Nishimatsu Construction : Integrated Report 2021

Integrated Report

2021

Company Motto

Courage, Courtesy, and Justice

An enterprising spirit, a feeling of gratitude, and a righteous attitude

Corporate Philosophy

Providing society with important structures and services

using the technologies and experience

we have acquired to help establish a sustainable society and environment where people can live with peace of mind.

Nishimatsu-Vision 2027

Becoming a Company with Overall Capabilities That Provides New Value

By expanding our business areas and evolving the construction business, we will transform into a company with overall capabilities that provides better value to stakeholders through its business activities.

Further Realize Our Corporate Philosophy

We will help establish a sustainable society and environment

by providing better value.

Provide Better Value to Stakeholders

We will provide better value from superior environmental technologies, diverse services and appealing work styles through our business activities.

Transform into a Company with Overall Capabilities

We will invest in growth to expand our business areas and evolve our construction business to become a company

with overall capabilities.

NISHIMATSU CONSTRUCTION CO., LTD. Integrated Report 2021

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Contents

Section 1 The Future We Will Build as a Company with Overall Capabilities Vision for the Future and the Society We Wish to Realize

• 4 Creating the Future
• 6 What Nishimatsu Construction Considers Important
• 8 History of Value Creation
• 10 Nishimatsu Construction's Value Creation Model
• 12 The Sources of Value Creation
• 14 Risks and Opportunities
• 16 Material Issues
• 18 Message from the President
• 22 Capital and Financial Strategy
• 24 Financial and Non-Financial Highlights

Section 2 The Future Nishimatsu Is Advancing Toward

A Strategy for Growth Which Will Realize the Future

• 26 Medium-Term Management Plan
• 30 Strategies in Each Business Division
  30  Civil Engineering Division
  32 Building Division
  34 International Division
  36  Urban Development & Real Estate Business Division
  38  Environment and Energy Business Management Division
• 40 Overseas Activities

Section 3	Initiatives for Building the Future
	A Foundation for Supporting the Realization of the Future
	44	Environmental Initiatives
	46 Initiatives for Society
	50	Corporate Governance
	55 Messages from Directors on the Audit and
		Supervisory Committee
	58	Board of Directors
	60	Compliance & Risk Management

Data Section

• 62 Eleven-Year Highlights
• 64 ESG Data

  66 Terminologies

• 67 Major Accomplishments
• 68 Financial Section

1. Corporate Outline/
   Regional Headquarters and Branch Offices/ Stock Status
2. Organization Structure

Editorial Policy

From fiscal 2017 to 2020, Nishimatsu Construction published a Corporate Report that combined its Annual Report and Sustainability Report (printed version) to communicate its corporate value through both financial and non-financial information. Aiming to further enhance report content, from fiscal 2021, Nishimatsu Construction is disclosing material issues for sustainable value creation in the form of an Integrated Report. In addition to financial information, the purpose of this report is to deepen understanding of the Nishimatsu Construction Group's value creation as well as the content of initiatives aimed at the realization of our long-term vision based on our Medium -Term Management Plan 2023.

Coverage

Information on the activities of Nishimatsu Construction Co., Ltd. and its consolidated subsidiaries, with some sections applicable only to Nishimatsu Construction Co., Ltd.

Applicable Period

In principle, the applicable period for this report is the financial reporting period from April 1, 2020 to March 31, 2021, although it also covers some activities conducted in fiscal 2021 due to the importance of presenting the most current information.

Topics Covered

This report includes high priority topics in light of the information's impact on stakeholders and its importance with regard to Nishimatsu Construction's short-, medium- and long-term value provision. Detailed corporate social responsibility (CSR) information is presented on our website.

Referenced Guidelines

We refer to the International Integrated Reporting Council's (IIRC)* international framework for Integrated Reporting (IR) and report on Nishimatsu Construction's value provision. IR is based on the seven basic principles below and strives for reporting that covers a company's short-, medium- and long-term value provision, which we believe is aligned with Nishimatsu Construction's basic aspirations and aims for integrated reporting. A) Strategic focus and future orientation, B) Connectivity of information, C) Stakeholder relationships, D) Materiality, E) Con- ciseness, F) Reliability and completeness, G) Consistency and comparability

Forward-Looking Statements

This report includes forecasts of future results related to the business and prospects of Nishimatsu Construction Co., Ltd. Such statements reflect our judgment and analysis concerning existing information and various trends available at the time of writing. Actual results may vary from these forecasts due to factors that include risks that have a material impact on business and uncertainties.

For CSR information, we referenced the Environmental Reporting Guidelines of Japan's Ministry of the Environment and the GRI Standards of the Global Reporting Initiative (GRI). Third party assurances have been adopted for some environmental data and HR data to ensure reliability.

• An organization comprised of private companies, investors, accounting groups, government agencies, NGOs, etc., IIRC was founded in 2010 with the purpose of providing an international framework for corporate reports. In June 2021, IIRC was reorganized as the Value Reporting Foundation (VRF).

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Section 1 The Future We Will Build as a Company with Overall Capabilities

Creating the Future

To Achieve	● Expand renewable energy
a Comfortable	● Promote net zero energy buildings (ZEB)
Environment
● Reduce CO2 emissions of business activities
to Live In
Eco-First Commitment: Net zero CO2 emissions by 2030

To Achieve

● Build the foundation of

society (infrastructure & buildings)

To Achieve

a Safe and Secure

● Extend the lifespan of

infrastructure and buildings

Diverse Business

Society

● Provide disaster prevention

and mitigation technologies

Styles

and services

Hands-on Capabilities for Creating the Future

The hands-on capabilities touted by Nishimatsu Construction refer to the construction management capabilities for detailed management of worksites and the ability to independently identify and resolve the various potential issues on-site. The world around us is undergoing unprecedentedly rapid changes, such as global warming, increased natural disasters, a declining working population due to the low birthrate and aging population, and the full-fledged transition to a digital society.

• In this, of all ages, the hands-on capabilities we have cultivated in the more than 145 years since our founding can be utilized to create structures and services which will be of value to future generations. Nishimatsu's hands-on capabilities, demonstrated in a diverse variety of worksites daily by specialists in every field, will create a valuable future.

● Provide building-related services which match

To

Achieve

●

Provide work environments where each employee

Fulfilling

thrive and shine

customer business styles

Lifestyles

● Provide safe and secure workplaces

Capabilities Overall with Company a as Build Will We Future The 1 Section

Construction

In our Civil Engineering Business, among tunnel works, shield tunneling and mountain tunneling are particular strengths of ours, and we possess industry-leading technical capabilities and accomplishments. Currently, we are moving forward with the development and introduction of automation and operator-less technologies with the aim of increasing productivity and alleviating a shortage of labor. We have already developed, and introduced on-site on a trial basis, technologies for the remote, unmanned operation of excavating equipment, and we have established the goal of utilizing these technologies for the primary work in

tunnels by fiscal 2023. In the Construction Business, we have stepped up activities to receive orders for distribution facilities, a field in which we can demonstrate our design and construction capabilities, and are aiming to meet customer needs more fully and at a higher level through the application of Building Information Modeling (BIM), integrating everything from design to construction. Our history of international construction projects dates back approximately 60 years, and in this area, we are engaging in ODA projects anew, and have also commenced market research in Southeast Asian countries in order to enter new markets.

Urban Development and Real Estate

Through collaboration with our Civil Engineering Business and Building Business, the strength of our Urban Development and Real Estate Business is its ability to provide one- stop solutions for comprehensive urban development. We are proactively engaging in investment with a focus on five anticipated growth fields, and, furthermore, through organic coordination with the Construction Business, are implementing initiatives aimed at expanding earnings via land readjustment projects, urban redevelopment projects, in-house development projects and projects that increase the value of real estate.

Environment and Energy

We reorganized our New Business Management Division into the Environment and Energy Business Management Division in fiscal 2021. In addition to achieving our commitment to net zero CO2 emissions by 2030 as an Eco-First Company, we are aiming to realize a sustainable society, and are engaged in the creation and monetization of renewable energy projects and infrastructure services projects.

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What Nishimatsu Construction Considers Important

Outstanding Environmental Technology

			1 Section
	Nishimatsu Construction works to provide new value based	on its Corporate Philosophy of "providing society with import-
	ant structures and services using the technologies and experience we have acquired to help establish a sustainable
	society and environment where people can live with peace of mind." One of our key environmental initiatives is achieving	The
	net zero CO2 emissions in fiscal 2030. Also, in addition to providing diverse services that meet customers' changing
	We Future
	needs, we are also engaged in health and productivity management, and work style reform.
	As part of efforts to create a corporate culture in which each individual employee can create value by working in a way
	they find appealing, we are transforming employee mindsets and improving benefits with the aim of increasing corporate	Will
	value.	a as Build
			with Company

Masanari Hasegawa

Manager

Environment & Quality Section

Environment & Quality Department

Safety, Environment & Quality Division

Nishimatsu Construction has positioned the formation of a carbon-free society as its most important mission and is strengthening initiatives in this area. Since 2015, we have been engaged in environmental management and the Environment & Quality Department has been playing a leading role in these efforts. In 2019, we announced our long-term vision of achieving net zero CO2 emissions from all business activities by fiscal 2030 and we renewed our Eco-First Commitment to the Minister of the Environment. In fiscal 2020, we took the concrete step to achieve our vision by formulating the Zero 30 Roadmap and launching a variety of initiatives aimed at reducing emissions to net zero, such as further strengthening measures to reduce CO2 emissions at worksites, using renewable energy sources to generate the energy consumed by business activities, and finding new ways to generate energy. Another extremely important factor in these efforts is environmental technology. Even with these various initiatives, it is not possible to truly get CO2 emissions to zero, so even if it isn't available now, innovative decarbonizing technology is necessary. We are coordinating with the Technical Research Institute and the Environment and Energy Business Management Division on measures such as adopting newly developed useful technologies at an early stage and developing our own technology. We will aim to be CO2 free in our business activities by heading toward the government's goal of finally becoming carbon free.

	One of our current initiatives for achieving the Zero 30 Roadmap is the development of decarbonizing	Overall
	technologies, wherein the Technical Research Institute is playing a central role. Geopolymer concrete is a
	type of low-carbon concrete created using materials such as fly ash or ground granulated blast furnace	Capabilities
	slag as the main constituent and it can be used without cement. This means that CO2 emissions can be
	reduced by as much as 80% compared to regular concrete construction that uses cement. HiBD
	(high-quality biodiesel) is a next-generation biodiesel fuel that can be manufactured from waste cooking oil
	or oil-containing biomass. It is a carbon neutral fuel that is highly compatible with new types of diesel
	engines. In addition to these, we are also developing environmental technologies aimed at forming a
	recycling-based society. The production of methane with a CO2 conversion cell that applies the microbial
	fuel cell method is a technology that uses electrogenic bacteria to generate electrical energy while con-
	verting atmospheric CO2 into useful substances such as methane. Technology for recovering phosphorus
Arisa Kawashima
from sewage sludge incineration ash efficiently recovers phosphorus from sewage sludge, which cannot
Assistant Manager	be procured naturally in Japan. About 80% of the recovered phosphorus can be used as a fertilizer
Environment & Quality Section
without further processing. These diverse and useful environmental technologies will play an increasingly
Environment & Quality Department
Safety, Environment & Quality Division	important role in the Company's environmental efforts going forward.

Diverse Services

As the business styles of our customers become increasingly diverse and their needs change, we aim to provide a unified set of construction-related services spanning from planning to operation and manage- ment. Our division constantly strives to find ways to expand our use of real estate into new business areas and I feel this is differentiating us from our industry competitors. A specific example of this is the Hotel JAL City Toyama project. We have been involved in this project from start to finish, beginning with the acquisition of the site for the project, followed by design and construction, and then, once construction is com- pleted, operating the hotel through a subsidiary (Nishimatsu Hotel Management Co., Ltd.). The actual operation of the hotel will be carried out in collaboration with expert partners and preparations for the opening are currently underway. We will use the knowledge we obtain from engaging in new projects and the constant real-time feedback we receive from customers regarding their needs to further improve services and expand business opportunities.

Koichi Oniki

General Manager

Development Business Department No. 1

Urban Development & Real Estate

Business Division

Appealing Work Style Reform

Osamu Kanai

Supervising Section Manager

Business Development Section

Development Business Department No. 1

Urban Development & Real Estate

Business Division

Currently, our engagement in the tourism and accommodation field is divided into a rental business targeting hotel companies and a hotel operations business. We expect the rental business to bring in stable earnings. Furthermore, the accumulation of expertise through the operations business is one initiative toward achieving our goal of becoming a company with overall capabilities that provides new value to society.

• We are currently in an era of collaboration between various companies and industries. I think we will be able to produce better results if we leverage the expertise in construction and building management we have accumulated to advance projects with professionals in various areas.
• We are a company of craftsmanship at heart and one of the slogans of our workplace has always been to "fill every corner of our workplaces with warm kindness and consideration." This is important not only to provide customers with excellent quality, but also in aiming to create comfortable working environments for everyone, including our own employees and employees from partner companies. In this way, we have shared our awareness of the importance of hospitality, which is necessary for providing services such as hotel operation, throughout the Company. I hope to leverage this spirit, which is deeply rooted within the Company, to provide services that differentiate us from our competitors.

Manabu Horibe

General Manager

Human Resource Department

Management Division

We are currently advancing the creation of working environments that enable employees to continue to work with peace of mind. With respect to our maternity leave system, after giving birth, female employees are taking a year to 18 months of leave, until their child is old enough to be looked after by someone else. However, use of our system by male employees is still insufficient, with them taking no more than about a month to spend this precious time with their partner and child. The number of people using the system has been rising compared to several years ago and we will continue to promote it throughout the Company. We also provide health checks not only for employees, but also their spouses, and we are putting effort into health and productivity management initiatives such as encouraging people to get further tests if their health check results advise it.

• I want employees to understand that if they can find a flexible work style that fits with their individual lifestyle, they will see the benefits in the long term. We will continue to transform mindsets and improve systems across the entire Company so employees can stay healthy and they can take sufficient time off for various life events, and continue to demonstrate their capabilities with peace of mind.

Masanori Ota

Manager

Working Style Innovation Promotion Section

Civil Engineering Department

Civil Engineering Division

Amid a social environment in which the population is aging and birth rates are low, the entire construction industry is working to raise the appeal of construction work to bring young people into the industry. Addressing long working hours at construction sites has been a long-term challenge for the Company but from fiscal 2024, an upper limit on working hours will be applied to the construction industry, so our first goal is to realize working patterns that comply with this law.

• To date, we have enhanced systems through a variety of measures. The introduction of systems such as a flextime system with no set core time, a work-from-home system, and a system for taking paid leave in hourly units have gradually provided employees with a little more freedom to choose a working style that fits with their lifestyle. However, we have also received feedback from construction sites saying that the measures do not fit the workplace or that they are difficult to use, so we are in a situation where the systems are in place but they are not necessarily being used.
• An important focus going forward will be to create environments that make it easier to use these systems and to reduce the differences in working conditions between company offices and building sites. I want to nurture a culture in which the entire Company can come together to engage in work style reform.

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