Nikko

Corporate Report

2021

Nikko Corporate Report 2021

Fiscal year ended March 31, 2021

Contents

Table of Contents, Editorial Policy

01

GOVERNANCE

Corporate Governance

59

VISION

Message from Newly Appointed Outside Directors

64

Nikko Group's Corporate Philosophy

02

Governance Discussion by Outside Directors

65

Executives

67

Transition and History of Social Issues

03

CEO's Message

05

CORPORATE DATA

Value Creation Process

11

Nikko Group in Figures

13

FY 2020 Business Summary and FY 2021 Outlook

69

Financial Data of the Past 10 Years

73

STRATEGY

Financial Statements of the Past 2 Years

75

Medium-Term Management Plan

15

Stock Information

78

Company Overview and Offices and Sites

79

Topic 1: Maintenance Service Business

17

Summary of Subsidiaries

80

Topic 2: Overseas and New Businesses

19

Segment Highlights

21

Business Strategies

AP (Asphalt Plant-Related) Business

23

BP (Concrete Plant-Related) Business

25

Editorial Policy

Environment- and Conveyor-Related Business

27

Nikko Group Corporate Report 2021 aims to disclose Nikko Group's medium-

Other Businesses

28

and long-term value creation efforts from both financial and non-financial

CFO's Message

29

aspects to all stakeholders, including our shareholders and investors. The

Risks and Opportunities

33

Report is edited referring to The International Integrated Reporting

Framework established by the International Integrated Reporting Council

(IIRC) and the Guidance on Integrated Disclosure and Dialogues for Joint

SUSTAINABLITY

Value Creation by the Ministry of Economy, Trade and Industry of Japan.

Target readers All stakeholders connected to the Nikko Group

Promotion of Sustainability

35

Reporting period The Report mainly covers FY2020 (April 1, 2020 to

DX Solutions and Pursuit of Customer Satisfaction

39

March 31, 2021) but also includes information before

and after this period.

For a Stronger Value Co-creation Platform

41

Reporting scope The Report covers the Nikko Group comprising Nikko

Improvement of Employee Engagement

47

Co., Ltd. and ten subsidiaries (all of which are

consolidated subsidiaries).

Roundtable Discussion by Employees with

49

Company name "Nikko" and the "Company" refer to Nikko Co., Ltd. The "

Prior Work Experience

Nikko Group" and the "Group" refer to the Nikko Group,

including consolidated subsidiaries.

CARBON NEUTRAL

Note on forward-looking information

Response to Carbon Neutral

51

This Report includes statements on future outlook. We appreciate that you

understand that actual performance may differ from the Company's

Metrics, Targets, and Governance Structure

56

projections.

Nikko Group's Corporate Philosophy

VISION

Nikko Group's Promise

Future creation that starts from an' '

We will continue to be the leading manufacturer of asphalt and batching plants.

We aim to become the top manufacturer in the Asian market by expanding our overseas business. We will brush up our core technologies of heating, mixing and kneading, material handling, and control to expand our business.

We will continue to be a future creation company that contributes to society.

Nikko Group Corporate Charter

Management Philosophy

Adopting a customer-first policy, the Nikko Group provides customers with truly

satisfactory products and services, while continually promoting self-reform to win the broad trust and fulfill our mission as a solutions partner evolving with customers.

Company Motto

  1. Serve society through business.
  2. Work toward prosperity with sincerity and responsibility.
  3. Produce appropriate profits through original ideas and improvement efforts.

*Batching plant: A concrete plant that uses the batching method

01 Nikko Corporate Report 2021

Nikko Corporate Report 2021 02

Transition and History of Social Issues

Transition of social issues

Improvement in labor

Development and

Response to

expansion of land

productivity of civil

environmental

infrastructure (railroad,

engineering works

pollution

roads, ports, and dams)

VISION

Realization of recycling-oriented society Development of infrastructure in emerging countries

1919 Nihon Kogu Product Co., Ltd. was established

Establishes the registration date of August 13th as foundation day "Tombo" registered as trademark

1920 Extraordinary general shareholders meeting held

Matsusaburo Yano appointed to Senior Managing Director

First product, a shovel, goes on sale.

1921 Head Office relocated to Akashi

1923 Supplies materials for reconstruction following major earthquake that devastated the Kanto region

1932 Constructs a forging plant and warehouse for wooden handle material

1933 Construction of rolling mill decided

1934 Second Plant opens

1938

Third Plant starts operations

1945

Most of the plants burnt down by war

1946

First Plant back into operation

Construction work completed for the Second

Plant Wood processing and manufacture of

wooden handles restart

1948

Construction work completed for the Fourth Plant

Company designated as a factory

manufacturing essential goods

1949

Shares listed on the Osaka Securities Exchange

1950

Shovel demand surges following the start

of the Korean War

1951

Starts manufacture of winches and mixers

1956

Completes construction of a concrete plant

1958

Nikko's first asphalt plant

1959

Tokyo office opens

1960

Completes first asphalt plant that uses

electron tube-based control system

1962

Lists shares on the Tokyo Stock Exchange

1963

Completes first automated concrete plant

1964

Relocates the head office functions to

Eigashima Plant

1966

Starts manufacture of fully automated

concrete plants

Starts manufacture of belt conveyer system

1968

Company renamed to Nikko Co., Ltd.

Completes first crushing plant

1969

Opens operator training center

1971

Establishes Nikko Electronics Co., Ltd.

1974

Signs technology tie-up with Benninghoven,

a leading industrial burner maker then based in West Germany, and the Dutch company Philips

1975 Develops environmentally friendly CNAP series of asphalt plants

1976 Launches Tombo-kai

1977 Develops recycling plant and mixture silo designs

1981 Conducts first BP operator training

1983 Establishes Nikko Gate Co., Ltd. Completes BonD (Bag-filter on Dryer) series

Develops

WISE series of concrete plants

1992 Participates in project to assemble on-site asphalt plants for Kansai International Airport

1994 Establishes Tombo Industry Co., Ltd. Conducts the 100th AP operator training session

1995 Establishes Nikko Sec Co., Ltd.

1997

Establishes Nikko Machinery Co., Ltd.

1998

Obtains ISO9001 registration

1999

Opens Beijing office

2000

Develops soil decontaminating plant

2001

Establishes Nikko (Shanghai) Construction

Machinery Co., Ltd.

2007

Establishes Nikko Group Corporate Charter

2008

Develops a liquid biomass (alternative to

fossil fuel) burner

Acquires ownership of Maekawa Kogyosho Co., Ltd.

2012

Tohoku Branch launches quake-disaster

recovery project

Develops large soil decontaminating plant

Develops a solid biomass (alternative to

fossil fuel) burner

2013

Develops plant especially for

quake-disaster recovery

2014 Develops MBD series for recycled mixtures Develops DASH-Hyper mixer

2015 Develops VP series asphalt plants using new design

2018 Builds Techno Center on Akashi head-office property

Opens showroom on the first floor of the Head Office; strengthens CSC

Mobile Plant Business starts operating in earnest Holds Nikko Messe 2018 marking 100th foundation anniversary

2019 Marks the 100th foundation anniversary Marks 100th foundation anniversary with ceremony

2020 Establishes Nikko Asia (Thailand) Co., Ltd.

Establishes Nikko NilKhosol Co.,Ltd.

1919

Start-up era

In the Taisho era, Japan's economy boomed after World War I as trade grew and various industries developed. In such a situation, the executives of Suzuki Trading, a Kobe-based general trading firm boasting the top annual sales in Japan at that time, established Japan Tool Manufacturing Co., Ltd., which manufactured and sold hardware for construction such as shovels, spades, and pickaxes in August 1919.

1950

Postwar reconstruction and business expansion

The Korean War broke out in 1950, and the production of shovels expanded on the back of special procurement. Reflecting robust civil engineering works, the Company began manufacturing concrete plants in 1956. As road construction expanded with the beginning of motorization, the Company developed an asphalt plant prototype in 1958. It built the foundation for transforming itself from a tool manufacturer to a construction machinery manufacturer.

1970

Transformation into a construction machinery manufacturer

The Company expanded operations to construction machinery, such as asphalt plants and belt conveyors, which are essential for construction works, and in 1968 changed its name to Nikko Co., Ltd.

It carried out development of products in response to the needs of the time through technological alliances with Boeing of the U.S., Benninghoven of Germany, and Philips of the Netherlands.

1990

Promotion of recycling pavement waste and expansion into Asia

In 1998, the Company established the Environment Business Department to develop cutting-edge plants and devices that were environmentally friendly by using its plant engineering technology.

In 2001, the Company established Nikko (Shanghai) Construction Machinery Co., Ltd., aiming for a full-scale entry into the Chinese market.

Since the development, in 1977, of recycling plants that reuse asphalt pavement waste, the Company has been promoting the recycling of all asphalt.

20102021

Making plant products low-carbon and decarbonized and promotion of remote maintenance

The Company developed a solid biomass fuel that can be used at asphalt plants in 2012. It focused on low-carbonization and decarbonization of plants by commercializing a combustion burner for diverse alternative fuels.

The Company advanced control and analysis technologies and strengthened remote support to enhance proactive prevention-type remote maintenance of customer plants.

In 2020, the Company established Nikko Asia (Thailand) Co., Ltd. as the base for tapping into Southeast Asia and accelerated business expansion in Asia following the subsidiary in Shanghai.

Head office factory at the time of founding

1958: Nikko's first asphalt plant

1968: Nikko's NAP-602, the first made-in-Japan plant used for construction of Tomei Expressway

2013: Introduction of plants especially for quake-disaster

2020: Establishment of Nikko Asia (Thailand) Co., Ltd.

recovery

03 Nikko Corporate Report 2021

Nikko Corporate Report 2021 04

CEO's Message

VISION

We aim to become a leading company in decarbonized society through active investment in technologies for CO2 emission reduction and environmental recycling.

Representative Director, President and CEO

Masaru Tsuji

Q1

Review and summary of the Medium-Term Management Plan

and policy of the next medium-term plan

The Medium-Term Management Plan is entering into its final fiscal year in FY 2021. What were the

positive and negative points? Also, what is the policy for the next Medium-Term Management Plan?

The current Medium-Term Management Plan enters into its final fiscal year in FY 2021 and our initial goals were

38.0 billion yen in net sales and 3.0 billion yen in operating income. At this point, we are expecting consolidated net sales of 39.0 billion yen and operating income of 2.3 billion yen for FY 2021. Net sales are expected to exceed the target reflecting aggressive sales activities, while operating income is expected to underperform the target. We will be unable to achieve the operating income target because we plan to invest 300 million yen in R&D expenses in the decarbonization field and the AP (asphalt plant) Related Business is unlikely to achieve the profit target (see p. 15).

New orders received increased despite the COVID-19 pandemic, growing 18% to 40.0 billion yen in FY 2020 compared with FY 2019. However, the overseas business was affected by COVID-19. Established in the previous fiscal year, the Thai subsidiary won orders at an early stage despite the impediments caused by restrictions on travel. However, costs such as export expenses will increase due to the delay in the development of the local manufacturing base. Net sales of Nikko (Shanghai), our Chinese subsidiary, also declined about 4% in FY 2020 compared with a year ago.

In the existing business fields, the AP- and BP- (concrete plant) Related Businesses in Japan were not affected by COVID-19 and capital investments by customers have

been strong. Operating income of the AP-Related Business is likely to come to 1.25 billion yen compared with the medium-term plan target of 1.9 billion yen, and one of the factors behind the shortfall is that the number of new unit-type AP (Value-Pack series), aimed at differentiating us from competitors by shortening on-site work with improved performance of recycled mixture manufacturing, fell below the plan. Under the Medium-Term Management Plan, we aimed to raise the ratio of the new AP to more than a half of domestic sales, but we have not made sufficient progress, and therefore, we need to further promote the product among customers.

A positive point during the Medium-Term Management Plan was that we made capital investment by focusing on the future. In particular, we made capital investment in three fiber lasers and others for factories in FY 2019 and 2020 to differentiate product performance and improve productivity. The improvement has already been seen in the results and we are expecting factory income to increase further. We will also start the maintenance service business from FY 2021 as we developed a mechanism of prevention and maintenance based on an annual maintenance contract. At the same time, we made progress in DX and work style reform thanks partly to the impact of COVID-19 and we also built mechanisms for online business negotiations and telecommuting, which is expected to improve productivity in the future.

05 Nikko Corporate Report 2021

Nikko Corporate Report 2021 06

CEO's Message

VISION

Currently, we are formulating a new three-yearMedium-Term Management Plan and we are expecting the favorable business environment to continue. There are the upcoming EXPO 2025 in Osaka, continued renovation works of infrastructure, bullet train extension work, and restoration from torrential rain disasters. The Fundamental Plan for National Resilience, with a project scale of 15 trillion yen, will be implemented over five years starting 2021 as a disaster prevention and mitigation measure.

road, revetment, bridge reinforcement, and reconstruction of buildings, we will drive forward the upgrading and reinforcement plans for asphalt mixture and ready-mixed concrete supply facilities (plants, etc.), and upgrade the functions of the facilities (plants) for construction waste recycling, highly strong materials, and materials for workability. As for profitability, we would like to bring the operating margin of the domestic business close to 10% taking into account the introspection of the current

Among the future risks for the company is the

In the future, if there is an industry reorganization

possibility of a decline in the number of APs installed,

where the volume of asphalt mixture manufactured

if there comes a stage where customers demand fully

remains unchanged, the plants that survived the

electrified plants (to which we cannot respond)

reorganization will become larger in scale, and they

leading to reorganization of customers. Our share of

may be replaced by more high-end plants. That will be

the AP market in Japan was 75% in FY 2020, and the

a business opportunity for us.

impact of such a risk will be large.

Trend of Asphalt mixture output and number of asphalt plants installed

To respond to the construction-related demands such as

medium-term plan and the issues.

million yen 100,000

Virgin mixture (left scale)

Recycled mixture (left scale)

Number of installed asphalt plants (right scale)

2,000

Net Sales and Operating Income Plans under Medium-Term Management Plan

million yen

Operating income (left axis)

Net sales (right axis)

Operating margin

7,000

Previous Medium-Term

Numerical Plan and Results of the

70,000

6,000

Management Plan

Medium-Term Management Plan

60,000

1st year

2nd year

3rd year

5,000

7.0%

6.0%

5.9%

6.0%

6.4%

5.8%

7.1%

6.1%

7.9%

5.9%

50,000

4.8%

4.5%

4,000

35,700

35,151

36,500

37,866

38,000

39,000

40,000

34,110

35,114

32,073

32,717

31,780

30,707

3,000

3,000

30,000

2,600

2,249

2,300

2,302

2,300

1,944

2,103

2,053

2,000

1,832

20,000

1,629

1,427

1,000

10,000

0

2013

2014

2015

2016

2017

2018

Medium-term

2019

Medium-term

2020

Medium-term

2021

0

(fiscal year)

plan

(results)

plan

(results)

plan

(estimates)

1st year plan

2nd year plan

3rd year plan

8,000

6,000

4,000

2,000

0

1,753

1,652

1,407

1,500

1,189

1,140

1,043

1,040

1,000

500

1995

2000

2005

2010

2015

2020 2021

0

(fiscal year)

(estimated)

Q2

Nikko Group's future measures for achieving carbon neutral

In 2020, the global momentum of DX and decarbonization gathered pace and a clear trend emerged of Japanese companies aiming to achieve carbon neutral. In the capital market also, companies listed on the Prime Market will be required by revised CGC to make climate-related financial disclosures and in the future it is likely that companies will have to make nature-related financial disclosures. What changes will the status of Nikko Group's carbon neutral initiatives (including plans) and risks and opportunities for achieving decarbonization bring about on the long-term business environment?

As for the company's opportunity, we consider it a great chance to accelerate our business expansion given our background in building CO2 reduction technologies and environment and recycling technologies for many years. We have a track record in developing equipment to recover rare metals from waste batteries and waste circuit boards of home electronics, a plant to recycle waste plasterboards, CO2 absorption equipment using concrete sludge, carbon neutral fuel use of waste glycerin, waste wood tar, wood chips, and ashes from burning waste among others.

If the needs for carbon neutral become tangible overseas, we believe the potential demand will become larger. Specifically, we are paying attention to the

introduced gas burners. What's more, we are expecting to receive orders for recycling plants soon.

Nikko Group's management philosophy is a customer-first policy, and we have been honestly responding to customer requests for products, which has ensured the sustainability of our business. This is primarily because maintenance service accounts for 60% of net sales, and I believe that this management philosophy is our mightiest weapon that will be effective in any country around the world even if we enter into the era of carbon neutral (see pp. 31 and 51).

We plan to boost environment-related R&D expenses to 730 million yen over three years of the next Medium-Term Management Plan. We plan to spend 700 million yen in R&D expenses in FY 2021 and expect to spend a total of 2.5 billion yen, including the environment-related 730 million yen in the three years of the next medium-term plan (FY 2022 to 2024). In more concrete terms, we aim to develop products such as a series of biomass burners, combustion system for ammonia and hydrogen, AI-based judgment system, sand drying and supply system, and various mixing equipment. We also plan to increase the number of employees engaged in research and development by

seven from current 43 to 50 in three years and are also considering acquiring a test center (1.0 billion yen in investment) as part of capital investment. Achievement of carbon neutral, a direction the world is heading towards, is the duty of a company, and we plan to work on it proactively. We emit 1.3 million tons of CO2 a year in Japan, as our mainstay product AP is a heating system which burns fuel oil and gas. We will switch fuels for AP to reduce CO2 emissions from our products by 50% by 2030, by 80% by 2040, and achieve zero emissions by 2050.

potential in China, which has the largest AP demand in the world and where implementation of environmental measures is relatively delayed. Nikko (Shanghai), our Chinese subsidiary, has been seeing increasing demand for AP for recycled mixtures, and it is transforming into a market format where we can leverage the strength of our environment and recycling technologies. We also established a subsidiary in Thailand, and we believe that eventually all of Asia will require carbon neutral APs. For example, Taiwan tightened its environmental regulations to require use of gas instead of fuel oil as fuel, and many plants

07 Nikko Corporate Report 2021

Nikko Corporate Report 2021 08

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NIKKO Co. Ltd. published this content on 29 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 November 2021 15:49:04 UTC.