Nippon Koei Co., Ltd. consults on civil engineering and construction work (planning, design, surveys, and construction management) for national and regional government bodies that build social infrastructure (such as dams, ports, and structures for preventing erosion and controlling flooding). Clients also include electric power companies and other business operators. According to Nikkei Construction, Nippon Koei has the top share of the Japanese market for civil engineering consulting services, as well as the most professional engineers, or PEs, of any domestic civil engineering consulting company. (PEs hold the national qualification necessary for making technical proposals; the number of PEs on staff is important when accepting orders.) Globally, Nippon Koei has handled projects in 160 countries and is the only Japanese company in the global civil engineering consulting industry’s top 50 in terms of revenue, based on a ranking by a US industry publication, Engineering News-Record. The company’s consolidated revenue exceeded the JPY100.0bn mark for the first time in FY06/17; recurring profit rose beyond JPY6.0bn in FY06/18. The company adopted International Financial Reporting Standards (IFRS) from FY06/21.

Consulting accounted for around 68% of revenue (Domestic Consulting for 47% and International Consulting for 21%) of JPY117.9bn in FY06/21. The Power Engineering business generates 13% of revenue, and the Urban & Spatial Development business provides 17%. The Energy business, a segment established in FY06/18, and other businesses account for 1% of revenue. The consulting business generates stable revenue. In Japan, the company receives orders for public works projects from national and regional government bodies. Overseas, orders center on official development assistance (ODA) provided by the Japanese government. In the Power Engineering business, the company builds and sells substations, mainly to Tokyo Electric; provides consulting related to electromechanical equipment; and handles the reinforcement and repair of electrical equipment (planning, evaluation, design, and construction). Business in the Urban & Spatial Development business centers on architectural design provided by BDP Holdings Limited (BDP), a UK firm Nippon Koei acquired in 2016, providing consulting services on public buildings in Europe and Asia.

The addition of the Urban & Spatial Development business broadened Nippon Koei’s consulting business from construction into the architectural field. The company is also expanding into the energy management field after spinning off the Energy business from the Power Engineering business. In addition to widening its business domain, the company is positioning itself to grow in overseas markets where infrastructure demand is solid; notably India, Southeast Asia, and Latin America. These moves are part of Nippon Koei’s strategy for sustaining growth, and the company has begun receiving large orders in potential growth areas, including for refurbishment of the Palace of Westminster in the UK and railway infrastructure in India. (From FY06/22, the company has consolidated five segments into three).

Trends and outlook

In FY06/21, Nippon Koei posted revenue (IFRS) of JPY117.9bn (+8.7% YoY), operating profit of JPY7.1bn (+35.9% YoY), pre-tax profit of JPY7.2bn (+42.7% YoY), and net income attributable to owners of the parent of JPY4.5bn (+46.2% YoY). Orders received were JPY133.3bn (-8.0% YoY), with the decline being reactionary after the company received large orders in the International Consulting and Power Engineering businesses in FY06/20. Despite the impact of the COVID-19 pandemic, revenue grew as work progressed in all segments except Energy. Profitability improvement measures and costs reductions led to improved profitability overall, boosting operating profit 35.9% YoY.

The company’s FY06/22 forecast (IFRS) calls for revenue of JPY131.0bn (+11.1% YoY), operating profit of JPY7.7bn (+8.0% YoY), net income attributable to owners of the parent of JPY4.7bn (+3.7% YoY), and orders of JPY130.0bn (-2.5% YoY). Starting with FY06/22, Nippon Koei is disclosing data for three segments. It aims to improve productivity in the Consulting business (merged Domestic Consulting and International Consulting businesses) by integrating operations of the former separate businesses. In the Urban & Spatial Development business (no change), it will form a business base with its main field being a fusion of civil engineering and architecture achieved through the integrated management of group companies. In the Energy business (merged Power Engineering and Energy businesses), while enhancing the price competitiveness and production systems of existing businesses, it plans to work on building a foundation in growth areas including renewable energy, storage batteries, and aggregation (aggregating distributed energy sources and providing energy services through power market transactions and other means).

In June 2021, the company formulated a new long-term management strategy, called NKG Global Strategy 2030. This plan targets revenue of JPY250.0bn, OPM of 10%, and ROE of 15% in FY06/30 (the final year of the plan). The long-term plan has three basic strategies: (1) reorganize business segments to realize a one-stop system for providing the company’s services, (2) promote greater self-reliance and cooperation, and (3) realize the embodiment of the NKG brand and NKG quality. Also, on August 13, 2021, the company announced Building Resilience 2024, its new medium-term management plan based on NKG Global Strategy 2030. The plan positions the period from July 2021 to June 2024 as a period of transformation to fortify the group as a whole and focuses on building resilience, aiming to expand businesses in the global market through independent growth in three business domains, matrix management by business and region, and establishing the NKG brand and NKG quality. In FY06/24, the final year of the plan, it aims for revenue of JPY155.0bn, operating profit of JPY11.5bn, OPM of 7%, and ROE of 9%.

Strengths and weaknesses

Strengths
1) Japan’s largest company in its sector, with extensive experience in bidding on public works projects
2) Technical capabilities backed by Japanese and international patents, utility model rights, and design rights gained by having one of the industry’s largest basic research institutions
3) Securing certified PEs through expanded program for cultivating human resources
Weaknesses
1) Highly reliant on public investment and therefore affected by national policy
2) Uncompetitive in projects that involve combined design and construction due to a lack of construction capabilities
3) Low asset efficiency

Key financial data

Income statement			FY06/13	FY06/14	FY06/15	FY06/16	FY06/17	FY06/18	FY06/19	FY06/20	FY06/20	FY06/21	FY06/22
(JPYmn)			Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	IFRS	IFRS	IFRS Est.
Revenue			6,896	79,193	81,839	81,865	101,338	106,023	108,589	112,214	108,441	117,859	131,000
		YoY	-	-	3.3%	0.0%	23.8%	4.6%	2.4%	3.3%	-	8.7%	11.1%
Gross profit			758	19,939	21,785	22,359	30,937	32,359	32,962	33,452	33,238	37,735
		YoY	-	-	9.3%	2.6%	38.4%	4.6%	1.9%	1.5%	-	13.5%
		Gross profit margin	11.0%	25.2%	26.6%	27.3%	30.5%	30.5%	30.4%	29.8%	30.7%	32.0%
Operating profit			-3,214	4,256	4,502	4,723	5,464	6,561	5,110	4,590	5,245	7,128	7,700
		YoY	-	-	5.8%	4.9%	15.7%	20.1%	-22.1%	-10.2%	-	35.9%	8.0%
		Operating profit margin	-46.6%	5.4%	5.5%	5.8%	5.4%	6.2%	4.7%	4.1%	4.8%	6.0%	5.9%
Recurring (Pre-tax) profit			-3,156	4,542	5,477	4,365	5,958	6,721	5,584	4,603	5,029	7,176
		YoY	-	-	20.6%	-20.3%	36.5%	12.8%	-16.9%	-17.6%	-	42.7%
		Recurring profit margin	-45.8%	5.7%	6.7%	5.3%	5.9%	6.3%	5.1%	4.1%	4.6%	6.1%
Net income (Profit attributable to owners of the parent)			-1,914	2,998	4,261	1,823	3,288	4,555	3,318	2,726	3,099	4,531	4,700
		YoY	-	-	42.1%	-57.2%	80.4%	38.5%	-27.2%	-17.8%	-	46.2%	3.7%
		Net margin	-	3.8%	5.2%	2.2%	3.2%	4.3%	3.1%	2.4%	2.9%	3.8%	3.6%
Per-share data (JPY)
Shares issued (year-end, '000)			86,657	86,657	86,657	86,687	17,331	15,905	15,920	15,933	15,933	15,049
EPS			-126.8	198.1	280.1	119.1	213.4	294.1	212.5	180.3	204.9	300.0	312.3
EPS (fully diluted)			-	-	-	-	-	-	-	-	-	-	-
Dividend per share			10.0	37.5	37.5	50.0	75.0	75.0	75.0	75.0	75.0	75.0	100.0
Book value per share			2,872.1	3,132.7	3,450.5	3,326.6	3,530.4	3,755.6	3,767.5	3,864.5	4,260.8	4,699.8	-
Balance sheet (JPYmn)
		Cash and cash equivalents	11,757	8,967	12,148	11,174	19,593	16,392	13,147	16,003	15,472	17,838
Total current assets			36,486	36,749	44,820	46,153	54,798	54,263	52,446	61,415	62,027	68,570
	Tangible fixed assets		23,128	26,588	24,525	24,561	24,535	27,624	29,882	40,756	42,039	40,832
	Investment and other assets		10,709	12,019	14,193	13,654	20,630	19,037	17,345	15,910	12,141	13,296
	Intangible assets		1,125	787	570	16,620	13,900	12,964	13,501	12,132	5,480	6,502
Total assets			71,450	76,144	84,110	100,989	113,865	113,890	113,175	130,215	147,408	156,137
		Accounts payable	2,512	3,361	4,239	5,105	4,012	4,164	5,037	5,724
		Short-term debt	189	230	164	16,266	1,760	2,050	2,156	18,858	18,223	10,998
Total current liabilities			19,376	20,528	24,466	43,107	30,341	28,441	28,082	45,500	49,963	48,889
		Long-term debt	1,520	1,690	1,526	1,260	21,413	18,934	17,713	18,000	22,163	25,411
Total fixed liabilities			8,403	7,780	6,662	6,421	28,650	25,999	24,886	25,245	31,723	34,953
Total liabilities			27,779	28,309	31,128	49,529	58,991	54,440	52,969	70,745	81,687	83,843
Total net assets			43,671	47,835	52,981	51,460	54,874	59,449	60,205	59,470	65,721	72,294
Total liabilities and net assets			71,450	76,144	84,110	100,989	113,865	113,890	113,175	130,215	147,408	156,137
Total interest-bearing debt			1,709	1,920	1,690	17,526	23,173	20,984	19,869	36,858	40,386	36,409
Capital expenditures			0	4,404	1,644	994	1,098	1,099	3,796	6,676
Cash flow statement (JPYmn)
Cash flows from operating activities			14,356	1,340	881	379	6,376	-602	3,109	2,821	4,365	12,073
Cash flows from investing activities			-771	-4,559	2,702	-17,705	-4,172	977	-3,504	-7,463	-7,129	-2,750
Cash flows from financing activities			-8,539	62	-745	15,199	4,846	-3,062	-1,936	6,937	4,529	-7,928
Financial ratios
ROA (RP-based)			-4.0%	6.2%	6.8%	4.7%	5.5%	5.9%	4.9%	3.8%	3.6%	4.7%
ROE			-4.2%	6.6%	8.5%	3.5%	6.2%	8.1%	5.7%	4.6%	4.8%	6.7%
Equity ratio			60.8%	62.4%	62.6%	50.6%	47.9%	51.2%	52.4%	44.7%	50.3%	49.9%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
FY06/13 was a three-month term due to a change in accounting periods.
The company conducted a one-for-five reverse stock split on January 1, 2017. Per-share data has been adjusted accordingly.
FY06/21 forecast is based on Japanese GAAP standards.
Reflects revisions to past financial results announced on December 14, 2020.

Revenue and profit by segment				FY06/13	FY06/14	FY06/15	FY06/16	FY06/17	FY06/18	FY06/19	FY06/20	FY06/20	FY06/21
(JPYmn）				Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	IFRS	IFRS
Orders				21,947	92,485	87,573	104,019	117,442	104,350	118,085	141,632	144,871	133,304
	YoY			-	-	-5.3%	18.8%	12.9%	-11.1%	13.2%	19.9%	-	-8.0%
	Domestic Consulting			13,374	46,617	45,057	44,109	48,265	48,529	52,855	56,184	59,314	62,047
			YoY	-	-	-3.3%	-2.1%	9.4%	0.5%	8.9%	6.3%	-	4.6%
			% of total	60.9%	50.4%	51.5%	42.4%	41.1%	46.5%	44.8%	39.7%	40.9%	46.5%
	International Consulting			5,461	30,023	28,889	28,876	41,573	26,716	28,482	47,508	47,617	35,721
			YoY	-	-	-3.8%	0.0%	44.0%	-35.7%	6.6%	66.8%	-	-25.0%
			% of total	24.9%	32.5%	33.0%	27.8%	35.4%	25.6%	24.1%	33.5%	32.9%	26.8%
	Power Engineering			3,108	15,831	13,595	14,716	14,087	15,943	15,411	19,829	19,829	13,880
			YoY	-	-	-14.1%	8.2%	-4.3%	13.2%	-3.3%	28.7%	-	-30.0%
			% of total	14.2%	17.1%	15.5%	14.1%	12.0%	15.3%	13.1%	14.0%	13.7%	10.4%
	Urban & Spatial Development			-	-	-	16,251	13,460	12,855	20,510	17,874	17,874	21,457
			YoY	-	-	-	-	-17.2%	-4.5%	59.5%	-12.9%	-	20.0%
			% of total	-	-	-	15.6%	11.5%	12.3%	17.4%	12.6%	12.3%	16.1%
	Energy			-	-	-	-	-	179	723	156	156	111
			YoY	-	-	-	-	-	-	303.9%	-78.4%	-	-28.8%
			% of total	-	-	-	-	-	0.2%	0.6%	0.1%	0.1%	0.1%
	Other			4	13	30	64	55	126	100	79	79	86
			YoY	-82.6%	225.0%	130.8%	113.3%	-14.1%	129.1%	-20.6%	-21.0%	-	8.9%
			% of total	0.0%	0.0%	0.0%	0.1%	0.0%	0.1%	0.1%	0.1%	0.1%	0.1%
Revenue				6,896	79,193	81,839	81,865	101,338	106,023	108,589	112,214	108,441	117,859
	YoY			-	-	3.3%	0.0%	23.8%	4.6%	2.4%	3.3%	-	8.7%
	Domestic Consulting			1,353	41,817	41,845	40,778	43,516	46,595	49,593	51,333	49,958	55,345
			YoY	-	-	0.1%	-2.5%	6.7%	7.1%	6.4%	3.5%	-	10.8%
			% of total	19.7%	53.6%	51.9%	50.4%	43.3%	44.3%	46.1%	45.8%	46.2%	47.1%
	International Consulting			2,864	20,947	20,174	22,070	24,491	28,889	24,928	24,508	22,635	24,753
			YoY	-	-	-3.7%	9.4%	11.0%	18.0%	-13.7%	-1.7%	-	9.4%
			% of total	41.8%	26.8%	25.0%	27.3%	24.4%	27.5%	23.2%	21.9%	20.9%	21.1%
	Power Engineering			2,352	14,169	17,857	17,522	17,577	15,762	16,531	15,747	15,382	15,831
			YoY	-	-	26.0%	-1.9%	0.3%	-10.3%	4.9%	-4.7%	-	2.9%
			% of total	34.3%	18.2%	22.1%	21.7%	17.5%	15.0%	15.4%	14.1%	14.2%	13.5%
	Urban & Spatial Development			-	-	-	-	14,347	13,040	15,359	18,160	18,142	20,274
			YoY	-	-	-	-	-	-9.1%	17.8%	18.2%	-	11.8%
			% of total	-	-	-	-	14.3%	12.4%	14.3%	16.2%	16.8%	17.3%
	Energy			-	-	-	-	-	354	719	1,187	1,070	790
			YoY	-	-	-	-	-	-	103.1%	65.1%	-	-26.2%
			% of total	-	-	-	-	-	0.3%	0.7%	1.1%	1.0%	0.7%
	Real Estate Leasing			282	1,125	821	514	473	440	439	451	451	778
			YoY	-	-	-27.0%	-37.4%	-8.0%	-7.0%	-0.2%	2.7%	-	72.5%
			% of total	4.1%	1.4%	1.0%	0.6%	0.5%	0.4%	0.4%	0.4%	0.4%	0.7%
	Other			43	1,133	1,141	979	931	940	1,016	825	800	86
		YoY		-96.3%	2,534.9%	0.7%	-14.2%	-4.9%	1.0%	8.1%	-18.8%	-	-89.3%
		% of total		0.6%	1.5%	1.4%	1.2%	0.9%	0.9%	0.9%	0.7%	0.7%	0.1%
Operating profit				-3,214	4,256	4,502	4,723	5,464	6,561	5,110	4,590	5,245	7,128
	YoY			-	-	5.8%	4.9%	15.7%	20.1%	-22.1%	-10.2%	-	35.9%
	Total segment operating profit			-	5,245	6,426	7,546	8,350	9,359	7,706	7,514	7,856	9,186
		YoY		-	-	22.5%	17.4%	10.7%	12.1%	-17.7%	-2.5%	-	16.9%
	Domestic Consulting			-	2,502	2,723	2,956	3,298	4,279	4,990	5,227	4,944	6,128
			YoY	-	-	8.8%	8.6%	11.6%	29.7%	16.6%	4.7%	-	23.9%
			% of total	-	55.0%	49.6%	67.2%	55.2%	45.7%	64.8%	69.6%	62.9%	66.7%
			Operating profit margin	-	6.0%	6.5%	7.2%	7.6%	9.2%	10.1%	10.2%	9.9%	11.1%
	International Consulting			-	658	285	1,156	1,887	2,649	841	684	513	1,853
			YoY	-	-	-56.7%	305.6%	63.2%	40.4%	-68.3%	-18.7%	-	261.2%
			% of total	-	14.5%	5.2%	26.3%	31.6%	28.3%	10.9%	9.1%	6.5%	20.2%
			Operating profit margin	-	3.1%	1.4%	5.2%	7.7%	9.2%	3.4%	2.8%	2.3%	7.5%
	Power Engineering			-	1,267	2,834	3,048	2,683	1,873	2,089	1,069	995	858
			YoY	-	-	123.7%	7.6%	-12.0%	-30.2%	11.5%	-48.8%	-	-13.8%
			% of total	-	27.8%	51.7%	69.3%	44.9%	20.0%	27.1%	14.2%	12.7%	9.3%
			Operating profit margin	-	8.9%	15.9%	17.4%	15.3%	11.9%	12.6%	6.8%	6.5%	5.4%
	Urban & Spatial Development			-	-	-	-	81	173	151	917	1,759	2,266
			YoY	-	-	-	-	-	113.6%	-12.7%	507.3%	-	28.8%
			% of total	-	-	-	-	1.5%	1.8%	2.0%	12.2%	22.4%	24.7%
			Operating profit margin	-	-	-	-	0.6%	1.3%	1.0%	5.0%	9.7%	11.2%
	Energy			-	-	-	-	-	-18	-365	-383	-355	-1,919
			YoY	-	-	-	-	-	-	-	-	-	-
			% of total	-	-	-	-	-	-	-	-	-	-
			Operating profit margin	-	-	-	-	-	-	-	-	-	-
	Real Estate Leasing			-	818	584	386	401	403	409	-2,924	356	585
			YoY	-	-	-28.6%	-33.9%	3.9%	0.5%	1.5%	-	-	64.3%
			% of total	-	19.2%	13.0%	8.1%	7.3%	4.3%	5.3%	-	4.5%	6.4%
			Operating profit margin	-	72.7%	71.1%	75.1%	84.8%	91.6%	93.2%	-	-	-
	Corporate, other			-	-989	-1,924	-2,823	-2,886	-2,798	-2,596	-2,924	-2,611	-2,643

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
FY06/13 was a three-month term due to a change in accounting periods.
The FY06/21 revenue forecasts for the Energy and Real Estate Leasing segments are included in “Other.”
The FY06/21 operating profit forecast for the Real Estate Leasing segment is included in “Corporate, other.”
In FY06/16, BDP became a consolidated subsidiary, and the Urban & Spatial Development segment was added. (Orders are BDP’s order backlog as of April 1.)
In FY06/17, the company introduced a new standard for recording orders. This method has been retroactively applied to orders in FY06/16. (The previous standard is used for YoY comparisons).
Reflects revisions to past financial results announced on December 14, 2020.
Segment operating profit forecasts are based on comments in the company’s financial results.

Recent updates

New share issue in connection with a restricted stock compensation scheme

2021-09-29

Nippon Koei Co., Ltd. announced a new share issue in connection with a restricted stock compensation scheme.

Nippon Koei announced that its Board of Directors, at a meeting held the same day, had approved a new share issue in connection with a restricted stock compensation scheme.

The new share issue is in accordance with the company’s previously announced introduction of a restricted stock compensation scheme for eligible directors (resolved by the Board of Directors in August 2017 and approved by the 73rd General Meeting of Shareholders in September 2017). The scheduled payment date is October 28, 2021 and the total issue amount is JPY42mn (11,746 shares of common stock at JPY3,565 per share). The allottees are the company’s eight directors (excluding outside directors).

Began considering the merger of some of its businesses and consolidated subsidiary

2021-09-17

Nippon Koei Co., Ltd. announced that it began considering the merger of some of its businesses and consolidated subsidiary.

Since the company announced that it had begun considering transitioning to a pure holding company structure on June 10, 2021, it has been reviewing specific schemes to carry out the transition. Specifically, the company aims to establish a holding company that oversees strategies for the entire group and transition to a management structure in which operating companies in charge of executing business operations in each field will be able to fulfill their responsibilities and be nimble in doing so. As part of this larger effort, the company began considering the merger of some of its businesses and consolidated subsidiary.

Trends and outlook

Quarterly trends and results

Cumulative			FY06/20					FY06/21				FY06/22	FY06/21
			Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1–Q4	Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1
(JPYmn)			J-GAAP	J-GAAP	J-GAAP	J-GAAP	IFRS	IFRS	J-GAAP	J-GAAP	IFRS	IFRS	% of Est.	FY Est.
Revenue			24,894	49,148	84,129	112,214	108,441	21,053	46,675	85,833	117,859	23,960	182.9%	13,100
		YoY	40.4%	25.6%	13.4%	3.3%	-	-80.6%	-5.0%	2.0%	8.7%	13.8%		-88.9%
Gross profit			5,837	12,700	25,994	33,452	33,238	5,796	13,392	28,718	37,735	6,418
		YoY	29.6%	24.3%	14.5%	1.5%	-	-82.6%	5.4%	10.5%	13.5%	10.7%
	Gross profit margin		23.4%	25.8%	30.9%	29.8%	30.7%	27.5%	28.7%	33.5%	32.0%	26.8%
SG&A expenses			7,014	14,127	21,028	28,861	28,436	6,690	13,411	20,211	29,173	6,946
		YoY	8.5%	8.4%	6.4%	3.6%	-	-76.5%	-5.1%	-3.9%	2.6%	3.8%
	SG&A ratio		28.2%	28.7%	25.0%	25.7%	26.2%	31.8%	28.7%	23.5%	24.8%	29.0%
Operating profit			-1,176	-1,427	4,965	4,590	5,245	-1,112	-18	8,506	7,128	-320	-	7,700
		YoY	-	-	69.1%	-10.2%	-	-	-	71.3%	35.9%	-		8.0%
	Operating profit margin		-	-	5.9%	4.1%	4.8%	-	-	9.9%	6.0%	-		58.8%
Recurring (Pre-tax) profit			-935	-1,185	5,119	4,603	5,029	-1,295	-426	8,491	7,176	-209
		YoY	-	-	89.3%	-17.6%	-	-	-	65.9%	42.7%	-
	Recurring profit margin		-	-	6.1%	4.1%	4.6%	-	-	9.9%	6.1%	-
Net income (Profit attributable to owners of the parent)			-638	-910	3,408	2,726	3,099	-1,158	-2,461	3,705	4,531	-264	-	4,700
		YoY	-	-	132.2%	-17.8%	-	-	-	8.7%	46.2%	-		3.7%
	Net margin (Profit margin)		-	-	4.1%	2.4%	2.9%	-	-	4.3%	3.8%	-		35.9%
Quarterly			FY06/20					FY06/21				FY06/22
			Q1	Q2	Q3	Q4	Q4	Q1	Q2	Q3	Q4	Q1
(JPYmn)			J-GAAP	J-GAAP	J-GAAP	J-GAAP	IFRS	IFRS	J-GAAP	J-GAAP	IFRS	IFRS
Revenue			24,894	24,254	34,981	28,085	-	21,053	25,985	39,158	-	23,960
		YoY	40.4%	13.2%	-0.1%	-18.4%	-	-	7.1%	11.9%	-	13.8%
Gross profit			5,837	6,863	13,294	7,458	-	5,796	7,633	15,326	-	6,418
		YoY	29.6%	20.2%	6.5%	-27.3%	-	-	11.2%	15.3%	-	10.7%
	Gross profit margin		23.4%	28.3%	38.0%	26.6%	-	27.5%	29.4%	39.1%	-	26.8%
SG&A expenses			7,014	7,113	6,901	7,833	-	6,690	6,561	6,800	-	6,946
		YoY	8.5%	8.3%	2.6%	-3.2%	-	-	-7.8%	-1.5%	-	3.8%
	SG&A ratio		28.2%	29.3%	19.7%	27.9%	-	31.8%	25.2%	17.4%	-	29.0%
Operating profit			-1,176	-251	6,392	-375	-	-1,112	1,073	8,524	-	-320
		YoY	-	-	11.1%	-	-	-	-	33.4%	-	-
	Operating profit margin		-	-	18.3%	-	-	-	4.1%	21.8%	-	-
Recurring (Pre-tax) profit			-935	-250	6,304	-516	-	-1,295	1,010	8,917	-	-209
		YoY	-	-	12.5%	-	-	-	-	41.4%	-	-
	Recurring profit margin		-	-	18.0%	-	-	-	3.9%	22.8%	-	-
Net income (Profit attributable to owners of the parent)			-638	-272	4,318	-682	-	-1,158	-1,293	6,166	-	-264
		YoY	-	-	13.7%	-	-	-	-	42.8%	-	-
	Net margin (Profit margin)		-	-	12.3%	-	-	-	-	15.7%	-	-

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
The company conducted a one-for-five reverse stock split on January 1, 2017. Per-share data has been adjusted accordingly.
In FY06/18, the company changed its method of recording revenue from the completed-contract method to the percentage-of-completion method.
Reflects revisions to past financial results announced on December 14, 2020.

Cumulative				FY06/20					Changes in segment				FY06/21				FY06/22
				Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1–Q4					Q1	Q1–Q2	Q1–Q3	Q1–Q4	Q1
(JPYmn)				J-GAAP	J-GAAP	J-GAAP	J-GAAP	IFRS	(JPYmn)				IFRS	J-GAAP	J-GAAP	IFRS	IFRS
Orders				29,563	58,395	96,635	141,632	144,871	Orders				27,083	51,796	82,306	133,304	25,319
	YoY			2.3%	22.4%	34.2%	19.9%	-		YoY			-	-11.3%	-14.8%	-8.0%	-6.5%
										Consultation			20,331			97,769	20,318
												YoY	-			-	-0.1%
												% of total	75.1%			73.3%	80.2%
	Domestic Consulting			14,213	24,495	35,645	56,184	59,314						27,002	39,060
			YoY	-0.4%	4.4%	10.4%	6.3%	-						10.2%	9.6%
			% of total	48.1%	41.9%	36.9%	39.7%	40.9%						52.1%	47.5%
	International Consulting			6,225	17,627	30,909	47,508	47,617						12,194	20,216
			YoY	-16.2%	52.4%	73.9%	66.8%	-						-30.8%	-34.6%
			% of total	21.1%	30.2%	32.0%	33.5%	32.9%						23.5%	24.6%
	Urban & Spatial Development			5,385	8,984	12,750	17,874	17,874		Urban & Spatial Development			2,910	6,281	11,272	21,457	2,868
			YoY	5.1%	14.8%	8.3%	-12.9%	-				YoY	-	-30.1%	-11.6%	20.0%	-1.4%
			% of total	18.2%	15.4%	13.2%	12.6%	12.3%				% of total	10.7%	12.1%	13.7%	16.1%	11.3%
										Energy			3,804			140	2,133
												YoY	-			-	-43.9%
												% of total	14.0%			0.1%	8.4%
	Power Engineering			3,674	7,182	17,173	19,829	19,829						6,225	11,625
			YoY	93.2%	57.2%	78.5%	28.7%	-						-13.3%	-32.3%
			% of total	12.4%	12.3%	17.8%	14.0%	13.7%						12.0%	14.1%
	Energy			31	56	95	156	156						44	65
			YoY	-76.9%	-75.1%	-79.8%	-78.4%	-						-21.4%	-31.6%
			% of total	0.1%	0.1%	0.1%	0.1%	0.1%						0.1%	0.1%
	Other			31	48	61	79	79		Other			37	48	65	86	-
			YoY	6.9%	0.0%	-17.6%	-21.0%	-				YoY	-	0.0%	6.6%	8.9%	-
			% of total	0.1%	0.1%	0.1%	0.1%	0.1%				% of total	0.1%	0.1%	0.1%	0.1%	-
Revenue				24,894	49,148	84,129	112,214	108,441	Revenue				21,053	46,675	85,833	117,859	23,960
	YoY			40.4%	25.6%	13.4%	3.3%	-		YoY			-	-5.0%	2.0%	8.7%	13.8%
	Consultation									Consultation			13,002			80,098	14,850
			YoY									YoY	-			-	14.2%
			% of total									% of total	48.0%			60.1%	58.7%
	Domestic Consulting			10,073	19,267	39,398	51,333	49,958						19,656	41,290
			YoY	75.2%	36.9%	18.7%	3.5%	-						2.0%	4.8%
			% of total	40.5%	39.2%	46.8%	44.9%	46.1%						42.1%	48.1%
	International Consulting			6,263	12,025	16,690	24,508	22,635						10,253	16,923
			YoY	22.5%	12.5%	1.9%	-1.7%	-						-14.7%	1.4%
			% of total	25.2%	24.5%	19.8%	21.4%	20.9%						22.0%	19.7%
	Urban & Spatial Development			4,487	8,963	13,796	18,160	18,142		Urban & Spatial Development			4,489	8,921	14,719	20,274	5,002
			YoY	36.3%	32.6%	24.6%	18.2%	-				YoY	-	-0.5%	6.7%	11.8%	11.4%
			% of total	18.0%	18.2%	16.4%	15.9%	16.7%				% of total	21.3%	19.1%	17.1%	17.2%	20.9%
										Energy			3,381			16,621	3,925
												YoY	-			-	16.1%
												% of total	12.5%			12.5%	15.5%
	Power Engineering			3,365	7,583	12,399	15,747	15,382						6,997	11,688
			YoY	9.0%	12.9%	3.8%	-4.7%	-						-7.7%	-5.7%
			% of total	13.5%	15.4%	14.7%	13.8%	14.2%						15.0%	13.6%
	Energy			414	710	854	1,187	1,070						369	544
			YoY	94.4%	95.1%	48.0%	65.1%	-						-48.0%	-36.3%
			% of total	1.7%	1.4%	1.0%	1.0%	1.0%						0.8%	0.6%
	Other			182	380	664	825	800		Other			180	48	58	865	181
		YoY		11.0%	16.6%	-0.6%	-18.8%	-			YoY			-87.4%	-91.3%	8.1%	-77.4%
		% of total		0.7%	0.8%	0.8%	0.7%	0.7%			% of total		0.9%	0.1%	0.1%	0.7%	0.8%
Operating profit				-1,176	-1,427	4,965	4,590	5,245	Operating profit				-1,112	-18	8,506	7,128	-320
	YoY			-	-	69.1%	-10.2%	-		YoY			-	-	71.3%	35.9%	-
										Consultation			-956			7,981	-403
												YoY	-			-	-57.8%
												Operating profit margin	-			6.8%	-
	Domestic Consulting			-880	-1,338	4,447	5,227	4,944						70	6,471
			YoY	-	-	58.5%	4.7%	-						-	45.5%
			Operating profit margin	-	-	11.3%	10.2%	9.9%						0.4%	15.7%
	International Consulting			33	173	174	684	513						352	1,541
			YoY	-	-	-39.2%	-18.7%	-						103.5%	785.6%
			Operating profit margin	0.5%	1.4%	1.0%	2.8%	2.3%						3.4%	9.1%
	Urban & Spatial Development			312	504	763	917	1,759		Urban & Spatial Development			394	419	996	2,266	316
			YoY	-	-	931.1%	507.3%	-				YoY	-	-16.9%	30.5%	-	-19.8%
			Operating profit margin	7.0%	5.6%	5.5%	5.0%	9.7%				Operating profit margin	8.8%	4.7%	6.8%	1.9%	6.3%
										Energy			-107			-1,061	260
												YoY	-			-	-
												Operating profit margin	-			-	-
	Power Engineering			34	620	1,682	1,069	995						143	956
			YoY	-75.4%	19.5%	0.4%	-48.8%	-						-76.9%	-43.2%
			Operating profit margin	1.0%	8.2%	13.6%	6.8%	6.5%						2.0%	8.2%
	Energy			-96	-175	-287	-383	-355						-179	-250
			YoY	-	-	-	-	-						-	-
			Operating profit margin	-	-	-	-	-						-	-
	Corporate, other			1	-1,414	-2,110	0	-2,967		Corporate, other			-450	-1,177	-1,699	-2,058	-495

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
In FY06/16, BDP became a consolidated subsidiary, and the Urban & Spatial Development segment was added. (Orders indicate BDP’s order backlog as of April 1.)
In FY06/17, the company introduced a new standard for recording orders. This method has been retroactively applied to orders in FY06/16. (The previous standard is used for YoY comparisons).
Segment operating profit forecasts based on comments in the company’s financial results.
Reflects revisions to past financial results announced on December 14, 2020.
IFRS figures through Q3 FY06/21 retroactively adjusted

Q1 FY06/22 results (out November 15, 2021)

Overview

Results for Q1 FY06/22 (July–September 2021)

Orders received: JPY25.3bn (-6.5% YoY)
Revenue: JPY24.0bn (+13.8% YoY)
Operating loss: JPY320mn (operating loss of JPY1.1bn in Q1 FY06/21)
Pre-tax loss: JPY209mn (pre-tax loss of JPY1.3bn in Q1 FY06/21)
Net loss*: JPY264mn (net loss of JPY1.2bn in Q1 FY06/21)
*Net loss attributable to owners of the parent

Business environment

The business environment for the Consulting business in Japan is characterized by the government's budget remaining at a high level, particularly for the building of national resilience, an acceleration in digital reforms, and growing management business demand. In terms of the overseas environment, despite travel restrictions and risks to the advancement of the company's business due to the COVID-19 pandemic, the Japanese government has set a lofty target for orders as part of its 2025 Policy Program for Promotion of Overseas Infrastructure, with the company expecting demand to remain firm.

In the Urban & Spatial Development business, demand is robust for urban rebuilding projects in Japan, Europe, and the US. Demand is also firm for urban redevelopment work, including urban infrastructure work, in developing markets. For the Energy business, competition and new business opportunities are emerging in Japan as the country targets the realization of carbon neutrality by 2050, while demand is expanding across the globe for the development of renewable energy and increased efficiency in energy usage.

Adoption of International Financial Reporting Standards (IFRS)

Starting with Q4 FY06/21, Nippon Koei is disclosing consolidated financial statements in accordance with IFRS and has also retrospectively adjusted its FY06/20 results to conform to IFRS. The company has applied the exemptions allowed under IFRS 1 First-time Adoption of International Financial Reporting Standards in regard to business combinations, currency translation differences for foreign operations, stock-based compensation, leases, borrowing costs, and designation of previously recognized financial instruments.

Performance by business

Results by segment for Q1 FY06/22 (July–September 2021) are as follows:

Consulting

Orders received: JPY20.3bn (-0.1% YoY)
Revenue: JPY14.9bn (+14.2% YoY)
Operating loss: JPY403mn (operating loss of JPY956mn in Q1 FY06/21)

The company worked to improve productivity through DX and entrench revenue management, quality management, risk management, and safety management. The company also worked to advance and develop on a global basis disaster prevention and mitigation technologies, expand the transport-related business, promote services contributing to decarbonization, and advance its full-scale entry in the management field.

Urban & Spatial Development

Orders received: JPY2.9bn (-1.4% YoY)
Revenue: JPY5.0bn (+11.4% YoY)
Operating profit: JPY316mn (-19.7% YoY)

In addition to promoting urban development and the smart city business, the company worked to respond to changes in the UK market, expand its business in the Canadian market, and grow its business in Asia through greater collaboration between group companies.

Energy

Orders received: JPY2.1bn (-43.9% YoY)
Revenue: JPY3.9bn (+16.1% YoY)
Operating profit: JPY260mn (loss of JPY107mn in Q1 FY06/21)

In the mainstay electric power equipment business, the company worked to strengthen its production system and develop new products. In the renewable energy and other power generation businesses, the company worked to grow revenue by working on new projects. In the energy management business, it focused on storage battery businesses, mainly in Europe, and developing a base for the aggregation business (aggregating distributed energy sources and providing energy services through power market transactions and other means) in Japan.

Other

Revenue: JPY181mn (+0.6% YoY)
Operating loss: JPY495 (operating loss of JPY450mn in Q1 FY06/21)

Full-year company forecast for FY06/22

		FY06/19			FY06/20				FY06/21		FY06/22
		1H Act.	2H Act.	FY Act.	1H Act.	2H Act.	FY Act.	FY Act.	1H Act.	FY Act.	FY Est.
(JPYmn)		J-GAAP	J-GAAP	J-GAAP	J-GAAP	J-GAAP	J-GAAP	IFRS	J-GAAP	IFRS	IFRS
Revenue		39,146	69,443	108,589	49,148	63,066	112,214	108,441	46,675	117,859	131,000
	YoY	25.3%	-7.1%	2.4%	25.6%	-9.2%	3.3%	-	-5.0%	8.7%	11.1%
	Cost of revenue	28,931	46,696	75,627	36,448	42,314	78,762	75,203	33,283	80,124
Gross profit		10,215	22,747	32,962	12,700	20,752	33,452	33,238	13,392	37,735
	Gross profit margin	26.1%	32.8%	30.4%	25.8%	32.9%	29.8%	30.7%	28.7%	32.0%
SG&A expenses		25,797	2,054	27,851	19,760	9,101	28,861	28,436	14,127	29,173
	SG&A ratio	65.9%	3.0%	25.6%	40.2%	14.4%	25.7%	26.2%	30.3%	24.8%
Operating profit		-2,817	7,927	5,110	-1,427	6,017	4,590	5,245	-18	7,128	7,700
	YoY	-	-13.4%	-22.1%	-	-24.1%	-10.2%	-	-	35.9%	8.0%
	Operating profit margin	-	11.4%	4.7%	-	9.5%	4.1%	4.8%	-	6.0%	5.9%
Recurring (Pre-tax) profit		-2,901	8,485	5,584	-1,185	5,788	4,603	5,029	-426	7,176
	YoY	-	-6.4%	-16.9%	-	-31.8%	-17.6%	-	-	42.7%
	Recurring profit margin	-	12.2%	5.1%	-	9.2%	4.1%	4.6%	-	6.1%
Net income (Profit attributable to owners of the parent)		-2,331	5,649	3,318	-910	3,636	2,726	3,099	-2,461	4,531	4,700
	YoY	-	-3.7%	-27.2%	-	-35.6%	-17.8%	-	-	46.2%	3.7%
	Net margin	-	8.1%	3.1%	-	5.8%	2.4%	2.9%	-	3.8%	3.6%

Source: Shared Research based on company data
Notes: Figures may differ from company materials due to differences in rounding methods.
Reflects revisions to past financial results announced on December 14, 2020.

Full-year FY06/22 forecast (IFRS; out August 13, 2021)

Revenue: JPY131.0bn (+11.1% YoY)
Operating profit: JPY7.7bn (+8.0% YoY)
Net income*: JPY4.7bn (+3.7% YoY)
Basic EPS: JPY312.32 (JPY300.00 in FY06/21)
No changes when Q1 FY06/22 results were announced (November 15, 2021)
*Net income attributable to owners of the parent

Background to earnings outlook

The company’s FY06/22 forecast calls for orders of JPY130.0bn (-2.5% YoY). Starting with FY06/22, Nippon Koei is disclosing data for three segments. It aims to improve productivity through the integrated operation of the Domestic Consulting and International Consulting businesses. In the Urban & Spatial Development business, it will form a business base with its main field being a fusion of civil engineering and architecture achieved through the integrated management of group companies. In the Energy business, while enhancing the price competitiveness and production systems of existing businesses, it plans to work on building a foundation in growth areas including renewable energy, storage batteries, and aggregation (aggregating distributed energy sources and providing energy services through power market transactions and other means).

Outlook by key segment

Consulting business (former Domestic Consulting and International Consulting businesses)

Orders received: JPY95.0bn (-2.8% YoY)
Revenue: JPY89.0bn (+11.1% YoY)
Operating profit: JPY7.7bn (-3.5% YoY)

The order forecasts under the previous segment breakdown are Domestic Consulting, JPY62.0bn (-0.1% YoY) and International Consulting JPY33.0bn (-7.6% YoY). The company expects domestic projects to be roughly level YoY, and its forecasts for overseas projects are the aggregate of assumed projects, not factoring in any major projects. The company forecasts 11.1% YoY growth in revenue as it works through an ample order backlog. It expects lower profit on a rebound in expenses that were curtailed during the pandemic.

Urban & Spatial Development business (business name and activities unchanged)

Orders received: JPY20.0bn (-6.8% YoY)
Revenue: JPY21.0bn (+3.6% YoY)
Operating profit: JPY1.5bn (-33.8% YoY)

The company expects orders to decline in a reaction to strong public-sector projects and additional orders to restore Westminster in FY06/21. It expects solid revenue as it works through its order backlog. However, it expects a 33.8% decline in operating profit as it does not anticipate a repeat of subsidies received by BDP in FY06/21 during the COVID-19 pandemic. Shared Research estimates that if the subsidies are excluded, that profit would be roughly in line with FY06/21.

Energy business (merged Power Engineering and Energy businesses)

Orders received: JPY15.0bn (+7.2% YoY)
Revenue: JPY20.0bn (+20.3% YoY)
Operating profit: JPY1.7bn (operating loss of JPY1.1bn in FY06/21)

The order forecasts under the previous segment breakdown are Power Engineering, JPY15.0bn (+8.1% YoY) and Energy JPY0mn (no change). The company expects revenue growth from working through its order backlog, absence of a negative impact from the extended hydropower projects in the former Power Engineering business, and sales growth for substation equipment in the manufacturing division. On the profit front, the temporary provisions booked in FY06/21 (affect operating profit under IFRS accounting standards), which pushed up costs, will drop out, so the company expects operating profit to move into the black.

Differences between results and company forecasts

Results vs. Initial Est.		FY03/12	FY03/13	FY06/13	FY06/14	FY06/15	FY06/16	FY06/17	FY06/18	FY06/19	FY06/20
(JPYmn)		Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.	Cons.
	Revenue (Initial Est.)	65,000	68,400	6,100	75,000	81,000	84,000	105,000	114,000	115,000	127,700
	Revenue (Results)	65,945	72,411	6,896	79,193	81,839	81,865	101,338	106,023	108,589	112,214
Results vs. Initial Est.		1.5%	5.9%	13.0%	5.6%	1.0%	-2.5%	-3.5%	-7.0%	-5.6%	-12.1%
	Operating profit (Initial Est.)	2,500	3,300	-2,900	4,200	4,000	4,200	6,000	7,700	6,200	5,800
	Operating profit (Results)	3,030	4,642	-3,214	4,256	4,502	4,723	5,464	6,561	5,110	4,590
Results vs. Initial Est.		21.2%	40.7%	10.8%	1.3%	12.6%	12.5%	-8.9%	-14.8%	-17.6%	-20.9%
	Recurring profit (Initial Est.)	2,600	3,400	-2,900	4,300	4,200	4,500	6,300	7,800	6,100	6,200
	Recurring profit (Results)	3,326	5,086	-3,156	4,542	5,477	4,365	5,958	6,721	5,584	4,603
Results vs. Initial Est.		27.9%	49.6%	8.8%	5.6%	30.4%	-3.0%	-5.4%	-13.8%	-8.5%	-25.8%
	Net income (Initial Est.)	1,200	1,650	-1,800	3,000	2,200	2,200	3,600	4,900	4,100	3,600
	Net income (Results)	1,419	2,849	-1,914	2,998	4,261	1,823	3,288	4,555	3,318	2,726
Results vs. Initial Est.		18.3%	72.7%	6.3%	-0.1%	93.7%	-17.1%	-8.7%	-7.0%	-19.1%	-24.3%

Source: Shared Research based on company data
Note: Reflects revisions to past financial results announced on December 14, 2020.

Outlook

Review of medium-term management plan, NK-Innovation 2021 (FY06/19–FY06/21)

In July 2018, the company formulated a medium-term management plan (NK-Innovation 2021) for the period from FY06/19 to FY06/21. By FY06/21 (after moving to IFRS standards), the company targeted revenue of JPY140.0bn, operating profit of JPY12.6bn, OPM of JPY9.0%, and ROE of 12.7%. The COVID-19 pandemic took hold during the plan period, and FY06/21 results were revenue of JPY117.9bn, operating profit of JPY7.1bn, OPM of 6.0%, and pre-tax return on assets of 4.7%.

While results fell short of initial forecasts, revenue increased by 50% over the six years of previous long term plan (from FY06/16 to FY06/21). In addition, new businesses launched including the Urban & Spatial Development (established as a segment in FY06/16 with the BDP acquisition) and Energy (launched in FY06/19) contributed to growth.

Outcomes and issues

The company sees the following items involved in business development and corporate management, in terms of outcomes and issues related to NK-Innovation 2021.

The company thinks that business development outcomes include expansion of the Urban & Spatial Development business and business creation and international expansion in the Consulting business. In Urban & Spatial Development, the company and BDP have aimed at winning Asian urban development projects and smart city development projects combining civil engineering and architectural experience. Bringing Canada-based Quadrangle Architects into the group under BDP facilitated expanding into markets outside the UK. While it is a work in progress, the company collaborated with BDP to make inroads into the Asian markets.

Outstanding issues include increasing productivity in railroads and establishing the Energy business. Railroads are important social infrastructure for developing nations. The company aimed to improve its project management capabilities through alliances with local companies and strengthening the capabilities of engineers in the region. While it won multiple large project contracts, it suffered ongoing labor shortages. In the Energy business overseas, primarily in Europe, it established a local subsidiary but project development was delayed.

To establish a one-stop marketing structure for customers, the company made progress in setting up a sales headquarters in charge of sales across segments. It also made solid progress in integrating technological development themes and established a leading-edge R&D center. To strengthen group governance, it set up business management guidelines and adopted IFRS accounting standards. However, in FY06/21, Nippon Koei had to retrospectively revise financial results due to issues with business management, and will continue to focus on strengthening governance.

Building Resilience 2024 formulated to achieve goals in NKG Global Strategy 2030, long-term strategic plan

Formulation of NKG Global Strategy 2030, long-term strategic plan for FY06/22 and beyond

Outline of advance announcement (at the time 1H FY06/21 results were published)

As a continuation to the current medium-term management plan ending in FY06/21, the company formulated a long-term strategic plan spanning 10 years after publication of its 1H FY06/20 results, and stated that the content of this plan would be announced by June 2021 (material from the financial results briefing of February 18, 2021). 2030 is a target year for Sustainable Development Goals (SDGs) adopted by the United Nations, and for Japan’s Basic Energy Plan (energy mix for a low-carbon society, use of renewable energy). At the time of the announcement of 1H FY06/20 results, the company initially set its mission, business strategy, and targets with the understanding of global trend, and announced the outline of its functional strategies, including the business operations mechanisms to achieve its targets.

The new long-term management plan is called NKG Global Strategy 2030, and the company outlined the plan in March 2020, with three key points. The first two points are the concept of technology innovation and integration. The final point is the concept of providing new value.

(1) Operating in three business domains

The company will consolidate and reform its five business groups into three.

In the Consulting business, the current Domestic and International Consulting businesses will be merged. Additionally, the R&D center will be incorporated, and the business will be reorganized to enable more agile operations. The Urban & Spatial Development business aims to integrate civil engineering and architecture and become a comprehensive producer of urban and regional revitalization projects. The Power Energy business will merge the current Power Engineering and Energy businesses and provide one-stop solutions for power energy.

(2) Realization of one-stop services and agile business operations

The company aims to respond to a wide range of social needs by building a sales structure that integrates and presents services in new domains across the board.

(3) Full-scale entry in the management field

The company plans to enter into a variety of areas such as business investment (PPP, PFI), administrative support (PM, CM businesses, comprehensively evolve project management overseas), and data management (business that responds to customer needs through AI, big data technologies, and needs-based R&D. Plans to implement practical knowledge of Geoplan Namtech, which became a group company as of FY06/20).

Announcement of plan outline (June 10, 2021)

The company officially announced an outline of the long-term management plan in June, 2021. At that point, it was specified that the long-term management plan targets revenue of JPY250.0bn, OPM of 10%, and ROE of 15% in FY06/30, the final year of the plan.

The plan is to enhance the group’s corporate value by continuing to strengthen its foundations and establish systems to enhance its ability to respond to changes in the environment in Japan and overseas. * The company has established "Co-creation for challenging the future without limits" as the new plan’s core concept. Nippon Koei says it is the group’s mission to contribute to the creation of a sustainable society by adding new technologies and know-how to the technological and management capabilities it has cultivated to date. To fulfill that mission and continue to provide new value, the company recognizes that it must seek new knowledge and technological innovation and integration through co-creation efforts with various internal and external partners. The company plans to provide a detailed explanation of the long-term management plan after the announcement of its full-year FY06/21 results.

Basic strategies

1. Reorganizing business divisions to realize a one-stop model: The company will work to develop a new system of three business domains (Consulting, Urban & Spatial, and Energy), realize a one-stop system for providing services and enabling more agile operations, and full-scale expansion into the business management field.

2. Promoting greater self-reliance and cooperation: This strategy is based on pillars of shifting to a pure holding company structure that enables autonomy and collaboration, as well as more rapid decision-making and the coexistence of diversity, and the implementation of matrix management focused on both business and region.

3. Embodying the NKG brand and NKG quality: The company plans to take measures such as realizing its technology strategies by developing world-class human resources and promoting digital transformation (DX).

New medium-term management plan Building Resilience 2024

On August 13, 2021, Nippon Koei announced Building Resilience 2024, its new medium-term management plan aimed at realizing the long-term management strategy NKG Global Strategy 2030. In FY06/24, the final year of the newly unveiled plan, it aims for revenue of JPY155.0bn, operating profit of JPY11.5bn, OPM of 7%, and ROE of 9%. In order to maintain a sound financial position, it targets a shareholders’ equity ratio of 40%, and a dividend payout ratio of 30% to provide ample shareholder returns with stable dividends commensurate with profits.

The plan covers three years from FY06/22 through FY06/24. The company sees it as a period of transformation to fortify the group as a whole and released specific measures in Building Resilience 2024. The key focus is building resilience through three strategies: (1) independent growth in three business domains, (2) matrix management by business and region, and (3) establishing the NKG brand and NKG quality. Nippon Koei aims to grow its business in the global markets by pursuing these strategies. The company plans growth investment including M&A of roughly JPY32.0bn over three years.

Resilience strategy 1 (Independent growth in three business domains): Consulting business

The business environment for the Consulting business in Japan features growing public works budgets, including the Japanese government’s five year initiatives for building national resilience, with a FY2021 national budget of about JPY8.5tn. Local governments are also increasing budgets for disaster prevention and mitigation and regional digitalization initiatives. Overseas, the Japanese government has released a strategy aimed at promoting infrastructure overseas, targeting infrastructure orders of JPY34tn in 2025.

Business direction entails integrating capabilities of the company’s domestic and international consulting operations and R&D Center to strengthen its advantages from the standpoint of technology and quality in international markets. Strategies include enhancement and global rollout of disaster prevention and mitigation technologies; expansion of transport related businesses aimed at establishing transport infrastructure and developing smart cities; services such as wind power and small-scale hydro that support decarbonization to mitigate global warming; and expansion in management areas related to urban disaster mitigation.

Resilience strategy 1 (Independent growth in three business domains): Urban & Spatial Development business

The business environment for the Urban & Spatial Development business in Japan starts with the revitalisation market (renovation and utilization) for publicly and privately owned buildings, and the smart city and area management markets are growing. Overseas, sectors involved with development of transport and peripheral infrastructure are growing due to increasing urbanization of the population.

Business direction aims at taking on overall charge of urban and regional revitalisation projects in Japan and overseas and tapping into new markets with integrated groupwide management in the segment (urban development and smart cities). Specifically, one-stop services for town redevelopment, development of smart city projects aimed at decarbonization, safety and security, expanding BDP’s business in North America, and a full-scale move into the urban management field.

Resilience strategy 1 (Independent growth in three business domains): Energy business

In the context of the government’s 2050 carbon neutral target, the business environment for the Energy business in Japan features ambitions to make renewable energy a core source of power, the use of hydrogen, reinforcement and improved operation of the power grid, and growth in the power trading market. Upgrading of ageing existing facilities to ensure a stable power supply is also necessary. Overseas, renewable energy markets are growing worldwide.

Business direction entails building platforms for the power generation and energy management businesses, such as storage batteries and aggregation, through internal and external collaboration, the development of new products to stabilize the manufacturing business, and reinforcing the consulting and engineering business organizations.

Targets for three key segments

(JPYmn)			FY06/21 Act.	FY06/22 Est.	FY06/23 Est.	FY06/24 Est.	Average growth rate
Strategic consulting services	Orders		97,769	19,200	-	92,000	-2.0
	Revenue		80,098	89,000	78,000	88,000
		YoY	-	11.1	-12.4	12.8	3.2
	Operating profit		7,981	7,700	7,200	8,200
		YoY	-	-3.5	-6.5	13.9
	Operating profit margin		10.0	8.7	9.2	9.3
Urban & Spatial Development	Orders		21,457	20,000	-	39,000	22.0
	Revenue		20,274	21,000	38,000	40,000
		YoY	-	3.6	81.0	5.3	25.4
	Operating profit		2,266	1,500	2,800	3,200
		YoY	-	-33.8	86.7	14.3
	Operating profit margin		11.2	7.1	7.4	8.0
Energy	Orders		13,991	15,000	-	19,000	10.7
	Revenue		16,621	20,000	24,500	26,000
		YoY	-	20.3	22.5	6.1	16.1
	Operating profit		-1,061	1,700	3,500	3,300
		YoY	-	-	105.9	-5.7
	Operating profit margin		-	8.5	14.3	12.7
Real Estate, other	Revenue		865	1,000	-	1,000
		YoY	-	15.6	-	-	5.0
	Operating profit		-2,058	-3,200	-	-3,200
		YoY	-	-	-	-
	Operating profit margin		-	-	-	-
Total orders received			133,304	130,000	-	150,000	4.0
Total revenue			117,859	131,000	-	155,000
		YoY	-	11.1	-	-	9.6
Operating profit			7,128	7,700	-	11,500
		YoY	-	8.0	-	-
	Operating profit margin		6.0%	5.9%	-	7.4%

Source: Shared Research based on company data.
Note: In FY03/26, the planned transfer of consolidated subsidiaries is likely to result in lower revenue in the Consulting business and higher revenue in the Urban & Spatial Development business.

Resilience strategy 2 (Matrix management by business and region): Organizational strategy

Nippon Koei aims to become a pure holding company around FY06/24. The aim is to speed up decision-making with an integrated corporate group. To facilitate this, the medium-term plan involves reorganizing the group structure with matrix management by business and region. This entails a business axis with three segments and a geographical axis with six focus regions (Japan, Southeast Asia, South Asia, Sub-Saharan Africa, Europe, and the Americas). This is to ensure comprehensive management of each region worldwide and streamlined, more efficient operations. The ultimate goal is to enable the company to put forward optimal solutions in a timely manner in response to the social issues and needs of each individual region.

Resilience strategy 2 (Matrix management by business and region): Sales strategy

Under the slogan, “Think Globally, Act Locally,” the company aims to meet regional needs around the world with world-class technologies. To that end, Nippon Koei aims to promote sales of its technologies (products and services) in Japan and overseas as well as cross-segment solutions to enable one-stop services. The company plans to establish autonomous sales sites at its locations worldwide.

Resilience strategy 3 (Establishing the NKG brand and NKG quality)

The company plans to develop arrangements which lift the capabilities of its employees across the group. It plans to set up NKG Global Academy, where its engineers from around the world can exchange and integrate technological information, and also plans to develop and grow relationships with external research organizations such as universities. Nippon Koei plans to undertake groundbreaking initiatives centered on digital transformation (DX), including building digital information infrastructure, AI and big data analysis, building virtual space reproduction technology and associated platforms, and information delivery systems. It also aims at sustainable management by respecting employee diversity and well-being focused management that values the health and happiness of its employees.

Sustainable DevelopmentGoal (SDG) targets

Source: Shared Research based on company data

Business

Business model

An integrated consultant that provides everything from initial ideas to construction supervision

The company’s scope of activity runs from coming up with initial ideas to handling the conceptual and planning stages for national, regional, or municipal projects. The company also conducts foundational, geological, and environmental assessments, as well as handles design work, construction supervision, and operation and maintenance associated with social infrastructure. The company explains that it works to understand the issues underlying a client’s requests and then searches out solutions for each process from a third-party perspective.

Business model

Source: Shared Research based on company data

Consulting fees depend on who is placing the order, the consulting details, project scale, and other factors. Nippon Koei explains that such fees generally run to a few percent of total construction costs.

Business overview by segment (classifications until FY06/21)

Domestic Consulting

In Japan, solid core technologies and track record on public-sector projects nation-wide

In this business the company provides consulting work, ranging from initial planning and proposals to construction management, for social infrastructure projects (infrastructure development and maintenance) and regional initiatives (such as implementation of safety measures). The company receives orders in this business from the Ministry of Land, Infrastructure, Transport and Tourism, as well as other national and regional government agencies. Once the plans are endorsed, they are typically executed by general contractors and other construction companies. In some cases, the company supervises the progress of construction. National and regional government agencies provide the majority of revenue in this segment. As project planning is conducted throughout Japan, the company maintains business offices in all 47 Japanese prefectures.

The company’s main activities involve water resources and waterways, dams and power generation, urban and regional development, transportation, disaster prevention, and environmental management.

Water resources and rivers: The company provides technical services for flood control, efficient water use, improvement of water environments, and the water supply and sewerage facilities that are integral for daily living.

Dams and power generation: The company handles all aspects of dam projects, including providing technologies for new dam construction and for redevelopment and service life extension of existing dams.

Urban and regional development: The company’s services in this area include regional development studies; support for policymaking related to urban and regional planning; and investigation, analysis, design, and construction supervision concerning ground conditions and geology.

Transportation: The company provides a wide range of services, such as planning, investigation and design, service life extension and improvement in maintenance of roads, bridges, airports, and other transportation infrastructure.

Disaster prevention: To preserve the land and enable people to live safely and peacefully, the company provides technical services that protect communities from natural disasters such as large earthquakes, volcanic eruptions, and torrential rain.

Environmental management: The company’s business in this sector focuses on balancing development and the environment by preserving air, water, and land environments, as well as biodiversity for a sustainable society that coexists in harmony with nature.

Project management: To meet the need for cooperation and collaboration among government entities, private enterprises, and citizens, the company provides consulting services such as asset management and technical management in public–private partnerships (PPPs).

To receive orders related to public-sector construction projects, companies must meet price points and have technological capabilities. They must also have experience. In March 2009, official operational guidelines were drawn up for bidding methods (proposal method and overall greatest value method [OGVM]) related to civil engineering consulting. Related regulations were later revised, and regulations on the registration of qualified engineers conducting surveys, design, and quality assurance for public-sector construction were announced in 2014. This notice marked the start of the registration system that is in place today. The figure below outlines the Ministry of Land, Infrastructure, Transport and Tourism’s basic perspective on bidding for public-sector construction.

Basic considerations when deciding how to place order with civil engineering consultants

Source: Shared Research based on the Ministry of Land, Infrastructure, Transport and Tourism website

Examples of work in the Domestic Consulting business

Flood plain mapping

Flood plain mapping Tsunami and high tide simulation

To counter serious flooding, the company looked at the river’s capacity to handle floodwaters and then mapped out the maximum amount of flooding, by area and time, that would occur for a given amount of rainfall. (Shizuoka Prefecture, 2017) The company uses tsunami and high tide simulations to provide consulting services that include predicting tsunamis and high tides, assessing vulnerability, and planning and formulating countermeasures.

Earthquake damage prediction

The company creates foundation models based on information from ground and boring surveys. These models can be used to identify potential earthquake damage by region (left) and prepare distribution charts of liquefaction potential (PL values, right). (Shiga Prefecture, 2013) This image shows the results of an analysis performed using the 3D finite element method (FEM), an analysis method used in structural mechanics, as part of measures for strengthening existing bridges and other structures. (Kanto Regional Development Bureau, 2017)

Earthquake damage prediction Studies of countermeasures surrounding existing structures

Autonomous driving technology

The company is supporting a business project promoted by the Tokyo Metropolitan Government that combines autonomous driving (AD) technology and advanced information and communication technology (ICT) as a business promoter. (Tokyo, 2019)

Using CIM technology to extend the life of disaster prevention facilities and handle operation and maintenance