Seikitokyu Kogyo : Corporate Report 2021

Corporate Report

2021

Corporate Philosophy

A n i n f r a s t r u c t u r e b u i l d i n g c o m p a n y t h a t h e l p s c re a t e a ff l u e n t c o m m u n i t i e s

Where We Should Be in 2030

A truly strong corporate group that pursues personal and corporate growth in tandem and helps realize a sustainable society

Action Guidelines

To	e a r n t r u s t
To r i s e t o t h e c h a l l e n g e f o r c h a n g e
To t a k e t h e l e a d a n d t a k e a c t i o n
To	s h a r e o u r k n o w l e d g e a n d t e c h n o l o g i e s

Seikitokyu Kogyo Group Compliance Code of Conduct

1. To recognize that safety always comes first when executing our business.
2. To conduct fair and transparent business activities that not only naturally comply with all laws and regulations but also conform with internal rules.
3. To conduct fair and transparent decision making.
4. To conduct timely disclosure in an appropriate and fair manner.
5. To conduct appropriate accounting and reporting.
6. To focus on the market and provide products that customers trust.
7. To comply with environmental laws and regulations and conduct environment-conscious corporate activities.
8. To have absolutely no dealings with anti-social forces and to resolutely refuse any improper demands.
9. To provide and preserve fine, healthy workplace environments.
10. To seek to use electronic information fairly, maintain trust, and ensure confidentiality.
11. To recognize the importance of intellectual property and trade secrets and ensure they are both handled appropriately.
12. To always distinguish between public and private needs and never act in a way that would be detrimental to the Company's interests.
13. To never engage in insider trading or the sale of stocks or other items that could be considered suspect.

CONTENTS

Introduction

1. Corporate Philosophy/Editing Policy/Guidelines
2. Contents/Scope of Information

Seikitokyu Kogyo Group

History of Seikitokyu Kogyo Group

Financial and Non-Financial Highlights

Value Creation Process

Strategy

from the President Policy and Financial Strategies term Vision

Medium-term Management Plan

Kogyo Group

Business Description

Stock Information

y g e t a r t S h t w o r G Group Kogyo Seikitokyu Aboutn o i t c u d o r t n I

n o i t c e S G S E

Editing Policy

Our aim in publishing this report is to disclose initiatives designed to improve Seikitokyu Kogyo's medium- to long-term corporate value to our shareholders, investors, and all other stakeholders, and to encourage opportunities for dialogue. The report includes not only financial information, but also non-financial information on topics such as our long-term corporate vision, the environment, society, and governance.

We hope this report will help deepen your understanding of our corporate goals and approach.

Repor t Scope and Timeframe

Timeframe: April 2020 to March 2021 (includes some activities that fall outside this period)

Scope: The whole Seikitokyu Kogyo Group However, some of the non-financial information refers to SEIKITOKYU KOGYO CO., LTD. only.

Reference Guidelines

Environmental Reporting Guidelines, Japan's Ministry of the Environment

Guidance for Collaborative Value Creation, Japan's Ministry of Economy, Trade and Industry

Scope of Infor mation

Financial Information

Non-Financial Information

Overview

Website (https://www.seikitokyu.co.jp/)

Corporate Reports (in Japanese and English)

Financial Results Presentation Materials

Corporate Governance

Reports

Securities Report

Financial Results

Reports

Details

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1 SEIKITOKYU KOGYO CO., LTD.

Corporate Report 2021

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Pavement construction work at the time of the Company's foundation

About Seikitokyu Kogyo Group

History of Seikitokyu Kogyo Group

We were established in January 1950 as SEIKl KENSETSU KOGYO CO., LTD. The Company changed its name to SEIKI KENSETSU CO., LTD. in April 1962, and later merged with Tokyu Road KK to establish SEIKITOKYU KOGYO CO., LTD. Today, our business encompasses (1) pavement construction works for expressways and other roads, airports, bridges, regulating reservoirs, and station platforms and maintenance of sports parks and athletic fields, as well as (2) pavement materials manufacturing and sales and acceptance of construction waste. The Seikitokyu Kogyo Group, which includes 12 subsidiaries, operates across Japan and in (3) Myanmar and Guam.

in society	1956 Establishment of the Japan Highway Public Corporation	1973 The Yom Kippur War (the first oil crisis)
	1964 Tokyo Olympics		1979 The Iranian Revolution (the second oil crisis)
events						1985 The Plaza Accord
Major

(1) Asphalt pavement construction work	(2) Asphalt mixture plant		(3) Emulsion plant in Myanmar
1991-1993 Collapse of bubble economy	2008 The global financial crisis
				2011 The Great East Japan Earthquake

n o i t c u d o r t n I

1950-

Establishment of "Seiki of technology"

Worked on the frontline of road construction during the postwar reconstruction and rapid economic growth period

Tokyu Road (1967-1982)

1982-

Expanded business fields beyond road construction

Made a full-fledged foray into the fields of leisure, construction works, and overseas works, and received orders of 100 billion yen in fiscal 1989

Seikitokyu Kogyo

1990-	2011-	Today
Returned to the core business in Japan after the collapse of the bubble economy	Help to achieve a sustainable society on the basis
Diversification of pavement technologies, such as pavement that drains water,	of our expertise in road construction Geared toward
reflects solar radiation, or resists freezing, as well as ICT construction	medium- to long-term increase in corporate value

Group Kogyo Seikitokyu About

History or Seikitokyu Kogyo

In response to an increasing demand for road pavement, the Road Construction Unit of Tokyu Construction Co., Ltd. was separated from the company in January 1967 to establish Tokyu Road KK. While constantly delivering results as a company specialized in road construction, Tokyu Road was committed to building asphalt material plants. The material plants established in Asaka and Yokohama in the 1960s form the basis of the material network in the Kanto area, which constitutes our strength today. The 1970s saw the start of the urban court business. Environment and landscape technologies that originate here are used today for many sports facilities and parks, such as tennis courts, athletic fields, and promenades.

Kenzaburo Kondo

(The first president of Tokyu Road KK)

Kenzaburo Kondo played a central role in urban and road planning in Hsinking, the capital of Manchuria, and led road construction proj- ects. He served as secretary general of the Japan Highway Users Conference after World War II and was known as a traffic policymaker and road theorist since early days.

SEIKI KENSETSU (1950-1982)

SEIKl KENSETSU KOGYO CO., LTD. was established in January 1950 by Masaaki Seto, Hidenobu Oshima, and others, who played a central role in urban planning and road construction in Manchuria. The Company worked on the frontline of road construction in postwar Japan and provided a foundation for reconstruction and rapid economic growth. Shortly after the establishment, the Company started to show its presence with great ambitions for road construction and advanced technologies, receiving an order for the first pavement construction work on service contract from the Ministry of Construction in 1955 and an order for the first pavement construction work from the Japan Highway Public Corporation in the following year. A laboratory was established in 1959,

where research on asphalt pavement was conducted while concrete pavement was the mainstream at the time. This laid the foundation for what will later be called "Seiki of technology." The first asphalt plant was established in 1951, and the first recycling plant was established at Myokenjima, Edogawa-ku in 1977, with an eye to changes of the times.

As Japan saw the end of rapid economic growth and a transition to low growth, SEIKl KENSETSU KOGYO CO., LTD. and Tokyu Road KK merged on May 1, 1982, to establish

SEIKITOKYU KOGYO CO., LTD.

The first large-scale merger in the road industry strengthened the business foundation and resulted in the gradual expansion into the golf course development and resort facility construction businesses in later years. In the fiscal year ended March 1990, the Company received orders of 100 billion yen, which was the target set at the time of the merger.

Masaaki Seto

(The first president of SEIKl KENSETSU KOGYO CO., LTD.)

Masaaki Seto was the central figure of SEIKl KENSETSU KOGYO CO., LTD., both as the president and as an engineer. Although the Company was a relative latecomer to the business, he made its name known nationwide within a few years after the establishment and expanded the business scale.

The origin of the Company name of

SEIKl KENSETSU KOGYO

The Company was established in the first year of the second half of the 20th century, and the road pavement works by the founders were recognized by a chief engineer of U.S. military as the best work humans have done in the century (seiki). The Company name derives from these events, expressing the ambition to continue to produce business achievements of the century.

After the collapse of the bubble economy, the Company concentrated its management resources on the core business. A wide range of pavement technologies were established, including pavement that drains water, which prevents water from staying on the surface and has become common in today's expressways; pavement that reflects solar radiation, which curbs the heat-island phenomenon; and pavement that resists freezing, which prevents car accidents caused by slippery road conditions in winter. In addition, the Company has satisfied the diversifying needs of society by using its technologies. For example, research and development, as well as actual use, of ICT construction has been under way, which can address various issues, including safety of construction works, productivity at construction sites, stabilization of quality, and future labor shortage.

Anti-freezing pavement (Type G Zapeck method)

Urban Cool (solar radiation reflective type) (Shibuya Crossing, Tokyo)

ICT construction technology

In 1999 and 2001, the Company received an order for the first pavement construction work on performance based contract and an order for the first pavement construction work based on the comprehensive evaluation contract respectively from the Ministry of Land, Infrastructure, Transport and Tourism. These once again showed internally and externally the ambitions and advanced technologies passed on since the establishment of the Company.

In addition to committing to the core business centered around road construction, the Company supports disaster restoration and reconstruction through a wide range of business activities. As the frequency and severity of large earthquakes, typhoons, torrential rains, and other natural disasters increase, the opportunity to engage in disaster restoration and reconstruction increases as well. Specifically, the Company eliminates road obstacles in expressways and other major roads, which is the first step of restoration; removes and takes in rubbles; works on full-fledged restoration of roads; constructs new, alternative routes; engages in bank protection works; decontaminates radioactively contaminated areas; and engages in works related to interim storage facilities that store soil removed in the course of decontamination and contaminated waste.

As global warming and other environmental problems have become increasingly serious, the Company works on research and development of environmentally friendly products and construction methods, as well as introduces facilities to reduce environmental impact. In addition, initiatives are under way to shape the overall picture of environmentally friendly business activities.

The Group will continue to give consideration to the global environment and help achieve a sustainable society, aiming for a medium- to long- term increase in corporate value.

Minamisoma Mixture plant established after the Great East Japan Earthquake (Fukushima)

y g e t a r t S h t w o r G

n o i t c e S G S E

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	January 1950	SEIKl KENSETSU KOGYO CO., LTD. established	January 1967	Tokyu Road KK established	May 1982	SEIKI KENSETSU CO., LTD. and Tokyu
	October 1955	Received an order for the first pavement con-	1967	Hakone Turnpike pavement con-		Road KK merged and changed corporate
TOPICS		struction work from the Ministry of Construction		struction work		name to SEIKITOKYU KOGYO CO., LTD.
November 1956 Received an order for the first pavement construc-	October 1967	Established Asaka bitumen plant	November 1982	Changed listing to the First Section of the
		tion work from the Japan Highway Public Corporation	December 1968	Established Yokohama bitumen		Tokyo Stock Exchange
	September 1973	Listed shares on the Second Section of the Tokyo		plant	Tohoku Expressway Ichinohe pavement construction work
		Stock Exchange	1970	Launched Tokyu Mix cold construc-	Honshu-Shikoku Bridge (Kojima-Sakaide route) pavement
	May 1976	Established the equipment center		tion mixture	construction work
	May 1977	Installed the first recycling plant	September 1975	Acquired the urban court business	New Chitose Airport runway pavement construction work,
	April 1980	New technology research laboratory established			etc.

September 1996 Established the action guidelines

March 1999 Received an order for the first pavement construction work on performance based contract from the Ministry of Construction

March 2001 Made a successful bid for two construction projects out of the three for construction projects for the first pavement construction work based on the comprehensive evaluation contract ordered by the Ministry of Land, Infrastructure, Transport and Tourism

September 2002 Established the Compliance Code of Conduct

Trans-Tokyo Bay Highway bridge pavement construction work

Central Japan International Airport apron pavement construction work New Transit Waterfront Line track construction work, etc.

December 2015	Established the Seikitokyu Kogyo Corporate
	Governance Guidelines
April 2016	Established the training center (TTC)
January 2020	Celebrated the 70th anniversary of the Com-
	pany's founding
May 2021	Formulated Where We Should Be in 2030
Shin-Tomei Expressway Shimizunishi pavement construction work
Tokyo-Gaikan Expressway Ichikawa pavement construction work
Naha Airport runway expansion and pavement construction
work, etc.	Training center (TTC)

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About Seikitokyu Kogyo Group

Financial and Non-Financial Highlights

Financial Highlights (as of and for the years ended March 31)

		62nd fiscal year	63rd fiscal year	64th fiscal year	65th fiscal year	66th fiscal year	67th fiscal year	68th fiscal year	69th fiscal year	70th fiscal year	71st fiscal year	72nd fiscal year
	Unit	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	2021
Operating Results
Orders received	(Millions of yen)	61,010	70,329	68,900	73,321	71,083	75,724	71,427	80,572	78,817	86,889	89,611
Net sales	(Millions of yen)	59,365	61,106	71,091	71,691	63,542	74,634	70,075	81,659	74,036	78,631	90,025
Operating income	(Millions of yen)	2,109	2,294	3,731	4,779	4,528	6,291	6,412	6,235	5,564	5,961	8,470
Ordinary profit	(Millions of yen)	1,943	2,178	3,551	4,730	4,487	6,261	6,338	6,239	5,584	6,009	8,395
Net profit attributable to owners of parent	(Millions of yen)	1,715	1,886	3,705	3,793	4,365	5,682	5,621	2,274	3,480	6,544	5,180
Cash Flows
Cash flows from operating activities	(Millions of yen)	1,217	2,945	4,796	5,433	2,862	6,679	6,949	6,303	4,781	4,461	1,138
Cash flows from investing activities	(Millions of yen)	(361)	(130)	(608)	(1,407)	(1,234)	(1,658)	(4,896)	(2,231)	(1,777)	(3,808)	(3,622)
Cash flows from financing activities	(Millions of yen)	(2,525)	(2,610)	(4,828)	(1,551)	(1,604)	(1,603)	1,815	(1,684)	(2,005)	(2,919)	2,343
Cash and cash equivalents at end of year	(Millions of yen)	3,006	3,206	2,566	5,041	5,064	8,482	12,350	14,737	15,735	14,169	14,035
Financial Position
Net assets	(Millions of yen)	8,544	8,801	11,344	12,791	17,083	21,231	26,072	28,098	31,543	36,632	40,790
Total assets	(Millions of yen)	47,339	49,597	48,106	50,809	56,079	57,544	66,444	72,192	70,906	74,656	79,409
Interest-bearing debt	(Millions of yen)	9,650	8,659	5,009	4,508	3,508	2,508	5,008	4,008	2,404	772	5,007

Amount Per Share (after adjustments for the reverse stock split) *A one-for-five reverse stock split was conducted in October 2014. Figures as of and for the years ended March 31 after fiscal year 2014 reflect the effects of the reverse stock split.

Net income	(Yen)	11.85	10.54	19.36	95.48	108.13	140.78	139.26	56.35	86.16	162.40	128.45
Net assets	(Yen)	8.77	31.50	51.34	316.84	423.19	525.96	645.90	696.09	780.73	909.13	1,010.99
Dividends	(Yen)	-	-	-	15	15	17	17	10	27	47	43
Stock price at end of year	(Yen)	89	66	82	615	518	471	531	688	589	816	931
Financial Indicators
Equity ratio	(%)	18.1	17.7	23.6	25.2	30.5	36.9	39.2	38.9	44.5	49.1	51.4
Return on equity	(%)	20.3	21.7	36.8	31.4	29.2	29.7	23.8	8.4	11.7	19.2	13.4
Price-earnings ratio	(%)	7.51	6.26	4.24	6.14	4.79	3.35	3.81	12.21	6.84	5.02	7.25
D/E ratio	(Times)	1.1	1.0	0.4	0.4	0.2	0.1	0.2	0.1	0.1	0.0	0.1

Non-Financial Highlights (as of and for the years ended March 31)

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y g e t a r t S h t w o r G Group Kogyo Seikitokyu About

n o i t c e S G S E

Number of employees (consolidated) (persons)

1,031	1,043
907

70th fiscal year 71st fiscal year 72nd fiscal year

201920202021

Number of employees (non-consolidated)(persons)	Number of employees (non-consolidated)(persons)
	Male		Female		Engineering position		Non-engineering position

846	841	869	846	841	869
766	755	773	641	624	649
80	86	96	205	217	220

70th fiscal year	71st fiscal year	72nd fiscal year	70th fiscal year	71st fiscal year	72nd fiscal year
2019	2020	2021	2019	2020	2021

Research and development expenses (Millions of yen)

389

379

382

70th fiscal year	71st fiscal year	72nd fiscal year
2019	2020	2021

Number of patents held (including utility models and design

registrations)(cases)

Holding Pending

	37	38
32
	27	29
27
5	10	9
70th fiscal year	71st fiscal year	72nd fiscal year
2019	2020	2021

CO² emissions (non-consolidated, Scope 1, approximation)

		(Kilotons)
55	58	55

70th fiscal year 71st fiscal year 72nd fiscal year

201920202021

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About Seikitokyu Kogyo Group

Value Creation Process

As an infrastructure building company that helps create affluent communities, we aim to provide lasting value to society and improve our own corporate value over the medium- to long-term.

Value	Remaining conscious of the global environment as we
help create affluent communities
Provision
Improving medium- to long-term corporate value

Social Issues (Risks and opportunities)

		Declining working-age population due to shrinking population, aging society, and low birth rate	Securing leaders	Improving productivity Compact cities
		Uncertain future political, economic, and international situations	Public-works expenditure trends	Private construction demand trends Fluctuation in crude oil price
		More frequent and severe natural disasters	Increased awareness of disaster prevention and mitigation
		Deteriorating infrastructure	Greater national resilience Less construction of new roads Higher demand for maintenance/updating
		The soundness of central and local government financial situations	Infrastructure lifecycle costs	More efficient upkeep management
		Immature infrastructure in some Asian and developing countries	Vigorous infrastructure demand
		Global environment protection and climate change issues	Low carbon, zero carbon	Zero fossil fuels, energy saving Concerns over reduced straight asphalt supply volumes, and price fluctuation Renewable energy

Where We Should Be in 2030

Long-term Vision P13-14

A truly strong corporate group that pursues personal and corporate growth in tandem and helps realize a sustainable society

OUTCOME	o r t n I
Our customers	n o i t c u d
Needs-focused services
Providing high-quality
construction and products	About

Input

Financial capital

Sound financial platform

Shareholder's equity (40.7 billion yen) Interest-bearing debt (5.0 billion yen)

Physical capital

Head office, branch offices (13), business offices (55), material plants (49)

Technological research laboratory, testing laboratories (8)

Equipment center, construction machinery

Training center

Human capital

Number of employees (consolidated: 1,043)

Qualified personnel

Experience, knowledge, technical skills Engagement

Intellectual capital

Technical capability, expertise, patents

Social capital

Customers

Partner companies

Permits and licenses

History, corporate performance, completed projects

Brand, corporate culture, rules, standards

Natural capital

Fossil fuels, water, air

Business Processes

Construction business Pavement materials manufacturing and sales business Outside the Group's business sphere

Pavement	Procurement
materials
manufacturing	Sales/
	transportation
Sales/
transportation
Procurement	Construction

Seikitokyu Kogyo

Value Chain

Raw materials mining

Service/ management

Recycling

			Renewal	Maintenance
			and repair
			(disposal)
								Materiality of Seikitokyu
								Kogyo Group
	Initiatives on Key Material Issues		P17-18
E					S
Environmental protection			Infrastructure Natural disasters	Local residents Job satisfaction
			1st Phase
Medium-term Management Plan	New Medium-term
Management Plan
			(FY2021-2023)					P15-16
Financial capital			Physical capital				Human capital
Working capital, capital			Manufacturing investment,			Improving and maintaining workplace
expenditure			renewal of construction			environment and work-life balance
Strengthening financial			machinery				Human resource training,
base (investment and			Expanding base sites			talent development
procurement reserves)							Securing leaders

Output

Strengths

Construction business

Our shareholders and investors	Seikitokyu
Kogyo
Improving medium- to

Synergies from construction business and pavement materials manufacturing and sales business

R&D, construction and products backed by high technological prowess

Full network of material plants in the Kanto area

Diverse and highly talented human resources

Co-creation opportunities with Tokyu Group

G

Governance and compliance

Pavement construction

Civil engineering works

Irrigationinfrastructure construction

Pavement materials manufacturing and sales business

Asphalt composites

Recycling scrap materials

Key performance indicators (KPI)

100 billion yen	8.0 billion yen
Net sales	Operating income

Environmental contribution

Initiatives to reduce environmental impact

P19-20

WasteCO2

long-term shareholder value	Group
Stable and consistent
shareholder returns
Our employees	w o r G
Job satisfaction	h t
t S
Safe and secure basis for
t a r
daily living
Kindness, sense of	g e
connection, self-fulfillment	y
Local communities
Safe and secure basis for	S E
daily living	G
e S
Contribution to disaster
recovery and restoration	i t c
	n o
Our business partners
Fair and equal business
dealings	t a D
Co-creation based on
mutual trust	a
n o i t c e S

2nd Phase		3rd Phase
Medium-term Management Plan	Medium-term Management Plan
(FY2024-2026)		(FY2027-2029)
Intellectual capital	Social capital	Natural capital
R&D, joint research	Strengthening compliance management	Promoting recycling and
Systems renewal	ImplementingESG- and SDGs-focused management,	energy saving
Promoting digital	promoting sustainability transformation (SX)	Efforts to reduce carbon
transformation (DX)	Strengthening cooperation and	and fossil fuel use
	mutual trust with partner companies	Further environmental considerations

Our environment

Global environment

protection

Reducing environmental

impact

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