Nikko : Fiscal Year 2021 (Ended March 31, 2022) Financial Results Briefing Session Materials

Fiscal Year Ended March 31, 2022

Financial Results Briefing Session Materials

June 10, 2022

Nikko Co., Ltd.

Tokyo Stock Exchange Code: 6306

Masaru Tsuji, Representative Director and President

Hiroshi Fujii, Senior Managing Director

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FY 2022-2024

Medium-Term Management

Plan

• In this briefing session material, AP denotes asphalt plants in our business, and BP, concrete plants.

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Contents

FY 2022-2024Medium-Term Management Plan

Summary of Previous Medium-Term Management Plan

Policy of New Medium-Term Management Plan

Numerical Plan for New Medium-Term Management Plan

Business Strategies

pp. 3-7

1. 8-10

pp. 11-15 pp. 16-23

FY 2021 Financial Results

FY 2021 Results	pp. 25-36
FY 2022 Outlook	pp. 37-40
Business Climate and Management Strategy	pp. 41-53
Reference Materials	pp. 54-61
Company Information	pp. 62-67
* The last digit of the figures of changes in this document may differ from
those in the Quarterly Report due to the treatment of fractions less than unit.
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Review of Previous Medium-Term Plan Period of Long-term(10-year) Basic Policy,

Looking into the Future

Previous Medium-Term Management Plan Period

Long-term Basic Policies

Results for FY 2019 (1st year)

Results for FY 2020 (2nd year)

Results for FY 2021 (3rd year)

1. Strengthen revenue base in Japan

Operating margin in Japan

Operating margin in Japan

Operating margin in Japan

Improve profitability (10% in operating

margin) by boosting product appeal by raising

FY 2018 4.5% → FY 2019 6.0%

FY 2019 6.0% → FY 2020 6.5%

FY 2020 6.5% → FY 2021 5.3%

the level of all divisions of sales, service,

engineering, and manufacturing.

2. Establish overseas sales

Overseas net sales: 4,390 mil. yen

Overseas net sales: 3,730 mil. yen

Overseas net sales: 4,740 mil. yen (estimate)

As a manufacturer, establish new overseas bases

Signed an agent agreement with TIPCO Asphalt,

(Sales declined due to the impact of COVID-19)

Thailand's top company in asphalt manufacturing and

to promote Nikko products, one of the best in the

Feb. 2020 AP sales and maintenance company

Oct. 2020: Nikko Asia (Thailand) Co., Ltd. sales

world, in the ASEAN region (doubling overseas

Established Nikko Asia (Thailand) Co.,

began full-scale operationsReceived

Thailand factory completed in

net sales to 9.0 billion yen from the current

Ltd.

FY 2021

orders for 2 APs

4.5 billion yen)

3. Promote new businesses (incl. M&As)

Mobile plant business

Mobile plant business

Mobile plant business

Invest management resources in expansion of

FY 2018 90 mil. yen → FY 2019 500 mil. yen

FY 2020 1,070 mil. yen

FY 2021 1,440 mil. yen

new businesses and develop new pillar products

Waterproof boards

Waterproof boards

Waterproof boards

in the industrial and construction machinery fields

(Create 10.0 billion yen in net sales from new

FY 2019 810 mil. yen

FY 2020 900 mil. yen

FY 2018 210 mil. yen →

FY 2021 1,010 mil. yen

businesses)

M&A

Mar. 1 M&A of Ube Kohki Co., Ltd.

4. Put work-style reform into practice

• Enhanced web conferencing system to

• Continuing with FY 2019 initiatives

•

Continuing with FY 2019 initiatives

Boost operation efficiency and significantly

enable quick information sharing without

• Remote maintenance contract rate

•

Remote maintenance contract rate

constraints of time and place

End of Jan. 2020: 46%

76.1% as of the end of March 2022

improve labor productivity

• Identified the problems with

→ End of Aug.: 67%

(To centralize office work and utilize IoT and AI)

telecommuting and a dispersed working

→ End of May 2021: 73.8%

•

Flat rate remote maintenance

system

• Prepared materials and movies for

Received 13 orders

• Dramatically improved production

webinars (the maintenance division

efficiency by introducing production

has shot 30 movies)

facilities based on latest technology at

manufacturing divisions (fiber laser, etc.)

5. Make ROE a KPI

Market cap

Market cap

Market cap

Aim to achieve a market capitalization of at least

FY 2018-end 19.25 bil. yen

FY 2020-end29.24 bil. yen

FY 2021-end24.28 bil. yen

50.0 billion yen and an ROE of at least 8%

→ FY 2019-end24.36 bil. yen

Aim for a dividend payout ratio of 60% or higher and

ROE

FY 2020-end6.8%

ROE

FY 2021-end5.2%

enhance returns to shareholders

ROE

FY 2020 dividend payout ratio 60.5%

FY 2021 dividend payout ratio 69.5%

FY 2018-end 4.4% → FY 2019-end 5.2%

Share buyback completed on Sept. 17

FY 2019 dividend payout ratio

97.6%

(treasury stock purchased: 616,700

shares or 399,960,700 yen)

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• I would like to explain the Medium-Term Management Plan.
  We formulated the medium-term plan with focus on the long-term prospects in 10 years. There are roughly five basic points.
• The first point is to strengthen the revenue base in Japan. We aim to achieve an operating margin of 10% in 10 years. Looking back at the past three years, it was 6.0% in FY 2019, the first year, and 6.5% in FY 2020. It fell to 5.3% in the third year, the previous fiscal year, which was disappointing.
  I will explain the reasons afterwards.
• The second point is to establish overseas sales, in other words to establish overseas markets with an eye on growth.
  We ultimately started off with a plan to double overseas sales from 4.5 billion yen to 9.0 billion yen. In the initial fiscal year, we achieved about 4.4 billion yen, while in the second year sales fell to 3.7 billion yen given the significant impact of COVID-19. Although sales slightly improved to 4.7 billion yen in the third year reflecting the recovery from COVID-19, they still ended up falling short compared with the target.
• The third point is to promote new businesses. The goal is to grow new businesses into major pillars through means including M&As and we started by aiming for a business scale of 10.0 billion yen in 10 years. The two businesses of mobile plants and waterproof boards grew greatly, and compared with the approx. 0.3 billion yen in sales before the medium-term plan began, sales grew to 1.3 billion yen in the first fiscal yen, to 2.0 billion yen in the second year, and 2.5 billion yen to the third year, posting satisfactory growth.
• The fourth point is to put work-style reform into practice. We would like to try out a business development wherein our work-style reforms inspire work- style reforms at our customers. We drove it forward by implementing concrete items such as the centralization of office work, IoT, and utilization of AI, which would lead to improvements in operating efficiency. Partly because of COVID-19, online meetings became common place. Telecommuting and dispersed working systems are becoming established.
  We plan to continue promoting the working system regardless of COVID-19.
  In this initiative, development of the remote maintenance business in the maintenance service field could be seen in the figures. We were able to raise the ratio of customers signing up for remote maintenance service, which initially was about 46%, to the current 76.1%. Another major item is the flat rate maintenance service, an initiative that benefits both our customers and us by improving the operation efficiency of the maintenance service.
  We set aside a one-year assessment period for deciding the core of the flat rate maintenance business. When there is trouble at a plant, which is a manufacturing facility, what is important for the customer is restoring it as soon as possible. More important than just raising the speed of response through remote maintenance service, we are currently working on an initiative that, in the future, would enable us to take measures before something breaks down or fails. If we can develop a technology that eliminates failure and keep the plants running, we can sign contracts at more inexpensive rates than the existing rates with customers for flat rate maintenance service. This way, we can have a maintenance system that enables us to replace parts at optimum timings based on judgments from our plant monitoring so that the plant will not fail, instead of starting our work after a customer's facility fails and causes trouble. It will improve both our operating efficiency and customers' maintenance costs, and we believe we have reached a stage where we can shift to this system while increasing the number of customers. We have recognized it as an item where we succeeded in delivering a certain level of results.
• The final item is setting forth ROE as KPI. We have started with the targets of 50.0 billion yen in market cap and 8% in ROE in 10 years. In the initiative to strengthen shareholder returns by aiming for a dividend payout ratio of 60% or more, we feel that we were able to make good on our promise to a certain extent, as the ratio for the first year was 97.6% including the 100th anniversary commemorative dividend, 60.5% in the second year, and 69.5% in the third year. However, the market cap is evaluation by the shareholders, and the current situation is such that we need to put more efforts or the shareholders will not value us highly, so we consider this as a point we need to reflect upon.

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Summary of Previous Medium-Term Management Plan (1)

			Period of the Medium-							(mil. yen)
(Net sales)								(Operating income)
	Term Management Plan					Previous Medium-Term Management Plan
			before the last plan					Numerical plan and results

	1st year	2nd year	3rd year
		7.1%		7.9%
6.4%	5.8%	6.1%
50,000			5.3%	5,000
40,000			37,866	38,000	38,846	4,000
	36,500
35,700	35,151
30,000				3,000		3,000
		2,600
2,300		2,302
	2,053				2,053
20,000						2,000
10,000						1,000
0						0

FY 2016	FY 2017	FY 2018	1st year of	FY 2019	2nd year of	FY 2020	3rd year of	FY 2021
			Medium-term	results	Medium-term	results	Medium-term	results
			plan		plan		plan
		Net sales	Operating income	Operating margin
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• The overall trend shows that sales scale and business scale have been rising also when compared to earlier figures. We feel a sense of achievement regarding sales, which denotes the business scale, of having been able to generate a certain level of success.
  Nevertheless, profits did not reach the target and we would like to work on it as a major task and recover it through continuous initiatives from now on.

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