ASAHI KASEI CORP Annual Report 2021

Plain-text annual report

Creating for Tomorrow Asahi Kasei Report 2021 Asahi Kasei Report 2021 1 Group Mission We, the Asahi Kasei Group, contribute to life and living for people around the world. Group Vision Providing new value to society by enabling “living in health and comfort” and “harmony with the natural environment.” Group Values Sincerity—Being sincere with everyone. Challenge—Boldly taking challenges, continuously seeking change. Creativity—Creating new value through unity and synergy. Group Slogan Creating for Tomorrow Contents Asahi Kasei Group Overview Business Overview 3 At a Glance 46 Review of Operations 5 Financial and Non-Financial Highlights 46 Material 7 Addressing Social Issues and Advancing Business 48 Homes Portfolio Strategies — Our Path to Three Sectors — 50 Health Care Management Strategy 10 Message from the President 1 8 Value Creation Model Corporate Governance and Risk Management 19 The Asahi Kasei Group’s Vision for the Future of 53 Corporate Governance 2 Editorial policy 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 such areas as our management strategy, business conditions, and management configuration as well as our efforts toward sustainability in society. Detailed sustainability-related information is disclosed on our website. Period under review The period under review is fiscal 2020 (April 2020 to March 2021). Some qualitative information pertaining to April to July 2021 has also been included. Organizational scope 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 personnel as shown in this report are current as of September 2021. Guidelines consulted The GRI Standards, the standards of the Sustainability Accounting Standards Board, ISO 26000, and other guidelines were consulted during the preparation of this report. People and the Earth 57 Directors and Audit & Supervisory Disclaimer 22 Pursuit of Carbon Neutrality and a Circular Economy Board Members 27 Initiatives Regarding Climate Change Disclosure 60 Interview with an Outside Director Based on the TCFD Recommendations 62 Risk Management 29 New Business Creation 32 New Business Creation Utilizing Corporate Venture Capital 34 Digital Transformation Corporate Information 39 Human Resource Strategies 66 Consolidated Financial Statements 43 Financial and Capital Policy 71 Corporate Profile / Stock Information 72 Information Disclosure The forecasts and estimates shown in this report are dependent on a variety of assumptions and economic conditions. Plans and figures depicting the future do not imply a guarantee of actual outcome. Photographs at the beginning of each section We have used a selection of prize-winning photographs from our Sustainability Photo Contest held in March and April 2021. The contest solicited photographs from all Asahi Kasei Group employ- ees and executives that would inspire people to think about and act on sustainability in their daily lives. More than 2,300 submis- sions were received from our sites around the world. Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationAsahi Kasei Report 2021 3 At a Glance 19.5 % 34.2 % Fiscal 2020 Net Sales Notable Facts (as of March 31, 2021) ¥ 2,106.1billion Employees 44,497 Of which, overseas employees account for nearly 40% 33.6% Global bases More than 20 countries and regions Material Homes Health Care Fiscal 2020 Operating Income ¥171.8 billion 47.4 % Consolidated subsidiaries Overseas sales ratio Credit rating* 228 42.8 ％ AA Japan Credit Rating Agency (JCR) * As of June 30, 2021 Note: Percentages shown exclude the “Others” category and “corporate expenses and eliminations” 33.1 % 32.2% Europe ¥124.9 billion 5.9 % Net Sales by Region Note: As of March 31, 2021 China ¥198.9 billion 9.4 % Asia (excluding China) ¥ 215.3 billion 10.3 % Japan ¥1,204.3 billion 57. 2 % The Americas ¥ 335.9 billion 15.9 % Other Regions ¥ 26.8 billion 1.3 % Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationAsahi Kasei Report 2021Priority Fields for Provision of Value and Related Products Material Homes Health Care Environment & Energy Home & Living Health Care 4 Hipore™ and Celgard™ separators for lithium-ion Ion-exchange membrane chlor-alkali electrolysis batteries Mobility process Hebel Haus™ unit homes Hebel Maison™ apartment buildings Pharmaceutical products Engineering plastics Life Material Lamous™ artificial suede Dinamica™ automotive interior material Hebel Village™ apartments for seniors Planova™ virus removal filters Ceolus™ microcrystalline cellulose Household products Atlas™ condominiums ZOLL AED Plus™ automated external defibrillator Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationAsahi Kasei Report 2021Financial Highlights Net sales (domestic & overseas), operating income, operating margin EBITDA1, depreciation and amortization, EBITDA margin Net income attributable to owners of the parent, EPS (¥ billion) 2,500 2,000 1,883.0 2,042.2 2,170.4 2,151.6 2,106.1 198.5 209.6 1,500 1,000 500 0 159.2 177.3 171.8 8.5 9.7 9.7 8.2 8.2 2016 2017 2018 2019 2020 (FY) (¥ billion) (¥ billion) (¥ billion) 300 25 240 20 180 15 120 10 60 0 5 0 400 300 200 100 0 EBITDA 268.4 311.9 313.6 14.3 15.3 295.6 305.1 14.5 14.5 13.7 109.2 113.5 104.0 118.3 133.3 2016 Depreciation and amortization (tangible, intangible, and goodwill) 2020 2017 2018 2019 (FY) 20 15 10 5 0 200 150 100 50 0 170.2 147.5 115.0 121.93 105.66 103.9 82.34 79.8 74.85 57.49 2016 2017 2018 2019 2020 (FY) 5 (¥) 200 150 100 50 0 Domestic sales Overseas sales (left scale) Operating income (right scale) Operating margin (%) EBITDA margin (%) 1 Operating income, depreciation, and amortization Net income attributable to owners of the parent (left scale) EPS (right scale) In fiscal 2020, both sales and operating income were largely flat year on year as earnings in the Health Care sector offset declines in the Material and Homes sectors that stemmed from COVID-19. Overseas sales accounted for over 40% of total net sales in fiscal 2020, reflecting an increase in overseas sales due to overseas business expansion, 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 perfor- mance indicator (KPI) signifying the generation of cash flow. The decrease in depreciation and amortization in fiscal 2018 resulted from a change in the method of depreciation of property, plant and equipment from the declining- balance method to the straight-line method. Net income attributable to owners of the parent in fiscal 2020 decreased due to a one-off increase in tax expenses due to the reconfiguration of organizations related to Veloxis Pharmaceuticals, Inc. (hereinafter Veloxis). As a result, EPS also decreased. ROE2, ROIC3 Capital expenditure, R&D expenses Interest-bearing debt, D/E ratio (%) 20 15 10 5 0 14.0 9.7 11.1 8.8 10.5 7.8 7.6 6.6 5.6 4.9 (¥ billion) (¥ billion) 154.1 153.7 136.2 90.6 79.6 101.3 85.7 90.1 91.0 89.7 200 150 100 50 0 703.8 659.0 0.52 402.8 424.9 0.45 301.7 0.35 0.23 0.31 800 600 400 200 0 0.8 0.6 0.4 0.2 0 2016 2017 2018 2019 2020 (FY) 2016 2017 2018 2019 2020 (FY) 2016 2017 2018 2019 2020 (FY) ROE ROIC 2 Net income per shareholders’ equity 3 (Operating income – income taxes) / average annual invested capital Capital expenditure R&D expenses Interest-bearing debt (left scale) D/E ratio (right scale) The Company positions ROE and ROIC as KPIs to indicate its efficiency in generating profits. In fiscal 2020, ROE declined due to the decrease in net income. ROIC also declined due to the one-off increase in tax expenses due to the reconfiguration of organizations related to Veloxis and an expansion in invested capital associated with an increase in interest-bearing debt following the acquisition of Veloxis. The Company proactively carries out capital expenditure geared toward growth, including sustainability- and digital transformation-related investments, and research and development (R&D) aimed at the Health Care sector and in new business creation. However, in fiscal 2020, both capital expenditure and R&D expenses were flat year on year due to strict scrutiny over investments in light of the impact of COVID-19. Although interest-bearing debt increased in fiscal 2019 due to the acquisition of Veloxis, it decreased in fiscal 2020 because of the repayment of loans payable following an improvement in cash flows. As a result, the D/E ratio at the end of fiscal 2020 decreased by 0.07, remaining in line with our target ratio of around 0.5. Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationAsahi Kasei Report 2021 6 Non-Financial Highlights Greenhouse gas (GHG) emissions (Million tons CO2 equivalent) 4.35 4.22 4.16 3.99 3.89 5 4 3 2 1 0 Energy intensity 1 Workplace injury frequency rate2,3 (Index) 100 100 100 101 Target: –30% or more by FY2030 compared with FY2013 (5.11 MtCO2e) 90 80 70 60 0 96 92 85 3.0 2.5 2.0 1.5 1.0 0.5 0 2.79 1.81 1.93 1.26 0.35 0.30 0.41 0.84 0.44 0.21 2016 2017 2018 2019 2020 (FY) 2016 2017 2018 2019 2020 (FY) 2016 2017 2018 2019 2020 (FY) 1 Indexed to energy consumption per unit of production in fiscal 2016 as 100 The Asahi Kasei Group has thus far targeted the reduction of greenhouse gas emissions relative to sales (emissions intensity). However, we changed to an absolute emissions reduction target to indicate a clearer path toward the achievement of carbon neutrality. We are steadily reducing emissions to achieve our target and will endeavor to reduce emissions going forward. 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. Japan Overseas 2 Number of accidental deaths and injuries resulting in the loss of one or more workdays, per million man-hours worked 3 Among domestic and overseas subsidiaries and affiliates applying the Asahi Kasei Group Responsible Care Program While the frequency rate of lost-workday injuries among employees in Japan improved significantly, this rate deteriorated among overseas employees. We are making improvements by applying measures to avoid recurrence based on analysis of the causes of injuries that have occurred, while implementing preventive measures based on risk assessments. Number of Group Masters Number of women working as managers4 Number of patents 250 229 180 124 90 300 200 100 0 300 200 100 0 212 193 171 257 231 16,000 12,000 8,000 4,000 0 6,509 6,780 7,219 7,721 7,803 7,359 7,458 7,472 7,456 7,411 2016 2017 2018 2019 2020 (FY) 2017/6 2018 /6 2019 /6 2020/6 2021/6 2016 /12 2017/12 2018 /12 2019 /12 2020/12 Japan Japan Overseas 4 Results for personnel employed by Asahi Kasei Corp., Asahi Kasei Microdevices Corp., Asahi Kasei Homes Corp., Asahi Kasei Construction Materials Corp., Asahi Kasei Pharma Corp., and Asahi Kasei Medical Co., Ltd. To foster the growth of our human resources while simultaneously capturing external human resources, we appoint, nurture, and reward as Group Masters individuals with the potential to proactively engage in and contribute to the creation of new businesses and the enhancement of established businesses. Asahi Kasei believes that it is essential for a diverse range of human resources with a variety of values and backgrounds to play active roles. For this reason, we foster an environment to support the advancement of women to positions in organizational 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. Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationAsahi Kasei Report 2021Addressing Social Issues and Advancing Business Portfolio Strategies —Our Path to Three Sectors— In every era, the Asahi Kasei Group has addressed social issues by dynamically transforming its business portfolio and supplying products and services that meet the changing needs of the times. We will continue to contribute to life and living for people around the world by Creating for Tomorrow. (¥ billion) 2,500 2,000 1,500 1,000 Founding and Japan’s first production of synthetic ammonia Expansion into petrochemicals and synthetic fibers Expansion into homes, health care, and electronics Progress in overseas business, focus on business restructuring Accelerated globalization through M&A, expansion of health care business Net 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.” “As industrialists, we must always remember that our ultimate mission is to improve people’s standard of living by supplying an abundance of the highest-quality daily necessities 500 at the lowest prices.” (Founder Shitagau Noguchi, 1933) 0 1922 1940 1950 1960 1970 1980 1990 2000 2010 2020 Social needs and times Asahi Kasei’s evolution Business portfolio transformation New business entry, M&A Withdrawal, downsizing, divestment 1922– Establishing the basis for modern life • Development of chemical industry and modern agriculture • The Great Depression and World War II Founding and Japan’s first production of synthetic ammonia Asahi Kasei contributed to establishment of the basis for modern life through its businesses such as the production of Bemberg™ cupro, a regenerated fiber. • Ammonia • Regenerated fiber (cupro, viscose rayon) • Chemical fertilizer • Foods (monosodium glutamate) Chemical fertilizers, regenerated fiber, explosives, etc. FY1940 Net sales ¥56 million 7 (¥ billion) 250 200 150 100 50 0 Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationAsahi Kasei Report 2021 8 Social needs and times Asahi Kasei’s evolution 1940 s– Sufficiency of daily necessities • Post-war recovery and modernization of industry • Start of period of high economic growth Expansion into petrochemicals and synthetic fibers After World War II, the modernization of industry advanced in Japan, driving the independence and growth of the Japanese economy. Asahi Kasei embarked on various new businesses that helped improve the quality of people’s lives. Business portfolio transformation New business entry, M&A Withdrawal, downsizing, divestment • Polystyrene • Synthetic fiber (acrylic fiber) Foods Fibers Chemicals FY1960 Net sales ¥ 44.9 billion 1960 s– Improvement in quality of homes, development of public infrastructure • Period of high economic growth • Transition to stable economic growth Expansion into homes, health care, and electronics As the Japanese economy transitioned from a period of high economic growth to a period of more stable growth, Asahi Kasei entered new fields to address diversifying social needs. 1980 s– Increased comfort and convenience • Emergence and collapse of economic bubble • Two decades of meager economic growth Progress in overseas business, focus on business restructuring After the collapse of Japan’s economic bubble, Asahi Kasei divested, withdrew, and downsized businesses to achieve a selectively diversified portfolio. It was also during this time that we built our platforms for global management. • Saran Wrap™ • Acrylonitrile • Synthetic rubber • Ethylene (construction of naphtha cracker) • Autoclaved aerated concrete • Hebel Haus™ unit homes • Artificial kidneys • Pharmaceuticals Others Foods/Health care Fibers Homes/ Construction materials FY1980 Net sales ¥ 800.1 billion Chemicals • 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 Others Health care Fibers Chemicals FY2000 Net sales ¥1,269.4 billion Electronics Homes/ Construction materials 2000 s– Increasing awareness of the envi- ronment and quality of life • Regional diversification • Effect of global economic crisis • Advancement of digital technologies • Aging populations and pursuit of health and prosperity • COVID-19 pandemic • Rising interest in carbon neutrality and the circular economy Accelerated globalization through M&A, expansion of health care business Asahi Kasei accelerated the globalization of its operations and expanded its health care business through mergers and acquisi- tions. We reorganized our operations in the three business sectors of Material, Homes, and Health Care for thorough portfolio man- agement with optimal allocation of management resources and greater generation of synergies between business domains. • Electronic compasses • UVC LEDs • Hydrogen production system (process verification) • New businesses for homes (seniors, medium-rise, overseas) • Critical care Others Material Health care FY2020 Net sales ¥2,106.1 billion • Viscose rayon, acrylic fiber, polyester • Restructuring of petrochemical Homes business • Liquors Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationAsahi Kasei Report 20219 Management Strategy Asahi Kasei Sustainability Photo Contest Name Wei Gu Company Asahi Kasei Transfusion Technology Co., Ltd. Country/region China Care for People, Care for Earth Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationMessage from the President 10 In this time of uncertainty, we will pave the way for the next 100 years by taking the initiative in realizing a virtuous cycle between “contributing to a sustainable society” and “sustainable growth of corporate value” while leveraging our “diversity” and “capability to change.” Hideki Kobori President Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information11 Working to thoroughly reinstitute safety and to restore trust The Asahi Kasei Group implements Responsible Care, a chemi- accidents occurred at Asahi Kasei plants in fiscal 2020. A recurrence. Furthermore, we are raising the level of safety cal industry initiative promoting dialogue with society with the worker died in an explosion at our Moriyama Works in Shiga awareness of the organization as a whole and of each and every goal of preserving the environment and ensuring safety, health, Prefecture, while the outbreak of a fire at our semiconductor employee by communicating the preventative measures and quality by thoroughly practicing the three fundamental plant in Nobeoka in Miyazaki Prefecture also affected our throughout the Asahi Kasei Group. Respect for human life and “actuals,” which focus on the actual place, actual thing, and business partners. I once again offer my sincere apologies to safety are core values of our business. We will strive to regain actual fact throughout the life cycle of all of the products and everyone concerned. We are investigating the causes of each trust by earnestly working to ensure the safety of communities services that we provide. Despite these efforts, two serious accident and thoroughly implementing measures to prevent any and our employees. Dramatic change in our business environment triggered by the COVID-19 pandemic and the positioning of “Cs+ for Tomorrow 2021” The global spread of COVID-19 continues to bring about discon- rights issues such as forced labor. In this fast-changing world, value that will be highly regarded by society going forward, and tinuous and uncertain change. As the pandemic brought new we must maintain an awareness of all manner of opportunities we are continually focusing the allocation of management social and environmental issues into focus, people’s awareness and risks and boldly take on challenges as a company at the resources to these five priority fields. of life, health, and hygiene as well as their values in relation to forefront of change. Wherever there is change, there are business opportunities. work and lifestyles have changed dramatically. I believe that In 2019, the Asahi Kasei Group launched the “Cs+ for In this era of great uncertainty, we will take a proactive approach increasing emphasis will be placed on the fulfillment of individu- Tomorrow 2021” medium-term management initiative. While we by leveraging our strengths, which are the “diversity” of our als in their lives and careers due to these changes. promoted various measures for the two mutually reinforcing human resources, technologies, and businesses and the “capa- Meanwhile, global warming—the primary cause of climate aspects of sustainability of “contributing to the sustainability of bility to change” created by the ingenuity of our individual change—has become a pressing issue for mankind. Amid these society” and “the sustainable growth of corporate value,” our employees, organizations, and the company as a whole. circumstances, public- and private-sector initiatives aimed at basic approach remains unchanged. In regard to “contributing realizing carbon neutrality by 2050 are proceeding at a rapid to the sustainability of society,” we set forth “Care for People, pace that would have been unimaginable a year ago. We also Care for Earth” to clarify our stance of continuing to contribute to need to urgently respond to changes in international affairs the sustainable development of people and the earth. We also resulting from the decoupling of the United States and China, identified Environment & Energy, Mobility, Life Material, Home & and to all aspects of the entire supply chain, including human Living, and Health Care as priority fields where we can provide Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 12 Progress on “Cs+ for Tomorrow 2021” In fiscal 2020, the second year of “Cs+ for Tomorrow 2021,” we In Health Care, the acute critical care business, which we The Health Care sector performed well in fiscal 2020, proceeded steadily with initiatives in our priority fields for provi- have positioned as a core driver of growth, entered into the recording increased net sales and operating income. On the sion of value amid a business environment that continues to respiratory dysfunction field by acquiring Respicardia, Inc. In other hand, results in the Material sector fell significantly short of change unpredictably. addition, we steadily expanded the pharmaceutical business our plan at the time of formulating “Cs+ for Tomorrow 2021” In Environment & Energy, we are incrementally increasing through such measures as working to increase sales of Envarsus due in part to a deterioration in business stemming from the our production capacity for lithium-ion battery separators in XR™, an immunosuppressive drug for kidney transplant decoupling of the United States and China and a decline in line with the growth of the market for eco-friendly electric patients manufactured by Veloxis Pharmaceuticals, Inc., which demand for products for the automotive market and petrochemi- drive vehicles. In Mobility, we are expanding the business of we acquired in fiscal 2019. cals. Meanwhile, in the Homes sector, results lagged one year Sage Automotive Interiors, Inc., a manufacturer of automobile While the Asahi Kasei Group was steadily promoting such behind the plan due to a decrease in orders received resulting interior fabric, while generating synergies with Lamous™, an initiatives, lockdowns were implemented in major cities around from restrictions on customers visiting model homes in Japan environment-friendly artificial suede. In Life Material, we the world and a state of emergency was declared in Japan in because of COVID-19. However, we are beginning to see a decided to build a second plant for Ceolus™ microcrystalline response to the spread of COVID-19. As the shortage of medical recovery in the Homes sector as a result of efforts to attract cellulose, which is scheduled for completion in spring 2023, products became a serious issue due to the global suspension customers in ways other than through model homes. in order to expand our output of high-performance products of production and distribution, we acted quickly to provide a Our financial condition is sound, reflecting our emphasis for pharmaceuticals. response. Our actions included temporarily ramping up produc- on financial discipline, careful selection of capital expenditure In Home & Living, we are working to contribute to the tion capacity of ventilators to 10,000 per month, the equivalent and investment projects, and thorough implementation of achievement of a carbon neutral society and to enhance resil- of 25 times that of our usual output, increasing the production of appropriate control of inventories and expenses taking into ience to disasters with the aim of building sustainable urban material for medical gowns and masks, and supplying virus consideration the circumstances in each sector. Going forward, environments. Meanwhile, to make the expansion of the over- removal filters required for the development of vaccines and we will improve our capital efficiency and cash-generation seas business in the United States and Australia a pillar of pharmaceuticals. These actions exemplify how we leverage our capabilities by steadily implementing investments in projects growth, we are developing business models adapted to the “diversity” and “capability to change” to quickly identify changes that will contribute to growth over the medium to long term and specific characteristics of each of these countries. in the business environment and adapt in a flexible manner. the transformation of our business portfolio, with a focus on the Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 13 Performance and Outlook by Sector Current Situation by Sector* Outlook ) n i g r a m g n i t a r e p o ( y t i l i b a t fi o r P Health Care Material Material • Slower growth and lower income due to environmental change • Recovery under way, but performance below target Sales Operating income Operating margin FY2019 1,093.1 92.4 8.4% FY2020 991.2 66.5 6.7% FY2021 1,168.0 100.0 8.6% Homes • Domestic business recovering from COVID-19 impact but 1 year Homes behind plan • Consolidation of McDonald Jones Homes Growth (revenue growth rate) Dotted circle: current term Solid circle: mid-term target Circle size: operating income amount Sales Operating income Operating margin FY2019 704.4 72.7 10.3% FY2020 692.6 63.5 9.2% FY2021 791.0 67.0 8.5% Health Care • Increased demand for ventilators and virus removal filters; income growth forecast to achieve target Sales Operating income Operating margin FY2019 337.8 43.5 12.9% FY2020 407.9 67.6 16.6% FY2021 400.0 55.0 13.8% * FY2019–FY2020 results, FY2021 forecasts (announced in May 2021); ¥ billion cost of capital while maintaining our sound financial condition. continuous dividend increases from a medium- to long-term We plan to deliver returns to our shareholders at the level perspective through the sustained generation of cash flow envisaged when formulating “Cs+ for Tomorrow 2021” by while paying close attention to the balance between invest- adhering to our policy of aiming for stable dividends and ments for growth and our financial position. • Prioritization of profitability and capital efficiency over increased scale; acceleration of portfolio transformation • Thorough financial discipline; strict selection of growth investments • Domestic growth in homes for seniors and medium-rise homes; overseas expansion in the U.S. and Australia • Use of IT to raise profitability; continued cash flow contribution • High earnings growth and profitability through returns on previous investments • Continued investment for further expansion as growth driver Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 14 Proactively reformulating our business strategy to accelerate the transformation of our business portfolio In fiscal 2020, we advanced the allocation of management monitored conditions in these 15 businesses and have already COVID-19 pandemic, our businesses that hold the leading or resources to our priority fields for provision of value and proac- begun taking action with a view to implementing structural second-leading market share have maintained and strengthened tively reformulated our business strategy to accelerate the reform in several of them. relationships with customers and business partners. Moreover, transformation of our business portfolio. In a business environ- Going forward, we will further emphasize the perspective of these businesses have also succeeded in obtaining and lever- ment subject to discontinuous and uncertain change, it is market position to evaluate businesses. In fact, even in a busi- aging a range of market information. We will further solidify becoming increasingly necessary to grow earnings sustainably ness environment in which it is challenging to develop face-to- businesses with strong market positions with the aim of achiev- using limited capital in order to continuously meet the expecta- face relationships with new customers due to the ongoing ing a more profitable portfolio of value-added businesses. tions of various stakeholders. Given such circumstances, we strengthened evaluations of our business portfolio from the perspective of capital efficiency while integrating evaluations of the sustainability of our busi- nesses from the perspective of social issues and global environ- mental problems. Specifically, building on evaluations using profitability (operating margin) and growth (revenue growth rate), we implemented business evaluations that added capital efficiency (ROIC) and cost of capital perspectives, sustainability perspectives (making use of quantitative indicators such as GHG emissions), and the perspectives of profit amount, profit volatil- ity, and business stage. Based on the results of the business evaluations, we identi- fied 15 businesses as strategy reformulation businesses from among approximately 60 businesses evaluated, centered on businesses handling commodity products in the Material sector in particular. Senior management, including myself, and the leaders of each business carried out strategy reexaminations taking into consideration the discontinuous and uncertain com- petitive environment in the future. After setting key performance indicators (KPIs) and milestones, we have continuously Business Portfolio Transformation Business evaluation Strategy reformulation businesses Strategy study for individual businesses Evaluated by profitability (operating margin) and growth (revenue growth rate) Additional evaluation to classify businesses in 4 categories • ROIC, cost of capital • Sustainability (GHG emissions, etc.) • Profit amount, profit volatility, business stage 4 categories High earnings base Strategy reformulation Growth driver Strengthening Among approx. 60 businesses evaluated 15 businesses Mainly commodity products in Material sector Reconsidered strategy based on view of competitive environment impacted by COVID-19 pandemic Set KPIs and milestones for strategy refor- mulation, continually monitoring progress Process stages 1) Study strategies/directions of businesses 2) Formulate specific measures/action plans 3) Execute measures Actions begun for structural reform of several businesses Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 15 Pursuing sustainability aimed at achieving carbon neutrality and a circular economy We pursue “Care for People, Care for Earth” under “Cs+ for the collective knowledge of the Asahi Kasei Group. efficiently by consolidating projects for environmental contribu- Tomorrow 2021.” By “Care for People” we aim to contribute to The goal of realizing carbon neutrality by 2050 represents a tion technologies and products, such as those for green hydro- the achievement of a society in which people can lead active major challenge that transcends generations. I believe our gen- gen using alkaline water electrolysis technology, CO2 separation lives in the new normal, while “Care for Earth” indicates our eration must begin to do what we can now as a party with a and recovery systems, and next-generation CO2 chemistry tech- contribution to the creation of a sustainable world through the stake in realizing carbon neutrality and pass on the results of our nology, while unifying contact points with external organizations. achievement of carbon neutrality and a circular economy. efforts to the next generation, rather than leave tackling this We also recognize that the material industry has a major The Asahi Kasei Group has been implementing various major challenge to those who come after us. We will formulate a part to play in the creation of a circular economy. With this in initiatives contributing to the achievement of carbon neutrality road map and accelerate initiatives to achieve our targets of mind, several of our organizations are examining fields where and a circular economy. Amid these efforts, in May 2021 we energy consumption reduction, energy decarbonization, manu- we can make a contribution. As one example, we have built a announced our goal of achieving carbon neutrality (net-zero facturing process innovation, and the transformation of our platform in partnership with IBM Japan, Ltd., that visualizes carbon emissions) by 2050* to create a sustainable world. We business portfolio to low-carbon businesses centered on the and manages the supply chain utilizing blockchain technology have also set a target to reduce our GHG emissions by 30% or Material sector. for the recycling of used plastic. During fiscal 2021, we will more by 2030 compared with fiscal 2013. In April 2021, we established the Green Solution Project, conduct demonstration trials and carry out verification to In the process leading up to our announcement on carbon which is under my direct authority as president, with the aim of ensure traceability. neutrality, senior management, including myself, and the lead- strengthening business creation to achieve carbon neutrality. ers of each business carefully carried out repeated discussions Based on an overarching view of markets related to decarbon- to verify the impact of carbon neutrality on all of our stakehold- ization, this project will create new businesses leveraging our ers. Ultimately, based on our Group Mission of contributing to superior technologies to accelerate commercialization while life and living for people around the world, we concluded that promoting partnerships with other companies, the public sector, we could achieve carbon neutrality by 2050 if we drew upon and academia. We will endeavor to develop businesses * Direct GHG emissions from business activities as indicated by Scope 1 (direct GHG emissions) and Scope 2 (indirect GHG emissions from use of electricity, heat, and steam supplied by other companies) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 16 Implementing digital transformation and strengthening our human resource foundations for creating new value The Asahi Kasei Group proactively promotes digital transforma- acquiring digital human resources. We are strengthening DX telecommuting, bolstering the development of professional tion (DX) as a pillar of our growth strategy to transform business training for employees to promote measures for cultivating all human resources by enhancing the Group Masters program, models and create value. In April 2021, we established Digital employees to digital human resources, under which we aim for implementing measures aimed at revitalizing our organizations Value Co-Creation. By transferring digital-related organizations all employees to work with a mindset for utilizing digital technol- and spurring the growth of our human resources based on the that had been divided among multiple units under the oversight ogy, including through the Open Badge system. At the same results of a new engagement survey, and nurturing the next of the new unit and consolidating human resources and knowl- time, we will increase the number of digital professional person- generation of leaders. In these ways, we are providing support for edge therein, we will entrench DX initiatives group-wide, which nel to 230 by the end of fiscal 2021 via the implementation of the growth of employees of all ages and positions in accordance will enable us to transform our business models and create new development programs and new recruitment. with the career plans of their choice. businesses. In May 2021, we formulated our DX Vision 2030 to From the perspective of strengthening our human resource We are also proactively advancing measures in relation to clarify our aspiration for DX. foundations, we are encouraging “lifetime growth” in which health and productivity management. I believe that maintaining In January 2021, prior to establishing Digital Value diverse individuals enhance their expertise and grow continu- and improving the physical and mental health of employees and Co-Creation, we opened CoCo-CAFE, a digital co-creation labo- ously even in times of dramatic change. We are once again their families is the foundation for employee vitality and growth. ratory. With the opening of this laboratory, we aim to fortify our reviewing workstyles and mechanisms for developing human To create opportunities for employees to play active roles and DX foundations and create value by gathering together digital resources while creating foundations that support the autono- achieve growth, we will focus on reducing the rate of absence human resources from various functions, such as marketing, mous growth of employees and enable diverse individuals to due to ill health, enhancing motivation for work, and fostering a research and development, and production technology, to con- thrive, guided by the basic principle that “people are our core strong organizational culture of ambition, which will in turn help nect knowledge held inside and outside the company. assets; everything starts with people.” Examples of our endeav- raise productivity. Besides these efforts, we are also proactively developing and ors include recommending diverse workstyles such as Strengthening corporate governance and risk management to improve corporate value Corporate governance and risk management are vital elements Audit & Supervisory Board Members and their various back- of corporate value while incorporating the perspectives of a wide for steadily implementing our management strategies and the grounds as we make the most of our “diversity” and “capability range of stakeholders in a timely manner. These discussions business activities and initiatives to strengthen our foundations to change.” In a fast-evolving business environment, we will included the sharing of a broad range of information on the based on them, as well as for enhancing our operations. continue to review corporate governance as a mechanism for substance of communications with investors and shareholders With our corporate governance structure, we have in place a making optimal decisions transparently, fairly, promptly, and and on the promotion of sustainability as well as deliberations system to gain appropriate oversight and advice, paying atten- boldly. At Board of Directors’ meetings in fiscal 2020, we carried concerning the transformation of our business portfolio. tion to the proportion of Independent Outside Directors and out free and open discussions on our policy for the improvement Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 17 In respect to risks, we have placed particular priority on consideration for the environment, safety, health, and quality. In business and draft contingency plans in response to important export control regulations due to the decoupling of the United order to heighten the risk awareness of each and every risks. In addition, the Risk Management & Compliance States and China, human rights issues encompassing the entire employee, as well as the Asahi Kasei Group as a whole, and deal Committee, which I chair, thoroughly confirms and follows up on supply chain, cyber security including the dissemination of decisively with risks, managers responsible for risk management the progress of group-wide risk countermeasures. information centered on social networking services, and and compliance identify, assess, and analyze risks in each Our Commitment toward the Next 100 Years Fiscal 2022 will see the launch of the Asahi Kasei Group’s next Kasei Group will take on the challenge of achieving a new trans- medium-term management initiative and mark the centennial of formation to ensure that our commitment to “Care for People, Asahi Kasei’s founding. Shitagau Noguchi, our founder, stated Care for Earth” endures for another century thanks to the “diver- that “As industrialists, we must always remember that our ulti- sity” of our human resources, technologies, and businesses and mate mission is to improve people’s standard of living by supply- the “capability to change” that springs from the ingenuity of our ing an abundance of the highest-quality daily necessities at the employees, organizations, and the company, cultivated over the lowest prices.” By continuing to adhere to this vision, the Asahi past century. Management Direction for the Next 100 Years 1. Realize the two aspects of • Providing solutions for a sustainable society through innovative technologies and sustainability for Asahi Kasei advanced initiatives • Providing value expected by society to realize sustainable growth of corporate value 2. Strengthen corporate governance and management of operations in the three business sectors • Pursuing both high profitability and capital efficiency and sustainable profit growth • Pursuing synergies between businesses and dynamic portfolio transformation 3. Further enhance business platform, • Providing a venue where diverse individuals can thrive with high motivation the fundamental strength of Asahi Kasei • Maximizing use of intangible assets such as diverse core technologies and accumulated know-how • Upgrading and streamlining operations and reforming business models through DX Hideki Kobori President Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Value Creation Model 18 Contribution to sustainability (non-financial indicators identified in the materiality analysis) Sustainable growth of corporate value (average between fiscal 2018 and 2020) Outcome Contribution to the global environment Contribution to health and longevity Contribution to comfortable life Net sales ¥ 2,142.7 billion Operating income ¥186.2 billion EBITDA ¥ 304.8 billion ROE 8.1 % EPS ¥ 79 ROIC 6.8 % Business portfolio management capability Contributing to sustainable society Contributing to sustainable society Ability to manage diversified business Ability to ascertain business characteristics Ability to transform business portfolio Group Mission Contributing to life and living for people around the world Material Homes Health Care Environment & Energy Mobility Life Material Home & Living Health Care Care for People, Care for Earth Employee action principles Creating new value Compliance Communication Connect Challenge Diversity & Capability to Change Strengthening business foundations through the “Cs” Care for People, Care for Earth The Asahi Kasei Group’s Vision for the Future of People and the Earth (P19–21), Pursuit of Carbon Neutrality and a Circular Economy (P22–26) Compliance Materiality (P19), Risk Management (P62–64) Communication Human Resource Strategies (P39–41), Health and Productivity Management (P42) Challenge/Connect Pursuit of Carbon Neutrality and a Circular Economy (P22–26) New Business Creation (P29–33) Digital Transformation (P34–38) Input Strong financial foundation D/E ratio: 0.451 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: 44,497 1 Bases: More than 20 countries and regions 1 Contact points with various markets ( automotive, electronics, hospitals, consumers, etc.) Financial and Capital Policy (P43–44) New Business Creation (P29 –33) Human Resource Strategies (P39 –42) Review of Operations (P46 –51) 1 As of March 31, 2021 2 As of June 30, 2021 Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information19 The Asahi Kasei Group’s Vision for the Future of People and the Earth The Asahi Kasei Group contributes to solutions for various social issues through business activities aimed at achieving sustainability. With a uniform aspiration of “Care for People, Care for Earth” when creating value in all of our businesses, we will deliver new value in a variety of fields that contribute to the sustainability of society. Materiality In fiscal 2017, we identified the important issues and themes that Process for Identifying Materiality we should prioritize as the materiality of the Asahi Kasei Group. 1) Identification of Issues 3) Evaluation of Appropriateness We have since added two new material issues—Initiatives toward We identified issues in light of requirements of society and our We verified the appropriateness of the material issues by examining Carbon Neutrality and Initiatives toward a Circular Economy—in Group Mission, Group Vision, and Group Values while making them from a diverse range of perspectives, such as through delib- consideration of the further growing sense of urgency regarding reference to international guidelines such as ISO 26000 and the erations involving the leaders of various divisions, discussions with the global environmental impact of climate change and resource Global Reporting Initiative (GRI) Standards as well as the evalua- outside companies, and consultations with Outside Directors. extraction and depletion as well as the importance of these mat- tion criteria of the major ESG rating institutions. 4) Examination and Approval ters to the management of the Asahi Kasei Group. 2) Determination of Degree of Importance The Board of Directors approved the material issues after exami- Extremely important We evaluated the degree of importance both to society and to the nation at the Management Council. Asahi Kasei Group and mapped it on two axes. Highest priority as premise Governance Compliance/ sincerity Human rights Safety/quality Governance Asahi Kasei is constantly pursuing an optimal state of corporate governance. ( P53–56) Extremely important s r e d l o h e k a t s r o f e c n a t r o p m I Business Contribution to Global environment Health and longevity ( P21) Comfortable life Wastewater ( WEB) Industrial waste ( WEB) Decarbonization ( P23, 24, 26) Circular economy ( P25) Supply chain management ( WEB) Compliance/ sincerity Human rights Biodiversity ( WEB) Communication with stakeholders WEB) WEB) ( ( Diversity Social contribution ( WEB) Human resources ( P39 – 42) Risk management ( P62– 64) Importance for the Asahi Kasei Group Harmony with the natural environment Health and comfort Basic activities Safety/quality Extremely important While strictly following laws, regulations, and internal rules, Asahi Kasei strives to practice a high level of corporate 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 2020. Asahi Kasei endorses and is a signatory to the United Nations (UN) Global Compact. In addition, we are formulating a human rights policy in accordance with the UN’s Guiding Principles on Business and Human Rights and will imple- ment human rights due diligence to ascertain human rights violation risks in the business value chain and take action to prevent or reduce such risks. Operational Safety; Workplace Safety and Hygiene Through our Responsible Care program, we aim to achieve zero severe industrial accidents and zero occupational injuries. We provide employees with education and training, perform risk assessments during construction in order to ensure safe and stable plant operation, and repeatedly review existing processes. Quality Assurance Asahi Kasei focuses on activities to improve quality in order to continue providing reliable quality to our customers. In fiscal 2020, 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 verification and inspection activities. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 20 Provision of Value through Our Businesses for Realizing a Sustainable Society To achieve our vision for the future of people and the earth and Mobility, and Life Material in the Material sector, Home & Living business activities while pursuing the development of a portfolio provide greater value to society, we have determined five priority in the Homes sector, and Health Care in the Health Care sector. of high-profitability and high-value-added businesses from the fields for provision of value and are allocating management In these priority fields for provision of value, we will continue perspective of “Care for People, Care for Earth.” resources to them. These fields are Environment & Energy, contributing to the future of people and the earth through our Social issues and trends • Expansion of clean energy • Transition to carbon neutrality and a circular economy • Progress of CASE (Connected, Autonomous, Shared & Services, and Electric) • Rising global population • Next-generation communications • Diversifying lifestyles • Intensifying natural disasters • Advancement of longevity society revolution Environment & Energy Material Mobility Life Material Homes Home & Living Health Care Health Care Asahi Kasei Group’s priority fields for provision of value Contributing to the environment with wide variety of technology (CO2 chemistry, semiconductors, etc.) Contributing to the future of mobility with technology for safety, comfort, and the environment Contributing to healthy and comfort- able daily life with distinctive prod- ucts and technological strength Care for Earth Business contribution to the global environment Contributing to superior social infrastructure and comfortable living through our know-how gained in urban markets Contributing to healthy longevity with pharmaceuticals and medical devices discerning the needs of the aging society Care for People Contribution to secure and comfortable life and to health and longevity • Clean energy • Conservation of energy and improve- ment of the environment • Contribution to carbon neutrality and a circular economy Provision of value to society • Society with safe and comfortable • Comfort and convenience • Safety and reliability • Achievement of society with mobility • Human health • Comfortable and healthy life healthy longevity Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information21 Increasing Opportunities through Care for People, Care for Earth Care for People Active life in the new normal Care for Earth Carbon neutral sustainable world With the aim of creating a society in which health and longevity and a secure and comfortable We are accelerating innovations for addressing a variety of environmental issues, such as realizing life are available to all, we facilitate high-quality medical care and fulfilling life through our tech- carbon neutrality and a circular economy, and offering solutions through our businesses. nologies, products, and solutions. Social Issues Solutions through Our Businesses Social Issues Solutions through Our Businesses Contribution to secure and comfortable life Business contribution to the global environment Storm and flood damage / Intense heat • Resilient homes/communities (total resilience) Circular economy New styles of living and working • Homes/consumables/apparel meeting new needs Carbon recycling Digitalization • Products related to next-generation communications • Material recycling • Chemical recycling • CO2 separation/recovery • CO2 chemistry (glass fabric, etc.) Next-generation energy • Alkaline water electrolysis (green hydrogen) Contribution to health and longevity Response to COVID-19 Facilitation of high-quality medical care • Ventilators • Therapeutic apheresis • Virus removal filters • Surface disinfection solution • 3Cs visualization solution • Medical gowns • Masks • Defibrillators • Implantable neurostimulator device • Osteoporosis treatment • Rheumatoid arthritis treatment • Immunosuppressive agent • Artificial kidneys Electric drive vehicles • Lithium-ion battery separator • Lightweighting resins Other environmental contribution products • Ion-exchange membrane process for chlor-alkali electrolysis • Purging agent for plastic molding machines • Elastomer for asphalt modification • CO2 sensors • S-SBR synthetic rubber for fuel-efficient tires • Hebel Haus™, Hebel Maison™ • High-performance insulation • Biomass feedstock products • Manufacturing process for acrylonitrile • High-volume water filtration module • Bio-PLA (polylactic acid) nonwoven fabric Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information22 Pursuit of Carbon Neutrality and a Circular Economy Determined to help resolve social issues, the Asahi Kasei Group contributes to solutions through business activities. As climate change and other environmental issues become increasingly serious, the need for sustainability is greater than ever. We utilize our diverse technologies and human resources to create new value in the pursuit of carbon neutrality and a circular economy. Carbon neutrality and a circular economy are essential to the businesses and products that contribute to reduced environ- achievement of a virtuous cycle of contributions to a sustainable mental impact across the entire life cycle, and recycling society and sustainable growth of corporate value. Our wide- technology. Looking ahead toward 2050, we are developing ranging efforts include technology for hydrogen production using technologies and supplying products and services that contrib- renewable energy, CO2 chemistry that uses CO2 as a resource, ute to life and living for people around the world. • Promotional activity Recycled material Collection Blue enclosures indicate Asahi Kasei’s major areas of contribution Electricity • Resource conservation (thinner parts) • Greater recyclability Product development Reduce Recycle Solar power Wind power Hydroelectric power • Recycled material • Biomass feedstock Raw material • Material recycling • Chemical recycling P25 Renewable energy • Alkaline water electrolysis system P23 H2 Household electricity consumption Industrial electricity consumption Electric vehicles Chemical products (manufacturing) Consumers (use) Reuse CO2 Outflow • Elucidating mechanism of microplastic formation Green methanol Green fuel • CO2 separation/recovery • CO2 chemistry 　　　 P24 • Greater durability • Biodegradable technology (research subsidy) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information23 Leadership in Creating a Hydrogen Society The Asahi Kasei Group is aiming for the practical use of low- cost green hydrogen derived from renewable energy through the development and verification of an alkaline water electroly- sis system. Hydrogen is garnering global attention as a next- generation form of energy, and we are working to meet high expectations for the future of hydrogen by allocating manage- ment resources to this area in order to play a leadership role in the creation of a hydrogen society. Around the time of our founding we began producing ammo- nia using hydrogen obtained through water electrolysis, and in Satoru Tamura Asahi Kasei Senior Executive Officer Senior General Manager, Marketing & Innovation / Senior General Manager, Green Solution Project Nobuko Uetake Deputy Senior General Manager, Green Solution Project 1975 we commercialized the ion-exchange membrane process Development of Business Models for Quest for Practical Application of for chlor-alkali electrolysis. With technology built up over many Supporting a Hydrogen Society Hydrogen Energy years, Asahi Kasei is now the only company in the world that sup- plies both electrolysis systems and ion-exchange membranes developed in-house, which is a significant competitive advantage. In March 2020, our alkaline water electrolysis system with the world-leading scale of 10 MW was adopted at the Fukushima Hydrogen Energy Research Field (FH2R), a project supported by Japan’s New Energy and Industrial Technology Development Organization (NEDO). Hydrogen supply using this system has begun, and we are advancing verification in order to achieve higher levels of performance, lower equipment costs, and increased durability as the development project proceeds toward commercialization. Green Solution Project The Green Solution Project was launched in April 2021 with the mission of creat- ing businesses that contribute to carbon neutrality. Directly reporting to the President of Asahi Kasei, this project examines the potential of various business models for contributing to decarbonization based on an overarching view of the decarbonization market and the Asahi Kasei Group’s various technologies in addi- tion to hydrogen production technology for the development of action plans. Achieving a hydrogen society requires coordination The alkaline water electrolysis system we are devel- that extends beyond the production of hydrogen to oping is expected to reduce total cost through encompass aspects of the supply chain such as stor- increased scale. Nevertheless, total cost with our age, transportation, and use. The Asahi Kasei Group alkaline water electrolysis system still exceeds the is a member of the Japan Hydrogen Association and target set forth in the Ministry of Economy, Trade and is engaged in joint hydrogen-related initiatives with Industry’s The Strategic Road Map for Hydrogen and various companies. For example, we participate in a Fuel Cells. We need further innovation, and we are NEDO verification project in Namie Town, Fukushima advancing technology development to reduce cost (FH2R). We are also advancing joint initiatives over- and improve reliability by scaling up the equipment. seas, such as supplying an alkaline water electrolysis At the same time, we are looking at projects where system as we participated in the ALIGN-CCUS project conditions such as electricity cost, power supply sta- for realizing a low-carbon society in Germany, where bility, and other characteristics of the location and the transition to a hydrogen society is gaining customer may enable commercialization as soon as momentum. We are working to create higher-value possible. We will continue to work together with other business models with hydrogen as a key focus. relevant companies in order to achieve a level of cost that will make a hydrogen society possible. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 24 Utilization of CO2 as a Resource Japan is pursuing a goal of achieving carbon neutrality in 2050 Blu-ray discs, housings for smartphones and home electronics, by cutting GHG emissions as well as by promoting carbon recy- automotive light covers, and windows for airplanes and high- cling by using CO2 as a resource to address both global warming speed trains. We are also developing a process to produce isocy- and resource issues. The concept of finding ways to utilize emit- anates using CO2 as a raw material. Once completed, this ted CO2 as a measure for combating global warming originates in process is expected to be applied in the production of a variety of Japan, and many Japanese companies are advancing develop- polyurethane materials, such as foams, cushions, thermal insula- ment projects based on this concept. The global carbon tion, elastomers, paints, adhesives, and fibers. recycling market is projected to reach the scale of ¥5.7 trillion in Regarding CO2 separation and recovery, we are developing 2030. For commercial application in the efficient collection of selective CO2 adsorption technology using zeolite, which is an CO2 from factory exhaust gas and other sources to be used as a excellent CO2 adsorbent. Management resources are increas- resource, there is a need to further reduce the cost of CO2 sepa- ingly being allocated to this development with the aim of com- ration and recovery systems. mercialization as early as 2025. The combination of carbon The Asahi Kasei Group has been engaged in the develop- recycling using CO2 separation and recovery systems and CO2 ment of CO2 chemistry, which uses CO2 as a raw material, since chemistry together with CO2-free hydrogen produced with alka- the 1980s. Our decision to become involved in this field was line water electrolysis technology has the potential to accelerate based on our desire to help the world create a carbon neutral advances in green chemistry as well as reductions in the carbon society. By utilizing core catalyst and chemical process technolo- footprints of various products. gies, we have already commercialized CO2 chemistry technology While we aim to commercialize the isocyanate production to manufacture chemical products using CO2, and we have technology in 2030, we are targeting the commercialization of a licensed the technology to several chemical manufacturers. We special polyurethane intermediate in 2026. We will begin trial are also developing innovative processes for a CO2 separation sales of this material, which can reduce energy consumption in and recovery system. These efforts will be advanced alongside relation to automotive paints, in 2022. the development of hydrogen-related business to help the chem- Leveraging our position as the pioneer in commercializing istry industry achieve carbon neutrality. polycarbonate manufacturing technology using CO2 as a resource, we can lead the chemical industry’s effort for decar- Green Chemistry Framework Based on Carbon Recycling and Hydrogen Derived from Renewable Energy Alkaline water electrolysis technology CO2 separation and recovery technology Polycarbonate, isocyanate CO2 Chemistry Specialty chemical products Synthetic rubber, elastomers, fibers, coating materials, engineering plastics, etc. Fuel General-purpose plastic Methanol, ethanol, etc. Chemical product synthesis technologies Carbon Recycling—A Proactive Approach to Global Warming The achievement of carbon neutrality requires the adoption of energy sources with fewer CO2 emissions and efforts for reducing energy consumption. The sep- aration, recovery, and use of CO2 as a resource, a process known as carbon recycling, is also being researched as an important means of reducing green- house gas emissions. Carbon recycling is garnering attention from the Japanese World-Leading Green Chemistry bonization by supplying chemical compounds and chemical government, which released a carbon recycling technology road map in 2019 The CO2 chemistry technology of the Asahi Kasei Group has been products synthesized from CO2 and hydrogen derived from commercialized in a process to manufacture polycarbonate, renewable energy. which is used for a wide range of applications including DVDs, clarifying the technological and cost-related hurdles needing to be cleared as well as the steps to be taken going forward. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 25 Contribution to a Circular Economy Contributing to a circular economy is a priority for the Asahi innovative plastic resource recycling process technology. We are and to track companies involved in recycling chains can stimu- Kasei Group along with reducing greenhouse gas emissions in also advancing development of technology for chemical recycling late changes in consumer behavior. We anticipate use by general the realization of a carbon neutral sustainable society. Several of polystyrene by thermally decomposing used polystyrene prod- consumers as well as by companies. For consumers, blockchain challenges need to be tackled in order to implement a circular ucts into the raw material styrene monomer. Construction of a technology traceability will make it possible to view the histories of economy within society. The material industry has an extremely facility for this purpose is scheduled. recycled plastic products by scanning QR codes printed on the important role to play in overcoming these challenges, and we are proactively advancing trials aimed at fulfilling this role. Recycling Chain Traceability products. The traceability of previously difficult-to-track recycling processing will create an environment in which anyone can use In May 2021, Asahi Kasei launched the BLUE Plastics recycled plastic with peace of mind. We plan to begin trial distri- Development of Recycling Technology (Blockchain Loop to Unlock the value of the circular Economy) bution and verification with toiletry containers made using resins The Asahi Kasei Group, along with three business partners as Project. This project to recycle used plastic employs the block- that employ this system in fiscal 2021. Looking ahead, Asahi well as academic collaborators, is developing polyethylene mate- chain technology of IBM Japan, Ltd., with the aim of developing a Kasei will expand the scope of resins and applications for which rial recycling technology that allows recycled resins made from digital platform for tracking resource recycling rates as well as the this platform can be used by creating a digital platform offering used plastic chips to be utilized in toiletry containers. In 2020, recycling chains for products made using recycled plastic. The open access to anyone. We are currently advancing initiatives for this initiative was incorporated into a NEDO project for developing ability to view recycled plastic usage rates in recycled materials creating such a platform and deploying it in Asia. Role of Partners in the Polyethylene Material Recycling Technology Development Project Toyama Kankyo Seibi Co., Ltd. Collection and sorting Final product Material mix and pelletization Molding Academia Physical property reproducing technology: Fukuoka University Mechanism analysis: Kobe University Prototype consumer-use smartphone app Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information26 Reduction of Greenhouse Gas Emissions from Business Activities In addition to raising corporate value by helping reduce green- Previously, we focused on reducing the index of GHG emis- area of Miyazaki Prefecture with a focus on long-term use. To house gas (GHG) emissions through operations around the sions to net sales. Now we have adopted reduction targets in fund renovations of aged facilities, we issued a green bond (envi- world, the Asahi Kasei Group is working to lower GHG emis- terms of the absolute volume of emissions to clarify our path ronmental bond) in 2020. The funds raised through this bond sions from our business activities in order to minimize the toward carbon neutrality. issue will be allocated to part of the renovation work. Through impact on the environment. Climate change is becoming an Efforts toward accomplishing these targets include reducing these renovations, we aim to enable increased use of renewable increasingly serious issue throughout society. The reduction of energy consumption and adopting carbon-free energy sources, energy at our facilities for decades or even a century. Other ini- GHG emissions is central to our efforts to combat climate innovating production processes, advancing research and devel- tiatives include installing solar power generation facilities at our change. We are pursuing emissions reductions from various opment, and transforming our business portfolio by transitioning plants and attaching the environmental value created by the aspects to ensure that we are able to preserve a healthy envi- to high-value-added, low-carbon businesses. solar panels installed on the roofs of Hebel Maison™ apartment ronment for future generations. buildings to the electricity used at our Kawasaki Works. GHG Emissions Reduction Initiatives GHG Emissions Reduction Targets and Efforts Adoption of Carbon-Free Energy Sources Calculation of Carbon Footprint Using Digital Technology As seen in trends such as the adoption of the Paris Agreement, Asahi Kasei is installing equipment for reducing GHG emissions, Asahi Kasei has begun calculating its carbon footprint in a there is an increasingly international movement toward carbon eliminating the use of coal-fired thermal power, and adopting manner that indicates the CO2 emissions associated with every neutrality. The Asahi Kasei Group has established new carbon carbon-free renewable energy sources. For example, we are in product and with each step from raw material procurement to neutrality targets to accelerate initiatives for contributing to the the process of upgrading and raising the capacity of the hydro- shipping. Our products and services are used in a variety of transition toward carbon neutrality. electric power facilities that supply our plants in the Nobeoka industries and fields. For this reason, we are calculating initially Carbon Neutrality Targets GHG Emissions (Million tons CO2 equivalent) 2050 2030 Goal to achieve carbon neutrality (net-zero emissions) Target to reduce GHG emissions by 30% or more (compared with fiscal 2013) Note: Direct GHG emissions from business activities as indicated by Scope 1 (direct GHG emissions) and Scope 2 (indirect GHG emissions from use of electricity, heat, and steam supplied by other companies) 14 12 10 8 6 4 2 0 1995 2013 2016 2017 2018 2019 2020 (FY) Notes: 1. Figures represent total of Scope 1 and Scope 2 emissions 2. Data for 1995 excludes overseas emissions the footprints of only certain products as we examine and develop the ideal framework and system with the goal of utilizing digital technology for more extensive carbon footprint tracking. In the future, carbon footprint information for each product and service will be used to guide initiatives for reducing our GHG emissions and collaborating with partners across the supply chain. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 27 Initiatives Regarding Climate Change Disclosure Based on the TCFD1 Recommendations In accordance with the TCFD recommendations, we examined comprising diverse businesses gives rise to both opportunities Corporate Governance changes that are expected to occur due to climate change and and risk abatements. In addition, we confirmed that we have the Asahi Kasei regards climate change measures as important man- their impact on our business in the three business sectors of potential to capture new opportunities related to climate change agement issues, and discusses their implementation status at Material, Homes, and Health Care. The results revealed that the through our diverse businesses and technologies. We will reduce meetings of the Management Council and the Board of Directors. financial impact on Health Care would be negligible. While cli- the risks of climate change and continue to develop as a com- In order to accurately understand the issue of climate mate change is expected to have a significant impact on Asahi pany that coexists with the environment while viewing adaptation change and discuss measures for addressing it, members of Kasei as a whole from a financial perspective over the medium and mitigation measures as business opportunities, thereby con- executive management discuss issues related to sustainability, to long term, it became clear that the financial risk to the tributing to the achievement of a sustainable society. including climate change, at meetings of the Sustainability Company as a whole is limited because its business portfolio Aspiration of the Asahi Kasei Group Physical risks Transition risks Strengths of Asahi Kasei Creating opportunities Businesses contributing to a sustainable society Diversity Capability to change Reducing risks Committee, chaired by the Asahi Kasei President, with results reported to the Board of Directors. In addition, our Global Environment Committee, chaired by the Executive Officer for Technology Functions, discusses issues related to the environ- ment, as a subcommittee of the Sustainability Committee. Strategy (Analysis of Opportunities and Risks) Basis of analysis • Scenarios assume temperature rises of 4°C and less than 2°C by 2050 • Examination covers our Material, Homes, and Health Care sectors • Analysis of the impact on our existing business portfolio Opportunities Important Changes Main Opportunities Principal Initiatives 4°C scenario Serious storm and flood damage Increase in heatstroke and infectious diseases Decarbonization Less than 2°C scenario Spread of electric vehicles (EVs) • Increase in need for disaster-resilient housing • Greater emphasis on resilience in house building and urban development - Hardware/software - Unit homes/community • Expansion in demand for existing and new pharma- ceuticals and acute critical care products • Provision of acute critical care pharmaceuticals and medical devices for heatstroke and infectious diseases • Provision of consumables, equipment, and services for biopharmaceutical manufacturing processes • Promotion of the spread of net zero-energy houses • Development of carbon-negative homes and communities (ZEH)2 through government policies • Increase in EV-related demand • Battery components • Materials for reducing vehicle weight • 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 1 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. 2 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 Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 28 Risks Important Changes Main Risks Principal Countermeasures 4°C scenario Serious storm and flood damage “Physical” production risks • Suspension of production due to plant damage • Disruption of raw material supply due to damage incurred by suppliers Rise in temperature “Human” production risks • Deterioration of working environment and productivity at construction sites • Continuous revision of BCP and reinforcement of preemptive response (review of inventory levels, study of multiple suppliers/sites, etc.) • Promotion of industrialization and utilization of IT in housing construction Less than 2°C scenario Decarbonization • Rise in costs due to stricter regulations3 (manufacturing and raw material costs) • Changes in materials needs (decarbonization requirements, necessary • Expansion in utilization of renewable energy, etc. • More efficient energy use; development and commercialization of industrial specifications) processes for decarbonization • Decarbonization of raw materials 3 Annual costs of approximately ¥40 billion if multiplying our fiscal 2020 GHG emissions of approximately four million tons by a hypothetical carbon tax of ¥10,000 per ton Risk Management We examine risks and opportunities and formulate policies from the perspective of the “Care for Earth” concept in our medium- term management initiative. In addition, we incorporate the aspect of sustainability, 2050 Goal to achieve carbon neutrality (net-zero emissions)4 2030 Target to reduce GHG emissions by 30% or more4 (compared with fiscal 2013) including climate change, into our decision criteria for allocating Even amid the COVID-19 pandemic, we did not see a significant management resources, and confirm the status of GHG emis- reduction in global GHG emissions. To achieve a sustainable sions when undertaking investments and other major society, we believe it is necessary to further accelerate our emis- expenditures. sions reduction initiatives. Accordingly, on May 25, 2021, we We calculate total GHG emissions for the Asahi Kasei Group announced new GHG emissions targets, changing our reduction annually, and the Board of Directors and other bodies manage targets from those based on emissions intensity (emissions progress toward our targets. Metrics and Targets volume / net sales) to those based on absolute emissions. In addition to reducing GHG emissions associated with our busi- ness activities, we contribute to reducing society’s GHG emis- The Asahi Kasei Group has established the following GHG emis- sions through our diverse technologies and businesses as a vital sions targets: part of our global warming countermeasures. 4 Direct GHG emissions from business activities as indicated by Scope 1 (direct GHG emissions) and Scope 2 (indirect GHG emissions from use of electricity, heat, and steam supplied by other companies) Carbon neutral sustainable world Reduce our own GHG emissions Contribute to reducing society’s GHG emissions 2050 Goal to achieve carbon neu- trality (net-zero emissions)4 2030 Target to reduce GHG emissions by 30% or more (compared with fiscal 2013)4 • Environment & Energy • Mobility • Life Material • Home & Living Major perspectives Renewable energy / energy saving / electricity storage / Key points of our initiatives hydrogen / EVs / CO2 separation, Reduction of energy use / decarbonization of energy / innovation of manufacturing processes / R&D / business portfolio transformation recovery, and use / weight reduction / extended product lives / heat insulation / ZEH / CO2 sensors / utilization of digital technologies / circular economy, etc. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 29 New Business Creation Creating new businesses to deliver new value for society has been a consistent part of the Asahi Kasei Group’s history. It will also be a staple in our future as we hone the diverse core technologies we have developed over nearly a century of operation and create new businesses by connecting people and technolo- gies both inside and outside. Our approach toward forging these connections will include partnering and merging with and acquiring other companies, collaborating with government agencies and other organizations, making corporate venture capital investments, and conducting group-wide marketing activi- ties. At the same time, we will take advantage of digital technologies to develop new business models and accelerate new business creation. Diverse Approaches to New Business Creation R&D-Oriented Approach perspectives, such as those related to business strategies, activities and create new businesses and business models on a The Asahi Kasei Group has developed numerous core technolo- patent strategies, and sustainability. group-wide basis. The M&I Acceleration System (MAS) in-house gies through wide-ranging technical synergies. These synergies were made possible thanks to our ability to combine our diverse Group-wide Marketing Approach innovation framework is one system that functions toward this end. MAS seeks to produce virtual venture capital and accelerator human resources, varied technologies, and multifaceted busi- New business creation is being accelerated from a marketing- functions in-house, and it has already generated success. MAS nesses. One of our strengths is the capacity to produce a oriented approach that extends beyond the Asahi Kasei Group’s makes it possible to effectively connect and utilize the necessary virtuous cycle entailing the utilization and application of core three business sectors. Established in April 2019, the Marketing management resources, internal and external networks, and technologies from new perspectives, the creation of unprec- & Innovation unit is developing an innovation platform for sup- administrative functions, opening the way to create new busi- edented businesses, and the subsequent generation of further plying market value by leveraging our comprehensive, cross- nesses beyond the reach of our established organization. technical synergies. Meanwhile, Corporate Research & business organizational capabilities while working to establish ties Fresh Logi™, a solution developed for the previously unex- Development operates a “stage-gate” system to optimally allo- with external partners. We look to carry out effective marketing plored food and agriculture field, is one offering created using cate management resources to research projects in stages ranging from the discovery stage to the commercialization stage. M&I Acceleration System (MAS) With this stage-gate system, we involve relevant divisions in the development process from an early stage to promote the com- mercialization of new technologies through a concerted group-wide effort. This approach helps clarify the current stage of development projects and ensures that decisions related to when a given project will be moved on to the next stage will not be made purely based on a technical perspective. Rather, these decisions are made through evaluations based on numerous • Starting in Marketing & Innovation • Starting in the Asahi Kasei Group • Starting in collaboration with other companies M&I Acceleration System (MAS) Entry Virtual venture capital and accelerator functions Exit (Providing means and opportunities to accelerate commercialization projects) Management resources Internal/external networks Administrative functions Human resource development • Commercialization within the Asahi Kasei Group • Joint commercialization with other companies • Divestment/licensing Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 30 MAS. This solution helps maintain the freshness and quality of fruits and vegetables and thereby contributes to reductions in food loss and CO2 emissions. By combining our Neoma Foam™ high-performance insulation with CO2 sensors, we succeeded in the development of sealed insulated boxes. Fresh Logi™ uses these boxes to create a logistics system that allows for the man- agement of vegetables and other produce while maintaining Ideal Fruit and Vegetable Transportation and Storage Realized by Fresh Logi™ Traditional Disruption in cold chain logistics flow at points ofloading, unloading, and transshipment Inefficient loading Fresh Logi ™ Uninterrupted cold chain logistics flow through use of sealed boxes Efficient loading through ability to mix cargo Transportation environment data Tracking of transportation environment data Precooling Up to 48 hours Precooling Up to 48 hours their freshness. With this system, we are forming connections Farm Distribution base Refrigerated truck Markets/retailers Farm Distribution base Ordinary truck Markets/retailers that extend beyond the Asahi Kasei Group. Specifically, we are utilizing the Smart Agriculture Traceability (SMAGt)* platform of Information Services International-Dentsu, Ltd., and engaging in Connections Formed by Fresh Logi™ joint development with government and academic institutions to Asahi Kasei Group (Industry) develop new business models, with the aim of commercializing Asahi Kasei Construction Materials Neoma Foam™ and thermal insulation data Asahi Kasei Microdevices Environmental sensor know-how and module development Academic Institutions External research institutions Appropriateness of validity tests for sealed-box transportation Fresh Logi™ over the period from 2021 to 2022. Asahi Kasei Home Products * A smart agriculture data distribution platform that uses blockchain technology to track the production and transaction histories of regional agricultural products CVC Informatics Initiative Asahi Kasei Advance Corporate IP Freshness maintenance know-how and network of distribution channels Searching for overseas start-ups and technologies Data analysis and algorithm development Design and manufacture of sealed boxes IP strategy Corporate Production Technology Simulation of thermal insulation/temperature retention and improving designs External Partner (Industry) Information Services International-Dentsu, Ltd. SMAGt platform Government Institutions Miyazaki Prefecture Visits to agricultural cooperatives and production sites National research institutions Establishment of freshness retention metrics and forecasting models Other government agencies Coordination with food distribution rational- ization committees New Business Creation Driven by Cross-Cultural Synergies M&A-Driven Approach pharmaceutical business platform for further development and M&A activities are a viable option to accelerate business portfolio expansion of businesses. In April 2021, we acquired Investment in and Co-Creation with Start-Up Companies transformations for acquiring new growth foundations and Respicardia, Inc., manufacturer of an implantable neurostimula- The Asahi Kasei Group is actively engaging in corporate venture strengthening existing businesses. Asahi Kasei is proactive in tor device for the treatment of central sleep apnea, which is a capital investments and other forms of open innovation with adopting this approach, as evidenced by our success in the new field for us. This business will serve as a central growth start-up companies and entrepreneurs in fields with high poten- Health Care sector, where we are accelerating our evolution into driver in acute critical care, further expanding existing busi- tial for innovation. Commercialization activities are being a global health care enterprise. In March 2020, we acquired nesses and branching into peripheral fields. advanced with this regard while taking appropriate risks. One Veloxis Pharmaceuticals, Inc., which serves as an overseas example of these activities is LIFE CO-LAB., a housing field Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information31 accelerator program for which we began accepting applications years, we have held IPL de Connect, an internal group-wide These IP activities have been highly recognized, and we in March 2021. Developed together with 01Booster Inc., this event that gives rise to innovation, as a preliminary step to the received an award from the Minister of Economy, Trade and program utilizes our resources to support the businesses of creation of new businesses. Advanced through discussions Industry in the Intellectual Property Achievement Awards pro- start-up companies and entrepreneurs over a set period with the based on the IP landscape, these activities promote innovation gram sponsored by the Ministry of Economy, Trade and Industry goal of co-creating new businesses. Through such programs, we by prompting chain reactions of awareness as connections are and the Japan Patent Office in April 2021. look to generate innovation that would be impossible for us to do made among our diverse core technologies, marketing func- alone while accelerating the creation of value in new and exist- tions, and planning functions. ing business fields. New Business Creation Guided by Aggressive Intellectual Property Utilization The Asahi Kasei Group is advancing intellectual property (IP) activities based on four main focuses—(1) construction of an IP network that contributes to businesses based on a scenario for IP rights utilization, (2) IP clearance for guaranteeing busi- ness execution, (3) implementation of IP activities to support globalization of businesses, and (4) contribution to business innovation, from the perspective of IP, by digital transformation. Systematic human resource development plans are being implemented based on these focuses. We actively perform IP landscaping, which leverages IP analysis for formulating and innovation by digital transformation. Based on industry and market information, IP information, specifically big data on patents and research reports, is collected and processed to formulate IP maps and associated materials. These materials are provided to management and business units to inform discussions about our market position, strengths, and business opportunities, eventually leading to management and business decisions related to matters such as M&A activities for creating new businesses and reinforcing existing businesses. In recent Asahi Kasei’s Core Technologies Optical fiber Fibers Blood purification, artificial kidneys Diagnostic reagents, DNA, peptides Nonwovens Hollow-fiber membrane LSIs Food wrapping film Semiconductor devices LIB separator Adhesives Virus removal filters Pharmaceutical additives Ion-exchange membrane Synthetic rubber Modified polyphenyl- ene ether resin Polyethylene Prescription drugs Compound semiconductors (magnetic and other sensors) Wire-grid polarizing film Acrylonitrile catalyst Polycarbonate Purging compound for molding machines Aerated concrete Anti-quake structures Polyamide Paint materials, SB latex (functional coatings) Polyacetal Photomask pellicles Catalyst/process Polymer/processing (polymer, film) Fibers/nonwovens Membrane/separation Compound semiconductors/LSIs Homes/construction materials Pharmaceuticals Created by Asahi Kasei using “TechRadar Vision” (a tool provided by VALUENEX Japan Inc.) Each dot indicates a patent held by the Asahi Kasei Group in Japan. reviewing business strategies, as one measure for business Photosensitive resins, films Foam, insulation material Resin molding Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information New Business Creation Utilizing Corporate Venture Capital 32 The management understands CVC’s role and recognizes it as an option for new business creation Q You proposed CVC to the President, and it was established in 2008. Why did you choose CVC as a One of the advantages of venture capital investment is that start-ups focus on markets that do not yet exist. Making invest- vehicle for creating new businesses and what benefits do its ments allows us to monitor new markets and assess when best investments deliver? to proceed to the next stage while deepening our understanding Around the year 2000, I took part in a joint project with a start- of such markets. In addition, investing in “white spaces” adja- up in San Diego and witnessed firsthand the business cent to our existing businesses enables us to secure future development capabilities of such companies. Technologies candidates for acquisition and increase our pipeline for creating developed by start-ups are acquired by other companies and new businesses. In other words, I proposed the establishment of used for creating new businesses. The dynamism of such busi- CVC based on my belief that a new framework for new business ness development, whereby technologies are monetized, is not creation would become increasingly necessary going forward, often seen in Japan. I thought that establishing CVC would pro- which ultimately led to my current role. vide a means to outsource business development, which is a weak point of Japanese companies. The Asahi Kasei Group carries out R&D in the business divi- Q How do Asahi Kasei’s uniqueness and competitive edge contribute to CVC’s activities? sions and at the corporate level, and utilizes M&A as means to Asahi Kasei’s key strengths of “diversity” and “capability to Takashi Morishita Asahi Kasei America, Inc. General Manager, Corporate Venture Capital create new businesses. However, R&D by business divisions change,” as well as its adaptability to change and its egalitarian Joined Asahi Kasei in 1986. Established Corporate Venture Capital (CVC) at Asahi Kasei in 2008 and became General Manager. Moved base of operations to Silicon Valley in 2011. CVC has invested in more than 30 start-ups, and led to the 2011 acquisition of Crystal IS, Inc., a U.S. company developing UVC LEDs utilizing aluminum takes at least three years while corporate R&D, involving the corporate culture as symbolized by its use of less formal titles, development of medium- to long-term projects across the all serve as advantages in promoting CVC’s activities. To give an Group, takes approximately seven to ten years. In contrast, M&A example, decisions on investment amounts of up to $5 million projects can be developed into new businesses soon after acqui- per company are delegated to the Investment Committee with- sition. In terms of time spans, I view CVC as a method for bridg- out the need for head office approval. This approach facilitates nitride substrate, and the 2018 acquisition of Senseair AB, a ing the gaps not covered by R&D and M&A, and representing decision-making at approximately the same speed as that of Swedish company developing gas sensor modules. (Website: http://www.asahikaseiventures.com/) the difference between the approaches of either creating new venture capital companies in the United States and Europe, businesses based on technology within Asahi Kasei or by which acts as a major strength for CVC. Start-up companies making investments for acquisitions. move quickly and opportunities to invest in them are limited. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 33 market and on materials. acquisitions, start-ups are at least willing to hear what we have to Going forward, we expect to see say. The recognition within Asahi Kasei that CVC is an effective the creation of rapidly accelerating means to create new businesses is also crucial. With the new businesses, such as industrial Company’s understanding that CVC’s activities require a certain IoT and telehealth (healthcare pro- amount of time, we work to create tangible results while consid- vided remotely) due to the changes in ering how many projects we can implement and the time needed workstyles and lifestyles triggered by for implementation. I believe these efforts will help deepen COVID-19. To prepare for unpredict- understanding of CVC’s activities both internally and externally. able market developments, I believe Another reason behind our ability to maintain CVC’s activi- Therefore, we must match the speed of start-up companies by that we must revise the course of our investments while monitor- ties is that we place the utmost importance on our relationships putting in place quick and flexible decision-making mechanisms ing trends. Last year, we primarily invested in spheres including with start-ups. Since local networks cannot be easily developed on the investment side in order to make CVC function effectively. industrial IoT, housing, agriculture, digital health, and neuro- by those on assignment from Japan, we have increased our Some of Asahi Kasei’s businesses originally began as joint modulation, which treats the nervous system using electrical sig- number of locally hired employees and are leveraging their net- ventures, and the company embraces the process of incorporat- nals. Looking ahead, I feel that we must pay close attention to works. As an organization with technologies and analytical ing external technologies and making them its own. I believe such domains while focusing on new businesses created capabilities in a wide range of business fields, Asahi Kasei can that this corporate climate and culture is among the reasons through the realization of a circular economy. For example, we offer technical advice, equipment, and other support. I believe why Asahi Kasei’s management team has recognized CVC as a are beginning to see reverse innovation—whereby technologies continuing to be a good corporate partner over the long term by useful entity for new business creation. developed for emerging countries are deployed globally—in the providing financing and a variety of expertise will enhance our Q Please tell us about CVC’s activities in different regions and its investment portfolio strategy over the medium sustainability domain, a trend that is likely to spread throughout standing among start-ups and venture capital companies, the world going forward. Investing in domains where substantial thereby making it easier for us to become involved in outstand- future earnings are expected by providing support for such ing projects. to long term. emerging countries is one investment option. By region, we will continue investing in the United States, since it will undoubtedly continue to produce new businesses as the epi- center of innovation. We will make Europe the focus of our invest- Q Fiscal 2021 marks the 10th anniversary of the launch of CVC’s activities in the United States. Could you tell ments going forward as the public and private sectors in that us how you have been able to continue CVC’s activities and region are working proactively to establish a “green recovery” share with us the expertise and strengths you have gained in from COVID-19, and we expect to see the creation of new mar- the process? kets there based on a circular economy. We just entered China in The biggest reason is because of our track record. When meeting fiscal 2020 and are at the stage for exploring possibilities in this with start-ups, three questions always come up: our fund size, market. As China leads the world in electric vehicles and related investment record, and acquisition record. As CVC has already service businesses, we will carry out monitoring centered on this invested in more than 30 projects, two of which have resulted in Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 34 Digital Transformation The Asahi Kasei Group views digital transformation (DX) as a means of using digital technologies to fully leverage our strengths, which are the “diversity” and “capability to change” of our human resources, technologies, and businesses, in order to transform business models and drive value creation. Accordingly, we will actively promote DX initiatives going forward. Road Map of the Asahi Kasei Group’s DX Promotion The Asahi Kasei Group has created a road map that breaks Initiatives during the Digital Introduction Period as the automation of product inspection through the use of AI, down its DX initiatives into four phases—the Digital Introduction During the Digital Introduction Period, which began in 2018, we the enhancement of productivity through data analysis, predictive Period (from 2018), the Digital Deployment Period (from 2020), promoted functional DX initiatives, including materials informat- detection of equipment abnormalities, and the use of IoT tools to the Digital Creation Period (from 2022), and the Digital Normal ics (MI), production technology innovation, IP landscaping, and make tasks more advanced, less labor intensive, and more pre- Period (from 2024)—and lays out the content of the initiatives in digital marketing. Through these efforts, we launched approxi- cise. We aim to commence the operation of smart factories within each phase. Going forward, we will implement DX initiatives in mately 400 projects on a group-wide basis and worked to a few years as we further promote DX at production sites. each phase established under the road map. resolve various issues through collaboration between personnel of DX support and promotional divisions and personnel of each Overview of the DX Promotion Road Map business. from 2018 Digital Introduction Period Foundations of functional DX • MI, production technology innovation, IP landscape, etc. About 400 projects from 2020 Digital Deployment Period from 2022 Digital Creation Period Acceleration of group-wide DX promotion • Formulation of DX Vision • Digital Value Co-Creation, co-creation laboratories, etc. Management Innovation through DX • Business model transformation, valuing intangible assets • Utilization in management decision-making • Utilization in human resource management, etc. from 2024 Digital Normal Period All employees become digital human resources All employees gain mindset of digital utilization IP Landscaping We formulate overarching maps of IP by using digital technolo- gies to collect and process various IP-related information, such as patents and research reports. By analyzing this information Materials Informatics (MI) With the aim of dramatically improving development speed and alongside industry and market information, these maps help us developing exceptional innovative materials, we are promoting the identify the Asahi Kasei Group’s market position, business utilization of MI, which involves enhancing the efficiency of R&D strengths, and business development potential. For more details activities on materials through the use of AI and statistical analy- on IP landscaping, please see the “New Business Creation” sec- sis. The promotion of MI has already led to the successful devel- tion on p.29 –33. opment of innovative materials within a short time frame, and we now make use of MI in the development of nearly all of our prod- ucts. In addition, we are proceeding with preparations to establish a foundation for the more advanced utilization of MI, including in unmanned “smart laboratories” for material exploration. We are also developing MI tools that can be used in sales activities. Digital Marketing We are leveraging digital technologies as a tool to transition from marketing based on empirical rules to marketing based on sci- entific evidence. As part of this effort, we have introduced customer relationship management (CRM) systems in order to visualize information communicated between our sales repre- Production Technology Innovation sentatives and our clients. While ensuring the security of our We are promoting activities aimed at enhancing productivity by clients’ confidential information, we are sharing data on a cross- utilizing digital technologies in all processes at our manufacturing organizational basis and making use of such data as an asset. facilities. These activities involve a broad range of initiatives, such Furthermore, we are drawing on digital technologies to establish Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information35 contact points with our clients, including holding virtual exhibi- future world full of smiles” through borderless connections leverage the Asahi Kasei Group strength of “diversity” to drive tions that utilize virtual reality in the Homes sector. enhanced by digital innovation. By doing so, we presented a business model transformation and value creation, entrench DX Initiatives during the Digital Deployment Period sharing DX Vision 2030 with stakeholders both inside and out- digital value co-creation. Under Digital Value Co-Creation, we We have transitioned from the phase of solidifying foundations side, we will accelerate the co-creation of the value we offer to integrated the Smart Factory Initiative and Informatics Initiative, for functional DX initiatives to a phase in which we will expand society by utilizing digital technologies to transform our business which promoted DX in Corporate Production Technology and the scope of our DX promotion on a group-wide basis. During models with the aim of realizing healthy, secure, safe, and com- Corporate Research & Development, respectively, together with this phase (from 2020 to 2022), we are working to reinforce our fortable lifestyles as well as a world where there is less burden on Corporate IT Management. We also newly established the vision for the world we wish to create by 2030 through DX. By in group-wide management, and accelerate reforms through foundation for accelerating group-wide DX promotion. the environment. Development of the DX Vision Establishment of Digital Value Co-Creation In May 2021, the Asahi Kasei Group formulated DX Vision 2030, We established Digital Value Co-Creation in April 2021. The mis- which states our intention to co-create “healthy living” and “a sion of this organization is to draw on digital technologies to Asahi Kasei will co-create “healthy living” and “a future world full of smiles” through borderless connections enhanced by digital innovation. Crossing boundaries and forming connections with the power of digital “Healthy living” and “a future world full of smiles” To create new value for society, we will resonate We will help realize healthy, secure, safe, and across countries and cultures and co-create comfortable lifestyles to create a world full of across companies and organizations. smiles for future generations. Marketing Technology Initiative and Strategy & Co-Creation. We aim to achieve seamless and powerful collaboration between IT and digital technologies. While enhancing production, manufac- turing, and R&D efficiency, establishing vital infrastructure, and improving quality, we will also work to create new sales and mar- keting approaches and develop new business models through the use of digital technologies. In addition, we will effectively utilize digital technologies in relation to sustainability, such as reducing our CO2 emissions and ensuring optimal plant operation, as well as for reform of workstyles and enhancement of employee engagement. Digital Value Co-Creation (organization reporting to the President) Strategy DX promotion in overall business and management Strategy & Co-Creation Sales and marketing DX promotion Marketing Technology Initiative Function R&D DX promotion Informatics Initiative Manufacturing and production DX promotion Smart Factory Initiative Foundation IT infrastructure and security Corporate IT Management Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 36 Opened CoCo-CAFE Digital Co-Creation Laboratory Cultivation and Reinforcement of Digital Human Resources A vital part of accelerating our DX promotion is connecting inter- nal and external knowledge to co-create value. We opened CoCo-CAFE in January 2021 to serve as a laboratory and testing ground for bringing together digital personnel from marketing, R&D, and production technology divisions, and for invigorating exchanges between internal and external parties. Through CoCo-CAFE, we are working to strengthen our DX foundation, transform our existing business models, and promote the estab- lishment of new business models with the aim of offering new value to the world. CoCo-CAFE is being utilized as a space for pursuing chal- lenges and co-creation; leveraging, verifying, and experiencing digital technologies in a highly advanced manner; and cultivat- ing digital human resources. It will also be used as a powerful driver for new value creation by not only forming connections between in-house personnel but also enabling collaboration between industry, academia, and government bodies. While aiming to have all employees serve as digital human internal and external parties. At CoCo-CAFE, co-creation activities resources who engage in their work with a high awareness of digi- are being carried out in a highly proactive manner. tal technology utilization, we will make proactive efforts to recruit We are also implementing training programs to turn busi- and cultivate digital professional human resources who are able to ness managers into DX leaders who understand the importance leverage advanced digital technologies and data to resolve business- of DX and can promote it on their own initiative. related issues and create new value and business models. Recruitment and Cultivation of Digital Professional Promotion of DX Educational Activities for All Employees Human Resources We are strengthening DX educational activities for all employees We have established KPIs for securing and enhancing three based on the notion that it is essential to enhance the IT and digi- types of human resources and are systematically implementing tal literacy of all Asahi Kasei Group employees in order to achieve recruitment and cultivation activities accordingly. The three our plans of cultivating all employees to digital human resources types of human resources we aim to secure and enhance are in the Digital Normal Period. In April 2021 we launched our own personnel who understand the background of DX issues and original Open Badge system. By visualizing employee skills, the can organize and resolve business-related issues based on that Open Badge system encourages independent and self-motivated understanding; personnel who can practically apply and utilize learning by promoting step-by-step acquisition of basic knowledge data science in a manner that responds to various issues; and on digital technologies through the use of e-learning. In addition, personnel who possess and can leverage knowledge of informa- we hold large-scale, in-house events, such as the company-wide tion processing, AI, and statistics. By targeting these types of DX conference, to provide opportunities for employees to human resources in carrying out our recruitment and cultivation learn about successful examples of DX promotion. activities, we will increase the number of digital professional per- Furthermore, our digital co-creation laboratory CoCo-CAFE serves sonnel who can promote advanced digitalization activities to 230 as a space for DX-related learning and collaboration between by the end of fiscal 2021. Open Badge Level 1 Knowledge Understanding the basics Level 2 Skill Level 3 Experienced Level 4 Expert Level 5 Thought Leader Possessing skills and knowledge that can be applied to work Ability to actually utilize DX to improve work processes, etc. Ability to strengthen business competitiveness Ability to drive organizational and business reforms Level 5 Level 5 Thought Leader Thought Leader Level 4 Level 4 Expert Expert Level 3 Level 3 Experienced Experienced Plan for all employees to be digital human resources Digital professional human resources Digital professional candidates Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Examples of the Asahi Kasei Group’s DX Initiatives 37 MI-Hub Example: Development of new S-SBR (polymer material) for fuel-efficient tires Example of CUI inspection by removing insulation MI educational contents Internal cloud Polymer structure Polymerization conditions Composition Mixing conditions MI/AI Optimization Fuel efficiency vs. Abrasion resistance Physical properties of tires y c n e i c i f f e l e u F e c n a m r o f r e p Abrasion resistance performance Discovery of new polymer structure within short time frame through estimation/investigation using MI Consortium of chemical companies (JPCA members) Vision for commercialization Data collection/analysis and model development Company A Company B Company C Each company: Provision of data Detection Services Platform Company X Company Y Company Z Fostering a Corporate Culture That Promotes MITo extensively apply MI to all of our R&D projects and leverage MI to strengthen group-wide business competitiveness, it is imperative that our laboratory researchers make use of MI on a daily basis in their research. To that extent, we launched the MI-Hub initia-tive, which offers original educational programs that include a computing environment that is easily accessible to all researchers and educational materials that cater to the actual work that our researchers perform. Many of our researchers have started to utilize MI in their day-to-day work and, as laboratory attendance remains restricted due to the COVID-19 pandemic, we have begun to see several successful cases where researchers use MI to conduct material design at home and then promptly put that design to use to develop new materials. Furthermore, communities are beginning to develop that tran-scend the respective divisions to which our researchers who use MI belong, and this has started to foster a corporate culture of friendly competition and mutual support.Promoting Plant Maintenance Using Data: Project to Detect Corrosion Under InsulationAt chemical plants that have been operating for many years, the management of corrosion under insu-lation (CUI), which is corrosion on the external surface of equipment covered by thermal insulation, is a common and important issue for ensuring safety. Leading the way with addressing this issue, the Asahi Kasei Group has developed a model that can predict the occurrence of CUI by collecting and analyzing a great deal of CUI data from chemical companies that are members of the Japan Petrochemical Industry Association (JPCA). This model has been recognized for having a higher degree of accuracy than conventional CUI prediction methods used at JPCA member companies, and has already been disclosed to these companies via a digital platform. The development of this model was recognized in fiscal 2020 with the Award of Excellence in the Fourth Infrastructure Maintenance Awards sponsored by the Ministry of Economy, Trade and Industry. In fiscal 2022, we will work to commercialize detection services for CUI and other matters as we aim to further enhance the reliability of plants through the widespread adoption of such services.Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Examples of the Asahi Kasei Group’s DX Initiatives 38 Co-Create (Creating together) Co-Execute (Executing together) Co-Operate (Operating together) Creating a vision: What kind of joy will we provide and to whom? Creating something, having customers experience it, and making improvements Getting more people to use what we created Co Working together with various partners to overcome generational viewpoints and to transcend organizational, corporate, and national boundaries Using Digital Technologies to Achieve SustainabilityTo accelerate the realization of a carbon neutral sustainable world and a circular economy using dig-ital technologies, we will pursue various efforts to generate synergies between sustainability and DX, including visualizing our carbon footprint and establishing plastic recycling platforms that utilize blockchain technology. In terms of visualizing our carbon footprint, we are collecting and combining data related to CO2 emissions throughout our entire supply chain, from raw material procurement through to the transportation of products to customers. By doing so, we are able to confirm the carbon footprint of each of our products as needed. We will also leverage the data collected through this effort in future initiatives to reduce our CO2 emissions. In a similar manner, for establishing plastic recycling platforms, not only will we introduce blockchain and other advanced technologies, we will also position the data handled by such technologies as a source of value and leverage this data in the creation of frameworks to recycle limited resources more efficiently, beginning with the visualization of the recycling process.Generating Value through Digital Co-CreationTo create new value through such means as transforming our business models and enhancing efficiency in a highly innovative manner, we are actively adopting garage methodology and promoting agile development under a thought process that emphasizes the customer’s perspective. Garage methodology is organized into three phases: Co-Create, Co-Execute, and Co-Operate. By pursuing and maintaining collaboration between internal and external partners in each phase of this methodology, we are accelerating reforms in each strategic business unit, core operating company, and corpo-rate functional department. In the Material, Homes, and Health Care sectors, we are working to transform business models for existing businesses by applying garage methodology. Going forward, we will take on the challenge of enhancing the value of the intangible assets created from the diversity of our human resources, technologies, and businesses.Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information39 Human Resource Strategies The Asahi Kasei Group seeks to create new value by leveraging the “diversity” and “capability to change” of our human resources, technologies, and businesses. To support this effort, we are developing platforms that support the autonomous growth of our human resources and are conducive to contributions from diverse individuals in accordance with our basic principles that “people are our core assets” and that “everything starts with people.” The Asahi Kasei Group’s Human Resource Strategies Response to Changes Brought About by COVID-19 systems and infrastructure, for the new normal that is poised to organization in order to foster workplace environments in which The COVID-19 pandemic caused sweeping changes to the envi- emerge after the COVID-19 pandemic has subsided. At the everyone is passionate about working together. ronment in which people work such as restrictions on same time, we have been endeavoring to improve productivity commuting to workplaces and taking business trips. The result- through revisions to workstyles and the use of digital technolo- ing changes to behavioral patterns have also stimulated the gies. All employees are responding to the sweeping changes by Continuous Growth of Business Driven by Lifetime Growth of Employees diversification of the values of individuals. The Asahi Kasei exercising ingenuity in their work and in connecting with others The Asahi Kasei Group’s diverse human resources have contin- Group is committed to developing comfortable workplace envi- both inside and outside. Going forward, we will continue to ued to grow while creating diverse technologies and businesses ronments, from the perspectives of both human resource improve employee engagement and desire to be part of an by embracing our Group Values of sincerity, challenge, and cre- Overview of the Group’s Human Resource Strategies Before COVID-19 With COVID-19 Ongoing measures Active use of diverse human resources/improvements in work engagement More effective measures in the “new normal” environment • Promotion of diverse workstyles (telecommuting, etc.) • Expansion of Group Masters program • Nurturing of the next generation of leaders • New engagement survey, etc. • Introduction of flexible working w/o “core” time, satellite offices, etc. • Workstyle reform and productivity improvement utilizing IT tools • Maintenance of individual physical and mental health • 1-on-1 meetings, etc. Acceleration of change Diversification of values Renewed awareness of importance Vibrant work environment Diverse ways of working Ways of actively embracing change Flexible management Growth by enhancing specialization regardless of generation Toward an era of greater change Future direction Lifetime growth Diverse individuals maximize their capabilities Individuals act on their own initiative and grow Management to support growth and challenge To achieve lifetime growth, start preliminary implementation of on-site trials and plan detailed measures “Everything starts with people” — for the further evolution of Team Asahi Kasei Diversity cultivated over 100 years of history and capability to change through the innovation of employees, organizations, and the company ativity. We emphasize an egalitarian corporate culture and team- work founded on an open exchange of ideas regardless of rank and position, as symbolized by our custom of referring to others by name as opposed to by title. With this corporate culture, we have continued to achieve ongoing growth driven by the core strengths of our human resources: an unwavering dedication to pursuing goals, the team spirit that inspires individuals to unite toward a common goal, and a sincere commitment to customers and to one’s work. We expect the operating environment to remain volatile and unpredictable going forward. Faced with such challenging circumstances, we will continue to build upon these core strengths while encouraging our diverse, individual employ- ees to take the initiative, regardless of age, in order to heighten their specialties through lifetime growth. As our diverse, individual employees grow in this manner, we will tie their growth to ongoing business growth through effective management. That is the core of the human resource strategies of the Asahi Kasei Group. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information40 Enhancement of Human Resource Management Capacities Workplace environments have been transformed as a result of discussion among employees and therefore spur the autono- workplace environments; (2) Employee empowerment; and (3) the COVID-19 pandemic, making online communication the mous growth of both employees and organizations. Action driving growth. norm and creating a greater deal of acceptance toward diverse The KSA engagement surveys are based on the empower- The gauging of these three indicators and their degree of lifestyles and workstyles. As such, the empowerment and moti- ment and growth cycle model proposed by Professor Hiroya impact provides the following benefits: vation of employees requires management to implement appro- Hirakimoto of Osaka University and use three indicators • Ability to visualize the success or failure of past measures priate measures based on an accurate understanding of the related to individual employees and organizations: (1) • Accurate information on the current status of the organization circumstances surrounding employees and organizations. Based Relationships between supervisors and subordinates, that can be used to guide future action on this recognition, the Asahi Kasei Group launched its KSA engagement surveys, which look to gauge metrics pertaining to employee empowerment and growth. Work engagement is born out of synergies between the capacities of individual employees, exemplified in their feelings of self-efficacy and confidence and positivity toward work, and the capacities of organizations, dem- onstrated through support from supervisors and coworkers, Items Gauged through KSA Engagement Surveys Relationships between supervisors and subordinates, workplace environments Employee empowerment Action driving growth • Support from supervisors • Ability to maintain positive stance (individual capabilities) • Experience-based learning workplace discretion, and evaluations and feedback. To mea- • Interpersonal relationships supporting sure work engagement, we track conditions pertaining to the empowerment of individual employees, relationships between supervisors and subordinates, and workplace environments. This information is shared within the organizations to facilitate work • Encouragement of ingenuity • Respect for diversity • Workplace openness - Confidence, feeling of self-efficacy - Strength to overcome adversity - Capacity for plotting course toward achieving goals - Optimism • Motivation toward work (work engagement) • Contributions to organization • Problem-solving/ improvement efforts • Job crafting Framework of KSA Engagement Surveys Comments from Managers Following the Implementation of KSA Engagement Surveys (questionnaire responses of managers directly overseeing subordinates) Employee empowerment Action driving growth Relationships between supervisors and subordinates, workplace environments “It was very beneficial to use the results of the KSA survey in discussions with division members to involve everyone in thinking about ways to drive employee empowerment and growth in the workplace.” Individual and organizational growth “The KSA survey results helped me share the strengths and weaknesses of our organization with everyone.” “The results of the KSA survey cast light on aspects of organizations that I was unaware of as a department head. The weaknesses indicated by the survey report gave me a newfound understanding of our organization.” “We gained a deeper understanding of our organization through the KSA survey, fostering a greater sense of solidarity in our efforts to maintain our strong corporate culture.” Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 41 Group Masters Program In implementing human resource strategies, the heightening of increases in line with rank, to promote the growth of human business creation over the next five to ten years, we examined the specialized skills of individual employees is as important as resources while enabling us to recruit external talent. Moreover, the core technologies, production technologies, expertise, busi- the enhancement of human resource management capacities. succession plans are put in place for Group Masters to link the ness platforms, and diverse market channels and business For this purpose, the Asahi Kasei Group has established the development of human resources with the cultivation of busi- models that have been developed as the source of our competi- Group Masters program to appoint, nurture, and reward individ- nesses in order to raise competitiveness. tiveness thus far. This examination led to the identification of the uals who are contributing or are expected to contribute to the 12 core technology fields shown below including biotechnology creation of new businesses or the reinforcement of established Group Masters Human Resource Portfolio which was added in fiscal 2021. In addition, we have defined businesses as Group Masters. This program thus helps develop Under the Group Masters program, technology fields to be the jobs and occupational fields in which specialists should be a robust pool of human resources with high-level specialist strengthened from a cross-business perspective are defined as cultivated for both specific business fields and core company- expertise and skills who are competitive inside and outside the core technology fields, and engineers that drive the enhance- wide functions as core platforms fields, and we are assigning the organization. The program defines five ranks of Group Masters. ment of technologies in these fields are appointed as Group title of Group Master to individuals capable of driving efforts in The roles of each rank are clearly defined, and compensation Masters. For the pursuit of ongoing business growth and new these areas. Group Master Ranks and Roles Group Masters Fields Ranks Roles Executive Fellow (status equivalent to Executive Officer) Person who newly developed or considerably expanded a field of technology Principal Expert (status equivalent to Managing Executive or Senior Managing Executive) Person who takes the lead in a field of technology Senior Fellow (status equivalent to Managing Executive, Senior Managing Executive, or Executive Officer) Person whose term as Executive Fellow or Principal Expert expires after retirement age but who is expected to continue the roles shown at right Lead Expert Person ranked below Principal Expert (candidate to be Principal Expert) Expert Person ranked below Lead Expert (candidate to be Lead Expert) 1. Actively participating in and contributing to new business creation and strengthening operations by cultivating and enhancing their skills and abilities as a leading specialist 2. Fostering younger personnel in the relevant areas Actively participating in and contributing to new business creation and strengthening operations by cultivating and enhanc- ing their skills and abilities Business-specific fields 78 Group Masters Material Homes Health Care Core technology fields 128 Group Masters Fibers (polymerization, spinning, and cellulose) Membranes and separation Electrochemistry (electrolysis and batteries) Polymers (design, polymerization, processing, and applications) Catalysts, chemical processes, and inorganic synthesis Compound semiconductors Analysis and computer simulation Process development and construction technologies Product design and advanced control Plant engineering Digital innovation Biotechnology R&D Support functions Core platform fields 43 Group Masters Environmental preservation Quality assurance Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information42 Health and Productivity Management Health and Productivity Management System In April 2020, we appointed a Chief Health Officer (CHO) and estab- our employees and their families are at the heart of the Asahi raising health and productivity awareness among employees. At Kasei Group’s health and productivity management activities. the same time, we are developing health and productivity man- lished the Corporate Health Care Promotion Center as an organiza- In recent years, the total number of leave days taken by employ- agement frameworks. We hope to complete these awareness- tion tasked with promoting health and productivity management on ees has been increasing, causing losses in terms of both labor and raising and framework development measures by March 31, a group-wide basis under the direct authority of the CHO. healthcare costs. Factors behind the increase in leave days include 2022, and to begin full-fledged health and productivity manage- Furthermore, the Statement on Management for Health was mental health issues, metabolic syndrome, cancer, and smoking. ment activities thereafter. issued in October 2020 to add a new dimension to prior health pro- For this reason, steps to address these factors and help employees Our focus over the period spanning from fiscal 2022 to fiscal motion initiatives. To continue raising corporate value, it is achieve better physical and mental health are absolutely essential to 2024 will be to work to generate concrete benefits through the imperative to establish workplace environments in which employees achieving sustainable increases to corporate value. efforts of major domestic sites and to ensure that these benefits can succeed while maintaining good physical and mental health. At the same time, we are advancing initiatives focused on are tangible for as many employees as possible. Meanwhile, we Accordingly, we are actively promoting health and productivity man- supporting the success and growth of each individual, encourag- will look to expand the efforts of major domestic sites to smaller agement based on the Group Health and Productivity Management ing greater working satisfaction and fulfillment, and creating a independent plants in Japan as well as to overseas sites. Vision described in the Statement on Management for Health. vibrant and strong organizational climate with the aim of improv- From fiscal 2025 forward, efforts will be directed toward Frameworks for advancing health and productivity manage- ing productivity. We thereby hope to achieve the virtuous cycle of enhancing initiatives by evaluating and inspecting prior activities. ment initiatives on an integrated, group-wide basis were installed contributing to sustainable society and sustainable growth of cor- At the same time, we will tackle new challenges as we seek to in April 2021, when the health and productivity management porate value described in our medium-term management initia- disseminate and entrench health and productivity management functions of major domestic sites were placed under the direct tive “Cs+ for Tomorrow 2021.” practices on a group-wide and global basis and to evolve these supervision of the Corporate Health Care Promotion Center. Overview of Health and Productivity Management Initiatives Efforts to maintain and promote the physical and mental health of Medium- to Long-Term Stance toward Health and Productivity Management The Asahi Kasei Group is moving forward with measures for practices to undertake well-being management.* * A management approach that goes beyond promoting physical and mental health to emphasize the development of organizations in which employees are happy, able to feel tangible growth, and go about their work with a high degree of autonomy and motivation Overview of Health and Productivity Management Initiatives Medium- to Long-Term Stance toward Health and Productivity Management Contributing to sustainable society and sustainable growth of corporate value FY2020–2021 FY2022–2024 FY2025– Success and growth of each individual Greater working satisfaction and fulfillment Vibrant and strong organizational climate Group productivity improvement • Develop health and productivity management frameworks • Commence initiatives at smaller independent plants in Japan • Disseminate and entrench practices on a group-wide basis • Entrench philosophy, stance, and policies and improve recognition • Generate concrete benefits and • Evolve practices to undertake tangible performance improvements well-being management • Tackle new challenges • Commence initiatives at major • Launch global initiatives Maintaining and promoting the physical and mental health of employees and their families domestic sites Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Financial and Capital Policy 43 Achieving the Current Medium-Term Management Initiative In 2022, we will celebrate the 100th anniversary of Asahi Kasei’s founding. Looking back on our history, we have constantly grown by always providing value through our businesses to meet ever- the transformation of our business portfolio and steadily advanc- ing our financial and capital policy and other measures. Enhancing Cash Generation, Reinforcing Financial Foundations changing social needs based on the strengths inherent in the The Asahi Kasei Group achieves steady earnings by operating “diversity” and “capability to change” of our human resources, businesses in the three sectors of Material, Homes, and Health technologies, and businesses. Under “Cs+ for Tomorrow 2021,” Care. In fiscal 2020, compared with the outlook at the time of our medium-term management initiative, we aim to achieve two formulating “Cs+ for Tomorrow 2021,” earnings in Material were mutually reinforcing aspects of sustainability: contributing to lackluster, though on a recovery trend as the year progressed, sustainable society and the sustainable growth of corporate due to impacts of United States–China tensions and the COVID- value. In our efforts to contribute to sustainable society, we will 19 pandemic, while operating income in Homes lagged one year provide greater value by concentrating management resources, behind, and performance in Health Care was strong. Meanwhile, including human resources and technologies, in fields where we we endeavored to maintain and fortify our financial foundations can provide value to society. For the sustainable growth of corpo- through measures such as greater financial discipline in light of rate value, we will seek to continuously realize capital efficiency changes in our business environment, carefully selecting capital (ROE) exceeding the cost of shareholders’ equity by accelerating expenditure and investment projects, and thoroughly Primary Financial Metrics Net sales (¥ billion) Operating income (¥ billion) Operating margin EBITDA1 (¥ billion) Net income per share (EPS) 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 FY2016 1,883.0 159.2 8.5% 268.4 ¥82.34 10.5% 6.1% 0.84 2.0 7.8% 0.35 FY2017 2,042.2 198.5 9.7% 311.9 ¥121.93 14.0% 8.3% 0.89 1.9 9.7% 0.23 FY2018 2,170.4 209.6 9.7% 313.6 ¥105.66 11.1% 6.8% 0.89 1.8 8.8% 0.31 FY2019 2,151.6 177.3 8.2% 295.6 ¥74.85 7.6% 4.8% 0.80 2.0 6.6% 0.52 FY2020 2,106.1 171.8 8.2% 305.1 ¥57.49 5.6% 3.8% 0.73 2.0 4.9% 0.45 1 Operating income, depreciation, and amortization (tangible, intangible, and goodwill) 2 (Operating income – income taxes) / average annual invested capital Koshiro Kudo, CFO Director, Senior Executive Officer Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information44 implementing appropriate control of inventories and expenses. dividends and continuous dividend increases from a medium- to around 30% to 40% and considering the ratio of dividends to As a result, we were able to achieve performance that puts us long-term perspective through the sustained generation of cash shareholders’ equity. We plan to maintain dividends per share at on track to achieve operating cash flow in the range of ¥600 flow while paying close attention to the balance between invest- ¥34 for fiscal 2021* and expect the dividend payout ratio over billion to ¥700 billion, the three-year target set when formulating ments for growth and our financial position. Specifically, we aim the three years of “Cs+ for Tomorrow 2021” to be 40% or higher. the medium-term management initiative. We will continue striv- to steadily raise dividends while maintaining a payout ratio of * Forecast in May 2021 ing to enhance our cash generation capabilities by maximizing returns on past capital expenditure and investments and by Overview of Our Financial and Capital Policy raising productivity, in addition to continuously improving profit- Estimates at the time of formulating the medium-term management initiative Current view ability and capital efficiency through the transformation of our Financing for growth (while maintaining financial discipline) Pursuing returns above cost of capital business portfolio. We expect an increase in interest-bearing debt of ¥200 billion to ¥400 billion, within the range anticipated in “Cs+ for Tomorrow 2021.” Accordingly, we will continue to undertake financing while targeting a D/E ratio of around 0.5. Capital Expenditure and Investments Tailored to Changes in the Business Environment Amid an increasingly uncertain and obscure business environ- ment, we intend to concentrate the allocation of resources to capital expenditure and investments that have greater potential for sustainable growth while remaining conscious of the cost of capital. As a result of the more careful selection of investments from the initial formulation of “Cs+ for Tomorrow 2021,” we plan to make decisions on capital expenditure and investments at the level of ¥700 billion to ¥800 billion over the three-year period. Going forward, we will proactively invest in M&A in the Health Care sector, in increasing the production capacity of businesses in priority fields for provision of value in the Material sector, and in areas related to digital transformation and sustainability. Shareholder Returns Our basic policy on shareholder returns is to aim for stable Borrowing capacity Capital expenditure (decision-adopted basis) D/E ratio around 0.5 Increase in interest-bearing debt ¥200 to ¥400 billion Expected to be within targeted range at end of FY2021 Operating cash flow 3-year total ¥600 to ¥700 billion Aiming toward targeted range with enhanced cash generation Cash flows (¥ billion) 300 200 100 0 (100) (200) (300) (400) 169.0 249.9 212.1 139.6 124.5 79.0 13.1 253.7 95.9 (89.9) (110.3) (198.9) (193.7) (157.8) (318.2) 3-year total ¥800 billion (including M&A) Strict selection of investments ¥700 to ¥800 billion Share buybacks performed flexibly according to circumstances Shareholder returns Growth in dividends per share as earnings expand (payout ratio of around 30%– 40%) Returns in line with original assumption Dividends per share and dividend payout ratio (¥) 40 30 20 10 0 34 34 34 34 24 29.1 27.9 32.2 59.1 45.4 (%) 80 60 40 20 0 2016 2017 2018 2019 2020 (FY) 2016 2017 2018 2019 2020 (FY) Operating cash flow Investing cash flow Free cash flow Dividends per share (left scale) Dividend payout ratio (right scale) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 45 Business Overview Asahi Kasei Sustainability Photo Contest Name Lenny Gutierrez Company Asahi Kasei Asaclean Americas Inc. Country/region United States Care for People, Care for Earth Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationReview of Operations Material Standing Firm, Striding Forward Operations in the Material sector got off to a tough start in fiscal 2020 due to the impacts of the COVID-19 pandemic. We advanced our business activities with a focus on the creation of and social needs. In the first half of the fiscal year, we leveraged our robust supply systems to increase output of lithium-ion battery separators, electronic materials, consumables, textiles, and hygiene-related materials, demand for which was elevated by people increasingly staying at home. In the second half of the fiscal year we reaped the benefits of recovery in the markets for automotive and petrochemical products. As we move toward the 100th anniversary of the founding Hiroshi Yoshida Executive Officer for Material Business Sector Director, Vice-Presidential Executive Officer, Asahi Kasei Corp. value by capturing opportunities associated with new workstyles FY2020 46 Ratio of total consolidated net sales and operating income Net sales, operating income (¥ billion) (¥ billion) Sales composition 47.4 % Operating income composition 33.6 % 991.2 66.5 1,200 1,093.1 92.4 900 600 300 0 2019 2020 (FY) 120 90 60 30 0 Note: Not including “Others” category and corporate expenses Net sales (left scale) Operating income (right scale) and eliminations Basic Materials Specialty Solutions Performance Products Others in Material Business Strengths Diverse core technologies of Asahi Kasei in 2022, we will reinforce our foundations for With diverse core technologies that include catalysts, polymers, fibers, membranes, and compound growth through new business creation, accelerated portfolio transformation, and business model semiconductors, we are creating new value by developing applications that anticipate the changing innovation utilizing digital technologies. These efforts will be focused on the Environment & Energy, needs of society. We are also applying these technologies to products that benefit the global envi- Mobility, and Life Material among our priority fields for the provision of value. At the same time, amid ronment, such as lithium-ion battery (LIB) separators and acrylonitrile, which we produce using rising demand for contributions to sustainability, we will pursue sustainable growth of corporate value technology that reduces CO2 emissions. through initiatives such as developing decarbonization technologies and engaging in co-creation with other companies toward the achievement of circular economies. Main Products Basic Materials • Acrylonitrile Performance Products • Bemberg™ cupro fiber Specialty Solutions • Ion-exchange membranes 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 healthcare, 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. • Methyl methacrylate • Lamous™ artificial suede • Sunfort™ photosensitive dry film • Polystyrene • Dinamica™ automotive interior • Battery separators (Li-ion and Stable supply of high-quality products material • Engineering plastics lead-acid) • Mixed-signal LSIs • Synthetic rubber/elastomer • Hall elements • Saran Wrap™ cling film 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. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 価価価価価価価価 Material 47 Basic Strategy Flexible allocation of management resources to priority fields Responding to Operating Environment Changes Raising profitability/capital efficiency with new value provision models based on changed operating environment Business Strategy Priority Fields for Provision of Value Perceived Change Business Strategy / Way to Provide Value FY2020 Highlights Production capacity for Asahi Kasei LIB System/Solution Provider Increased Production Capacity for Hipore™ LIB Separator Environment & Energy • Carbon neutral movement accelerates worldwide • Rapidly growing need for technologies and solutions that contribute to decarbonization • Provide systems/solutions that combine core technologies, processes, and operational know- how of materials • Accelerate development of tech- nologies and products that contribute to the environment Proactively expanding businesses focused on lithium-ion batteries for electric drive vehicles. Click here for details. Material with Proposal of Usage Completion of Acquisition of Adient’s Automotive Fabrics Business Mobility • Temporary market slow- down, but changes related to CASE continue to present opportunities to provide value with materials • Propose lightweighting, modular- ization, and environmentally friendly materials to meet sustain- ability requirements for EDVs • Strengthen marketing to key customers U.S. subsidiary Sage Automotive Interiors acquired the automotive fabrics business of Adient plc to strengthen its business foundation in Europe, the largest market. Click here for details. Life Material • Firm demand for electronic materials and healthcare materials even amid the COVID-19 pandemic • New needs arising from advances in next-generation communications, changes in hygiene awareness, and new lifestyles Materials Differentiated by High Performance/Function Decision to Construct Second Plant for Ceolus™ Microcrystalline Cellulose • Provide differentiated materials required by advancing digital society • Provide value to meet new needs in healthcare and other fields with distinctive materials and devices The second plant will raise production capacity for Ceolus™ microcrystalline cellulose, which is primarily used as an excipient for pharmaceutical tablets, in response to growing demand. Click here for details. 3.0 1.9 separator (billion m2) 3 2 1 0 0.8 2018 2019 2020 2023 (Forecast) Medium-term target (FY) Wet process Dry process Sales at Sage Automotive Interiors (US$ million) Acquisition of Adient’s automotive fabrics business 850 ≥1,000 520 560 1,000 750 500 250 0 2019 2020 2021 (Forecast) Medium-term target (FY) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 48 Ratio of total consolidated net sales and operating income Net sales, operating income (¥ billion) (¥ billion) Sales composition 33.1% Operating income composition 32.2% 800 600 400 200 0 704.4 692.6 72.7 63.5 2019 2020 (FY) 120 90 60 30 0 Note: Not including “Others” category and corporate expenses Net sales (left scale) Operating income (right scale) and eliminations Homes Construction Materials Business Strengths Technology for robust homes This provided an opportunity for us to transform our FY2020 Adapting and Evolving Our ability to attract customers in order-built homes operations was greatly limited in fiscal 2020 as the COVID-19 pandemic forced us to close or restrict entry to model homes. business model, which allowed us to enhance customer engagement through various digital channels, leading to signifi- cant recovery in orders. At the same time, we moved forward with industry-leading initiatives related to sustainability and resilience, taking part in Japan’s first project in this area and winning several awards. As the domestic housing market con- tracts over the medium to long term, the changes in social structures and values brought about by the COVID-19 pan- 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. demic will make it more important than ever for us to flexibly Hebel Haus™ has earned a reputation for resilience against disasters, achieved through a combi- adapt to changes in our operating environment. In our core nation of high-performance earthquake resistance technology, Hebel™ autoclaved aerated business of order-built homes, we will seek to promote digital concrete (AAC), and Neoma Foam™ insulation with world-leading performance. transformation to enhance our home-building process and transform our business model to earn greater appreciation from customers. In addition, we will proactively develop new businesses with growth potential, such as homes for seniors and medium-rise homes. Overseas, we will leverage the consolidation of Australia’s McDonald Jones Homes to continue growing our business. Main Products Homes • Hebel Haus™ unit homes Construction Materials • Hebel™ AAC panels • Hebel Maison™ apartment buildings • Neoma Foam™ and Neoma Zeus™ phenolic foam Comprehensive system to support people’s lives One of our strengths is having a comprehensive system based on our “Long Life Home” concept to address the era of 100-year lifespans. We value our relationships with customers 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 services according to changes in customers’ lifestyles. Knowledge, expertise, and assets related to urban housing By focusing on urban areas, we have gained the ability to propose sites and spaces based on “opti- mal 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 • Atlas™ condominiums • Hebel Maison™ apartment rental network • Remodeling insulation panels develop new businesses such as homes for seniors, medium-rise homes, and overseas business. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Homes 49 Basic Strategy Reinforcing and extending value chain management Responding to Operating Environment Changes Maintaining existing growth strategy while using digital technology to meet changing lifestyle needs; strengthening resilience to disasters and adapting to carbon-free by leveraging our know-how for sustainable urban living Business Strategy Priority Fields for Provision of Value Perceived Change Business Strategy / Way to Provide Value FY2020 Highlights Home & Living • Decrease in new housing starts in Japan • Rising need for energy- efficient housing that contributes to carbon-free society and highly resilient housing in response to increasing severity of natural disasters • Diversification of lifestyle and housing needs in era of 100-year lifespans • Restrictions on sales activities amid COVID-19 pandemic Superior Social Infrastructure Increase in Hebel Haus™ Ratio of Net Zero-Energy Houses • Promote sustainability and strengthen resilience • Improve customer satisfaction and provide value through value chain reinforcement across the sector Net zero-energy houses using Neoma Foam™ high-performance insulation reached 66% of Hebel Haus™ unit homes delivered in fiscal 2020. Use of Non-Fossil Fuel Power Excluded from Feed-In Tariff Environmental value from solar power systems installed on Hebel Maison™ apartment buildings utilized at Asahi Kasei’s Kawasaki Works. Support for Swift Recovery from Disasters Hebel Maison™ Atlas™ Kamikumamoto was completed, replacing a condominium that was damaged during the 2016 Kumamoto earthquakes. A system was developed to estimate earthquake damage using seismometers installed in Hebel Haus™ unit homes. Leveraging Know-how to Develop New Businesses • Accelerate development of over- seas, homes for seniors, and medium-rise buildings businesses Management Foundation Reinforcement • Reform workstyles and improve productivity Acquisition of the Austin Companies The Austin Companies, a premier Arizona residential electrical, concrete, and HVAC group, were acquired in the U.S., joining Erickson Framing Operations LLC, a prefabri- cated building component supplier acquired in 2018. Click here for details. IT Investments for Utilizing Digital Technologies Adoption of tools for non-face-to-face meetings with customers and other steps to reform work processes. Atlas™ Kamikumamoto Net sales of overseas business (¥ billion) 100 100.0 McDonald Jones Homes becomes a consolidated subsidiary 50 0 18.5 25.8 2019 2020 2021 (Forecast) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Health Care Growing Globally In fiscal 2020, we implemented measures to advance our evolution into a global health care enterprise, while the COVID- 19 pandemic reminded us of the importance of 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 Board Director, Veloxis Pharmaceuticals, Inc. included the growth of an osteoporosis treatment and the advancement of a disease awareness campaign. We strength- ened our pharmaceutical business foundations in the United States through the post-merger integration of Veloxis, which we acquired in March 2020. In medical care, we expanded our virus removal filter business serving manufacturers of Notable steps for the pharmaceutical business in Japan FY2020 50 Ratio of total consolidated net sales and operating income Net sales, operating income (¥ billion) (¥ billion) Sales composition 19.5% Operating income composition 34.2% 500 400 300 200 100 0 407.9 67.6 337.8 43.5 2019 2020 (FY) 120 90 60 30 0 Note: Not including “Others” category and corporate expenses Net sales (left scale) Operating income (right scale) and eliminations Pharmaceuticals/Medical Care Acute Critical Care biotherapeutics, including COVID-19 treatments. Growth in our acute critical care business centered on ventilators, other Business Strengths Providing optimal treatments with both pharmaceuticals and medical devices resuscitation products, and wearable defibrillators. Our mis- Being engaged in both pharmaceutical and medical device businesses, we are able to provide a sion is to deploy our unique technological innovations to wide range of treatments for patients. By increasing opportunities for innovation in both businesses, deliver the best products, services, and solutions to health especially in the United States, we are able to provide even more value to support a society of care professionals around the world, with the aim of saving the healthy longevity. Richard A. Packer Executive Officer for Health Care Business Sector (joint) Primary Executive Officer, Asahi Kasei Corp. Chairman & Board Director, ZOLL Medical Corporation Board Director, Veloxis Pharmaceuticals, Inc. lives of patients and improving their quality of life (QOL). We will accurately address the needs of the medical community with both pharmaceuticals and medical devices in order to make the Health Care sector a major growth-driving pillar of the Asahi Kasei Group. Main Products Pharmaceuticals/Medical Care • Teribone™ osteoporosis drug • Recomodulin™ anticoagulant Acute Critical Care • Defibrillators for professional use • LifeVest™ wearable defibrillator Business platforms in orthopedics, immunology, and 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 manufacture of biotherapeutics such as biopharmaceuticals and plasma derivatives. The reliable high performance • Kevzara™ rheumatoid arthritis drug • Automated external defibrillators (AEDs) and consistent quality of these filters are trusted by pharmaceutical manufacturers around the • Envarsus XR™ immunosuppressive drug • Thermogard System™ temperature management • APS™ polysulfone-membrane dialyzers system world, earning us the top share of the global market. • Therapeutic apheresis devices • Planova™ virus removal filters Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Health Care 51 Basic Strategy Further accelerating transformation to a global health care enterprise Responding to Operating Environment Changes Continue priority allocation of management resources; global expansion of both pharmaceuticals and medical devices, to be the third major pillar and driver of growth Business Strategy Priority Fields for Provision of Value Perceived Change Business Strategy / Way to Provide Value FY2020 Highlights Net sales, overseas sales • 13% CAGR1 over past 10 years Acute Critical Care Increased Ventilator Production in Response to COVID-19 • Driven by overseas business (reaching nearly 80%) Health Care • Need for COVID-19 response measures • Rising demand for high- quality medical care and improved QOL centered on developed countries • Population aging and government policies to streamline healthcare expenditure • Technological innovations for next-generation therapies • Continue growing resuscitation products and other existing businesses and expand into peripheral fields Production of ventilators was increased substantially to meet rapid growth in demand due to the COVID-19 pandemic. Click here for details. Pharmaceuticals Post-Merger Integration of Veloxis • Business growth in areas of strength—orthopedics, immunology, and neurology—in Japan and overseas Progress advanced in post-merger integration of Veloxis, acquired in March 2020; sales of Envarsus XR™ immunosuppressive drug expanded. Out-Licensing Agreement for AK1780 Chronic Pain Drug Candidate AK1780, a drug candidate for chronic pain caused by neuroinflammation developed by Asahi Kasei Pharma, was licensed to Eli Lilly and Company. Click here for details. Medical Care Expansion of Sales for Planova™ Virus Removal Filters • Reinforce bioprocess business in line with growth of biothera- peutics market While needs for viral safety in biothera- peutics continue to rise, inquiries for Planova™ virus removal filters increased in relation to development of COVID-19 treatments and vaccines. Click here for details. (¥ billion) 600 450 300 150 0 Entered critical care field with acquisition of ZOLL 119.5 24% 24% 2011 Gained pharmaceutical business platform in North America through acquisi- tion of Veloxis 64% 77%77% 407.9 407.9 400.0 C A G R 1 3 ％ 2021 (Forecast)2 Net sales (left scale) Overseas sales (right scale) Operating income, operating margin • More than six-fold growth over past 10 years • Both amount and margin rising (¥ billion) 100 75 50 25 0 7 8.8 2011 17 67.6 14 55.0 2021 (Forecast)2 (%) 100 75 50 25 0 (FY) (%) 20 15 10 5 0 (FY) Operating income (left scale) 1 Compound Annual Growth Rate 2023 (Forecast) 2 Forecast in May 2021 Operating margin (right scale) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 52 Corporate Governance and Risk Management Asahi Kasei Sustainability Photo Contest Name Yuya Taketani Company Asahi Kasei Corp. Country/region Japan Care for People, Care for Earth Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationCorporate Governance Basic Approach Meetings of the Board of Directors, Advisory Committees, and Audit & Guided by the Group Mission of contributing to life and living for people around the world, the Supervisory Board (fiscal 2020) 53 Group Vision for Asahi Kasei is to provide new value to people throughout the world and help resolve social issues by enabling “living in health and comfort” and “harmony with the natural envi- No. of Meetings Held Average Attendance Main Subjects of Agenda ronment.” Based on this approach, we aim to contribute to society while achieving sustainable Board of Directors 14 growth and improving corporate value over the medium to long term, by spurring innovation and creating synergies through the integration of our diverse range of businesses. To that end, we will continuously pursue the optimal corporate governance framework for ensuring transparent, fair, timely, and resolute decision-making in accordance with changes in the business environment. Corporate Governance Configuration Nomination Advisory Committee Remuneration Advisory Committee Audit & Supervisory Board 3 4 18 98% (Directors and Audit & Supervisory Board Members) • 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 Audit & Supervisory Board Members • Standards for judging independence of Outside Directors and Audit & Supervisory Board Members • Policy and system for remuneration of Directors • Deciding on performance-linked remuneration of individual Directors 96% (Audit & Supervisory Board Members) • Auditing state of performance of Directors’ duties • Auditing state of operations and financial affairs • Evaluation of Independent Auditors Shareholders Meeting Audit Election Oversight Election Audit & Supervisory Board (5 Audit & Supervisory Board Members, including 3 Independent Outside Members) Audit Board of Directors (9 Directors, including 3 Independent Outside Directors) Diversity of Expertise and Experience of Outside Directors and Audit & Supervisory Board Members In order to achieve sustainable growth and improve corporate value over the medium to long term, we consider the makeup of the Board of Directors, paying attention to the diversity of knowledge, experience, and abilities, so that it can supervise and audit the execution of operations at the Asahi Kasei Group, which runs a wide variety of businesses. In particular, in order to realize multifaceted deliberation at meetings of the Board of Directors by reflecting the high sensitivity that swiftly tracks changes in the social environment and the perspectives of external stakeholders, as well as the knowledge cultivated through the practice of corporate management, we believe that it is essential that there be diversity in the fields of expertise and experience of Outside Directors and Outside Audit & Supervisory Board Members, who have standpoints that are independent of the Asahi Kasei Group. Nomination Advisory Committee Remuneration Advisory Committee Report Oversight Internal Audit Department The distribution of the fields of expertise and experience among Outside Directors and Outside Audit & Supervisory Board Members is as follows: Corporate Management Finance & Accounting Legal Affairs & Intellectual Property Environment & Society • Audit & Supervisory Board Members Office to support Audit & Supervisory Board Members • Internal Audit Department reports to both the President and the Board of Directors Tsuneyoshi Tatsuoka Outside Directors Tsuyoshi Okamoto Outside Audit & Supervisory Board Members Yuko Maeda Akio Makabe Tetsuo Ito Akemi Mochizuki Cooperation Independent Auditors Audit Cooperation Execution of operations Management Council President Key points • 1/3 of Directors are independent • 1 female Director • Directors have diverse backgrounds • 3/5 of Audit & Supervisory Board Members are independent Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 54 Results of Evaluation of Effectiveness of the Board of Directors (fiscal 2020) 2) Reviewing corporate governance in line with the next medium-term management initiative The Board of Directors conducts regular evaluations of its own effectiveness through discussions at meetings of the Board of Directors, having collected questionnaires from Directors and Audit & Supervisory Board Members after the end of each fiscal year. The main measures implemented in fiscal 2020 and issues recognized for the future are Reassessing the makeup, size, and skill requirements of the Board of Directors in line with the next medium-term management initiative 3) Miscellaneous Implementing methods for evaluating the effectiveness of the Board of Directors and expanding cooperation among Outside Directors and Outside Audit & Supervisory Board Members, etc. as follows: Main measures implemented in fiscal 2020 The Board of Directors implemented the following measures in fiscal 2020 based on the evaluation of the previous fiscal year. 1) Enhanced agenda items The Board of Directors more frequently discussed agenda items relating to medium- to long-term management issues, such as the management of the business portfolio, initiatives for promoting sustainability, and support for Overview of Executive Remuneration Remuneration for Directors (1) Decision-making policy As one of the corporate governance mechanisms to ensure that the Asahi Kasei Group can achieve sustainable growth and enhance corporate value over the medium to long term, we have sought advice of the Remuneration Advisory Committee on the decision-making policy pertaining to the digital transformation, in an effort to ensure effective supervision of these issues by the Board of Directors. contents of remuneration, etc., for individual Directors (hereinafter, the “Decision-making Policy”). 2) Enhanced provision of information to Outside Directors and Outside Audit & Supervisory Board Members Respecting the contents of the reports thereof, the Board of Directors has made a resolution on the The Board of Directors secured opportunities for visits to the Group’s sites, which had been conducted regularly, Decision-making Policy, which includes the following basic policy. (An outline of the Decision- while taking measures to prevent the spread of COVID-19. Meanwhile, preliminary briefings for the Board of Directors were expanded in order to facilitate deeper discussion on the days of Board meetings by utilizing online making Policy is as stated in (2) Basic design and (3) Decision-making process below.) meetings. 3) Improved committee operations The Board of Directors decided that Outside Directors shall chair the Nomination Advisory Committee and the Remuneration Advisory Committee. Furthermore, the Board of Directors entrusted the Remuneration Advisory Committee with deciding the individual performance-linked remuneration portion of remuneration for Directors. These changes have improved the independence, objectivity, and transparency of the decision-making process for the nomination and remuneration of Directors and Audit & Supervisory Board Members. Issues recognized for the future Based on measures implemented in fiscal 2020, the Board of Directors has confirmed a common awareness of the following issues for the future. 1) Enhancing agenda items Further expanding discussions on medium- to long-term management issues at meetings of the Board of Directors and reviewing the criteria for bringing agenda items as necessary Basic policy Remuneration of Outside Directors, who have a position of independence with respect to manage- ment of the company, comprises solely fixed basic remuneration at a level determined in consideration of third-party survey data, in order to secure a high degree of independence unaf- fected by short-term earnings fluctuations. The remuneration system for Executive Directors, who are members of senior management, combines performance-linked remuneration together with stock-based remuneration as nonmon- etary remuneration, in addition to fixed basic remuneration, which serves as the basis for their livelihoods, in order to provide incentives tied to earnings and management strategy, with levels of remuneration amounts and proportions of types of remuneration adjusted as appropriate for each role according to management strategy and tasks, in consideration of third-party survey data. To ensure the optimal way of remunerating Directors and design of the remuneration system, the Board of Directors and the Remuneration Advisory Committee regularly deliberate and continu- ously confirm appropriateness and make improvements. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 55 (2) Basic design 1) Performance-linked remuneration fiscal year) and the shares are granted to eligible Directors corresponding to the accumulated number of points at the time of their retirement as Director and as Officer of the Group (one share • Designed by combining both the achievement of financial targets, such as asset efficiency, to of stock per point). provide incentives tied to earnings and management strategy as management leaders together with the achievement of nonfinancial targets including individual targets, one of which is progress Outline of Stock-based Remuneration System (Share Grant Trust) on sustainability • Calculated by making a comprehensive judgment based on achievement of financial targets such as consolidated net sales, operating income, ROA, etc., together with achievement of individually set [Trustor] Asahi Kasei targets, including progress on sustainability • Standards for financial incentives selected from the perspectives of appropriateness as clear and objective evaluation criteria based on earnings results as well as awareness for increased asset efficiency • The formula required to calculate individual performance-linked remuneration is outlined as follows: Index calculated by evaluation1 Basic amount by rank Individual performance-linked remuneration amount 1 Coefficient comprehensively considering achievement of financial targets and nonfinancial targets 2) Establishment of the trust 3) Payments for purchase [Trustee] Sumitomo Mitsui Trust Bank, Limited (Trustee of sub-trust: Custody Bank of Japan, Ltd.) Trust delivering shares Asahi Kasei Shares Cash 4) Instruct not to exercise voting rights 3) Purchase of shares Stock market 6) Sales of shares 6) Sales proceeds 6) Shares or cash Trust administrator 1) Establishment of Share Grant Regulations [Beneficiaries] Directors 5) Conferring points • Target figures / standard figures and actual figures of management indicators to be used for the cal- culation of performance-linked remuneration in the most recent fiscal year (3) Decision-making process Fiscal 2020 target figure / standard figure Fiscal 2020 actual figure • Entrusted to the Remuneration Advisory Committee based on a resolution of the Board of Directors Consolidated net sales ¥2,034.0 billion Consolidated operating income ¥140.0 billion Consolidated ROA2 5.5% ¥2,106.1 billion ¥171.8 billion 5.9% 2 Consolidated operating income / consolidated total assets as of the fiscal year-end 2) Stock-based remuneration • The Remuneration Advisory Committee is authorized to confirm the reasonableness and appropriate- ness of the evaluation of the achievement of targets by Executive Directors, as proposed by the President & Director, and to determine remuneration amounts for individual Directors by applying this evaluation to the framework formula determined by the Board of Directors. • Fixed basic remuneration by rank is paid upon determination of the amount by the Board of Directors. • To reinforce a common perspective with shareholders including both the benefits of share price • Stock-based remuneration is granted when certain conditions are met, corresponding to points con- increases and the risk of share price decreases, a stock-based remuneration system was adopted at ferred based on the Share Grant Regulations adopted by the Board of Directors. the 126th Ordinary General Meeting of Shareholders held on June 28, 2017. • The reason for entrusting the aforementioned authority to the Remuneration Advisory Committee is • A trust established by the company acquires shares of the company and grants them to eligible because doing so is the most appropriate means of determining the remuneration for individual Directors. Based on the Share Grant Regulations adopted by the Board of Directors, eligible Directors from a highly independent, objective, and transparent standpoint while overseeing the busi- Directors are conferred points in accordance with their rank (maximum of 100,000 points per ness results of the entire Group. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information56 • To ensure the appropriate use of this authorization to the Remuneration Advisory Committee, this Strategic Shareholdings committee comprises a majority of Outside Directors and it regularly reports to the Board of Directors • With the aim of achieving sustainable growth and improving corporate value over the medium to long on the process of the above confirmation and determination. Composition of the Members of the Remuneration Advisory Committee (fiscal 2020) Name Position and responsibilities term, Asahi Kasei holds shares in companies as it deems necessary as part of management strategies including forming business alliances, raising funds, securing supply chains, and maintaining and strengthening relationships with business partners. However, we will continuously work to reduce the amount of strategic shareholdings giving due consideration to factors including risks and costs as well Tsuyoshi Okamoto Outside Director Chairperson of the Remuneration Advisory Committee as the capital efficiency of holding such shares. Masumi Shiraishi Outside Director Tsuneyoshi Tatsuoka Outside Director Hideki Kobori President and Representative Director Presidential Executive Officer Shigeki Takayama Representative Director Vice-Presidential Executive Officer (4) Reasons upon which the Board of Directors determined the contents of remuneration, etc., for individual Directors pertaining to fiscal 2020 are in line with the Decision- making Policy • The Board of Directors examines the purpose and economic rationale of maintaining individual strate- gic shareholdings on an annual basis from the perspective of their contribution to the company’s sus- tainable growth and corporate value improvement over the medium to long term. In verifying the economic rationale, we comprehensively assess returns in terms of medium- to long-term business earnings and dividends with reference to the cost of capital and other considerations. As a result of the verification, we reduce, through sales or other means, holdings of shares judged to be no longer compatible with the purpose of holding them or deemed to have costs and risks that outweigh the benefits of holding them, taking into consideration the conditions of the company concerned (in the • The contents of basic remuneration and stock-based remuneration are determined upon taking into five years from fiscal 2016 to fiscal 2020, sales of strategic shareholdings totaled ¥74.5 billion). account the results of deliberations by the Remuneration Advisory Committee, which comprises a majority of Outside Directors, with objectivity and transparency of the decision-making process ensured. • Voting rights associated with strategic shareholdings are exercised after comprehensively determining whether a proposal contributes to the sustainable growth and corporate value improvement over the • The decision on performance-linked remuneration has been made through a highly independent, medium to long term of both Asahi Kasei and the investee company. objective, and transparent process carried out by the Remuneration Advisory Committee. Percentages Shown for Directors Who Have Executive Responsibilities Strategic holdings of listed shares Sales of strategic shareholdings Fixed base remuneration 55.8% Performance-linked remuneration 32.5% Stock-based remuneration 11.8% (Paid monthly) (Paid monthly) (Paid at the time of retirement) • Performance-linked remuneration = commitment to results • Stock-based remuneration = perspective of shareholders Note: Outside Directors receive fixed base remuneration only. (¥ billion) (stocks) (¥ billion) 194.7 203.8 178.6 156.4 62 61 123.2 61 60 56 250 200 150 100 50 0 90 80 70 60 50 0 0 50 -100 -150 -200 -250 25 20 15 10 5 0 Cumulative total for five fiscal years ¥74.5 billion 20.5 18.1 16.7 11.9 7.4 2016 2017 2018 2019 2020 (FY) 2016 2017 2018 2019 2020 (FY) Remuneration for Audit & Supervisory Board Members • The performance-linked remuneration system is not applied with regard to the remuneration for Audit & Supervisory Board Members, and their remuneration consists of fixed remuneration. Individual remuneration amounts are determined through discussions with Audit & Supervisory Board Members. Fiscal year-end amounts of strategic shareholdings on the balance sheets (left scale) Number of stocks (right scale) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationDirectors and Audit & Supervisory Board Members (as of June 25, 2021) Directors 57 Hideki Kobori President & Representative Director Shigeki Takayama Representative Director Hiroshi Yoshida Director Presidential Executive Officer Vice-Presidential Executive Officer Vice-Presidential Executive Officer Shuichi Sakamoto Director Primary Executive Officer Fumitoshi Kawabata Director Primary Executive Officer April 1978 April 2008 April 2009 April 2010 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 April 2012 Asahi Kasei Senior Executive Officer June 2012 April 2014 April 2016 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) 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) 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 April 1981 April 2011 April 2014 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 November 2014 Asahi Kasei Lead Executive Officer, Corporate Strategy General Manager April 2016 Asahi Kasei Senior Executive Officer Asahi Kasei Senior Executive Officer June 2016 Asahi Kasei Primary Executive Officer Asahi Kasei Vice-Presidential Executive Officer (position held at present) Asahi Kasei Director (position held at present) April 2018 April 2019 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) Asahi Kasei Primary Executive Officer (position held at present) April 1982 April 2012 April 2013 April 2014 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 February 2016 Asahi Kasei Homes Chubu Sales April 2017 April 2019 June 2019 Division General Manager Asahi Kasei Senior Executive Officer Asahi Kasei Homes President & Representative Director (position held at present), Presidential Executive Officer (position held at present) Asahi Kasei Primary Executive Officer (position held at present) Asahi Kasei Director (position held at present) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Directors 58 Koshiro Kudo Director Senior Executive Officer Tsuneyoshi Tatsuoka Outside Director Tsuyoshi Okamoto Outside Director Yuko Maeda Outside Director Joined Asahi Kasei April 1980 Joined Ministry of International Trade and Industry April 1970 Joined Tokyo Gas Co., Ltd. April 1984 Joined Bridgestone Corporation June 2002 Tokyo Gas Co., Ltd. Executive Officer September 2003 Tokyo Medical and Dental University April 1982 April 2013 April 2016 April 2017 April 2019 June 2021 Asahi Kasei Fibers Executive Officer Asahi Kasei Lead Executive Officer Asahi Kasei President of Fibers & Textiles SBU, Senior General Manager, Osaka Office Asahi Kasei Senior Executive Officer (position held at present), President of Performance Products SBU Asahi Kasei Director (position held at present) January 2010 Councilor, Cabinet Secretariat April 2004 August 2011 June 2013 July 2015 June 2016 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) Tokyo Gas Co., Ltd. Senior Executive Officer June 2004 Tokyo Gas Co., Ltd. Director April 2007 April 2010 April 2014 April 2018 June 2018 July 2018 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) Director of Technology Transfer Center and Intellectual Property Manager of Intellectual Property Right Department October 2009 Tokyo Medical and Dental University Visiting Professor October 2011 Kyoto Prefectural University of Medicine Specially Appointed Professor May 2013 April 2014 Bridgestone Corporation Executive Officer Japan Agency for Marine-Earth Science and Technology Auditor (position held at present) January 2017 CellBank Corp. Director (position held at present) October 2020 Kyushu University Executive Vice June 2021 President (position held at present) Asahi Kasei Director (position held at present) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationAudit & Supervisory Board Members 59 Masafumi Nakao Audit & Supervisory Board Member Yutaka Shibata Audit & Supervisory Board Member Akio Makabe Outside Audit & Supervisory Board Member Tetsuo Ito Outside Audit & Supervisory Board Member Akemi Mochizuki Outside Audit & Supervisory Board Member April 1978 April 2009 April 2012 Joined Asahi Kasei Asahi Kasei Microdevices Director, Executive Officer Asahi Kasei Lead Executive Officer, New Business Development General Manager June 2012 Asahi Kasei Director April 2014 Asahi Kasei Corporate Research & Development General Manager June 2014 Retired as Asahi Kasei Director April 2015 April 2016 Asahi Kasei Senior Executive Officer Asahi Kasei Primary Executive Officer June 2016 Asahi Kasei Director April 2017 June 2019 Asahi Kasei Representative Director, Vice-Presidential Executive Officer Asahi Kasei Audit & Supervisory Board Member (position held at present) April 1979 April 2008 April 2009 April 2011 April 2016 April 2017 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 Primary Executive Officer Asahi Kasei Pharma President & Representative Director, Presidential Executive Officer June 2018 Asahi Kasei Director April 2019 June 2021 Asahi Kasei Vice-Presidential Executive Officer Asahi Kasei Audit & Supervisory Board Member (position held at present) April 1976 February 1998 General Manager, Market Research Joined Dai-Ichi Kangyo Bank April 1999 Dept., DKB Research Institute Graduate School Lecturer, Faculty of Economics, Shinshu University September 1999 Lecturer, Faculty of Science and Technology, Keio University October 1999 Chief Researcher, DKB Research April 2002 Institute Chief Researcher, Research Division, Mizuho Research Institute Ltd. Project Professor, Graduate School of Management, Shinshu University October 2003 Counsellor, Internal Audit Division, April 2003 June 2005 July 2005 June 2014 April 2016 April 2017 Mizuho Corporate Bank, Ltd. Retired from Mizuho Corporate Bank, Ltd. Professor, Faculty of Economics, Shinshu University Asahi Kasei Audit & Supervisory Board Member (position held at present) Visiting Professor, Department of Management and Information Sciences Tama Graduate School of Business (position held at present) Professor, Hosei Graduate School of Regional Policy Design (position held at present) April 1975 Joined Public Prosecutors Office October 1984 Joined Aoyama Audit Corporation June 2001 July 2007 July 2008 Director, Special Investigation Dept., Tokyo District Public Prosecutors Office Chief Prosecutor, Tokyo District Public Prosecutors Office Superintending Prosecutor, Takamatsu High Public Prosecutors Office January 2009 Deputy Prosecutor-General, Supreme Public Prosecutors Office December 2010 Retired from Public Prosecutors March 1988 August 1996 Certified as a Certified Public Accountant Joined Tohmatsu Audit Corporation (currently Deloitte Touche Tohmatsu LLC) June 2001 Tohmatsu Audit Corporation Partner July 2018 June 2021 Akahoshi Audit Corporation Partner (position held at present) Asahi Kasei Audit & Supervisory Board Member (position held at present) April 2011 June 2015 Office Certified as an attorney Of Counsel, Nishimura & Asahi law firm (position held at present) Asahi Kasei Audit & Supervisory Board Member (position held at present) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationInterview with an Outside Director Innovation Fully Leveraging the Strength of Diverse Businesses 60 Q Based on your experience in industry-academia- government collaboration, how do you view Asahi Kasei’s Q What is your opinion of Asahi Kasei’s corporate governance structure? How do you view your role as an businesses and technologies? Outside Director? I studied polymer chemistry, so I naturally feel some affinity with I believe the governance structure is appropriate as a company Asahi Kasei. The company has numerous products such as with an Audit & Supervisory Board. The Board of Directors is Saran Wrap™ which are closely associated with people’s lives. well balanced, with Directors overseeing each of the three busi- I also became interested in Asahi Kasei years ago as a recharge- ness sectors. Discussions at Board of Directors meetings are able lithium battery researcher. I was really thrilled when Akira lively, with Outside Directors assessing management from an Yoshino was named for the Nobel Prize in Chemistry. It shows external perspective while raising questions and offering advice just how much Asahi Kasei values its researchers. as necessary, leveraging their respective areas of expertise. I believe the Asahi Kasei Group is well positioned to gener- The most important thing an Outside Director has to offer is ate innovation as its portfolio of diverse businesses in three objectivity. Asahi Kasei operates a diverse range of businesses, sectors gives it an overarching view of different industries. This with management leaders who are well versed in each respec- may seem ordinary to people inside the company, but as an out- tive area. I can provide objective assessments and advice based sider I see it as a remarkable advantage. As an engineer as well, on my expertise in technology, industry-academia-government I envy the environment that Asahi Kasei researchers enjoy. collaboration, and intellectual property strategy. Having also There’s a favorable environment for employees to innovate and been involved in regenerative medicine, I feel that quality assur- take challenges. ance and control can no longer been seen as some thankless task in the background; these days it’s truly the lifeline of a com- pany. No company can survive for long without reliable quality. By leveraging my experience, I hope to be able to help enhance Asahi Kasei’s reputation not only among shareholders and inves- tors but also among customers and consumers. Yuko Maeda Ms. Yuko Maeda joined Bridgestone Corporation in 1984, where she was appointed to a position developing rechargeable lithium batteries. She was later placed in a principal position for promoting industry-academia-government collaboration in the fields of intellectual property and technology transfer before becoming an Executive Officer of Bridgestone charged with overseeing environmental activities, innovation, and intellectual property in 2013. Ms. Maeda then became a Director at regenerative medicine company CellBank Corp. in 2017 before coming to serve concurrently as an Outside Audit & Supervisory Board Member of Chugai Pharmaceutical Co., Ltd., and an Outside Director of Kosé Corporation. She was installed as an Outside Director of Asahi Kasei in June 2021. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 61 Exerting Combined Strengths for Sustainability Q What do you think Asahi Kasei needs in order to keep growing and raising corporate value as a global company? female Directors and Executive Officers. This will be vital to gen- erating the types of diverse and innovative ideas needed for glo- I have held various positions in private-sector, academic, and balizing operations. public institutions. This experience has led me to believe that diversity is the key to new business creation and innovation. A while back, a university arranged a discussion between an art Q The COVID-19 pandemic has greatly altered the social climate and the operating environment. What will be professor and a corporate executive on the general subject of required of management going forward? Q How do you evaluate Asahi Kasei’s sustainability initiatives, and what are your thoughts regarding the governance structure to underpin future sustainability? Even before sustainability became vogue, Asahi Kasei had defined its Group Mission as “contributing to life and living for people around the world.” This mission has been embraced by all employees, and is embodied in a wide variety of businesses. new businesses. It made me realize that innovation is sparked at The pandemic has dramatically changed the operating environ- As indicated in Asahi Kasei’s medium-term management the intersection of completely different fields. Private-sector ment for companies as the advance of digitalization has initiative, it’s essential to have a virtuous cycle of contributing to companies need to earn profits, so they hesitate to do anything entrenched remote work and given rise to new workstyles and a sustainable society, exemplified by the United Nations that might seem reckless. But there is value to be gained by col- values. Such changes, however, make us realize that sometimes Sustainable Development Goals, and sustainable growth of cor- laborating with the academia, where research is conducted face-to-face communication is still necessary. This new era will porate value. This is no easy matter, requiring the whole more freely. Such collaboration can provide different perspec- test management’s ability to navigate companies through vari- company to exert its combined strengths, but society expects no tives and flexible ideas. Innovation is unlikely to arise from col- ous risks. Companies need to be able to communicate less. Asahi Kasei is advancing the development of business con- laboration between two leading experts in the same field. It’s effectively both internally and with customers, and develop a tributing to the advent of a hydrogen society, and has long important to actively look to different fields and consider differ- framework for resilience in the post-pandemic world. Only then utilized renewable energy such as hydroelectric power. And yet, ent concepts. I feel that this is just what Asahi Kasei is seeking can a company truly be a provider of solutions that meet the these efforts are not widely recognized. The company should do through its initiative to build connections. changing needs of society. Looking ahead, it will be crucial for Asahi Kasei to develop its health care business, which is currently in the stage of global growth. At the same time, the company should look to increase the diversity of its management team over the medium to long term, such as by increasing the number of non-Japanese and more to explain these efforts and make them easily understood. I look forward to offering advice in this regard. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 62 Risk Management The Asahi Kasei Group recognizes that risk management and compliance are matters of utmost Risk Management & Compliance Framework importance for continuing to provide social value and gaining the trust of stakeholders. Given our Asahi Kasei has established the Risk Management & Compliance Committee, which is chaired by diverse range of businesses, we must respond to differing market, investment, and other risks the President of the Company and comprised of the Presidents of the Strategic Business Units and based on the characteristics of each business. the Core Operating Companies as committee members. This committee is tasked with formulating For this reason, we recognize that it is important to practice risk management and promote policies and discussing matters related to group-wide risk management and compliance as well as compliance in an integrated, group-wide manner. We have established the Asahi Kasei Group Basic with monitoring the progress of risk countermeasures and the status of compliance. The results of Regulation for Risk Management & Compliance and are reinforcing systems related to the imple- discussions by the Risk Management & Compliance Committee are reported to the Board of mentation of this regulation while fostering compliance awareness among all employees. Directors twice a year. Managers responsible for risk management and compliance are designated in each SBU, core operating company, and subsidiary. These managers work to identify, assess, and analyze the risks of each business and to plan measures for mitigating serious risks. Outline of Asahi Kasei Group Basic Regulation for Risk Management & Compliance Framework for Risk Management & Compliance 1. Purpose of the regulation Board of Directors, Management Council 2. Definition of terms for risk management & compliance Deliberation/decision 3. Scope of application of the regulation 4. Framework for risk management & compliance 1) Designation of Executive Officer for Risk Management & Compliance 2) Establishment and composition of Risk Management & Compliance Committee 3) Establishment of Risk Management & Compliance Oversight Department and Risk Management & Compliance Promotion Departments 4) Role of Presidents of SBUs and core operating companies Reporting Secretariat Risk Management & Compliance Committee Risk Management & Compliance, General Affairs (Risk Management & Compliance Oversight Department) Coordination Administrative departments (Risk Management & Compliance Promotion Departments) 5) Designation and role of Risk Management & Compliance Supervisors and Risk Business units Instructions/reports Management & Compliance Managers 5. The Asahi Kasei Group Code of Conduct 6. Crisis response 7. Compliance hotline (internal reporting system) Strategic Business Units Core Operating Companies Subsidiaries (worldwide) Subsidiaries (worldwide) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 63 Business Risks for the Asahi Kasei Group The major business risks with the potential to impact the performance of the Asahi Kasei Group include the following. Countermeasures are implemented to mitigate risks based on their characteristics and the potential extent of their damage. Group-wide Risks Performance-Related Risks Risks Related to Climate Change Information regarding disclo- sure based on the recommen- dations of the TCFD P27–28 Risks Related to the COVID-19 Pandemic The risk of production being impacted by global climate change and of increased costs being incurred due to stricter regulations or government policy changes as described by the TCFD Tracking and responding to risks based on annual, individual business-level analyses and examinations of risks and opportunities Principal Attributes Primary Countermeasures The risk of restrictions on business activity and the risk of volatility in demand for products amid uncertainty over the outlook with respect to the extent and duration of the COVID-19 pandemic’s effect on economic activity • Utilizing IT tools and other methods for performing tasks online • Monitoring of demand trends and effective inventory management to ensure stable supplies of products Risks Related to Global Supply Chains The risk of supply chains being disrupted in any business due to a need to avoid transactions with given suppliers or incapacitation of suppliers as a result of natural disasters, industrial accidents, human rights violations, conflicts, or business failures occurring anywhere in the world • Assessing and auditing risks when selecting suppliers and monitoring suppliers and buyers • Diversifying raw material procurement routes for major businesses and products and securing appropriate inventory levels Risks Related to Trade and Economic Sanctions Trade: • The risk of inability to collect payments, delay or suspension of business activity, or deterioration of business perfor- mance due to increased tariffs, delay in or noncompletion of customs clearance, or delay in or noncompletion of fund settlement as a result of binational or multinational agreements, changes in frameworks, or new regulations regarding international trade or fund settlement • Engaging in prior discussions with authorities and implementing appropriate measures based on up-to-date understanding of regulatory environment • Setting independent prices for highly material inter-company transactions between Group companies based on international transfer-price tax regulations by using pre-confirmation systems and opinions of external experts • The risk of the prices of internal transactions between Group companies being judged to be inappropriate by tax • Carefully screening transactions using external customer screening systems to respond to authorities and the risk of double or additional taxation due to unfavorable progress in discussions with tax authorities sanctions Economic sanctions and other regulations: The risk of transactions with or investments in overseas companies or other business activity being impacted by changes in binational or multinational trade conditions as a result of economic sanctions, export control regulations, or stricter regulations on direct overseas investments implemented from an economic security perspective in Japan or another country Risks Related to Business Competitiveness The risk of businesses losing competitiveness as a result of other companies using similar products or technologies to eliminate differentiation; intensified competition due to the entry of new competitors; changes in industrial structures due to rapid progress in digital technologies, decarbonization technologies, or other technologies; or 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 continuously 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 M&A The risk of incurring impairment of goodwill or other intangible assets 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 Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information64 Performance-Related Risks Risks Related to Market Conditions Crude oil and naphtha prices: The risk of volatility in the raw material procurement prices paid by businesses or in the market prices of feedstocks that affect products’ selling prices • Stabilizing earnings by revising the method of determining selling prices (acrylonitrile business) Principal Attributes Primary Countermeasures Exchange rate risk: The risk of volatility in exchange rates between the yen and foreign currencies accompanying foreign currency-denominated settlements of import and export trading transactions and trading transactions between third-party countries • Stable and efficient utilization of capital with a cash management system and by hedging through forward exchange contracts Other Risks In addition to the aforementioned risks, business risks stemming from large-scale natural disasters, industrial acci- dents, 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 and monitoring risks through periodic discussions at meetings of the Risk Management & Compliance Committee Risks Related to Business Segments Performance-Related Risks Material Principal Attributes Primary Countermeasures Environment & Energy: The risk of sales volumes or selling prices being lower than forecasted due to fluctuations in worldwide demand for lithium-ion battery separators or due to the sales policies of competitors, as well as the risk of drastic changes to the operating environment as a result of changes to technologies or changes to supply chains stemming from regulations or environmental issues in countries of operation Environment & Energy: Responding to diverse customer needs by augmenting production capacity with a focus on electric vehicles, other eco-friendly vehicles, and electricity storage systems, for which demand is projected to increase over the medium to long term, and leveraging strength of consistently high levels of quality Homes Health Care Mobility: The risk of volatility in demand due to trends in the global automotive industry as well as the risk of progress in CASE (connected, autonomous, shared & service, and electric) technologies or other industry changes Mobility: Monitoring worldwide automotive markets to maintain appropriate inventory levels and flexibly respond to changes in demand; bolstering lineup of materials matched to industry changes, including electric vehicle materials and eco-friendly materials; expanding regional scope of operations; and developing business model for sustainable growth • The risk of volatility in demand due to consumer spending trends in Japan; policies related to interest rates, land • Monitoring and swiftly responding to housing market trends in Japan, the United States, prices, and homes; or taxation system trends and Australia • The risk of changes in methods of communication with customers or of changes in needs with respect to homes due • Attracting customers and acquiring orders through means such as marketing approaches to an increase in working from home as a result of the COVID-19 pandemic utilizing digital technologies • The risk of changes in trends in the housing markets of the United States and Australia • Monitoring lumber market trends and limiting impacts of price increases • The risk of fluctuations in timber prices due to a tight supply-demand balance for lumber • Thoroughly protecting personal information • The risk of damage to trust due to the leakage of the personal information of 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) reimbursement prices • 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 pharmaceu- tical business and a medical device business, increasing opportunities to acquire innova- tion, and enhancing the ability to adapt given the uncertainty of future medical regulations • The risk of development and launches of products that compete with ours, reports detailing adverse drug effects • Enhancing pipeline, out- and in-licensing products, engaging in joint development, and associated with our products, or launches of generic versions of our products accelerating global expansion to achieve consistent ongoing growth • The risk of reduced domestic demand for pharmaceuticals or critical care products due to limitation of patients • Monitoring demand trends carefully and implementing flexible production measures in receiving examinations as an effect of the COVID-19 pandemic response to fluctuations in demand Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information65 Corporate Information Asahi Kasei Sustainability Photo Contest Name Inthira Mahamad Company Asahikasei Plastics (Thailand) Co., Ltd. Country/region Thailand Care for People, Care for Earth Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information66 Consolidated Financial Statements Consolidated Balance Sheets Asahi Kasei Corporation and Consolidated Subsidiaries March 31, 2021 and 2020 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 Thousands of U.S. dollars* 2021 2020 2021 ¥ 221,779 338,640 203,159 166,494 111,798 97,131 (2,225) 1,136,776 ¥ 207,957 330,999 216,463 160,064 101,313 92,153 (1,519) 1,107,430 $ 2,003,243 3,058,802 1,835,056 1,503,875 1,009,827 877,346 (20,098) 10,268,052 598,675 (319,144) 279,531 1,535,326 (1,286,057) 249,269 70,577 8,615 (7,687) 928 84,463 182,414 (149,920) 32,495 717,262 563,110 (305,259) 257,851 1,466,958 (1,243,780) 223,179 67,024 9,645 (8,964) 681 75,487 172,674 (143,210) 29,464 653,686 5,407,596 (2,882,703) 2,524,894 13,867,997 (11,616,448) 2,251,549 637,494 77,816 (69,434) 8,382 762,921 1,647,674 (1,354,169) 293,515 6,478,746 351,921 342,454 694,374 365,680 349,566 715,246 3,178,764 3,093,253 6,272,008 286,517 1,241 29,390 21,116 32,709 (445) 370,529 1,782,165 244,581 7,951 20,467 44,466 28,883 (435) 345,914 1,714,846 2,587,996 11,209 265,468 190,733 295,448 (4,020) 3,346,843 16,097,597 Total assets ¥ 2,918,941 ¥ 2,822,277 $26,365,649 Detailed Consolidated Financial Statements are available at the following link: https://www.asahi-kasei.com/ir/library/financial_briefing/pdf/2103statements.pdf LIABILITIES AND NET ASSETS Liabilities: Current liabilities: Notes and accounts payable–trade Short-term loans payable Commercial paper 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 Authorized—4,000,000,000 shares Issued and outstanding—1,393,932,032 shares Capital surplus Retained earnings Treasury stock ( 2021—6,396,867 shares, 2020—6,440,327 shares) Total shareholders’ equity Accumulated other comprehensive income Net unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Commitments and contingent liabilities Total liabilities and net assets Millions of yen Thousands of U.S. dollars* 2021 2020 2021 ¥ 142,087 144,571 84,000 880 126,705 21,268 78,601 124 7,222 3,522 5,651 88,533 703,163 110,000 320,404 3,921 58,669 513 3,415 12,652 158,832 21,939 30,899 721,243 1,424,406 103,389 79,641 1,158,792 (5,932) 1,335,890 91,887 (347) 50,462 (10,416) 131,586 27,058 1,494,535 ¥ 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 70,600 412 4,560 5,771 174,365 21,613 26,287 596,286 1,438,817 103,389 79,641 1,125,738 (5,990) 1,302,777 67,027 (241) 13,027 (23,275) 56,538 24,145 1,383,460 $1,283,416 1,305,853 758,739 7,949 1,144,477 192,106 709,972 1,120 65,233 31,813 51,043 799,684 6,351,396 993,587 2,894,084 35,417 529,934 4,634 30,846 114,281 1,434,667 198,166 279,099 6,514,705 12,866,101 933,872 719,366 10,466,914 (53,581) 12,066,570 829,979 (3,134) 455,803 (94,084) 1,188,565 244,404 13,499,548 ¥2,918,941 ¥2,822,277 $26,365,649 * As the amounts shown in U.S. dollars are for convenience only, and are not intended to be computed in accordance with generally accepted * 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 ¥110.71 = US$1 prevailing on March 31, 2021, has been used. translation procedures, the approximate current exchange rate of ¥110.71 = US$1 prevailing on March 31, 2021, has been used. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Consolidated Statements of Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2021 and 2020 Consolidated Statements of Comprehensive Income Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2021 and 2020 67 Net income Other comprehensive income Net (decrease) increase in unrealized gain on other securities Deferred gains or losses on hedges Foreign currency translation adjustment Remeasurements of defined benefit plans Share of other comprehensive income of affiliates accounted for using equity method Total other comprehensive income Comprehensive income Comprehensive income attributable to: Owners of the parent Non-controlling interests Millions of yen Thousands of U.S. dollars* 2021 2020 2021 ¥ 82,098 ¥105,728 $ 741,559 24,806 (106) 35,491 12,631 3,020 75,842 ¥157,941 ¥154,817 3,124 (34,895) (201) (26,115) (3,867) (3,482) (68,561) ¥ 37,167 ¥ 35,730 1,437 224,063 (957) 320,576 114,091 27,278 685,051 $1,426,619 $1,398,401 28,218 * 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 ¥110.71 = US$1 prevailing on March 31, 2021, has been used. 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 Insurance income Other Total non-operating income Non-operating expenses: Interest expense 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 fire at plant facilities 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 2021 ¥2,106,051 1,425,342 680,709 508,901 171,808 2020 ¥2,151,646 1,476,606 675,040 497,776 177,264 1,895 4,308 3,451 2,618 5,059 17,331 3,209 7,893 11,102 178,036 17,312 353 17,665 66 10,637 1,937 – 22,287 2,118 7,750 44,795 150,906 73,273 (4,465) 68,808 82,098 2,330 ¥ 79,768 2,769 5,251 7,138 1,724 3,596 20,479 4,016 9,720 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 ¥ 103,931 Thousands of U.S. dollars* 2021 $19,023,133 12,874,555 6,148,577 4,596,703 1,551,874 17,117 38,912 31,172 23,647 45,696 156,544 28,986 71,294 100,280 1,608,129 156,373 3,189 159,561 596 96,080 17,496 – 201,310 19,131 70,003 404,616 1,363,075 661,846 (40,331) 621,516 741,559 21,046 $ 720,513 * 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 ¥110.71 = US$1 prevailing on March 31, 2021, has been used. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 68 Consolidated Statements of Changes in Net Assets Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2021 and 2020 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 Remeasurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Shareholders’ equity Accumulated other comprehensive income Millions of yen 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 Changes during the fiscal year Dividends from surplus Net 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 Capital increase of consolidated subsidiaries Net changes of items other than shareholders’ equity Total changes of items during the period – (0) 0 0 0 (45,800) 79,768 (0) (914) (10) 69 (45,800) 79,768 (10) 69 – – (914) 0 (45,800) 79,768 (10) 69 – – (914) 0 33,054 59 33,113 24,860 24,860 (106) (106) 37,434 37,434 12,859 12,859 75,049 75,049 2,913 2,913 77,962 111,075 Balance at March 31, 2021 ¥103,389 ¥79,641 ¥1,158,792 ¥(5,932) ¥1,335,890 ¥91,887 ¥(347) ¥50,462 ¥(10,416) ¥131,586 ¥27,058 ¥1,494,535 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 Remeasurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets ¥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 Millions of yen (48,723) 103,931 (7,856) 801 (48,723) 103,931 (10,016) (10,016) 83 7,878 84 – – 801 (46) 0 (7,878) 7,856 (46) (48,723) 103,931 (10,016) 84 – – 801 (46) Balance at March 31, 2019 Changes during the fiscal year Dividends from surplus Net 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 Capital increase of consolidated subsidiaries Net changes of items other than shareholders’ equity Total changes of items during the period – (67) 48,152 (2,055) 46,030 (34,945) (34,945) (201) (201) (28,993) (28,993) (4,062) (4,062) (68,200) (68,200) 2,920 2,920 (65,280) (19,250) 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 Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 69 Consolidated Statements of Changes in Net Assets Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2021 and 2020 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 Remeasurements of defined benefit plans Total accumulated other comprehensive income Non-controlling interests Total net assets Shareholders’ equity Accumulated other comprehensive income Thousands of U.S. dollars* Balance at March 31, 2020 $933,872 $719,366 $10,168,350 $(54,105) $11,767,474 $605,429 $(2,177) $117,668 $(210,234) $510,686 $218,092 $12,496,251 Changes during the fiscal year Dividends from surplus Net 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 Capital increase of consolidated subsidiaries Net changes of items other than shareholders’ equity Total changes of items during the period – (0) 0 0 0 (413,693) 720,513 (0) (8,256) (90) 623 (413,693) 720,513 (90) 623 – – (8,256) 0 (413,693) 720,513 (90) 623 – – (8,256) 0 298,564 533 299,097 224,551 224,551 (957) (957) 338,127 116,150 677,888 26,312 704,200 338,127 116,150 677,888 26,312 1,003,297 Balance at March 31, 2021 $933,872 $719,366 $10,466,914 $(53,581) $12,066,570 $829,979 $(3,134) $455,803 $(94,084) $1,188,565 $244,404 $13,499,548 * 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 ¥110.71 = US$1 prevailing on March 31, 2021, has been used. Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information 70 Cash flows from financing activities: Net (decrease) increase in short-term loans payable (Decrease) 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 Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation Other, net Net cash (used in) 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 Thousands of U.S. dollars* 2021 2020 2021 ¥(168,641) (55,000) 143,467 (16,936) 50,000 – (1,226) (10) 69 – (45,800) (1,198) (307) (287) (95,869) 9,639 9,695 204,771 ¥ 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 $(1,523,268) (496,793) 1,295,881 (152,976) 451,630 – (11,074) (90) 623 – (413,693) (10,821) (2,773) (2,592) (865,947) 87,065 87,571 1,849,616 1,769 ¥ 216,235 85 ¥ 204,771 15,979 $1,953,166 * 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 ¥110.71 = US$1 prevailing on March 31, 2021, has been used. Consolidated Statements of Cash Flows Asahi Kasei Corporation and Consolidated Subsidiaries Years Ended March 31, 2021 and 2020 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 (Decrease) 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 Decrease (increase) in inventories Increase (decrease) in notes and accounts payable–trade Increase in accrued expenses Increase (decrease) in advances received Other, net Subtotal Interest and dividend income, received Interest expense paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities: Payments into time deposits Proceeds from withdrawal of time deposits Purchase of property, plant and equipment Proceeds from sales of property, plant and equipment Purchase of intangible assets Purchase of investment securities Proceeds from sales of investment securities Purchase of shares in subsidiaries resulting in change in scope of consolidation Payments for transfer of business Payments of loans receivable Collection of loans receivable Other, net Net cash used in investing activities Millions of yen Thousands of U.S. dollars* 2021 2020 2021 ¥ 150,906 108,369 1,937 24,903 – 148 2,033 (221) 9,891 (4,303) (6,202) 3,209 (3,451) (17,312) 66 (353) 10,637 5,214 6,110 1,706 1,371 8,190 15,896 318,744 8,690 (3,086) (70,672) 253,676 (6,262) 4,333 (133,347) 656 (16,945) (8,061) 20,264 (4,811) (17,566) (6,144) 10,428 (297) (157,751) ¥ 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) $1,363,075 978,855 17,496 224,939 – 1,337 18,363 (1,996) 89,342 (38,867) (56,020) 28,986 (31,172) (156,373) 596 (3,189) 96,080 47,096 55,189 15,410 12,384 73,977 143,582 2,879,090 78,493 (27,875) (638,352) 2,291,356 (56,562) 39,138 (1,204,471) 5,925 (153,058) (72,812) 183,037 (43,456) (158,667) (55,496) 94,192 (2,683) (1,424,903) Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate Information Corporate Profile / Stock Information (as of March 31, 2021) Corporate Profile Company Name Asahi Kasei Corporation Paid-in Capital ¥103,389 million 71 Employees 44,497 (consolidated) 8,524 (non-consolidated) Founding May 25, 1922 Establishment May 21, 1931 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 Microdevices Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan Tel: +81-(0)3-6699-3933 Asahi Kasei (China) Asahi Kasei Homes 8/F, One ICC Shanghai International Commerce Centre No. 999 Huai Hai Zhong Road, Shanghai 200031 China Tel: +86-(0)21-6391-6111 Fax: +86-(0)21-6391-6686 Asahi Kasei America 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 Fringsstrasse 17, 40221 Düsseldorf, Germany Tel: +49-(0)211-33-99-2000 Fax: +49-(0)211-33-99-2200 Asahi Kasei India 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 1705-1706, 17th Floor Singha Complex Building, 1788 New Petchaburi Road, Bang Kapi, Huai Khwang, Bangkok 10310 Thailand Tel: +66-(0)21-634-944 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 269 Mill Rd., Chelmsford, MA 01824-4105 U.S.A. Tel: +1-978-421-9655 Veloxis Pharmaceuticals 2000 Regency Parkway, Suite 500 Cary, NC 27518 U.S.A. Tel: +1-919-591-3090 Stock 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. Independent Auditors PricewaterhouseCoopers Aarata LLC Number of Shareholders 141,137 Largest Shareholders % of equity The Master Trust Bank of Japan, Ltd. (trust account) Custody Bank of Japan, Ltd. (trust account) JP Morgan Chase Bank 385632 Nippon Life Insurance Company Asahi Kasei Group Employee Stockholding Assn. Custody Bank of Japan, Ltd. (trust account 7) Government of Norway Sumitomo Mitsui Banking Corp. Custody Bank of Japan, Ltd. (trust account 5) Mizuho Trust & Banking Co., Ltd. retirement benefit trust (Mizuho Bank account) Trustee of sub-trust: Custody Bank of Japan, Ltd. Note: Percentage of equity ownership after exclusion of treasury stock. 9.41 5.24 4.87 4.21 2.55 2.31 2.00 1.83 1.43 1.43 Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationInformation Disclosure 72 Investor Relations On our IR website, we present information on the Asahi Kasei Group’s business performance and future policies, in addition to posting financial results materials and a wide variety of management briefing materials. https://www.asahi-kasei.com/ir/ Sustainability We disclose detailed information on Asahi Kasei’s sustainability policies, systems, results, and data regarding ESG issues on our sustainability website (Sustainability Report). https://www.asahi-kasei.com/sustainability/ GRI Standards Content Index https://www.asahi-kasei.com/sustainability/basic_information/guidelines/ SASB Content Index https://www.asahi-kasei.com/sustainability/basic_information/sasb/ Inclusion in Socially Responsible Investment Indexes (As of 2021) • FTSE4Good Index • FTSE Blossom Japan Index • MSCI ESG Leaders Indexes • 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 Selected as a DX Stock Asahi Kasei received an A– evaluation in the categories of Climate Change Asahi Kasei has been selected as a Digital and Water Security in the 2020 survey conducted by CDP. We received an Transformation Stock (DX Stock), an initiative conducted A– in the Climate Change category for six consecutive years from 2015 to jointly by the Ministry of Economy, Trade and Industry 2020, while 2020 was our second year to receive an A– in the Water and the Tokyo Stock Exchange. Security category. Acquisition of the Highest Rank from Development Bank of Japan, Inc. (DBJ) under its DBJ Environmentally Rated Loan Program In November 2020, Asahi Kasei received a Development Bank of Japan loan under the DBJ Environmentally Rated Loan Program, having obtained the system’s highest rating as a “company with particularly advanced environmental programs.” 2020 Asahi Kasei Report 2021Management StrategyAsahi Kasei Group OverviewBusiness OverviewCorporate Governance and Risk ManagementCorporate InformationHibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan www.asahi-kasei.com/

Continue reading text version or see original annual report in PDF format above