father of Overseas Engineering Cooperation”, he wasawarded the Grand Cordon of the First Order of the Rising Sun in
1985.
He directed projects in many countries throughout the world until he
was 90 years old, contributing to development in developing countries.

Transition of Sales / Operating Income （Millions of yen）

FY18/6 Sales by Geographical Location— Net sales — Operating income

37

Business Development
Domestic Consulting

International Consulting

Power Engineering

We have implemented approx. 3,000
projects/year to underpin the foundations ofpeople’s daily lives, such as development andmaintenance of social capital including rivers,
roads, etc., and regional reforms to realize
prosperous and safe living.

We have supported the growth of developing
countries in Africa, the Middle East, Latin
America and, especially, in Asia by providing
support in a broad range of fields including
water resources, energy, urban development,
transportation, agricultural development, andenvironment control.

We have worked on the development of powersources and the promotion of businessaccommodating electricity demand in Japanand overseas. The Company has engaged in
new construction and repairs of substations,switching stations, power stations, theformation of dam management systems athydroelectric power plants, etc.

Urban & Spatial

EnergyWe strive to create multifunctional, well-organized,
barrier-free, eco-friendly and beautiful life space inemerging economies in Asia and other developing
countries/regions through development projects ofsocial infrastructure design, such as of railway
stations, airport buildings, rearrangement of thestreetscape, etc.

Amid increasingly strict environmental
regulations, we provide energy consultationand perform design and installation ofhydropower/solar facilities in the field of
renewable energy.

FY18/6 Sales distribution ratio38

Job Description for Civil Engineering Consultants
Domestic: Mainly involved through the design stage. Core customers are primary government organizations including the
Ministry of Land, Infrastructure, Transport and Tourism, and secondary government organizations including prefectural andother local governments.
Overseas: Involvement varies by project, and can range from planning and construction to construction supervision andmanagement. Core customers include the Japan International Cooperation Agency (JICA), other governmental agencies,
the United Nations and the World Bank.

Planning

DesignPlan and draft,
Basic engineering,feasibility studies Detailed engineering

Construction
Competitive bids,
Providing
Proposals

Bid evaluation and support
for supplier selection

Operation/
Management

Contract supervision and management Operational consulting
Construction supervision andManagement consulting
management

Domestic

Consultant (NK)Construction (General Contractors, etc.)

Overseas

Consultant (NK)Surveillance (NK)Construction (General Contractors, etc.)

Example: Chronic traffic congestion problems in Region A
Planning

DesignConstruction

Provide engineering services forstudies, planning, design and otheractivities.

Supervise the work of contractors on behalfof the client (supervision and management)

Completion ofroad・ Should roads or subways be constructed?
・ Is the project economically viable?
・ Propose the optimum construction
methods given the terrain(General contractors, manufacturers, etc.)
Execution of construction work according to thespecifications agreed upon by the contractee andcivil engineering consulting firm

Provided as aservice toresidents
39

Nippon Koei’s Development Along with Social Progress
NipponKoei
XSocietyBusiness
Development

Formulation of business base,
Fostering positive relationshipwith foreign governments

Comprehensive strength anddevelopment capability toencompass various fields

Flexible responses tochanges in environmentand social needs

Stable supply of electricity
Development of infrastructure
for daily life

Establishment of foundation
for industrial growth

Realization of sustainable
society

Dam

Electricity
Production

Rivers anddrainageTransportation

Environmental
systemNKInnovation
2021
NKAIM
Urban & spatial
development

Maintenanceandmanagement

Building
National
Resilience
Longer operating
lives of infrastructure
Environmental
responses

Advances

Deregulation ofelectricity
business

Infrastructure
exportEstablishment ofsocial capital
Restoration of
infrastructure fordaily livings

Human
Resources

Provision of employment
opportunities for engineers whocame back alive from overseas
territories

Improvement in quality ofengineers,
Training of engineers in extensive
industrial fields

Improving social reputation ofengineering consultants
Transfer of technologies todeveloping countries

Stage

Foundation stage

Growth stage

Maturation stage

Innovation stage

Era

Restoration in the postwar
period1946-1960s

High economic growth
Population increase
1970s-1990s

Collapse of bubble economy
Global warming
1990s-2000s

Great East Japan Earthquake
Urban problems
2011-Present

Recruitment of regional engineers
Paying attention to work-life balance40

Strengths of Nippon Koei
(1) Sustainable business model developed
along with progress in society(Win-win relationship between society and theCompany)

Implementation of transformation to meetmarket needs(2) Japan’s leading engineering consultant(Business domains, technologies, and humanresources)

Comprehensive strength: Capable of solving
sophisticated or complex issues
Human resources: Has the largest number ofengineers in the industry

Commercialization of solutions on social
issuesConsolidated
net sales:¥106 billion

No. ofcountries inwhich businessis undertaken:
160

Technologies: Equipped with in-house R&D
facilities and a number of patents

No. of orders
per year: over
5,500

No. of patents
acquired:92

No. of
Professional
Engineers*:
1,584*Certified by the Japanese government

Provide solutions on needs of the era and realize sustainable business expansion
and profitability growth41

Position in Industry
Nippon Koei is Japan’s leading civil engineering consultant.
Rank

Sales (Millions of yen)Company

Segment ofConst. Consultation

Corporate
Total

1

Nippon Koei

44,21460,327

2

Pacific Consultants Co.,LTD.

40,47742,511

3

CTI Engineering Co., Ltd.

32,62634,256

4

Yachiyo Engineering Co., Ltd.

19,426

19,6685

JR East Consultants Company

18,044

20,134

6

Oriental Consultants Co., LTD.

17,41917,644

7

Nihon Suido Consultants Co., Ltd

17,134

17,3658

KOKUSAI KOGYO CO., LTD.

16,32535,022

9

Eight-Japan Engineering Consultants Inc.

15,362

17,531

10

NEWJEC Inc.

15,14915,61320

Tamano Consultants Co., Ltd. (strong point: urban planning)

9,779

11,49987

NIPPON CIVIC CONSULTING ENGINEERS CO.,LTD(strong points: underground spatial planning, tunnels)

1,899

1,933

※ Source: Nikkei Construction, May 8, 2017 edition. Ranking by engineering consultant division sales (according to published financial results)
42

Position in Industry
Nippon Koei is Japan’s leading civil engineering consultant.
Ra
nk

Sales (Millions of yen)Company

Segment ofConst. Consultation

Corporate
Total

1

Nippon Koei

45,37961,734

2

Pacific Consultants Co.,LTD.

44,341

46,522

3

CTI Engineering Co., Ltd.

33,86335,440

4

Yachiyo Engineering Co., Ltd.

20,402

20,747

5

JR East Consultants Company

19,591

21,008

6

Oriental Consultants Co., LTD.

19,143

19,186

7

Nihon Suido Consultants Co., Ltd

17,335

17,511

8

KOKUSAI KOGYO CO., LTD.

16,94637,914

9

NEWJEC Inc.

16,463

16,812

10

IDEA Consultants, Inc.

16,42016,88018

Tamano Consultants Co., Ltd. (strong point: urban planning)

11,23713,01289

NIPPON CIVIC CONSULTING ENGINEERS CO.,LTD(strong points: underground spatial planning, tunnels)

1,992

2,001

※ Source: Nikkei Construction, April 23, 2018 edition. Ranking by engineering consultant division sales (according to published financial results)
43

Group Vision
To provide services that are of value in building safe and reliablesocial infrastructure and comfortable living spaces.

44Domestic Consulting
Nippon Koei’s Operating Results in Domestic Consulting(¥ million)

Public Works Expenditures (¥ trillion)
 Initial budget  Supplementary

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018（Plan）■Orders■Net Sales■Operating Income

FYE 13/3 FYE 14/3 FYE 15/6 FYE 16/6 FYE 17/6 FYE 18/6 FYE 19/6
(Plan)

45

International Consulting
Initial ODA Budget in the General Account(¥ billion)

Nippon Koei’s Operating Results in International Consulting(¥ million)■Orders

FY 2013

FY 2014

FY 2015

FY 2016

FY 2017

FY 2018■Net Sales■Operating Income

FYE 13/3 FYE 14/3 FYE 15/6 FYE 16/6 FYE 17/6 FYE 18/6 FYE 19/6
(Plan)
46

Power Engineering
Repair Expenses and Facility Investment and Its
Distribution for Tokyo Electric Power Co., Ltd. (¥ billion)■Orders■ Repair Exp. ■ Facility Inv.

FY 2012FY 2013

FY 2014

FY 2015

Nippon Koei’s Operating Results in PowerEngineering Business (¥ million)

FY 2016

FY 2017■Net Sales■Operating Income

FYE 13/3 FYE 14/3 FYE 15/6 FYE 16/6 FYE 17/6 FYE 18/6 FYE 19/6
(Plan)47

Urban & Spatial Development
Sales Trend of Top 164 Research and
Designing Companies (Billions of dollars)

Sales of top 164 firms in 2016 by sector(Billions of dollars)■Architecture ■Transport

Nippon Koei’s Operating Results in
Urban & Spatial Development
Business (¥ million)■Orders■Net Sales■Operating Income■Others

FYE 17/6 FYE 18/6 FYE 19/6
(Plan)

Source of data: ENR Magazine (issued in August 2017)48