ASAHI KASEI CORP
Annual Report 2018

Plain-text annual report

Asahi Kasei Report 2018 Creating for Tomorrow Contents 03 To our Stakeholders 46 CSR 04 History of Providing Solutions for the Challenges of Society 06 At a Glance 08 Message from the President 16 Basic Concept of “Cs for Tomorrow 2018” Medium-Term Management Initiative 18 Interview with the CFO 20 Financial and Non-Financial Highlights 22 Directors 24 Corporate Governance 28 Outside Directors Dialogue 31 Specific Measures to Heighten Compliance 34 R&D and Human Resources 40 Operating Segments: Material 42 Operating Segments: Homes 44 Operating Segments: Health Care 48 CSR Fundamentals • Responsible Care • Respect for Employee Individuality • Corporate Citizenship Financial Section 58 Management’s Discussion and Analysis 64 Risk Analysis 66 Consolidated Financial Statements Corporate Information 98 Major Subsidiaries and Affiliates 101 Company Information 101 Investors Information 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. Organizational scope The scope of the report is Asahi Kasei Corp. and its consolidated subsidiaries, 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 September 2018. Period under review The period under review is fiscal 2017 (April 2017 to March 2018). Some qualitative information pertaining to April to September 2018 has also been included. Guidelines consulted The Global Reporting Initiative’s Sustainability Reporting Guidelines G4, ISO 26000, and other guidelines were consulted during the preparation of this report. 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. 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. Asahi Kasei Report 2018 01 Group Mission We, the Asahi Kasei Group, contribute to life and living for people around the world. Group Vision Group Values Providing new value to society by enabling “living in health and comfort” and “harmony with the natural environment.” 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 02 Asahi Kasei Report 2018 Asahi Kasei Report 2018 03 To Our Stakeholders Our business environment is changing at a very rapid pace. The so-called fourth industrial revolution is transforming our lives with digital technology such as IoT, AI, and Big Data. Meanwhile, sensitivity toward social and envi- ronmental issues continues to rise around the world, exemplified by the agenda for sustain- able development goals (SDGs) adopted by the UN in 2015. Asahi Kasei has continued to create new value in accordance with our Group Mission of contributing to life and living for people around the world by always adapting to the changing needs of the times through our diverse business operations. We believe the current period of rapid change presents great opportunities for us to provide innovative solutions which meet emerging needs. With our Cs for Tomorrow 2018 (CT2018) management initiative for the three-year period from fiscal 2016 to 2018, we are building the foundation to create a portfolio of high profit- ability and high value-added businesses by fiscal 2025, ten years from the start of the initiative. We have made solid progress, and in fiscal 2017, the second year of CT2018, sales in each business were robust, especially in Chemicals where improved market prices for acrylonitrile bolstered performance. As a result, we marked record highs in net sales, operating income, ordinary income, and net income attributable to owners of the parent. In fiscal 2018, the final year of CT2018, we are continuing to make proactive investments for growth while addressing environmental, social, and governance (ESG) issues in accordance with our Group Mission, Group Vision, and Group Values. I would be pleased if you find this Asahi Kasei Report to be informative with its description of financial and non-financial performance focused on fiscal 2017, together with our longer-term strategies and actions. We continue to value proactive communication with our stakeholders as part of a commitment to appropriate and highly transparent disclosure. September 2018 Hideki Kobori President Asahi Kasei Report 2018 03 02 Asahi Kasei Report 2018 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. Founder: 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™ cupro fiber, part of a diverse range of business operations 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 ● Post-war recovery and modernization of industry ● Interbellum economic downturn and ● Period of high economic growth ● Stable economic growth ● Economic bubble World War II 04 Asahi Kasei Report 2018 Asahi Kasei Report 2018 05 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. The current management initiative “Cs for Tomorrow 2018” is 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 Pharmaceuticals just 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– 2017 Celgard™ Li-ion battery separator of Polypore Asahi Kasei Electronics Materials (Suzhou) Co., Ltd., a major manufacturing base for photosensitive dry film Critical Care Others Fibers Others Fibers Health Care Construction Materials Health Care Construction Materials Fiscal 2000 Net sales ¥1,269.4 billion Fiscal 2017 Net sales ¥2,042.2 billion Homes Chemicals Electronics Increased comfort and convenience ● Two decades of meager growth after collapse of bubble ● Effect of global economic crisis Homes Chemicals Electronics Heightened environmental consciousness, evolution of ICT ● Reduced dependence on fossil fuels, greater use of renewables ● The fourth industrial revolution by IoT, AI, Big Data, etc. 04 Asahi Kasei Report 2018 Asahi Kasei Report 2018 05 At a Glance The Asahi Kasei Group operates business in the three sectors of Material, Homes, and Health Care. The “Cs for Tomorrow 2018” medium-term man- agement initiative is focused on raising corporate value through optimal allocation of management resources across the three sectors. Fiscal 2017 net sales and operating income New record highs in both net sales and operating income Business sector Material P. 40 Health Care 14.6 % FY2017 Net sales ¥2,042.2 billion Homes 31.7 % Material 53.7 % Homes P. 42 Health Care P. 44 Health Care 17.5 % Homes 28.5 % Material 54.0 % FY2017 Operating income ¥198.5 billion Note: Percentages shown exclude “Others” category and “corporate expenses and eliminations.” 06 Asahi Kasei Report 2018 Asahi Kasei Report 2018 07 FY2017 results Business units Major products ¥1,087.7 billion ● Asahi Kasei Corp. Fibers & Textiles SBU Petrochemicals SBU Performance Polymers SBU Performance Materials SBU Consumables SBU Separators SBU ¥121.9 billion ● Asahi Kasei Microdevices Corp. Electronic Devices Hipore™ lithium-ion battery (LIB) separator S-SBR for fuel-efficient tires Acrylonitrile plant Lamous™ microfiber suede ● Asahi Kasei Homes Corp. Homes ● Asahi Kasei Construction Materials Corp. Construction Materials ¥641.0 billion ¥64.4 billion Hebel Haus™ Atlas™ condominiums Neoma Foam™ phenolic foam insulation panels ● Asahi Kasei Pharma Corp. Pharmaceuticals ¥296.3 billion ● Asahi Kasei Medical Co., Ltd. Medical Care Pharmaceutical products Planova™ virus removal filter ¥39.5 billion ● ZOLL Medical Corporation Acute Critical Care ZOLL AED Plus™ automated external defibrillator LifeVest™ wearable defibrillator 06 Asahi Kasei Report 2018 Asahi Kasei Report 2018 07 Net salesOperating incomeNet salesOperating incomeNet salesOperating incomeMessage from the President We will provide new value that contributes to solutions for society’s challenges while accelerating business growth aimed at creating a portfolio of high profitability and high value-added businesses. Hideki Kobori President, Asahi Kasei Review of fiscal 2017 and progress of Cs for Tomorrow 2018 We are generally making solid progress in our three-year medium-term management initiative “Cs for Tomorrow 2018” (CT2018). In fiscal 2017, the second year, each segment recorded firm sales. Chemicals operations in particular where buoyed by rising market prices for acrylonitrile. As a result, net sales exceeded ¥2 trillion for the first time, while operating income, ordinary income, and net income attributable to owners of the parent all hit record highs. Our operating income target for fiscal 2018 was reached a year early. CT2018 sets forth the objective of creating a portfolio of high-profitability and high-value added businesses by fiscal 2025, 10 years from the start of the initiative, with the three-years from fiscal 2016 to 2018 being the period to build our foundations for the next phase. While it’s important to achieve financial targets, what’s even more essential is to continuously heighten our corporate value from the longer perspective. 08 Asahi Kasei Report 2018 Asahi Kasei Report 2018 09 In fiscal 2018, as the final year of the three-year period, we are focusing on what can be done now—for proactive investments such as M&A and expanded manufacturing infrastructure, to enhance business with the latest ICT, for thorough risk management and compliance, and to create new business in concert with outside entities including through CVC—while we make the most of our strengths by building further connections among our diversified businesses, human resources, and technologies. This will also be the year to advance discussions on the strategic direction to take in the next medium-term management initiative. We raised our annual dividend for fiscal 2017 to ¥34 per share, a ¥10 increase from a year ago, reflecting our favorable performance. Under CT2018 we are targeting a total return ratio of 35% in fiscal 2018. New records for net sales, operating income, and net income in FY2017 Cs for Tomorrow 2018 (CT2018) (¥ billion, except where noted) FY2015 FY2016 FY2017 FY2018 forecast (As of May 2018) FY2018 target (As of April 2016) FY2025 outlook (As of April 2016) Net sales 1,940.9 1,883.0 2,042.2 2,155.0 2,200.0 3,000.0 Operating income Operating margin 165.2 8.5% 159.2 8.5% 198.5 9.7% 190.0 8.8% 180.0 8.2% 280.0 9.3% Net income attributable to owners of the parent 91.8 115.0 170.2 140.0 110.0 Net income per shareholders’ equity (ROE) Net income per shareholders’ equity and interest-bearing debt Dividends per share (¥) 8.6% 10.5% 14.0% 9.0% 10.0% 7.1% 20 7.6% 24 9.7% 34 7.0% 8.0% 34 35.0% Payout ratio* 30.4% 29.1% 27.9% 33.9% ¥/US$ Exchange rate 120 108 111 105 110 * FY2018 target figure for payout ratio is total return ratio including share buybacks. Proactive investments for growth We plan to adopt strategic long-term investments totaling ¥700 billion over the three-year period of CT2018. In the first two years we adopted decisions on about half of that amount, ¥340 billion. The value of long-term investments per year rose from some ¥100 billion under the previous medium-term management initiative to ¥170 billion, a 70% increase. Such proactive investments will contribute to future earnings growth. 08 Asahi Kasei Report 2018 Asahi Kasei Report 2018 09 Message from the President Value of long-term investments per year (on decision-adopted basis) Primary investment (start-up from FY2018 onward) (¥ billion) 200 100 70% increase 0 For Tomorrow 2015 FY2011–2015* (average) Cs for Tomorrow 2018 FY2016–2017 (average) * Excluding acquisition of ZOLL and Polypore. LIB separator Approx. 500 million m2/y (+80%) capacity increase start-up: FY2018–2020 S-SBR for fuel-efficient tires Approx. 30,000 t/y (+30%) capacity increase start-up: FY2018 LamousTM microfiber suede Approx. 3 million m2/y (+50%) capacity increase start-up: FY2019 LeonaTM nylon 66 filament Approx. 5,000 t/y (+15%) capacity increase start-up: FY2019 PlanovaTM virus removal filters Approx. 40,000 m2/y (+40%) capacity increase start-up: FY2019 With long-term investment plans exceeding ¥200 billion for organic growth in fiscal 2018, we are on track to reach the ¥700 billion total under CT2018. During the previous medium-term initiative, we made two large acquisitions which have each contributed significantly to the growth of the Asahi Kasei Group. After we acquired ZOLL in fiscal 2012, its already high growth accelerated further, reaching an average of 15% over the past ten years. And Polypore, which we acquired in fiscal 2015, has enabled significant synergy through integration with our established battery separator business. In fiscal 2017, separator operations turned profitable after amortization of goodwill and other intangible assets associ- ated with the acquisition. We will continue to pursue such acquisitions as an effective way to drive further growth. While we expected there would be synergy with our established health care businesses, ZOLL’s field of acute critical care was new for Asahi Kasei at the time of the acquisition. In con- trast, the Polypore acquisition served to reinforce our operations in a field in which we already had a world-leading position with the Hipore™ lithium-ion battery (LIB) separator, where the market was poised to grow dramatically. M&A is an effective way to strengthen competitiveness in existing fields, to expand into related fields, or to gain complementary technology. We will continue to study further M&A opportunities which can contribute to business growth and greater corporate value. 10 Asahi Kasei Report 2018 Asahi Kasei Report 2018 11 Our strengths are evinced at times of dramatic change The business environment is rapidly changing year by year with the advance of digital technol- ogy such as IoT, AI, and Big Data—what is being called the fourth industrial revolution. We consider a time of change to be a time of opportunity. With our diverse range of businesses and wide variety of technologies, we are in an excellent position to leverage change to our advantage through innovation and new business creation. Throughout the 96 years since our founding, Asahi Kasei has always stood out for our ability to continually evolve our business portfolio in accordance with changes in the industrial struc- ture and social environment over time. I think the key to such successful adaptation is having a constant lodestar to guide the way. Though our operations have been radically transformed over the decades, our Group Mission of “contributing to life and living for people around the world” remains unchanged. We have always created new value by providing solutions to challenges faced by society, and all of our personnel share a sincere commitment to continue to do so. Among the various Cs we are emphasizing in CT2018, “connection” is foremost. We are aiming to create new value by building new connections among our three different sectors of Material, Homes, and Health Care. Furthermore, we actively seek to develop connections with outside entities as well. We have a diverse range of technologies, human resources, and market channels. This gives us numerous opportunities to create new value by transforming our business portfolio to meet emerging needs in a dramatically changing environment. I consider this to be our greatest strength. The next few years will be pivotal. We must keep abreast of current trends as we develop world-leading businesses which make valuable contributions to society. Sustainable growth supported by various human resources For us to achieve sustainable growth and thrive in world markets, outstanding human resources are essential. When planning a strategy for growth, we also need to consider how to retain and nurture the people who will execute the business. We are therefore placing greater emphasis on linkage between business strategy and personnel strategy. We are refounding our systems to nurture professional personnel with a high degree of expertise in certain fields and managerial personnel who can demonstrate effective leadership, in addition to the personnel who support operations at each workplace. In fiscal 2017 we revised our Group Masters program to nurture specialists and provide them with greater engagement. See p. 38 for more about the Group Masters program 10 Asahi Kasei Report 2018 Asahi Kasei Report 2018 11 Message from the President The management team is currently advancing discussions on what is needed of next- generation leaders and how to best nurture them. We are considering what kind of training and experience the next generation of leaders will need and how to rotate them through various positions of responsibility as we formulate the optimum framework. As our operations continue to globalize, more and more employees are hired locally. We need to discern whether it’s best to have them continue working in the same location or if it may be valuable to give them opportunities to gain experience in other regions of the world. It’s important for us to remain flexible in this regard. It was very stimulating that our acquisitions of ZOLL and Polypore brought many new people into the Asahi Kasei Group. M&A is meaningful in that it enables us to gain exceptional human resources, not only as a means to obtain a business and save time. Many of them have rich experience and skills that are different from our own. We achieve business growth by welcoming them as our colleagues, sharing our Group Mission with them, and giving them opportunities to fully utilize their abilities. It’s mutually stimulating for people from different countries and different companies with different cultures and different values to work together toward a common goal. Connections among such different personnel can open new possibili- ties and spark innovation. What really left an impression on me when we acquired ZOLL was how much time the management of foreign companies devote to M&A. It might be especially so in the field of healthcare, but they clearly regard business development as essential for dynamic growth. Their growth strategy is predicated on executing M&A, and a good deal of attention is focused on studying potential deals. This style of business development was eye-opening for me. Materiality for business from the perspective of ESG The fourth industrial revolution of digital transformation is not the only major change in our operating environment. Concern for social and environmental issues has been intensifying considerably. Environmental, social, and governance (ESG) aspects of management are placed under ever greater scrutiny. In 2015, the United Nations adopted the agenda for sustainable development goals (SDGs), advocating targets to be achieved such as eradicating poverty, protecting the environment, and attaining peaceful prosperity. This is not a novel concept to us. We have long held a Group Vision of providing value to society by enabling “living in health and comfort” and “harmony with the natural environment,” based on our Group Mission as I described. We therefore welcome the fresh attention on doing business responsibly. Reviewing the issues we have addressed and those to focus on moving forward, we orga- nized the following matrix to map our matters of materiality by importance. All the items shown in the illustration are important for our company. Items in the matrix are arranged vertically by importance for stakeholders and horizontally by importance for the Asahi Kasei Group. The four matters of corporate governance, compliance/sincerity, human rights, and safety/quality are shown separately to indicate their significance as indispensable prerequisites for doing business. 12 Asahi Kasei Report 2018 Asahi Kasei Report 2018 13 The map shows five items in the “extremely important” region of each axis. We consider three of them—the global environment, health and longevity, and comfortable life—as matters to be achieved through our business activities. We have many businesses that contribute to solutions for society: Regarding the global environment, for example, we have LIB separators for electric vehicles and solution-polymerized styrene-butadiene rubber (S-SBR) for fuel-efficient tires. We’re also launching a new business for our alkaline water electrolysis system to produce hydrogen from renewable energy, with plant demonstrations in progress. Likewise, our Health Care sector contributes to health and longevity while our Homes sector contributes to comfort- able life. Having identified our tasks, now it is vital for us to mobilize the entire Asahi Kasei Group to achieve progress. We will work to optimize our systems of implementing actions and evaluating results, including third-party verification, and apply a continuous cycle of improvement to ensure that we fulfil our mission to create new value. We will continue to meet the needs of society by maintaining a productive dialogue with our stakeholders to incorporate various perspectives. Materiality of the Asahi Kasei Group ■ Harmony with the environment ■ Living in health and comfort ■ Basic activity Extremely important l s r e d o h e k a t s r o f e c n a t r o p m I ■ Greenhouse gas ■ Wastewater ■ Industrial waste ■ Global environment ■ Health and longevity ■ Comfortable life Business contribution to ■ Supply chain management ■ Communication with stakeholders ■ Biodiversity ■ Social contribution ■ Human resources ■ Diversity ■ Risk management Important Importance for the Asahi Kasei Group Extremely important Highest priority for mapping above ■ Governance ■ Human rights ■ Compliance/sincerity ■ Safety/quality 12 Asahi Kasei Report 2018 Asahi Kasei Report 2018 13 Message from the President Alkaline water electrolysis system to produce green hydrogen from renewable energy Asahi Kasei developed an alkaline water electrolysis system for the large-scale production of green hydrogen by leveraging our world-leading technology of chlor-alkali electrolysis. In April 2018, we began trial operation of an alkaline water electrolysis plant producing green hydrogen from solar power jointly with IHI Corp. in Soma, Fukushima, Japan. In May, we launched a demonstration project for the system in Herten, North Rhine- Westphalia, Germany, using simulated electric power from wind energy. Hydrogen is not only expected to be used for fuel-cell powered buses and trains, it can be used to make green methane and green methanol by reacting with carbon dioxide. The demonstration plant in Herten, Germany Corporate governance strengthening the integrity and transparency of management Adopted in 2015, Japan’s Corporate Governance Code was revised this year. Attitudes toward corporate governance among Japanese companies have changed greatly in recent years. The biggest change is a stronger emphasis on the importance of bringing outside perspectives to bear in management. As integrity and transparency in management have become more important than ever, we are expected to consider the impact of our business activities and sustainability from various perspectives including diversity of gender, nationality, and background. While our Head Office is located in Japan and a large proportion of our employees are Japanese, we are making efforts to raise the diversity of our management team. Though we currently have several non-Japanese Executive Officers and a woman on the Board of Directors, this is a work in progress and we will continue to seek further diversity for sound management. At the same time, we are working to reinforce our systems to bring greater transparency and appropriate information disclosure. Regarding the effectiveness of the Board of Directors, we have active discussions based on an annual questionnaire for each Director. We obtain many candid opinions contributing to a vibrant discourse on how the board should be and what we can do to further improve its function. 14 Asahi Kasei Report 2018 Asahi Kasei Report 2018 15 I sense that the role of Outside Directors is evolving as well. They are not passively observing, but actively raising questions and opinions which contribute to corporate management as outsiders. I find this to be very meaningful and effective from the standpoint of governance. Outside Directors have stimulated more lively discussion of business strategy, and exhibit a very deep sense of involvement in formulating our longer-term strategy. Taking up challenges—the spirit of Asahi Kasei I mentioned Asahi Kasei’s history of unceasingly taking up challenges to create new value. This doesn’t only mean launching new businesses. It also means finding new value in our existing businesses. Our personnel are good at coming up with new ideas and finding new ways to do things in line with emerging changes in society around us. This exemplifies how we discover new ways to add value in every business. Our Group Values are “sincerity,” “challenge,” and “creativity.” We have nurtured the spirit of pursuing challenges among our personnel from generation to generation. An important part of my role as President is to constantly encourage our people to take up challenges on their own initiative and fully develop their own abilities in each field. I also instruct supervisors to find opportunities for their subordinates to pursue challenges in their daily tasks, and to support them in doing so. By facing our tasks with sincerity and striving to create new value for society, the culture of welcoming challenges repeatedly takes root in a new generation and passes on in an unbroken line to the future. We strive to instill these values in all of our personnel around the world, who put the spirit of our company into practice. I believe that this is the ultimate basis of our enduring success. Thinking of my own experience, I was given many opportunities to take up challenges. On such occasions, I reminded myself of the company’s spirit of creating new value. As President, now my task is to lead the management to achieve further growth by capturing the opportuni- ties presented by the changes in the world around us. I want to leverage this occasion by giving as many personnel as possible the experience of creating new value for our company to provide to society. It is in this way that the Asahi Kasei Group will always carry on evolving with the times, achieving growth by building connections among diverse businesses, personnel, and technolo- gies, “Creating for Tomorrow” with ongoing contributions to life and living for people around the world. 14 Asahi Kasei Report 2018 Asahi Kasei Report 2018 15 Basic Concept of “Cs for Tomorrow 2018” Medium-Term Management Initiative Providing solutions to two important challenges faced by society with diversified businesses Society of clean environmental energy Society of healthy/comfortable longevity with peace of mind Advancing toward 2025 Creating a portfolio of high-profitability and high value-added businesses Net sales (left scale) Operating income (right scale) Net sales ¥2,155 billion Operating income ¥190 billion (¥ billion) 3,000 2,000 1,000 0 '10 '11 '12 '13 '14 '15 '16 '17 '18 Forecast '18 Target* Outlook* '25 (¥ billion) 300 200 100 0 (FY) ¥3 trillion Net sales Operating income ¥280 billion ¥2,200 billion Net sales Operating income ¥180 billion * Premised on exchange rates of ¥110/US$ and ¥120/€ Focus of “Cs for Tomorrow 2018” Building the base for the next phase with connections among diverse businesses and diverse human resources Group Slogan Creating for Tomorrow Create new markets through connections New stage of growth Practice three Cs Compliance Thorough compliance based on the “three actuals”2 2 Actual place, actual thing, and actual fact External (cid:127) CVC1, joint R&D (cid:127) M&A (cid:127) Alliances 1 Corporate venture capital Connect Internal (cid:127) Group-wide (cid:127) People and businesses Communication Open communication that fosters mutual understanding and trust Technology (cid:127) Technology and business combinations Geography (cid:127) Accelerating globalization Challenge Relishing new challenges to advance and evolve Basic strategy Pursuit of growth and profitability Creation of new businesses Acceleration of globalization 16 Asahi Kasei Report 2018 Asahi Kasei Report 2018 17 Future path toward 2025 for each sector Material • 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 (¥ billion) 2,000 Net sales (left scale) Operating income (right scale) (¥ billion) 500 1,650.0 1,000 977.9 1,087.7 1,175.0 1,250.0 121.9 115.0 88.5 0 '16 '17 '18 Forecast '18 Target '25 Outlook 250 0 (FY) (¥ billion) 1,000 Net sales (left scale) Operating income (right scale) 1,000.0 (¥ billion) 200 Homes • 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 500 0 619.0 641.0 657.0 700.0 64.1 64.4 65.5 '16 '17 '18 Forecast '18 Target '25 Outlook 100 0 (FY) (¥ billion) 800 Net sales (left scale) Operating income (right scale) (¥ billion) 160 Health Care • Increase overseas sales; operating income to reach 1/3 of Asahi Kasei Group total • Pharmaceuticals: global expansion • Medical devices: grow by further utilizing and strengthening global platform 400 0 600.0 370.0 80 270.1 31.9 296.3 39.5 303.0 37.5 '16 '17 '18 Forecast '18 Target '25 Outlook 0 (FY) 16 Asahi Kasei Report 2018 Asahi Kasei Report 2018 17 Interview with the CFO We will raise cash flow generation and proactively invest for growth to enable sustainable increase in corporate value and stable shareholder returns Yutaka Shibata Director, Primary Executive Officer Financial strategy to achieve fiscal 2015 goals Under Cs for Tomorrow 2018 (CT2018) we are working to By proactive investment in growth fields, we can achieve create a portfolio of high-profitability and high value-added sustainable business expansion to enable stable returns to businesses as we aim to reach net sales of ¥3 trillion our shareholders. and operating income of ¥280 billion in fiscal 2025. The With funds essentially raised through bank borrowings, three-year period through fiscal 2018 is positioned as we flexibly evaluate various methods to obtain stable the time to build the base for the next phase of growth. financing at low cost in accordance with financial circum- We are expanding competitive businesses and creating stances. We also utilize group finance in Japan and overseas new added value in all three sectors of Material, Homes, for capital efficiency. Recording strong results in fiscal 2017, and Health Care to increase the generation of cash flow we repaid borrowings and lowered our D/E ratio to 0.23 by enabling both investments for growth and shareholder fiscal year-end. Leveraging our sound financial condition returns in an appropriate balance. While expanding we will proactively invest for further growth toward our established businesses with increased production capacity, goals in fiscal 2025. we are actively evaluating opportunities for strategic M&A. Shareholder returns policy Asahi Kasei’s basic policy for shareholder returns is to aim for stable dividends and continuous dividend increases. Based on this policy we have raised dividends in line with earnings growth. Our results in fiscal 2017 were generally favorable, with petrochemicals operations in particular benefitting from high market prices and a weaker yen, and positive impacts from sales of investment securities and from the US tax reform. Net sales exceeded ¥2 trillion for the first time, and each income category reached new highs. We raised our annual dividend by ¥10 to ¥34 per share reflecting such robust results. Our CT2018 target is a total return ratio of 35% in fiscal 2018, and we plan to continue to raise dividends as earnings increase. (¥) 40 20 0 Dividends per share and payout ratio 34 27.9 30.4 20 29.1 24 25.1 19 23.5 17 '13 '14 '15 '16 '17 Dividends per share (left scale) Payout ratio (right scale) (%) 40 20 0 (FY) 18 Asahi Kasei Report 2018 Asahi Kasei Report 2018 19 Progress in financial strategy of CT2018 We expect to generate ¥600–700 billion of operating cash nearly half that figure in the first two years. In fiscal 2018 we flow during the three years of CT2018. With firm perfor- plan to formalize over ¥200 billion of long-term investment mance in the first two years, we have generated over ¥400 focused on established businesses. At the same time we billion of operating cash flow and are on track to reach our are actively evaluating strategic M&A opportunities that can target. contribute to further growth for the future. Decisions will We plan to adopt decisions on ¥700 billion of long-term be made in light of our financial condition. investments during the three-year period, and reached Progress on long-term investment (on decision-adopted basis) Major investments Material Automotive Environment/energy Healthcare/hygiene Homes Acceleration of new business creation Environment/energy Health Care Acceleration of globalization FY2018 plan (including M&A, etc.) FY2016 Approx. ¥150 billion CT2018 FY2016–2018 ¥700 billion in total FY2017 Approx. ¥190 billion Major investments Material Capacity expansion for battery separator Construction of new R&D facility (fibers) Capital and business alliance with Chuo Build Industry Co., Ltd. Establishment of Kanto-area site for steel-frame members Homes Capital and business alliance with Mori-Gumi Co., Ltd. Health Care Augmenting product pipeline (pharmaceuticals) Major investments Material Capacity expansion for battery separator Capacity expansion for S-SBR for fuel-efficient tires Capacity expansion for LamousTM microfiber suede Capacity expansion for LeonaTM nylon 66 filament Acquisition of Senseair AB, a Swedish manufacturer of gas sensor modules Homes Capital alliance with McDonald Jones Homes Pty Ltd in Australia Health Care Capacity expansion of spinning for PlanovaTM virus removal filters Primary financial metrics Net cash provided by operating activities (¥ billion) Net cash used in investing activities (¥ billion) Free cash flows (¥ billion) Net income per share (EPS) Net income per total assets (ROA) Net income per shareholders’ equity (ROE) Net income per net sales (ROS) Total asset turnover ratio Financial leverage Net income per shareholders’ equity and interest-bearing debt (ROIC) D/E ratio FY2013 FY2014 FY2015 FY2016 FY2017 244.2 (103.8) 140.4 ¥72.48 5.5% 11.7% 5.3% 1.02 2.2 7.7% 0.33 137.6 (100.5) 37.1 ¥75.62 5.4% 10.6% 5.3% 1.01 2.0 7.5% 0.25 216.2 (285.3) (69.1) ¥65.69 4.3% 8.6% 4.7% 0.92 2.0 7.1% 0.43 169.0 (89.9) 79.0 ¥82.34 5.1% 10.5% 6.1% 0.84 2.0 7.6% 0.35 249.9 (110.3) 139.6 ¥121.93 7.4% 14.0% 8.3% 0.89 1.9 9.7% 0.23 18 Asahi Kasei Report 2018 Asahi Kasei Report 2018 19 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 Net wortha Net worth per share, yen Net worth/total assets, % Number of employees 2018 ¥2,042,216 1,274,548 767,668 198,475 212,544 218,333 170,248 177,717 121.93 101,331 95,415 85,695 34.00 2018 ¥2,316,137 359,687 562,048 380,489 1,287,387 922.11 55.6 34,670 2017 ¥1,882,991 1,226,633 656,358 159,229 160,633 157,388 115,000 138,979 82.34 90,573 91,387 79,566 24.00 2017 ¥2,254,500 346,682 556,881 340,302 1,151,344 824.36 51.1 33,720 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 2016 ¥2,211,729 336,743 555,989 305,140 1,041,901 745.94 47.1 32,821 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 2015 ¥2,014,531 339,677 502,507 334,368 1,082,654 775.05 53.7 30,313 a Net assets less non-controlling interests. b In the year ended March 31, 2012, the accounting policy for naphtha resale was changed to exclude naphtha resale amount from net sales. This change is applied retroactively from the year ended March 31, 2008, through the year ended March 31, 2011. Net sales1 Operating income1,2 2014 ¥1,897,766 1,289,054 2013 ¥1,666,640 1,181,429 485,211 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 14.00 279,206 416,119 227,489 706,846 505.72 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 11.00 256,248 418,354 220,773 663,566 474.59 46.5 25,016 91,960 95,125 82,302 53,712 117,515 38.43 113,785 80,050 71,120 14.00 309,677 461,581 263,704 812,080 581.05 45.1 28,363 Millions of yen, except where noted 2010b ¥1,392,212 1,021,803 370,409 2009b ¥1,521,178 1,127,213 393,965 2008b ¥1,663,778 1,176,441 57,622 56,367 46,056 25,286 — 18.08 83,990 86,166 62,924 10.00 251,084 447,497 226,331 633,343 452.91 46.3 25,085 34,959 32,500 19,031 4,745 — 3.39 126,725 79,436 60,849 10.00 273,539 441,271 218,477 603,846 431.77 43.8 24,244 487,337 127,656 120,456 105,599 69,945 — 50.01 82,911 73,983 56,170 13.00 272,372 424,193 234,873 666,244 476.39 46.7 23,854 2014 2013 2012 2011 2010 2009 2008 ¥1,915,089 ¥1,800,170 ¥1,410,568 ¥1,425,879 ¥1,368,892 ¥1,379,337 ¥1,425,367 608,712 143,347 142,865 163,860 101,296 146,102 72.48 92,397 86,052 71,101 17.00 328,540 480,535 285,735 912,699 653.15 47.7 29,127 1,897.8 1,986.4 1,940.9 1,883.0 2,042.2 (¥ billion) 2,000 1,500 1,000 500 0 '13 '14 '15 Fibers Health Care Chemicals Critical Care Electronics Others Homes '16 Construction Materials '17 (FY) 165.2 159.2 198.5 157.9 143.3 (¥ billion) 250 200 150 100 50 0 -50 '13 '14 '15 Fibers Health Care Corporate expenses and eliminations, amortization of goodwill, etc. Chemicals Critical Care Electronics Others Homes '16 Construction Materials '17 Net income attributable to owners of the parent, ROE Interest-bearing debt, D/E ratio (¥ billion) 180 150 120 90 60 30 0 101.3 105.7 11.7 10.6 91.8 8.6 115.0 10.5 170.2 14.0 (%) 24 20 16 12 8 4 0 (¥ billion) 500 400 300 200 100 0 449.7 402.8 303.9 269.0 301.7 0.33 0.25 0.43 0.35 0.23 '14 Net income attributable to owners of the parent (left scale) '15 '13 '16 '17 ROE (right scale) (FY) '14 Interest-bearing debt (left scale) '13 '15 '16 D/E ratio (right scale) '17 (FY) 1.0 0.8 0.6 0.4 0.2 0 (FY) 1 Some businesses were transferred between categories in FY2016 and FY2017; figures are shown according to the new classification thenceforth. 2 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, amortization of goodwill, etc.” 20 Asahi Kasei Report 2018 Asahi Kasei Report 2018 21 Income before income taxes Net income attributable to owners of the parent For the years ended March 31 Net sales Domestic sales Overseas sales Operating income Ordinary income 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 Net wortha Net worth per share, yen Net worth/total assets, % Number of employees a Net assets less non-controlling interests. 2018 ¥2,042,216 1,274,548 2017 ¥1,882,991 1,226,633 2016 ¥1,940,914 1,261,203 2015 ¥1,986,405 1,313,128 767,668 198,475 212,544 218,333 170,248 177,717 121.93 101,331 95,415 85,695 34.00 359,687 562,048 380,489 922.11 55.6 34,670 656,358 159,229 160,633 157,388 115,000 138,979 82.34 90,573 91,387 79,566 24.00 346,682 556,881 340,302 824.36 51.1 33,720 679,711 165,203 161,370 146,389 91,754 (11,925) 65.69 99,000 93,811 81,118 20.00 336,743 555,989 305,140 1,041,901 745.94 47.1 32,821 673,277 157,933 166,543 158,440 105,652 214,484 75.62 89,108 86,058 75,540 19.00 339,677 502,507 334,368 1,082,654 775.05 53.7 30,313 2018 2017 2016 2015 ¥2,316,137 ¥2,254,500 ¥2,211,729 ¥2,014,531 1,287,387 1,151,344 b In the year ended March 31, 2012, the accounting policy for naphtha resale was changed to exclude naphtha resale amount from net sales. This change is applied retroactively from the year ended March 31, 2008, through the year ended March 31, 2011. 20 Asahi Kasei Report 2018 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 2014 ¥1,915,089 328,540 480,535 285,735 912,699 653.15 47.7 29,127 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 2013 ¥1,800,170 309,677 461,581 263,704 812,080 581.05 45.1 28,363 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 Millions of yen, except where noted 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 Environmental and safety investment Greenhouse gas emissions from production processes (¥ billion) (million tons CO2 equivalent) 7.88 6.28 5.38 5.20 3.90 8 6 4 2 0 5 4 3 2 1 0 4.17 4.06 3.84 3.03 3.20 '13 Environmental investment '14 '15 '16 '17 (FY) Safety investment '13 Carbon dioxide Sulfur hexafluoride '14 Nitrous oxide '15 Methane '16 '17 (FY) HFCs PFCs Number of women working as managers3 Employees using parental leave4 410 454 500 534 575 600 500 400 300 200 100 0 600 500 400 300 200 100 0 468 457 556 582 566 '14/6 '15/6 '16/6 '17/6 '18/6 3 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 '13 Men '14 '15 '16 '17 (FY) 4 Results 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). Asahi Kasei Report 2018 21 Directors After many years of experience in the electronics business, including as President & Representative Director of Asahi Kasei Microdevices Corp., he oversaw the Asahi Kasei Group’s overall strategy, accounting, finance, and internal control. He assumed the role of President of Asahi Kasei in April 2016. 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 businesses, he held several leadership positions including Assistant Senior 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 for- mulating 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. With his wealth of experience and broad range of insight into corporate management, including as Director 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. 1. President & Representative Director Presidential Executive Officer Hideki Kobori 5. Director Senior Executive Officer Nobuyuki Kakizawa 9. Outside Director Tsuyoshi Okamoto 22 Asahi Kasei Report 2018 2. Representative Director Vice-Presidential Executive Officer Masafumi Nakao 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 experi- ence and a broad range of knowledge on R&D. 6. Director Lead Executive Officer Soichiro Hashizume After many years of experience in human resources, he held several leadership positions including President of PTT Asahi Chemical Company Limited. He has been responsible for human resources development and the planning and execution of personnel and labor measures of the Asahi Kasei Group since April 2013. He pos- sesses a wealth of experience and a broad range of knowledge on human resources. 9 8 7 3 4 5 6 1 2 Asahi Kasei Report 2018 23 3. Director Primary Executive Officer Yutaka Shibata 7. Outside Director Masumi Shiraishi After many years of experience in legal affairs and corporate planning, including as General Manager of Corporate Strategy, Asahi Kasei Medical President & Representative Director, and Asahi Kasei Pharma President & Representative Director, he became responsible for the Asahi Kasei Group’s strategy, accounting, finance, and IT in April 2018. He pos- sesses a wealth of experience and a broad range of knowledge on the Asahi Kasei Group’s businesses and corporate management. With her wealth of experience and broad range of insight into economics and society, including as a professor at Kansai University, she fulfills her role as Outside Director in deciding on important mat- ters of the Asahi Kasei Group as well as overseeing business execution. 4. Director Senior Executive Officer Shuichi Sakamoto 8. Outside Director Tsuneyoshi Tatsuoka After many years of experience in the petrochemical business, including as General Manager of the Performance Plastics Division and General Manager of the Acrylonitrile Division at Asahi Kasei Chemicals, he oversaw the Asahi Kasei Group’s strategy, accounting, finance, and IT, and in April 2018 became responsible for the Health Care business sector. He possesses a wealth of experience and a broad range of knowledge on the Asahi Kasei Group’s businesses and corporate management. With his wealth of experience and broad range of insight into industrial 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. 22 Asahi Kasei Report 2018 Asahi Kasei Report 2018 23 Corporate Governance 1 Basic Views on Corporate Governance The Group Vision of Asahi Kasei is to provide new value to society the longer term by promoting innovation and creating synergy and solve social issues by enabling “living in health and comfort” through integration of various businesses. We continue to pursue and “harmony with the natural environment” under the Group the optimal corporate governance as a framework to make Mission of “contributing to life and living for people around transparent, fair, timely, and resolute decisions in accordance with the world.” With this as a base, we aim to contribute to society, changes in the business environment. achieve sustainable growth, and enhance corporate value over 2 Business Management Organization and Other Corporate Governance Systems regarding Decision-making, Execution of Business, and Oversight in Management (as of June 27, 2018) 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 Risk Management & Compliance Committee Compliance Hotline Responsible Care Committee Internal Audit Department Group staff functions Core Operating Companies, Strategic Business Units 24 Asahi Kasei Report 2018 Asahi Kasei Report 2018 25 3 Corporate Governance System Oversight and audit Furthermore, the Internal Audit Department conducts The Board of Directors, which consists of nine Directors including internal audits based on the audit plan. Results of internal audits three independent Outside Directors (one-third), makes decisions performed by each group staff function are aggregated by the on matters requiring a Board of Directors resolution in accordance Internal Audit Department and reported to the Board of Directors. with laws or the Articles of Incorporation, makes decisions on important matters for Asahi Kasei Corp. and other companies of Execution of operation the Group, and oversees execution of operations by Directors and We have adopted an Executive Officer system to enable faster Executive Officers. business execution, and clearly define responsibilities; Directors The Nomination Advisory Committee and Remuneration fulfill decision-making and oversight functions, and Executive Advisory Committee under the Board of Directors consist primarily Officers fulfill execution of operations. of Outside Directors who provide advice in the consideration The Decision-making and Approval Authority Regulations of matters such as: optimal makeup and size of the Board of of the Asahi Kasei Group stipulate detailed criteria for decision- Directors, policy regarding nomination of candidates for Directors making with regard to matters concerning the management and Corporate Auditors, criteria on the independence of Outside plan, investments and loans, funding and financial management, Directors and Outside Corporate Auditors, remuneration policy organization and corporate regulations, research and develop- and system for Directors, and evaluation of individual Directors to ment, and production technology, and delegate authority from determine remuneration based on performance. the Board of Directors to the Management Council, strategic The Board of Corporate Auditors consists of five Corporate business units, and core operating companies. Auditors including three independent Outside Corporate Auditors (a majority). In accordance with the audit policy stipulated by the Risk management and compliance, etc. Board of Corporate Auditors, each Corporate Auditor oversees We have a Risk Management & Compliance Committee which execution of duties by Directors by attending the Board of determines policy and deliberates on matters related to risk Directors meetings and examining the state of operations. To management and compliance. We also have a Responsible Care enhance functions of the Board of Corporate Auditors and to Committee which deliberates on measures to prevent accidents facilitate smooth cooperation among Corporate Auditors from involving environmental protection, quality assurance, operational inside the company and Outside Corporate Auditors, a Corporate safety, workplace safety and hygiene, and health maintenance, Auditors Office is staffed with full-time employees. and to prevent recurrence. PricewaterhouseCoopers Aarata LLC performs financial audits based on the Companies Act and the Financial Instruments and Exchange Act. 4 Policy and Procedure to Nominate Candidates for Directors In selecting candidates for Directors, we appoint persons with were corporate executives, academic experts, or public officials. deep insight and excellent skills suitable for the role. For Directors To further heighten objectivity and transparency in appointing from inside the company, we select those with expertise, experi- candidates for Directors, we established a Nomination Advisory ence and skills required in the respective field. On the other hand, Committee which consists primarily of Outside Directors who Outside Directors are expected to supervise the management take part in discussions of the makeup and size of the Board of from an objective standpoint based on their deep insights and Directors and policies for nomination of Directors and Corporate rich experience. Therefore we select from among people who Auditors, and provide advice to the Board of Directors. 24 Asahi Kasei Report 2018 Asahi Kasei Report 2018 25 Corporate Governance 5 Policy and Procedure to Determine Remuneration of Directors Directors’ remuneration consists of fixed base remuneration, current effort with compensation reflecting future share prices performance-linked remuneration, and stock-based remuneration. by granting the shares at the time of each individual’s retirement The monetary amount and number of stocks are determined from any position of officer of the Asahi Kasei Group, with the based on the remuneration system approved in advance by the number of shares to be granted being determined in accordance Board of Directors, within the limits approved at a shareholders with each Director’s rank. Remuneration for Outside Directors, meeting. however, is comprised solely of fixed base remuneration. Fixed base remuneration provides specific amounts in accor- We determine the level of remuneration based on research dance with the rank of each Director. Performance-linked remu- data provided by external specialized agencies, etc. neration is based on consolidated financial results and individual In order to further improve objectivity and transparency of performance evaluation. Performance is comprehensively evalu- Directors’ remuneration, we have established a Remuneration ated in consideration of the degree of achievement of individually Advisory Committee, which consists primarily of Outside Directors, established objectives, achievements, contributions to financial who participate in discussions about the Directors’ remuneration performance, and the degree of contributions, in addition to man- system and operation thereof, and provide advice to the Board of agement benchmarks such as net sales, operating income, and Directors. ROA. The stock-based remuneration system is designed to reward 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 correspond to any of the following and whether they are capable of perform- ing duties from a fair and neutral standpoint. 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) 3. Major business partner of the Asahi Kasei Group (when 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 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 5. Company which receives donation or aid (¥10 million 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 com- pany 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 Auditors of the Asahi Kasei Group or any staff thereof 9. Person who fell into any of the categories 2 through 8 above over the last three years 10. Person who has a close relative (spouse, relative within the sec- ond 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 (executive directors, executive officers, etc.)” 26 Asahi Kasei Report 2018 Asahi Kasei Report 2018 27 7 Audits In accordance with the audit policy adopted by the Board of performance of the audit in accordance with its audit plan, Corporate Auditors, each Corporate Auditor attends meetings comprising 19 certified public accountants and 34 other specialist of the Board of Directors and audits Directors in the discharge of accountants. their duties through examination of business performance. The The Internal Audit Dept., the Board of Corporate Auditors, and Corporate Auditors Office provides staff to support Corporate the Corporate Auditors of core operating companies and other Auditors in their duties. subsidiaries regularly meet to confirm the effectiveness of internal PricewaterhouseCoopers Aarata LLC is contracted as the governance systems for legal compliance and risk management. Independent Auditors to perform financial audits according to The Board of Corporate Auditors provides counsel to the the Companies Act and Financial Instruments and Exchange Act. Independent Auditors of the consolidated financial audit of Asahi The Independent Auditors form a team of assistants for Kasei each quarter and each fiscal year. Evaluation of the Effectiveness of the Board of Directors The effectiveness of our Board of Directors is regularly evaluated after each fiscal year, and results of evaluation are disclosed. Measures implemented in fiscal 2017 The Board of Directors implemented the following measures in fiscal 2017 based on evaluation of the previous fiscal year. Enhanced provision of information to Outside Directors and Outside Corporate Auditors As part of our effort to expand the provision of information to Outside Directors and Outside Corporate Auditors, we contin- ued to provide them with tours of our production sites and R&D facilities. To help them gain a deeper understanding of our diverse operations, we also provide them with regular explanations by people responsible for the business units and invite them to attend various events held inside and outside the company. Sharing information on IR activities and opinions of investors In addition to reporting a summary of IR activities, the responsible Executive Officer has begun to regularly report and share opinions of investors with the Board of Directors. Moving forward We will continue to extend efforts to enrich information provision for Outside Directors and Outside Corporate Auditors, and work to enrich deliberations at Board of Directors meetings through the timely input of perspectives of investors. Based on deliberations of the effectiveness of the Board of Directors during fiscal 2017, we will continue and expand these efforts in the future. In fiscal 2018, we plan to develop discussions among attendees of Board of Directors meetings including Outside Directors and Outside Corporate Auditors on the longer-term direction of management strategies for the next medium-term management initiative which will start in fiscal 2019. 26 Asahi Kasei Report 2018 Asahi Kasei Report 2018 27 Outside Directors Dialogue Outstanding people are transforming Asahi Kasei Outside Directors Tsuneyoshi Tatsuoka and Masumi Shiraishi discuss the way for Asahi Kasei to raise corporate value Corporate governance at Asahi Kasei Tatsuoka When Japan’s Corporate Governance Code was applied to listed companies in 2015, Asahi Kasei had already focused efforts on strengthening corporate governance for some time. During the two years that I’ve been an Outside Director, The Board of Directors has serious discussions on M&A in various fields of business; we consider how a company could add value, and how a business could contribute to earnings. Management decisions are made with a clear focus on raising corporate value. Information disclosure is proactive. All three Outside Directors are independent, and there is a good balance various governance issues were raised in the course of evaluating among each of our areas of specialty. the effectiveness of the Board of Directors, as well as through meetings between Corporate Auditors and Outside Directors. Each issue was given serious consideration and improvements were proposed in turn. Still, there are concerns. Asahi Kasei has an extremely broad range of operations, and sites located across the world. So there must be more than a few unseen risks. As business continues to expand, more deliberate effort will be needed to reveal such Corporate governance is a continuing process; there’s never unseen risks. a point where you can say “It’s finished.” Issues to be addressed are constantly changing as the management climate evolves. We must maintain a keen sense of the importance of measures to further strengthen corporate governance. Shiraishi Yes, but Asahi Kasei did update its governance configuration in accordance with the principles of the Corporate Governance Code when it was introduced. Tsuneyoshi Tatsuoka Outside Director April 1980: Joined Ministry of International Trade and Industry January 2010: Councilor, Cabinet Secretariat August 2011: Deputy Vice-Minister of Economy, Trade and Industry Vice-Minister of Economy, Trade and Industry Retired from Ministry of Economy, Trade and Industry Outside Director, Asahi Kasei Corp. (position held at present) June 2013: June 2016: July 2015: 28 Asahi Kasei Report 2018 Asahi Kasei Report 2018 29 Impression of the Board of Directors Tatsuoka I appreciate the various measures devised to foster high-quality discussions. As you mention, Asahi Kasei has a very wide range of businesses. The important thing is how the Board of Directors looks at each one. We don’t delve into the details of individual measures taken. Rather, we grasp the essence of each matter and have high-level discussions from a broad point of view. I also feel that management speed has increased to keep pace with a rapidly changing world. We need to appropriately judge when to step on the accelerator and when to apply the brakes. If we’re too cautious and keep stepping on the brakes, we will miss out on opportunities for growth. As someone who has spent many years focused on the growth of the Japanese economy, I fully recognize the importance of this. At Board of Directors meet- ings, I always try to offer opinions on how the company can make is no information gap between the Outside Directors and the Directors from inside the company. Several times a year we also have on-site visits to learn about the different businesses, and we also attend conferences where R&D results are presented. I find such events to be very informative. I also think Chairman Itoh (now Honorary Chairman) was very skillful at leading the board meetings. Among the board mem- bers, he was the most knowledgeable of Asahi Kasei’s history. He often interspersed the discussion with historical perspective, which was engaging for us as Outside Directors. He also adeptly made the discussion mesh among Outside Directors and the Directors from inside the company. I think Itoh-san’s leadership raised the quality of discussions for the Board of Directors. Tatsuoka Yes, and now that President Kobori is chairing the meetings, I feel that high-quality discourse is maintained. He is able to guide the discussion to weave together both inside and the most of opportunities in every situation. outside perspectives. Shiraishi You mention the measures to raise the quality of discussions by the Board of Directors. I’m impressed by how thorough these are. For example, we are briefed on the background and main issues related to items on the agenda prior to board meetings. It’s an effective means of ensuring that there Outsider’s perspective on Asahi Kasei’s strengths Tatsuoka I feel that Asahi Kasei’s true strength lies in having a firm corporate philosophy that is shared by all personnel. Long before ESG became prevalent, Asahi Kasei already had a Group Mission of “contributing to life and living for people around the world,” and a Group Slogan of “Creating for Tomorrow.” These are clear and concise expressions of the spirit of the company which permeates throughout, and is brought to life in business operations. Another strength is the trove of technology that provides the seeds of new business, which is how the company continues creating for tomorrow. Masumi Shiraishi Outside Director May 1989: Joined NLI Research Institute April 2001: Head Researcher, NLI Research Institute April 2002: Assistant Professor, Department of Economics, Toyo University April 2006: Professor, Department of Economics, Toyo University April 2007: Professor, Faculty of Policy Studies, Kansai University (position held at present) June 2013: Outside Director, Asahi Kasei Corp. (position held at present) 28 Asahi Kasei Report 2018 Asahi Kasei Report 2018 29 Outside Directors Dialogue Shiraishi I see the source of Asahi Kasei’s strength as having so many positive thinkers, working in a flat organizational structure. People communicate with ease. Even under challenging circum- stances, they earnestly share their views on actions that will help their business advance toward a brighter future. What Asahi Kasei needs for global growth Shiraishi Since we can’t expect robust growth in the Japanese market, the company will need to raise the pace of globalization. Connecting with many partners whose operations complement We said the company has a wide range of businesses, but at Asahi Kasei’s established businesses, while retaining and foster- a time of dramatic changes in the world about us, this diversity of ing various innovative personnel, will be essential. operations is itself a strength, isn’t it? Completing “Cs for Tomorrow 2018” Shiraishi The company achieved its income targets a year ahead of schedule. I think that attests to Asahi Kasei’s outstand- ing management and employees. Now in the final fiscal year, it will be vital to gain solid earnings from the investments and acquisitions made thus far. I also think further globalization of business will require greater diversity in the Board of Directors over the longer term. We should consider having more Directors with a technological background, female Directors not only from outside the com- pany but also from within, and non-Japanese Directors as well. Tatsuoka I agree that people will be an important key. Digital transformation including AI and IoT is bringing very rapid changes to the world, and material industries may be profoundly I also feel the company should do a better job of drawing affected. More and more, Asahi Kasei will need personnel with attention to performance characteristics that go beyond busi- high IT literacy, personnel who understand different cultures for ness results. Though Asahi Kasei is very active in areas related to overseas business, and personnel who can make the needed ESG, many aspects are not widely known. Greater recognition connections for success moving forward. can be gained by using key performance indicators to enable easier understanding. Tatsuoka The company is well on track to achieve solid finan- cial performance with its medium-term management initiative, centered on businesses that provide new value to society by enabling “living in health and comfort” and “harmony with the natural environment” in accordance with its Group Vision. Asahi Kasei is aiming at high targets for fiscal 2025, ¥3 trillion in net sales and ¥280 billion in operating income. While advanc- ing discussions on the next medium-term initiative with an eye toward those targets, fiscal 2018 is also a year to study concrete measures to prepare for various forthcoming changes. 30 Asahi Kasei Report 2018 Asahi Kasei Report 2018 31 Specific Measures to Heighten Compliance “Compliance,” “Communication,” and “Challenge” are identified as areas of emphasis to solidify the foundation for future growth under our Cs for Tomorrow 2018 management initiative. To heighten awareness for compliance among personnel, we are focusing on the “three actuals”—the trust of society is earned by having employees go to the actual place in person, see the actual thing with their own eyes, and know the actual facts. Basic principles The Asahi Kasei Group takes compliance seriously, and fully adheres to laws and regulations that are applicable to each business and function, as well as internal company rules. Each employee is also expected to uphold high ethical standards and respect social norms throughout the course of business activities, acting with sincerity in accordance with our Group Values based on our Group Mission. Internal framework Asahi Kasei Group Basic Regulation for Risk Management & Compliance The Asahi Kasei Group Basic Regulation for Risk Management & Compliance specifies basic systems and organizations for the central aggregation and administration of all matters related to risk management and compliance. Outline of Asahi Kasei Group Basic Regulation for Risk Management & Compliance 1. Purpose of the regulation 2. Definition of terms for risk management & compliance 3. Scope of application of the regulation 4. Framework for risk management & compliance 1) Designation of Executive Officer for Risk Management & Compliance 2) Establishment and composition of Risk Management & Compliance Committee 3) Establishment of Risk Management & Compliance Oversight Department and Risk Management & Compliance Promotion Departments 4) Role of Presidents of SBUs and core operating companies 5) Designation and role of Risk Management & Compliance Supervisors and Risk Management & Compliance Managers 5. The Asahi Kasei Group Code of Conduct 6. Crisis response 7. Compliance hotline (internal reporting system) Risk Management & Compliance Committee Our Risk Management & Compliance Committee is chaired by the President of Asahi Kasei Corp. with the Presidents of each Strategic Business Unit and Core Operating Company serving as committee members. The committee determines policy and deliberates on matters related to risk management and compliance, and monitors the management of risks and the state of compliance throughout the Asahi Kasei Group. Results of the committee’s deliberations, etc., are reported to the Board of Directors. Main subjects on the committee’s agenda 1) Summary of activities and results based on annual plans for risk management and compliance 2) Progress of education and training regarding the Asahi Kasei Group Code of Conduct 3) Reports of compliance violations and measures taken in response 4) State of operation of the compliance hotline 5) Disciplinary measures imposed on employees Framework for risk management & compliance Board of Directors, Management Council Deliberation/decision Reporting Risk Management & Compliance Committee (Secretariat) Risk Management & Compliance, General Affairs (Risk Management & Compliance Oversight Department) Coordination Administrative departments (Risk Management & Compliance Promotion Departments) Business units Instructions/reports Strategic Business Units Core Operating Companies Subsidiaries (worldwide) Subsidiaries (worldwide) 30 Asahi Kasei Report 2018 Asahi Kasei Report 2018 31 Specific Measures to Heighten Compliance Asahi Kasei Group Code of Conduct A-Spirit March/April 2017 In April 2017, we fundamentally reviewed the content of our former “Corporate Ethics—Basic Policy and Code of Conduct” and adopted a new “Asahi Kasei Group Code of Conduct” which is applied throughout all companies of the Asahi Kasei Group for greater ease of under- standing among our personnel around the world. The new code of conduct was distributed as a booklet to all employees in Japan. It was translated into various languages for international employees, and measures are advancing to gain understanding among subsidiaries and affiliates located outside Japan. The code of conduct is also made available to the public on our website. Launch of New Asahi Kasei Group Code of Conduct Outline of the Asahi Kasei Group Code of Conduct Compliance is positioned as one of the top management priorities under the “Cs for Tomorrow 2018” medium-term management initiative. As a part of the program to reinforce compliance, our 1. Ensuring Safety, Environmental Protection, and High Quality to Contribute to Life and Living (1) Maintaining Thorough Safety in All Aspects (2) Provision of Safe and High-Quality Products and Services that Customers Can Rely On (3) Thorough Management of Workplace Safety, Ensuring Safe and Comfortable Workplace Environments (4) Environmental Protection and Harmony with Local Communities Group Code of Conduct effective April 1, 2017. Corporate Ethics—Basic Policy and Code of Conduct was reviewed and replaced with a new Asahi Kasei The occurrence of manipulation of precast concrete pile installation data by a subsidiary raised the 2. Maintaining Sincere Relationships with Various Related Parties around Us (5) Timely and Appropriate Disclosure of Information to Society (6) Appropriate Descriptions to Customers, Provision of Safe and Reliable Products and Services (7) Healthy Relationships with Customers and Government Officials (8) Fair Relationships with Competitors (9) Optimized Procurement and Healthy and Appropriate Relationships with Suppliers (10) Respect for Human Rights and Diversity exigency of a review of our compliance system. Furthermore, as the number of personnel working outside of Japan has grown to about 1/3 of the total, it became necessary to review our compliance system from a more international perspective. The new Asahi Kasei Group Code of Conduct has been 3. Utilizing Management Assets Appropriately and Effectively (11) Performing Work with Integrity and Responsibility (12) Compliance with Accounting and Tax Rules, Protecting Company Property (13) Protecting and Managing Information (14) Protecting and Respecting Intellectual Property Rights (15) Compliance with Laws and Regulations, Practicing Corporate Ethics formulated to apply universally around the world, with simple and easy to understand supplemental explanations being prepared in accordance with the requirements in each country. Asahi Kasei Group Code of Conduct 1. What the Asahi Kasei Group Code of Conduct means to you Heightened employee awareness For a corporate citizen, compliance is not limited Discussions were held at workplaces in Japan based on case studies to laws and regulations. It also extends to internal regarding each section of the Asahi Kasei Group Code of Conduct. company rules and conformity with social norms. Posters on the code of conduct were hung in each workplace, and As a member of the Asahi Kasei Group, each of us is expected to act with sincerity and uphold high ethical a business-card sized summary was distributed to employees in standards as we work to fulfill our Group Mission in Japan enabling easy reference at any time. accordance with our Group Values. The Asahi Kasei Group Code of Conduct is a practical guide and standard for ethical conduct throughout Material for workplace discussions the day-to-day work of each and every member of the Asahi Kasei Group. Please take a moment to review the Group Mission and Group Values as well. Group Mission Compliance hotline We, the Asahi Kasei Group, contribute to life and living for people around the world. The Asahi Kasei Group began employing a Compliance Hotline This is the Asahi Kasei Group’s unchanging reason for being. What we never cease in April 2005 to ensure that any possible ethical lapses which to strive for, though the needs of society change throughout the ages. It is in our employees may encounter or observe are dealt with swiftly and very nature, deriving from a sincere regard for the people of the world. appropriately. In fiscal 2015, the system was expanded to enable suppliers and their employees to report or consult. Group Values Sincerity—Being sincere with everyone. Challenge—Boldly taking challenges, continuously seeking change. Creativity—Creating new value through unity and synergy. Reports and responses During fiscal 2017 there were 47 reports and consultations made These are the shared values that must be held by the people who work in the Asahi Kasei Group. They define our fundamental approach in the process of pursuing our through the hotline system. None of them regarded significant Group Mission, held in common among our diverse range of personnel. matters which would affect the performance of operations. Some 70% of the reports and consultations concerned personal relationships among workplace colleagues. After fact- checking, cautions were issued to relevant personnel as necessary, and monitoring to confirm improvement was performed. 2. 3. 私 た ち の 行 動 規 範 ！ What is expected of officers and employees of the Asahi Kasei Group Trust is built by the consistent effort of all officers and employees of the Asahi Kasei Group to perform their work with integrity based on the Asahi Kasei Group Code of Conduct. Please read the Asahi Kasei Group Code of Conduct and become familiar with how it applies to your work. In case of any doubt or uncertainty when deciding on a course of action, refer to it together with relevant internal company Workplace poster rules as well as applicable laws and regulations. Portable summary 「コンプライアンスホットライン」 （内部通報制度）を知っていますか？ コンプライアンスホットライン（内部通報制度）とはなんですか？ コンプライアンス違反に関する情報をできるかぎり早期に発見し、法令違反や不正・不祥事等を未然に防 ここが気になる！ Aさん 旭化成行動規範 A2 ポスター 旭化成行動規範 定期券サイズ　外面 Overview of the Asahi Kasei Group Code of Conduct それでも判断に迷う場合は、 表紙のセルフチェック項目を確認してください。 適法で、誠実な行動といえるだろうか？ 判断に迷う場合 誠実な行動の実践において、判断に迷うこと があった場合は、まずは「グループ行動規範」 の各項目や、関 連する法 令や社 内ルールを 確認してください。 旭化成グループ行動規範 私たちの行動は、 それでも、さらに判断に迷う場合は、「グループ 行動規範に関する相談先」に記載する先へ 相談を行ってください。 旭化成グループの理念やバリュー（価値観） の精神にかなっているだろうか？ 広く社会やメディア･当局･お客様･取引先 85mm 85mm 読 み 込 も う 、 実 践 し よ う ！ The Asahi Kasei Group Code of Conduct was formulated to match the characteristics of the Asahi Kasei Group with business based on manufacturing, while the codes of conduct of major global companies were consulted as reference on global perspectives. 旭化 成グループは、内部通 報制度を導入・ 運用しています。詳細は、「日本国内における コンプライアンスホットライン（内部通報制度） について」を確認してください。 制度改定の背景について 2000年代初頭に企業不祥事が企業内部からの通報で発覚したことを契機に、「公益通報者保護法」と「公益通報者保護法に関する民間事業者向けガイドラ イン」が制定され、これに合わせて旭化成グループも05年に内部通報制度を導入しました。16年12月にガイドラインが改訂されたことを受け、今般、制度を見 直しました。 家族や友人にも胸を張って、恥ずかしく などに自信を持って説明できるだろうか？ 内部通報制度について ない行動だと説明できるだろうか？ 社内標準Webホームページ ➡ 「コンプライアンスホットライン」 告することを制度化しました。監査役会が調査にあたる場合もあります。 ※ セクシュアル・ハラスメントや雇用機会均等法に関する相談・通 ※ 規程や運用の詳細についても掲載しています。 報などは人事部ダイバーシティ推進室で対応します。 コンプラさん 是正・解決 12 ※ 上記のイメージは代表的な対応例です。詳細なフロー図は左記のイントラネット上の 「コンプライアンスホットライン」でご確認ください 11 Bさん Announcement of amendment The system and operation of our Compliance Hotline was partially amended in accordance with guidelines issued by Japan’s Consumer Affairs Agency in December 2016. The amendment was announced in the internal magazine and on the corporate intranet. Dさん Gさん Cさん Eさん Fさん ぎ、旭化成グループが社会やお客さまからの信頼を確保するための制度です。 このたび、旭化成グループではコンプライアンスホットラインを改正しました。 誰が利用することができるのですか？ 社員、契約社員、派遣社員、パート、アルバイトなど、旭化成グループで働く全ての従業員が対象です。 どんなことを通報できるのですか？ グループ内で起きている法令違反や、行動規範・就業規則等の社内規程に違反する行為です。それを見聞 きしたときや、職場や上司との相談では解決できないときに利用してください。なお、私利のみを目的にし たり、他人を陥れることを目的として利用することはできません。 どうやって利用することができるのですか？ コンプラさん コンプラさん コンプラさん 制度について改めてご紹介します。 通報から是正までの流れのイメージ 取締役 兼 上席執行役員 （ 総 務・法 務、 リスク・ コンプライアンス担当） 柿澤 信行さん 通報者 通報 イントラネット上の「コンプライアンスホットライン」、弁護士事務所への封書の郵送、どちらの方法でも かまいません。スムーズな調査のため、できる限り実名での通報をお願いします。 　コンプライアンスに沿った行動を実践することは 旭化成グループで働く私たちの責務です。小堀社長 社内イントラ 弁護士事務所 受け付けた通報はどのように取り扱われるのですか？ 内部通報事務局が、必要な場合は調査・対応チームを作って調査します。調査の結果、違法行為等が認め 　皆さんが日々の業務の中で判断に迷うことがあっ られれば然るべき対応をとります。実名で通報された方には調査結果や対応についてご連絡します。 コンプラさん が言われている通り、利益とコンプライアンスが相 反する場合は迷わずコンプライアンスを優先してく ださい。 コンプラさん に出会った場合の連絡先として、コンプライアンス た場合や、コンプライアンスに違反するような事柄 ホットライン（内部通報制度）を設けています。 　この制度はコンプライアンスを推進するための重 要な仕組みです。 　皆さん、制度の内容を充分に理解し、活用してくだ コンプラさん さい。 連絡 事務局 リスク・コンプライアンス 担当役員 調査・対応チーム （必要に応じて編成） 調査・事実確認 コンプライアンス違反 発生部場・個人 通報したら周りに知られてしまうことはないのでしょうか？ 実名で通報された方のお名前は、厳秘扱いとして、事務局限りとしています。通報内容は事務局、調査・対応 チームなど必要最低限の範囲にとどめています。なお、通報者に不利益な取り扱いをすることはありません。 従来の制度と何が変わっているのですか？ 2015年から、購買や設備工事等の発注に関するお取引先とその従業員の皆さまからも通報ができるよ うにしています。また、今回から、重大なコンプライアンス違反の場合等について、旭化成の監査役会に報 コンプライアンス ホットラインはこちらです！ 行動規範をいつでも確認できるようにコンパクトにまとめた （2017年10月発行） お名前 携帯カードを皆さんに配布しています。 The Asahi Kasei Group Code of Conduct consists of three parts. （財布や定期入れに入る２つ折りのカードサイズです） 1 Ensuring safety, environmental protection, and high quality to contribute to life and living Part 1 concerns ensuring all aspects of safety in our business activities, and how we should meet society’s expectations and requirements for safety, the environment, and quality (sections 1–4) Asahi Kasei Report 2018 32 107mm 107mm 2 Maintaining sincere relationships with various related parties around us Part 2 concerns building and maintaining sin- cere relationships with various related parties such as the general public, customers, share- holders, investors, suppliers, competitors, and employees (sections 5–10) The Asahi Kasei Group Code of Conduct is available at the following address. www.asahi-kasei.co.jp/asahi/en/csr/compliance/about_compliance/pdf/code_of_conduct.pdf 3 Utilizing management assets appropriately and effectively Part 3 concerns the proper management and effective use of all management assets (sections 11–15) 7 Asahi Kasei Report 2018 33 Measures for risk management We provide clear guidelines for risk management and emergency response in accordance with the Asahi Kasei Group Basic Regulation for Risk Management & Compliance. Reviews to identify latent risks in each business unit Managers responsible for risk management and compliance are designated in each SBU, core operating company, and subsidiary. They work to thoroughly identify, assess, and analyze their related risks, and to plan and implement measures to mitigate serious risks. Through the Risk Management & Compliance Committee, we confirm and follow-up on the state of risk management in each business unit. Crisis response system Due to accidents, incidents, or problems, if Asahi Kasei Group operations are significantly damaged or would cause serious adverse effects on the general public, we have a system to establish a group emergency response headquarters which works with the relevant divisions and departments to ensure that the proper response is taken. Measures applied throughout the Asahi Kasei Group Prevention of bribery The Asahi Kasei Group considers bribery to be an important risk factor which could seriously jeopardize our corporate reputation. Applied throughout all operations, the Asahi Kasei Group Policies for Prevention of Bribery clarify basic policies to prohibit bribery and procedures to follow to avoid bribery-related risks. Education and training on the prevention of bribery are provided to personnel worldwide, includ- ing e-learning and workshops. The Asahi Kasei Group Policies for Prevention of Bribery are available at the following address. www.asahi-kasei.co.jp/asahi/en/csr/compliance/about_compliance/pdf/about_compliance_02.pdf Information security Recognizing the importance of countermeasures to protect against information security risks, we established the Asahi Kasei Group Information Security Policy and aim to ensure and further improve information security. A range of information security measures is sys- tematically applied for protection against sophisticated cyberattacks such as targeted threats. Our internal company rules were amended, employee education and training including e-learning and e-mail drills performed, and monitoring functions reinforced with the adoption of a high-level monitoring system. The Asahi Kasei Group Information Security Policy is available at the following address. www.asahi-kasei.co.jp/asahi/en/csr/compliance/about_compliance/ Protection of personal information Asahi Kasei is committed to the proper handling and use of personal information, in accordance with the Asahi Kasei Group Regulation for Management of Personal Information. An information security handbook which describes our rules for handling information is distributed to all employees, and education is performed via e-learning. We revised the Asahi Kasei Group Regulation for Management of Personal Information in accordance with an amendment to Japan’s Act on the Protection of Personal Information which became effective in May 2017. Additionally, to comply with the EU General Data Protection Regulation (GDPR) which became effective in May 2018, we established new Asahi Kasei Group Bylaws for Management of Personal Information for GDPR and prepared the necessary standards and systems. Prevention of insider trading In March 2017, an employee of a subsidiary was fined by Japan’s Financial Services Agency for insider trading. Taking this matter very seriously, we revised the Asahi Kasei Group Regulation for Prevention of Insider Trading to prevent any recurrence. Measures were swiftly applied to gain understanding and awareness among personnel regarding the revised regulation and related internal rules. Management of share-trading by officers and employees has been enhanced under the new rules, and a wide-ranging program of education and train- ing is ongoing. 32 Asahi Kasei Report 2018 Asahi Kasei Report 2018 33 R&D and Human Resources Enhancing the system to create new businesses and strengthen established businesses Masafumi Nakao Representative Director, Vice-Presidential Executive Officer; Executive Officer for R&D Strategy of New Business Creation One of our basic strategies under the “Cs for Tomorrow 2018” medium-term management initiative is “creation of new businesses.” Having various technologies and diverse business operations, the Asahi Kasei Group is striving to create new value through combinations among core technologies, multifaceted business models, and diverse human resources. The areas of “clean environmental energy” and “healthy/comfortable longevity with peace of mind” are targeted in R&D to create new businesses that provide solutions to challenges faced by society. Aims and approach for new business creation Our main areas of focus to address social issues Foster and acquire core technology Acquire technology seeds Apply technology laterally Society of clean environmental energy Society of healthy/ comfortable longevity with peace of mind CVC Coordination/ combination Strengths of Asahi Kasei Utilize market channels Enhance and fully utilize business platforms Heighten added value Business models Solutions M&A The Asahi Kasei Group will create new businesses by leveraging our strengths in technology and operations from a 3-axis perspective. The first axis is to enhance and fully utilize our market channels. By utilizing the various market channels and platforms of each business area throughout the Asahi Kasei Group, we will develop a broad range of new businesses. The second axis is to foster and acquire core technology. While performing in-house R&D, we will actively apply new external technologies to enhance our core technologies. The third axis is to heighten added value. In addition to just supplying substances, which had been our main approach particularly in material businesses, we will place greater emphasis on building new business models around services and solutions. Approach for new business creation viewed by market axis and technology axis Established mature markets Established growth markets New markets Potential future markets until FY2018 until FY2025 1. Coordinate with strategic business units and core operating companies Maximizing value of established businesses • Brand strength/market channels • Cost competitiveness • Services 2. Utilize information technology, study new business models Creating added value from new perspectives • Higher added value from solutions 3. Coordinate with strategic business units and core operating companies • Marketing • Full utilization of Asahi Kasei Group technologies and business platforms • Acquiring missing parts (CVC) / s t n e m e v o r p m i s n o i t a n b m o c i i l / s e g o o n h c e t g n i t s i x E l d e p o e v e d y l w e N i l s e g o o n h c e t 4. Review programs, examine originality and differentiation B-to-C in Health Care and Homes sectors • Better therapy • Comfortable residential living B-to-B in Material sector • Disregarding mature markets • Pursuing originality and differentiation in growth markets 5. Focus on strong points and accelerate • Accelerating R&D • Acquiring technology seeds/ sprouts by CVC • New business models 6. Basic/exploratory research in collaboration with universities and government research organs Long-term perspective • Develop/acquire leading-edge technology • Collaboration with outside research institutions 34 Asahi Kasei Report 2018 Asahi Kasei Report 2018 35 We perform longer-term group-wide corporate R&D projects where we identify business areas with a high degree of novelty and markets having high growth potential. R&D for further enhancement of existing businesses is focused on ways to build on our strengths. To attain our ideal for Asahi Kasei in 2025, we have reformed our training and systems of education and support to strengthen the two mainstays of management skills and specialist abilities. R&D at the Asahi Kasei Group The strength of the Asahi Kasei Group is the ability to create new businesses based on our wide range of technologies and to manage diverse fields of operation. Throughout our history of diversification, we have leveraged a wide variety of technologies cultivated in chemicals operations to establish a number of core technologies. Since our founding, we have constantly performed R&D to meet the world’s needs and created new businesses based on technology. While our business environment and the structure of society are rapidly changing, we will continue to strive for the creation of new value. R&D organization We reconfigured our R&D organization at the time of our transi- tion to an operating holding company structure in April 2016 to enhance coordination among different departments within the company. Under “Cs for Tomorrow 2018,” we are leveraging our strengths in various technologies and diversified operations from a 3-axis perspective of “foster and acquire core technology,” “heighten added value,” and “utilize market channels” to accelerate R&D, while enhancing external connections through CVC (corpo- rate venture capital) and joint research to create new business. Asahi Kasei Corporation Corporate Research & Development • Technology Policy Center • CVC Office • Corporate IP • Analysis & Simulation Center • R&D Center • Healthcare R&D Center • Synergistic Solution Initiative • Yamashita Laboratory • Chemistry & Chemical Process Laboratory • Fibers & Textiles Technology Center • Performance Polymers Technology Center • Performance Materials Technology Center Corporate Production Technology • Maintenance Technology Center • Engineering Center • Production Technology Center Clean Energy Project UVC Project Material Homes Health Care Asahi Kasei (operating function) • Fibers & Textiles • Petrochemicals • Performance Polymers • Performance Materials • Consumables • Separators Asahi Kasei Microdevices • Research & Development Center Asahi Kasei Homes • Technology Div. • New Business Development Dept. • Housing R&D Center • Lifestyle R&D Laboratory Asahi Kasei Construction Materials • Products & Marketing Development Dept. • Materials Technology Dept. Asahi Kasei Pharma • Clinical Development Center • Pharmaceutical Research Center Asahi Kasei Medical • Medical Products Development Div. ZOLL Medical • R&D departments 34 Asahi Kasei Report 2018 Asahi Kasei Report 2018 35 R&D and Human Resources Main R&D bases around the world With R&D bases located around the world, we are able to meet a wide variety of needs in each market. R&D sites overseas Dormagen, Germany Engineering Plastics Technical Center Europe R&D Center Shanghai, China Engineering Plastics Technical Center Guangzhou, China Engineering Plastics Technical Center Waltham, Massachusetts Asahi Kasei Pharma America Chelmsford, Massachusetts ZOLL, CVC Menlo Park, California CVC Owensboro, Kentucky Polypore Vietnam Computer Aided Engineering (CAE) Charlotte, North Carolina Polypore R&D sites in Japan Core R&D sites Kawasaki, Ohito, Fuji, Moriyama, Mizushima, Nobeoka, etc. Albany, New York Crystal IS: UVC LED R&D expenses Each SBU performs R&D both to reinvigorate and enhance existing businesses and to create new businesses for the future. Critical Care 15.1% Corporate expenses 18.1% Annual R&D expenses (¥ billion) 90 Breakdown of R&D expenses (FY2017) ¥85.7 billion Fibers 3.4% Chemicals 20.8% Health Care 25.0% Construction Materials 1.2% Homes 3.2% Electronics 13.3% 36 Asahi Kasei Report 2018 85.7 81.1 79.6 75.5 71.1 71.1 66.3 ’11 ’12 ’13 ’14 ’15 ’16 ’17 (FY) 80 70 60 0 Asahi Kasei Report 2018 37 Core technologies that support Asahi Kasei products Compound semiconductor/LSI ● Application-specific IC ● Electronic compass ● IR sensor/gas sensor ● Magnetic sensor Catalyst/process ● Cyclohexanol ● AN/MMA ● CreolexTM metallocene polyethylene ● SunfineTM ultrahigh molecular weight polyethylene Catalysis/ inorganic synthesis Compound semicon- ductors Software algorithms Homes/construction materials ● Hebel HausTM unit homes ● Hebel MaisonTM apartment buildings ● HebelTM autoclaved aerated concrete ● Neoma FoamTM phenolic foam insulation Foam insulation Polymers/processing ● Performance polymers: LeonaTM, XyronTM, TenacTM, etc. ● Synthetic rubber: TuftecTM/TufpreneTM, etc. ● SB latex/Dura-PhotoTM ● AsacleanTM ● Saran WrapTM cling film ● Photosensitive resins: SunfortTM, PimelTM, APRTM/AFPTM ● NovacureTM latent hardener Chemical process Polymer design/ polymerization/ processing Core Technologies Anti-quake/ construction methods/ anti-fire/durability Bio pharmaceuticals Functional polymer Polymeri- zation/ spinning/ cellulose Fibers ● Spunbond nonwovens ● BemlieseTM ● LamousTM ● RoicaTM ● LeonaTM filament ● BembergTM Biological information processing Virus removal/ blood puri- fication Health Care ● Prescription drugs: TeriboneTM, RecomodulinTM, etc. ● Acute critical care devices: AEDs, LifeVestTM, etc. ● Blood purification: Artificial kidneys (APSTM), therapeutic apheresis devices ● PlanovaTM virus removal filters Phase separation/ electro- chemistry Membranes/separation ● MicrozaTM ● Ion-exchange membranes ● HiporeTM IP Strategy To facilitate the creation of new businesses as an important man- agement task in the Asahi Kasei Group, the management strategy, IP strategy, and R&D strategy of each operation are integrated as one. IP activities directly contribute to the management of operations by acquiring IP rights from R&D results to gain business advantage, enabling the creation of new businesses, and securing the profitability of existing businesses. The business units take the lead in formulating an IP strategy that matches the characteristics of each operation. Emphasis is placed on the quality of individual patents as well as the quantity of patents. Strategic licensing is performed when it is deemed an effective means to heighten the contribution of IP rights to our own business operations. Japanese Patent Applications 3.4% 3.6% 5.6% ② ① 13.3% ③ 6.6% ② Total 887 ① 37.2% Overseas Patent Applications 0.4% 0.0% ① ② 8.2% Japanese Trademark Applications 2.2% 5.5% 30.3% 8.7% ③ 8.7% ② Total 230* 22.1% 14.4% ② 10.5% ① 7.7% ② ③ 0.0% Total 181 0.0% 1.1% ① 3.2% Overseas Trademark Applications 14.9% 7.4% ② ③ Total 94 ① 36.2% ① 51.9% ① 59.7% ② 37.2% 36 Asahi Kasei Report 2018 Asahi Kasei Report 2018 37 ■ Holding company ■ Material (①: Chemicals ②: Fibers ③: Electronics) ■ Homes (①: Homes ②: Construction Materials) ■ Health Care (Pharmaceuticals, Medical Care) (From January 1 to December 31, 2017) * Overseas applications for a single patent family are counted as one. R&D and Human Resources Renewed Group Masters program —Fostering highly specialized personnel— In fiscal 2017, our Group Masters program was renewed for greater emphasis on creation of new businesses and strengthening of established businesses. The new program aims to foster highly specialized personnel by providing advanced training and enhanced status. Substance of revision The program was reclassified from three into five designations. Before revision After revision Roles Group Fellow (status equivalent to Managing Executive or Senior Managing Executive) Executive Fellow (status equivalent to Executive Officer) Person who newly developed or considerably expanded a field of technology Principal Expert (status equivalent to Managing Executive or Senior Managing Executive) Person who takes the lead in a field of technology Senior Fellow (status equivalent to Managing Executive, Senior Managing Executive, or Executive Officer) Person whose term as Executive Fellow or Principal Expert expires after retirement age but who is expected to continue the roles shown at right 1. Actively participating in and contributing to new business creation and strengthening operations by cultivating and enhancing their skills and abilities as a leading specialist. 2. Fostering younger personnel in the relevant areas. Senior Group Expert Lead Expert Person ranked below Principal Expert (candidate to be Principal Expert) Group Expert Expert Person ranked below Lead Expert (candidate to be Lead Expert) Actively participating in and contributing to new business creation and strengthening operations by cultivating and enhancing their skills and abilities. While we had developed a system called Group Masters to foster high-level specialists in a hierarchical structure with Group Fellow as the highest rank, its function was not sufficiently effec- tive. We therefore renewed the Group Masters system for greater effectiveness to support the growth of operations while nurturing specialist employees. To achieve sustainable growth in a rapidly changing business environment, the biggest key is human resources that can bring success and growth globally. In fiscal 2017 we renewed our Group Masters system for the first time in ten years, sharpening the focus on development of highly specialized personnel who are expected to be at the core of business expansion. Global companies achieving high growth have many highly specialized human resources in various fields, and fully utilize their abilities for business development. In Japan, however, companies tend to focus more on generalized ability, so even technical personnel who could thrive as specialists often pursue a career in managerial positions. This means their individual strengths may not be fully utilized. 38 Asahi Kasei Report 2018 Asahi Kasei Report 2018 39 Purpose Placing greater emphasis on the participation and contribution of high-level specialists for the creation of new businesses and strengthening of established businesses Identification of core technology fields Core technology fields are designated as areas of sector-wide technologies to be reinforced, and technological personnel leading each area are appointed as Group Masters. We identified 11 domains as sector-wide core technology fields organized based on sources of our group competitiveness for the achievement of business expansion and busi- ness creation in five to ten years. These are accumulated core technologies, manufacturing technologies, know-how, business platforms, various market channels, and business models. The core technology fields are reviewed every year. Core technology fields (starting with the Material sector in fiscal 2017) 1) Fibers (polymerization, spinning, cellulose) 2) Membranes, separation 3) Electrochemistry (electrolysis, battery) 4) Polymers, processing (polymer design, polymerization, processing, performance polymers) 6) Compound semiconductors 7) Software, algorithms 8) Evaluation, analysis technology (computer simulation, materials informatics) 9) Process development, construction technology 5) Catalysts, chemical processes 10) Product design, advanced control (inorganic synthesis) 11) Equipment technology Before revision After revision Specific technologies for each business Specific technologies for each business Specialist fields of technology for each business Specialist fields of technology for each business Core technology fields Core technology fields for the whole sector (starting with the Material sector in fiscal 2017—11 fields) Application to non-technical areas Non-technical areas and job categories were identified for fostering specialist personnel, and leaders in each area were appointed as Group Masters. Succession planning Programs to nurture successors to Group Masters in each area were developed, with linkage between business promotion and human resources development. Enhanced status Rank and remuneration of Group Masters were enhanced in order to make the program more appealing, and as an effective way to attract needed personnel from outside. Transition period The renewed program was applied to the Material sector (Asahi Kasei Corp. and Asahi Kasei Microdevices Corp.) in fiscal 2017 prior to other sectors. It is being extended to the Homes and Health Care sectors (Asahi Kasei Pharma Corp., Asahi Kasei Medical Co., Ltd., Asahi Kasei Homes Corp., and Asahi Kasei Construction Materials Corp.) in fiscal 2018. 38 Asahi Kasei Report 2018 Asahi Kasei Report 2018 39 Operating Segments Material Hideki Kobori Executive Officer for Material business sector President & Representative Director, Presidential Executive Officer, Asahi Kasei Corp. Main products ■ Bemberg™ cupro fiber ■ Roica™ premium stretch fiber ■ Spunbond nonwovens ■ Bemliese™ continuous-filament cellulose nonwoven ■ Lamous™ microfiber suede ■ Leona™ nylon 66 filament ■ Acrylonitrile (AN) ■ Styrene ■ Polyethylene (PE) ■ 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 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 unrivaled technologies. ■ Sales composition ■ Operating income Net sales & operating income 1,087.7 121.9 (¥ billion) 140 1,175.0 115.0 53.7% composition 54.0% Fiscal 2017 (¥ billion) 1,200 900 600 300 0 Not including “Others” category and corporate expenses and eliminations. '17 '18 forecast Net sales (left scale) Operating income (right scale) 105 70 35 0 (FY) Highlights GRS certification of Bemberg™ cupro fiber With concern for sustainability rising around the world, we acquired Global Recycled Standard (GRS*) certification for Bemberg™ cupro fiber in March 2017 (Certification No. CU848689). A regenerated fiber being made from cotton linter, the short fibers on cotton seeds, Bemberg™ is used in a wide range of applications from high-quality suit linings to outerwear, innerwear, bedclothes, and sportswear. The GRS certification of Bemberg™ recognizes the sustainability of its manufacture from cotton linter, which is not conven- tionally used as fiber, for 100% of its material, with strict control of chemical substances in the production process and an established system of traceability. This is the second GRS certification for our products, following that for Roica™ EF premium stretch fiber in 2016 (Certification No. CU839905 in Japan and CU831661 in Europe). Cotton bolls and seeds covered in linter * GRS is a certification that confirms the amount of recycled inputs and their traceability, issued by Textile Exchange, a global non-profit organization focused on accelerating sustainable practices in the textile industry. 40 Asahi Kasei Report 2018 Asahi Kasei Report 2018 41 Fibers and Textiles ◆ Performance in fiscal 2017 was firm, particularly for nonwovens, as sales increased and operating income increased slightly ◆ Business will continue to expand by leveraging the investments made for growth Lamous™ microfiber suede for automotive interiors led the growth of shipments, and sales increased while operating income increased slightly in fiscal 2017. Sales growth continues for Bemberg™ cupro fiber as material for ethnic garments in India and Pakistan, Bemliese™ continuous-filament cellulose nonwoven for facial masks, and Leona™ nylon 66 filament for air bags. Increasing demand is forecasted for each product, and global business expansion will leverage the investments made for growth. Chemicals ◆ Sales and operating income increased in fiscal 2017 with higher market prices for AN and firm performance in high value-added businesses ◆ We will continue to expand operations in S-SBR for fuel-efficient tires and engineering plastics for vehicle weight reduction as part of our focus on the automotive field Chemicals posted increased sales and operating income in fiscal 2017 with higher market prices for acrylonitrile (AN) and other petrochemicals, improved terms of trade for solution-polymerized styrene-butadiene rubber (S-SBR), and firm sales of engineering plastics. In our expansion of high value-added businesses, emphasis is placed on the automotive field including S-SBR for fuel-efficient tires and engineering plastics to replace metal for vehicle weight reduction. European marketing activities are being proactively advanced through our subsidiary Asahi Kasei Europe. Tire labeling requirements in various countries are bolstering demand for S-SBR which enhances tire performance through our unique polymer design technology. An expansion of capacity in Singapore is scheduled for start-up in January 2019. We are also strengthening our overseas compounding facilities and technical centers for engineering plastics. Electronics ◆ Sales and operating income increased with firm shipments of each product in fiscal 2017 ◆ We are expanding capacity for LIB separators and developing new business for gas sensors Shipments increased by a wide margin, particularly for lithium-ion battery (LIB) separators, contributing to higher sales and operating income for separators in fiscal 2017. Separator operations turned profitable even after amortization of goodwill and other intangible assets associated with our acquisition of Polypore International in fiscal 2015. We will continue to expand capacity for LIB separators to meet rapidly growing demand in automotive applications. Sales and operating income for electronic devices increased in fiscal 2017 with firm shipments of camera module devices and of magnetic sensors for household appliances. We are developing a new business for CO2 sensors with Senseair AB, a Swedish manufacturer of gas sensor modules which we acquired in April 2018. 40 Asahi Kasei Report 2018 Asahi Kasei Report 2018 41 Operating Segments Homes Fumitoshi Kawabata Executive Officer for Homes business sector Senior Executive Officer, Asahi Kasei Corp. President & Representative Director, Asahi Kasei Homes Corp. We set the stage for a rich and fulfilling lifestyle with our homes business that provides high-quality products and services for Long Life Homes which earn high cus- tomer satisfaction that lasts for more than half a century, and with our construction materials business that provides innovative and original high value-added products. ■ Sales composition ■ Operating income Net sales & operating income 31.7% composition 28.5% Fiscal 2017 (¥ billion) 800 600 400 200 0 641.0 64.4 657.0 65.5 '17 '18 forecast (¥ billion) 100 75 50 25 0 (FY) Not including “Others” category and corporate expenses and eliminations. Net sales (left scale) Operating income (right scale) Main products Highlights ■ Hebel Haus™ unit homes ■ Hebel Maison™ apartment buildings ■ Atlas™ condominiums ■ Hebel Rooms™ apartment rental network ■ Remodeling ■ Hebel™ AAC panels ■ Neoma Foam™ and Neoma Zeus™ phenolic foam insulation panels ■ Foundation systems ■ Structural systems and components Mixed-use redevelopment at Kusatsu Station, Shiga, Japan Asahi Kasei Realty & Residence Corp. held a ground- breaking ceremony in October 2017 for an urban redevelopment project at JR Kusatsu Station in Shiga, Japan, as a member of the redevelopment consortium for the Kitanakanishi and Sakae district. This is the fourth project of large-scale redevelopment for a safe and comfortable urban environment in the area around Kusatsu Station. Focused on “creating a thriving promenade,” we are constructing a multifunctional complex that combines rich commercial facilities together with residential units, including serviced apartments for seniors as well as standard condominiums for sale. Illustration This project will play a key role in the revitalization of the city center by providing a thriving and efficient setting for young families to live with comfort and convenience, while enabling seniors to reside with security and peace of mind. 42 Asahi Kasei Report 2018 Asahi Kasei Report 2018 43 Homes ◆ Sales grew with increased unit prices in fiscal 2017, but operating income was flat due to increased SG&A expenses ◆ We will continue to provide high added value in order-built homes, expand the real estate and remodeling businesses, and develop new businesses In fiscal 2017, sales grew but operating income was flat. While unit prices rose, especially for Hebel Maison™ apartment buildings, SG&A expenses increased. Although Japan has a declining birth rate and aging population, demand for high-quality homes in urban markets is unabated. We will continue to provide order-built homes with high added value corresponding to customer needs. In May 2017 we adopted a new insulation system in all 2-story unit homes which exceeds the performance standard for Net Zero Energy House designated by the Japanese government. As we expand the real estate and remodeling businesses, we will also continue to develop new businesses such as medium-rise buildings of 5–8 stories, apartments for seniors, and overseas business through a capital alliance with McDonald Jones Homes Pty Ltd of Australia. Construction Materials Hebel Maison™ ◆ Sales increased with firm shipments of insulation material, but operating income decreased in fiscal 2017 with higher feedstock costs ◆ We will continue to expand business by providing high-performance insulation material that contributes to saving energy in homes Sales increased but operating income decreased in fiscal 2017. Shipments of Neoma Foam™ phenolic foam insulation panels were firm, but feedstock costs rose. In January 2018 we launched Neoma Zeus™ featuring world- leading insulation performance. We are developing non-housing applications for the product in addition to the main application in homes. As consciousness for saving energy continues to rise, we will provide high-quality insulation material that meets customer needs. Neoma Zeus™ 42 Asahi Kasei Report 2018 Asahi Kasei Report 2018 43 Operating Segments Health Care Shuichi Sakamoto Executive Officer for Health Care business sector (joint) Director, Senior Executive Officer, Asahi Kasei Corp. Chairman & Director, Asahi Kasei Pharma Corp. Chairman & 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 44 Asahi Kasei Report 2018 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 puri- fication devices for chronic and acute renal failure, and various intractable diseases; and products for the manufacturing process of biopharmaceuticals and other new drugs. Our products in the field of acute critical care including AEDs, defibrillators for professional use, and intravascular temperature management systems help to save people’s lives. ■ Sales composition ■ Operating income Net sales & operating income 14.6% composition 17.5% (¥ billion) 300 296.3 303.0 (¥ billion) 60 39.5 37.5 200 100 0 '17 '18 forecast Net sales (left scale) Operating income (right scale) 40 20 0 (FY) Fiscal 2017 Not including “Others” category and corporate expenses and eliminations. Highlights Approval to extend treatment duration for Teribone™ osteoporosis drug In May 2017, Asahi Kasei Pharma obtained approval for an extension of the maximum duration of treatment for the osteoporosis drug Teribone™ 56.5 μg subcutaneous injection from 72 weeks to 24 months. Sold in Japan since November 2011, Teribone™ is used for the treatment of osteo- porosis with high risk of fracture. Administered once a week, it facilitates bone formation by activating osteoblasts, which inhibits fracture through increased bone strength with both improved bone quality and increased bone mass. We believe that the extension of the maximum duration of treatment for Teribone™ will further enhance the treatment of osteoporosis. Teribone™ Asahi Kasei Report 2018 45 Pharmaceuticals and Medical Care ◆ In fiscal 2017, although sales and operating income from pharmaceuticals decreased due to competition from generics, sales and operating income from medical care increased with firm performance of each business ◆ Reinforcement of the global business platform and strengthening of domestic profitability will contribute to growth of the Health Care sector Shipments of Teribone™ osteoporosis drug increased but Flivas™ agent for treatment of benign prostatic hyperplasia in particular was impacted by competition from generics, and sales and oper- ating income from pharmaceuticals decreased. We are expanding the pharmaceutical product lineup by launching Reclast™ for osteoporosis and Kevzara™ for rheumatoid arthritis to enhance profitability in the field of orthopedics in Japan. For medical care, both sales and operating income increased due to firm performance of each business and the weaker yen. We will further expand sales of Planova™ virus removal filters and continuously develop the dialysis business in China. Pharmaceuticals Medical care products Acute Critical Care ◆ Sales and operating income in fiscal 2017 increased due to significant growth in shipments of defibrillators for professional use ◆ High growth will be sustained through expansion of business for temperature management systems as well as the mainstay LifeVest™ wearable defibrillator and defibrillators for professional use Both sales and operating income from acute critical care grew thanks to considerably increased shipments of defibrillators for professional use and firm performance of the LifeVest™ business. With a focus on the US, we will expand our market share in defibrillators for professional use while gaining further market penetration for LifeVest™. We will also advance clinical develop- ment of the Thermogard System™ intravascular temperature management system in the area of acute myocardial infarction. Proactive expansion in acute critical care will drive the growth of the Health Care sector as the third major pillar of the Asahi Kasei Group after the Material and Homes sectors. LifeVest™ wearable defibrillator AED Plus™ automated external defibrillator 44 Asahi Kasei Report 2018 Asahi Kasei Report 2018 45 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 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 Area of focus Key subjects under CT2018 Goals Compliance P. 31 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 P. 48 Acceleration of Acceleration of globalization globalization “Cs for Tomorrow 2018” strategic management initiative CSR in Action CSR Fundamentals Compliance, Responsible Care, Corporate Citizenship, Respect for Employee Individuality Respect for Employee Individuality P. 52 Corporate Citizenship Group Mission Contributing to life and living for people around the world P. 54 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 • 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 46 Asahi Kasei Report 2018 Asahi Kasei Report 2018 47 Our four CSR Fundamentals of Compliance, Responsible Care, Corporate Citizenship, and Respect for Employee Individuality are applied throughout the Asahi Kasei Group. CSR Fundamentals Area of focus Key subjects under CT2018 Goals Compliance Responsible Care Respect for Employee Individuality Corporate Citizenship P. 31 P. 48 P. 52 P. 54 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 • 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. 46 Asahi Kasei Report 2018 Asahi Kasei Report 2018 47 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 the global environment; operational safety; workplace safety, hygiene, and health; quality assurance (including product safety); managing chemical substances; and community outreach. Message from the Executive for RC Masafumi Nakao Representative Director, Vice- Presidential Executive Officer Asahi Kasei Corp. Asahi Kasei adopted an operating holding company configuration in fiscal 2016 and started the three-year medium-term management initiative “Cs for Tomorrow 2018” (CT2018). We are not only implementing various measures to achieve our business targets and build the base for the next phase towards fiscal 2025, but also contributing 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 upon. 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. We give the utmost consideration to environmental protection, quality assurance, operational safety, work- place 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 manage- ment systems is obtained for the RC Management System of the Asahi Kasei Group. We have obtained ISO 14001 environmental management system certification for environmental protection and ISO 9001 quality management system certification for product safety. An Occupational Health and 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. 48 Asahi Kasei Report 2018 Asahi Kasei Report 2018 49 For more information, please refer to the Asahi Kasei Group website. www.asahi-kasei.co.jp/asahi/en/csr RC objectives and results Review RC framework (including quality assurance) FY2017 RC Objectives FY2017 Results Studied reorganization, studied reinforcement of human resources Attainment Enhance RC compliance Provided guidance and support through audits and site inspections ★★★ ★★★Complete ★★Satisfactory ★Unsatisfactory FY2018 RC Objectives Establish a culture of environmental, quality, and safety awareness: · Nurture customs for compliance · Advance measures for handover to the next generation Confirmed progress in preventing abnormal reactions and securing interlock functions ★★★ Ongoing confirmation of implementation at RC Audits, etc. ★★★ Control changes to equipment and operating conditions Progressed on schedule e c n a i l p m o c C R t n e m n o r i v n e l a b o G l 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 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 s e c n a t s b u s l a c i m e h c RC training course continually reviewed Group discussions enhanced Follow-up until all members pass test Strengthened communication and coordination with superiors RC at affiliates enhanced through instructions and support by core operating companies RC reports of core operating companies and plant complex sites were utilized in community outreach No polluting accidents or serious incidents, 20 incidents (2 other than freon leaks) Goal reached with final disposal rate of 0.2% Goal reached with recycling rate of 99% 50% reduction from FY2005 level LCA/CO2 contribution ratio of 11.7 Water resource contribution ratio of 9.3 Release of PRTR-specified substances and emission of VOCs reduced by 92% and 87%, respectively, from FY2000 level Moriyama Works won the JCIA RC Jury’s Special Award; Kotou Area Biodiversity Network, including Shiga Plant of Asahi Kasei Jyuko Co., Ltd., and Moriyama Works, won the Shiga Biodiversity Award 2017 Implemented CSR procurement No serious industrial accidents Review performed at time of on-site confirmation for preventing abnormal reactions Further advance RC education and training (gaining fuller understanding) 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 90% Prevention of global warming: · Reduce GHG emissions in Japan by 34.8% from FY2005 level · LCA/CO2 contribution ratio1 of 8.5 Protect water resources: · Water resource contribution ratio2 of 8.8 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 changes to equipment and operating conditions Enhance earthquake response system: · Review earthquake preparedness (emergency facilities, disaster response supplies) · Advance seismic retrofitting for specific and non-specific buildings Monitor for items in need of replacement and uninspected items, implement remediation Retrofitting plan added for certain non-specific buildings due to change of building use Information shared with Corporate Production Technology; ongoing review with new perspectives — — No serious workplace injuries 0.28 (2.3 overseas) 0.005 No serious workplace injuries: · Achieve frequency rate3 of 0.1 or less · Achieve severity rate4 of 0.005 or less Prevent all accidents in “caught in/between machinery” category: · Perform sound risk assessment for mechanical equipment · Thorough standards of behavior for safety Avoid workplace injuries related to chemical substances: · 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: · Thorough standards of behavior for safety related to stairways and walking · Program to prevent traffic accidents resulting in harm to self or others while commuting or traveling for sales Prevent serious injuries related to on-site contractors and equipment work: No serious injuries · Improve the level of safety management guidance related to on-site contractors and equipment work Promote health maintenance and improvement among personnel: Advanced risk assessment for mechanical equipment, but one lost-workday injury in “caught in machinery” category in May 2018 Advanced risk assessment for chemical substances and management of workplace environment No lost-workday injury · 7 lost-workday injuries due to falls related to stairways and walking · 1 Injury due to traffic accidents resulting in harm to self or others while commuting or traveling for sales No injury in “caught in machinery” category 9 lost-workday injuries · Promote the prevention of and countermeasures to lifestyle-related diseases · Company-wide measures for preventing falls Promote countermeasures to mental health issues and enhance support system: · Implement company-wide stress survey, utilize its results, and perform follow-up Improve the health management system: · Resolve critical tasks at each site with lateral extension · Establish the health management system at affiliates and independent plants Enhance quality assurance: · 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 JIPS5 activities · Promote JAMP6 tools Proportion of employees with health warning signs decreased slightly, obesity increased slightly, and ratio of employees who smoke unchanged Physical fitness tests performed as part of fall prevention program, follow-up implemented Stress survey and follow-up implemented Held internal interviews and provided instructions on health management activities Expanded scope of affiliates and independent plants supported by specialist industrial physicians No product safety incidents Compliance maintained and system enhanced Secretariat activities to promote JIPS; continued risk assessment and public disclosure of safety documents Provided and received information via MSDSplus and AIS, transitioned to new JAMP scheme chemSHERPA n i g n i v i L d n a h t l a e h t Number of people our health care business contributed to: r o f m o c · Maintain FY2015 level Number of residents in Hebel Haus™ homes: · 10% increase from FY2015 level 7% decrease from FY2015 level 2.9% increase from FY2015 level ★★ Enhance foundations for safety ★★★ Establish activities for compliance ★★★ Promote global-oriented RC ★ 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 FY2020 GHG emissions in Japan by 35% from FY2005 level Achieve LCA/CO2 contribution ratio of 11.3 ★★★ Protect water resources: ★★★ · Water resource contribution ratio of 9.3 Control emissions of chemical substances: · Control emissions of PRTR-specified substances · Control emissions of air and water pollutants ★★★ Promote “Town Woods” program and actions for 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 ★★★ 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 Maintain zero serious logistic incidents No serious workplace injuries: · Achieve frequency rate of 0.1 or less (1.0 or less overseas) · Achieve severity rate of 0.005 or less Prevent all accidents in “caught in/between machinery” category: · Perform sound risk assessment for mechanical equipment · Thorough standards of behavior for safety Avoid workplace injuries related to chemical substances: · 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: · Thorough standards of behavior for safety related to stairways and walking · Program to prevent traffic accidents resulting in harm to self or others while commuting or traveling for sales Prevent serious injuries related to on-site contractors and equipment work: · Improve the level of safety management guidance related to on-site contractors and equipment work Promote health maintenance and improvement among personnel: · Promote the prevention of and countermeasures to lifestyle-related diseases · Reduce the rate of absence due to illness or injury · Reduce the rate of lifestyle-related diseases Enhance mental health support system: · Reduce the rate of absence due to mental health 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: · Maintain FY2015 level Number of residents in Hebel Haus™ homes: · 10% increase from FY2015 level 48 Asahi Kasei Report 2018 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 2018 49 Responsible Care The global environment As stated in our Group Vision of “harmony with the natural environment,” we consider environmental preservation to be one of our most important tasks. Our major focuses are on 1) measures for climate change, 2) preservation of biodiversity, and 3) promotion of a recycling-oriented society. Regarding measures for climate change, we are currently formulating new targets for 2030 building on our previously established targets for 2020. We make efforts to reduce the impact of our business activities on biodiversity and launched a new group-wide program called “Town Woods.” To contribute to the establishment of a recycling-oriented society, we continue to reduce final disposal of industrial waste as well as increase the rate of resource recycling. As a chemical company, we are also working to promote safe handling of chemical substances and actively provide the related information. Highlights Climate-change and water-conservation efforts ranked “A–” by CDP Our efforts with respect to climate change and water conservation were given an evaluation of “A–” by the CDP* in fiscal 2017. * Formerly the Carbon Disclosure Project, CDP is an NPO based in the UK which researches and evaluates how companies and cities are working to address environmental issues related to climate change, water, forests, etc., and provides the information and results to investors. It began as a project to disclose companies’ environmental strategy and performance in response to demand from institutional investors. The CDP is now one of the most trusted evaluation organizations among investors. It issues evaluations on an 8-rank scale of A, A–, B, B–, C, C–, D, and D–. Operational safety Launch of the “Town Woods” program Planting modules called “Town Woods Pots” are being used to enhance green spaces at operating sites across the Asahi Kasei Group. This program contributes to biodiversity preservation while heighten- ing understanding and awareness of the value of biodiversity among personnel. 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 abnormal 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. As with the previous year, there were no serious operational accidents inside or outside Japan during fiscal 2017. Workplace safety, hygiene, and health The effort to prevent workplace accidents is integrated in a com- prehensive OHSMS* program that combines conventional safety initiatives—such as tidiness/orderliness/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. Occurrence of workplace injuries Incidence of lost-workday injury by event category, FY2017 in Japan Total 15 cases Incidence of lost-workday injury by event category, FY2007–2016 in Japan Total 123 cases Fall on same level..................................53% Traffic accident........................................27% Caught in/between machinery.......6% Fall from height .........................................7% Kickback/overexertion...........................7% Traffic accident........................................23% Fall on same level..................................22% Kickback/overexertion........................12% Caught in/between machinery....11% Fall from height ......................................10% Contact with high temperature substance/object......................................6% Caught in something else...................4% Hit by flying/falling object ..................2% Contact with harmful substance ....2% Collision..........................................................2% Others ..............................................................6% 50 Asahi Kasei Report 2018 Asahi Kasei Report 2018 51 For more information, please refer to the Asahi Kasei Group website. www.asahi-ksaei.co.jp/asahi/en/csr Health maintenance The Asahi Kasei Group implements various activities to help employ- ees maintain and advance their mental and physical well-being in accordance with its health management guidelines, including screen- ing for lifestyle-related diseases and mental health checkups. Intranet-based electronic diagnosis to survey workplace stress Based on an electronic survey of workplace stress performed since fiscal 2012, industrial medical staff follow-up on individual employees and each department analyzes survey results to improve the workplace environment. Quality assurance Upon our transition to an operating holding company configuration in April 2016, we established a new Asahi Kasei Group Quality Policy and Group Quality Assurance Bylaws. At the same time, Corporate ESH & QA was reorganized, including the establishment of a new Quality Assurance Group to coordinate the reinforcement of quality assurance activities throughout the Asahi Kasei Group, ensuring the provision of safe and reliable products to our customers. In addition to its role as the central hub for the provision and sharing of QA-related information throughout all operations, the Quality Assurance Group holds QA Forums with lectures by eminent professors in the field of quality control to augment the training of QA personnel. In fiscal 2017, 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 sup- port. 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. Managing chemical substances 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 of strategic business units and core operating companies to perform. The bylaws define the central role of quality assurance managers in activities to enhance quality assurance, and are applied in concert with our product safety guidelines. All business units of the Asahi Kasei Group apply these uniform bylaws and guidelines to assure the quality of products and services. 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 sub- stances begins with R&D, which is guided throughout every stage by a commitment to developing products and processes 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 development of systems to manage chemical substance information as well as revision of the list of applicable substances. In fiscal 2017 we continued to convey relevant information throughout the supply chain to help establish JAMP as a widely used tool. Since fiscal 2016, we have used a tool for information transmission compatible with chemSHERPA, a scheme by the Ministry of Economy, Trade and Industry. We are working to smoothly transition from JAMP to chemSHERPA during the two-year period starting in fiscal 2016. 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. 50 Asahi Kasei Report 2018 Asahi Kasei Report 2018 51 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 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 fulfill- ing 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 at key career stages beginning with hiring and extending through promotion to managerial positions. Other individual training programs such as for global management are implemented according to business need. Each core operating com- pany 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 rec- ognize employees who have developed and exercised extraordinary expertise and skills that hold universal value, and to facilitate their application throughout the Group. As of April 2018, 122 Group Masters are designated, those whose rank and remuneration are commensurate with Senior General Manager, General Manager, and Valuing human rights and diversity Basic policy Human Resources leads the effort to ensure that there will be no discrimination 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. To prevent any harassment or discrimination, we implement training on corporate ethics to employees at each level—new hires, assistant managers, and managers. Ethics training is also implemented by business unit and by geographical area. Section Manager, respectively number 10, 46, and 66. To accelerate the creation of new businesses as a basic strategy of the “Cs for Tomorrow 2018” management initiative, we revised the system in fiscal 2017 for greater emphasis on the development and growth of engineers and technical personnel. The program is focused on reinforcing the specialized technical abilities of such personnel who will drive the creation of new businesses and the enhancement of established businesses. Development of global human resources To accelerate the expansion of world-leading businesses in accordance with the medium-term management initiative “Cs for Tomorrow 2018” 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 philoso- phy, intercultural communication, and management training. 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 capable personnel who will successfully execute our strategy on a global scale. We continue to hire university graduates of foreign nationality 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 briefing sessions and student internships, as part of an ongoing effort to attract talent. In April 2018, 418 new graduates were hired: 325 men and 93 women. In addition, 153 persons were hired in mid-career between April 2017 and March 2018. 52 Asahi Kasei Report 2018 Asahi Kasei Report 2018 53 For more information, please refer to the Asahi Kasei Group website. 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 proac- tively 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 575 in June 2018. To support female personnel in their careers, we provide a mentoring program, hold seminars on returning to work after maternity leave, and publish diversity-related articles in our internal magazine. Number of women as managers* 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 2.13% (543.5 persons) as of June 1, 2018. We continue recruitment activities to increase the employment of persons with disabilities at Group companies other than Asahi Kasei Ability. 410 454 600 500 400 300 200 100 0 500 534 575 Rate of employment of persons with disabilities at applicable Group companies* 2.19 2.12 2.13 2.08 2.05 (%) 2.2 2.1 2.0 1.9 ’14/6 ’15/6 ’16/6 ’17/6 ’18/6 ’14/6 ’15/6 ’16/6 ’17/6 ’18/6 * 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., and Asahi Kasei E-materials Corp. are included through June 2015). * Results as of June 1 each year at applicable Group companies. Calculation based on total employment of 25,463.5 persons in the 21 applicable companies. As of June 1, 2018, the number of persons with disabilities employed by Asahi Kasei Ability Corp. stood at 351.5 of the total 543.5 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 2017, parental leave was utilized by 566 personnel. This included 330 men, 42% of those who were qualified, and 236 women. Employees using parental leave* Women Men 316 316 330 235 233 226 231 240 266 236 330 220 110 0 ’13 ’14 ’15 ’16 ’17 (FY) * 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 through June 2015). 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 concurrently with a “flex-time” system for flexible working hours. Leave to accompany spouse overseas As globalization continues to advance, an increasing number of per- sonnel 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 2017, 20 personnel utilized this provision. Platinum Kurumin certification mark In 2016, we received the Platinum Kurumin certification mark from the Ministry of Health, Labor 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 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. 52 Asahi Kasei Report 2018 Asahi Kasei Report 2018 53 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 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. we held a briefing on the Material sector as well as individual meet- ings. In addition, 70 meetings were held overseas. We also provide a wide variety of information for investors on our website. IR meetings with institutional investors and securities analysts In fiscal 2017, Investor Relations (IR) held 191 meetings with institu- tional investors and securities analysts in Japan, including quarterly results briefings and an annual management briefing with the President. To deepen understanding of Asahi Kasei among investors, Seminars for individual investors To provide individual investors with a better understanding of the operations of the Asahi Kasei Group, two seminars were held in fiscal 2017. We will continue to provide accurate and timely information to individual investors through direct communications, the corporate website, and articles published in magazines for individual investors. 54 Asahi Kasei Report 2018 Asahi Kasei Report 2018 55 For more information, please refer to the Asahi Kasei Group website. 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 suppli- ers 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 associations. 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 community 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 contribution activities into monetary value by a method set forth in its annual Survey of Expenditure for Corporate Philanthropic Activities. In fiscal 2016, this was ¥3,953 million. 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, with a total of 2,058 students of 61 schools participating in fiscal 2017. In August 2017, 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 the National Museum of Emerging Science and Innovation (Miraikan). Coexistence with the Environment We participate in afforestation projects in Japan, exhibit at environmental-related events, and work to raise understanding of environmental issues. 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. 54 Asahi Kasei Report 2018 Asahi Kasei Report 2018 55 56 Asahi Kasei Report 2018 Financial Section Contents 58 Management’s Discussion and Analysis 64 Risk Analysis 66 Consolidated Financial Statements 66 Consolidated Balance Sheets 68 Consolidated Statements of Income 69 Consolidated Statements of Comprehensive Income 70 Consolidated Statements of Changes in Net Assets 71 Consolidated Statements of Cash Flows 72 Notes to Consolidated Financial Statements 72 1. Major policies for preparing the consolidated financial statements 72 2. Significant accounting policies 73 3. Changes in significant accounting policies 74 4. Notes to Consolidated Balance Sheets 75 5. Notes to Consolidated Statements of Income 77 6. Notes to Consolidated Statements of Comprehensive Income 77 7. Notes to Consolidated Statements of Changes in Net Assets 79 8. Notes to Consolidated Statements of Cash Flows 79 9. Leases 80 10. Financial instruments 83 11. Marketable securities and investment securities 84 12. Derivative financial instruments 87 13. Provision for retirement benefits 89 14. Taxes 90 15. Asset retirement obligations 91 16. Business segment information 94 17. Information on related parties 94 18. Per share information 95 19. Subsequent events 95 20. Borrowings 96 21. Supplementary schedule of asset retirement obligations 96 22. Others 97 Independent Auditor’s Report Asahi Kasei Report 2018 57 Management’s Discussion and Analysis Fiscal year 2017 (April 1, 2017 – March 31, 2018) Operating Environment The global economy was generally favorable during fiscal 2017, although there were concerns of risks related to the US Trump administration’s trade policy and the North Korean situ- ation. Gradual recovery of the Japanese economy continued, supported by export growth, recovering capital investment, and firm consumer spending. Overview of Consolidated Results Net sales, operating income Consolidated net sales for the fiscal year increased by ¥159.2 billion from a year ago to ¥2,042.2 billion. Overseas sales increased by ¥111.3 billion to ¥767.7 billion, largely in the Material segment, and increased by 2.7 percentage points as a portion of consolidated net sales to 37.6%. Domestic sales increased by ¥47.9 billion to ¥1,274.5 billion, largely in the Material and Homes segments. Operating income increased by ¥39.2 billion to ¥198.5 billion. As a percentage of net sales, cost of sales decreased by 0.6 percentage points to 68.2%. Selling, general and administrative (SG&A) expenses increased by ¥23.1 billion, but decreased as a portion of net sales by 0.6 percentage points to 22.1%. Operating margin increased by 1.3 percentage points to 9.7%. Non-operating income and expenses, ordinary income Net non-operating income was ¥14.1 billion, a ¥12.7 billion increase from the ¥1.4 billion of a year earlier, with a notable increase in equity in earnings of affiliates. Ordinary income increased by ¥51.9 billion to ¥212.5 billion. Extraordinary income and loss The net extraordinary income of ¥5.8 billion was a ¥9.0 billion improvement from the net extraordinary loss of ¥3.2 billion a year earlier. Extraordinary loss of ¥9.9 billion included ¥1.5 bil- lion in business structure improvement expenses, a ¥6.3 billion loss on disposal of noncurrent assets, and a ¥2.2 impairment loss. Extraordinary income of ¥15.7 billion included a ¥15.2 billion gain on sales of investment securities. Net income attributable to owners of the parent With ordinary income of ¥212.5 billion and net extraordinary income of ¥5.8 billion, income before income taxes was ¥218.3 billion. Income tax expense was ¥46.1 billion (current income taxes of ¥63.2 billion less deferred income taxes of ¥17.1 bil- lion). Net income attributable to non-controlling interests was ¥1.9 billion. As a result, net income attributable to owners of the parent increased by ¥55.2 billion to ¥170.2 billion, and net income per share increased by ¥39.59 to ¥121.93. 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) 2,500 (%) 50 (¥ billion) 200 (%) 20 (¥ billion) 500 (%) 50 (¥ billion) 200 2,000 1,500 1,000 500 0 ’13 ’14 ’15 ’16 ’17 Net sales (left scale) Overseas sales ratio (right scale) 58 Asahi Kasei Report 2018 40 30 20 10 0 (FY) 150 100 50 0 ’13 ’14 ’15 ’16 ’17 Operating income (left scale) Operating margin (right scale) 400 300 200 100 0 15 10 5 0 (FY) ’13 ’14 ’15 ’16 ’17 SG&A (left scale) SG&A ratio (right scale) 40 30 20 10 0 (FY) 150 100 50 0 ’13 ’14 ’15 ’16 ’17 (¥) 200 150 100 50 0 (FY) Net income attributable to owners of the parent (left scale) Net income per share (right scale) Asahi Kasei Report 2018 59 Results by Operating Segment The Asahi Kasei Group’s operations are described by major business classification: three reportable segments of Material, Homes, and Health Care, together with an “Others” category. Beginning with the first quarter of fiscal 2017, the Energy Division, which was formerly included in Others, is reclassified into the Material segment. The figures for the year-ago period have been recalculated in accordance with the new classifica- tion for comparison purposes. Material Sales increased by ¥109.8 billion from a year ago to ¥1,087.7 billion, and operating income increased by ¥33.4 billion from a year ago to ¥121.9 billion. Although fibers & textiles operations were impacted by higher feedstock costs, sales increased and operating income slightly increased with firm performance centered on Lamous™ microfiber suede for automotive interiors. Among chemical operations, in petrochemicals, sales and operating income increased with improved market prices for acrylonitrile. Sales and operating income in performance polymers increased with improved terms of trade for synthetic rubber for fuel-efficient tires and greater shipments of engineering plastics for automotive parts. Sales and operating income in performance materials and consumables increased with greater shipments of ion-exchange membranes and electronic materials, and firm sales of Saran Wrap™ cling film. Among electronics operations, sales and operating income in separators grew with considerably increased shipments of each battery separator product, centered on Li-ion battery separator. Sales and operating income in electronic devices increased with firm sales of camera module devices for smartphones and magnetic sensors for household appliances. Homes Sales increased by ¥22.0 billion from a year ago to ¥641.0 billion, and operating income increased by ¥0.3 billion from a year ago to ¥64.4 billion. Sales grew but operating income was flat in homes opera- tions as unit prices increased centered on Hebel Maison™ apartment buildings, while labor costs and advertising expenses increased. Although the value of orders for unit homes decreased, the overall value of orders for order-built homes increased by 1.2% with growing orders for apartment buildings. Sales and operating income in real estate, remodel- ing, and other operations increased with firm performance of rental management in real estate, and performance in remodeling on par with the previous year. Sales increased but operating income decreased in con- struction materials operations as shipments of Neoma Foam™ phenolic foam insulation panels were firm, while higher feedstock costs had an impact. Fibers Business Operating Income Increases/Decreases Chemicals Business Operating Income Increases/Decreases Electronics Business Operating Income Increases/Decreases Sales prices1 +1.4 Foreign exchange2 +0.2 Sales volume +2.7 12.1 Operating costs and others –3.8 11.7 (¥ billion) 20 15 10 5 0 Foreign exchange2 +7.6 Sales prices1 +47.4 Sales volume +8.7 74.4 100.1 Operating costs and others –37.9 (¥ billion) 150 120 90 60 30 0 (¥ billion) 10 9.7 Sales volume +4.9 Sales prices1 –4.0 Operating costs and others +4.8 Foreign exchange2 +1.5 2.5 8 6 4 2 0 ’16 ’17 (FY) ’16 ’17 (FY) ’16 ’17 (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 1 Excluding impact of foreign exchange 2 Impact of foreign exchange on sales prices 58 Asahi Kasei Report 2018 Asahi Kasei Report 2018 59 Management’s Discussion and Analysis Health Care Sales increased by ¥26.1 billion from a year ago to ¥296.3 billion, and operating income increased by ¥7.5 billion from a year ago to ¥39.5 billion. Shipments of Teribone™ osteoporosis drug increased, but sales and operating income in pharmaceutical operations decreased with lower shipments centering on Flivas™ agent for treatment of benign prostatic hyperplasia due to competi- tion from generics. Sales and operating income in medical devices operations increased with an effect of the weaker yen and firm perfor- mance of each business. Sales and operating income in critical care operations grew with considerably increased shipments of defibrillators for professional use and firm performance of the LifeVest™ wearable defibrillator business. Others Sales increased by ¥1.2 billion from a year ago to ¥17.3 billion, and operating income decreased by ¥0.1 billion from a year ago to ¥1.9 billion. Homes Business Operating Income Increases/Decreases Construction Materials Business Operating Income Increases/Decreases Health Care Business Operating Income Increases/Decreases (¥ billion) 80 60 59.5 Sales prices +2.3 Operating costs and others –4.2 Sales volume +2.6 40 20 0 (¥ billion) 6.0 Sales volume +1.5 (¥ billion) 20 (¥ billion) 20 19.7 Sales volume –0.5 Sales prices1 +0.5 Foreign exchange2 +0.1 17.1 Operating costs and others +2.4 60.2 4.5 4.5 3.0 1.5 0 Sales prices –0.2 4.0 Operating costs and others –1.8 15 10 5 0 15 10 5 0 ’16 ’17 (FY) ’16 ’17 (FY) ’16 ’17 (FY) 1 Excluding impact of foreign exchange 2 Impact of foreign exchange on sales prices 60 Asahi Kasei Report 2018 Asahi Kasei Report 2018 61  Noncurrent liabilities decreased by ¥69.7 billion to ¥421.8 billion with a ¥49.4 billion decrease in long-term loans pay- able and a ¥14.1 billion decrease in deferred tax liabilities. Interest-bearing debt decreased by ¥101.1 billion to ¥301.7 billion. Net assets increased by ¥137.1 billion from ¥1,168.1 billion to ¥1,305.2 billion. While dividend payments were ¥39.1 billion, net income attributable to owners of the parent was ¥170.2 billion. As a result, net worth per share increased by ¥97.75 to ¥922.11, net worth to total assets increased from 51.1% to 55.6%, and debt-to-equity ratio decreased by 0.12 points to 0.23. Liquidity and Capital Resources Financial position Total assets at fiscal year end were ¥2,316.1 billion, ¥61.6 billion higher than a year earlier, with cash and deposits, and notes and accounts receivable–trade, increasing as an effect of growing sales and the closing date falling on a weekend. Current assets increased by ¥64.4 billion to ¥959.0 billion, mainly as notes and accounts receivable–trade increased by ¥38.6 billion and inventories increased by ¥13.0 billion. Noncurrent assets decreased by ¥2.8 billion to ¥1,357.2 billion, notably with a ¥48.2 billion decrease in intangible assets while there was a ¥30.7 billion increase in investment securities. Current liabilities decreased by ¥5.7 billion to ¥589.1 billion, mainly with a ¥36.0 billion decrease in commercial paper and a ¥20.0 billion decrease in the current portion of bonds payable, while there was a ¥23.9 billion increase in notes and accounts payable–trade and a ¥13.5 billion increase in income taxes payable. Critical Care Business Operating Income Increases/Decreases Others Operating Income Increases/Decreases Total Assets, Net Worth 1.9 Sales volume –0.1 Operating costs and others 0 (¥ billion) 30 25 20 15 10 5 0 14.8 Foreign exchange2 +1.2 Sales volume +11.2 Sales prices1 +0.1 (¥ billion) 2.0 2.0 19.8 Operating costs and others –7.5 1.5 1.0 0.5 0 (¥ billion) 2,500 2,000 1,500 1,000 500 0 ’16 ’17 (FY) ’16 ’17 (FY) ’13 ’14 ’15 ’16 ’17 (FY) 1 Excluding impact of foreign exchange 2 Impact of foreign exchange on sales prices Total assets Net worth 60 Asahi Kasei Report 2018 Asahi Kasei Report 2018 61 Management’s Discussion and Analysis Capital expenditure Capital expenditure (capex) was primarily focused on 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. The following table of capex by operating segment shows totals of property, plant and equipment and intangible assets (other than goodwill), excluding consumption tax. Totals for the year (¥ million) Compared to previous year (%) Material Homes Health Care Others Combined Corporate assets and eliminations 59,814 18,431 12,186 1,226 91,657 9,673 Consolidated 101,331 113.2 151.8 78.1 103.4 112.1 110.1 111.9 Note: Beginning with the first quarter of fiscal 2017, the Energy Division, which was formerly included in Others, is reclassified into the Material segment. The figures for the year-ago period have been recalculated in accordance with the new classification for comparison purposes. A total of ¥101.3 billion was invested during the fiscal year for the expansion of businesses with competitive superiority, particularly in the Material segment, as well as for modification and rationalization. Notable capex by operating segment was as follows. Material Expansion of production capacity for Hipore™ lithium-ion battery separator, expansion of production capacity for synthetic rubber for fuel-efficient tires, rationalization, labor-saving, and maintenance. Homes Health Care Others Corporate assets 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 ’13 ’14 ’15 ’16 ’17 (FY) ’13 ’14 ’15 ’16 ’17 1.0 0.8 0.6 0.4 0.2 0 (FY) (¥ billion) 120 90 60 30 0 ’13 ’14 ’15 ’16 ’17 (FY) Interest-bearing debt (left scale) D/E ratio (right scale) Capex Depreciation and amortization 62 Asahi Kasei Report 2018 Asahi Kasei Report 2018 63 Cash flows Free cash flows (net cash provided by operating activities less net cash used in investing activities) were a positive ¥139.6 bil- lion, as cash provided, principally from income before income taxes and from depreciation and amortization, exceeded cash used, principally for purchase of property, plant and equipment, and for payment of income taxes. Cash flows from financing activities were a net ¥134.4 billion used, including for cash dividends paid. As a result, cash and cash equivalents at fiscal year end were ¥148.6 billion, ¥4.5 billion higher than a year earlier. Cash flows from operating activities Cash used included ¥49.5 billion for income taxes paid and a ¥39.0 increase in notes and accounts receivable–trade. Income before income taxes provided ¥218.3 billion, and depreciation and amortization provided ¥95.4 billion. Net cash provided by operating activities was ¥249.9 billion, ¥80.9 billion higher than a year earlier. Cash flows from investing activities Cash provided included ¥30.6 billion from collection of loans receivable and ¥17.8 billion in proceeds from sales of invest- ment securities. Cash used included ¥82.9 billion for purchase of property, plant and equipment, ¥45.3 billion in payments of loans receivable, ¥13.4 billion for purchase of intangible assets, and ¥11.6 billion for purchase of investment securities. Net cash used in investing activities was ¥110.3 billion, ¥20.4 billion higher than a year earlier. Cash flows from financing activities Cash provided included ¥15.4 billion in proceeds from long- term loans payable. Cash used included ¥39.1 billion in cash dividends paid, a ¥36.0 billion decrease in commercial paper, a ¥28.9 billion decrease in short-term loans payable, ¥23.5 billion for repayment of long-term loans payable, and ¥20.0 billion for redemption of bonds. Net cash used in financing activities was ¥134.4 billion, ¥60.5 billion higher than a year earlier. 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) 200 100 0 (100) (200) (300) ’13 ’14 ’15 ’16 ’17 (FY) ’13 ’14 ’15 ’16 ’17 (FY) Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities 62 Asahi Kasei Report 2018 Asahi Kasei Report 2018 63 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 27, 2018, 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. 64 Asahi Kasei Report 2018 Asahi Kasei Report 2018 65 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. 64 Asahi Kasei Report 2018 Asahi Kasei Report 2018 65 Consolidated Financial Statements Consolidated Balance Sheets Asahi Kasei Corporation and Consolidated Subsidiaries March 31, 2018 and 2017 ASSETS Current assets: Cash and deposits (Notes 8 and 10) Notes and accounts receivable—trade 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 (Notes 4 (b), (d)) Accumulated depreciation Buildings and structures, net Machinery, equipment and vehicles (Notes 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 Other Subtotal Investments and other assets: Investment securities (Notes 4 (a), (b), 10 and 11) Long-term loans receivable (Note 10) 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. 66 Asahi Kasei Report 2018 Millions of yen Thousands of U.S. dollars (Note 1) 2018 2017 2018 ¥ 156,318 ¥ 145,289 $ 1,471,228 341,396 169,948 109,486 80,253 20,032 83,956 (2,411) 958,978 517,562 (285,760) 231,802 1,399,081 (1,200,504) 198,577 62,938 11,698 (10,901) 798 50,502 153,002 (135,571) 17,431 562,048 252,724 161,898 414,621 314,830 27,793 6,727 31,406 (266) 380,489 1,357,158 302,751 159,395 116,481 70,806 20,279 81,816 (2,272) 894,545 508,713 (278,122) 230,590 1,376,029 (1,176,686) 199,343 62,391 12,367 (11,381) 986 45,958 150,073 (132,460) 17,613 556,881 285,622 177,149 462,772 284,137 18,918 9,309 28,154 (215) 340,302 1,359,955 3,213,139 1,599,511 1,030,456 755,322 188,536 790,174 (22,692) 9,025,675 4,871,172 (2,689,506) 2,181,666 13,167,821 (11,298,861) 1,868,960 592,358 110,099 (102,598) 7,511 475,313 1,440,019 (1,275,962) 164,056 5,289,864 2,378,579 1,523,746 3,902,315 2,963,106 261,581 63,313 295,586 (2,504) 3,581,073 12,773,252 ¥ 2,316,137 ¥ 2,254,500 $ 21,798,936 Asahi Kasei Report 2018 67 LIABILITIES AND NET ASSETS Liabilities: Current liabilities: Notes and accounts payable—trade (Note 10) Short-term loans payable (Notes 4 (b), 10 and 20) Commercial paper (Notes 10 and 20) Current portion of bonds payable (Notes 10 and 20) Lease obligations (Notes 9, 10 and 20) Accrued expenses Income taxes payable (Note 10) Advances received Provision for grant of shares Provision for periodic repairs Provision for product warranties Provision for removal cost of property, plant and equipment Asset retirement obligations (Note 15) Other Total current liabilities Noncurrent liabilities: Bonds payable (Notes 10 and 20) Long-term loans payable (Notes 4 (b), 10 and 20) Lease obligations (Notes 9, 10 and 20) Deferred tax liabilities (Note 14) Provision for grant of shares 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 15) 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 (2018—6,491,617 shares, 2017—5,958,904 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) 2018 2017 2018 ¥ 171,413 118,018 20,000 — 199 105,787 29,714 70,142 28 3,185 2,730 2,425 557 64,948 589,146 20,000 143,176 352 45,622 172 3,263 2,699 — 170,634 3,282 20,658 11,917 421,776 1,010,922 ¥ 147,543 113,475 56,000 20,000 305 100,419 16,202 72,882 — 5,003 2,461 1,800 572 58,217 594,880 20,000 192,584 467 59,759 — 165 4,390 2,162 178,368 3,436 20,479 9,695 491,506 1,086,385 $ 1,613,299 1,110,758 188,235 — 1,873 995,642 279,661 660,160 264 29,976 25,694 22,824 5,242 611,275 5,544,904 188,235 1,347,539 3,313 429,384 1,619 30,711 25,402 — 1,605,967 30,889 194,428 112,160 3,969,656 9,514,560 103,389 79,440 981,934 (3,930) 103,389 79,443 850,532 (3,242) 973,073 747,671 9,241,732 (36,988) 1,160,833 1,030,122 10,925,487 121,128 92 28,676 (23,343) 126,553 17,827 1,305,214 113,475 55 40,831 (33,140) 121,222 16,771 1,168,115 1,140,028 866 269,892 (219,699) 1,191,087 167,784 12,284,367 ¥2,316,137 ¥2,254,500 $21,798,936 66 Asahi Kasei Report 2018 Asahi Kasei Report 2018 67 Consolidated Statements of Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2018 and 2017 Net sales (Note 16) Cost of sales (Note 5 (b)) Gross profit Selling, general and administrative expenses (Note 5 (a)) Operating income (Note 16) Non-operating income: Interest income Dividends income Equity in earnings of affiliates Other Total non-operating income Non-operating expenses: Interest expense 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 valuation of investment securities Loss on disposal of noncurrent assets (Note 5 (d)) Impairment loss (Note 5 (e)) Business structure improvement expenses (Notes 5 (e), (f )) Business integration expense 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. Millions of yen 2018 ¥2,042,216 1,393,111 649,105 450,630 198,475 2017 ¥1,882,991 1,296,255 586,736 427,506 159,229 Thousands of U.S. dollars (Note 1) 2018 $19,220,856 13,111,633 6,109,224 4,241,224 1,868,000 2,078 6,626 13,137 5,961 27,802 4,594 2,971 6,169 13,733 212,544 15,164 534 15,698 31 6,261 2,158 1,460 — 9,908 218,333 63,239 (17,095) 46,143 172,190 1,941 1,425 5,170 4,899 3,854 15,347 4,435 1,228 8,281 13,944 160,633 9,918 165 10,083 101 4,863 1,484 6,189 690 13,328 157,388 49,017 (8,293) 40,724 116,663 1,663 19,558 62,362 123,642 56,104 261,666 43,238 27,962 58,061 129,252 2,000,414 142,720 5,026 147,746 292 58,927 20,311 13,741 — 93,252 2,054,899 595,191 (160,894) 434,287 1,620,612 18,268 ¥ 170,248 ¥ 115,000 $ 1,602,334 68 Asahi Kasei Report 2018 Asahi Kasei Report 2018 69 Consolidated Statements of Comprehensive Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2018 and 2017 Net income Other comprehensive income: Net 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 2018 ¥172,190 2017 ¥116,663 7,651 37 (12,252) 9,735 356 5,528 ¥177,717 ¥175,557 2,160 21,177 234 (8,020) 8,114 810 22,315 ¥138,979 ¥137,045 1,934 Thousands of U.S. dollars (Note 1) 2018 $1,620,612 72,009 348 (115,313) 91,624 3,351 52,028 $1,672,631 $1,652,301 20,329 68 Asahi Kasei Report 2018 Asahi Kasei Report 2018 69 Consolidated Statements of Changes in Net Assets Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2018 and 2017 Shareholders’ equity Accumulated other comprehensive income Millions of yen Capital stock ¥103,389 Capital surplus ¥79,443 Retained earnings (Note 7 (b)) ¥850,532 Total shareholders’ equity Treasury stock ¥(3,242) ¥1,030,122 Net unrealized gain on other securities ¥113,475 Deferred gains or losses on hedges ¥55 Foreign currency translation adjustment ¥ 40,831 Remeasure- ments of defined benefit plans ¥(33,140) Total accumulated other comprehensive income ¥121,222 Non- controlling interests ¥16,771 Total net assets ¥1,168,115 103,389 79,443 850,532 (3,242) (39,106) 170,248 259 (688) 1 1 (4) — 1,030,122 (39,106) 170,248 (688) 2 259 — (4) 113,475 55 40,831 (33,140) 121,222 16,771 — 1,168,115 (39,106) 170,248 (688) 2 259 — (4) — ¥103,389 (3) ¥79,440 131,402 ¥981,934 (687) 130,712 ¥(3,930) ¥1,160,833 7,653 ¥121,128 37 ¥92 (12,155) ¥ 28,676 9,797 ¥(23,343) 5,331 ¥126,553 1,057 ¥17,827 137,100 ¥1,305,214 7,653 37 (12,155) 9,797 5,331 1,057 6,388 Shareholders’ equity Accumulated other comprehensive income Millions of yen Capital stock ¥103,389 Capital surplus ¥79,410 Retained earnings (Note 7 (b)) ¥763,076 Treasury stock ¥(3,150) Total shareholders’ equity ¥ 942,724 Net unrealized gain on other securities ¥ 92,280 Deferred gains or losses on hedges ¥(179) Foreign currency translation adjustment ¥48,429 Remeasure- ments of defined benefit plans ¥(41,353) Total accumulated other comprehensive income ¥ 99,177 Non- controlling interests ¥15,498 92,280 (179) 48,429 (41,353) 99,177 15,498 103,389 79,410 0 33 10 763,086 (27,935) 115,000 418 (37) (3,150) (93) 1 10 942,734 (27,935) 115,000 (93) 1 418 (37) 33 Total net assets ¥1,057,399 10 1,057,409 (27,935) 115,000 (93) 1 418 (37) 33 — ¥103,389 33 ¥79,443 87,446 ¥850,532 (92) ¥(3,242) 87,388 ¥1,030,122 21,195 ¥113,475 234 ¥ 55 (7,597) ¥40,831 8,213 ¥(33,140) 22,045 ¥121,222 1,273 ¥16,771 110,705 ¥1,168,115 21,195 234 (7,597) 8,213 22,045 1,273 23,318 Shareholders’ equity Accumulated other comprehensive income Thousands of U.S. dollars (Note 1) Capital stock $973,073 Capital surplus $747,699 Retained earnings (Note 7 (b)) $8,005,007 Total shareholders’ equity Treasury stock $(30,513) $ 9,695,266 Net unrealized gain on other securities $1,068,000 Deferred gains or losses on hedges $518 Foreign currency translation adjustment $ 384,292 Remeasure- ments of defined benefit plans $(311,906) Total accumulated other comprehensive income $1,140,913 Non- controlling interests $157,845 1,068,000 518 384,292 (311,906) 1,140,913 157,845 973,073 747,699 8,005,007 (30,513) (368,056) 1,602,334 2,438 (6,475) 9 9 (38) — 9,695,266 (368,056) 1,602,334 (6,475) 19 2,438 — (38) Total net assets $10,994,024 — 10,994,024 (368,056) 1,602,334 (6,475) 19 2,438 — (38) — $973,073 (28) $747,671 1,236,725 $9,241,732 (6,466) 1,230,231 $(36,988) $10,925,487 72,028 $1,140,028 348 $866 (114,400) $ 269,892 92,207 $(219,699) 50,174 $1,191,087 9,948 $167,784 1,290,353 $12,284,367 72,028 348 (114,400) 92,207 50,174 9,948 60,122 Balance at March 31, 2017 Cumulative effect of changes in accounting policies Restated balance 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 Capital increase of consolidated subsidiaries Net changes of items other than shareholders’ equity Total changes of items during the period Balance at March 31, 2018 Balance at March 31, 2016 Cumulative effect of changes in accounting policies Restated balance 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 Capital increase of consolidated subsidiaries Net changes of items other than shareholders’ equity Total changes of items during the period Balance at March 31, 2017 Balance at March 31, 2017 Cumulative effect of changes in accounting policies Restated balance 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 Capital increase of consolidated subsidiaries Net changes of items other than shareholders’ equity Total changes of items during the period Balance at March 31, 2018 The accompanying notes are an integral part of these statements. 70 Asahi Kasei Report 2018 Asahi Kasei Report 2018 71 Consolidated Statements of Cash Flows Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2018 and 2017 Cash flows from operating activities: Income before income taxes Depreciation and amortization Impairment loss Amortization of goodwill Amortization of negative goodwill Increase in provision for grant of shares Increase in provision for periodic repairs Increase in provision for product warranties Decrease in provision for removal cost of property, plant and equipment Decrease in provision for loss on litigation 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 Increase in notes and accounts receivable—trade Increase in inventories Increase in notes and accounts payable—trade Increase in accrued expenses 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 Payments of loans receivable Collection of loans receivable Other, net Net cash used in investing activities Cash flows from financing activities: Decrease in short-term loans payable (Decrease) increase in commercial paper Proceeds from long-term loans payable Repayment of long-term loans payable Redemption of bonds 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 (used in) provided by 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) 2018 2017 2018 ¥ 218,333 95,415 2,158 18,048 (159) 200 1,280 280 (1,066) (2,137) (4,875) (8,704) 4,594 (13,137) (15,164) 31 (534) 6,261 (38,986) (11,815) 23,020 6,014 (2,463) 17,259 293,851 10,267 (4,736) (49,492) 249,891 (9,508) 3,012 (82,909) 1,601 (13,363) (11,564) 17,774 (45,261) 30,568 (645) (110,294) (28,935) (36,000) 15,395 (23,532) (20,000) (389) (688) 2 (39,106) (1,141) (18) (134,412) (937) 4,247 144,077 ¥ 157,388 91,387 1,484 17,806 (159) — 703 108 (3,168) — (8,150) (6,595) 4,435 (4,899) (9,918) 101 (165) 4,863 (20,756) (9,840) 18,619 2,467 (1,886) (6,721) 227,105 7,733 (4,428) (61,444) 168,965 (4,105) 5,232 (82,983) 3,178 (8,810) (9,846) 12,018 (5,218) 2,169 (1,553) (89,920) (193,760) 56,000 138,812 (45,513) — (965) (93) 1 (27,935) (712) 207 (73,959) (6,759) (1,673) 145,307 $ 2,054,899 898,024 20,311 169,864 (1,496) 1,882 12,047 2,635 (10,033) (20,113) (45,882) (81,920) 43,238 (123,642) (142,720) 292 (5,026) 58,927 (366,927) (111,200) 216,659 56,602 (23,181) 162,438 2,765,656 96,631 (44,574) (465,807) 2,351,915 (89,487) 28,348 (780,320) 15,068 (125,769) (108,838) 167,285 (425,986) 287,699 (6,071) (1,038,061) (272,329) (338,824) 144,894 (221,478) (188,235) (3,661) (6,475) 19 (368,056) (10,739) (169) (1,265,054) (8,819) 39,972 1,356,019 272 ¥ 148,596 443 ¥ 144,077 2,560 $ 1,398,551 Asahi Kasei Report 2018 71 70 Asahi Kasei Report 2018 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, 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 ¥106.25=US$1 prevailing on March 31, 2018, has been used. Consolidation and investments in affiliated companies The consolidated financial statements consist of the accounts of the parent company and 171 subsidiaries (171 subsidiaries at March 31, 2017, hereinafter collectively referred to as the “Company”) which, with minor exceptions due to immateriality, are all majority or wholly owned 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 and building accessories acquired on or after April 1, 2016 which are depreciated using the straight-line method, at rates based on estimated useful lives of the assets, principally ranging from 7 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. (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. 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 companies, including 6 core operating companies (Asahi Kasei Homes Corp., Asahi Kasei Construction Materials Corp., Asahi Kasei Microdevices Corp., Asahi Kasei Pharma Corp., Asahi Kasei Medical Co., Ltd., and ZOLL Medical Corporation), Polypore International, LP, and Tongsuh 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 54 such unconsolidated subsid- iaries and 20% to 50% owned companies to which the equity method is applied at March 31, 2018 (32 at March 31, 2017), including Asahi Kasei EIC Solutions Corp. and Asahi Yukizai Corporation. 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. 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. vi) Provision for grant of shares To record the grant of shares to Directors, etc., in accordance with Share Grant Regulations, the provision for grant of shares is recorded based on an estimate of grant of shares liabilities as of March 31, 2018. (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. 72 Asahi Kasei Report 2018 Asahi Kasei Report 2018 73 (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, 2018 and 2017, 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 3. Changes in significant accounting policies (a) Accounting Standards issued but not yet applied i) Implementation Guidance on Tax Effected Accounting and Implementation Guidance on Recoverability of Deferred Tax Assets The Accounting Standards Board of Japan (ASBJ) issued ASBJ Guidance No. 28 “Implementation Guidance on Tax Effected Accounting” and ASBJ Guidance No. 26 (revised 2018) “Implementation Guidance on Recoverability of Deferred Tax Assets.” Treatment of taxable temporary differences associated with investments in subsidiaries in the non- consolidated financial statements was revised, and treatment of recover- ability of deferred tax assets for companies corresponding to Category 1 was clarified. The Company will apply the guidance from the beginning of the fiscal year ending March 31, 2019. The effects on the consolidated financial statements are currently being assessed. ii) Accounting Standard for Revenue Recognition and Implementation Guidance on Accounting Standard for Revenue Recognition The ASBJ issued ASBJ Statement No. 29 “Accounting Standard for Revenue Recognition” and ASBJ Guidance No. 30 “Implementation Guidance on Accounting Standard for Revenue Recognition.” This is a comprehensive standard related to revenue recognition, with the following five steps to be applied for recognition of revenue: Step 1: Identify the contract with customers Step 2: Identify the separate performance obligations Step 3: Determine the transaction price of the contract Step 4: Allocate the transaction price to each of the separate perfor- mance obligations Step 5: Recognize the revenue as each performance obligation is satisfied The Company will apply the standard and guidance from the beginning of the fiscal year ending March 31, 2022. At the time of the preparation of the consolidated financial statements, the effects are being assessed. (b) Changes in presentation Consolidated statements of income In the fiscal year ended March 31, 2018, donations, which had previously been reported separately, became 10% or less of total non-operating expenses, and were included in others under non-operating expenses. derivatives that are designated as hedging instruments. Gains or losses 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 recognized 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. The consolidated statements of income for the fiscal year ended March 31, 2017 have been reclassified accordingly, resulting in donations of ¥3,930 million being included in other under non-operating expenses. (c) Additional information Accounting treatment related to the trust for granting shares to Directors, etc. As approved by the Company’s Board of Directors on April 21, 2017, and at the 126th Ordinary General Meeting of Shareholders held on June 28, 2017, a stock-based remuneration system was introduced for the Company’s Directors (excluding Outside Directors), Executive Officers of the Company, and Executive Officers of core operating companies of the Asahi Kasei Group who hold a certain rank (collectively “Directors, etc.”), to more clearly link remuneration of Directors, etc., and the Company’s shareholder value, thereby reinforcing the common interest between Directors, etc., and shareholders, including both the benefits of share price increases and the risk associated with share price decreases. The system is a stock-based incentive system in which a trust, estab- lished and funded by the Company, acquires shares of the Company, and the Company grants the shares to eligible Directors, etc., in accordance with Share Grant Regulations adopted by the Board of Directors. The Company confers on each Director, etc., a certain number of points as specified in accordance with their individual rank, etc., and at the time of their retirement a number of shares equal to the number of accumulated points are granted to Directors, etc., or sold by the trust and granted to Directors, etc., in the form of cash. Voting rights associated with the shares of the Company held in the trust are not exercisable. Accounting treatment of shares of the Company held by the trust is performed in accordance with PITF No. 30 “Practical Solution on Transactions of Delivering the Company’s Own Stock to Employees etc. through Trusts” issued by the ASBJ. The Company records its own stocks held by the trust as treasury stock under net assets in the consolidated balance sheets, at book value excluding associated costs incurred by the trust, using the gross method which identifies the Company with the trust. As of March 31, 2018, there were 464 thousand shares of such treasury stock, with a book value of ¥601 million. 72 Asahi Kasei Report 2018 Asahi Kasei Report 2018 73 4. Notes to Consolidated Balance Sheets (a) Investment securities Among investment securities, shares of unconsolidated subsidiaries and affiliates as of March 31, 2018 and 2017, amounted to ¥83,487 million (US$785,760 thousand) and ¥65,725 million, respectively. Included in those amounts are investments in joint ventures of ¥43,168 million (US$406,287 thousand) and ¥33,686 million, respectively. (b) Pledged assets and secured debt A summary of assets pledged as collateral and secured debt as of March 31, 2018 and 2017, 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 2018 2017 2018 ¥— — ¥— ¥— — ¥— ¥106 1 ¥107 ¥ 0 28 ¥ 29 $— — $— $— — $— Besides the above, investment securities pledged to suppliers as transaction guarantees at March 31, 2018 and 2017, were ¥72 million (US$678 thousand) and ¥61 million, respectively. (c) Contingent liabilities Contingent liabilities at March 31, 2018 and 2017, 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 2018 ¥39,457 — — ¥39,457 2017 ¥35,774 — 10,185 ¥45,959 2018 $371,360 — — $371,360 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. (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, 2018 and 2017, were ¥9,999 million (US$94,108 thousand) and ¥9,572 million, respectively. The breakdown of reduced-value entries as of March 31, 2018 and 2017, was as follows: Buildings and structures Machinery, equipment and vehicles Land Other Total Millions of yen Thousands of U.S. dollars 2018 ¥3,320 6,366 167 146 ¥9,999 2017 ¥3,394 5,865 167 146 ¥9,572 2018 $31,247 59,915 1,572 1,374 $94,108 (e) Notes maturing on March 31, 2018 Although financial institutions in Japan were closed on March 31, 2018, and notes maturing on that date were actually settled on the following business day, April 2, 2018, those were accounted for as if settled on March 31, 2018. The breakdown of those notes at March 31, 2018 was as follows: Notes and accounts receivable—trade Notes and accounts payable—trade Millions of yen Thousands of U.S. dollars 2018 ¥2,501 1,301 2017 ¥— — 2018 $23,539 12,245 74 Asahi Kasei Report 2018 Asahi Kasei Report 2018 75 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, 2018 and 2017, were as follows: Salaries and benefits Research and development* Freight and storage Millions of yen Thousands of U.S. dollars 2018 ¥174,659 61,998 38,568 2017 ¥165,337 59,476 37,450 2018 $1,643,849 583,511 362,993 * The aggregate amounts of research and development expenses included in manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2018 and 2017, were ¥85,695 million (US$806,541 thousand) and ¥79,566 million, respectively. (b) Gain or 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. (Gain) loss on valuation of inventories for the years ended March 31, 2018 and 2017, were as follows: Millions of yen Thousands of U.S. dollars 2018 ¥(224) 2017 ¥(152) 2018 $(2,108) (c) Gain on sales of noncurrent assets Major components of gain on sales of noncurrent assets for the years ended March 31, 2018 and 2017, were as follows: Land Machinery Other Millions of yen Thousands of U.S. dollars 2018 ¥466 48 20 2017 ¥146 14 4 2018 $4,386 452 188 (d) Loss on disposal of noncurrent assets Loss on disposal of noncurrent assets for the years ended March 31, 2018 and 2017, was primarily loss on abandonment and sale of buildings, machinery and equipment, etc. The abandonment and sale of buildings, machinery and equipment, etc. were performed under a single, all-inclusive contract for each facility. 74 Asahi Kasei Report 2018 Asahi Kasei Report 2018 75 (e) Impairment loss Major components of impairment losses for the years ended March 31, 2018 and 2017, were as follows: Use Asset class Location Production facility for electronic devices Office assets Production facility for synthetic resin Dormitory for employees Others Machinery and equipment, etc. Buildings, etc. Machinery and equipment, etc. Buildings, etc. Machinery and equipment, etc. Hyuga, Miyazaki Chiyoda-ku, Tokyo, etc. Sodegaura, Chiba Izunokuni, Shizuoka Fuji, Shizuoka, etc. Goodwill related to new electronic device business Goodwill — Facility for storage of waste Buildings, etc. Equipment for dry-heat treatment of nonwovens Buildings, etc. Kawasaki, Kanagawa, etc. Nobeoka, Miyazaki, etc. Others Buildings, etc. Moriyama, Shiga, etc. Millions of yen Thousands of U.S. dollars 2018 ¥ — 2017 2018 ¥1,210 $ — Item on the Consolidated Statements of Income Business structure improvement expenses — — — — 997 557 284 381 1,208 1,131 125 265 — — — — — Impairment losses — Business structure improvement expenses — Impairment losses — Impairment losses and business structure improvement expenses 9,834 Impairment losses 5,242 Impairment losses 2,673 Impairment losses 3,586 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. The book value of goodwill related to new electronic device business was reduced to the recoverable amount due to diminished profitability, the book value of the facility for storage of waste was reduced to the recoverable amount due to a determination of a lack of future profitability, and the book value of equipment for dry-heat treatment of nonwovens was reduced to the recoverable amount due to the disappearance of prospects for future use. The recoverable amount is stated as the value for future usage, which is calculated based on discounted future cash flows within the applicable discount rate of 6% as of March 31, 2018 and 2017. Among the extraordinary losses under Others, ¥62 million (US$584 thousand) and ¥115 million were recorded under business structure improvement expenses for the years ended March 2018 and 2017, respectively. (f) Business structure improvement expenses Major components of business structure improvement expenses for the years ended March 31, 2018 and 2017, were as follows: Impairment of fixed assets Loss on disposal and devaluation of inventory and others Total Millions of yen Thousands of U.S. dollars 2018 ¥ 62 1,398 ¥1,460 2017 ¥2,456 3,734 ¥6,189 2018 $ 584 13,158 $13,741 76 Asahi Kasei Report 2018 Asahi Kasei Report 2018 77 6. Notes to Consolidated Statements of Comprehensive Income Recycling adjustment and tax effects on other comprehensive income for the years ended March 31, 2018 and 2017, were as follows: Millions of yen Thousands of U.S. dollars 2018 2017 2018 Net unrealized gain on other securities: Changes during the fiscal year Recycling adjustment Pre-tax effect Tax effect Net unrealized gain on other securities Deferred gains or losses on hedges: Changes during the fiscal year Recycling adjustment Pre-tax effect Tax effect Deferred gains or losses on hedges Foreign currency translation adjustment: Changes during the fiscal year 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 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 7. Notes to Consolidated Statements of Changes in Net Assets For the year ended March 31, 2018 (a) Class and total number of issued and outstanding shares and treasury stock ¥ 26,084 (15,068) 11,016 (3,364) 7,651 71 (74) (3) 40 37 (12,088) (12,088) (164) (12,252) 2,844 11,302 14,145 (4,410) 9,735 356 — 356 ¥ 5,528 ¥40,337 (9,858) 30,479 (9,302) 21,177 380 (170) 210 24 234 (8,073) (8,073) 53 (8,020) (74) 10,901 10,827 (2,713) 8,114 866 (55) 810 ¥22,315 $ 245,496 (141,816) 103,680 (31,661) 72,009 668 (696) (28) 376 348 (113,769) (113,769) (1,544) (115,313) 26,767 106,372 133,129 (41,506) 91,624 3,351 — 3,351 $ 52,028 Issued and outstanding shares Common stock Total Treasury stock Common stock (Notes 1, 2 & 3) Total Number of shares as of March 31, 2017 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, 2018 Thousands of shares 1,402,616 1,402,616 5,959 5,959 — — 534 534 — — 1 1 1,402,616 1,402,616 6,492 6,492 Notes: 1. The increase of 534 thousand shares in common stock of treasury stock was primarily attributable the purchase of 464 thousand shares by the trust for granting shares to Directors, etc., and the purchase of 70 thousand shares in quantities of less than one share unit. 2. The decrease of 1 thousand shares in common stock of treasury stock was due to the sale of shares in quantities of less than one share unit. 3. The number of shares of treasury stock as of March 31, 2018, includes 464 thousand shares held by the trust for granting shares to Directors, etc. 76 Asahi Kasei Report 2018 Asahi Kasei Report 2018 77 (b) Dividends i) Cash dividends paid 1) The following was resolved by the Board of Directors on May 11, 2017. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥19,553 million (US$184,028 thousand) ¥14.00 (US$0.13) March 31, 2017 June 6, 2017 2) The following was resolved by the Board of Directors on November 1, 2017. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥19,552 million (US$184,019 thousand) ¥14.00 (US$0.13) September 30, 2017 December 1, 2017 Note: Total dividends includes ¥6 million (US$56 thousand) for shares held by the trust for granting shares to Directors, etc. 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, 2018. Dividends for common stock Total dividends Source of dividends Dividend per share Date of record Payment date ¥27,932 million (US$262,889 thousand) Retained earnings ¥20.00 (US$0.19) March 31, 2018 June 5, 2018 Note: Total dividends includes ¥9 million (US$85 thousand) for shares held by the trust for granting shares to Directors, etc. For the year ended March 31, 2017 (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, 2016 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, 2017 Thousands of shares 1,402,616 1,402,616 5,862 5,862 — — 99 99 — — 2 2 1,402,616 1,402,616 5,959 5,959 Notes: 1. The increase of 99 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 2 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 11, 2016. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥13,968 million ¥10.00 March 31, 2016 June 6, 2016 2) The following was resolved by the Board of Directors on November 1, 2016. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥13,967 million ¥10.00 September 30, 2016 December 1, 2016 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, 2017. Dividends for common stock Total dividends Source of dividends Dividend per share Date of record Payment date ¥19,553 million Retained earnings ¥14.00 March 31, 2017 June 6, 2017 78 Asahi Kasei Report 2018 Asahi Kasei Report 2018 79 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, 2018 and 2017, was as follows: Cash and deposits Time deposits with deposit term of over 3 months Cash and cash equivalents 9. Leases (a) Financing lease transactions Financing lease transactions without title transfer Millions of yen Thousands of U.S. dollars 2018 ¥156,318 (7,722) ¥148,596 2017 ¥145,289 (1,212) ¥144,077 2018 $1,471,228 (72,678) $1,398,551 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.” (b) Operating lease transactions Future lease payments for the non-cancelable portion of the Company’s operating leases at March 31, 2018 and 2017, were as follows: Due within one year Due after one year Total Millions of yen Thousands of U.S. dollars 2018 ¥ 8,677 25,987 ¥34,664 2017 ¥ 5,753 33,899 ¥39,652 2018 $ 81,666 244,584 $326,249 78 Asahi Kasei Report 2018 Asahi Kasei Report 2018 79 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, 2018 and 2017, were as shown below. Financial instruments whose fair values are deemed extremely difficult to determine are not included in this table (See Notes 2), 3) and 4) below). Cash and deposits Notes and accounts receivable—trade 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 Commercial paper Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposits Total liabilities Derivative financial instruments (*) Millions of yen 2018 Fair value ¥156,318 341,396 16,471 221,708 28,445 764,338 171,413 58,898 20,000 29,714 20,420 199,485 551 8,726 509,207 ¥ 1,257 Carrying amount ¥156,318 341,396 15,353 221,708 28,442 763,217 171,413 58,898 20,000 29,714 20,000 202,296 551 8,696 511,568 ¥ 1,257 Difference ¥ — — 1,118 — 3 1,121 — — — — (420) 2,811 (0) (30) 2,361 ¥ — 80 Asahi Kasei Report 2018 Asahi Kasei Report 2018 81 Cash and deposits Notes and accounts receivable—trade 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 Commercial paper Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposits Total liabilities Derivative financial instruments (*) Cash and deposits Notes and accounts receivable—trade 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 Commercial paper Income taxes payable Bonds payable Long-term loans payable Lease obligations Long-term guarantee deposits Total liabilities Derivative financial instruments (*) Millions of yen 2017 Fair value ¥145,289 302,751 9,558 211,694 19,366 688,657 147,543 88,965 56,000 16,202 40,646 216,145 765 8,344 574,610 ¥ (249) Thousands of U.S. dollars 2018 Fair value $1,471,228 3,213,139 155,021 2,086,664 267,718 7,193,769 1,613,299 554,334 188,235 279,661 192,188 1,877,506 5,186 82,127 4,792,536 $ 11,831 Carrying amount ¥145,289 302,751 14,529 211,694 19,371 693,633 147,543 88,965 56,000 16,202 40,000 217,094 773 8,299 574,876 ¥ (249) Carrying amount $1,471,228 3,213,139 144,499 2,086,664 267,689 7,183,219 1,613,299 554,334 188,235 279,661 188,235 1,903,962 5,186 81,845 4,814,758 $ 11,831 Difference ¥ — — (4,971) — (5) (4,976) — — — — (646) 949 8 (45) 266 ¥ — Difference $ — — 10,522 — 28 10,551 — — — — (3,953) 26,456 (0) (282) 22,221 $ — (*) The amounts represent net amount of assets and liabilities resulting from derivative transactions. 2) Bonds payable 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 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. 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. 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. 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, 2018 and 2017, amounting to ¥59,120 million (US$556,424 thou- sand) and ¥24,510 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. 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. 80 Asahi Kasei Report 2018 Asahi Kasei Report 2018 81 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, 2018 and 2017, amounting to ¥74,668 million (US$702,758 thousand) and ¥54,787 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, 2018 and 2017, amount- ing to ¥3,101 million (US$29,186 thousand) and ¥3,127 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, 2018 and 2017, amounting to ¥11,962 million (US$112,584 thousand) and ¥12,180 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 2018 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years ¥156,318 341,396 5,431 ¥503,145 ¥ — — 22,676 ¥22,676 ¥ — — 335 ¥335 ¥— — — ¥— Millions of yen 2017 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years ¥145,289 302,751 453 ¥448,493 ¥ — — 18,912 ¥18,912 ¥— — 5 ¥ 5 ¥— — — ¥— Thousands of U.S. dollars 2018 Due within one year Due after one year, within five years Due after five years, within ten years Due after more than ten years $1,471,228 3,213,139 51,115 $4,735,482 $ — — 213,421 $213,421 $ — — 3,153 $3,153 $— — — $— 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: Year ending March 31 2019 2020 2021 2022 2023 2024 and thereafter Year ending March 31 2018 2019 2020 2021 2022 2023 and thereafter Millions of yen 2018 Short-term loans payable Commercial paper Bonds payable Long-term loans payable Lease obligations Total ¥58,898 — — — — — ¥20,000 — — — — — ¥ — 20,000 — — — — ¥59,120 21,794 23,371 28,981 28,043 40,988 Millions of yen 2017 ¥199 162 128 54 8 — ¥138,217 41,956 23,499 29,034 28,051 40,988 Short-term loans payable Commercial paper Bonds payable Long-term loans payable Lease obligations Total ¥88,965 — — — — — ¥56,000 — — — — — ¥20,000 — 20,000 — — — ¥24,510 59,796 21,279 22,900 32,790 55,819 ¥305 186 143 112 26 — ¥189,780 59,982 41,422 23,012 32,816 55,819 82 Asahi Kasei Report 2018 Asahi Kasei Report 2018 83 Thousands of U.S. dollars 2018 Year ending March 31 2019 2020 2021 2022 2023 2024 and thereafter Short-term loans payable Commercial paper Bonds payable Long-term loans payable Lease obligations Total $554,334 — — — — — $188,235 — — — — — $ — 188,235 — — — — $556,424 205,120 219,962 272,762 263,934 385,769 $1,873 1,525 1,205 508 75 — $1,300,866 394,880 221,167 273,261 264,009 385,769 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, 2018 and 2017, were as follows: Securities with unrealized gains: Equity securities Subtotal Securities with unrealized losses: Equity securities Subtotal Total Securities with unrealized gains: Equity securities Subtotal Securities with unrealized losses: Equity securities Subtotal Total Securities with unrealized gains: Equity securities Subtotal Securities with unrealized losses: Equity securities Subtotal Total Millions of yen 2018 Cost ¥35,703 35,703 13,240 13,240 ¥48,943 Millions of yen 2017 Cost ¥35,723 35,723 12,690 12,690 ¥48,414 Thousands of U.S. dollars 2018 Cost $336,028 336,028 124,612 124,612 $460,640 Unrealized gains (losses) ¥173,872 173,872 (1,108) (1,108) ¥172,765 Unrealized gains (losses) ¥164,557 164,557 (1,277) (1,277) ¥163,280 Unrealized gains (losses) $1,636,442 1,636,442 (10,428) (10,428) $1,626,024 Carrying amount ¥209,576 209,576 12,133 12,133 ¥221,708 Carrying amount ¥200,280 200,280 11,414 11,414 ¥211,694 Carrying amount $1,972,480 1,972,480 114,193 114,193 $2,086,664 82 Asahi Kasei Report 2018 Asahi Kasei Report 2018 83 (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, 2018 and 2017, were as follows: Selling amount Gain on sales of securities Loss on sales of securities Millions of yen Thousands of U.S. dollars 2018 ¥18,088 15,164 — 2017 ¥12,087 9,918 — 2018 $170,240 142,720 — (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, 2018, was ¥31 million (US$292 thousand), which is the sum of ¥28 million (US$264 thousand) for equity securities of unconsolidated subsidiaries and affiliates and ¥3 million (US$28 thousand) for other securities, and for the year ended March 31, 2017, ¥101 million, which is for other securities. 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 2018 Amount of contract over 1 year Fair value Profit (loss) from valuation Selling: U.S. dollar Euro Thai baht Singapore dollar British pound Buying: U.S. dollar Euro Thai baht Total ¥ 52,155 9,720 1,867 — 27 5,438 50,269 5 ¥119,481 ¥— — — — — — — — ¥— ¥1,514 158 4 — 0 (84) (335) (0) ¥1,257 ¥1,514 158 4 — 0 (84) (335) (0) ¥1,257 Classification Items Amount of contract Off-market transactions Foreign exchange forward contracts: Millions of yen 2017 Amount of contract over 1 year Fair value Profit (loss) from valuation Selling: U.S. dollar Euro Thai baht Singapore dollar British pound Buying: U.S. dollar Euro Thai baht Total ¥24,981 9,289 879 11 52 1,827 45,868 4 ¥82,911 ¥— — — — — — — — ¥— ¥ 100 (9) 11 (0) 0 (376) (48) 0 ¥(322) ¥ 100 (9) 11 (0) 0 (376) (48) 0 ¥(322) 84 Asahi Kasei Report 2018 Asahi Kasei Report 2018 85 Classification Items Amount of contract Off-market transactions Foreign exchange forward contracts: Thousands of U.S. dollars 2018 Amount of contract over 1 year Fair value Profit (loss) from valuation Selling: U.S. dollar Euro Thai baht Singapore dollar British pound Buying: U.S. dollar Euro Thai baht Total $ 490,871 91,482 17,572 — 254 51,181 473,120 47 $1,124,527 $— — — — — — — — $— $14,249 1,487 38 — 0 (791) (3,153) (0) $11,831 (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 2018 Amount of contract over 1 year Selling: U.S. dollar Euro Thai baht Buying: U.S. dollar Euro Thai baht Swedish krona Total Accounts receivable—trade Accounts receivable—trade Accounts receivable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade Investment securities ¥ 5,966 721 — 359 — 3 5,198 ¥12,246 ¥— — — — — — — ¥— Classification Items Hedged assets/liabilities Amount of contract Principle-based accounting Foreign exchange forward contracts: Millions of yen 2017 Amount of contract over 1 year Selling: U.S. dollar Euro Thai baht Buying: U.S. dollar Euro Thai baht Swedish krona Total Accounts receivable—trade Accounts receivable—trade Accounts receivable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade Investment securities ¥ 619 109 11 1,445 2 106 — ¥2,292 ¥— — — — — — — ¥— $14,249 1,487 38 — 0 (791) (3,153) (0) $11,831 Fair value ¥ 180 17 — (10) — 0 (186) ¥ 0 Fair value ¥36 1 (0) 32 (0) 6 — ¥74 84 Asahi Kasei Report 2018 Asahi Kasei Report 2018 85 Classification Items Hedged assets/liabilities Amount of contract Principle-based accounting Foreign exchange forward contracts: Thousands of U.S. dollars 2018 Amount of contract over 1 year Selling: U.S. dollar Euro Thai baht Buying: U.S. dollar Euro Thai baht Swedish krona Total Accounts receivable—trade Accounts receivable—trade Accounts receivable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade Investment securities $ 56,151 6,786 — 3,379 — 28 48,922 $115,256 $— — — — — — — $— ii) Interest-rate swaps, and interest-rate and currency swaps Classification Items Hedged assets/liabilities Amount of contract Millions of yen 2018 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 ¥139,261 ¥93,633 Long-term loans payable 170 ¥139,431 — ¥93,633 Millions of yen Fair value $ 1,694 160 — (94) — 0 (1,751) $ 0 Fair value (*) (*) ¥— Classification Items Hedged assets/liabilities Amount of contract 2017 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 ¥165,889 ¥139,918 Long-term loans payable 324 ¥166,213 162 ¥140,080 Classification Items Hedged assets/liabilities Amount of contract Thousands of U.S. dollars 2018 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 $1,310,692 $881,252 Long-term loans payable 1,600 $1,312,292 — $881,252 (*) (*) ¥— 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. 86 Asahi Kasei Report 2018 Asahi Kasei Report 2018 87 13. Provision for retirement benefits Upon terminating employment, employees of the parent company and its subsidiaries 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 and/or defined contribu- tion plans. Additional benefits may be granted to employees depending on the conditions under which termination of employment occurs. 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, 2018 and 2017, were as follows: Beginning balance of the projected benefit obligations Service cost Interest cost Actuarial gains/losses Payment of retirement benefits Other Ending balance of the projected benefit obligations Millions of yen Thousands of U.S. dollars 2018 ¥398,132 14,922 695 1,213 (14,620) 513 ¥400,855 2017 ¥398,588 15,581 677 2,133 (19,016) 169 ¥398,132 2018 $3,747,125 140,442 6,541 11,416 (137,600) 4,828 $3,772,753 Reconciliations of beginning and ending balances of plan assets for the fiscal years ended March 31, 2018 and 2017, 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 2018 ¥219,765 5,461 4,064 9,513 (8,571) (11) ¥230,220 2017 ¥212,288 5,265 2,056 9,799 (9,532) (110) ¥219,765 2018 $2,068,376 51,398 38,249 89,534 (80,668) (104) $2,166,776 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, 2018 and 2017, 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 sheets Net defined benefit liability Net of liability and asset that have been recorded in the consolidated balance sheets Millions of yen Thousands of U.S. dollars 2018 ¥ 257,710 (230,220) 27,489 143,145 ¥ 170,634 ¥ 170,634 ¥ 170,634 2017 ¥ 256,082 (219,765) 36,318 142,050 ¥ 178,368 ¥ 178,368 ¥ 178,368 2018 $ 2,425,506 (2,166,776) 258,720 1,347,247 $ 1,605,967 $ 1,605,967 $ 1,605,967 Periodic retirement benefit expenses for employees and the breakdown of items for the years ended March 31, 2018 and 2017, 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 2018 ¥13,301 695 (5,461) 11,196 141 636 ¥20,509 2017 ¥13,952 677 (5,265) 10,763 142 506 ¥20,775 2018 $125,186 6,541 (51,398) 105,374 1,327 5,986 $193,026 86 Asahi Kasei Report 2018 Asahi Kasei Report 2018 87 The components of other comprehensive income on defined benefit plans for the fiscal years ended March 31, 2018 and 2017, were as follows: Prior service costs Actuarial gains/losses Total Millions of yen Thousands of U.S. dollars 2018 ¥ 141 14,004 ¥14,145 2017 ¥ 142 10,685 ¥10,827 2018 $ 1,327 131,802 $133,129 Accumulated other comprehensive income on defined benefit plans at March 31, 2018 and 2017, was as follows: Unrecognized prior service costs Unrecognized actuarial gains/losses Total Share by major classifications for plan assets at March 31, 2018 and 2017, was as follows: Millions of yen Thousands of U.S. dollars 2018 ¥ 78 33,779 ¥33,857 2017 ¥ 219 47,783 ¥48,002 2018 $ 734 317,920 $318,654 Bonds Stock Alternative investments Life insurance Cash and deposits Other Total 2018 37% 25 16 13 8 2 100% 2017 37% 24 16 14 8 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, 2018 and 2017, were as follows: Discount rate The long-term rate of expected return on plan assets Expected rate of increase in salary 2018 Mainly 0.1% Mainly 2.5% 2.0–6.5% 2017 Mainly 0.1% Mainly 2.5% 2.3–7.1% Required payments to defined contribution plans at March 31, 2018, amounted to ¥1,807 million (US$17,007 thousand), and at March 31, 2017, amounted to ¥1,874 million. 88 Asahi Kasei Report 2018 Asahi Kasei Report 2018 89 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, 2018 and 2017, were as follows: Deferred tax assets: Net defined benefit liability Accrued bonuses Foreign tax credit carry forwards Unrealized gain on noncurrent assets and others Impairment losses Loss on disposal of noncurrent assets Other Subtotal deferred tax assets Less: Valuation allowance Total deferred tax assets Deferred tax liabilities: Unrealized gain on other securities Identified intangible assets during business combination Deferred gain on property, plant and equipment Depreciation—overseas subsidiaries Other Total deferred tax liabilities Net deferred tax assets (liabilities) Millions of yen Thousands of U.S. dollars 2018 2017 2018 ¥ 52,147 7,734 6,069 3,931 3,414 3,268 22,951 99,515 (10,865) 88,651 (54,229) (29,925) (8,383) (8,077) (6,899) (107,514) ¥ (18,864) ¥ 55,324 7,687 5,560 3,843 3,397 3,383 29,389 108,583 (10,054) 98,528 (51,508) (50,049) (8,388) (13,405) (5,388) (128,738) ¥ (30,210) $ 490,795 72,791 57,120 36,998 32,132 30,758 216,009 936,612 (102,259) 834,362 (510,391) (281,647) (78,899) (76,019) (64,932) (1,011,896) $ (177,544) Net deferred tax assets (liabilities) at March 31, 2018 and 2017, 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 2018 ¥ 20,032 6,727 — (45,622) 2017 ¥ 20,279 9,309 (39) (59,759) 2018 $ 188,536 63,313 — (429,384) In the fiscal year ended March 31, 2018, tax loss carry forwards, depreciation, unrealized loss on investment securities, provision for periodic repairs, pro- vision for product warranties, accrued enterprise tax, devaluation of inventories, allowance for doubtful accounts, and asset retirement obligations, which had previously been reported separately, are included in Current liabilities—other due to immateriality. The figures for Current liabilities—other for the fiscal year ended March 31, 2017, include ¥6,870 million in tax loss carry forwards, ¥2,781 million in depreciation, ¥1,765 million in unrealized loss on investment securities, ¥1,456 million in provision for periodic repairs, ¥1,338 million in provision for product warranties, ¥1,247 million in accrued enterprise tax, ¥1,092 million in devaluation of inventories,¥979 million on allowance for doubtful accounts, and ¥610 million in asset retirement obligations. Reconciliation of the differences between the statutory tax rate and the effective income tax rate for the years ended March 31, 2018 and 2017, was as follows: Statutory tax rate Increase (reduction) in taxes resulting from: Non-deductible expenses and non-taxable income R&D expenses deductible from income taxes Amortization of goodwill and negative goodwill Equity in (losses) earnings of unconsolidated subsidiaries and affiliates Undistributed earnings (losses) of foreign subsidiaries Difference of tax rates for foreign subsidiaries Items related to U.S. tax reform Other Effective income tax rate 2018 30.9% 0.3 (2.9) 2.5 (1.9) 0.4 (0.4) (7.9) 0.1 21.1% 2017 30.9% 1.1 (3.7) 3.5 (1.0) 0.2 (1.2) — (3.9) 25.9% Note: In the fiscal year ended March 31, 2018, equalization of inhabitants taxes and valuation allowance, which had previously been reported separately, are included in Other due to immateriality. The figure for Other rate reconciliation items for the fiscal year ended March 31, 2017, includes a 0.3% effect of equalization of inhabitants taxes and a (3.9)% effect of valuation allowance. Revision of deferred tax assets and liabilities due to change in corporate tax rate, etc. The U.S. Tax Cuts and Jobs Reform Act enacted on December 22, 2017, reduced the corporate tax rate applied to U.S. consolidated subsidiaries from 35% to 21% effective January 1, 2018. As a result, deferred tax liabilities (net of deferred tax assets) and deferred income taxes for the fiscal year ended March 31, 2018, each decreased by ¥19,027 million (US$179,078 thousand). 88 Asahi Kasei Report 2018 Asahi Kasei Report 2018 89 15. 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, 2018, 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 5.4%. (c) (Decrease) increase in the total amount of asset retirement obligations in the fiscal years ended March 31, 2018 and 2017 Balance at beginning of year Increase due to asset retirement obligations accrued Adjustment due to passage of time Decrease due to fulfillment of asset retirement obligations Decrease due to accounting estimates Increase (decrease) due to foreign exchange fluctuation Balance at end of year Millions of yen Thousands of U.S. dollars 2018 ¥4,007 164 198 (82) (505) 56 ¥3,838 2017 ¥4,047 37 136 (125) — (88) ¥4,007 2018 $37,713 1,544 1,864 (772) (4,753) 527 $36,122 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, 2018 and 2017, 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 Millions of yen Thousands of U.S. dollars 2018 ¥1,766 80 (6) ¥1,840 2017 ¥1,733 79 (46) ¥1,766 2018 $16,621 753 (56) $17,318 90 Asahi Kasei Report 2018 Asahi Kasei Report 2018 91 (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. 16. 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 an operating holding company configuration with the operating holding company and core operating companies performing operations in three business sectors. The operating holding company and each core operating company lays out strategy and develops business activities in Japan and abroad. Beginning with the first quarter of the fiscal year ended March 31, 2018, the Energy Division, which was formerly included in Others, was reclassi- fied into the Material segment. The figures for the prior period have been recalculated in accordance with the new classification for comparison purposes. Main products of the three reportable segments are as follows: Material segment Fibers business The Company manufactures, processes, and sells elastic polyurethane filament, cupro fiber, nonwoven fabrics, and nylon 66 filament. Chemicals business The Company manufactures, processes, and sells petrochemical products (such as acrylonitrile, styrene, polyethylene, and polystyrene), performance polymer products (such as engineering plastics and synthetic rubber), and performance material and consumable products (such as coating materi- als, microcrystalline cellulose, explosives, explosion-bonded metal clad, hollow-fiber filtration membranes, ion-exchange membranes, electronic materials, food wrapping film, and plastic films, sheets, and foams). Electronics business The Company manufactures, processes, and sells battery separator prod- ucts (such as lithium-ion battery separator and lead-acid battery separator) and electronic devices (such as mixed-signal LSIs and Hall elements). Homes segment Homes business The Company constructs unit homes and apartment buildings, and operates real estate businesses, remodeling businesses, and financial and other services. Construction Materials business The Company manufactures and sells autoclaved aerated concrete (AAC) panels, insulation panels, foundation systems, and structural components. Health Care segment Pharmaceuticals business The Company manufactures and sells pharmaceuticals and diagnostic reagents. Medical Care business The Company manufactures and sells artificial kidneys, therapeutic apheresis devices, and virus removal filters. Critical Care business The Company manufactures and sells defibrillators and temperature management systems. Others The Company performs plant and environmental engineering, research and analysis, employment agency/staffing operations, etc. 90 Asahi Kasei Report 2018 Asahi Kasei Report 2018 91 (c) Information concerning net sales, income or loss, assets, and other items for each reportable segment Sales: External customers Intersegment Total Operating income Assets Other items: Millions of yen 2018 Material Homes Health Care Subtotal Others (Note 1) Total ¥1,087,720 5,014 1,092,734 121,925 1,332,202 ¥640,988 39 641,026 64,357 483,342 ¥296,258 34 296,292 39,464 450,846 ¥2,024,966 5,086 2,030,052 225,746 2,266,390 ¥17,251 27,557 44,807 1,870 78,427 ¥2,042,216 32,643 2,074,860 227,616 2,344,817 Depreciation and amortization (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets 56,002 8,961 9,506 — 19,340 8,821 84,848 17,782 1,665 266 86,513 18,048 45,020 12,318 450 57,788 17,172 74,961 59,814 18,431 12,186 90,431 1,226 91,657 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. Sales: External customers Intersegment Total Operating income Assets Other items: Depreciation and amortization (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets Millions of yen 2017 Material Homes Health Care Subtotal Others (Note 1) Total ¥ 977,892 5,687 983,579 88,495 1,268,258 54,188 8,766 35,055 ¥618,964 1,761 620,725 64,100 455,242 9,411 — 4,796 ¥270,120 34 270,154 31,921 459,251 18,187 8,780 ¥1,866,976 7,482 1,874,458 184,516 2,182,752 81,787 17,546 ¥16,015 25,682 41,698 2,018 72,199 1,285 260 111 39,962 17,873 52,893 12,139 15,604 80,635 1,149 ¥1,882,991 33,165 1,916,156 186,534 2,254,950 83,072 17,806 57,835 81,783 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. Sales: External customers Intersegment Total Operating income Assets Other items: Thousands of U.S. dollars 2018 Material Homes Health Care Subtotal Others (Note 1) Total $10,237,365 47,191 10,284,555 1,147,529 12,538,372 $6,032,828 367 6,033,186 605,713 4,549,101 $2,788,311 320 2,788,631 371,426 4,243,256 $19,058,504 47,868 19,106,372 2,124,668 21,330,729 $162,362 259,360 421,713 17,600 738,136 $19,220,856 307,228 19,528,094 2,142,268 22,068,866 Depreciation and amortization (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets 527,078 84,339 89,468 — 182,024 83,021 798,569 167,360 15,671 2,504 814,240 169,864 423,718 115,934 4,235 543,887 161,619 705,515 562,955 173,468 114,692 851,115 11,539 862,654 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. 92 Asahi Kasei Report 2018 Asahi Kasei Report 2018 93 (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 2018 ¥2,030,052 44,807 (32,643) ¥2,042,216 2017 ¥1,874,458 41,698 (33,165) ¥1,882,991 2018 $19,106,372 421,713 (307,228) $19,220,856 Millions of yen Thousands of U.S. dollars 2018 ¥225,746 1,870 381 (29,522) ¥198,475 2017 ¥184,516 2,018 220 (27,525) ¥159,229 2018 $2,124,668 17,600 3,586 (277,854) $1,868,000 * 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 2018 ¥2,266,390 78,427 (512,163) 483,482 ¥2,316,137 2017 ¥2,182,752 72,199 (476,300) 475,850 ¥2,254,500 2018 $21,330,729 738,136 (4,820,358) 4,550,419 $21,798,936 * 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 Other items 2018 2017 2018 2018 2017 2018 2018 2017 2018 2018 2017 2018 Depreciation and amortization (Note 2) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets ¥84,848 17,782 ¥81,787 17,546 $798,569 167,360 ¥ 1,665 266 ¥ 1,285 260 $ 15,671 2,504 ¥8,901 — ¥8,315 — $83,774 — ¥ 95,415 18,048 ¥91,387 17,806 $898,024 169,864 57,788 39,962 543,887 17,172 17,873 161,619 — — — 74,961 57,835 705,515 90,431 80,635 851,115 1,226 1,149 11,539 9,673 8,790 91,040 101,331 90,573 953,704 Notes: 1. Adjustments include elimination of intersegment transactions and corporate expenses, etc. 2. Amortization of goodwill is not included. (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 Japan United States 2018 China Other regions Millions of yen Total Japan 2017 China United States Other regions Total Japan Thousands of U.S. dollars 2018 China United States Other regions Total ¥1,274,548 ¥191,765 ¥183,425 ¥392,477 ¥2,042,216 ¥1,226,633 ¥164,241 ¥165,481 ¥326,637 ¥1,882,991 $11,995,746 $1,804,847 $1,726,353 $3,693,901 $19,220,856 2) Property, plant and equipment. Millions of yen 2018 Japan United States Other regions Total Japan ¥384,076 ¥85,003 ¥92,969 ¥562,048 ¥371,654 2017 United States ¥86,780 Other regions ¥98,447 Thousands of U.S. dollars 2018 Total Japan United States Other regions Total ¥556,881 $3,614,833 $800,028 $875,002 $5,289,864 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. 92 Asahi Kasei Report 2018 Asahi Kasei Report 2018 93 17. Information on related parties Related party transactions (a) Transactions between the company submitting the consolidated financial statements and related parties i) Unconsolidated subsidiaries, affiliates, etc. of the company submitting the consolidated financial statements For the year ended March 31, 2018: None For the year ended March 31, 2017: 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 Amount name Balance at end of year An affiliated company PTT Asahi Chemical Co., Ltd. Rayong, Thailand 13,819 million Thai baht Chemicals 50.0% (50.0%) Debt guarantee and seconded executive Guarantee for completion of manufacturing facilities ¥10,185 million — — (b) Transactions between consolidated subsidiaries of the company submitting the consolidated financial statements and related parties None 18. Per share information Basic and diluted net assets per share and net income per share for the years ended March 31, 2018 and 2017, 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) Yen 2018 ¥922.11 121.93 2017 ¥824.36 82.34 U.S. dollars 2018 $8.68 1.15 Millions of yen Thousands of U.S. dollars 2018 ¥1,305,214 17,827 (17,827) ¥1,287,387 2017 ¥1,168,115 16,771 (16,771) ¥1,151,344 2018 $12,284,367 167,784 (167,784) $12,116,584 1,396,125 1,396,657 1,396,125 Note: Shares held by the trust for granting shares to Directors, etc., numbering 464 thousand at March 31, 2018, are excluded from the number of shares of capital stock outstanding at fiscal year end used in calculation of net assets per share. (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) Millions of yen Thousands of U.S. dollars 2018 ¥ 170,248 — ¥ 170,248 1,396,322 2017 ¥ 115,000 — ¥ 115,000 1,396,715 2018 $1,602,334 — $1,602,334 1,396,322 Notes: 1. As the Company had no dilutive securities at March 31, 2018 and 2017, the Company does not disclose diluted net income per share for the years ended March 31, 2018 and 2017. 2. Shares held by the trust for granting shares to Directors, etc., numbering 290 thousand during the year ended March 31, 2018, are excluded from the weighted-average number of shares of capital stock used in calculation of net income per share. 94 Asahi Kasei Report 2018 Asahi Kasei Report 2018 95 19. Subsequent events Business combination (a) Acquisition of Senseair AB i) Outline of business combination 1) Name and nature of business of counterparty Name of acquired company: Senseair AB Nature of business: Manufacture and sale of NDIR gas sensor modules 2) Main reasons for the acquisition In addition to joint development through which Senseair’s optical path design technology and manufacturing know-how for gas sensors is combined with the small, high-quality IR light emitting elements and detectors based on the core technology for compound semiconductors of consolidated subsidiary Asahi Kasei Microdevices Corp., the acquisition will make it possible for the two companies to more deeply integrate their technological knowledge and market networks, enabling an expansion of business activities in the market for air, gas, and alcohol sensors, where rapid growth is forecasted. 3) Acquisition date April 4, 2018 4) Statutory form of business combination Stock purchase for cash as consideration 5) Name of company after transaction Senseair AB 6) Acquired ownership percentage Ownership percentage before the acquisition: 8.1% Additional ownership percentage acquired as of the acquisition date: 91.9% Ownership percentage after the acquisition: 100% 7) Basic means of materializing the acquisition Stock purchase for cash as consideration by a consolidated subsidiary ii) Cost of acquisition and details Stock purchase price: 0.4 billion Swedish krona (cash) Purchase price: 0.4 billion Swedish krona iii) Amount of goodwill, measurement principle, amortization method, and useful life Not determined at present (b) Acquisition of Sage Automotive Interiors, Inc. An agreement regarding the Company’s acquisition of Sage Automotive Interiors, Inc. (hereinafter “Sage”), a US-based manufacturer of automotive interior material, for a cash transaction price of approximately $700 million, was concluded on July 13, 2018, between the Company and Clearlake Sage Holdings, LLC, the 100% owner of Sage. Expected effects of the acquisition include: • Enhanced access to vehicle manufacturers and Tier-1 suppliers, in order to swiftly and accurately ascertain trends and needs in the automotive industry • Proposal and provision of comprehensive vehicle interior designs and solutions leveraging Sage’s design and marketing capabilities in combination with various Asahi Kasei products and technologies such as fibers, plastics, and sensors • Utilizing Sage’s sales, manufacturing, and marketing bases as manage- ment infrastructure and resources for the global expansion of Asahi Kasei’s operations The transaction price of approximately $700 million will change depending on fluctuation of cash and debt balance, working capital, etc., at the time of closing. The total acquisition price including Sage’s net interest-bearing debt is $1.06 billion. Closing of the transaction is conditional upon performing the required procedures in accordance with each relevant country’s antitrust regulations, and obtaining approval from the relevant authorities. Corporate profile of Sage Automotive Interiors, Inc. Location: CEO: Operations: Greenville, South Carolina, USA Dirk R. Pieper Development, manufacture, and sale of fabrics as automotive interior material Paid-in capital: $82.5 million (consolidated, as of December 31, 2017) 2009 (spinoff from fiber and chemical manufacturer Establishment: Milliken & Company) Production sites: United States, Italy, Poland, Romania, Brazil, China Employees: Ownership: Three-year trend of assets and sales: Approximately 2,200 (consolidated, as of March 31, 2018) 100% by Clearlake Sage Holdings, LLC Total assets ($ million) Net sales ($ million) 2015 426.8 359.3 2016 474.0 415.6 2017 504.7 474.9 20. Borrowings (a) Bonds payable at March 31, 2018 and 2017, 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, 2018, are as follows: Millions of yen Thousands of U.S. dollars 2018 ¥20,000 — ¥20,000 2017 ¥20,000 20,000 ¥40,000 2018 $188,235 — $188,235 Year ending March 31 2019 2020 2021 2022 2023 2024 and thereafter Total Millions of yen Thousands of U.S. dollars ¥ — 20,000 — — — — ¥20,000 $ — 188,235 — — — — $188,235 Asahi Kasei Report 2018 95 94 Asahi Kasei Report 2018 (b) Loans payable at March 31, 2018 and 2017, comprised the following: Short-term loans payable with an interest rate of 0.90% Current portion of long-term loans payable with an interest rate of 1.56% Current portion of lease obligations with an interest rate of 1.44% Long-term loans payable (except portion due within one year) with an interest rate of 1.06% Lease obligations (except portion due within one year) with an interest rate of 1.48% Commercial papers (portion due within one year) with an interest rate of (0.02)% Total Notes: 1. Interest rates shown are weighted average interest rates for the balance outstanding at March 31, 2018. Millions of yen Thousands of U.S. dollars 2018 ¥ 58,898 59,120 199 143,176 352 20,000 ¥281,746 2017 ¥ 88,965 24,510 305 192,584 467 56,000 ¥362,832 2018 $ 554,334 556,424 1,873 1,347,539 3,313 188,235 $2,651,727 2. The aggregate annual maturities of long-term loans payable and lease obligations (except portion due within one year) after March 31, 2018, are as follows: Year ending March 31 2019 2020 2021 2022 2023 and thereafter Long-term loans payable Lease obligations Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars ¥21,794 23,371 28,981 28,043 40,988 $205,120 219,962 272,762 263,934 385,769 ¥162 128 54 8 — $1,525 1,205 508 75 — 21. Supplementary schedule of asset retirement obligations Because the amounts of asset retirement obligations on April 1, 2017, and March 31, 2018, were not more than 1% of the combined totals of liabilities and net assets on the respective dates, preparation of a supplementary schedule of asset retirement obligations is omitted in accordance with Article 92-2 of the Ordinance on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements. 22. Others Litigation (a) Litigation related to defibrillator products On June 18, 2010, Koninklijke Philips Electronics N.V. and Philips Electronics North America Corporation (hereinafter collectively “Philips”) sued ZOLL Medical Corporation (hereinafter “ZOLL”), a subsidiary of the Company, in the United States District Court for the District of Massachusetts, alleging that several patents owned by Philips are infringed by certain ZOLL defibrillator products. On July 12, 2010, ZOLL sued Philips in the same court alleging that several ZOLL patents are infringed by certain Philips defibrillator products. The two cases were consolidated and bifurcated into an initial liability portion and a later damages portion. The liability portion was tried to a jury in December 2013, and the court entered an interlocutory judgment that ZOLL and Philips each infringe certain of the other’s patent rights. Following the conclusion of the appeal process relating to the interlocutory judgment, the United States District Court for the District of Massachusetts began a jury trial for the damages portion on July 24, 2017, and a verdict regarding damages of both parties was issued on August 3, 2017, with the content shown below. On September 21, 2017, a judgment of first instance was rendered with the same content. i. Damages to be paid to ZOLL by Philips ii. Damages to be paid to Philips by ZOLL US$3.3 million US$10.4 million Philips had been seeking damages of US$217 million in this lawsuit. Subsequently, ZOLL and Philips agreed to settle this litigation and other litigation between them, and a settlement agreement was concluded on December 21, 2017. (b) Litigation related to pile installation On November 28, 2017, Mitsui Fudosan Residential Co., Ltd. filed suit (hereinafter “First Lawsuit”) in the Tokyo District Court against the three companies of Sumitomo Mitsui Construction Co., Ltd., Hitachi High-Technologies Corporation, and Asahi Kasei Construction Materials Corporation, a subsidiary of the Company, seeking compensation for damages of approximately ¥45.9 billion (subsequently changed to approximately ¥51.0 billion) related to the cost of rebuilding a condominium complex in Yokohama City due to concerns of unsound installation of a portion of foundation piles; Sumitomo Mitsui Construction being the prime contractor for construction of said condominium complex, Hitachi High-Technologies the primary subcontractor for pile installation, and Asahi Kasei Construction Materials the secondary subcontractor for pile installation. Asahi Kasei Construction Materials holds that there is no basis for Mitsui Fudosan Residential’s claim, and will make this argument during the proceedings of the First Lawsuit. Related to the First Lawsuit, on April 27, 2018, Sumitomo Mitsui Construction filed suit (hereinafter “Second Lawsuit”) against Hitachi High-Technologies and Asahi Kasei Construction Materials seeking compensation for any damages it may incur in the First Lawsuit. Regarding this Second Lawsuit, the date of service of complaint to Asahi Kasei Construction Materials was May 14, 2018. Asahi Kasei Construction Materials holds that there is no basis for Sumitomo Mitsui Construction’s claim, and will make this argument during the proceedings of the Second Lawsuit. Related to the First Lawsuit and Second Lawsuit, on May 25, 2018, Hitachi High-Technologies filed suit (hereinafter “Third Lawsuit”) against Asahi Kasei Construction Materials seeking compensation for any damages it may incur in the First Lawsuit or Second Lawsuit. Asahi Kasei Construction Materials holds that there is no basis for Hitachi High-Technologies’s claim, and will make this argument during the proceedings of the Third Lawsuit. 96 Asahi Kasei Report 2018 Asahi Kasei Report 2018 97 96 Asahi Kasei Report 2018 Asahi Kasei Report 2018 97 Major Subsidiaries and Affiliates (As of April 1, 2018) Company Material Segment Asahi Kasei Fibers Nobeoka Co., Ltd.* Asahi Kasei Leona Filament Co., Ltd.* Asahi Cord Co., Ltd.* Kyokujitsu Textile Mills Co., Ltd.* DuPont-Asahi Flash Spun Products Co., Ltd. Asahiozu Corp. Kyuasa Co., Ltd.* Fuji Seisen Co., Ltd.* Merci Co., Ltd.* Hangzhou Asahikasei Textiles Co., Ltd.* Hangzhou Asahikasei Spandex Co., Ltd.* Asahi Kasei Advance (Shanghai) Co., Ltd.* Formosa Asahi Spandex Co., Ltd. Thai Asahi Kasei Spandex Co., Ltd.* Asahi Kasei Advance Thailand Co., Ltd.* Asahi Kasei Spunbond (Thailand) Co., Ltd.* Asahi Kasei Spandex Europe GmbH* Asahi Kasei NS Energy Corp.* Asahi Kasei New Port Terminal Co., Ltd.* Asahi Kasei Mitsubishi Chemical Ethylene Corp. Okayama Butadiene Co., Ltd. PS Japan Corp.* Tongsuh Petrochemical Corp., Ltd.* PTT Asahi Chemical Co., Ltd. Asahikasei Color Tech Co., Ltd.* Asahi Kasei Technoplus Co., Ltd.* Wacker Asahikasei Silicone Co., Ltd. Kakuichi Rubber Industry Co., Ltd. Japan Elastomer Co., Ltd.* Nobeoka Plastic Processing Co., Ltd.* Asahi Kasei Plastics (Hong Kong) Co., Ltd.* Asahi Kasei Plastics (Guangzhou) Co., Ltd.* Asahikasei (Suzhou) Plastics Compound Co., Ltd. Asahikasei Plastics (Shanghai) Co., Ltd.* Asahi Kasei POM (Zhangjiagang) Co., Ltd.* Asahikasei Plastics (Thailand) Co., Ltd.* Asahi Kasei Plastics Singapore Pte. Ltd.* Asahi Kasei Synthetic Rubber Singapore Pte. Ltd.* Asahikasei Plastics (America) Inc.* Asahi Kasei Plastics North America, Inc.* Asahi Kasei Plastics Mexico S.A. de C.V.* Asahi Kasei Epoxy Co., Ltd.* Asahi Kasei Finechem Co., Ltd.* Asahi Kasei Metals Ltd.* Asahi SKB Co., Ltd.* Asahi Chemitech Co., Ltd.* ASTOM Corp. Kayaku Japan Co., Ltd. Asahi Kasei EMS Co., Ltd.* Asahi-Schwebel Co., Ltd.* Asahi Kasei Performance Chemicals Corp.* * Consolidated subsidiary ** Including capital reserve Major products/business line Paid-in capital (million) Equity interest (%) Production and processing of chemical fibers Production, packaging, and storage of nylon 66 fiber Processing of tire cord, etc. Woven fabrics Processing and sale of flash spun nonwovens Processing of nonwovens Legwear and innerwear Dyeing and finishing of yarns and fabrics Sale of linings and interlinings Warp-knit spandex textiles Spandex Processing and sale of fibers and textiles Spandex Spandex Processed yarn Spunbond nonwovens Spandex Electricity and steam Receiving and storage of fuel and feedstocks Basic petrochemicals supplied to parent companies Butadiene Polystyrene Acrylonitrile, sodium cyanide, acrylamide, EDTA Acrylonitrile, methyl methacrylate, etc. Plastic coloring & compounding Processed plastic products Silicone Processing and sale of natural and synthetic rubber Synthetic rubber Plastic compounding Sale of performance resin Sale of performance resin Coloring and compounding of performance resin Sale of performance resin Polyacetal Coloring and compounding of performance resin Performance resin Synthetic rubber Compounded performance resin operations Coloring and compounding of performance resin Sale of performance plastic compounds Epoxy curing agent Specialty chemicals, contract manufacturing of pharmaceutical ingredients Aluminum paste Explosive devices Resin anchors Hydrocarbon ion-exchange membranes and electrodialysis systems Industrial explosives Electronic materials and devices Glass fabric HDI-based polyisocyanate, polycarbonatediol 50 11 50 99 450 20 90 50 10 78 154 11 1,003 1,350 134 1,835 ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ CNY CNY CNY NT$ THB THB THB 28** € 10 ¥ 100 ¥ 2,000 ¥ 490 ¥ ¥ 5,000 KRW 237,642 13,819 THB 110 ¥ 160 ¥ 1,050 ¥ 10 ¥ 1,000 ¥ 10 ¥ 2.6 US$ 10 CNY 50 CNY 18 CNY 265 CNY 140 THB 46.0 US$ 184 US$ 18** US$ 22 US$ 2 US$ 300 ¥ 325 ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ CNY 250 100 10 450 60 10 50 291 100.0 100.0 100.0 100.0 50.0 50.0 94.0 78.7 100.0 92.5 100.0 100.0 50.0 60.0 100.0 84.3 100.0 61.0 100.0 50.0 50.0 62.1 100.0 50.0 100.0 99.0 50.0 50.0 75.0 100.0 100.0 100.0 51.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 45.0 50.0 100.0 100.0 100.0 98 Asahi Kasei Report 2018 Asahi Kasei Report 2018 99 Company Asahi Kasei Microza (Hangzhou) Co., Ltd.* Asahi Kasei Electronics Materials (Changshu) Co., Ltd.* Asahi Kasei Electronics Materials (Suzhou) Co., Ltd.* Asahi Kasei Wah Lee Hi-Tech Corp.* Asahi-Schwebel (Taiwan) Co., Ltd.* Asahi Photoproducts (UK) Ltd.* Asahi Photoproducts (Europe) SA/NV* Asahi Kasei Pax Corp.* Asahi Kasei Home Products Corp.* Sun Plastech Inc.* Sundic Inc. Asahi Kasei E-materials Korea Inc.* Celgard Korea, Ltd.* Polypore International, LP* Celgard, LLC* Daramic, LLC* Daramic Battery Separator India Pvt. Ltd.* Daramic S.A.S.* Daramic (Thailand) Ltd.* Polypore (Shanghai) Membrane Products Co., Ltd.* Daramic Tianjin PE Separator Co., Ltd.* Polypore K.K.* Daramic Separadores de Baterias Ltda.* Daramic Xiangyang Battery Separator Co., Ltd.* Asahi Kasei Electronics Co., Ltd.* Asahi Kasei Microsystems Co., Ltd.* Asahi Kasei Microdevices Korea Corp.* Asahi Kasei Microdevices (Shanghai) Co., Ltd.* Asahi Kasei Microdevices Europe GmbH* AKM Semiconductor, Inc.* AKM Technology Corp.* Major products/business line Industrial filtration membranes and systems Photosensitive dry film Photosensitive dry film Photosensitive dry film Glass fabric Sale of photopolymer, printing-plate making systems Sale of photopolymer, printing-plate making systems Packaging products and solutions Cling film, other household products Sale of purging compound Biaxially oriented polystyrene sheet Lithium-ion battery separator Lithium-ion battery separator Battery separators Lithium-ion battery separator Lead-acid battery separator Lead-acid battery separator Lead-acid battery separator Lead-acid battery separator Lithium-ion battery separator Lead-acid battery separator Lithium-ion and lead-acid battery separator Lead-acid battery separator Lead-acid battery separator Hall elements LSIs Electronic devices marketing and technical support Electronic devices marketing and technical support Electronic devices marketing and technical support Sale of LSIs Design of LSIs 2,233 Paid-in capital (million) 70 CNY 306 CNY 181 CNY 49 NT$ 326 NT$ 0.3 £ 3 € 490 ¥ 250 ¥ 1 US$ ¥ 1,500 KRW 18,900 KRW 26,200** US$ US$ US$ Rs € THB CNY CNY ¥ BRL CNY ¥ ¥ KRW CNY € US$ ¥ 22** 12** 463.3** 73** 2,317** 10** 75** 16** 0.3 97 50 50 820 13.7 0.4 2.9 30 Homes Segment Asahi Kasei Jyuko Co., Ltd.* Asahi Kasei Home Construction Corp.* Asahi Kasei Chintai Support Corp.* Asahi Kasei Fudousan Community Corp.* Asahi Kasei Realty & Residence Corp.* Asahi Kasei Reform Co., Ltd.* Asahi Kasei Remodeling Corp.* Asahi Kasei Homes Financial Corp.* Asahi Kasei Lifeline Corp.* Asahi Kasei Sekkei Corp.* AJEX Corp.* AR Construction Corp.* Asahi Kasei Jyuko Vietnam Corp.* McDonald Jones Homes Pty Ltd Asahi Kasei Foundation Systems Corp.* Asahi Kasei Extech Corp.* Iwakuni Sun Products Co., Ltd.* Sakai Kako Co., Ltd.* Hozumi Kako Co., Ltd.* * Consolidated subsidiary ** Including capital reserve Steel frames Construction of homes Rental home agency Condominium management Real estate development, brokerage, and related business Home maintenance and remodeling Remodeling and maintenance work Financial services Plumbing and wiring work Building design and supervision External work Remodeling work Steel-frame members Contracted home construction and marketing of parceled lots Installation of piles Exterior wall panel installation Construction materials processing Construction materials processing Construction materials processing ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ US$ AU$ ¥ ¥ ¥ ¥ ¥ 2,820 100 50 200 3,200 250 250 1,000 100 30 100 100 16.8 60.0 200 50 30 10 10 Equity interest (%) 100.0 100.0 100.0 80.6 51.0 100.0 100.0 100.0 100.0 100.0 50.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 65.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 80.4 40.0 100.0 100.0 100.0 100.0 100.0 98 Asahi Kasei Report 2018 Asahi Kasei Report 2018 99 Major products/business line Paid-in capital (million) Equity interest (%) Medical devices, bioprocess products Medical devices Hemodialyzers; sale of medical devices Medical devices Sale of medical devices, medical systems Bioprocess equipment and systems Sale of medical devices, medical systems Sale of virus removal filters Clinical trials for new drugs Acute critical care devices and systems Holding company for wearable defibrillator business IT solutions for acute critical care Intravascular temperature management systems ¥ 10 ¥ 140 CNY 165 30.6 CNY KRW 1,000 30 US$ 18 € 0.5 € US$ 122** US$ US$ US$ US$ 1,723 10 1 23 Sale of Asahi Kasei products Employment agency, consulting Plant, equipment, process engineering Real estate rental IT-related business Company housing, recreational facilities Electrical, IT, and control engineering Synthetic resin, fabricated plastic products Printing, bookbinding, and office work Insurance agency, cellular phone sales, bowling alley Information and analysis Cable TV Travel agency Machinery installation Environmental measurement and verification Computer software, IT systems Investment and business support services Business support services Development of aluminum nitride substrates and UVC LEDs Business support services Business support services, sale of performance resin ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ ¥ CNY Rs US$ US$ € 500 80 400 160 400 20 100 5,000 40 30 1,000 414 30 100 20 800 2,214 45 44** 0.1 16** 100.0 100.0 100.0 100.0 100.0 84.8 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 30.6 100.0 100.0 100.0 50.0 34.0 100.0 100.0 49.0 100.0 100.0 100.0 Major Subsidiaries and Affiliates Company Health Care Segment Asahi Kasei Medical MT Corp.* Med-Tech Inc.* Asahi Kasei Medical (Hangzhou) Co., Ltd.* GLT Medical Co., Ltd. Asahi Kasei Medical Trading (Korea) Co., Ltd.* Asahi Kasei Bioprocess America, Inc.* Asahi Kasei Medical Europe GmbH* Asahi Kasei Bioprocess Europe SA/NV* Asahi Kasei Pharma America Corp.* ZOLL Medical Corporation* ZOLL LifeVest Holdings LLC* ZOLL Data Systems, Inc.* ZOLL Circulation, Inc.* Others Asahi Kasei Advance Corp.* Asahi Kasei Amidas Co., Ltd.* Asahi Kasei Engineering Corp.* Asahi Kasei Office One Co., Ltd.* Asahi Kasei Networks Corp. Asahi Kasei Benefits Management Corp.* Asahi Kasei EIC Solutions Corp. Asahi Yukizai Corp. Asahi Kasei Ability Corp. New Asahi Services Co., Ltd.* Asahi Research Center Co., Ltd.* Cable Media Waiwai Co., Ltd.* ELORTO Corp. Koyo Machinery Works Co., Ltd.* Toyo Kensa Center Co., Ltd. AJS Inc. Asahi Kasei (China) Co., Ltd.* Asahi Kasei India Pvt. Ltd. Crystal IS, Inc.* Asahi Kasei America, Inc.* Asahi Kasei Europe GmbH* * Consolidated subsidiary ** Including capital reserve 100 Asahi Kasei Report 2018 Company Information/Investors Information (as of March 31, 2018) ■ Corporate Profile Asahi Kasei IR Website Company Name Asahi Kasei Corporation Date of Establishment May 21, 1931 Paid-in Capital ¥103,389 million Employees 34,670 (consolidated) 7,520 (non-consolidated) ■ Asahi Kasei Group Offices (as of September 1, 2018) Asahi Kasei Corporation Tokyo Head Office Asahi Kasei’s financial results and other materials for investors are available in our IR website. www.asahi-kasei.co.jp/asahi/en/ir Core Operating Companies Asahi Kasei Microdevices Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Phone: +81-(0)3-6699-3000 Fax: +81-(0)3-6699-3161 Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Phone: +81-(0)3-6699-3933 Asahi Kasei (China) Co., Ltd. Asahi Kasei Homes 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 1-24-1 Nishi-shinjuku, Shinjuku-ku, Tokyo 160-8345 Japan Phone: +81-(0)3-3344-7111 From January 2019: 1-105 Kanda Jinbocho, Chiyoda-ku, Tokyo 101-8101 Japan Asahi Kasei Construction Materials 1-105 Kanda Jinbocho, Chiyoda-ku, Tokyo 101-8101 Japan Phone: +81-(0)3-3296-3500 Asahi Kasei Pharma Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Phone: +81-(0)3-6699-3600 Asahi Kasei Europe GmbH Asahi Kasei Medical Am Seestern 4, 40547 Düsseldorf, Germany Phone: +49-211-8822-030 Fax: +49-211-8822-0333 Asahi Kasei India Pvt. Ltd. The Capital 1502B, Plot C-70, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051 India Phone: +91-22-6710-3962 Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Phone: +81-(0)3-6699-3750 ZOLL Medical Corporation 269 Mill Rd., Chelmsford, MA 01824-4105 USA Phone: +1-978-421-9655 ■ Investors Information Stock Listing Stock Code Authorized Shares Outstanding Shares Transfer Agent Independent Auditors Number of Shareholders Tokyo 3407 4,000,000,000 1,402,616,332 Sumitomo Mitsui Trust Bank, Ltd. PricewaterhouseCoopers Aarata LLC 85,302 Largest Shareholders JP Morgan Chase Bank 380055 The Master Trust Bank of Japan, Ltd. (trust account) Japan Trustee Services Bank, Ltd. (trust account) Nippon Life Insurance Company Sumitomo Mitsui Banking Corp. Asahi Kasei Group Employee Stockholding Assn. Japan Trustee Services Bank, Ltd. (trust account 9) Japan Trustee Services Bank, Ltd. (trust account 5) State Street Bank West Client – Treaty 505234 State Street Bank and Trust Company * Percentage of equity ownership after exclusion of treasury stock. % of equity* 9.05 5.69 4.37 4.18 2.54 2.33 1.82 1.79 1.71 1.56 Asahi Kasei Report 2018 101 Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan www.asahi-kasei.co.jp/asahi/en/ Corporate Communications Tel: +81-(0)3-6699-3008, Fax: +81-(0)3-6699-3187 Printed in Japan 2018.10 

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