ASAHI KASEI CORP
Annual Report 2019

Plain-text annual report

A s a h i K a s e i R e p o r t 2 0 1 9 Asahi Kasei Report 2019 Creating for Tomorrow Group Mission We, the Asahi Kasei Group, contribute to life and living for people around the world. Group Vision Providing new value to society by enabling “living in health and comfort” and “harmony with the natural environment.” Group Values Sincerity—Being sincere with everyone. Challenge—Boldly taking challenges, continuously seeking change. Creativity—Creating new value through unity and synergy. Group Slogan Creating for Tomorrow Contents 02 Message from the President 10 “Cs+ for Tomorrow 2021” Medium-Term Management Initiative 16 Business Portfolio Transformation Providing Solutions to Society 18 Competitive Products and Businesses 19 At a Glance 20 Global Executive Interview 22 Financial and Non-Financial Highlights 24 Interview with the CFO 26 Operating Segments: Material 27 Operating Segments: Homes 28 Operating Segments: Health Care 29 R&D 32 Corporate Governance 34 Directors 36 Outside Director Interview 38 Global Environment 39 Society: Quality & Procurement 40 Society: Human Resources 41 Responsible Care 42 Feature Profiles of Employees Pursuing Sustainability • Gas sensor business • Housing business for seniors • Bioprocess business Financial Section 46 Consolidated Financial Statements Corporate Information 79 Company Information/Investors Information ■ Editorial policy For greater ease of understanding among our stake- holders regarding the Asahi Kasei Group’s operating climate and overall business activities, the Asahi Kasei Report focuses on areas of particular interest such as our management strategy, financial and non-financial highlights, business conditions, and management configuration, as well as our efforts toward sustainabil- ity in society. Details of our financial performance and CSR activities are disclosed on our website. ■ Period under review The period under review is fiscal 2018 (April 2018 to March 2019). Some qualitative information pertaining to April to September 2019 has also been included. ■ Organizational scope The scope of the report is Asahi Kasei Corp. and its consolidated subsidiaries, except with respect to Responsible Care (see p. 41) and non-financial high- lights, in which case the scope is operations in Japan and overseas that perform the relevant activities. Asahi Kasei’s three operating segments are Material, Homes, and Health Care. The titles and positions of corporate officers and other personnel as shown in this report are current as of October 2019. ■ Guidelines consulted The GRI Standards, ISO 26000, and other guidelines were consulted during the preparation of this report. Disclaimer The forecasts and estimates shown in this report are dependent on a variety of assumptions and economic conditions. Plans and figures depicting the future do not imply a guarantee of actual outcome. 01 Asahi Kasei Report 2019Message from the President Our new management initiative Cs+ for Tomorrow 2021 for the 3-year period from fiscal 2019 is focused on two mutually reinforcing aspects of sustainability—contributing to the sustainability of society through our business operations, and the sustainable increase in our corporate value. Hideki Kobori President 02 Asahi Kasei Report 2019 Review of Cs for Tomorrow 2018 During our previous management initiative from fiscal 2016 to 2018, we enjoyed relatively favorable operating conditions such as exchange rates and feedstock prices. With firm business perfor- mance overall, we achieved our financial targets. Net sales and operating income in fiscal 2018 each reached new record highs, and both profitability and capital efficiency exceeded our targets. Regarding shareholder returns, we decided to perform our first share buyback in 17 years, and our total return ratio for fiscal 2018 reached 39%, above the 35% we had targeted. Long-term investments for future growth were a particular focus, and we adopted decisions on some ¥670 billion over the 3-year period. We also worked to reinforce our operating foundations with thorough compliance, development of human resources, and digital transformation, and we will continue to expand and extend these efforts. At the same time, we see new challenges ahead. We need to accelerate our efforts to provide solutions to the world’s challenges. In the midst of dramatic changes in society and technological advancement, our pace of new business creation and portfolio transformation needs to rise commensurately. Overview of Cs+ for Tomorrow 2021 Throughout the world, issues of sustainability are the subject of increasing concern, as evidenced by the SDGs1 and ESG2. Under the new management initiative, Asahi Kasei expresses its stance for contribution to sustainability as “Care for People, Care for Earth.” With this new “C” in addition to the four “Cs” from the previous initiative, we adopted “Cs+” in the name. “Cs” in previous initiative Compliance Communication Challenge Connect New “C” Care for People, Care for Earth 1 The Sustainable Development Goals adopted by the United Nations in 2015. 2 Environmental, social, and governance aspects of corporate management. 03 Asahi Kasei Report 2019 Message from the President This initiative reaffirms Asahi Kasei’s commitment to contribute to society by providing solutions to social issues through our businesses. This has always been our path of growth, stated by our founder Shitagau Noguchi, and enduring today in our Group Mission. Our financial targets include operating income of ¥240 billion and an operating margin of 10% in fiscal 2021. While our previous outlook for operating income in fiscal 2025 was ¥280 billion, this was raised to ¥300 billion based on recent firm performance. Other key performance indicators include ROIC3 indicating investment efficiency, ROE indi- cating capital efficiency, and EBITDA4 indicating cash-flow generation. To maintain a proactive pace of investments for growth, we are planning a total of ¥800 billion in long-term investments over the 3-year period. While many businesses are very keen to invest, we are selecting new investments by carefully studying their potential returns to ensure that they will contribute to increased corporate value. Vision of our founder Shitagau Noguchi The diversity of our businesses means that a single standard doesn’t apply. Instead, we prioritize based on a comprehensive judgment of the risks, competitive environment, growth strategy, and growth stage of each business, and adopt investment decisions accordingly. For shareholder returns, we intend to maintain stable dividends while aiming to As industrialists, we must always remember that our ultimate mission is to improve people’s standard of living by supplying an abundance of the highest-quality daily necessities at the lowest prices. —1933 continuously raise dividends through sustained earnings growth. Our basic standard is for a payout ratio of 30–40%. In addition to our financial targets, we have declared a new target for reduction of GHG emissions relative to net sales. We aim to reduce this by 35% from the fiscal 2013 level by fiscal 2030. Aside from this target for the reduction of our own emissions, we will continue to proactively advance businesses which contribute to reduced emissions around the world. Providing solutions to society’s challenges through our businesses in all three sectors When we mapped our materiality in fiscal 2018, we identified the highest priority areas for contributing to solutions for society through our businesses. Under the new management initiative we specified 5 priority fields for provision of value, and are executing our growth strategies accordingly. In the Material business sector we are flexibly allocating management resources to the priority fields of Environment & Energy to reduce environmental burdens, Mobility for safety and comfort, 3 (Operating income − income taxes) / average annual invested capital 4 Operating income, depreciation, and amortization (tangible, intangible, and goodwill) 04 Asahi Kasei Report 2019 and Life Material for comfortable daily life. In the Homes business sector we are supporting fulfilment and contentment in the priority field of Home & Living. In the Health Care business sector we are contributing to healthy longevity in the eponymous priority field of Health Care. By providing new value toward a sustainable society in all three sectors, we aim to achieve sustainable growth in corporate value. 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 Asahi Kasei Group’s priority fields for provision of value Material Homes Health Care Environment & Energy Mobility Life Material Home & Living Health Care 05 Asahi Kasei Report 2019 Message from the President Creating new value through “diversity” and “capability to change” Ever since our founding, we have always discerned the needs of society in each age, and continu- ously transformed our business portfolio focused on solutions that meet emerging changes. Asahi Kasei’s strengths are our diversity and our capability to change. The diverse human resources, businesses, and technologies we have today are the result of decades of tackling the world’s challenges. Now, in today’s fast-changing world, we need to pick up our pace and change more dynami- cally than before. Otherwise we risk being left behind. Digital technology is no longer simply a tool for performing tasks. The utilization of an ample amount of high-quality data can not only create new business models but also transform the industrial structure. In such an age of uncertainty, our portfolio in three business sectors with diverse human resources and diverse technologies is a great strength as we execute our new growth strategy. It will be vital for us to leverage our wide range of business fields to gain information across a broad swath of industries and customer segments, and to combine our various technologies in new ways as we exert the combined strength of the Asahi Kasei Group. Asahi Kasei has created many unique products and technologies by combining various know-how and technologies. We provide the venue for R&D personnel from throughout the group to gather together for open-minded discussions among specialists in a wide variety of fields. Such mutually stimulating exchanges lead to the creation of new value. In addition to information exchange and collaboration, we transfer personnel across different sectors to gain synergy in many different ways. Contributing to sustainable society Grasping social needs, dynamic portfolio transformation, developing business that makes life better Social need: Higher standard of living in developing countries Acceleration of globalization Social need: Comfort and convenience Const. mat./homes Healthcare Electronic devices/materials Diversity & Capability to change Social need: Abundance of goods Petrochemicals/synthetic fibers Social need: Establishment of livelihood base Chemical fertilizer/regenerated fiber/explosives 1920s 1950s 1970s 2000s 06 Asahi Kasei Report 2019 New business creation and business portfolio transformation Several concrete measures under the new management initiative will accelerate our pace of change. We established Marketing & Innovation as a new organization to foster new business creation from new perspectives straddling across different fields, without limitation based on our existing technologies. At the same time, we reorganized our Material sector into fewer and larger units to facilitate prioritized allocation of management resources. We are also advancing digital transformation to dramatically raise productivity and speed. In fiscal 2019 we established an Informatics Initiative within Corporate Research & Development, and by March 2022 we plan to increase digital professional personnel to over 150 people. To strengthen overseas operations, we are promoting the employment and development of local management personnel while advancing business strategies in accordance with the charac- teristics of each region. We adopted “high profitability,” “high market growth,” “priority fields,” and “sustainability” as four key perspectives to ensure that our ongoing business portfolio transformation generates higher added value. Allocation of human resources and capital will be prioritized based on these perspectives. Taking stock of our core technologies and current R&D projects, we refined our focus. Efforts for new business development are not only in-house—we are expanding corporate venture capital (CVC) activities mainly on the US, while flexibly forming alliances with other companies, universities, and governmental bodies, to advance quickly with a broad outlook. M&A is also a crucially effective means to achieve strategic growth and to exit struggling fields. We will continue to study and proactively execute opportunities. By further leveraging connections both inside and outside the company, we will accelerate our portfolio transformation and new business creation to achieve a portfolio of high-profitability and high value-added businesses. Demonstration facility for green hydrogen production in Herten, North Rhine-Westphalia, Germany 07 Asahi Kasei Report 2019 Message from the President Corporate governance to tie diverse businesses together We continue to enhance our corporate governance. Among the 9 members of our Board of Directors, 3 are Independent Outside Directors. The Outside Directors actively take part in man- agement by offering their opinions and suggestions from an objective external perspective based on their experience and knowledge. They attend various briefings and events to deepen their understanding of Asahi Kasei, and are given detailed explanation of items in the Board of Directors agenda in advance. Other than me, the Directors from inside the company include 2 with executive responsibility to oversee technology functions and business management functions, and 3 with executive responsi- bility to oversee each of the business sectors, respectively. We have frank and unreserved discussions at Board of Directors meetings regarding each business, and determine where to concentrate resources for expansion in accordance with circumstances. Rather than the current optimum or even the overall optimum, we aim for the future optimum for the Asahi Kasei Group as a whole. With regard to succession planning, we have delineated attributes required of future leaders. These include not only management ability and personal traits, but also the ability to make judg- ments about the whole Asahi Kasei Group, not only their own field of business, which is essential to a company like ours that has a wide variety of businesses. In order for such promising personnel to better understand different businesses, we give them experience in various fields. We now have non-Japanese members among our Executive Officers, including those who joined the Asahi Kasei Group through acquisition. They offer opinions from a different perspective, yet profoundly understand our corporate philosophy and strategic outlook. The Chairman of ZOLL, for instance, is now also responsible for joint oversight of our whole Health Care sector. Moving forward we will need to further leverage our global human resources, while promoting more women and younger personnel. Such efforts to build a management team that can guide our wide-ranging businesses through a period of dramatic change and pass the baton to the next group are an essential facet of sustainably raising corporate value. Strengthening management foundations to swiftly respond to risks In a rapidly changing world, we must be watchful of new risks emerging. We constantly review changes as they develop to identify any risks. Climate change risks are the subject of particular attention around the world. In May 2019 we announced our support for the recommendations of the Task Force on Climate-related Financial Disclosures (TFCD). We are currently analyzing our climate-related risks, and studying future scenarios and what measures we should implement. Meanwhile we are intensifying our search for more opportunities to apply our products and technologies to reduce the impact of climate change. We are also closely following changes in the situation of international commerce, such as trade friction between the US and China, and the British withdrawal from the EU. While our overseas 08 Asahi Kasei Report 2019operations have expanded through acquisitions and opening new sites, we are establishing a flexible configuration for global operations considering various aspects of trade policy, supply chain changes, and business continuity planning. Digital transformation is a game changer. It’s an extremely fast field, and we need to take appropriate steps to stay in front. Depending on how we handle information and build alliances with other companies, it has the potential to open vast business opportunities. Risk Management & Compliance serves as our organization for unified management of individual business risks. Our strengths of quality and safety can also be risks. On-site compliance and communication are the surest ways to nip risks in the bud. We will continue to further reinforce our foundations for compliance and communication across the company. Human resources as the most important key During the 3-year period of our current management initiative, we can expect that changes around the world will only accelerate. Asahi Kasei is changing as well, concentrating management resources on businesses that contribute to the sustainability of society, with a clear awareness of “Care for People, Care for Earth.” We will continue to advance connections inside and outside the company as a vital source of strength through communication. I truly believe that human resources are the most important key to success. No matter how good a strategy is, success depends on the people who execute it. What sets Asahi Kasei apart is our on-site strength based on our Group Values of Sincerity, Challenge, and Creativity. In each business, and at each site, our employees take the initiative. By continuously taking challenges to provide solutions to issues in society, by leveraging our diversity and our capability to change, our people are driving the transformation to a portfolio of high-profitability and high value-added businesses. This is how we will contribute to sustainable society for the benefit of all stakeholders. 09 Asahi Kasei Report 2019 Asahi Kasei’s Growth Strategy New medium-term management initiative “Cs+ for Tomorrow 2021” ■ Vision and goals 2 mutually reinforcing aspects of sustainability Contributing to sustainable society Providing solutions to the world’s challenges Business development; Innovation Internal and external connections/dialogue High profitability Return to stakeholders Sustainable growth of corporate value Sincerity, Challenge, Creativity 10 Asahi Kasei Report 2019Asahi Kasei has advanced in accordance with its Group Mission of contributing to life and living for people around the world. As the world faces many challenges for a sustainable society, we will continue to provide new value by leveraging our strengths of “diversity” and “capability to change.” ■ Value creation concept New perspective: “Care for People, Care for Earth” Contributing to sustainable society Group Mission Contributing to life and living for people around the world Material Homes Health Care Priority fields for provision of value Environment & Energy Mobility Life Material Home & Living Health Care Reduced burden Safety and comfort Comfort and convenience Security and fulfillment Healthy longevity New “C” Care for People, Care for Earth “Cs” in previous initiative Strengths Employee action principles Compliance Communication Challenge Creating new value Connect Diversity & Capability to change 11 Asahi Kasei Report 2019New medium-term management initiative “Cs+ for Tomorrow 2021” ■ Financial objectives Sustainable profit growth exceeding global GDP growth “Portfolio of high-profitability and high value-added businesses” (¥ billion) 500 Operating income Net sales e m o c n i g n i t a r e p O 400 300 200 100 0 198.5 209.6 165.2 159.2 2015 2016 2017 2018 Note: Exchange rate assumptions are ¥110/$ and ¥130/€ Next stage Operating margin ≥10% EBITDA margin ≥16% ≥¥300 billion New target Operating margin 10% EBITDA margin 15% Operating income ¥240 billion (¥ billion) 3,000 2,400 1,800 1,200 600 N e t s a e s l 2021 target 0 2025 outlook (FY) (¥ billion, unless otherwise specified) Profitability Capital efficiency Financial health Net sales Operating income Operating margin EBITDA1 EBITDA margin Net income attributable to owners of the parent EPS (¥) ROIC2 Net income per shareholders’ equity (ROE) D/E ratio Exchange rate (¥/$) FY2015 FY2018 FY2021 target 1,940.9 2,170.4 2,400.0 165.2 8.5% 274.8 14.2% 91.8 66 7.9% 8.6% 0.43 120 209.6 9.7% 313.6 14.5% 147.5 106 8.8% 11.1% 0.31 111 240.0 10.0% 370.0 15.4% 180.0 130 9.0% 11.1% ≈0.5 110 18–21 annual growth 4.6% 5.7% 7.2% FY2025 outlook 3,000.0 ≥300.0 ≥10.0% ≥480.0 ≥16.0% Aiming for FY2021 level or above 1 Operating income, depreciation, and amortization (tangible, intangible, and goodwill) 2 (Operating income − income taxes) / average annual invested capital Operating cash flow Capital expenditure Shareholder returns 3-year total 3-year total ¥600 to ¥700 billion ≈¥800 billion (decision-adopted basis, including M&A) Grow dividends per share as earnings expand payout ratio around 30 to 40% 12 Asahi Kasei Report 2019 GHG emissions/net sales (index) 100 3 5 % r e d u c ti o n (2013=100) Reducing our own GHG emissions (cid:127) Further reduction in GHG emissions Installing lower-emission equipment, optimizing plant operation (cid:127) Greater use of low-carbon energy Increasing renewables and LNG (cid:127) R&D for further GHG reduction Toward a sustainable society Contributing to reduce the world’s GHG emissions (cid:127) Businesses that contribute to energy conservation and reduced GHG emissions Battery separators, lightweighting resins, net zero energy houses, CO2 sensors, etc. (cid:127) Technology development/commercialization for clean environmental energy Green hydrogen production, CO2 chemistry, etc. 2013 2018 2030 (FY) 75 50 25 0 ■ Company-wide actions and building the base Portfolio of high-profitability and high value-added businesses Business portfolio transformation & new business creation 4 perspectives of judgement High profitability High market growth Priority fields Sustainability Various core technologies Marketing functions Connections Creating for Tomorrow 13 Asahi Kasei Report 2019New medium-term management initiative “Cs+ for Tomorrow 2021” Heightening by digital transformation Strengthening global operations Digital Marketing Materials Informatics ▼ Establishing an effective and efficient strategy ▼ Dramatically improving development speed Production Technology Innovation ▼ Enhancing productivity by IoT IP Landscape ▼ Formulating strategies based on IP Leading region of environmental and automotive trends EU China Enormous market Source of new business models Leading region of health care US FY18 FY25 Average annual sales growth rate +11% FY18 FY25 Average annual sales growth rate +6% FY18 FY25 Average annual sales growth rate +10% Strengthen the IT infrastructure (data platform, tools, human resources) Increase digital professional personnel to over 150 people by March 2022 to accelerate digital transformation ■ Strategy by sector Material (¥ billion) 200 (figures are approximate) Expansion of high value-added businesses 100 80 105 High value-added businesses* 135 e m o c n i g n i t a r e p O 0 FY2018 Commodity businesses (earnings base) FY2021 target FY2025 outlook * Fibers, synthetic rubber, engineering plastics, coating materials, ion-exchange membranes, electronic materials, consumables, battery separators, electronic devices, etc. Environment & Energy Care for Earth Clean energy Battery separators Alkaline water electrolysis system to produce green hydrogen Low-carbon society Next-generation CO2 chemistry New CO2 separation/recovery system Energy conservation/environmental improvement CO2 sensors Water filtration modules Ion-exchange membranes Mobility Life Material Care for People Care for Earth Care for People Care for Earth Safety and security Airbag material Alcohol sensor Fuel economy S-SBR for tires Lightweighting materials Contactless pulse sensing Lead-acid battery separator Comfortable space EV/HEV LamousTM artificial suede LIB separator Low-VOC* material A/C CO2 sensors * Volatile organic compounds LIB-related material Comfort/convenience Disposable diaper material 5G-related (glass fabric, etc.) Regenerated cellulose fiber Health Pharmaceutical/food additives UVC LEDs for disinfection Reducing food loss/ reduced environmental burden Saran WrapTM ZiplocTM Water-washable printing plates 14 Potential growth market India ASEAN Potential growth market Major production sites Homes Overseas Seniors Medium-rise Remodeling New businesses and services to drive growth (¥ billion) 100 (figures are approximate) Home & Living Care for People Care for Earth 17 50 27 e m o c n i g n i t a r e p O 44 Safety/security Environment Rental management Brokerage 60-year long-life homes Disaster-resistance Net zero energy houses/ photovoltaic power Long-term retention of asset value High-performance insulation New businesses Services Order-built/condominiums Construction Materials Comfort/health Living in a good thermal environment Diverse modes of residence 0 FY2018 FY2021 target FY2025 outlook (¥ billion) 100 (figures are approximate) Profit growth in overseas markets e m o c n i g n i t a r e p O 50 44 35 Overseas Japan 0 FY2018 FY2021 target FY2025 outlook Health Care Health Care Care for People Critical care Bioprocess New areas 65 Treatment Biosafety Acute conditions (critical care, circulatory) Supporting the safety of RecomodulinTM, ThermogardTM, therapeutic apheresis, defibrillators, LifeVestTM, biotherapeutics Virus removal filters acute myocardial infarction, stroke Bioprocess equipment Chronic conditions (orthopedics, dialysis) TeriboneTM, ReclastTM, KevzaraTM, dialysis, autoimmune disease, pain relief Blue indicates under development Asahi Kasei Report 2019 Digital Marketing ▼ Materials Informatics ▼ Establishing an effective and efficient strategy Dramatically improving development speed Enhancing productivity Formulating strategies Production Technology Innovation ▼ by IoT IP Landscape ▼ based on IP Strengthen the IT infrastructure (data platform, tools, human resources) Increase digital professional personnel to over 150 people by March 2022 to accelerate digital transformation (¥ billion) 200 (figures are approximate) Expansion of high value-added businesses Environment & Energy High value-added businesses* 135 Care for Earth Clean energy Battery separators Low-carbon society Next-generation CO2 chemistry 100 80 105 Alkaline water electrolysis system New CO2 separation/recovery system to produce green hydrogen e m o c n i g n i t a r e p O Energy conservation/environmental improvement CO2 sensors Water filtration modules Ion-exchange membranes 0 FY2018 Commodity businesses (earnings base) FY2021 target FY2025 outlook * Fibers, synthetic rubber, engineering plastics, coating materials, ion-exchange membranes, electronic materials, consumables, battery separators, electronic devices, etc. Mobility Life Material Care for People Care for Earth Care for People Care for Earth Safety and security Airbag material Alcohol sensor Fuel economy S-SBR for tires Lightweighting materials Contactless pulse sensing Lead-acid battery separator Comfortable space EV/HEV LamousTM artificial suede LIB separator LIB-related material Low-VOC* material A/C CO2 sensors * Volatile organic compounds Comfort/convenience Reducing food loss/ reduced environmental burden Saran WrapTM ZiplocTM Water-washable printing plates Disposable diaper material 5G-related (glass fabric, etc.) Regenerated cellulose fiber Health Pharmaceutical/food additives UVC LEDs for disinfection Heightening by digital transformation Strengthening global operations Leading region of environmental and automotive trends EU Average annual sales growth rate +11% FY18 FY25 Enormous market China Average annual sales growth rate +6% FY18 FY25 Source of new business models Leading region of health care US Average annual sales growth rate +10% FY18 FY25 Potential growth market India ASEAN Potential growth market Major production sites Material Homes New businesses and services to drive growth Home & Living (¥ billion) 100 (figures are approximate) 17 50 27 e m o c n i g n i t a r e p O 44 Overseas Seniors Medium-rise Remodeling Rental management Brokerage Care for People Care for Earth Safety/security Environment 60-year long-life homes Disaster-resistance Net zero energy houses/ photovoltaic power Long-term retention of asset value High-performance insulation New businesses Services Order-built/condominiums Construction Materials Comfort/health Living in a good thermal environment Diverse modes of residence 0 FY2018 FY2021 target FY2025 outlook Health Care (¥ billion) 100 (figures are approximate) Profit growth in overseas markets Critical care Bioprocess New areas 65 e m o c n i g n i t a r e p O 50 44 35 Overseas Japan 0 FY2018 FY2021 target FY2025 outlook Health Care Care for People Treatment Acute conditions (critical care, circulatory) RecomodulinTM, ThermogardTM, therapeutic apheresis, defibrillators, LifeVestTM, acute myocardial infarction, stroke Chronic conditions (orthopedics, dialysis) TeriboneTM, ReclastTM, KevzaraTM, dialysis, autoimmune disease, pain relief Biosafety Supporting the safety of biotherapeutics Virus removal filters Bioprocess equipment Blue indicates under development 15 Asahi Kasei Report 2019 Business Portfolio Transformation Providing Solutions to 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 contribu- tions 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 develop- ment of petrochemical operations. Our products during this period supported improvements in the quality of life during Japan’s high-growth period. 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. Part of the ammonia plant completed in 1923 (Nobeoka, Miyazaki, Japan) Saran Wrap™ launched in Japan in 1960 Naphtha cracker (Kurashiki, Okayama, Japan) The Bemberg™ plant which started operation in 1931 (Nobeoka, Miyazaki, Japan) Portfolio transformation Chemicals Fiscal 1940 Net sales ¥56 million Foods Fibers Fiscal 1960 Net sales ¥44.9 billion 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 ● Development of chemical industry and modern agriculture Sufficiency of daily necessities, improvement in quality of homes, development of public infrastructure ● Post-war recovery and modernization of industry ● Stable economic growth ● Economic bubble ● Interbellum economic downturn and ● Period of high economic growth World War II 16 Asahi Kasei Report 2019We are Creating for Tomorrow, providing new value to society by enabling living in health and comfort and harmony with the natural environment From 2010 Major overseas acquisitions drove the proactive expansion of our operations. We acquired ZOLL Medical Corporation, US manufacturer of medical devices for acute critical care, in 2012; Polypore International LP, US manufacturer of battery separators, in 2015; and Sage Automotive Interiors, Inc., US manufac- turer of automotive interior materials, in 2018. Our Cs+ for Tomorrow 2021 medium-term management initiative launched in fiscal 2019 focuses on “sus- tainability” by contributing to sustainable society while achieving sustainable growth of corporate value. 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 operations, divesting our food business and closing some fiber businesses, achieving selective diversification. From 2000 onward, we also established many overseas operations, mainly in Asia, laying the foundation for global management. Pharmaceuticals just after the Toyo Jozo merger The LifeVest™ wearable defibrillator of ZOLL Dinamica™ automotive interior material of Sage (made with Lamous™ artificial suede) Asahi Kasei Electronics Materials (Suzhou) Co., Ltd., a major manufacturing base for photosensitive dry film Critical Care Fibers Others Celgard™ Li-ion battery separator of Polypore Others Fibers Health Care Construction Materials Health Care Construction Materials Fiscal 2000 Net sales ¥1,269.4 billion Fiscal 2018 Net sales ¥2,170.4 billion Homes Chemicals Homes Chemicals Electronics Increased comfort and convenience ● Two decades of meager growth after collapse of bubble ● Effect of global economic crisis 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. 17 Asahi Kasei Report 2019Competitive Products and Businesses Advancing various businesses to meet the needs of the world, we have accumulated and acquired a wide range of competitive technologies, products, and businesses. Material Compound Semiconductors & LSIs Catalysts & Processes Electronic compass Global No. 1 Magnetic sensor Global No. 1 Acrylonitrile Global No. 2 Catalysis/ inorganic synthesis Foam insulation Compound semiconductors Software algorithms Polymers & Processing Synthetic rubber for fuel-efficient tires Global No. 1 Chemical process Polymer design/ polymerization/ processing Functional polymer Fibers & Textiles Bemberg™ cupro fiber Global No. 1 Accumulated and acquired technologies Anti-quake/ construction methods/ anti-fire/ durability Bio pharmaceuticals Biological information processing Polymerization/ spinning/ cellulose Virus removal/ blood purification Phase separation/ electrochemistry Membranes & Separation Ion-exchange membranes Global No. 1 Professional defibrillator Global No. 1 18 Hipore™ & Celgard™ Li-ion battery separator Daramic™ lead-acid battery separator Global No. 1 Global No. 1 Homes Homes & Construction Materials Condominiums Hebel™ autoclaved aerated No. 1 for condominium redevelopment in Japan1 concrete (AAC) No. 1 sales volume in Japan2 1 As of April 11, 2018, based on number 2 Thick panels and thin panels in total, of reconstruction association permits according to internal research. issued in accordance with Japan’s Act on Facilitation of Reconstruction of Condominiums, according to research by Industrial Marketing Consultants Co., Ltd. Health Care Health Care Planova™ virus removal filters Wearable defibrillator Global No. 1 世界 No.1 Asahi Kasei Report 2019Homes Homes & Construction Materials Condominiums No. 1 for condominium redevelopment in Japan1 Hebel™ autoclaved aerated concrete (AAC) No. 1 sales volume in Japan2 1 As of April 11, 2018, based on number of reconstruction association permits issued in accordance with Japan’s Act on Facilitation of Reconstruction of Condominiums, according to research by Industrial Marketing Consultants Co., Ltd. 2 Thick panels and thin panels in total, according to internal research. Health Care Health Care Planova™ virus removal filters Wearable defibrillator Global No. 1 世界 No.1 Ion-exchange membranes Global No. 1 Professional defibrillator Global No. 1 Material Compound Semiconductors & LSIs Catalysts & Processes Electronic compass Global No. 1 Magnetic sensor Global No. 1 Acrylonitrile Global No. 2 Catalysis/ inorganic synthesis Foam insulation Compound semiconductors Software algorithms Polymers & Processing Synthetic rubber for fuel-efficient tires Global No. 1 Anti-quake/ construction methods/ anti-fire/ durability Bio pharmaceuticals Biological information processing Accumulated and acquired technologies Polymerization/ spinning/ cellulose Virus removal/ blood purification Phase separation/ electrochemistry Membranes & Separation Chemical process Polymer design/ polymerization/ processing Functional polymer Fibers & Textiles Bemberg™ cupro fiber Global No. 1 Hipore™ & Celgard™ Li-ion battery separator Daramic™ lead-acid battery separator Global No. 1 Global No. 1 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 management initiative focused on raising corporate value through optimal allocation of management resources across the three sectors. The new initiative for the three-year period from April 2019, “Cs+ for Tomorrow 2021” focuses on contributing to a sustainable society while achieving sustainable growth of corporate value. (see p. 10 for more) ■ Fiscal 2018 net sales and operating income New record highs in both net sales and operating income Health Care 14.7% Material 54.7% FY2018 Net sales ¥2,170.4 billion Homes 30.7% Health Care 17.5% Material 54.1% FY2018 Operating income ¥209.6 billion Homes 28.5% Percentages shown exclude “Others” category and “corporate expenses and eliminations” 19 Asahi Kasei Report 2019Global Executive Interview John W. Moyer Senior Executive Officer Asahi Kasei Corp. Chairman/CEO Asahi Kasei Plastics North America, Inc. John Moyer, Senior Executive Officer of Asahi Kasei Corp. and Chairman/CEO of Asahi Kasei Plastics North America, Inc., shares his view on the strengths of Asahi Kasei and describes group-wide initiatives in North America. What do you see as Asahi Kasei’s strengths, and where do you see further potential? One of the many strengths of Asahi Kasei is how we develop our top people; we give them the opportunity to gain respon- sibilities in completely different areas than what they are used to. Talented personnel will experience various jobs within the company; for example, we have someone who worked in R&D for construction materials for a long time, and now he’s doing a great job as the CEO of an overseas subsidiary in a totally different field. Very few Western companies would do that. Asahi Kasei has the vision to say, “Hey! This person has a lot of capability, let's go see what they can do.” Sometimes the top leaders are able to expand their own boundaries. You couldn’t do that in the US, where the job structure is like Tetris, with all the pieces fitting nicely together. At Asahi Kasei, it’s more like an ameba, where the boundaries and responsibilities of your job can merge together. For people who are top performers, I am happy to say we offer almost unlimited potential to grow. I myself spent 24 years in manufacturing at the Dow Chemical Company before joining Asahi Kasei Plastics as President in 2005. It was an extraordinary opportunity for me. That said, Asahi Kasei has even more potential to grow if they continue to focus on the following: utilizing more of the talent we have in women, letting younger people have more authority to make decisions earlier in their careers, and giving local employees at overseas sites more responsibility— especially in Europe and Asia. I know Asahi Kasei’s management is aware of this, and it’s changing. I’ve seen it change a lot in my 14 years here, but we need to press further. That would make us a better global company. What kind of group-wide initiatives are being implemented to generate synergies across Asahi Kasei operations in North America? We’ve grown to about 7,000 employees and about $2 billion revenue in North America, so now we have a critical mass. This growth is mostly from M&A and the growth of the companies Asahi Kasei purchased. For example, ZOLL which has tripled in size since Asahi Kasei purchased it. 20 Asahi Kasei Report 2019 Asahi Kasei’s style is to let each company align with the business unit in Japan—not by region. Each company is independent in North America so creating synergy among us is a big challenge. We, however, see great advantages in working together as a team under the Group, to integrate various functions, learn each other’s excellent know-how, and so on. Those initiatives have been bearing fruit in such areas as human resources, finance, insurance, IT systems, procurement, and logistics. We are now setting up teams for Maintenance and EHS (Environment, Health, and Safety). These synergies are voluntary, but I think we have shown a lot of value. These days we are also doing more and more to build positive growth, such as marketing activity in the automotive field combining Sage, Celgard, Daramic, Asahi Kasei Plastics North America, Crystal IS, and even some venture companies from CVC (Corporate Venture Capital). We also want to give people the chance to gain experi- ence by moving around different Asahi Kasei companies in North America. All of these initiatives are only possible through a network of leaders who know one another and understand the different businesses. This year, we had a gathering with President Kobori and North American leaders in a larger, more diverse group than ever. We had a total of 95 people gather for a 1 ½ day summit from 14 different Asahi Kasei North American companies and executives coming from Japan. Each company made a presentation on its strategies, goals and challenges. We also had group discussions on several business themes. The meeting really helped to develop relationships that will drive further synergies as Team Asahi Kasei. Team AK Meeting held in the US What is your view of Asahi Kasei’s management as an Executive Officer of the company and CEO of a US subsidiary? Asahi Kasei takes a long-term perspective when it makes business decisions, which is a very good thing. When you make a decision, there are several discussions along with detailed examinations. It may take time, but when it comes to implementation, it goes fast because everybody understands its purpose and value. However, it sometimes seems to me that simpler decisions which could be made faster end up following the same process, too. In the US, we deliberate on complicated issues but overall we make a decision faster than a traditional Japanese com- pany. Sometimes the downside is when we move fast and the rest of the people in the company do not understand it nor are ready to change, so implementation can take longer. If we could design “hybrid” business culture in Asahi Kasei that takes the positive attributes of both Japanese and Western business styles, this would give us a great advan- tage. If some decisions could be pushed down to a lower level, you would be able to make simple decisions faster. It is not easy to make a good balance, but I believe we can find a way by understanding positive and negative sides of both styles and applying them according to the situation. I’ve seen Asahi Kasei change tremendously compared to 14 years ago when I joined. We are much more focused on growth and aggressively advancing strategies through large M&A and capital expenditure. The company is aware of the need to further open up to different cultures and diversify its leadership. I look forward to seeing this happen. 21 Asahi Kasei Report 2019 Financial and Non-Financial Highlights ■ Financial ■ Non-Financial Net sales (domestic & overseas), operating income, operating margin Total assets, book value of goodwill Domestic sales Overseas sales (¥ billion) 3,000 Total assets Book value of goodwill Operating income (¥ billion) 300 Operating margin (%) 25 2,211.7 2,254.5 2,307.2 2,575.2 1,986.4 1,940.9 1,883.0 2,042.2 2,170.4 198.5 209.6 240 20 2,000 2,014.5 157.9 165.2 159.2 180 15 8.0 8.5 8.5 9.7 9.7 120 10 1,000 60 5 153.8 305.1 285.6 252.7 319.9 2014 2015 2017 2016 The highest ever net sales and operating income were recorded in fiscal 2018, with operating income growth mainly in the Material sector. The operating margin is gradually increasing. Overseas sales reached approximately 40% of total net sales in fiscal 2018 with expansion of overseas business, including through M&A. 2018 0 (FY) 0 0 2014 2015 2016 2017 2018 (FY) Both total assets and the book value of goodwill are increasing with large-scale acquisitions such as Polypore International, LP in fiscal 2015 and Sage Automotive Interiors, Inc. in fiscal 2018. EBITDA*, depreciation and amortization (tangible, intangible, and goodwill), and EBITDA margin Interest-bearing debt, D/E ratio EBITDA Depreciation and amortization (tangible, intangible, and goodwill) EBITDA margin (%) 20 Interest-bearing debt (¥ billion) 500 274.8 268.4 14.2 14.3 311.9 313.6 15.3 14.5 253.3 12.8 95.4 109.6 109.2 113.5 104.0 2014 2015 2016 2017 2018 (FY) 15 10 5 0 400 300 200 100 0 449.7 0.43 402.8 269.0 0.25 0.35 301.7 0.23 D/E ratio 0.50 0.40 424.9 0.31 0.30 0.20 0.10 (¥ billion) 2,500 2,000 1,500 1,000 500 0 (¥ billion) 400 300 200 100 0 2014 2015 2016 2017 2018 (FY) 0.00 * Operating income, depreciation, and amortization (tangible, intangible, and goodwill) The amount of depreciation and amortization is increasing with proactive capital expenditures and M&A activity. EBITDA is regarded as a key performance indicator (KPI) signifying the generation of cash flow. The decrease in depreciation and amortization in fiscal 2018 resulted from a change in the method of depreciation of property, plant and equipment from the declining-balance method to the straight-line method. While interest-bearing debt increased in fiscal 2015 and fiscal 2018 to fund acquisitions, the D/E ratio of 0.31 at the end of fiscal 2018 is considered to indicate a sound financial condition. Net income attributable to owners of the parent, ROE ROE (%) 20 Net income attributable to owners of the parent (¥ billion) 200 170.2 147.5 14.0 11.1 105.7 10.6 91.8 8.6 115.0 10.5 2014 2015 2016 2017 2018 (FY) 15 10 5 0 150 100 50 0 Capital expenditure, R&D expenses (¥ billion) 150 Capital expenditure R&D expenses 136.2 100 89.1 75.5 99.0 81.1 90.6 79.6 101.3 85.7 90.1 50 0 2014 2015 2016 2017 2018 (FY) Although fiscal 2018 net income attributable to owners of the parent decreased from the record-high level of fiscal 2017, this was largely attributable to the US tax reform which temporarily reduced income tax expenses in fiscal 2017, and the fiscal 2018 result was maintained at a high level. Increased ROE is pursued by raising profitability. Proactive investments are focused on growth fields in each segment, such as capital expenditure to expand production capacity in Material and R&D in Health Care. 22 Asahi Kasei Report 2019Operating cash flow, investing cash flow, free cash flow Number of women working as managers* (¥ billion) 300 200 100 0 –100 –200 –300 Operating cash flow Investing cash flow Free cash flow 216.2 169.0 137.6 249.9 212.1 139.6 37.1 79.0 –69.1 –100.5 –89.9 –110.3 –285.3 13.1 –198.9 700 600 500 400 300 200 100 0 2014 2016 2015 2018 Net cash flow provided by operating activities decreased in fiscal 2018 with higher income taxes paid and an increase in operating funds accompanying strong business performance. Net cash flow used in investing activities increased with greater capital expenditure and the acquisition of Sage Automotive Interiors, Inc. 2017 (FY) Environmental and safety investment* (¥ billion) 10 Environmental investment Safety investment 9.52 7.88 5.20 2.78 2.42 2.63 6.28 6.71 5.38 5.25 3.30 3.35 2.03 2.98 2.81 2014 2015 2016 2017 2018 (FY) Responsible Care program (see page 41). Management resources are proactively invested for the global envi- ronment, operational safety, workplace safety, hygiene, and health as preeminent management tasks. Greenhouse gas (GHG) emissions/net sales* (Index) 100 96 92 85 77 72 8 6 4 2 0 80 60 40 20 0 500 534 454 622 575 2015/6 2016/6 2017/6 2018/6 2019/6 * 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. included in FY2015). A workplace environment that allows people from diverse backgrounds to work positively and energetically is considered to be essential for sustainable business growth. For this purpose, various measures are advanced to nurture and promote female personnel to positions of organizational management. Employees using parental leave* 700 600 500 400 300 200 100 0 Women Men 457 231 556 582 582 631 316 316 346 392 226 240 266 236 239 2014 2015 2016 2017 2018 (FY) 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 FY2014 and FY2015). Parental leave is made available through the fiscal year in which the child turns three years old. Over 40% of the qualified male employees have taken parental leave for four consecutive years since fiscal 2015. Employment of persons with disabilities* Asahi Kasei Ability Corp. Other than Asahi Kasei Ability Corp. 600 500 489 511 400 179 2.06 190 211 2.06 Rate of employment Legal minimum 548 560 574 2.21 224 2.24 195 2.23 (%) 2.30 2.20 2.10 2.00 1.90 1.80 0.00 2014 2015 2016 2017 2018 (FY) 300 200 100 0 310 321 337 335 379 2014 2015 2016 2017 2018 (FY) * Indexed to GHG emissions from production processes (tons-CO2 equivalent)/ net sales (¥ billion) in FY2013 as 100. Data for Asahi Kasei Group companies in Japan and overseas performing the Responsible Care program (see page 41). Under the new medium-term management initiative, Asahi Kasei is targeting a 35% decrease in the index of GHG emissions/net sales from the fiscal 2013 level. Various efforts to further reduce emissions are being applied to achieve this target. * Average for applicable Group companies in each fiscal year. Asahi Kasei Ability Corp. was established as a special subsidiary for the employment of persons with disabilities. Recruitment activities also continue to increase the employment of persons with disabilities at Group companies other than Asahi Kasei Ability. 23 * Data for Asahi Kasei Group companies in Japan and overseas performing the * Results for personnel employed by Asahi Kasei Corp., Asahi Kasei Asahi Kasei Report 2019Interview with the CFO Leveraging our strengths of “diversity” and “capability to change” we are investing for growth to raise corporate value and increase dividends. Yutaka Shibata Director, Vice-Presidential Executive Officer ■ Asahi Kasei Group’s source of growth The Asahi Kasei Group has grown through dynamic expansion into peripheral businesses and creation of new businesses by identifying business opportunities presented by changes in society’s issues and market needs. We will celebrate our centenary in 2022, and throughout our history we have continuously shifted financial and human resources from mature markets and businesses to markets with new needs. This proactive shifting of resources is the source of the Asahi Kasei Group’s sustainable growth. When entering a new field, we don’t only look at the market scale and rate of growth. We analyze the market and the competition to find our own unique ability to provide added value, focusing on fields where we can succeed. By repeating this process, we have continuously grown as a company having a unique portfolio of high value-added businesses. Our people and management know-how to effect such change, and the distinctive diversity of our operations, are the strengths that support our growth and the fount of our value. ■ Financial strategy for sustainable growth During the 3-year period of our previous management initiative, we adopted decisions on a total of some ¥670 billion in long-term investments, mainly to expand competitive businesses and to enter new growth markets. Notable investments were to expand capacity for lithium-ion battery separators and to perform a large-scale acquisition of Sage Automotive Interiors of the US. This acquisition will enhance our ability to capture growth opportunities from the transfor- mation of automotive markets referred to as CASE*. In our new management initiative “Cs+ for Tomorrow Framework for capital allocation (FY2019–FY2021 3-year period) Pursuing returns above cost of capital Financing for growth (while maintaining financial discipline) Capital expenditure Borrowing capacity 3-year total ≈¥800 billion (Decision-adopted basis, including M&A) D/E ratio around 0.5 Increase in interest-bearing debt ¥200 to ¥400 billion Shareholder returns Grow dividends per share as earnings expand Payout ratio around 30 to 40% Share buybacks performed flexibly according to circumstances Operating cash flow 3-year total ¥600 to ¥700 billion 24 Asahi Kasei Report 2019 2021” we will continue to proactively invest in selected fields. Many of our businesses continue to be eager to invest, and we will continue to study M&A opportunities for further growth. Although uncertainty in the global economic outlook due to US-China trade friction and the slowdown in Chinese economic growth pose investment risks, we still see many growth opportunities in our targeted markets and fields. We must continue to invest in order to securely capture these growth opportunities. My responsibility as CFO is to ensure that our financial structure enables such long-term investments to support the Asahi Kasei Group’s sustainable growth. While reinforcing competitive businesses to increase our cash flow, we seek optimum allocation of resources. We expect operating cash flow over the 3-year period of the new management initiative to total ¥600 to ¥700 billion, providing resources to invest for growth. In addition, by borrowing within a range that maintains our healthy balance sheet, we are positioned to make some ¥800 billion of long-term investments over the 3-year period, including M&A. We strictly evaluate each potential investment in terms of ROIC and other measures, while judging whether they contribute to sustainable growth. We also adopted a new target for EBITDA. Asahi Kasei follows Japanese accounting standards, so goodwill from acquisitions is amortized. Because we plan to continue to use M&A as a means of further growth, the EBITDA target was adopted to enable appropriate evaluation of our perfor- mance unaffected by amortization of goodwill. * Connected, Autonomous, Shared, Electric ■ Policy for shareholder returns Our results in fiscal 2018 exceeded our May 2018 forecast, and considering the state of our cash flow we decided to perform our first share buyback in 17 years. Our total return ratio in fiscal 2018 was 39%, above the 35% targeted in the previous initiative. For shareholder returns we will mainly focus on dividends, with our policy of aiming for stable dividends and continuous dividend increases unchanged. We will continue to consider share buybacks based on the state of our financial perfor- mance and cash flow. We intend to further enhance share- holder returns by achieving sustainable business growth, increased earnings, and continuous dividend increases. Dividends per share and payout ratio Dividends per share (¥) 40 30 25.1 20 19 34 34 27.9 30.4 20 29.1 24 Payout ratio (%) 40 32.2 10 0 2014 2015 2016 2017 2018 (FY) Primary financial metrics EBITDA1 (¥ billion) 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)2 D/E ratio FY2014 253.3 137.6 (100.5) 37.1 ¥75.62 5.4% 10.6% 5.3% 1.01 2.0 8.3% 0.25 1 Operating income, depreciation, and amortization (tangible, intangible, and goodwill) 2 (Operating income − income taxes) / average annual invested capital FY2015 274.8 216.2 (285.3) (69.1) ¥65.69 4.3% 8.6% 4.7% 0.92 2.0 7.9% 0.43 FY2016 FY2017 FY2018 268.4 169.0 (89.9) 79.0 ¥82.34 5.1% 10.5% 6.1% 0.84 2.0 7.8% 0.35 311.9 249.9 (110.3) 139.6 313.6 212.1 (198.9) 13.1 ¥121.93 ¥105.66 7.5% 14.0% 8.3% 0.90 1.9 9.7% 0.23 6.0% 11.1% 6.8% 0.89 1.8 8.8% 0.31 30 20 10 0 25 Asahi Kasei Report 2019 Operating Segments Material With basic chemicals as feedstock for resins, etc., unique fiber materials, environmentally friendly performance materials, consumables such as Saran Wrap™ cling film, 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 composition Net sales & operating income 54.7% 54.1% Net sales (¥ billion) 1,200 1,176.2 1,197.0 Operating income (¥ billion) 150 129.6 121.0 Fiscal 2018 Not including “Others” category and corporate expenses and eliminations. Highlights 900 600 300 0 100 50 2018 2019 (forecast) 0 (FY) Acquisition of Sage Automotive Interiors In September 2018, we acquired Sage Automotive Interiors, Inc., South Carolina–based manufacturer of automotive interior material, for a cash transac- tion price of approximately $700 million1. Various innovations such as CASE2 are emerging in the automotive industry. We will expand our business in the field of mobility leveraging Sage’s brand and ability to provide proposals to vehicle manufacturers and parts suppliers. Sage has been supplying car interior material made with Asahi Kasei’s Lamous™ artificial suede 1 Total acquisition price of $1.06 billion including Sage’s net interest-bearing debt. 2 Connected, Autonomous, Shared, and Electric Recent major investments for growth in the Material segment (decisions adopted FY2017–2018) Fiscal 2017 Capacity expansion for S-SBR (solution-polymerized styrene-butadiene rubber) for fuel-efficient tires in Singapore New plant to manufacture plastic compounds in China Capacity expansion for Lamous™ artificial suede in Japan Capacity expansion for Leona™ nylon 66 filament in Japan Capacity expansion for Hipore™ LIB separator in Japan Capacity expansion for Celgard™ LIB separator in the US Acquisition of Senseair AB, Swedish manufacturer of gas sensor modules Fiscal 2018 Acquisition of Sage Automotive Interiors, Inc., US manufacturer of automotive interior material Capacity expansion for spunbond nonwovens in Thailand Capacity expansion for Hipore™ LIB separator in Japan Capacity expansion for Celgard™ LIB separator in the US Hiroshi Yoshida Executive Officer for Material business sector Director, Vice-Presidential Executive Officer, Asahi Kasei Corp. Main products ■ Acrylonitrile (AN) ■ Styrene ■ Polyethylene (PE) ■ Bemberg™ cupro fiber ■ Roica™ premium stretch fiber ■ Spunbond nonwovens ■ Bemliese™ continuous-filament cellulose nonwoven ■ Lamous™ artificial suede ■ Leona™ nylon 66 filament ■ Engineering plastics ■ Synthetic rubber ■ Saran Wrap™ cling film ■ Ceolus™ microcrystalline cellulose ■ Microza™ hollow-fiber filtration membranes ■ Ion-exchange membranes ■ Sunfort™ photosensitive dry film ■ Hipore™ and Celgard™ Li-ion battery separators ■ Daramic™ lead-acid battery separator ■ Mixed-signal LSIs ■ Hall elements 26 Asahi Kasei Report 2019 Homes 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 customer satisfaction that lasts for more than half a century, and with our construction materials business that provides innovative and original high value-added products and services. Sales composition Operating income composition Net sales & operating income 30.7% 28.5% Net sales (¥ billion) 800 Operating income (¥ billion) 100 Fumitoshi Kawabata Executive Officer for Homes business sector Director, Primary Executive Officer, Asahi Kasei Corp. President & Representative Director, Asahi Kasei Homes Corp. Director, Asahi Kasei Construction Materials Corp. Fiscal 2018 Not including “Others” category and corporate expenses and eliminations. Highlights 659.8 68.2 727.0 72.5 75 50 25 2018 2019 (forecast) 0 (FY) 600 400 200 0 Main products Net sales & operating income breakdown ■ Hebel Haus™ unit homes Net sales Operating income ■ Hebel Maison™ apartment buildings ■ Atlas™ condominiums ■ Hebel Maison™ apartment rental network ■ Remodeling ■ Hebel™ AAC panels ■ Neoma Foam™ and Neoma Zeus™ phenolic foam insulation panels ■ Foundation systems ■ Structural systems and components (¥ billion) 800 600 400 200 0 Order-built homes Other housing-related, etc. Real estate Construction Materials Remodeling 2014 2015 2016 2017 2018 (FY) (¥ billion) 80 60 40 20 0 Order-built homes Other housing-related, etc. Real estate Construction Materials Remodeling 2014 2015 2016 2017 2018 (FY) Hebel Village™ apartments for seniors Our homes business is focusing on homes for seniors as a new area of growth. Hebel Village™ apartments for seniors are designed for residents who are self-dependent whether healthy or frail. The apartments feature various senior-friendly services such as regular visits by social workers, health monitoring, on-call health services, and cooperative arrangements with nearby medical facilities. Hebel Village™ orders received 100 80 60 40 20 0 100 buildings (1,200 units) 46 buildings (600 units) 37 buildings (458 units) 27 buildings (412 units) 12 buildings (141 units) 7 buildings (79 units) 2015 2016 2017 2018 2019 target 2025 target (FY) Cumulative orders received as of March 31, 2019 27 Asahi Kasei Report 2019Operating Segments Health Care Shuichi Sakamoto Executive Officer for Health Care business sector (joint) Director, Primary Executive Officer, Asahi Kasei Corp. Chairman & Director, Asahi Kasei Pharma Corp. Chairman & Director, Asahi Kasei Medical Co., Ltd. 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 purification 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 intravascu- lar temperature management systems help to save people’s lives. Sales composition Operating income composition Net sales & operating income 14.7% 17.5% Net sales (¥ billion) 400 Operating income (¥ billion) 60 300 200 100 0 316.2 327.0 41.8 41.5 40 20 2018 2019 (forecast) 0 (FY) Fiscal 2018 Not including “Others” category and corporate expenses and eliminations. Highlights Richard A. 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 ■ Kevzara™ rheumatoid arthritis drug ■ APS™ polysulfone-membrane dialyzers ■ Therapeutic apheresis devices ■ Planova™ virus removal filters Kevzara™ subcutaneous autoinjector for treatment of rheumatoid arthritis New subcutaneous autoinjector formulations of Kevzara™ [generic name: sarilumab (rDNA origin)] were launched in December 2018, in addition to the conventional syringe formulation launched in February 2018. Featuring an easy-to-handle ergo- nomic shape, the new 150 mg and 200 mg subcu- taneous autoinjector formulations of Kevzara™ were developed based on user-centered design for form and function to meet the needs of rheumatoid arthritis patients. Kevzara™ is indicated for rheumatoid arthritis not responding well to conventional treatments. Both the conventional syringe and the new autoinjector formulations of Kevzara™ are subject to a guidance and management fee for self-injection at home. Growth of acute critical care business Our acute critical care business is operated by ZOLL Medical Corporation, which we acquired in 2012. It continues to achieve remarkable growth with revenue increasing by an average annual rate of 15% from fiscal 2008 to 2018. ZOLL revenue growth (million US$) 2,000 ■ Defibrillators for professional use ■ LifeVest™ wearable defibrillator 1,500 Acquisition by Asahi Kasei ■ AED Plus™ automated external defibrillator ■ Thermogard System™ temperature management system 1,000 500 0 28 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (FY) Asahi Kasei Report 2019 R&D Shigeki Takayama Representative Director Vice-Presidential Executive Officer Executive Officer for Technology Functions Our R&D Efforts We are creating new businesses and advancing business activities by leveraging various core technologies, enhanced marketing functions, and both internal and external connections while utilizing digital technologies. from a short-term perspective. Consider our development of the alkaline water electrolysis system for hydrogen produc- tion. We are still in the technology demonstration stage, and commercialization will take more time considering the cost aspects. But we have high expectations for this business because of the appeal of hydrogen energy, its future poten- tial, and ecological performance. In the case of moving into white space through M&A, the business platform of the acquired company, as well as its technology, is a vital consideration. The acquired business platform would form the core for launching a new business, so strict criteria are applied to M&A in a white space. If the targeted company’s business platform is below our expected level, we wait until the company develops its platform sufficiently before conducting M&A. There are always various difficulties when entering a new field, but we understand that it’s necessary to take challenges when tackling issues for the world. ■ Our R&D objectives “Creating for Tomorrow” is the commitment of the Asahi Kasei Group. R&D plays a key role in meeting unsolved global needs. Innovation would be stifled if we just carry on with the conventional ways. We are working to take maximum advantage of the diversity of our operations while building connections as we further hone our core technologies. Our R&D is not only to create new businesses, but also to heighten the earnings, advance the development, and strengthen the foundations of established businesses. ■ Concept of new business creation In the past, there was reluctance to launch a business in so-called “white space” because of the absence of any direct link to existing businesses. Today, however, as the boundaries between businesses are in flux, it is essential to commercialize white space. We have two criteria for discern- ing what white space to target. One is consistency with the Asahi Kasei Group Mission. The other is certainty of future growth. Evaluating these two criteria requires comprehensive judgement including objective assessment of business conditions, attributes needed for human resources, and the surrounding environment. This judgement cannot be made 29 Asahi Kasei Report 2019 R&D ■ Notable R&D efforts Developing materials for cells and batteries We are the world’s leading manufacturer, developer, and supplier of separators for lithium-ion batteries (LIB) and lead-acid batteries, and Asahi Kasei Honorary Fellow Dr. Akira Yoshino is the inventor of the LIB. Leveraging our know-how and core technologies, we continue to develop various materials for cells and batteries. Technology strategy for automotive cells and batteries (Wh/kg) 103 ) i e g n a r g n v i r d r e g n o l ( y t i s n e d y g r e n E 102 10 0 10 Fuel cell High-strength dry-process LIB separator Improved safety LIB (for EV) LIB with cutting-edge electrolyte Solid- state battery Materials Achieving solid-state LIB (rapid charging, high-temperature durability, and downsizing) Revolutionary EV-LIB with cutting-edge electrolyte (driving range, charging time, low-temperature performance) Possibility of replacing 12V lead-acid batteries Lead-acid battery Separator for ISS NiMH (for HEV) Substitution Innovative LIC High-output cell to revolutionize HV/PHV (high efficiency, LIB substitute) Longer service life, reduced lead requirement LIC Electric double-layer capacitor (EDLC) Capacitors Cell 104 103 102 Power density (quick charge, high power, efficiency) 105 (W/kg) Red underline indicates development by Asahi Kasei Development of separators for lead-acid batteries used with ISS We are the world’s No. 1 supplier of separators for lead-acid batteries, and currently we have next-generation separators for lead-acid batteries used with idling stop systems (ISS), which require frequent charging and discharging that tends to degrade the electrolyte. In order to increase battery life and to decrease the amount of lead required, we developed new separator rib configurations and coating techniques. Development of high-strength dry-process LIB separators Although dry-process LIB separators have some advantages over wet-process LIB separators, their low mechanical strength needs to be raised to obtain higher performance for automotive LIBs. Development of cutting-edge electrolytes With better ion conductivity and durability of the LIB elec- trolyte, we aim to increase driving range, shorten charging time, and improve low-temperature performance. Selecting the best additives is a key factor, and by leveraging materials informatics (MI) we hope LIBs can replace lead-acid batteries over the long term. 30 Development of cutting-edge materials for solid-state batteries We are developing solid electrolyte material to enable rapid charging, high-temperature durability, and downsizing of solid-state LIBs. By using a thin film of solid electrolyte sup- ported on a carrier, we aim to achieve high battery capacity. Development of innovative lithium ion capacitors The lithium ion capacitor (LIC) features better cycle life and power output characteristics than the LIB. We are developing pre-doping technology to intercalate lithium ions in the anode material in advance for lower cost. While working to raise LIC performance, we are studying various applications that can make the most of the LIC. When developing these materials, we also need to have cell assembly and evaluation technology. We believe it is import- ant to actually assemble cells and evaluate their performance in addition to evaluating materials, in order to deepen our understanding of our clients’ needs and their final products. Asahi Kasei Report 2019 Utilizing materials informatics (MI) Developing resin compounds Developing resins with various characteristics that meet clients’ needs Resin compounds Applications Molding/ processing · Polyamide · Polyacetal · Polyolefin · Polyphenylene ether · Polystyrene etc. · Home electronics · Office equipment · Automotive components · Daily goods · Packaging material etc. Polymer + other polymer + glass fiber + flame retardant + other additives Processing Demand characteristics: market needs Impact strength, flame retardancy, stiffness, flowability, dimensional precision, etc. Adjusting composition to add functions and obtain required properties Accelerating product development MI is utilized to formulate compounds of engineering resins, which are used in various fields such as automotive parts, household electrical appliances, and office equipment. Thus, our clients have diverse needs for properties such as impact strength, flame retardancy, and stiffness. To meet their needs, we compound glass fibers and flame retardants into engineering polymers to obtain the needed performance characteristics. In the past, we relied on the skill of experienced engineers to find the best composition. Currently with the help of MI, the best composition can be found more quickly and with lower cost. Development time can be shortened to one-third of the previously required time. MI also enables us to share in-house know-how and skills, preserving technology for the next generation. We also use MI in the development of catalysts for petrochemicals, which has shortened development times by 80–90%. Currently we are applying MI to R&D projects for new businesses such as battery materials. Prompt response to various clients’ needs In the mobility field, clients’ needs are changing dramatically with the emergence of trends such as CASE (connected, autonomous, shared, electric) and MaaS (Mobility as a Service). Even more dynamic and complex changes are expected as service providers and IT companies enter the field of mobility in addition to automobile manufacturers. In order to swiftly meet changing needs in these circumstances, product development utilizing MI is essential. We have begun using MI tools in sales departments as well as R&D to enable quick and precise grade proposals on the spot by leveraging our accumulated information on clients’ needs. MI originates from informatics, which has the potential to transform industrial structures and create completely new businesses by breaking down barriers between different fields and facilitating collaboration among them. Informatics can also be effective for the creation and nurturing of a new business, for example when scaling up the business of a small-sized venture company which is acquired. While we currently focus on strengthening our existing businesses, we are also looking for ways to leverage informatics in new businesses, and have begun discussions with Asahi Kasei Homes regarding a data business with the house as a platform. 31 Asahi Kasei Report 2019Corporate Governance Basic Views on Corporate Governance The Group Vision of Asahi Kasei is to provide new value to society and solve social issues by enabling “living in health and comfort” and “harmony with the natural environment” under the Group Mission of “contributing to life and living for people around the world.” With this as a base, we aim to contribute to society, achieve sustainable growth, and enhance corporate value over the longer term by promoting innovation and creating synergy through integration of various businesses. We continue to pursue the optimal corporate governance as a framework to make transparent, fair, timely, and resolute decisions in accordance with changes in the business environment. Corporate Governance Configuration Shareholders Meeting Key points • 1/3 of Directors are independent • 1 female Director • Directors have diverse backgrounds • 3/5 of Corporate Auditors are independent • Corporate Auditors Office to support Corporate Auditors • Internal Audit Department reports to both the President and the Board of Directors Audit Election Oversight Election Board of Corporate Auditors (5 Corporate Auditors, including 3 Independent Outside Corporate Auditors) Audit Board of Directors (9 Directors, including 3 Independent Outside Directors) Cooperation Independent Auditors Nomination Advisory Committee Remuneration Advisory Committee Execution of operations Audit Cooperation Cooperation Management Council Report President Internal Audit Department Incentives for Directors (fiscal 2018) Fixed base remuneration 50% Performance-linked remuneration 39% Stock-based remuneration 11% (percentages shown for Directors who have executive responsibilities) • Performance-linked remuneration ➝ commitment to results • Stock-based remuneration ➝ perspective of shareholders (Outside Directors receive fixed base remuneration only) Meetings of Board of Directors, Advisory Committees, and Board of Corporate Auditors (fiscal 2018) No. of meetings held Average attendance Main subjects of agenda Board of Directors 15 Nomination Advisory Committee* Remuneration Advisory Committee* Board of Corporate Auditors 3 2 17 98.6% (Directors and Corporate Auditors) 100% (all members) 100% (all members) • Business investment • Medium-term management initiative • Risk management and compliance • Optimum composition and size of Board of Directors • Policy for nomination of candidates to be Directors and Corporate Auditors • Standards for judging independence of Outside Directors and Corporate Auditors • Policy and system for remuneration of Directors • Studying remuneration of Directors based on individual performance evaluation 97.7% (Corporate Auditors) • Auditing state of performance of Directors’ duties • Auditing state of operations and financial affairs • Evaluation of Independent Auditors * Beginning in June 2019, the Nomination Advisory Committee and Remuneration Advisory Committee are comprised of the 3 Outside Directors and Representative Directors Hideki Kobori and Shigeki Takayama as members, with the Nomination Advisory Committee chaired by Hideki Kobori and the Remuneration Advisory Committee chaired by Outside Director Tsuyoshi Okamoto. 32 Asahi Kasei Report 2019Composition of Board of Directors (beginning in June 2019) Hideki Kobori Presidential Executive Officer Hiroshi Yoshida Vice-Presidential Executive Officer Fumitoshi Kawabata Primary Executive Officer Shuichi Sakamoto Primary Executive Officer Overall management Material business sector Homes business sector Health Care business sector Masumi Shiraishi Outside Director Economics and society Shigeki Takayama Vice-Presidential Executive Officer Technology functions Yutaka Shibata Vice-Presidential Executive Officer Business management functions Tsuyoshi Okamoto Outside Director Corporate management Tsuneyoshi Tatsuoka Outside Director Industrial and economic policy The 6 Directors within the company respectively have responsibility for overall management, technology functions, business management functions, and the Material, Homes, and Health Care business sectors, while the 3 Outside Directors have a diverse range of backgrounds. Evaluation of Effectiveness of 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 2018 Moving forward The Board of Directors implemented the following measures in Based on deliberations of the effectiveness of the Board of Directors fiscal 2018 based on evaluation of the previous fiscal year. during fiscal 2018, we will continue and expand the aforementioned 1. Enhanced provision of information to Outside Directors and Outside Corporate Auditors 2. Sharing information on IR activities and opinions of investors 3. Preparations for the new medium-term management initiative efforts in the future. Further, for enriched deliberation by the Board of Directors, we will work to further improve the operation of Board of Directors meetings by reviewing standards for agenda items, improving the format of materials, and securing ample deliberation time. In addition, we will continue to study the further enrichment of the effective operation of the Nomination and Remuneration Advisory Committees, and the optimum size and composition of the Board of Directors, on an ongoing basis. 33 Asahi Kasei Report 2019Directors 1. President & Representative Director Presidential Executive Officer 1978 Joined Asahi Kasei 2008 Asahi Kasei Microdevices Director, Senior Executive Officer 2009 Asahi Kasei Microdevices Director, Primary Executive Officer Hideki Kobori 2. Representative Director Vice-Presidential Executive Officer Shigeki Takayama 2010 Asahi Kasei Microdevices President & Representative Director, Presidential Executive Officer 2012 Asahi Kasei Senior Executive Officer, Director* 2014 Asahi Kasei Representative Director*, Primary Executive Officer 2016 Asahi Kasei President and Director*, Presidential Executive Officer* 1980 Joined Asahi Kasei 2009 Asahi Kasei E-materials Executive Officer 2010 Asahi Kasei E-materials Director 2012 Asahi Kasei E-materials Senior Executive Officer 2013 Asahi Kasei E-materials President & Representative Director, Presidential Executive Officer 2015 Polypore International President & CEO 2016 Asahi Kasei Senior Executive Officer, President of Separators SBU 2018 Asahi Kasei Primary Executive Officer 2019 Asahi Kasei Vice-Presidential Executive Officer*, Director*, Representative Director* 3. Director Vice-Presidential Executive Officer Yutaka Shibata 4. Director Vice-Presidential Executive Officer Hiroshi Yoshida 1979 Joined Asahi Kasei 2008 Asahi Kasei Executive Officer 2009 Asahi Kasei Lead Executive Officer 2011 Asahi Kasei Kuraray Medical President & Representative Director, Presidential Executive Officer Asahi Kasei Medical President & Representative Director, Presidential Executive Officer Asahi Kasei Pharma Director 2016 Asahi Kasei Primary Executive Officer 2017 Asahi Kasei Pharma President & Representative Director, Presidential Executive Officer Asahi Kasei Medical Director 2018 Asahi Kasei Director* 2019 Asahi Kasei Vice-Presidential Executive Officer* 1979 Joined Asahi Kasei 2012 Asahi Kasei Chemicals Executive Officer 2014 Asahi Kasei Chemicals Director, Senior Executive Officer 2016 Asahi Kasei Lead Executive Officer, President of Performance Polymers SBU 2017 Asahi Kasei Senior Executive Officer 2018 Asahi Kasei Primary Executive Officer 2019 Asahi Kasei Vice-Presidential Executive Officer*, Director* 34 Asahi Kasei Report 2019 5. Director Primary Executive Officer Shuichi Sakamoto 6. Director Primary Executive Officer Fumitoshi Kawabata 7. Outside Director Masumi Shiraishi * Position held at present. 1981 Joined Asahi Kasei 2011 Asahi Kasei Chemicals Executive Officer 2014 Asahi Kasei Chemicals Director, Senior Executive Officer Asahi Kasei Lead Executive Officer, Corporate Strategy General Manager 2016 Asahi Kasei Senior Executive Officer, Director* 2018 Asahi Kasei Pharma Director and Chairman* Asahi Kasei Medical Director and Chairman* 2019 Asahi Kasei Primary Executive Officer* 1982 Joined Asahi Kasei 2012 Asahi Kasei Homes Executive Officer 2013 Asahi Kasei Homes Director*, Senior Executive Officer 2014 Asahi Kasei Homes Marketing Division General Manager 2016 Asahi Kasei Homes Chubu Sales Division General Manager 2017 Asahi Kasei Senior Executive Officer Asahi Kasei Homes President & Representative Director*, Presidential Executive Officer* Asahi Kasei Construction Materials Director* 2019 Asahi Kasei Primary Executive Officer*, Director* 1989 Joined NLI Research Institute 2001 Head Researcher, NLI Research Institute 2002 Assistant Professor, Department of Economics, Toyo University 2006 Professor, Department of Economics, Toyo University 2007 Professor, Faculty of Policy Studies, Kansai University* 2013 Asahi Kasei Director* 8. Outside Director Tsuneyoshi Tatsuoka 1980 Joined Ministry of International Trade and Industry 2010 Councilor, Cabinet Secretariat 2011 Deputy Vice-Minister of Economy, Trade and Industry 2013 Vice-Minister of Economy, Trade and Industry 2015 Retired from Ministry of Economy, Trade and Industry 2016 Asahi Kasei Director* 9. Outside Director Tsuyoshi Okamoto 1970 Joined Tokyo Gas Co., Ltd. 2002 Tokyo Gas Co., Ltd. Executive Officer 2004 Tokyo Gas Co., Ltd. Senior Executive Officer, Director 2007 Tokyo Gas Co., Ltd. Representative Director, Executive Vice President 2010 Tokyo Gas Co., Ltd. Representative Director, President 2014 Tokyo Gas Co., Ltd. Director, Chairman 2018 Tokyo Gas Co., Ltd. Director, Senior Corporate Advisor Asahi Kasei Director* Tokyo Gas Co., Ltd. Senior Corporate Advisor* 6 3 9 4 8 1 7 2 5 35 Asahi Kasei Report 2019 Outside Director Interview Asahi Kasei’s governance system to heighten management effectiveness Tsuyoshi Okamoto, Outside Director since June 2018, shares his view on the effectiveness of Asahi Kasei’s corporate governance system. Tsuyoshi Okamoto Outside Director Profile April 1970 Joined Tokyo Gas Co., Ltd. June 2002 Tokyo Gas Co., Ltd. Executive Officer April 2004 Tokyo Gas Co., Ltd. Senior Executive Officer June 2004 Tokyo Gas Co., Ltd. Director April 2007 Tokyo Gas Co., Ltd. Representative Director, Executive Vice President April 2010 Tokyo Gas Co., Ltd. Representative Director, President April 2014 Tokyo Gas Co., Ltd. Director, Chairman April 2018 Tokyo Gas Co., Ltd. Director, Senior Corporate Advisor June 2018 Asahi Kasei Corp. Outside Director* June 2018 Tokyo Gas Co., Ltd. Senior Corporate Advisor* * Position held at present 36 Responsibility as Outside Director The most important thing expected of an Outside Director is objectivity. At Board of Directors meetings, I objectively evaluate the operation of the company, raise questions as necessary, and offer my opinions. I feel that my responsibility is to convey my thoughts based on objective assessment of whether an appropriate overall balance is being achieved among Asahi Kasei’s 3 sectors, and whether the objectives of the strategic management initiative are being met. Evaluating the corporate governance system I judge Asahi Kasei’s governance system to be appropriate as a company having a Board of Corporate Auditors. I also find the composition of the Board of Directors to be appro- priate, including the number of Outside Directors, and I think it is particularly outstanding that people with responsibility for each of the 3 business sectors have been installed as Directors. The voluntarily established Nomination and Remuneration Advisory Committees are functioning suitably. Asahi Kasei Report 2019The concept of “diversity” is critical for corporate governance. For the Board of Directors as well, it’s essential to maintain a diversity of perspectives and opinions. To me, that’s more important than having numerical targets for diversity by gender, nationality, or age, for instance. Asahi Kasei is conscious of the need for diverse perspectives in the management team and the Board of Directors to ensure appropriate response to changes in the external environment. The company strives to ensure that its governance system reflects this. An effective Board of Directors supports effective management Frank and lively discussions are held at Board of Directors meetings. The opinions and advice of Outside Directors are given sincere consideration, and incorporated into decisions and policy formulations. Through tours of operating sites and detailed explanations by business managers, ample information is provided to Outside Directors. The agenda of the Board of Directors includes more and more large-scale investment and acquisition proposals in recent years. I always ask for explanations about the risks. While there is no such thing as a risk-free business, the key is to clearly foresee the potential risks and understand how they can be mitigated if they materialize. The most important part of risk management is to be able to explain how the company will cope in the case of risks emerging. Asahi Kasei’s strengths and potential for growth Asahi Kasei’s 3 business sectors are each highly autono- mous, and there isn’t necessarily firm mutual linkage among them. I see this as a strength. Having highly independent businesses means that even if an individual business slips into a low-growth phase, the company’s overall foundations remain unshaken. This is not only a risk hedge for manage- ment, it’s also a huge structural strength. I also sense that the corporate philosophy is effectively leveraged as a source of strength. With a Group Mission of “contributing to life and living for people around the world,” the company has set forth “Care for People, Care for Earth” as the key message of its new medium-term initiative. This enables employees to perform their duties with pride, in the knowledge that their work provides value to the world. I think this is particularly meaningful for personnel working behind the scenes. In contrast to the front-line people in sales or new business development, those working in fields like accounting, maintenance, and call centers are required to swiftly execute their tasks without garnering attention. But the company would not function without them—they are the unsung heroes. Awareness of the company’s mission and strategic concepts can greatly reinforce the engagement of such employees performing such essential but often thankless tasks. To me, one of the most important tasks for management is to disseminate corporate philosophy and management concepts throughout the company’s ranks. I have long felt that the heart and soul of a company lie in its on-site people. It’s vital to keep them motivated. Fostering leaders for the future Discussions at Board of Directors meetings are always premised on the importance of succession planning and fostering leadership personnel. I think the best way to foster future leaders is to let people make decisions. If the supervi- sor says, “I’ll take the responsibility, you go ahead and make the decision,” good results are sure to follow. At the same time, those being groomed to be leaders must consider their supervisor’s position. They should ask themselves, “If I were the supervisor, what would I do in this case?” The way of evaluating people is another key issue. In my experience, I’ve found it best to perform evaluation based on 4 different perspectives: The person’s supervisor, the person’s subordinates, the human resources department, and finally an outsider such as a lecturer or specialist enlisted for training sessions. Having evaluation based on multiple perspectives is the best way to ensure unbiased objectivity. My expectations I’ve seen that Asahi Kasei’s employees go about their work with pride, confidence, and a sense of responsibility. They can feel proud to work at a company with an admirable corporate philosophy, they are confident in their ability to accomplish their goals, and they are committed to fulfilling their responsibilities to the end. With employees like these, I expect that a bright future awaits for the Asahi Kasei Group. 37 Asahi Kasei Report 2019 Global Environment With “Care for Earth” emphasized under our new management initiative, we consider contributing to improving the global environment through our business operations as well as efforts to improve our own environmental performance to be important tasks. Our major focuses are on measures for climate change, preservation of biodiversity, and promotion of a recycling-oriented society. Overview of Environmental Measures Regarding measures for climate change, we set a new target for reducing our own GHG emissions in fiscal 2030 which was announced together with the new initiative in May 2019. As part of our effort to reduce the impact of our business activities on biodiversity, we 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 to increase the rate of resource recycling. As a chemical company, we are also working to promote the safe handling of chemical substances and actively provide the related information. New target for GHG emissions reduction We adopted a new target of 35% reduction in GHG emis- sions as a ratio of net sales by fiscal 2030 compared with that of fiscal 2013. Our previous reduction target was based on the amount of emissions at our major domestic Japanese production sites, and we are on track to achieving this target. Now, to reduce our global environmental burden, the amount of emissions included in our reduction target has been changed to include our overseas production sites, all consol- idated subsidiaries, and generation of power sold to outside companies as well as our major domestic production sites. To meet this new goal, we are advancing the conversion of fuel used in our thermoelectric power plants and raising the efficiency of our hydroelectric power plants. Climate-change effort ranked “A–” by CDP Our effort with respect to climate change was given an evaluation of “A–” by the CDP* for 3 consecutive years. * 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–. “Town Woods” program Planting modules called “Town Woods Pots” are used to enhance green spaces at Asahi Kasei Group operating sites. This program contributes to biodiversity preservation while deepening understanding and increasing awareness of the value of biodiversity among personnel. About “Town Woods Pots” “Town Woods Pots” provide eco-friendly green spaces and enhance their value. A combination of greenery in 4 different heights are planted: tall, medium, short, and groundcover. The phytosociological method is used to classify green spaces for the selection of the most suitable combination of plants to improve a monotonous biological environment. “Town Woods” program targets for fiscal 2019–2021 Target 1: Installing “Town Woods Pots” at 42 operating sites Target 2: Accumulating 1,200 Town Woods Points during the period Renovating hydroelectric power plants in the Nobeoka area to raise supply of clean energy Ever since our founding, we have supplied our business operations in the Nobeoka area with power from hydroelectric plants on the Gokase River system in the surrounding parts of Miyazaki and Kumamoto. We now have 9 hydroelectric power plants with a maximum total output of 56,840 kW. As part of our management policy of “contributing to sustainable society,” we decided to perform a large-scale renovation of the Gokase River Hydroelectric Plant to increase the reliability of equipment for stable long-term supply of clean energy. The work is scheduled for completion in October 2021. We are currently studying plans to renovate our other hydroelectric plants as well. The Gokase River Hydroelectric Plant 38 Asahi Kasei Report 2019Society: Quality & Procurement With “Care for People” as an important focus of our new management initiative, we prioritize contributing to solutions to social issues through our businesses while emphasizing responsibility to our stakeholders. CSR Procurement Effort with Suppliers 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, revised in 2011. To this end, we are placing greater emphasis on CSR in accordance with our Procurement Policy. Accordingly, we consider suppliers from environmental aspects including energy use, climate change, biodiversity, pollution, waste management, and resource use, and social aspects including discrimination, equal opportunity, freedom of association, and compliance with local laws concerning working hours, wages, health, and safety. A relationship of mutual trust with our suppliers is fostered through fair and transparent purchasing practices based on regulatory com- pliance and respect for the environment and human rights. Our purchasing departments conduct a CSR survey every year in order to better understand our suppliers' efforts to promote CSR, and identify any areas where improvement may be requested. It is a global trend that more and more countries are banning the procurement of minerals from inhumane armed groups, particularly in the Democratic Republic of the Congo and neighboring countries. In the US, this is required by the Dodd-Frank Act of 2010. The Asahi Kasei Group considers conflict minerals to be a serious issue, and our policy is to ensure transparency in our supply chains and to procure minerals responsibly. We do not obtain, procure, or utilize minerals from armed groups, and avoid supporting conflict and inhumane activities. Quality & Procurement Quality Assurance Corporate Quality Ensurance was established as an inde- pendent organization with a Quality Ensurance Group and Chemicals Management Group as subordinate organizations in July 2018 in a reorganization from the prior Corporate ESH & QA. In April 2019, an Executive Officer of Quality Assurance was assigned while the prior Regulatory Affairs & Reliability Assurance Dept. in Corporate Research & Development was moved to Corporate Quality Ensurance. The reorganization is to strengthen and maintain a higher level of quality assurance 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 2018, 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. Effort to maintain zero serious product safety incidents As part of the effort to prevent serious product safety incidents and to secure and strengthen product safety, we established new quality assurance bylaws that stipulate quality assurance activities for RC Administrators of strategic business units and core operating companies to perform. Quality Assurance Managers of each organization, whose central role in activities to enhance quality assurance is defined in the bylaws, are appointed and perform their activities accordingly. Our product safety guidelines are applied in concert with the bylaws by all business units of the Asahi Kasei Group to assure the quality of products and services. 39 Asahi Kasei Report 2019 Society Human Resources Human Resources Development Group Masters The Asahi Kasei Group employs a “Group Masters” program to recognize employees who have developed and exercised extraordinary expertise and skills that hold universal value, and to facilitate their application throughout the Group. As of October 2018, 180 Group Masters are designated, those whose rank and remuneration are commensurate with Senior General Manager, General Manager, and Section Manager, respectively number 15, 62, and 103. 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 2021” from the perspective of human resources, we are implementing measures such as internship programs for young personnel, and holding training sessions for personnel at overseas subsidiaries on subjects such as dissemination of corporate philosophy, intercultural commu- nication, and management training. Valuing Human Rights and Diversity Basic policy The Asahi Kasei Group strives to ensure that there will be no discrimination and to maintain a lively workplace culture which enables personnel to perform at their best. 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, and we disseminate a corporate policy of not condoning harassment in any form. In fiscal 2018 and 2019 we held workshops across the Asahi Kasei Group focused on foster- ing a workplace culture free of power harassment. 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 nation- ality every year, and the overall makeup of our personnel is becoming more global. We are also strengthening our ties to universities both in Japan and overseas, through career brief- ing sessions and student internships, as part of an ongoing effort to attract talent. In April 2019, 471 new graduates were hired: 373 men and 98 women. In addition, 253 persons were hired in mid-career between April 2018 and March 2019. Workplace Safety and Hygiene The effort to prevent workplace accidents is integrated in a comprehensive OHSMS* program that combines conventional safety initiatives—such as tidiness/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. * 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. Integration of workplace safety initiatives Conventional safety initiatives Risk assessments PDCA management system OHSMS Occurrence of workplace injuries Incidence of lost-workday injury by event category, FY2018 in Japan Total 23 cases Incidence of lost-workday injury by event category, FY2008–2017 in Japan Total 130 cases Fall on same level ......................... 44% Kickback/overexertion .................. 18% Contact with high temperature substance/object.......................... 17% Collision........................................ 13% Caught in/between machinery ........ 4% Hit by flying/falling object ................ 4% Fall on same level ......................... 26% Traffic accident ............................. 23% Kickback/overexertion .................. 12% Fall from height............................. 10% Caught in/between machinery ........ 9% Contact with high temperature substance/object............................ 6% Caught in something else ............... 3% Hit by flying/falling object ................ 2% Collision.......................................... 2% Contact with harmful substance ..... 2% Others ............................................ 5% 40 Asahi Kasei Report 2019 Responsible Care 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 environmental preservation, quality assurance (including product safety), operational safety, workplace safety and hygiene, health maintenance, and community outreach. Message from the Executive for RC Shigeki Takayama Representative Director, Vice-Presidential Executive Officer, Asahi Kasei Corp. Asahi Kasei started the three-year medium-term management initiative “Cs+ for Tomorrow 2021” emphasizing sustainability in FY2019. We aim to raise our corporate value by implementing various measures to achieve our business targets as well as by contributing to a sustainable society as indicated by the SDGs. The current 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 ensure the stable provision of solutions that our customers can rely on while focusing on the three fundamental “actuals” of the actual place, actual thing, and actual fact, with active connections inside and outside the company to further heighten RC. We regard RC as a most crucial management issue, and to raise our corporate value for our various stakeholders we work to achieve our annual RC objectives while advancing RC activities from a broader perspective, reinforcing R&D to provide solutions to global warming and other environmental issues. 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, electronics, and construction materials. * JRCC: Operated as the Japan Chemical Industry Association’s RC Committee since April 2011. Asahi Kasei Group RC Principles We give the utmost consideration to environmental protection, quality assurance, operational safety, workplace safety and hygiene, and health maintenance, throughout the product life cycle from R&D to disposal, as preeminent management tasks in all operations. • We give full consideration to the global environment, and make efforts to reduce the environmental burden of all operations. • We continuously provide safe products and services with the quality that gives customers a sense of security and satisfaction. • We strive for stable and safe operation while preventing workplace accidents and securing the safety of personnel and members of the community. • We strive for a comfortable workplace environment, and support the maintenance and promotion of employee health. In addition to maintaining legal compliance, we set self-imposed targets for continuous improvement, while performing proactive informa- tion disclosure and communication to gain public understanding and trust. Revised on April 1, 2016* * A statement regarding quality assurance was added, and the six elements were condensed into four. 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 strategic business unit, and within each Region and Works*. Certified compliance with internationally standardized management systems is obtained for the RC Management System of the Asahi Kasei Group. We have obtained ISO 14001 environmental management system certification for 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 business units. The Senor General Manager of each Region and Works is responsible for the unified implementation of RC in the respective Region or Works. 41 Asahi Kasei Report 2019 Feature Profiles of Employees Pursuing Sustainability Under the new medium-term management initiative “Cs+ for Tomorrow 2021,” Asahi Kasei expresses its commitment to sustainability as “Care for People, Care for Earth.” Here we profile three employees who are deeply involved in various aspects of sustainability through their work. ■ Gas sensor business Solving energy problems and eliminating drunken driving A physics major in college, Nishida was recommended to work for Asahi Kasei during a visit to the SPring-8 synchro- tron radiation facility. He was attracted by the simple phrase, “People at Asahi Kasei are so bright and cheerful.” Having also admired Ichiro Shibasaki, a developer of Hall elements and former Asahi Kasei Fellow, Nishida decided to join Asahi Kasei. After entering the company, he was engaged in product planning for compound semiconductor devices such as magnetic sensors and infrared sensors at Asahi Kasei Microdevices (AKM). Nishida is currently involved in marketing gas sensor modules made with AKM’s infrared sensors, together with Senseair AB, a Swedish manufacturer of NDIR1 gas sensor modules acquired by AKM in 2018. He has two targets in sight. One is CO2 sensors for air conditioning systems and the other is automotive alcohol detection sensors. Energy is a serious subject of concern these days, and CO2 sensors can raise the efficiency of air conditioning systems. When heating or cooling homes and automobiles, efficiency is drastically improved by controlling the intake of air from outside. By measuring the CO2 concentration of the inside air, the sensors enable optimum ventilation to minimize the amount of energy needed to maintain a comfortable environment. Alcohol sensor 42 Sosuke Nishida Solution Development Dept. 4 Marketing & Sales Center Asahi Kasei Microdevices Hired in 2004 The market for automotive alcohol detection may be even bigger. Drunk driving claims thousands of lives every year in the US alone. A public-private partnership called the DADSS2 program is evaluating Senseair’s alcohol sensor as a prom- ising technology to prevent vehicles from being operated by drunk drivers. Nishida is determined to make this a reality. “Since the cost is high, we can only target high-end mod- els in both applications for now,” notes Nishida. But what if we could develop high value-added and low-cost products with mass-production by combining the technology of Senseair and AKM? That’s Nishida’s dream, and the object of his passion. “AKM’s compound semiconductor technology and Senseair’s gas sensor technology are the best in the world.” His voice sounds bright and cheerful—he belongs to Asahi Kasei now. 1 Nondispersive Infrared (NDIR) sensors use nondispersive emission to irradiate specimen samples and measure the change of infrared intensity for a certain wavelength. 2 Driver Alcohol Detection System for Safety Asahi Kasei Report 2019 ■ Housing business for seniors Housing for seniors that seamlessly meets changing needs Am I sincere to my customers? Masaki asks himself as he recollects the sales representative when his parents rebuilt their house. He admired the sincerity of that sales rep who earned the trust of his parents, and decided to enter the hous- ing industry himself. Something as consequential as a house cannot be sold without trust. Working in sales at Asahi Kasei Homes (AKH), Masaki strives to keep learning every day. Currently Masaki is working to expand the rental housing business for seniors, a strategic area of growth for AKH. As people get older, they tend to become more frail. Many will You Masaki Homes for Seniors & Medium-Rise Buildings Business Division Asahi Kasei Homes Hired in 1995 go on to need a living environment where care services are provided. AKH provides homes that seamlessly meet these changing needs. While constructing more Hebel Village apartments for frail seniors, it is launching its first Village Riche serviced housing complex for residents requiring care. AKH began its housing business for seniors by focusing on healthy active seniors who do not require care. There is currently a short supply of housing designed for active seniors who can enjoy living at their own pace. Hebel Village apartments for seniors are a solution to meet this social need. As the population of Japan continues to age, the number of active seniors is increasing. This means more good tenants for this type of housing. While other companies focused on apartments with care services and nursing homes, AKH discerned an unmet need ahead of the competition. Now that other companies have begun to imitate this successful model, Masaki spends his days working to maintain AKH’s lead. His dream is to establish a brand for housing that enables people to stay healthy for longer. He constantly tries to learn more, meeting people in the nursing care industry and reading specialist publications. Masaki feels a deep respon- sibility, knowing that the knowledge he gains will become the knowledge of AKH. October 2019 marks the launch of AKH’s first Village Riche residential development providing care services. Over the past few years, Masaki was busy negotiating with care service contractors regarding the location and contract conditions. At times it seemed that there was no hope of reaching agreement. But he persistently explained his position, taking pains to earn his counterparties’ trust. Masaki’s sincere attitude eventually won them over. “If you say so, Masaki-san, we accept.” He continues to pursue the ideal of the sales rep that inspired him. Low Healthy Care dependency Frail High Care needed Hebel Haus™ unit homes Hebel Village apartments for seniors Village Riche apartments with care services provided October 2019 launch 43 Asahi Kasei Report 2019 Profiles of Employees Pursuing Sustainability ■ Bioprocess business Heightening biotherapeutics safety and contributing to the dissemination of high-quality drugs Shang learned of Asahi Kasei at graduate school in Japan. She was studying hollow-fiber membranes, and her professor was doing joint research with the company. Intrigued by Asahi Kasei’s history of fiber and membrane technology, she felt that it would allow her to apply her specialist knowledge, and joined the company in 2004. Her first assignment was as a technical sales represen- tative for Microza™ hollow-fiber membranes used in water purification and wastewater treatment. She was pleased to be involved in the water treatment business in China, as her work contributed to improving the environment of her mother country. In 2012 Shang was transferred to Asahi Kasei Medical. Though it still involved hollow-fiber membranes, the product was totally different. Planova™ is a virus removal filter used during the manufacturing process of biotherapeutics such as plasma derivatives and biopharmaceuticals. She has served as a technical sales representative in this field since then. Mengxian Shang, Ph.D. Global Sales & Customer Services Dept. Bioprocess Division Asahi Kasei Medical Hired in 2004, specialist of hollow-fiber membrane 44 PlanovaTM virus removal filters For Shang, the important thing is not which field of business to work in. She simply finds it rewarding to be able to contribute to society by utilizing her knowledge of cutting-edge hollow-fiber membrane technology. “Our job is more than just supplying products.” She has thorough discussions with customers in order to fully understand their concerns and propose solutions. For example, when a cus- tomer needs to conduct a virus validation test* for regulatory approval, there can be no mistakes. To ensure a successful test, she joins consultations with the authorities, and organizes seminars on Planova™ technology. Shang’s huge contribution to improving the reliability of blood products with Planova™ in China was recognized with an Asahi Kasei Medical President’s Award. Planova™ still has potential for sales growth in other Asian markets. Now Shang is working to get Planova™ adopted by biotherapeutic manufacturers in Asia, for the provision of safe biotherapeutics to more patients. “We’re fortunate to have you as our contact.” Such words of appreciation from a customer inspire Shang to keep pressing forward every day, helping improve people’s lives around the world. * Viruses are intentionally added in a laboratory replicating actual manufacturing conditions, and the rate of decrease after the virus removal process is measured. Asahi Kasei Report 2019 Financial Section Contents 46 Consolidated Financial Statements 46 Consolidated Balance Sheets 48 Consolidated Statements of Income 49 Consolidated Statements of Comprehensive Income 50 Consolidated Statements of Changes in Net Assets 51 Consolidated Statements of Cash Flows 52 Notes to Consolidated Financial Statements 52 1. Major policies for preparing the consolidated financial statements 52 2. Significant accounting policies 53 3. Changes in significant accounting policies 54 4. Notes to Consolidated Balance Sheets 55 5. Notes to Consolidated Statements of Income 56 6. Notes to Consolidated Statements of Comprehensive Income 57 7. Notes to Consolidated Statements of Changes in Net Assets 58 8. Notes to Consolidated Statements of Cash Flows 59 9. Leases 60 10. Financial instruments 63 11. Marketable securities and investment securities 64 12. Derivative financial instruments 67 13. Provision for retirement benefits 69 14. Taxes 69 15. Business combinations 72 16. Business segment information 75 17. Information on related parties 75 18. Per share information 76 19. Subsequent events 77 20. Borrowings 77 21. Supplementary schedule of asset retirement obligations 77 22. Others 78 Independent Auditor’s Report 45 Asahi Kasei Report 2019Consolidated Financial Statements Consolidated Balance Sheets Asahi Kasei Corporation and Consolidated Subsidiaries March 31, 2019 and 2018 ASSETS Current assets: Cash and deposits (Notes 8 and 10) Notes and accounts receivable—trade (Note 4 (e)) Merchandise and finished goods Work in process Raw materials and supplies Other Allowance for doubtful accounts Total current assets Noncurrent assets: Property, plant and equipment: Buildings and structures (Note 4 (d)) Accumulated depreciation Buildings and structures, net Machinery, equipment and vehicles (Note 4 (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: Millions of yen Thousands of U.S. dollars (Note 1) 2019 2018 2019 ¥ 193,893 ¥ 156,318 $ 1,746,784 350,716 201,699 131,686 93,961 82,900 (3,461) 1,051,393 547,422 (294,536) 252,886 1,439,166 (1,222,201) 216,966 63,889 10,159 (9,423) 736 64,188 160,631 (137,930) 22,701 621,366 341,396 169,948 109,486 80,253 83,956 (2,411) 938,947 517,562 (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 3,159,604 1,817,108 1,186,360 846,495 746,847 (31,180) 9,472,009 4,931,730 (2,653,477) 2,278,252 12,965,459 (11,010,820) 1,954,649 575,577 91,523 (84,892) 6,631 578,270 1,447,126 (1,242,613) 204,514 5,597,892 319,898 210,080 529,978 252,724 161,898 414,621 2,881,964 1,892,613 4,774,577 Investment securities (Notes 4 (a), (b), 10 and 11) 296,330 314,830 2,669,640 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. 19,993 27,508 29,052 (418) 27,793 17,775 31,406 (266) 372,465 1,523,810 391,538 1,368,207 180,117 247,820 261,730 (3,766) 3,355,541 13,728,018 ¥ 2,575,203 ¥ 2,307,154 $ 23,200,027 46 Asahi Kasei Report 2019LIABILITIES AND NET ASSETS Liabilities: Current liabilities: Notes and accounts payable—trade (Notes 4 (e) and 10) Short-term loans payable (Notes 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 Other Total current liabilities Noncurrent liabilities: Bonds payable (Notes 10 and 20) Long-term loans payable (Notes 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 Net defined benefit liability (Note 13) 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 (2019—6,491,383 shares, 2018—6,491,617 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) 2019 2018 2019 ¥ 180,429 97,579 77,000 20,000 164 113,221 24,971 75,836 82 5,342 3,102 2,251 81,877 681,853 20,000 209,878 253 48,299 289 2,929 3,018 168,685 21,143 16,145 490,639 1,172,493 ¥ 171,413 118,018 20,000 — 199 105,787 29,714 70,142 28 3,185 2,730 2,425 65,505 589,146 20,000 143,176 352 36,639 172 3,263 2,699 170,634 20,658 15,198 412,793 1,001,939 $ 1,625,486 879,090 693,694 180,180 1,477 1,020,009 224,964 683,207 739 48,126 27,946 20,279 737,631 6,142,820 180,180 1,890,793 2,279 435,126 2,604 26,387 27,189 1,519,685 190,477 145,450 4,420,171 10,563,000 103,389 79,708 1,077,586 (3,936) 103,389 79,440 981,934 (3,930) 931,432 718,090 9,707,982 (35,459) 1,256,747 1,160,833 11,322,045 101,971 (40) 42,020 (19,213) 124,738 21,225 1,402,710 121,128 92 28,676 (23,343) 126,553 17,827 1,305,214 918,658 (360) 378,559 (173,090) 1,123,766 191,216 12,637,027 ¥2,575,203 ¥2,307,154 $23,200,027 47 Asahi Kasei Report 2019Consolidated Statements of Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2019 and 2018 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)) 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 2019 ¥2,170,403 1,481,855 688,548 478,960 209,587 2018 ¥2,042,216 1,393,111 649,105 450,630 198,475 Thousands of U.S. dollars (Note 1) 2019 $19,553,180 13,350,045 6,203,135 4,314,955 1,888,171 3,094 6,060 12,112 4,238 25,504 4,371 2,686 8,058 15,115 219,976 11,580 655 12,235 173 6,630 11,090 3,921 21,814 210,397 63,730 (3,148) 60,582 149,815 2,303 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 27,874 54,595 109,117 38,180 229,766 39,378 24,198 72,595 136,171 1,981,766 104,324 5,901 110,225 1,559 59,730 99,910 35,324 196,523 1,895,468 574,144 (28,360) 545,784 1,349,685 20,748 ¥ 147,512 ¥ 170,248 $ 1,328,937 48 Asahi Kasei Report 2019Consolidated Statements of Comprehensive Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2019 and 2018 Net income Other comprehensive income: Net (decrease) increase in unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income (Note 6) Comprehensive income Comprehensive income attributable to: Owners of the parent Non-controlling interests The accompanying notes are an integral part of these statements. Millions of yen 2019 ¥149,815 2018 ¥172,190 Thousands of U.S. dollars (Note 1) 2019 $1,349,685 (19,058) (132) 12,464 4,311 1,297 (1,119) 7,651 37 (12,252) 9,735 356 5,528 (171,694) (1,189) 112,288 38,838 11,685 (10,081) ¥148,696 ¥177,717 $1,339,604 ¥146,339 2,357 ¥175,557 2,160 $1,318,369 21,234 49 Asahi Kasei Report 2019Consolidated Statements of Changes in Net Assets Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2019 and 2018 Shareholders’ equity Accumulated other comprehensive income Millions of yen Capital stock ¥103,389 Capital surplus ¥79,440 Retained earnings (Note 7 (b)) ¥ 981,934 Total shareholders’ equity Treasury stock ¥(3,930) ¥1,160,833 Net unrealized gain on other securities ¥121,128 Deferred gains or losses on hedges ¥ 92 Foreign currency translation adjustment ¥28,676 Remeasure- ments of defined benefit plans ¥(23,343) Total accumulated other comprehensive income ¥126,553 Non- controlling interests ¥17,827 Total net assets ¥1,305,214 (51,674) 147,512 (187) 6 262 (40) 34 (51,674) 147,512 (40) 40 (187) 262 (51,674) 147,512 (40) 40 (187) 262 (19,157) (132) 13,344 4,130 (1,815) 3,398 1,582 — ¥103,389 268 ¥79,708 95,652 ¥1,077,586 (6) 95,914 ¥(3,936) ¥1,256,747 (19,157) ¥101,971 (132) ¥ (40) 13,344 ¥42,020 4,130 ¥(19,213) (1,815) ¥124,738 3,398 ¥21,225 97,496 ¥1,402,710 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 (39,106) 170,248 259 1 (4) (688) 1 (39,106) 170,248 (688) 2 259 (4) (39,106) 170,248 (688) 2 259 (4) 7,653 37 (12,155) 9,797 5,331 1,057 6,388 — ¥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 Shareholders’ equity Accumulated other comprehensive income Thousands of U.S. dollars (Note 1) Capital stock $931,432 Capital surplus $715,676 Retained earnings (Note 7 (b)) $8,846,252 Total shareholders’ equity Treasury stock $(35,405) $10,457,955 Net unrealized gain on other securities $1,091,243 Deferred gains or losses on hedges $ 829 Foreign currency translation adjustment $258,342 Remeasure- ments of defined benefit plans $(210,297) Total accumulated other comprehensive income $1,140,117 Non- controlling interests $160,604 $11,758,685 Total net assets (465,532) 1,328,937 (1,685) 54 2,360 (360) 306 (465,532) 1,328,937 (360) 360 (1,685) 2,360 (465,532) 1,328,937 (360) 360 (1,685) 2,360 — $931,432 2,414 $718,090 861,730 $9,707,982 (54) 864,090 $(35,459) $11,322,045 (172,586) $ 918,658 (1,189) $ (360) 120,216 $378,559 37,207 $(173,090) (16,351) $1,123,766 30,613 878,342 $191,216 $12,637,027 (172,586) (1,189) 120,216 37,207 (16,351) 30,613 14,252 Balance at March 31, 2018 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 Capital increase of consolidated subsidiaries Net changes of items other than shareholders’ equity Total changes of items during the period Balance at March 31, 2019 Balance at March 31, 2017 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 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, 2018 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 Capital increase of consolidated subsidiaries Net changes of items other than shareholders’ equity Total changes of items during the period Balance at March 31, 2019 The accompanying notes are an integral part of these statements. 50 Asahi Kasei Report 2019Consolidated Statements of Cash Flows Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2019 and 2018 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 Increase (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 of affiliates Gain on sales of investment securities Loss on valuation of investment securities Gain on sale of property, plant and equipment Loss on disposal of noncurrent assets Decrease (increase) in notes and accounts receivable—trade Increase in inventories (Decrease) increase in notes and accounts payable—trade Increase in accrued expenses Increase (decrease) in advances received Other, net Subtotal Interest and dividend income received Interest expense paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities: Payments into time deposits Proceeds from withdrawal of time deposits Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of intangible assets Purchase of investment securities Proceeds from sales of investment securities Purchase of shares in subsidiaries resulting in change in scope of consolidation Payments for transfer of business Payments of loans receivable Collection of loans receivable Other, net Net cash used in investing activities Cash flows from financing activities: Net decrease in short-term loans payable Increase (decrease) in commercial paper Proceeds from long-term loans payable Repayment of long-term loans payable Proceeds from issuance of bonds 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 Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation Other, net Net cash provided by (used in) financing activities Effect of exchange rate change on cash and cash equivalents Net increase 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) 2019 2018 2019 ¥ 210,397 84,556 11,090 19,490 (159) 170 1,823 364 145 — (4,287) (9,154) 4,371 (12,112) (11,580) 173 (655) 6,630 3,942 (57,968) (776) 5,859 5,266 15,328 272,914 11,247 (4,412) (67,687) 212,062 (13,812) 7,880 (114,718) 652 (10,136) (2,624) 17,030 (93,487) (2,764) (5,092) 18,813 (659) (198,917) (36,840) 57,000 85,492 (53,833) 20,000 — (237) (40) 40 (51,674) (1,155) (1,148) (217) 17,388 543 31,077 148,596 846 ¥ 180,520 ¥ 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) 4,247 144,077 272 ¥ 148,596 $ 1,895,468 761,766 99,910 175,586 (1,432) 1,532 16,423 3,279 1,306 — (38,622) (82,468) 39,378 (109,117) (104,324) 1,559 (5,901) 59,730 35,514 (522,234) (6,991) 52,784 47,441 138,090 2,458,685 101,324 (39,748) (609,793) 1,910,468 (124,432) 70,991 (1,033,495) 5,874 (91,315) (23,640) 153,423 (842,225) (24,901) (45,874) 169,486 (5,937) (1,792,045) (331,892) 513,514 770,198 (484,982) 180,180 — (2,135) (360) 360 (465,532) (10,405) (10,342) (1,955) 156,649 4,892 279,973 1,338,703 7,622 $ 1,626,306 51 Asahi Kasei Report 2019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 account- ing 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 statements are a translation of those filed with the prime minister of Japan and incorporate certain modifications to enhance foreign readers’ understanding 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 ¥111.00 = US$1 prevailing on March 31, 2019, has been used. Consolidation and investments in affiliated companies The consolidated financial statements consist of the accounts of the parent company and 203 subsidiaries (171 subsidiaries at March 31, 2018, hereinafter collectively referred to as the “Company”) which, 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 dwell- ings 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 straight-line method, at rates based on estimated useful lives of the assets, principally ranging from 7 to 60 years for buildings and from 2 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 recog- nized as allowance for doubtful accounts. ii) Provision for periodic repairs The portion of foreseeable periodic repair expenses deemed to correspond to normal wear and tear of plant and equipment as of the with minor exceptions due to immateriality, are all majority or wholly owned 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). 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 immaterial- ity, using the equity method of accounting. There were 53 such unconsolidated subsidiaries and 20% to 50% owned companies to which the equity method is applied at March 31, 2019 (54 at March 31, 2018), 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 combina- tions 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. closing date of the fiscal year is recognized as provision for periodic repairs. iii) Provision for product warranties Estimates of product warranty expenses based on historical rates are recognized as provision for product warranties. iv) Provision for removal cost of property, plant and equipment Provision for removal cost of property, plant and equipment is recorded based on estimated future removal cost of property, plant and equipment at the end of each fiscal year. v) Provision for 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 the closing date of the fiscal year. (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 remaining 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 simplified 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. 52 Asahi Kasei Report 2019(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 esti- mated 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, 2019 and 2018, 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, 3. Changes in significant accounting policies except for 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 dif- ferences 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. (a) Accounting Standards issued but not yet applied (b) Changes in accounting policy difficult to distinguish from i) Accounting Standard for Business Combinations and Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures The Accounting Standards Board of Japan (ASBJ) issued ASBJ Guidance No. 21 “Accounting Standard for Business Combinations” and ASBJ Guidance No. 10 “Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures.” The accounting treatment of contingent returnable considerations was clarified. The Company will apply the standard and guidance for business combinations performed after the begin- ning of the fiscal year ending March 31, 2020. 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 performance 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. changes in accounting estimates Change in method of depreciation of property, plant and equipment Where Asahi Kasei and its subsidiaries in Japan previously had primar- ily applied the declining-balance method for depreciation of property, plant and equipment (except for lease assets), this was changed to the straight-line method from the fiscal year ended March 31, 2019. The Asahi Kasei Group has continued to acquire overseas companies in recent years, and since overseas subsidiaries apply the straight-line method for depreciation of property, plant and equip- ment, there is an increase in the proportion of property, plant and equipment depreciated by the straight-line method. Furthermore, the Asahi Kasei Group is currently advancing investments to expand businesses with competitive superiority, as well as investments for modification and rationalization, based on the “Cs for Tomorrow 2018” three-year strategic management initiative. Large-scale investments in domestic manufacturing plants were implemented, especially in the Material sector, during the fiscal year ended March 31, 2019, the final fiscal year of the three-year period. As such expansions of manufacturing plants are successively starting operations beginning from the fiscal year ended March 31, 2019, the situation of domestic capital expenditure is changing. This changing situation surrounding property, plant and equipment presented an opportunity to reconsider the method of depreciation. Long-term and stable operation of the property, plant and equipment of Asahi Kasei and its subsidiaries in Japan is expected to contribute to the achievement of stable earnings for Asahi Kasei and its subsidiaries in Japan. Therefore, it was determined that adoption of the straight-line method of depreciation of property, plant and equipment in Japan as well would not only be a cost allocation method more accurately reflecting the state of use of property, plant and equipment, but also more appropriate for performance manage- ment of the Asahi Kasei Group. 53 Asahi Kasei Report 2019As a result, operating income increased by ¥9,727 million (US$87,631 thousand), and ordinary income and income before income taxes increased respectively by ¥9,760 million (US$87,928 thousand) in the fiscal year ended March 31, 2019. assets and deferred tax liabilities of ¥8,983 million under noncurrent liabilities are included in the ¥17,775 million shown as deferred tax assets under investments and other assets, while deferred tax liabilities are shown as ¥36,639 million. (c) Changes in presentation i) Application of Partial Amendments to Accounting Standard for Tax Effect Accounting “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28) issued by the Accounting Standards Board of Japan is applied from the fiscal year ended March 31, 2019. Accordingly, all deferred tax assets are shown under investments and other assets, and all deferred tax liabilities are shown under noncurrent liabilities. For the consolidated balance sheets for the fiscal year ended March 31, 2018, deferred tax assets of ¥20,032 million under current ii) Consolidated balance sheets Asset retirement obligations, which were reported separately under current liabilities and noncurrent liabilities for the fiscal year ended March 31, 2018, are included in other from the fiscal year ended March 31, 2019, due to diminished materiality. Consolidated balance sheets for the fiscal year ended March 31, 2018, are restated to reflect this change. The consolidated balance sheets for the fiscal year ended March 31, 2018 have been reclassified accordingly, resulting in asset retirement obligations of ¥557 million under current liabilities being included in other under current liabilities, and asset retirement obligations of ¥3,282 million under noncurrent liabilities being included in other under noncurrent liabilities. 4. Notes to Consolidated Balance Sheets (a) Investment securities Among investment securities, shares of unconsolidated subsidiaries and affiliates as of March 31, 2019 and 2018, amounted to ¥98,357 million (US$886,099 thousand) and ¥83,487 million, respectively. Included in those amounts are investments in joint ventures of ¥52,095 million (US$469,324 thousand) and ¥43,168 million, respectively. (b) Pledged assets and secured debt Investment securities pledged to suppliers as transaction guarantees at March 31, 2019 and 2018, were ¥65 million (US$586 thousand) and ¥72 million, respectively. (c) Contingent liabilities Contingent liabilities at March 31, 2019 and 2018, arising in the ordinary course of business were as follows: Loans guaranteed Total Millions of yen Thousands of U.S. dollars 2019 ¥38,736 ¥38,736 2018 ¥39,457 ¥39,457 2019 $348,973 $348,973 (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, 2019 and 2018, were ¥9,792 million (US$88,216 thousand) and ¥9,999 million, respectively. The breakdown of reduced-value entries as of March 31, 2019 and 2018, was as follows: Buildings and structures Machinery, equipment and vehicles Land Other Total Millions of yen Thousands of U.S. dollars 2019 ¥3,324 6,156 167 145 ¥9,792 2018 ¥3,320 6,366 167 146 ¥9,999 2019 $29,946 55,459 1,505 1,306 $88,216 (e) Notes maturing on March 31, 2019 Although financial institutions in Japan were closed on March 31, 2019, and notes maturing on that date were actually settled on the following business day, April 1, 2019, those were accounted for as if settled on March 31, 2019. The breakdown of those notes at March 31, 2019 was as follows: Notes and accounts receivable—trade Notes and accounts payable—trade Millions of yen Thousands of U.S. dollars 2019 ¥2,799 1,273 2018 ¥2,501 1,301 2019 $25,216 11,468 54 Asahi Kasei Report 2019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, 2019 and 2018, were as follows: Salaries and benefits Research and development* Freight and storage Millions of yen Thousands of U.S. dollars 2019 ¥186,552 62,924 41,353 2018 ¥174,659 61,998 38,568 2019 $1,680,649 566,883 372,550 * The aggregate amounts of research and development expenses included in manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2019 and 2018, were ¥90,124 million (US$811,928 thousand) and ¥85,695 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, 2019 and 2018, were as follows: Millions of yen Thousands of U.S. dollars 2019 ¥535 2018 ¥(224) 2019 $4,820 (c) Gain on sales of noncurrent assets Major components of gain on sales of noncurrent assets for the years ended March 31, 2019 and 2018, were as follows: Land Machinery Other Millions of yen Thousands of U.S. dollars 2019 ¥497 8 150 2018 ¥466 48 20 2019 $4,477 72 1,351 (d) Loss on disposal of noncurrent assets Loss on disposal of noncurrent assets for the years ended March 31, 2019 and 2018, 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. (e) Impairment loss Major components of impairment losses for the years ended March 31, 2019 and 2018, were as follows: Use Goodwill related to new electronic device business Asset class Location 2019 2018 2019 Item on the Consolidated Statements of Income Goodwill — ¥ — ¥997 $ — Impairment loss Millions of yen Thousands of U.S. dollars Facility for storage of waste Buildings, etc. Equipment for dry-heat treatment of nonwovens Buildings, etc. Kawasaki Ward Kawasaki, Kanagawa, etc. Nobeoka, Miyazaki, etc. Others Buildings, etc. Moriyama, Shiga, etc. — — — Production facility for pharmaceuticals business Production facility for battery materials Production facility for synthetic fibers Production facility for synthetic resin Production facility for artificial kidneys and therapeutic apheresis devices Others Goodwill and Other Intangible assets Machinery and equipment, etc. Machinery and equipment, etc. Buildings, etc. Machinery and equipment, etc. Construction in progress, etc. — 6,657 Cheongju, Korea 2,966 Nordrhein-Westfalen, Federal Republic of Germany Kawasaki Ward Kawasaki, Kanagawa Nobeoka, Miyazaki Fuji, Shizuoka, etc. 947 468 170 381 557 284 381 — — — — — — — Impairment loss — Impairment loss — Impairment loss and business structure improvement expenses 59,973 Impairment loss 26,721 Impairment loss 8,532 Impairment loss 4,216 Business structure improvement expenses 1,532 Impairment loss 3,432 Impairment loss and business structure improvement expenses 55 Asahi Kasei Report 2019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 and other intangible assets related to production facility for pharmaceuticals business was reduced to the recov- erable amount due to a delay in development. The book value of production facility for synthetic fibers and production facility for synthetic resin was reduced to the recoverable amount due to diminished profitability. 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, 2019 and 2018. The book value of production facility for battery materials was reduced to zero due to a decision to dispose of certain facilities for productivity improvement. The book value of production facility for artificial kidneys and therapeutic apheresis devices was also reduced to zero due to the disappearance of prospects for future use. Among the extraordinary losses under Others, ¥31 million (US$279 thousand) and ¥62 million were recorded under business structure improvement expenses for the years ended March 2019 and 2018, respectively. (f) Business structure improvement expenses Major components of business structure improvement expenses for the years ended March 31, 2019 and 2018, were as follows: Impairment of fixed assets Additional payment of retirement benefits due to application of early retirement, etc. Loss on disposal and devaluation of inventory and others Total Millions of yen Thousands of U.S. dollars 2019 ¥ 499 692 2,730 ¥3,921 2018 ¥ 62 — 1,398 ¥1,460 2019 $ 4,495 6,234 24,595 $35,324 6. Notes to Consolidated Statements of Comprehensive Income Recycling adjustment and tax effects on other comprehensive income for the years ended March 31, 2019 and 2018, were as follows: Millions of yen Thousands of U.S. dollars 2019 2018 2019 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 56 ¥(15,870) (11,554) (27,423) 8,365 (19,058) ¥ 26,084 (15,068) 11,016 (3,364) 7,651 (343) 218 (125) (7) (132) 12,464 12,464 — 12,464 (2,214) 8,453 6,238 (1,927) 4,311 1,297 0 1,297 ¥ (1,119) 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 $(142,973) (104,090) (247,054) 75,360 (171,694) (3,090) 1,964 (1,126) (63) (1,189) 112,288 112,288 — 112,288 (19,946) 76,153 56,198 (17,360) 38,838 11,685 0 11,685 $ (10,081) Asahi Kasei Report 20197. Notes to Consolidated Statements of Changes in Net Assets For the year ended March 31, 2019 (a) Class and total number of issued and outstanding shares and treasury stock Number of shares as of March 31, 2018 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, 2019 Thousands of shares Issued and outstanding shares Common stock Total Treasury stock Common stock (Notes 1, 2 and 3) Total 1,402,616 1,402,616 6,492 6,492 — — 31 31 — — 32 32 1,402,616 1,402,616 6,491 6,491 Notes: 1. The increase of 31 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 32 thousand shares in common stock of treasury stock was primarily attributable to the disposal of 22 thousand shares by the trust for granting shares to Directors, etc., and the sale of 10 thousand shares in quantities of less than one share unit. 3. The number of shares of treasury stock as of March 31, 2019, includes 442 thousand shares held by the trust for granting shares to Directors, etc. (b) Dividends i) Cash dividends paid 1) The following was resolved by the Board of Directors on May 11, 2018. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥27,932 million (US$251,640 thousand) ¥20.00 (US$0.18) March 31, 2018 June 5, 2018 Note: Total dividends includes ¥9 million (US$81 thousand) for shares held by the trust for granting shares to Directors, etc. 2) The following was resolved by the Board of Directors on November 2, 2018. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥23,742 million (US$213,892 thousand) ¥17.00 (US$0.15) September 30, 2018 December 3, 2018 Note: Total dividends includes ¥8 million (US$72 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 10, 2019. Dividends for common stock Total dividends Source of dividends Dividend per share Date of record Payment date ¥23,742 million (US$213,892 thousand) Retained earnings ¥17.00 (US$0.15) March 31, 2019 June 4, 2019 Note: Total dividends includes ¥8 million (US$72 thousand) for shares held by the trust for granting shares to Directors, etc. 57 Asahi Kasei Report 2019 For the year ended March 31, 2018 (a) Class and total number of issued and outstanding shares and treasury stock 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 Issued and outstanding shares Common stock Total Treasury stock Common stock (Notes 1, 2 and 3) Total 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 to 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. (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 ¥14.00 March 31, 2017 June 6, 2017 2) The following was resolved by the Board of Directors on November 7, 2017. Dividends for common stock Total dividends Dividend per share Date of record Payment date ¥19,552 million ¥14.00 September 30, 2017 December 1, 2017 Note: Total dividends includes ¥6 million 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 Retained earnings ¥20.00 March 31, 2018 June 5, 2018 Note: Total dividends includes ¥9 million for shares held by the trust for granting shares to Directors, etc. 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 bal- ance sheets at March 31, 2019 and 2018, was as follows: Cash and deposits Time deposits with deposit term of over 3 months Cash and cash equivalents Millions of yen Thousands of U.S. dollars 2019 ¥193,893 (13,374) ¥180,520 2018 ¥156,318 (7,722) ¥148,596 2019 $1,746,784 (120,486) $1,626,306 58 Asahi Kasei Report 2019 (b) Assets and liabilities of newly consolidated subsidiaries through acquisition of shares Assets and liabilities of acquired companies (Senseair AB and 4 consolidated subsidiaries) and net cash outflow for such acquisition is as follows: Thousands of U.S. dollars Millions of yen Current assets Noncurrent assets Goodwill Current liabilities Noncurrent liabilities Acquisition cost of shares Gain on step acquisitions Carrying value of previously held equity interest Cash and cash equivalents Net cash used for acquisition ¥1,296 1,544 4,171 (580) (352) 6,079 (173) (322) (351) 5,233 $11,676 13,910 37,577 (5,225) (3,171) 54,766 (1,559) (2,901) (3,162) 47,144 Assets and liabilities of acquired companies (Sage Automotive Interiors, Inc. and 13 consolidated subsidiaries) and net cash outflow for such acquisition is as follows: Current assets Noncurrent assets Goodwill Current liabilities Noncurrent liabilities Non-controlling interests Acquisition cost of shares Cash and cash equivalents Net cash used for acquisition Millions of yen Thousands of U.S. dollars ¥23,467 59,076 68,171 (55,254) (11,193) (4,363) 79,904 (6,916) 72,988 $211,414 532,216 614,153 (497,784) (100,838) (39,306) 719,856 (62,306) 657,550 Assets and liabilities of acquired companies (Erickson Framing Operations LLC and 4 consolidated subsidiaries) and net cash outflow for such acquisition is as follows: Current assets Noncurrent assets Goodwill Current liabilities Noncurrent liabilities Foreign currency translation adjustment Acquisition cost of shares Cash and cash equivalents Net cash used for acquisition 9. Leases (a) Financing lease transactions Financing lease transactions without title transfer Millions of yen Thousands of U.S. dollars ¥ 3,728 9,137 1,230 (4,240) (38) 233 10,050 (90) 9,959 $ 33,586 82,315 11,081 (38,198) (342) 2,099 90,541 (811) 89,721 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, 2019 and 2018, were as follows: Due within one year Due after one year Total Millions of yen Thousands of U.S. dollars 2019 ¥ 9,442 38,949 ¥48,391 2018 ¥ 8,677 25,987 ¥34,664 2019 $ 85,063 350,892 $435,955 59 Asahi Kasei Report 2019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 insur- ance 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 regula- tions 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, conditions, 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, 2019 and 2018, 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). Millions of yen 2019 Fair value ¥193,893 350,716 14,015 188,070 20,658 767,353 180,429 75,484 77,000 24,971 40,198 230,677 417 9,300 638,475 ¥ 162 Carrying amount ¥193,893 350,716 15,373 188,070 20,650 768,702 180,429 75,484 77,000 24,971 40,000 231,973 417 9,246 639,520 ¥ 162 Difference ¥ — — (1,358) — 8 (1,349) — — — — (198) 1,296 1 (54) 1,045 ¥ — 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 (*) 60 Asahi Kasei Report 2019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 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 Thousands of U.S. dollars 2019 Fair value $1,746,784 3,159,604 126,261 1,694,324 186,108 6,913,090 1,625,486 680,036 693,694 224,964 362,144 2,078,171 3,757 83,784 5,752,027 $ 1,459 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 Carrying amount $1,746,784 3,159,604 138,495 1,694,324 186,036 6,925,243 1,625,486 680,036 693,694 224,964 360,360 2,089,847 3,757 83,297 5,761,441 $ 1,459 Difference ¥ — — 1,118 — 3 1,121 — — — — (420) 2,811 (0) (30) 2,361 ¥ — Difference $ — — (12,234) — 72 (12,153) — — — — (1,784) 11,676 0 (486) 9,414 $ — (*) The amounts represent net amount of assets and liabilities resulting from derivative 2) Bonds payable transactions. 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 receiv- able. 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 spe- cial 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, 2019 and 2018, amounting to ¥22,095 million (US$199,054 thousand) and ¥59,120 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. 61 Asahi Kasei Report 2019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, 2019 and 2018, amounting to ¥89,661 million (US$807,757 thousand) and ¥74,668 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, 2019 and 2018, amounting to ¥3,226 million (US$29,063 thousand) and ¥3,101 million, respectively, fair value is not included in short-term investment securities and investment securi- ties, 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, 2019 and 2018, amounting to ¥11,897 million (US$107,180 thousand) and ¥11,962 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 2019 Due within one year ¥193,893 350,716 4,542 ¥549,151 Due after one year, within five years ¥ — — 15,848 ¥15,848 Due after five years, within ten years ¥ — — 260 ¥260 Due after more than ten years ¥— — — ¥— Millions of yen 2018 Due within one year ¥156,318 341,396 5,431 ¥503,145 Due after one year, within five years ¥ — — 22,676 ¥22,676 Due after five years, within ten years ¥ — — 335 ¥335 Due after more than ten years ¥— — — ¥— Thousands of U.S. dollars 2019 Due within one year $1,746,784 3,159,604 40,919 $4,947,306 Due after one year, within five years $ — — 142,775 $142,775 Due after five years, within ten years $ — — 2,342 $2,342 Due after more than ten years $— — — $— 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: Millions of yen 2019 Short-term loans payable ¥75,484 — — — — — Commercial paper ¥77,000 — — — — — Bonds payable ¥20,000 — — — 20,000 — Long-term loans payable ¥22,095 24,951 55,334 70,668 25,785 33,140 Lease obligations ¥164 141 71 30 10 — Millions of yen 2018 Short-term loans payable ¥58,898 — — — — — Commercial paper ¥20,000 — — — — — Bonds payable ¥ — 20,000 — — — — Long-term loans payable ¥59,120 21,794 23,371 28,981 28,043 40,988 Lease obligations ¥199 162 128 54 8 — Total ¥194,743 25,092 55,405 70,698 45,795 33,140 Total ¥138,217 41,956 23,499 29,034 28,051 40,988 Year ending March 31 2020 2021 2022 2023 2024 2025 and thereafter Year ending March 31 2019 2020 2021 2022 2023 2024 and thereafter 62 Asahi Kasei Report 2019Thousands of U.S. dollars 2019 Year ending March 31 2020 2021 2022 2023 2024 2025 and thereafter Short-term loans payable $680,036 — — — — — Commercial paper $693,694 — — — — — Bonds payable $180,180 — — — 180,180 — Long-term loans payable $199,054 224,784 498,505 636,649 232,297 298,559 Lease obligations $1,477 1,270 640 270 90 — Total $1,754,441 226,054 499,144 636,919 412,568 298,559 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 clas- sified as other securities for which fair values were available at March 31, 2019 and 2018, 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 2019 Cost ¥29,367 29,367 12,563 12,563 ¥41,930 Millions of yen 2018 Cost ¥35,703 35,703 13,240 13,240 ¥48,943 Unrealized gains (losses) ¥148,097 148,097 (1,956) (1,956) ¥146,140 Unrealized gains (losses) ¥173,872 173,872 (1,108) (1,108) ¥172,765 Thousands of U.S. dollars 2019 Cost Unrealized gains (losses) Carrying amount ¥177,464 177,464 10,607 10,607 ¥188,070 Carrying amount ¥209,576 209,576 12,133 12,133 ¥221,708 Carrying amount $1,598,775 1,598,775 $264,568 264,568 $1,334,207 1,334,207 95,559 95,559 $1,694,324 113,180 113,180 $377,748 (17,622) (17,622) $1,316,577 63 Asahi Kasei Report 2019(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, 2019 and 2018, were as follows: Selling amount Gain on sales of securities Loss on sales of securities Millions of yen Thousands of U.S. dollars 2019 ¥16,176 11,580 — 2018 ¥18,088 15,164 — 2019 $145,730 104,324 — (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, 2019, was ¥173 million (US$1,559 thousand), which is for other securities, and for the year ended March 31, 2018, ¥31 million, which is the sum of ¥28 million for equity securities of unconsolidated subsidiaries and affiliates and ¥3 million 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 2019 Amount of contract over 1 year Fair value (*) Profit (loss) from valuation Selling: U.S. dollar Euro Thai baht British pound Chinese yuan Australian dollar Buying: U.S. dollar Euro Thai baht Total ¥40,157 11,379 2,306 45 5 8 4,373 14 4 ¥58,291 ¥— — — — — — — — — ¥— ¥ (9) 88 39 0 (0) 0 (20) (0) 0 ¥ 98 ¥ (9) 88 39 0 (0) 0 (20) (0) 0 ¥ 98 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 British pound Chinese yuan Australian dollar 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 64 Asahi Kasei Report 2019Classification Items Amount of contract Off-market transactions Foreign exchange forward contracts: Thousands of U.S. dollars 2019 Amount of contract over 1 year Fair value (*) Profit (loss) from valuation Selling: U.S. dollar Euro Thai baht British pound Chinese yuan Australian dollar Buying: U.S. dollar Euro Thai baht Total $361,775 102,514 20,775 405 45 72 39,396 126 36 $525,144 $— — — — — — — — — $— $ (81) 793 351 0 (0) 0 (180) (0) 0 $ 883 $ (81) 793 351 0 (0) 0 (180) (0) 0 $ 883 (*) The fair value is provided by counterparty financial institutions. (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: Selling: Millions of yen 2019 Amount of contract over 1 year Fair value (*) U.S. dollar Euro Buying: U.S. dollar Euro Thai baht Swedish krona Total Accounts receivable—trade Accounts receivable—trade Accounts payable—trade Accounts payable—trade Accounts payable—trade Investment securities ¥4,601 687 382 23 — — ¥5,694 ¥44 — — — — — ¥44 ¥56 10 (1) (1) — — ¥64 Classification Items Hedged assets/liabilities Amount of contract Principle-based accounting Foreign exchange forward contracts: Selling: Millions of yen 2018 Amount of contract over 1 year Fair value (*) U.S. dollar Euro Buying: U.S. dollar Euro Thai baht Swedish krona Total Accounts receivable—trade Accounts receivable—trade ¥ 5,966 721 Accounts payable—trade Accounts payable—trade Accounts payable—trade Investment securities 359 — 3 5,198 ¥12,246 ¥— — — — — — ¥— ¥ 180 17 (10) — 0 (186) ¥ 0 65 Asahi Kasei Report 2019Classification Principle-based accounting Items Foreign exchange forward contracts: Hedged assets/liabilities Amount of contract Thousands of U.S. dollars 2019 Amount of contract over 1 year Fair value (*) $505 90 (9) (9) — — $577 Fair value (*) (*) ¥— Selling: U.S. dollar Euro Buying: U.S. dollar Euro Thai baht Swedish krona Total Accounts receivable—trade Accounts receivable—trade $41,450 6,189 Accounts payable—trade Accounts payable—trade Accounts payable—trade Investment securities 3,441 207 — — $51,297 $396 — — — — — $396 (*) The fair value is provided by counterparty financial institutions. ii) Interest-rate swaps, and interest-rate and currency swaps Classification Special treatment for interest-rate swaps Special treatment for interest-rate and currency swaps Items Interest-rate swaps Pay fixed/receive floating Interest-rate and currency swaps U.S. dollar receive floating/ Thai baht pay fixed Total Classification Special treatment for interest-rate swaps Special treatment for interest-rate and currency swaps Items Interest-rate swaps Pay fixed/receive floating Interest-rate and currency swaps U.S. dollar receive floating/ Thai baht pay fixed Total Classification Special treatment for interest-rate swaps Special treatment for interest-rate and currency swaps Items Interest-rate swaps Pay fixed/receive floating Interest-rate and currency swaps U.S. dollar receive floating/ Thai baht pay fixed Total Hedged assets/liabilities Amount of contract Millions of yen 2019 Amount of contract over 1 year Long-term loans payable ¥98,712 ¥78,605 Long-term loans payable — ¥98,712 — ¥78,605 Millions of yen Hedged assets/liabilities Amount of contract 2018 Amount of contract over 1 year Fair value Long-term loans payable ¥139,261 ¥93,633 Long-term loans payable 170 ¥139,431 — ¥93,633 (*) (*) ¥— Hedged assets/liabilities Amount of contract Thousands of U.S. dollars 2019 Amount of contract over 1 year Fair value Long-term loans payable $889,297 $708,153 (*) Long-term loans payable — $889,297 — $708,153 (*) $— (*) 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 accounting is applied. 66 Asahi Kasei Report 2019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 contribution plans. Additional benefits may be granted to employees depending on the conditions under which termination of employ- ment 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, 2019 and 2018, 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 2019 ¥400,855 15,466 728 2,061 (16,451) (198) ¥402,461 2018 ¥398,132 14,922 695 1,213 (14,620) 513 ¥400,855 2019 $3,611,306 139,333 6,559 18,568 (148,207) (1,784) $3,625,775 Reconciliations of beginning and ending balances of plan assets for the fiscal years ended March 31, 2019 and 2018, 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 2019 ¥230,220 5,737 (387) 7,408 (9,206) 4 ¥233,776 2018 ¥219,765 5,461 4,064 9,513 (8,571) (11) ¥230,220 2019 $2,074,054 51,685 (3,486) 66,739 (82,937) 36 $2,106,090 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, 2019 and 2018, 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 Millions of yen Thousands of U.S. dollars 2019 ¥ 258,381 (233,776) 24,605 144,080 ¥ 168,685 2018 ¥ 257,710 (230,220) 27,489 143,145 ¥ 170,634 2019 $ 2,327,757 (2,106,090) 221,667 1,298,018 $ 1,519,685 Net defined benefit liability Net of liability and asset that have been recorded in the consolidated balance sheets ¥ 168,685 ¥ 168,685 ¥ 170,634 ¥ 170,634 $ 1,519,685 $ 1,519,685 Periodic retirement benefit expenses for employees and the breakdown of items for the years ended March 31, 2019 and 2018, were as follows: Thousands of U.S. dollars Millions of yen 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 2019 ¥13,829 728 (5,737) 8,407 82 1,327 ¥18,636 2018 ¥13,301 695 (5,461) 11,196 141 636 ¥20,509 2019 $124,586 6,559 (51,685) 75,739 739 11,955 $167,892 67 Asahi Kasei Report 2019The components of other comprehensive income on defined benefit plans for the fiscal years ended March 31, 2019 and 2018, were as follows: Thousands of U.S. dollars Millions of yen Prior service costs Actuarial gains/losses Total 2019 ¥ 82 6,156 ¥6,238 2018 ¥ 141 14,004 ¥14,145 2019 $ 739 55,459 $56,198 Accumulated other comprehensive income on defined benefit plans at March 31, 2019 and 2018, was as follows: Unrecognized prior service costs Unrecognized actuarial gains/losses Total Millions of yen Thousands of U.S. dollars 2019 ¥ (4) 27,623 ¥27,619 2018 ¥ 78 33,779 ¥33,857 2019 $ (36) 248,856 $248,820 Share by major classifications for plan assets at March 31, 2019 and 2018, was as follows: Bonds Stock Alternative investments Life insurance Cash and deposits Other Total 2019 38% 25 17 13 5 2 100% 2018 37% 25 16 13 8 2 100% Note: Alternative investments include mainly investments in real estate, private equity 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, 2019 and 2018, were as follows: Discount rate The long-term rate of expected return on plan assets Expected rate of increase in salary 2019 Mainly 0.1% Mainly 2.5% 2.0–6.5% 2018 Mainly 0.1% Mainly 2.5% 2.0–6.5% Required payments to defined contribution plans at March 31, 2019, amounted to ¥2,738 million (US$24,667 thousand), and at March 31, 2018, amounted to ¥1,807 million. 68 Asahi Kasei Report 2019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, 2019 and 2018, 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 2019 2018 2019 ¥ 51,489 7,857 6,990 4,368 3,171 3,143 25,371 102,390 (13,218) 89,172 (44,241) (37,071) (8,305) (8,958) (11,387) (109,963) ¥ (20,791) ¥ 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) $ 463,865 70,784 62,973 39,351 28,568 28,315 228,568 922,432 (119,081) 803,351 (398,568) (333,973) (74,820) (80,703) (102,586) (990,658) $(187,306) Reconciliation of the differences between the statutory tax rate and the effective income tax rate for the years ended March 31, 2019 and 2018, 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 15. Business combinations 2019 30.6% 1.0 (2.8) 2.8 (1.8) 0.6 (1.7) — (0.0) 28.8% 2018 30.9% 0.3 (2.9) 2.5 (1.9) 0.4 (0.4) (7.9) 0.1 21.1% Business combinations accounted for by the purchase method were as follows: (a) Acquisition of Senseair AB i) Outline of business combination 1) Name and nature of the businesses of counterparty Name of counterparty: Senseair AB Nature of the businesses: 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) The 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 69 Asahi Kasei Report 20196) Acquired voting right Voting right before the acquisition: 8.1% Additional voting right acquired as of the acquisition date: 91.9% Voting right after the acquisition: 100% 7) Basic means of materializing the acquisition Stock purchase for cash as consideration by a consolidated subsidiary ii) The period of acquiree’s results included in the consolidated financial statements From April 4, 2018, to March 31, 2019 iii) Cost of acquisition and details Stock purchase price Purchase price Millions of yen Thousands of U.S. dollars ¥6,079 ¥6,079 $54,766 $54,766 All stocks held as of the acquisition date are remeasured to their fair value at acquisition date. iv) Major acquisition related costs Advisory fees and others: ¥295 million (US$2,658 thousand) v) Difference between cost of acquisition and total of individual transactions leading to the acquisition ¥173 million (US$1,559 thousand) vi) Amount of goodwill, measurement principle, amortization method, and useful life 1) Amount of goodwill ¥4,171 million (US$37,577 thousand) 2) Measurement principle Goodwill is measured as the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. 3) Amortization method and useful life Straight-line method over 20 years vii) Details of assets acquired and liabilities assumed as of the acquisition date Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Millions of yen Thousands of U.S. dollars ¥1,296 1,544 ¥2,840 ¥ 580 352 ¥ 932 $11,676 13,910 $25,586 $ 5,225 3,171 $ 8,396 viii) Amount of identifiable intangible assets other than goodwill, its details and major weighted average useful life 1) Purchase price allocated to intangible assets and its major items Customer-related assets Technology-related assets 2) Major weighted average useful life Customer-related assets Technology-related assets Total Millions of yen Thousands of U.S. dollars $6,243 6,135 ¥693 681 20 years 10 years 15 years ix) Pro forma effects on the consolidated statements of income assuming the business combination had occurred at the beginning of the fiscal year, and its measurement Information is omitted due to immateriality. This note is not audited. (b) Acquisition of Sage Automotive Interiors, Inc. i) Outline of business combination 1) Name and nature of the businesses of counterparty Name of counterparty: Sage Automotive Interiors, Inc. Nature of the businesses: Development, manufacture, and sale of fabrics as automotive interior material 2) Main reasons for the acquisition • 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 combi- nation with various Asahi Kasei products and technologies such as fibers, plastics, and sensors • Utilizing Sage’s sales, manufacturing, and marketing bases as management infrastructure and resources for the global expansion of Asahi Kasei’s operations 3) The acquisition date September 27, 2018 4) Statutory form of business combination Stock purchase for cash as consideration 70 Asahi Kasei Report 20195) Name of company after transaction Sage Automotive Interiors, Inc. 6) Acquired voting right Voting right before the acquisition: 0% Voting right after the acquisition: 100% 7) Basic means of materializing the acquisition Stock purchase for cash as consideration by a special purpose subsidiary of the Company ii) The period of acquiree’s results included in the consolidated financial statements From October 1, 2018, to March 31, 2019 iii) Cost of acquisition and details Stock purchase price Purchase price iv) Major acquisition related costs Advisory fees and others: ¥1,430 million (US$12,883 thousand) Millions of yen Thousands of U.S. dollars ¥79,904 ¥79,904 $719,856 $719,856 v) Amount of goodwill, measurement principle, amortization method, and useful life 1) Amount of goodwill ¥68,171 million (US$614,153 thousand) 2) Measurement principle Goodwill is measured as the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. 3) Amortization method and useful life Straight-line method over 20 years vi) Details of assets acquired and liabilities assumed as of the acquisition date Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Millions of yen Thousands of U.S. dollars ¥23,467 59,076 ¥82,543 ¥55,254 11,193 ¥66,447 $211,414 532,216 $743,631 $497,784 100,838 $598,622 vii) Amount of identifiable intangible assets other than goodwill, its details and major weighted average useful life 1) Purchase price allocated to intangible assets and its major items Millions of yen Thousands of U.S. dollars Customer-related assets Trademarks 2) Major weighted average useful life Customer-related assets Trademarks Total $413,387 26,604 ¥45,886 2,953 19 years 20 years 19 years viii) Pro forma effects on the consolidated statements of income assuming the business combination had occurred at the beginning of the fiscal year, and its measurement Information is omitted due to immateriality. This note is not audited. (c) Acquisition of Erickson Framing Operations LLC i) Outline of business combination 1) Name and nature of the businesses of counterparty Name of counterparty: Erickson Framing Operations LLC Nature of the businesses: Manufacture, sales, and installation of panelized walls and trusses, along with doors and trim in Arizona, California, and Nevada 2) Main reasons for the acquisition A leading US provider of building components including panelized walls and roof trusses for wooden houses, Erickson serves homebuilders by supplying and installing the building components for more than 3,000 houses per year. Whereas houses in the US are generally built by fabricating and assembling at the construction site, Erickson’s panelized framing systems streamline the construction process by pre-fabricating components at a factory to be shipped and erected at the building site. As construction costs in the US continue to climb due to a persistent manpower shortage and rising material prices, there is growing demand for pre-fabricated building systems which enable cost reduction with less labor and shorter construction time. Consolidated subsidiary Asahi Kasei Homes believes that this presents an opportunity to leverage the systemization know-how gained through its business of providing high quality and high value-added Hebel Haus™ order-built unit homes in Japan, leading to further enhancement of Erickson’s pre-fabricated building system in order to create new value for the US housing market. 3) The acquisition date November 30, 2018 4) Statutory form of business combination Membership interests purchase for cash as consideration 71 Asahi Kasei Report 20195) Name of company after transaction Erickson Framing Operations LLC 6) Acquired voting right Voting right before the acquisition: 0% Voting right after the acquisition: 100% 7) Basic means of materializing the acquisition Membership interests purchase for cash as consideration by a consolidated subsidiary ii) The period of acquiree’s results included in the consolidated financial statements From January 1, 2019, to March 31, 2019 iii) Cost of acquisition and details Membership interests purchase price Purchase price iv) Major acquisition related costs Advisory fees and others: ¥281 million (US$2,532 thousand) Millions of yen Thousands of U.S. dollars ¥10,050 ¥10,050 $90,541 $90,541 v) Amount of goodwill, measurement principle, amortization method, and useful life 1) Amount of goodwill ¥1,230 million (US$11,081 thousand) 2) Measurement principle Goodwill is measured as the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. 3) Amortization method and useful life Straight-line method over 20 years vi) Details of assets acquired and liabilities assumed as of the acquisition date Current assets Noncurrent assets Total assets Current liabilities Noncurrent liabilities Total liabilities Millions of yen Thousands of U.S. dollars ¥ 3,728 9,137 ¥12,864 ¥ 4,240 38 ¥ 4,278 $ 33,586 82,315 $115,892 $ 38,198 342 $ 38,541 vii) Amount of identifiable intangible assets other than goodwill, its details and major weighted average useful life 1) Purchase price allocated to intangible assets and its major items Customer-related assets Order backlog 2) Major weighted average useful life Customer-related assets Order backlog Total Millions of yen Thousands of U.S. dollars $61,072 10,252 ¥6,779 1,138 19 years 4 years 17 years viii) Pro forma effects on the consolidated statements of income assuming the business combination had occurred at the beginning of the fiscal year, and its measurement Information is omitted due to immateriality. This note is not audited. 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 manage- ment 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. Main products of the three reportable segments are as follows: Material segment Fibers business The Company manufactures, processes, and sells elastic polyure- thane filament, cupro fiber, nonwoven fabrics, and nylon 66 filament. 72 Chemicals business The Company manufactures, processes, and sells petrochemical products (such as styrene, acrylonitrile, polyethylene, and polysty- rene), performance polymer products (such as synthetic rubber and engineering plastics), and performance material and consumable products (such as coating materials, 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 products (such as lithium-ion battery separator and lead-acid battery separator) and electronic devices (such as mixed-signal LSIs and Hall elements). Asahi Kasei Report 2019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 diagnos- tic 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. (b) Methods to determine net sales, income or loss, assets, and other items by reportable business segment Profit by reportable business segment is stated on an operating income basis. Intersegment net sales and transfers are based on the values of transactions undertaken between third parties. (c) Information concerning net sales, income or loss, assets, and other items for each reportable segment Sales: External customers Intersegment Total Operating income (Note 2) Assets Other items: Millions of yen 2019 Material Homes Health Care Subtotal Others (Note 1) Total ¥1,176,217 5,066 1,181,283 129,565 1,492,277 ¥659,754 207 659,961 68,161 523,692 ¥316,166 34 316,201 41,825 472,846 ¥2,152,138 5,307 2,157,445 239,551 2,488,815 ¥18,265 31,359 49,624 2,411 84,873 ¥2,170,403 36,666 2,207,069 241,962 2,573,688 Depreciation and amortization (Note 3) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets 50,471 10,700 9,069 15 18,042 8,774 77,582 19,490 1,375 — 78,957 19,490 55,424 11,671 226 67,321 19,424 86,745 86,640 17,613 17,306 121,558 1,624 123,182 Notes: 1. The “Others” category includes plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. 2. As stated in Note 3. (b) “Changes in accounting policy difficult to distinguish from changes in accounting estimates” where Asahi Kasei and its subsidiaries in Japan had previously primarily applied the declining-balance method for depreciation of property, plant and equipment (except for lease assets), this was changed to the straight-line method from the year ended March 31, 2019. Due to this change, operating income was ¥7,111 million (US$64,063 thousand) higher in Material, ¥1,005 million (US$9,054 thousand) higher in Homes, ¥674 million (US$6,072 thousand) higher in Health Care and ¥937 million (US$8,441 thousand) higher in Others segment. 3. Amortization of goodwill is not included. 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. 73 Asahi Kasei Report 2019 Sales: External customers Intersegment Total Operating income (Note 2) Assets Other items: Thousands of U.S. dollars 2019 Material Homes Health Care Subtotal Others (Note 1) Total $10,596,550 $5,943,730 1,865 5,945,595 614,063 4,717,946 45,640 10,642,189 1,167,252 13,443,937 $2,848,342 $19,388,631 47,811 19,436,441 2,158,117 22,421,757 306 2,848,658 376,802 4,259,874 $164,550 282,514 447,063 21,721 764,622 $19,553,180 330,324 19,883,505 2,179,838 23,186,378 Depreciation and amortization (Note 3) Amortization of goodwill Investments in affiliates accounted for using equity method Increase in property, plant and equipment, and intangible assets 454,694 96,396 81,703 135 162,541 79,045 698,937 175,586 12,387 — 711,324 175,586 499,315 105,144 2,036 606,495 174,991 781,486 780,541 158,676 155,910 1,095,117 14,631 1,109,748 Notes: 1. The “Others” category includes plant engineering and environmental engineering, research and analysis, and employment agency/staffing operations. 2. As stated in Note 3. (b) “Changes in accounting policy difficult to distinguish from changes in accounting estimates” where Asahi Kasei and its subsidiaries in Japan had previously primarily applied the declining-balance method for depreciation of property, plant and equipment (except for lease assets), this was changed to the straight-line method from the year ended March 31, 2019. Due to this change, operating income was ¥7,111 million (US$64,063 thousand) higher in Material, ¥1,005 million (US$9,054 thousand) higher in Homes, ¥674 million (US$6,072 thousand) higher in Health Care and ¥937 million (US$8,441 thousand) higher in Others segment. 3. Amortization of goodwill is not included. (d) Reconciliation of differences between total amounts of reportable segments and amounts appearing in the consolidated financial statements (adjustment of difference) Sales Total of reporting segments Net sales in “Others” category Elimination of intersegment transactions Net sales on consolidated statements of income Operating income Total of reporting segments Operating income in “Others” category Elimination of intersegment transactions Corporate expenses, etc.* Operating income on consolidated statements of income Millions of yen Thousands of U.S. dollars 2019 ¥2,157,445 49,624 (36,666) ¥2,170,403 2018 ¥2,030,052 44,807 (32,643) ¥2,042,216 2019 $19,436,441 447,063 (330,324) $19,553,180 Millions of yen Thousands of U.S. dollars 2019 ¥239,551 2,411 (133) (32,241) ¥209,587 2018 ¥225,746 1,870 381 (29,522) ¥198,475 2019 $2,158,117 21,721 (1,198) (290,459) $1,888,171 * 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 2019 ¥2,488,815 84,873 (425,141) 426,656 ¥2,575,203 2018 ¥2,266,390 78,427 (512,163) 474,499 ¥2,307,154 2019 $22,421,757 764,622 (3,830,099) 3,843,748 $23,200,027 * 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 2019 2018 2019 2019 2018 2019 2019 2018 2019 2019 2018 2019 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 ¥ 77,582 19,490 ¥84,848 17,782 $ 698,937 175,586 ¥ 1,375 — ¥ 1,665 266 $ 12,387 — ¥ 5,599 — ¥8,901 — $ 50,441 — ¥ 84,556 19,490 ¥ 95,415 18,048 $ 761,766 175,586 67,321 57,788 606,495 19,424 17,172 174,991 — — — 86,745 74,961 781,486 121,558 90,431 1,095,117 1,624 1,226 14,631 13,024 9,673 117,333 136,206 101,331 1,227,081 Notes: 1. Adjustments include elimination of intersegment transactions and corporate expenses, etc. 2. Amortization of goodwill is not included. 74 Asahi Kasei Report 2019 (e) Related Information i) Information on products and services Please refer to (c) Information concerning net sales, income or loss, assets, and other items for each reportable segment. ii) Geographic information 1) Net sales Millions of yen 2019 2018 Thousands of U.S. dollars 2019 United States Other regions United States Other regions Japan China ¥1,311,136 ¥227,993 ¥211,504 ¥419,770 ¥2,170,403 ¥1,274,548 ¥191,765 ¥183,425 ¥392,477 ¥2,042,216 $11,812,036 $2,053,991 $1,905,441 $3,781,712 $19,553,180 Japan Japan China China Total Total Total United States Other regions 2) Property, plant and equipment Millions of yen 2019 2018 Thousands of U.S. dollars 2019 Japan ¥428,900 United States ¥104,413 Other regions ¥88,053 Total ¥621,366 Japan ¥384,076 United States ¥85,003 Other regions ¥92,969 Total ¥562,048 Japan United States $3,863,964 $940,658 Other regions $793,270 $5,597,892 Total 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. 17. Information on related parties For the year ended March 31, 2019: None For the year ended March 31, 2018: None 18. Per share information Basic and diluted net assets per share and net income per share for the years ended March 31, 2019 and 2018, were as follows: Basic net assets per share Basic net income per share Yen 2019 ¥989.51 105.66 2018 ¥922.11 121.93 U.S. dollars 2019 $8.91 0.95 Note: As the Company had no dilutive securities at March 31, 2019 and 2018, the Company does not disclose diluted net income per share for the years ended March 31, 2019 and 2018. (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) Millions of yen Thousands of U.S. dollars 2019 ¥1,402,710 21,225 (21,225) ¥1,381,485 2018 ¥1,305,214 17,827 (17,827) ¥1,287,387 2019 $12,637,027 191,216 (191,216) $12,445,811 1,396,125 1,396,125 1,396,125 Note: Shares held by the trust for granting shares to Directors, etc., numbering 442 thousand at March 31, 2019, and 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 2019 ¥ 147,512 — ¥ 147,512 1,396,130 2018 ¥ 170,248 — ¥ 170,248 1,396,322 2019 $1,328,937 — $1,328,937 1,396,130 Note: Shares held by the trust for granting shares to Directors, etc., numbering 450 thousand during the year ended March 31, 2019, and 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. 75 Asahi Kasei Report 201919. Subsequent events (a) Repurchase of shares On May 10, 2019, the Board of Directors of Asahi Kasei adopted a resolution for a repurchase of the company’s shares pursuant to Article 459, Paragraph 1, of the Companies Act of Japan as well as Article 37 of the company’s Articles of Incorporation. i) Reason for repurchasing shares To enhance shareholder returns and improve capital efficiency ii) Details of the repurchase 1) Type of shares to be repurchased: Common stock of Asahi Kasei Corporation 2) Number of shares to be repurchased: 12 million shares (maximum) (0.86% of the number of issued shares excluding treasury stock) 3) Total value of shares to be repurchased: ¥10.0 billion (maximum) 4) Repurchase period: From May 30, 2019 to September 30, 2019 5) Methods of repurchase: • Purchase through the Tokyo Stock Exchange Trading Network System ToSTNeT-3 • Purchase on the Tokyo Stock Exchange based on discretionary trading contracts 6) Other: In accordance with the above resolution of the Board of Directors, Asahi Kasei implemented and completed the repurchase of 8,684,300 shares of common stock for ¥10.0 billion on May 31, 2019. (b) Cancellation of shares of treasury stock On May 10, 2019, the Board of Directors of Asahi Kasei adopted a resolution for the cancellation of shares of treasury stock pursuant to Article 178 of the Companies Act, to be implemented as follows. On October 11, 2019, the company implemented and completed the cancellation in accordance with the resolution. i) Reason for cancellation To enhance shareholder returns and improve capital efficiency ii) Details of the cancellation 1) Type of shares to be cancelled: Common stock of Asahi Kasei Corporation 2) Number of shares to be canceled: 8,684,300 shares (0.62% of issued shares prior to cancellation) 3) Date of cancellation: October 11, 2019 (c) Acquisition of Cardiac Science Corporation i) Outline of business combination 1) Name and nature of businesses of counterparty Name of counterparty: Cardiac Science Corporation Nature of businesses: Manufacturing, sale, and development of automated external defibrillators (AEDs) 2) Main reasons for the acquisition This acquisition would allow ZOLL Medical Corporation to broaden its lineup of AED products offering customers more choices and a stronger AED program management infrastructure. 3) The acquisition date August 26, 2019 4) Statutory form of business combination Stock purchase for cash as consideration 5) Name of company after transaction Cardiac Science Corporation 6) Acquired voting right Voting right before the acquisition: 0% Voting right 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 Purchase price Millions of yen Thousands of U.S. dollars ¥29,063 ¥29,063 $261,829 $261,829 iii) Amount of goodwill, measurement principle, amortization method, and useful life 1) Amount of goodwill ¥17,366 million (US$156,450 thousand)* * Based on provisional calculation 2) Measurement principle Goodwill is measured as the excess of the purchase price over the fair value of identifiable assets acquired and liabilities assumed. 3) Amortization method and useful life Not determined at present (d) Issuance of unsecured straight bonds i) On August 30, 2019, Asahi Kasei determined the terms of the eleventh series unsecured straight bonds (with inter- bond pari passu clause) as follows. 1. Total amount of issue: ¥20 billion 2. Interest rate: 0.070% per annum 3. Issue price: ¥100 per face value of ¥100 4. Redemption price: ¥100 per face value of ¥100 5. Maturity date: September 6, 2024 6. Redemption: Bullet 7. Retirement by purchase: The bonds may be repurchased at any time from the day following the payment date except as otherwise specified by the book-entry transfer institution. 8. Interest payment dates: March 6 and September 6 of each year 9. Offering period: August 30, 2019 10. Payment date: September 6, 2019 11. Collateral and guarantee: The bonds are not secured by any col- lateral or guarantee, and there are no particular assets reserved for the payment of these bonds. 12. Fiscal covenants: Negative pledge clause is attached. ii) On August 30, 2019, Asahi Kasei determined the terms of the twelfth series unsecured straight bonds (with inter-bond pari passu clause) as follows. 1. Total amount of issue: ¥20 billion 2. Interest rate: 0.210% per annum 3. Issue price: ¥100 per face value of ¥100 4. Redemption price: ¥100 per face value of ¥100 5. Maturity date: September 6, 2029 6. Redemption: Bullet 7. Retirement by purchase: The bonds may be repurchased at any time from the day following the payment date except as otherwise specified by the book-entry transfer institution. 8. Interest payment dates: March 6 and September 6 of each year 9. Offering period: August 30, 2019 10. Payment date: September 6, 2019 11. Collateral and guarantee: The bonds are not secured by any col- lateral or guarantee, and there are no particular assets reserved for the payment of these bonds. 12. Fiscal covenants: Negative pledge clause is attached. 76 Asahi Kasei Report 201920. Borrowings (a) Bonds payable at March 31, 2019 and 2018, comprised the following: Unsecured 1.46% yen bonds due in 2019 Unsecured 0.10% yen bonds due in 2023 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, 2019, are as follows: Year ending March 31 2020 2021 2022 2023 2024 2025 and thereafter Total Millions of yen Thousands of U.S. dollars 2019 ¥20,000 20,000 ¥40,000 2018 ¥20,000 — ¥20,000 2019 $180,180 180,180 $360,360 Millions of yen Thousands of U.S. dollars ¥20,000 — — — 20,000 — ¥40,000 $180,180 — — — 180,180 — $360,360 (b) Loans payable at March 31, 2019 and 2018, comprised the following: Short-term loans payable with an interest rate of 0.32% Current portion of long-term loans payable with an interest rate of 2.06% Current portion of lease obligations with an interest rate of 1.36% Long-term loans payable (except portion due within one year) with an interest rate of 1.41% Lease obligations (except portion due within one year) with an interest rate of 0.98% Commercial paper (portion due within one year) with an interest rate of (0.00)% Total Notes: 1. Interest rates shown are weighted average interest rates for the balance outstanding at March 31, 2019. Millions of yen Thousands of U.S. dollars 2019 ¥ 75,484 22,095 164 209,878 253 77,000 ¥384,874 2018 ¥ 58,898 59,120 199 143,176 352 20,000 ¥281,746 2019 $ 680,036 199,054 1,477 1,890,793 2,279 693,694 $3,467,333 2. The aggregate annual maturities of long-term loans payable and lease obligations (except portion due within one year) after March 31, 2019, are as follows: Year ending March 31 2021 2022 2023 2024 2025 and thereafter Long-term loans payable Lease obligations Millions of yen Thousands of U.S. dollars Millions of yen Thousands of U.S. dollars ¥24,951 55,334 70,668 25,785 33,140 $224,784 498,505 636,649 232,297 298,559 ¥141 71 30 10 — $1,270 640 270 90 — 21. Supplementary schedule of asset retirement obligations Because the amounts of asset retirement obligations on April 1, 2018, and March 31, 2019, 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 accor- dance with Article 92-2 of the Ordinance on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements. 22. Others Litigation 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 approxi- mately ¥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. 77 Asahi Kasei Report 2019 78 Asahi Kasei Report 2019Company Information/Investors Information (as of March 31, 2019) ■ Corporate Profile Asahi Kasei IR Website Company Name Asahi Kasei Corporation Date of Establishment May 21, 1931 Paid-in Capital ¥103,389 million Employees 39,283 (consolidated) 7,864 (non-consolidated) Asahi Kasei’s financial results and other materials for investors are available in our IR website. www.asahi-kasei.co.jp/asahi/en/ir ■ Asahi Kasei Group Offices (as of March 31, 2019) Asahi Kasei Corporation Tokyo Head Office 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 Asahi Kasei Europe GmbH Am Seestern 4, 40547 Düsseldorf, Germany Phone: +49-211-8822-030 Fax: +49-211-8822-0333 Asahi Kasei India Pvt. Ltd. The Capital 1502B, Plot C-70, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051 India Phone: +91-22-6710-3962 1-105 Kanda Jinbocho, Chiyoda-ku, Tokyo 101-8101 Japan Phone: +81-(0)3-6899-3000 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 Medical 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 88,768 Tokyo 3407 4,000,000,000 1,402,616,332 Sumitomo Mitsui Trust Bank, Ltd. PricewaterhouseCoopers Aarata LLC Largest Shareholders JP Morgan Chase Bank 380055 % of equity* 10.32 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. SSBTC Client Omnibus Account Japan Trustee Services Bank, Ltd. (trust account 5) Japan Trustee Services Bank, Ltd. (trust account 7) State Street Bank West Client – Treaty 505234 * Percentage of equity ownership after exclusion of treasury stock. 6.88 4.81 4.18 2.54 2.32 2.07 1.96 1.62 1.50 Asahi Kasei Report 2019 79 A s a h i K a s e i R e p o r t 2 0 1 9 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 2019.11 

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