ASAHI KASEI CORP
Annual Report 2016

Plain-text annual report

Asahi Kasei Report 2016 Creating for Tomorrow Group Mission We, the Asahi Kasei Group, contribute to life and living for people around the world. Group Vision Providing new value to society by enabling “living in health and comfort” and “harmony with the natural environment.” Group Values Sincerity—Being sincere with everyone. Challenge—Boldly taking challenges, continuously seeking change. Creativity—Creating new value through unity and synergy. Group Slogan Creating for Tomorrow Editorial policy For greater ease of understanding among our stakeholders, since fiscal 2014 we are integrating information regarding our business strategy and financial performance, which had been published in our Annual Report, with information regarding our CSR activities, which had been published in our CSR Report, in a single Asahi Kasei Report. We hope that the Asahi Kasei Report will help you gain a clear perception of the Asahi Kasei Group’s efforts toward sustainability in society in addition to our management strategy, business conditions, and management configuration. Period under review The period under review is fiscal 2015 (April 2015 to March 2016). Some qualitative information pertaining to April to September 2016 has also been included. Organizational scope The scope of the report is Asahi Kasei Corp. and its consolidated subsidiar- ies, except with respect to Responsible Care, in which case the scope is operations in Japan that implement the Asahi Kasei Group’s Responsible Care program. Asahi Kasei’s three operating segments are Material, Homes, and Health Care. Unless otherwise specified, the titles and positions of corporate officers and other personnel as shown in this report are current as of October 2016. Guidelines consulted The Global Reporting Initiative’s Sustainability Reporting Guidelines G4, ISO 26000, and other guidelines were consulted during the preparation of this report. Disclaimer The forecasts and estimates shown in this report are dependent on a variety of assumptions and economic conditions. Plans and figures depicting the future do not imply a guarantee of actual outcome. Contents 2 Report on Manipulation of Precast Concrete Pile Installation Data by Subsidiary Asahi Kasei Construction Materials CSR 50 CSR 3 To Our Stakeholders Management Overview 4 Directors 6 Feature: New Medium-Term Management Initiative “Cs for Tomorrow 2018” 12 History of Providing Solutions for the Challenges of Society 14 Message from the President 22 Interview with the CFO 24 Interview with the Chairman of the Board 26 Interview with an Outside Director 28 Corporate Governance Review of Operations 34 Financial and Non-Financial Highlights 36 At a Glance 38 Material 40 Homes 42 Health Care 44 Review of “For Tomorrow 2015” 46 Interview with the Executive Officer for R&D 52 CSR Fundamentals • Responsible Care • Respect for Employee Individuality • Corporate Citizenship 60 Connecting Business Operations with Contribution to Society • BembergTM • Condominium Redevelopment • AEDs Financial Section 68 Management’s Discussion and Analysis 74 Risk Analysis 76 Consolidated Financial Statements Corporate Information 110 Major Subsidiaries and Affiliates 112 Company Information 113 Investors Information Asahi Kasei Report 2016 1 Report on Manipulation of Precast Concrete Pile Installation Data by Subsidiary Asahi Kasei Construction Materials We deeply apologize that subsidiary Asahi Kasei Construction Materials Corp. manipulated a portion of data for the installation of precast concrete piles. To ensure against any similar situation occurring again, we have investigated the causes and implemented preventative measures. On January 8, 2016, an interim report was received from the independent commis- sion which was established to investigate the matter. On February 9, 2016, our internal fact-finding committee issued its interim report. Causes of data manipulation and measures to prevent recurrence were identified as follows: ■ Causes of data manipulation i) Circumstances conducive to occurrence of lack of data ii) Absence of clear measures to deal with lack of data iii) Poor recognition of importance of installation data among site agents, etc. iv) Issues related to management of the pile business at Asahi Kasei Construction Materials ■ Measures to prevent recurrence i) Sound acquisition and handling of installation data ii) Formulation of rules to deal with lack of data iii) Establishment of a proper management system iv) Performing training of site agents and other workers v) Measures to deal with organizational, personnel, and awareness problems at Asahi Kasei Construction Materials Taking this matter with the utmost gravity, we are working to reinforce compliance throughout all operations based on the “three actuals” of the actual place, the actual thing, and the actual fact. On January 1, 2016, Corporate ESH & QA was reorganized to place greater emphasis on quality assurance. Furthermore, Risk Management & Compliance was newly established as a central corporate organ to aggregate informa- tion related to risks and compliance. The Asahi Kasei Group is committed to restoring the trust of society and our customers by thoroughly applying measures to prevent recurrence. 2 Asahi Kasei Report 2016 To Our Stakeholders Thank you for reading the Asahi Kasei Report 2016. In 2014 we integrated the description of financial information, which had been published in our Annual Report, with the description of our CSR activities, which had been published in our CSR Report, in a single Asahi Kasei Report for greater ease of understanding by our various stakeholders. We hope that the Asahi Kasei Report will enhance your understanding of the Asahi Kasei Group’s management strategy, business operations, and financial performance, as well as our contribution to the sustainability of society. From fiscal 2011 to 2015, the Asahi Kasei Group executed its “For Tomorrow 2015” strategic management initiative to expand world-leading businesses and create new value for society. While expanding capacity for globally competitive products, we further diversified and strengthened our operations through large-scale acquisitions of ZOLL Medical Corporation in the field of acute critical care and Polypore International, LP in the field of battery separators. In fiscal 2016 we began a new three-year strategic management initiative “Cs for Tomorrow 2018.” The three-year period is focused on building the base for the next phase, creating a portfolio of high-profitability and high value-added businesses in fiscal 2025. We aim to contribute to a “society of clean environmental energy” and a “society of healthy/ comfortable longevity with peace of mind” by leveraging our diverse business operations. To facilitate greater efficiency and strategic allocation of management resources, in April 2016 we transitioned from a holding company configuration to an operating holding company configuration through the merger of three core operating companies with Asahi Kasei Corp., and reconfigured our operations into the three business sectors of Material, Homes, and Health Care. Throughout these efforts, we will maintain proactive communication with our stakeholders to ensure transparency through appropriate information disclosure. I would like to thank you for your continuous support. September 2016 Hideki Kobori President Asahi Kasei Report 2016 3 Directors 1. Chairman & Director Ichiro Itoh 2. President & Representative Director Presidential Executive Officer Hideki Kobori After many years of experience in the fibers business, he held several leadership positions including executive officer for planning, accounting, and finance, and vice-presidential executive officer. He has been Chairman & Director since April 2010. He possesses a wealth of experience and a broad range of knowledge on the Asahi Kasei Group’s businesses and corporate management. After many years of experience in the electronics business, including as President & Representative Director of Asahi Kasei Microdevices Corp., he oversaw strategy, accounting, finance, and internal control. He assumed the role of President of Asahi Kasei in April 2016. He pos- sesses a wealth of experience and a broad range of knowledge on the Asahi Kasei Group’s businesses and corporate management. 5. Director Senior Executive Officer Shuichi Sakamoto 6. Director Lead Executive Officer Nobuyuki Kakizawa After many years of experience in the petrochemicals business, he became General Manager of Corporate Strategy in November 2014 with responsibility for formulating and executing the management strategy and business strategies of the Asahi Kasei Group. Since April 2016, he has overseen accounting, finance, and IT. He possesses a wealth of experience and a broad range of knowledge on the Asahi Kasei Group’s businesses and corporate management. After many years of experience in the housing business, he held several leadership positions including General Manager of Accounting and Finance at Asahi Kasei Corp. and General Manager of General Affairs at Asahi Kasei Homes Corp. He became General Manager of General Affairs in April 2013 with responsibility for formulating and executing measures for risk management and compliance of the Asahi Kasei Group. He possesses a wealth of experience and a broad range of knowledge on risk management and compliance. 9. Outside Director Tsuneyoshi Tatsuoka With his wealth of experience and broad range of insight into indus- trial and economic policy, including as administrative vice-minister of the Ministry of Economy, Trade and Industry, he fulfills his role as Outside Director in deciding on important matters of the Asahi Kasei Group as well as overseeing business execution. 4 9 8 7 1 2 3 4 5 6 Asahi Kasei Report 20163. Representative Director Vice-Presidential Executive Officer Yuji Kobayashi 4. Director Primary Executive Officer Masafumi Nakao After many years of experience in the petrochemicals business, he became President & Representative Director of Asahi Kasei Chemicals Corp. From April 2014, he oversaw the Chemicals & Fibers business sector. He possesses a wealth of experience and a broad range of knowledge on business in the Material sector and corporate management. After many years of experience in R&D and new business development in the electronics business, he held several leadership roles including General Manager of the R&D Center and executive officer for quality assurance at Asahi Kasei Microdevices Corp. Since April 2012, he has overseen R&D of the Asahi Kasei Group. He possesses a wealth of experience and a broad range of knowledge on R&D. 7. Outside Director Norio Ichino 8. Outside Director Masumi Shiraishi With his wealth of business management experience and broad range of insight as a corporate executive, including as President of Tokyo Gas Co., Ltd., he fulfills his role as Outside Director in deciding on important matters of the Asahi Kasei Group as well as overseeing business execution. With her wealth of experience and broad range of insight into eco- nomics and society as a university professor at Kansai University, she fulfills her role as Outside Director in deciding on important matters of the Asahi Kasei Group as well as overseeing business execution. Asahi Kasei Report 2016 5 Feature: New Medium-Term Management Initiative Cs for Tomorrow 2 Building the base for the next phase with various Cs There are five “Cs” that represent important aspects of Cs for Tomorrow 2018 (CT2018) as we advance toward our objectives. The first “C” is from our Group Slogan, Creating for Tomorrow. The second “C” is for Connections. We aim to build new connections in various aspects (external, internal, geography, technology) to facilitate the creation of new markets. The third to fifth “Cs” are for Compliance, Communication, and Challenge—key facets of our endeavor to restore trust and drive further growth. Group slogan Creating for Tomorrow Create new markets through connections Restore trust based on three Cs New stage of growth External (cid:127) CVC*, joint R&D (cid:127) M&A (cid:127) Alliances Connect Internal (cid:127) Group-wide (cid:127) People and businesses Technology (cid:127) Technology and business combinations Geography (cid:127) Accelerating globalization * CVC = Corporate Venture Capital Compliance Thorough compliance based on the “three actuals” Communication Open communication that fosters mutual understanding and trust Challenge Relishing new challenges to advance and evolve 6 Asahi Kasei Report 2016 for Tomorrow 2018 Throughout the history of the Asahi Kasei Group, we have continuously realigned our business portfolio to meet the changing needs of the times, and proactively branched into new fields to create new value for society. Since 2003, under the configuration of Asahi Kasei Corp. as a holding company, three medium-term management initiatives successfully steered us towards specific milestones. Ishin-05 (FY2003–2005) promoted “selective diversification” and “creation of cash flow,” and Growth Action—2010 (FY2006–2010) focused on “business portfolio realignment for expansion and growth” and “strategic investment.” Under the previous initiative For Tomorrow 2015 (FY2011–2015) with its focus on “expansion of world-leading businesses” and “creation of new value for society,” we achieved our highest operating income ever in fiscal 2015. CT2018 (FY2016–2018) is focused on building the base for the next phase. At the beginning of fiscal 2016, Asahi Kasei transitioned to an operating holding company configuration, with realigned business sectors. The new medium-term management initiative is directed toward creating a portfolio of high value-added businesses with high profitability in fiscal 2025. Providing solutions to two important challenges faced by society with our diversified business In the midst of rapid changes in the economic environment and social structure, we are working to contribute to the realization of a society of clean environmental energy and a society of healthy/comfortable longevity with peace of mind through our diverse products, technologies, and services. The environment Shift to sustainable society; tightening environmental regulations Healthcare Expansion of global healthcare markets Management Greater importance of transparency and CSR IT Spread of IoT and other IT advances Society of clean environmental energy Society of healthy/comfortable longevity with peace of mind Energy Increasing energy demand; diversification of supply Demographic change Increasing world population; aging population in developed countries Social economy Increasing globalization; growing geopolitical risks Food Growing food demand Asahi Kasei Report 2016 7 Feature: New Medium-Term Management Initiative Financial targets In fiscal 2015, we achieved net sales of ¥1,940.9 billion and operating income of ¥165.2 billion, a new record high in operating income for the third consecutive year. Our goal in fiscal 2025 is to achieve net sales of ¥3 trillion and operating income of ¥280 billion. The three year period of CT2018 is positioned as a time for building the base for the next phase by making connections among our diverse businesses and diverse human resources, with fiscal 2018 targets of ¥2.2 trillion in net sales and ¥180 billion in operating income. Net sales Operating income ¥3 trillion ¥280 billion (¥ billion) 300 Net sales and operating income Net sales (left scale) Operating income (right scale) Net sales Operating income ¥2.2 trillion ¥180 billion (¥ billion) 3,000 2,500 2,000 1,500 1,000 500 0 '10 '11 '12 '13 '14 '15 '16 '17 '18 '25 * Formulated assuming exchange rates of ¥110/$ and ¥120/€ Main performance metrics (¥ billion, except where noted) Net sales Operating income Operating margin Net income attributable to owners of the parent EBITDA1 Net income per share (¥) Total return ratio Net income per shareholders’ equity (ROE) Net income per shareholders’ equity and interest-bearing debt (ROIC) D/E ratio Exchange rate (¥/$) FY2003 1,253.5 FY2010 1,555.9 FY2015 1,940.9 FY2015–2018 (annual growth) FY2018 (target) 4.3% 2,200.0 60.9 4.9% 27.7 125.3 19.6 30.6% 6.4% 5.0% 0.62 113 122.9 7.9% 60.3 207.8 43.1 25.5% 9.3% 7.9% 0.38 86 165.2 8.5% 91.8 274.8 65.7 30.4% 8.6% 7.1% 0.43 120 180.0 8.2% 110.0 300.0 78.0 35.0% 9.0% 7.0% 0.50 110 1 Operating income, depreciation, and amortization (tangible, intangible, and goodwill). FY2016–2018 investment plan: ¥700 billion 8 Asahi Kasei Report 2016 250 200 150 100 50 0 (FY) FY2025 (outlook) 3,000.0 280.0 9.3% 10.0% 8.0% 0.50 110 Basic strategy of Cs for Tomorrow 2018 1 2 Basic strategy 1. Pursuit of growth and profitability 2. Creation of new businesses 3. Acceleration of globalization CT2018 is focused on the three basic strategies of “pursuit of growth and profitability,” “creation of new businesses,” and “acceleration of globalization,” which are implemented across the Asahi Kasei Group. The three sectors of Material, Homes, and Health Care will each expand operations by leveraging their respective strengths, while the Asahi Kasei Group as a whole will solidify the base for further growth by leveraging our combined strength. Pursuit of growth and profitability Each individual business works to generate greater cash flow by raising competitiveness. Within each sector, we will create new added value through combinations and integration among the different businesses. For the creation of new businesses, management resources are connected across the different sectors. Each business sector also has a specific role to play. The Material sector aims for enhanced profitability through connections among businesses within the sector, optimization of the business portfolio, and height- ened competitiveness. The Homes sector focuses on continuous stable growth by strengthening established businesses with comprehensive prod- ucts, construction, and services that meet the needs of society, while expanding the value chain through business development. The Health Care sector aims for high growth by reinforcing its global business platform while strengthening the profitability of domestic businesses. Creation of new businesses The greatest strength of Asahi Kasei lies in our combination of various technologies, cultivated throughout our history of diversification, that enable the creation of new value for society. We are enhancing our ability to create new businesses by connecting our technologies, business models, and human resources internally, as well as by connect- ing externally through joint R&D, business alliances, corporate venture capital (CVC), and M&A. Material Enhanced profitability Homes Continuous stable growth Health Care High growth Each business: generate cash flow by raising competitiveness Within each sector: create added value through combinations and integration Group-wide: create new businesses by connecting resources Various technologies (cid:127) Materials, devices (cid:127) Production technology (cid:127) Systems (cid:127) Analysis, simulation etc. Strengths of Asahi Kasei Diverse business operations (cid:127) Fibers (cid:127) Chemicals (cid:127) Electronics (cid:127) Homes (cid:127) Construction Materials (cid:127) Health Care (cid:127) Critical Care Open innovation Joint R&D Technology Business models Connect M&A CVC Diverse human resources Asahi Kasei Report 2016 9 Feature: New Medium-Term Management Initiative Acceleration of globalization 3 Under the previous medium-term management initiative For Tomorrow 2015, we newly constructed or expanded several production facilities for globally competitive products in Japan and overseas. From fiscal 2016 onward, those capital investments will bear fruit by contributing to earnings. We are also advancing with clearer strategies in each region for our businesses to develop more efficiently and profitably on a global scale. Europe mature markets; origin of standards and regulations (cid:127) Enhance marketing functions in automotive/healthcare-related businesses North America continuing growth; origin of innovation (cid:127) Expand automotive/healthcare-related businesses (cid:127) Obtain leading-edge technology by utilizing CVC Globalization (cid:127) Develop business through M&A; create new business models (cid:127) Adapt to new trade arrangements such as TPP Asia transitioning from manufacturing base to growth market (cid:127) Raise competitiveness of manufacturing (cid:127) Serve markets in China and ASEAN Japan continuing growth; origin of innovation (cid:127) Lead R&D and create new businesses (cid:127) Heighten technology at “mother factories” Financial and capital strategy Execute strategy to raise corporate value while performing return to shareholders. Operating cash flow Total investment Target for total return ratio Funding policy We expect that a total of ¥600–700 billion in operating cash flow will be generated over the 3-year period by enhancing the com- petitiveness of established businesses and creating new added value in each sector. We plan to invest a total of some ¥700 billion over the 3-year period to proactively advance M&A and other new investment in addition to investment to maintain and expand established businesses. We will flexibly perform share buybacks in addition to stable and continuous dividend increases with a target for total return ratio of 35% in fiscal 2018. In principal we will raise funds through borrowings while maintaining a D/E ratio of around 0.5. 10 Asahi Kasei Report 2016 Future path for each sector toward fiscal 2025 In our vision of creating a portfolio of high-profitability and high value-added businesses in fiscal 2025, the three years under the current management initiative are positioned as a time to build the base for the next phase. Each sector’s path forward is shown below. Material sector • Seek greater profitability by expanding in performance products • Solidify No. 1 position of battery separator business • Use combined strength to cultivate new markets for materials Homes sector • Secure stable earnings by raising market share for established businesses • Advance new businesses focused on medium-rise homes, seniors, and overseas markets • Create distinctive added value through connections with other sectors in Asahi Kasei Health Care sector • Increase overseas sales; operating income to reach 1/3 of Asahi Kasei Group total • Pharmaceuticals: RecomodulinTM as the growth driver for global expansion • Medical devices: grow by further utilizing and strengthening global platform (¥ billion) 2,000 1,500 1,000 500 0 (¥ billion) 1,000 750 500 250 0 (¥ billion) 800 600 400 200 0 Membranes, coating materials, etc. Automotive, battery-related, healthcare Performance products Earnings base '15 '18 '25 (FY) Overseas, seniors Const. Mat. Real estate, remodeling Order-built '15 '18 '25 (FY) Overseas Japan '15 '18 '25 (FY) Asahi Kasei Report 2016 11 History of Providing Solutions for the Challenges of Society The Asahi Kasei Group has consistently grown through proactive transformation of its business portfolio to meet the evolving needs of every age. We have constantly provided products and services that form solutions to various environmental and social challenges. As society undergoes further changes, we will continue to contribute to life and living for people around the world by Creating for Tomorrow. Shitagau Noguchi From 1922 Shitagau Noguchi, the founder of Asahi Kasei, succeeded in Japan’s first industrial production of ammonia by chemical synthesis in Nobeoka, Miyazaki, in 1923 using technology licensed from Italy. The ammonia was used in the production of Bemberg™ regenerated cellulose fiber, part of a diverse range of business opera- tions that included chemical fertilizer and viscose rayon. As industry modernized and the economy of Japan achieved self- sustainable growth, our operations made important contributions to the stability of people’s lives. From 1950 In 1957 we began production of polysty- rene, and in 1959 entered the synthetic fiber business. These were followed by the three new businesses of nylon fiber, synthetic rubber, and construction mate- rials. In 1968 we began construction of a petrochemical complex in the Mizushima area of Kurashiki, Okayama, Japan, paving the way for our full-scale development of petrochemical operations. Our products during this period supported improve- ments in the quality of life during Japan’s high-growth period. Part of the ammonia plant completed in 1923 (Nobeoka, Miyazaki, Japan) Saran Wrap™ launched in Japan in 1960 The Bemberg™ plant which started operation in 1931 (Nobeoka, Miyazaki, Japan) Naphtha cracker (Kurashiki, Okayama, Japan) Portfolio transformation Chemicals Fiscal 1940 Net sales ¥56 million Foods Fibers Fiscal 1960 Net sales ¥44.9 billion From 1970 In 1972 we entered the homes business with the launch of the Hebel Haus™, and in 1974 we entered the medical device business with hollow-fiber membrane artificial kidneys. Our entry into the elec- tronics business began with our launch of Hall elements (magnetic sensors) in 1980 and start of LSI manufacture in 1987. Our products continued to help make life more comfortable and convenient as society’s needs diversified. The first Hebel Haus™ (Kamata model home park) Hollow-fiber membrane artificial kidneys LSIs Others Fibers Foods and Fermentation Chemistry Construction Materials Homes Fiscal 1980 Net sales ¥800.1 billion Chemicals Establishing the basis for modern life Sufficiency of daily necessities, improvement in quality of homes, development of public infrastructure • Development of chemical industry and modern agriculture • Interbellum economic downturn and World War II • Post-war recovery and modernization of industry • Period of high economic growth • Stable economic growth • Economic bubble 12 Asahi Kasei Report 2016 From 2010 Under the “For Tomorrow 2015” manage- ment initiative which began in 2011, we proactively expanded our operations through major acquisitions. In 2012 we entered the acute critical care business by acquiring ZOLL Medical Corporation, and in 2015 we acquired battery separa- tor manufacturer Polypore International, LP. In 2016 we launched a new three-year management initiative “Cs for Tomorrow 2018” focused on expanding operations by heightening the combined strength of the Asahi Kasei Group. From 1990 In 1992 we acquired Toyo Jozo Co., Ltd. to reinforce pharmaceutical operations. From 1999, we executed a program to heighten selectivity and focus in opera- tions, divesting our food business and closing some fiber businesses, achieving selective diversification. From 2000 onward, we also established many over- seas operations, mainly in Asia, laying the foundation for global management. The LifeVest™ wearable defibrillator Pharmaceutical products after the Toyo Jozo merger We are Creating for Tomorrow, providing new value to society by enabling living in health and comfort and harmony with the natural environment 1922– 2015 Celgard™ Li-ion battery separator of Polypore Asahi Kasei Electronics Materials (Suzhou) Co., Ltd., a major manufacturing base for photosensitive dry film Others Fibers Health Care Electronics Construction Materials Fiscal 2000 Net sales ¥1,269.4 billion Critical Care Fibers Others Health Care Electronics Construction Materials Fiscal 2015 Net sales ¥1,940.9 billion Homes Chemicals Homes Chemicals Increased comfort and convenience • Two decades of meager growth after collapse of bubble • Effect of global economic crisis Heightened environmental consciousness • Changing values after the Great East Japan Earthquake • Emergence from period of slow economic growth Asahi Kasei Report 2016 13 Message from the President Taking bold steps forward toward our next milestones under “Cs for Tomorrow 2018” We enjoyed strong results in fiscal 2015, setting a new record high for operating income, owing to the success of our strategic investments and M&As executed over the past years. We are further strengthening our base of operations to create a portfolio of high-profitability and high value-added businesses in fiscal 2025. Hideki Kobori President 14 Asahi Kasei Report 2016 Back to basics as we continue to forge ahead When I became President of Asahi Kasei this April, I reflected on my early experience. My first job when I joined the company was as a salesperson for an engineering resin that we had just commer- cialized, and then I was involved in ramping up our LSI business. When a business is young, you are always cultivating new customers and developing new products; there are constant challenges. Ever since then, I always bear in mind the importance of being alert to forthcoming changes and building valuable relationships with customers and other parties. My sense is that this is what the Asahi Kasei Group has always done to successfully diversify, and what we must continue to do now more than ever as we forge ahead. Last fall, regrettably, we disclosed the occurrence of data irregularities regarding the installa- tion of precast concrete piles by subsidiary Asahi Kasei Construction Materials Corp. We sincerely apologize to our shareholders, investors, and other stakeholders who placed their trust in us. We are focused on achieving thorough compliance based on the “three actuals” of the actual place, the actual thing, and the actual fact as we work to restore the trust of all stakeholders. Connecting diverse businesses and human resources For over nine decades since our founding in 1922, we have continued to proactively diversify and adapt the Asahi Kasei Group’s operating portfolio in accordance with changes in the operating environment, in the economy, and in society at large. With businesses that increasingly span the globe, it becomes difficult to steer a clear path in a world of constant change. It is especially under such circumstances that we must leverage our diverse businesses and human resources to build a portfolio of high-profitability and high value-added businesses to ensure our stable and sustainable development for the future. In accordance with our Group Mission of contributing to life and living for people around the world, we will create unmatched value in each field with innovative technologies and products that will be appreciated by our customers as we strive for further global reach. We are working to build the base for the next phase through our new medium-term management initiative starting from fiscal 2016. Asahi Kasei Report 2016 15 Message from the President New record-high operating income in fiscal 2015 with past efforts bearing fruit Under the previous medium-term management initiative “For Tomorrow 2015” which ended in fiscal 2015, the Asahi Kasei Group targeted net sales of ¥2 trillion and operating income of ¥160 billion. A number of actions were executed in accordance with the two strategic pillars of “expansion of world- leading businesses” and “creation of new value for society,” including some ¥1 trillion of strategic investment for growth. In the expansion of world-leading businesses, we increased production capacity for highly competitive products including S-SBR for fuel-efficient tires, spunbond nonwovens, and Roica™ spandex. In the creation of new value for society, we acquired ZOLL Medical Corporation, a leading US manufacturer of acute critical care devices and systems, marking our full-scale entry into this field. We also acquired Polypore International, LP to reinforce our battery separator business by adding new product lines. Furthermore, we acquired the US-based venture company Crystal IS, Inc. with which we jointly developed UVC LEDs, and began commercial production for disinfection applica- tions. ZOLL’s operations grew remarkably during this period, yielding positive consolidated operating income even after amortization of goodwill, etc. With Polypore, the post-merger integration process is making good progress, and we are currently advancing the development of new products leverag- ing synergies between our two companies. In domestic petrochemicals operations, our naphtha cracker in Mizushima, which began operation in 1972, was unified with the adjacent naphtha cracker of Mitsubishi Chemical Corp. Joint operation began in April 2016, and we improved the earnings structure of derivative products. Those efforts bore fruit in fiscal 2015, with ¥1,940.9 billion in consolidated net sales and ¥165.2 billion in operating income. Although net sales were slightly below the target, operating income reached a new record high for the third year in a row. Over the five-year period of the initiative, net sales grew by some ¥400 billion and operating income grew by some ¥40 billion. With solid growth in health care operations, we attained a more balanced structure among our three business sectors of Material, Homes, and Health Care. Connection as the key element of “Cs for Tomorrow 2018” In April 2016, we launched a new medium-term management initiative, “Cs for Tomorrow 2018,” targeting consolidated net sales of ¥2.2 trillion and operating income of ¥180 billion in fiscal 2018. We are fostering innovation through our broad spectrum of businesses focused on contributing to the realization of a “society of clean environmental energy” and a “society of healthy/comfortable longevity with peace of mind.” Our aim is to create a portfolio of high-profitability and high value-added businesses over the next decade. Basic strategies under the new initiative ending in fiscal 2018 are “pursuit of growth and profitability,” “creation of new businesses,” and “acceleration of globalization.” We will build the base for the next phase by enhancing connections among our diverse businesses and diverse human resources. “Connection,” an important aspect of the new initiative, is a key concept in the electronics industry, where I worked for a long time. We will look to build new connections in many ways under the new initiative, both externally through joint R&D, M&A, and business alliances, and internally among our different businesses, different technologies, and different regions of operation. I believe such connections will open up new possibilities for further growth. 16 Asahi Kasei Report 2016 Transformation to an operating holding company On April 1, 2016, Asahi Kasei Corp. became an operating holding company through the absorption of three of its core operating companies, Asahi Kasei Fibers Corp., Asahi Kasei Chemicals Corp., and Asahi Kasei E-materials Corp. The Asahi Kasei Group now operates in the three business sectors of Material, Homes, and Health Care. The holding company configuration adopted in October 2003 enabled each of our businesses to swiftly adapt to changes in their respective operating environments, with greater clarity of responsibility and authority for business management. The greater autonomy and independence of each business led to business expansion and increased profits. Comparing financial results of fiscal 2015 with those of fiscal 2003, net sales increased by a factor of 1.5 and operating income tripled. A stronger financial constitution was obtained with the operating margin rising from 4.9% to 8.5% and ROE rising from 6.4% to 8.6%. And yet, some downsides were also recognized; interactions among different businesses in terms of human resources, technology, and R&D had diminished, and some administrative functions overlapped. Under our new configuration we are aiming even higher, targeting net sales of ¥3 trillion and operating income of ¥280 billion in fiscal 2025. Achieving this will require more interaction among personnel and technolo- gies to create synergies among different busi- nesses and unleash the collective strength of the Asahi Kasei Group. Especially in the Material sector, we are placing greater strate- gic focus on automotive-related businesses. Previously, each business unit approached the same customers independently. Now we will work together as a group to formulate com- mon strategies for marketing and technology tailored to each major customer and each region, enabling one-stop service for greater efficiency. Emphasizing the creation of new businesses to enhance growth We essentially achieved our targets under the previous initiative and set the stage for further growth under the new initiative. One objective of the new initiative is to reinforce in-house R&D for new business creation. We are now working to enhance connections among various technologies and businesses, and to further leverage M&A, joint R&D, and corporate venture capital (CVC) to facilitate the creation of businesses. Throughout the history of Asahi Kasei, we have repeatedly transformed our business portfolio and provided new value to society to meet the changing needs of the times. In each case, this was made possible through our strengths in R&D and our willingness to take on challenges. Having realigned our corporate structure in April 2016 to further enhance collaboration among different businesses, we will be better able to discern business potential as we forge ahead with the creation of new businesses. Asahi Kasei Report 2016 17 Message from the President Expansion in the automotive field with coordinated marketing across different business units The automotive industry is changing dramatically with the motorization of emerging countries, the ascendance of eco cars such as hybrid, electric, and fuel-cell vehicles, and the evolution of automated driving technologies based on IT. This area is now the focus of intense interest among material manufacturers offering various leading-edge materials. Though our Material sector has a rich range of products for the automotive industry, our different business units have been interacting separately with the same customers. This inhibited our ability to gain a complete picture of customer needs and market information. Our new configuration will make our business activities more efficient and effective as an integrated whole, with a comprehensive approach to marketing and technology development for key customers. Our newly established Automotive Marketing Department will coordinate these efforts throughout the Material sector, ensuring swift and effective action. Particular emphasis will be placed on achieving growth in Europe, where many environmental and technology trends originate. Asahi Kasei Europe GmbH, newly established in Dusseldorf, Germany, will serve as a base for marketing in Europe. Reinforcing our world-leading position Our August 2015 acquisition of Polypore reinforced our world-leading position in the field of battery separators. By combining the Celgard™ dry-process products with our Hipore™ wet-process products, we have significantly expanded our lithium-ion battery (LIB) separator product portfolio, enabling us to meet a wider variety of customer needs. Daramic™ lead-acid battery separator also has excellent growth potential with the motorization of emerging countries and the increasing adoption of idling stop-start systems around the world. The Asahi Kasei Group’s total LIB separator capacity, combining both wet and dry processes, is now 550 million m2/year. We are currently adding a new production line at the Hipore™ manufactur- ing plant located in Moriyama, Shiga, Japan, that will raise this to 610 million m2/year in 2018. To keep pace with forecasted growth in demand, we plan to continue to raise our total LIB separator capacity to 1,100 million m2/year by 2020. We will continue to leverage our compre- hensive battery separator lineup of Hipore™, Celgard™, and Daramic™, heightening syner- gies among our manufacturing technologies, processing technologies, and marketing functions. 18 Asahi Kasei Report 2016 ¥700 billion of strategic investment budgeted over three years While we performed some ¥1 trillion of strategic investment over the five-year period of the previous initiative, including investment to expand existing businesses and large-scale M&A, we plan to allocate ¥700 billion to strategic investment during the three-year period of the new initiative. While over ¥100 billion was allocated to existing businesses each year during the previous initiative, in the new initiative we plan to divide strategic investment roughly evenly between measures to expand existing businesses and non-linear growth measures such as M&A. Investment to expand existing businesses will be focused on competitive products such as performance polymers and compounds for automotive applications, fiber materials enjoying strong demand, and especially LIB separator. LIB separator for consumer electronics applications continues to perform well, and that for automotive applications is forecasted to grow significantly. As for M&A, we will focus on acquiring technologies that are at an early stage of development. We would like to have as many growth drivers as possible. We will also look at M&A as a way to enhance our services and customer support systems, enabling us to extend business models for fuller service provision. Strategic path toward our vision for the future in each sector We are advancing strategic actions toward the achievement of our vision for each business sector in fiscal 2025. (¥ billion) Net sales (a) Material Operating income (b) Operating margin (b/a) Net sales (a) Homes Operating income (b) FY2015 1,004.4 79.2 7.9% 632.4 71.0 Operating margin (b/a) 11.2% FY15–18 increase, growth rate FY2018 target FY18–25 increase, growth rate FY2025 outlook 1,250.0 100.0 8.0% 700.0 70.0 10.0% +0.1 pt (1.0) 1,650.0 140.0 8.5% 1,000.0 +0.5 pt +30.0 100.0 10.0% Net sales (a) 285.4 +9.0%/year 370.0 +7.2%/year 600.0 Health Care Operating income (b) 36.2 Operating margin (b/a) 12.7% 50.0 13.5% 80.0 13.3% Note: Totals of net sales and operating income targets and outlooks shown here do not match those shown on page 8. Material sector There are three main elements of our policy for future business expansion toward fiscal 2025 in the Material sector. The first is to enhance profitability by expanding operations in performance products. The second is to reinforce the world-leading position of our battery separator business. And the third is to use our combined strength to cultivate new markets for materials. In line with these, the three-year period of the new initiative will focus on enhancing profitability by strengthening established businesses while advancing measures for the future that span across the sector. Advancing toward fiscal 2025, we will solidify the earnings base of our petrochemicals and consumables businesses focused on the domestic Japanese market as well as that of our steadily growing fibers business, while expanding businesses with automotive materials, battery materials, and new materials for healthcare and hygiene applications. Asahi Kasei Report 2016 19 Message from the President Homes sector In addition to securing stable earnings by raising market share for established businesses in the Homes sector toward fiscal 2025, we will advance new businesses focused on medium-rise homes, seniors, and overseas markets, and work to create distinctive added value through connections with our other business sectors. The three-year period of the new initiative will focus on securing stable earnings in our main businesses and seeking stable growth by expanding in real estate, remodeling, and insula- tion materials. We are also working to expand through a capital alliance with a construction company and through joint projects with companies in Taiwan. Health Care sector Toward fiscal 2025, this sector will work to expand its overseas sales and raise its operating income to one-third of the consolidated total. Pharmaceuticals operations will globally expand with Recomodulin™ anticoagulant as a growth driver. Medical devices operations will grow further by utiliz- ing and reinforcing ZOLL’s global operating platform. While reinforcing the global platform during the three-year period of the new initiative, we will further expand in overseas markets, especially the US where higher growth is forecasted, by accumulating information on early-stage R&D utilizing CVC, etc. Transparent, fair, and timely decision-making We aim to provide solutions to society by creating synergies among our various businesses, and to achieve sustainable growth and enhance corporate value over the medium to long term. As a part of this effort, we believe that it is important to have a corporate governance framework that ensures transparent, fair, and timely decisions. In fiscal 2015, we established a Nomination Advisory Committee and a Remuneration Advisory Committee to obtain the active participation of Outside Directors in the process of considering the optimal makeup and size of the Board of Directors, policies for nominating candidates and the remuneration system for Directors and Corporate Auditors, and system to evaluate Directors for performance-based remuneration, etc. We also began analyzing, evaluating, and disclosing results of the effectiveness of the Board of Directors, and established a system to monitor its effectiveness on a regular basis. We will continue to review our system of corporate governance to ensure that it remains optimal for highly transparent management. Enhancing corporate value by providing solutions to society through our business activities With a clear understanding of the effects of our operations on the global environment and local communities, our efforts and actions related to CSR are based on four CSR Fundamentals: Compliance, Responsible Care, Corporate Citizenship, and Respect for Employee Individuality. We consider CSR in Action, on the other hand, to be the creation of value for society by providing solu- tions through our business operations to fulfill our Group Mission of contributing to life and living for people around the world, ultimately resulting in increased corporate value for all of our stakeholders. We see CSR Fundamentals as prerequisite for the sustainable development of our corporation as a trustworthy member of society, and although we will continue to realign our business portfolio in line with evolving needs of the times, we will retain the four CSR Fundamentals as an unchanging core. Meanwhile, CSR in Action is advanced by providing solutions to society through our business operations in accordance with the business strategies of our medium-term management initiative. With the basic strategies “pursuit of growth and profitability,” “creation of new businesses,” and “acceleration of globalization,” we will create new value for society. 20 Asahi Kasei Report 2016 Creating for Tomorrow The The employee employee Employee fulfillment The The community community Community outreach The The environment environment Environmental protection The The customer customer Customer satisfaction Society of clean environmental energy Pursuit of Pursuit of growth and growth and profitability profitability Sustainable Increase in Corporate Value The The supplier supplier Fair business dealings The local The local economy economy Local economic participation The The shareholder shareholder Shareholder returns Society of healthy/comfortable longevity with peace of mind Business operations Creation of Creation of new businesses new businesses Acceleration of Acceleration of globalization globalization CSR Fundamentals Based on a clear understanding of the effects of our operations on the global environment and local communities, our efforts and actions related to CSR are focused on four CSR Fundamentals: Compliance, Responsible Care, Corporate Citizenship, and Respect for Employee Individuality. CSR in Action We believe that CSR is achieved by raising corporate value for our various stakeholders through our business operations in accordance with our Group Mission of contributing to life and living for people around the world. Structure and organization for CSR In order to promote separate important activities regarding CSR more efficiently and decisively, we have five committees under the direct supervision of the Asahi Kasei President as follows: “Cs for Tomorrow 2018” strategic management initiative CSR in Action Asahi Kasei President CSR Fundamentals Compliance, Responsible Care, Corporate Citizenship, Respect for Employee Individuality Group Mission Contributing to life and living for people around the world Note: In September 2016, the Corporate Ethics Committee and Risk Management Committee were integrated into a Risk Management & Compliance Committee chaired by the Asahi Kasei President. Corporate Ethics Committee • Preparation of Basic Policy and Code of Conduct for corporate ethics • Advancement of ethics education and operation of compliance hotline Responsible Care Committee • Deliberation of plans and results in regard to environmental protection, product safety, operational safety, etc. Global Environment Committee • Deliberation and adoption of group-wide measures to counter global warming Risk Management Committee • Formulation of plans and measures to respond to actual or potential crises Community Fellowship Committee • Formulation of policy, plans, and courses of action in regard to community fellowship activities (as of April 1, 2016) Human resource development and sustainable growth The Asahi Kasei Group will celebrate its 100th anniversary in 2022. Our founder, Shitagau Noguchi, began ammonia synthesis in Nobeoka, Miyazaki, Japan, with an ambition of helping to solve global food supply issues and eliminate strife from the world. Since then, Asahi Kasei has always worked to solve challenges faced by society through our business activities. The major milestone of our 100th anniversary is a reminder that we need to be prepared for further changes in the coming century. It is crucial to develop human resources who will be ready for this. While valuing our personnel, we will reallocate people to areas of focus, systematically rotate them, and develop talent as our busi- ness portfolio evolves. It is also important to maintain an environment that fosters personnel who demonstrate outstanding specialist skill. We need to make sure we are not only rewarding people based on management ability, but also valuing specialists who excel in other areas. By building new connections among our diverse businesses and diverse personnel, we will further strengthen the Asahi Kasei Group for the future. Asahi Kasei Report 2016 21 Interview with the CFO Executing strategies aimed at future growth to increase our corporate value; promoting proactive investments for growth and a robust capital policy Shuichi Sakamoto Director Senior Executive Officer Q What is your basic financial strategy under “Cs for Tomorrow 2018”? A We are focused on consistent generation of cash flow, with an appropriate balance between investment for growth and shareholder returns. The Asahi Kasei Group aims to consistently expand cash flow in two basic ways. One is by enhancing profitability through greater cost competitiveness, enhanced product performance, and business structure improvement, and the other is by improving capital efficiency through intragroup financing and appropriate control of inventory levels. To obtain stable and low-cost financing, we employ various fund-raising methods such as borrowing from banks, issuing bonds, and issuing commercial paper flexibly and dynamically in accordance with our financial circumstances. Under our “Cs for Tomorrow 2018” (CT2018) management initiative, we will generate cash flow not only by implementing three basic strategies of “pursuit of growth and profitability,” “creation of new businesses,” and “acceleration of globaliza- tion,” and by further raising competitiveness of established businesses, but also by creating new added value in each sector. Cash flow generated through these efforts provides further resources to invest for growth as well as to return to shareholders. We are careful to maintain an appropriate bal- ance between the two. We expect the total operating cash flow during the three- year period of CT2018 to be ¥600–700 billion, which is to be assigned for strategic investments and shareholder returns. The total amount of investment for growth will be ¥700 billion for three years, and we will strive to continuously increase share- holder returns with a total return ratio of 35% in fiscal 2018. Primary financial metrics Dividends per share Payout ratio Net income per share (EPS) Net income per total assets (ROA) Net income per shareholders’ equity (ROE) Net income per shareholders’ equity and interest-bearing debt (ROIC) D/E ratio FY2011 FY2012 FY2013 FY2014 FY2015 ¥14 35.1% ¥39.89 3.9% 8.1% 6.9% 0.26 ¥14 36.4% ¥38.43 3.3% 7.1% 5.7% 0.47 ¥17 23.5% ¥72.48 5.5% 11.7% 7.7% 0.33 ¥19 25.1% ¥75.62 5.4% 10.6% 7.5% 0.25 ¥20 30.4% ¥65.69 4.3% 8.6% 7.1% 0.43 22 Asahi Kasei Report 2016 Q What is the thinking behind your “Cs for Tomorrow 2018” financial targets? A The 3-year period to fiscal 2018 is a time to build a solid foundation toward our vision of becoming a collection of high-profitability, and high value-added businesses in fiscal 2025. The targets for the previous medium-term management initiative were ¥2 trillion in net sales, ¥160 billion in operating income, return on equity (ROE) of at least 10%, and return on invested capital (ROIC) of at least 7%, which were achieved gen- erally as planned. We reached a new high in operating income for the third consecutive year. These results are attributable to the previously implemented measures which steadily bore fruit. The economic environment in fiscal 2015 was favorable for us in terms of the exchange rate and feedstock costs. However, entering fiscal 2016, the business environment has become increasingly challenging with continued appreciation of the yen. In our vision of creating a portfolio of high-profitability and high value-added businesses in fiscal 2025, the three years under the current management initiative are positioned as the time to build the base for the next phase with connections among diverse businesses and diverse human resources. Given that, our financial targets for fiscal 2025 are ¥3 trillion in net sales and ¥280 billion in operating income. Those for fiscal 2018 are ¥2.2 trillion in net sales and ¥180 billion in operating income. The figures for fiscal 2018 are calculated on the assumption that the exchange rate will be ¥110 per dollar, which is 10 yen lower than the level of fiscal 2015. If the exchange outlook had remained steady, we would have assumed the same operating margin as in fiscal 2015, but we had to make some adjustments prior to announcing our targets in light of the recent exchange rate trends. The basic idea of strengthening our highly profitable businesses, and raising their share of our total portfolio, remains consistent with our previous management initiatives. Our fiscal 2018 target for net income attributable to owners of the parent is ¥110 billion, with net income per share reaching nearly ¥80. We will expand operating income while focusing on greater profitability, and review strategic shareholdings in accordance with the Corporate Governance Code. Our other performance targets include ROE of 9%, ROIC of 7%, and a D/E ratio of 0.5. We will continue to work to further increase earnings by executing our business strategies while reinforcing our financial strength. Q Please tell us your perspective on funding for strategic investment, and shareholder returns including share buybacks. A Under CT2018, we will further increase strategic investments and aim for greater shareholder returns. We made a total of ¥1 trillion in investments during the 5-year period of the previous medium-term management initiative which ended in fiscal 2015, investing slightly more than ¥100 billion in existing businesses each year. In CT2018, the total investment during the 3 years is planned to be about ¥700 billion, with slightly more than half being used to carry out initiatives to reinforce existing businesses. In addition to heightening the competitive advantages of our existing businesses, we will expand production capacity for businesses operating on a global scale and for businesses capable of cap- turing new markets in Japan. The remainder of the strategic investment, slightly less than half, will be used for non-linear growth measures similar to those in the previous initiative, including M&A to proactively expand businesses. Our funding policy to support these initiatives will be to rely on borrowings in principle, while maintaining a D/E ratio of around 0.5. We will strive to maintain stable and low-cost financing, as well as a sound financial position, as we advance our strategic investments. Our policy for shareholder returns in the previous initiative was to strive to continuously increase dividends through continuous earnings growth, with a payout ratio of 30% as our basic standard. We now have a target for a total return ratio of 35% in fiscal 2018. In addition to maintaining stable dividends and continuously raising them, we will flexibly perform share buybacks to achieve this return ratio. Dividends per share and payout ratio (¥) 20 15 10 5 0 36.4 17 35.1 14 14 20 19 30.4 25.5 11 25.1 23.5 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 Dividends per share (left scale) Payout ratio (right scale) (%) 40 30 20 10 0 (FY) Asahi Kasei Report 2016 23 Interview with the Chairman of the Board A Board of Directors that engenders sustainable growth Ichiro Itoh Chairman & Director Fiscal 2015 marked a new beginning for corporate governance in Japan with the adoption of the Corporate Governance Code and Stewardship Code. As Chairman of the Board, Ichiro Itoh describes the characteristics of corporate governance at Asahi Kasei and tasks ahead for the Board of Directors in an atmosphere of heightening attention to corporate governance issues. Q What are the characteristics of corporate governance at Asahi Kasei? A We were early to bring in Outside Directors, and have an objective and rational governance configuration. Japan’s Corporate Governance Code issued in fiscal 2015 calls for more than one Outside Director and evaluation of the effectiveness of the Board of Directors. In fact we were one of the first companies to have 2 Outside Directors as early as 2007. Since then we increased the proportion of Outside Directors, and now one-third of our Directors, 3 out of 9, are Outside Directors. I think there are two major benefits of having Outside Directors. The first is the broader perspective brought to discussions in the Board of Directors. Our Outside Directors have experience in corporate management, academic research, and industrial policy, and one of them is our first female Director. They contribute opinions and advice from a different perspective than Directors from inside the company. This yields deeper discussions, and ensures that we reach objective, rational, and reasonable conclusions. The second benefit of having Outside Directors on the Board is a heightened sense of constantly being observed from an outside perspective. This engenders an objective and balanced perspective, which has a positive effect on business execution. Another characteristic of our corporate governance is that in fiscal 2015 we established two advisory committees within the Board of Directors. The Nomination Advisory Committee in particular will ensure objective and rational selection of can- didates for election to the Board of Directors. The Nomination Advisory Committee is comprised of 2 Directors from inside the company and 3 Outside Directors. As Outside Directors form a majority, this prevents internal company logic from prevailing. If the company’s management is deemed to be off track, the committee can respond by deselecting Directors from candidacy for reelection. This year, in accordance with the Corporate Governance Code, we began evaluation of the effectiveness of the Board of Directors. We performed a survey of Directors, discussed the results, and published a summary in this year’s Corporate Governance Report. By continuing this process, any deficiency found in the workings of the Board of Directors will be imme- diately rectified. This mechanism will help ensure that we are constantly maintaining the effectiveness of the Board of Directors. 24 Asahi Kasei Report 2016 Q How do you evaluate the current makeup of the Board of Directors? A We will study how to further raise diversity. We currently have 9 Directors. Before we adopted an Executive Officer system in 2003, we had 30 Directors. This was reduced to 7. In 2005 we amended our Articles of Incorporation to limit the maximum size to 12 Directors. With too many people, it becomes hard to have a deep discussion. I think 12 is a reason- able maximum number. Regarding the proportion of Outside Directors, I feel that the current proportion of one-third is appropriate to ensure effective and objective decisions. As the Asahi Kasei Group’s operations continue to grow, we may feel that 9 Directors is not enough. If we increase the number, I think we should maintain at least one third Outside Directors. Diversity is another issue we must consider. Our overseas sales in fiscal 2015 were 35% of the total, and 51.9% if you exclude the domestic homes business. To bring a global per- spective to important decisions and management oversight, we need to consider the selection of a foreigner as Director. We also hope to nurture a female candidate to be Director from within the company, though this will take a little more time. At this year’s annual general meeting of shareholders, we received over 96% approval for our candidates to the Board of Directors. The main shareholder advisory firms all recommended approval. I take this as an indication of a general consensus that the Board structure we proposed was considered appropriate. We will continue to strive to maintain a Board structure that is deemed to be appropriate. Q What are your expectations for the new President? A I anticipate that he will be resolute in management, and advance the creation of new businesses. The world is undergoing dramatic changes. Consider the UK’s decision to withdraw from the EU, the US presidential election, and the economic slowdown in China and other emerging countries, to name just a few political and economic issues. There are many challenges to globally managing our company and achieving sustainable growth under these circumstances. We need not only courage to make decisions, but also courage to correct ourselves and courage to close a business if necessary. The President of the company needs to be resolute in all of these ways. I also look forward to new busi- nesses and new products being created. During the previous medium-term management initiative, we complemented our own new business creation with M&A. But in line with Asahi Kasei’s heritage of taking on challenges, I think we should put more effort into creating new business on our own with an entrepreneurial spirit. Q Is there anything that you think the Board of Directors should discuss more deeply? A We will place greater focus on monitoring the progress of management plans. The Board of Directors discusses medium-term management plans and other aspects of growth strategy. In addition to reviewing the financial results, from now on I intend to place greater focus on monitoring the state of progress of execution of management plans. It is the Board of Directors which approves plans and budgets, so I think the Board of Directors should also follow up to confirm progress of achievement. As Chairman of the Board of Directors, I will work to ensure that the Board works effectively for the sustainable growth of the Asahi Kasei Group. Asahi Kasei Report 2016 25 Interview with an Outside Director A medium-to-long term perspective for raising corporate value Norio Ichino Outside Director Career summary April 1964: Joined Tokyo Gas Co., Ltd. June 1996: Director, Tokyo Gas Co., Ltd. June 2003: President and Representative Director, Tokyo Gas Co., Ltd. April 2006: Director and Vice Chairman of the Board, Tokyo Gas Co., Ltd. April 2007: Director and Chairman of the Board, Tokyo Gas Co., Ltd. April 2010: Director and Executive Advisor, Tokyo Gas Co., Ltd. June 2010: Executive Advisor, Tokyo Gas Co., Ltd. June 2011: Outside Director, Asahi Kasei Corp.* April 2014: Special Advisor, Tokyo Gas Co., Ltd.* * Position held at present. Shareholders and investors are paying greater attention to the roles and responsibilities of Outside Directors in the Board of Directors. Norio Ichino shares his perspective on how the function of the Board of Directors can be further improved, as well as his own role on the Board of Directors, considering the future outlook for the Asahi Kasei Group. Q How do you evaluate Asahi Kasei’s Board of Directors? A There are very active discussions, with objectivity and fairness maintained. Under the leadership of Chairman Itoh, each Director’s opin- ions are brought forward. The Corporate Auditors also freely express their opinions, and there are always active discussions. Matters pending approval have always been thoroughly discussed at the Management Council before being brought to the Board of Directors, and my impression is that the final decisions are made appropriately. I also feel that 9 Directors is an appropriate number. Considering that 3 of the 9 Directors are Outside Directors and 3 of the 5 Corporate Auditors are Outside Corporate Auditors, over 40% of the total are outsid- ers. I feel that this configuration ensures an objective and fair perspective. Q Do you see any areas where the effectiveness of the Board of Directors could be improved? A There should be more measures to nurture candidates for leadership positions and greater diversity. I think there are 2 areas where there is room for improvement. The first would be to use the Board of Directors to nurture candidates for leadership positions. Considering the broad scope and large scale of the Asahi Kasei Group’s operations, a leader needs to have considerable knowledge and judgment. In addition to the specialist knowledge gained through experi- ence as President of a strategic business unit or core operating company, a birds-eye view of the overall Asahi Kasei Group requires a balanced perspective on which fields to concentrate investment in, a sense of how to achieve sustainable growth, 26 Asahi Kasei Report 2016 and a strong awareness of compliance-related issues, to name a few. The Board of Directors is the ideal venue for fostering such perspectives. Considering the future growth of opera- tions, I think the number of Directors could be increased by 1 or 2 people. The second area would be to consider the selection of for- eigners and women as candidates to be Director. Asahi Kasei needs to further globalize. The Board of Directors also needs to be made more global. This is not so simple, because a foreign candidate to the Board of Directors must understand and appreciate the Asahi Kasei Group’s vision and values. Currently the company has 3 foreign Executive Officers. I think we should consider them as possible candidates to be Director. I also think we should consider female candidates from inside the company to be Director, not only for diversity but also to further raise the effectiveness of the Board of Directors by bringing in a broader perspective. Q How do you see your own role in helping to further raise Asahi Kasei’s corporate value? A I work to oversee the company’s management from a medium-to-long term perspective. For the oversight of the company’s management as an Outside Director, I offer opinions on corporate governance and express the perspective of the consumer based on my experience as a chief executive. When we are making the final decision on a matter, I am careful to consider whether it has been studied from a medium-to-long term perspective. It’s natural that people working on the front lines of business tend to focus on the short term, since they are working hard every day to achieve results. I see my role as offering advice from a medium-to-long term perspective, to help businesses add even greater value. When we were considering the Polypore acquisition in 2015, I offered opinions based on a medium-to- long term perspective. Polypore’s battery separator products were expected to be used in electric vehicles. I straightfor- wardly asked, “Is the electric vehicle’s time really coming? Will it be the electric vehicle or the fuel-cell vehicle? What positive impact can we expect in 10 years?” After thorough discussion we determined that there were significant merits in both the short term and the long term, and that it would also contrib- ute to the development of global human resources, and so we approved the acquisition. I sense that the role of a Director is becoming more and more important. I will continue to deepen my understand- ing of the operations and vision of the Asahi Kasei Group, fulfilling my role of management oversight with a sense of responsibility. Q How do you see the data manipulation issue at Asahi Kasei Construction Materials Corp.? A It’s time to get back to basics and thoroughly apply the “three actuals.” I think one cause of the data manipulation was poor manage- ment of on-site workers by Asahi Kasei Construction Materials. When work is entrusted to contractors and subcontractors without proper oversight, people become careless and management becomes lenient. To prevent that, there needs to be a system where supervisors oversee the work from day to day with a sense of responsibility, and they need to make this a regular practice. Furthermore, we need to share Asahi Kasei’s vision and values with contractors and subcontractors, so that they can feel a sense of satisfaction in working within this corporate culture. If that had been the case, I don’t think this kind of problem would have occurred. The Asahi Kasei Group is now working to prevent recur- rence by thoroughly applying the “three actuals” set forth by President Kobori. Indeed, the “three actuals” are originally a part of Asahi Kasei’s heritage. When the company entered a completely new field of business such as housing, they built the business into a success by focusing on the actual site and putting the customer first. I hope that all employees will take a moment to consider the principles of their actions, and feel a sense of pride and responsibility in their work. The Board of Directors will thoroughly apply the lessons from this issue as we work to heighten the company’s risk management functions. Asahi Kasei Report 2016 27 Corporate Governance 1 Basic Views on Corporate Governance The Group Vision of Asahi Kasei is to provide new value to society and solve social issues by enabling “living in health and comfort” and “harmony with the natural environment” under the Group Mission of “contributing to life and living for people around the world.” With this as a base, we aim to contribute to society, achieve sustainable growth, and enhance corporate value over the medium to long term by promoting innovation and creating synergy through integration of various busi- nesses. We continue to pursue optimal corporate governance as a framework to make transparent, fair, timely, and resolute decisions in accordance with changes in the business environment. 2 Business Management Organization and Other Corporate Governance Systems regarding Decision-Making, Execution of Business, and Oversight in Management (as of June 28, 2016) Shareholders Meeting ○ Audit Election Election ○ Oversight Board of Corporate Auditors (5 Corporate Auditors, including 3 Independent Outside Corporate Auditors) Board of Directors (9 Directors, including 3 Independent Outside Directors) Cooperation Audit Independent Auditors ○ Execution of operations Audit Management Council President Nomination Advisory Committee Remuneration Advisory Committee Oversight Corporate Ethics Committee Compliance Hotline Responsible Care Committee Risk Management Committee Internal Audit Department Group staff functions Core Operating Companies, Strategic Business Units Note: In September 2016, the Corporate Ethics Committee and Risk Management Committee were replaced with a Risk Management & Compliance Committee chaired by the President of Asahi Kasei. 28 Asahi Kasei Report 2016 Evolution of Asahi Kasei’s corporate governance system FY Board of Directors Board of Corporate Auditors Others • Changed term of office of Directors to 1 year (previously 2 years) • Changed maximum number of Directors to 15 (previously 45) • 2 Outside Corporate Auditors out of • Transformed to a holding company • Changed number of Directors to 7 4 Corporate Auditors configuration (previously 30) • Adopted Executive Officer system • Established Strategic Management Council (currently Management Council) • 2 Outside Directors out of 11 Directors (previously 8 Directors all from inside) • Extended term of office of Corporate • Launched “Ishin-05” medium-term Auditors from 3 years to 4 years management initiative • Launched “Growth Action—2010” medium-term management initiative 2003 2006 2007 2008 • 3 Outside Directors out of 10 Directors • Adopted takeover defense measures 2011 2014 2015 2016 • Launched “For Tomorrow 2015” medium-term management initiative • Renewed takeover defense measures • Reduced number of Directors from 10 to 9, raising the proportion of Outside Directors to 1/3 • Increased number of Outside Corporate Auditors from 2 to 3, making Outside Corporate Auditors a majority • Withdrew takeover defense measures • Discontinued system of retirement bonuses for Directors and Corporate Auditors • Established Nomination Advisory Committee and Remuneration Advisory Committee • Held regular meetings between Outside Directors and Independent Auditors • Held regular meetings between Outside Directors and Corporate Auditors • Established policies for nomination of candidates for Director and Corporate Auditor, criteria on the independence of Outside Directors and Outside Corporate Auditors, and policy regarding strategic shareholdings and exercise of voting rights thereof • Clarified policy regarding prohibition of disadvantageous treatment due to reporting to Corporate Auditors and policy regarding bearing expenses of Corporate Auditors with amendment of basic policy for internal control • Transformed to an operating holding company configuration • Launched “Cs for Tomorrow 2018” medium-term management initiative Asahi Kasei Report 2016 29 Corporate Governance 3 Corporate Governance System ◻ Oversight and audit The Board of Directors, which consists of nine Directors includ- ing three independent Outside Directors (one-third), makes decisions on matters requiring a Board of Directors resolution in accordance with laws or the Articles of Incorporation, makes decisions on important matters for Asahi Kasei Corp. (the Company) and other companies of the Group, and oversees execution of operations by Directors and Executive Officers. The newly established Nomination Advisory Committee and Remuneration Advisory Committee under the Board of Directors consist of a majority of Outside Directors who provide active involvement in the consideration of matters such as: optimal makeup and size of the Board of Directors, policy regarding nomination of candidates for Directors and Corporate Auditors, criteria on the independence of Outside Directors and Outside Corporate Auditors, remuneration policy and system for Directors, and evaluation of individual Directors to determine remuneration based on performance. The Board of Corporate Auditors consists of five Corporate Auditors including three independent Outside Corporate Auditors (a majority). In accordance with the audit policy stipulated by the Board of Corporate Auditors, each Corporate Auditor oversees execution of duties by Directors by attending the Board of Directors meetings and examining the state of operations. To enhance functions of the Board of Corporate Auditors and to facilitate smooth cooperation among Corporate Auditors from inside the company and Outside Corporate Auditors, a Corporate Auditors Office is staffed with full-time employees. PricewaterhouseCoopers Aarata LLC performs financial audits based on the Companies Act and the Financial Instruments and Exchange Act. Furthermore, the Internal Audit Department conducts internal audits based on the audit plan. Results of internal audits performed by each staff function are aggregated by the Internal Audit Department and reported to the Board of Directors. ◻ Execution of operation We have adopted an Executive Officer system to enable faster business execution, and clearly define responsibilities; Directors fulfill decision-making and oversight functions, and Executive Officers fulfill execution of operations. The Decision-Making and Approval Authority Regulations of the Group stipulate detailed criteria for decision-making with regard to matters concerning the management plan, investments and loans, funding and financial management, the organization and management system, research and develop- ment, and production technology, and delegate authority from the Board of Directors to the Management Council, strategic business units, and core operating companies. 4 Policy and Procedure to Nominate Candidates for Directors In selecting candidates for Directors, we appoint persons with deep insight and excellent skills suitable for the role. For Directors from inside the company, we select those with expertise, experience and skills required in the respective field. On the other hand, Outside Directors are expected to supervise the management from an objective standpoint based on their deep insights and rich experience. Therefore we select from among people who were corporate executives, academic experts, or public officials. To further heighten objectivity and transparency in appointing candidates for Directors, we established a Nomination Advisory Committee which consists of a majority of Outside Directors who take part in discussions on the makeup and size of the Board of Directors and policies for nomination of Directors and Corporate Auditors, and provide advice to the Board of Directors. 30 Asahi Kasei Report 2016 5 Policy and Procedure to Determine Remuneration of Directors Directors’ remuneration, within the remuneration limit approved at a shareholders meeting, is determined based on the remuneration system approved in advance by the Board of Directors, and it consists of the fixed base remuneration determined by rank of each Director and the performance- linked remuneration determined based on consolidated and non-consolidated financial results. Performance is evaluated considering the degree of achievement of individually established objectives, achievements, contributions to financial performance, and the degree of contributions, in addition to management benchmarks including but not limited to net sales, operating income, and ROA. We determine the level of remuneration based on research data provided by external specialized agencies, etc. In order to further improve the objectivity and transparency of Directors’ remuneration, we have established a Remuneration Advisory Committee, which consists of a majority of Outside Directors, who participate in discussions about the Directors’ remuneration system and operation thereof, and provide advice to the Board of Directors. 6 Independence Standards and Qualification for Outside Directors and Outside Corporate Auditors In determining that Outside Directors and Outside Corporate Auditors are independent, we ensure that they do not cor- respond to any of the following and whether they are capable of performing duties from a fair and neutral standpoint. 5. Company which receives donation or aid (10 million yen or more in a year) from the Asahi Kasei Group or person who executes businesses thereof 6. Main shareholder of the Asahi Kasei Group (person or 1. Person who currently executes or has executed businesses of the Asahi Kasei Group (executive directors, executive officers, employees, etc.) over the last 10 years 2. Company or person who executes businesses thereof whose major business partner is the Asahi Kasei Group (company with more than 2% of its annual consolidated net sales from the Asahi Kasei Group) company who directly or indirectly owns 10% or more of all voting rights in Asahi Kasei) or person who executes businesses thereof 7. Person who executes businesses of a company which elects Directors, Corporate Auditors, or employees of the Asahi Kasei Group as its own Directors or Corporate Auditors 8. Independent Auditor of the Asahi Kasei Group or any staff thereof 3. Major business partner of the Asahi Kasei Group (when 9. Person who fell into any of the categories 2 through 8 payments by this partner to the Asahi Kasei Group account for more than 2% of our annual consolidated net sales or when we borrow money from such partner amounting to more than 2% of our consolidated total assets) or person who executes businesses thereof 4. Person who receives money or other financial gain (10 million yen or more in a year) from the Asahi Kasei Group as an individual other than remuneration as a Director or Corporate Auditor of Asahi Kasei above over the last three years 10. Person who has a close relative (spouse, relative within the second degree of kinship, and those who share living expenses) who falls under any of the categories 1 through 8 above, provided that “person who executes businesses thereof” in 1, 2, 3, 5, 6, and 7 above shall be replaced with “important person who executes businesses thereof (execu- tive directors and executive officers, etc.)” Asahi Kasei Report 2016 31 Corporate Governance 7 Audits In accordance with the audit policy adopted by the Board of Corporate Auditors, each Corporate Auditor attends meetings of the Board of Directors and audits Directors in the discharge of their duties through examination of business performance. The Corporate Auditors Office provides staff to support Corporate Auditors in their duties. PricewaterhouseCoopers Aarata LLC is contracted as the Independent Auditors to perform financial audits in accor- dance with the Companies Act and Financial Instruments and Exchange Act. The Independent Auditors form a team of assistants for performance of the audit in accordance with its audit plan. The team mainly comprises certified public accountants and junior accountants, and also includes certified information systems accountants and other specialist accountants. The Internal Audit Dept., the Board of Corporate Auditors, and the Corporate Auditors of core operating companies and other subsidiaries regularly meet to confirm the effectiveness of internal governance systems for legal compliance and risk management. The Board of Corporate Auditors provides coun- sel to the Independent Auditors of the consolidated financial audit of Asahi Kasei each quarter and each fiscal year. The Internal Audit Dept. (15 personnel as of March 31, 2016) is a corporate organ under the direct authority of the President of Asahi Kasei. Each year, the Internal Audit Dept. prepares plans for an internal audit in accordance with basic corporate regulations for internal audits, obtains the President’s approval for these plans, and then performs the internal audit. 8 Compliance ◻ Corporate ethics Our Corporate Ethics—Basic Policy and Code of Conduct (enacted in August 1998, revised in April 2016) is the standard and guide for ethical conduct throughout the day-to-day work of each and every member of the Asahi Kasei Group. It is based on our Group Mission, Group Vision, and Group Values. ◻ Protection of personal information Asahi Kasei is committed to the proper handling and use of personal information, in accordance with our basic policy. Education and training for all employees, including the distribution of an information security handbook (revised in April 2016) which covers issues related to personal information protection, is monitored by the Corporate Ethics Committee. 9 Information Disclosure Policy The Asahi Kasei Group has established an Information Disclosure Policy, enhancing the management and disclosure of corporate information to obtain greater corporate value. Corporate regulations for information disclosure based on this policy were adopted on July 1, 2008. ◻ Basic policy With our Group Mission of “contributing to life and living for people around the world,” we hold “ensuring transparency” as a fundamental element of our Corporate Ethics—Basic Policy. We proactively engage in information disclosure and communication based on these basic concepts. Corporate information is disclosed fairly, impartially, accurately, and as swiftly as possible to stakeholders such as customers, suppliers, shareholders, investors, employees, and local communities, and to the general public. In our communication with stakeholders and with the general public, we strive for dialog which fosters a relationship of trust, promoting greater understanding of the Asahi Kasei Group and its operations, to increase brand strength and heighten corporate value. 10 Compliance Monitoring by the Corporate Ethics Committee Monitoring of compliance and oversight of education and training for compliance throughout the Asahi Kasei Group are performed by the Corporate Ethics Committee, which was formed in July 1988. Where shortcomings are discovered, the committee formulates and implements measures for improvement. The committee discusses the training programs implemented at each group company, measures for preven- tion of sexual harassment, the state of compliance with laws and regulations including personal information protection law, and operation of the Compliance Hotline. 32 Asahi Kasei Report 2016 11 Risk Management The Asahi Kasei Group has a Risk Management Committee to enhance the risk management system to prevent operational crises and to minimize the effects of any crisis which may occur. Our Basic Risk Management Regulations, which were established by the Board of Directors in March 2007 (effective April 1, 2007), provide clear guidelines to heighten the capabil- ity and effectiveness for risk management and emergency response throughout the Asahi Kasei Group. In fiscal 2014, we reinforced familiarity with the emergency contact system to employ in the event of a disaster at each major operating location. We also held a series of internal meetings and interviews to confirm that the management of personal information is implemented properly to prevent any inappropriate disclosure. Additionally, in May 2015 we adopted a system to efficiently confirm the well-being of personnel stationed overseas and travelling on business overseas if an emergency situation should occur where they are located. 12 Establishment of Risk Management & Compliance The expansion of our global businesses through several M&As, including ZOLL in 2012 and Polypore International in 2015, and the occurrence of manipulation of precast concrete pile instal- lation data by subsidiary Asahi Kasei Construction Materials, have raised the exigency of a review of our compliance system. To reinforce the company-wide configuration, we established Risk Management & Compliance in January 2016 as the central hub to aggregate all risk management and compliance-related information. To further enhance the organization, managers responsible for risk management and compliance were designated in each strategic business unit and core operating company; they will lead the effort to achieve thorough compliance and perform a review to identify latent risks within each organization. We will formulate specific methods to strengthen compliance and obtain thorough risk management in accordance with the following policies. Compliance Risk management ◻ Basic policy: Formulate and disseminate Code of Conduct for all employees in Japan and overseas ◻ Basic policy: Understand risks by business and establish a crisis response system 1) Adopt global standardized Corporate Ethics—Basic Policy 1) Identify risks in each business and each affiliated company and Code of Conduct 2) Formulate countermeasures to identified risks; monitor 2) Formulate and implement compliance education and periodically review programs 3) Establish and maintain a crisis response system 3) Monitor the dissemination of the above 1) and 2) among employees For more information regarding corporate governance, please refer to the Asahi Kasei Group website. http://www.asahi-kasei.co.jp/asahi/en/aboutasahi/governance/ Asahi Kasei Report 2016 33 Financial and Non-Financial Highlights For the years ended March 31 Net sales Domestic sales Overseas sales Operating income Ordinary income Income before income taxes Net income attributable to owners of the parent Comprehensive income Net income per share, yen Capital expenditure Depreciation and amortization R&D expenditures Cash dividends per share, yen As of March 31 Total assets Inventories Property, plant and equipment Investments and other assets 2016 ¥1,940,914 1,261,203 679,711 165,203 161,370 146,389 91,754 (11,925) 65.69 99,000 93,811 81,118 20.00 2015 ¥1,986,405 1,313,128 673,277 157,933 166,543 158,440 105,652 214,484 75.62 89,108 86,058 75,540 19.00 2014 ¥1,897,766 1,289,054 608,712 143,347 142,865 163,860 101,296 146,102 72.48 92,397 86,052 71,101 17.00 2013 ¥1,666,640 1,181,429 485,211 91,960 95,125 82,302 53,712 117,515 38.43 113,785 80,050 71,120 14.00 2016 2015 2014 2013 Net wortha Net worth per share, yen Net worth/total assets, % Number of employees a Net assets less non-controlling interests; shareholders’ equity shown for the year ended March 31, 2006. b In the year ended March 31, 2012, the accounting policy for naphtha resale was changed to exclude the naphtha resale amount from net sales. This change is applied retroactively ¥2,211,729 336,743 555,989 305,140 1,041,901 745.94 47.1 32,821 ¥2,014,531 339,677 502,507 334,368 1,082,654 775.05 53.7 30,313 ¥1,915,089 328,540 480,535 285,735 912,699 653.15 47.7 29,127 ¥1,800,170 309,677 461,581 263,704 812,080 581.05 45.1 28,363 from the year ended March 31, 2008, through the year ended March 31, 2011. Net sales Operating income1 1,573.2 1,666.6 1,897.8 1,986.4 1,940.9 (¥ billion) 2,000 1,500 1,000 500 0 143.3 157.9 165.2 104.3 92.0 (¥ billion) 200 150 100 50 0 –50 '11 '12 '13 '14 '15 (FY) '11 '12 '13 '14 '15 (FY) Chemicals Health Care Fibers Critical Care Homes Others Construction Materials Electronics Chemicals Health Care Fibers Critical Care Homes Others Construction Materials Corporate expenses and eliminations, etc. Electronics Net income attributable to owners of the parent, ROE Interest-bearing debt, D/E ratio (¥ billion) 120 100 80 60 40 20 0 101.3 105.7 91.8 55.8 53.7 8.1 7.1 11.7 10.6 8.6 (%) 24 20 16 12 8 4 0 (¥ billion) 500 400 300 200 100 0 381.4 303.9 269.0 184.1 0.26 0.47 0.33 0.25 449.7 0.43 '12 Net income attributable to owners of the parent (left scale) '13 '11 '14 '15 ROE (right scale) (FY) '12 Interest-bearing debt (left scale) '11 '13 '14 D/E ratio (right scale) '15 1 Amortization of goodwill, etc., related to acquisition of ZOLL and Polypore are excluded from Critical Care and Electronics, respectively, and included in “Corporate expenses and eliminations, etc.” 1.0 0.8 0.6 0.4 0.2 0 (FY) 34 Asahi Kasei Report 2016 2012 ¥1,573,230 1,151,705 421,525 104,258 107,567 94,866 55,766 62,561 39.89 85,124 78,440 66,269 14.00 2012 ¥1,410,568 279,206 416,119 227,489 706,846 505.72 50.1 25,409 2011b ¥1,555,945 1,106,656 449,289 122,927 118,219 98,342 60,288 45,088 43.11 66,014 84,092 62,320 11.00 2011 ¥1,425,879 256,248 418,354 220,773 663,566 474.59 46.5 25,016 2010b ¥1,392,212 1,021,803 370,409 57,622 56,367 46,056 25,286 — 18.08 83,990 86,166 62,924 10.00 2010 ¥1,368,892 251,084 447,497 226,331 633,343 452.91 46.3 25,085 2009b ¥1,521,178 1,127,213 393,965 34,959 32,500 19,031 4,745 — 3.39 126,725 79,436 60,849 10.00 2009 ¥1,379,337 273,539 441,271 218,477 603,846 431.77 43.8 24,244 2008b ¥1,663,778 1,176,441 487,337 127,656 120,456 105,599 69,945 — 50.01 82,911 73,983 56,170 13.00 2008 ¥1,425,367 272,372 424,193 234,873 666,244 476.39 46.7 23,854 Millions of yen, except where noted 2007 ¥1,623,791 1,195,751 428,040 127,801 126,507 114,883 68,575 — 49.00 84,413 71,646 52,426 12.00 2007 ¥1,459,922 240,006 426,959 281,502 645,655 461.50 44.2 23,715 2006 ¥1,498,620 1,125,454 373,166 108,726 104,166 94,481 59,668 — 42.46 66,310 69,399 51,467 10.00 2006 ¥1,376,044 214,062 414,368 284,390 594,211 424.34 43.2 23,030 Environmental and safety investment Greenhouse gas emissions from production processes (¥ billion) (million tons CO2 equivalent) 7.88 5.20 4.26 3.80 3.90 8 6 4 2 0 6 5 4 3 2 1 0 5.05 4.11 4.17 4.06 3.84 '11 Environmental investment '12 '13 '14 '15 (FY) Safety investment '11 Carbon dioxide Sulfur hexafluoride '12 Nitrous oxide '13 Methane '14 '15 (FY) HFCs PFCs Number of women working as managers2 Employees using parental leave3 410 454 500 344 370 500 400 300 200 100 0 600 500 400 300 200 100 0 430 454 468 457 556 '12/6 '13/6 '14/6 '15/6 '16/6 2 Results as of June 30 each year for personnel employed by Asahi Kasei Corp., Asahi Kasei Microdevices Corp., Asahi Kasei Homes Corp., Asahi Kasei Construction Materials Corp., Asahi Kasei Pharma Corp., and Asahi Kasei Medical Co., Ltd. (Asahi Kasei Chemicals Corp., Asahi Kasei Fibers Corp., and Asahi Kasei E-materials Corp. included in FY2015 and earlier). Women '11 Men '12 '13 '14 '15 (FY) 3 Results for personnel employed by Asahi Kasei Corp., Asahi Kasei Chemicals Corp., Asahi Kasei Fibers Corp., Asahi Kasei Homes Corp., Asahi Kasei Construction Materials Corp., Asahi Kasei Microdevices Corp., Asahi Kasei E-materials Corp., Asahi Kasei Pharma Corp., and Asahi Kasei Medical Co., Ltd. Asahi Kasei Report 2016 35 At a Glance Beginning with fiscal 2016, the Asahi Kasei Group has adopted an operating holding company configuration and reorganized its business portfolio into the three business sectors of Material, Homes, and Health Care. The new medium-term manage- ment initiative, Cs for Tomorrow 2018, is focused on increasing corporate value through optimal alloca- tion of management resources into three sectors. Health Care 14.9 % 17.4 % Material 52.0 % 42.8 % FY2016 (planned) Homes 33.1 % 39.8 % Note: Percentages shown exclude “Others” category and corporate expenses and eliminations. Material • Fibers & Textiles SBU • Petrochemicals SBU • Performance Polymers SBU • Performance Materials SBU • Separators SBU • Consumables SBU • Asahi Kasei Microdevices Corp. (electronic devices) FY2016 forecast Net sales ¥ 980.0 billion Operating income ¥ 70.0 billion FY2015 FY2016 Asahi Kasei Fibers Corp. Asahi Kasei Chemicals Corp. Asahi Kasei Corp. Asahi Kasei E-materials Corp. Asahi Kasei Microdevices Corp. Asahi Kasei Microdevices Corp. Chemicals & Fibers Homes & Construction Materials Net sales and operating income 912.5 954.6 835.6 Net sales (¥ billion) 1,000 800 600 400 200 0 Net sales (¥ billion) 700 600 500 400 300 200 100 0 589.4 603.8 632.4 '13 '14 '15 (FY) '13 '14 '15 (FY) 64.6 68.9 Operating income (¥ billion) 70 60 50 40 30 20 10 0 47.4 Operating income (¥ billion) 80 68.5 63.0 71.0 60 40 20 0 '13 '14 '15 (FY) '13 '14 '15 (FY) In fiscal 2016, the former Chemicals & Fibers segment and the former Electronics segment are combined as a Material segment, and the former Homes & Construction Materials segment is renamed as a Homes segment; the Health Care segment remains unchanged. As a result, the former 4 segments are 36 Asahi Kasei Report 2016 Material ■ Net sales ■ Operating incomeHomes ■ Net sales ■ Operating incomeHealth Care ■ Net sales ■ Operating income Homes • Homes • Construction materials Health Care • Pharmaceuticals • Medical Care • Acute Critical Care FY2016 forecast Net sales ¥ 624.0 billion Operating income ¥ 65.0 billion FY2016 forecast Net sales ¥ 280.0 billion Operating income ¥ 28.5 billion FY2015 FY2016 FY2015 FY2016 Asahi Kasei Homes Corp. Asahi Kasei Homes Corp. Asahi Kasei Pharma Corp. Asahi Kasei Pharma Corp. Asahi Kasei Construction Materials Corp. Asahi Kasei Construction Materials Corp. Asahi Kasei Medical Co., Ltd. Asahi Kasei Medical Co., Ltd. ZOLL Medical Corporation ZOLL Medical Corporation by segment Electronics Health Care 145.0 150.4 174.5 Net sales (¥ billion) 200 150 100 50 0 232.4 257.1 285.4 Net sales (¥ billion) 300 250 200 150 100 50 0 '13 '14 '15 (FY) '13 '14 '15 (FY) Operating income (¥ billion) 15 14.2 14.3 Operating income (¥ billion) 40 36.2 10 5 0 6.9 30.8 26.7 30 20 10 0 '13 '14 '15 (FY) '13 '14 '15 (FY) revised into the 3 segments of Material, Homes, and Health Care. Concurrently with the segment revision, some operations are reclassified among different business categories. Fiscal 2015 results shown in the new segment classifications have been recalculated for comparison purposes. Asahi Kasei Report 2016 37 Operating Segments Material Yuji Kobayashi Executive Officer for Material business sector Representative Director & Vice-Presidential Executive Officer, Asahi Kasei Corp. Main products ■ Bemberg™ cupro fiber ■ Roica™ spandex ■ Spunbond nonwovens ■ Leona™ nylon 66 filament ■ Acrylonitrile ■ Styrene ■ Polyethylene ■ Engineering plastics ■ Synthetic rubber ■ Microza™ hollow-fiber filtration membranes ■ Ion-exchange membranes ■ Ceolus™ microcrystalline cellulose ■ Saran Wrap™ cling film ■ Sunfort™ photosensitive dry film ■ Hipore™ and Celgard™ Li-ion battery separators ■ Daramic™ lead-acid battery separator ■ Mixed-signal LSIs ■ Hall elements 38 Asahi Kasei Report 2016 From unique fiber materials to petrochemicals and synthetic resins, and from con- sumables such as Saran Wrap™ cling film to battery separators and electronic devices such as LSIs and sensors, our high value-added product portfolio is expanding on a global scale, contributing to a better future through unrivalled technologies. ■ Sales composition ■ Operating income Net sales & operating income 52.3 % composition 42.5 % Fiscal 2015 (¥ billion) 1,200 900 600 300 0 1,004.4 980.0 79.2 70.0 '15 '16 (forecast) (¥ billion) 120 90 60 30 0 (FY) Not including “Others” category and corporate expenses and eliminations. Net sales (left scale) Operating income (right scale) Highlights Asahi Kasei Europe began operating in Germany Asahi Kasei Europe GmbH began operating on April 1, 2016, in Dusseldorf, Germany, as a base for the further expansion of material business in Europe mainly focusing on automotive-related applications. Asahi Kasei Europe also functions as a regional headquarters for all operations of Asahi Kasei in Europe, working to maximize earnings in the European market. Asahi Kasei Europe’s office building Capacity expansion for Hipore™ LIB separator With increasing demand for hybrid-electric and all-electric vehicles worldwide, the lithium-ion battery (LIB) market is forecasted to grow sub- stantially in automotive applications, in addition to applications for consumer electronics. This capacity expansion at its plant in Moriyama, Shiga, will further reinforce Asahi Kasei’s capability to provide stable supply to meet rising global demand for LIB separators. Hipore™ LIB separator Fibers and Textiles Q A Please tell us about the situation of each business, and outlook for fiscal 2016. In fiscal 2015, we set a new record high in operating income for the second consecutive year. We forecast that business will continue to perform well in fiscal 2016, but with an impact from the stronger yen. In fiscal 2015, the fibers business achieved its highest net sales and operating income since the adoption of a holding company configuration in 2003. Feedstock costs declined for each product, the weaker yen contributed to performance, and shipments of Lamous™ artificial suede for automotive upholstery and Roica™ elastic polyurethane filament (spandex) increased. The growth of overseas subsidiaries also contrib- uted to increased operating income. In fiscal 2016, the operating climate is expected to be challenging with a stronger yen and a slowdown in the Chinese economy. We expect that the plants for our main products will continue to operate at full capacity. Capacity expansions made under the previous medium-term initiative, including polypropylene (PP) spunbond and Roica™ spandex in Thailand, and Leona™ nylon 66 filament for airbags in Miyazaki, Japan, in June 2016, will contribute to earnings. Chemicals Q A While feedstock costs fluctuate considerably, what is the situation of the main businesses and outlook for fiscal 2016? Lower sales in fiscal 2015 were mainly due to a significant decline in market prices for petrochemical products. In fiscal 2016 we expect an impact from a stronger yen. In fiscal 2015, while feedstock costs for petrochemical products declined with lower oil and naphtha prices, petro- chemicals had lower net sales and operating income than in the previous year, due to deteriorated market prices most notably for acrylonitrile. In performance polymers, terms of trade improved due to lower feedstock costs, and sales of engineering plastics and synthetic rubber for fuel-efficient tires were firm, resulting in higher net sales and operating income than in the previous year. In specialty products, the effect of the weaker yen was most notable for ion-exchange membranes, and shipments of Saran Wrap™ cling film increased, resulting in higher net sales and operating income than in the previous year. In fiscal 2016, we forecast increased shipments of synthetic rubber for fuel-efficient tires and consumable products such as Saran Wrap™ cling film. On the other hand, we expect a stronger yen to impact each business, and terms of trade centering on performance polymers to deteriorate. Shipments of styrene will decrease due to structural realign- ment of our domestic petrochemicals business. Electronics Q A Please recap fiscal 2015 and give your outlook for fiscal 2016. While there is an impact from amortization of goodwill and other intangible assets, etc., related to the acquisition of Polypore, shipments of battery separators are expected to grow. In fiscal 2015, electronic devices operations benefited from the weaker yen and sales of devices for smartphones such as audio LSIs and devices for camera modules were firm, but shipments of electronic compasses declined, resulting in lower net sales and operating income than in the previous year. In electronic materials operations, production and sale of general purpose epoxy resin were terminated, but the weaker yen contributed to performance, and sales of Hipore™ LIB separator were firm, resulting in lower net sales and higher operating income compared to the previous year. Beginning with Q2 2015, results of Polypore International, LP and its consolidated subsidiaries are included in the electronics business. In fiscal 2016, we forecast moderate growth continuing in the consumer electronics market, while automotive appli- cations for electronic devices grow with advanced electronic functions in vehicles, and demand for LIB separators in electric vehicle applications continues to grow. Shipments are forecasted to increase for audio LSIs, devices for camera modules, and battery separators such as Hipore™. Asahi Kasei Report 2016 39 Operating Segments Homes Eisuke Ikeda Executive Officer for Homes business sector Primary Executive Officer, Asahi Kasei Corp. President & Representative Director, Asahi Kasei Homes Corp. Main products ■ Hebel Haus™ unit homes ■ Hebel Maison™ apartment buildings ■ Atlas™ condominiums ■ Hebel Rooms™ apartment rental network ■ Remodeling ■ Mortgage financing ■ Hebel™ AAC panels ■ Neoma™ phenolic foam insulation panels ■ Foundation systems ■ Structural systems and components 40 Asahi Kasei Report 2016 With our homes business that provides high-quality products and services for Long Life Homes that maintain high customer satisfaction that lasts more than half a cen- tury, and our construction materials business that provides innovative and original high value-added products, we set the stage for a rich and fulfilling lifestyle. ■ Sales composition ■ Operating income 32.9 % composition 38.1 % Fiscal 2015 Net sales & operating income (¥ billion) 800 600 400 200 0 (¥ billion) 100 75 50 25 0 (FY) 632.4 71.0 624.0 65.0 '15 '16 (forecast) Not including “Others” category and corporate expenses and eliminations. Net sales (left scale) Operating income (right scale) Highlights Development of condominiums in Taiwan Asahi Kasei Homes began its first overseas hous- ing project, a condominium development in the Zhonghe District of New Taipei City, Taiwan. With growing needs to redevelop older housing forecasted, Taiwan is a promising potential market for Asahi Kasei Homes to leverage its know-how for reconciling complex relation- ships between different ownership rights to create proposals that are acceptable to various interested parties. Illustration of condominium planned in Taiwan Alliance with Mori-Gumi Co., Ltd. Asahi Kasei Homes has concluded an agreement with construction company Mori-Gumi on a capital and business alliance including the sharing of know-how in the fields of construction of mid-to-high-rise homes and condominiums, and large-scale repair and renovation of existing condominiums. To create synergies between the two companies more smoothly and efficiently, Asahi Kasei Homes acquired 30.2% of the stock of Mori-Gumi. Homes Q A How did your order-built homes and other peripheral businesses perform in fiscal 2015, and how was the trend for home orders? Homes operations achieved record highs in net sales and operating income in fiscal 2015. With resumption of advertising this May, we look forward to receiving increased orders. Having received record-high orders in fiscal 2014, our order-built homes business continued to make full use of its construction capability to increase deliveries in fiscal 2015, especially of Hebel Maison™ apartment buildings, enabling sales growth. SG&A expenses such as promotional expenses decreased due to curtailed advertising from the second half of the last fiscal year. The performance of peripheral businesses was firm. The rental management business in real estate operations grew in line with increased deliveries of Hebel Maison™ apartment buildings, and deliveries of large-scale condominiums included Atlas Chofu. Among remodeling operations, reroof- ing, repainting, and equipment installation performed well. As a result, consolidated net sales and operating income for homes operations renewed its record highs. Orders decreased by 5.9% from the previous year. In the first half, we proactively implemented marketing strategies including a campaign for celebrating the 40th anniversary of our two-generation homes that maintain leadership in urban markets. In the latter half, curtailed advertising had Construction Materials an impact on orders centering on apartment buildings. Although unit-homes operations saw decreased customer traffic, the decline in orders was relatively modest thanks to an effective approach to customers at model home parks, etc. Resumption of advertising in May 2016 will help return orders to a growth trajectory. Hebel Haus™ Cut & Gable Atlas Chofu Q A Please tell us about the situation of fiscal 2015, and prospects for the future. Although there is concern that the pile installation data manipulation incident may affect the foundation systems business, other businesses are expected to remain strong. In fiscal 2015, while Japan’s overall total floor space of new construction and number of housing starts were largely unchanged from the previous year, the foundation systems business posted lower net sales and operating income due to the pile installation data incident that came to light during the second half of the fiscal year. Meanwhile, thermal insulation business performed well as an effect of reinforced marketing. Due to factors such as lower input costs, the overall construction materials businesses posted lower net sales and higher operating income from a year ago. In fiscal 2016, the autoclaved aerated concrete (AAC) business is focused on capturing demand in major urban areas while raising productivity. In insulation materials business we are forecasting higher net sales and operating income with strong demand in homes with high-spec insulation, while further reinforcing marketing in residential markets and expanding sales in non-residential markets. While there is concern of an impact from the pile installation data incident on the foundation systems business, we will continue to revitalize our foundation systems business through efforts including thorough compliance. Neoma™ phenolic foam insulation panel Plant for Neoma™ panels Asahi Kasei Report 2016 41 Operating Segments Health Care Yutaka Shibata Executive Officer for Health Care business sector (joint) Primary Executive Officer, Asahi Kasei Corp. President & Representative Director, Asahi Kasei Medical Co., Ltd. Richard Packer Executive Officer for Health Care business sector (joint) Primary Executive Officer, Asahi Kasei Corp. Chairman & Board Director, ZOLL Medical Corporation Main products ■ Teribone™ osteoporosis drug ■ Recomodulin™ anticoagulant ■ APS™ polysulfone-membrane dialyzers ■ Therapeutic apheresis devices ■ Planova™ virus removal filters ■ Defibrillators for professional use ■ LifeVest™ wearable defibrillator ■ AED Plus™ automated external defibrillator ■ Thermogard System™ temperature management system 42 Asahi Kasei Report 2016 We contribute to advanced medical care around the world with world-class drugs in the fields of orthopedics, critical/intensive care, and the immune system; blood purifica- tion devices for chronic and acute renal failure, and various intractable diseases; and products for the manufacturing process of biopharmaceuticals and other new drugs. Our life-saving products in the field of acute critical care include AEDs, defibrillators for professional use, and intravascular temperature management systems. ■ Sales composition ■ Operating income Net sales & operating income 14.8 % composition 19.4 % (¥ billion) 300 285.4 280.0 (¥ billion) 60 Fiscal 2015 200 100 0 36.2 28.5 '15 '16 (forecast) 40 20 0 (FY) Not including “Others” category and corporate expenses and eliminations. Net sales (left scale) Operating income (right scale) Highlights Strategic collaboration with Orion Corporation Asahi Kasei Pharma entered a global strategic collaboration with Orion Corporation of Finland for the discovery, development, and commercialization of new pain manage- ment therapies. Four discovery phase candidates, two being provided by each company, are subject to joint development. Each company has the right to exclusively license the other’s development-ready programs, with all development costs to be shared by both companies. Sale of Teribone™ in Korea Asahi Kasei Pharma’s licensing partner, Dong-A ST Co., Ltd., began the sale of Teribone™ osteo- porosis drug for the treatment of osteoporosis in postmenopausal women at high risk of bone fracture. Through Dong-A ST’s effort to quickly facilitate its widespread use, Teribone™ will make a significant contribution to the treatment of osteoporosis in Korea. Teribone™ osteoporosis drug Pharmaceuticals and Medical Care Q A Please tell us the fiscal 2016 outlook for the pharmaceuticals and medical care businesses considering the impact of reduced reimbursement prices. Lower net sales and operating income are forecasted. Pharmaceuticals will be impacted from reduced reimbursement prices and competition from generics. Medical care will be impacted by a stronger yen and reduced reimbursement prices. In fiscal 2015, although sales of Teribone™ and Recomodulin™ were firm, the pharmaceuticals operation had lower net sales and operating income than the previous year due to a significant decrease in shipments of Flivas™ as a result of competition from generics. Ongoing efforts to enhance the pharmaceutical product pipeline included the September 2015 filing of an application for approval to manufacture and market AK156 (zoledronic acid) for the treatment of osteopo- rosis in Japan, and the conclusion of joint R&D agreements with other companies. The medical care operation had higher net sales and operating income than the previous year due to increased shipments of dialysis products and Planova™, reaching the highest operating income for this business since the adoption of a holding company configuration. Pharmaceuticals and medical care operations are forecasted to have lower net sales and operating income in fiscal 2016. In pharmaceuticals, reduced reimbursement prices will impact Teribone™, which is subject to repricing for market expansion, as well as other pharmaceutical products, while Flivas™ will continue to be impacted by competition from Acute Critical Care generics. Shipments of Teribone™ and Recomodulin™ are expected to increase, but the net sales and operating income from pharmaceuticals operation are expected to decrease. In medical care, shipments of Planova™ are expected to increase, but net sales and operating income are expected to decrease due to a stronger yen and reduced reimbursement prices. Medical care products Pharmaceuticals Q A The acute critical care operation has been growing steadily. Please tell us its outlook. We plan to continue to increase selling, general and administrative expenses for reinforced sales activity, and forecast that operations will continue to expand centering on the LifeVest™ wearable defibrillator. Fiscal 2015 saw continued growth in the acute critical care businesses. The LifeVest™ wearable defibrillator business continued to expand well, especially in the US. Sales of other products such as defibrillators and related accessories also increased centering on the North American hospital market and overseas markets. In September 2015, ZOLL acquired Kyma Medical Technologies, Ltd. of Israel, a company devel- oping technologies to measure early signs of congestive heart failure, enabling ZOLL to broaden its product offerings with additional technologies designed to improve outcomes for heart failure patients. The trend in fiscal 2016 will be largely unchanged, with continued growth expected. Selling, general and administra- tive expenses are expected to grow with reinforced sales activities, but we aim to increase net sales and operating income mainly with the expansion of defibrillator businesses centering on LifeVest™. LifeVest™ wearable defibrillator ZOLL AED Plus™ automated external defibrillator Asahi Kasei Report 2016 43 Review of “For Tomorrow 2015” (FT2015) Record-high operating results, more balanced sector structure Under the basic strategies of “expansion of world-leading businesses” and “creation of new value for society,” we achieved record- high operating income in the final year of FT2015. During the five-year period of the initiative, we further diversified with strategic actions including our two largest acquisitions. Here is a summary by fiscal year. Net sales Operating income FY2011 FY2015 Chemicals & Fibers Homes & Construction Materials Electronics Health Care Fiscal 2011 Launch of FT2015—group-wide effort to create value for society, with our group slogan “Creating for Tomorrow” The global economy significantly worsened due to the sovereign debt crisis in Europe and a slowdown in exports to emerging countries. Japan’s economic circumstances remained challenging with the effects of the Great East Japan Earthquake, the persistent strength of the yen, and high feedstock and fuel costs. This oper- ating environment was especially challenging for our chemicals business, while our housing business achieved record-high operating income. Net sales ¥1,573.2 billion Ordinary income ¥107.6 billion Operating income ¥104.3 billion Net income attributable to owners of the parent ¥55.8 billion Highlights Nov: Launch of Teribone™ osteoporosis drug in Japan Asahi Kasei Pharma launched the sale of a 56.5 µg subcutaneous injection formulation of Teribone™ for treatment of osteoporosis with high risk of fracture, which has been increasing as the population ages. When administered once a week, Teribone™ can increase bone strength with both improved bone quality and increased bone mass, making a significant contribution to the treatment of osteoporosis. Dec: Acquisition of Crystal IS, Inc. Crystal IS, a US-based venture focused on the development of deep ultraviolet light emitting diodes (UVC LEDs), became a wholly owned subsidiary of Asahi Kasei. Fiscal 2012 Solid steps for future growth following the basic strategies of FT2015 The global economy generally remained challenging with an economic downturn in Europe and slowing demand in China and other emerging economies. For the Japanese economy, expecta- tions of recovery rose with domestic demand underpinned by firm consumer spending and with conditions for exports improving. While our global businesses such as chemicals and electronics faced difficult conditions, our domestic businesses performed well; our homes businesses achieved record-high operating income for the second consecutive year, and our pharmaceuticals business enjoyed growing sales of new drugs. Net sales ¥1,666.6 billion Ordinary income ¥95.1 billion Operating income Net income attributable to owners of the parent ¥92.0 billion ¥53.7 billion Highlights Apr: Acquisition of ZOLL Medical Corporation Asahi Kasei acquired ZOLL, a major US manufac- turer of acute critical care devices and systems, for $2.2 billion, marking our full-scale entry into the field. Aug: Launch of new Hebel Haus™ series Asahi Kasei Homes Corp. launched a new series of Hebel Haus™ products with features for families living with their parents and a single sibling. 44 Asahi Kasei Report 2016 Fiscal 2013 Net sales, operating income, ordinary income, and net income all reaching record highs The global economy gradually recovered with growth in the US and improvement in Europe, but the management climate was obscured by slower growth in China and other emerging economies. The Japanese economy recovered with a correction of the overvalued yen and a wealth effect from higher stock prices resulting in improved corporate earnings and revived consumer spending, but instability in the global economy remained a concern. Record-high results were achieved as our domestic businesses such as homes and pharmaceuticals performed well while our chemicals and elec- tronics businesses recovered due to improved export conditions. Net sales ¥1,897.8 billion Ordinary income ¥142.9 billion Operating income ¥143.3 billion Net income attributable to owners of the parent ¥101.3 billion Highlights Apr: Start of new S-SBR plant in Singapore A new plant for S-SBR for fuel-efficient, high- performance tires started operation in Singapore. Developed with our original technology, our S-SBR is the optimal material for achieving a high-level balance of tire performance characteristics includ- ing good wet grip and fuel efficiency as well as abrasion resistance and handling stability. Jul: Approval in Japan for LifeVest™ wearable defibrillator Approval for manufacturing and marketing of the LifeVest™ wearable defibrillator was received in Japan. It provides protection for patients at risk of sudden cardiac arrest, automatically delivering a treatment shock to restore normal heart rhythm when a life-threatening heart rhythm is detected. Fiscal 2014 Second year of record-high net sales, operating income, ordinary income, and net income While the US economy continued to recover, and slower growth was seen in China and other emerging countries, political instabil- ity in certain regions raised geopolitical risks. Consumer spending in Japan softened early in the fiscal year due to the consumption tax increase, but the Japanese economy gradually recovered later in the fiscal year with the weaker yen and lower oil prices leading to improved corporate performance. While construction materials and pharmaceuticals had lower sales volumes, performance in chemicals and critical care was strong, contributing to record-high results for the second consecutive year. Net sales ¥1,986.4 billion Ordinary income ¥166.5 billion Operating income ¥157.9 billion Net income attributable to owners of the parent ¥105.7 billion Highlights May: Start of new production facility for Bemberg™ cupro fiber Our new production facility for Bemberg™ cupro fiber started operation to meet growing demand in the fields of functional innerwear and ethnic garments in emerging markets. Feb: Announcement of acquisition of Polypore International We announced an agreement to acquire Polypore International to expand our battery separator business with high growth potential and reinforce operations in the field of the environment and energy. Fiscal 2015 Final year of FT2015—third consecutive year of record-high operating income While slower growth persisted in China, the US and Europe were on a path of gradual recovery with increased consumer spending. The Japanese economy saw steady consumer spending along with firm corporate performance, but uncertainty remained regarding the risk of further downturn in emerging economies and apprecia- tion of the yen from the latter half of the period. Our consolidated net sales decreased from a year ago with lower market prices for petrochemical products in chemicals operations. Operating income increased with firm performance in homes and critical care opera- tions, setting a new record high for the third consecutive year. Net sales ¥1,940.9 billion Ordinary income ¥161.4 billion Operating income ¥165.2 billion Net income attributable to owners of the parent ¥91.8 billion Highlights Sep: Capacity increase for Hipore™ LIB separator We announced an expansion of our plant in Moriyama, Shiga, Japan, for Hipore™ Li-ion battery (LIB) separator to meet growing demand not only in consumer electronics such as smartphones and tablet PCs, but also in hybrid electric vehicles, all electric vehicles, and other automotive applications. Feb: Closing of our naphtha cracker in Mizushima Our naphtha cracker in Mizushima was unified with the adjacent naphtha cracker of Mitsubishi Chemical Corp. Joint operation of the unified naphtha cracker began in April 2016. Asahi Kasei Report 2016 45 Interview with the Executive Officer for R&D SPECIAL FEATURE Creating new high value added businesses across the Asahi Kasei Group Evolution of new business creation academia, M&A, etc. In any case, we still need our own outstanding researchers who are capable of discerning which outside technologies we need, and to adapt them to suit our purposes. Having Watabe Asahi Kasei has grown to be one many such researchers is one of our of Japan’s leading diversified manufactur- ers. Tell us about your company’s heritage of R&D. strengths, together with our various core technologies and business platforms established in our diversified operations. Nakao There are bound to be various These enable us to access markets from challenges along the way from the start various angles. of research to final commercialization. Looking at the past decade, yes, it I think we have a heritage of working has taken time for our in-house R&D to persistently to overcome the challenges bear fruit, especially in materials. But we to successfully advance R&D ahead of our have made good progress with superior competitors. Take Planova™ virus removal new technologies which have excellent filters for biopharmaceutical manufacture, prospects for commercialization. for example, or ion-exchange membrane Watabe Asahi Kasei became an technology for chlor-alkali production. In operating holding company in April both cases, the early period of develop- 2016. Did the previous holding company ment was very tough going. But our configuration impede the creation of new researchers kept pressing ahead with the businesses? support of management that believed Nakao We adopted the configuration in the potential of these projects. In the of a holding company with core operating end we were able to create very healthy companies 13 years ago. Since then, we businesses. Watabe My impression is that your improved management efficiency with a focus on greater cash flow as well as in-house R&D did not sufficiently create independence and autonomy for each new businesses in the past decade. What operation. This clearly brought enhanced do you think about this? earnings and financial strength. In other Nakao I don’t think this is an issue just words, we improved our ability to reap for us; many companies have a similar a harvest from seeds sown in the past. challenge. Competition is becoming Nevertheless, we came to recognize that more intense with the rise of emerging the previous configuration made it dif- countries, and conventional ways of ficult for us to fully coordinate among our creating new business may no longer be different businesses. This was true both effective. Even as we continue in-house for long-term R&D and for leveraging our R&D, we also need to be more flexible and diverse market channels across the Asahi venturesome to obtain new technologies Kasei Group. To overcome this shortcom- externally, through collaboration with ing, in April 2016 we consolidated our Masafumi Nakao Director, Primary Executive Officer; Executive Officer for R&D April 1978 Joined Asahi Kasei April 2004 President, Representative Director, Asahi Kasei Electronics Co., Ltd. April 2006 General Manager of Research & Develop- ment Center, Asahi Kasei EMD Corp. April 2009 Director, Executive Officer, Asahi Kasei Microdevices Corp. April 2012 Lead Executive Officer, General Manager of New Business Development, Asahi Kasei Corp. June 2012 Director, Lead Executive Officer, General Manager of New Business Development, Asahi Kasei Corp. April 2014 Lead Executive Officer, General Manager of Corporate Research & Development, Asahi Kasei Corp. April 2015 Senior Executive Officer, General Manager of Corporate Research & Development, Asahi Kasei Corp. April 2016 Primary Executive Officer, Asahi Kasei Corp. June 2016 Director, Primary Executive Officer, Asahi Kasei Corp. 46 Asahi Kasei Report 2016 Mr. Takato Watabe, a securities analyst who covers Asahi Kasei at Morgan Stanley MUFG Securities, asks about the creation of new businesses as a basic strategy of the new “Cs for Tomorrow 2018” medium-term management initiative. material-related operations within Asahi “farming” type of approach, cultivating Kasei Corp., which transformed into an a market and fostering a business based operating holding company. Whereas on our seeds of technology. Being able future-oriented R&D at the holding com- to combine the best aspects of each pany had been performed separately from approach is a significant strength for us. the R&D within established businesses at Each of the companies we acquired each core operating company, we now have an R&D organization that combines during the previous medium-term management initiative, namely ZOLL, material-related R&D together under Polypore, and Crystal IS, have very strong Corporate Research & Development, in market access. We will continue to look coordination with the R&D sections of for ways to more fully utilize their market each strategic business unit (SBU). Under channels in various other businesses. In the new configuration, R&D with a longer health care, for example, we are working perspective is seamlessly connected to achieve a higher degree of utilization with product development peripheral to of ZOLL’s business platform in the US, established businesses. the most advanced market for medical Watabe In addition to changing your technology. R&D configuration, your company has Watabe These are examples of “connec- become more actively engaged in M&A, tions” as mentioned in the new manage- creating synergy with ZOLL and Polypore. ment initiative, aren’t they? What is your perspective? Nakao Yes. We gain many fresh insights Nakao Since our Polypore acquisition by bringing different managerial perspec- is still fairly recent, let me talk about ZOLL. tives together. This yields much richer and After we acquired them in 2012, we set up deeper management discussions. a Health Care Council comprised of ZOLL, Asahi Kasei Corp., Asahi Kasei Pharma, and Asahi Kasei Medical. The council meets regularly to share information on each business, to discuss how to create new business, and to discuss what we need 3-axis perspective for new business creation to do over the longer term to build the Watabe How do you plan to create new Health Care sector into the third major businesses under “Cs for Tomorrow 2018”? pillar of the Asahi Kasei Group. We have learned a lot from ZOLL, Nakao In the new initiative, we are focused on contributing to the realization which is adept at a “hunting” type of a “society of clean environmental of approach that is common among energy” and a “society of healthy/ American and European companies. comfortable longevity with peace of They identify a target, and then set up a mind.” We will create new businesses by business model to capture a market. Asahi leveraging our strengths in technology Kasei has traditionally succeeded with a and operations from a 3-axis perspective. Takato Watabe Managing Director Equity Research Morgan Stanley MUFG Securities Co., Ltd. Joined Daiwa Institute of Research in 1990. After working at Merrill Lynch Securities, Deutsche Securities, SMBC Nikko Securities, etc., assumed current position at Morgan Stanley MUFG Securities in February 2014. Asahi Kasei Report 2016 47 Interview with Executive Officer for R&D SPECIAL FEATURE The first axis is to fully utilize our market Nakao In the field of the environment channels. By utilizing the various market & energy, we have been working on R&D with various services. Watabe Can you tell us more about your channels that we have throughout in anticipation of hydrogen becoming movement toward solution-oriented the Asahi Kasei Group, we can identify a mainstream source of energy. At business? emerging market needs and develop new the COP21 meeting in 2015, the Paris Nakao ICT (information and com- businesses accordingly. The second axis Agreement was adopted as an inter- munication technology) is changing is to heighten added value. In addition national framework to mitigate global the world, and having a huge impact to just supplying substances, which had warming from 2020. The agreement aims on business. A good illustration of this been our main approach particularly in to limit global warming to less than 2°C. would be the business models of ZOLL. material businesses, we will place greater In effect this means that greenhouse gas ZOLL began as a pioneer in defibrillators, emphasis on building new business mod- emissions from human activity would and became a world leader with their els around services and solutions. ZOLL eventually need to be reduced to a net core technology of resuscitation. They has done this with its LifeVest™ business, zero. This is an enormous challenge for extended their business to cover the and we will look for ways to do something mankind, as our lives are highly depen- whole Chain of Survival—the steps in similar in other businesses as well. The dent on energy from fossil fuels. But this is the lifesaving process advocated by the third axis is to foster and acquire core also a huge opportunity for our company. American Heart Association—offering technology. While performing in-house Hydrogen is a source of energy with no solutions that address each step in the R&D, we may identify an area that falls greenhouse gas emissions. Hydrogen can chain. ZOLL extensively utilizes ICT in their short. In that case, we will seek an external be produced by alkaline water electrolysis business models. One example is the technology that complements our own using renewable energy such as sunlight LifeVest™ wearable defibrillator, which is to expedite commercialization. Our key or wind, and then stored to be used as a worn on a temporary basis by patients at fields of focus to create new businesses source of zero-emission energy. This is an risk of sudden cardiac arrest. It continu- and to raise the profitability of established excellent opportunity for us. We are in a ously monitors the patient’s heart and, if a businesses are the environment & energy, position to lead the world in the field of life-threatening heart rhythm is detected, automotive, and health care. We will alkaline water electrolysis, by leveraging it automatically delivers a treatment shock leverage our strength in residential living our world-leading ion-exchange mem- to restore a normal rhythm. At the same to gain synergy with new developments brane technology. Ultimately, we hope to time, it uses ICT to alert the physician of in the fields of the environment & energy not only provide materials, components, the patient’s condition. ZOLL has many and health care. and systems for hydrogen production, but other products and services that utilize Watabe Could you give us an example of also to expand the scope of our business ICT. In many countries, they offer solutions R&D in your areas of focus? to include the provision of total solutions that allow physicians to remotely monitor Creation of new businesses Foster and acquire core technology Acquire technology seeds Apply technology laterally CVC Coordination/ combination Strengths of Asahi Kasei Utilize market channels Enhance and fully utilize business platforms Heighten added value Business models Solutions M&A 48 Asahi Kasei Report 2016 a patient’s heart, systems to manage expenditure was 4.2% of sales. When perspectives to identify emerging market the dispatch of emergency services, we look at our individual businesses, needs. We also have various unique and systems to connect patient data each of them is generally in line with core technologies that can facilitate the between medical providers and insurance the average for their respective industry. creation of new businesses. The new companies, to name a few. However, we are flexible when it comes corporate configuration that began in Watabe Considering ZOLL and your to concentrating resources on a strategic April enables more seamless collaboration other acquisitions, it looks like the ability project as necessary. We view this in the between corporate R&D and the R&D of to discern potential is the key to success. same way as strategic investment or each business unit. We are already making Nakao This is especially true of our M&A. Sometimes we will invest more to progress, and I look forward to achieving acquisition of Crystal IS in the field of UVC strengthen a certain area. So there will be LEDs. These use compound semiconduc- some fluctuation; we don’t just aim for a tor technology, an area where we have certain percentage. many years of experience. LEDs for lighting use compound semiconductor technology as well, but since this field is crowded with many players competing fiercely, it is not attractive to us despite its large market size. We decided to develop A seamless R&D configuration concrete results. Watabe We talked about your heritage of innovation, diverse businesses, capable researchers, and the ability to discern promising opportunities over the medium to long term. Stakeholders have high expectations that your new configuration will enhance your ability to create new businesses through better connections UVC LEDs, where the technical hurdles Watabe What is the mission of corporate among various businesses, with busi- are higher. Although the timing of market R&D towards 2025, and how does it coor- ness retaining the independence and uptake is uncertain, we see great growth dinate with R&D in each business unit? autonomy fostered under the previous potential in various application areas for Nakao We are focused on creating configuration. I am looking forward to disinfection and sterilization, replacing distinctive new businesses with high seeing your operations grow through power-hungry and hazardous mercury added value. We don’t want to play catch- advanced innovation. lamps. Together with Crystal IS, we are up, but to create new markets ourselves. determined to overcome the technical We want these to be transformational challenges in development, and lead the for our business portfolio. The key is our world in cultivating new markets. ability to discern the potential of a new Watabe How do you look at R&D expen- business. By enhancing coordination with diture for the creation of new businesses? each business unit, we will leverage our Nakao In fiscal 2015 our R&D broad range of operations and diverse R&D expenditures 87.0 81.1 75.5 71.1 71.1 66.3 62.3 (¥ billion) 90 80 70 60 0 ’10 ’11 ’12 ’13 ’14 ’15 ’16 (planned) (FY) Asahi Kasei Report 2016 49 CSR Medium-Term Management Initiative and CSR Fundamentals The Asahi Kasei Group is focused on providing solutions to various challenges faced by society in accordance with our Group Mission of contributing to life and living for people around the world. Under our Cs for Tomorrow 2018 management initiative which began in fiscal 2016, we are emphasizing business operations that contribute to a “society of clean environmental energy” and a “society of healthy/comfortable longevity with peace of mind” based on four CSR Fundamentals: Compliance, Responsible Care, Corporate Citizenship, and Respect for Employee Individuality. Position of CSR Fundamentals Creating for Tomorrow Area of focus The The employee employee Employee fulfillment The The community community Community outreach The The environment environment Environmental protection The The customer customer Customer satisfaction Sustainable Increase in Corporate Value The The supplier supplier Fair business dealings The local The local economy economy Local economic participation The The shareholder shareholder Shareholder returns Compliance P. 32 Responsible Care Society of clean environmental energy Pursuit of Pursuit of growth and growth and profitability profitability Business operations Creation of Creation of new businesses new businesses Society of healthy/comfortable longevity with peace of mind Acceleration of Acceleration of globalization globalization P. 52 “Cs for Tomorrow 2018” strategic management initiative CSR in Action Respect for Employee Individuality CSR Fundamentals Compliance, Responsible Care, Corporate Citizenship, Respect for Employee Individuality P. 56 Corporate Citizenship Group Mission Contributing to life and living for people around the world P. 58 50 Asahi Kasei Report 2016 Our four CSR Fundamentals of Compliance, Responsible Care, Corporate Citizenship, and Respect for Employee Individuality are applied throughout the Asahi Kasei Group. CSR Fundamentals Key subjects under CT2018 Goals Identification of compliance-related issues Enriching the risk compliance system Environmental protection Operational safety Workplace safety and hygiene Health maintenance Product safety Managing chemical substances Dissemination of Human Resources Principles Developing human resources (global human resources) Valuing human rights and diversity Balancing work and family life Stakeholder dialog • Customers • Investors • Suppliers • Public outreach Community fellowship • Gain trust through not only thorough compliance with laws and regulations, but also consideration of generally accepted social norms • Understand risks in management, and establish a system to mitigate them and enable sustainable development • Contribute to establishment of a recycling- oriented society • Enrich system for risk assessment • Zero workplace injuries • Maintain and promote employees’ health • Enrich RC compliance • Minimize risks from chemicals • Employee engagement in challenging and fulfilling work in global business operations • Workplace environment that respects diversity and work-life balance, enabling employees to perform to their full potential • Maintain good relationships with stakeholders • Utilize our resources to provide solutions to challenges faced by society Platinum Kurumin certification for outstanding support for the devel- opment of the next generation. Asahi Kasei Report 2016 51 Responsible Care CSR Fundamentals Safety is a fundamental prerequisite for the continuation of operations as a corporate member of society. To ensure that every aspect of safety is maintained, the Asahi Kasei Group implements a Responsible Care (RC) program comprising the six pillars of operational safety, workplace safety and hygiene, environmental protection, health maintenance, product safety, and community outreach. Message from the Executive for RC Masafumi Nakao Director, Primary Executive Officer Asahi Kasei Corp. Asahi Kasei adopted an operating holding company configuration in fiscal 2016 at the start of the three-year medium-term management initiative “Cs for Tomorrow 2018” (CT2018). During fiscal 2016, we will not only implement various measures to achieve our business targets and build the base for the next phase towards fiscal 2025, but also contribute to society through our business operations. The operating climate is changing greatly with growing awareness for global environmental issues and corporate responsibility as a social entity. At the Asahi Kasei Group, in accordance with our Group Mission of contributing to life and living for people around the world, we will give due consideration to the environment, safety, and health throughout the full life cycle from R&D to manufacturing, product supply, and disposal, while focusing on the three fundamental “actuals” of the actual place, actual thing, and actual fact, as we ensure the stable provision of product quality that our customers can depend on. While working to achieve our annual RC objectives, we will also advance RC activities from a broader perspective, reinforcing R&D to provide solutions to global warming and other environmental issues, in order to raise our corporate value for our various stakeholders. Responsible Care at Asahi Kasei RC represents the commitment and initiative to secure and improve safety and environmental protection at every step of the product life cycle through the individual determination and responsibility of each firm producing and handling chemical products, together with measures to gain greater public trust through disclosure and communication. RC was conceived in Canada in 1985, and was strengthened on a global scale with the establishment of the International Council of Chemical Associations (ICCA) in 1990. In 1995, the chemical industry in Japan began implementing RC with the establishment of the Japan Responsible Care Council (JRCC*). Asahi Kasei was among the founding members of the JRCC, and played a leading role in the expansion and development of RC in Japan. RC at the Asahi Kasei Group is not limited to chemicals-related operations but encompasses operations in all fields, including homes, health care, fibers, electronics, and construction materials. * JRCC: Operated as the Japan Chemical Industry Association’s RC Committee since April 2011. Asahi Kasei Group RC Principles RC at the Asahi Kasei Group is guided by the following principles: In April 2016, a statement regarding quality assurance was added, and the six elements were condensed into four. We give the utmost consideration to environmental protection, quality assurance, operational safety, workplace safety and hygiene, and health maintenance, throughout the product life cycle from R&D to disposal, as preeminent management tasks in all operations. • We give full consideration to the global environment, and make efforts to reduce the environmental burden of all operations. • We continuously provide safe products and services with the quality that gives customers a sense of security and satisfaction. • We strive for stable and safe operation while preventing workplace accidents and securing the safety of personnel and members of the community. • We strive for a comfortable workplace environment, and support the maintenance and promotion of employee health. In addition to maintaining legal compliance, we set self-imposed targets for continuous improvement, while performing proactive information disclosure and communication to gain public understanding and trust. Revised on April 1, 2016 RC Management System The management system of Asahi Kasei Group RC is maintained in accordance with our Group RC Management Guidelines and other internal standards. The RC Committee, a corporate organ under the direct authority of the President of Asahi Kasei, deliberates RC plans and results and ensures that continuous reevaluation and improvement are systematically pursued with “plan-do-check-act” (PDCA) cycles—for the Asahi Kasei Group as a whole, within each core operating company and Region*, and within individual plants and facilities. Certified compliance with internationally standardized management systems is obtained for the RC Management System of the Asahi Kasei Group. We have obtained ISO 14001 environmental management system certification for environ- mental protection and ISO 9001 quality management system certification for product safety. An Occupational Health & Safety Management System (OHSMS) is adopted for workplace safety, hygiene, and health. * A site or group of sites consisting of several plants and facilities of various core operating companies. Each Region General Manager is responsible for the unified implementation of RC in the respective Region. 52 Asahi Kasei Report 2016 RC objectives and results ★★★Complete ★★Satisfactory ★Unsatisfactory FY2015 RC Objectives FY2015 Results Attainment FY2016 RC Objectives For more information, please refer to the Asahi Kasei Group CSR website. http://www.asahi-kasei.co.jp/asahi/en/csr/ e c n a i l p m o c C R n o i t c e t o r p l a t n e m n o r i v n E y t e f a s l a n o i t a r e p O i e n e g y h d n a y t e f a s e c a l p k r o W e c n a n e t n i a m h t l a e H Enhance RC compliance Advance RC education and training Enhance RC at affiliates Enhance dialog with the public Avoid all polluting accidents and minor incidents Promote recycling-oriented society: · Final disposal of 0.3% or less of generated industrial waste · Recycling rate of at least 89% Prevention of global warming: · Reduce CO2 emissions in Japan by 25% from FY2005 level · Reduce CO2 emissions in Japan and overseas by 5% from FY2010 level · Reduce GHG emissions in Japan by 32% from FY2005 level · LCA/CO2 contribution ratio1 of 7.9 Protect water resources: · Water resource contribution ratio2 of 7.0 Control emissions of chemical substances: · Control emissions of PRTR-specified substances · Control emissions of air and water pollutants Preserve biodiversity when procuring biological resources Advance CSR procurement Avoid all industrial accidents Continuously monitor for hazards of fire, explosion, and leaks; perform training of managers Emergence of pile installation data issue at Asahi Kasei Construction Materials; lessons applied in review of RC system RC training course for section managers and assistant chiefs revised Group discussions enhanced Follow-up enhanced RC at affiliates enhanced through instructions and support by core operating companies RC reports of 2 core operating companies and 8 plant complex sites were used in community outreach No polluting accidents, 5 intermediate incidents (including 4 freon leaks) Goal reached with final disposal rate of 0.2% Goal reached with recycling rate of 98% 28% reduction from FY2005 level 17% reduction from FY2010 level 35% reduction from FY2005 level LCA/CO2 contribution ratio of 7.7 Water resource contribution ratio of 8.0 Release of PRTR-specified substances and emission of VOCs reduced by 91% and 87%, respectively, from FY2000 level Investigated impact of our business activities on biodiversity, including use of new materials; no problem found Implemented CSR procurement No industrial accidents, 4 incidents Review performed at time of on-site confirmation for preventing abnormal reactions Prevent abnormal reactions, confirm interlock functions on-site Confirmed progress in preventing abnormal reactions and securing interlock functions ★ Review RC framework (including quality assurance) Enhance RC compliance ★★ Advance RC education and training ★★★ Enhance RC at affiliates ★★★ Continue to enhance dialog with the public ★ ★★★ ★★ ★★★ ★★★ Avoid all polluting accidents and minor incidents Promote recycling-oriented society: · Maintain rate of final disposal at 0.3% or less of generated industrial waste · Maintain recycling rate of at least 90% Prevention of global warming: · Reduce CO2 emissions in Japan by 28% from FY2005 level · Reduce CO2 emissions in Japan and overseas by 5% from FY2010 level · Reduce GHG emissions in Japan by 35% from FY2005 level · Achieve LCA/CO2 contribution ratio of 8.1 Protect water resources: · Water resource contribution ratio of 8.3 Control emissions of chemical substances: · Control emissions of PRTR specified substances · Control emissions of air and water pollutants ★★★ Promote preservation of biodiversity at each site ★★★ Advance CSR procurement ★★ ★★★ ★★★ Continue to avoid all industrial accidents Enhance risk assessment: · Continuously monitor for hazards of fire, explosion, and leaks · Continue ongoing review to prevent abnormal reactions and confirm interlock functions · Enhance pre-investment safety assessment system Control confirmed at RC Audits, etc. ★★★ Control changes to equipment and operating conditions Control changes to equipment and operating conditions Review earthquake response and enhance emergency response systems: · Confirm seismic resistance of high-pressure gas facilities and formulate plans · Implement seismic retrofitting for specific and non-specific buildings Monitor for items in need of replacement and uninspected items, implement remediation Avoid all workplace injuries: · Achieve frequency rate3 of 0.1 or less · Achieve severity rate4 of 0.005 or less Deepen utilization of OHSMS: · Reduce latent risks at workplaces · Enhance internal audits · Make the effects of OHSMS more visible · Ensure thorough compliance with safe working standards Avoid all accidents in “caught in/between machinery” category: · No lost-workday injury due to “caught in/between machinery” accidents Avoid fire, explosion, chemical burn, poisoning, etc. related to chemical substances: Completed according to the plan Delay in some retrofitting for FY2016 Ongoing review with new perspectives 0.28 0.004 Improvement in reducing latent risk confirmed at audit Improvement confirmed at audit with reference to internal audit records Improvement of risk level confirmed at audit Compliance confirmed at audit Zero lost-workday injuries; contributive effect from mechanical equipment improvement and risk assessment · Zero lost-workday injuries related to chemical substances 1 injury Prevent injuries during working hours unrelated to operating procedures and during commuting: · Prevent lost-workday injury related to stairways 3 injuries Enhance safety management guidance of on-site contractors: · Enhance safety management structure as the contracting manufacturer Status and continuous improvement confirmed at audit · Enhance safety management of on-site contractors Reinforce management of safety on equipment work: · Enhance implementation of safety management standards Promote health maintenance and improvement among personnel: · Promote the prevention of and countermeasures to lifestyle-related diseases · Prevent falls Promote countermeasures to mental health issues and enhance support system: · Implement company-wide stress survey, utilize its results, and perform follow-up Develop the health management system: · Resolve critical tasks at each site with lateral extension · Establish the health management system at affiliates and independent plants d n a y t e f a s t c u d o r P f o t n e m e g a n a m e c n a t s b u s l a c i m e h c s Avoid serious product safety incidents Enhance management of chemical substances: · Promote compliance with laws and regulations on management of chemical substances in Japan and overseas · Encourage JIPS5 activities · Promote JAMP6 tools Safety management guidance at each site and continuous improvement confirmed Progress confirmed at audit; 1 lasting injury from equipment work Proportion of personnel with health warning signs and ratio of employees who smoke generally unchanged; slight increase in employees with obesity Physical fitness tests performed as part of fall prevention program, follow-up implemented Stress survey and follow-up implemented Held internal meetings and interviews on health management activities Specialist industrial physicians supporting affiliates and independent plants No product safety incidents Compliance maintained and system enhanced Continued risk assessment and public disclosure of safety documents Provided and received information via MSDSplus and AIS, participated in verification of new JAMP-IT tools n i g n i v i L d n a h t l a e h t r o f m o c Number of people our health care business contributed to: · 40% increase from FY2010 level Number of residents in Hebel Haus™ homes: · 20% increase from FY2010 level 1% increase from FY2010 level 20% increase from FY2010 level ★★ ★★★ ★★★ ★ ★ ★★★ ★★ ★★★ Enhance earthquake response system: · Review earthquake preparedness (emergency facilities, disaster response supplies) ★★ · Advance seismic retrofitting of specific and non-specific buildings ★★★ Monitor for items in need of replacement and uninspected items, implement remediation Avoid all workplace injuries: · Achieve frequency rate of 0.1 or less · Achieve severity rate of 0.005 or less Deepen utilization of OHSMS: · Enhance risk assessment for workplace tasks Avoid all accidents in “caught in/between machinery” category (zero lost-workday injuries): · Perform sound risk assessment for mechanical equipment Avoid chemical injury, poisoning, fire, explosion, etc. related to chemical substances (zero lost-workday injuries): · Perform sound risk assessment for chemical substances · Perform sound management of workplace environment Prevent injuries during working hours unrelated to operating procedures and during commuting: · Prevent lost-workday injury related to stairways and walking · Prevent traffic accidents resulting in harm to self or others while commuting or traveling for sales Enhance safety management guidance of on-site contractors: · No serious accident of on-site contractors Reinforce management of safety on equipment work: · No serious accident of equipment workers Promote health maintenance and improvement among personnel: ★★★ · Promote the prevention of and countermeasures to lifestyle-related diseases · Prevent falls ★★★ ★★★ Promote countermeasures to mental health issues and enhance support system: · Implement company-wide stress survey, utilize its results, and perform follow-up Develop the health management system: · Resolve critical tasks at each site with lateral extension · Establish the health management system at affiliates and independent plants ★★★ Maintain zero serious product safety incidents Enhance management of chemical substances: · Promote compliance with laws and regulations on management of chemical substances in Japan and overseas · Encourage JIPS activities ★★ ★★★ ★ ★★★ · Promote JAMP tools Number of people our health care business contributed to: · FY2018 objective: maintain FY2015 level Number of residents in Hebel Haus™ homes: · FY2018 objective: 10% increase from FY2015 level 1 LCA is used to determine the amount of reduction in CO2 emissions enabled by Asahi Kasei products and technologies in comparison with conventional products and technologies. The ratio is calculated by dividing this amount by the global CO2 emissions of the entire Asahi Kasei Group. 2 The water resource contribution ratio is calculated by adding up the total quantity of water clarified and recycled using Asahi Kasei filtration technology and dividing this by the quantity of the Asahi Kasei Group’s water intake. 3 Number of accidental deaths and injuries resulting in the loss of one or more workdays, per million man-hours worked. 4 Lost workdays, severity-weighted, per thousand man-hours worked. 5 Japan Initiative of Product Stewardship: A chemical industry initiative promoted by the Japan Chemical Industry Association to minimize chemical risks through voluntary risk assessment and management. 6 Joint Article Management Promotion-consortium. Asahi Kasei Report 2016 53 Responsible Care Environmental protection As in our Group Vision of “harmony with the natural environment,” the Asahi Kasei Group considers environmental preservation as one of the most important tasks. Our major focuses are on 1) prevention of global warming, 2) promotion of a recycling-oriented society, 3) management of chemical substances, and 4) preservation of biodiversity. For prevention of global warming, we have established new indicators and targets to curtail greenhouse gas emissions to be achieved by fiscal 2020 and fiscal 2030. Regarding promotion of a recycling-oriented society, we continue to reduce our rate of final disposal and increase our rate of recycling. Furthermore, as a chemical company, we are working to promote safe handling of chemical substances and actively provide safety information. We are also making efforts to reduce the impact of our business activities on biodiversity. The Asahi Kasei Group’s quantitative indicators and targets to curtail global warming (building a low-carbon society) Reduction in CO2 emissions Reduction in GHG emissions Clean power generation LCA/CO2 contribution ratio • Reduce CO2 emissions in Japan to 30% below the FY2005 level by FY2020 • Reduce CO2 emissions in Japan and overseas to 5% below the FY2010 level by FY2020 • Reduce GHG emissions in Japan to 35% below the FY2005 level by FY2020 • Reduce GHG emissions in Japan to 10% below the FY2013 level by FY2030 • New coal-fired power plants must meet certain criteria (criteria disclosed on our website) • Maintain use of biomass fuel at 60% or more by energy content in mixed combustion at the biomass power plant in Nobeoka • Achieve a ratio of 10.0 in FY2020 (3.2 in FY2010) • Achieve a ratio of 15.0 in FY2030 Operational safety To achieve safe operations, it is essential to build highly safe plants based on process hazard assessment prior to construction, to perform sound plant maintenance, and to operate facilities in a stable and safe manner. The Asahi Kasei Group avoids operational accidents through risk assessments prior to the construction of new plants, periodic inspections of existing plants performed by auditors specialized in fire and explosion prevention, process reviews from the perspective of preventing abnormal reactions and ensuring interlock functions, and process reviews corresponding to the age of facilities. In fiscal 2013, we completed a program of on-site confirmation to identify hazards from the perspective of preventing abnor- mal reactions and ensuring interlock functions. From fiscal 2013 onwards, we have been preparing technical documents on items with a high degree of hazard and on accidents and problems which occurred in the past. From fiscal 2015, we are implementing education and training for managers and operators to enable them to properly identify the cause and take appropriate action if problems occur, including problems that have not been previously encountered. There were no operational accidents during fiscal 2015. Workplace safety and hygiene The effort to prevent workplace accidents is integrated in a comprehensive OHSMS* program that combines conventional safety initiatives—such as tidiness/orderli- ness/cleanliness, reporting of near-accidents and potential hazards, hazard prediction analysis, safety patrols, and case studies—with risk assessments and a prevention-oriented plan-do-check-act (PDCA) system. Integration of workplace safety initiatives Conventional safety initiatives Risk assessments PDCA management system OHSMS * Occupational Health and Safety Management System. A standardized system used to confirm that continuous improvement is being applied to measures to minimize the risks of workplace injuries and to prevent the emergence of future risks. 54 Asahi Kasei Report 2016 Occurrence of workplace injuries Incidence of lost-workday injury by event category, FY2015 in Japan Total 15 cases Incidence of lost-workday injury by event category, FY2005–2014 in Japan Total 117 cases Fall on same level Fall from height Kickback/overexertion Contact with harmful substance Others Traffic accident 33% 13% 13% 7% 7% 27% Caught in/between machinery Caught in something else Fall on same level Fall from height Kickback/overexertion Fire Explosion or rupture Contact with high-temperature substance/object Hit by flying/falling object Others Traffic accident 15% 3% 19% 13% 12% 1% 2% 5% 3% 5% 23% For more information, please refer to the Asahi Kasei Group CSR website. http://www.asahi-kasei.co.jp/asahi/en/csr/ Health maintenance The Asahi Kasei Group implements various activities to help employees maintain and advance their mental and physical well-being in accordance with its health management guidelines, including screening for lifestyle-related diseases and mental health checkups. Enhanced health management framework During fiscal 2015, interviews to monitor the effectiveness of the health management centers were performed at 7 sites. The series of interviews launched in fiscal 2014 confirm whether the activities at each site, including the duties of our industrial physicians and health nurses, are being performed in accordance with the Industrial Safety and Health Law and our health management guidelines. Further guidance and support is being provided as necessary. Quality assurance Upon our transition to an operating holding company configuration in April 2016, Corporate ESH & QA was reorganized, including the establishment of a new Quality Assurance Group, to place greater emphasis on quality assurance to deliver safe and reliable products to our customers. In fiscal 2015, we once again met our target of no serious product safety incidents. Asahi Kasei Group Quality Policy The Asahi Kasei Group creates and provides products and services with the quality to meet the needs of customers and society and ensure safety and security. Reinforcing the quality assurance system: maintaining zero serious product safety incidents Consumer satisfaction and safety Products and services provided by the Asahi Kasei Group include materials, products, installations, various services, and after-sales support. We believe that providing products and services that satisfy our customers is our ultimate mission. We constantly strive to enhance our systems for quality assurance, including product safety. Effort to maintain zero serious product safety incidents As part of the effort to prevent serious product safety incidents, we established new quality assurance bylaws that stipulate quality assurance activities for RC administrators to perform. The bylaws newly define the central role of quality assurance managers in activities to enhance quality assurance, and are applied in concert with our product safety guidelines to secure product safety and prevent the occurrence of serious product safety incidents. All business units of the Asahi Kasei Group apply these uni- form bylaws and guidelines to assure the quality of products and services. Managing chemical substances To ensure the safety of products and production processes in the Asahi Kasei Group, we maintain awareness of the properties of the chemical substances we use, and manage them strictly and appropriately throughout each phase from materials procurement to production (including intermediates), use, and disposal. The Asahi Kasei Group’s effort Strict management and control of chemical substances is a key element in the effort to ensure environmental protection, operational safety, workplace safety and hygiene, health maintenance, and product safety. Chemical substances are managed at each stage from development to use and disposal. The management of chemical substances begins with R&D, which is guided throughout every stage by a com- mitment to developing products and process characterized by safe, environmentally sound production, handling, and use. Industry-wide initiatives Joint Article Management Program (JAMP) As an active member of JAMP, we participate in the develop- ment of systems to manage chemical substance information as well as revision of the list of applicable substances. As an upstream company, we also convey relevant information throughout the supply chain to help establish JAMP as a widely used tool. In fiscal 2015, we continued to provide JAMP Tools via the JAMP-IT platform to convey relevant information on hazard- ous chemicals and share information externally. As a major upstream company, we will continue to work with the JAMP Office toward the greater adoption of the JAMP-IT platform as a means of information sharing. We also took part in verifica- tion of information transmission tools for a new scheme called “chemSHERPA” promoted by the Ministry of Economy, Trade and Industry, and actively participated in detailed discussions about the new tools and the list of chemical substances. We are also working on the transition process from the current JAMP scheme to chemSHERPA which will be performed over two years from fiscal 2016. Asahi Kasei Report 2016 55 CSR Fundamentals Respect for Employee Individuality The Asahi Kasei Group considers fulfilling and satisfying working conditions and workplace culture, in which personnel feel motivated to achieve and take pride in their career, to be a key to business performance. Our human resources policies are focused on the maintenance and reinforcement of a corporate culture emphasizing Asahi Kasei characteristics, the personal growth of each employee, and the creation and expansion of business through superior people and organizations, based on the understanding that the exceptional power of our people and organizations is the source of our competitive strength. Human Resources Principles The Human Resources Principles of the Asahi Kasei Group are a distillation of the values and beliefs held in common by all employees, a key aspect of a corporate culture where personal growth and corporate development are mutually reinforcing. Corporate Commitment Basic Expectations Expectations of Leaders The basic commitment to human resources is to provide the venue for a dynamic and fulfilling career as a part of a lively and growing corporate group. • Enterprise and growth through challenge and change • Integrity and responsibility in action • Respect for diversity • Building the team, heightening performance and achievement • Going beyond conventional boundaries, in thought and action • Contributing to mutual development and growth Human resource development A wide range of training programs Employees are given a wide range of training to develop the skills needed to successfully advance their careers. A regular program of training is applied throughout the Asahi Kasei Group at key career stages—upon hiring, promotion to manager, promotion to department general manager, promotion to division general manager, and appointment to an executive position. From fiscal 2016 we are placing greater emphasis on “Management by Objectives” training to enhance the management skills of section managers and general managers. Other individual training programs such as for global management are implemented according to business need. Each core operating company also implements training programs to support the development of employee skills required for its specific field of business. Group Masters The Asahi Kasei Group employs a “Group Masters” program to recognize employees who have developed and exercised extraordinary expertise and skills that hold universal value, and to facilitate their application throughout the Group. As of May 2016, 86 Group Masters are designated: 1 as a Group Fellow, 23 as Senior Group Experts, and 62 as Group Experts, with rank and remuneration commensurate with senior general manager, general manager, and section manager, respectively. Development of global human resources To support the expansion of world-leading businesses from the perspective of human resources, we are implementing measures such as internship programs for young personnel, and holding training sessions for personnel at overseas subsidiaries on subjects such as dissemination of corporate philosophy and intercultural communication. Valuing human rights and diversity Basic policy Human Resources leads the effort to ensure that there will be no discrimination on the basis of gender, nationality, age, or otherwise, to maintain a lively workplace culture which enables personnel to perform at their best, to advance employment of persons with disability, and to rehire personnel after mandatory retirement. Hiring The Asahi Kasei Group is working to create new value for society by enabling living in health and comfort and harmony with the natural environment. We strive to hire motivated and 56 Asahi Kasei Report 2016 capable personnel who will successfully execute our strategy on a global scale. We continue to hire university graduates of foreign nation- ality every year, and the overall makeup of our personnel is becoming more global. We are also strengthening our ties to universities both in Japan and overseas, through career brief- ing sessions and student internships, as part of an ongoing effort to attract talent. In April 2016, 351 new graduates were hired: 272 men and 79 women. In addition, 71 persons were hired in mid-career between April 2015 and March 2016. For more information, please refer to the Asahi Kasei Group CSR website. http://www.asahi-kasei.co.jp/asahi/en/csr/ Expansion of opportunities for women In 1993, we established a dedicated corporate organ (now Diversity Promotion Group) to promote equal opportunity, and have proactively increased the proportion of women hired and expanded the distribution of job assignments for women. While only five employees at the rank of manager or above were women in 1993, this has risen to 500 in June 2016. In fiscal 2016, we also formulated an action plan and targets in accordance with the Act to Advance Women’s Success in Their Working Life. Number of women as managers* 500 500 454 410 344 370 400 300 200 100 0 Employment of persons with disabilities Asahi Kasei Ability Corp. was established in 1985 for the employment of persons with disabilities, performing a wide range of services for the Asahi Kasei Group. The employment rate at applicable companies of the Asahi Kasei Group was 2.12% (529.0 persons) as of June 1, 2016, exceeding the legal requirement. Rate of employment of persons with disabilities at applicable Group companies* Asahi Kasei Group Legal minimum 2.12 2.08 2.05 1.98 2.12 2.00 (%) 2.2 2.1 2.0 1.9 1.8 1.7 ’12/6 ’13/6 ’14/6 ’15/6 ’16/6 ’12/6 ’13/6 ’14/6 ’15/6 ’16/6 * Results as of June 30 each year for personnel employed by Asahi Kasei Corp., Asahi Kasei Microdevices Corp., Asahi Kasei Homes Corp., Asahi Kasei Construction Materials Corp., Asahi Kasei Pharma Corp., and Asahi Kasei Medical Co., Ltd. (Asahi Kasei Chemicals Corp., Asahi Kasei Fibers Corp., Asahi Kasei E-materials Corp. are included up to June 30, 2015). * Results as of June 1 each year at applicable Group companies. Calculation based on total employment of 25,000.5 persons in the 21 applicable companies. As of June 1, 2016, the number of persons with disabilities employed by Asahi Kasei Ability Corp. stood at 334.0 of the total 529.0 employees with disabilities. Calculated in accor- dance with the Act on Employment Promotion etc. of Persons with Disabilities. Balancing work and family life Basic policy We provide various forms of support for personnel to work with security and vitality in accordance with their individual circumstances and values from the perspective of balancing work and family life. Parental leave Our parental leave is available through the fiscal year in which the child turns three years old. In fiscal 2015, 556 personnel utilized parental leave. This is included 316 men, which is 40% of those who were qualified, and 240 women. Employees using parental leave* Women Men 240 242 212 190 235 233 226 231 240 316 330 220 110 0 ’11 ’12 ’13 ’14 ’15 (FY) * Results for personnel employed by Asahi Kasei Corp., Asahi Kasei Chemicals Corp., Asahi Kasei Fibers Corp., Asahi Kasei Homes Corp., Asahi Kasei Construction Materials Corp., Asahi Kasei Microdevices Corp., Asahi Kasei E-materials Corp., Asahi Kasei Pharma Corp., and Asahi Kasei Medical Co., Ltd. Shortened working hours for child care Personnel are able to utilize shortened working hours to care for preschoolers, with the working day shortened by up to 2 hours until the child enters elementary school. In September 2007, a provision called “Kids Support” was added to enable personnel with children in the first and second grades to work shortened hours as well. These provisions may be used con- currently with a “flex-time” system for flexible working hours. Leave of absence to accompany spouse on overseas assignment As globalization continues to advance, an increasing number of personnel have a spouse who is transferred to an overseas assignment. In fiscal 2013 we adopted a provision for such personnel to take a leave of absence to accompany their spouses living overseas. In fiscal 2015, 10 personnel utilized this provision. Platinum Kurumin certification mark In 2016, we received the Platinum Kurumin certification mark from the Ministry of Health, Labour and Welfare.* Platinum Kurumin certification is awarded in recognition of proactive support for the development of the next generation which is superior to the previously received Kurumin certification. * Certification received for Asahi Kasei Corp., Asahi Kasei Homes Corp., Asahi Kasei Microdevices Corp., Asahi Kasei Pharma Corp., Asahi Kasei Medical Co., Ltd., and Asahi Kasei Ability Corp. Asahi Kasei Ability Corp. is the first company in Miyazaki prefecture to receive Platinum Kurumin certification. Asahi Kasei Report 2016 57 Corporate Citizenship CSR Fundamentals We are committed to advancing in harmony with society from a global perspective through fair information disclosure and the proactive employment of management resources for corporate responsibility and citizenship. Stakeholder dialog Different corporate organs hold responsibility for fair and open dialog with each of our different groups of stakeholders. Stakeholders Customers Shareholders, investors Suppliers Local communities Corporate Communications at Asahi Kasei Corp. Communications sections at core operating companies Marketing and sales departments, consumer contact offices Investor Relations at Asahi Kasei Corp. • Issuing news releases • Holding news conferences • Issuing documents for information disclosure • Website disclosure of information • Responding to CSR- related questionnaires • Promoting for social contribution activities • Issuing news releases • Holding news conferences • Website disclosure of information • Face-to-face discussion by marketing and sales personnel • Taking inquiries via telephone, website, etc. • Meeting with securities analysts and institutional investors • Seminars for Individual investors • Website disclosure of information • Taking inquiries via telephone, website, etc. Purchasing and logistics sections, environment and safety sections at production sites General affairs and administration sections at production sites • Safety discussion forums • Information exchange forums • Periodic community dialog meetings • Community outreach initiatives Customer relations Investor Relations Principled supplier relationships Public outreach Asahi Kasei Group Customer relations We believe that it is by maintaining customer satisfaction that our products and services contribute to society. For materials, intermediates, and devices, communication with our customers is handled by the sales and technical support departments of each business unit. For end products and housing, communication with our customers is handled by the customer support center of each product. Investor Relations We strive to disclose information in a timely and fair manner to enable our domestic and international investors to gain an accurate understanding of the Asahi Kasei Group. Shareholder distribution Information on shareholder distribution is available in the Corporate Citizenship section of our CSR website. IR meetings with institutional investors and securities analysts Investor Relations (IR) regularly holds meetings with institu- tional investors and securities analysts in Japan and overseas, including quarterly results briefings and an annual manage- ment briefing with the President. In fiscal 2015, business briefings were held with the aim of deepening understanding among institutional investors and securities analysts regarding key businesses of Asahi Kasei. We also provide a wide variety of information for investors on our website. Seminars for individual investors We hold various seminars to provide individual investors with a better understanding of the operations of the Asahi Kasei Group. We will continue to provide accurate and timely infor- mation to individual investors through direct communications, the corporate website, and articles published in magazines for individual investors. 58 Asahi Kasei Report 2016 For more information, please refer to the Asahi Kasei Group CSR website. http://www.asahi-kasei.co.jp/asahi/en/csr/ Principled supplier relationships A relationship of mutual trust with our suppliers is fostered through fair and principled purchasing practices based on regulatory compliance and respect for the environment and human rights. Purchasing departments throughout the Asahi Kasei Group regard suppliers as important partners and work to build relationships with them based on sincerity in accordance with our Group Philosophy. To this end, we are placing greater emphasis on CSR in accordance with our Procurement Policy. Each year we conduct a survey of suppliers to help foster greater awareness of the importance of CSR issues. Public outreach We work to honor and respect the local culture of each community where our operations are based, and to maintain effective dialog and communication with community members. Many of our major plants offer plant tours to provide the local community with a better understanding of our operations and the measures we implement for the environment and safety. Measures for community dialog and interaction include regularly held forums and meetings with representatives of local governments and members of local residents associa- tions. We also open our gymnasiums, sports fields, parking lots, and other facilities for public use and enjoyment, and host a variety of events. Community fellowship The Community Fellowship Committee is organized under direct supervision of the President of Asahi Kasei. Its roles include formulation of overall policy, plans, and courses of action in regard to community fellowship activities. The Committee also monitors and reviews com- munity fellowship activities at each site and at each affiliated company of the Asahi Kasei Group. Under our Community Fellowship Policy, we are involved in a wide range of community-focused activities in accordance with the three themes of Nurturing the Next Generation, Coexistence with the Environment, and Promotion of Culture, Art, and Sports. We participate in the One-Percent Club of the Keidanren (Japan Business Federation), and convert our social contribu- tion activities into monetary value by a method set forth in its annual Survey of Expenditure for Corporate Philanthropic Activities. In fiscal 2014, this was ¥1.299 billion. Nurturing the Next Generation To promote understanding and heighten interest in science and technology among elementary, junior high, and high school students, we visit schools and host visits by students to factories to give explanations and demonstrations of science and technology and on environmental issues. We also support career development with occupational lectures and host visits by junior high and high school students to our corporate head office. Such activities were held 94 times in fiscal 2015, with a total of some 2,650 students of 91 schools participating. In August 2015, we held a laboratory tour for female high school students, together with informal discussion with our researchers, as part of our effort to foster interest in careers in science and technology among young women. We also sponsor educational events including science competitions and environmental education programs organized by newspaper companies, exhibit at science and chemistry events, and have a partnership with National Museum of Emerging Science and Innovation (Miraikan). Coexistence with the Environment In addition to our afforestation activities in Miyazaki and Shizuoka, we participate in an afforestation project in the Horqin Desert of Inner Mongolia, China. We also exhibit at environmental-related events, and work to raise understand- ing of environmental issues. Disaster relief We participate in a Disaster Relief Market featuring produce of the areas affected by the Great East Japan Earthquake. Following the Kumamoto earthquakes in 2016, we donated ¥50 million to the Kumamoto prefectural govern- ment to support people in affected areas. We also decided to donate 100,000 rolls of Saran Wrap™ cling film to support people living in evacuation shelters. Promotion of Culture, Art, and Sports Members of our corporate distance running and judo teams have competed in the Olympics a total of some 50 times. In Nobeoka, Miyazaki, where the teams are based, we host a major track event, and hold running and judo lessons for the local youth. The Asahi Kasei Himuka Cultural Foundation was established in 1985 to enrich the environment of day-to-day life and culture in Miyazaki Prefecture, with a wide range of cultural activities being held. Asahi Kasei Report 2016 59 Connecting Business Operations with Contribution to Society CONNECTION 1 Bemberg™ Participation in Business Call to Action led by United Nations Development Programme: For sustainable development of India’s fiber industry Young women keep their eyes fixed on saris and dupattas that are woven from Asahi Kasei’s Bemberg™ cupro regenerated cellulose fiber. They are pleasantly soft, drape comfortably on the skin, and have colorful patterns. This is a university classroom in India where students are studying fashion. Bemberg™ is the subject of the lecture. Bemberg™ is the brand name for cupro. It is a regenerated cellulose fiber made from cotton linter—the short downy fibers on cotton seeds—featuring a luxurious silky feel, moisture absorption/release, and superior comfort. Being made from material of natural origin, it is an environmentally compatible fiber. Indian saris and other ethnic garments are traditionally made from silk. But silk is difficult to handle, and quite expensive. Asahi Kasei realized that Bemberg™ would be a good alternative to silk for saris and dupattas, and began selling it in India 40 years ago. Today, saris and other ethnic garments made of Bemberg™ are worn by many women. In developing the Bemberg™ business in India, Asahi Kasei became involved both directly and indirectly in the value chain from raw material to finished fabric. In order to empower the local residents through their active participation in business activities, Asahi Kasei has worked to help them develop skills, secure stable income, and create new business opportunities. Asahi Kasei also focuses on fostering young talent that will lead the future of India’s fiber industry and fashion industry, providing support for university education to develop the potential of the next generation. In May 2015, Asahi Kasei joined the Business Call to Action (BCtA)1 led by the United Nations Development Programme2, and has been promoting inclusive business with Bemberg™ fiber. “Although corporate growth and profitability are important, in today’s society a company can no longer act as a single entity seeking only its own benefits. To pursue sustainable development, a company also needs to promote initiatives that facili- tate the well-being of local residents as well as the development of the community. That is the key to sustainable development of a business,” says Takehiro Kamiyama, General Manager of Bemberg Sales Dept. 2 in Asahi Kasei’s Fibers & Textiles SBU. Day by day, Asahi Kasei’s Bemberg™ business is helping India’s fiber industry achieve sustainable development, while contributing to the local community. 1 Business Call to Action (BCtA): BCtA is a unique multilateral alliance by four donor governments and the United Nations Development Programme (UNDP) which hosts the secretariat. BCtA challenges companies to advance core business activities that are inclusive of poor populations and contribute to the achievement of the Sustainable Development Goals (SDGs). Worldwide, 137 companies, from SMEs to multinationals, have responded to the BCtA by making commitments to improve the lives and livelihoods of millions through commercially- viable business ventures that engage low-income people as consumers, producers, suppliers, and distributors of goods and services. 2 United Nations Development Programme (UNDP): UNDP was founded in 1966 as one of the United Nation’s subsidiary bodies under the UN General Assembly and the UN Economic and Social Council. Headquartered in New York, UNDP provides development assistance in nearly 170 countries with focuses on sustainable development; democratic governance and peacebuilding; and climate and disaster resilience. 60 Asahi Kasei Report 2016 1 Highlight Bemberg™ business initiatives in India We currently procure from India some one-third of the cotton linter used for the production of cupro yarn. To support local producers, we loan equipment to collect cotton linter free of charge, and have engineers stationed in India to provide the local workers with training and technical instructions for improving productivity. Cotton linter imported to Japan is pro- cessed into cupro yarn, which is exported to India and sold to weavers. We also provide continuing technical guidance on weaving and dyeing in the fabric produc- tion process in India. We also focus on the education of young people and students who will lead the next generation of India’s fiber industry and fashion industry, and contribute to human resource development by support- ing the enhancement of skills at several Indian universities. 2 3 Sales of Bemberg™ in India (tons) 4,437 Robust growth 515 2000 2015 6 1976 Demand for ethnic garments in India (million garments) 2,029 1,720 1,596 1,729 1,798 1,918 Saris 76 72 88 98 103 109 Dupattas 2007 2008 2009 2010 2011 2012 1 Education at a fashion university 2 Providing technical guidance for inspecting collected linter 3 Providing technical guidance for dyeing fabric Female Indian students studying Bemberg™ business in Japan Two female students majoring in Textile Design at India’s National Institute of Design (NID), one undergraduate and one graduate student, came to Japan as interns of Asahi Kasei for six weeks from June 2016. The internship covered a wide range of subjects, including the production of Bemberg™ and examples of its use in its fabric. Professor Srivastava Aarti of NID, who accompanied the students, said, “Bemberg™ is a wonderful alternative to silk, it’s cool and has a soft feel. As a textile designer myself, I really want to use this material.” The interns visit Asahi Kasei’s Bemberg™ lining showroom in Tokyo Asahi Kasei Report 2016 61 Connecting Business Operations with Contribution to Society CONNECTION 2 Condominium Redevelopment Providing a solution to the social issue of aging condominiums by persistently maintaining sincerity with the residents Several elderly women chat enjoyably in the 1st floor lobby of the newly built condo- minium. Some men are reading in the residents’ library. The symbolic tree stretches its branches across the courtyard, slowly passing the time. This is the Atlas Ikejiri Residence, completed in 2014 by Asahi Kasei Realty & Residence Corp. to replace the Ikejiri Danchi housing complex located here in Tokyo’s Setagaya Ward. Ikejiri Danchi included shops and offices in addition to residential units, and featured excellent transport access, but the aging structure had inadequate earthquake resistance. Although talk about rebuilding it began as early as 1993, concrete plans failed to materialize for many years due to the complex relationship of ownership and lease rights among the various residents and tenants. The structure continued to age further with no resolution in sight until Asahi Kasei came to carefully listen to the assorted views of each party, and successfully craft a proposal for rebuilding that was deemed accept- able among the many concerned parties. Aging condominiums are a challenging social issue for Japanese society. The supply of residential units in multi-dwelling structures swelled from the 1970s—including both commercially developed condominiums and publicly operated housing complexes—and condominium life became common in major urban areas. There are now over 6 million condominium units in Japan, and some 14 million people, over 1/10 of the population, live in condominiums. But over 1 million of these units are in buildings that do not meet the latest earthquake-resistance standards, and in many cases the older buildings are deteriorating beyond their age due to inadequate maintenance. While rebuilding such older structures would greatly contribute to the safety and security of the community, there are difficult challenges to overcome. Many residents and other parties with fractional ownership rights are retirees who are unable or unwilling to make a large investment in a project to rebuild. Although amendments to relevant laws and regulations have made it easier in principle to obtain agreement to rebuild, progress has been generally slow. To craft a complex proposal that meets the various needs of the many interested parties is a time-consuming process that requires persistence. Many developers simply decided that there would not be a sufficient financial return to justify such effort. Asahi Kasei began tackling this challenge 15 years ago, leveraging the experience and know-how gained in its housing business to sincerely appreciate the needs of each concerned party, and to craft an acceptable proposal. Having successfully completed many such condominium redevelopment projects, the company is contributing to a comfortable life with peace of mind for a large number of people, with residential environments featuring not only outstanding earthquake resistance but also barrier-free functionality and many shared facilities to foster a greater sense of community among residents. 62 Asahi Kasei Report 2016 1 Highlight Notable housing complex redevelopments by Asahi Kasei Realty & Residence Corp. Dojunkai Edogawa Apartment Complex, redeveloped as Atlas Edogawa Apartment Complex (Shinjuku Ward, Tokyo) Achieved a redevelopment which had been in planning for 30 years Suwacho Housing Complex, redeveloped as Atlas Suwacho Residence (Shinjuku Ward, Tokyo) The first successful redevelopment under the amended law Kokuryo Housing Complex, redeveloped as Atlas Kokuryo (Chofu City, Tokyo) The first redevelopment to remove the legal designation of a housing complex Ikejiri Danchi, redeveloped as Atlas Ikejiri Residence (Setagaya Ward, Tokyo) Successful redevelopment overcoming coexistence of ownership rights and lease rights Chofu Fuijimicho Housing Complex, redeveloped as Atlas Chofu (Chofu City, Tokyo) Redevelopment removing the legal designation of a housing complex and repositioning a public road d e v e l o p e d e R 2 Condominiums in Japan (thousand units) Redevelopment demand 5,057 1,061 227227227 6,233 Total Number built under former earthquake- resistance standard 53 118118118 103103103 Newly built 1968 1981 2007 2015 Condominiums in Tokyo constructed at least 40 years earlier (thousand units) 428428428 126126126 Source: Land Statistical Survey by Ministry of Internal Affairs and Communications/ Housing Starts Statistics by Tokyo Metropolitan Government Bureau of Urban Development 126126126 262626 100100100 26 545454 545454 246246246 545454 192192192 302302302 2003 2008 2013 2018 2023 at least 50 years earlier 40–49 years earlier 1 Atlas Ikejiri Residence 2 The former Ikejiri Danchi Condominium Redevelopment Research Center The Condominium Redevelopment Research Center of Asahi Kasei Realty & Residence Corp. serves as the central base for know-how to flexibly apply to individual projects. Mr. Yugo Ohki, who spent many years in the condominium redevelopment business puts it this way, “Redeveloping a condominium requires a detailed understanding of each individual resident’s feelings, their wants, and their needs. Many people have fractional ownership of the structure, and they all have different individual circumstances. I apply my years of experience to come up with a proposal that various different parties can accept. By replacing an old worn-out building with a new one, we contribute to the safety and security of the community, which creates value for society.” Asahi Kasei Report 2016 63 Connecting Business Operations with Contribution to Society CONNECTION 3 AEDs Aiming to reduce deaths from sudden cardiac arrest, teaching the youth the importance of life-saving action Elementary school students gathered around a manikin on the floor are practicing cardiopulmonary resuscitation (CPR) and learning how to use an automated external defibrillator (AED). “Push harder!” “It’s not easy.” “I did it!” Employees of Asahi Kasei ZOLL Medical Corp. are helping to teach the children how to save a life using an AED, and what to do until the ambulance arrives. “What would you do if one of your friends collapsed while playing?” The students are prompted to consider this seriously, realizing that it could really happen. AEDs became available for use by the general public in Japan in 2004, but most people would not be confident in using one if they suddenly needed to. In 2011, an elementary school girl in Saitama prefecture became the victim of sudden cardiac arrest. Even though the school had an AED, nobody used it. This tragic case prompted various initiatives to raise general awareness and confidence in AED use. In 2014, Asahi Kasei ZOLL Medical Corp. began to help educate elementary school students about AEDs using hands-on demonstrations together while distributing an easy-to-understand booklet. Ms. Sumie Ikeda of Asahi Kasei ZOLL Medical Corp. says, “Although AEDs are available in many public places in Japan, they are actually used only very seldom. This booklet helps make AEDs familiar to kids at an early age, so they can be prepared to use one if the need arises later in life. To really help save more lives means not only making AEDs available in more places, but also raising familiarity and confidence with AEDs among the general public. When sudden cardiac arrest strikes, every second matters. We want people to be able to act without hesitation when needed.” In addition to helping to educate the youth about AEDs, Asahi Kasei ZOLL Medical Corp. also loans AEDs free of charge at marathons and other events, and holds training sessions and demonstrations in connection with them. Through such efforts, the com- pany continues to strive to help reduce deaths from sudden cardiac arrest. Highlight 64 Asahi Kasei Report 2016 Support for marathons and other events ZOLL Foundation Asahi Kasei ZOLL Medical Corp. loans AEDs free of charge and holds training sessions and demonstrations at several marathons and other events throughout Japan. AEDs loaned free of charge in fiscal 2015 • May 2015 Gifu Seiryu Half-Marathon Race, 75 AEDs • May 2015 Tohoku Rokkon Festival, 15 AEDs • Nov 2015 Ibigawa Marathon, 78 AEDs • Feb 2016 Nobeoka Nishinippon Marathon, 8 AEDs • Mar 2016 Itabashi City Marathon, 50 AEDs • Mar 2016 Kagoshima Marathon, 60 AEDs ZOLL Medical Corporation, parent company of Asahi Kasei ZOLL Medical Corp., established the ZOLL Foundation in December 2013 as an independent entity organized for scientific and educational purposes. The ZOLL Foundation provides grants to support research, education, and public awareness related to improving resuscitation practices, preventing patient deterioration associated with cardiac arrest and morbidity, and enhancing the care of acute patients to reduce mortality and morbidity. In fiscal 2015, grants were provided to the University of Pittsburgh, the University of Pennsylvania, and the University of Toronto. Public accessibility of AEDs in Japan (AED units) 636,007 Increasing accessibility 395,823 137,569 7,361 2004 2007 2011 2014 Lives saved with AEDs in Japan (cases) Source: FY2015 Edition Fire and Disaster White Paper by Ministry of Internal Affairs and Communications, Situation of Emergency Care and Rescue People who witnessed cardiogenic cardiopul- monary arrest in public 17,882 20,769 23,296 25,255 46 2005 429 2008 738 1,030 Cases of general public using AEDs 2011 2014 Asahi Kasei Report 2016 65 AED booklet for elementary school students The booklet was produced to be easy to understand by the intended audience of elementary students. Professor Taku Iwami of Kyoto University served as chief editor. While being easy to understand, the booklet retains detailed accuracy. It is informative for adults as well as students. • What to do if someone suddenly collapses • How to call an ambulance • How to perform CPR • How to use an AED • How AEDs work and where they are 66 Asahi Kasei Report 2016 Financial Section Contents 68 Management’s Discussion and Analysis 74 Risk Analysis 76 Consolidated Financial Statements 76 Consolidated Balance Sheets 78 Consolidated Statements of Income 79 Consolidated Statements of Comprehensive Income 80 Consolidated Statements of Changes in Net Assets 81 Consolidated Statements of Cash Flows 82 Notes to Consolidated Financial Statements 82 1. Major policies for preparing the consolidated financial statements 82 2. Significant accounting policies 83 3. Changes in significant accounting policies 84 4. Notes to Consolidated Balance Sheets 85 5. Notes to Consolidated Statements of Income 87 6. Notes to Consolidated Statements of Comprehensive Income 87 7. Notes to Consolidated Statements of Changes in Net Assets 89 8. Notes to Consolidated Statements of Cash Flows 89 9. Leases 90 10. Financial instruments 93 11. Marketable securities and investment securities 94 12. Derivative financial instruments 97 13. Provision for retirement benefits 99 14. Taxes 100 15. Business combinations 102 16. Asset retirement obligations 102 17. Business segment information 105 18. Information on related parties 106 19. Per share information 107 20. Subsequent events 108 21. Borrowings 109 Independent Auditor’s Report Asahi Kasei Report 2016 67 Management’s Discussion and Analysis Fiscal year 2015 (April 1, 2015 – March 31, 2016) Operating Environment Although slower growth persisted in China, and other emerg- ing economies continued to slow down during fiscal 2015, the global economy overall was on a path of gradual recovery with increased consumer spending together with improved employment in the US, and signs of recovery in private consumption in Europe. The Japanese economy saw steady consumer spending along with firm corporate performance and capital expenditure, but uncertainty remained regarding the risk of further downturn in emerging economies and appreciation of the yen from the latter half of the period. Overview of Consolidated Results Net sales, operating income Consolidated net sales for the fiscal year decreased by ¥45.5 billion (2.3%) to ¥1,940.9 billion. Overseas sales increased by ¥6.4 billion (1.0%) to ¥679.7 billion, largely in the Health Care segment, and increased by 1.1 percentage points as a portion of consolidated net sales from 33.9% to 35.0%. Domestic sales decreased by ¥51.9 billion (4.0%) to ¥1,261.2 billion with lower market prices in chemicals operations in the Chemicals & Fibers segment. Operating income increased by ¥7.3 billion (4.6%) to ¥165.2 billion. As a percentage of net sales, cost of sales decreased by 2.7 percentage points to 69.8%. Selling, general and administrative (SG&A) expenses increased by ¥31.9 billion despite the decrease in net sales, increasing as a portion of net sales by 2.1 percentage points to 21.7%. Operating margin increased by 0.6 percentage points to 8.5%. Non-operating income and expenses, ordinary income Net non-operating expenses were ¥3.8 billion, a ¥12.4 billion decline from the ¥8.6 billion net non-operating income of a year earlier. Foreign exchange gain transitioned to foreign exchange loss, and equity in earnings of affiliates transitioned to equity in losses of affiliates. As a result, ordinary income decreased by ¥5.2 billion (3.1%) to ¥161.4 billion. Extraordinary income and loss Extraordinary loss of ¥24.2 billion included ¥5.3 billion in loss on discontinuation of joint sales agreement, ¥5.2 billion in loss on disposal of noncurrent assets, ¥3.6 billion in business structure improvement expenses, ¥3.5 billion in impairment loss, ¥2.0 billion in special retirement expenses and other, ¥1.5 billion in business integration expense, and ¥1.5 billion in loss on piling business. The net extraordinary loss of ¥15.0 billion was ¥6.9 billion greater than a year ago. Net income attributable to owners of the parent With ordinary income of ¥161.4 billion and net extraordinary loss of ¥15.0 billion, income before income taxes was ¥146.4 billion. Income tax expense was ¥53.0 billion (current income taxes of ¥55.4 billion less deferred income taxes of ¥2.4 billion). Net income attributable to non-controlling interests was ¥1.7 billion. As a result, net income attributable to owners of the parent decreased by ¥13.9 billion (13.2%) to ¥91.8 billion, and net income per share decreased by ¥9.93 to ¥65.69 from the ¥75.62 of the previous year. Net Sales, Overseas Sales Ratio Operating Income, Operating Margin SG&A, SG&A Ratio Net Income Attributable to Owners of the Parent, Net Income per Share (¥ billion) 2,000 (%) 40 (¥ billion) 200 (%) 20 (¥ billion) 500 (%) 50 (¥ billion) 120 1,500 1,000 500 0 ’11 ’12 ’13 ’14 ’15 Net sales (left scale) Overseas sales ratio (right scale) 68 Asahi Kasei Report 2016 30 150 20 100 10 50 0 (FY) 0 ’11 ’12 ’13 ’14 ’15 Operating income (left scale) Operating margin (right scale) 400 300 200 100 0 15 10 5 0 (FY) ’11 ’12 ’13 ’14 ’15 SG&A (left scale) SG&A ratio (right scale) (¥) 100 75 50 25 0 (FY) 40 30 20 10 0 (FY) 90 60 30 0 ’11 ’12 ’13 ’14 ’15 Net income attributable to owners of the parent (left scale) Net income per share (right scale) Homes & Construction Materials Sales increased by ¥28.6 billion (4.7%) from a year ago to ¥632.4 billion, and operating income increased by ¥8.0 billion (12.6%) from a year ago to ¥71.0 billion. Among homes operations, in order-built homes, deliveries of Hebel Maison™ apartment buildings increased, and SG&A expenses such as promotional expenses decreased. In real estate, management of rental units was firm. In remodeling, orders increased centering on renovation work and equip- ment installation. In construction materials operations, shipments decreased for foundation systems. Feedstock costs declined. Sales of Neoma™ high-performance phenolic foam insulation panels were firm. Results by Operating Segment The Asahi Kasei Group’s operations are described by major business classification: four reportable segments of Chemicals & Fibers, Homes & Construction Materials, Electronics, and Health Care, together with an “Others” category. Results of Polypore International, LP* and its consolidated subsidiaries (collectively “Polypore”), acquired on August 26, 2015 (US Eastern time), are included in the Electronics segment. * Polypore International, Inc. changed to Polypore International, LP on March 31, 2016. Chemicals & Fibers Sales decreased by ¥119.0 billion (12.5%) from a year ago to ¥835.6 billion, and operating income increased by ¥4.3 billion (6.7%) from a year ago to ¥68.9 billion. Among chemicals operations, feedstock costs for petro- chemical products declined with lower oil and naphtha prices, but market prices deteriorated most notably for acrylonitrile. In performance polymers, terms of trade improved due to lower feedstock costs, and sales of engineering plastics and synthetic rubber for fuel-efficient tires were firm. In specialty products, the effect of the weaker yen was most notable for ion-exchange membranes, and shipment of Saran Wrap™ cling film increased. In fibers operations, feedstock costs declined for each product, the weaker yen contributed to performance, and shipments of Lamous™ artificial suede for automotive uphol- stery and Roica™ elastic polyurethane filament increased. Chemicals Business Operating Income Increases/Decreases Fibers Business Operating Income Increases/Decreases Homes Business Operating Income Increases/Decreases (¥ billion) 60 40 20 0 (20) (40) (60) 54.2 Sales volume –2.6 Operating costs and others +97.1 55.3 Sales prices1 –111.8 Foreign exchange2 +18.4 (¥ billion) 15 12 9 6 3 0 (¥ billion) 80 13.7 Sales volume +1.9 60 59.2 Operating costs and others +0.3 Sales prices +4.0 65.4 10.5 Sales volume +1.3 Sales prices1 –2.3 Foreign exchange2 +1.3 Operating costs and others +2.9 40 20 0 ’14 ’15 (FY) ’14 ’15 (FY) ’14 ’15 (FY) 1 Excluding impact of foreign exchange 2 Impact of foreign exchange on sales prices 1 Excluding impact of foreign exchange 2 Impact of foreign exchange on sales prices Asahi Kasei Report 2016 69 In critical care operations, the LifeVest™ wearable defibril- lator business continues to expand consistently, and sales of other products such as defibrillators and related accessories increased, but SG&A expenses grew with reinforced sales activity. Others Sales decreased by ¥7.4 billion (36.4%) from a year ago to ¥13.0 billion, and operating income decreased by ¥0.4 billion (41.7%) from a year ago to ¥0.6 billion. Management’s Discussion and Analysis Electronics Sales increased by ¥24.1 billion (16.0%) from a year ago to ¥174.5 billion, and operating income decreased by ¥7.4 billion (51.8%) from a year ago to ¥6.9 billion. Electronic devices operations benefited from the weaker yen, and sales of devices for smartphones such as audio LSIs and devices for camera modules were firm, but shipments of electronic compasses declined. In electronic materials operations, production and sale of general purpose epoxy resin were terminated, but the weaker yen contributed to performance, and sales of Hipore™ Li-ion battery separator were firm. The effect on operating income from amortization of goodwill and other intangible assets, etc., related to the acquisition of Polypore was ¥9.8 billion. Health Care Sales increased by ¥28.3 billion (11.0%) from a year ago to ¥285.4 billion, and operating income increased by ¥5.4 billion (17.5%) from a year ago to ¥36.2 billion. In pharmaceuticals operations, sales of Teribone™ osteopo- rosis drug and Recomodulin™ recombinant thrombomodulin were firm, while shipments of Flivas™ agent for treatment of benign prostatic hyperplasia decreased due to competition from generics. In medical devices operations, shipments increased for dialysis products and Planova™ virus removal filters. Construction Materials Business Operating Income Increases/Decreases Electronics Business Operating Income Increases/Decreases Health Care Business Operating Income Increases/Decreases Operating costs and others +2.6 5.8 4.1 Sales prices +0.1 Sales volume –1.0 (¥ billion) 6.0 4.5 3.0 1.5 0 (¥ billion) 20 Sales volume +4.9 Sales prices1 –6.8 Operating costs and others –12.1 (¥ billion) 30 15 14.3 10 5 0 Foreign exchange2 +6.7 6.9 24 18 12 6 0 26.7 Sales volume –1.1 Sales prices1 –1.8 Operating costs and others 0 24.3 Foreign exchange2 +0.5 ’14 ’15 (FY) ’14 ’15 (FY) ’14 ’15 (FY) 1 Excluding impact of foreign exchange 2 Impact of foreign exchange on sales prices 1 Excluding impact of foreign exchange 2 Impact of foreign exchange on sales prices 70 Asahi Kasei Report 2016  Net assets decreased by ¥40.3 billion (3.7%) from ¥1,097.7 billion to ¥1,057.4 billion. Net income attributable to owners of the parent was ¥91.8 billion and dividend payments were ¥27.9 billion, while foreign currency translation adjustment decreased by ¥51.1 billion, remeasurements of defined benefit plans decreased by ¥33.6 billion, and net unrealized gain on other securities decreased by ¥21.3 billion. As a result, net worth per share decreased by ¥29.11 to ¥745.94, net worth to total assets decreased from 53.7% to 47.1%, and the D/E ratio increased by 0.18 points to 0.43. Liquidity and Capital Resources Financial position Total assets at fiscal year end were ¥2,211.7 billion, ¥197.2 billion (9.8%) higher than a year earlier. Current assets decreased by ¥35.6 billion (4.0%) to ¥856.0 billion, mainly as notes and accounts receivable–trade decreased by ¥45.5 billion, while cash and deposits increased by ¥22.2 billion. Noncurrent assets increased by ¥232.8 billion (20.7%) to ¥1,355.7 billion, notably with a ¥208.5 billion increase in intangible assets and a ¥53.5 billion increase in property, plant and equipment, while there was a ¥44.8 billion decrease in investment securities. Current liabilities increased by ¥218.2 billion (43.0%) to ¥725.7 billion, mainly as a result of a ¥217.6 billion increase in short-term loans payable and a ¥22.5 billion increase in income taxes payable, while there was a ¥25.2 billion decrease in notes and accounts payable–trade. Although long-term loans payable decreased by ¥35.8 billion, noncurrent liabilities increased by ¥19.3 billion (4.7%) to ¥428.7 billion with a ¥44.3 billion increase in net defined benefit liability. Interest-bearing debt increased by ¥180.7 billion (67.2%) to ¥449.7 billion. Critical Care Business Operating Income Increases/Decreases Others Operating Income Increases/Decreases Total Assets, Net Worth (¥ billion) 20 (¥ billion) 2.0 Sales prices1 +0.1 Foreign exchange2 –1.0 Operating costs and others –6.1 11.9 Operating costs and others –1.3 0.9 Sales volume +0.9 0.6 1.5 1.0 0.5 0 15 10 5 0 Sales volume +14.8 4.1 ’14 (¥ billion) 2,500 2,000 1,500 1,000 500 0 ’15 (FY) ’14 ’15 (FY) ’11 ’12 ’13 ’14 ’15 (FY) 1 Excluding impact of foreign exchange 2 Impact of foreign exchange on sales prices Total assets Net worth Asahi Kasei Report 2016 71 Management’s Discussion and Analysis Capital Expenditure Notable capex by operating segment was as follows. Capital expenditure (capex) was primarily for new and expanded production plant and equipment in long-term growth fields. Investments were also made for rationalization, labor-saving, maintenance, and IT systems to bring greater product reliability and cost reductions. Capex by operating segment shown below is for property, plant and equipment and intangible assets (other than goodwill), combined, excluding consumption tax. A total of ¥99.0 billion was invested during the fiscal year for the expansion of businesses with competitive superiority, particularly in the Chemicals & Fibers segment, as well as for modification and rationalization. Totals for the year (¥ million) Compared to previous year (%) Chemicals & Fibers Homes & Construction Materials Electronics Health Care Others Combined Corporate assets and eliminations Consolidated 43,669 11,947 16,708 19,382 1,513 93,220 5,780 99,000 104.7 110.0 144.0 116.8 109.0 113.5 83.3 111.1 Chemicals & Fibers Homes & Construction Materials Electronics Health Care Others Corporate assets Construction of a new production line for hexamethylene diisocyanate (HDI)-based polyisocyanate, construction of a new plant for synthetic rubber for fuel-efficient high-performance tires, construction of a new production line for spunbond non- wovens, construction of a new production line for Roica™ elastic polyurethane filament, construction of a new plant for plastic compounds, rationalization, labor- saving, and maintenance Rationalization, labor-saving, and maintenance Rationalization, labor-saving, and maintenance Rationalization, labor-saving, and maintenance Rationalization, labor-saving, and maintenance R&D equipment, IT systems, and maintenance Net Worth to Total Assets Interest-Bearing Debt, D/E Ratio Capex, Depreciation and Amortization (%) 60 50 40 30 20 10 0 (¥ billion) 500 400 300 200 100 0 ’11 ’12 ’13 ’14 ’15 (FY) ’11 ’12 ’13 ’14 ’15 1.0 0.8 0.6 0.4 0.2 0 (FY) (¥ billion) 120 90 60 30 0 ’11 ’12 ’13 ’14 ’15 (FY) Interest-bearing debt (left scale) D/E ratio (right scale) Capex Depreciation and amortization 72 Asahi Kasei Report 2016 Cash Flows Free cash flows* were a negative ¥69.1 billion, as cash used, principally for purchase of shares in subsidiaries resulting in change in scope of consolidation and purchase of property, plant and equipment, exceeded cash provided principally from income before income taxes and from depreciation and amortization. Cash flows from financing activities were a net ¥101.4 billion provided, principally due to an increase in short- term loans payable. As a result, cash and cash equivalents at fiscal year end were ¥145.3 billion, ¥33.0 billion more than a year earlier. Cash flows from operating activities Cash used included ¥60.4 billion for income taxes paid and a ¥24.1 billion decrease in notes and accounts payable–trade. Income before income taxes provided ¥146.4 billion, deprecia- tion and amortization provided ¥93.8 billion, and decrease in notes and accounts receivable–trade provided ¥48.5 billion. Net cash provided by operating activities was ¥216.2 billion, ¥78.6 billion more than a year earlier. Cash flows from investing activities Cash used included ¥193.7 billion for purchase of shares in subsidiaries resulting in change in scope of consolidation, including the acquisition of Polypore, and ¥85.2 billion for purchase of property, plant and equipment for continuing expansion of competitively superior operations and enhance- ment of overall competitiveness. Net cash used in investing activities was ¥285.3 billion, ¥184.8 billion more than a year earlier. Cash flows from financing activities Cash used included ¥91.8 billion to repay long-term loans payable. Cash provided included a ¥213.4 billion increase in short-term loans payable mainly to finance the Polypore acquisition. Net cash provided by financing activities was ¥101.4 billion, ¥175.4 billion more than a year earlier. * Total of net cash provided by (used in) operating activities and net cash provided by (used in) investment activities. Financial Policy We aim to increase free cash flows with increased earnings through enhanced cost efficiency, greater product competi- tiveness, and business structure improvements, and with greater capital efficiency through utilization of group finance and maintenance of optimum inventory levels. A wide range of fund-raising methods including bank borrowings, bonds, and commercial paper will be utilized dynamically in accordance with the financial circumstances of the Asahi Kasei Group in order to obtain stable financing at low cost. These resources will be used to fund strategic investments under the “Cs for Tomorrow 2018” strategic management initiative focused on the pursuit of growth and profitability, creation of new businesses, and acceleration of globalization, as well as dividends for shareholders. Advancing these measures will enable us to further enhance corporate value and provide an appropriate return to shareholders while maintaining discipline for a sound financial constitution. Free Cash Flows (¥ billion) 160 Cash Flows (¥ billion) 300 120 80 40 0 (40) (80) (120) (160) 200 100 0 (100) (200) (300) ’11 ’12 ’13 ’14 ’15 (FY) ’11 ’12 ’13 ’14 ’15 (FY) Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Asahi Kasei Report 2016 73 Risk Analysis Operating risks and non-operating risks which may materially influence investor decisions are described below. The manage- ment maintains awareness of the possibility that these scenarios may emerge and, to the fullest possible extent, implements measures to avoid their emergence and to minimize their impact on corporate performance in the event that they do emerge. The description of risks given here includes elements which may emerge in the future, but as it is based on current evalua- tions as of June 28, 2016, it does not include risks which could not be foreseen. Profitability of electronics-related businesses The electronics industry is characterized by sharp market cycles. The profitability of electronics-related businesses may decline significantly in a relatively short time, thereby affect- ing our consolidated performance and financial condition. Because products in this field rapidly become obsolete, the timely development and commercialization of leading-edge devices and materials is required. New product development may be delayed, or demand fluctuations may exceed expecta- tions, thereby affecting our consolidated performance and financial condition. Pharmaceutical, medical device, and critical care device businesses Pharmaceutical, medical device, and critical care device busi- nesses may be significantly affected by government measures regarding health care or other changes in government policy in various countries. Unforeseeable side effects or complica- tions may emerge, significantly affecting these businesses. Product approval may be withdrawn as a result of reexamina- tion, and competition may intensify as a result of the market entry of generics. For products under development, regulatory approval may be prolonged or fail to be obtained, market demand may be lower than expected, and reimbursement prices may be lower than expected. Such scenarios may affect our consolidated performance and financial condition. Crude oil and naphtha prices Operating costs in operations based on petrochemicals are affected by prices for crude oil and naphtha. If crude oil and naphtha prices rise, selling prices for products derived from these feedstocks must be increased in a timely manner to maintain sufficient price spreads. Price spreads may diminish, thereby affecting our consolidated performance and financial condition. Exchange rate fluctuation The value of items denominated in currencies other than the yen is affected by the rate of exchange at the time of conver- sion to yen. Although measures such as currency exchange hedges are utilized to minimize the short-term effects of exchange rate fluctuations, such fluctuations may exceed the foreseeable range over the short to long term, thereby affect- ing our consolidated performance and financial condition. Overseas operations Overseas operations may face a variety of risks which cannot be foreseen, including the existence or emergence of economi- cally unfavorable circumstances due to legal and regulatory changes, vulnerability of infrastructure, difficulty in hiring/retain- ing qualified employees, or other factors, and social or political instability due to terrorism, war, or other factors. Overseas operations may be impaired by such scenarios, thereby affect- ing our consolidated performance and business plans. Housing-related tax policy, interest rate fluctuation Operations in the Homes segment are affected by Japanese tax policies as they relate to home acquisition and by fluctuations in Japanese interest rates. Changes in Japanese tax policy, including consumption taxes, or fluctuations in Japanese interest rates may result in diminished housing demand, thereby affecting our consolidated performance and financial condition. 74 Asahi Kasei Report 2016 Industrial accidents and natural disasters The occurrence of a significant industrial accident or natural disaster at a plant or elsewhere may result in a loss of public trust, the emergence of costs associated with accident response, including compensation, and opportunity loss due to plant shutdown caused by damage to plant facilities, supply chain disruptions which impede raw materials procurement, etc., thereby affecting our consolidated performance and financial condition. Business and capital alliances Acquisitions, business alliances, and capital alliances may bear lower results or less synergy than anticipated due to deterioration of the operating environment, thereby affecting our consolidated performance and financial condition. Poor performance at companies in which we have invested may require the recording of an impairment loss for goodwill, etc., thereby affecting our consolidated performance and financial condition. Intellectual property, product liability, and legal regulation An unfavorable ruling may emerge in a dispute relating to intellectual property, a product defect resulting in a large-scale recall and compensation whose costs exceed insurance coverage may emerge, and detrimental legal and regulatory changes may emerge in any country where we operate. Such scenarios may affect our consolidated performance and financial condition. Business counterparties The occurrence of misconduct or unforeseeable credit impair- ment, etc., may necessitate additional losses or allowances to be recorded in financial accounts, thereby affecting our consolidated performance and financial condition. Manipulation of data for installation of foundation piles It has become clear that consolidated subsidiary Asahi Kasei Construction Materials Corp. submitted incorrect data in pile installation reports for the precast concrete piles which it installed as secondary subcontractor for the construction of a condominium complex in Yokohama, Kanagawa, Japan, and a portion of the similar pile installation work performed over the past 10 years. On January 13, 2016, Asahi Kasei Construction Materials Corp. received instructions in accordance with Paragraph 1 of Article 28 of the Construction Business Act, an order to suspend business in accordance with Paragraph 3 of Article 28 of the Construction Business Act, and a recommendation in accordance with Paragraph 1 of Article 41 of the Construction Business Act from the Kanto Regional Development Bureau of the Ministry of Land, Infrastructure, Transport and Tourism. This matter may result in diminished trust which could cause a decline in sales, etc., thereby affect- ing our consolidated performance and financial condition. Asahi Kasei Report 2016 75 Consolidated Financial Statements Consolidated Balance Sheets Asahi Kasei Corporation and Consolidated Subsidiaries March 31, 2016 and 2015 ASSETS Current assets: Cash and deposits (Notes 8 and 10) Notes and accounts receivable—trade Short-term investment securities (Notes 8, 10 and 11) Merchandise and finished goods Work in process Raw materials and supplies Deferred tax assets (Note 14) Other Allowance for doubtful accounts Total current assets Noncurrent assets: Property, plant and equipment Buildings and structures (Note 4 (b), (d)) Accumulated depreciation Buildings and structures, net Machinery, equipment and vehicles (Note 4 (b), (d)) Accumulated depreciation Machinery, equipment and vehicles, net Land (Note 4 (d)) Lease assets (Note 9) Accumulated depreciation Lease assets, net Construction in progress Other (Note 4 (d)) Accumulated depreciation Other, net Subtotal Intangible assets Goodwill (Note 15 (e)) Other Subtotal Investments and other assets Investment securities (Notes 4 (a), (b), 10 and 11) Long-term loans receivable (Note 10) Net defined benefit asset (Note 13) Deferred tax assets (Note 14) Other Allowance for doubtful accounts Subtotal Total noncurrent assets Total assets The accompanying notes are an integral part of these statements. 76 Asahi Kasei Report 2016 Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥ 146,054 ¥ 123,821 $ 1,296,874 280,095 1,534 159,441 108,684 68,618 18,133 75,324 (1,865) 856,018 495,817 (268,635) 227,183 1,348,103 (1,149,544) 198,559 61,046 12,928 (11,183) 1,745 49,240 147,286 (129,072) 18,215 555,989 305,112 189,470 494,582 244,598 16,353 — 20,098 24,280 (189) 305,140 1,355,711 325,568 1,802 161,554 112,813 65,311 21,707 80,520 (1,517) 891,579 471,033 (261,352) 209,681 1,345,790 (1,170,771) 175,019 59,287 13,054 (10,232) 2,822 37,566 143,593 (125,461) 18,133 502,507 153,835 132,241 286,076 289,393 9,952 2,929 11,351 21,016 (273) 334,368 1,122,952 ¥ 2,211,729 ¥ 2,014,531 2,487,080 13,621 1,415,743 965,051 609,288 161,010 668,833 (16,560) 7,600,941 4,402,566 (2,385,322) 2,017,253 11,970,369 (10,207,281) 1,763,088 542,053 114,793 (99,299) 15,495 437,223 1,307,814 (1,146,084) 161,739 4,936,858 2,709,217 1,682,383 4,391,600 2,171,888 145,205 — 178,459 215,592 (1,678) 2,709,465 12,037,924 $ 19,638,865 LIABILITIES AND NET ASSETS Liabilities: Current liabilities: Notes and accounts payable—trade (Note 10) Short-term loans payable (Notes 4 (b), 10 and 21) Lease obligations (Notes 9, 10 and 21) Accrued expenses Income taxes payable (Note 10) Advances received Provision for periodic repairs Provision for product warranties Provision for removal cost of property, plant and equipment Asset retirement obligations (Note 16) Other Total current liabilities Noncurrent liabilities: Bonds payable (Notes 10 and 21) Long-term loans payable (Notes 4 (b), 10 and 21) Lease obligations (Notes 9, 10 and 21) Deferred tax liabilities (Note 14) Provision for periodic repairs Provision for removal cost of property, plant and equipment Provision for loss on litigation Net defined benefit liability (Note 13) Asset retirement obligations (Note 16) Long-term guarantee deposits (Note 10) Other Total noncurrent liabilities Total liabilities Net assets: Shareholders’ equity Capital stock Authorized—4,000,000,000 shares Issued and outstanding—1,402,616,332 shares Capital surplus Retained earnings (Note 7 (b) (ii)) Treasury stock (2016—5,861,678 shares, 2015—5,742,862 shares) Total shareholders’ equity Accumulated other comprehensive income Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Commitments and contingent liabilities (Notes 4 (c) and 9) Total liabilities and net assets The accompanying notes are an integral part of these statements. Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥ 126,653 313,587 919 98,717 32,735 74,667 3,908 2,355 2,130 568 69,423 725,662 40,000 94,632 537 64,930 558 7,228 2,171 186,300 3,480 20,131 8,702 428,669 1,154,330 103,389 79,410 763,076 (3,150) ¥ 151,867 96,015 1,383 101,164 10,203 74,675 2,396 2,562 2,832 533 63,817 507,449 40,000 130,400 1,219 57,943 1,248 7,865 2,316 142,035 3,506 19,146 3,683 409,360 916,809 103,389 79,408 699,259 (3,041) $ 1,124,605 2,784,470 8,160 876,549 290,668 662,999 34,701 20,911 18,913 5,044 616,436 6,443,456 355,177 840,277 4,768 576,541 4,955 64,180 19,277 1,654,235 30,900 178,752 77,269 3,806,331 10,249,778 918,034 705,115 6,775,670 (27,970) 942,724 879,014 8,370,840 92,280 (179) 48,429 (41,353) 99,177 15,498 1,057,399 113,562 (1,697) 99,531 (7,757) 203,639 15,068 1,097,722 819,393 (1,589) 430,021 (367,191) 880,634 137,613 9,389,087 ¥2,211,729 ¥2,014,531 $19,638,865 Asahi Kasei Report 2016 77 Consolidated Statements of Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2016 and 2015 Net sales (Note 17) Cost of sales (Note 5 (b)) Gross profit Selling, general and administrative expenses (Note 5 (a)) Operating income (Note 17) Non-operating income: Interest income Dividends income Equity in earnings of affiliates Foreign exchange gain Other Total non-operating income Non-operating expenses: Interest expense Equity in losses of affiliates Foreign exchange loss Other Total non-operating expenses Ordinary income Extraordinary income: Gain on sales of investment securities Gain on sales of noncurrent assets (Note 5 (c)) Total extraordinary income Extraordinary loss: Loss on sales of investment securities Loss on valuation of investment securities Loss on disposal of noncurrent assets (Note 5 (d)) Impairment loss (Note 5 (e)) Business structure improvement expenses (Note 5 (e), (f )) Litigation settlement Loss on piling business (Note 5 (g)) Business integration expense Special retirement expenses and other Loss on discontinuation of joint sales agreement (Note 5 (e), (h)) Total extraordinary loss Income before income taxes Income taxes (Note 14) — current — deferred Total income taxes Net income Net income attributable to non-controlling interests Net income attributable to owners of the parent The accompanying notes are an integral part of these statements. 78 Asahi Kasei Report 2016 Millions of yen 2016 ¥1,940,914 1,354,698 586,216 421,013 165,203 2015 ¥1,986,405 1,439,344 547,061 389,128 157,933 Thousands of U.S. dollars (Note 1) 2016 $17,234,186 12,028,929 5,205,257 3,738,350 1,466,906 1,417 4,757 — — 5,148 11,322 3,611 854 3,679 7,010 15,154 161,370 8,275 917 9,192 — 363 5,214 3,493 3,606 1,201 1,456 1,547 2,027 5,266 24,173 146,389 55,419 (2,441) 52,978 93,412 1,658 1,389 3,923 1,738 5,197 5,041 17,288 3,056 — — 5,622 8,678 166,543 2,756 382 3,137 112 1,136 4,728 1,255 4,010 — — — — — 11,241 158,440 44,059 7,483 51,542 106,898 1,246 12,582 42,239 — — 45,711 100,533 32,064 7,583 32,667 62,245 134,559 1,432,872 73,477 8,142 81,620 — 3,223 46,297 31,016 32,019 10,664 12,928 13,736 17,999 46,759 214,642 1,299,849 492,088 (21,675) 470,414 829,444 14,722 ¥ 91,754 ¥ 105,652 $ 814,722 Consolidated Statements of Comprehensive Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2016 and 2015 Net income Other comprehensive income Net (decrease) increase in unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income (Note 6) Comprehensive income Comprehensive income attributable to: Owners of the parent Non-controlling interests The accompanying notes are an integral part of these statements. Millions of yen 2016 ¥ 93,412 2015 ¥106,898 (21,098) 1,519 (48,860) (33,331) (3,567) (105,337) ¥ (11,925) ¥ (12,708) 783 37,947 (1,526) 48,945 17,096 5,125 107,587 ¥214,484 ¥212,159 2,326 Thousands of U.S. dollars (Note 1) 2016 $ 829,444 (187,338) 13,488 (433,848) (295,960) (31,673) (935,331) $(105,887) $(112,840) 6,953 Asahi Kasei Report 2016 79 Consolidated Statements of Changes in Net Assets Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2016 and 2015 Shareholders’ equity Accumulated other comprehensive income Millions of yen Capital stock Capital surplus Retained earnings (Note 7(b)) Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasure- ments of defined benefit plans Total accumulated other comprehensive income Non- controlling interests Total net assets Balance at March 31, 2015 ¥103,389 ¥79,408 ¥699,259 ¥(3,041) ¥879,014 ¥113,562 ¥(1,697) ¥ 99,531 ¥ (7,757) ¥ 203,639 ¥15,068 ¥1,097,722 Cumulative effect of changes in accounting policies — — Restated balance 103,389 79,408 699,259 (3,041) 879,014 113,562 (1,697) 99,531 (7,757) 203,639 15,068 1,097,722 Changes during the fiscal year Dividends from surplus Net income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Change of scope of consolidation Change of scope of equity method Net changes of items other than shareholders’ equity Total changes of items during the period (27,937) 91,754 2 (27,937) 91,754 (113) 6 (113) 4 (27,937) 91,754 (113) 6 — 2 63,817 (109) 63,710 (21,282) 1,519 (51,102) (33,596) (104,462) 430 (40,323) (21,282) 1,519 (51,102) (33,596) (104,462) 430 (104,032) Balance at March 31, 2016 ¥103,389 ¥79,410 ¥763,076 ¥(3,150) ¥942,724 ¥ 92,280 ¥ (179) ¥ 48,429 ¥(41,353) ¥ 99,177 ¥15,498 ¥1,057,399 Shareholders’ equity Accumulated other comprehensive income Millions of yen Capital stock Capital surplus Retained earnings (Note 7(b)) Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasure- ments of defined benefit plans Total accumulated other comprehensive income Non- controlling interests Total net assets Balance at March 31, 2014 ¥103,389 ¥79,404 ¥635,403 ¥(2,591) ¥815,605 ¥ 75,626 ¥ (171) ¥46,734 ¥(25,094) ¥ 97,095 ¥13,067 ¥ 925,766 Cumulative effect of changes in accounting policies (15,741) (15,741) (15,741) Restated balance 103,389 79,404 619,662 (2,591) 799,863 75,626 (171) 46,734 (25,094) 97,095 13,067 910,025 Changes during the fiscal year Dividends from surplus Net income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Change of scope of consolidation Change of scope of equity method Net changes of items other than shareholders’ equity Total changes of items during the period (26,547) 105,652 296 197 3 (26,547) 105,652 (455) 8 296 197 (455) 5 (26,547) 105,652 (455) 8 296 197 — 3 79,597 (450) 79,151 37,937 (1,526) 52,797 17,338 106,545 2,002 187,697 37,937 (1,526) 52,797 17,338 106,545 2,002 108,546 Balance at March 31, 2015 ¥103,389 ¥79,408 ¥699,259 ¥(3,041) ¥879,014 ¥113,562 ¥(1,697) ¥99,531 ¥ (7,757) ¥203,639 ¥15,068 ¥1,097,722 Shareholders’ equity Accumulated other comprehensive income Thousands of U.S. dollars (Note 1) Capital stock Capital surplus Retained earnings (Note 7(b)) Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasure- ments of defined benefit plans Total accumulated other comprehensive income Non- controlling interests Total net assets Balance at March 31, 2015 $918,034 $705,097 $6,209,013 $(27,002) $7,805,132 $1,008,364 $(15,068) $ 883,777 $ (68,878) $1,808,196 $133,795 $9,747,132 Cumulative effect of changes in accounting policies — — Restated balance 918,034 705,097 6,209,013 (27,002) 7,805,132 1,008,364 (15,068) 883,777 (68,878) 1,808,196 133,795 9,747,132 Changes during the fiscal year Dividends from surplus Net income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Change of scope of consolidation Change of scope of equity method Net changes of items other than shareholders’ equity Total changes of items during the period (248,064) (248,064) 814,722 814,722 18 (1,003) (1,003) 36 53 (248,064) 814,722 (1,003) 53 — 18 566,658 (968) 565,708 (188,972) 13,488 (453,756) (298,313) (927,562) 3,818 (358,045) (188,972) 13,488 (453,756) (298,313) (927,562) 3,818 (923,744) Balance at March 31, 2016 $918,034 $705,115 $6,775,670 $(27,970) $8,370,840 $ 819,393 $ (1,589) $ 430,021 $(367,191) $ 880,634 $137,613 $9,389,087 The accompanying notes are an integral part of these statements. 80 Asahi Kasei Report 2016 Consolidated Statements of Cash Flows Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2016 and 2015 Cash flows from operating activities: Income before income taxes Depreciation and amortization Impairment loss Amortization of goodwill Amortization of negative goodwill Increase (decrease) in provision for periodic repairs (Decrease) increase in provision for product warranties Decrease in provision for removal cost of property, plant and equipment Decrease in net defined benefit liability Interest and dividend income Interest expense Equity in (earnings) losses of affiliates Gain on sales of investment securities Loss on valuation of investment securities Gain on sale of property, plant and equipment Loss on disposal of noncurrent assets Decrease in notes and accounts receivable—trade Increase (decrease) in inventories Decrease in notes and accounts payable—trade (Decrease) increase in accrued expenses Increase (decrease) in advances received Other, net Subtotal Interest and dividend income, received Interest expense paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities: Payments into time deposits Proceeds from withdrawal of time deposits Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of intangible assets Purchase of investment securities Proceeds from sales of investment securities Purchase of shares in subsidiaries resulting in change in scope of consolidation Payments for transfer of business Payments of loans receivable Collection of loans receivable Other, net Net cash used in investing activities Cash flows from financing activities: Increase (decrease) in short-term loans payable Decrease in commercial paper Proceeds from long-term loans payable Repayment of long-term loans payable Repayments of lease obligations Purchase of treasury stock Proceeds from disposal of treasury stock Cash dividends paid Cash dividends paid to non-controlling interests Other, net Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Increase in cash and cash equivalents resulting from changes in scope of consolidation Cash and cash equivalents at end of year (Note 8) The accompanying notes are an integral part of these statements. Millions of yen Thousands of U.S. dollars (Note 1) 2016 2015 2016 ¥ 146,389 93,811 3,493 15,821 (159) 824 (193) (1,339) (9,227) (6,173) 3,611 854 (8,275) 363 (917) 5,214 48,513 12,901 (24,104) (3,980) 120 (4,863) 272,687 7,558 (3,596) (60,431) 216,218 (6,360) 17,364 (85,184) 774 (10,330) (7,017) 10,197 (193,680) (200) (11,131) 2,520 (2,241) (285,287) 213,417 — 9,445 (91,760) (1,411) (113) 6 (27,937) (653) 371 101,365 (5,560) 26,736 112,297 ¥ 158,440 86,058 1,255 9,320 (159) (4,496) 22 (1,723) (2,300) (5,312) 3,056 (1,738) (2,644) 1,136 (382) 4,728 717 (3,610) (13,559) 5,662 (6,553) (8,587) 219,331 6,761 (3,081) (85,415) 137,597 (17,182) 13,436 (82,990) 944 (10,661) (1,349) 5,341 (2,808) (3,763) (5,296) 6,295 (2,438) (100,470) (24,324) (10,000) 10,950 (21,064) (1,830) (462) 8 (26,547) (745) (2) (74,016) 5,467 (31,423) 143,139 $ 1,299,849 832,987 31,016 140,481 (1,412) 7,317 (1,714) (11,890) (81,930) (54,813) 32,064 7,583 (73,477) 3,223 (8,142) 46,297 430,767 114,553 (214,029) (35,340) 1,066 (43,181) 2,421,302 67,111 (31,930) (536,592) 1,919,890 (56,473) 154,182 (756,384) 6,873 (91,724) (62,307) 90,543 (1,719,766) (1,776) (98,837) 22,376 (19,899) (2,533,182) 1,895,019 — 83,866 (814,775) (12,529) (1,003) 53 (248,064) (5,798) 3,294 900,062 (49,370) 237,400 997,132 6,273 ¥ 145,307 581 ¥ 112,297 55,701 $ 1,290,242 Asahi Kasei Report 2016 81 Notes to Consolidated Financial Statements Asahi Kasei Corporation and Consolidated Subsidiaries 1. Major policies for preparing the consolidated financial statements The consolidated financial statements, which are filed with the prime minister of Japan as required by the Financial Instruments and Exchange Act in Japan, are prepared in accordance with accounting principles generally accepted in Japan, which are different in certain respects from the application and disclosure requirements of International Financial Reporting Standards. The accompanying consolidated financial state- ments are a translation of those filed with the prime minister of Japan and incorporate certain modifications to enhance foreign readers’ understand- ing of the consolidated financial statements. In addition, the notes to the consolidated financial statements include certain financial information which is not required under the disclosure regulations in Japan, but is presented herein as additional information. The U.S. dollar amounts presented in the consolidated financial statements are included solely for the convenience of readers. These translations should not be construed as representations that the Japanese yen amounts actually represent, or have been or could be converted into U.S. dollars. As the amounts shown in U.S. dollars are for convenience only, and are not intended to be computed in accordance with generally accepted translation procedures, the approximate current exchange rate of ¥112.62=US$1 prevailing on March 31, 2016, has been used. Consolidation and investments in affiliated companies The consolidated financial statements consist of the accounts of the parent company and 174 subsidiaries (140 subsidiaries at March 31, 2015, hereinafter collectively referred to as the “Company”) which, with minor exceptions due to immateriality, are all majority and wholly owned companies, including 10 core operating companies (Asahi Kasei Chemicals 2. Significant accounting policies (a) Cash and cash equivalents For cash flow statement purposes, cash and cash equivalents include all highly liquid investments, generally with original maturities of three months or less, which are readily convertible to known amounts of cash, and therefore present an insignificant risk of changes in value due to changes in interest rates. (b) Inventories Inventories held for sale in the ordinary course of business are stated at the lower of cost or net realizable value. Residential lots and dwellings for sale are stated at specifically identified costs. (c) Noncurrent assets and depreciation/amortization Property, plant and equipment (except for lease assets) are stated at cost. Significant renewals and improvements are capitalized at cost, while maintenance and repairs are charged to income as incurred. Depreciation is provided for under the declining-balance method for property, plant and equipment, except for buildings which are depreciated using the straight-line method, at rates based on estimated useful lives of the assets, principally ranging from 5 to 60 years for buildings and from 4 to 22 years for machinery and equipment and vehicles. Intangible fixed assets (except for lease assets), including software for internal use, are mainly amortized using the straight-line method over the estimated useful lives of the assets. The estimated useful life of software for internal use is mainly 5 years. Lease assets (financing lease transactions without title transfer) are depreciated/amortized on a straight-line basis over the period of the lease with no residual value. For financing lease transactions without title trans- fer whose transaction date is before March 31, 2008, the previous method of accounting for lease transactions continues to be applied, with periodic lease charges for financing leases being charged to income as incurred. (d) Significant allowances i) Allowance for doubtful accounts Estimates of the unrecoverable portion of receivables, generally based on historical rates and for specific receivables of particular concern based on individual estimates of recoverability, are recognized as allowance for doubtful accounts. Corp., Asahi Kasei Fibers Corp., Asahi Kasei Homes Corp., Asahi Kasei Construction Materials Corp., Asahi Kasei Microdevices Corp., Asahi Kasei E-materials Corp., Asahi Kasei Pharma Corp., Asahi Kasei Medical Co., Ltd., ZOLL Medical Corporation and Polypore International, LP), and Tong Suh Petrochemical Corp. Ltd. (Korea). Material inter-company transactions and accounts have been eliminated. Investments in unconsolidated subsidiaries and 20% to 50% owned companies in which the Company exercises significant influence are accounted for, with minor exceptions due to immateriality, using the equity method of accounting. There were 31 such unconsolidated subsid- iaries and 20% to 50% owned companies to which the equity method is applied at March 31, 2016 (37 at March 31, 2015), including Asahi Kasei EIC Solutions Corp., Asahi Kasei Geotechnologies Co., Ltd. and Asahi Organic Chemicals Industry Co., Ltd. Certain subsidiaries’ results are reported in the consolidated financial statements using a fiscal year ending December 31. Material differences in inter-company transactions and accounts arising from the use of different fiscal year-ends are appropriately adjusted for through consolidation procedures. All assets and liabilities of acquired companies are measured at their fair value and any difference between the net assets and the cost of investment is recognized as goodwill or negative goodwill. Goodwill, and negative goodwill incurred through business combinations which took place before April 1, 2010, are amortized using the straight-line method over a reasonable period during which their effects would last, with the exception of minor amounts which are charged to income as incurred. ii) Provision for periodic repairs The portion of foreseeable periodic repair expenses deemed to cor- respond to normal wear and tear of plant and equipment as of the closing date of the fiscal year is recognized as provision for periodic repairs. iii) Provision for product warranties Estimates of product warranty expenses based on historical rates are recognized as provision for product warranties. iv) Provision for removal cost of property, plant and equipment Provision for removal cost of property, plant and equipment is recorded based on estimated future removal cost of property, plant and equipment at the end of each fiscal year. v) Provision for loss on litigation Provision for loss on litigation is recorded for estimated losses related to pending litigation. (e) Accounting for retirement benefits i) Method of attributing expected retirement benefits to each period In calculating retirement benefit obligations, the Company applies a method of attributing expected retirement benefits to each period based on a benefit formula basis. ii) Accounting for actuarial gains/losses and prior service costs Actuarial gains/losses are amortized using the straight-line method from the fiscal year following their accrual over a certain period (mainly 10 years) within the average remaining service period of employees at the time of accrual. Prior service costs are amortized using the straight-line method over a certain period (mainly 10 years) within the average remain- ing service period of employees at the time of accrual. iii) Adoption of the simplified method In calculating expected defined benefit liability and periodic retirement benefit expenses, certain consolidated subsidiaries have adopted the sim- plified method. Under this method, the expected defined benefit liability is recorded at the severance payment amount to be required should all employees retire voluntarily at fiscal year end. 82 Asahi Kasei Report 2016 (f) Significant revenue and expense recognition i) Construction activities that are realizable as of fiscal year end The percentage-of-completion method (progress of work is estimated using the percentage of costs incurred to the total projected costs) is applied. ii) Other construction activities The completed-contract method is used. (g) Financial instruments i) Securities Securities are classified into four categories: trading securities, held-to- maturity debt securities, equity securities of unconsolidated subsidiaries and affiliates, and other securities. At March 31, 2016 and 2015, the Company did not have trading securities or held-to-maturity debt securities. Equity securities of unconsolidated subsidiaries and affiliates are accounted for, with minor exceptions due to immateriality, using the equity method of accounting. Other securities whose fair values are readily determinable are carried at fair value with net unrealized gains or losses, net of income taxes, being included as a component of net assets. Other securities whose fair values are not readily determinable are stated at cost. In cases where any significant decline in the realizable value is assessed to be other than temporary, the cost of other securities is devalued by the impaired amount and is charged to income. Realized gains and losses are determined using the average cost method and are reflected in the consolidated income statements. ii) Derivative financial instruments All derivatives are stated at fair value. Gains or losses arising from changes in fair value are recognized in the period in which they arise, except for derivatives that are designated as hedging instruments. Gains or losses 3. Changes in significant accounting policies (a) Changes in accounting policies The revisions of the “Accounting Standard for Business Combinations” (Accounting Standards Board of Japan (ASBJ) Statement No. 21), the “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22), and the “Accounting Standard for Business Divestitures” (ASBJ Statement No. 7) have been applied from the fiscal year ended March 31, 2016. Accordingly, differences resulting from changes in ownership interest in a subsidiary as long as control over the subsidiary is retained are recorded as capital surplus, and costs related to acquisition of increased ownership interest are recognized as expenses during the period in which they arise. Also, with regard to business combinations performed on or after the beginning of the fiscal year ended March 31, 2016, the revised allocation of acquisition costs arising from the settlement of provisional accounting treatment are retrospectively reflected as if the accounting for the business combination had been completed at the acquisition date. The presentation of “net income” was amended, and the title of “minority interests” was changed to “non-controlling interests.” The consolidated financial statements for the previous fiscal year have been reclassified to reflect these changes in presentation. In accordance with the transitional treatment set forth in Article 58-2 (4) of the “Accounting Standard for Business Combinations,” Article 44-5 (4) of the “Accounting Standard for Consolidated Financial Statements,” and Article 57-4 (4) of the “Accounting Standard for Business Divestitures,” the revised standards above have been applied from the beginning of the fiscal year ended March 31, 2016. As a result, operating income, ordinary income, and income before income taxes decreased respectively by ¥2,185 million in the fiscal year ended March 31, 2016. In the consolidated statements of cash flows for the fiscal year ended March 31, 2016, cash flows from purchases or sales of shares of subsidiaries that do not result in changes in scope of consolidation are included in cash flows from financing activities, while cash flows from expenses related to purchases of shares of subsidiaries that result in changes in scope of consolidation and expenses related to purchases or sales of shares of subsidiaries that do not result in changes in scope of consolida- tion are included in cash flows from operating activities. The effect on per-share information is shown in the relevant parts. arising from changes in fair value of these qualifying hedges are deferred as “Deferred gains or losses on hedges” until being offset against gains or losses of the underlying hedged assets and liabilities. (h) Taxes Accrued income taxes are stated at the estimated amount of payables for corporation, enterprise, and inhabitant taxes. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company has elected to file its return under the consolidated tax filing system in Japan. Transactions subject to consumption taxes are recorded at amounts net of consumption taxes. (i) Translation of foreign currencies Foreign currency receivables and payables are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. Resulting gains and losses are charged to income for the period. Assets and liabilities of foreign subsidiaries are translated into Japanese yen at fiscal year-end exchange rates, and income and expenses of same are translated into Japanese yen at the average exchange rate for the fiscal year. Shareholders’ equity of foreign subsidiaries is translated into Japanese yen at the historical exchange rates. The translation differences in Japanese yen amounts arising from the use of different rates are rec- ognized as foreign currency translation adjustments in the consolidated balance sheets. A portion of the foreign currency translation adjustment is allocated to non-controlling interests and the Company’s portion is presented as a separate component of net assets in the consolidated balance sheets. (b) Accounting standards issued but not yet applied The ASBJ issued ASBJ Guidance No. 26 “Implementation Guidance on Recoverability of Deferred Tax Assets.” This guidance basically continues to apply the framework adopted in the Audit Committee’s Report No. 66 entitled “Auditing Treatment for Judgment of Recoverability of Deferred Tax Assets,” which provided the criteria for classification of entities into five categories to determine the estimated amount of deferred tax assets. However, this guidance provides certain necessary revisions as follows: 1) Treatment of entities not included in any category. 2) Requirements for classification in category 2 and in category 3. 3) Treatment of future deductible temporary differences that entities in category 2 cannot schedule. 4) Treatment of the reasonable estimable period of future taxable income before additions or deductions of temporary differences for entities in category 3. 5) Treatment of entities fulfilling the requirements of category 4 which are also applicable to category 2 or category 3. The Company will apply the revised guidance from the beginning of the fiscal year ending March 31, 2017. The effects of the adoption of the guidance on the consolidated financial statements will be immaterial. (c) Changes in presentation Consolidated statements of income In the fiscal year ended March 31, 2016, “costs associated with idle portion of facilities” and “donations,” both of which had previously been reported separately, became 10% or less of total non-operating income respectively, and are included in “other” under non-operating expenses. The consolidated statements of income for the fiscal year ended March 31, 2015, have been reclassified accordingly, resulting in “costs associated with idle portion of facilities” of ¥1,168 million and “donations” of ¥869 million being included in “other” under non-operating expenses. Asahi Kasei Report 2016 83 4. Notes to Consolidated Balance Sheets (a) Investment securities Among investment securities, shares of unconsolidated subsidiaries and affiliates as of March 31, 2016 and 2015, amounted to ¥55,786 million (US$495,347 thousand) and ¥69,210 million, respectively. Included in those amounts are investments in joint ventures of ¥27,003 million (US$ 239,771 thousand) and ¥33,912 million, respectively. (b) Pledged assets and secured debt A summary of assets pledged as collateral and secured debt as of March 31, 2016 and 2015, is shown below: Pledged assets Buildings and structures Machinery, equipment and vehicles Total pledged assets Secured debt Short-term loans payable Long-term loans payable Total secured debt Millions of yen Thousands of U.S. dollars 2016 ¥118 1 ¥120 ¥ 1 77 ¥ 78 2015 ¥130 2 ¥132 ¥ 2 135 ¥137 2016 $1,048 9 $1,066 $ 9 684 $ 693 Besides the above, investment securities pledged to suppliers as transaction guarantees at March 31, 2016 and 2015, were ¥54 million (US$479 thousand) and ¥64 million, respectively. (c) Contingent liabilities Asahi Kasei Construction Materials Corp., a consolidated subsidiary of Asahi Kasei Corp., submitted incorrect data within their pile installation report for the precast concrete piles installed as a secondary subcontractor for the construction of a condominium complex in Yokohama, Kanagawa, Japan. There was manipulation of ammeter data obtained when boring holes for installation and manipulation of flowmeter data for the injection of cement milk for consolidation of pile tips. Asahi Kasei Corp. established a task force and fact-finding committee as well as an independent commission to aid in the investigation process, and on October 22, 2015, Asahi Kasei Construction Materials Corp. reported its record of similar pile installation work over the past 10 years to Japan’s Ministry of Land, Infrastructure, Transport and Tourism (MLIT). On November 24, 2015, Asahi Kasei Construction Materials Corp. completed all possible investigation of whether or not there was manipulation of data installation of precast concrete piles, and reported the results to the MLIT. Out of the 3,052 projects subject to investigation, manipulation of data was identified in 360 projects. On January 13, 2016, Asahi Kasei Construction Materials Corp. received instructions in accordance with Article 28, Paragraph 1 of the Construction Business Act, an order which suspended operations in accordance with Article 28, Paragraph 3 of the Construction Business Act, and a recommendation in accordance with Article 41, Paragraph 1 of the Construction Business Act from the Kanto Regional Development Bureau of the MLIT. Regarding those projects where manipulation of data was identified, Asahi Kasei Construction Materials will cooperate with the contractors and the owners of the buildings in efforts to confirm safety based on instructions from the MLIT. Where the Specific Administrative Agency has confirmed safety, the Specific Administrative Agency will issue a report to the MLIT. As a result of this matter, Asahi Kasei Corp. has recorded an extraordinary loss of approximately ¥1,456 million in the year ended March 31, 2016, as “loss on piling business” for expenses related to the investigation, etc., of the manipulation of data. Although there is potential for further effects on the consolidated results of Asahi Kasei Corp. which may emerge from the recording of an additional reserve, etc., no such effect is reflected in the consolidated financial statements for the year ended March 31, 2016, due to the difficulty of judgment in the rational estimate of the amount of financial impact from this matter as of the time of preparation of the consolidated financial statements. Contingent liabilities at March 31, 2016 and 2015, arising in the ordinary course of business were as follows: Loans guaranteed Letters of awareness Completion guarantees Total Millions of yen Thousands of U.S. dollars 2016 ¥36,808 — 11,989 ¥48,797 2015 ¥38,664 — 16,250 ¥54,914 2016 $326,834 — 106,455 $433,289 The parent company and certain of its subsidiaries and affiliates are defendants in several pending lawsuits. However, based upon the information currently available to both the Company and its legal counsel, management of the Company believes that any damages from such lawsuits will not have a material impact to the Company’s consolidated financial statements. 84 Asahi Kasei Report 2016 (d) Deferred gain on property, plant and equipment deducted for tax purposes The accumulated reduced-value entries, which are directly deducted from property, plant and equipment, as of March 31, 2016 and 2015, were ¥9,684 million (US$85,988 thousand) and ¥9,176 million, respectively. The breakdown of reduced-value entries as of March 31, 2016 and 2015, was as follows: Buildings and structures Machinery, equipment and vehicles Land Other Total Millions of yen Thousands of U.S. dollars 2016 ¥3,407 5,937 167 173 ¥9,684 2015 ¥3,442 5,394 167 173 ¥9,176 2016 $30,252 52,717 1,483 1,536 $85,988 5. Notes to Consolidated Statements of Income (a) Selling, general and administrative expenses Major components of selling, general and administrative expenses for the years ended March 31, 2016 and 2015 were as follows: Salaries and benefits Research and development* Freight and storage Millions of yen Thousands of U.S. dollars 2016 ¥160,091 60,990 36,794 2015 ¥148,306 57,896 36,091 2016 $1,421,515 541,556 326,709 * The aggregate amounts of research and development expenses included in manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2016 and 2015, were ¥81,118 million (US$720,281 thousand) and ¥75,540 million, respectively. (b) Loss on valuation of inventories Inventories held for sale in the ordinary course of business are stated at the lower of cost or net realizable value. Loss on valuation of inventories for the years ended March 31, 2016 and 2015, were as follows: Millions of yen Thousands of U.S. dollars 2016 ¥1,427 2015 ¥2,142 2016 $12,671 (c) Gain on sales of noncurrent assets Major components of gain on sales of noncurrent assets for the years ended March 31, 2016 and 2015, were as follows: Land Machinery Other Millions of yen Thousands of U.S. dollars 2016 ¥777 93 47 2015 ¥176 184 21 2016 $6,899 826 417 (d) Loss on disposal of noncurrent assets Loss on disposal of noncurrent assets for the years ended March 31, 2016 and 2015, was primarily loss on abandonment and sale of buildings, machinery and equipment, etc. The abandonment and sale of buildings, machinery and equipment, etc. was performed under a single, all-inclusive contract for each facility. Asahi Kasei Report 2016 85 (e) Impairment losses Major components of impairment losses for the years ended March 31, 2016 and 2015, were as follows: Millions of yen Thousands of U.S. dollars Use Asset class Location 2016 2015 2016 Sales rights Buildings, etc. Buildings, etc. Production facility for performance paper Production facility for petrochemicals Joint sales rights of pharmaceutical products Underground uranium storage facility Idle assets Production facility for semiconductors Machinery and equipment, etc. Machinery and equipment, etc. Machinery and equipment, etc. Machinery and equipment, etc. Machinery and equipment, etc. Machinery and equipment Machinery and equipment, etc. Production facility for plastic raw materials Facility for wastewater recycling Production facility for semiconductors Others Chiyoda-ku, Tokyo Hyuga, Miyazaki Fuji, Shizuoka, etc. ¥3,942 1,850 817 — — ¥621 Nobeoka, Miyazaki Gobo, Wakayama Kurashiki, Okayama Goshogawara, Aomori Ulsan, Korea Jiangsu, China Fuji, Shizuoka, Oita, etc. 550 142 — — — — 600 — — 455 268 217 145 172 Item on the Consolidated Statements of Income Loss on discontinuation of joint sales agreement Impairment losses Impairment losses Impairment losses Business structure improvement expenses Business structure improvement expenses Impairment losses Impairment losses Impairment losses $35,003 16,427 7,254 4,884 1,261 — — — — 5,328 Impairment losses and business structure improvement expenses Grouping of operating assets is based on managerial accounting categories, with consideration given to production process, geographic location, and domain of authority for making investment decisions. Idle assets are recorded separately in each fixed assets class. With respect to underground uranium storage facility, the book value was reduced to the recoverable amount due to disappearance of prospects for future profit, and with respect to joint sales rights of pharmaceutical products, idle assets and part of others, the book value was reduced to the recoverable amount due to disappearance of prospects for future use, and with respect to production facility for semiconductors, production facility for performance paper and part of others, the book value was reduced to the recoverable amount due to diminished profitability. The recoverable amount is stated as value for future usage, which is calculated based on discounted future cash flows within applicable discount rate of 6% as of March 31, 2016 and 2015. Among the extraordinary losses under others, ¥324 million (US$2,877 thousand) and ¥168 million were recorded under business structure improvement expenses for the years ended March 2016 and 2015, respectively. (f) Business structure improvement expenses Major components of business structure improvement expenses for the years ended March 31, 2016 and 2015, were as follows: Impairment of fixed assets Additional payment of retirement benefits due to application of early retirement, etc. Loss on disposal and devaluation of inventory and others Total Millions of yen Thousands of U.S. dollars 2016 ¥ 466 110 3,029 ¥3,606 2015 ¥ 623 — 3,387 ¥4,010 2016 $ 4,138 977 26,896 $32,019 (g) Loss on piling business Asahi Kasei Construction Materials Corp., a consolidated subsidiary of Asahi Kasei Corp., submitted incorrect data within their pile installation report for the precast concrete piles installed as a secondary subcontractor for the construction of a condominium complex in Yokohama, Kanagawa, Japan. There was manipulation of ammeter data obtained when boring holes for installation, and manipulation of flowmeter data for the injection of cement milk for consolidation of pile tips. As a result of this matter, Asahi Kasei Corp. has recorded an extraordinary loss in the year ended March 31, 2016, as “loss on piling business” for expenses related to the investigation, etc., of the manipulation of such data. (h) Loss on discontinuation of joint sales agreement Millions of yen Thousands of U.S. dollars 2016 ¥3,942 1,303 22 ¥5,266 2015 ¥— — — ¥— 2016 $35,003 11,570 195 $46,759 Impairment losses Cancellation fee Other Total 86 Asahi Kasei Report 2016 6. Notes to Consolidated Statements of Comprehensive Income Recycling adjustment and tax effects on other comprehensive income for the years ended March 31, 2016 and 2015, were as follows: Millions of yen Thousands of U.S. dollars 2016 2015 2016 Net unrealized gain on other securities Changes during the fiscal year Recycling adjustment Pre-tax effect Tax effect Net increase in unrealized gain on other securities Deferred gains or losses on hedges Changes during the fiscal year Recycling adjustment Adjustment on the acquisition cost of assets Pre-tax effect Tax effect Deferred gains or losses on hedges Foreign currency translation adjustment Changes during the fiscal year Recycling adjustment Pre-tax effect Tax effect Foreign currency translation adjustment Remeasurements of defined benefit plans Changes during the fiscal year Recycling adjustment Pre-tax effect Tax effect Remeasurements of defined benefit plans ¥ (26,559) (7,879) (34,438) 13,341 (21,098) ¥ 53,024 (2,689) 50,335 (12,389) 37,947 (5,649) 1,976 5,718 2,045 (527) 1,519 (49,549) 1,028 (48,522) (338) (48,860) (50,607) 3,397 (47,210) 13,880 (33,331) (2,037) 72 — (1,965) 438 (1,526) 48,829 (24) 48,805 140 48,945 20,168 5,516 25,685 (8,588) 17,096 Share of other comprehensive income of affiliates accounted for using equity method Changes during the fiscal year Recycling adjustment Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income (3,363) (204) (3,567) ¥(105,337) 5,174 (49) 5,125 ¥107,587 $(235,828) (69,961) (305,789) 118,460 (187,338) (50,160) 17,546 50,773 18,158 (4,679) 13,488 (439,966) 9,128 (430,847) (3,001) 433,848 (449,361) 30,163 (419,197) 123,246 (295,960) (29,861) (1,811) (31,673) $(935,331) 7. Notes to Consolidated Statements of Changes in Net Assets For the year ended March 31, 2016 (a) Class and total number of issued and outstanding shares and treasury stock Issued and outstanding shares Common stock Total Treasury stock Common stock (Notes 1 & 2) Total Number of shares as of March 31, 2015 Increase in number of shares during the fiscal year Decrease in number of shares during the fiscal year Number of shares as of March 31, 2016 Thousands of shares 1,402,616 1,402,616 5,743 5,743 — — 125 125 — — 7 7 1,402,616 1,402,616 5,862 5,862 Notes: 1. The increase of 125 thousand shares in common stock of treasury stock was due to the purchase of shares in quantities of less than one share unit. 2. The decrease of 7 thousand shares in common stock of treasury stock was due to the sale of shares in quantities of less than one share unit. Asahi Kasei Report 2016 87 (b) Dividends i) Cash dividends paid 1) The following was resolved by the Board of Directors on May 12, 2015. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥13,969 million (US$124,037 thousand) ¥10.00 (US$0.09) March 31, 2015 June 4, 2015 2) The following was resolved by the Board of Directors on November 6, 2015. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥13,968 million (US$124,028 thousand) ¥10.00 (US$0.09) September 30, 2015 December 1, 2015 ii) Dividends for which the date of record falls within the fiscal year under review but the payment date occurs in the following fiscal year The following was resolved by the Board of Directors on May 11, 2016. Dividends for common stock Total dividends Source of dividends Dividend per share Date of record Payment date ¥13,968 million (US$124,028 thousand) Retained earnings ¥10.00 (US$0.09) March 31, 2016 June 6, 2016 For the year ended March 31, 2015 (a) Class and total number of issued and outstanding shares and treasury stock Issued and outstanding shares Common stock Total Treasury stock Common stock (Notes 1 & 2) Total Number of shares as of March 31, 2014 Increase in number of shares during the fiscal year Decrease in number of shares during the fiscal year Number of shares as of March 31, 2015 Thousands of shares 1,402,616 1,402,616 5,231 5,231 — — 522 522 — — 10 10 1,402,616 1,402,616 5,743 5,743 Notes: 1. The increase of 522 thousand shares in common stock of treasury stock was due to the purchase of shares in quantities of less than one share unit. 2. The decrease of 10 thousand shares in common stock of treasury stock was due to the sale of shares in quantities of less than one share unit. (b) Dividends i) Cash dividends paid 1) The following was resolved by the Board of Directors on May 9, 2014. Dividends for common stock Total dividends Dividend per share Date of record Payment date * Including ¥8.00 ordinary dividend and ¥2.00 special dividend ¥13,974 million ¥10.00* March 31, 2014 June 5, 2014 2) The following was resolved by the Board of Directors on November 5, 2014. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥12,573 million ¥9.00 September 30, 2014 December 1, 2014 ii) Dividends for which the date of record falls within the fiscal year under review but the payment date occurs in the following fiscal year The following was resolved by the Board of Directors on May 12, 2015. Dividends for common stock Total dividends Source of dividends Dividend per share Date of record Payment date ¥13,969 million Retained earnings ¥10.00 March 31, 2015 June 4, 2015 88 Asahi Kasei Report 2016 8. Notes to Consolidated Statements of Cash Flows (a) Cash and cash equivalents Reconciliation of cash and cash equivalents on the consolidated statements of cash flows to the amounts disclosed on the consolidated balance sheets at March 31, 2016 and 2015, was as follows: Cash and deposits Time deposits with deposit term of over 3 months Money market funds included in short-term investment securities Cash and cash equivalents Millions of yen Thousands of U.S. dollars 2016 ¥146,054 (2,281) 1,534 ¥145,307 2015 ¥123,821 (13,326) 1,802 ¥112,297 2016 $1,296,874 (20,254) 13,621 $1,290,242 (b) Assets and liabilities of newly consolidated subsidiaries through acquisition of shares Assets and liabilities of acquired companies (Polypore International, LP and its 22 consolidated subsidiaries) and net cash outflow for such acquisition is as follows: Current assets Noncurrent assets Goodwill Current liabilities Noncurrent liabilities Non-controlling interests Acquisition cost of shares Cash and cash equivalents Net cash used for acquisition Millions of yen Thousands of U.S. dollars ¥ 42,963 140,091 183,553 (56,555) (99,826) (184) 210,043 (20,759) 189,284 $ 381,486 1,243,926 1,629,844 (502,175) (886,397) (1,634) 1,865,059 (184,328) 1,680,732 Assets and liabilities of acquired company (Kyma Medical Technologies Ltd.) and net cash outflow for such acquisition is as follows: Current assets Noncurrent assets Goodwill Current liabilities Noncurrent liabilities Acquisition cost of shares Account payables included in the acquisition price Cash and cash equivalents Net cash used for acquisition 9. Leases (a) Financing lease transactions Financing lease transactions without title transfer Millions of yen Thousands of U.S. dollars ¥ 185 1,313 3,406 (33) (241) 4,631 (63) (170) 4,397 $ 1,643 11,659 30,243 (293) (2,140) 41,121 (559) (1,510) 39,043 i) Components of lease assets are as follows: 1) Property, plant and equipment: Mainly model homes (buildings and structures) for housing business. 2) Intangible fixed assets: Software ii) Depreciation of lease assets: As stated in Note 2 “Significant accounting policies (c) Noncurrent assets and depreciation/amortization,” the financing lease transactions without title transfer which occurred prior to March 31, 2008, are accounted for on a basis similar to an operating lease. For such leases, information for the cost and related accumulated amortization, computed using the straight-line method over the term of the lease assuming such lease transactions accounted for as an operating lease had been accounted for as a financing lease, is required to be disclosed. However, such disclosure is omitted due to immateriality. (b) Operating lease transactions Future lease payments for the non-cancelable portion of the Company’s operating leases at March 31, 2016 and 2015, were as follows: Due within one year Due after one year Total Millions of yen Thousands of U.S. dollars 2016 ¥ 5,414 5,255 ¥10,668 2015 ¥ 4,986 7,313 ¥12,300 2016 $48,073 46,661 $94,726 Asahi Kasei Report 2016 89 10. Financial instruments (a) Overview of financial instruments i) Policy related to financial instruments The Company raises long-term funds as required mainly for its planned capital expenditures by borrowing from banks, borrowing from life insurance companies, issuing bonds, etc. A portion of the surplus funds is invested only in highly stable financial assets. Short-term working funds are raised by bank borrowings, issuance of commercial paper, etc. Derivative transactions are mainly entered into for the purpose of reducing risks related to assets and liabilities which are exposed to risks of fluctuations of exchange rate and interest rate. Derivatives are not traded for speculative purposes. ii) Components of financial instruments, their risks and risk management structure As operating receivables, notes and accounts receivable—trade are exposed to credit risk of customers. As the business of the Company spans a wide range of fields, operating receivables are not excessively concentrated on specific customers, but the parent company and each consolidated subsidiary monitor and manage the credit condition of each customer. Investment securities are exposed to the risk of fluctuations in market price, but they are mainly equity securities of companies with which the Company has business relationships. These securities are held for the purpose of maintaining the business relationships. Fair value is periodically evaluated, and the financial condition of the issuing company is monitored. As operating liabilities, notes and accounts payable—trade generally have a payment term of 1 year or less. Variable interest-rate borrowings are exposed to the risk of interest-rate fluctuations, but derivatives (interest-rate and currency swaps, interest-rate swaps) are used as hedges to fix interest expenses for a portion of long-term variable interest-rate borrowings. Operating receivables and operating liabilities include those denominated in currencies other than Japanese yen, and are thus exposed to the risk of exchange-rate fluctuations. In order to minimize the effects of short-term exchange-rate fluctuations, the Company hedges with derivative transactions (forward exchange contracts), in principle, within the range of the underlying receivables and liabilities amount. Derivative transactions are exposed to the credit risk of transacting financial institutions, but the credit condition of those financial institutions is reviewed through periodical monitoring. Such transactions are performed and managed in accordance with the Company’s internal regulations which stipulate the related authority, procedures, limits, etc. Borrowings are exposed to liquidity risk, but the parent company specifies standards for required on-hand funds based on the Company’s funding plans, prepares and revises plans for cash receipts and disbursements as appropriate, and enters into commitment-line agreements with transacting financial institutions to manage such risk. Loan securitization in the housing business is exposed to the risk of interest-rate fluctuations between the time of origination of housing loans and the time of execution of their securitization, but derivative transactions (interest-rate swaps) are entered into in order to reduce such risk. iii) Supplementary explanation of fair value of financial instruments The fair value of financial instruments is based on their quoted market price, if available. In the case where no quoted market price is available, a reasonably estimated fair value is used. As variable factors are incorporated in its estimation, fair value may change due to the adoption of different assumptions, condi- tions, etc. The stated amount of contracts regarding derivative transactions included in Note 12 “Derivative financial instruments” is not itself an indication of the market risk of the derivative transactions. (b) Fair value of financial instruments Amounts carried on the consolidated balance sheets, their fair values, and the differences between them as of March 31, 2016 and 2015, were as shown below. Financial instruments whose fair values are deemed extremely difficult to determine are not included in this table (See Notes 2) and 3) below). Millions of yen 2016 Fair value ¥146,054 Difference ¥ — 278,396 — Carrying amount ¥146,054 280,095 (1,699) 278,396 10,890 183,672 16,607 ¥635,618 ¥126,653 273,418 32,735 40,000 134,801 1,456 8,032 ¥617,096 ¥ 354 5,985 183,672 16,604 ¥630,711 ¥126,653 273,418 32,735 40,650 137,008 1,465 8,088 ¥620,017 ¥ 354 (4,905) — (3) ¥(4,908) ¥ — — — (650) (2,207) (9) (55) ¥(2,921) ¥ — Cash and deposits Notes and accounts receivable—trade Allowance for doubtful accounts (*1) Short-term investment securities and investment securities Investments in affiliates Other securities Long-term loans receivable Total assets Notes and accounts payable—trade Short-term loans payable Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposits Total liabilities Derivative financial instruments (*2) 90 Asahi Kasei Report 2016 Cash and deposits Notes and accounts receivable—trade Allowance for doubtful accounts (*1) Short-term investment securities and investment securities Investment in affiliates Other securities Long-term loans receivable Total assets Notes and accounts payable—trade Short-term loans payable Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposits Total liabilities Derivative financial instruments (*2) Cash and deposits Notes and accounts receivable—trade Allowance for doubtful accounts (*1) Short-term investment securities and investment securities Investment in affiliates Other securities Long-term loans receivable Total assets Notes and accounts payable—trade Short-term loans payable Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposits Total liabilities Derivative financial instruments (*2) Millions of yen 2015 Fair value ¥123,821 Difference ¥ — 324,199 — 7,562 215,200 10,751 ¥681,533 ¥151,867 62,648 10,203 41,190 165,733 2,605 6,925 ¥441,171 ¥ (2,356) Thousands of U.S. dollars 2016 Fair value $1,296,874 (3,659) — (8) ¥(3,667) ¥ — — — (1,190) (1,966) (2) 12 ¥(3,146) ¥ — Difference $ — 2,471,994 — 53,143 1,630,900 147,434 $5,600,346 $1,124,605 2,427,793 290,668 360,948 1,216,551 13,008 71,817 $5,505,390 $ 3,143 (43,554) — (27) $(43,580) $ — — — (5,772) (19,597) (80) (488) $(25,937) $ — Carrying amount ¥123,821 325,568 (1,369) 324,199 11,221 215,200 10,758 ¥685,200 ¥151,867 62,648 10,203 40,000 163,767 2,603 6,937 ¥438,025 ¥ (2,356) Carrying amount $1,296,874 2,487,080 (15,086) 2,471,994 96,697 1,630,900 147,460 $5,643,918 $1,124,605 2,427,793 290,668 355,177 1,196,954 12,928 71,319 $5,479,453 $ 3,143 (*1) This reduction represents specific allowance for doubtful accounts related to notes and accounts receivable—trade. (*2) The amounts represent net amount of assets and liabilities resulting from derivative transac- tions. In the case of a net liability, the amount is shown in parentheses. Note 1) Method to determine the estimated fair value of financial instruments; securities and ii) Liabilities 1) Notes and Accounts payable—trade; short-term loans payable; commercial paper; income taxes payable As their fair values approximate book value due to their short maturity, the corresponding book value amounts are used as fair value. derivative financial instruments i) Assets 1) Cash and deposits, notes and accounts receivable—trade As their fair value approximates book value due to their short maturity, the corresponding book value amount is used as fair value. 2) Short-term investment securities and investment securities The stock exchange prices are used to determine fair value of traded stocks, and the correspond- ing book value amount is used as fair value of money market funds, because their fair value approximates book value. Refer to Note 11 “Marketable securities and investment securities” for information on securities classified by holding purpose. 3) Long-term loans receivable The carrying amounts shown include long-term loans receivable scheduled for repayment within one year. Their fair values are determined based on the present value of principal and interest, discounted using current assumed rates for similar long-term loans receivable. For long-term loans receivable bearing variable interest rates, as they are deemed to reflect market interest rates within a short term, book values are used as fair value. 2) Bonds payable Fair value of the bonds payable issued by the parent company is based on the quoted market price if available. For those without a quoted market price that are subject to special treatment for interest-rate swaps, fair value is based on the present value by totaling the amount of principal and interest, together with related interest-rate swaps, discounted by the interest rate that would apply if equivalent bonds were newly issued. 3) Long-term loans payable The carrying amounts shown include long-term loans payable that are scheduled for repayment within one year of March 31, 2016 and 2015, amounting to ¥40,169 million (US$356,677 thou- sand) and ¥33,367 million, respectively. Their fair values are based on present value of principal and interest discounted using the current assumed rates for similar long-term loans payable. For long-term loans payable bearing variable interest rates, fair value of those subject to special treatment of interest rate-swaps is based on present value by totaling the amount of principal and interest, together with related interest-rate swaps, discounted by the interest rate that would apply if equivalent long-term loans were newly entered. For other long-term loans payable, book value is used as fair value as they are deemed to reflect market interest rates within a short term. Asahi Kasei Report 2016 91 4) Lease obligations The carrying amounts shown are the total amount of lease obligations under current liabilities and lease obligations under noncurrent liabilities. Present value, calculated by discounting the total amount of principal and interest using the presumed interest rate that would apply if lease transactions were newly made, is used as the fair value. 5) Long-term guarantee deposits In cases where the deposit period can be estimated, the fair value of long-term guarantee deposits is determined using a discounted cash flow over that period. iii) Derivative transactions Refer to Note 12 “Derivative financial instruments.” Note 2) For equity investments in nonpublic companies, with a carrying amount as of March 31, 2016 and 2015, amounting to ¥48,453 million (US$430,233 thousand) and ¥61,594 million, respectively, fair value is not included in short-term investment securities and investment securities, as no quoted market price is available and it is deemed extremely difficult to determine fair value due to the impossibility of estimating future cash flows. Note 3) For investment securities, with a carrying amount as of March 31, 2016 and 2015, amount- ing to ¥3,117 million (US$27,677 thousand) and ¥3,180 million, respectively, fair value is not included in short-term investment securities and investment securities, as no quoted market price is available and it is deemed extremely difficult to determine fair value due to the impossibility of estimating future cash flows. Note 4) For long-term guarantee deposits, the fair value of a portion having a carrying amount as of March 31, 2016 and 2015, amounting to ¥12,098 million (US$107,423 thousand) and ¥12,209 million, respectively, is not included as no quoted market price is available and it is deemed extremely difficult to determine fair value due to the impossibility of estimating future cash flows. Note 5) For monetary credits and securities with maturity, the amounts scheduled for redemption subsequent to the closing date are as follows: Cash and deposits Notes and accounts receivable—trade Long-term loans receivable Total Cash and deposits Notes and accounts receivable—trade Long-term loans receivable Total Cash and deposits Notes and accounts receivable—trade Long-term loans receivable Total Millions of yen 2016 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years ¥146,054 280,095 254 ¥426,402 ¥ — — 16,353 ¥16,353 ¥— — — ¥— ¥— — — ¥— Millions of yen 2015 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years ¥123,821 325,568 806 ¥450,196 ¥ — — 9,952 ¥9,952 ¥— — — ¥— ¥— — — ¥— Thousands of U.S. dollars 2016 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years $1,296,874 2,487,080 2,255 $3,786,201 $ — — 145,205 $145,205 $— — — $— $— — — $— Note 6) For bonds payable, long-term loans payable, lease obligations, and other interest-bearing debt, the amounts scheduled for repayment subsequent to the closing date are as follows. Short-term loans payable Bonds payable ¥273,418 — — — — — ¥ — 20,000 — 20,000 — — Short-term loans payable Bonds payable ¥62,648 — — — — — ¥ — — 20,000 — 20,000 — Millions of yen 2016 Long-term loans payable ¥40,169 18,941 49,616 12,028 4,436 9,611 Millions of yen 2015 Long-term loans payable ¥33,367 41,046 20,566 49,468 11,208 8,112 Lease obligations Total ¥919 280 118 83 55 1 Lease obligations ¥1,383 908 227 59 22 2 ¥314,506 39,221 49,734 32,111 4,491 9,612 Total ¥97,398 41,954 40,793 49,527 31,230 8,114 Year ending March 31 2017 2018 2019 2020 2021 2022 and thereafter Year ending March 31 2016 2017 2018 2019 2020 2021 and thereafter 92 Asahi Kasei Report 2016 Year ending March 31 2017 2018 2019 2020 2021 2022 and thereafter Short-term loans payable Bonds payable $2,427,793 — — — — — $ — 177,588 — 177,588 — — Thousands of U.S. dollars 2016 Long-term loans payable $356,677 168,185 440,561 106,802 39,389 85,340 Lease obligations Total $8,160 2,486 1,048 737 488 9 $2,792,630 348,260 441,609 285,127 39,877 85,349 11. Marketable securities and investment securities (a) Other securities with available fair value The aggregate cost, carrying amount which was identical to fair value, and gross unrealized gains and losses of debt and equity securities classified as other securities for which fair values were available at March 31, 2016 and 2015, were as follows: Securities with unrealized gains: Equity securities Others Subtotal Securities with unrealized losses: Equity securities Others Subtotal Total Securities with unrealized gains: Equity securities Others Subtotal Securities with unrealized losses: Equity securities Others Subtotal Total Securities with unrealized gains: Equity securities Others Subtotal Securities with unrealized losses: Equity securities Others Subtotal Total Millions of yen 2016 Cost ¥36,960 — 36,960 12,439 1,534 13,973 ¥50,934 Millions of yen 2015 Cost ¥39,063 — 39,063 7,060 1,802 8,862 ¥47,925 Thousands of U.S. dollars 2016 Cost $328,183 — 328,183 110,451 13,621 124,072 $452,264 Unrealized gains (losses) ¥135,107 — 135,107 (2,369) — (2,369) ¥132,738 Unrealized gains (losses) ¥167,450 — 167,450 (176) — (176) ¥167,274 Unrealized gains (losses) $1,199,671 — 1,199,671 (21,035) — (21,035) $1,178,636 Carrying amount ¥172,068 — 172,068 10,070 1,534 11,604 ¥183,672 Carrying amount ¥206,513 — 206,513 6,884 1,802 8,686 ¥215,200 Carrying amount $1,527,864 — 1,527,864 89,416 13,621 103,037 $1,630,900 Asahi Kasei Report 2016 93 (b) Realized gains and losses on the sale of other securities The realized gains and losses on the sale of other securities during the years ended March 31, 2016 and 2015, were as follows: Selling amount Gain on sales of securities Loss on sales of securities Millions of yen Thousands of U.S. dollars 2016 ¥10,396 8,275 — 2015 ¥3,005 2,756 — 2016 $92,310 73,477 — (c) Loss on other devaluation of investment securities whose fair values are readily determinable Loss on other devaluation of investment securities whose fair values are readily determinable for the year ended March 31, 2016, was ¥924 million (US$8,205 thousand), which is the sum of ¥796 million (US$7,068 thousand) for equity securities of unconsolidated subsidiaries and affiliates, and ¥127 million (US$1,128 thousand) for other securities, and for the year ended March 31, 2015, ¥1,656 million, which is the sum of ¥1,649 million for equity securities of unconsolidated subsidiaries and affiliates, and ¥7 million for other securities. Among the loss on other devaluation of investment securities for the year ended March 31, 2016, ¥561 million (US$4,981 thousand) was recorded under business structure improvement expenses. 12. Derivative financial instruments (a) Derivative financial instruments for which hedge accounting is not applied i) Foreign exchange forward contracts Classification Items Amount of contract Off-market transactions Foreign exchange forward contracts Millions of yen 2016 Amount of contract over 1 year Fair value Profit (loss) from valuation Selling U.S. dollar Euro Thai baht Singapore dollar Buying U.S. dollar Euro Thai baht Total ¥21,694 6,137 1,115 396 2,679 0 9 ¥32,030 ¥ — — — — 728 — — ¥728 ¥ 698 16 (0) 40 (148) (0) (0) ¥ 605 ¥ 698 16 (0) 40 (148) (0) (0) ¥ 605 Classification Items Amount of contract Off-market transactions Foreign exchange forward contracts Millions of yen 2015 Amount of contract over 1 year Fair value Profit (loss) from valuation Selling U.S. dollar Euro Thai baht Singapore dollar Buying U.S. dollar Euro Thai baht Total ¥21,592 6,486 988 — 2,672 — — ¥31,738 ¥ — — — — 260 — — ¥260 ¥(332) 135 (27) — (263) — — ¥(486) ¥(332) 135 (27) — (263) — — ¥(486) 94 Asahi Kasei Report 2016 Classification Items Amount of contract Off-market transactions Foreign exchange forward contracts Thousands of U.S. dollars 2016 Amount of contract over 1 year Fair value Profit (loss) from valuation Selling U.S. dollar Euro Thai baht Singapore dollar Buying U.S. dollar Euro Thai baht Total $192,630 54,493 9,901 3,516 23,788 0 80 $284,408 $ — — — — 6,464 — — $6,464 $ 6,198 142 (0) 355 (1,314) (0) (0) $ 5,372 (b) Derivative financial instruments for which hedge accounting is applied i) Foreign exchange forward contracts Classification Items Hedged assets/liabilities Amount of contract Principle-based accounting Foreign exchange forward contracts Millions of yen 2016 Amount of contract over 1 year Selling U.S. dollar Euro Singapore dollar Buying U.S. dollar Euro Thai baht Singapore dollar U.S. dollar Total Accounts receivable—trade Accounts receivable—trade Accounts receivable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade Investment securities ¥2,953 111 289 2,018 21 177 29 — ¥5,596 ¥— — — — — — — — ¥— Classification Items Hedged assets/liabilities Amount of contract Principle-based accounting Foreign exchange forward contracts Millions of yen 2015 Amount of contract over 1 year Selling U.S. dollar Euro Buying U.S. dollar Thai baht U.S. dollar Total Accounts receivable—trade Accounts receivable—trade Accounts payable—trade Accounts payable—trade Investment securities ¥ 2,039 — 1,791 55 195,205 ¥199,089 ¥— — — — — ¥— $ 6,198 142 (0) 355 (1,314) (0) (0) $ 5,372 Fair value ¥(170) (2) (12) (62) (0) (6) 1 — ¥(251) Fair value ¥ 43 — 79 2 (1,995) ¥(1,870) Asahi Kasei Report 2016 95 Classification Items Hedged assets/liabilities Amount of contract Principle-based accounting Foreign exchange forward contracts Thousands of U.S. dollars 2016 Amount of contract over 1 year Selling U.S. dollar Euro Singapore dollar Buying U.S. dollar Euro Thai baht Singapore dollar U.S. dollar Total Accounts receivable—trade Accounts receivable—trade Accounts receivable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade Investment securities $26,221 986 2,566 17,919 186 1,572 258 — $49,689 $— — — — — — — — $— ii) Interest-rate swaps, and interest-rate and currency swaps Classification Items Hedged assets/liabilities Amount of contract Millions of yen 2016 Amount of contract over 1 year Special treatment for interest-rate swaps Special treatment for interest-rate and currency swaps Interest-rate swaps Pay fixed/receive floating Interest-rate and currency swaps U.S. dollar receive floating/ Thai baht pay fixed Total Long-term loans payable ¥76,871 ¥64,084 Long-term loans payable 477 ¥77,349 318 ¥64,403 Millions of yen Fair value $(1,510) (18) (107) (551) (0) (53) 9 — $(2,229) Fair value (*) (*) ¥— Classification Items Hedged assets/liabilities Amount of contract 2015 Amount of contract over 1 year Fair value Special treatment for interest-rate swaps Special treatment for interest-rate and currency swaps Interest-rate swaps Pay fixed/receive floating Interest-rate and currency swaps U.S. dollar receive floating/ Thai baht pay fixed Total Long-term loans payable ¥90,425 ¥77,122 Long-term loans payable — ¥90,425 — ¥77,122 Classification Items Hedged assets/liabilities Amount of contract Thousands of U.S. dollars 2016 Amount of contract over 1 year Special treatment for interest-rate swaps Special treatment for interest-rate and currency swaps Interest-rate swaps Pay fixed/receive floating Interest-rate and currency swaps U.S. dollar receive floating/ Thai baht pay fixed Total Long-term loans payable $682,570 $569,029 Long-term loans payable 4,235 $686,814 2,824 $571,861 (*) — ¥— Fair value (*) — $— (*) Fair value of interest-rate swaps and interest-rate and currency swaps, for which special treatment is applied, is included in fair value of the corresponding long-term loans payable for which hedge account- ing is applied. 96 Asahi Kasei Report 2016 13. Provision for retirement benefits Upon terminating employment, employees of the parent company and its major subsidiaries in Japan are entitled, under most circumstances, to lump-sum severance indemnities and/or pension payments determined by reference mainly to their current basic rate of pay and length of service. Additional benefits may be granted to employees depending on the conditions under which termination of employment occurs. Certain foreign subsidiaries have defined benefit pension plans or defined contribution plans. The obligation for these severance indemnity benefits is provided for through accruals, contributory funded defined benefit pension plans, contributory funded defined benefit enterprise pension plans, and non-contributory funded tax-qualified pension plans. Certain consolidated subsidiaries adopt the simplified method in calculating expected defined benefit liability. Reconciliations of beginning and ending balances of projected benefit obligations for the fiscal years ended March 31, 2016 and 2015, were as follows: Millions of yen Thousands of U.S. dollars Beginning balance of the projected benefit obligations Cumulative effect of changes in accounting polices Restated balance Service cost Interest cost Actuarial gains/losses Payment of retirement benefits Increase from changes in scope of consolidation Other Ending balance of the projected benefit obligations 2016 ¥352,813 — 352,813 13,604 3,439 44,020 (18,549) 3,101 160 ¥398,588 2015 ¥329,869 23,336 353,205 13,624 3,431 (191) (17,558) — 302 ¥352,813 2016 $3,132,774 — 3,132,774 120,796 30,536 390,872 (164,704) 27,535 1,421 $3,539,229 Reconciliations of beginning and ending balances of plan assets for the fiscal years ended March 31, 2016 and 2015, were as follows: Beginning balance of plan assets Expected return Actuarial gains/losses Contributions Payment of retirement benefits Other Ending balance of plan assets Millions of yen Thousands of U.S. dollars 2016 ¥213,707 5,311 (6,598) 10,200 (10,146) (186) ¥212,288 2015 ¥188,715 4,717 19,977 10,015 (9,915) 198 ¥213,707 2016 $1,897,594 47,159 (58,586) 90,570 (90,091) (1,652) $1,884,994 Reconciliations of ending balance of projected benefit obligations and the plan assets, and of net defined benefit liability and net defined benefit asset, as recorded in the consolidated balance sheet at March 31, 2016 and 2015, were as follows: Projected benefit obligations of funded plans Plan assets Subtotal Projected benefit obligations of unfunded plans Net of liability and asset that have been recorded in the consolidated balance sheet Net defined benefit liability Net defined benefit asset Net of liability and asset that have been recorded in the consolidated balance sheet Millions of yen Thousands of U.S. dollars 2016 ¥ 255,432 (212,288) 43,145 143,155 ¥ 186,300 ¥ 186,300 — ¥ 186,300 2015 ¥ 219,775 (213,707) 6,068 133,038 ¥ 139,106 ¥ 142,035 (2,929) ¥ 139,106 2016 $ 2,268,087 (1,884,994) 383,102 1,271,133 $ 1,654,235 $ 1,654,235 — $ 1,654,235 Periodic retirement benefit expenses for employees and the breakdown of items for the years ended March 31, 2016 and 2015, were as follows: Service cost (net of employee contributions) Interest cost Expected return on plan assets Amortization of actuarial gains/losses Amortization of prior service costs Additional retirement benefits and other Retirement benefit expenses of defined benefit plans Millions of yen Thousands of U.S. dollars 2016 ¥11,967 3,439 (5,311) 3,266 142 452 ¥13,956 2015 ¥12,037 3,431 (4,717) 5,375 142 992 ¥17,259 2016 $106,260 30,536 (47,159) 29,000 1,261 4,013 $123,921 Asahi Kasei Report 2016 97 The components of other comprehensive income on defined benefit plans for the fiscal years ended March 31, 2016 and 2015, were as follows: Prior service costs Actuarial gains/losses Total Millions of yen Thousands of U.S. dollars 2016 ¥ 142 (47,352) ¥(47,210) 2015 ¥ 142 25,543 ¥25,685 2016 $ 1,261 (420,458) $(419,197) Accumulated other comprehensive income on defined benefit plans at March 31, 2016 and 2015, was follows: Unrecognized prior service costs Unrecognized actuarial gains/losses Total Share by major classifications for plan assets at March 31, 2016 and 2015, was as follows: Millions of yen Thousands of U.S. dollars 2016 ¥ 361 58,468 ¥58,829 2015 ¥ 503 11,116 ¥11,619 2016 $ 3,205 519,162 $522,367 Bond Stock Alternative investments Life insurance Cash and deposits Other Total 2016 36% 21 16 14 10 3 100% 2015 43% 24 16 12 4 1 100% Note: Alternative investments include mainly investments in real estate and hedge funds. The current and future allocation of plan assets, and the current and future long-term rate of expected return from the variety of assets that make up the plan assets, are considered in determining the long-term rate of expected return on plan assets. Major actuarial assumptions at March 31, 2016 and 2015, were as follows: Discount rate The long-term rate of expected return on plan assets Expected rate of increase in salary 2016 Mainly 0.1% Mainly 2.5% 2.3–7.1% 2015 Mainly 0.9% Mainly 2.5% 2.3–7.3% Required payments to defined contribution plans at March 31, 2016, amounted to ¥1,416 million (US$12,573 thousand), and at March 31, 2015, amounted to ¥774 million. 98 Asahi Kasei Report 2016 14. Taxes Income taxes applicable to the parent company and subsidiaries in Japan include (1) corporation tax, (2) enterprise tax, and (3) inhabitants tax. Significant components of deferred tax assets and liabilities at March 31, 2016 and 2015, were as follows: Millions of yen Thousands of U.S. dollars 2016 2015 2016 Deferred tax assets: Net defined benefit liability Tax loss carry forwards Accrued bonuses Foreign tax credit carry forwards Impairment losses Loss on disposal of noncurrent assets Unrealized gain on noncurrent assets and others Depreciation Accrued enterprise tax Unrealized loss on investment securities Provision for periodic repairs Provision for product warranties Devaluation of inventories Allowance for doubtful accounts Asset retirement obligations Environmental expenses Experiment and research expenses Deferred gains or losses on hedges Other Subtotal deferred tax assets Less: Valuation allowance Total deferred tax assets Deferred tax liabilities: Identified intangible assets during business combination Unrealized gain on other securities Depreciation—overseas subsidiaries Deferred gain on property, plant and equipment Accelerated depreciation Other Total deferred tax liabilities Net deferred tax assets (liabilities) ¥ 57,150 8,105 7,682 5,319 4,332 4,198 4,004 2,696 2,074 2,073 1,283 1,168 1,057 821 813 238 198 19 9,742 112,969 (16,294) 96,676 (53,707) (42,075) (13,158) (9,037) (137) (5,382) (123,496) ¥ (26,820) ¥ 44,782 15,474 8,125 189 4,180 4,071 4,481 2,968 1,537 2,553 1,198 1,261 1,217 758 918 313 115 678 10,934 105,753 (19,314) 86,439 (34,704) (55,582) (5,149) (9,406) (203) (6,287) (111,330) ¥ (24,891) $ 507,459 71,968 68,212 47,230 38,466 37,276 35,553 23,939 18,416 18,407 11,392 10,371 9,386 7,290 7,219 2,113 1,758 169 86,503 1,003,099 (144,681) 858,427 (476,887) (373,601) (116,835) (80,243) (1,216) (47,789) (1,096,573) $ (238,146) Net deferred tax assets (liabilities) at March 31, 2016 and 2015, were included in the following line items on the consolidated balance sheets. Current assets—deferred tax assets Noncurrent assets—deferred tax assets Current liabilities—other Noncurrent liabilities—deferred tax liabilities Millions of yen Thousands of U.S. dollars 2016 ¥ 18,133 20,098 (120) (64,930) 2015 ¥ 21,707 11,351 (7) (57,943) 2016 $ 161,010 178,459 (1,066) (576,541) In the fiscal year ended March 31, 2016, the foreign tax credit carry forwards, which had previously been included in other, are reported separately due to their materiality. The figure shown as other for the fiscal year ended March 31, 2015, has been restated accordingly. Asahi Kasei Report 2016 99 Reconciliation of the differences between the statutory tax rate and the effective income tax rate for the years ended March 31, 2016 and 2015, was as follows: Statutory tax rate Increase (reduction) in taxes resulting from: Non-deductible expenses and non-taxable income Equalization of inhabitants taxes R&D expenses deductible from income taxes Amortization of goodwill and negative goodwill Equity in earnings (losses) of unconsolidated subsidiaries and affiliates Undistributed earnings of foreign subsidiaries Difference of tax rates for foreign subsidiaries Valuation allowance Decrease in deferred tax assets due to the change in statutory tax rate Other Effective income tax rate 2016 33.1% 1.1 0.3 (4.6) 3.5 0.2 (0.1) (1.0) 0.7 1.9 1.1 36.2% 2015 35.6% 0.7 0.3 (4.2) 2.1 (0.4) 0.4 (2.7) (1.6) 3.2 (0.8) 32.5% The “Act for partial Revision of the Income Tax Act etc.” (Act No. 15 of 2016) and “Act for Partial Revision of the Local Tax Act, etc.” (Act No. 13 of 2016) were issued on March 29, 2016, and applied from the fiscal year beginning on or after April 1, 2016. In accordance with this change, the statutory effective tax rate applied in calculating deferred tax assets and liabilities was changed from 32.3% to the tax rate as follows depending on the expected timing of reversal for each temporary difference: Expected timing of reversal April 1, 2016, through March 31, 2018 April 1, 2018, onward As a result of this change, deferred tax assets (after netting deferred tax liabilities) decreased by ¥1,114 million (US$9,892 thousand), income taxes— Tax rate 30.9% 30.6% deferred increased by ¥2,687 million (US$23,859 thousand), net unrealized gain on other securities increased by ¥2,265 million (US$20,111 thousand), deferred gains or losses on hedges increased by ¥2 million (US$18 thousand), and remeasurements of defined benefit plans increased by ¥694 million (US$6,162 thousand) in the consolidated financial statements for the fiscal year ended March 31, 2016. 15. Business combinations Business combinations accounted for by the purchase method were as follows: 1. Polypore International, Inc. (a) Outline of business combination i) Name of counterparty Polypore International, Inc. ii) Nature of the businesses Development, manufacture, and sale of polymer membranes iii) Main reasons for the acquisition a. To develop more innovative products for use in various fields in the battery separator business which can expect further growth through joint R&D, mutual technology provision, etc. between the Company and Polypore International, Inc. b. To further accelerate the globalization of the Company’s Hipore™ business by utilizing global product supply and marketing network of Polypore International, Inc. c. To enter the lead-acid battery separator business which can provide long-term stable earnings contribution by supplying Daramic™ brand products of Polypore International, Inc. Also, to enable the provision of a broader range of products and technologies in the lithium-ion battery separator business where future growth is expected, including in automotive applications, by supplying Celgard™ brand products. iv) The acquisition date August 26, 2015 v) Statutory form of business combination Transfer of shares for cash as consideration vi) Name of company after transaction Polypore International, LP (Changed on March 31, 2016, due to conversion to limited partnership) vii) Acquired voting right Voting right before the acquisition Voting right after the acquisition 0% 100% viii) Basic means of materializing the acquisition Stock purchase for cash as consideration by a special purpose subsidiary of the Company. (b) The period of acquiree’s results included in the consolidated financial statements From August 26, 2015, to March 31, 2016 (c) Cost of acquisition and details Stock purchase price Purchase price Millions of yen Thousands of U.S. dollars ¥210,043 ¥210,043 $1,865,059 $1,865,059 (d) Major acquisition related costs Advisory fees and others ¥2,185 million (US$19,402 thousand) (e) The amount of goodwill, measurement principle, amortization method and useful life i) Amount of goodwill ¥183,553 million (US$1,629,844 thousand) ii) Measurement principle Goodwill is measured as the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. iii) Amortization method and useful life Straight-line method over 20 years (f) Details of assets acquired and liabilities assumed as of the acquisition date Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Millions of yen Thousands of U.S. dollars ¥ 42,963 140,091 ¥183,054 ¥ 56,555 99,826 ¥156,380 $ 381,486 1,243,926 $1,625,413 $ 502,175 886,397 $1,388,563 100 Asahi Kasei Report 2016 (g) Amount of identifiable intangible assets other than goodwill, its (e) The amount of goodwill, measurement principle, amortization details and major weighted average useful life method and useful life i) Purchase price allocated to intangible assets and its major items Millions of yen Thousands of U.S. dollars i) Amount of goodwill ¥3,406 million (US$30,243 thousand) ii) Measurement principle Goodwill is measured as the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. iii) Amortization method and useful life Straight-line method over 20 years (f) Details of assets acquired and liabilities assumed as of the acquisition date Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Millions of yen Thousands of U.S. dollars ¥ 185 1,313 ¥1,498 ¥ 33 241 ¥ 274 $ 1,643 11,659 $13,301 $ 293 2,140 $ 2,433 (g) Nature of contingent consideration stipulated in the share purchase agreement and its accounting treatment in the subsequent period i) Nature of contingent consideration The payment amount of contingent consideration depends on the degree of achievement of a specified performance metric after the acquisition date. ii) Accounting treatment in the subsequent period The Company will recognize the variable portion of contingent consider- ation in accordance with accounting standards generally accepted in the United States. (h) Amount of identifiable intangible assets other than goodwill, its details and major weighted average useful life i) Purchase price allocated to intangible assets and its major items Millions of yen Thousands of U.S. dollars In-process R&D ¥1,271 $11,286 ii) Major weighted average useful life In-process R&D 15 years (i) Pro forma effects on the consolidated statements of income assuming the business combination had occurred at the beginning of the fiscal year, and its measurement Information is omitted due to immateriality. This note is not audited. Customer-related assets Trademarks Technology-related assets In-process R&D ¥57,982 10,770 9,317 2,533 ii) Major weighted average useful life Customer-related assets Trademarks Technology-related assets In-process R&D Total $514,846 95,631 82,730 22,492 20 years 20 years 15 years 20 years 19 years (h) Pro forma effects on the consolidated statements of income assuming the business combination had occurred at the beginning of the fiscal year, and its measurement Information is omitted due to immateriality. This note is not audited. 2. Kyma Medical Technologies Ltd. (a) Outline of business combination i) Name of acquiree Kyma Medical Technologies Ltd. ii) Nature of the businesses Development of technology for monitoring of cardiac patients iii) Main reasons for the acquisition a. To add technology to measure early signs of congestive heart failure. b. To further enrich the remote cardiac monitoring technology of ZOLL Medical Corporation using the technology of Kyma Medical Technologies Ltd., with a future expectation that combination with technology of Kyma Medical Technologies Ltd. may enable perfor- mance enhancement of the LifeVest™ of ZOLL Medical Corporation. c. To use the marketing channels of ZOLL Medical Corporation to achieve greater market penetration of technology of Kyma Medical Technologies Ltd. iv) The acquisition date September 16, 2015 v) Statutory form of business combination Stock purchase for cash as consideration vi) Name of company after transaction Kyma Medical Technologies Ltd. vii) Acquired voting right Voting right before the acquisition Voting right after the acquisition 0% 100% viii) Basic means of materializing the acquisition Stock purchase for cash as consideration by a consolidated subsidiary of the Company. (b) The period of acquiree’s results included in the consolidated financial statements From September 16, 2015, to March 31, 2016 (c) Cost of acquisition and details Stock purchase price Purchase price Millions of yen Thousands of U.S. dollars ¥4,631 ¥4,631 $41,121 $41,121 Note: Stock purchase price includes ¥1,270 million (US$11,277 thousand) of contingent consider- ation (fair value). (d) Major acquisition related costs Advisory fees and others ¥117 million (US$1,039 thousand) Asahi Kasei Report 2016 101 16. Asset retirement obligations (a) Outline of asset retirement obligations Due to commitments pertaining to restoration to original state before vacating in accordance with land lease agreements such as for offices, and due to commitments to dismantle leased buildings upon termination of lease period, etc., in accordance with lease agreements for model home parks, relevant asset retirement obligations are recorded in the consolidated balance sheets. In accordance with building lease agreements such as for the head offices, commitments pertaining to restoration to original state before vacating are recognized as asset retirement obligations. However, instead of recording them as aforementioned asset retirement obligations under liabilities, the amount of lease deposit that cannot ultimately be expected to be collected was estimated in a reasonable manner, and of that, the amount corresponding to the fiscal year ended March 31, 2016, was recorded under operating expenses. (b) Method of calculating the amount of relevant asset retirement obligations The calculation of asset retirement obligations is based on the following: expected term of use of 4 to 55 years, inflation rate of 0.0% to 4.1%, and discount rate of 0.0% to 6.4%. (c) Increase (decrease) in the total amount of asset retirement obligations in the fiscal years ended March 31, 2016 and 2015 Balance at beginning of year Increase due to asset retirement obligations accrued Adjustment due to passage of time Increase due to accounting estimates* Decrease due to fulfillment of asset retirement obligations Increase (decrease) due to foreign exchange fluctuation Balance at end of year Millions of yen Thousands of U.S. dollars 2016 ¥4,039 200 133 — (193) (131) ¥4,047 2015 ¥4,050 332 123 18 (513) 29 ¥4,039 2016 $35,864 1,776 1,181 — (1,714) (1,163) $35,935 * Increase or decrease in asset retirement obligations was made as it became clear that the cost of asset retirement will be different than originally estimated at the time of asset acquisition. The amount of lease deposit which will be written off for a certain percentage at the end of the lease period is charged to expense rather than recorded under asset retirement obligations. Increase (decrease) in those expensed amounts for the fiscal years ended March 31, 2016 and 2015, were as follows: Balance at beginning of year Increase due to new lease agreements Decrease due to the cancelation of existing lease agreements Balance at end of year 17. Business segment information (a) Overview of reportable segments The Company’s business segments are based on organizational units for which separate financial information is available, and the Board of Directors carries out periodic review to allocate management resources and evaluate business performance. The Company is organized under a holding company configuration with core operating companies performing operations in four business fields. Each core operating company lays out strategy and develops busi- ness activities in Japan and abroad. The Company consists of four segments identified by business fields, including “Chemicals & Fibers,” “Homes & Construction Materials,” “Electronics,” and “Health Care.” Main products of the four reportable segments are as follows: Chemicals & Fibers segment Chemicals business The Company manufactures, processes, and sells petrochemical products (such as nitric acid, caustic soda, acrylonitrile, styrene, methyl methacrylate (MMA), acrylic resin, Suntec™ polyethylene, and polystyrene), performance polymer products (such as Stylac™-AS styrene-acrylonitrile, Stylac™-ABS acrylonitrile-butadiene-styrene, Tenac™ polyacetal, Xyron™ modified poly- phenylene ether (mPPE), adipic acid, Leona™ polyamide 66, and synthetic rubber), and specialty products (such as coating materials, latex, Ceolus™ microcrystalline cellulose, explosives, explosion-bonded metal clad, Microza™ UF and MF membranes and systems, ion-exchange membranes and electrolysis systems, Saran Wrap™ cling film, Ziploc™ storage bags, and plastic films, sheets, and foams). 102 Asahi Kasei Report 2016 Millions of yen Thousands of U.S. dollars 2016 ¥1,650 126 (43) ¥1,733 2015 ¥1,652 14 (17) ¥1,650 2016 $14,651 1,119 (382) $15,388 Fibers business The Company manufactures, processes, and sells Roica™ elastic polyure- thane filament, Bemberg™ cupro fiber, nonwoven fabrics (such as Eltas™ spunbond and Lamous™ artificial suede), and Leona™ nylon 66 filament. Homes & Construction Materials segment Homes business The Company constructs Hebel Haus™ unit homes and Hebel Maison™ apartments, and operates real estate businesses (such as management of Hebel Maison™ rental units, Atlas™ condominiums, Hebel Town™ housing developments, and brokerage of used Hebel Haus™ homes), remodeling businesses (such as exterior wall refurbishing, reroofing, redesign, interior renovation, and solar panel installation), and financial and other services (such as mortgage financing, etc.). Construction Materials business The Company manufactures and sells Hebel™ and Hebel Powerboard™ autoclaved aerated concrete (AAC) panels, Neoma™ and Jupii™ phenolic foam insulation panels, Eazet™, ATT Column™, and other piling systems, and BasePack™ column base attachment systems. Electronics segment Electronics business The Company manufactures and sells mixed-signal LSIs, Hall elements, Hipore™ and Celgard™ Li-ion battery separators, Daramic™ lead-acid battery separator, photomask pellicles, APR™ photosensitive resin and printing plate making systems, Pimel™ photosensitive polyimide precursor, Sunfort™ photosensitive dry film, and glass fabric for printed wiring boards. Health Care segment Health Care business The Company manufactures and sells pharmaceuticals (such as Teribone™, Recomodulin™, Elcitonin™, Flivas™, Toledomin™, and Bredinin™), Lucica™ GA-L assay kits, L-series enriched liquid diets, APS™ polysulfone-membrane artificial kidneys, therapeutic apheresis devices, Planova™ virus removal filters, and Sepacell™ leukocyte reduction filters. Critical Care business The Company manufactures and sells defibrillators for medical professionals, LifeVest™ wearable defibrillators, ZOLL AED Plus™ automated external defibril- lators, and IVTM—Thermogard XP™ intravascular temperature management systems. (b) Methods to determine net sales, income or loss, assets, and other items by reportable business segment Profit by reportable business segment is stated on an operating income basis. Intersegment net sales and transfers are based on the values of transactions undertaken between third parties. (c) Information concerning net sales, income or loss, assets, and other items for each reportable segment Millions of yen 2016 Sales: External customers Intersegment Total Operating income Assets Other items Depreciation (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets Chemicals & Fibers Homes & Construction Materials Electronics Health Care Subtotal Others (Note 1) Total ¥835,582 12,341 847,922 68,948 737,604 37,435 517 31,802 ¥632,418 53 632,472 71,000 449,289 ¥174,477 367 174,844 6,889 563,680 ¥285,404 48 285,452 36,235 474,265 ¥1,927,882 12,809 1,940,691 183,072 2,224,838 ¥13,032 23,728 36,761 553 62,613 ¥1,940,914 36,538 1,977,452 183,625 2,287,451 9,529 — 17,275 5,369 21,539 9,646 85,778 15,533 1,251 288 87,030 15,821 — 333 — 32,135 17,398 49,534 43,669 11,947 16,708 19,382 91,706 1,513 93,220 Notes: 1. The “Others” category includes plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. 2. Amortization of goodwill is not included. Chemicals & Fibers Homes & Construction Materials ¥954,623 18,216 972,838 64,624 810,787 35,655 484 46,243 ¥603,786 68 603,853 63,037 414,028 9,430 — — Millions of yen 2015 Electronics Health Care Subtotal Others (Note 1) Total ¥150,388 544 150,932 14,300 179,102 13,874 17 304 ¥257,133 41 257,174 30,845 501,990 20,104 8,555 ¥1,965,929 18,868 1,984,798 172,806 1,905,906 79,064 9,056 ¥20,476 22,283 42,760 949 62,874 1,094 264 — 46,547 17,013 ¥1,986,405 41,152 2,027,557 173,755 1,968,780 80,158 9,320 63,560 82,165 Sales: External customers Intersegment Total Operating income Assets Other items Depreciation (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets 41,718 10,864 11,600 16,595 80,776 1,389 Notes: 1. The “Others” category includes plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. 2. Amortization of goodwill is not included. Asahi Kasei Report 2016 103 Thousands of U.S. dollars 2016 Chemicals & Fibers $7,419,481 109,581 7,529,053 612,218 6,549,494 332,401 4,591 282,383 Homes & Construction Materials $5,615,503 471 5,615,983 630,439 3,989,425 Electronics Health Care Subtotal Others (Note 1) Total $1,549,254 3,259 1,552,513 61,170 5,005,150 $2,534,221 426 2,534,647 321,746 4,211,197 $17,118,469 113,736 17,232,206 1,625,573 19,755,265 $115,717 210,691 326,416 4,910 555,967 $17,234,186 324,436 17,558,622 1,630,483 20,311,232 84,612 — 153,392 47,674 191,254 85,651 761,659 137,924 11,108 2,557 772,776 140,481 — 2,957 — 285,340 154,484 439,833 387,755 106,082 148,357 172,101 814,296 13,435 827,739 Sales: External customers Intersegment Total Operating income Assets Other items Depreciation (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets Notes: 1. The “Others” category includes plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. 2. Amortization of goodwill is not included. (d) Reconciliation of differences between total amounts of reportable segments and amounts appearing in the consolidated financial statements (adjustment of difference) Sales Total of reporting segments Net sales in “Others” category Elimination of intersegment transactions Net sales on consolidated statements of income Operating income Total of reporting segments Operating income in “Others” category Elimination of intersegment transactions Corporate expenses, etc.* Operating income on consolidated statements of income Millions of yen Thousands of U.S. dollars 2016 ¥1,940,691 36,761 (36,538) ¥1,940,914 2015 ¥1,984,798 42,760 (41,152) ¥1,986,405 2016 $17,232,206 326,416 (324,436) $17,234,186 Millions of yen Thousands of U.S. dollars 2016 ¥183,072 553 170 (18,592) ¥165,203 2015 ¥172,806 949 1,087 (16,910) ¥157,933 2016 $1,625,573 4,910 1,510 (165,086) $1,466,906 * Corporate expenses, etc. include corporate revenue, basic research expense, and group management expense, etc. which are not allocated to reporting segments. Assets Total of reporting segments Assets in “Others” category Elimination of intersegment transactions Corporate assets* Total assets on consolidated balance sheets Millions of yen Thousands of U.S. dollars 2016 ¥2,224,838 62,613 (320,251) 244,529 ¥2,211,729 2015 ¥1,905,906 62,874 (249,428) 295,179 ¥2,014,531 2016 $19,755,265 555,967 (2,843,642) 2,171,275 $19,638,865 * Corporate assets include assets of the parent company—surplus operating funds (cash and deposits), long-term investment capital (investment securities, etc.), and land, etc. Total of reportable segments Others Adjustments (Note 1) Amounts from consolidated financial statements Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars 2016 ¥85,778 15,533 2015 ¥79,064 9,056 2016 $761,659 137,924 2016 ¥ 1,251 288 2015 ¥ 1,094 264 2016 $ 11,108 2,557 2016 ¥6,782 — 2015 ¥5,900 — 2016 $60,220 — 2016 ¥93,811 15,821 2015 ¥86,058 9,320 2016 $832,987 140,481 32,135 46,547 285,340 17,398 17,013 154,484 — — — 49,534 63,560 439,833 91,706 80,776 814,296 1,513 1,389 13,435 5,780 6,943 51,323 99,000 89,108 879,062 Other items Depreciation (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets Notes: 1. Adjustments include elimination of intersegment transactions and corporate expenses, etc. 2. Amortization of goodwill is not included. 104 Asahi Kasei Report 2016 (e) Related Information i) Information on products and services Please refer to (c) Information concerning net sales, income or loss, assets, and other items for each reportable segment. ii) Geographic information 1) Net sales Millions of yen 2016 2015 Thousands of U.S. dollars 2016 Japan China Other regions Total Japan China Other regions Total Japan China Other regions Total ¥1,261,203 ¥185,241 ¥494,470 ¥1,940,914 ¥1,313,128 ¥194,007 ¥479,271 ¥1,986,405 $11,198,748 $1,644,832 $4,390,606 $17,234,186 2) Property, plant and equipment. Millions of yen Thousands of U.S. dollars 2016 United States Other regions Japan Total Japan 2015 United States Other regions Total Japan 2016 United States Other regions Total ¥361,825 ¥91,425 ¥102,739 ¥555,989 ¥361,130 ¥30,814 ¥110,563 ¥502,507 $3,212,795 $811,801 $912,262 $4,936,858 (Change in presentation method) “United States” was included within “Other” in the fiscal year ended March 31, 2015, but from the fiscal year ended March 31, 2016 it has been presented as an independent category since the value of tangible fixed assets in the United States exceeded 10% of the tangible fixed assets on the consolidated balance sheets. Figures for the fiscal year ended March 31, 2015 have been restated accordingly. 3) Information by major customer Information by major customer is not shown because no customer accounts for 10% or more of net sales on the consolidated statements of income. 18. Information on related parties Related party transactions Transactions between consolidated subsidiaries of the company submitting the consolidated financial statements and related parties (a) Subsidiaries, affiliates, etc. of the company submitting the consolidated financial statements Type of related party Name of company Location Paid-in capital Business line Share of voting rights held by the company (of which, indirectly held) Relationship with the related party Nature of transaction Transaction amount An affiliated company PTT Asahi Chemical Co., Ltd. Rayong, Thailand 14,246 million Thai baht Chemicals 48.5% (48.5%) Debt guarantee Guarantee for completion of manufacturing facilities ¥11,989 million (US$106,455 thousand) in the year ended March 31, 2016, ¥16,250 million in the year ended March 31, 2015 — — Amount name Balance at end of year Asahi Kasei Report 2016 105 (b) Directors, Corporate Auditors, major shareholders, etc. of the company submitting the consolidated financial statements Type of related party Name of company Location Paid-in capital Business line Share of voting rights held by the company Relationship with the related party Nature of transaction Transaction amount Account recorded Balance at end of year Type of related party Name of company Location Paid-in capital Business line Share of voting rights held by the related party Relationship with the related party Nature of transaction Transaction amount Account recorded Balance at end of year A company in which close relative(s) of a Director or Corporate Auditor of the Company hold(s) a majority of voting rights Miwa-Syouji Co., Ltd. Nobeoka, Miyazaki, Japan ¥65 million (US$577 thousand) Wholesale trade 0.0% Purchasing consumable goods Purchasing consumable goods ¥225 million (US$1,998 thousand) in the year ended March 31, 2016, ¥228 million in the year ended March 31, 2015 Accrued expenses ¥23 million (US$204 thousand) in the year ended March 31, 2016, ¥43 million as of March 31, 2015 A company in which close relative(s) of a Director or Corporate Auditor of the Company hold(s) a majority of voting rights Miwa Vinyl Co., Ltd. Nobeoka, Miyazaki, Japan ¥10 million (US$89 thousand) Manufacture and sale of plastic packaging material 0.0% Purchasing consumable goods and raw materials Purchasing consumable goods and raw materials ¥45 million (US$400 thousand) in the year ended March 31, 2016, ¥49 million in the year ended March 31, 2015 Accrued expenses and notes and accounts payable—trade ¥3 million (US$27 thousand) in the year ended March 31, 2016, ¥2 million as of March 31, 2015 Notes: 1. Transaction amounts are shown net of consumption taxes, while balances at end of year include consumption taxes. 2. Transaction terms and the policy of deciding transaction terms: Ordinary transaction terms are applied to the purchase of products. 19. Per share information Basic and diluted net assets per share and net income per share for the years ended March 31, 2016 and 2015, were as follows: Basic net assets per share Basic net income per share (a) Basis for calculation of net assets per share Total net assets Amount deducted from total net assets of which, non-controlling interests Net assets allocated to capital stock Number of shares of capital stock outstanding at fiscal year end used in calculation of net assets per share (thousand) (b) Basis for calculation of net income per share Net income attributable to owners of the parent Amount not attributable to common stock shareholders Net income attributable to common stock owners of the parent Weighted-average number of shares of capital stock (thousand) Yen 2016 ¥745.94 ¥ 65.69 2015 ¥775.05 ¥ 75.62 U.S. dollars 2016 $6.62 $0.58 Millions of yen Thousands of U.S. dollars 2016 ¥1,057,399 15,498 (15,498) ¥1,041,901 2015 ¥1,097,722 15,068 (15,068) ¥1,082,654 2016 $ 9,389,087 137,613 (137,613) $ 9,251,474 1,396,755 1,396,873 12,402,371 Millions of yen Thousands of U.S. dollars 2016 ¥ 91,754 — ¥ 91,754 1,396,812 2015 ¥ 105,652 — ¥ 105,652 1,397,094 2015 $ 814,722 — $ 814,722 12,402,877 Notes: 1. As the Company had no dilutive securities at March 31, 2016 and 2015, the Company does not disclose diluted net income per share for the years ended March 31, 2016 and 2015. 2. As stated in Note 3. a, the revised accounting standards for business combination and consolidated financial statements are applied. As a result, basic EPS for the year ended March 31, 2016, decreased by ¥0.94 (US$0.008). 106 Asahi Kasei Report 2016 20. Subsequent events 1. Merger through absorption of subsidiaries On April 1, 2016, Asahi Kasei Chemicals Corp., Asahi Kasei Fibers Corp., and Asahi Kasei E-materials Corp., consolidated subsidiaries of the Company, were merged through absorption with the Company. (a) Outline of the transaction i) Name and nature of business of merging companies Surviving company Name Nature of business Absorbed companies Name Nature of business ii) Date of merger April 1, 2016 Asahi Kasei Corp. Diversified chemicals operations Asahi Kasei Chemicals Corp. Manufacture and sale of chemical products Asahi Kasei Fibers Corp. Manufacture and sale of fiber products Asahi Kasei E-materials Corp. Manufacture and sale of electronic materials iii) Statutory form of merger Absorption-type merger with Asahi Kasei Corp. as the surviving company iv) Name of surviving company Asahi Kasei Corp. v) Other items related to outline of the transaction With the start of the Asahi Kasei Group’s new medium-term management initiative in fiscal 2016, the operating portfolio was realigned into three busi- ness sectors of Material (currently the Chemicals & Fibers segment and the Electronics segment), Homes (currently the Homes & Construction Materials segment), and Health Care. Within each business sector, portfolio-based management will be thoroughly implemented with optimum allocation of management resources, and further growth will be pursued by creating synergy among the sectors. Together with this change, in order to obtain efficient management and mutual coordination within the Material business sector and achieve greater corporate value, the decision was made to merge Asahi Kasei Chemicals Corp., Asahi Kasei Fibers Corp., and Asahi Kasei E-materials Corp. with the Company. (b) Outline of the accounting treatment implemented The transaction was treated as a transaction under common control in accordance with the Accounting Standards Board of Japan (ASBJ) Statement No. 21 “Accounting Standard for Business Combinations” and ASBJ Guidance No. 10 “Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures.” 2. Change in segment classifications In the year ended March 31, 2016, the Company had four reportable segments of Chemicals & Fibers, Homes & Construction Materials, Electronics, and Health Care based on its four business sectors. Beginning with the year ending March 31, 2017, these are changed to the three reportable segments of Material, Homes, and Health Care based on three business sectors. Recalculated segment information concerning net sales and operating income for each reportable segment for the year ended March 31, 2016, based on the new segmentation is as follows: Reportable segments Millions of yen Material Homes Health Care Subtotal Others Total Adjustments Amounts from consolidated financial statements Sales: External customers Intersegment Total Operating income Sales: External customers Intersegment Total Operating income ¥1,004,438 3,761 1,008,198 79,209 ¥632,418 53 632,472 71,000 ¥285,404 48 285,452 36,235 ¥1,922,261 3,862 1,926,123 186,444 ¥18,653 41,854 60,508 3,781 ¥1,940,914 45,716 1,986,630 190,225 ¥ — (45,716) (45,716) (25,022) ¥1,940,914 — 1,940,914 165,203 Reportable segments Thousands of U.S. dollars Material Homes Health Care Subtotal Others Total Adjustments Amounts from consolidated financial statements $8,918,824 33,395 8,952,211 703,330 $5,615,503 471 5,615,983 630,439 $2,534,221 426 2,534,647 321,746 $17,068,558 34,292 17,102,850 1,655,514 $165,628 371,639 537,276 33,573 $17,234,186 405,931 17,640,117 1,689,087 $ — $17,234,186 — (405,931) 17,234,186 (405,931) 1,466,906 (222,181) Notes: The “Others” category includes electricity supply, plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. Asahi Kasei Report 2016 107 21. Borrowings (a) Bonds payable at March 31, 2016 and 2015, comprised the following: Unsecured 1.46% yen bonds due in 2019 Unsecured 0.30% yen bonds due in 2017 Total Notes: 1. The current portion of bonds payable is recorded under current liabilities on the consolidated balance sheets. 2. The aggregate annual maturities of long-term debt after March 31, 2016, are as follows: Year ending March 31 2017 2018 2019 2020 2021 2022 and thereafter Total Millions of yen Thousands of U.S. dollars 2016 ¥20,000 20,000 ¥40,000 2015 ¥20,000 20,000 ¥40,000 2016 $177,588 177,588 $355,177 Millions of yen Thousands of U.S. dollars ¥ — 20,000 — 20,000 — — ¥40,000 $ — 177,588 — 177,588 — — $355,177 (b) Loans payable at March 31, 2016 and 2015, comprised the following: Short-term loans payable with an interest rate of 0.36% Current portion of long-term loans payable with an interest rate of 0.77% Current portion of lease obligations with an interest rate of 1.40% Long-term loans payable (except portion due within one year) with an interest rate of 1.00% Lease obligations (except portion due within one year) with an interest rate of 1.82% Total Notes: 1. Interest rates shown are weighted average interest rates for the balance outstanding at March 31, 2016. Millions of yen Thousands of U.S. dollars 2016 ¥273,418 40,169 919 94,632 537 ¥409,675 2015 ¥ 62,648 33,367 1,383 130,400 1,219 ¥229,018 2016 $2,427,793 356,677 8,160 840,277 4,768 $3,637,675 2. The aggregate annual maturities of long-term loans payable and lease obligations (except portion due within one year) after March 31, 2017, are as follows: Year ending March 31 2018 2019 2020 2021 2022 and thereafter Long-term loans payable Lease obligations Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars ¥18,941 49,616 12,028 4,436 9,611 $168,185 440,561 106,802 39,389 85,340 ¥280 118 83 55 1 $2,486 1,048 737 488 9 108 Asahi Kasei Report 2016 Asahi Kasei Report 2016 109 Major Subsidiaries and Affiliates (As of April 1, 2016) Main products/business line Company Material Segment Packaging products and solutions Asahi Kasei Pax Corp.* Specialty chemicals Asahi Kasei Finechem Co., Ltd.* Cling film, other household products Asahi Kasei Home Products Corp.* Aluminum paste Asahi Kasei Metals Ltd.* Sale of civil engineering materials Asahi Kasei Geotechnologies Co., Ltd. Shotgun cartridges Asahi SKB Co., Ltd. Water treatment equipment, environmental chemicals Asahi Kasei Clean Chemical Co., Ltd. Processed plastic products Asahi Kasei Technoplus Co., Ltd.* Synthetic rubber Japan Elastomer Co., Ltd.* Polystyrene PS Japan Corp.* Biaxially oriented polystyrene sheet Sundic Inc. Silicone Wacker Asahikasei Silicone Co., Ltd. Industrial explosives Kayaku Japan Co., Ltd. Coloring and compounding of performance resin Asahi Kasei Plastics North America, Inc.* Compounded performance resin operations Asahikasei Plastics (America) Inc.* Sale of purging compound Sun Plastech Inc.* Acrylonitrile, sodium cyanide Tongsuh Petrochemical Corp., Ltd.* Sale of adipic acid Asahi Kasei Chemicals Korea Co., Ltd. High-performance HDI-based polyisocyanate Asahi Kasei Performance Chemicals Corp.* Polyacetal Asahi Kasei POM (Zhangjiagang) Co., Ltd.* Industrial filtration membranes and systems Asahi Kasei Microza (Hangzhou) Co., Ltd.* Sale of performance resin Asahikasei Plastics (Shanghai) Co., Ltd. Sale of performance resin Asahi Kasei Plastics (Guangzhou) Co., Ltd. Sale of performance resin Asahi Kasei Plastics (Hong Kong) Co., Ltd. Coloring and compounding of performance resin Asahikasei (Suzhou) Plastics Compound Co., Ltd. Synthetic rubber Asahi Kasei Synthetic Rubber Singapore Pte. Ltd.* Performance resin Asahi Kasei Plastics Singapore Pte. Ltd.* PPE powder Polyxylenol Singapore Pte. Ltd.* Coloring and compounding of performance resin Asahikasei Plastics (Thailand) Co., Ltd. Acrylonitrile, methyl methacrylate PTT Asahi Chemical Co., Ltd. Flash spun products DuPont-Asahi Flash Spun Products Co., Ltd. Spandex Hangzhou Asahikasei Spandex Co., Ltd.* Warp-knit spandex textiles Hangzhou Asahikasei Textiles Co., Ltd.* Spandex Formosa Asahi Spandex Co., Ltd. Promotion and marketing of fibers Asahi Kasei Fibers (HK) Ltd.* Spunbond nonwovens Asahi Kasei Spunbond (Thailand) Co., Ltd.* Spandex Thai Asahi Kasei Spandex Co., Ltd.* Spandex Asahi Kasei Spandex Europe GmbH* Sale of cupro cellulosic fiber and nonwovens Asahi Kasei Fibers Italia SRL* Epoxy resin Asahi Kasei Epoxy Co., Ltd.* LSIs Asahi Kasei Microsystems Co., Ltd.* Glass fabric Asahi-Schwebel Co., Ltd.* Hall elements Asahi Kasei Electronics Co., Ltd.* Fine pattern coils Asahi Kasei FP Corp.* Energy and electronic materials Asahi Kasei E-materials Korea Inc.* Sale of LSIs AKM Semiconductor, Inc.* Electronic devices marketing and technical support Asahi Kasei Microdevices Korea Corp. LSI design AKM Technology Corp. Electronic devices and printed wiring boards Asahi Kasei Technosystem Co., Ltd. Photosensitive dry film Asahi Kasei Electronics Materials (Suzhou) Co., Ltd.* Asahi Kasei Electronics Materials (Changshu) Co., Ltd.* Photosensitive dry film Asahi Kasei Microdevices (Shanghai) Co., Ltd. Electronic devices marketing and technical support Paid-in capital (million) Equity interest (%) 490 ¥ 325 ¥ 250 ¥ 250 ¥ 132 ¥ 100 ¥ 100 ¥ 160 ¥ 1,000 ¥ 5,000 ¥ 1,500 ¥ 1,050 ¥ 60 ¥ 21.7** US$ 31.9** US$ 1 US$ KRW 237,642 KRW 1,500 285 CNY 265 CNY 69 CNY 18 CNY 10 CNY 2.6 US$ 50 CNY 160 US$ 46 US$ 35 US$ 140 THB THB 14,246 450 ¥ 154 CNY 78 CNY 1,003 NT$ 65 HK$ 1,185 THB 1,350 THB 23.8** € 3 € 300 ¥ 50 ¥ 50 ¥ 50 ¥ ¥ 10 KRW 7,962 2.9 US$ 820 KRW 30 ¥ 40 ¥ 181 CNY 143 CNY 14 CNY 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.4 75.0 62.1 50.0 50.0 50.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 51.0 100.0 100.0 70.0 100.0 48.5 50.0 100.0 92.5 50.0 100.0 89.5 60.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 * Consolidated subsidiary ** Including capital reserve 110 Asahi Kasei Report 2016 Company Asahi Kasei Microdevices Taiwan Corp. Asahi Kasei EMD Taiwan Corp. Asahi Kasei Wah Lee Hi-Tech Corp.* Asahi-Schwebel (Taiwan) Co., Ltd.* Asahi Kasei Microdevices Europe SAS Asahi Photoproducts (Europe) SA/NV* Asahi Photoproducts (UK) Ltd.* Polypore International, LP* Asahi Kasei Microdevices Corp.* Homes Segment Asahi Kasei Homes Corp.* Asahi Kasei Realty & Residence Corp.* Asahi Kasei Jyuko Co., Ltd.* Asahi Kasei Mortgage Corp.* Asahi Kasei Reform Co., Ltd.* Asahi Kasei Home Construction Corp.* Asahi Kasei Jyuko Vietnam Corp.* Asahi Kasei Construction Materials Corp.* Asahi Kasei Foundation Systems Corp.* Asahi Kasei Extech Corp.* Health Care Segment Asahi Kasei Pharma Corp.* Asahi Kasei Medical Co., Ltd.* Asahi Kasei Pharma America Corp.* Med-Tech Inc.* Asahi Kasei Bioprocess America. Inc.* Asahi Kasei Medical America Inc.* Asahi Kasei Medical Trading (Korea) Co., Ltd.* Asahi Kasei Medical (Hangzhou) Co., Ltd.* Asahi Kasei Medical Trading (Taiwan) Co., Ltd.* Asahi Kasei Medical Europe GmbH* Asahi Kasei Bioprocess Europe SA/NV* Asahi Kasei Bioprocess Singapore Pte. Ltd.* Asahi Kasei Medical Trading Ltd. Sti.* Asahi Kasei Medical MT Corp. ZOLL Medical Corporation* Asahi Kasei ZOLL Medical Corp.* Others Asahi Kasei Europe GmbH* Asahi Research Center Co., Ltd.* Asahi Kasei Engineering Corp.* Asahi Kasei Advance Corp.* Asahi Kasei Amidas Co., Ltd.* AJS Inc. Asahi Yukizai Corp. Asahi Kasei America, Inc.* Asahi Kasei Holdings US, Inc.* Crystal IS, Inc.* Asahi Kasei (China) Co., Ltd.* Asahi Kasei India Pvt. Ltd. Asahi Kasei Energy Storage Materials, Inc.* * Consolidated subsidiary ** Including capital reserve Main products/business line Electronic devices marketing and technical support Sale of pellicles Photosensitive dry film Glass fabric Electronic devices marketing and technical support Sale of photopolymer, printing-plate making systems Sale of photopolymer, printing-plate making systems Battery separators Electronic devices Paid-in capital (million) NT$ NT$ NT$ NT$ € € £ US$ ¥ 10 1 49 326 3.0 3.4 0.3 2,233** 3,000 Equity interest (%) 100.0 100.0 80.6 51.0 100.0 100.0 100.0 100.0 100.0 Housing ¥ Real estate development, brokerage, and related business ¥ ¥ Steel frames ¥ Financial services ¥ Home maintenance and remodeling ¥ Construction of homes US$ Steel-frame members ¥ Construction materials ¥ Installation of piles ¥ Exterior wall panel installation 3,250 3,200 2,820 1,000 250 100 13.9** 3,000 200 50 Pharmaceuticals Medical devices, bioprocess products Clinical trials for new drugs, sale of pharmaceuticals Medical devices Bioprocess equipment and systems Sale of medical devices, medical systems Sale of medical devices, medical systems Hemodialyzers; sale of medical devices Sale of medical devices, medical systems Sale of medical devices, medical systems Sale of virus removal filters Sale of bioprocess products Sale of medical devices, medical systems Medical devices, bioprocess products Acute critical care devices and systems Sale of acute critical care devices in Japan 3,000 3,000 ¥ ¥ 49** US$ 140 ¥ 30 US$ US$ 0.5 KRW 1,000 165 CNY 5 NT$ 17.8 € 0.5 € SG$ 0.3 0.01 YTL ¥ 10 1,723** US$ 230 ¥ € Business support services, sale of performance resin ¥ Information and analysis ¥ Plant, equipment, process engineering ¥ Sale of Asahi Kasei products ¥ Employment agency, consulting ¥ Computer software, IT systems ¥ Synthetic resin, fabricated plastic products US$ Business support services US$ Holding company of ZOLL Development of aluminum nitride substrates and UV LEDs US$ CNY Investment and business support services INR Business support services US$ Holding company of Polypore International, LP 7.9 1,000 400 500 80 800 5,000 0.1 1,723** 31.9** 275 45 2,256** 100.0 100.0 100.0 100.0 100.0 100.0 78.00 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 49.0 30.6 100.0 100.0 100.0 100.0 100.0 100.0 Asahi Kasei Report 2016 111 Company Information ■ Corporate Profile (as of March 31, 2016) Company Name Asahi Kasei Corporation Date of Establishment May 21, 1931 Paid-in Capital ¥103,389 million Employees 32,821 (consolidated) 1,178 (non-consolidated) ■ Asahi Kasei Group Offices Asahi Kasei Corporation Tokyo Head Office 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3000 Fax: +81-3-3296-3161 Asahi Kasei (China) Co., Ltd. 8/F, One ICC Shanghai International Commerce Centre No. 999 Huai Hai Zhong Road Shanghai 200031 China Phone: +86-21-6391-6111 Fax: +86-21-6391-6686 Beijing Office Room 1407 New China Insurance Tower No. 12 Jian Guo Men Wai Avenue Chao Yang District Beijing 100022 China Phone: +86-10-6569-3939 Fax: +86-10-6569-3938 Asahi Kasei America, Inc. 800 Third Avenue, 30th Floor New York, NY 10022 USA Phone: +1-212-371-9900 Fax: +1-212-371-9050 Asahi Kasei Europe GmbH Am Seestern 4, 40547 Düsseldorf, Germany Phone: +49-211-8822-030 Fax: +49-211-8822-0333 Asahi Kasei India Pvt. Ltd. The Capital 801C, Plot No. C70, G Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051 India Phone: +91-22-6710-3962 112 Asahi Kasei Report 2016 Core Operating Companies Asahi Kasei Microdevices 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3911 Asahi Kasei Homes 1-24-1 Nishi-shinjuku, Shinjuku-ku Tokyo 160-8345 Japan Phone: +81-3-3344-7111 Asahi Kasei Construction Materials 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3500 Asahi Kasei Pharma 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3600 Asahi Kasei Medical 1-105 Kanda Jinbocho, Chiyoda-ku Tokyo 101-8101 Japan Phone: +81-3-3296-3750 ZOLL Medical Corporation 269 Mill Rd., Chelmsford, MA 01824-4105 USA Phone: +1-978-421-9655 Investors Information (As of March 31, 2016) Stock Listing Stock Code Tokyo 3407 Authorized Shares 4,000,000,000 Outstanding Shares 1,402,616,332 Transfer Agent Sumitomo Mitsui Trust Bank, Ltd. Independent Auditors PricewaterhouseCoopers Aarata LLC Number of Shareholders 90,122 Largest Shareholders Nippon Life Insurance Co. The Master Trust Bank of Japan, Ltd. (trust account) Japan Trustee Services Bank, Ltd. (trust account) Sumitomo Mitsui Banking Corp. Asahi Kasei Group Employee Stockholding Assn. Japan Trustee Services Bank, Ltd. (trust account 9) Mizuho Bank, Ltd. Tokio Marine & Nichido Fire Insurance Co., Ltd. Mizuho Trust & Banking Co., Ltd. Retirement Benefit Trust (Mizuho Bank account) Sumitomo Life Insurance Co. * Percentage of equity ownership after exclusion of treasury stock. % of equity* 5.23 5.04 3.94 2.53 2.47 2.08 1.45 1.45 1.42 1.40 In this report, the TM symbol indicates a trademark or registered trademark of Asahi Kasei Corporation, affiliated companies, or third parties granting rights to Asahi Kasei Corporation or affiliated companies. Asahi Kasei IR Website Asahi Kasei’s financial results and other materials for investors are available in our IR website. http://www.asahi-kasei.co.jp/asahi/en/ir Asahi Kasei Report 2016 113 1-105 Kanda Jinbocho, Chiyoda-ku, Tokyo 101-8101 Japan www.asahi-kasei.co.jp/asahi/en Corporate Communications Tel: +81-3-3296-3008, Fax: +81-3-3296-3162 Printed in Japan 2016.11 

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