Creating for Tomorrow Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan www.asahi-kasei.com/ We, the Asahi Kasei Group, Group Mission contribute to life and living for people around the world. Providing new value to society Group Vision by enabling “living in health and comfort” and “harmony with the natural environment.” Sincerity —Being sincere with everyone. Group Values Challenge —Boldly taking challenges, continuously seeking change. Creativity — Creating new value through unity and synergy. Group Slogan Creating for Tomorrow Contents Asahi Kasei Group Overview Editorial policy 2 At a Glance 4 Financial and Non-Financial Highlights Management Strategy 6 Message from the President 13 Asahi Kasei’s Digital Transformation (DX) Initiatives 14 Sustainability 18 Value Creation Model 20 Value Creation at Work 24 Human Resources 28 New Business Creation For greater ease of understanding among our stakeholders regarding the Asahi Kasei Group’s operating climate and overall business activities, the Asahi Kasei Report focuses on areas of particu- lar interest such as our management strategy, financial and non-financial highlights, business conditions, and management configuration, as well as our efforts toward sustainability in society. Details of our financial performance and CSR activities are disclosed on our website. Period under review The period under review is fiscal 2019 (April 2019 to March 2020). Some qualitative information pertaining to April to September 2020 has also 30 Financial and Capital Policy been included. Business Overview Organizational scope 32 Addressing Social Issues and Transforming Our Business Portfolio — Our Path to Three Sectors — 34 Review of Operations Corporate Governance and Risk Management The scope of the report is Asahi Kasei Corp. and its consolidated subsidiaries (in other cases, noted in the text). Asahi Kasei’s three operating segments are Material, Homes, and Health Care. The titles and positions of corporate officers and other per- sonnel as shown in this report are current as of October 2020. 40 Corporate Governance 42 Directors Guidelines consulted The GRI Standards, the standards of the 44 Interviews with Outside Directors Sustainability Accounting Standards Board, ISO 47 Risk Management 48 Initiatives Regarding Climate Change Disclosure Based on the TCFD Recommendations 26000, and other guidelines were consulted during the preparation of this report. Disclaimer 50 SASB Disclosure Information Index The forecasts and estimates shown in this report are dependent on a variety of assumptions and eco- nomic conditions. Plans and figures depicting the future do not imply a guarantee of actual outcome. Financial and Non-Financial Information 52 Consolidated Financial Statements 58 Company Information/ Investors Information 1 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information At a Glance The Asahi Kasei Group operates in three business sectors: Material, Homes, and Health Care. Priority Fields for Provision of Value and Related Products April 2019 marked the start of a new three-year medium-term management initiative, “Cs+ for Tomorrow 2021,” which aims for sustainable growth of corporate value. Fiscal 2019 Net Sales and Operating Income Sales in fiscal 2019 were on a par with the previous year, the second highest ever, while operating income declined 15.4% from the previous year. ¥2,151.6 billion ¥177.3 billion Health Care 15.8% Homes 33.0% Health Care 20.9% Net sales Material 51.2% Operating income Material 44.3% Homes 34.9% Note: Percentages shown exclude the “Others” category and “corporate expenses and eliminations” Notable Facts (as of March 31, 2020) Material Environment & Energy Mobility Life Material Hipore™ and Celgard™ separators for lithium-ion batteries Engineering resin UVC LEDs Ion-exchange membrane chlor-alkali electrolysis process Lamous™ artificial suede Household products Dinamica™ automotive interior material Homes Home & Living Employees 40,689 Of which, overseas employees account for nearly 40% Overseas sales ratio 40 % Consolidated subsidiaries Global bases 211 More than 20 countries and regions Health Care Health Care Hebel Haus™ unit homes Hebel Maison™ apartment buildings Hebel Village™ apartments for seniors Credit rating* AA Japan Credit Rating Agency (JCR) * As of June 12, 2020 Pharmaceutical products Planova™ virus removal filters ZOLL AED Plus™ automated external defibrillator 2 3 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Financial and Non-Financial Highlights Net sales (domestic & overseas), operating income, operating margin (¥ billion) (¥ billion) EBITDA1, depreciation and amortization, EBITDA margin (¥ billion) Greenhouse gas (GHG) emissions / net sales4 Energy intensity 5 (Million tons CO2 equivalent) (Index) (Index) 1,940.9 1,883.0 165.2 159.2 2,042.2 2,170.4 2,151.6 198.5 209.6 177.3 8.5 8.5 9.7 9.7 8.2 2,500 2,000 1,500 1,000 500 0 300 240 180 120 60 0 400 300 200 100 0 274.8 268.4 311.9 313.6 295.6 14.2 14.3 15.3 14.5 13.7 109.6 109.2 113.5 104.0 118.3 5 4 3 2 1 0 4.83 92 4.35 86 4.22 4.16 Target: –35% by FY2030 3.95 77 71 68 100 100 100 80 60 40 20 0 90 80 70 60 0 81 83 79 77 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) Domestic sales Overseas sales (left scale) Operating income (right scale) Operating margin (%) EBITDA margin (%) 1 Operating income, depreciation, and amortization EBITDA Depreciation and amortization (tangible, intangible, and goodwill) GHG emissions (left scale) GHG emissions / net sales (right scale) 4 Indexed to GHG emissions from production processes (tons CO2 equivalent) / net sales (¥) in fiscal 2013 as 100 5 Indexed to energy consumption per unit of production in fiscal 2015 as 100 In fiscal 2019, sales were flat year-on-year while operating income declined. The positive impact of new consolidations due to M&A was offset by the impact of the global economic downturn in the Material sector. Overseas sales reached approxi- mately 40% of total net sales in fiscal 2019 with expansion of overseas business, including through M&A. 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 amortiza- tion 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. In the medium-term management initiative, we are targeting a 35% decrease in the index of GHG emissions to net sales from the fiscal 2013 level by fiscal 2030. Various efforts to further reduce emissions are being applied to achieve this target. We promote energy conservation at every stage of our business activities to prevent global warming and conserve limited resources. Over the past five years, we have made steady improvements, lowering our energy consumption per unit of production by 1% annually on average. Net income attributable to owners of the parent, EPS ROE2, ROIC3 Workplace injury frequency rate6,7 Number of employees (¥ billion) 200 150 100 50 0 170.2 147.5 115.0 121.93 91.8 82.34 65.69 105.66 103.9 74.85 (¥) 200 150 100 50 0 (%) 20 15 10 5 0 8.6 7.9 10.5 7.8 14.0 9.7 11.1 8.8 7.6 6.6 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) Net income attributable to owners of the parent (left scale) EPS (right scale) ROE ROIC 2 Net income per shareholders’ equity 3 (Operating income – income taxes) / average annual invested capital Responsible Care Program 3.0 2.5 2.0 1.5 1.0 0.5 0 2.79 30,000 25,000 23,321 23,720 24,115 24,700 25,325 1.86 0.30 1.81 1.26 0.35 0.30 0.41 0.84 0.44 20,000 15,000 10,000 5,000 0 9,500 10,000 10,555 14,583 15,364 Japan 2015 Overseas 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) 6 Number of accidental deaths and injuries resulting in the loss of one or more workdays, per million man-hours worked 7 Among domestic and overseas subsidiaries and affiliates applying the Asahi Kasei Group Japan Overseas Net income in fiscal 2019 declined due to a decrease in operating income, impair- ment losses on noncurrent assets, and business structure improvement expenses. As a result, EPS also decreased. In fiscal 2019, ROE declined due to the decrease in net income. ROIC also declined due to an increase in invested capital associated with an increase in interest-bearing debt accompanying the acquisition of Veloxis Pharmaceuticals Inc. (hereinafter Veloxis) and the decrease in operating income. While the frequency rate of lost-workday injuries among overseas employees has improved significantly, this rate has deteriorated among employees in Japan. We are making improvements by applying measures to avoid recurrence based on analysis of the causes of injuries that have occurred, while implementing preventive mea- sures based on risk assessments. As the result of proactive business expansion including M&A, we now have over 40,000 employees, with overseas employees accounting for nearly 40% of the total. We have manufacturing, research, and sales sites in more than 20 countries and regions around the world. Capital expenditure, R&D expenses (¥ billion) Interest-bearing debt, D/E ratio (¥ billion) Number of women working as managers and supervisors8 Number of patents 154.1 136.2 99.0 81.1 90.6 79.6 101.3 85.7 90.1 91.0 200 150 100 50 0 800 600 400 200 0 449.7 402.8 0.43 301.7 0.35 0.23 424.9 0.31 703.8 0.52 0.8 0.6 0.4 0.2 0 800 600 400 200 0 499 534 574 622 660 16,000 12,000 8,000 6,194 6,567 6,841 7,229 7,650 4,000 7,378 7,082 7,216 7,514 7,456 0 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) 2016 /6 2017/6 2018 /6 2019 /6 2020/6 2015/12 2016 /12 2017/12 2018 /12 2019 /12 Capital expenditure R&D expenses Interest-bearing debt (left scale) D/E ratio (right scale) 8 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. Japan Overseas 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. Although interest-bearing debt increased in fiscal 2019 to fund the acquisition of Veloxis, the D/E ratio at the end of the fiscal year remained around 0.5, in line with our target. Considering it essential for employees to play active roles regardless of gender, we foster an environment to support the advancement of women to positions in organi- zational management. We are focused on building and maintaining an intellectual property network to secure competitive advantage. We evaluate whether to maintain or abandon our intellectual property every year, aiming to form an optimal intellectual property portfolio. As we expand our business globally, it is becoming increasingly important to obtain patents overseas. 5 4 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Message from the President Leveraging our “diversity” and “capability to change” in the new normal, we contribute to the sustainability of society and the sustainable growth of corporate value Hideki Kobori President Contributing to sustainability with “Cs+ for Tomorrow 2021” medium-term management initiative In fiscal 2019, we launched a new three-year medium-term management initiative, “Cs+ for Tomorrow 2021,” declaring the pursuit of sustainability as a management policy. The previous medium-term management initiative, “Cs for Tomorrow 2018,” focused on the “Cs” of “Connection,” “Communication,” “Challenge,” and “Compliance.” The new “Cs+ for Tomorrow 2021” adds the “Cs” of “Care for People” and “Care for Earth” to clarify our stance of contributing to “life and living for people around the world” and “the sustainable development of the earth.” We identified five priority fields for provision of value as Environment & Energy, Mobility, Life Material, Home & Living, and Health Care. We believe that our strengths in providing value are “diversity” and “capability to change.” Since our founding, we have flexibly transformed our business portfolio by addressing changing social needs and providing solutions to society’s problems. The “diversity” and “capability to change” of our human resources, technologies, and business areas cultivated as a result are our defining character- istics, and our strengths. In an era of ever-more rapid change, we will continue to leverage our “diver- sity” and “capability to change” to provide value satisfying the needs of society. In addition, while building relationships of deep mutual trust with all of our stakeholders, we aim to realize “contribution to a sustainable society” and “sustainable growth of corporate value” through fair and transparent business undertakings. Fiscal 2019: A year of actively promoting business while monitoring changes in the environment In fiscal 2019, the first year of the medium-term management initiative, we made proactive efforts in all five of our priority fields for provision of value. In the Environment & Energy, we emphasized expanding our capacity to supply lithium-ion battery separators to meet growing demand for a clean-energy society. We also promoted technological devel- opment in such areas as CO2 chemistry technology for manufacturing chemical products from CO2 amid increasing demand relating to the circular economy as well as plastic recycling. In the field of Mobility, steps to expand business included an agreement by our subsidiary Sage Automotive Interiors, Inc. to acquire the automotive fabrics business of Adient plc, a major automobile seat supplier, based on prospects that the interior spaces of vehicles will become increasingly important with the emer- gence of new trends such as CASE.* In Life Material, we reinforced our electronic materials and elec- tronic devices businesses for information and communication equipment for 5G, where demand is rapidly increasing. In the Home & Living field, we worked to expand new businesses, including the overseas business, the medium-rise buildings business, and the homes for seniors business where * Connected, Autonomous, Shared & Service, Electric 6 7 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Message from the President we aim to provide safe and secure living environments in an era when lifespans of 100 years are and holding meetings with customers and business partners online instead of in person. becoming common. In these areas, we are leveraging the strengths and know-how of the order-built In addition, we are making every effort to maintain the uninterrupted provision of products and homes business that we have cultivated in urban areas of Japan. In Health Care, we acquired new services that most directly relate to our Group Mission of contributing to life and living for people growth drivers to accelerate our transformation into “a global health care enterprise” able to contribute around the world. In particular, for products closely related to life such as ventilators, and other prod- to life and living for people around the world. These include the acquisition of U.S. pharmaceutical ucts that contribute to alleviating the impact of COVID-19 infections, we are focused on maintaining company Veloxis Pharmaceuticals Inc. and the acquisition by our subsidiary ZOLL Medical Corporation the supply chain and fulfilling our supply responsibilities. of U.S. medical device manufacturer Cardiac Science Corporation. We are also striving to maintain a sound financial base that can withstand an uncertain business To further leverage our key strengths of “diversity” and “capability to change,” we established environment in order to fortify foundations for business continuity. Specifically, we are maintaining Marketing & Innovation as a company-wide marketing organization to advance the creation of new sufficient cash on hand by optimizing inventory management, curbing cash outflows by keeping businesses. In addition, we established the Sustainability Strategy Planning Department as an organi- tight control over expenses and curtailing capital expenditure, and leveraging dynamic means of zation focused on promoting sustainability throughout the Group. fund-raising. Turning to financial results, sales and income declined year on year, marking a tough first year of our three-year plan “Cs+ for Tomorrow 2021.” Until fiscal 2018, we benefited from a favorable busi- ness environment amid global economic expansion supported by simultaneous monetary easing around the world. From fiscal 2019, however, business conditions greatly changed against the back- drop of the trade dispute between the United States and China, as well as slowing growth in the auto- mobile market. The Material segment, in particular, faced headwinds in the slowing Chinese and automobile markets, as well as falling prices of petrochemicals. That was compounded from the fourth quarter by deterioration in the global economy due to the spread of COVID-19. As a result, operating income in the segment declined year on year. In contrast, operating income in both the Homes and Health Care segments rose year on year. The Homes segment benefited from firm performance in real estate operations, while the Health Care segment was supported by expansion in the Critical Care business category. Response to changes in the world due to the spread of COVID-19 The global upheaval caused by the spread of COVID-19 is bringing about dramatic and unprece- dented change. As it is difficult to predict when the pandemic may subside and the outlook remains uncertain, the economic downturn may continue for some time as consumers hold down spending and companies curb investment. Unlike the global financial crisis of 2007–08, we are also starting to see not only economic recessions but also major change in the shape of disruptive and irreversible shifts in a wide range of areas ranging from people’s values and ways of life, to politics and industrial structures. In response we are placing the highest priority on the safety of customers, suppliers, and employ- ees; working to minimize the impact on operations of customers and business partners; and doing our utmost to reduce the risk of infection. While carefully monitoring the infection situation in Japan and other countries, we are implementing preventive measures, including reducing the workplace atten- dance rates of employees through the use of telecommuting, thorough wearing of masks at workplaces, Focused on contributing to people’s lives and living, and solutions for social issues in the “new normal” Though the business environment has changed dramatically with the spread of COVID-19, the impor- tance of our longer-term aim to “contribute to the sustainability of society” and the “sustainable growth of corporate value” remains unchanged. We maintain the basic thinking of the medium-term manage- ment initiative “Cs+ for Tomorrow 2021,” and will continue to contribute to “life” and “living” of all people, including generations to come. We will tackle social challenges such as global environmental issues, population growth, the aging of society, and medical care in our five priority fields for the provi- sion of value. Throughout our endeavors, we will practice the three fundamental “actuals” of the actual place, actual thing, and actual fact, and thoroughly maintain “Compliance” as one of the key “Cs” through the global application of the Asahi Kasei Group Code of Conduct. Our thinking on shareholder returns remains unchanged. The basic policy is to aim for stable dividends and dividend increases through the sustained generation of cash flow by providing value to the world, while maintaining a balance between investments for growth and the financial position. We have also come to appreciate more than before how the physical and mental well-being of our employees is the ultimate source of our ability to contribute to society and create corporate value. More than anything else, we need our employees to stay healthy and actively engaged in their work. While we have long recognized employee health as one of the key pillars of Responsible Care, and implemented various health promotion measures, beginning in fiscal 2020 we are giving this a higher degree of management attention and established a Corporate Health Care Promotion Center to posi- tion health-related initiatives as an important focus throughout the company. We believe that further promoting management for health will lead to greater engagement and growth of each employee, as well as higher productivity. 8 8 9 9 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Message from the President Taking the initiative with the “Cs” in a fast-changing environment We are proactively embracing internal changes in response to the changing business environment. First, regarding business itself. New needs are emerging in quick succession in the “new normal,” and we must reshape our business models to provide products and services that meet those needs. Though we are primarily a manufacturer, we expect the barriers between manufacturing and services to come down to a great extent in the future. We aim to provide value in new ways with solutions that draw together various products and services from inside and outside the company. This fast-changing world presents opportunities for us to make the most of the “diversity” and “capability to change” that we have cultivated. We must create new value faster, more efficiently, and more effectively, by “connecting” our diverse human resources, technologies, and marketing chan- nels to stimulate the lively exchange of ideas and expertise. To that end, we are carefully assessing the business environment in the “new normal” and working to transform our business portfolio from a medium- to long-term perspective. As one measure, twice a year we evaluate each business based on criteria such as profitability, growth potential, value provided to society and customers, and con- tribution to sustainability. Optimization of the business portfolio is advanced based on the results of those evaluations. View of COVID-19 impacts Mobility (electronic materials, consumables, healthcare materials) Life Material Short-term effects on demand • Stability or growth: Health Care, Life Material (electronic materials, consumables, healthcare materials) • Careful observation: Home & Living, Environment & Energy Life Material (fibers-related) Home & Living Health Care • Decline or obscurity: Mobility, Life Material (apparel fibers) Environment & Energy Long-term structural market changes • Product/service needs arising from new lifestyles (accelerated progress of CASE, 5G, smart houses, etc.; spread of new styles of living and working) Short-term effects on demand • Rising or changing needs related to life Positive (critical care, hygiene materials, etc.) Small Negative Large s e g n a h c t e k r a m l a r u t c u r t s m r e t - g n o l f o e d u t i n g a M Another way we are embracing change is in how we approach the key “Cs” of Communication and Challenge. While we are not changing our “Cs” of focus, Communication and Challenge are given higher priority in the “new normal.” With “Communication,” we are pursuing measures to foster an environment encouraging mutual understanding among employees, and also between employees and the company, even without the presumption of face-to-face interaction. At the same time, we are working on measures to improve employee work engagement. For example, while continuing to offer a variety of career paths such as through the Group Masters program, we are providing support to employees so that they can consider and achieve their own career plans in the “new normal.” In terms of management, we remind manag- ers of their own responsibilities to see that human resource “assets” entrusted to them by society are being used appropriately—that is, in a way in which the employees are able to play active roles. We are also considering management styles premised on working environments being different than before, such as working from home. In order to improve motivation, we are also working to create a supportive working environment and promoting initiatives that raise awareness among employees themselves of just how each business contributes to “life” and “living” for people around the world. With “Challenge,” we are actively moving forward with digital transformation (DX) that enables business transformation under the “new normal,” and are strengthening the business platform by Response to COVID-19 impacts Response measures Large s e g n a h c t e k r a m l a r u t c u r t s m r e t - g n o l f o e d u t i n g a M Mobility (electronic materials, consumables, healthcare materials) Life Material Home & Living Health Care Environment & Energy Life Material (fibers-related) While carefully observing short-term effects, providing innovative materials and solutions for new needs arising from advance of 5G, awareness for hygiene, and changing lifestyles Management resources further concentrated on Health Care, growing as 3rd major pillar through advancement in North America and further cultivation of critical care Maintaining and advancing medium-term growth strategy while reducing the impact through productivity improvements • Home & Living: Leveraging know-how gained in urban markets to contribute to quality social infrastructure and living fulfillment • Environment & Energy: Contributing to harmony with the environment through diverse technologies Small Negative Short-term effects on demand Structural changes such as acceleration of CASE and heightened needs for hygiene materials taken Positive as opportunities to seek medium-term profit growth • Accelerating transformation of portfolio to high value-added products • Reinforcing marketing to key customers 10 11 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Message from the President leveraging “diversity.” We can utilize DX in a wide range of activities including R&D, production, quality control, plant maintenance, marketing, business strategy, and new business creation. We will acceler- ate DX by fostering people with digital skills and providing places and spaces to promote relevant measures, while gaining fresh perspectives. Corporate governance to leverage “diversity” and “capability to change” With our corporate governance structure, we have put in place a system to provide appropriate over- sight and advice, paying careful attention to the proportion of Independent Outside Directors and Corporate Auditors as we make the most of our “diversity” and “capability to change.” In a fast- evolving business environment, we will continue to review corporate governance as a mechanism for making optimal decisions transparently, fairly, promptly, and boldly. At Board of Directors meetings in fiscal 2019, we discussed the improvement of corporate value while incorporating the perspectives of a wide range of stakeholders in a timely manner. This included the sharing of a broad range of information on the substance of communications with investors and shareholders, and on the promotion of sustainability. After the Japanese government declared a state of emergency due to the spread of COVID-19, the Board of Directors operated remotely to ensure ample communication among Directors. Unlike previously, it has become more difficult for Outside Directors and Corporate Auditors to deepen their understanding of our businesses through in-person In Focus Asahi Kasei’s Digital Transformation (DX) Initiatives The Asahi Kasei Group is promoting DX that advances efforts to contribute to the sustainability of society and the sustain- able growth of corporate value. As the business environment continues to change rapidly, we must take measures that go beyond what we have done before, including for transferring technology at manufacturing sites, accelerating global expan- sion, and promoting business model transformation. Applying data generated from our diverse businesses, technologies, and human resources—the Asahi Kasei Group’s key strengths—we are employing digitalization at various stages in the value chain, such as R&D and business strategy, as we endeavor to accelerate our business model transformation. Strengths and Opportunities Value Creation Asahi Kasei Issues Asahi Kasei Group Diversity and capability to change • Business, technologies, and human resources • Data, PoC* Society Rapid advance of AI, IoT, and other digital technologies • Production/manufacturing • R&D • Marketing • Earnings structure • Organization • Systems, etc. Promotion of Digital Transformation Promoting business model transformation Manufacturing labor shortages; lack of skilled workers Accelerating global expansion Data sharing (shift to paperless) visits to our various sites. We are looking to devise ways around this by such means as providing online * PoC: Proof of Concept presentations and information from the sites. In closing—our commitment to transformation The business environment will be challenging in fiscal 2020 due to the spread of COVID-19, but this can also be seen as an opportunity for innovation throughout society as a whole. We are determined to leverage our “diversity” and “capability to change” in order to evolve our business portfolio and busi- ness models, ensuring that we continue to provide value to society. We are discerning between what we should maintain steadfastly and what we need to transform boldly in response to changes in the environment. The Asahi Kasei Group is pressing ahead as a unified team to contribute to the sustain- ability of society and the sustainable growth of our corporate value. Hideki Kobori President MI* to innovate means of development AI for automatic image inspection Enhancing plant diagnostic technology Formulating business strategy with IP information * MI: Materials Informatics Example of using IP information for formulation of business strategy Strengthening capabilities for digital transformation • Together with Sage, acquired in 2018, high-level • Increasing digital professional personnel to 150 analysis of industry and competitors’ IP by end of fiscal 2021 • Results being used in search for new fields to • Establishing open innovation site for digital engineers develop by combining technologies of Sage and Asahi Kasei (scheduled for end of fiscal 2020) Launched joint development project for new business 12 13 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Sustainability Care for People, Care for Earth Materiality of the Asahi Kasei Group Viewing opportunities and risks from an ESG standpoint, we strive to provide solutions for issues such as the SDGs, and contribute to life and living for people around the world. 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 Based on analysis of ISO 26000, GRI standards, the SDGs, and ESG issues, we identify areas that are most material both for the Asahi Kasei Group and for our stakeholders. The main areas of activity related to materiality are shown below. Highest priority for mapping below Governance Human rights Compliance/sincerity Safety/quality 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 P17 ) Greenhouse gas ( Wastewater ( WEB ) Industrial waste ( WEB ) Business contribution to Global environment ( Health and longevity ( P17 ) P16 ) Comfortable life ( P16 ) Supply chain management ( Communication with stakeholders ( WEB ) P16 ) Biodiversity ( Social contribution ( WEB ) WEB ) Human resources ( Diversity ( WEB, P24–27 ) Risk management ( P47 ) P24–27 ) Sincerity, Challenge, Creativity Important Importance for the Asahi Kasei Group Extremely important By making valuable contributions to a sustainable society, we enhance the corporate value of the Asahi Kasei Group, which drives our ability to make further contributions. We will continue to focus on the sustainability of society and the sustainable growth of corporate value as two mutually reinforcing aspects of sustainability. The Asahi Kasei commitment to contribute to sustainable development for people and for the earth is expressed as “Care for People, Care for Earth.” Framework for Promoting Sustainability Board of Directors (Management Council) President Sustainability Committee The Sustainability Committee, chaired by the Asahi Kasei President, deliberates on ESG issues as a focus of management. It coordinates with the Risk Management & Global Environment Committee Compliance Committee and the Administrative functions Strategic Business Units, Core Operating Companies Other subcommittees Risk Management & Compliance Committee Responsible Care Committee Responsible Care Committee to discuss policy and to share information related to sustainability. Governance Asahi Kasei is constantly pursuing an optimal state of corporate governance. ( P40–41) Compliance/sincerity While strictly following laws, regulations, and internal rules, Asahi Kasei strives to practice a high level of corpo- rate ethics while engaging in various business activities in good faith. All executives and employees of the Asahi Kasei Group adhere to the Asahi Kasei Group Code of Conduct and undergo thorough training in their departments, including case study sessions in fiscal 2019. Human rights monitor and protect human rights in our operations, based on the basic principles of human rights defined in Asahi Kasei has endorsed and signed the United Nations Global Compact. We take appropriate measures to the United Nations Global Compact. Operational Safety; Workplace Safety and Hygiene Through our Responsible Care program, we aim to achieve zero severe industrial accidents and zero occupa- tional injuries. We provide employees with education and training, perform risk assessments during construc- tion in order to ensure safe and stable plant operation, and repeatedly review existing processes. Safety/quality Quality Assurance Asahi Kasei focuses on activities to improve quality in order to continue providing reliable quality to our custom- ers. In fiscal 2019, we strengthened the quality assurance system, augmented employee training to develop human resources for managing and ensuring quality, performed on-site quality audits, and conducted verifica- tion and inspection activities. 14 15 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Sustainability Care for People Care for Earth Since our founding with a vision of improving people’s standard of living, Asahi Kasei has A sound global environment is the basis for people’s life and living. Issues such as global warming, consistently contributed to life and living for people around the world. Our Group Vision includes provid- environmental pollution, and other environmental burdens must be proactively addressed. Through our ing new value to society by enabling “living in health and comfort.” In addition to contributing to soci- products and services, we aim to contribute to the global environment, and endeavor to reduce the ety through our products, we consider all stakeholders, including those throughout our supply chains. environmental footprint of our business activities by preventing pollution and protecting biodiversity. Contribution to Health and Longevity Contribution to Secure and Comfortable Life Business Contribution to the Global Environment We contribute to people’s health through our businesses in the Health Care sector, including pharmaceuticals and medical Asahi Kasei designates Environmental Contribution Products that contribute greatly to the environment over the entire life cycle, devices. Centered on Hebel Haus™ unit homes, we contribute to people’s living through our businesses in the Homes sector. such as by reducing greenhouse gas (GHG) emissions. The degree of their contribution is objectively verified by a third party. In the Material sector, we contribute to people’s life and living through our businesses related to health, comfort, safety, and We contribute to the reduction of GHG emissions in society as a whole by developing Environmental Contribution Products. convenience. We advance “Care for People” in our businesses by leveraging our diverse technologies and management resources. Products certified in fiscal 2019 Ventilator Hebel Haus™ Hygiene material • Hipore™ and Celgard™ separators • S-SBR for fuel-efficient tires for lithium-ion batteries These separators are used in the batteries of electric and hybrid vehicles, which emit less CO2 than gasoline engine vehicles. S-SBR is a kind of synthetic rubber used for tire tread. Our S-SBR contributes to increased fuel efficiency of automobiles by enhancing the rolling performance of tires, while maintaining high braking performance. • Xyron™ lightweighting resin • Hebel Haus™ unit homes and Xyron™ contributes to weight reduction and reduced fuel consumption of automobiles by replacing metal in electric vehicle battery packs and modules, as well as structural components. Hebel Maison™ apartment buildings These contracted homes realize environment-friendly lives utilizing long-term durability, renewable energy, high-performance insulation, and energy conservation. • Membrane process chlor-alkali electrolysis • Acrylonitrile production process This environment-friendly production method for caustic soda does not use hazardous substances, such as mercury or asbestos, and consumes less electricity. In this environment-friendly production process for acrylonitrile, CO2 emissions and raw material requirements are reduced. Ensuring a Sound Supply Chain To improve the sustainability of our supply chain, we engage in CSR procurement with suppliers. As a part of these efforts, we ask our main suppliers to answer the CSR Procurement Survey every year in order to get a better understanding of their In addition to developing the aforementioned Environmental Contribution Products, we are developing technologies with an CSR initiatives. In turn, this information helps us avoid environmental and social risks in the supply chain, while improving the eye on the future of a carbon-neutral society. For example, we have developed electrolysis technology for producing hydro- Reducing GHG Emissions level of CSR. gen from renewable energy, and are developing new technology for producing chemicals with CO2 as a raw material. To reduce GHG emissions from business activities, we have started to modify power plants to enable conversion of fuel from coal to LNG and are renewing our hydroelectric power plants. (Reduction targets: Non-financial highlights P5, TCFD P48-49) Management for Health Circular Economy Considering the health of our employees and their families to be an important priority, we engage in management for health to underpin the • Issuance of Statement on Management for Health • Assignment of Executive Officer with responsibility At the G20 Meeting in 2019, the Osaka Blue Ocean Vision was unveiled to bring the world together and tackle the problem of plastic waste in the ocean. Asahi Kasei is working with Kyushu University to clarify how microplastics are formed in the ocean, and we partici- vitality and growth of our human resources, enhance motivation for work, regarding Management for Health pate in industrial group activities to educate on the correct use and disposal of plastics. We advocate the 3Rs (reduce, reuse, recycle) and foster a strong organizational culture of ambition. • Establishment of Corporate Health Care Promotion Center as an important way of effectively utilizing used plastic as a resource. (April 2020) 16 17 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Value Creation Model Contribution to sustainability (non-financial indicators identified in the materiality analysis) Sustainable growth of corporate value (financial indicators) Contribution to the global environment Contribution to health and longevity Contribution to comfortable life Output Net sales ¥2,121.4 billion Operating income ¥195.1 billion ¥307.0 billion EBITDA Business portfolio management capability Contributing to sustainable society Contributing to sustainable society Group Mission Contributing to life and living for people around the world Material Homes Health Care Ability to manage diversified business Environment & Energy Mobility Life Material Home & Living Health Care Ability to ascertain business characteristics Ability to transform business portfolio Care for People, Care for Earth Employee action principles Creating new value Compliance Communication Connect Challenge Diversity & Capability to Change ROE 10.9 % ROIC 8.4 % (Average between fiscal 2017 and 2019) Strengthening business foundations through the “Cs” Care for People, Care for Earth Sustainability initiatives (P14 –17) Compliance Sustainability initiatives (P14 –17) Communication Creating an enabling environment for employees to work positively and energetically (P24 –27) Challenge Digital transformation initiatives to strengthen the business platform (P12–13) Connect M&A (P20 –23) New business creation (P28 –29) Input Strong financial foundation D/E ratio: 0.521 Credit rating: AA (JCR)2 Technologies in a wide range of fields (polymers, compound semiconductors, homes, pharmaceuticals, etc.) Human resources involved in multiple businesses Number of employees: 40,6891 Bases: More than 20 countries and regions1 Contact points with various markets (automotive, electronic, hospitals, consumers, etc.) Financial and Capital Policy (P30 –31) New Business Creation (P28 –29) Human Resources (P24 –27) Review of Operations (P34 –39) 1 As of March 31, 2020 2 As of June 12, 2020 18 19 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Value Creation at Work Becoming a Global Health Care Enterprise We ask the co-leaders of the Health Care business sector about growth strategies utilizing M&A. Medical devices Pharmaceuticals U.S. Others ZOLL Asahi Kasei Medical Veloxis Asahi Kasei Pharma n o i t a z i l a b o l g f o e e r g e D Heightening global management Global health care enterprise with a strong presence Acquisition of Veloxis Having both pharmaceutical and medical device businesses, expansion by obtaining diverse sources of growth and competitiveness • Increased opportunities to obtain innovation • Multiple value provision to raise patient QOL • Ability to deal with market uncertainty Acquisition of ZOLL 2012 2019 2025 (FY) Richard A. Packer Shuichi Sakamoto Executive Officer for Health Care business sector (joint) Primary Executive Officer, Asahi Kasei Corp. Chairman & Board Director, ZOLL Medical Corporation 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. Board Director, ZOLL Medical Corporation Health Care business sector, including ZOLL. In management in 2030. This scale enables the pharmaceutical business to and leadership, we always aim for best practices in this earn its own resources to pursue further growth. co-leadership system. We are both responsible for the whole From an operational perspective, having a pharmaceutical global business rather than dividing responsibilities by region business platform in the U.S. brings us large opportunities in between us, and we always try to think, speak, and act from three ways. First, it allows us to strengthen the new drug Q: ZOLL Medical Corporation became part of the Asahi of both companies are passionate about their mission, and the perspective of responsibility for the entire Health Care pipeline by bringing in drugs developed by other companies. Kasei Group in fiscal 2012, and has since achieved both companies value such people very highly. While we business sector. remarkable growth. What has been the driver? understand that we need to grow, be profitable, and generate We have been working on in-licensing products, but the addi- tion of Veloxis opens the door to accelerating the in-licensing returns for our shareholders, we also understand that we need Q: In fiscal 2019, Asahi Kasei acquired Veloxis, a U.S. of products from all over the world. Second, it strengthens our Packer: Let me explain as the former CEO of ZOLL. ZOLL’s to care for our employees as key stakeholders. We focus on pharmaceutical company. What was the significance development capabilities with our own pharmaceuticals. Until products are typically unique, but the biggest driving force has offering our people good opportunities. of the acquisition for both the Asahi Kasei Group now, the clinical development of pharmaceuticals by Asahi been that the corporate visions and core values of Asahi Kasei and Veloxis? and ZOLL are very much the same. After becoming a member Sakamoto: In addition, I think that the leadership of Mr. Kasei had to be centered on Japan. With the acquisition of Veloxis, however, we can broaden our scope to the U.S. Third, of the Asahi Kasei Group, ZOLL was able to develop the busi- Packer at the time of the acquisition, and later of current CEO Sakamoto: First, from the perspective of the Asahi Kasei we have gained opportunities for business development in the ness with the same management team as previously while Jon Rennert, has been a major driving force for ZOLL’s growth. Group as a whole, the acquisition allowed us to reach more U.S. organ transplant–related market, which is expected to utilizing the large resources of Asahi Kasei and the support Moreover, senior management at Asahi Kasei set ZOLL very people with our Group Mission of contributing to life and living grow. We can now leverage the knowledge and networks from its management team. I believe this is because the two challenging targets for growth. That those expectations were for people around the world. Currently, the Asahi Kasei Veloxis has in the area of organ transplantation. companies share the fundamental belief in providing value to shared by ZOLL itself is what underpinned strong motivation Group’s pharmaceutical business has annual sales of ¥60–70 society and customers through innovation and innovative to achieve the exacting goals for growth at ZOLL. Since 2018, billion. With the acquisition of Veloxis, we can now draw up a Packer: Veloxis has a very strong management team, and that products. The same is true of human resources. The people Mr. Packer and I have been co-leaders in managing the business plan aiming for ¥150 billion in 2025 and ¥200 billion team has now moved to Asahi Kasei looking for further growth 20 20 21 21 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Being part of the Asahi Kasei Group enables both ZOLL and Veloxis to take large organizations. But these days, innovation tends to hampered by COVID-19, it’s clear to me that Veloxis is settling occur in startups and small companies. We need to connect in as a member of the Asahi Kasei Group very quickly. challenges for growth opportunities more proactively than before. ourselves to where innovation is taking place, through M&A opportunities in the organ transplant field in addition to its list about four years ago. We looked at dozens of pharma- flagship product, Envarsus XR™ immunosuppressive drug for ceutical companies, many of which had great products and kidney transplant patients. Becoming a member of the Asahi great business prospects. But it was hard to find a company Kasei Group opens up possibilities to actively seize growth with a management team, corporate culture, and the people opportunities with the backing of Asahi Kasei’s management that really made us want to add that company to the Asahi or small investments. Q: Finally, what is your outlook for the Health Care busi- ness sector? Q: In the acquisition of Veloxis, how do you think Asahi Kasei’s strength in connecting diverse human resources Packer: We are accelerating our transformation into a global proved its worth? health care enterprise having both a strong pharmaceutical business and a strong medical technology business. The Sakamoto: In the process of the acquisition, connections acquisition of Veloxis is the latest of several key moves toward were built among diverse people, and the whole team worked achieving this vision. We are proactively seeking further well together. To search for targets, we established a joint growth opportunities in both the pharmaceutical and medical team and resources. Kasei Group. It was only through extensive searching that we found Veloxis, which had all the things we were looking for. Japan-U.S. Asahi Kasei Healthcare Business Development device businesses. team. There was a physical distance, but, for several years, Sakamoto: In the process of acquiring Veloxis, we repeatedly emphasized that Asahi Kasei would support the growth that Sakamoto: It was important for us to recognize our own Veloxis was aiming for. As a result, Veloxis came to under- assets and strengths. Over the four years, we made many stand that Asahi Kasei intended to help Veloxis and Asahi studies and took on various M&A challenges. In the process, Kasei Pharma grow together as an aligned organization. At we repeatedly discussed what our assets and strengths were, that point, I think the example of ZOLL won over Veloxis’ man- and where the opportunities for growth lay. We came to the agement team. Mr. Packer himself shared his goals after conclusion that we were strong in the immunology area. We becoming a member of the Asahi Kasei Group, and explained had the technological know-how and a business track how the business had grown. This gave Veloxis a firm sense of record. And we have good human resources in this area. security and conviction, which underpinned their decision to Identifying the field of immunology as our target, we set go ahead. about searching for M&A opportunities. After learning about Veloxis, we came to a decision on the acquisition in a rela- Q: What did you see as most important with Veloxis as an tively short period of time. acquisition target? What is your thinking on the Asahi Kasei Group’s M&A? Packer: I am often faced with the question from within Asahi Kasei about why we do M&A at all. Asahi Kasei has a 100- Packer: We placed the highest priority on the people, center- year history of growing primarily through internal innovation ing on the management team. Of course, in order to have an and building new businesses from scratch by outstanding and acquisition that provides a return, it has to have a good hardworking people. However, this growth process takes a business and good products. However, it takes more than long time. Today’s global markets move faster than ever having good products and technologies for a company to be before. You need to be really fast to market, which is very attractive. In pharma M&A activity, we generated a priority difficult by internal innovation alone. Of course it’s important for existing businesses to grow through organic and internal innovation. But if you want to extend into unfamiliar territory, when you try to do that from scratch, through internal innova- tion, in the pharmaceutical business, it will be very risky and a very long-term process. It’s much better to go and find experts who have already spent years on it, and get them to join together with us. So I think M&A is a very important way for the Asahi Kasei Group as a whole to grow. Sakamoto: It is important for us to put ourselves close to innovations. In the past, most innovation emerged from we were always in close and frequent communication, and Sakamoto: The spread of COVID-19 has made us realize there was no psychological distance. The team managed to once again just how important health care is for the people find its way to Veloxis by leveraging various networks in Japan of the world. It has also highlighted the significance of the and the U.S. health care business in the Asahi Kasei Group. Mr. Packer After we set our sights on Veloxis, the American mem- and I are determined in our leadership roles to realize our bers of Asahi Kasei’s health care team and the ZOLL team Group Mission of contributing to life and living for people members, who were familiar with the U.S. system, con- around the world. nected very effectively with our legal and financial experts in Japan. Everyone exchanged opinions based on their exper- tise and knowledge, working together as one team, which is what brought the acquisition to a successful conclusion. Packer: Moving forward, I believe Asahi Kasei Pharma and Veloxis will gain a great deal from one another by connecting diverse human resources. For example, Asahi Kasei Pharma has a very good drug in-licensing team, and is working with Veloxis members to consider bringing in drugs in the Veloxis business domain. Meanwhile, the Veloxis team is providing leadership to help execute clinical trials in the U.S. in Asahi Kasei Pharma’s growth fields. Even though we’ve been It’s important to be close to where innovation is happening. That means staying connected with innovation through M&A and small investments in startups. 22 22 23 23 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Human Resources People Are Our Core Asset; Everything Starts with People Voices of Our Employees Creating an environment in which diverse human resources can play active roles in the “new normal,” while working to strengthen management’s ability to reinforce work engagement The Asahi Kasei Group’s medium-term management initiative “Cs+ for Tomorrow 2021” aims to contribute both to “a sustainable society” and to “sustainable growth of corporate value.” The impetus behind this effort is twofold: “diversity” and “capability to change.” It is only through the growth and active engagement of our diverse human resources around the world that we truly demonstrate our capability to change. Based on the principles that “people are our core assets” and that “everything starts with people,” the essential idea is to link employee work satisfac- tion and growth with the vitality and growth of the Asahi Kasei Group. That is the core of our human resources strategy. The environment surrounding human resources is changing day by day. In particular, the spread of COVID-19 has greatly changed the way of working and lifestyles in such areas as teleworking and meetings held remotely. In this “new normal,” we need to create an environment in which diverse human resources can play active roles. We also need to establish management styles suitable for the “new normal.” We are already working to develop an IT environment that facilitates working remotely, and we are drawing up work rules to enable more flexible work styles. We are also working on new management styles to better visualize the work engagement of employees under remote working environments through periodic evaluation, while reviewing various personnel management systems. For the Asahi Kasei Group to continue to create value in the midst of global Soichiro Hashizume Senior Executive Officer Executive Officer for HR Elke Kederer Senior Product Manager Cologne Technical Center Asahi Kasei Bioprocess Europe Striving to expand our global business, driven by our desire to contribute to people’s lives For some 30 years, Elke Kederer has been providing technical support to customers and promoting business development related to Planova™ virus removal filters, which are used during the manufacturing process of biotherapeutics such as plasma deriva- tives and biopharmaceuticals. Ms. Kederer’s extraordinary contribution to the launch of products in Europe and other markets and to building the foundations of the current bioprocess business was recognized in 2013 with an Asahi Kasei Medical President’s Award. Amid the spread of COVID-19, she feels proud to support the development of therapeutic products through the supply of Planova™ filters. Ms. Kederer identifies the strengths of the Asahi Kasei Group as “taking good care of people” in addition to “a focus on quality,” “a long-term perspective,” and “the spirit to take on challenges.” Believing that close communication is vital for global business expansion, she actively provides opportunities for the team in Europe to exchange views with colleagues in the United States and Asia. Her strong desire to help improve people’s lives is Ms. Kederer’s driving force. Looking ahead, she intends to actively work on introducing new products while sharing her accumulated know-how, knowledge, and experience with other colleagues. Practicing work-style reforms and creating new value while flexibly responding to social trends competition, we must nurture both human resources with high-level specialist Ayano Yoshida is the manager of a model home in western Tokyo. While supporting a expertise and the managers who can make the most of their abilities. To this end, team of four members, she also attends to customers as a salesperson herself. In her we are strengthening management training and offering a varied array of career private life, her days are filled as a mother of two children. paths such as through our Group Masters program. Recognizing that our global business expansion requires managers who are familiar with both the global business environment and with local business condi- tions, we will continue to promote the hiring, training, and promotion of local per- sonnel, and to strengthen local management at each location around the world. We are also fostering the development of next-generation senior executives while building the human resource foundations to support the Asahi Kasei Group’s commitment to “contributing to a sustainable society” and “sustainable growth of corporate value.” In this endeavor, we are encouraging the next genera- tion of management leaders to pursue their own initiatives to grow through educa- tion and training while providing programs to strengthen their leadership and teamwork effectiveness. Ms. Yoshida believes the key to balancing work and private life is the combination of the supportive working environment promoted by the company and her own work- style reforms. To make work easier and more flexible, Asahi Kasei Homes issued “thin client” computers to employees and advanced paperless procedures. In addition, applying her past experience of working shortened hours, Ms. Yoshida divides each task into 15-minute units. She also takes care to gain her family’s understanding of the work situation. The spread of COVID-19 has restricted face-to-face interaction with customers at the model home. However, after the restrictions are lifted, Ms. Yoshida and her col- leagues are working to increase the number of visitors to the model home by renewing the website while also actively embracing new ways of working, including sharing of information on job progress through online communication between team members. “In the new normal,” Ms. Yoshida says, “it’s important to respond flexibly to changes around us, since what we took for granted before may no longer apply.” She is determined to continue to perform high-quality work that enhances customer value, while continuing on the path of self-improvement and further advancing her career. Ayano Yoshida Manager West Tokyo Sales Dept. Asahi Kasei Homes 24 25 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Human Resources Interview “Connect” for One-in-a-Million Creative Ideas In fiscal 2017 Asahi Kasei revised its “Group Masters” program, positioning it as a function to drive the creation of new businesses and the enhancement of established businesses. By appointing, nurturing, and rewarding people as Group Masters, we have expanded our pool of human resources with high-level specialist expertise and skills. We spoke with Honorary Fellow Akira Yoshino, Laureate of the 2019 Nobel Prize in Chemistry, regarding the significance of advanced expertise and the way of further enhancing it, as well as his perspectives on applying that expertise to create new value. Akira Yoshino Dr. Eng. Honorary Fellow Asahi Kasei Corp. Born in 1948, Dr. Akira Yoshino earned an M.S. in engineering from Kyoto University’s Graduate School of Engineering and a doctorate in engineering from Osaka University’s Graduate School of Engineering. After joining Asahi Kasei in 1972, he was engaged in R&D relating to lithium-ion batteries. He served as Manager of Asahi Kasei’s Battery Materials Business Development Department and in other roles, and assumed his current position as Honorary Fellow in 2017. He holds several posts at external research institutes and universities. In 2019, he was awarded the Nobel Prize in Chemistry from the Royal Swedish Academy of Sciences for his contributions to the devel- opment of lithium-ion batteries. Q: How did you yourself go about enhancing expertise? researchers. This is especially true of future-oriented basic seemingly impossible demands. Such trying times can ulti- Q: How should Asahi Kasei achieve sustainable growth in As a company employee, I think there are two ways to research that doesn’t have a deadline. mately lead to a breakthrough. This kind of experience is an the future? enhance expertise: One is to hone the expertise gained as a important part of the process of honing one’s expertise. Considering COVID-19 and environmental problems, I think it student, while the other is to gain new expertise through your Q: You have said that being outside the battery industry will be essential for future business activities to contribute to job at the company. I fell somewhere in between. When I was was key to successfully developing lithium-ion batteries. Q: What is the relationship between “connect” in the the Sustainable Development Goals (SDGs) set by the United a student, my field of study was the physical properties of The trigger for the development of the lithium-ion battery was medium-term management initiative and high levels of Nations. That suggests we should nurture high-level specialist materials. After joining Asahi Kasei, I began researching the new materials. Asahi Kasei has lots of them and there were expertise and skills? experts under each of the 17 SDGs. Under the medium-term electroconductive material polyacetylene—completely uncon- many possibilities. If I had been working for a battery manu- Say someone within the company, supported by its emphasis management initiative “Cs+ for Tomorrow 2021,” Asahi Kasei cerned with batteries. Looking back, I think what I learned as facturer, I suspect I may have been blinded by conventional on high-level expertise, alights on an original idea. In today’s expresses its commitment to sustainability as “Care for a student about examining materials helped me through the battery development thinking. I would not have thought about information society, it’s highly likely that another person out of People, Care for Earth.” This implies a proactive approach processes of identifying the physical properties of this mate- development from the knowledge I had gained through 1,000 experts in the same field may come up with the same tackling the SDGs. Instead of taking a defensive stance with rial, thinking about its applications, and finally using it in research into materials. I believe my lack of expertise in bat- idea. In that case, the idea cannot really be said to be original environmental problems to avoid public criticism, we are lithium-ion batteries. tery technology and the collective know-how of Asahi Kasei as from a global perspective. However, if you meld that idea with finding excellent business opportunities by proactively work- a material company are what enabled me to make my another one-in-a-thousand idea of an expert in another field, ing on solutions. That is the essence of “Care for People, Care Q: What is important as a researcher to overcome obsta- research breakthroughs. then you get a one-in-a-million idea. That is something that for Earth.” cles? What kind of support should companies provide? can truly be regarded as original. This is what “connect” in As a material manufacturer, Asahi Kasei has accumulated The world is changing day by day. What was essential until Q: What kind of organization can enable human resources the context of specialist expertise and skills is all about. a huge amount of data through trial and error. Data from past yesterday may no longer be needed today. Researchers must with a high level of expertise to demonstrate their strength? Ideally, it would be great if individuals could come up with failures can be utilized in different fields. For example, tech- continuously improve technologies and somehow connect It’s essential to have a system for fostering human resources one-in-a-million ideas on their own. But in reality this is quite nology that could not be used in the Material sector might be them with the needs of society. Everyone hits a wall some- with high-level specialized skills, such as Asahi Kasei’s “Group difficult. So we must look for combinations of our ideas with useful in the Heath Care sector. The potential of Asahi Kasei times. But in order to overcome challenges, you have to keep Masters” program. Even with high-level specialists, success the ideas of various experts both inside and outside the com- lies in having in place a structure to utilize such past data the final goal in mind, and have faith. From companies, I think does not necessarily come overnight. So I believe we need to pany. One example is the need for statistics in addition to within different parts of the company. I believe it is vital that what is needed is broad-mindedness and tolerance. It’s often have a system that evaluates not just tangible results, but also virology to find a way to control COVID-19 infections. people with high-level specialist experience and skills are hard to see in advance the practical use of a technology that levels of expertise and the potential for research to yield new Considering the restructuring of social systems necessary to actively involved in this kind of work. may give rise to innovation in the future. That makes it difficult technologies and products in the future. At the same time, solve environmental problems, it may be that the person at to obtain the understanding of others. Companies need a companies need to stimulate researchers to deepen their the other end of the connection is not necessarily from the culture that appropriately accepts the ideas of such expertise. Sometimes a company or a customer may make natural sciences, but perhaps from a field like sociology. 26 27 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information New Business Creation Providing Value that Addresses Changes in Society Accelerating the creation of businesses that contribute to “life and living” by connecting diverse core technologies and systems across the Asahi Kasei Group The Asahi Kasei Group is working to create new businesses, targeting fields that can provide high value to society, under the Group Slogan “Creating for Tomorrow.” In order to effectively create new businesses and provide value, we must reach beyond existing core technologies we have cultivated, strengthen marketing functions, and “connect” technologies and knowledge both within and beyond the Asahi Kasei Group. Launched in fiscal 2019, the Marketing & Innovation unit has been building a marketing and innovation platform and establishing systems to promote effective marketing activities across the Asahi Kasei Group while pursuing initiatives to create new businesses. We are also building a system called the M&I Acceleration System (MAS) to speed up commercialization of market-creating businesses and enhance busi- ness value. MAS makes it possible to effectively connect and utilize necessary management resources, spanning networks inside and outside the Asahi Kasei Group, including administrative functions, opening the way to creating new busi- nesses beyond the reach of our established organization. In addition to these efforts, Corporate Research & Development operates a “stage-gate” system to optimally allocate management resources to each research project from the discovery stage through commercialization. With this stage-gate system, which applies to technology projects originating both inside and outside the Asahi Kasei Group, related departments responsible for quality assurance, intellectual property, production technology, and digital transforma- tion are involved in the development process from an early stage and collectively promote commercialization. M&I Acceleration System (MAS) Virtual “venture capital” and “accelerator” functions (Providing means and opportunities to accelerate commercialization projects) Exit Management resources Internal/ external networks Administrative functions Human resource development • Commercialization within the Asahi Kasei Group • Joint commercialization with other companies • Divestment/licensing Shigeki Takayama Representative Director Vice-Presidential Executive Officer Executive Officer for Technology Functions M&I Acceleration System (MAS) Entry • Starting in Marketing & Innovation • Starting in the Asahi Kasei Group • Starting in collaboration with other companies New Business Creation Example UVC LEDs with World-Leading Light Emission Output Klaran-WR UVC LED module for water disinfection UVC LEDs are electronic devices the Asahi Kasei Group developed through “connecting” the compound semiconductor manufacturing technology cultivated in the electronics business and the aluminum nitride single-crystal growth technology pioneered by Crystal IS of the United States, which Asahi Kasei acquired in December 2011. These UVC LEDs have peak emission at 265 nm—the wavelength most effective for disinfection. Applications are expected to expand to a wide range of fields in healthcare products, home electronics, and other fields where UVC disinfec- tion of water, air, and surfaces had previously been impractical. The Asahi Kasei Group has developed a water sterilization module that uses the UVC LEDs to provide safe and clean water, contributing to life and living for people around the world. Development of new businesses using UVC LEDs is ongoing. As the need for surface sterilization (virus inactivation) has dramatically increased along with the spread of COVID-19, we are conducting demonstration experiments using sur- face sterilization modules equipped with UVC LEDs. In addition, U.S.-based Asahi Kasei Corporate Venture Capital and Crystal IS have announced an acceleration program called “UV Accelerator.” Through this program, we aim to broaden the reach of “connect” by investing up to US$250,000 per company to support and accelerate product development of new disinfection products using UVC LEDs. Asahi Kasei’s Core Technologies A key strength of the Asahi Kasei Group is having numerous range of technologies centered on chemicals. Examples core technologies to leverage for expansion of business in include creating membrane and separation technologies from various fields. In our history of diversification, we have estab- fibers, polymers, and processing technologies. lished new core technologies through synergies of a wide Optical fiber Fibers Nonwovens Blood purification, artificial kidneys Diagnostic reagents, DNA, peptides LSIs Food wrapping film Semiconductor devices LIB separator Adhesives Wire-grid polarizing film Synthetic rubber Modified polyphenylene ether resin Compound semiconductors (magnetic and other sensors) Photosensitive resins, films Resin molding Foam, insulation material Hollow-fiber membrane Virus removal filters Pharmaceutical additives Ion-exchange membrane Polyethylene Prescription drugs Acrylonitrile catalyst Polycarbonate Purging compound for molding machines Aerated concrete Anti-quake structures Polyamide Polyacetal Paint materials, SB latex (functional coatings) Photomask pellicles Created by Asahi Kasei using “TechRadar Vision” (a tool provided by VALUENEX Japan Inc.) Each dot shows a patent held by the Asahi Kasei Group in Japan. 28 29 Catalyst/process Compound semiconductors/LSIs Polymer/processing (polymer, film) Fibers/nonwovens Membrane/separation Homes/construction materials Pharmaceuticals Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Financial and Capital Policy We will maintain a sound financial base, despite the outlook clouded by COVID-19, by tightening financial discipline and reinforcing the business structure while striving to increase corporate value by leveraging our strengths of “diversity” and “capability to change.” Yutaka Shibata Director, Vice-Presidential Executive Officer Management Challenges in the Face of COVID-19 management in a way that balances investments for growth including M&A, shareholder returns, and financial soundness. Until the visibility of the market environment improves, we Amid the rapid spread of COVID-19, the global economy and will adopt a cautious approach to capital expenditure and society as well as our daily lives continue to change signifi- M&A, and focus on appropriate cash management by secur- cantly. In order to realize a business portfolio that can achieve ing cash on hand and flexible financing. We are striving to sustainable growth amid changes in market needs and in the further generate cash by tightening financial discipline and competitive environment, it is important to undertake strengthening the earnings structure. Primary Financial Metrics EBITDA1 (¥ 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 274.8 268.4 311.9 313.6 295.6 ¥65.69 ¥82.34 ¥121.93 ¥105.66 ¥74.85 4.3% 8.6% 4.7% 0.92 2.0 7.9% 0.43 5.1% 10.5% 6.1% 0.84 2.0 7.8% 0.35 7.4% 14.0% 8.3% 0.89 1.9 9.7% 0.23 6.0% 11.1% 6.8% 0.89 1.8 8.8% 0.31 3.9% 7.6% 4.8% 0.80 2.0 6.6% 0.52 1 Operating income, depreciation, and amortization (tangible, intangible, and goodwill) 2 (Operating income – income taxes) / average annual invested capital 30 Financial and Capital Policy Source of Funds We are working to enhance profitability by minimizing the capital expenditure and M&A worth more than ¥400 billion centering on our priority fields for the provision of value. However, we will be cautious until visibility on the market environment improves. We will evaluate projects from the perspective of strengthening the management foundations of negative impact on business from the spread of COVID-19, the Asahi Kasei Group and contributing to longer-term growth. while satisfying related demand. We aim to increase net cash provided by operating activities by holding down expenditures through careful and appropriate inventory and cost manage- Cost of Capital The Asahi Kasei Group pays close attention to the cost of ment. We will continue to steadily manage the Health Care shareholders’ equity and continuously strives for returns that and Homes segments, which we expect to generate stable exceed that cost. To improve profitability, we will optimize our cash flow. In the Material segment, meanwhile, we will rein- business portfolio and operations, carefully scrutinize invest- force the earnings structure by narrowing the focus of our ment projects, and pursue returns on our investments. resource allocation to priority areas in order to seize opportu- nities when the economic environment recovers. Basic Policy on Raising Funds The Asahi Kasei Group maintains a sound financial position, Shareholder Returns Policy aiming for a D/E ratio of around 0.5, while securing sufficient Regarding shareholder returns, our basic means is through cash on hand to enable flexible business operations. On that dividends. We aim for stable and increased dividends through basis, we undertake stable financing. Given the current uncer- sustained expansion of earnings. tain outlook, we are securing sufficient liquidity by holding more Although the outlook is uncertain due to the impact of cash on hand than usual while carefully monitoring our finan- COVID-19, we will continue to secure appropriate shareholder cial position and the financial market environment. In readiness returns based on the state of our financial performance and for the risk of a prolonged and increasingly serious impact from cash flow, regardless of temporary fluctuations in profit levels. COVID-19, we are focusing on maintaining financial soundness Specifically, we aim steadily to raise dividends while maintain- through leveraging dynamic means of fund-raising. ing a payout ratio of 30–40% and considering the ratio of dividends to shareholders’ equity. Capital Expenditure and M&A We will review the investment plans drawn up when we formu- Regarding dividends for fiscal 2019, we paid total annual dividends of ¥34 per share, the same as in the previous fiscal lated our medium-term management initiative “Cs+ for year. Net income attributable to owners of the parent decreased, Tomorrow 2021” in response to changes in the market envi- but this takes into consideration our policy to aim for stable and ronment. While we will continue to invest for reliable growth, continuously increasing dividends and is premised on the we will carefully select projects to maintain financial discipline. impact of COVID-19 being minimized by the policies of national Operating cash flow, investing cash flow, free cash flow (¥ billion) Dividends per share and payout ratio (¥) 300 200 100 0 (100) (200) (300) (400) 216.2 169.0 249.9 212.1 139.6 124.5 79 .0 13.1 (69.1) (89.9) (110.3) (285.3) (198.9) (193.7) (318.2) 40 30 20 10 0 34 34 34 24 20 45.4 30.4 29.1 27.9 32.2 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) Operating cash flow Investing cash flow Free cash flow Dividends per share (left scale) Payout ratio (right scale) (%) 80 60 40 20 0 31 FY2015 FY2016 FY2017 FY2018 FY2019 In fiscal 2019, we made decisions on investments including governments. This represents a payout ratio of 45.4%. Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Addressing Social Issues and Transforming Our Business Portfolio — Our Path to Three Sectors — 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. LifeLife Living Living Health Care Material Homes Establishing the basis for modern life Improvement in quality of homes, development of public infrastructure Increased comfort and convenience Increasing awareness of the environment and QOL, evolution of ICT • Development of chemical industry • Post-war recovery and modernization • Stable economic growth • Two decades of meager growth after • Reduced dependence on fossil fuels, greater use of renewables and modern agriculture of industry • Economic bubble bursting of bubble • Technological innovations, such as IoT, AI, and “big data” analysis • The Great Depression and World War II • Period of high economic growth • Effect of global economic crisis • Aging populations in developed nations, people pursuing healthier and Foods Chemicals Others Fibers Foods/Health care Homes/ Construction materials Fibers Others Fibers Others Health care Chemicals Health Care Material (¥ billion) 250 more prosperous lives Social needs and times Asahi Kasei’s evolution (composition of net sales) Chemical fertilizers, regenerated fiber, explosives, etc. FY1940 ¥56 million FY1960 ¥44.9 billion FY1980 ¥800.1 billion Chemicals FY2000 ¥1,269.4 billion FY2019 ¥2,151.6 billion Homes/ Construction materials Electronics Homes Expansion into petrochemicals and synthetic fibers Expansion into homes, health care, and electronics Progress in overseas business, focus on business restructuring Accelerated globalization through overseas M&A, expansion of health care business (¥ billion) 2,500 2,000 1,500 1,000 500 0 Sales (left scale): Material Homes Health Care Others Operating income (right scale) Notes: 1. Non-consolidated figures are shown through fiscal 1976; consolidated figures are shown from fiscal 1977. 2. Color-coded sales are based on classifications at the time of disclosure; results of health care–related businesses through fiscal 1988 are included in “Others.” Business transformation examples New business entry, M&A Withdrawal, downsizing, divestment 200 150 100 50 1931 1940 1950 1960 1920–39 1940–59 1970 1960–79 1980 1990 1980–99 2000 2010 2000 –19 2019 0 (FY) • Polystyrene • Synthetic fiber (acrylic fiber) • Ammonia • Regenerated fiber (cupro fiber, viscose rayon) • Chemical fertilizer • Foods (monosodium glutamate) • Saran Wrap™ • Acrylonitrile • Synthetic rubber • Ethylene (construction of naphtha cracker) • Autoclaved aerated concrete • Hebel Haus™ unit homes • Artificial kidneys • Pharmaceuticals • Hall elements • LSIs • Lithium-ion battery separators • Hebel Maison™ apartment buildings • Insulation panels • Acquisition of Toyo Jozo Co., Ltd. (pharmaceuticals and liquors) • Virus removal filters • Foods • Electronic compasses • UVC LEDs • Hydrogen production system (process verification) • New businesses for homes (seniors, medium-rise, overseas) • Critical care • Viscose rayon, acrylic fiber, polyester • Restructuring of petrochemical business • Liquors 32 33 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Review of Operations Material Hiroshi Yoshida Executive Officer for Material business sector Director, Vice-Presidential Executive Officer, Asahi Kasei Corp. Main Products Basic Materials • Acrylonitrile • Methyl methacrylate • Polystyrene Performance Products • Bemberg™ cupro fiber • Lamous™ artificial suede • Dinamica™ automotive interior material • Engineering plastics • Synthetic rubber/elastomer • Saran Wrap™ cling film Specialty Solutions • Ion-exchange membranes • Sunfort™ photosensitive dry film • Battery separators (Li-ion and lead-acid) • Mixed-signal LSIs • Hall elements Message from the Executive Officer for the Material Business Sector In fiscal 2019, we made a fresh start under a new organization consisting of three SBUs and one core operating company, supplanting the previous six SBUs and one core oper- ating company. We are building a foundation for growth by accelerating the shift of people and other resources to priority fields for provision of value, while improving pro- ductivity with a focus on digital transformation. During the year, we actively expanded in growing fields such as materials for 5G equipment and eco-friendly vehicles. Unfortunately, our earnings suffered due to slower growth in the Chinese market, a slowdown in the automotive market, a downturn in the petrochemicals market, and the impact of the COVID-19 pandemic. Going forward, we will strengthen our cash-con- scious management structure by carefully selecting capital investments and rigorously managing inventories and expenses. At the same time, we will advance connections both internally and externally so that we can create value by seizing business opportunities for addressing new social needs such as living with the pandemic and rising expectations for sustainability. Sales composition 51.2 % Operating income composition 44.3% Net sales, operating income (¥ billion) 1,200 1,176.2 129.6 1,093.1 FY2019 92.4 900 600 300 0 (¥ billion) 150 100 50 0 Production capacity for LIB separators (Million m2) 3,000 Approx. 3,000 1,550 1,100 2,000 1,000 0 2017 2018 2019 2020 2021 Wet process (Plan) Dry process (FY) 2025 (Plan) Priority Fields for Provision of Value: Fiscal 2019 Actions Environment & Energy Increasing production capacity for LIB separators In fiscal 2019, we increased our production capacity of LIB separators to meet growing demand, particularly for electric vehicles. We have both Hipore™ wet-process separators and Celgard™ dry-process separators, with different characteristics based on the differ- ent production processes, enabling us to satisfy wide-ranging market and customer needs. Leveraging this strength, we are expanding our production capacity in a timely manner and developing high-value-added products with competitive advantages. Mobility Expanding our business in Lamous™ artificial suede and other automotive interior materials We increased our production capacity for Lamous™ artificial suede, which is used in automobile interiors and other applications. In addition, our subsidiary Sage Automotive Interiors, which produces Dinamica™ car interior material using Lamous™, decided to acquire the automobile interior fabric business of U.S. company Adient plc. Amid changes in the automotive industry typified by “CASE,” we are responding to new needs, including demand for greater interior comfort. Life Material Expanding businesses related to 5G mobile communications systems Demand for glass fabric and other electronic materials and electronic devices for new information and communications equipment and infrastructure applications is increasing as more and more 5G networks are launched in nations around the world. We expect new products and services to be created when various apparatus is connected to these networks. Accordingly, we will continue monitoring market trends and providing solutions Note: Not including “Others” category and corporate 2018 2019 (FY) to customers in a timely manner. expenses and eliminations Net sales (left scale) Operating income (right scale) Business Strengths Diverse core technologies With diverse core technologies that include catalysts, polymers, fibers, membranes, and compound semiconductors, we are creating new value by developing applications that anticipate the changing needs of society. We are also applying these technologies to products that benefit the global environment, such as lithium-ion battery (LIB) separators and acrylonitrile, which we produce using technology that reduces CO2 emissions. Wide-ranging marketing channels By operating in a variety of businesses, we have built relationships with a wide range of customers in industries such as automobiles, electronics, telecommunications, clothing, food packaging, and health care, and we leverage these relationships to further develop businesses. In the automotive market, we are effectively expanding sales activities with our AKXY concept electric vehicle, which is equipped with a broad range of Asahi Kasei materials and products. Stable supply of high-quality products With a diverse range of production technologies and know-how honed over nearly a century, as well as an industry-leading commitment to Responsible Care, we are able to provide a stable supply of high-quality products, which earns the trust of customers. Care for People, Care for Earth: Material Development and application of unique “green chemistry” technologies to help realize a low-carbon society: CCU (carbon capture and utilization) (1) CO2 chemistry: Since the 1980s, we have been developing technology to use CO2 as a feedstock for chemical products, resulting in commercial processes. (2) Hydrogen production through alkaline water electrolysis: This system, which utilizes ion-exchange membrane technology, enables green hydrogen to be produced using solar, wind, and other renewable energy sources. (3) CCU: We are developing technology to capture and separate the CO2 emitted from power plants and other sources. CO2 (3) CO2 capture and utilization CO2 conversion technology (1) CO2 chemistry Polycarbonate Chemical feedstocks Green hydrogen Asahi Kasei’s unique technologies CO2 utilization technologies • EC process for PC (commercialized) • DRC process for DPC (validated) CO2 derivative utilization technologies • Isocyanate production process (under development) Isocyanate Polyurethane Fuel and commodity chemicals (methanol, etc.) EC: Ethylene carbonate; PC: Polycarbonate; DRC: Dialkyl carbonate; DPC: Diphenyl carbonate (PC intermediate) (2) Hydrogen production through alkaline water electrolysis Surplus renewable energy H20 34 35 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Review of Operations Homes 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. Main Products Homes • Hebel Haus™ unit homes • Hebel Maison™ apartment buildings • Atlas™ condominiums • Hebel Maison™ apartment rental network • Remodeling Construction Materials • Hebel™ AAC panels • Neoma Foam™ and Neoma Zeus™ phenolic foam insulation panels Message from the Executive Officer for the Homes Business Sector We made significant changes in fiscal 2019. To enhance corporate value, Asahi Kasei Homes joined “RE100” for environmental harmony and acquired Resilience Certification*. Hebel Haus™ was relaunched as a “master brand” and the range of products and services was expanded to more broadly support the lives, living, and well- being of customers. Meanwhile, Asahi Kasei Construction Materials reorganized its oper- ations, changing from a function-based structure to a business division system in order to consistently deliver product value to customers. While the domestic Japanese housing market declines, changing social structures and values as an effect of the COVID-19 pandemic make it more important than ever for us to flexibly adapt to changes in our operating environment. In our core business of order-built homes, we will advance business model transformation by utilizing digital tools to evolve the home-building process. In addition, we will proactively develop new businesses with growth potential such as homes for seniors, medium-rise homes, and overseas business. * Certification for “Organizations Contributing to National Resilience” offered by the National Resilience Promotion Office Sales composition 33.0% Operating income composition 34.9% Net sales, operating income (¥ billion) FY2019 659.8 68.2 704.4 72.7 800 600 400 200 0 (¥ billion) 100 80 40 20 0 Note: Not including “Others” category and corporate expenses and eliminations 2018 2019 (FY) Net sales (left scale) Operating income (right scale) Business Strengths Technology for robust homes Hebel Haus™ has earned a reputation for resilience against disasters, achieved through a combination of high-performance earthquake resistance technology, Hebel™ auto- claved aerated concrete, and Neoma Foam™ insulation with world-leading performance. Priority Fields for Provision of Value: Fiscal 2019 Actions Home & Living Village Riche™ serviced homes for seniors We launched the Village Riche™ series of serviced homes for seniors who require nurs- ing care. This complements our existing Hebel Village™ series of apartments for seniors, from healthy to frail, and enables us to provide optimal housing and services according to the health stages of senior residents. Joining RE100 initiative for a decarbonized society Asahi Kasei Homes joined RE100, a global initiative committed to procuring 100% of electricity consumed in business activities from renewable energy sources. We will pur- chase surplus electricity from solar power systems installed in Hebel Haus™ unit homes and Hebel Maison™ apartment buildings after the end of their feed-in tariff period, and use it to provide customers with our own electricity supply service. We also plan to use this electricity for our offices, plants, and showrooms. Meanwhile, we actively promote the installation of solar power systems and storage batteries to enhance electricity resil- ience for customers in the event of a disaster. By 2038, we aim to procure 100% of the electricity used in our business activities from renewable energy sources. Care for People, Care for Earth: Homes Making homes more resilient In recent years, earthquakes, typhoons, torrential rains, and other natural disasters have been causing more damage in Japan. In addition to pro- viding highly disaster-resistant homes that protect life and living, housing manufacturers are expected to help people restore their living conditions after disasters occur. In September and October 2019, typhoons and torrential rains caused damage to many buildings across Japan. In response, Asahi Kasei Homes worked relentlessly to restore the homes of customers as quickly as pos- sible, and managed to complete the repair work of many homes in a Damage caused by Typhoon No. 15 in September 2019 (courtesy of The Mainichi Newspapers) Comprehensive system to support people’s lives timely manner. One of our strengths is having a comprehensive system based on our “Long Life Home” The swift restoration response was possible because Hebel Haus™ unit homes are robust and easy to repair, and known concept to address the era of 100-year lifespans. We value our relationships with cus- tomers and endeavor to stay close to them at various stages of their lives. We provide long-term warranties and inspection systems, and offer renovation and remodeling ser- vices according to changes in customers’ lifestyles. Knowledge, expertise, and assets related to urban housing for their durability. We also have systems in place to provide one-stop support to our customers, even during the turmoil of a disaster, by working closely with subsidiaries that handle construction and insurance procedures. In fiscal 2019, Asahi Kasei Homes obtained Resilience Certification, which is awarded to companies that proactively prepare to ensure business continuity in the event of a disaster. We are working to con- tribute to disaster prevention, disaster mitigation, and rapid social recovery in coordination with local governments to build disaster-resilient urban environments, and supporting the formation of rental hous- By focusing on urban areas, we have gained the ability to propose sites and spaces ing communities in preparation for emergencies. based on “optimal urban living” and provide consulting services accordingly. We are also expanding rental management and other businesses related to previously built homes, and using our expertise to develop new businesses such as homes for seniors, medium- rise homes, and overseas business. 36 37 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Review of Operations 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. Board Director, ZOLL Medical Corporation 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 Pharmaceuticals/Medical Care • Teribone™ osteoporosis drug • Recomodulin™ anticoagulant • Kevzara™ rheumatoid arthritis drug • APS™ polysulfone-membrane dialyzers • Therapeutic apheresis devices • Planova™ virus removal filters Acute Critical Care • Defibrillators for professional use • LifeVest™ wearable defibrillator • Automated external defibrillators (AEDs) • Thermogard System™ temperature management system Message from the Executive Officers for the Health Care Business Sector We accelerated our transformation into a global health care enterprise in fiscal 2019. With the acquisition of Veloxis Pharmaceuticals Inc., we obtained a pharmaceutical business in the immunology field, as well as a business platform and team of person- nel that will be critical to our future expansion. Asahi Kasei Pharma advanced its busi- ness in the orthopedics field, including the launch of a new autoinjector formulation of Teribone™ for the treatment of osteoporosis. Asahi Kasei Medical increased produc- tion capacity for virus removal filters and completed construction of a new plant. ZOLL continued to grow its businesses for resuscitation products and the LifeVest™ wear- able defibrillator. The COVID-19 pandemic is a sharp reminder of our mission to deploy our unique technological innovations to deliver the best products, services, and solutions to health care professionals around the world, with the aim of saving patients’ lives and improving their quality of life. We will accurately address the needs of the medical community in both the pharmaceutical and medical device businesses in order to make Health Care a growth-driving pillar of the Asahi Kasei Group. Sales composition 15.8 % Operating income composition 20.9% Net sales, operating income (¥ billion) (¥ billion) 400 300 200 100 0 316.2 41.8 337.8 43.5 2018 2019 60 40 20 0 (FY) Net sales (left scale) Operating income (right scale) FY2019 Note: Not including “Others” category and corporate expenses and eliminations Business Strengths Providing optimal treatments with both pharmaceuticals and medical devices Being engaged in both pharmaceutical and medical device businesses, we are able to provide a wide range of treatments for patients. By increasing opportunities for innova- tion in both businesses, especially in the U.S., we are able to provide even more value to support a society of healthy longevity. Business platforms in orthopedics, immunology, acute critical and cardiac care We have business platforms focused on three fields: orthopedics, where demand for osteoporosis treatments is increasing as the population ages; immunology, including immunosuppressive drugs; and acute critical and cardiac care, including our market- leading defibrillators. Accordingly, we are able to create unique products that contribute to a society of healthy longevity. World-leading position in virus removal filters Planova™ is the world’s first virus removal filter to be developed for use during the man- ufacture of biotherapeutics such as biopharmaceuticals and plasma derivatives. The reliable high performance and consistent quality of these filters are trusted by pharma- ceutical manufacturers around the world, earning us the top share of the global market. Priority Fields for Provision of Value: Fiscal 2019 Actions Health Care Acquisition of U.S. AED manufacturer Cardiac Science ZOLL Medical Corporation, our subsidiary in the acute critical care business, acquired Cardiac Science Corporation, a manufacturer and seller of automated external defibrilla- tors (AEDs). By broadening ZOLL’s product lineup and sales network in the growing market for AEDs, the acquisition is expected to drive new growth and accelerate the global expansion of ZOLL’s AED business in accordance with its mission of helping to save more lives. New spinning plant for Planova™ virus removal filters Asahi Kasei Medical completed construction of a new spinning plant for Planova™ virus removal filters, used during the manufacture of biotherapeutics such as biophar- maceuticals and plasma derivatives. With heightened requirements for viral safety, demand for virus removal filters is increasing. We provide high-performance, high- quality products that meet needs around the world and contribute to the improved safety of biotherapeutics. Acquisition of Veloxis By acquiring Veloxis, a U.S. manufacturer of immunosuppressant for kidney transplant patients, we obtained a pharmaceutical business platform in the U.S., the world’s foremost healthcare market. By growing both our pharmaceutical and medical device businesses, we will raise our presence in the health care field and accelerate our trans- formation into a global health care enterprise. (Value Creation at Work P20–23) Care for People, Care for Earth: Health Care Supporting the world’s response to COVID-19 In response to the spread of COVID-19, the entire Asahi Kasei Group is focusing on busi- nesses that can contribute to the prevention and treatment of infections. Particularly in Health Care which directly relates to people’s lives, we strive to help save as many lives as possible by raising production capacity of products with increased demand, while engag- ing in R&D collaborations to develop therapeutic drugs for COVID-19. Ventilators: Decision to increase production capacity from 400 units per month to 10,000 units Therapeutic apheresis: Contribution to the treatment of critically ill patients with acute renal failure and other serious conditions requiring emergency care Therapeutic drugs: Examining the potential of COVID-19 indication for existing drugs Virus removal filters: Used in the process of manufacturing biotherapeutics 38 39 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Corporate Governance We have an optimal corporate governance structure in place to create corporate value leveraging our strengths of “diversity” and Composition of the Board of Directors (beginning in June 2019) “capability to change.” In order to address social needs leveraging the combined strength of the Asahi Kasei Group having diverse businesses and technologies, our Board of Directors comprises 6 internal members—the President, leaders of the business sectors, and leaders of the technology and business management functions—and 3 Independent Outside Directors with diverse backgrounds, such as academia, industrial policy, and corporate management. Additionally, in order to increase the effectiveness of management oversight, we have established voluntary committees with Independent Outside Directors constituting a majority of members. Meanwhile, we have an audit system that utilizes 2 full-time Corporate Auditors who have thorough knowledge of our business and 3 Independent Outside Corporate Auditors with expertise in academia, law, and accounting to ensure that our audits are highly effective. We are continually pursuing an optimal approach to corporate governance tailored to changes in the management climate, while carrying out evaluation of the effectiveness of our Board of Directors. The 6 Directors within the company respectively have responsibility for overall management, technology functions, business man- agement functions, and the Material, Homes, and Health Care business sectors, while the 3 Outside Directors have a diverse range of backgrounds. Key points • 1/3 of Directors are independent • 1 female Director • Directors have diverse 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 Corporate Governance Configuration Audit Election Oversight Election Shareholders Meeting Board of Corporate Auditors (5 Corporate Auditors, including 3 Independent Outside Corporate Auditors) Audit Cooperation Independent Auditors Board of Directors (9 Directors, including 3 Independent Outside Directors) Nomination Advisory Committee backgrounds Remuneration Advisory Committee Execution of operations Audit Management Council President Cooperation Report Oversight Internal Audit Department • 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 Incentives for Directors (fiscal 2019) Fixed base remuneration 50% Performance-linked remuneration 37% 12% —> commitment to results • Stock-based remuneration —> perspective of shareholders Stock-based remuneration • Performance-linked remuneration Note: Percentages shown for Directors who have executive responsibilities, rounded to the nearest percent. Note: Outside Directors receive fixed base remuneration only. Shigeki Takayama Vice-Presidential Executive Officer Technology functions Tsuyoshi Okamoto Outside Director Corporate management Yutaka Shibata Vice-Presidential Executive Officer Business management functions Tsuneyoshi Tatsuoka Outside Director Industrial and economic policy Meetings of Board of Directors, Advisory Committees, and Board of Corporate Auditors (fiscal 2019) Evaluation of Effectiveness of the Board of Directors No. of Meetings Held Average Attendance Main Subjects of Agenda Board of Directors Nomination Advisory Committee* Remuneration Advisory Committee* Board of Corporate Auditors 16 3 4 16 98.2% (Directors and Corporate Auditors) • Business investment • Medium-term management initiative • Risk management and compliance 100% (All members) 100% (All members) • 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 97.5% (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. 40 The effectiveness of our Board of Directors is regularly evaluated after each fiscal year, and results of evaluation are disclosed. Measures Implemented in Fiscal 2019 Moving Forward The Board of Directors implemented the follow- Based on deliberations of the effectiveness of the Board of Directors ing measures in fiscal 2019 based on evaluation during fiscal 2019, we will continue and expand the efforts listed on of the previous fiscal year. the left. Further, to improve deliberations by the Board of Directors, we 1. Enhanced provision of information to Outside Directors and Outside Corporate Auditors will work to improve materials for Board meetings and review subjects for discussion. At the same time, we will continually examine our approach to deliberations at Board meetings, Board member diversity, 2. Provided information and held discussions and methods for evaluating the effectiveness of the Board of Directors related to focusing on perspective of inves- as ongoing tasks. tors and to promoting sustainability 41 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Directors (as of June 24, 2020) Hideki Kobori President & Representative Director Presidential Executive Officer Shigeki Takayama Representative Director Vice-Presidential Executive Officer April 1978 April 2008 April 2009 April 2010 April 2012 June 2012 April 2014 April 2016 Joined Asahi Kasei Asahi Kasei Microdevices Director, Senior Executive Officer Asahi Kasei Microdevices Director, Primary Executive Officer Asahi Kasei Microdevices President & Representative Director, Presidential Executive Officer Asahi Kasei Senior Executive Officer Asahi Kasei Director (position held at present) Asahi Kasei Representative Director (position held at present), Primary Executive Officer Asahi Kasei President and Director (position held at present), Presidential Executive Officer (position held at present) • Shareholders Meeting, Board of Directors Meeting, and Management Council convener & chair • Oversight of Sustainability Strategy Planning • Nomination Advisory Committee member • Remuneration Advisory Committee member April 1980 April 2009 April 2010 April 2012 April 2013 August 2015 April 2016 April 2018 April 2019 June 2019 Joined Asahi Kasei Asahi Kasei E-materials Executive Officer Asahi Kasei E-materials Director Asahi Kasei E-materials Director, Senior Executive Officer Asahi Kasei E-materials President & Representative Director, Presidential Executive Officer Polypore International, LP, President & CEO Asahi Kasei Senior Executive Officer, President of Separators SBU Asahi Kasei Primary Executive Officer Asahi Kasei Vice-Presidential Executive Officer (position held at present) Asahi Kasei Director (position held at present), Representative Director (position held at present) • Oversight of Technology Functions (ESH, QA, Regional Offices, Production Technology, Manufacturing, R&D, Energy Policy) • Executive Officer for health and productivity management • Nomination Advisory Committee member • Remuneration Advisory Committee member Career Summary Current Responsibilities Career Summary Current Responsibilities Shuichi Sakamoto Director Primary Executive Officer April 1981 April 2011 April 2014 Joined Asahi Kasei Asahi Kasei Chemicals Executive Officer Asahi Kasei Chemicals Director, Senior Executive Officer November 2014 Asahi Kasei Lead Executive Officer, • Executive Officer for Health Care business sector Corporate Strategy General Manager Asahi Kasei Senior Executive Officer Asahi Kasei Director (position held at present) Asahi Kasei Pharma Chairman & Director (position held at present) Asahi Kasei Medical Chairman & Director (position held at present) ZOLL Medical Corporation Board Director (position held at present) Asahi Kasei Primary Executive Officer (position held at present) April 2016 June 2016 April 2018 April 2019 April 1982 April 2012 April 2013 April 2019 June 2019 May 1989 April 2001 April 2002 April 2006 April 2007 June 2013 Fumitoshi Kawabata Director Primary Executive Officer Masumi Shiraishi Outside Director • Executive Officer for Homes business sector Joined Asahi Kasei Asahi Kasei Homes Executive Officer Asahi Kasei Homes Director (position held at present), Senior Executive Officer Asahi Kasei Homes Marketing Division General Manager April 2014 February 2016 Asahi Kasei Homes Chubu Sales Division General Manager April 2017 Asahi Kasei Senior Executive Officer Asahi Kasei Homes President & Representative Director (position held at present), Presidential Executive Officer (position held at present) Asahi Kasei Construction Materials Director (position held at present) Asahi Kasei Primary Executive Officer (position held at present) Asahi Kasei Director (position held at present) Joined NLI Research Institute Head Researcher, NLI Research Institute Assistant Professor, Department of Economics, Toyo University Professor, Department of Economics, Toyo University Professor, Faculty of Policy Studies, Kansai University (position held at present) Asahi Kasei Director (position held at present) • Nomination Advisory Committee member • Remuneration Advisory Committee member Yutaka Shibata Director Vice-Presidential Executive Officer April 1979 April 2008 April 2009 April 2011 April 2016 April 2017 June 2018 April 2019 Joined Asahi Kasei Asahi Kasei Executive Officer Asahi Kasei Lead Executive Officer Asahi Kasei Kuraray Medical President & Representative Director, Presidential Executive Officer Asahi Kasei Medical President & Representative Director, Presidential Executive Officer Asahi Kasei Pharma Director Asahi Kasei Primary Executive Officer Asahi Kasei Pharma President & Representative Director, Presidential Executive Officer Asahi Kasei Medical Director Asahi Kasei Director (position held at present) Asahi Kasei Vice-Presidential Executive Officer (position held at present) • Oversight of Business Management Functions (Strategy, Accounting/ Finance, IT, General Affairs, Legal, HR, Risk Management & Compliance) • Deputy Oversight of Asahi Kasei Europe GmbH • Oversight of Asahi Kasei America, Inc. • Oversight of Asahi Kasei (China) Co., Ltd. Tsuneyoshi Tatsuoka Outside Director April 1980 January 2010 August 2011 June 2013 July 2015 June 2016 Joined Ministry of International Trade and Industry Councilor, Cabinet Secretariat Deputy Vice-Minister of Economy, Trade and Industry Vice-Minister of Economy, Trade and Industry Retired from Ministry of Economy, Trade and Industry Asahi Kasei Director (position held at present) • Nomination Advisory Committee member • Remuneration Advisory Committee member Hiroshi Yoshida Director Vice-Presidential Executive Officer April 1979 April 2012 April 2014 April 2016 April 2017 April 2018 April 2019 June 2019 Joined Asahi Kasei Asahi Kasei Chemicals Executive Officer Asahi Kasei Chemicals Director, Senior Executive Officer Asahi Kasei Lead Executive Officer, President of Performance Polymers SBU Asahi Kasei Senior Executive Officer Asahi Kasei Primary Executive Officer Asahi Kasei Vice-Presidential Executive Officer (position held at present) Asahi Kasei Director (position held at present) • Executive Officer for Material business sector • Oversight of Asahi Kasei Europe GmbH Tsuyoshi Okamoto Outside Director April 1970 June 2002 April 2004 June 2004 April 2007 April 2010 April 2014 April 2018 June 2018 Joined Tokyo Gas Co., Ltd. Tokyo Gas Co., Ltd. Executive Officer Tokyo Gas Co., Ltd. Senior Executive Officer Tokyo Gas Co., Ltd. Director Tokyo Gas Co., Ltd. Representative Director, Executive Vice President Tokyo Gas Co., Ltd. Representative Director, President Tokyo Gas Co., Ltd. Director, Chairman Tokyo Gas Co., Ltd. Director, Senior Corporate Advisor Asahi Kasei Director (position held at present) Tokyo Gas Co., Ltd. Senior Corporate Advisor (position held at present) • Nomination Advisory Committee member • Remuneration Advisory Committee member 42 43 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Interviews with Outside Directors Promoting Diversity Masumi Shiraishi Outside Director Portfolio Transformation Is Never Complete Tsuneyoshi Tatsuoka Outside Director Q: The spread of COVID-19 has transformed the social What Asahi Kasei should not change are its corporate Q: The spread of COVID-19 has transformed the social Q: How should Asahi Kasei maximize corporate value and business environment. What does this mean for philosophy, corporate culture, and spirit of taking challenges. and business environment. What does this mean for with its configuration of three business sectors? Asahi Kasei? It’s necessary to accept some risk when expanding opera- Asahi Kasei? I sense that the company’s Group Mission of “contributing to The COVID-19 pandemic prompted Asahi Kasei to reevaluate tions through new business creation, acquisitions, and so I keenly recognize how difficult it is to contain infections in a life and living for people around the world” and Group Slogan its global strategy, the convenience of teleworking, and the forth. For that, the company needs to nurture human globalized world with ubiquitous flow of people and goods. of “Creating for Tomorrow” are embedded across all three locations of offices and plants. Now, while promoting work resources who can make clear judgments and who have a Focusing on concepts such as “contactless,” “unmanned,” sectors, supported by a heritage of taking challenges in new style reforms and increasing productivity for the with-corona sharp sense of business. and “sparse gathering,” society and individuals will need fields with development of innovative materials. Asahi Kasei’s era, we also need a high-level perspective in management to resilience to be able to smoothly shift between normal and current business structure is the product of continuous busi- deal with unforeseen risks like this. Q: How do you view Asahi Kasei’s sustainability initiatives emergency modes of behavior. Not only must companies be ness portfolio transformation over many years. The portfolio is I find it noteworthy that the company quickly introduced and its governance regarding sustainability? resilient as well, they should also provide solutions according a combination of businesses that generate high profits when widespread teleworking for employees other than at plants, Asahi Kasei is proactively incorporating the SDGs into each to such changing social needs. the economy is flourishing and stable businesses that are decided to broadly increase production of ventilators in the operation, but could do more to publicize this aspect. As for how Asahi Kasei should promote business in this largely unaffected by economic fluctuations. I evaluate this U.S., and supplied medical devices to meet the needs of As for governance, Directors also need to learn more environment, first of all would be by providing materials and positively in terms of corporate sustainability. But portfolio hospitals in China at the beginning of the crisis. Moving for- about the company’s position regarding sustainability within devices for 5G systems, as digital transformation is poised to transformation is a process that’s never complete; there is ward, I believe there will be less management emphasis on the industry. There should also be sustainability specialists accelerate. A further area would be to reinforce development always a need for additional reform. The company should expansion of scale with sites all over the world, and greater overseeing the entire Asahi Kasei Group rather than individual and manufacturing in the healthcare-related businesses. This continue to alternate between phases of diversification and focus on people—including higher priority on society, employ- business units. includes both devices to treat patients at risk of critical condi- phases of selection and focus. ees, shareholders, and the global environment. This is consis- Promoting diversity is another important issue. It’s neces- tions, and healthcare materials where the supply proved to be Further optimization is being advanced in the current tent with Asahi Kasei’s corporate philosophy, and I expect sary to welcome human resources with diverse values in order fragile. In addition, the company should review its supply medium-term management initiative to achieve a portfolio of there will be more business opportunities related to protecting to respond to changes in the business environment and turn chains emphasizing efficiency and resilience, and continue to high-profitability and high-value-added businesses. Such people’s life and living. The company can also develop prod- them into business opportunities. As the LGBT community, for address environmental issues such as climate change. Both optimization should not be just within each sector; there has ucts and services utilizing digital technology to reduce physi- example, is said to be some 8% of the population, there is a the pandemic and environmental issues can be seen as indi- to be a balance among the three sectors. When it comes to cal contact and maintain social distancing. pressing need to improve the welfare support and work envi- rectly exacerbated by population growth and more intense downsizing or divesting a business, Asahi Kasei can leverage Q: What do you think Asahi Kasei should change and Japanese Directors from inside the company. Promoting reduced GHG emissions and transition to a circular economy. connections rather than acting alone. While some difficulty is what it should not? diversity will create a better environment where employees Asahi Kasei should be more proactive in communicating to bound to emerge when dealing with various stakeholders I think the company would benefit from change in two areas. feel more comfortable working. society its activities in these regards. during the portfolio optimization process, I encourage the ronment for them. I also hope there will be female and non- human activity. There is growing demand in society for its experience gained through M&A and utilize its network of One is to further advance work style reforms. The other is to pursue innovation by turning technological seeds into low-cost practical technologies for the world related to life and living in such areas as water, air, and medical care. company to press ahead undaunted. I will continue to support this effort in my supervisory role. 44 45 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Interviews with Outside Directors Risk Management Focusing on the Three Fundamental “Actuals” Tsuyoshi Okamoto Outside Director Q: What is your view on how work styles are changing due important to have diverse human resources in order to carry to COVID-19? out PMI (post-merger integration) as planned. The key is to be The traditional way of managing work by “time” and “place” able to secure a pool of human resources that is diverse in has drastically changed with the widespread adoption of tele- terms of field of specialization, language, nationality, gender, commuting. This saves commuting time and makes it easier etc. While Japanese companies have tended to adopt a so- for employees to balance work with care for children or elderly called membership-type of employment (assuming long-term relatives. It also facilitates online meetings with colleagues or employment), this is inadequate when it comes to integrating customers located remotely. People are still figuring out the a wide range of personnel from outside through M&A, etc. best ways to take advantage of the new working styles Asahi Kasei has already adopted a “job-focused” approach to prompted by the pandemic. bring in specialists through mid-career hiring, which is essen- However, I do not think it should be expanded uncondi- tial. Otherwise it would be almost impossible to obtain a tionally. What standard of achievement can be attained with- diverse range of human resources with the required skills. out actual presence at a workplace? If the value of work As a member of Asahi Kasei’s Nomination Advisory achieved in the office is considered to be 10, can employees Committee, I’m involved in discussions about nurturing next- really score a 10 when working remotely? While this is a dif- generation management, including how to develop personnel ficult thing to evaluate, I sense that maintaining 10 will be who will play future leadership roles. Asahi Kasei needs to extremely challenging with remote working alone. Especially develop leaders who are able to take a high-level view of the for a company like Asahi Kasei that has many manufacturing three different business sectors. They will be required to make sites and a wide range of customers, it can’t be easy to create major management decisions even in areas where they have high added value without people meeting face to face. no direct experience, and to allocate resources among the Ultimately, work is based on the three fundamental “actu- three sectors from a long-term perspective. To that end, the als” of the actual place, the actual thing, and the actual fact. company rotates promising personnel among different assign- The company’s manufacturing sites are the front line, and its ments that enable them to gain the required perspective and operations are rooted in manufacturing activity. While remote experience, while garnering the ability to discern the essence working has many advantages, it also has limitations. This of a business and its challenges. Although this is not an easy presents an opportunity to reconsider the optimum style of task, the current Board of Directors fortunately has members work from first principles. with knowledge and experience in each area. I look forward to continuing to work on this difficult task together with the other Q: What are your thoughts on securing human resources Board Members. and nurturing next-generation management from the perspective of sustainability? Human resources are a company’s most important asset. When actively expanding business through M&A, it’s 46 The Asahi Kasei Group has established and is working to reinforce the Risk Management & Compliance Committee, chaired by the basic guidelines for risk management and emergency response in Asahi Kasei President, we confirm and follow up on the state of our business operations in accordance with the Asahi Kasei Group risk management across the entire Group. Basic Regulation for Risk Management & Compliance. The principal business risks and other risks that could affect Managers responsible for Risk Management & Compliance the Asahi Kasei Group’s performance are as stated hereinafter. are designated in each SBU, core operating company, and sub- We will take countermeasures that reflect the attributes and sidiary. They work to identify, assess, and analyze the risks of each degrees of respective risks. business, and to plan measures to mitigate serious risks. Through Groupwide Risks Performance-Related Risks Principal Attributes Primary Countermeasures Risks Related to the COVID-19 Pandemic Risks Related to Market Conditions The risk of disruption to the supply chains of the Asahi Kasei Group’s products and services and the risk of volatility in demand for products or in the market prices of feedstocks amid uncertainty over the outlook with respect to the extent and duration of the COVID-19 pandemic’s effect on economic activities • Strengthening measures for operational stability, including the diversification of channels to procure inputs for main products and businesses • Underpinning performance by reducing expenses and enhancing productivity • Curbing capital requirements by monitoring market demand and optimizing Crude oil and naphtha prices: The risk of volatility in the raw material procure- ment prices paid by businesses or in the market prices of feedstocks that affect products’ selling prices Exchange rate risk: The risk of volatility in exchange rates between the yen and foreign currencies accompanying the foreign currency denominated settlement of import and export trading transactions and trading transactions between third-party countries inventory levels • Stabilizing revenues by revising the method of determining selling prices (acrylonitrile business) • Stable and efficient utilization of capital with a cash management system and by hedging through forward exchange contracts Risks Related to M&A The risk of incurring goodwill impairment if initially expected investment benefits are not realized, if the performance of a joint venture deteriorates, or if business integration with an acquired company is delayed Exercising due diligence with respect to companies being considered for acquisition and carefully verifying business integration plans after acquisitions Risks Related to Business Competitiveness The risk of respective businesses losing competitiveness as a result of other companies using similar products or technologies to eliminate differentiation, the risk of intensified competition due to the entry of new competitors, the risk of changes in the structures of industries due to rapid technological innovation, or the risk of sudden changes in demand structures or market structures Examining the competitiveness of competing products and examining timely, accurate forecasts of changes in industrial structures, and then continually differentiating products and services, establishing business models that are difficult to imitate, and using intellectual property to build high barriers to entry Risks Related to Trade and Economic Sanctions The risk of being unable to collect bills or execute operations or experiencing delays in these regards due to the occurrence of unforeseeable situations that result from a country’s geopolitical issues, taxation system, statutory regulations, labor environment, or trade practices and the risk of being subject to penalties if transactions are conducted that infringe upon various types of economic sanctions, such as the OFAC regulations (economic sanction measures implemented by the Office of Foreign Assets Control of the U.S. Department of the Treasury) • Monitoring industry-related trends in respective businesses and regions and implementing measures in response • Conducting prior screening and periodic monitoring to ascertain whether or not there is a possibility of infringing upon economic sanctions, and implementing measures in response Risk Related to Climate Change The risk related to such climate change as worldwide rises in temperature of the types referred to by the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) [Material and Homes] Analyzing the overall situation and examining responses in light of annual considerations of the climate-related risks and opportunities of respective businesses ( P48 – 49) Other Risks In addition to the aforementioned risks, business risks stemming from large-scale natural disasters, industrial accidents, accidents caused by defective products, intellectual property rights, and new laws • Implementing measures in response through respective responsible divisions • Implementing risk financing by acquiring property and casualty insurance with the aim of covering restoration costs if risks actualize • Evaluating risks through periodic discussions at meetings of the Risk Management & Compliance Committee Risks Related to Business Segments Performance-Related Risks Principal Attributes Primary Countermeasures Material Homes Health Care • Environment & Energy: The risk of sales volumes or selling prices being lower than forecasted due to a decrease in worldwide demand for lithium-ion battery separators or due to the sales policies of competitors • Environment & Energy: Maintaining competitive superiority with products that combine high output, high capacity, and high reliability, and by increasing production capacity • Mobility: The risk of volatility in demand due to trends in the global automotive industry as well as the risk of a decrease in demand due to the stopping of production lines or the adjustment of production by automotive component clients as an effect of the current COVID-19 pandemic • Mobility: Expanding and improving the lineup of materials to cater to changes in the industry, such as CASE (Connected, Autonomous, Shared & Service, Electric) technological innovation in relation to automobiles; extending the range of product applications; and building business models enabling sustainable growth • The risk of volatility in demand due to consumer spending trends in Japan; policies related to interest rates, land prices, and homes; or taxation system trends as well as the risk of changes in needs with respect to homes as the effect of the current COVID-19 pandemic leads to a slump in consumer spending, changes in methods of communication with customers, or an increase in working from home • Mitigating these negative factors by focusing business development mainly on urban areas that have higher household income and stable market rates for land prices or house rents as well as pursuing new methods of communication with customers through the utilization of IT tools to attract customers and to advance efforts to obtain orders • Ensuring rigorous compliance with statutory regulations and rules in the • The risk of damage to trust due to the leakage of the personal information of management and protection of personal information a customer • The risk of a decrease in the sales volumes or selling prices of drugs or medical devices due to periodic revision of National Health Insurance (NHI) reimburse- ment prices as well as the risk of new drugs under development not receiving approval and not becoming commercial products as planned • Realizing diverse growth potential and competitive strength by having both a pharmaceutical business and a medical device business, increasing opportuni- ties to acquire innovation, and enhancing the ability to adapt given the uncer- tainty of future medical regulations • The risk of sudden changes in demand for medical devices or drugs due to the • Monitoring demand trends carefully and implementing flexible production effect of the current COVID-19 pandemic measures in response to fluctuations in demand 47 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Risk Management Initiatives Regarding Climate Change Disclosure Based on the TCFD* Recommendations CO2 emissions have been increasing continuously since the In our analysis, we examined changes that are expected industrial revolution, and the substantial increase since the to occur due to climate change and their impact on our busi- 20th century in particular is said to be causing climate change. ness from a variety of perspectives. Through this analysis, it Given that climate change has a significant impact on society, became clear that, while climate change is expected to have a the world views it as an urgent issue that needs to be addressed significant impact from a financial perspective over the through concrete measures under a unified approach. medium term, the financial risk to the Asahi Kasei Group as a During the century since Asahi Kasei’s founding, we have whole is limited, and our business portfolio comprising diverse focused on the needs of society and operated businesses to businesses gives rise both to risk abatements and to opportu- address such needs. Today, as climate change measures are nities. In addition, we confirmed that we have the potential to expected by society, contributing to the environment is a pillar capture new opportunities related to climate change through of the Asahi Kasei Group’s management strategy, expressed our diverse businesses and technologies. Important Changes Serious storm and flood damage Risks Main Risks “Physical” production risks • Suspension of production due to plant damage • Disruption of raw material supply due to damage incurred by suppliers Principal Countermeasures • Continuous revision of BCP and reinforcement of preemptive response Rise in temperature “Human” production risks • Deterioration of working environment and productivity at construction sites • Promotion of industrialization and utilization of IT in housing construction Physical risks 4°C Transition risks Less than 2°C • Rise in costs due to stricter regulations* (manu- facturing and raw material costs) Decarbonization • Changes in materials needs (decarbonization requirements, necessary specifications) • Expansion in utilization of renewable energy, etc. • More efficient energy use; development and commercialization of industrial processes for decarbonization • Decarbonization of raw materials * Example: In the event of a carbon tax under a scenario put forward by the International Energy Agency (IEA), the maximum annual increase in manufacturing costs would be around ¥60 billion (fiscal 2019 GHG emissions of four million tons × US$140/t carbon tax). Opportunities as “Care for Earth.” We will reduce the risks of climate change and continue to Important Changes Main Opportunities Principal Initiatives Meanwhile, the impact of climate change on companies is develop as a company that coexists with the environment a matter of great concern to investors and other stakeholders, while viewing adaptation and mitigation measures as business and companies must clarify its impact and engage in continual opportunities, thereby contributing to the achievement of a dialogue with these parties. Therefore, in accordance with the sustainable society. recommendations of the TCFD, we undertook to analyze the impact of climate change and clarify our response to it. Aspiration of the Asahi Kasei Group Physical risks Strengths of Asahi Kasei Creating opportunities Businesses contributing to a sustainable society Transition risks Diversity Capability to change Reducing risks * TCFD: Task Force on Climate-related Financial Disclosures. The TCFD was established and its recommendations were officially announced by the Financial Services Board in 2017. Corporate Governance Asahi Kasei regards climate change measures as important including climate change at meetings of the Sustainability management issues, and discusses their implementation Committee, chaired by the Asahi Kasei President, with results status at meetings of the Management Council and the Board reported to the Board of Directors. In addition, our Global of Directors. Environment Committee, chaired by the Executive Officer for Physical risks 4°C Serious storm and flood damage • Increasing need for disaster-resilient housing Decarbonization • Promotion of the spread of net Zero Energy Houses (ZEH)* through government policies Transition risks Less than 2°C Spread of electric vehicles (EVs) Increase in EV-related demand • Battery components • Materials for reducing vehicle weight Greater emphasis on resilience in house building and urban development • Hardware/software • Individual/community • Decarbonization of homes and communities • Provision of components and systems for next-generation mobility • Strengthening of collaboration with automobile and battery manufacturers Advent of a hydrogen society • Increase in demand for water electrolysis using • Utilization of alkaline water electrolysis system renewable energy * ZEH: Houses with a net energy consumption of zero or less as achieved through advanced insulation and energy saving combined with power generation such as solar Risk Management We examine risks and opportunities and formulate policies emissions when undertaking large-scale investments and from the perspective of the “Care for Earth” concept in our other major expenditures. medium-term management initiative. We calculate total GHG emissions for the Asahi Kasei In addition, we incorporate the aspect of sustainability, Group annually, and the Board of Directors and other bodies including climate change, into our decision criteria for allocat- manage progress toward our targets. ing management resources, and confirm the status of GHG In order to accurately understand the issue of climate Technology Functions, discusses issues related to the environ- Metrics and Targets change and discuss measures for addressing it, members of ment, as a subcommittee of the Sustainability Committee. executive management discuss issues related to sustainability (Framework for Promoting Sustainability P14) Strategy (Analysis of Risks and Opportunities) Basis of analysis To reduce GHG emissions associated with our business activities, we have set GHG emissions ÷ net sales from Scope 1 & 2 (domestic and overseas) as a metric. Our target is for this index to be 35% lower in fiscal 2030 compared with fiscal 2013. We also seek to contribute to a reduction in society’s GHG emissions by promoting the development of environmental contribution products ( P17) that help reduce • Scenarios assume temperature rises of 4°C and less than 2°C and a time frame of 2050 GHG emissions in society. • Examination covers our Material and Homes sectors, which fall within the scope of the sectors recommended for disclosure in the TCFD recommendations • Analysis of the impact on our existing business portfolio 48 GHG emissions / net sales (Fiscal 2013 = 100) (Index) 35% lower 100 75 50 25 0 2013 2019 2030 (FY) 49 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information SASB Disclosure Information Index This is an index of disclosed information in accordance with the ESG information disclosure framework “SASB Standards” issued by the U.S. Sustainability Accounting Standards Board (SASB). The table below refers to the standards for the Chemicals industry in the Resource Transformation sector, and shows the source of the relevant information. We will continue working to add more reference standards. Sustainability Disclosure Topics & Accounting Metrics Topic Accounting Metric Code Information Disclosure Website URL Greenhouse Gas Emissions Gross global Scope 1 emissions, RT-CH-110a.1 Climate Change > Policy > Scope 1 and 2 GHG emissions percentage covered under emissions-limiting regulations https://www.asahi-kasei.com/sustainability/environment/climate_change/ ESG Data (Environment) https://www.asahi-kasei.com/sustainability/esg_data/ Discussion of long-term and short-term RT-CH-110a.2 Climate Change > Policy > Greenhouse Gas (GHG) Emission Reduction strategy or plan to manage Scope 1 emissions, emissions reduction targets, and an analysis of performance against those targets Targets in the Medium-Term Management Initiative https://www.asahi-kasei.com/sustainability/environment/climate_change/ Air Quality Air emissions of the following pollutants: RT-CH-120a.1 (1), (2) Pollution and Natural Resources > Air pollution, Environmental (1) NOx (excluding N2O), (2) SOx, Management, ESG Data (Environment) (3) Pollution and Natural Resources > Reducing emissions of chemical (3) volatile organic compounds (VOCs), and substances, Environmental Management, ESG Data (Environment) (4) hazardous air pollutants (HAPs) (1)–(3) https://www.asahi-kasei.com/sustainability/environment/resources/ Energy Management (1) Total energy consumed, (2) percentage grid electricity, (3) percentage renewable, (4) total self-generated energy https://www.asahi-kasei.com/sustainability/esg_data/ (4) — RT-CH-130a.1 (1) Environmental Management https://www.asahi-kasei.com/sustainability/environment/management/ (2) — (3) Climate Change > Efforts to Reduce CO2 Emissions in Japan > Renewable energy https://www.asahi-kasei.com/sustainability/environment/climate_change/ (4) — Water Management (1) Total water withdrawn, (2) total water consumed, percentage of each in regions RT-CH-140a.1 (1) Water Resource Preservation > Reducing water use, ESG Data (Environment) https://www.asahi-kasei.com/sustainability/environment/water_use/ with High or Extremely High Baseline https://www.asahi-kasei.com/sustainability/esg_data/ Water Stress (2) — Topic Accounting Metric Code Information Disclosure Website URL Workforce Health & Safety (1) Total recordable incident rate (TRIR) RT-CH-320a.1 Occupational Health and Safety and (2) fatality rate for (a) direct employees and (b) contract employees https://www.asahi-kasei.com/sustainability/social/workplace/ Product Design for Use-phase Efficiency Safety & Environmental Stewardship of Chemicals Genetically Modified Organisms Management of the Legal & Regulatory Environment Operational Safety, Emergency Preparedness & Response Description of efforts to assess, monitor, RT-CH-320a.2 Occupational Health and Safety > Health management, Health manage- and reduce exposure of employees and contract workers to long-term (chronic) health risks ment for employees https://www.asahi-kasei.com/sustainability/social/workplace/ Revenue from products designed for RT-CH-410a.1 — use-phase resource efficiency (1) Percentage of products that contain RT-CH-410b.1 (1) Quality Assurance Globally Harmonized System of Classification https://www.asahi-kasei.com/sustainability/social/quality/ and Labeling of Chemicals (GHS) Category 1 (2) — and 2 Health and Environmental Hazardous Substances, (2) percentage of such products that have undergone a hazard assessment Discussion of strategy to (1) manage RT-CH-410b.2 (1), (2) chemicals of concern and (2) develop alternatives with reduced human and/or environmental impact Quality Assurance > Product safety and product liability, Chemical substance management https://www.asahi-kasei.com/sustainability/social/quality/ Pollution and Natural Resources > Reducing emissions of chemical substances https://www.asahi-kasei.com/sustainability/environment/resources/ Percentage of products by revenue that RT-CH-410c.1 — contain genetically modified organisms (GMOs) Discussion of corporate positions related to RT-CH-530a.1 Environmental Management > Policy government regulations and/or policy https://www.asahi-kasei.com/sustainability/environment/management/ proposals that address environmental and Climate Change > Policy social factors affecting the industry https://www.asahi-kasei.com/sustainability/environment/climate_change/ Process Safety Incidents Count (PSIC), RT-CH-540a.1 Process Safety > Process safety management Process Safety Total Incident Rate (PSTIR), and Process Safety Incident Severity Rate (PSISR) https://www.asahi-kasei.com/sustainability/social/safety/ Number of transport incidents RT-CH-540a.2 Process Safety > Transportation and Distribution Safety https://www.asahi-kasei.com/sustainability/social/safety/ Number of incidents of non-compliance RT-CH-140a.2 Water Resource Preservation > Prevention of water pollution associated with water quality permits, https://www.asahi-kasei.com/sustainability/environment/water_use/ Activity Metrics standards, and regulations Description of water management risks RT-CH-140a.3 — and discussion of strategies and practices to mitigate those risks Hazardous Waste Management Community Relations Amount of hazardous waste generated, RT-CH-150a.1 Pollution and Natural Resources > Reducing industrial waste percentage recycled https://www.asahi-kasei.com/sustainability/environment/resources/ Discussion of engagement processes to RT-CH-210a.1 — manage risks and opportunities associated with community interests Activity Metric Unit of Measure Code Production by reportable segment Cubic meters (m³) and/or metric tons (t) RT-CH-000.A — We disclose detailed information on Asahi Kasei’s policies, systems, results, and data on ESG issues for promoting sustainability in our sustainability website (Sustainability Report). https://www.asahi-kasei.com/sustainability/ In addition, the “Global Reporting Initiative (GRI) Standards Content Index” is posted on our website. https://www.asahi-kasei.com/sustainability/basic_information/guidelines/ 50 51 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Consolidated Financial Statements Detailed Consolidated Financial Statements are available at the following link: https://www.asahi-kasei.com/ir/library/financial_briefing/pdf/2003statements.pdf Consolidated Balance Sheets Asahi Kasei Corporation and Consolidated Subsidiaries March 31, 2020 and 2019 ASSETS Current assets: Cash and deposits Notes and accounts receivable–trade 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 Accumulated depreciation Buildings and structures, net Machinery, equipment and vehicles Accumulated depreciation Machinery, equipment and vehicles, net Land Lease assets Accumulated depreciation Lease assets, net Construction in progress Other Accumulated depreciation Other, net Subtotal Intangible assets: Goodwill Other Subtotal Investments and other assets: Investment securities Long-term loans receivable Long-term advance payments–trade Deferred tax assets Other Allowance for doubtful accounts Subtotal Total noncurrent assets Millions of yen 2020 2019 Thousands of U.S. dollars* 2020 ¥ 207,957 330,999 216,463 160,064 101,313 92,153 (1,519) 1,107,430 ¥ 193,893 350,716 201,699 131,686 93,961 82,900 (3,461) 1,051,393 $ 1,911,194 3,041,991 1,989,367 1,471,041 931,100 846,917 (13,960) 10,177,649 563,110 (305,259) 257,851 547,422 5,175,168 (294,536) (2,805,431) 252,886 2,369,736 1,466,958 1,439,166 13,481,831 (1,243,780) (1,222,201) (11,430,751) 223,179 216,966 2,051,089 67,024 9,645 (8,964) 681 75,487 172,674 63,889 10,159 (9,423) 736 64,188 160,631 615,973 88,641 (82,382) 6,259 693,751 1,586,931 (143,210) (137,930) (1,316,147) 29,464 653,686 22,701 621,366 270,784 6,007,591 469,535 215,947 685,482 319,898 210,080 529,978 4,315,182 1,984,625 6,299,807 244,581 7,951 20,467 49,929 28,883 (435) 296,330 19,993 – 27,508 29,052 (418) 2,247,781 73,072 188,099 458,864 265,444 (3,998) 351,377 372,465 3,229,271 1,690,545 1,523,810 15,536,669 LIABILITIES AND NET ASSETS Liabilities: Current liabilities: Notes and accounts payable–trade Short-term loans payable Commercial paper Current portion of bonds payable Lease obligations Accrued expenses Income taxes payable 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 Long-term loans payable Lease obligations Deferred tax liabilities Provision for grant of shares Provision for periodic repairs Provision for removal cost of property, plant and equipment Net defined benefit liability Long-term guarantee deposits Other Total noncurrent liabilities Total liabilities Net assets: Shareholders’ equity: Capital stock Millions of yen 2020 2019 Thousands of U.S. dollars* 2020 ¥ 131,207 275,671 139,000 – 1,006 121,520 18,145 73,623 78 4,043 3,738 2,640 71,863 842,531 60,000 229,172 3,506 46,298 412 4,560 5,771 174,365 21,613 26,287 571,985 ¥ 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 $ 1,205,836 2,533,508 1,277,456 – 9,245 1,116,809 166,759 676,620 717 37,157 34,353 24,262 660,445 7,743,139 551,420 2,106,167 32,221 425,494 3,786 41,908 53,037 1,602,472 198,631 241,586 5,256,732 1,414,515 1,172,493 12,999,862 Authorized— 4,000,000,000 shares Issued and outstanding— 1,393,932,032 shares Capital surplus Retained earnings 103,389 79,641 103,389 79,708 950,179 731,927 1,125,738 1,077,586 10,345,906 Treasury stock (2020—6,440,327 shares, 2019—6,491,383 shares) (5,990) (3,936) (55,050) 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 1,302,777 1,256,747 11,972,953 67,027 (241) 13,027 (23,275) 56,538 24,145 101,971 (40) 42,020 (19,213) 124,738 21,225 616,000 (2,215) 119,722 (213,905) 519,603 221,901 1,383,460 1,402,710 12,714,456 Total assets ¥ 2,797,975 ¥ 2,575,203 $ 25,714,319 Total liabilities and net assets ¥2,797,975 ¥2,575,203 $25,714,319 * 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, * 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 ¥108.81 = US$1 prevailing on March 31, 2020, has been used. the approximate current exchange rate of ¥108.81 = US$1 prevailing on March 31, 2020, has been used. 52 53 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Consolidated Statements of Comprehensive Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2020 and 2019 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 S hare of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income Comprehensive income Comprehensive income attributable to: Owners of the parent Non-controlling interests Millions of yen 2020 2019 Thousands of U.S. dollars* 2020 ¥105,728 ¥149,815 $ 971,675 (34,895) (201) (26,115) (3,867) (3,482) (68,561) ¥ 37,167 (19,058) (132) 12,464 4,311 1,297 (1,119) ¥148,696 (320,697) (1,847) (240,006) (35,539) (32,001) (630,098) $ 341,577 ¥ 35,730 ¥146,339 $ 328,370 1,437 2,357 13,207 * 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 ¥108.81 = US$1 prevailing on March 31, 2020, has been used. Consolidated Statements of Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2020 and 2019 Net sales Cost of sales Gross profit Selling, general and administrative expenses Operating income 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 Costs associated with idle portion of facilities Other Total non-operating expenses Ordinary income Extraordinary income: Gain on sales of investment securities Gain on sales of noncurrent assets Total extraordinary income Extraordinary loss: Loss on valuation of investment securities Loss on disposal of noncurrent assets Impairment loss Loss on disaster Loss on product compensation Business structure improvement expenses Total extraordinary loss Income before income taxes Income taxes — current — deferred Total income taxes Net income Net income attributable to non-controlling interests Net income attributable to owners of the parent Millions of yen 2020 2019 ¥2,151,646 1,476,606 675,040 497,776 177,264 ¥2,170,403 1,481,855 688,548 478,960 209,587 Thousands of U.S. dollars* 2020 $19,774,341 13,570,499 6,203,842 4,574,727 1,629,115 2,769 5,251 7,138 5,320 20,479 4,016 2,328 1,642 5,750 13,735 184,008 13,679 4,268 17,948 1,953 9,668 21,949 2,437 5,173 4,840 46,022 155,934 54,173 (3,967) 50,206 105,728 1,797 3,094 6,060 12,112 4,238 25,504 4,371 2,686 989 7,069 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 25,448 48,258 65,601 48,893 188,209 36,908 21,395 15,091 52,844 126,229 1,691,095 125,715 39,224 164,948 17,949 88,852 201,719 22,397 47,542 44,481 422,957 1,433,085 497,868 (36,458) 461,410 971,675 16,515 ¥ 103,931 ¥ 147,512 $ 955,160 * 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 ¥108.81 = US$1 prevailing on March 31, 2020, has been used. 54 55 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Consolidated Statements of Changes in Net Assets Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2020 and 2019 Shareholders’ equity Accumulated other comprehensive income Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Re- measurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Millions of yen Balance at March 31, 2019 ¥103,389 ¥79,708 ¥1,077,586 ¥ (3,936) ¥1,256,747 ¥101,971 ¥ (40) ¥ 42,020 ¥(19,213) ¥124,738 ¥21,225 ¥1,402,710 Changes during the fiscal year: Dividends from surplus N et income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Cancellation of treasury stock Transfer from retained earnings to capital surplus Change of scope of consolidation C apital increase of consolidated subsidiaries N et changes of items other than shareholders’ equity Total changes of items during the period (48,723) 103,931 (48,723) 103,931 (10,016) (10,016) 0 (7,878) 83 7,878 7,856 (7,856) 801 (46) 84 – – 801 (46) (48,723) 103,931 (10,016) 84 – – 801 (46) – (67) 48,152 (2,055) 46,030 (34,945) (201) (28,993) (4,062) (68,200) 2,920 (19,250) (34,945) (201) (28,993) (4,062) (68,200) 2,920 (65,280) Balance at March 31, 2020 ¥103,389 ¥79,641 ¥1,125,738 ¥ (5,990) ¥1,302,777 ¥ 67,027 ¥(241) ¥ 13,027 ¥(23,275) ¥ 56,538 ¥24,145 ¥1,383,460 Shareholders’ equity Accumulated other comprehensive income Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Re- measurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Millions of yen Balance at March 31, 2018 ¥103,389 ¥79,440 ¥ 981,934 ¥(3,930) ¥1,160,833 ¥121,128 ¥ 92 ¥28,676 ¥(23,343) ¥126,553 ¥17,827 ¥1,305,214 Changes during the fiscal year: Dividends from surplus N et income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Cancellation of treasury stock Transfer from retained earnings to capital surplus Change of scope of consolidation C apital increase of consolidated subsidiaries N et changes of items other than shareholders’ equity Total changes of items during the period (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 Balance at March 31, 2019 ¥103,389 ¥79,708 ¥1,077,586 ¥(3,936) ¥1,256,747 ¥101,971 – 268 95,652 (6) 95,914 (19,157) (132) ¥ (40) 13,344 4,130 (1,815) 3,398 97,496 ¥42,020 ¥(19,213) ¥124,738 ¥21,225 ¥1,402,710 Thousands of U.S. dollars* Shareholders’ equity Accumulated other comprehensive income Capital stock Capital surplus Retained earnings Treasury stock Total shareholders’ equity Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Re- measurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Balance at March 31, 2019 $950,179 $732,543 $9,903,373 $(36,173) $11,549,922 $ 937,147 $ (368) $ 386,178 $(176,574) $1,146,384 $195,065 $12,891,370 Changes during the fiscal year: Dividends from surplus N et income attributable to owners of the parent Purchase of treasury stock Disposal of treasury stock Cancellation of treasury stock Transfer from retained earnings to capital surplus Change of scope of consolidation C apital increase of consolidated subsidiaries N et changes of items other than shareholders’ equity Total changes of items during the period (447,781) (447,781) 955,160 955,160 (92,050) (92,050) 0 (72,401) 763 72,401 72,199 (72,199) 7,361 (423) 772 – – 7,361 (423) (447,781) 955,160 (92,050) 772 – – 7,361 (423) – (616) 442,533 (18,886) 423,031 (321,156) (1,847) (266,455) (37,331) (626,781) 26,836 (176,914) (321,156) (1,847) (266,455) (37,331) (626,781) 26,836 (599,945) Consolidated Statements of Cash Flows Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2020 and 2019 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 in provision for removal cost of property, plant and equipment Decrease in net defined benefit liability Interest and dividend income Interest expense Equity in earnings of affiliates Gain on sales of investment securities Loss on valuation of investment securities Gain on sale of property, plant and equipment Loss on disposal of noncurrent assets Decrease in notes and accounts receivable–trade Increase in inventories Decrease in notes and accounts payable–trade Increase in accrued expenses (Decrease) Increase 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 P urchase 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 increase (decrease) in short-term loans payable Increase 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 Proceeds from share issuance to non-controlling interests Cash dividends paid Cash dividends paid to non-controlling interests P ayments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation Other, net Net cash provided by 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 Millions of yen 2020 2019 ¥155,934 96,016 21,949 22,288 (79) 119 332 640 3,141 (4,069) (8,021) 4,016 (7,138) (13,679) 1,953 (4,268) 9,668 16,919 (51,950) (45,562) 2,624 (1,925) (20,688) 178,218 10,834 (4,203) (60,388) 124,460 (4,195) 13,343 (138,354) 5,693 (16,096) (10,820) 23,543 (175,759) (1,964) (23,170) 9,253 369 (318,156) 172,022 62,000 45,816 (17,586) 40,000 (20,000) (1,276) (10,016) 84 849 (48,723) (1,052) – (194) 221,923 (4,060) 24,167 180,520 ¥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 Thousands of U.S. dollars* 2020 $1,433,085 882,419 201,719 204,834 (726) 1,094 3,051 5,882 28,867 (37,395) (73,716) 36,908 (65,601) (125,715) 17,949 (39,224) 88,852 155,491 (477,438) (418,730) 24,115 (17,691) (190,130) 1,637,883 99,568 (38,627) (554,986) 1,143,829 (38,553) 122,627 (1,271,519) 52,321 (147,928) (99,439) 216,368 (1,615,284) (18,050) (212,940) 85,038 3,391 (2,923,959) 1,580,939 569,801 421,064 (161,621) 367,613 (183,807) (11,727) (92,050) 772 7,803 (447,781) (9,668) – (1,783) 2,039,546 (37,313) 222,103 1,659,039 85 ¥204,771 846 ¥180,520 781 $1,881,913 Balance at March 31, 2020 $950,179 $731,927 $10,345,906 $(55,050) $11,972,953 $ 616,000 $(2,215) $ 119,722 $(213,905) $ 519,603 $221,901 $12,714,456 * 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 ¥108.81 = US$1 prevailing on March 31, 2020, has been used. * 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, 56 the approximate current exchange rate of ¥108.81 = US$1 prevailing on March 31, 2020, has been used. 57 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information Company Information/Investors Information (as of March 31, 2020) Information Disclosure Corporate Profile Company Name Asahi Kasei Corporation Paid-in Capital ¥103,389 million Date of Establishment May 21, 1931 Employees 40,689 (consolidated) 8,253 (non-consolidated) Asahi Kasei Group Offices Asahi Kasei Corporation Core Operating Companies Tokyo Head Office Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Tel: +81-(0)3-6699-3000 Fax: +81-(0)3-6699-3161 Asahi Kasei (China) Co., Ltd. 8/F, One ICC Shanghai International Commerce Centre No. 999 Huai Hai Zhong Road, Shanghai 200031 China Tel: +86-21-6391-6111 Fax: +86-21-6391-6686 Beijing Office Suite 2008, Gemdale Plaza A, 91 Jianguo Road, Chaoyang District, Beijing 100022 China Tel: +86-10-6569-3939 Fax: +86-10-6569-3938 Asahi Kasei America, Inc. 800 Third Avenue, 30th Floor New York, NY 10022 U.S.A. Tel: +1-212-371-9900 Fax: +1-212-371-9050 Asahi Kasei Europe GmbH Am Seestern 4, 40547 Düsseldorf, Germany Tel: +49-211-8822-030 Fax: +49-211-8822-0333 (New address after relocation scheduled for November 16, 2020) Fringsstrasse 17, 40221 Düsseldorf, Germany Tel: +49-211-3399-2201 Fax: +49-211-3399-2299 Asahi Kasei India Pvt. Ltd. The Capital 1502B, Plot C-70, G-Block, Bandra Kurla Complex, Bandra (East), Mumbai 400051 India Tel: +91-22-6710-3962 Fax: +91-22-6710-3979 Asahi Kasei Asia Pacific Co., Ltd. 1705-1706, 17th Floor Singha Complex Building, 1788 New Petchaburi Road, Khwaeng Bang Kapi, Khet Huai Khwang, Bangkok 10310 Thailand Tel: +66-(0)-2-163-4944 Investors Information Stock Listing Stock Code Tokyo 3407 Authorized Shares 4,000,000,000 Outstanding Shares 1,393,932,032 Transfer Agent Sumitomo Mitsui Trust Bank, Ltd. Asahi Kasei Microdevices Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Tel: +81-(0)3-6699-3933 Asahi Kasei Homes 1-105 Kanda Jinbocho, Chiyoda-ku, Tokyo 101-8101 Japan Tel: +81-(0)3-6899-3000 Asahi Kasei Construction Materials 1-105 Kanda Jinbocho, Chiyoda-ku, Tokyo 101-8101 Japan Tel: +81-(0)3-3296-3500 Asahi Kasei Pharma Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Tel: +81-(0)3-6699-3600 Asahi Kasei Medical Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Tel: +81-(0)3-6699-3750 ZOLL Medical Corporation 269 Mill Rd., Chelmsford, MA 01824-4105 U.S.A. Tel: +1-978-421-9655 Largest Shareholders JP Morgan Chase Bank 385632 The Master Trust Bank of Japan, Ltd. (trust account) Japan Trustee Services Bank, Ltd. (trust account) Nippon Life Insurance Company Japan Trustee Services Bank, Ltd. (trust account 7) Asahi Kasei Group Employee Stockholding Association SSBTC Client Omnibus Account Independent Auditors PricewaterhouseCoopers Aarata LLC Japan Trustee Services Bank, Ltd. (trust account 5) Number of Shareholders 125,793 Sumitomo Mitsui Banking Corp. JP Morgan Chase Bank 385151 Note: Percentage of equity ownership after exclusion of treasury stock. % of equity 7.91 7.68 4.67 4.21 2.41 2.40 2.19 1.91 1.83 1.57 Investor Relations Sustainability On our IR website, in addition to posting materials on financial We disclose detailed information on Asahi Kasei’s sustainabil- results, we present the Asahi Kasei Group’s business perfor- ity policies, systems, results, and data on ESG issues in our mance and future policies. sustainability website (Sustainability Report). https://www.asahi-kasei.com/ir/ https://www.asahi-kasei.com/sustainability/ External Evaluation Inclusion in Socially Responsible Investment Indexes (Fiscal 2020) • FTSE4Good Index • FTSE Blossom Japan Index • MSCI Japan Empowering Women Index (WIN) • MSCI Japan ESG Select Leaders Index • S&P/JPX Carbon Efficient Index CDP Climate Change and Water Security A– Evaluation Asahi Kasei received an “A–” evaluation in the categories of Climate Change and Water Security in the 2019 survey conducted by CDP. We received an A– in the Climate Change category for five consecutive years from 2015 to 2019, while 2019 was our first year to receive an A– in the Water Security category. 5-Star Certification in 3rd Nikkei Smart Work Management Survey Asahi Kasei received the Special Jury Prize in addition to 5-Star Certification, the highest ranking, in the 3rd Nikkei Smart Work Management Survey, which recognizes leading companies for their efforts to achieve a productivity revolution through workstyle reforms. 58 59 Asahi Kasei Group OverviewManagement StrategyBusiness OverviewCorporate Governance and Risk ManagementFinancial and Non-Financial Information