Toray Industries Inc.
Annual Report 2020

Plain-text annual report

T o r a y I n t e g r a t e d A n n u a l R e p o r t 2 0 2 0 T o r a y I n d u s t r i e s , I n c . TORAY Philosophy Vision Corporate Philosophy Corporate Missions Corporate Slogan Corporate Guiding Principles Corporate Culture Presidentʼs Principles Toray Philosohy In addition to our traditional Management Philosophy (which includes the Corporate Philosophy, Corporate Missions, Corporate Guiding Principles), we have formulated the Corporate Slogan (which simply expresses Toray’s stance on embodying the Corporate Philosophy), the Vision (which rep- resents the direction the Group is headed), the Corporate Culture (which includes values and management perspectives that have been maintained since the company’s founding), and the President’s Principles. As a whole, these are referred to as the Toray Philosophy. Toray Industries, Inc. Integrated Annual Report 2020 02 Toray Industries, Inc. Integrated Annual Report 2020 03 Corporate Philosophy Contributing to society through the creation of new value with innovative ideas, technologies and products Corporate Missions For our customers: To provide new value to our customers through high-quality products and supe- rior services For our employees: To provide meaningful work and fair opportunities For our shareholders: To practice sincere and trustworthy management For society: To establish ties and develop mutual trust as a responsible corporate citizen Corporate Guiding Principles Safety and Environment Placing top priority on safety, accident prevention and environmental preservation in order to protect the safety and health of employees, customers and local communities and contribute to building a sustainable society Ethics and Fairness Acting with fairness, high ethical standards and a strong sense of responsibility while complying with laws, regu- lations and social norms to earn trust and meet social expectations Customer-Focus Providing solutions of high value to customers, and pursuing customer satisfaction and the world’s highest level of quality Innovation Achieving continuous innovation in all corporate activities, and aiming for dynamic evolution and growth Strong Genba-Ryoku (Workplace Competency) Learning from one another and making self-driven efforts to leverage technologies and expertise in order to strengthen workplace competency, which is the foundation of our corporate activities Cooperation and Co-creation Forming integrated internal linkages and strategic alliances with external partners, and evolving together with society by creating new value Emphasis on Human Resources Providing motivating work environments where employees can demonstrate their abilities, and building a vibrant corporate culture Information Disclosure Appropriately disclosing corporate information and enhancing communication with stakeholders in order to main- tain management transparency Respect for Human Rights Fulfilling our responsibility to respect human rights as a good corporate citizen Vision Toray Group Sustainability Vision Corporate Culture • Contributing to society through business activities • People-centric management • Management from a long-term perspective • Pioneering spirit President’s Principles • Stay focused on the basics, search for ideal approaches, identify the right steps, and then carry them out • All solutions can ultimately be found in the Genba (workplace) • Consider what is best for the company • Have the integrity to do the right thing in the right way Corporate Slogan Innovation by Chemistry Toray Industries, Inc. Integrated Annual Report 2020 02 Toray Industries, Inc. Integrated Annual Report 2020 03 Toray Philosophy To Our stakeholders 02 06 Financial & Non-Financial Highlights 10 Covid-19 and Beyond 14 “Toray vision 2030” “AP-G 2022” Long-term Corporate Vision “TORAY VISION 2030” Medium-term Management Program “Project AP-G 2022” 16 Human Resources strategy Interview 30 R&D Strategy 34 IR Day Medium-term Management Program “Project AP-G 2022” Business Briefing by Segments 35 Management system Corporate Governance/ Compliance 51 Cautionary statement with respect to forward-looking statements Descriptions of predicted business results, projections and business plans contained in this integrated annual report are based on forecasts and assumptions regarding the future business environment made at the present time. This integrated annual report is not a guarantee of the Company’s future business performance. Toray Industries, Inc. Integrated Annual Report 2020 04 For Realization of a Circular Economy special Features 68 Advanced Business Management by Utilizing Digital Technologies 74 Risk management 76 Environment 80 TCFD-related Initiatives Environmental Management Initiatives 82 Human Resources Management Results by Segment Fiscal 2019 85 90 R&D 102 Intellectual property 104 Financial Section 105 Stakeholder Engagement External Evaluation 148 149 Toray Group Worldwide Network 150 Investor Information/ Corporate Data 151 future... Toray Industries, Inc. Integrated Annual Report 2020 05 Akihiro Nikkaku President Toray Industries, Inc. Integrated Annual Report 2020 06 To Our stakeholders Staying focused on the basics, searching for ideal approaches, identifying the right steps, and then carrying them out in highly uncertain times Introduction I would like to begin by offering my sincerest con- creation of new value with innovative ideas, technol- ogies and products” exhibits the management philos- dolences to all of those who have been affected by ophies and values that have been passed down since COVID-19. And I would like to express my respect for our founding, as well as our reason for existence as a all of those fighting day and night on the frontlines to company. Similarly, Toray Group aims to realize the Toray prevent spread of the infection. Along with taking the Group Sustainability Vision under our mission of provid- necessary steps to prevent COVID-19 from escalating, ing innovative technologies and advanced materials as a Toray Group will spare no effort in bringing about an means of delivering fundamental solutions to the global early end to the crisis and in supporting the develop- challenges involved in balancing development and sus- ment of society and the economy thereafter. tainability with which the world will continue to be faced. In fiscal 2019, Toray saw both consolidated net sales and operating income decline 7.3% year on year to ¥2,214.6 billion and ¥131.2 billion, respectively, and saw net income attributable to owners of parent decline 29.8% to ¥55.7 billion. In addition to trade friction between the U.S.A. and China, COVID-19 emerged to Implementing Programs to Address Issues Under the Long-term Corporate Vision In July 2018, Toray Group announced the Toray Group threaten the world at the start of 2020 and significantly Sustainability Vision, which describes the perspectives limited the movement of people and goods, thereby of world that Toray Group aims to realize by 2050 and driving a recession that progressed throughout the the issues to be addressed in order to realize that global economy at an unprecedented pace. world. These issues include a range of challenges that Although Toray Group has been unable to avoid the are intertwined and ever-graver, including a growing impacts of this situation because we provide materi- population that is forecasted to reach 10 billion and als to key industries around the world, I feel that our that is aging in countries around the globe, as well as medium- to long-term corporate value remains unwav- the relentless escalation of climate change, water scar- ering. I hope that you will recognize this fact from the city, and resource depletion issues against the back- long-term corporate vision “TORAY VISION 2030” and drop of these demographic challenges. the medium-term management program “Project AP-G In May 2020, Toray Group announced the long-term 2022,” both of which are covered in this report. corporate vision “TORAY VISION 2030” as our mile- Toray Group’s Aspirations Toray Group was established in 1926, based on the prin- stones for raising corporate value by delivering solutions to these kinds of global challenges through the poten- tial of innovative materials. In short, this vision serves ciple of “realizing that corporations are public institu- as our guidelines for ascertaining trends in society and tions of society and contributing to society through our industry over the next 10-year period, and for achiev- business.” Ever since, Toray Group has worked hard to ing sound, sustainable growth while pursuing business earn the respect of society. model transformation. Originally formulated in 1986, our current corpo- At the same time, the Group formulated the medi- rate philosophy of “contributing to society through the um-term management program “Project AP-G 2022” Toray Industries, Inc. Integrated Annual Report 2020 07 that defines what we must do over the three-year and thus being controlled by the need to deal with period from fiscal 2020 to fiscal 2022. We have already the immediate situation, I feel it is far more rational to launched initiatives under this program. As expressed by drive forward under certain assumptions while observ- its name, the AP-G (Action Program for Growth) medi- ing changes in the situation, and to take action as we um-term management program is not a medium-term adjust those assumptions. Specifically because of this management “plan,” but a medium-term “program” uncertain situation, Toray-style management approach for achieving growth. Rather than putting in place a plan is to indicate guidelines, fully discuss our options, and that is grounded in a set of numerical targets, Toray align the vectors within the Group as we search for ideal Group has conventionally focused on medium-term approaches, identify the right steps, and carry them out. issues. In short, Toray Group management implements “programs to address issues” under the concept that results will follow upon solving each issue. In formulating these programs, we considered the Developing Materials Truly Needed by the World and Creating New Markets details of and identified issues with every item, from The values our society held towards transfer and places medium- to long-term business climates, competitive have transformed significantly, as telework and other environments, strengths and weaknesses, and sales, to changes have expanded due to COVID-19. On the R&D, and summarized what Toray Group must do over one hand, these changes have prolonged adjustments the next three-year period within the Action Program. in aircraft demand, which in turn has raised concerns Presenting Guidelines for Highly Uncertain Times over negative impacts on the sales of carbon fiber com- posites and other materials. On the other hand, how- ever, the trend remains unchanged for the increase in demand for lightweight materials that contribute to During the first half of 2020, the global economy saw improved fuel efficiency among the airline industry as a production, consumption, and even logistics activities means of addressing environmental problems. Greater come to a standstill that resulted in significant negative demand for these materials due to larger wind turbine growth as the world struggled to prevent COVID-19 from blades and the growth of the fuel-cell vehicle market, spreading. Although there may be those who believe it is also expected to remain unchanged. In addition to is not possible to formulate an accurate medium-term carbon fiber composite materials, accelerating digital management program given this situation of increasing transformation is likely to actually increase the demand uncertainty, the medium- to long-term aspirations of for 5G-compliant semiconductor materials that enable Toray Group are clear. The programs Toray Group must high-speed, high-capacity communications. As a materi- implement to achieve these aspirations will not change als manufacturer, Toray continuously identifies changes fundamentally due to COVID-19. For example, our poli- in the market from a medium- to long-term perspective cies designed to continuously optimize the supply chain regardless of the situation, and provides the world with remain unchanged, including those we have undertaken high added-value products that suit these changes. over many years to establish a global production sys- COVID-19 is no exception, and we intend to further tem based on a business model of local production and undertake new programs as we move forward without consumption that can minimize the impact of changes altering our stance of creating new markets by innova- in commerce conditions stemming from trade friction tive technologies. between the U.S.A. and China and from country risk. In terms of materials development, creating benefi- Moreover, our policy of developing a variety of cial materials is only possible after accumulating tech- advanced materials that derive from our core technolo- nologies over long-periods lasting ten to twenty years. gies in order to expand businesses that contribute to the In fact, although we have already worked with carbon development of society remains steady. fiber for 50 years, it still maintains room for develop- There is still no end in sight for COVID-19, but tak- ment as a material. Our growth strategy is based on ing action once things have settled after the world has considering what customers need and on providing returned to normal will put us behind. We must prepare innovative materials that can only be realized by Toray by ascertaining the true nature of the change, by analyz- Group. Accordingly, I believe that for us as a company, ing how the market will change after COVID-19 ends, it is ever more important to maintain a long-term vision, and whether or not the current situation is transient or establish short-term and long-term programs under that permanent. Rather than failing to indicate any medi- vision, and stay focused on the basics as we do what um-term guidelines because of the high uncertainty needs to be done in aims of achieving our aspirations. Toray Industries, Inc. Integrated Annual Report 2020 08 Domain Synergy that Outweighs Selection and Concentration achieving operations that are also prepared for uncer- tainties under the concept of strengthening the man- agement foundation, one of the three basic strategies Some have pointed out that the Group is not gaining of the medium-term management program. As a means returns from capital investments due to our wide range of supporting growth strategies after the end of COVID- of business domains. And I am also aware of the view that 19, we will take this opportunity to fully ensure the we are not taking moves towards selection and concen- resiliency of the corporate structure, and fundamentally tration. There is no question that Toray Group has many strengthen the management foundation from a medium- business segments. However, each of these segments to long-term perspective that goes beyond the current are derived from the common core technologies of organic fiscal year. synthetic chemistry, polymer chemistry, biotechnology, and nanotechnology. I believe that the attractiveness of Toray Group lies specifically in the fact that we maintain a broad scope of business domains by engaging in a wide Strengthening Corporate Governance Finally, I would like to discuss our efforts to enhance range of application fields in a group-wide manner using the effectiveness of the Board of Directors and to our strengths in core technologies as a common base. strengthen the business execution system. Although we will naturally consider withdrawing Along with reducing the number of Board members from domains in which we can no longer create add- from 19 to 12 in fiscal 2020, we increased the number of ed-value, materials always hold the hidden potential to outside directors from 2 to 4 in order to ensure a greater expand into unexpected applications and to form large variety of perspectives. We also expanded the compo- markets. Therefore, maintaining a wide range of busi- sition of the Governance Committee, which, chaired by ness domains itself extends the scope of possibility for an outside director, serves as an advisory body to the Toray Group. In this sense, specializing on only those Board of Directors and acts as the nomination and remu- fields that are highly profitable today will lead to a weak- neration committee, to 3 internal members of the Board ening of the business foundation over the medium- to and 4 outside directors. long-term. It is my belief that Toray Group will not grow We also introduced an executive officer system com- as a result of choosing specific business sectors, but posed of 30 vice presidents, including two foreign nation- through exhibiting synergy among business domains. als, appointed by the Board of Directors. This move was Towards Resilience and Proactive Management made for the purpose of enabling the vice presidents which represent all businesses, primary functions, and the major regions, to share management policies and the Group’s operating conditions, and to execute business Although many countries are restarting economic activ- based on quick decision-making that accurately ascer- ities without waiting for an end to COVID-19, the recov- tains the business environment and changes therein. ery in production and consumption activities has been limited in preparation for a second wave. Accordingly, the global economy is traveling a path to normalcy at a more moderate pace than expected, and these harsh Materials Have the Power to Fundamentally Change Our Everyday Life conditions are expected to continue for the foreseeable In order to fundamentally change “things,” the mate- future. Moreover, there is also a chance that further rials that serve as the foundation of all products must intensification in the conflict between the U.S.A. and evolve. Under this belief, Toray Group contributes to China following the end of COVID-19, and it will weigh the solutions for global challenges by creating innova- down the global economic recovery. Within this situa- tive materials targeted at realizing a sustainable world tion, however, there are also markets like those for 5G view and deploying these in a wide range of applications which are expected to become more active as a result and fields under our mission of addressing the needs of of COVID-19, as well as markets like those for xEV society as a materials manufacture. For this reason, we which are expected to experience an early recovery as a ask that all of our stakeholders grant us their continued result of government funding, so I believe it is important understanding and support. to ascertain post-COVID-19 trends as early as possible and adapt to the new normal. The main theme of “AP-G 2022” is Resilience and Proactive Management, which indicates our goal of Akihiro Nikkaku President Toray Industries, Inc. Integrated Annual Report 2020 09 Financial Highlights Net Sales/Revenue FY2019 Net Sales ¥2,214.6 billion Operating Income/ Core Operating Income, Operating Income to Net Sales/ Core Operating Income to Revenue FY2019 Operating Income ¥131.2 billion Operating Income to Net Sales 5.9% Net Income Attributable to Owners of Parent/Profit Attributable to Owners of Parent, ROA and ROE FY2019 Net Income Attributable to Owners of Parent ¥55.7billion ROA 4.8% ROE 5.0% (Billion yen) 2,500 (Billion yen) 200 (%) 8 (Billion yen) 120 2,000 1,500 1,000 0 150 100 50 0 100 80 60 40 20 0 6 4 2 0 (%) 12 10 8 6 4 2 0 (FY) 16 17 18 19 (J-GAAP) 20 Forecast (IFRS) (FY) 16 17 18 19 (J-GAAP) 20 Forecast (IFRS) (FY) 16 17 18 19 (J-GAAP) 20 Forecast (IFRS) (FY) 16 17 18 19 20 (FY) 16 17 18 19 20 (FY) 16 17 18 19 20 (J-GAAP) Forecast (IFRS) (J-GAAP) Forecast (IFRS) (J-GAAP) Forecast (IFRS) Operating income/Core operating income (left) Operating income to net sales/ Net income attributable to owners of parent/ Profit attributable to owners of parent (left) Core operating income to revenue (right) ROA (right) ROE (right) Dividend per share (left) Payout ratio (right) Net Assets and Equity Ratio End of FY2019 Net Assets ¥1,179.6 billion Equity Ratio 41.3% (Billion yen) 1,500 1,200 900 600 300 0 Interest-bearing Liabilities and Debt/equity Ratio Cash Flows R&D Expenses/Expenditures Environmental Facility Environmental Preservation End of FY2019 Interest-bearing Liabilities ¥938.9 billion Debt/equity Ratio 0.86 (%) 50 (Billion yen) 1,000 40 30 20 10 0 800 600 400 200 0 FY2019 Cash Flows from Operating Activities Cash Flows from Investing Activities ¥225.8 billion ¥-142.4 billion FY2019 ¥66.9 billion Free Cash Flows ¥83.4 billion (Billion yen) 300 200 100 0 -100 -200 1.0 0.8 0.6 0.4 0.2 0 -300 (Billion yen) 90 60 30 0 -30 -60 -90 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 20 (FY) 16 17 18 19 (FY) 16 17 18 19 (J-GAAP) (J-GAAP) (J-GAAP) (J-GAAP) (J-GAAP) (J-GAAP) Forecast (IFRS) Net assets (left) Equity ratio (right) Interest-bearing liabilities (left) Debt/equity ratio (right) Cash flows from operating activities (left) Cash flows from investing activities (left) Free cash flows (right) Toray Industries, Inc. Integrated Annual Report 2020 10 Dividend per Share and Capital Expenditures Depreciation and Amortization Payout Ratio Dividend per Share FY2019 ¥16 Payout Ratio 45.9% (Yen) 20 FY2019 Capital Expenditures ¥147.5 billion FY2019 Depreciation ¥110.1 billion (%) 50 (Billion yen) 200 (Billion yen) 16 12 8 4 0 80 60 40 20 0 40 30 20 10 150 100 50 0 0 3 2 1 0 R&D Expenses/Expenditures Environmental Facility Investment Environmental Preservation Costs Investment FY2019 ¥1.3 billion Costs FY2019 ¥7.1 billion (Billion yen) (Billion yen) (Billion yen) 120 100 80 60 40 20 0 8 6 4 2 0 Net Sales/Revenue FY2019 Net Sales ¥2,214.6 billion (Billion yen) 2,500 2,000 1,500 1,000 0 Equity Ratio 41.3% (Billion yen) 1,500 1,200 900 600 300 0 Net Assets and Equity Ratio End of FY2019 Net Assets ¥1,179.6 billion Operating Income/ Core Operating Income, Operating Income to Net Sales/ of Parent/Profit Attributable to Core Operating Income to Revenue Owners of Parent, ROA and ROE Net Income Attributable to Owners FY2019 Operating Income ¥131.2 billion Operating Income to Net Sales Net Income Attributable to Owners of Parent FY2019 ¥55.7billion ROE 5.0% ROA 4.8% (Billion yen) 5.9% (Billion yen) 200 150 100 50 0 (%) 8 6 4 2 0 120 100 80 60 40 20 0 Dividend per Share and Payout Ratio Capital Expenditures Depreciation and Amortization FY2019 Dividend per Share ¥16 Payout Ratio 45.9% (Yen) 20 16 12 8 4 0 FY2019 Capital Expenditures ¥147.5 billion FY2019 Depreciation ¥110.1 billion (%) 50 (Billion yen) 200 (Billion yen) 120 40 30 20 10 150 100 50 0 0 100 80 60 40 20 0 (FY) 16 17 18 19 20 (FY) 16 17 18 19 20 (FY) 16 17 18 19 20 (FY) 16 17 18 19 (J-GAAP) Forecast (IFRS) (J-GAAP) Forecast (IFRS) (J-GAAP) Forecast (IFRS) Operating income/Core operating income (left) Net income attributable to owners of parent/ Operating income to net sales/ Core operating income to revenue (right) Profit attributable to owners of parent (left) ROA (right) ROE (right) (J-GAAP) Dividend per share (left) Payout ratio (right) 20 Forecast (IFRS) (FY) 16 17 18 19 (J-GAAP) 20 Forecast (IFRS) (FY) 16 17 18 19 (J-GAAP) 20 Forecast (IFRS) Interest-bearing Liabilities and Cash Flows R&D Expenses/Expenditures Environmental Facility Investment Environmental Preservation Costs FY2019 Cash Flows from Cash Flows from Operating Activities Investing Activities ¥225.8 billion ¥-142.4 billion FY2019 R&D Expenses/Expenditures ¥66.9 billion FY2019 Environmental Facility Investment FY2019 Environmental Preservation Costs ¥1.3 billion ¥7.1 billion (Billion yen) (Billion yen) 80 (Billion yen) 3 (Billion yen) 8 60 40 20 0 2 1 0 6 4 2 0 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (J-GAAP) (J-GAAP) (J-GAAP) (J-GAAP) 20 Forecast (IFRS) (FY) 16 17 18 19 (FY) 16 17 18 19 (J-GAAP) (J-GAAP) Net assets (left) Equity ratio (right) Interest-bearing liabilities (left) Debt/equity ratio (right) Cash flows from operating activities (left) Cash flows from investing activities (left) Free cash flows (right) Toray Industries, Inc. Integrated Annual Report 2020 11 Debt/equity Ratio End of FY2019 Interest-bearing Liabilities ¥938.9 billion Debt/equity Ratio 0.86 (%) 50 (Billion yen) 1,000 40 30 20 10 0 800 600 400 200 0 Free Cash Flows ¥83.4 billion (Billion yen) 1.0 300 0.8 0.6 0.4 0.2 200 100 0 -100 -200 0 -300 (%) 12 10 8 6 4 2 0 90 60 30 0 -30 -60 -90 Non-Financial Highlights Net Sales/Revenue of Green Innovation Businesses Net Sales/Revenue of Life Innovation Businesses Contribution to CO2 Reduction in Value Chain Energy Consumption and Per Reduction of Atmospheric VOC Waste Recycling Rate Unit Energy Consumption Index Emissions FY2019 Net Sales of Green Innovation Businesses FY2019 Net Sales of Life Innovation Businesses FY2019 Contribution to CO2 Reduction in Value Chain ¥820.1 billion ¥223.2 billion 196 million tons Reduction of Atmospheric VOC Emissions Waste Recycling Rate FY2019 86.4% (Billion yen) 1,000 (Billion yen) 300 (Million tons) 200 800 600 400 200 0 250 200 150 100 50 0 150 100 50 0 (FY) 16 17 18 19 (J-GAAP) 22 Target (IFRS) (FY) 16 17 18 19 (J-GAAP) 22 Target (IFRS) (FY) 13 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 Energy consumption (left) Per unit energy consumption index (right) Water Filtration throughput Contribution of Toray’s Water Treatment Membranes Reduction of Greenhouse Gas Emissions (Toray Group companies in Japan) Comparative Water Usage per Unit of Sales (FY 2001, set to an index value of 100) FY2019 Water Filtration throughput Contribution of Toray’s Water Treatment Membranes 51 million tons/day FY2019 Reduction of Greenhouse Gas Emissions FY2019 Comparative Water Usage per Unit of Sales 31.8% 51.7% (Million tons/day) 60 50 40 30 20 10 0 (%) 35 30 25 20 15 0 (%) 65 60 55 50 45 0 Percentage of Women in Unit Number of Employees by Average Time on the Job and Manager or Higher Positions Gender (Toray) FY2019 9.7% Percentage of Women in Unit Manager or Higher Positions FY2019 Male Female 34,373 13,658 Number of Employees Taking Childcare Leave (Toray) Number of Employees Taking Number of Employees Taking Childcare Leave: Male Childcare Leave: Female FY2019 10 Average Time on the Job: Male 15.3 years (Employees) 60 Average Time on the Job: Female 16.1 years (FY) 13 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 Toray Industries, Inc. Integrated Annual Report 2020 12 (VS. FY 1990) FY2019 Energy Consumption 26.5 Million gigajoules Per Unit Energy Consumption Index 85.9 (FY 1990, set to an index value of 100) FY2019 76% (Million gigajoules) (Index) 90 (%) 80 30 20 10 0 (%) 10.0 9.5 9.0 0 60 30 75 70 65 0 0 (Employees) 50,000 40,000 30,000 20,000 10,000 0 Male Female (%) 90 85 80 0 80 60 40 20 0 (Year) 20 15 10 5 0 Number of employees taking childcare leave (left) Average time on the job (right) Male Female Male Female Net Sales/Revenue of Net Sales/Revenue of Contribution to CO2 Reduction in Green Innovation Businesses Life Innovation Businesses Value Chain Energy Consumption and Per Unit Energy Consumption Index (VS. FY 1990) Reduction of Atmospheric VOC Emissions Waste Recycling Rate FY2019 FY2019 FY2019 Net Sales of Green Innovation Businesses Net Sales of Life Innovation Businesses Contribution to CO2 Reduction in Value Chain ¥820.1 billion ¥223.2 billion 196 million tons FY2019 Energy Consumption 26.5 Million gigajoules FY2019 Reduction of Atmospheric VOC Emissions FY2019 Waste Recycling Rate 76% 86.4% Per Unit Energy Consumption Index 85.9 (FY 1990, set to an index value of 100) (Million gigajoules) 30 (Index) 90 (%) 80 20 10 0 60 30 75 70 65 0 0 (%) 90 85 80 0 (FY) 16 17 18 19 22 (FY) 16 17 18 19 22 (FY) 13 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 Energy consumption (left) Per unit energy consumption index (right) Percentage of Women in Unit Manager or Higher Positions (Toray) Number of Employees by Gender FY2019 Percentage of Women in Unit Manager or Higher Positions 9.7% FY2019 Male Female 34,373 13,658 (%) 10.0 9.5 9.0 0 (Employees) 50,000 40,000 30,000 20,000 10,000 0 Average Time on the Job and Number of Employees Taking Childcare Leave (Toray) FY2019 Number of Employees Taking Childcare Leave: Male Number of Employees Taking Childcare Leave: Female 10 Average Time on the Job: Male 15.3 years (Employees) 80 60 Average Time on the Job: Female 16.1 years 60 40 20 0 (Year) 20 15 10 5 0 (FY) 13 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 (FY) 16 17 18 19 Male Female Number of employees taking childcare leave (left) Male Female Average time on the job (right) Male Female Toray Industries, Inc. Integrated Annual Report 2020 13 (Billion yen) 1,000 (Billion yen) (Million tons) 200 (J-GAAP) Target (IFRS) (J-GAAP) Target (IFRS) Water Filtration throughput Reduction of Comparative Water Usage per Contribution of Toray’s Water Treatment Membranes Greenhouse Gas Emissions Unit of Sales (Toray Group companies in Japan) (FY 2001, set to an index value of 100) Water Filtration throughput Contribution of Reduction of Greenhouse Gas Emissions Comparative Water Usage per Unit of Sales FY2019 Toray’s Water Treatment Membranes 51 million tons/day FY2019 31.8% FY2019 51.7% 800 600 400 200 0 (Million tons/day) 60 50 40 30 20 10 0 300 250 200 150 100 50 0 (%) 35 30 25 20 15 0 150 100 50 0 (%) 65 60 55 50 45 0 COVID-19 and BEYOND Coexisting with COVID-19 —Clearing a path toward a sustainable future Toray Group is making a contribution to suppressing the spread of COVID- 19 and to providing treatments by its materials capabilities. We at Toray Group consider it our mission to provide fundamental solutions by bringing to bear our innovative technologies and advanced materials to address an array of issues impacting the world on a global scale. Toray Industries, Inc. Integrated Annual Report 2020 14 Overcoming a difficult worldwide situation, and aiming to realize our long-term corporate vision The spread of the COVID-19 pandemic threatens the lives and lifestyles of people around the world, and this blow to the global economy is said to sur- pass that of the 2008 financial crisis. To address this, Toray Group is offering its adhesive blood-puri- fying device TORAYMYXIN™, medical gowns, and nonwoven fabrics for masks that will all contribute to containing the spread and to treating COVID-19. As a basic materials manufacturer, Toray Group will maintain its efforts to consistently supply our products that underpin society. Moreover, we are committed to the development of innovative tech- nologies and advanced materials that will work to materially transform society, with an eye toward the new world that will arise after this situation abates. Our aim, for when we overcome this worldwide calamity, is that Toray Group be a corporate entity that possesses a high degree of value for all of its stakeholders. We will promote the medium-term management program, “Project AP-G 2022” as we advance toward the realization of the long-term cor- porate vision, “TORAY VISION 2030.” Toray obtains tentative approval in Canada for use of TORAYMYXIN™ as treatment for COVID-19 Toray has received an Interim Order from the Canadian Authority, Health Canada, for the use of its endotoxin adsorption cartridge TORAYMYXIN™, as a treatment for patients infected with COVID-19. TORAYMYXIN™ is already in use as a treatment for patients with septic shock, but with this authorization, it was granted expanded indications to treat COVID-19 patients with acute respiratory fail- ure in the absence of cardiac failure or fluid overload and diffuse alveolar damage (DAD) (HRCT findings). Toray requested by the Japanese government to deliver medical gowns produced in Japan Based on a request from the Japanese gov- ernment that had been hit by tight domestic demand for medical gowns on account of the COVID-19 pandemic, Toray decided to deliver one-time use medical gowns (isola- tion gowns) to the Ministry of Health, Labour, and Welfare. With the objective of provid- ing frontline sites with a steady supply of required volumes within short lead times, Toray Group will fully engage its domestic supply chain, and plans to deliver a total of 8.1 million pieces between May 2020 and March 2021. In addition, in order to provide protective clothing for medical professionals and others, the Company plans to secure domestic pro- duction, together with ramping up production outside of Japan. Enhancing and expanding supply chain of nonwoven fabrics for masks in Japan Toray is enhancing and expanding its supply network, and is fully utilizing its global pro- duction facilities to provide nonwoven fabric for masks to locations in Japan. In tandem with implementing a system to expand pro- duction by leveraging its overseas bases, Toray upgraded its nonwoven fabric test facilities within its Shiga Plant, enabling monthly production of up to roughly 100 million units of nonwoven fabric for masks supplied to domestic manufacturers. Toray Industries, Inc. Integrated Annual Report 2020 15 t i o s s a e v o n s i n n t n I n u e e G r ( G R ) b F u t u r e T O R A Y - 2 0 2 0 s P r o j e c t ) ( F T P r o j e c I n n o v a t i o n b u s i n e s s f e L i ( L I ) Four perspectives of the world envisioned in 2050 by Toray Group (Toray Group Sustainability Vision) E n v i r o n m e n t & Ca r b o n F i b e r C o m p o E n g i e e r i n g s n i t e M a t e rials L i f e S c i e n c e P r e f o r m a n c e C h F i b e r s & T e e x t i l e s m i c a l s The Toray Group’s innovative technologies and advanced materials “toray vision 2030” Long-term Corporate Vision “TORAY VISION 2030” —Achieving Sound, Sustainable Growth and Creating Social Value With an eye toward 2030, we have formulated our new long-term corporate vision, “TORAY VISION 2030” – Achieving Sound, Sustainable Growth and Creating Social Value. This vision serves as a guide- post in our efforts to be a high-value corporate group to all our stakeholders. We will promote the long- term strategies as laid out in “TORAY VISION 2030” and work to achieve our numerical targets for fiscal 2030 in order to realize the world as envisioned by Toray Group in 2050 as part of our “Toray Group Sustainability Vision.” Toray Group Sustainability Vision Long-term Corporate Vision “TORAY VISION 2030” Medium-term Management Program “Project AP-G 2022” Toray Group Sustainability Vision The Toray Group Sustainability Vision clarifies the four perspectives of the world in 2050 that Toray Group aims to achieve, as well as the initia- tives that must be taken in order to realize them. More specifically, the Toray Group mission is to provide through innovative technologies and advanced materials the necessary solutions to the challenges facing the world in terms of both development and sustainability, including the issues of an ever-increasing global population, aging populations, climate change, water shortages, and resource depletion. With the declaration that “we will work to ensure that our own growth will not negatively impact global sustainability while doing our utmost with our business partners worldwide to address global issues, including the goals of the Paris Agreement and the United Nations Sustainable Development Goals (SDGs),” the Toray Group Sustainability Vision shows the path forward for Toray Group and forms the foundation for TORAY VISION 2030. Toray Industries, Inc. Integrated Annual Report 2020 16 Toray Group Sustainability Vision Long-term Corporate Vision “TORAY VISION 2030” Medium-term Management Program “Project AP-G 2022” Achieving the Toray Group Sustainability Vision In “AP-Growth TORAY 2020,” our previous long-term corporate vision, we divided our businesses into three categories: core growth driving businesses, strategically expanding businesses, and intensively developing and expanding businesses. Under “TORAY VISION 2030,” we are promoting cross-segment initiatives to improve earnings in the Green Innovation (GR) Business, which focuses on contributing to the resolution of global environmental, resource, and energy issues, and the Life Innovation (LI) Business, which aims to contribute to better medical care and longevity, the fostering of public health, and the sup- port of personal safety. At the same time, we are working on the Future Toray-2020s Project (FT Project), a group-wide effort to focus resources in major themes on both a qualitative and quantitative basis and accelerate the creation and development of new businesses and achieving total sales of around ¥1 trillion in the 2020s. The Growth Model for Achieving the Sustainability Vision The Toray Group’s innovative technologies and advanced materials Ca r b o n F i b e r C o m p o E n v i r o n m e n t & E n g i s n i t e M a t e rials e e r i n g L i f e S c i e n c e P r e f o r m a n c e C h F i b e r s & T e e x t i l e s m i c a l s t i o s s v a e n o s i n u n t n I n e e G r ( G R ) b F u t u r e T O R A Y - 2 0 2 0 s P r o j e c t ) ( F T P r o j e c I n n o v a t i o n b u s i n e s s f e L i ) ( L I Four perspectives of the world envisioned in 2050 by Toray Group (Toray Group Sustainability Vision) Long-term Growth Strategies in “TORAY VISION 2030” Toray Group aims to achieve sound, sustainable growth while promoting a business model transformation by accu- rately identifying changing industrial trends brought about by demographic factors, environmental issues, and tech- nological innovation. With this in mind, we are using active investment to promote a “global expansion in growth business fields.” To make this possible, we are working to maximize the value we can create over the medium- to long-term by “strengthening competitiveness” through ongoing business model innovations and total cost reduc- tions, and by “strengthening the management foundation” to enable investment for growth based on enhanced investment efficiency and an improved financial structure. Long-term strategies to achieve “sound, sustainable growth” Quantitative Targets for FY 2030 1. Global expansion in growth business fields • Promote GR businesses that help solve global environmental issues as well as resource and energy issues • Promote LI businesses that contribute to better medical care and longevity, foster public health, and support personal safety 2. Strengthening competitiveness • Create new value through business advancement and high added-value creation, thereby providing solutions with a mate- rials-oriented approach to customers and society • Pursue dramatic cost reductions by setting challenging targets as well as strive to reduce environmental impact 3. Strengthening the management foundation • Improve cash flow and capital efficiency, and balance financial soundness and growth investment • Reform and revitalize the business and organizational structures of low-growth and low-profitability businesses FY 2013 Actual (baseline year) (J-GAAP) FY 2030 Targets (compared to FY 2013) (IFRS) GR Net sales/Revenue 463.1 billion yen 4 fold LI Net sale/Revenues 119.6 billion yen 6 fold Avoided CO2 emissions 40 million tons 8 fold Contributed annual water filtration throughput 27.23 million tons/day 3 fold Greenhouse gas emissions per unit of sales/revenue in production activities Water consumption per unit of sales/revenue in production activities 33.7 tons/ billion yen 30% reduction 1,520 tons/ billion yen 30% reduction Toray Industries, Inc. Integrated Annual Report 2020 17 The Toray Group Value Creation Process Under “TORAY VISION 2030,” we will continue to provide new value in society through mutual cooperation in R&D, sales and marketing, and production, the key strengths of Toray Group, based on the core values of “contributing to society through business activities,” “management from a long-term perspective,” and “people-centric management.” At the same time, we will focus on fostering co-creation with our cus- tomers and supply chain partners, starting at the materials stage. In this way we will contribute to the realization of the four per- spectives of the world as outlined in Toray Group Sustainability Vision. R&D Engaging in R&D to cre through technologic ate n e w al in n o v m a r k e t s Fibers & Textiles Life Science a t i o n g technological e strengths din a r g p u y b s n o id w - p u o r g i t a c i l p p a t c u g n i s u Performance Chemicals n o i t a v d o o n r p g n i n i z li a Corporate Philosophy Carbon Fiber Composite Materials e R Production Meeti n g c u s t a r o b u s t a n g o m e r n e e ds by buildin al s u pply chain p ti m d o Sales & Marketing Environment & Engineering Innovation through Co-creation Customers Providing New Value to Society Four Perspectives of the World as Envisioned in 2050 (Toray Group Sustainability Vision) Value that we cherish as management core value Contributing to society through business activities Management from a long-term perspective People-centric management 1971 Marketing of ECSAINE®, ultra-microfiber nonwoven fabric with suede texture, began 1980 Marketing of ROMEMBRA® reverse osmosis membrane elements began 1959 Manufacture of LUMIRRORTM polyester film began Manufacture and marketing of carbon fiber TORAYCA® began 1941 Succeeded in the synthesis and melt spinning of Nylon 6 fiber using proprietary technology 1926 Began as a manufacturer of viscose rayon 1926 1930 1940 1950 1960 1970 1980 2000 2010 2020 2022 (FY) “US GAAP” for 1964 - 1983, “Japanese GAAP” after 1984 Non-consolidated Toray Industries, Inc. Integrated Annual Report 2020 18 Proposal Needs A net zero emissions world, where greenhouse gas emissions are completely offset by absorption A world where resources are sustainably managed A world with a restored natural environment, with clean water and air for everyone A world where everyone enjoys good health and hygiene (Trillion yen) Net Sales, Revenue 2006 Strategic partnership started with UNIQLO CO., LTD. 1990 TORAYCA® carbon fiber prepreg certified as a primary structural material for The Boeing Company’s passenger aircraft FY 2019 Consolidated Net Sales ¥2,214.6 billion FY 2000 Consolidated Net Sales ¥1,075.4 billion FY 1990 Consolidated Net Sales ¥917.1 billion 1990 Consolidated 3.0 2.5 2.0 1.5 1.0 0.5 0 g technological e strengths din a r g p u y b s n o i t a c i l p p a id w - p u o r g g n i s u n o i t a v t c u d o o n r p g n i n i z li a e R R&D Engaging in R&D to cre through technologic Fibers & Textiles Life Science ate n e w al in n o v m a r k e t s a t i o n Corporate Philosophy Sales & Marketing Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering g o m e r n e e ds by buildin al s u pply chain Production Meeti n g c u s t p ti m d o a n a r o b u s t Value that we cherish as management core value Contributing to society through business activities Management from a long-term perspective People-centric management 1971 Marketing of ECSAINE®, ultra-microfiber nonwoven fabric with suede texture, began 1980 Marketing of ROMEMBRA® reverse osmosis membrane elements began 1959 Manufacture of LUMIRRORTM polyester film began Manufacture and marketing of carbon fiber TORAYCA® began Proposal A net zero emissions world, where greenhouse gas emissions are completely offset by absorption A world where resources are sustainably managed Innovation through Co-creation Customers Providing New Value to Society Four Perspectives of the World as Envisioned in 2050 (Toray Group Sustainability Vision) Needs 2006 Strategic partnership started with UNIQLO CO., LTD. 1990 TORAYCA® carbon fiber prepreg certified as a primary structural material for The Boeing Company’s passenger aircraft FY 2019 Consolidated Net Sales ¥2,214.6 billion FY 2000 Consolidated Net Sales ¥1,075.4 billion FY 1990 Consolidated Net Sales ¥917.1 billion A world with a restored natural environment, with clean water and air for everyone A world where everyone enjoys good health and hygiene (Trillion yen) Net Sales, Revenue 3.0 2.5 2.0 1.5 1.0 Enhancing Long-term Corporate Value Toray Group began as a manufacturer of viscose rayon in 1926. On top of all three major synthetic fibers such as nylon, polyes- ter, and acrylic, the Company has continued to develop innovative technologies while creating a host of advanced materials and high value-added products in a broad range of films, chemicals, resins, electronics and information materials, carbon fiber compos- ite materials, pharmaceuticals and medical products, water treatment, and environmen- tal fields. With an eye toward how society will evolve in 2050 and how innovative tech- 0.5 nologies and advanced materials may be utilized as a driving force, we will adopt a long-term perspective toward enhancing our corporate value. 1941 Succeeded in the synthesis and melt spinning of Nylon 6 fiber using proprietary technology 1926 Began as a manufacturer of viscose rayon 1926 1930 1940 1950 1960 1970 1980 “US GAAP” for 1964 - 1983, “Japanese GAAP” after 1984 Non-consolidated 1990 Consolidated 2000 2010 2020 2022 (FY) 0 Toray Industries, Inc. Integrated Annual Report 2020 19 Review of “Project AP-G 2019” An Aggressive Business Expansion “Project AP-G 2019” was the medium-term manage- ment program we launched in April 2017. The program’s three basic strategies were “business expansion in growth business fields,” “expansion and advancement of global business,” and “strengthening competitive- ness.” The program promoted a growth strategy cen- tered on expanding our business in order to achieve our GR Project Annual Growth Rate at 9% goals for business development outlined in “AP-Growth As part of our “business expansion in growth busi- TORAY 2020,” our long-term corporate vision. We have ness fields” effort, we promoted our Green Innovation at the same time been strengthening our efforts to cre- Business Expansion (GR) Project and our Life Innovation ate new sources of revenue that will contribute to sus- Business Expansion (LI) Project. In addition, as part of tainable growth and enhanced corporate value in 2020 our “expansion and advancement of global business” and beyond. strategy, we focused our efforts on the AE (Asia, Against this backdrop, consolidated net sales reached Americas, Europe, and Emerging Regions) Project in record highs for the two consecutive years from fiscal order to capture earnings opportunities in countries and 2017, with operating income also reaching a record high regions experiencing favorable economic growth. in fiscal 2017. However, net sales in fiscal 2019, the final As a result, sales for GR businesses expanded at year of “AP-G 2019,” was significantly below target due an average annual rate of about 9%, largely in business to factors such as deteriorating demand for automobiles areas focused on energy conservation and new energy, and smartphones, a slowdown in the Chinese economy including carbon fiber composite materials and battery due to escalating trade friction between the U.S.A. and separator films. Sales for LI businesses expanded at an China, and a sharp contraction in the global economy average annual rate of 4%, mainly in advanced materi- due to the spread of COVID-19. While we worked to off- als such as nonwoven fabrics for hygiene products. In set this by improving earnings through enhanced added the AE Project, we were able to expand sales overseas value and reducing variable and fixed costs through total by increasing investment and establishing new business cost reductions, our main KPIs fell short of our “AP-G locations in regions around the world that are expected to 2019” targets. show favorable economic growth moving forward. Net Sales (Billion yen) Operating Income (Billion yen) “AP-G 2013” “AP-G 2016” “AP-G 2019” “AP-G 2013” “AP-G 2016” “AP-G 2019” 1,837.8 1,588.6 1,592.3 2,388.8 2,204.9 2,214.6 2,104.4 2,010.7 2,026.5 154.5 156.5 146.9 141.5 131.2 123.5 107.7 105.3 83.4 Net Sales of Green Innovation Net Sales of Life Innovation Net Sales of Expansion Reductions from and Advancement of the Total Cost Reduction Businesses (Billion yen) Businesses (Billion yen) Global Businesses (TC) Project (Billion yen) 900.0 820.1 786.9 712.3 628.2 223.0 223.2 211.9 195.5 (Billion yen) 1,500.0 270.0 1,271.3 1,150.8 1,190.1 1,042.1 233.9 Target 220.0 • Activities of variable cost reduction • Control fixed costs through P-ratio* accounting method 92.0 • Innovation of production process Actual (total in 3 years) • Variable costs: reduced 92 billion yen (reduction rate: 10.2% in 3 years) • Fixed cost: reduced 91.2 billion yen (P-ratio for each FY= 0.99, 1.03, 1.02) • Innovation of production process reduced 50.7 billion yen *P(Performance) ratio = fixed cost growth rate / marginal profit growth rate Target: less than 1.0 or monitored by division under budget 91.2 50.7 2012 2013 2014 2015 2016 2017 2018 2019 2011 (FY) 2012 2013 2014 2015 2016 2017 2018 2019 2011 (FY) 2016 2017 2018 2019 2019 2016 2017 2018 2019 2019 2016 2017 2018 2019 2019 FY 2017 – FY 2019 Total (FY) Target (FY) Target (FY) Target Actual Target Toray Industries, Inc. Integrated Annual Report 2020 20 Exceeding the Target for Strengthened Competitiveness Key Challenges for the Next Medium-term Management Program Despite our efforts, we fell short of the KPIs set in “AP-G 2019.” Major shifts in the external environment, includ- ing a sharp rise in raw material and fuel prices, as well In terms of “strengthening competitiveness,” we pro- as trade friction between the U.S.A. and China, contrib- moted the Total Cost Reduction Project (TC Project) uted to a downturn in demand as well as delays in the throughout the Group, both in terms of reducing vari- launches of new products. There was also an increase able and fixed costs and fundamentally reducing costs in costs associated with the launch of new projects and through innovations in the production process. At the an increase in goodwill costs associated with M&A proj- same time, we focused on strengthening our corporate ects. We consider the challenge is to harvest the bene- structure and our sales and marketing. As a result, we fits from capital investments made under “AP-G 2019” were able to reduce costs over the three years covered in the early stage, and to comprehensively strengthen by the program by ¥233.9 billion, exceeding the pro- our corporate structure so that we can better address gram target of ¥220.0 billion. growing uncertainty. Net Sales (Billion yen) Operating Income (Billion yen) “AP-G 2013” “AP-G 2016” “AP-G 2019” “AP-G 2013” “AP-G 2016” “AP-G 2019” 2,388.8 2,204.9 2,214.6 2,104.4 2,010.7 2,026.5 154.5 156.5 146.9 141.5 131.2 123.5 1,837.8 1,588.6 1,592.3 107.7 105.3 83.4 Exchange rate for “AP-G 2019” target : 100 yen / US$ ROA = Operating Income / Total Assets ROE = Net Income Attributable to Owners of Parent / Owners’ Equity Net Sales of Green Innovation Businesses (Billion yen) Net Sales of Life Innovation Businesses (Billion yen) Net Sales of Expansion and Advancement of Global Businesses (Billion yen) 1,500.0 Reductions from the Total Cost Reduction (TC) Project (Billion yen) 900.0 820.1 786.9 712.3 628.2 270.0 1,271.3 1,150.8 1,190.1 1,042.1 223.0 223.2 211.9 195.5 233.9 220.0 Target • Activities of variable cost reduction • Control fixed costs through P-ratio* accounting method 92.0 • Innovation of production process Actual (total in 3 years) • Variable costs: reduced 92 billion yen (reduction rate: 10.2% in 3 years) • Fixed cost: reduced 91.2 billion yen (P-ratio for each FY= 0.99, 1.03, 1.02) • Innovation of production process reduced 50.7 billion yen *P(Performance) ratio = fixed cost growth rate / marginal profit growth rate Target: less than 1.0 or monitored by division under budget 91.2 50.7 2011 (FY) 2012 2013 2014 2015 2016 2017 2018 2019 2012 2013 2014 2015 2016 2017 2018 2019 2011 (FY) 2016 2017 2018 2019 2019 Target (FY) 2016 2017 2018 2019 2019 Target (FY) 2016 2017 2018 2019 2019 (FY) Target FY 2017 – FY 2019 Total Actual Target Toray Industries, Inc. Integrated Annual Report 2020 21 “AP-G 2019” Target and FY 2019 (Actual)FY 2016ActualFY 2019Actual“AP-G 2019”TargetNet Sales (billion yen)2,026.52,214.62,700.0Operating Income(billion yen)146.9131.2250.0Operating Income to Net Sales Ratio7.2%5.9%9%ROA6.3%4.8%around 9%ROE10.1%5.0%around 12%D/E Ratio0.700.86below 1 (guideline)Difference between FY 2019 Actual and “AP-G 2019” Target (by Segment) (billion yen)Net Sales“AP-G 2019”TargetFY 2019ActualChangesFibers & Textiles1,120.0883.1-236.9Performance Chemicals950.0770.8-179.2Carbon Fiber Composite Materials260.0236.9-23.1Environment & Engineering270.0252.3-17.7Life Science80.053.3-26.7Others20.018.2-1.8Adjustments———Total2,700.02,214.6-485.4Operating Income“AP-G 2019”TargetFY 2019ActualChangesFibers & Textiles92.060.7-31.3Performance Chemicals103.058.7-44.3Carbon Fiber Composite Materials45.021.0-24.0Environment & Engineering20.011.2-8.8Life Science9.01.6-7.4Others3.03.4+0.4Adjustments22.025.5-3.5Total250.0131.2-118.8Medium-term Management Program “Project AP-G 2022” Resilience and Proactive Management—Sustainable Growth and New Development We launched “Project AP-G 2022,” a medium-term man- understanding the changing trends in industry and accord- 3 Basic Strategies 3 Basic Strategies Specific Measures agement program covering the three years from fiscal 2020 ingly reforming our business model. to fiscal 2022, with the aim of achieving sound, sustainable With this in mind, we will continue to work to strengthen growth outlined in “TORAY VISION 2030,” our long-term competitiveness by reducing total costs, expanding the corporate vision. While maintaining our basic strategy of pro- Green Innovation (GR) Business and the Life Innovation (LI) active investment to expand our business, we will work to Business, while following the basic “AP-G 2019” strategies of maximize value which Toray Group creates over the medium- “global expansion in growth business fields” and “strength- to long-term and build a strong business foundation for sus- ening competitiveness” in “AP-G 2022.” On the other hand, tainable growth moving forward, specifically by strengthening in light of the challenges that emerged during the period cov- our financial structure and promoting the business structural ered by “AP-G 2019,” we will aggressively pursue structural reforms necessary to advance our growth strategies. reforms in our low-growth and low-profitability businesses Amid ongoing expectations for significant changes while at the same time working to strengthen the manage- in the business environment due to demographic shifts, ment foundation to increase cash flow and improve capital environmental issues, and technological innovations, efficiency. In addition to these basic strategies, we will also we also note that there remains the potential for a fun- promote as key strategies within “AP-G 2022,” “initiatives for damental transformation in the industrial structure and a circular economy,” “reduction of greenhouse gas emissions social systems. This could create business opportunities, in the production stage,” “advanced business management but also risks, such as a narrowing in previously existing through the use of digital technologies,” and “securing and businesses. Amid such an environment, we believe it vital developing human resources.” We aim to achieve our finan- to further strengthen our competitiveness by accurately cial as well as sustainability goals based on these efforts. Three Basic Strategies Key Challenges P24-25 1. Global Expansion in Growth Business Fields By leveraging Toray Group’s strengths in advanced materials and core technologies, we will continue to develop on a global scale the Green Innovation (GR) Business Expansion project and the Life Innovation (LI) Expansion project as group--wide projects. P68-73 1. Initiatives for a Circular Economy Leveraging the various technologies of Toray Group, we will contribute to realizing a circular economy by means such as the promotion of recycling and utilization of bio- mass, the increased use of hydrogen and renewable energy, as well as recycling of water. P27 2. Strengthening Competitiveness Through the Total Cost Reduction (NTC) Project, we aim to reduce costs by ¥150 billion over a period of three years. We are also focusing on business advancement and high added-value creation, while at the same time enhancing workplace competency in sales and market- ing and production. P28 3. Strengthening the Management Foundation With the goal of ensuring our financial soundness, we will operate our business with a focus on maintaining a balance in profit, cash flow, and asset efficiency. Moreover, in order to achieve new growth, we will pro- mote structural reforms in low-growth and low-profit- ability businesses. 2. Reduction of Greenhouse Gas Emissions in the P80-81 Production Stage We launched the “Challenge 30 Project” as a group-wide project, and will formulate and execute specific action plans with the aim of reducing greenhouse gas (GHG) emissions and water usage per unit of revenue by fiscal 2030 by 30% compared to fiscal 2013. 3. Advanced Business Management Through the Use of Digital Technologies P74-75 The “Toray Digital Transformation (TDX) Project” is designed to improve the advancements in management in a variety of fields, including R&D, production, sales and marketing, finance and accounting, and purchasing and logistics through digital transformation (DX). 4. Securing and Developing Human Resources Toray Group will secure, develop, and promote future man- agement candidates and professional human resources with strong capabilities to lead on the frontlines of our operations. P30-33 Toray Industries, Inc. Integrated Annual Report 2020 22 TORAY VISION 2030 “AP-G 2019” “AP-G 2022” Business expansion in growth business fields Expansion and advancement of global business 1 2 3 Strengthening competitiveness Global expansion in growth business fields Strengthening competitiveness 1 2 (1) Green Innovation business expansion GR Project (2) Life Innovation business expansion LI Project (1) Total cost reductions NTC Project (2) Business advancement/high added-value creation (3) Enhancing workplace competency in sales & marketing and production Strengthening 3 the management foundation (1) Strengthening financial structure by improving cash efficiency (2) Business structure reform of low-growth and low-profitability businesses Net Sales/Revenue Targets by Segment Operating Income/Core Operating Income 2,600.0 Targets by Segment (Billion yen) 180.0 (Billion yen) 2,388.8 18.5 53.7 257.7 215.9 868.8 2,214.6 18.2 53.3 252.3 236.9 770.8 20.0 55.0 230.0 275.0 990.0 141.5 131.2 3.1 1.3 12.2 11.5 67.7 72.9 3.4 1.6 11.2 21.0 58.7 60.7 974.3 883.1 1,030.0 27.3 25.5 2.0 0 19.0 24.0 90.0 76.0 31.0 (FY) 2018 Actual (J-GAAP) 2019 Actual (J-GAAP) 2022 Target (IFRS) (FY) 2018 Actual (J-GAAP) 2019 Actual (J-GAAP) 2022 Target (IFRS) Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others Adjustments Basic Strategies of “Project AP-G 2022” TORAY VISION 2030 “AP-G 2019” “AP-G 2022” 3 Basic Strategies 3 Basic Strategies Specific Measures Business expansion in growth business fields Expansion and advancement of global business 1 2 3 Strengthening competitiveness 1 2 3 Global expansion in growth business fields Strengthening competitiveness (1) Green Innovation business expansion GR Project (2) Life Innovation business expansion LI Project (1) Total cost reductions (2) Business advancement/high added-value creation (3) Enhancing workplace competency in sales & marketing and production NTC Project Strengthening the management foundation (1) Strengthening financial structure by improving cash efficiency (2) Business structure reform of low-growth and low-profitability businesses Exchange rate for “AP-G 2022” target : 105 yen / US$ ROA = Operating Income, Core Operating Income / Total Assets ROE = Net Income Attributable to Owners of Parent, Profit Attributable to Owners of Parent / Owners’ Equity Net Sales/Revenue Targets by Segment (Billion yen) 2,600.0 2,388.8 18.5 53.7 257.7 215.9 868.8 2,214.6 18.2 53.3 252.3 236.9 770.8 20.0 55.0 230.0 275.0 990.0 974.3 883.1 1,030.0 Operating Income/Core Operating Income Targets by Segment (Billion yen) 180.0 141.5 3.1 1.3 12.2 11.5 67.7 72.9 131.2 3.4 1.6 11.2 21.0 58.7 60.7 27.3 25.5 2.0 0 19.0 24.0 90.0 76.0 31.0 (FY) 2018 Actual (J-GAAP) 2019 Actual (J-GAAP) 2022 Target (IFRS) (FY) 2018 Actual (J-GAAP) 2019 Actual (J-GAAP) 2022 Target (IFRS) Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others Adjustments Toray Industries, Inc. Integrated Annual Report 2020 23 Financial Targets in FY 2022 (Billion yen)FY 2019 Actual(J-GAAP)FY 2022Target(IFRS)Net Sales/Revenue2,214.62,600.0Operating Income/Core Operating Income131.2180.0Operating Income to Net Sales/Core Operating Income to Revenue5.9%7%ROA4.8%about 7%ROE5.0%about 9%Free Cash Flows58.1(in 3 years)120 or more (in 3 years)D/E ratio0.86around 0.8(guideline)Dividend Payout Ratio —about 30%Sustainability Targets in FY 2022FY 2013Actual(baseline year)(J-GAAP)FY 2019Actual(compared with FY 2013)(J-GAAP)FY 2022Target(compared withFY 2013)(IFRS)GR Net sales/Revenue463.1billion yen820.1billion yen1,000.0billion yenLI Net sales/Revenue119.6billion yen223.2billion yen300.0billion yenAvoided CO2 emissions40 million tons5.1 fold5.3 foldContributed annual water filtration throughput27.23million tons/day1.9 fold2.4 foldGreenhouse gas emissions per unit of sales/revenue in production activities33.7tons/billion yen12%reduction20%reductionWater consumption per unit of sales/revenue in production activities1,520tons/billion yen23%reduction25%reduction Basic Strategy 1: Global Expansion in Growth Business Fields Green Innovation Business Expansion Project (GR Project) Growth Business Fields pursuing reduced costs and the development of highly One of the key growth business fields in the GR Project functional new products while simultaneously building an is battery separator films for lithium-ion batteries, where enhanced global production system in response to grow- high growth is expected in automotive applications, ing demand in China, where environmental regulations mainly in Europe. Moreover, with an expansion in the mar- are being tightened, and in the Middle East, where large ket for consumer applications, we will focus on expand- seawater desalinations plants are being constructed. ing production capacity and promote cost reduction in order to capture this demand. In the field of carbon fiber Targeting Revenue of ¥1 Trillion products for wind turbine blades, placement restrictions We are targeting revenue in the Green Innovation have contributed to wind power facilities being increas- Business in fiscal 2022 of ¥1 trillion and will focus on ingly installed in offshore and low-wind regions, and capital investment and R&D in large scale themes with an expected increase in blade size and the volume such as lightweight materials, biomass-derived mate- of carbon fiber used, we aim to expand our business by rials, recycled materials, battery separator films, large increasing production capacity at Zoltek Companies, Inc. tow carbon fibers for wind turbine blade applications, In reverse osmosis (RO) membranes, we are focused water treatment membranes, and hydrogen and fuel on securing the leading global market share, and are cell-related materials. Carbon fiber for aircrafts Carbon fiber for compressed vessels Carbon fiber for wind turbine blades Carbon fiber for automobiles Resins for automobiles Air filter Water treatment membranes Battery separator film for lithium-ion batteries Toray Waterless Plate® Net Sales/Revenue of Life Innovation Businesses (Billion yen) 300 300.0 Support personal safety 223.2 Support health and longevity + Improve quality of medical-care, Ease burdens on medical professionals 200 100 0 (FY) 2019 Actual (J-GAAP) 2022 Target (IFRS) Net Sales/Revenue of Green Innovation Businesses Demand for Battery separator films (Toray estimation) (Billion yen) 1,000 1,000 820.1 (billion m2/yr) Automotive applications Consumer applications annual growth rate about 22% 8 6 4 2 0 Demand for wind turbine blades applications (Toray estimation) (1,000 t/yr) 40 annual growth rate about 13% Market size of RO membranes for industrial applications (Toray estimation) (10,000 units/yr) 300 annual growth rate about 7% 30 20 10 0 200 100 0 2019 Actual (J-GAAP) 2022 Target （IFRS） 2019 2022 2019 2022 2019 2022 800 600 400 200 0 (FY) Toray Industries, Inc. Integrated Annual Report 2020 24 Contribute to solving global environmental, resource, and energy issuesLife Innovation Business Expansion Project (LI Project) Growth Business Fields personal safety in abnormal weather conditions and traffic Toray Group is committed to supporting the activities accidents, including through the supply of heat shielding/ of daily living (ADL) and health of senior citizens and light shielding/UV protective cloth SUMMER SHIELD™ those requiring nursing care with its nonwoven fabrics products and LIVMOA™ protective clothing. for hygiene products and its carbon fiber that is used in facilitating access. In the medical field, we are developing Targeting Revenue of ¥300 billion and supplying not only pharmaceuticals, but through our In addition to the ideas of supporting health maintenance advanced materials and innovative technologies products and longevity, as well as improving the quality of medical care such as medical-use hitoe™, a wearable electrocardiogram and easing burdens on medical professionals, we are broad- monitoring system, dialyzers, and catheters. We will also ening the definition of life innovation to include products for be focusing on business expansions in fields supporting personal safety, including in regard to threats such as abnormal weather and natural disasters, which appear to be increasing in recent years. Moreover, by providing solutions that are unique to the Group thanks to its expertise in materials, we aim to boost revenue in the Life Innovation Business to ¥300 billion. Nonwoven fabric for hygiene products Materials for facilitating access Sportswear fabrics Dialyzers Catheter Medical-use hitoe™ Heat-shielding/light shielding/UV protective SUMMER SHIELD™ Nonwoven fabric with flame-shielding property, GULFENG™ Protective clothing LIVMOA™ LIVMOA™ limited use protective clothing Amid climate change and the increased movement around the world of peo- ple and goods, there is also a growing risk of infectious disease spreading around the world. Through combining the technologies of microporous films and nonwoven fabrics, Toray has developed a new type of protective clothing that can be worn comfortably while allowing moisture permeability but resist- ing blood and viral penetration, something that has been an contradictory issue in this type of product in the past. LIVMOA™ is an integrated, single-use protective garment which Toray Group covers almost all aspects from materials to finished products. The brand offers a range of products, including products for medical professionals working in harsh environments to products for work- ers in dusty and oily working environments and those working in clean rooms. Net Sales/Revenue of Demand for Green Innovation Businesses Battery separator films (Toray estimation) Demand for wind turbine blades applications (Toray estimation) (Billion yen) 1,000 820.1 1,000 (billion m2/yr) Automotive applications (1,000 t/yr) Consumer applications annual growth rate about 13% Market size of RO membranes for industrial applications (Toray estimation) (10,000 units/yr) 300 annual growth rate about 7% annual growth rate about 22% 8 6 4 2 0 40 30 20 10 0 200 100 0 2019 Actual 2022 Target (J-GAAP) （IFRS） 2019 2022 2019 2022 2019 2022 800 600 400 200 0 (FY) 300 200 100 0 (FY) Net Sales/Revenue of Life Innovation Businesses (Billion yen) 300.0 Support personal safety 223.2 Support health and longevity + Improve quality of medical-care, Ease burdens on medical professionals 2019 Actual (J-GAAP) 2022 Target (IFRS) Toray Industries, Inc. Integrated Annual Report 2020 25 Support health and longevityImprove quality of medical-care, Ease burdens on medical professionalsSupport personal safetyInitiatives to Support Growth Capital Investment, R&D, Intellectual Property We are targeting capital investment over the three years fields where the leveraging of our expertise in advanced from fiscal 2020 of ¥500 billion. Of this amount, we materials, our core technologies, and our global busi- expect about half to focus on expanding growth, par- ness base can be expected to generate synergies. We ticularly in the Green Innovation Business and the Life plan to allocate R&D resources to large-scale and highly Innovation Business. We intend to focus our investment profitable themes, with expected R&D investment over in areas such as battery separator films, industrial carbon the three years from fiscal 2020 of about ¥220 billion. In fibers, and RO membranes. We also intend to bolster intellectual property, we will raise the barriers to market revenue through efficient capital investment, risk min- entry through the filing of strategic patent applications imization through the careful selection of projects, and and knowhow protections while at the same time bol- the efficient use of existing facilities. In terms of M&A stering global intellectual property capabilities through and alliances, Toray Group will conduct strategic M&A enhancements to the patent management systems of activity separate from capital investment, focusing on domestic and overseas affiliated companies. Capital Investment by Segment Breakdown of R&D Expenses 2% 3% 5% 5% 5% 29% 10% 21% Total in “AP-G 2019” 479.4 billion yen Total in “AP-G 2022” 500.0 billion yen 40% 20% 20% Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Others Life Science 40% Others Life Innovation (LI) business “AP-G 2022” Total in 3 years 220.0 billion yen Green Innovation (GR) business Capital Expenditures (Billion yen) Depreciation (Billion yen) R&D Expenses (Billion yen) Consolidated subsidiaries Toray Consolidated subsidiaries Toray 117.0 Consolidated subsidiaries Toray 174.0 134.3 147.5 143.0 110.3 108.0 104.1 110.1 70.6 76.5 78.0 66.4 17.5 66.9 17.3 48.8 49.5 68.0 16.0 52.0 39.7 37.2 35.0 33.5 33.5 39.0 (FY) 2018 (J-GAAP) 2019 (J-GAAP) 2020Forecast (IFRS) (FY) 2018 (J-GAAP) 2019 (J-GAAP) 2020Forecast (IFRS) (FY) 2018 (J-GAAP) 2019 (J-GAAP) 2020Forecast (IFRS) Major Capital Expenditure Projects FY 2019 Alcantara S.p.A. Zoltek Zrt. Alcantara® production facilities Carbon fiber production facilities Toray Industries Hungary Kft. Battery separator film SETELA™ production facilities Toray Industries, Inc. Fuel cell electrode substrate production facilities FY 2020 Toray Industries Hungary Kft. Battery separator film SETELA™ production facilities Toray Plastics (America), Inc. Polypropylene film production facilities Toray Plastics (Malaysia) Sdn. Berhad ABS resin production facilities Toray Industries, Inc. Integrated Annual Report 2020 26 1. Total Cost Reduction2. Business Advancement / High Added-value CreationTotal Cost Reduction Project (NTC Project)Target to reduce 150 billion yen in 3 yearsVariable Cost ReductionTarget to reduce100.0billion yenin variable costs(annual target : over 3.7% YoY)Fixed Cost ReductionTarget to reduce 35.0billion yenin production fixed costsInnovation of Production Process• Refine themes that directly link to substantial cost reduction• Aim for reduction effects at 15 billion yen in 3 years• Achieve advancement in products• Add high-value by integrating and combining products and services• Create new value in collaboration with external partners• Pursue innovation in the value chain using Information and Communication Technology (ICT)3. Enhancing Workplace Competency in Sales & Marketing and Production• Lead the maximization of value-adding by strengthening the ability of the sales force to gather information, provide supply chain insight, the ability to make comprehensive sales propos-als, and the ability to resolve issues• Continually improve labor productivity by strengthening the ability to maintain equipment, resolve onsite problems, and the ability to resolve issues in order to meet customer requirementsCapital Investment by Segment Breakdown of R&D Expenses 2% 3% 5% 5% 5% 29% 10% 21% Total in “AP-G 2019” 479.4 billion yen Total in “AP-G 2022” 500.0 billion yen 20% Fibers & Textiles Others Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering 40% 20% Life Science 40% Others Life Innovation (LI) business “AP-G 2022” Total in 3 years 220.0 billion yen Green Innovation (GR) business Capital Expenditures (Billion yen) Depreciation (Billion yen) R&D Expenses (Billion yen) Consolidated subsidiaries Toray Consolidated subsidiaries Consolidated subsidiaries Toray 174.0 134.3 147.5 143.0 110.3 108.0 104.1 110.1 Toray 117.0 70.6 76.5 78.0 66.4 17.5 66.9 17.3 48.8 49.5 68.0 16.0 52.0 39.7 37.2 35.0 33.5 33.5 39.0 (FY) 2018 (J-GAAP) 2019 (J-GAAP) 2020Forecast (IFRS) (FY) 2018 (J-GAAP) 2019 (J-GAAP) 2020Forecast (IFRS) (FY) 2018 (J-GAAP) 2019 (J-GAAP) 2020Forecast (IFRS) Creating New Businesses “AP-G 2022” establishes multiple large-scale themes to drive next-generation growth, including not only the GR Project and the LI Project, but also the com- pany-wide “Future Toray-2020s Project (FT Project).” By focusing resources in these areas, we will accel- erate the development of products and technologies as well as the formation of new business models as part of our goal of generating total sales of around ¥1 trillion in the 2020s. Hydrogen-fuel cell related materials (Image provided by Toyota Motor Corporation) Biomass-utilization products and processing technologies Environmentally-friendly printing solutions Hygiene, Health-care products Sensing devices related materials Basic Strategy 2: Strengthening Competitiveness Strengthening Competitiveness through Maximization of Cost Reduction and Added Value We will strengthen our competitiveness by promot- ¥150 billion over three years. We will also strengthen our ing the “Total Cost Reduction Project (NTC Project),” competitiveness through business advancement and reducing variable and fixed costs, and innovation of pro- high added-value creation, and enhancing workplace duction process in order to achieve cost reductions of competency in sales and marketing and production. Toray Industries, Inc. Integrated Annual Report 2020 27 1. Total Cost Reduction2. Business Advancement / High Added-value CreationTotal Cost Reduction Project (NTC Project)Target to reduce 150 billion yen in 3 yearsVariable Cost ReductionTarget to reduce100.0billion yenin variable costs(annual target : over 3.7% YoY)Fixed Cost ReductionTarget to reduce 35.0billion yenin production fixed costsInnovation of Production Process• Refine themes that directly link to substantial cost reduction• Aim for reduction effects at 15 billion yen in 3 years• Achieve advancement in products• Add high-value by integrating and combining products and services• Create new value in collaboration with external partners• Pursue innovation in the value chain using Information and Communication Technology (ICT)3. Enhancing Workplace Competency in Sales & Marketing and Production• Lead the maximization of value-adding by strengthening the ability of the sales force to gather information, provide supply chain insight, the ability to make comprehensive sales propos-als, and the ability to resolve issues• Continually improve labor productivity by strengthening the ability to maintain equipment, resolve onsite problems, and the ability to resolve issues in order to meet customer requirementsExamples of themes in “AP-G 2022”Basic Strategies 3: Strengthening the Management Foundation Strengthening the Financial Structure by Improving Cash Efficiency In order to achieve sound, sustainable growth, we will entire Group with the goal of reducing working capital strive to operate our businesses with a stronger aware- and more efficiently using funds. ness of cash flow, which can be seen as a return on In terms of reform to our financial structure, we aim investment, with an aim of generating free cash flow of to reduce the D/E ratio from under 1.0 to about 0.8. more than ¥120 billion during the “AP-G 2022” period. Finally, we have a new dividend payout ratio target of To this end, we will conduct thorough management about 30% with the goal of increasing dividends in line of receivables, payables, and inventories across the with performance. Strengthening financial structure by improving cash efficiency Total of FY 2020 - FY 2022 • Improve the certainty of return on investment • Introduce management-based free cash flows CASH-IN Cash flows from operating activities 620 billion yen or more internally • Reduce working capitals • D/E ratio around 0.8 CASH-OUT Cash flows from investment activities 500 billion yen* • Set goals for dividend payout ratio (about 30%) Free Cash Flows 120 billion yen or more *exclude M&A Business Structure Reform of Low-growth and Low-profitability Businesses We promoted structural reforms in our businesses as part businesses. That said, we will also consider reducing or of our respective business strategies in “AP-G 2019,” but withdrawing from businesses where the potential for in “AP-G 2022” we will be selecting businesses in need market growth is rather low or where it is difficult to of structural reforms as part of an overall Company strat- make the most of Toray Group strengths. egy and promoting structural reform in low-growth and Low-growth and low-profitability businesses are low-profitability businesses. Our goal is to restore these defined as businesses and companies that fall below low-growth and low-profitability businesses through growth and profitability thresholds and are selected on a business and organizational reforms tailor-made to those once-a-year basis. Business structure reform of low-growth and low-profitability businesses Determine once a year of target businesses and companies that fall below boundary value for “sales growth” and “profit- ability,” and conduct business structure and organizational structure reforms • Conduct business structure and organizational structure reforms of low-growth and low-profitability businesses • Will consider options including reducing or withdrawal from businesses with low market growth potential or where it would be difficult to make the most of Toray Group’s strengths in the future Sales growth Boundary value Target of Business structure and organizational structure reforms Boundary value Profitability Toray Industries, Inc. Integrated Annual Report 2020 28 Strengthening financial structure by improving cash efficiency Total of FY 2020 - FY 2022 • Improve the certainty of return on investment • Introduce management-based free cash flows CASH-IN Cash flows from 620 billion yen operating activities or more CASH-OUT Cash flows from investment activities 500 billion yen* internally • Reduce working capitals • D/E ratio around 0.8 • Set goals for dividend payout ratio (about 30%) Free Cash Flows 120 billion yen or more *exclude M&A Business structure reform of low-growth and low-profitability businesses Determine once a year of target businesses and companies that fall below boundary value for “sales growth” and “profit- ability,” and conduct business structure and organizational structure reforms • Conduct business structure and organizational structure reforms of low-growth and low-profitability businesses • Will consider options including reducing or withdrawal from businesses with low market growth potential or where it would be difficult to make the most of Toray Group’s strengths in the future Sales growth Boundary value Target of Business structure and organizational structure reforms Boundary value Profitability Factoring in assumptions that the spread of COVID-19 operating income of ¥80 billion, and profit attributable to will repeat the cycle of slowing down and re-spreading owners of parent of ¥34 billion. Our consolidated earn- but eventually subside, and the economy in Japan and ings forecasts have been calculated based on IFRS, as overseas would follow a gradual recovery trend, Toray Toray Group voluntarily adopted IFRS from the Japanese Group targets fiscal 2020 revenue of ¥1.86 trillion, core GAAP from fiscal 2020. Consolidated Business Forecast for FY 2020 (Billion yen) Consolidated Business Forecast by Segment (Billion yen) Adoption of IFRS Disclosure of Core Operating Income As Toray Group seeks to further expand and advance its global business, we have decided to voluntarily adopt IFRS from fiscal 2020, from the Japanese GAAP, in order to improve the interna- tional comparability of our financial information, which we believe should contribute to enhanced convenience to our stakeholders. We also expect it to improve the management of our business by unifying accounting standards across the Group. The disclosure of ordinary business revenue and profit will be made by core operating income, as a measure of management performance, and the numerical targets for “AP-G 2022” is disclosed for this indicator. Core operating income is derived by adding non-operating income and expenses excluding net financial expenses and costs, and a portion of spe- cial credits and charges, to the operating income under Japanese GAAP. All the account items in the non-op- erating income and expenses under Japanese GAAP, such as costs related to idle facilities and start-up of new facili- ties, will be included in the core operating income under IFRS. However, net finan- cial expenses and foreign exchange gain or loss will be excluded. By adopting core operating income, the regular conditions of production facilities and the situation of operations will be reflected in the gain and loss without omission. Ordinary business revenue and profit will be disclosed as “core operating income” as a measure of management performance Profit and Loss Statement under Japanese GAAP Net sales Cost of sales Gross profit Selling, general, admin. expenses Operating income Finance income Equity in earnings of affiliates Non-operating income and expenses Ordinary income Special credits and charges Income before income taxes Income tax Net income Net income attributable to owners of parent Net income attributable to non-controlling interests Profit and Loss Statement after IFRS adoption Revenue Cost of sales Gross profit Selling, general, admin. expenses Other income / expenses Core operating income Special Items Operating income Finance income/costs Equity in earnings of affiliates Income before income taxes Income tax expenses Profit Profit attributable to owners of parent Profit attributable to non-controlling interests Non-operating income and expenses (including costs related to idle facilities, costs related to start-up of new facilities) and part of special credits and charges are included in the Japanese GAAP operating income Toray Industries, Inc. Integrated Annual Report 2020 29 FY 2020YoYRevenue1,860.0-11.1%Core Operating Income80.0-36.3%Profit Attributable to Owners of Parent34.0-59.6%Revenue (YoY)Core Operating Income (YoY)Fibers & Textiles705.0(-126.0)36.0(-23.6)Performance Chemicals695.0(-66.2)59.0(+4.5)Carbon Fiber Composite Materials190.0(-46.9)7.0(-29.6)Environment & Engineering202.0(+11.2)14.0(+3.4)Life Science53.0(-0.0)1.0(+0.5)Others15.0(-3.2)2.0(-1.6)Adjustments25.0(+0.8)Total1,860.0(-231.2)80.0(-45.5)Fiscal 2020 Earnings ForecastsHuman resources strategy Interview with Senior Vice President, Human Resources Division Toray will promote individuals who are adept at adapting to change as well as future management candidates and professionals with the capability to lead on the frontlines. Senior Vice President, Human Resources Division Shigeki Taniguchi Interviewer Manager, IR Department Fujino Hirai Toray Industries, Inc. Toray Industries, Inc. Integrated Annual Report 2020 Integrated Annual Report 2020 30 30 Toray’s history begins with respect for harmony among people What is behind Toray’s idea of “people-centric management?” The idea of “people-centric management” often spoken of specialized knowledge and technological expertise, who continually foster their creativity, and who can solve prob- lems by facing the situation directly and working with the spirit of self-improvement. The third is to develop lead- ers with foresight, leadership, and a sense of balance.” This philosophy encapsulates Toray’s thinking on human by Toray President Akihiro Nikkaku has been passed down resources. since the Company’s founding in 1926. The corporate This shows how the idea of “people-centric manage- symbol created immediately after the Company’s found- ment” has been passed down through the history of the ing shows three interlocking rings, symbolizing the oppor- Company. President Nikkaku often visits various job sites tunities given by heaven, the advantages of the land, and and speaks directly with the employees. I think he does the harmony amongst human beings. This is derived from this to see with his own eyes whether the employees the Book of Mencius in which the harmony of the earth is are growing. more important than heaven-sent opportunities, and the harmony amongst human beings is more important than the earth. Essentially, this means that when attempt- ing something, there is no achievement if there is no harmony amongst human beings. And this philoso- phy is the starting point of Toray’s history. First company emblem (1926-1963) We need individuals who are adept at adapting to change What are the key challenges in Toray’s human resources strategy? Toray is focused on actively expanding its business in the global market and further accelerating the creation of new businesses. Amid such an environment, there are a growing number of voices saying that they want a person After that, Asahiko Karashima, the first general man- with particular kind of skill, or that a transfer of a certain ager of the Shiga Plant, set a principle that the plant should individual may cause potential problems, as the succes- be a place for the cultivation of the human character. sor or successors have not been trained yet. This points He noted that companies should not only manufacture to the securing and training of human resources as a key products, but also help develop human resources. After point to support this expected growth. The Company has becoming the Chairman of the Board, he also believed also formulated its “Toray Group Sustainability Vision” that people represented an asset that could not be posted for 2050. While it may seem a long time ahead, it is the on the balance sheet. 30 years later, the Chairman of generation of current new employees that will be driving the Board Shigeki Tashiro often stated that the develop- this Company by that time. As such, proper training needs ment of human resources was the most important thing to be given to these future leaders. Given these circum- a company could do, and that it could not be done in a stances, “AP-G 2022” focuses on the development of short period of time. In fact, he believed it was one of future management candidates and professional human the most important long-term goals a company could resources with strong capabilities to lead on the frontlines. have. Following this philosophy, the Company formulated educational and training standards and established a voca- tional school for on-site training. The Company established the Toray Human Resources Development Center in 1996, with President Katsunosuke What are the key points involved in the development of core staff and professional human resources? A long-term vision is something that does not change Maeda at the time stating that “People are what determine easily. Though, it is important to note that the busi- whether a business succeeds or fails, and it is people who ness environment itself and the way we work are both pave the way to a company’s future. The development changing rapidly. When I joined the Company in 1983, of human resources at Toray therefore serves three pur- reports were handwritten and I was warned that those poses. First, it is to develop personnel who are trusted with sloppy writing could not do the job. Now, of course, by society at large not only as contributing members but PCs are used, with the speed of change completely dif- also business people who conduct their activities with fair- ferent than when I was younger. So, rather than focus- ness, a strong level of ethics, and a deep sense of respon- ing only on what a person can do right now, we need sibility. The second is to develop personnel who are aware to concentrate on training individuals who, when thrust of the roles they are expected to play, both inside and out- into an entirely new situation, can think for themselves, side the Company, who strive to acquire a high level of seek solutions through trial-and-error, and pave the way Toray Industries, Inc. Integrated Annual Report 2020 31 forward. If we cannot find and foster workers like these particular, it seems the turnover rate for employees in who are adept at adapting to change, I believe Toray as their prime between the ages of 28 and 32 is moving we know it may not exist in 30 years. I think this is the higher. The reason for this, I imagine, is because this is most important thing, in terms of both core staff and an age group in which many experience a major life event professional human resources. I think people can gain and change their thinking in regard to their lives and work. such abilities through various failures. With this in mind, That being said, those who have got over this point rather I believe it important that younger people have these devote themselves to their work. With this in mind, I kinds of experiences as early as possible. think it is important to follow up with employees about Introducing a new career sheet Exactly what kind of measures are you considering? One of the centerpiece features of “AP-G 2022” is the five years after they joined the Company and to pro- vide them with support from their managers and senior coworkers. One of the most common reasons for people leaving the Company and those joining us mid-career, is the inability to actively develop their own careers. This makes it especially important to use the career sheet. I introduction of a new career sheet. It clarifies what also believe it necessary to focus not only on providing should be achieved three, five, nine, and 15 years opportunities for taking on new challenges through inter- after hiring, before becoming managers or profession- nal recruitment and the self-certification system, and also als, so that employees achieve the professional level creating an atmosphere in which workers are encouraged at each stage. But it is not for the Company to control to try new things without fear of failure. the employees unilaterally. The goal is to create the Company’s system in which each of the employees plans a career they wish to pursue by themselves and consider what to do for realizing it. In this process, their managers are also required to consider it with them as What are your thoughts in regard to the Company’s overseas human resources strategies? When establishing subsidiaries overseas, Japanese staff their own issue. I believe that when the milestones for are at first stationed at the location to train the local an individual’s future become clear, it becomes easier for employees. These employees are then gradually given them to fall into the habit of thinking for themselves and positions before the Company ultimately delegates to solving problems on their own. We plan to create a new them local authority. As a result, the core staff at the career sheet for each job type at Toray and increase the overseas subsidiaries are able to build an in-house adoption rate from 20% in fiscal 2020 to 30% in fiscal career, contributing to relatively high retention rates at 2021 and 100% in fiscal 2022. Those ready to take on new challenges can build a career at Toray How can Toray best retain those we have trained? While I think the turnover rate at Toray is actually low these locations. Meanwhile, we also provide regular training for executives and managers in order to facilitate at the worksite the management style that is unique to Toray. The Company aims to expand its business on a global basis, making it important for us to have a sys- temic process in place for hiring the most talented core staff as the national staff. With this in mind, we are work- ing to create T-CAS*, which can centrally manage the compared to other companies, it appears to have been core staff at Toray Group locations around the world. We following a general upward trend since about 2015. In aim to complete the construction of this system within the period covered by “AP-G 2022.” * T-CAS: Toray Career Development Assistance System Improving productivity through flexible workstyles How is Toray promoting workstyle reforms? Laws and regulations related to workstyle reforms in Japan have been steadily implemented since April 2019. These laws allow a variety of different workstyles based on the individual circumstances of the worker. In addition Toray Industries, Inc. Integrated Annual Report 2020 32 to the introduction of flexible working arrangements, including telecommuting, these reforms include regu- lations limiting the amount of overtime work and mea- sures designed to improve the working environment so that women can play an active role, promote the accep- tance of overseas workers, employ senior workers, and assist workers in balancing their work with their child- care/nursing care responsibilities. These are areas in which the kindness of a company is tested, and where the sense of fulfillment on the part of the employees can be increased, thus contributing to the retention of the most talented employees and bolstering the strength of the Company. With this in mind, Toray has established is still under 10%, it is steadily rising. It appears clear that numerical targets in this area and strengthened its there is a growing number of women in the core staff efforts to achieve them. pool and we accordingly expect to see female officers While not planned at all, telecommuting has become arising from within the Company, which I also believe increasingly common due to the COVID-19 pandemic. will be of great encouragement to our hard working and Many things can be accomplished by working from a active female employees. remote location than we initially thought, and it is a good chance to review the working system itself and make changes in people’s working styles. While some individ- uals may experience inconveniences, I expect improve- What are your thoughts on the strategy for human resources from an SDGs perspective? In order to realize Toray’s “Sustainability Vision” through ments will come eventually, and these kinds of different the Green Innovation Business and the Life Innovation working styles to become increasingly common as we Business, we will need to foster the development of move forward. On the other hand, Toray is still a com- core staff and professional human resources that are pany, so it does no good to think about improving the adept at adapting to change. I believe the wholehearted work environment and exploring flexible working styles if efforts of each employee are vital to achieving the profitability cannot be improved. With this in mind, “AP-G SDGs. I also believe that in addition to using the power 2022” includes the Total Cost Reduction (NTC) Project. of materials to resolve global issues, we can show The flip side to these efforts is that if the Company fails the necessity of our existence by playing an import- to work to improve productivity, it will almost certainly ant role in the world including the creation of employ- fall short of profitability, which makes it vital to create a ment opportunities, as well as the payment dividends robust operating structure that includes not only work- to shareholders, and the payment of taxes. I think it is style reforms, but enhanced employee management. worth noting that several Toray employees use their Diversity cannot be realized by simply setting a numerical target Please tell us your thoughts on diversity. Diversity is one of the major focus points in the laws related to workstyle reforms. Of these, we have been quick in the hiring of senior workers. In fields where experience can make all the difference, many workers are over the age of 65, and while there is a mandatory retirement age of 60, we have been able to re-hire all vacation time to participate in volunteer activities in the community, which lead to the discovery of new social issues and the creation of new networks. I cannot help but wonder if the Company can further support these kinds of activities by our individual employees. Fostering human resources that can pave the way ahead As a final note, can you tell me a bit about your aspirations? Toray since its founding, has been focused on “peo- applicants over the age of 60. On the other hand, we ple-centric management.” In line with this concept, I have taken a cautious stance on setting numerical tar- would like to see an increase in the number of employ- gets for the ratio of women in management and exec- ees who are adept in adapting to change and who can utive positions. If we did so, the focus would be on think and act on their own in not only their own work, meeting numerical targets and not on the original pur- but also in regard to creating goals for the Company and pose. While the ratio of women in managerial positions themselves as they pave the way forward for Toray. Toray Industries, Inc. Integrated Annual Report 2020 33 R&D provide the key to building the Toray of tomorrow Over more than 90 years of its history, Toray has created advanced materials and technologies based on the firm An Undivided R&D Organization conviction that “R&D provide the key to building the Toray Toray has centralized all of its R&D functions into the of tomorrow,” and has expanded business through strate- Technology Center. Bringing together specialists from gic collaborations and M&As that maintain synergy with many fields in this undivided R&D organization makes it these materials and technologies. In order to provide true easier to create new innovations by integrating technolo- solutions to the many societal and economic challenges gies, and enables the Company to fully utilize its combined of our times, including global environmental issues, there strength by actively exploiting technologies and knowl- is no other way than the pursuit of technology innovation. edge from many fields to solve problems in a single busi- Furthermore, without material innovation, there can never ness area. It also enables various advanced materials and be final products that are attractive to the market. Looking technologies, including those developed for other fields, to back over the past, history proves it is advanced materials be rapidly applied to multiple businesses. The reason the that have created next-generation industries. The Group Group is capable of covering such a wide range of business will therefore continue to generate innovations that offer fields with limited R&D investments is because it focuses social and economic value through R&D based on a grand the target of these investments on advanced materials vision of the times and the needs of society. and technologies at the same time it fully leverages this undivided R&D organization. An Undivided R&D Organization Technology Center Sales Divisions/ Technical Department Manufacturing Division/ Technical Department Development Center New Projects Development Division Engineering Division R&D Division Advanced materials and technologies (Basic chemicals) Innovative polymer NANOALLOY® Nano-structure design control Separation membrane Fine particles etc. Core technologies Organic synthetic chemistry Polymer chemistry Biotechnology Nanotechnology Business network Fibers & Textiles Division Resins & Chemicals Division Films Division Torayca & Advanced Composites Division Electronic & Information Materials Division Pharmaceuticals & Medical Products Division Water Treatment & Environment Division Affiliated Companies Division P r o d u c t i o n p r o c e s s i n n o v a t i o n L i f e I n n o v a t i o n G r e e n I n n o v a t i o n Establishing the R&D Innovation Center for the Future with an Eye on the Next 100 Years As part of Toray’s project to commemorate the 90th anniversary of its founding, in December 2019 it refurbished the former Central Research Laboratories building in Otsu City, Shiga, where the company was founded, and established the R&D Innovation Center for the Future as a base to further deepen and progress materials research, and to provide solutions to future societies. As a nexus of research for the future, the center comprises two sites: 1) Integrated Research Site, which has the function of idea creation as the core of R&D for the future, and 2) Experimental Research Site, which promotes development, evaluation, and demonstration of prototypes based on those ideas. In addition, the center pursues strategic open innova- tion through technological integration with academia and important partners in diverse fields, utilizing its innovation hub functions, such as an open lab. Toray Industries, Inc. Integrated Annual Report 2020 34 Technology Center Sales Divisions/ Technical Department Manufacturing Division/ Technical Department Development Center New Projects Development Division Engineering Division R&D Division Advanced materials and technologies (Basic chemicals) Innovative polymer NANOALLOY® Nano-structure design control Separation membrane Fine particles etc. Core technologies Organic synthetic chemistry Polymer chemistry Biotechnology Nanotechnology Business network Fibers & Textiles Division Resins & Chemicals Division Films Division Torayca & Advanced Composites Division Electronic & Information Materials Division Pharmaceuticals & Medical Products Division Water Treatment & Environment Division Affiliated Companies Division P r o d u c t i o n p r o c e s s i n n o v a t i o n L i f e I n n o v a t i o n G r e e n I n n o v a t i o n Toray Industries, Inc. Integrated Annual Report 2020 35 R & D S T R A T E G Y and ACTIVITIES FOR LIFE INNOVATION R&D STRATEGY An Undivided R&D Organization: The Technology Center to be Super Nanotechnologies that have achieved improvements in the discontinuous characteristics of materials. These will first be deployed to core growth driving businesses to expand nanotechnology into a ¥50 billion business by fiscal 2025. At the same time, Toray Group has centralized all of its R&D functions into these Super Nanotechnologies will also be deployed to the Technology Center. Bringing together specialists new Green Innovation and Life Innovation businesses. from many fields in this undivided R&D organization makes it easier to create new innovations by integrat- ing technologies, and enables the Group to fully utilize its combined strength by actively exploiting techniques and knowledge from many fields to solve problems in a single business area. It also enables various advanced LIFE INNOVATION Expanding the Life Innovation Business with Advanced Materials materials and technologies, including those developed This section introduces the initiatives aiming the expan- for other fields, to be rapidly applied to multiple busi- sion of Life Innovation (LI) business, which contributes nesses. In addition to technology fusion and combined to enhancement of medical care, health and longevity, strength, this approach also inherits the Group’s DNA diffusion and promotion of public health, and personal of pursuit of the ultimate limits and long-term continu- safety, with a target of increasing revenue six-fold by ity. This DNA enables the Technology Center to take fiscal 2030 compared with fiscal 2013. Under “AP-G a long-term perspective in managing R&D invest- 2022,” we will advance business expansion with the ments so that there is never a shortage of themes goal of reaching ¥300 billion in revenue. Of the business, for today and seeds for tomorrow and beyond. As we position the pharmaceuticals and medical devices part of “AP-G 2022,” the Group has established businesses as in a period of incubation for the future, priority areas and major initiatives to maximize the and we will take following actions for the future growth. return on R&D investments under the direction of the In the short-term, the pharmaceutical business Technology Center as an undivided R&D organization. Super Nanotechnology As a core technology of Toray Group, nanotechnol- aims sales expansion of the oral antipruritic drug REMITCH®* overseas to grow earnings. Meanwhile, the medical devices business will launch continuously original products such as HotBalloon to the market, ogy exemplifies the pursuit of the ultimate limits. expand domestic and global sales of highly valued (or Among the various types, Toray Group considers its proprietary, original technologies of NANODESIGN®, NANOALLOY®, and Nano-layered Films (PICASUS™) functionalized) dialyzers, launch and promote sales of new product of dialysis machines, and enforce devel- opment of respiratory disease treatment columns. As From Nanotechnology to Super Nanotechnology Fiber NANODESIGN® Thinner Discontinuous Characteristic Improvement Social problem solving Resin NANOALLOY® Finer Film PICASUSTM Thinner Green Innovation (GR) Life Innovation (LI) Approx.50Billion yen as Revenue Target in FY 2025 Toray Industries, Inc. Integrated Annual Report 2020 36 to TORAYMYXIN™, which is used to treat patients the cause and status of disease by simultaneously with severe sepsis, its clinical study for the treatment investigating the expression of multiple genes. Toray of sepsis is conducted by our partner in North America. Group launched its research into DNA chips in 2000 The U.S. Food and Drug Administration (FDA) approved and developed DNA chips using a resin substrate inclusion of the patients with lung disorders associ- with a unique structure in 2005. This development ated with COVID-19 into this study, and Health Canada successfully increased the gene detection sensitiv- approved its temporary use for treatment. ity 100-fold compared with conventional DNA chips. In addition, we focus on the development of In 2007, it was later discovered that cancers release TRK-950 cancer immunotherapy and aim to com- RNA fragments called microRNA into the blood at mercialize and expand the DNA chip business. extremely low concentrations, yet still have markers As applications of advanced materials to the health- that correspond to specific types of cancers. Toray care field, we aim sales expansion of hygiene products Group’s DNA chips are the only technology that can including masks, functional textiles like hitoe™, and per- detect these fragments in high sensitivity, so were sonal protective clothing LIVMOA™ including infection adopted for a national project. We aim for the earli- control clothing. Wearable monitoring systems utilizing est possible commercial launch because there is no hitoe™ enables electrocardiogram (ECG) measurements question society requires a means of early cancer with high accuracy, and it facilitates an early detection of detection. arrhythmia through the long-term use and continuous measurements. Data acquisition by hitoe™ with long- term use was completed in a clinical research “Long- term ECG measurement to detect atrial fibrillation” at Development of TRK-950 Cancer Immunotherapeutic University of Tsukuba. LIVMOA™ protective clothing Toray Group’s TRK-950 cancer immunotherapeutic balances safety, durability, and comfort together at high is expected to emerge as a first-in-class antibody level to protect medical professionals and essential drug. We anticipate that this will be useful against workers from occupational risks. In 2017, Toray Group many types of cancers. TRK-950 has already been donated 10,000 units of personal protective clothing to shown to be effective against tumors in animal the Guinea Government as an Ebola countermeasure. models. In March 2017, we commenced Phase I We are currently addressing growth in demand for use clinical trials in the U.S.A. and France, which have as a COVID-19 countermeasure. *REMITCH® is a registered trademark of Torii Pharmaceutical Co., Ltd. Aiming for Early Cancer Detection with DNA Chips reported that, at the present time, there are no issues with safety. However, these are not the final results. In April 2019, we expanded the num- ber of clinical trial facilities currently studying the safety and efficacy of the drug in aims of applying for approval as a cancer treatment at the earliest DNA chips are a type of biotool that can predict possible time. D A Y O n e : 9 : 1 0 - 1 0 : 2 0 K o i c h i A b e E x e c u t i v e V i c e P r e s i d e n t & R e p r e s e n t a t i v e M e m b e r o f t h e B o a r d , C T O Toray Industries, Inc. Integrated Annual Report 2020 37 From Nanotechnology to Super Nanotechnology Fiber NANODESIGN® Thinner Discontinuous Characteristic Improvement NANOALLOY® Resin Finer Film PICASUSTM Thinner Social problem solving Approx.50Billion yen as Revenue Target in FY 2025 Green Innovation (GR) Innovation Life (LI) DAY One: 10:30-11:10 Nobuyuki Inohara Vice President, General Manager, Resins & Chemicals Divisionn Toray Industries, Inc. Integrated Annual Report 2020 38 Resins BusinessFurther Strengthening the Compounding BusinessThe resins business has commercialized amorphous res-in such as ABS, and crystalline resin, such as nylon, PBT, PPS, liquid crystal polyester (LCP), and TI polymer, and al-so sells TORAYCA® resin, a resin made by blending these resins and polymers with carbon fiber. Nylon and PBT are used in many automotive parts, while PPS, which is high added-value and highly heat-resistant, is made into prod-ucts that can replace metal parts. The resins business operates 19 bases in 10 countries around the world, and primarily engages in the compounding business in Asian countries. Since fiscal 2014, Toray has expanded produc-tion bases to Mexico, the Republic of Korea, and Hungary, and commenced compound production in India last year. The resins business policy during “AP-G 2022” continues to focus on further expanding these bases.xEV and 5G Applications are Growth MarketsThe production ratio of xEV (electric vehicles) is expected to reach 46% of total automobile produc-tion by 2025 (9% in 2020). PPS is used for xEV power control units, while nylon is used for hydrogen tank components. In addition, the evolution in advanced driver assistance systems (ADAS) is pushing greater sensor demand, which is in turn expected to increase demand for PBT. Moreover, the launch of 5G com-mercial services in Japan and other countries has led to anticipation for growth in low dielectric PBT with modest transmission loss and in highly heat-resistant PPS for 5G compliant smartphones and base stations. There is also an outlook for growth in demand for original LCP polymers developed by Toray for use in high-speed transmission flexible printed circuits (FPC).Value Chain of Resins BusinessWorktogether tobecomedevelopment partners tosolve social problemsToray’sbusinessdomainsCustomers’businessdomainsRaw materialPolymerizationsales ofbasepolymerCompoundingMolding, PartsAssemblyResins & Chemicals Toray Industries, Inc. Integrated Annual Report 2020 39 Maintaining the No. 1 Position in PPS and Expanding the High-performance ABS BusinessToray is the only integrated manufacturer of PPS mono-mers, polymers, and compounds in the world, and boasts the No.1 share of global PPS compound sales at 27%. PPS is expected to grow at 5% annually on the back of expanding demand from xEV, automotive electronic component, and light-weighting applications. During “AP-G 2022,” the Group will utilize its strengths of materials, integrated raw materials development capabilities, and a global network as a means of pro-posing total solutions that include design and processing methods, and of furthering business expansion. In addition, Toray maintains a 37% share of the global transparent ABS market. The global market for high-performance ABS, including transparent ABS, is forecasted to grow at 5% annually, so the Company is working to increase production capac-ity in Malaysia. Moreover, Toray is aiming for No.1 in high-performance ABS resins through the expansion of transparent ABS for medical use, ABS for automo-bile painting, and engineering plastic alloys.Promoting Chemical RecyclingAlong with using recycled materials, the resins business is also addressing a sustainable society by improving its recycling capabilities through the development of chem-ical recycling technologies that produce the same quality as the original products. Over the medium- to long-term, Toray will also consider developing biomass plastics, as well as biodegradable and marine-biodegradable resins.Chemicals BusinessExpansion Centered on the Main Raw Materials BusinessCentered on the main raw materials business, which handles the mainstay products of nylon and polyes-ter used in fibers, resins, and films, the chemicals business deploys businesses that can utilize technol-ogies in areas related to these products. These areas are broadly divided into three businesses. The basic chemicals business handles Caprolactam and tere-phthalic acid. The fine chemicals business handles pharmaceutical and agrochemical raw materials, fine particles, veterinary medicines, DMSO solvents and cleaning agents, and THIOKOL™ sealants. The aro-matic fine chemicals business handles products made by Soda Aromatic Co., Ltd., a joint-venture company with Mitsui & Co., Ltd., and those products are used in coffee, citrus drinks, and others.Focusing on 3D Printers, Agriculture, the Environment, and Veterinary MedicinesIn the growth business fields, Toray develops and commercializes PPS fine particles used in 3D printer modeling materials. With their superior powder prop-erties and uniform powder size distribution, PPS fine particles are expected to find use in automotive and aerospace applications. M-Dichlorobenzene, a raw material for agrochemicals, is made from a by-product of PPS resin raw material. Its manufacturing process has a comparative advantage in terms of cost, safety, and the environment, and is the reason Toray main-tains the No.1 global share. Moreover, the Company is working to create high-value for ammonium sul-fate, a by-product of lactam that is used as a nitrogen fertilizer, by modifying it into a form that is suited to mechanized agricultural spraying. In environment-related areas, Toray is focused on expanding THIOKOL™ sealants, which are used for high heat insulation multi-layered glass and con-tribute to energy-savings. In veterinary medicine, the Company is accelerating overseas deployment of the world’s first feline interferon and a feline renal function decline inhibitor.(FY)2019 Actual(IFRS)320.4410.0+28％2022 Target(IFRS)(Billion yen)(note) include transactionswithin the GroupChemicalsResins0100200300400500Revenue Targets in “AP-G 2022”Pursuit of Ultimate Performance in High Value-added Products in Growth Business Fields stations with the spread of 5G, expansion of xEV and automatic driving. We are also anticipating that demand for DFR will increase due to the downsiz- ing of circuit substrates and increases in fine-pitch In the films business, we are advancing the expan- in wiring circuits. A photoresist formed by a photo- sion of business and increases in revenue and profit sensitive resin in a film form, DFR is a material used with polyester (PET) films and battery separator films to form circuit boards for electronic components. (BSF) as the two supporting pillars of the business, in Strict quality is required of the PET film used for conjunction with broadening polypropylene (OPP) film DFR, such as high transparency that does not inhibit sales by their use in capacitor and packaging material light, reduced surface micro-scratches, and the con- applications. Polyphenylene sulfide (PPS) films and trol of foreign substances inside the film. We will aramid films are one-of-a kind, high-performance film proceed with product differentiation and maintain products. We are also widely deploying a lineup that a high market share by anticipating the increasing includes processed film products, such as self-adhe- sophistication of those quality requirements. sive protective films and clear metallized films. Based Toray’s proprietary nano-layering technology on the “polymer, design, and polymerization tech- enables about 1,000 layers in PICASUS™ film. nologies,” “film design and control technologies,” Stacking layers of different types enable this film to and “film manufacturing process technologies” that selectively reflect and transmit light of various wave- underpin these products, we are pursuing properties, lengths including ultraviolet, visible light and infrared such as heat resistance, dimension stability, trans- rays. We will promote PICASUS™ film in a wide parency and surface smoothness demanded of film range of fields, such as blue-light reduction, sensor products, and cost reductions to the utmost limits. cover applications, such as in-vehicle emblems, and heat-reflecting window frame applications. PET Film Focusing on MLCC and DFR The PET film LUMIRROR™ is a core growth-driv- ing business that boasts manufacturing and sales Strengthening Production Facilities of BSF in Europe for xEVs bases at six hub locations around the world and a Its strengths lying in a uniform fine pore structure No. 1 share of the market. This film is used in a based on polymer technology and an advanced film wide range of applications, such as information and structure based on film fundamental technology, our telecommunications, general industries, and pack- SETELA™ battery separator film (BSF) contributes aging materials. Especially during the “AP-G 2022” to the outstanding safety and high performance of period, armed with high quality control expertise in lithium-ion batteries. In addition, our unique technol- addition to the surface forming technologies cul- ogies in heat resistance and adhesive coatings have tivated with magnetic tapes in the 1990s, we are led to high safety, high reliability, and longer battery promoting business expansion of high-functional release PET films in fields where market growth can be expected, for example in multilayer ceramic capacitor (MLCC) release film and dry film photore- sist (DFR) applications. In addition to the increase in the number of ceramic layers and the number of units installed due to downsizing and higher capacity, further growth in MLCC demand is expected in the years to come against a backdrop of the increased functions of Demand for Battery Separator Films (billion m2/yr) Consumer applications Automotive applications annual growth rate over 20% 8.0 6.0 4.0 2.0 0 smartphones and the installation of additional base (FY) 2018 2019 2022 F i Toray Industries, Inc. Integrated Annual Report 2020 40 l m s D A Y O n e : 1 1 : 2 0 - 1 2 : 1 0 O s a m u I n o u e i S e n o r V i c e P r e s i d e n t , G e n e r a l M a n a g e r , F i l m s D v i i s i o n Toray Group Production Capacity of Battery Separator Films Enhanced Addressing of Sustainability Hungary In the films business, we are working to establish a (billion m2/yr) 1.0 0.5 0 increase about 20% increase about 30% recovery system for release films to enhance sus- tainability. At the present time, removing the coat- ing materials and resins from the release PET films has difficulties, and thus mainly waste treatment and thermal recycling are utilized. By establishing a recovery system, however, we will advance the construction of a circulation-type recycling system by utilizing the films for other materials, such as fibers, and encouraging their reuse as films. End of 2018 End of 2019 End of 2022 life. Since the demand for BSF in automotive appli- In the market for packaging materials, needs are cations is growing due to the expansion of xEVs in becoming more diversified and efforts to reduce the European market, Toray plans to strengthen its food waste are increasing across the world, and production facilities in Hungary and start operations thus the functions and quality required of packag- in 2021. In addition to IoT devices, the range of con- ing materials are becoming more sophisticated. By sumer applications is also expanding to include sta- combining our film products and film processing tionary fuel cells and power tools. technologies, we are providing optimal products for all packaging applications and contributing to the extended shelf lives of food products. OPP Film: Strengthening Production Facilities in Automotive Capacitors Combining the contradictory characteristics of thin- ness and the high voltage resistance, TORAYFAN™ polypropylene (OPP) film captured the top share in the automotive capacitor film market. There are strong needs for smaller and lighter power control units (PCUs) that drive xEV motors and film capac- itors, and by 2022 we will increase the production capacity of films for automotive capacitors to 1.6 times the current scale. In addition, we will focus on high-functional packaging materials, having intro- duced the latest five-layer laminated, high-speed film production facility in the U.S.A. to meet the increasingly diverse and sophisticated customer needs in the food packaging market. Toray Industries, Inc. Integrated Annual Report 2020 41 (FY)201620172018201920192022Target316.9380.0+20%(Billion yen)0100200300400IFRSJ-GAAPRevenue Targets in “AP-G 2022” & c i n o r t c e l E Information Materials Implementing “The One” Strategy Leveraging these strengths, Toray will work to Under “AP-G 2019,” we expanded businesses maintain and expand its market share while focusing accompanying growth in OLED and semicon- on the development and launching of products that ductor memory, electronic components for significantly contribute to weight, size and cost reduc- telecommunication, as well as greater use of tions, including multilayer flexible substrates, multi- flexible circuit substrates for large TVs. As for layer micro coils, and high-density flexible substrates printing applications, we have pivoted to growth that concentrate multiple functions into one package. markets like label and packaging printing, in light of digitalization decreasing the use of general printing materials. Under “AP-G 2022,” we will implement “The One” Strategy, which consists of “First One:” early adoption of our products through rapid development using our wide Display Field: Develop Wide-ranging Applications for Advanced Materials in the OLED Display Field range of advanced technologies and by identifying In the display field, Toray aims to increase sales of future customer needs based on our strong relation- OLED display materials, for which demand is grow- ship of trust with them; “Only One:” the creation of ing given the higher ratio of OLED displays used in high barrier-to-entry (intellectual property networks, smartphones and TVs. Toray’s photosensitive poly- high quality, stable supply, cost competitiveness, imide (featuring high reliability, pattern shape control, customer support); and “Number One:” the achieve- and high sensitivity) has become the industry stan- ment of industry standardization by leveraging our dard as an RGB insulation and planarization material. track record and expertise worldwide. In addition, Toray is working to expand busi- Semiconductor & Electronic Component Field: Timely Launching New Products into Growth Business Fields 5G and IoT are now poised for rapid growth in the semiconductor and electronic component fields. nesses for organic light-emitting materials, flexible board materials, and conductive paste while devel- oping a wide array of applications for advanced materials in the OLED display field. Advanced Materials for Improved OLED Displays Insulation Layer and Planarization Layer Materials Organic Light-Emitting Material High-frequency devices used in these areas require Photosensitive polyimide • High electron mobility low dielectric constant materials. In response, we will aggressively expand our businesses using our advanced polymer design technologies and world-leading materials development capabilities. STEMCO is a joint venture with the Samsung Group boasting advanced technologies and cost competitiveness that produces and sells flexible cir- cuit board (chip on film). In addition, Toray Group is a leading maker of base films like Kapton® and sput- tered/copper-plated Flexible Copper Clad Laminate (FCCL), and we have established a supply chain completely within the Group that includes a chip on film IC-mounting company. De facto standard • High reliability • Pattern shape control • High sensitivity • High efficiency Touch sensor panel TFT board Flexible Board Material Conductive Paste Non-photosensitive Polyimide “RAYBRIDTM” • Ultra-high heat resistance • Fine-pattern wiring • Transparency • Low resistance Toray Industries, Inc. Integrated Annual Report 2020 42 Printing Field: Making Printing Systems with Zero Environmental Impact the Global Standard For printing applications, VOCs (volatile organic com- pounds) and organic solvent waste liquid have been highlighted as environmental issues. In response, our Waterless Plate significantly reduces VOC emis- sions compared to conventional printing methods. In addition, we are working to realize a shift to printing systems with low environmental impact by develop- ing mainly water-soluble ink and aqueous cleaning solutions that enable completely VOC-free printing systems. We will steadily work to make printing sys- tems with zero environmental impact as the global standard by earnestly marketing them to end-use customers and rapidly spreading their use based on printing company specifications. Accelerate Expansion into the Life Innovation Growth Field Toray will also focus on X-ray scintillator panels as a new growth field centered on Life Innovation. These panels use sensors to generate images by con- verting irradiated X-rays into visible light. However, conventional methods cause light dispersion at con- version layers, therefore impeding the generation of clear images. We have significantly improved image definition by using our proprietary pixelated scintilla- tor to solve this problem. This will greatly contribute to the early detection of diseases such as breast cancer. In addition, we will aggressively promote var- ious materials such as plastic optical fibers that fea- ture high light transmission efficiency and are used for endoscope light guides, as well as materials for displays, sensors, and circuits that must be compact and lightweight for wearable devices. DAY One: 12:20-13:00 Hiroshi Enomoto Vice President, General Manager, Electronic & Information Materials Division Toray Industries, Inc. Integrated Annual Report 2020 43 (FY)20172018201920192022Target67.4100.0+48%(Billion yen)040608010020IFRSJ-GAAPOthersPrintingDisplaySemiconductor &Electronic ComponentsRevenue Targets in “AP-G 2022”DAY two: 9:30-10:20 Mitsuo Ohya Senior Vice President, General Manager, Fibers & Textiles Division Toray Industries, Inc. Integrated Annual Report 2020 44 Fibers & Textiles Still a Growth IndustryDemand for fibers and textiles is expected to grow at a rate of 3% per year as the population grows, people’s quality of life improves, and the consumption of mid-dle-income demographic groups mainly in emerging countries increases. Fibers and textiles, which evolved not only for clothing but also for various applications, including industrial, civil engineering, agriculture, and life sciences, are a growth industry globally. Toray antici-pates that the fibers and textiles industry will continue to grow, centering on polyester, at a rate that may outpace world population growth. Under these circumstances, the Company is ranked 15th in the world in terms of the production capacity of the three major synthetic fibers (nylon, polyester, and acrylic), but we estimate that we have the largest sales in the world in the synthetic fibers business which deploys textile business and integrated business from fiber and textiles to garments.Growth by Three-dimensional Business ModelToray Group’s fibers and textiles business features the world’s only three-dimensional business model that enables the provision of all kinds of solutions by freely combining its strengths which make three axes: (1) tech-nological development and variety of products; (2) vertical integration in the supply chain; and (3) global business network. Based on this unique business model, “global business expansion in growth fields and regions,” “business expansion by addressing sustainability” and “advancement of business model” are regarded as growth drivers under “AP-G 2022,” and the Company will enhance “global business expansion,” “materials development” and “value chain” at multiple levels. Specifically, we will strengthen the nonwoven fabric, non-woven material created using ultra-fine fibers in an "island in the sea" configuration, and the airbag businesses as well as the integrated business from fiber and textiles to garments in the apparel-use, and aim to achieve sustain-able growth through differentiation strategies. Focus on Nonwoven Fabrics, Nonwoven Material created using Ultra-fine Fibers in an “island in the sea” Configuration, and Airbags, etc.In a global nonwoven fabric market that is growing at an annual rate of 5%, we are promoting to develop differen-tiated products for key applications, including those for hygiene products, filters, and automobiles, with the aim of building “a unique business framework of nonwoven fabric, covering spunbond and staple nonwoven fabric.” In the hygiene product applications, we will strengthen Fibers & Textiles Our Strength: World’s only Three Dimensional Business Model Global Business Network North Africa South Asia Americas Global Assets & Global Operation Europe ASEAN Korea China Japan Nylon Polyester Acrylic Technological Development & Variety of Products Industrial FY Advanced Materials PPS PTEE PLA PTT Nano Nonwoven Fibers Textiles Garments Wide Range of Business Areas & Human Network Microfiber SB Material Variety & Innovative Products Toray Industries, Inc. Integrated Annual Report 2020 45 innovative product development through tie-ups with customers and build a local production for local consump-tion supply system that responds to increasing demand in various parts of Asia. In filter applications, we will work to improve the performance of polyester nonwoven fabric as an environmentally friendly material for use such as industrial dust collectors. In automotive applications, we will develop nonwoven fabrics for sound-absorbing mate-rials, which contribute to noise reduction inside vehicles. In the case of nonwoven material created using ultra-fine fibers in an “island in the sea” configura-tion, we will continue to enhance brand value with Ultrasuede® and Alcantara® at the core of two brand strategies, targeting the high-end markets for a variety of applications, such as automobiles, fashion apparel, and interiors. We will also increase environmental value by developing plant-based material, for example. In airbags, given added impetus by more stringent installation regulations primarily in emerging countries and stronger collision safety regulations, we will proac-tively expand our business with a production and sales structure capable of providing airbag fabrics of same qual-ity from six locations around the world in a timely manner. As we acquired Alva, an airbag cushion manufacturing company, in fiscal 2019, we will also firmly capture the needs for more compact and complex sewn products and incorporate Alva’s cushioning knowledge into the base fabric design to enhance our proposal capabilities.Addressing SustainabilityBased on the Toray Group Sustainability Vision, we will expand environmentally friendly materials from the per-spectives of saving energy, new energy, plant-based, water treatment, air purification, low environmental impact, and recycling. In materials related to the med-ical and healthcare fields—based on the Sustainability Vision as well, from the three perspectives of improv-ing the quality of medical care, health maintenance and longevity, and personal safety—we aim to expand our business by addressing sustainability with hitoe™, the performance fabric that monitors workers and defend from heat, HugFit™ for breast cancer patients, and LIVMOA™ single-use protective clothing.Strengthening the Integrated Business in the Apparel-useWith regard to the advancement of the business model, an important issue is to strengthen the “integrated business from fiber and textiles to garments” that enable us to continue to deepen our integrated supply chain for fibers and textiles based on applications and end customer needs, and we will continue to deepen our integrated supply chain in the Chinese market. In ASEAN countries, we will work to extend and upgrade the supply chain by making use of converting busi-nesses in Vietnam, in addition to Indonesia, Malaysia, and Thailand. In South Asia, we will build a supply chain in anticipation of growth in the Indian market.(FY)20172016201520142013201220112018201920192022TargetImage Around2030831.059.676.01,030.0(Billion yen)06009001,2001,500300(Billion yen)0609012015030IFRSJ-GAAPRevenue Targets in “AP-G 2022”Net Sales/Revenue (left)Operating Income/Core Operating Income (right)“AP-G 2013”“AP-G 2016”“AP-G 2019”“AP-G 2022”Long-term Corporate Vision “AP-Growth TORAY 2020”“TORAY VISION 2030”VerticalIntegrationin Supply ChainC a r b o n F i b e r Composite Materials Expectations for New Business Opportunities air taxis, large drones, and other “flying cars.” At the same time, North America is projected to lead growth in demand for rockets and satellites. Despite the mat- Although the coronavirus pandemic has become uration in demand for golf clubs and fishing rods seen a major factor of volatility in the demand for carbon in developed countries, bicycles are expected to drive fiber composite materials, the revolution in mobility, growth in sports applications. Industrial applications are expansion of new energy, and environmental needs projected to see expanded use of carbon fibers as a allow Toray Group to anticipate new business oppor- result of larger wind turbine blades, which decrease tunities. Likewise, the Group projects a return to a path power generation costs, as well as see compressed for growth around 2022 and expansion through 2030 hydrogen gas (CHG) tanks and carbon fiber electrode at a CAGR of around 8%. In parallel with the rise in substrates grow into major applications with the spread demand for high-performance aircraft, aerospace appli- of fuel cell vehicles (FCVs). cations are expected to see new demand emerge for Carbon fiber demand outlook Overall Overall demand is expected to grow at a CAGR of 8% until 2030 Aerospace In addition to commercial aircrafts, demand will be created by the new market for “Flying Cars,” such as air taxis and large drones, and demand for rockets, satellites, etc. will grow mainly in North America Sports Bicycle will lead the growth while golf shafts and fishing rod applications will mature in developed countries Industrial In addition to increased adoption of carbon fibers for wind tur- bine blade applications due to its size increase, hydrogen tanks and FC substrates will grow into major applications with the spread of FCVs (K tons) 200 Industrial Sports Aerospace (Toray’s Estimate) CAGR (’19-’30) 183 8% 130 106 79 69 63 150 100 50 0 (FY) ‘17 ‘18 ‘19 ‘22 ‘25 ‘30 Toray Industries, Inc. Integrated Annual Report 2020 46 Providing the Best Cost Performance Toray Group possess a business structure capable of proposing and supplying regular tow carbon fibers with the world’s highest performance and large tow carbon fibers with dominating cost competitiveness. Likewise, the Group maintains the top global market shares* of regular tow at 48% and large tow at 51%, making up 49% share of the entire market. In addition to our rich experience in thermosetting matrix resins, the Group also has the technical development capabilities to design and propose next-generation thermoplastic resins with superior formability. Moreover, the Group has built strong ties of mutual trust with leading com- panies around the world based on 50 years’ worth of accumulated data and a global supply network. Along with continuing to deliver easily moldable structural materials that exhibit their performance exactly as designed, the Group will propose high-per- formance solutions that cannot be achieved with other materials and competitor products. At the same time, the Group will provide materials with the highest level of cost performance by improving productivity through digital transformation (DX), developing new processes 9% that realize higher added-value at a cost equal to or 3% 5% below that of existing products, and developing high-performance carbon fibers and new matrix res- ins. Moreover, the Group will propose pricing methods that reflect the economic value of carbon fibers with aims of providing a stable cost that makes it easy for customers to procure them over the long-term. * Market shares are accurate as of fiscal 2018 Applying Excess Capacity Due to the Impact of Reduced Boeing 787 Production Rates to other Applications and Making thorough Cost Reductions Capturing Business and Promoting a de Facto Standard for CHG tanks and Electrode Substrates With mass production of FCVs expected to begin During “AP-G 2022,” the impact of reduced Boeing around 2021 and onward, Toray Group foresees 787 medium-sized passenger aircraft production rates accelerating growth in demand for extra-high pres- will be inevitable. In response, Toray Group will divert sure tanks suited to hydrogen fuel refilling. Because the resulting excess capacity to satellites and CHG tank hydrogen is highly flammable and transparent, this a applications in order to minimize new capital expendi- growth business field where our products for pressure tures. Meanwhile, the Group will go beyond structural vessel applications with a nearly 20-year track record, components to enhance materials development for commanding share, and earned trust can exhibit their seats and other interior parts. Initiatives for capturing strengths. Moreover, our molded carbon fiber materials new aircraft programs will remain an issue of top pri- have also led the world for use in FCV electrode sub- ority. The Group will also strengthen its approach to strates. Electrode substrates require a high functionality start-ups developing small aircrafts because we see and reliability suitable for gas diffusion. Leveraging our the growing need for further weight savings, particu- strengths of 40 years of experience and the world’s larly for single aisle aircrafts, as an opportunity. largest supply capabilities, the Group will continue to Moreover, the Group will promote further cost com- promote joint developments in this area with leading petitive enhancements through radical cost reductions. automotive manufacturers. Accelerating Enhancements to Wind Turbine Blade Production Facilities Carbon fibers for wind turbine blades, anticipated as a new growth driver, are projected to grow at a CAGR of 13% during “AP-G 2022.” The lengths of wind turbine blades are being extended as the most effective way of increasing wind power generation efficiency, so the adop- tion of light weight, highly rigid carbon fiber reinforced plastic (CFRP) blades is accelerating. Given its strengths of cost competitiveness and high-quality, Toray Group’s Zoltek holds an approximately 60% global share of the large tow carbon fiber market for wind turbine blade appli- cations. The Group aims to further expand this business by actively participating in the Chinese market and the growing number of new offshore wind turbine programs. D A Y t w o : 1 0 : 3 0 - 1 1 : 2 0 M i n o r u Y o s h i n a g a D e p u t y G e n e r a l M a n a g e r , T o r a y c a & A d v a n c e d C o m p o s i t e s D i v i s i o n Toray Industries, Inc. Integrated Annual Report 2020 47 Revenue Targets in “AP-G 2022”236.9275.022.624.09.5%8.7%Decreasein aircraftdemandGrowthexpansionStrengtheningcostcompetitivenessOthers(Billion yen)• 787 production rate reduction• Termination of A380 production• Expansion of growth drivers• Variable cost reduction• Fixed cost reductionExchange rate: 105 JPY/USD (FY2022)(FY)2019Actual(IFRS)CoreOperatingIncomeRevenue2022Target(IFRS)Aim for 24 billion yen in revenue in FY2022 by covering the decrease in demand for commercial aircraft through expanding the growth driver businesses, strengthening cost competitiveness and increasing sales for other applications, etc. Becoming an Excellent Company in the Water Treatment Business Increasing RO Membrane Production Capacity by 1.6 Times Because it is becoming more difficult to secure the Led by China and the Middle East, RO membrane required quantities and quality of water by natural market growth is projected to achieve a CAGR of purification due in part to rapid population growth, approximately 7% in response to global water short- water treatment technologies have become essen- ages and growing concerns over the environment. tial in the 21st century. Water treatment mem- In China, Toray Group is seeing more wastewater branes contain tiny pores and are categorized as RO treatment projects as a result of increasingly strict (reverse osmosis), NF (nanofiltration), UF (ultrafiltra- environmental regulations, and experiencing greater tion), and MF (microfiltration) membranes depend- demand for advanced water treatment due to higher ing on the separation target. Toray Group develops, drinking water quality standards. Meanwhile, in the manufactures, and sells all of these membrane Middle East, the Group is seeing a dramatic increase products in-house. in large-scale seawater desalination projects using Used for seawater desalination and other appli- energy efficient RO membranes in place of ther- cations, Toray Group has steadily expanded RO mal distillation technologies in response to growing membranes as a core growth driving business by demand for water due to population growth and developing and launching new high-performance industrial promotion measures. Against this back- products to the market, enhancing global produc- drop, Toray Group will increase RO membrane pro- tion and sales capabilities, extending synergy with duction capacity by 1.6 times compared with fiscal former Woongjin Chemical, which was acquired in 2019 over the course of “AP-G 2022.” Moreover, 2014, and establishing a stable production structure the Group will continue to thoroughly enhance cost at a new location in the Middle East. Toray Group structures and non-price competitiveness, including is also strengthening the business structure for proposal capabilities and technical services, in order UF and MBR (membrane bioreactor) membranes to maintain our top global share. by developing new sales channels and launching new products to the market. In terms of the plant and equipment business, the Group is working to strengthen the structure of the EPC (Engineering, Procurement, Construction) sector centered on Suido Kiko. As a result, net sales in the overall water treatment business for fiscal 2019 grew 1.7 times compared with fiscal 2013. Notably, net sales in the RO membrane business grew 2.1 times. Under “AP-G 2022,” the Group aims to expand sales and business for UF and MBR products by leveraging the global sales network for RO membranes, which maintain one of the largest global shares, and to connect this growth to deployment of total solu- tions (IMS). Water Treatment Toray Industries, Inc. Integrated Annual Report 2020 48 RO Element for Industries Sales Volume (FY2013=100)Net Sales of Water Treatment Business (FY2013=100)(FY)2019Actual2016Actual2013Actual2022Target2019Actual(J-GAAP)2016Actual(J-GAAP)2013Actual(J-GAAP)2022Target(IFRS)(Billion yen)Brackish waterUltrapureWaste waterreclamationSea water010152025305(FY)Approx. 2.3 timesgrowth in 10 yrs. since 2013Further salesexpansion in SeaWater and WasteWater Reclamationapplication (in whichToray is competitive)(Billion yen)ROUFMBRSystems0510152025D A Y t w o : 1 1 : 3 0 - 1 2 : 1 0 H i r o s h i O t a n i i S e n o r V i c e P r e s i d e n t , G e n e r a l M a n a g e r , W a t e r T r e a t m e n t & E n v i r o n m e n t D v i i s i o n Doubling the UF Membrane Business with “New Tips” offers easy on-site handling, and delivers price com- petitiveness. This move is aimed at firmly capturing replacement demand, which accounts for one-quar- UF membranes are used for a wide range of appli- ter of the entire market, as a means of more than cations, including drinking and industrial water pro- doubling the MBR membrane business compared duction, sewage and wastewater recycling, and with fiscal 2019. pre-treatment for RO membrane seawater desalina- tion. In response to growing global demand for sewage and wastewater treatment, the UF membrane market is projected to grow at a CAGR of approximately 10%. Leveraging Expertise to Accelerate IMS Deployment In the UF membrane business, we developed New More recently, the fields of water purification, Tips, a new product that reduces overall EPC costs for seawater desalination, and sewage and waste- plants by 10%. “New Tips” was realized by increasing water recycling have focused their attention on the membrane area by 25% for the same housing size IMS (Integrated Membrane System), an approach based on a new technology that maintains the mem- that combines various types of membranes. Toray brane strength even with thinner hollow-fiber mem- Group develops all types of membranes in-house branes. With New Tips as a strategic product, Toray and has intimate knowledge on the characteristics Group is strengthening collaboration with partner of each, thereby providing us with the capability to companies, especially in China and ASEAN, in aims of design the optimal system for the water source and doubling business compared with fiscal 2019. application, and to achieve the highest performance at low cost. Leveraging these strengths, the Group will steadily grow our IMS track-record. Doubling the MBR Business with “NHP” MBR membranes are a submerged type membrane module used in the membrane bioreactor process, an advanced sewage and wastewater treatment technology, and are increasingly being adopted for sewage and wastewater recycling. Therefore, the MBR membrane market is projected to see con- tinued growth at a CAGR of approximately 10%. Although our MBR membranes have captured a growing share of the market due to their high per- meability and durability, Toray Group is focused on expanding sales of “NHP,” a new product that saves space, reduces energy consumption by 30%, Toray Industries, Inc. Integrated Annual Report 2020 49 RO Element for Industries Sales Volume (FY2013=100)Net Sales of Water Treatment Business (FY2013=100)(FY)2019Actual2016Actual2013Actual2022Target2019Actual(J-GAAP)2016Actual(J-GAAP)2013Actual(J-GAAP)2022Target(IFRS)(Billion yen)Brackish waterUltrapureWaste waterreclamationSea water010152025305(FY)Approx. 2.3 timesgrowth in 10 yrs. since 2013Further salesexpansion in SeaWater and WasteWater Reclamationapplication (in whichToray is competitive)(Billion yen)ROUFMBRSystems0510152025 OUR FIRST IR DAY EVENT We appreciate your continued understanding of our manage- ment and investor relations activ- ities. In order to provide more information about our strategy for growth in each of our businesses based on “Project AP-G 2022,” our medium-term management program announced in May of this year, we recently held “TORAY IR Day: Medium-term Management Program, “Project AP-G 2022” Business Briefing by Segments,” Hideki Hirabayashi Corporate Vice President, Investor Relations and medium-term strategy for respective businesses through this beneficial meeting.” On the other hand, other com- ments pointed out future chal- lenges: “Issues such as the correlation between business strategy and profit growth, and verification of capital invest- ment effectiveness were not sufficiently addressed.” We will reference these valuable opinions in our management and IR activities in the future. We would like continue to hold IR events and other activities that are opportunities for fulfilling dia- logue with all of our shareholders and investors. We sincerely request your further support and under- standing for our management and IR activities. The titles and division names used throughout the article are those used on this recently held IR Day. There may be variations from the time of publication of this report. our first ever such event. Given the ongoing COVID-19 pandemic, we pro- vided the event live over the Internet to an audi- ence of some 150 viewers in total. We would like to take this opportunity to express our appreciation to all those who took time from their busy sched- ules to attend IR Day, and also to everyone who streamed the event from our homepage. In our post-event participant survey, we received favorable comments to the effect of “I was able to renew my understanding of positioning Toray Industries, Inc. Toray Industries, Inc. Integrated Annual Report 2020 Integrated Annual Report 2020 50 50 Organization (As of July 1, 2020) Board of Directors President and Representative Member of the Board, Representative Member of the Board Corporate Strategic Planning Division Representative from Overseas General Administration & Communications Division Legal & Compliance Division Human Resources Division Finance & Controller’s Division Executive Committee Quality Assurance Division Board of Corporate Auditors Corporate Auditors Corporate Auditors Office Auditing Dept. Intellectual Property Division Information Systems Division Purchasing & Logistics Division Corporate Marketing Planning Dept. Global Environment Business Strategic Planning Dept. Life Innovation Business Strategic Planning Dept. Branches Affiliated Companies Division Fibers & Textiles Division Resins & Chemicals Division Films Division Torayca & Advanced Composites Division Electronic & Information Materials Division Pharmaceuticals & Medical Products Division Water Treatment & Environment Division Technology Center Manufacturing Division Engineering Division Research & Development Division Toray Industries, Inc. Integrated Annual Report 2020 51 Management systemMembers of the Board and Corporate Auditors (As of June 23, 2020) President and Representative Member of the Board Akihiro Nikkaku Representative Member of the Board Yukichi Deguchi Representative Member of the Board Koichi Abe Representative Member of the Board Mitsuo Ohya Member of the Board Satoru Hagiwara Member of the Board Masahiko Okamoto Member of the Board Minoru Yoshinaga Member of the Board Kazuyuki Adachi Toray Industries, Inc. Integrated Annual Report 2020 52 Member of the Board (Outside) Ryoji Noyori Member of the Board (Outside) Kunio Ito Member of the Board (Outside) Susumu Kaminaga Member of the Board (Outside) Kazuo Futagawa Corporate Auditor Toru Fukasawa Corporate Auditor Shogo Masuda Corporate Auditor (Outside) Toshio Nagai Corporate Auditor (Outside) Kazuya Jono Corporate Auditor (Outside) Hiroyuki Kumasaka Toray Industries, Inc. Integrated Annual Report 2020 53 Management Team (As of June 23, 2020) Members of the Board President and Representative Member of the Board Akihiro Nikkaku 1973 Joined the Company 2001 General Manager, Engineering Division; General Manager, Second Engineering Dept. 2002 Vice President (Member of the Board) 2004 Senior Vice President (Member of the Board) 2006 Senior Vice President (Member of the Board & Member of the Executive Committee) 2007 Executive Vice President and Representative Representative Member of the Board Koichi Abe 1977 Joined the Company 2004 General Manager, Aichi Plant 2005 Vice President (Member of the Board) 2009 Senior Vice President (Member of the Board) 2011 Senior Vice President (Member of the Board & Member of the Executive Committee) 2013 Senior Vice President and Representative Member of the Board Representative Member of the Board Yukichi Deguchi 1973 Joined the Company 2009 Assistant General Manager, Research & Development Division 2009 Vice President (Member of the Board) 2012 Senior Vice President (Member of the Board) 2014 Senior Vice President (Member of the Board and Member of the Executive Committee) 2018 Executive Vice President and Representative Member of the Board 2014 Executive Vice President and Representative Member of the Board 2010 President and Representative Member of the Board 2020 President and Representative Member of the Board, Chief Executive Officer, Chief Operating Officer (incumbent) Member of the Board 2020 Executive Vice President (Representative Member of the Board) (incumbent) 2020 Executive Vice President (Representative Member of the Board) (incumbent) Representative Member of the Board Mitsuo Ohya 1980 Joined the Company 2009 General Manager, Industrial & Textile Fibers Division 2012 Vice President (Member of the Board) 2014 Retired from Vice President (Member of the Board) President and Representative Member of the Board, Toray International, Inc. 2016 Senior Vice President (Member of the Board & Member of the Executive Committee) 2020 Executive Vice President (Representative Member of the Board) (incumbent) Member of the Board Satoru Hagiwara 1981 Joined the Company 2012 General Manager, Industrial Films Division; Chairman, Toray Films Europe S.A.S.; Chairman, Toray Plastics Europe S.A. 2012 Vice President (Member of the Board) 2014 Senior Vice President (Member of the Board) 2017 President and Representative Member of the Board, Toray Advanced Film Co., Ltd. 2020 Senior Vice President (Member of the Board) (incumbent) Member of the Board Kazuyuki Adachi 1980 Joined the Company 2017 Director, Toray Industries (Thailand) Co., Ltd.; President, Luckytex (Thailand) Public Company Limited; Chairman, Thai Toray Textile Mills Public Company Limited 2018 Senior Vice President (Member of the Board) 2020 Senior Vice President (Member of the Board) (incumbent) Member of the Board Minoru Yoshinaga 1979 Joined the Company 2008 General Manager, Manufacturing Division (Torayca & Prepreg Manufacturing, ACM Technology Dept.) 2011 Vice President (Member of the Board) 2015 Chief Executive Representative for the Americas; Chief Representative for the Americas; Chairman, Toray Holding (U.S.A.), Inc.; President, Toray Industries (America), Inc.; General Manager, Torayca & Advanced Technology and Manufacturing for the Americas 2019 General Manager, Torayca & Advanced Composite Division (Carbon Fiber Business Strategy) 2020 Senior Vice President (Member of the Board) (incumbent) Member of the Board Masahiko Okamoto 1986 Joined the Company 2009 Vice President (Member of the Board), Toray Industries (Malaysia) Sdn. Berhad; Vice President (Member of the Board), Penfabric Sdn. Berhad; General Manager on Special Assignment, Finance & Controller’s Division (Finance & Controller’s Chief for Malaysia) 2011 General Manager on Special Assignment, International Division 2013 General Manager, Finance Dept. 2017 General Manager, Controller’s Dept. 2020 Corporate Vice President (Member of the Board) (incumbent) Member of the Board (Outside) Kunio Ito 2002 Dean, Graduate School of Commerce and Management and Faculty of Commerce and Management, Hitotsubashi University 2004 Executive Vice President and Board Member, Hitotsubashi University 2013 Director, Kobayashi Pharmaceutical Co., Ltd. (incumbent) 2014 Director, Seven & i Holdings Co., Ltd. (incumbent) Vice President (Member of the Board) of the Company 2018 Research Professor, Department of Business Administration, Hitotsubashi University Business School (incumbent) 2020 Member of the Board of the Company (incumbent) Member of the Board (Outside) Ryoji Noyori 1997 Dean, Graduate School of Science and School of Science, Nagoya University 2001 Director, TAKASAGO INTERNATIONAL CORPORATION (incumbent) 2003 President, RIKEN 2004 Special Professor, Nagoya University (incumbent) 2015 Director-General, Center for Research and Development Strategy, Japan Science and Technology Agency (incumbent) Vice President (Member of the Board) of the Company 2020 Member of the Board of the Company (incumbent) Member of the Board (Outside) Susumu Kaminaga 1969 Joined Sumitomo Precision Products CO., LTD. 1995 Representative Director, Surface Technology Systems Ltd. 2000 Director, Sumitomo Precision Products CO., LTD. 2002 Managing Director, Sumitomo Precision Products CO., LTD. 2004 President, Sumitomo Precision Products CO., LTD. 2012 Senior Advisor, Sumitomo Precision Products CO., LTD.; Representative Director, SK Global Advisers Co., Ltd. (incumbent) 2012 Director, DEFTA Capital (incumbent) 2016 Outside Director, Olympus Corporation (incumbent) 2020 Member of the Board of the Company (incumbent) Member of the Board (Outside) Kazuo Futagawa 1980 Joined the Ministry of Health and Welfare 2012 Director-General of Minister’s Secretariat, the Ministry of Health, Labour and Welfare 2014 Director-General, Health Policy Bureau, the Ministry of Health, Labour and Welfare 2015 Vice-Minister of Health, Labour and Welfare 2017 Retired from Vice-Minister of Health, Labour and Welfare 2018 Special Advisor on Policy, Social Security Reform Office, Cabinet Secretariat 2020 Member of the Board of the Company (incumbent) Corporate Auditors Corporate Auditor Shogo Masuda 1975 Joined the Company 2006 Assistant General Manager, Affiliated Companies Division; General Manager, Affiliated Companies Administration Dept.; General Manager on Special Assignment, Corporate Strategic Planning Division 2007 Vice President (Member of the Board) 2011 Senior Vice President (Member of the Board) 2016 Senior Vice President (Member of the Board and Member of the Executive Committee) 2017 Corporate Auditor (incumbent) Corporate Auditor Toru Fukasawa 1978 Joined the Company 2003 Executive Officer, Chori Co., Ltd. 2005 General Manager on Special Assignment, Corporate Strategic Planning Division; General Manager on Special Assignment, Investor Relations Dept. 2006 General Manager, Controller’s Dept. 2010 Chief Executive Representative for Americas; Chief Representative for America; Chairman, Toray Holding (U.S.A.), Inc.; President, Toray Industries (America), Inc. 2012 Vice President (Member of the Board) 2015 Senior Vice President (Member of the Board) 2018 Senior Vice President (Member of the Board and Member of the Executive Committee) 2020 Corporate Auditor (incumbent) Toray Industries, Inc. Integrated Annual Report 2020 54 Outside Corporate Auditor Toshio Nagai 2008 Chief Research Officer, Supreme Court 2012 President, Hiroshima High Court 2013 President, Osaka High Court 2014 Mandatorily retired Registered as a lawyer (The Dai-ichi Tokyo Bar Association) Takusyou Sogo Law Office (incumbent) Outside Corporate Auditor Kazuya Jono 1977 Joined Mitsui Bank, Limited 2005 Executive Officer, Sumitomo Mitsui Banking Corporation 2007 Managing Executive Officer, Sumitomo Mitsui Banking Corporation 2010 Senior Managing Director, Sumitomo Mitsui Banking Corporation 2015 Outside Corporate Auditor of the 2012 Retired Company (incumbent) 2016 Outside Corporate Auditor, SUMITOMO CORPORATION (incumbent) Representative Director, President & CEO, Citibank Japan Ltd. 2014 Retired 2015 Outside Corporate Auditor of the Company (incumbent) Outside Corporate Auditor Hiroyuki Kumasaka 1973 Joined FUSO Audit Corporation (later MISUZU Audit Corporation) 2007 Chairs of the Board of Council; Head, Tokyo Office, the Audit Corporation Representative Liquidator, the Audit Corporation 2008 Outside Corporate Auditor, MATSUDA SANGYO CO., LTD. 2011 External Corporate Auditor of the Board, Japan Airlines Co., Ltd. 2015 Outside Audit and Supervisory Committee Member, MATSUDA SANGYO CO., LTD. 2019 Outside Corporate Auditor of the 2019 Outside Corporate Auditor, Brother Company (incumbent) Industries (incumbent) President, Vice Presidents, and Executive Fellow President Akihiro Nikkaku Executive Vice President Koichi Abe Executive Vice President Yukichi Deguchi Executive Vice President Mitsuo Ohya President, Chief Executive Officer, Chief Operating Officer Executive Vice President, Intellectual Property Division, Global Environment Business Strategic Planning Dept., and Life Innovation Business Strategic Planning Dept.; Technology Center; Toray Human Resources Development Center Executive Vice President, Corporate Strategic Planning Division; Quality Assurance Division; Legal & Compliance Division (Security Trade Administration Dept.), HS Business Development Dept. Executive Vice President, Vice President, Marketing and Sales; Corporate Marketing Planning Dept., and branches; Affiliated Companies Division Senior Vice President Hiroshi Otani Senior Vice President Satoru Hagiwara Senior Vice President Kazuyuki Adachi Senior Vice President Minoru Yoshinaga Senior Vice President, Water Treatment & Environment Division; Chairman, Toray Asia Pte. Ltd.; Chairman, Toray Membrane (Foshan) Co., Ltd. Senior Vice President, Films Division; Chairman, Toray Films Europe S.A.S. Senior Vice President, Purchasing & Logistics Division; Manufacturing Division Senior Vice President, Torayca & Advanced Composites Division; Chairman, Toray Carbon Fibers Europe S.A. Senior Vice President Yasuo Suga Senior Vice President Hirofumi Kobayashi Senior Vice President Kazuhiko Shuto Senior Vice President, Chief Representative for Europe; President, Toray Industries Europe GmbH Senior Vice President, Pharmaceuticals & Medical Products Division; Pharmaceuticals & Medical Products Division (Technology & Manufacturing) Senior Vice President, Chief Representative for China; Beijing Office; Chairman and President, Toray Industries (China) Co., Ltd.; Chairman,Toray Sakai Weaving & Dyeing (Nantong) Co., Ltd. Senior Vice President Tetsuya Tsunekawa Senior Vice President, Research & Development Division; Basic Research Center Senior Vice President Shigeki Taniguchi Senior Vice President Kenichiro Miki Corporate Vice President Satoru Nishino Corporate Vice President Hideki Hirabayashi Senior Vice President, Human Resources Division Senior Vice President, Fibers & Textiles Division; Osaka Head Office Corporate Vice President, Films Technology & Manufacturing Division Corporate Vice President, CSR & Investor Relations; Legal & Compliance Division; General Administration & Communications Division; Tokyo Head Office Corporate Vice President Hiroshi Enomoto Corporate Vice President Nobuyuki Inohara Corporate Vice President Hajime Ishii Corporate Vice President Hiroyuki Matsuda Corporate Vice President, Electronic & Information Materials Division Corporate Vice President, Resins & Chemicals Division Corporate Vice President, Fibers & Textiles Division; Global SCM Division Corporate Vice President, Information Systems Division; Engineering Division Corporate Vice President Masahiko Okamoto Corporate Vice President, Finance & Controller’s Division Vice President Young Kwan Lee Vice President, Chief Representative for Republic of Korea; President, Toray Industries Korea Inc.; Chairman, Toray Advanced Materials Korea Inc. Vice President Teh Hock Soon Vice President Yoshio Yamamoto Vice President, Legal & Compliance Division Vice President, Chief Representative for Malaysia; President,Toray Industries (Malaysia) Sdn. Berhad; Chairman, Penfabric Sdn. Berhad; Chairman, Toray Malaysia Systems Solution Sdn. Bhd.; Chairman, P.T. Century Textile Industry Tbk Vice President Kazuaki Takabayashi Vice President Kei Shimaji Vice President Yuichiro Iguchi Vice President Osamu Tsuneki Vice President, Chief Representative for Thailand; President, Toray Industries (Thailand) Co., Ltd.; Chairman, Toray Textiles (Thailand) Public Company Limited Vice President, Chief Representative for Americas; President, Toray Industries (America), Inc. Vice President, Electronic & Information Materials Division (Technology & Manufacturing) Vice President, Purchasing & Logistics Division; Raw Materials Purchasing Dept. Vice President Kazuyuki Yakushiji Vice President Yasuo Fukuda Vice President, Composite Materials Technology & Manufacturing Division Vice President, Fibers & Textiles Technology & Manufacturing Division Executive Fellow Akihiko Kitano Automotive & Aircraft Center; ACM Technology Division Toray Industries, Inc. Integrated Annual Report 2020 55 Year Total number of Board members Reduction in number of Members of the Board and change in its composition 2009 2012 2014 2015 2018 2020 30 28 26 25 19 Outside directors included 1 2 Percentage of outside directors 3.8% 8.0% 10.5% 33.3% 12 4 Corporate Governance Basic Policy From the outset, one of Toray Group’s managerial principles has been that the purpose of a company is to contribute to society. The Group has developed the Toray Philosophy that incorporates this principle. The Group systematizes the Toray Philosophy as a Corporate Philosophy, Corporate Missions, Corporate Guiding Principles, etc. Among these, the Corporate Missions call for desirable relationships with stakeholders and enunciate the Group’s commitment to shareholders “To practice sincere and trustworthy man- agement.” In addition, the Corporate Guiding Principles stipulate the Group’s commitment to ”acting with fairness, high ethical standards and a strong sense of responsibility while complying with laws, regulations and social norms to earn trust and meet social expectations.” When establishing the corporate governance structure, the Group seeks to realize these philosophies as its basic policy. Outline of Governance System and Reasons for Adopting the System As Toray Group supplies a wide range of industries with basic materials and globally plays an active part in a broad scope of business fields, it is necessary to evaluate various risks multilaterally based on expertise relevant to the worksites, not only for management judgment and decision-making but also for oversight. To that end, the Board of Directors formulates a structure in which members of the Board famil- iar with Toray Group businesses oversee management and make decisions from various viewpoints. Toray operates as a company with a Board of Corporate Auditors and Board of Directors. The Board of Directors, which includes outside directors, decides on the business Corporate Governance Structures execution and supervises the execution of duties by the members of the Board. The Board of Corporate Auditors includes outside corporate auditors and independently audits the execution of duties by the members of the Board, separately from the Board of Directors and the executing organization. This framework is designed to secure the transparency and fairness of decision made by the Board of Directors. In addition, there is a Governance Committee, which serves as a voluntary advisory body to the Board of Directors. The Governance Committee deliberates on all matters relating to corporate governance, enhancing the effectiveness of governance by the Board of Directors. Members of the Board and corporate auditors, as offi- cers directly elected at the general meeting of stockholders, clearly recognize fiduciary responsibility to stockholders who have entrusted the management and appropriately fulfill their respective roles while discharging accountability about man- agement status to stockholders and other stakeholders. Strengthening the Governance Framework In fiscal 2020, Toray Group set the number of members of the Board of Directors to 12 (seven less than the pre- vious fiscal year) and the number of outside directors to four (two more than the previous fiscal year) in order to improve the effectiveness of the Board of Directors and to strengthen the business execution framework. The Group also introduced an executive officer system for the purpose of flexibly implementing management execution based on quick decision-making that accurately reflects the business environment and changes therein. The Board of Directors both establishes the scope of business execu- tion entrusted to the vice presidents and supervises the General Meeting of Stockholders Election Election Election Decision-making, Oversight Functions Independent Auditor Cooperation Board of Corporate Auditors 5 Corporate Auditors (3 outside corporate auditors) Audit Board of Directors 12 members of the Board (4 outside directors) Report Governance Committee 7 members including 4 outside directors Cooperation Audit Cooperation Audit Business Execution Functions Auditing Dept. President Conference Organs Executive Committee Company-wide Committees Ethics and Compliance Committee Risk Management Committee CSR Committee, etc. Internal audit Divisions, Departments, Subsidiaries Departmental Committees and Corferences Toray Industries, Inc. Integrated Annual Report 2020 56 Corporate Governance execution of their duties. Moreover, the Group increased the number of Governance Committee members, which had consisted of one internal member of the Board and two outside directors until now, to three internal members of the Board and four outside directors (the committee continues to be chaired by an outside director). As a result, this move ensures that discussions and reports by the Committee are made from a variety of perspectives. Reduction in number of Members of the Board and change in its composition Year Total number of Board members 2009 2012 2014 2015 2018 2020 30 28 26 25 19 Outside directors included 1 2 12 4 Percentage of outside directors 3.8% 8.0% 10.5% 33.3% Status of Outside Directors/Corporate Auditor Elections At Toray, we ensure objectivity and transparency of corpo- rate governance by establishing and disclosing standards for independence of outside directors and outside corporate auditors. Based on these standards, the Company elects four outside directors and three outside corporate auditors, and submits notification regarding their status as indepen- dent officers to the Tokyo Stock Exchange. The following table outlines the basis for election of our outside directors/corporate auditors and details of their independence Kunio Ito Member of the Board Ryoji Noyori Member of the Board Mr. Ito was elected as an outside director and assigned independent officer status due to his highly specialized expertise in accounting and business administration as a university professor, and his extensive experience as a corporate outside director. Mr. Noyori was elected as an outside director and assigned independent officer status due to his extensive experience as a university professor, his highly specialized expertise in organic synthetic chemistry, which is a core Toray technology, and his experience as a corporate outside director. Susumu Kaminaga Member of the Board Mr. Kaminaga was elected as an outside director and assigned independent officer status due to his extensive experience as a member of top management, his international perspective, and his experience as a corporate outside director. Kazuo Futagawa Member of the Board Mr. Futagawa was elected as an outside director and assigned independent officer status due to his extensive experience, knowledge, and deep expertize as an administrative officer. Toshio Nagai Corporate Auditor Kazuya Jono Corporate Auditor Mr. Nagai was elected as an outside corporate auditor and assigned independent officer status due to his excellent track record of high standing in the legal profession, his solid character and judg- ment, and his ability to appropriately audit the Group from an objective standpoint. Mr. Jono was elected as an outside corporate auditor and assigned independent officer status due to his having held key positions in the business world, his solid character and judgment, and his ability to appropriately audit the Group from an objective standpoint. Hiroyuki Kumasaka Corporate Auditor Mr. Kumasaka was elected as an outside corporate auditor and assigned independent officer status due to his advanced knowledge in accounting, his wealth of experience and established track record as a certified public accountant, his impeccable character and deep insight, and his ability to appro- priately audit the Group from an objective standpoint. Basic Policy on Internal Control System To realize the Management Philosophy, the Company shall establish a structure to execute its business legally and effec- tively by improving its internal control system according to the following basic policy as a structure to enable it to appropri- ately establish organization, formulate regulations, commu- nicate information, and monitor the execution of operations. 1. System to ensure that the execution of duties by the members of the Board and employees complies with laws and regulations and the Company’s Articles of Incorporation • Toray shall establish the Ethics and Compliance Committee, as one of the company-wide committees to promote obser- vance of corporate ethics and legal compliance, and shall take other measures to improve the required internal systems, including the establishment of dedicated organizations. • Toray shall establish the Ethics & Compliance Code of Conduct as specific provisions to be observed by members of the Board and employees, and shall take other mea- sures to improve the required guidelines, etc. Especially with regard to eliminating relations with antisocial forces, the Company shall act as one to stand firmly against them. • Toray shall establish an internal reporting system (whis- tle-blowing system) for the reporting of the discovery of Toray Industries, Inc. Integrated Annual Report 2020 57 Corporate Governance violation of laws, regulations, or the Company’s Articles of Incorporation. • Toray shall establish Security Trade Control Program, one of the most important legal compliance issues, and establish an organization dedicated to security export control. 2. System to ensure the efficient execution of duties by the members of the Board and employees • Toray shall establish the Authority of Top Management to stipulate matters with respect to which decision-making authority is reserved by the Board of Directors and matters with respect to which decision-making is delegated to the President, general managers, etc., from among matters necessary for decision-making. • Toray shall establish the Executive Committee as deliber- ative organs for important matters decided by the Board of Directors or the President. The Executive Committee shall be responsible for the general direction of policy, and shall be in charge of issues related to implementation. 3. System for preserving and managing information pertaining to the execution of duties by the members of the Board and employees • Toray shall establish regulations for important documents and important information related to management, confiden- tial information and personal information, and appropriately preserve and manage them in accordance with the rules. 4. Regulations and other systems pertaining to controls over risks of loss • Toray shall identify potential risks in business activities, promote company-wide risk management to strive to reduce the level of risk under normal business conditions, and prevent future crises, as well as improve regulations and establish an internal committee to enable immediate implementation in the event of a major crisis. • Toray shall establish an internal control system for financial reporting that ensures the reliability of financial reporting. 5. System for ensuring appropriate business operations within subsidiaries • To establish a system under which subsidiaries report to the Company on matters regarding the execution of duties by members of the Board, etc. of the subsidiaries, the Company shall provide regulations on the regular reporting of important management information to the Company and regularly hold conferences at which the Company’s management receives direct reports on the status of the management of the subsidiaries. • To establish regulations and other systems pertaining to controls over risks of loss for subsidiaries, the Company shall provide subsidiaries with guidance to help them to establish risk management systems appropriate for their respective business forms and business environments, and shall receive regular reports on the status of their activities. • To establish a system for ensuring that members of the Board, etc. of subsidiaries effectively execute their duties, Toray Industries, Inc. Integrated Annual Report 2020 58 the Company shall provide regulations on the scope under which the Company can reserve its authority over the exe- cution of business operations. In addition, the Company shall endeavor to grasp management information in a unified manner and provide assistance and guidance nec- essary for subsidiaries by determining divisions, etc. with control over its respective subsidiaries. • To establish a system for ensuring that the execution of duties by members of the Board, etc. and employees of subsidiaries complies with laws and regulations and the Articles of Incorporation, the Company shall thoroughly familiarize its subsidiaries with the Company’s Ethics & Compliance Code of Conduct as a code of conduct in common for Toray Group. At the same time, the Company shall request the subsidiaries to establish their own codes of conduct, guidelines, etc. in consideration of the laws and regulations, business practices, business forms, and other factors in their respective countries. In addition, the Company shall direct its subsidiaries to establish sys- tems under which the status of internal whistle-blowing by members of the Board, etc. and employees of the subsidiaries is appropriately reported to the Company. 6. System for reporting to corporate auditors and systems for ensuring that persons who report to corporate auditors are not treated disadvantageously because of their reporting • Members of the Board, etc. and employees of Toray Group and corporate auditors of subsidiaries shall report matters regarding the execution of duties to corporate auditors in response to requests from the corporate auditors. • Department in charge of the internal reporting system (whis- tle-blowing system) shall regularly report the status of inter- nal whistle-blowing in Toray Group to the corporate auditors. • Toray shall stipulate regulations to the effect that members of the Board and employees who report to corporate auditors shall not be subjected to any disadvantageous treatment because of the said reporting, and shall provide subsidiaries with guidance to help them stipulate the same regulations. 7. Items pertaining to the handling of expenses and liabilities arising from the execution of duties by corporate auditors • Toray shall pay expenses, etc. incurred from the execution of duties by corporate auditors. 8. Items pertaining to employees assisting with corporate auditors’ duties, items pertaining to the independence of said employees from members of the Board, and items pertaining to the assurance of effectiveness of instructions from the corporate auditors to said employees • Toray shall assign a full-time employee to provide assistance if and when corporate auditors request assistance. The said employee shall exclusively follow the corporate auditors’ commands and instructions, and the Company shall con- sult with corporate auditors in advance with respect to the personnel arrangements for the said employee. 9. Other systems for ensuring effective implementation of audits by corporate auditors • Corporate auditors shall attend Board of Directors meet- ings and other important meetings so that they may ascertain important decision-making processes and the execution of operations. • Corporate auditors shall hold regular meetings with mem- bers of the Board and management and conduct regular visiting audits of Toray offices, plants, and subsidiaries. Remuneration for Members of the Board Given their roles, remuneration for internal members of the Board consists of basic remuneration (monthly remunera- tion,) as well as a performance-based remuneration, a bonus and stock acquisition rights as stock options. Remuneration for outside directors consists of monthly remuneration only. Remuneration is set at a level that enables the Company to secure superior human resources and further motivate them to improve performance, referring to the results of a survey of other companies’ remuneration by an external third-party organization. With respect to monthly remuneration, the maximum limit of total remuneration is determined at general meetings of stockholders. Within the scope of the maximum limit, monthly remuneration of each member of the Board is deter- mined by the President based on the Company’s internal regulations resolved at the Board of Directors meeting. The provision and the total amount of bonuses are determined each time at a general meeting of stock- holders. Particulars of the agenda at the general meeting of stockholders are resolved by the Board of Directors Details of Remuneration in Fiscal 2019 through conference among senior management, including the President, in consideration of the consolidated operating income for each fiscal year that best represents the results of the Company’s global business operations, plus the his- torical record, etc. A bonus to each member of the Board is determined by the President according to each member’s performance based on the Company’s internal regulations with a resolution at a Board of Directors meeting. The maximum limit of total number of Stock Acquisition Rights as well as the limit of remuneration relating to the granting of the Stock Acquisition Rights as stock options to members of the Board is resolved at the general meeting of stockholders, and within that limit, the total number of Stock Acquisition Rights to be allocated to the members of the Board shall be decided at the Board of Directors meeting based on the Company’s internal regulations. Given their roles, remuneration for corporate auditors con- sists of monthly remuneration only. Remuneration is set at a level that enables the Company to secure superior human resources, referring to the results of a survey of other com- panies’ remuneration by an external third-party organization. With respect to monthly remuneration, the maximum limit of total remuneration is determined at general meetings of stockholders. Within the scope of the maximum limit, monthly remuneration to each corporate auditor is deter- mined through consultation by corporate auditors based on the Company’s internal regulations. The Governance Committee continuously reviews the remuneration system for members of the Board and cor- porate auditors. Position Total remuneration (millions of yen) Total remuneration by type (millions of yen) Basic Bonuses Stock options as remunerations Recipients Members of the Board (excluding outside directors) 1,130 787 154 188 Corporate auditors (excluding outside corporate auditors) Outside directors Outside corporate auditors 79 24 32 79 24 32 — — — — — — 18 2 2 3 Notes: 1. Recipients included one member of the Board (excluding outside directors) who retired during fiscal 2019. 2. Total amounts of remuneration do not include the ¥29 million paid in salaries to two employee-directors. Total Remuneration Received by Members of the Board and Corporate Auditors Name Total consolidated remuneration (millions of yen) Position Status of company Total consolidated remuneration by type (millions of yen) Basic Bonuses Stock options as remuneration Akihiro Nikkaku 153 Member of the Board Filing company 104 25 23 Note: Total remuneration only includes persons receiving more than ¥100 million. Toray Industries, Inc. Integrated Annual Report 2020 59 Analyzing and Evaluating the Effectiveness of the Board of Directors Process of Analysis and Evaluation Over the period from late-March 2020 to mid-April 2020, Philosophy and Corporate Missions. As a result, we believe that the Board of Directors generally fulfilled Toray’s Board of Directors conducted a “Questionnaire its roles and responsibilities in indicating the direc- Survey to Evaluate the Effectiveness of the Board of tion of corporate strategies and other major courses Directors in fiscal 2019.” The 24 survey respondents, of action in an appropriate manner. who comprised all of the Board members and corporate (2) In fiscal 2019, the Board of Directors held 14 meet- auditors, answered questions on the following survey ings in total to perform oversight and decision-mak- items and gave their names. ing in a timely and appropriate manner. Furthermore, it promoted reviews on the scope of delegating deci- (1) Management Philosophy and Corporate Missions sion-making authority. Through these initiatives, we (2) Size and structure of the Board of Directors believe that the Board of Directors generally fulfilled (3) Segregation of oversight and business operations its roles and responsibilities in establishing an envi- (4) Provision of information prior to Board of ronment conducive to appropriate risk-taking by the Directors meetings senior management in an appropriate manner. (5) Number of agenda at Board of Directors meetings (3) With respect to the 14 Board of Directors meet- (6) Proceedings at Board of Directors meetings ings held in fiscal 2019, the attendance rate of the (7) Management response to opinions, etc. at members of the Board was 100%. Outside directors Board of Directors meetings made remarks mainly from their respective profes- (8) Authority of the Board of Directors sional viewpoints. The opinions, etc. at the Board of (9) Appropriate response to conflicts of interest Directors meetings, including the above mentioned (10) Communication with stakeholders remarks, were appropriately reflected in measures (11) Communication among members of the Board taken by the management. With respect to transac- (12) Opportunities to acquire knowledge tions causing possible conflicts of interest, internal (13) Compliance promotion (14) Group governance (15) Overall evaluation procedures to handle them were appropriately car- ried out. In light of the above, we believe that the Board of Directors generally fulfilled its roles and responsibilities in carrying out the effective oversight In addition to the questionnaire, Secretariat of of members of the Board and the management from the Board of Directors individually interviewed out- an independent and objective standpoint in an appro- side directors and outside corporate auditors (total of priate manner. five persons) to hear their opinions in relation to their (4) Based on the above, we believe that the Board of responses to the questionnaire. Directors generally fulfilled its roles and responsibili- The survey results were analyzed and evaluated at ties in an effective manner in fiscal 2019. With regard the Governance Committee held on June 11, 2020 and to the matter, “further activating discussions at the the results of the analysis and evaluation were deliber- ated at the Board of Directors meeting held on June 17, 2020. The overview of the results of the analysis and evaluation shown below describes the contents resolved at the Board of Directors meeting. 委託 委託 加工先 加工先 Board of Directors meetings,” however, continuing NECの品質データ基盤が目指すイメージ図 NECの品質データ基盤が目指すイメージ図 from fiscal 2019, specific measures for improvement must be taken in fiscal 2020 and thereafter to further 検査結果公開 検査結果公開 品質分析 品質分析 お客様 お客様 improve the effectiveness of the Board of Directors. 品質データ基盤 品質データ基盤 (5) With respect to the opinions, etc. received from サプライヤー サプライヤー Overview of the Results of the Analysis and Evaluation (1) In fiscal 2019, the Board of Directors performed the members of the Board and corporate auditors 検査成績書 検査成績書 品質情報の集約① 品質情報の集約① 委託加工先・ 委託加工先・ サプライヤー情報も連携 サプライヤー情報も連携 in the course of evaluating the effectiveness of the 検査 検査 Board of Directors, the Governance Committee shall deepen discussions based on those opinions with a 品質情報の集約② 品質情報の集約② クレーム管理 クレーム管理 view to further improving the effectiveness of the 情報連携 情報連携 グループ会社のデータ グループ会社のデータ も一元的に管理 も一元的に管理 oversight and decision-making based on a deep Board of Directors, as necessary. understanding and sympathy with the Management 自社 自社 検査 検査 グループ グループ 会社 会社 Toray Industries, Inc. Integrated Annual Report 2020 60 Analyzing and Evaluating the Effectiveness of the Board of Directors compliance Basic Approach In order to contribute to society by leveraging innova- and codes of conduct, which serve as a series of core rules that must be observed in different areas of busi- tive technologies and advanced materials in line with its ness by Toray group companies and all executives and corporate philosophy, as well as by working to resolve employees, including contracted, part-time and tempo- major global issues, Toray Group must build and main- rary workers, as a means of fully informing employees tain relationships of trust with our various stakeholders. of these obligations and tools. And in order to gain this trust, it is essential to com- ply with the laws and regulations related to our busi- 1. Compliance for safety and the environment ness activities in each country in which we operate and (1) Building a safe working environment maintain the highest level of integrity in all our actions. (2) Caring for the environment Therefore, top management focuses on its leadership 2. Compliance for quality role in making compliance a priority, while both the (1) Providing safe and satisfactory products to Group and its suppliers are required to promote ethics customers and compliance. Ethics and Compliance Structure Toray has established an Ethics and Compliance (2) Proper quality data management 3. Compliance for human rights (1) Respect for the character and individuality of employees Committee chaired by the President and consisting of (2) Preventing harassment and discrimination vice presidents. At this committee, management and (3) Respect for the human rights of all stakeholders workers come together to consider and discuss poli- 4. Compliance for fair business activities cies related to ethics and compliance. Moreover, this (1) Competing fairly Committee reports on the operational status of the (2) Fair transaction and asset management whistle-blowing system established by Toray Group, (3) International trade control and security trade including the number of reports (consultations) and administration other details, to members of the Board. During fiscal (4) Compliance with applicable laws in general 2019, this Committee met twice to deliberate and 5. Compliance for intellectual property discuss Toray Group’s ethics and compliance activity (1) Respect for intellectual property rights of others results for fiscal 2018 and the activity plans and prog- 6. Compliance for information management ress updates for fiscal 2019. This Committee also dis- (1) Information management cussed individual measures, including a review of the (2) Proper reporting and public disclosures Ethics & Compliance Code of Conduct. Acting as leaders, divisional and departmental gen- eral managers at each workplace adopt a top-down approach toward promoting initiatives. Corporate Ethics and Legal Compliance Education In initiatives for group companies around the world, Toray posts information on CSR and legal compliance on Toray Group has established the Affiliate Companies’ its corporate intranet. Toray Group circulates important Compliance Meeting and the Overseas Affiliate information about legal and compliance matters that are Companies’ Compliance Meetings under the Ethics and highly relevant to its business in Japan and overseas. Compliance Committee. Through these committees, Group companies implement workshops to examine Toray Group is promoting compliance activities in each these matters and study cases of corporate misconduct company, country and region. in an effort to foster discussion in the workplace. Ethics & Compliance Code of Conduct Toray reviewed the content of the Corporate Ethics and Since fiscal 2012, Toray has provided online train- ing courses on corporate ethics and legal compliance for all executives and employees, including contracted, Legal Compliance Code of Conduct, and revised it as part-time and temporary workers. In fiscal 2019, the the Ethics & Compliance Code of Conduct in May 2020. Company worked to raise awareness of human rights The revised code summarizes the compliance helpline, issues using case studies based on actual reports the promotion framework for ethics and compliance, and consultations within Toray Group, reminding all Toray Industries, Inc. Integrated Annual Report 2020 61 NECの品質データ基盤が目指すイメージ図 委託 加工先 品質分析 検査結果公開 お客様 サプライヤー 品質データ基盤 品質情報の集約① 委託加工先・ サプライヤー情報も連携 クレーム管理 情報連携 検査成績書 品質情報の集約② グループ会社のデータ も一元的に管理 自社 グループ 会社 検査 検査 compliance Compliance participants that issues can occur in any department. employees have access to alternative means of report- Group companies in Japan are using these materials to ing and consulting such as via contact points at its implement their own training. Suido Kiko Qualification Misconduct Issue Toray discovered in March 2020 that Suido Kiko, offices, plants and labor unions or directly to the sec- retariat of the Ethics and Compliance Committee via phone or email. In addition, each group company in Japan has estab- a subsidiary engaged in water and sewage facility lished a Helpline contact point. Moreover, Toray has also engineering, had potentially allowed an employee created an external Helpline contact point shared by all to take the First Class Civil Engineering Works group companies in Japan to make it easier for employ- Execution Managing Engineer test despite not hav- ees to report and consult. ing satisfied the practical experience requirements Each group company outside Japan has also estab- for this test. Thereafter, a third-party committee was lished a Helpline contact point (internal, outside, or established and commissioned to investigate the regional contact points). These Helpline contact points facts and make recommendations on how to pre- have been in operation at all companies since fiscal vent a recurrence. On September 24, we received 2017. There were reports in several countries and the report of the investigation by the third-party regions, and Toray Group is working to resolve the committee, and on September 25, we reported to issues, while carefully confirming circumstances in the Ministry of Land, Infrastructure, Transport and interviews and investigations. Tourism on the content of the report and measures Since fiscal 2016, Toray has also maintained an addi- to prevent a reoccurrence. Expanding the Whistle-Blowing System Toray established the Corporate Ethics and Legal tional whistle-blowing system for group companies to directly report serious misconduct such as violations of antitrust laws and bribery, and it is working to inform all Toray Group companies about the system. The number of inquiries (consultations) received Compliance Helpline as a whistle-blowing system in fis- through the hotline and the details of the cases are cal 2003 and expanded the system to include all group reported to the Board of Directors by the Ethics and companies in Japan in fiscal 2010. By introducing this Compliance Committee, which convenes twice a year. system, the Company expects employees first to take the initiative in managing conduct with regard to corpo- rate ethics and legal compliance, and to consult with a supervisor as soon as an issue arises. Reinforcing Compliance in Product Quality Assurance Recognizing that reporting or consulting with super- Toray Group is pursuing five major issues to reinforce prod- visors may be difficult, the Company ensures that uct quality assurance compliance throughout the Group. Sharing Quality Inspection Information Throughout the Supply Chain Toray and NEC Corporation established a quality data network that collects and stores product quality inspection information sam- pled from inspection equipment as digital data, and shares this information throughout the supply chain. This sharing process does not require any human intervention, which helps to enhance the reliability of quality inspection information and to raise the effi- ciency of quality assurance operations. Toray Industries, Inc. Integrated Annual Report 2020 62 Outsourced 委託 processing 加工先 品質分析 Quality analysis Supplier サプライヤー Image diagram aimed at by NECの品質データ基盤が目指すイメージ図 NEC’s quality data network Quality data network 品質データ基盤 Inspection result 検査結果公開 disclosure Customer お客様 Aggregation of quality 品質情報の集約① information (1) 委託加工先・ Coordination of contract サプライヤー情報も連携 processing destination / supplier information Inspection 検査 Claim management クレーム管理 Information linkage 情報連携 Inspection report 検査成績書 Aggregation of quality 品質情報の集約② information (2) グループ会社のデータ Centralized management of group company data も一元的に管理 In-house 自社 Inspection 検査 Group グループ company 会社 1. Reinforcement of structures related to quality assurance systems of the entire Toray Group items as part of the first stage, and then expanded the scope of the investigation to cover inspection The Group provides guidance to each division and group items that were not related to safety. Finally, the companies regarding their quality assurance system, investigation queried all of the remaining measure- and audits the effectiveness of these systems and the ment data (112,000 entries). As a result, 149 entries work done under them. Based on the formulated prod- were found to have been overwritten. Therefore, in uct quality assurance vision, the organizations design October 2017, the Group reported the facts of the initiatives to close the gap between the vision and actual case to all 13 companies covered by the investi- performance. 2. Development of human resources and creation of workplace culture not allowing any misconduct The Group continues to provide education for all employ- gation and requested each company to check for issues with safety upon verifying the impact on customer products. The Group also established an expert committee and held a press conference ees involved in product quality at Toray Group in order to to make an announcement on the contents of the maintain and improve the awareness of product quality Expert Committee Report. assurance compliance. 3. Understanding of actual state of agreements with customers and establishment of guidelines related to product quality (assurance) At the same time, the Group advanced measures aimed at preventing a recurrence, including strength- ening the compliance systems related to product quality assurance, further improving data manage- The Group is preparing guidelines for product quality ment systems, reviewing product quality standards, assurance agreements and will use them to assess and improving the maintenance of measurement agreements and review their provisions as necessary. 4. Appropriate maintenance or control and modernization or fulfillment of measuring equipment Toray prepared a risk assessment table for judging the equipment. Moreover, the Group appointed a repre- sentative member of the Board (General Manager, Product Quality Assurance Division) to take respon- sibility for product quality assurance operations necessity of upgrading or conducting maintenance throughout the Toray Group, and established the on measuring equipment, and used them to identify Product Quality Assurance Division as a new division devices in need of an upgrade. 5. Improvement of quality data management system to to oversee improvements to and the effectiveness of the quality assurance system in February 2018. not allow any misconduct The Group also promotes automation of data mea- The Group is developing data management systems surements as an additional effort to better ensure that minimize human involvement, such as by automat- the effectiveness of product quality assurance oper- ing measurement, transfer of measurement data, and ations throughout Toray Group. issuance of inspection reports. Inappropriate overwriting of product inspection report data by Toray Hybrid Cord As a result of a compliance survey conducted during July 2016 at Toray Hybrid Cord (THC), a Improving Security Trade Controls Sharing the Latest Trends and Management Strategies for Security Trade Controls Concerns about the spread of conventional mass weap- subsidiary engaged in processing tire cords, indus- ons of destruction and changes in the international trial-use cords, carpet pile threads and other fiber security balance necessitate risk management address- products for industrial materials, THC was found to ing security trade controls. have overwritten data during the period from April Toray convenes a Security Trade Administration 2008 to July 2016. In this case, data that varied Committee comprising officers of divisions that are slightly above or below the values for quality stan- involved in exports and technology transfer. In fiscal dards settled upon with customers were overwrit- 2019, the committee decided on measures to imple- ten in order to fit within these standards. ment for the fiscal year after considering pressing risks In response, the Group launched an investi- based on recent international circumstances and regu- gation that focused on safety-related inspection latory trends. The committee members also convene a Toray Industries, Inc. Integrated Annual Report 2020 63 Image diagram aimed at by NECの品質データ基盤が目指すイメージ図 NEC’s quality data network Outsourced 委託 processing 加工先 Quality analysis 品質分析 サプライヤー Supplier Quality data network 品質データ基盤 Inspection result 検査結果公開 disclosure Customer お客様 Inspection report 検査成績書 品質情報の集約① Aggregation of quality information (1) 委託加工先・ Coordination of contract サプライヤー情報も連携 processing destination / supplier information Inspection 検査 Claim management クレーム管理 Information linkage 情報連携 Aggregation of quality 品質情報の集約② information (2) グループ会社のデータ Centralized management of group company data も一元的に管理 In-house 自社 Inspection 検査 グループ Group company 会社 Compliance Divisional Security Trade Administration Committee that suspicious trade information at various company meet- communicates corporate measures and implements sup- plementary programs, such as precautions to be taken by departments and group companies under its supervision. Practically Addressing Risks Toray Group performs risk management of security ings, and took steps to improve its risk management. 4. Improved inspection systems Toray established a link between the security trade administration system and the sales backbone system as part of regular operations in order to improve the trade controls with regard to the export of all products, infrastructure for preventing mistaken shipments due to devices, materials, and samples, as well as the transfer human error. Moreover, the Company supported inno- of technologies outside Japan. Particularly strict man- agement is necessary for TORAYCA® carbon fiber and its composite materials, semiconductor coating agents, and water treatment membranes, which are listed as restricted items requiring export permission from the Japanese Minister of Economy, Trade and Industry. The following measures to enhance risk manage- ment associated with security trade controls have vative initiatives designed to improve the efficiency of administration through the use of these systems, and widely deployed cases that have produced results. Competition Law Compliance, Anticorruption, and Antibribery 1. Competition Law Compliance The Ethics & Compliance Code of Conduct, revised been implemented based on conditions in and outside in May 2020, defines the code of conduct related to of Japan. 1. Enhanced employees’ capacity for accurate judgment within Toray’s divisions and group companies competition laws that must be observed by all Toray Group executives and employees. Educational materi- als related to competition laws have been prepared in Japanese and English for all Toray Group employees. Toray conducted training to provide the necessary prac- Within Japan, the Group prepares and utilizes compli- tical knowledge to the mid-level employees that play a ance training materials and gathers examples of compli- central role in implementing security trade controls, as well as training to newly appointed managers to encour- age appropriate on-site management. ance violations related to competition laws. 2. Anti-corruption and Anti-bribery In January 2020, Toray Group formulated a new set of The Company also conducted a series of advanced Anti-bribery Rules that explicitly prohibit offering and courses for employees with specialized expertise. accepting bribes to or from public officials and business These hands-on courses were designed to better equip partners, and established the rules for approval and them with the skills necessary to conduct classifica- reporting when offering or receiving money or other tions, export transactions and technology transfers. A benefits to or from public officials and business part- total of 127 employees participated in 2 courses. ners. Similar rules have also been introduced at both In addition, the Company systematically encourages domestic and overseas group companies. employees to take the exam authorized by the Center for The Ethics & Compliance Code of Conduct defines Information on Security Trade Controls in Japan. A total of 221 Toray Group employees passed the exam in fis- cal 2019, bringing the cumulative number of Toray Group the code of conduct related to anti-corruption and NECの品質データ基盤が目指すイメージ図 anti-bribery that must be observed by all Toray Group 委託 加工先 executives and employees. Educational materials 検査結果公開 お客様 品質分析 employees who have passed the exam to 3,996 persons. 2. Conduct regular audits Toray carried out paper audits and onsite audits of group companies, and provided individualized guidance based on the results to help group companies make improvements. 3. Enhanced information sharing and reporting Toray integrated and centralized information on concerns such as suspicious trade inquiries, reported or consulted with the appropriate authorities as required, and took サプライヤー related to anticorruption and anti-bribery have been 品質データ基盤 prepared in Japanese and English for all Toray Group 品質情報の集約① employees. 3. Protection of Personal Information In order to comply with Japan’s Act on the Protection of 委託加工先・ サプライヤー情報も連携 検査 検査成績書 Personal Information, Toray has established Regulations 品質情報の集約② クレーム管理 for the Management of Personal Information, together 情報連携 グループ会社のデータ も一元的に管理 with a management framework and practices to ensure each department manages personal information appro- 自社 priately. Audits are regularly conducted into the manage- 検査 グループ 会社 the appropriate measures. The Company also shared ment conditions in each department. Toray Industries, Inc. Integrated Annual Report 2020 64 In fiscal 2019, the Company received no complaints internal legal and compliance audit every other year. concerning personal information and there were no In fiscal 2018, internal legal compliance audits were data breaches. Major Toray Group companies in and implemented for the designated divisions of Toray outside Japan appropriately conduct management in and its group companies in Japan. In fiscal 2019, the accordance with the management systems and meth- Company confirmed the improvement status of prob- ods specified by the internal rules of each company. lems found in the audit, verifying that 100% of the com- Promotion of Mission B.E.A.R. Activities In fiscal 2018, Toray Group launched a new initiative panies had made improvements (including companies under improvement). Moreover, in order to increase the effectiveness of with the slogan “Have the integrity to do the right thing audits related to high-priority items, including competi- in the right way.” The initiative includes the following tion laws, bribery and corruption regulations, the whis- four principles for taking more effective action to ensure tle-blowing system and entry into agreements, in fiscal compliance. Compliance Action Principles B: Be fair, be honest and have integrity E: Encourage respect and communication A: Adopt a genba approach – Look to the facts! R: Responsibility as a member of our excellent company 2019 the Group reviewed the audit methods related to legal affairs and compliance, and plans to implement the results of this review in fiscal 2020 and beyond. Tax Compliance Toray Group is committed to meeting its tax responsi- bilities in accordance with local and national tax laws and related rules, as well as to meeting international standards such as OECD guidelines. With the growth of international transactions, transfer pricing is increasing in importance. The Group endeavors to suitably allocate its income by calculating transfer pricing based on the arm’s length principle. Under the awareness that it is important to fulfill its social responsibilities as a cor- Under the name “Mission B.E.A.R.,” taking its acronym poration by administering taxes in a highly transparent from the first word of each principle, Toray Group com- manner, the Group redefined its basic approach to tax panies formulate declarations and action plans related to policies with which each employee must comply, and compliance, and implement initiatives that correspond established the Toray Group Tax Policy in order to reli- to their individual situations. Toray Group implements ably implement tax compliance related initiatives to a periodic follow-ups for the initiatives of each company, greater extent. This policy has been applied globally shares the effective initiatives of each company within starting in May 2020. the Group, and encourages each company to take the initiative in evolving their compliance activities. In fiscal 2020, Toray will continue to assist and monitor compliance initiatives at group companies. Moreover, actively sharing compliance initiatives and educational materials will strengthen risk response that emphasizes factors unique to each region and type of business while reinforcing Toray Group’s integrity-driven corporate culture. Implementing Internal Legal Audits In fiscal 2016, Toray Group adopted a group-wide sys- tem for self-inspections and mutual internal control audits. Designated divisions of Toray and designated group companies in and outside Japan must receive an Basic Policy 1. Toray makes efforts to pay taxes appropriately by complying with the tax laws of each country and international taxation rules. 2. Toray makes efforts to enhance corporate value and maximize shareholder value while minimizing tax risks and optimizing tax expenses. 3. Toray will not conduct arbitrary tax avoidance using tax havens or other methods. 4. Toray establishes good relationships with the tax authorities of each country. Toray Industries, Inc. Integrated Annual Report 2020 65 NECの品質データ基盤が目指すイメージ図 委託 加工先 品質分析 検査結果公開 お客様 サプライヤー 品質データ基盤 品質情報の集約① 委託加工先・ サプライヤー情報も連携 クレーム管理 情報連携 検査成績書 品質情報の集約② グループ会社のデータ も一元的に管理 自社 グループ 会社 検査 検査 Materials change our lives Photo: Aozora Science School In order to help children gain an interest in science, this program aims to have them enjoy a slightly unusual camp experience with a sense of excite- ment. As a two-night three-day hands-on, overnight classroom, this program is flush with contents that use mother nature as learning materials to instill a sense of curiosity that stirs up questions of how and why in the campers. Likewise, this program helps to create opportunities for the campers to truly find an interest in science under an open sky that differs from what they see every day. (Campers in 2019) Toray Industries, Inc. Integrated Annual Report 2020 66 Toray Industries, Inc. Integrated Annual Report 2020 67 Toray Industries, Inc. Integrated Annual Report 2020 68 For Realization of a Circular EconomyUnder Toray Group Sustainability Vision, “a world where resources are sustainably managed” is one of perspectives of the world that we aim to realize by 2050. Society has so far faced various issues such as resource depletion, marine pollution from significant garbage inflow, and CO2 emis-sions. To solve these issues, Toray has positioned measures to realize a circular economy that effectively uses resources, as a key theme in “Project AP-G 2022.”Realizing a Circular Economy through Various Technologies and Products Toray is contributing to the realization of “a world where resources are sustainably managed”—the so-called circular economy—through various technologies in such areas as recycling of plastics, utilization of biomass in raw materials, use of renewable and hydrogen energy, and reuse of water. For example, Toray is engaging in material recycling*1 and recycling within our operating processes, which reuse plastic products such as fibers and textiles, resins, and films. In addition, we have already produced nylon fiber products through chemical recycling*2 that turns unrecyclable plastics into basic chemicals such as monomer and gas. Furthermore, Toray is promoting the development of products made using plant-derived raw materials rather than petroleum, and membrane-integrated biotechnology that effectively produces these raw materials. Moreover, Toray technologies are being used in areas including materials for wind turbine blades that generate energy used in manu- facturing processes, materials for equipment that produces hydrogen used to generate renewable energy, and water treatment membranes for recycling wastewater. *1 Material recycling: a recycling process that uses heat to convert used plastic bottles and remnants produced during manufacturing processes into yarn, staple fiber, and other materials. *2 Chemical recycling: a recycling process that breaks down through depolymerization used products and remnants produced during manufacturing processes into monomers that are manufactured back into chips and then recycled into yarn, staple fiber and other materials. Contribute to initiatives including biomass plastics, recycling, promoting of renewable energy and the use of hydrogen, and water reuse Raw material Production Use Fossil resources Membrane- integrated biotechnology Recycling within operating processes, etc. Toray materials (fibers & textiles, resins, films) reuse Use of plant-derived raw materials (bio-PET, nylon raw material, etc.) Biomass Raw material pellets used plastics PET (fibers & textiles, films), ABS resins Nylon fiber products Material recycling Chemical recycling Thermal recycling Toray’s technologies related to energy and water that supports a circular economy Waste Emission gas (CO2) Gas separation membrane Toray’s technologies, products Electric power from renewable energy Hydrogen from renewable energy Water treatment Toray Industries, Inc. Integrated Annual Report 2020 69 Using Biomass Toray has developed processing technology that realizes energy and cost reductions by applying water treatment mem- branes to the biomass saccharification process, which produces cellulosic sugar from non-edible biomass, and is oper- ating a demonstration plant on a trial basis. Toray is pursuing the creation of supply chains that make practical use of this process to manufacture materials and chemicals from non-edible biomass. At the same time, Toray is mass producing partial bio-PET fiber, a biomass-derived fiber made from plant-based ethylene glycol that is used to make such products as Ultrasuede® PX, a nonwoven material created using ultra-fine fibers in an “island in the sea” configuration. At present, Toray has completed prototype production of 100% bio-PET fiber at its demonstration plant, positioning it as a top-level environmentally friendly material mainly for sportswear and automotive interior applications, and Toray aims for mass production as early as possible in the 2020s. Saccharification Conversion/ Refinement Polymerization/ Polymer processes Cellulosic sugar Bio- chemicals Fibers & Textiles Films Resins Biomass (cellulose) Membrane-integrated saccharification process A processing technology that realizes cost reduction through energy-saving and recy- cling by applying water treatment membranes for the biomass saccharification process. Biomass MF mem- brane UF mem- brane NF mem- brane RO mem- brane Cellulosic sugar Installed demonstration plant for cellulosic sugar production in Thailand, started proto- type evaluation by customers. Toray Industries, Inc. Integrated Annual Report 2020 70 Partial Bio-PET fiber (already in mass production) 100% Bio-PET fiber • Completed prototype pro- duction at the demonstra- tion plant • Positioning it as a top-level environmentally friendly material, started proto- type evaluation mainly for sportswear and automo- tive interior applications • Aim for mass production in the 2020s “Ultrasuede® PX,”a nonwoven material created using ultra- fine fibers made with plantbased raw materials Regeneration Type Recycling with ECOUSE™ The reuse of production process wastes and used plastic bottles as raw materials is expected to reduce the use of fossil resources and reduce wastes Collection Sorting Shredding Cleaning Pellets Melting and extrusion Flakes Inspection Spinning Apparel Collection and Circulation Type Recycling with CYCLEAD™ Products and collection system originally designed for collection and recycling after use Bio- chemicals Caprolactam Polymerization Synthesis Refinement Crude caprolactam Nylon 6 Sponning/ Weaving Re-use of materials after depolymerization Recovery of liquids and waste from production of Nylon 6 Fabrics and products made with Nylon 6 Pre-processing: Metals and other foreign substances are removed Collection and pre-processing Sale Users ToraySaccharification Conversion/ Refinement Polymerization/ Polymer processes Cellulosic sugar Bio- chemicals Fibers & Textiles Films Resins Biomass (cellulose) Partial Bio-PET fiber (already in mass production) 100% Bio-PET fiber Biomass MF mem- brane UF mem- brane NF mem- brane RO mem- brane Cellulosic sugar Promoting Recycling Toray is expanding its ECOUSE™ regeneration type recycling material and CYCLEAD™ collection circulation type recycling system into a wide array of business fields including fibers and textiles, resins, and films. As for regenera- tion type recycling, in fiscal 2019, Toray kicked into full gear advanced initiatives to recycle collected plastic bottles to be used as raw materials for textiles and established the new textile business brand &+™ (And plus) with the aim of realizing a sustainable society. As for collection circulation type recycling, Toray has developed its proprietary material recycling system that collects and recycles used fiber and plastic, and is leveraging this system to pursue initiatives in this field. Regeneration Type Recycling with ECOUSE™ The reuse of production process wastes and used plastic bottles as raw materials is expected to reduce the use of fossil resources and reduce wastes Collection Sorting Shredding Cleaning Pellets Melting and extrusion Flakes Inspection Spinning Apparel Collection and Circulation Type Recycling with CYCLEAD™ Products and collection system originally designed for collection and recycling after use Bio- chemicals Caprolactam Synthesis Refinement Polymerization Crude caprolactam Nylon 6 Sponning/ Weaving Re-use of materials after depolymerization Recovery of liquids and waste from production of Nylon 6 Fabrics and products made with Nylon 6 Pre-processing: Metals and other foreign substances are removed Collection and pre-processing Sale Users Toray Industries, Inc. Integrated Annual Report 2020 71 TorayFibers & Textiles The New &+™ Fiber Brand Made from Recycled Plastic Bottles Previously, plastic bottle derived-fibers were limited in variety due to contaminants mixed into raw materials, which made it difficult to produce special cross-sections and fine fibers, as well as issues posed by fiber whiteness being impaired by yellowing from plastic bottle degradation. In response, Toray together with Kyoei Industry Co., Ltd. devel- oped contaminant filtering technology and advanced plastic bottle cleaning techniques to stabilize the supply of raw materials that are impurity-free. Combining these technologies with Toray’s fiber production technology, it is possible to achieve diverse fabric applications with a degree of whiteness equivalent to fibers materials made directly from petro- leum source. Moreover, Toray has commercialized its highly reliable polyester fiber under the &+™ brand by incorpo- rating its proprietary traceability technology that can detect special additives premised in with plastic bottle-based raw materials. Full-scale sales of the &+™ products started in January 2020, and Toray targets sales of over ¥50 billion in 2025 by expanding the scope of sales by leveraging various supply chains (extending from yarn and staple fiber through to textiles and garments) and global production bases. CLEAN RECYCLING TRACEABILITY AUTHENTICITY Promoting Recycling with UNIQLO Together with UNIQLO CO., LTD., Toray is promoting new initiatives for sustainable products, with Toray supplying &+™ fibers made from recycled plastic bottles for UNIQLO’s quick-drying wear DRY-EX brand polo shirts starting in 2020. In addition, UNIQLO stores are collecting used down items from customers to recycle the feathers. Conventionally, the stuffing in duvets and other objects incorporating down is manually removed. Such processes are arduous with Ultra Light Down items because of their thin outer fabric and complex construction. By developing special extraction machinery, Toray has fully automated cutting, stirring and separating, and recovery, for 50-fold the process capacity of manual processes, thus greatly alleviating workloads. Toray and UNIQLO are jointly developing new recycling-based down products from recycled feathers. Toray Industries, Inc. Integrated Annual Report 2020 72 Plastics Air Conditioner Material Recycling Toray provides recycled plastics using its proprietary processing design using remnants produced within production processes and materials derived from used products. Teaming up with customers, Toray has also developed a material recycling system that recycles fans inside used air conditions collected under Japan’s Act on Recycling of Specified Kinds of Home Appliances into new fans. Fans installed in indoor air conditioners use glass fiber-reinforced acrylonitrile-styrene resins, and Toray’s unique collection and foreign substance removal system and materials blending method solve such problems as contamination and glass breakage during recycling as well as realize physical properties nearly equivalent to virgin materials. Used air conditioner (indoor unit) New air conditioner (indoor unit) sorted, shredded Indoor unit fan Indoor unit fan • Cleaning • Metal removal • Shredding • Pelletize Virgin ASG pellets recycling pellets recycling New air conditioner (outdoor unit) Outdoor unit fan Film Building Release Film Collection System Currently, PET release films are mainly disposed or thermally recycled because of the difficulties associated with removing coating materials and resin used at each stage of the supply chain. Building a release film collection system, Toray aims to make use of the recycled films to fibers, films and other Group materials. Recycle to other products From film to film Toray Converter Converter End user Toray End user Other products Toray Collection Reuse Collection Toray Carbon Fiber Carbon fiber is viewed as an important contributor to solving global environmental problems, as its lightweight prop- erties significantly reduce CO2 emissions over the entire lifecycle of products in which it is used. As a result, demand for carbon fiber is expanding across a wide range of applications, including aircraft and automobile parts. In conjunction with the growing demand, market expectations for the development of carbon fiber recycling technologies are rising. Teaming up with Toyota Tsusho Corporation, Toray in July 2017 began operating pilot plant built at a facility run by Toyota Tsusho’s subsidiary Toyota Chemical Engineering Co., Ltd. in order to field test energy-efficient, recycled carbon fiber manufacturing technology. Toray is pursuing the development of recycled carbon fiber applications with an eye towards commercialization. Toray Industries, Inc. Integrated Annual Report 2020 73 Advanced Business Management by Utilizing Digital Technologies The Group-wide Effort to Promote Digital Transformation A key focus in “AP-G 2022” is promoting advancements in management through digital transformation (DX), which will strengthen competitiveness and transform business through the effective use of data and digital technologies. In order to facilitate reviews and discussions regarding group-wide efforts to promote DX, Toray established the TDX Promotion Committee, and under that the Technology Center DX Promotion Committee and the Business Division DX Promotion Committee. The Company is advancing the group-wide TDX Promotion Project in addition to conventional departmental initiatives. Toray Digital Transformation (TDX) Promotion Committee Examples of DX Initiatives Technology Center DX Promotion Committee Drive advancement and streamlining by leveraging digital technology in research and technological development (R&D), and production Business Division DX Promotion Committee Visualize global management information in sales & market- ing, finance & accounting, and purchasing & logistics, and advance business management Research and Technological Development: Research of advanced materials through Digital Monozukuri (manufacturing) Research and development used to require a great deal of trial and error, but efficiency has been greatly improved thanks to simulations and materials informatics, which make the best use of theoretical calculations and data science. Development images can be shared with customers through prototype systems using VR and 3D printers to achieve optimal designs that are consistent from the initial target settings. Accelerate research and development through simulation and informatics Simulation Informatics optimum design In-house data base data collection t e c h n o l o g y t r i a l i n - h o u s e i o n e v a l u a t f u n d a m e n t a l t e c h n o l o g y Setting goals m a s s p r o d u c t i o n c u s t o m e r i o n e v a l u a t Market launch VR 3D printer Share the image of products and development with customers Toray Industries, Inc. Integrated Annual Report 2020 74 Substantially improve the detection of defects with AI technology Defect detection camera Image data defects AI pass shipment failure scrap Labor productivity improvement with an automation system Warehouse Reader Pallets incorporating active tags Streamlining logistics by tracking pallet inventory information online Office PC Automatic inventory control and warehouse management Advanced Business Management by Utilizing Digital Technologies Toray was selected for “Digital Transformation Stocks (DX Stocks) 2020” by the Ministry of Economy, Trade and Industry (METI) and the Tokyo Stock Exchange, as a company actively engaged in DX efforts. Production: Automatic monitoring system utilizing AI technology AI-based image recognition technologies are used to replace visual-based monitoring Substantially improve the detection of defects with AI technology and inspection work previously carried out Defect detection camera by individual employees. This has contrib- uted to a sharp reduction in man-hours and the prevention of abnormalities and defects. We are working to improve productivity by increasing the number of successful cases in which we apply AI technologies in pro- duction operations at each of our plants. Image data defects AI pass shipment failure scrap Labor productivity improvement with an automation system Sales: Holding on-line exhibitions of apparel textiles With many textile companies forced to cancel their exhibitions due to the COVID- 19 pandemic, Toray was able to hold an online exhibition of its spring and summer textiles for men’s and women’s clothing for about 10 days. Materials attracting attention, including Kinari™, were divided into five concept categories, with 73 carefully selected products offered. Orders were accepted online with samples quickly delivered. The online exhibition attracted 652 visitors and won praise as among the first in the industry in using the Internet to select materials. Accelerate research and development through simulation and informatics Simulation Informatics Logistics: Streamlining logistics by adopting labor-saving pallets with active tags optimum design In-house data base data collection m a s s p r o d u c t i o n c u s t o m e r e v a l u a t i o n Market launch t e c h n o l o g y t r i a l i n - h o u s e e v a l u a t i o n f u n d a m e n t a l t e c h n o l o g y Setting goals VR 3D printer Share the image of products and development with customers Toray is an industry leader in introducing the Smart Pallet®* pallets equipped with the active RFID tags of UPR Corporation to transport resin products in Japan. Without the need of manual inventory count, the sys- tem automatically keeps track of the number of pallets at the shipping source and makes it possible to use forklifts to load and unload pallets not only within the Company but also at each stage from the delivery com- pany to the customer’s location, thus greatly reducing the burden of labor on women and the elderly. * The Smart Pallet® was jointly developed by UPR Corporation and NTT Corporation. Its active tag uses technology that is state of the art and can transmit data to a reader up to 300 meters away. Smart Pallet® is a registered trademark of UPR Corporation. Warehouse Reader Pallets incorporating active tags Streamlining logistics by tracking pallet inventory information online Office PC Automatic inventory control and warehouse management Toray Industries, Inc. Integrated Annual Report 2020 75 risk management Basic Approach Toray Group regularly identifies potential management the Corporate Planning Division (Executive Vice President), tasking it with reviewing, discussing and promoting shared risks affecting the Group’s management activities in awareness of risk management across the entire Toray order to mitigate risks and seeks to prevent a crisis. Group. This committee primarily carries out priority risk In addition, the Group strives to prevent damage from mitigation activities as part of regular risk management. spreading and to promptly control and normalize the situ- In addition, the Overseas Crisis Management Committee ation by ensuring quick and appropriate responses using and Local Crisis Management Committees, which man- the emergency quick response system it has established. age employees’ overseas travel under normal condi- Structure The risks affecting Toray Group are constantly changing, tions and compile information on overseas risks, have also been made subordinate to the Risk Management Committee. Matters deliberated at and reported by the and the Group gives critical importance to reinforcing its Risk Management Committee are periodically reported system for responding to risks that materialize suddenly to the Board of Directors. due to changes in the surrounding environment and for responding promptly when crises do occur. To this end, in April 2018, Toray established a dedicated organization to communicate closely with the Board of Directors and Strengthening the Emergency Quick Response System top management and to pursue risk management as an Toray Group has established Risk Management Regulations, integral part of the management strategy. This organiza- a set of clear fundamental principles that form the basis of tion manages overall risk under normal conditions and a company-wide response in the event of a major crisis. ensures a quick response when crises do occur. The Group works to ensure the thorough implementa- The General Manager of the Corporate Strategic tion of these rules when required. Moreover, the Group Planning Division periodically reports on the progress reviews the rules as appropriate to prepare for new risks of risk management to the Board of Directors, and also that emerge due to changes in the social environment. reports on important emergency matters whenever In order to ensure quick management decisions espe- such occur to the Board of Directors without fail. cially in the event of a crisis, Toray Group has clarified the Establishment of Risk Management Committee reporting channel from a department where a crisis has occurred, covering group companies in and outside of Japan. In recognition of the fact that serious risks associ- ated with employees’ health and safety, as well as with In May 2018, Toray established the Risk Management business continuity, have grown dramatically following Committee, which is chaired by the General Manager of the emergence of COVID-19, the Group established a Risk Management System (After June 2019) Risk Management Committee Chairperson: Corporate Strategic Planning General manager (Executive Vice President) Company-wide Countermeasures Headquarters, for which the Executive Vice President (Representative Member of the Board) serves as chief, on February 7, 2020, based on the mechanisms of this Emergency Quick Response System. The Company-wide Countermeasures Headquarters has taken the lead on implementing the Directions on information measures Activity reports Directions Reporting following measures in light of infection prevention instruc- Priority Risk Mitigation Activities Divisions and Departments responsible for Priority Risk Mitigation Overseas Crisis Management Committee tions and requests made by the countries and local gov- ernments where the Group’s business sites are located. • Plan and execute measures to protect the safety of Directions Reporting employees Toray Industries, Inc. and its group companies in and outside Japan Local Crisis Management Committees in each country and region • Ascertain the health of employees in each coun- try, including Japan, and make an appropriate response when an employee becomes infected • Provide appropriate support for domestic and overseas group companies, etc. Toray Industries, Inc. Integrated Annual Report 2020 76 Risk Management Initiatives 1. Periodic risk management (priority risk mitigation activities) annual activities for Toray Group overall are reported to the Risk Management Committee every year, and the status of progress status is monitored. Toray discusses Toray Group exhaustively identifies group-wide risks and establishes an annual activity plan for the next fis- (climate change, natural disasters, legal violations, cal year that addresses the monitoring results and any scandals, etc.) and identifies important risks after new risks that have materialized due to changes in the carrying out an assessment to determine the relative environment. importance of each risk. Ultimately, priority risks are determined after consulting with the Risk Management Committee. Priority risks are addressed with risk mitigation 2. Routine risk management (monitoring trends in and outside Japan, identifying, assessing and monitoring risks) activities following the PDCA cycle over a three-year Toray routinely monitors domestic and overseas trends period. In the priority risk mitigation activities for the and identifies risks that could have a major impact on fourth cycle (fiscal 2018-2020), Toray set quality man- Toray Group’s management. When such risks are iden- agement, earthquake response, information manage- tified, the Company promptly develops a company-wide ment and socially responsible procurement, among system to address them and takes the necessary group- others, as its priority risks. These efforts extend to the wide countermeasures. Group overall, including group companies in and out- side Japan. Toray assigns a department responsible for each 3. Response in the event of a crisis Based on the Risk Management Regulations, a com- priority risk and integrates group-wide activities using a pany-wide quick response system (Company-wide three-year road map for risk mitigation activities as well Emergency Headquarters) is formed to respond to the as an annual activity plan. In addition, the results of the crisis that has occurred. Emergency Quick Response System President Propose establishment of Emergency Headquarters General Manager of Corporate Strategic Planning Division; Leader of Risk management Group, Corporate Strategic Planning Division Officials responsible when emergency occurs (Heads of divisions and departments) First report • Report from department where crisis occurred • Media Coverage • Accusations and misinformation from external organizations, etc. Company-wide Emergency Headquarters Chief Sub chief Staff Secretariats (Overall Secretariat: Corporate Strategic Planning Division; Head of Secretariat: General Manager of Corporate Strategic Planning Division) Emergency press releases On-site emergency headquarters (Emergency headquarters of each office, plant, and company/country) Supporting plants Chief Staff Secretariats Notification to relevant divisions Toray Industries, Inc. Integrated Annual Report 2020 77 Risk Management Business Risks Operational and other risks faced by Toray Group that could carrying out global operations, Toray Group is striving to build a management structure that is well-shielded from have a major influence on the decisions of investors are the impact of exchange rate fluctuations. Moreover, described below. Toray Group works constantly to avoid Toray Group works to gather information regarding cur- such potential risks, minimize their impact, and build a sys- rency movements in each country (region), while at the tem to enable swift responses and accurate information same time monitoring the exchange rate exposure of disclosure on the occurrence of unforeseen situations. group companies and their hedge position as part of its Please note that the risks described below are not all of efforts to mitigate currency exchange risk. those identified by Toray Group, and do not represent all the operational and other risks that could affect Toray Group. Addressing Risks Related to Overseas Operations Toray Group is developing a broad geographical pres- • Domestic and overseas demand and product ence, with operations in various countries/regions such market trends as Asia, Europe and the U.S.A. Some of the major • Rising prices of fuel and raw materials potential risks associated with various regions are sum- • Capital expenditures, joint ventures, alliances and marized below. If such risks were to become reality, acquisitions, etc. Toray Group’s results of operations and financial condi- • Fluctuations in foreign currency, interest rate, and tions could be negatively affected. the securities market • Changes in assumptions on which forecasts are (1) Unforeseen introduction, changes or abolition of based that might affect employee retirement laws and regulations, such as changes in taxation benefit obligations and deferred tax assets systems and tariffs which affect adversely • Overseas operations • Product liability • Lawsuits • Laws and regulations, taxes, competition poli- cies, and internal controls • Natural disasters and accidents • Information security risks • Environmental issues • COVID-19 Addressing Fluctuations in Exchange Rates Foreign currency exchange rate fluctuations affect (2) Unforeseen, disadvantageous economic or polit- ical events (3) Social upheaval, including acts of terror and war When making decisions regarding investments related to the overseas operations, Toray Group collectively considers and carefully investigates the investment country (region) in terms of the current and long-term outlook for the political, economic, and social climate, the organizational status of the legal system, and the development status of the regional economic sphere. During the investment execution period, Toray Group also references the execution plan (progress schedule), Toray Group’s consolidated financial statements when which integrates the local political, economic, security, the financial statements of the overseas operations and legal system related risk items, that was formulated presented in local currencies are translated into yen. when the investment decision was made, and makes Toray Group takes measures, such as entering for- periodic follow-ups regarding the progress status of the ward exchange contracts, to alleviate risks associated project. Moreover, once the investment project is com- with transactions denominated in foreign currencies. pleted, the latest information for each region is acquired However, unforeseen exchange rate fluctuations could and information related to country risk, including safety have an impact on Toray Group’s results of operations issues, is shared throughout the Group. and financial conditions. In response to currency rate fluctuations, Toray Group utilizes its strength of maintaining business bases throughout the world while encouraging local produc- tion for local consumption. At the same time, by flexibly Toray Industries, Inc. Integrated Annual Report 2020 78 Addressing Major Earthquakes Toray Group maintains a business continuity plan (BCP) Based on these regulations, the Company established the Group-wide Information Security Management in case of a major earthquake, which has been identified Director as the officer responsible for the entire Group. as a priority risk to address. The Group-wide Information Security Management Toray Group has established a basic policy for ensur- Director discusses and coordinates measures related to ing business continuity in the event of a major earth- enhancing information security with the related depart- quake. Namely, Toray Group prioritizes the safety of its ments, and promotes the deployment of such. Under employees and preventing any impact on the local com- the Group-wide Information Security Management munity, strives to prevent the further spread of damage Director, the Group is working to enhance information and the event of secondary disasters, continues to sup- security by defining the roles and responsibilities of ply key products and works toward a rapid recovery of each division and department, and by establishing an business operations, and fulfills its social responsibility Information Security Committee in each department to to continue supplying products. As part of this process, promote these. Toray Group continues to conduct evacuation drills in In terms of the electronic information security sec- the event of an earthquake, make systematic quake-re- tor, which has been faced with growing risk of late, the sistant upgrades to plant buildings, and draft BCPs. Group formulated the Electronic Information Security In fiscal 2019, domestic and overseas group compa- Standards based on the Confidential Information nies also created and began implementing BCPs for key Management Regulations in order to appropriately man- products selected from each business in accordance age intellectual property and to implement measures with the procedures for developing BCPs for designated designed to prevent information leaks. priority products in an earthquake. Moreover, each group company formulates basic In addition, Toray Group has conducted drills to rules in accordance with Toray’s regulations and stan- establish a temporary group-wide headquarters based dards, and promotes measures related to information on a scenario involving a large-scale earthquake every security. year since fiscal 2012. Going forward, Toray Group will Along with thoroughly implementing and enhanc- continue to enhance its ability to respond in the event of ing existing initiatives, such as standardizing and auto- an earthquake through such drills. mating computer settings and security measures, the Addressing Information Security Related Risks Toray Group’s information systems and networks are Group is taking steps that include analyzing and moni- toring the content of communications. Simply taking steps against increasingly sophisti- fundamentally essential elements in the execution of cated cyber-attacks from the stance of IT is insufficient, the Group’s business operations and every security however, so the Group also enhances education and precaution is taken in their development and opera- training initiatives, which include conducting suspicious tion. However, if such an incident as a work stoppage, e-mail response training for all employees. a loss of trust in the Group, and a leak of confidential In addition to providing information security educa- information were caused by unauthorized access, data tion for all employees on an annual basis, the Group alteration, theft or deletion, an interruption of system conducts training specified for employees at different operations, or any other information security threats, levels, including new employees and newly appointed Toray Group’s earnings and financial conditions could be managers, in aims of improving security awareness and negatively affected. skill-levels. Toray formulated its Confidential Information Before removing a computer or smartphone from Management Regulations and Regulations for the an office, for example, employees must receive per- Management of Personal Information for the purpose of mission from a manager, and the actual device must protecting confidential information and personal informa- be inspected monthly. Moreover, the Group has estab- tion owned by the Company, and of appropriately manag- lished approaches to dealing with the loss of such ing the confidential information and personal information devices and other similar incidents, and has built mech- entrusted by suppliers and stored by the Company. anisms to minimize damage thereof. Toray Industries, Inc. Integrated Annual Report 2020 79 TCFD-related initiatives Support for the TCFD Recommendations One of Toray’s goals is to be a corporate group playing an The expansion of our Green Innovation business, which contributes to the resolution of global environmental prob- active role in protecting the environment. With that in mind, lems as well as energy and resource issues, is led on a the entire Group is committed to creating innovative tech- company-wide basis by the Global Environment Business nologies and advanced materials that provide the essential Strategic Planning Department, which operates under the solutions to global environmental issues. The Group is also control of an Executive Vice President (Representative focused on reducing environmental impacts throughout the Member of the Board). entire global supply chain, including at the production stage. In regard to reducing emissions at the production stage, In May 2019, Toray declared its support for the Task Force under the leadership of the Corporate Vice President, General on Climate-related Financial Disclosures (TCFD) recom- Manager of the Engineering Division, our goal is to reduce mendations, and has been actively disclosing our progress greenhouse gas emissions and water consumption per unit toward meeting our climate change-related targets, as well of sales by 30% compared to fiscal 2013 by fiscal 2030. coal coal as information regarding our Green Innovation business, research and technological development, and other topics. URL: https://www.toray.com/sustainability/tcfd/ Toray Group Efforts in Response to Climate Change Governance System Three group-wide committees—the CSR Committee, In the Toray Group Sustainability Vision, Toray Group describes four perspectives of the world it envisions the Risk Management Committee, and the Safety, for 2050, including a “net zero emissions world, where Health, and Environment Committee—monitor, eval- greenhouse gas emissions are completely offset by uate, and manage social challenges, including climate absorption,” and also sets out issues to be addressed change, and the associated risks at Toray Group. Under to achieve this and quantitative targets for fiscal 2030. this structure, the Board of Directors receives reports on committee discussions, overseeing committee prac- tices and making decisions. In addition to this structure, the Global Environment Business Strategic Planning FY 2013 Actual (baseline year) (J-GAAP) FY 2030 Targets (compared to FY 2013) (IFRS) GR Net sales, Revenue 463.1 billion yen 4 fold Department reports on global environmental initiatives LI Net sales, Revenue 119.6 billion yen 6 fold and presents proposals for expanding Green Innovation businesses at meetings attended by the Board of Directors twice a year. CSR Committee Risk Management Committee Safety, Health, and Environment Committee Chaired by the Chief CSR Officer (Corporate Vice President), this committee discusses CSR- related issues centered on ESG and promotes Toray Group CSR-related activities. (Meeting held once a year) Chaired by the General Manager of the Corporate Strategic Planning Division Executive Vice President (Representative Member of the Board), this committee discusses critical risks that may affect Toray Group operations, including climate change, and promotes Toray Group risk management. (Meeting held once a year) Chaired by the General Manager of the Manufacturing Division (Senior Vice President), this committee discusses Toray Group policies and measures related to safety, health, accident prevention, and the environment and promotes Toray Group safety, health, accident prevention, and environmental activities, including the reduc- tion of greenhouse gas emissions. (Meeting held once a year) Avoided CO2 emissions 40 million tons 8 fold Contributed annual water filtration throughput 27.23 million tons/day 3 fold Greenhouse gas emissions per unit of sales, revenue in production activities 33.7 tons/ billion yen 30% reduction Water consumption per unit of sales, revenue in production activities 1,520 tons/ billion yen 30% reduction Reducing Emissions at the Production Stage Numeric targets for achievement by 2030 in the Toray Group Sustainability Vision include reducing in greenhouse gas emissions and consumption per unit of sales by 30% compared to fiscal 2013, which we aim to achieve through the launch of the company-wide “Challenge 30 Project*.” We have also formulated and implemented specific action plans with the goal of reducing CO2 emissions at the Toray Industries, Inc. Integrated Annual Report 2020 80 • Implement regular energy-saving activities with stronger cooperation between sites in and outside Japan, and Challenge 30 Project adopt successful case studies across the Group • Reduce usage of coal by increasing the usage of biomass fuels etc. • Promote wastewater recycling, etc. with Toray Group’s water treatment technologies Reduction of GHG emissions Reduction of water usage sewage sludge construc- tion waste manufac- turing process waste- water storage waste- water treatment Wastewater treatment plant (external facility) in-house boiler mixed combustion in-house boiler Conventional Expand use of biomass fuels Wastewater recycling in plants water quality adjustment Toray’s technology Sludge/ Brine water Promote R&D of various products for the realization of a low-carbon circular economy Production Transportation, Storage Use Electricity from Wind Power, Solar Power, etc. (renewable) Electrolyzer Hydrogen Gas Hydrogen Compressor Hydrogen Gas Station Hydrogen Gas Fuel Cell Vehicles (including Range Extender (REX) type) ・Polymer Electrolyte Membrane, CCM, MEA ・Carbon Paper, GDL ・Polymer Electro -lyte Membrane ・CCM, MEA ・Carbon Fiber for Tanks, Plastic Liner ・CP, GDL ・CCM, MEA ・Polymer Electrolyte Membrane ・Carbon Fiber for Tanks, Plastic Liner Natural Gas Reforming Hydrogen Purifier Hydrogen Gas Tank Household, Stationary Fuel Cell Toray products & developing products CP: Carbon Paper, GDL: Gas Diffusion Layer, CCM: Catalyst Coated Membrane, MEA: Membrane Electrodes Assembly production stage, including through the reduced use of coal, enhanced use of renewable energy, and reduced energy consumption through process improvements. * The Challenge 30 Project is the successor to the in-house project Challenge 25, focused on Toray and its domestic affiliated companies. The project, expanded and promoted on a group-wide basis, adds a focus on water utilization and includes overseas affiliated companies. • Implement regular energy-saving activities with stronger cooperation between sites in and outside Japan, and Challenge 30 Project adopt successful case studies across the Group • Reduce usage of coal by increasing the usage of biomass fuels etc. • Promote wastewater recycling, etc. with Toray Group’s water treatment technologies Reduction of GHG emissions Reduction of water usage coal coal sewage sludge construc- tion waste manufac- turing process waste- water storage waste- water treatment Wastewater treatment plant (external facility) in-house boiler mixed combustion in-house boiler Conventional Expand use of biomass fuels Wastewater recycling in plants water quality adjustment Toray’s technology Sludge/ Brine water Research and Development to Realize a Hydrogen-based Society production, transport, storage, and utilization of hydro- gen. As an example, in the field of polymer electrolyte fuel cells, which are used in fuel cell vehicles, Toray is The “AP-G 2022” plan aims to invest ¥220 billion in upgrading production facilities for catalyst coated mem- research and development for large-scale themes over branes (CCM) and membrane electrode assemblies the three years from fiscal 2020 to fiscal 2022. Half of (MEA), which are considered core components. Through that amount is allocated to the Green Innovation busi- the supply of these products and the development of ness, with one of the key themes being the promotion their technologies, Toray aims to contribute to the real- of research and technological development in hydro- ization of technologies for the manufacture and utiliza- gen and fuel-cell materials. Toray is expanding its busi- tion, including in infrastructure, of hydrogen, and the ness through R&D in numerous products used in the creation of a sustainable low-carbon circular economy. Promote R&D of various products for the realization of a low-carbon circular economy Production Transportation, Storage Use Electricity from Wind Power, Solar Power, etc. (renewable) Electrolyzer Hydrogen Gas Hydrogen Compressor Hydrogen Gas Station Hydrogen Gas Fuel Cell Vehicles (including Range Extender (REX) type) ・Polymer Electrolyte Membrane, CCM, MEA ・Carbon Paper, GDL ・Polymer Electro -lyte Membrane ・CCM, MEA ・Carbon Fiber for Tanks, Plastic Liner ・CP, GDL ・CCM, MEA ・Polymer Electrolyte Membrane ・Carbon Fiber for Tanks, Plastic Liner Natural Gas Reforming Hydrogen Purifier Hydrogen Gas Tank Household, Stationary Fuel Cell Toray products & developing products CP: Carbon Paper, GDL: Gas Diffusion Layer, CCM: Catalyst Coated Membrane, MEA: Membrane Electrodes Assembly Risk Management Initiatives Because Toray’s business is so diverse in terms of products and climate change-related applications. For assumptions regarding environmental changes through 2050, we will refer- and their applications, we are looking to focus our risk and ence the reports from the International Energy Agency (IEA) opportunity analysis on product groups with strong revenue and the Intergovernmental Panel on Climate Change (IPCC). Toray Industries, Inc. Integrated Annual Report 2020 81 ENVIRONMENTAL MANAGEMENT INITIATIVES Promoting Life Cycle Management In addressing global environmental issues, it is vital to con- sider the entire life cycle of products and services in order to reduce environmental impact while also delivering improved economic and social value. In this respect, Toray Group prac- tices life cycle management (LCM). LCM is the basis for Green Innovation products, and the Group has adopted life cycle assessment*1 and the Toray Eco-Efficiency Analysis (T-E2A)*2 tool and is working to establish LCM as a tool to measure CO2 reduction in the entire life cycle of products and services. Those products that are able to demonstrate objective evidence of providing an effective solution for global environmental issues are certified as Green Innovation products, only after the products are subjected to a two- stage screening process by the divisional committees and the group-wide Green Innovation Certification Committee. *1 Life cycle assessment is a method for quantitatively assessing the resources that have gone into a product and the impact the product will have on the environment and ecosystems over its life cycle. *2 T-E2A is an environmental analysis tool developed by Toray Industries, Inc. It produces a map of multiple products plotted along the axes of environmental impact and economic performance, enabling users to select the most environmentally friendly and economical products. Toray’s Life Cycle Management Approach Analysis & assessment Life cycle assessment (LCA) Product assessment in terms of environmental aspects Life cycle cost (LCC) Product assessment in terms of economic aspects Environmental assessment tools Environmental contribution indicators CO2 emissions reduction due to adoption of Green Innovation products Assessment of the total reduction of CO2 attributable to Toray’s Green Innovation products over their entire life cycle Eco-efficiency analysis T-E2A Product assessment in terms of environmental and economic aspects Environmental Accounting Toray has been practicing environmental accounting since 1999, to track investments and gauge their cost effectiveness. Environmental Facility Investment and Environmental Preservation Costs (Billion yen) 8 6.56 6.71 Environmental Facility Investment Environmental Preservation Costs 7.13 6.98 6.81 6 4 2 0 2.70 2.68 2.02 1.26 1.31 (FY) 2015 2016 2017 2018 2019 Addressing Climate Change Reduction of greenhouse gas emissions per unit of sales (compared to fiscal 1990) 31.8% reduction Toray has established “Reducing more than 15% below the fiscal 1990 level, and maintaining that level until fiscal 2020” as its goal for reducing greenhouse gas emissions, and the Company is continuing to implement its targeted measures aimed at reducing emissions. In fiscal 2019, the Company reduced CO2 emissions by 95,000 tons com- pared to the previous fiscal year. Toray has continued to meet its target for reduced emissions, with greenhouse gas emissions dropping 4.8% year-on-year to 1.86 million tons, which was a 27.1% reduction compared to fiscal 1990. While expecting increased production moving for- ward in line with an expansion in its business, the Company will continue to implement measures designed to ensure that it meets its reduction target until fiscal 2020. With the goal of reducing greenhouse gas emissions by fiscal 2020 on a per unit of sales basis by 15% compared to the fiscal 1990 level, Toray and its group companies in Japan are committed to curbing climate change. Emissions of greenhouse gas by Toray and its group companies were down 5.6% in fiscal 2019 compared to the previous fiscal year. Greenhouse gas emissions per unit of sales improved 2.1 points compared to the previous fiscal year and were 31.8% below the level shown in the base year. Fiscal 2019 greenhouse gas emissions for Toray Group worldwide were 5.76 million tons-CO2 equivalent, up 2.3% compared to the previous fiscal year. All Toray Group man- In fiscal 2019, the Company’s environmental facility ufacturing companies and plants will work to achieve the investment amounted to 1.31 billion yen, up 50 million Group’s goal of reducing the per-unit energy consumption yen compared to the previous fiscal year. Environmental rate* by 2% each fiscal year and strive to reduce green- preservation costs totaled 7.13 billion yen, up 0.15 billion house gas emissions throughout the Group. yen compared to the previous fiscal year. *Energy consumption per converted unit of production volume Toray Industries, Inc. Integrated Annual Report 2020 82 Environmental Facility Investment and Environmental Preservation Costs (Billion yen) Environmental Facility Investment Environmental Preservation Costs 6.81 6.98 7.13 6.56 6.71 2.70 2.68 2.02 1.26 1.31 (FY) 2015 2016 2017 2018 2019 8 6 4 2 0 Toray’s Life Cycle Management Approach Analysis & assessment Life cycle assessment (LCA) Product assessment in terms of environmental aspects Life cycle cost (LCC) Product assessment in terms of economic aspects Environmental assessment tools Environmental contribution indicators CO2 emissions reduction due to adoption of Green Innovation products Assessment of the total reduction of CO2 attributable to Toray’s Green Innovation products over their entire life cycle Eco-efficiency analysis T-E2A Product assessment in terms of environmental and economic aspects Energy Conservation Measures Energy Consumption (year-on-year) 4.0% decrease Management of Air Quality For fiscal 2019, the Toray Group as a whole reported a 27% decrease in sulfur oxide (SOx) emissions compared to the previous fiscal year, but increases of 6% in nitrogen oxide (NOx) and 32% in dust emissions. SOx emissions Toray is vigorously working on energy conservation activ- improved thanks to the use of low-sulfur coal at over- ities with the goal of reducing its per unit energy con- seas affiliated companies, while NOx and dust emissions sumption by 2% annually. In fiscal 2019, the Company’s increased due to increased production at certain plants. energy consumption was down 4.0% year-on-year due mainly to decrease in production volumes at some of its plants. Meanwhile, its per-unit energy consumption Management of Water Resources Through its water treatment business, Toray Group has deteriorated 3.1% year-on-year (14.1% improvement been working to resolve water resource issues around compared to fiscal 1990 base year) as the ratio of fixed the world. We are also working to appropriately manage energy which do not contribute to production increased, and make effective use of water in our own business due to lower production volumes. activities by promoting its recycling and reuse. When Voluntary Initiatives to Reduce Atmospheric Emissions of Chemical Substances Atmospheric Emissions of PRTR Law-specified Substances (compared to fiscal 2000) 73% reduction VOC Atmospheric Emissions (compared to fiscal 2000) 76% reduction taking in and using water resources, we strive to fol- low the 3Rs (reduce, reuse, and recycle), and check the quality of water before discharging it into public water areas. In particular, overseas affiliated companies oper- ating in drought areas are recycling cooling water and effluent water as they work to reduce industrial water consumption. In fiscal 2019, Toray Group used 230 mil- lion tons of water, about the same as in the previous fiscal year. Compared to the amount used per unit of sales in fiscal 2001, set to an index value of 100, usage in fiscal 2019 stood at 51.7 points, representing a dete- rioration of 0.7 points from the previous fiscal year. This is due to decrease in the net sales of the Group, while As a corporate group that does business in the chemicals water usage remained at the same level. sector, Toray Group places the highest priority on reduc- ing emissions of chemicals into the atmosphere in order to reduce its environmental impact. In fiscal 2019, Toray Initiatives to Reduce Waste Toray Group is carrying out zero emission initiatives as Group’s atmospheric emissions of PRTR Law-specified it works toward the realization of a sustainable, circular substances were 720 tons, representing a 73% reduc- economy. Under the Fifth Medium-Term Environmental tion compared to fiscal 2000, while VOC atmospheric emissions were 968 tons, representing a 76% reduction compared to fiscal 2000. As such, the company met its Fifth Medium-Term Environmental Plan target for a 70% Plan, the Group worked to achieve its fiscal 2020 targets for rates of simply disposed waste*1, landfill waste*2 and recycled waste*3, which have been set as indicators for measuring progress toward attaining zero emissions. reduction in emissions compared to fiscal 2000. In fiscal 2019, simply disposed waste increased by Initiatives to Prevent Air and Water Pollution about 4,600 tons compared to the previous fiscal year in line with the effects from the narrowing down or sus- pension of operations at domestic affiliated companies’ plants. As a result, the simply disposed waste rate in Toray Group implements ongoing initiatives at production fiscal 2019 for Toray Group as a whole deteriorated 3.0 sites to reduce sulfur oxide (SOx) emissions by installing points from the previous fiscal year to 24.6%, which desulfurization equipment and converting to cleaner fuels, failed to meet the target of less than 22.5%. In addition, and reduce chemical oxygen demand (COD) by expanding the landfill waste rate for the Toray Group as a whole wastewater treatment facilities. was 8.3%, deteriorating from previous year’s 7.3%. The Toray Industries, Inc. Integrated Annual Report 2020 83 Environmental Management Initiatives increase in simply disposed waste value appears a tem- Plants at Toray and Group companies in Japan oper- porary development due to the removal of a production ate greenery policies and plans through around 2020, plant of a domestic affiliated company due to its termi- nation of business, but this is confined to fiscal 2019. As such, the Company expects an improvement from fiscal 2020. While the recycling rate was impacted by the removal of a production plant of a domestic affiliated company due to its termination of business, ongoing efforts to promote recycling at overseas affiliated com- panies resulted in the Toray Group recycling rate improv- ing 0.7 points from the previous fiscal year to 86.4%. guided by Toray Group Basic Policy for Increasing Green Areas*1. The plans encompass initiatives to conserve green areas as much as possible, including healthy nat- ural forests*2, that have been protected since the plants began operating. *1 Toray Group Basic Policy for Increasing Green Areas was established in 2012, evolving out of greenery policies that were first established in 1973. *2 Natural groves or forestation by species based on potential native vegetation *1 Simply disposed waste rate = (incineration +landfill) / total waste *2 Landfill waste rate = landfill waste / total waste *3 Recycling rate = (recycled resources + resources with monetary worth) / (total waste + resources with monetary worth) Progress on the Fifth Medium-Term Environmental Plan Biodiversity Initiatives Toray Group views conservation of biodiversity as a criti- Toray Group is now implementing its Fifth Medium-Term Environmental Plan, which runs from fiscal 2016 to fis- cal 2020. The plan aims to further reduce the Group’s cal global environmental issue that is of equal importance environmental impact. Amid further projected increases to reducing greenhouse gas emissions, as an important in production volumes for products such as high-perfor- theme regarding global environmental problems, and mance films, the Group will continue to pursue envi- pursues biodiversity initiatives in accordance with a ronmental initiatives in order to achieve the challenging three-year action road map and sets its priorities based targets of the new plan. The Company announced the on the Group’s Biodiversity Initiatives. In fiscal 2019, the Toray Group Sustainability Vision in July 2018, and will Company promoted activities aimed at reviewing raw continue in its efforts to reduce emissions from fiscal materials containing biological ingredients. 2020, in order to achieve its targets. Progress on the Fifth Medium-Term Environmental Plan Target Area Toray Group fiscal 2020 target Fiscal 2019 results Curbing global warming Management of chemical substances Maintain greenhouse gas emissions at least 15% below the fiscal 1990 level (Toray) 27% reduction 15% or greater reduction in greenhouse gas emissions per unit of sales compared to fiscal 1990 (Toray Group in Japan) 32% reduction Atmospheric emissions of PRTR Law-specified substances: Maintain at least 70% below the fiscal 2000 level (Toray Group) 73% reduction Atmospheric emissions of volatile organic compounds (VOCs): Maintain at least 70% below the fiscal 2000 level (Toray Group) 76% reduction Zero emissions goal: Achieve at 45 or more Toray Group plants Achieved at 44 plants Waste reduction Simply disposed waste rate: 22.5% or lower (Toray Group) Recycling rate: Maintain at 86% or more (Toray Group) Landfill waste rate: 1.3% or lower (Toray Group in Japan) 24.6% 86.4% 8.3% Toray Industries, Inc. Integrated Annual Report 2020 84 Human Resources Management Committed to Human Rights We at Toray Group believe respect for human rights is a mandatory management principle for ensuring the continu- ity of corporate activities and building positive relationships with all of the Group’s stakeholders. Along with working to promote and raise awareness of human rights, the Group has declared its commitment to the respect of human rights in its Corporate Guiding Principles and Ethics & Compliance Code of Conduct. In the Code, discrimination of any kind based on race, creed, skin color, gender, religion, national- ity, language, physical characteristics, socioeconomic sta- tus, place of birth, or any other personal characteristics, is strictly forbidden in every process from recruiting and hiring to work placement, treatment, training, and retirement. The Ethics & Compliance Code of Conduct also explicitly states that sexual, maternity, and power harassment in the workplace shall not be tolerated. The Group has also been tackling the issue of discrimination based on gender identification and sexual orientation. In January 2017, the Group established a dedicated hotline for LGBT (sexual minority) issues, Nijiiro Consultation Service. In addition, as a global enterprise, the Group respects international norms such as the Universal Declaration of Human Rights, the International Labor Organization’s conventions, and the UN Guiding Principles on Business and Human Rights. The Group has also established the Toray Group Policy for Human Rights, which lays out the Group’s commitment to ensuring that it is not complicit in any human rights violations in the overall supply chain and to promptly and appropriately addressing issues if and when they arise. Identifying, Assessing, and Preventing Human Rights Risk Toray Group conducts surveys related to awareness, edu- cation, and other human rights promotion activities once per year at all offices and plants, major Group companies in Japan, and overseas subsidiaries and affiliated companies. The Group verifies the results of these through the Human Rights Promotion Committee in Japan and the Global Human Rights Promotion Committee. From among the results, the Group identifies human rights related issues and problematic points, as well as points of concern, and investigates and implements initiatives in accordance with the human rights promotion framework. Moreover, the Group has designed systems (Corporate Ethics and Legal Compliance Helpline in Japan and whistle-blowing contact offices at each over- seas company) that enable Group employees to report and consult on human rights issues as part of its efforts to take prompt, appropriate action when a problem occurs and to help reduce human rights risk. Securing and Developing Human Resources to Create New Value Training Expenditures per Employee 96,821yen (Toray, FY 2019) The success or failure of a company is decided by its people— employees shape its destiny. Guided by this concept, Toray Group, both in and outside of Japan, regards human resources as the most important management resources and consid- ers securing and developing outstanding human resources capable of performing on a global stage as a fundamental management priority. Based on the following four goals, Toray Group is promoting human resource development. • Development of fair-minded individuals who act with high ethical standards and a sense of responsibility • Training of professionals with advanced expertise, tech- nical skills and originality in problem solving • Development of leaders who act with foresight and a sense of balance • Development of individuals, professionals, and leaders who can play an active role in global business Systematic and Effective Training Toray develops well-designed training programs and system- atically executes diverse training programs to enhance man- agement, sales and marketing, production technology, and specialized skills, and to better equip employees to address globalization. These programs cover all levels of employees and fields, aiming to develop future management candidates while expanding and educating the base of core staff ready to employ their strong capabilities to lead on the frontlines. Development of Future Management Candidates Toray Group implements training in order to systematically develop future management candidates. Numerous employ- ees who have undergone the training are already active in management positions. Since fiscal 2014, Toray Group has been working on a succession plan and personnel development plan based on a medium- and long-term perspective and drawing up a medi- um-term human resources plan and practicing systematic personnel assignment to ensure that core staff can tackle important business issues. The Group implements human resources strategies designed to support business strategies by verifying the availability of successor candidates for core positions and developing individualized development plans for future management candidates, including for national staff at group companies outside Japan. As a means of strengthening these efforts, in fiscal 2019 the Group began utilizing a new human resources information infrastructure in the formulation of its medium-term human resource plan. Toray Industries, Inc. Integrated Annual Report 2020 85 Human Resources Management Promoting Diversity Toray Group is committed to securing outstanding human resources who have a high sense of ambition and who can play an active role in global business, regardless of gender, nationality, or career history at the time of hiring, as part of our efforts to build thriving workplaces in which a diverse range of individuals can fully demonstrate their potential. Fostering an Organizational Culture Conducive to the Career Advancement of Women Women in Management Positions 5.1% (Toray, FY 2019) Toray has long advanced the creation of workplace environ- ments in which women will feel comfortable in performing their duties. The number of female employees in upper-level positions has increased steadily, and as of April 2020, women held 9.7% of unit manager or higher positions, and 5.1% of section manager or higher positions. In fiscal 2016, based on Japan’s Act on Promotion of Women’s Participation and Advancement in the Workplace, enacted in that same year, Toray developed an action plan to increase the percentage of female employees promoted to managerial positions by focusing on making and steadily implementing individualized career plans and raising awareness of career development. Under this action plan, Toray has set as its immediate target to ensure an average promotion rate for women that is at least 80% that of men* for the five-year period from fiscal 2016 to fiscal 2020. This figure is the Japanese Ministry of Health, Labour and Welfare’s yardstick for determining whether or not excessive discrepancy exists based on gender. Specifically, Toray will take the following measures to achieve this goal: • Request individualized career plans each year to be faithfully followed; • Conduct morale surveys every other year and follow up on issues requiring attention; and • Bolster training designed to raise awareness of career building. * Promotion rate of women to managerial positions compared to that of men = Percentage of female employees promoted to managerial positions / Percentage of male employees promoted to managerial positions Percentage promoted to managerial positions = Individuals promoted to managerial positions / No. of employees who were initially hired into the G Course who are eligible for promotion to managerial position that year Holding Career Advancement Seminars for Women Serving as Managers and Occupational Specialists, and Discussion Meetings In 2014, women serving as general managers at the Toray Group developed and initiated a career advancement sem- inar for women serving as managers and occupational spe- cialists, and it has now been held five times. Since fiscal 2016, the seminar participants have organized discussion meetings for women annually at all of Toray’s offices and plants in Japan. Open to all women at Toray, the meetings offer an opportunity for women in all workplaces of various ages and at various stages of life to talk honestly about balancing work and home life, sharing and educating each other about the challenges and issues they face. Employment of Persons with Disabilities Percentage of Companies Achieving Legally Mandated Employment Rate of Persons with Disabilities 61.3% (Toray Group (Japan), FY 2019) Toray Group hires and employs persons with disabilities, from those with physical challenges to persons with intellectual and mental challenges. The Group is making workplace improvements to remove physical barriers for persons with handicaps as well as instituting safety measures. Additionally, the Group provides comprehensive training upon work place- ment and gathers feedback from persons with disabilities to make workplace improvements. Further, Toray meets Japan’s legal minimum of 2.2% persons with disabilities, as do 61.3% of Toray Group companies in Japan. Group com- panies actively seek to hire persons with disabilities through public organizations and job placement agencies. However, some individual group companies do not meet the mandated legal requirement due to hiring difficulties. Creating a Positive Workplace for Employees Helping Employees Maintain Work-life Balance Percentage of Available Annual Paid Leave Used by Employees 96.0% (Toray, FY 2019) Toray has worked to further improve systems that help employees achieve a harmonious balance between work and family life by offering a wider variety of lifestyle options for both men and women. In particular, the systems Toray provides for childcare, family care, and maternity protection exceed the legally mandated minimums and have been improved for easy use. In 2007, Toray was certified as an employer that complies with the action plan standards under the Act on Advancement of Measures to Support Raising Next-Generation Children. Toray has also been working on ongoing initiatives to cut overtime hours and to encourage employees to take annual paid leave. Employee Health Toray views employee health management as a management priority, and thus actively implements measures that encour- age employee health, including sharing health information over the intranet, holding participatory events that utilize health related information sites, and organizing awareness seminars for the prevention of lifestyle-related diseases. Toray is also addressing mental health, and since fiscal 2011 the Company has been independently implementing employee stress check- ups through an external provider. Toray uses the results of these check-ups in helping employees to recognize their own stress levels, supporting approaches to dealing with stress, and improving the workplace environment. In recognition of these efforts, Toray has received Health and Productivity Management Organization certification since 2018. Toray Industries, Inc. Integrated Annual Report 2020 86 CSR Road Map 2022 Toray Group has designated implementation leaders for Road Map that outlines specific activity details and KPIs each of the 10 areas including corporate governance, for each guideline. Details of our CSR Road Map 2022 ethics and legal compliance, safety, accident preven- were announced in September 2020. Toray Group will tion, and environmental preservation, human rights, embody its Corporate Philosophy, which encompasses human resource development, and social contribution the Company Principle and values carried forward since that comprise its CSR Guidelines. These Guidelines its foundation while at the same balancing the need for serve as guiding principles to be followed when engag- sustainable development and contributing to the cre- ing in CSR activities. Moreover, as a CSR promotion plan ation of a sustainable society by promoting these orga- that is based on a PDCA cycle that in principle is imple- nized and systematic CSR activities together with the mented once every three years, we formulate a CSR Group’s management strategies in a uniform manner. CSR Road Map 2022 and Key Performance Indicators CSR Guidelines Key performance indicators FY 2020 Targets CSR Guidelines Key performance indicators FY 2020 Targets 1 Corporate Governance Discussions of Toray Group Business Strategies by the Board of Directors (times) Board of Directors’ positive assessment of the implementation of the Basic Policy for Internal Control Systems (%) Number of major violations of laws or ordinances 8 times 90% 0 2 Corporate Ethics and Legal Compliance Implementing internal legal audits of group companies, group companies improving problems found in internal legal audits in the previous year (%) Group companies providing information and implementing education on major laws, regula- tions and other compliance-related matters (%) Number of major accidents Achieve world’s best standard for safety man- agement (not exceeding 0.05 frequency rate for occupational accidents resulting in lost work time) Audits: Toray, its group companies in Japan and group companies outside Japan Percent that improved: 100% for all audits by the following fiscal year 100% 0 No more than 0.05 Number of fire and explosion accidents Number of environmental accidents 0 0 Reduction of greenhouse gas emissions per unit of sales (%) 20% lower than FY 2013 (FY 2022 target) Reduction of water consumption per unit of sales (%) 25% lower than FY 2013 (FY 2022 target) 3 Safety, Accident Prevention, and Environmental Preservation Reduction of atmospheric VOC emissions (%) Waste recycling rate (%) At least 70% lower than FY 2000 At least 86% lower than FY 2000 Conducting surveys on the palm oil included in raw materials (%) Certified product usage survey: 100% 4 Product Safety and Quality 5 Risk Management Number of product accidents Group companies implementing product safety and quality assurance education (%) Annual follow-up of Toray Group’s priority risks (Number of companies, %) Risk management training (Rate of achieve- ment compared with plans at the beginning of the period) 0 100% 100% 100% 6 Communication 7 Contributing Solutions to Social Issues through Business Activities 8 Human Rights Promotion and Human Resources Development 9 Facilitating CSR Initiatives Throughout the Supply Chain 10 Social Contribution Activities Number of corporate website page views (per month) Interviews to assess the level of internal opinion exchange (Rate of progress) Number of interviews with major investors attended by top management Number of news releases Revenue of Green Innovation products (IFRS) Revenue of Life Innovation products (IFRS) Avoided CO2 emissions in the supply chain Contributed annual water filtration throughput Group companies implementing human rights education and training (%) Group companies that have achieved legally mandated employment rate of persons with disabilities (%) Career development of core staff using the new HR information system (implemen- tation of the “career sheet”) (Number of employees, %) 1.0 million page views 40% 80 in total 200 1,000 billion yen (FY 2022 target) 300 billion yen (FY 2022 target) 5.3 fold compared to FY 2013 (FY 2022 target) 2.4 fold compared to FY 2013 (FY 2022 target) 100% 100% 20% Return to work after childcare leave (%) 100% Reduction in the number of employees who work 45 hours per month in excess of non-statutory work hours Year-on-year disappearance Annual leave taken by labor union members (%) 90% Number of group companies that have requested their suppliers to practice CSR More than 80% Suppliers whose CSR initiatives are consistent with those required by Toray Group (Number of companies, %) More than 70% Reduction in CO2 emissions per unit of sales from distribution activities (year-on-year) 1% Modal shift to sea or rail for transport across distances for 500 km or more (%) 40% (FY 2022 target) Expenditure on social contribution activities as a percentage of the average expenditure over the past six years Number of social contribution activities implemented Number of employees receiving educational support including workshops and career training More than 100% More than 2,500 More than 15,000 Toray Industries, Inc. Integrated Annual Report 2020 87 Discovering Science in our Everyday Lives Photo: Aozora Science School Toray Industries, Inc. Integrated Annual Report 2020 88 Toray Industries, Inc. Integrated Annual Report 2020 89 Results by Segment for Fiscal 2019 Segments Summary of Financial Results Fibers & Textiles Performance Chemicals All applications of the segment were affected by the weak market conditions reflecting the prolonged trade friction between the U.S.A. and China, the slowdown in the Chinese economy, and two consecutive years of warm winter. In Japan, while shipment of apparel and industrial applications remained weak in general, Toray Group pursued sales expansion of materials for uniforms in Japan and for sports applica- tions in the U.S.A. and Europe and focused on strengthening cost competitiveness. Overseas, demand for apparel applications including garments and textiles as well as auto- motive applications, the mainstay of the industrial applications, remained sluggish, and Toray Group focused on business structure reform and strengthening of cost competitiveness. The segment was also affected by the stagnation in production and consumption activities both in Japan and overseas due to the COVID-19 pandemic. In the resins business, sales of both automotive and home appliance applications were slow primarily due to the impact of the slowdown in the Chinese economy and stagnation of pro- duction activities due to the COVID-19 pandemic. The chemicals business was affected by the decline in the basic chemicals market. In the films business, sales of battery separator films for lithium-ion secondary batteries increased reflecting demand growth, while polyester films were affected by the inventory adjustment for optical as well as electronic parts related appli- cations. The electronic & information materials business saw strong performance of OLED related materials and electronic circuit materials. Carbon Fiber Composite Materials The Carbon Fiber Composite Materials segment remained strong as a whole. There was an expansion of demand for aircraft application, strong performance industrial application in the environmental and energy-related fields such as compressed natural gas tanks and wind tur- bine, blades, and recovery in the demand for sports applications. Environment & Engineering In the water treatment business, demand for reverse osmosis membranes and other products grew strongly on the whole in Japan and overseas. Among domestic subsidiaries in the segment, a construction subsidiary was negatively affected by the decline of high profit project orders, and an engineering subsidiary experienced decreases in the shipment of some electronics related equipment. Life Science In the pharmaceutical business, sales of orally active prostacyclin derivative DORNER® were affected by the introduction of its generic versions. While sales of pruritus treatment REMITCH®* were also influenced by the introduction of its generic versions, its shipment was strong partly due to the growth in the entire market. In the medical devices business, shipment of dialyzers grew strongly in Japan and overseas. *REMITCH® is a registered trademark of Torii Pharmaceutical Co., Ltd. Toray Industries, Inc. Integrated Annual Report 2020 90 Net Sales 883.1 (40%) Net Sales 770.8 (35%) Net Sales 236.9 (11%) Net Sales 252.3 (11%) Net Sales 53.3 (2%) Operating Income 60.7 (39%) Operating Income 58.7 (37%) Operating Income 21.0 (13%) Operating Income 11.2 (7%) Operating Income 1.6 (1%) Performance (Billions of yen) * The figures in parentheses of each segment are composition ratios by segment. Main Products Net Sales 883.1 (40%) Net Sales 770.8 (35%) Net Sales 236.9 (11%) Net Sales 252.3 (11%) Net Sales 53.3 (2%) Operating Income 60.7 (39%) Operating Income 58.7 (37%) Operating Income 21.0 (13%) Operating Income 11.2 (7%) Operating Income 1.6 (1%) • Filament yarns, staple fibers, spun yarns, woven and knitted fabrics of nylon, polyester, acrylic, and others • Nonwoven fabrics • Nonwoven material created using ultra-fine fibers in an “Island in the Sea” configuration • Apparel products, etc. • Nylon, ABS, PBT, PPS, and other resins and molded products • Polyolefin foam • Polyester, polyethylene, polypropylene, and other films and processed film products • Raw materials for synthetic fibers, and other plastics • Fine chemicals • Electronic and information materials, and graphic materials, etc. • Carbon fibers, carbon fiber composite materials, and molded products from those materials, etc. • Comprehensive engineering • Condominiums • Industrial equipment and machinery • IT-related equipment • Water treatment membranes and related equipment • Materials for housing, building, and civil engineering applications, etc. • Pharmaceuticals • Medical devices, etc. * Excludes other businesses, equivalent to ¥18.2 billion (1%) in net sales and ¥3.4 billion (2%) in operating income, and adjustment of operating income of -¥25.5 billion. The composition ratio by segment of operating income is calculated excluding the adjustment amount. Toray Industries, Inc. Integrated Annual Report 2020 91 Net Sales (Billion yen) 883.1 Operating Income (Billion yen) 60.7 Operating Income to Net Sales 6.9 % ROA (Operating Income/Assets) 7.9 % Medium-term Management Program “Project AP-G 2022” Business Environment • Growing need for advanced materials contributing to the resolution of global environmental, energy, resource issues, and health and longevity • Changing consumption trends: Greater importance on Key Initiatives Global business expansion (expand in growth regions and growth business fields and promote advancement in business models) • Expand profitability driven by five businesses of tex- the “social value of and empathy for goods” tiles, nonwoven fabrics, airbags, nonwoven material • Changes to the industrial structure: Advancement of created using ultra-fine fibers in an “islands in the the digital revolution sea” configuration, and integrated business from fiber to textiles and further to garments Basic Policies • Continuously strengthen business structure and Business expansion by addressing sustainability • Expand materials that address global environmental expand in growth regions and growth business fields issues • Enhance profitability by promoting a differentiation • Expand materials and products used for medical and strategy and addressing sustainability healthcare applications Promotion of global brand strategies Strengthening business competitiveness, promotion of structural reform and business advancement • Promote global re-engineering • Expand value-added products and enhance the supply chains Fiscal 2020 Outlook • The fibers & textiles business will work to expand the integrated business from fiber and textiles to garments; however, due to the impact of the COVID-19 pandemic, demand for apparel applications and industrial applications, including those in the automotive field, is expected to decline. The pace of demand recovery is assumed to remain gradual as inventory adjustments will require time even after the COVID-19 pandemic subsides. • Demand for nonwovens is expected to increase from hygiene products and mask applications. Toray Industries, Inc. Integrated Annual Report 2020 92 Fibers and textilesFiscal year ended March 31 Net Sales/ Revenue (billion yen) Operating Income/ Core Operating Income (billion yen) Operating Income to Net Sales/Core Operating Income to Revenue 2018 (J-GAAP) 2019 (J-GAAP) Changes 2020 Forecast (IFRS) 974.3 883.1 -9.4% 705.0 72.9 60.7 -16.7% 36.0 7.5% 6.9% Changes in Operating Income (Billion yen) 72.9 -15.8 +10.8 -5.7 -1.5 60.7 -12.2 FY 2018 Difference in quantity Net change in price FY 2019 Cost variance, etc. Difference from foreign currency translation of overseas subsidiaries’ results S C I P O T Acquisition of Alva Sweden AB, a Manufacturer of Automotive Airbag Cushions In January 2020, Toray acquired all shares of Alva Sweden outstanding reputation among leading European module AB (ASE), a manufacturer of cushions for automotive manufacturers for its proprietary sewing technologies, airbag systems. The global airbag market has seen manufacturing expertise, and cost competitiveness. steady growth in demand against a backdrop of tight- Although Toray has built positive ties with ASE over ening vehicle safety regulations in developed countries the years by supplying fabrics, Toray moved to acquire and increasing installation rates in emerging countries. ASE as a subsidiary in order to extend its supply chain Another factor is the rising demand for improved perfor- and increase the sophistication of its integrated opera- mance in next-generation airbags that stems from the tions by entering the cushion manufacturing business. need to address greater safety performance and from This move is also aimed at more quickly responding to the dramatic changes in vehicle interiors being driven by changes in the market. advancements in self-driving and other new technologies. This acquisition enables Toray to enhance direct rela- Toray’s airbag business encompasses nylon fiber pro- tionships and dealings with module manufacturers and, duction operations in Japan, Thailand, and Mexico and fabric through them, automakers, and enables the Company to manufacturing sites in Japan, Thailand, China, the Czech swiftly and reliably identify the latest airbag development Republic, India, and Mexico. And the Company is building a trends and customer needs. Toray also looks to incorporate robust production and sales structure that offers competitive Alva’s cushion-manufacturing expertise into fabric design advantages based on integrated fiber and fabric capabilities. to bolster product development and proposal capabilities This structure maintains the ability to supply the same that draw on the Company’s strength of fiber, fabric, and quality fabrics from all production sites in a timely manner. sewing integration. The Company thereby aims to help Alva has manufactured cushions for automotive air- materialize high-performance airbags by heightening its bag systems in Europe since 1997, and has earned an presence among module manufacturers and automakers. Global Supply Chain for Airbag Business Spinning fiber Weaving fabric Cut & Sew cushion Assembly module Assembly automobiles Toray Group integrated supply chain Fiber bases: Okazaki plant (Japan), TTS (Thailand), TAMX (Mexico) Textile bases: Marui Orimono (Japan), TSD (China), TTT (Thailand), TKAT (India) TTCE (Europe), TAMX (Mexico) Garment bases: Alva (Europe, Tunisia) Toray Group integrated development Japan, Europe, China, ASEAN/India, North America Global strategy vehicles Japan, Europe, China, North America Module manufacturers Development needs Automobile manufacturer Development concept Toray Industries, Inc. Integrated Annual Report 2020 93 Net Sales (Billion yen) 770.8 Operating Income (Billion yen) 58.7 Operating Income to Net Sales 7.6 % ROA (Operating Income/Assets) 6.1 % Medium-term Management Program “Project AP-G 2022” Business Environment • Growing need for advanced materials contribut- ing to the resolution of global environmental and Key Initiatives Resins & Chemicals Business • Expand high value-added businesses in growth areas energy, resource issues such as next generation mobility and 5G, etc., and in • Mobility revolution, transformation in the automo- growth regions including India tive industry • Strengthen upfront development capabilities, and total • Advancement of the digital revolution and transi- solution proposal capabilities tion to fifth generation mobile communication sys- tems (5G) Basic Policies • Expand sales of high value-added products in growth business fields, boost profitability by creat- ing new products, and address sustainability Films Business • Expand sales of high value-added products in growth business fields including battery separator films, PET films for MLCC release films, and nano-layered films • Create and expand new products and applications that meet the market changes Electronic & Information Materials Business • Create high value-added electronics materials designed to match 5G and IoT by combining core technologies with the latest information in a prompt and timely manner • Realize continuous business expansion by providing our customers with solutions through advanced materials Fiscal 2020 Outlook • The resins business will expand sales of transparent ABS resins and engineering plastics, while the films business will expand sales of high value-added products such as MLCC release films and battery separator films. However, due to the impact of the COVID-19 pandemic, demand mainly in automotive applications is expected to decrease. • Although the effects of the COVID-19 pandemic will remain throughout the first half of the fiscal year, the electronic and information materials business is expected to see demand recover in the latter half of the fiscal year, and will expand sales of OLED related materials and semiconductor materials. Toray Industries, Inc. Integrated Annual Report 2020 94 Performance ChemicalsFiscal year ended March 31 Net Sales/ Revenue (billion yen) Operating Income/ Core Operating Income (billion yen) Operating Income to Net Sales/Core Operating Income to Revenue 2018 (J-GAAP) 2019 (J-GAAP) Changes 2020 Forecast (IFRS) 868.8 770.8 -11.3% 695.0 67.7 58.7 -13.2% 59.0 7.8% 7.6% Changes in Operating Income (Billion yen) 67.7 -11.7 +12.8 -7.9 -2.2 58.7 -9.0 FY 2018 Difference in quantity Net change in price FY 2019 Cost variance, etc. Difference from foreign currency translation of overseas subsidiaries’ results S Established a New Battery Separator Film (BSF) Production Facility in Hungary C I P O T Toray decided to establish a new production facility for battery separator film (BSF) for lithium-ion secondary bat- teries (LIB) at Toray Industries Hungary Kft. (THU), which was established in April 2018. The new facility is scheduled to begin operations in July 2021 and thereby increase Toray Group’s total BSF pro- duction capacity by approxi- mately 20%. Going forward, global demand for BSF is projected to expand rapidly, given steady expan- sionary trends in consumer applications like mobile elec- tronics and energy storage systems, and the anticipated robust increase in automotive applications as electric vehi- cles (EV) become more pop- ular. In Europe in particular, where environmental aware- Groundbreaking ceremony for new factory ness is increasing, it is anticipated that eco-friendly Toray Group already has BSF production facili- EV vehicles will rapidly spread, and battery manu- ties at the Nasu Plant in Japan and in the Republic facturers are also actively entering European mar- of Korea, where Toray Battery Separator Film Korea kets. Toray has taken the basic strategic approach of Limited (TBSK) engages in development, pro- “local production for local consumption” in its over- duction and sale of BSF, while Toray BSF Coating seas business development. By locating production Korea Limited (TBCK) handles coating processes. facilities in areas close to customers, Toray aims to In 2017, Toray announced facility investments respond to growing demand and also to contribute to expand capacity in these two locations and to the economic development of local regions and new lines have been started up since fiscal 2018. communities. Toray Industries, Inc. Integrated Annual Report 2020 95 Net Sales (Billion yen) 236.9 Operating Income (Billion yen) 21.0 Operating Income to Net Sales 8.8 % ROA (Operating Income/Assets) 3.4 % Medium-term Management Program “Project AP-G 2022” Business Environment • Growing need for advanced materials contributing to Key Initiatives • Thorough recovery of prior investments for growth the resolution of global environmental and energy, • Capture growth in new applications in the mobility resource issues fields such as UAM (Urban Air Mobility) • Mobility revolution, transformation in the automotive • Capture growth in the expanding energy related fields industry such as wind turbine blades and fuel cell vehicles • Expanding economic utilization of space and sky (tanks, electrode substrates) applications Basic Policies • Maintain the position as world’s No.1 by pursuing high-performance and quality reliability of the products • Improve capital efficiency and return on investment by capturing market growth • Strengthen solution proposal capabilities aimed to become a “best-in-class solution provider,” and imple- ment appropriate price policies Fiscal 2020 Outlook • In addition to lower production volumes at major customers for aerospace applications due to the impact of the COVID-19 pandemic, automotive-related demand is also expected to decline. • Sales of wind turbine blade applications are expected to be strong. Toray Industries, Inc. Integrated Annual Report 2020 96 Carbon Fiber Composite MaterialsFiscal year ended March 31 Net Sales/ Revenue (billion yen) Operating Income/ Core Operating Income (billion yen) Operating Income to Net Sales/Core Operating Income to Revenue 2018 (J-GAAP) 2019 (J-GAAP) Changes 2020 Forecast (IFRS) 215.9 236.9 +9.7% 190.0 Changes in Operating Income (Billion yen) +6.0 -7.7 +11.7 -0.5 21.0 11.5 21.0 +81.6% 7.0 11.5 +9.4 5.3% 8.8% FY 2018 Difference in quantity Net change in price FY 2019 Cost variance, etc. Difference from foreign currency translation of overseas subsidiaries’ results S C I P O T Developed Vacuum Pressure Molded Prepreg for Aircraft Toray developed an innova- tive prepreg for primary struc- tural aircraft components that enables high-grade carbon fi- ber reinforced plastic (CFRP) molding with excellent me- chanical characteristics with- out using an autoclave as an intermediate material. The Company will further deepen this new technology to ex- pand demand for high perfor- An example of a simulated aircraft tail components Toray developed a vacuum pressure molding technology in which CFRP is manufac- tured entirely at atmospheric pressure under vacuum suc- tion and without heating. Toray also recently developed a prepreg that is suitable for this vacuum pressure molding technology. The new prepreg, enabled by a newly developed matrix resin, has a mechanical mance CFRP components with low processing cost performance—post-impact compression strength and in various applications including aircraft, vehicles and tensile strength—equivalent to that of primary struc- general industrial use. tural aircraft components made from existing prepreg In general, CFRP primary structural components, molded with the autoclave method. The results of a used for commercial aircraft wings and fuselages, molding test for a 2m component that simulates a are manufactured using an autoclave process that part from an existing aircraft tail assembly and molded laminates multiple sheets of prepreg composed of using the new prepreg confirmed that such CFRP carbon fibers impregnated with epoxy resin on a components are of a level that can clear strict quality mold and cures the resin by applying heat and high control standards for aircraft components. pressure in an autoclave. Although the autoclave Part of this successful development is attribut- method offers the advantage of stable molding of able to the “Innovative Structural Materials (Cross- high performance, high-grade CFRP components, it ministerial Strategic Innovation Promotion Program requires high initial capital investments of more than (SIP),” a strategic innovation program of the Council billions of yen and therefore increases the production for Science, Technology and Innovation (managed by cost of CFRP components. Japan Science and Technology Agency). As an alternative to the autoclave method, in 2018 Toray Industries, Inc. Integrated Annual Report 2020 97 Carbon Fiber Composite Materials Net Sales (Billion yen) 252.3 Operating Income (Billion yen) 11.2 Operating Income to Net Sales 4.5 % ROA (Operating Income/Assets) 4.4 % Medium-term Management Program “Project AP-G 2022” Business Environment • Growing need for advanced materials that can con- tribute to the resolution of global environmental and Key Initiatives Water Treatment Business • Enhance global production and sales system in energy, resource issues, and related machinery to response to markets that are expanding over the manufacture them medium and long term • Growing need for safe air and water • Accelerate new product development and expand Basic Policies • Expand business in the growth business fields center- ing on water treatment membranes and engineering sales of products that meet the needs of each region and customers • Thoroughly strengthen business structure Engineering Business • Expand plant construction business and electronics-re- lated machineries (in the fields of life science and semiconductors) • Enhance technical capabilities and cost competitive- ness by strengthening the Group’s unified operations Fiscal 2020 Outlook • In the water treatment business, will promote sales expansion with a focus on RO membranes • An engineering subsidiary expects sales expansion of electronics related equipment Toray Industries, Inc. Integrated Annual Report 2020 98 Environment & EngineeringFiscal year ended March 31 Net Sales/ Revenue (billion yen) Operating Income/ Core Operating Income (billion yen) Operating Income to Net Sales/Core Operating Income to Revenue 2018 (J-GAAP) 2019 (J-GAAP) Changes 2020 Forecast (IFRS) 12.2 -2.5 +1.5 -0.3 11.2 +0.3 Changes in Operating Income (Billion yen) 257.7 252.3 -2.1% 202.0 12.2 11.2 -8.1% 14.0 4.7% 4.5% -1.0 FY 2018 Difference in quantity Net change in price FY 2019 Cost variance, etc. Difference from foreign currency translation of overseas subsidiaries’ results S C I P O T Established a New Water Treatment Membrane Company in China In June 2019, Toray established Toray Membrane Guangdong Province is moving to strengthen (Foshan) Co., Ltd. (TMFC), a new company that will industry-academia partnerships and is systematically engage in the production and sale of RO and other promoting research and development in advanced water treatment membrane products, in Foshan, technologies. Foshan City is located in the center China. Construction is currently underway towards of the Guangdong Province Pearl River Delta eco- commencement of plant operations in 2021. nomic zone and has a long track record of attracting Demand for water treatment membranes has Japanese companies of all sizes to engage in busi- been rapidly expanding in China in recent years. To ness partnerships in the region. Toray already has date, in addition to promoting the use of household water treatment membrane production and sales water purifiers, Toray has contributed to improving companies in operation in Beijing and Yancheng. The the water environment and solving water scarcity establishment of a new base in Foshan will enable issues in China by providing various kinds of water Toray to respond nimbly to the rapidly expanding treatment membranes for waterworks and industrial water treatment membrane market in China, where water treatment, seawater desalination, and waste- environmental improvement efforts are being ener- water treatment and recycling. getically promoted. Consolidated Global Operation System for Production and Sales of Water Treatment Membranes (5 production bases and 8 sales offices) TMEU (Europe, Africa) TBMC, TWMT, TMFC (China) TMME (Saudi Arabia) Major sales base Sales office Production base Research center TAK (Republic of Korea) TORAY TARC (Shanghai) TMUS (USA) TSWRC (Singapore) TAS (Asia & Oceania) Toray Industries, Inc. Integrated Annual Report 2020 99 Net Sales (Billion yen) 53.3 Operating Income (Billion yen) 1.6 Operating Income to Net Sales 3.1 % ROA (Operating Income/Assets) 2.4 % Medium-term Management Program “Project AP-G 2022” Business Environment • Growing need for pharmaceuticals and medical devices that help improve medical care quality, raise patient QOL, and ease the burden on medical professionals • Growing need for prevention and diagnosis • Japanese government’s promotion of generic prod- ucts, as well as ongoing reductions in medical fees, drug prices, and insurance reimbursement prices Basic Policies • Reinforce the business foundation and structure Key Initiatives Pharmaceutical Business • Maintain the business and profit foundation through over- seas business development of oral drug REMITCH®* as pruritus improver Medical Devices Business • Expand sales by continuously developing and introduc- ing to market improved products of the existing prod- uct lineup such as HotBalloon for ablation treatment • Expand global sales of highly value-added dialyzers, and launch and promote newly renovated dialysis through overseas business development, expansion machines in Japan of indications and introduction of improved products of existing product lineup, in addition to cost reduction New Business • Establish and launch the business of the test kit to detect protein markers of pancreatic cancer *REMITCH® is a registered trademark of Torii Pharmaceutical Co., Ltd. Fiscal 2020 Outlook • The medical devices business is expected to see sales expansion in dialyzers and new models of HotBalloons released to the market, while the pharmaceutical business is expected to be affected by drug price revisions and generic drugs. Toray Industries, Inc. Integrated Annual Report 2020 100 Life ScienceFiscal year ended March 31 Net Sales/ Revenue (billion yen) Operating Income/ Core Operating Income (billion yen) Operating Income to Net Sales/Core Operating Income to Revenue 2018 (J-GAAP) 2019 (J-GAAP) Changes 2020 Forecast (IFRS) 53.7 53.3 -0.8% 53.0 1.3 1.6 +24.9% 1.0 2.4% 3.1% Changes in Operating Income (Billion yen) +0.2 -1.0 +1.1 -0 1.6 1.3 +0.3 FY 2018 Difference in quantity Net change in price FY 2019 Cost variance, etc. Difference from foreign currency translation of overseas subsidiaries’ results S C I P O T Commercial Launch of the New HEMOFEEL™ SNV Continual and Gentle Blood Filtration Device Toray launched commercial sales of HEMOFEEL™ SNV in July 2019. Developed as a slow con- tinuous hemofiltration device*1, prevents HEMOFEEL™ SNV membrane clogging as a result of an improved antithrombogenic per- formance*2 and is thus expected to enable longer usage durations than conventional devices. In order to minimize the bur- den as possible on the bodies of to substantially improve the anti- thrombotic performance. In addi- tion to the superior substance separation performance of poly- sulfone membranes*4, in vitro test- ing has shown that their ability to improve the antithrombotic perfor- mance also reduces deterioration in the filtration performance over time. This NV Polymer technology has also been adopted in Toray’s hemodialyzers and hemodialysis patients with acute kidney damage and other severe filters, and has already achieved a long track-record kidney damage affiliated with multiple organ failure in clinical use. Toray has also deployed this technol- and sepsis, treatments are applied that remove sub- ogy to the emergency and intensive care field for stances from slowly circulated blood. With this treat- the first time, and thereby contribute to reducing ment approach, however, the blood flows slowly, the burden on medical professionals and patients which both increases the treatment duration and tends to induce clot formation reactions*3. In partic- ular, there has been a steady demand to increase the antithrombotic performance of the membranes them- selves used in slow continuous hemofiltration devices employed during emergency and intensive care. In response to feedback from these medical set- tings, Toray successfully applied its proprietary NV Polymer to the surface of hollow-fiber membranes during long treatments. *1 Slow continuous hemofiltration: A medical treatment used to remove substances from blood slowly over time. *2 Antithrombotic performance: The ability to prevent blood coagula- tion (blood clots) as required by medical materials that come into contact with blood. *3 Clot formation reaction: When blood contacts contaminants, it undergoes a biological defense reaction whereby proteins in the blood gather around and adhere to the surface of the contaminants. This reaction serves to induce a clot formation reaction. *4 Polysulfone membrane: A semitransparent membrane made using a heat-resistant polymer, or polysulfone resin as the basic material. Toray Industries, Inc. Integrated Annual Report 2020 101 Fiscal 2019 R&D Expenses R&D Expenses (Billion yen) 58.8 59.2 66.2 66.4 66.9 (Billion yen)66.9 Toray Consolidated subsidiaries (FY) 15 16 17 18 19 Fiscal 2019 R&D Achievements Fibers & Textiles Using NANODESIGN®, a compos- ite spinning technology that enables reflecting oblique light using high-pre- collaborations (including R&D projects cision control of the resin refractive entrusted by the national government) index based on a new optical design. for creating fundamental technolo- free and highly precise control over The Company developed polyimide gies for the next-generation mobility the cross-sectional geometry of com- materials suitable for application in industry in Japan. The Company also posite fibers, Toray developed a new high-frequency electronic components developed a new prepreg for primary Nylon textile that achieves a good for millimeter-wave radar devices structural aircraft components that balance between low environmental applied mainly in 5G communication enables high-quality molded carbon burden and durable water-repellent and automatic driving. Moreover, Toray fiber reinforced plastic parts with supe- properties at a high level, and Kinari™, a silky material that combines natural silk properties such as glossiness, is currently expanding deployment of NANOALLOY®, a technology that realizes discontinuous characteristic bulkiness, and the sound of natural improvement of materials by enabling silk with easy-care properties such fine dispersion of multiple polymers rior mechanical properties without the use of an autoclave. Environment & Engineering Toray developed a reverse osmosis as pleat retention and wrinkle resis- on the nano level, to automotive (RO) membrane for seawater desali- tance. The Company also developed safety components and many other nation that balances high water-quality PET-recylcled version of Primeflex™, applications. a material with the same stretchable properties as virgin PET, by realizing a fiber made from a combination of Carbon Fiber Composite Materials Toray’s collaborative development with the world’s highest level of water production capacity. The Company also created the world’s highest-level nanofiltration (NF) membrane that tri- approximately 68% environmental- with Boeing launched in November ples the permeation performance of ly-friendly substances, namely plant- 2014 has progressed smoothly and is conventional models while achieving a based polytrimethylene terephthalate starting to produce results as a CTO superior selective ion and organic mat- (PTT) and recycled PET. Project. As part of an agreement con- ter separation. In addition, Toray con- cluded with Boeing and announced by ducted joint research with RIKEN and Performance Chemicals Toray developed PICASUS™ VT, a the Ministry of Economy, Trade and identified the relationship between Industry in January 2019, Toray was water molecule diffusion behavior and nano-layered film designed to deliver the only company to be nominated the strength of interacting networks completely new functionality by offer- from the composite materials sec- formed by the polyamide molecules ing frontal light transparency while tor. The Company has commenced that enable water permeability and Toray Industries, Inc. Integrated Annual Report 2020 102 R&DPercentage Breakdown of Total R&D Expenses in Fiscal 2019 Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Corporate R&D 9 % 28 % 15 % 7 % 4 % 37 % substance removal capabilities in RO membranes. Toray will draw on these S C I P O T Commendation for Science and Technology from the Minister of Education, Culture, Sports, Science and Technology Awarded for Developing a Polyimide Coating Toray received the 2020 Commendation for Science and Technology analysis results to accelerate devel- from the Minister of Education, Culture, Sports, Science and Technology opment of innovative, energy-saving regarding its development of a polyimide coating for organic electrolumi- RO membranes and other advanced nescent (EL) insulating films. The award recognizes Toray’s efforts over separation membranes. the years to deepen its photosensitive polyimide technology capabilities Life Science Toray expanded its clinical study sites and for developing a positive photosensitive polyimide that dramatically enhances the luminous reliability and productivity of OLED displays. These results will contribute to the mass production and broader adop- for TRK-950, which had been undergo- tion of OLED displays, and significantly reduce coating waste losses, ing a cancer immunotherapeutic study thereby lowering environmental impact. at two sites in the U.S.A. and one site in France. Specifically, in April 2019, the expanded study was started at five sites in the U.S.A. and one site in France to confirm the safety and effi- Academy of Pharmaceutical Science and Technology, Japan (APSTJ) Asahi Kasei Pharmaceutical Technology Award Received for Developing Film Technologies and OD Tablets Toray received the Academy of Pharmaceutical Science and Technology, cacy of the drug and has been still ongo- Japan (APSTJ) Asahi Kasei Pharmaceutical Technology Award for its ing to apply for marketing approval at the earliest possible time. Meanwhile, TORAYMYXIN™, a hemoperfusion development of a high-performance film technology for orally disinte- grating (OD) tablets and REMITCH ®* OD tablets. This is the first time Toray has been honored with the award, which is granted to outstanding cartridge for removing endotoxins research into the fundamentals and application of drug formulation and from the blood during the treatment of creation developments that address the transformations in approaches sepsis, has been approved by the U.S. to pharmaceutical quality on the international stage. The award was Food and Drug Administration (FDA) for clinical study enrollment of patients with sepsis caused by COVID-19. received in recognition of our contribution to new developments in formulation technology through its success in perfecting RADIFIL®, a fast-dissolving film coating technology applied to OD tablets and phar- Similarly, Toray obtained interim permis- maceutical film formulations as a means of helping to improve quality sion for use in the treatment of patients of life for those whose intake of liquids is restricted and elderly people infected with COVID-19 in Canada from with diminished swallowing functionality. the Canadian Authority, Health Canada. *REMITCH® is a registered trademark of Torii Pharmaceutical Co., Ltd. Toray Industries, Inc. Integrated Annual Report 2020 103 Intellectual Property Strategies Patents Filed Patents Held Management Strategies 5,383 5,654 5,299 1,537 1,617 1,641 3,846 4,037 3,658 15,727 17,156 5,809 9.918 5,745 11,411 19,849 6,361 13,488 17 18 19 (FY) 17 18 19 (FY) R&D Strategies Business Strategies Domestic Overseas Domestic Overseas 2. 3. 4. Basic Policies on Intellectual Property Toray Group has formulated and executes the following four intellec- tual property strategies as its basic policies on intellectual property. 1. Intellectual property strategies, as a part of the strategy trinity, that conform to management principles Toray Group regards intellectual property as one of its vital management resources. We integrate our intellectual property strategies mutually and organically with our business strategies and R&D strategies, and as part of this “trinity,” we designate intellectual property strategies as one of the most important elements of our management strategies. Promoting the procurement of rights In order to protect Toray Group’s products and technologies and to ensure profits in terms of intellectual property, we hold as many useful patent rights as possible and build patent portfolios. At the same time, we are committed to patent rights acquisition made efficient by enhancing the quality of individual patents. Respecting the rights of others Toray has operated a system for comprehensively investigating the relations between its own products and technologies and patents owned by other companies, and we thoroughly educate employees to prevent infringement on patent rights of other parties. Rightful enforcement of our own rights When Toray Group’s patent rights are infringed upon by another party, we take proper steps depending on the circumstances by exercising our patent rights, such as demanding that infringement cease, receiving monetary profits from licensing, and using our pat- ent rights for cross-licensing with the patent rights of other parties. Intellectual Property Strategies in Line with Management Strategies Under “AP-G 2022,” we formulated a medium-term management program not only for R&D, but also for intellectual property, pro- moting the following five measures. 1. Strengthening Toray Group’s intellectual property capabilities to address global business expansion Under the guidance of Toray’s Executive Vice President in charge, we are advancing intellectual property activities through the con- struction of a framework in which we manage intellectual property for group companies in and outside of Japan. We pay particular attention to nurturing group companies that play a central role in respective regions, and to supporting affiliated companies that have newly joined the Group. Toray Industries, Inc. Integrated Annual Report 2020 104 2. Strategic patent application and building barriers to entry by protecting our knowhow Considering the risk of imitations that arises following the publication of applications, we are reinforcing a scheme whereby we put in place barriers to entry by creatively leveraging patent applications and the protecting our knowhow. Moreover, we continue to work toward boosting the quality of patent specifications, which we have always poured efforts into, together with undertaking initiatives to strengthen patent applications and patenting of rights outside of Japan. 3. Promoting intellectual property strategies that contribute to our long-term corporate vision We promote intellectual property activities that work to achieve sound, sustainable growth espoused in the long-term corporate vision “TORAY VISION 2030” announced in May of this year. 4. Establishing an environment to support the promotion of efficient intellectual property strategies By digitizing and streamlining workflow for business tasks, such as internal and external contacts, queries and responses, or the paperwork involved in forms for circular-type consultations, we are promoting the transition to paperless offices and enhancing efficiency in intellectual property operations. 5. Developing intellectual property-focused human resources Toray is developing experts capable of promoting our intellectual property strategies across the Group, specific to business areas and regions. In particular, we are elevating the intellectual prop- erty competency and capabilities of human resources at affiliated companies, including national staff at group companies outside of Japan, while pursuing patent applications and patenting of rights across the Group, and promoting effective and efficient infringe- ment prevention activities. Toray Takes Top Spot on Patent Result’s Ranking for Fiber, Paper and Pulp Industry The “2019 Ranking of Capability to Prevent Other Companies from Obtaining Patent Rights,” published annually by Patent Result Co., Ltd., is an advanced patent application index that compiles the number of patents by a company that were cited as reasons for rejection of another company’s patent application in the course of the patent deliberation process, in any particular year. Toray was ranked No. 1 in the fiber, paper and pulp category for the seventh consecutive year. As the same index benchmarks are used, if “fiber, paper and pulp,” and “chemicals” categories are treated as a single industry, Toray’s ranking becomes No. 3. Intellectual propertyFINANCIAL SECTION CONTENTS 106 Ten-Year Summary of Selected Financial Data 108 Management’s Discussion and Analysis 112 Consolidated Balance Sheets 114 Consolidated Statements of Income 115 Consolidated Statements of Comprehensive Income 115 Consolidated Statements of Changes in Net Assets 116 Consolidated Statements of Cash Flows 117 Notes to Consolidated Financial Statements 146 Independent Auditor’s Report Toray Industries, Inc. Integrated Annual Report 2020 105 Ten-Year Summary of Selected Financial Data Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31 Net sales Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others Plastics & Chemicals IT-related Products Operating income Income before income taxes Net income attributable to owners of parent Net cash provided by operating activities Depreciation and amortization Capital expenditures Total assets Property, plant and equipment, net Interest-bearing liabilities Net assets Per share of common stock: Net income attributable to owners of parent: Basic Diluted Cash dividends Net assets Ratios: Operating income to net sales Net income attributable to owners of parent to net sales Equity ratio Return on equity Debt/equity ratio (times) Common stock price range: High Low 2011 2012 2013*1 ¥ 1,539,693 ¥ 1,588,604 ¥ 1,592,279 584,115 638,375 632,150 — 67,018 178,183 52,430 13,621 382,299 262,027 100,087 82,893 57,925 129,214 70,479 55,942 — 69,914 170,247 55,554 13,295 397,815 243,404 107,721 101,091 64,218 104,410 67,443 98,384 — 77,620 178,355 56,599 14,127 395,835 237,593 83,436 77,828 48,477 100,815 67,588 99,135 1,567,470 1,581,501 1,731,933 531,595 493,509 640,970 561,923 481,906 674,149 627,240 532,002 778,626 ¥ 36.41 34.43 7.50 363.90 ¥ 39.41 37.46 10.00 384.90 ¥ 29.75 28.90 10.00 444.45 6.50 3.76 37.8 10.9 0.83 6.78 4.04 39.7 10.5 0.77 5.24 3.04 41.8 7.2 0.73 ¥ ¥ 643 420 ¥ 631 511 654 421 Number of employees 38,740 40,227 42,584 *1 Certain overseas subsidiaries adopted IAS 19 “Employee Benefits” (revised on June 16, 2011) effective from the year ended March 31, 2014. The related fig- ures for the year ended March 31, 2013 are retrospectively restated accordingly. *2 Toray Group changed the reportable segments effective from the year ended March 31, 2018. The related figures for the year ended March 31, 2017 are ret- rospectively restated accordingly. *3 “Partial Amendments to Accounting Standard for Tax Effect Accounting” (Accounting Standards Board of Japan (ASBJ) Statement No. 28, February 16, 2018) is applied from the year ended March 31, 2019 and onward. The related figures for the year ended March 31, 2018 are retrospectively restated accordingly. Toray Industries, Inc. Integrated Annual Report 2020 106 2014 2015 2016 2017*2 2018*3 2019 2020 ¥ 1,837,778 ¥ 2,010,734 ¥ 2,104,430 ¥ 2,026,470 ¥ 2,204,858 ¥ 2,388,848 ¥ 2,214,633 Millions of yen 755,474 856,676 892,039 — 113,342 180,197 58,205 14,277 470,542 245,741 105,253 97,760 59,608 161,455 78,743 118,207 — 158,365 179,988 57,039 14,321 496,370 247,975 123,481 114,469 71,021 141,282 81,480 124,929 — 186,196 183,324 55,841 14,720 521,238 251,072 154,480 137,808 90,132 196,142 91,168 136,556 856,124 724,648 161,608 212,548 54,150 17,392 — — 146,893 139,012 99,418 173,958 89,073 152,039 913,610 803,310 177,949 238,256 53,803 17,930 — — 156,464 136,612 95,915 129,180 95,815 153,324 974,265 868,847 215,913 257,673 53,653 18,497 — — 141,469 127,419 79,373 176,239 101,711 172,696 2,119,683 2,357,925 2,278,386 2,396,785 2,575,910 2,788,351 883,137 770,814 236,922 252,282 53,250 18,228 — — 131,186 94,046 55,725 225,767 107,382 140,767 2,650,687 1,006,509 938,913 781,235 654,163 944,625 855,593 700,258 830,612 704,253 881,434 716,399 927,029 816,325 996,876 976,251 1,080,757 1,024,909 1,100,176 1,169,188 1,213,944 1,179,572 ¥ 36.59 35.70 10.00 527.32 ¥ 44.33 44.28 11.00 616.70 ¥ 56.38 56.31 13.00 591.50 ¥ 62.17 62.10 14.00 638.64 ¥ 59.97 59.90 15.00 681.92 ¥ 49.61 49.56 16.00 706.95 ¥ 34.83 34.58 16.00 683.61 5.73 3.24 40.5 7.5 0.76 786 584 ¥ 6.14 3.53 41.8 7.7 0.71 7.34 4.28 41.5 9.3 0.74 7.25 4.91 42.6 10.1 0.70 7.10 4.35 42.3 9.1 0.75 5.92 3.32 40.6 7.1 0.86 ¥ 1,057.5 ¥ 1,146.0 ¥ 1,027.5 ¥ 1,208.0 ¥ 1,035.5 ¥ 626 871.7 854.0 903.1 705.1 5.92 2.52 41.3 5.0 0.86 848.5 397.4 45,881 45,789 45,839 46,248 45,762 48,320 48,031 Yen % Yen Toray Industries, Inc. Integrated Annual Report 2020 107 Management’s Discussion and Analysis CRITICAL ACCOUNTING POLICIES AND ESTIMATES OVERVIEW OF BUSINESS PERFORMANCE The consolidated financial statements of Toray Group are prepared in accordance with the accounting principles gen- erally accepted in Japan. The significant accounting policies employed to prepare the consolidated financial statements are disclosed in Note 1. SIGNIFICANT ACCOUNTING POLICIES in the Notes to the Consolidated Financial Statements. The pro- cess of preparing consolidated financial statements involves accounting estimates that affect the reported amounts of assets, liabilities, revenue and expenses. Reasonable judge- ments are made to determine these estimates by taking several factors including past records into consideration; however, as these estimates are subject to uncertainty, the actual outcome may differ. The assumptions on the novel coronavirus pandemic are disclosed in Note 1. SIGNIFICANT ACCOUNTING POLICIES p) Assumptions on the novel coronavirus pandemic for accounting estimates in the Notes to the Consolidated Financial Statements. For the year ended March 31, 2020, the global economy slowed down due to strong uncertainties caused by con- cerns regarding the intensifying trade frictions between the U.S. and China, the rising geopolitical risks in areas such as the Middle East, and the political confusion over Brexit in Europe. The Japanese economy was relatively steady but lacked strength, affected by typhoons and other natural disasters as well as the increase in the consump- tion tax rate. Meanwhile, the novel coronavirus disease spread globally in 2020 greatly disrupting the economies of Japan and elsewhere, and production and consumption activities, which were stagnating, started to rapidly decel- erate. Under such circumstances, Toray Group, since April, 2017, worked on the medium-term management program “Project AP-G 2019” that spans over three years through fiscal year 2019 and implemented a growth strategy with focus on taking advantage of growth business fields, pur- suing business expansion in growth countries and regions as well as further bolstering its cost competitiveness. Net Sales by Segment Net Sales by Segment Operating Income by Segment Operating Income by Segment (Billions of yen) 2,500 (Billions of yen) 2,500 2,010.7 2,104.4 2,000 2,026.5 2,010.7 2,000 2,388.8 2,388.8 2,204.9 2,104.4 2,026.5 2,214.6 2,204.9 2,214.6 1,500 1,500 1,000 1,000 500 500 0 0 (Billions of yen) 200 (Billions of yen) 200 154.5 146.9 156.5 154.5 123.5 150 123.5 156.5 146.9 141.5 141.5 131.2 131.2 100 50 0 -50 150 100 50 0 -50 Mar/ ‘15 ‘16 ‘17 Mar/ ‘15 ‘18 ‘16 ‘19 ‘17 ‘20 ‘18 ‘19 ‘20 Mar/ ‘15 ‘16 Mar/ ‘15 ‘17 ‘18 ‘16 ‘19 ‘17 ‘20 ‘18 ‘19 ‘20 ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ IT-related Products ■ Carbon Fiber Composite Materials ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others ■ Environment & Engineering ■ Life Science ■ Others ■ Adjustments ■ Adjustments *1 Toray Group changed the reportable segments effective from the year ended March 31, 2018. The related figures for the year ended March 31, 2017 are retro- Total Assets and Net Assets spectively restated accordingly. Total Assets and Net Assets *2 Operating income by segment that is not attributable to any segment is included in “Adjustments.” Interest-bearing Liabilities and D/E Ratio Interest-bearing Liabilities and D/E Ratio (Billions of yen) 2,800 (Billions of yen) 2,800 2,788.4 2,575.9 2,650.7 2,575.9 (%) 2,788.4 80 2,650.7 (%) 80 (Billions of yen) 1,000 (Billions of yen) 1,000 976.3 (Times) 976.3 1.20 (Times) 1.20 938.9 938.9 2,357.9 2,396.8 Toray Industries, Inc. 2,357.9 Integrated Annual Report 2020 2,278.4 2,396.8 2,278.4 60 750 700.3 750 704.3 716.4 716.4 700.3 704.3 0.90 0.90 816.3 816.3 0.86 0.86 0.86 0.86 0.75 0.75 2,100 108 2,100 1,400 41.8 41.5 1,400 60 40 20 0 ‘19 42.6 41.8 42.3 41.5 42.6 40.6 42.3 41.3 40.6 41.3 0.71 0.74 0.70 0.71 0.74 0.70 40 500 500 0.60 0.60 1,080.8 1,024.9 1,100.2 1,080.8 1,169.2 1,024.9 1,213.9 1,100.2 1,179.6 1,169.2 1,213.9 1,179.6 700 700 20 250 250 0.30 0.30 0 0 0 0 0 Mar/ ‘15 ‘16 Mar/ ‘17 ‘15 ‘18 ‘16 ‘19 ‘17 ‘20 ‘18 ‘20 Mar/ ‘15 ‘16 Mar/ ‘17 ‘15 ‘18 ‘16 ‘19 ‘17 ‘20 ‘18 ‘20 0.00 ‘19 0.00 ■ Total Assets ■ Net Assets —Equity Ratio ■ Total Assets ■ Net Assets —Equity Ratio ■ Interest-bearing Liabilities ■ Interest-bearing Liabilities —D/E Ratio —D/E Ratio Cash Flows Cash Flows (Billions of yen) (Billions of yen) 300 200 100 0 -100 -200 -300 300 196.1 200 100 41.7 0 -100 -154.4 -200 -300 141.3 174.0 141.3 196.1 129.2 174.0 176.2 176.2 129.2 225.8 225.8 0.6 38.7 0.6 41.7 38.7 83.4 83.4 -57.5 -57.5 -84.0 -84.0 -140.7 -135.2 -140.7 -135.2 -142.4 -154.4 -186.7 -142.4 -186.7 Mar/ ‘15 ‘16 Mar/ ‘17 ‘15 ‘16 ‘18 ‘17 ‘19 ‘18 ‘20 ‘19 ‘20 -260.2 -260.2 ■ Cash Flows from Operating Activities ■ Cash Flows from Operating Activities ■ Cash Flows from Investing Activities ■ Cash Flows from Investing Activities —Free Cash Flows —Free Cash Flows INCOME ANALYSIS Net Sales Net sales for the year ended March 31, 2020 were ¥2,214.6 billion, down by ¥174.2 billion (7.3%) from the previ- ous year. Regarding the sales by business segment, net sales in the Carbon Fiber Composite Materials segment increased, while those in the other segments decreased. Costs and Expenses The ratio of total costs and expenses to net sales for the year ended March 31, 2020 was 94.1%, same as that of the previous year. Net sales and the cost of sales declined from the pre- vious year by 7.3% and 8.2%, respectively. As a result, the cost of sales ratio declined by 0.8 percentage points to 80.2%. Selling, general and administrative expenses declined by ¥4.7 billion (1.5%) to ¥307.2 billion. The ratio of selling, general and administrative expenses to net sales increased by 0.8 percentage points to 13.9%. R&D expenses increased by ¥0.5 billion (0.8%) to ¥66.9 billion. Operating Income and Net Income Operating income fell by ¥10.3 billion (7.3%) year on year to ¥131.2 billion. The ratio of operating income to net sales by 5.9%, unchanged from the previous year. Operating income by business segment increased in the Carbon Fiber Composite Materials, Life Science and Others segments while decreasing in the Fibers & Textiles, Performance Chemicals and Environment & Engineering segments. In net other income (expenses), Toray Group reported net expenses of ¥37.1 billion in the year ended March 31, 2020, up by ¥23.1 billion (164.3%) from the previous year. Interest and dividend income increased by ¥0.1 bil- lion (2.0%) to ¥7.0 billion. As a result, net financial expense of ¥0.2 billion was recorded in the year ended March 31, 2020, down ¥0.1 billion compared with the previous year. Net loss on sales and disposal of property, plant and equip- ment amounted to ¥3.2 billion, a loss of ¥12.9 billion from the previous year. Loss on impairment of fixed assets declined by ¥10.8 billion (58.9 %) to ¥7.6 billion. Net gain of ¥2.4 billion on sales and write-down of investment securi- ties was recorded, ameliorated by ¥3.0 billion year on year. As a result of the aforementioned, income before income taxes declined by ¥33.4 billion (26.2%) year on year to ¥94.0 billion. After deductions for income taxes and net income attributable to non-controlling interests, net income attributable to owners of parent amounted to ¥55.7 billion, down ¥23.6 billion (29.8%) year on year. Net income per share was ¥34.83, a decrease of ¥14.78. In light of profit conditions for the year ended March 31, 2020 and outlook for the next year, the total annual dividend for the year ended March 31, 2020 was set at ¥16.00 per share. This comprised an interim cash divi- dend of ¥8.00 per share and a year-end cash dividend of ¥8.00 per share. Business Performance by Segment Fibers & Textiles All applications of the segment were affected by the weak market conditions reflecting the prolonged trade friction between the U.S. and China, the slowdown in the Chinese economy, and two consecutive years of warm winter. In Japan, while shipment of apparel and industrial appli- cations remained weak in general, Toray Group pursued sales expansion of materials for uniform in Japan and for sports applications in the U.S. and Europe and focused on strengthening cost competitiveness. Overseas, demand for apparel applications includ- ing garments and textiles as well as automotive applica- tions, the mainstay of the industrial applications, remained sluggish, and Toray Group focused on business structure reform and strengthening of cost competitiveness. The segment was also affected by the stagnation in production and consumption activities both in Japan and abroad due to the novel coronavirus pandemic. As a result, overall sales of Fibers & Textiles segment declined 9.4% to ¥883.1 billion compared with the previ- ous year and operating income fell 16.7% to ¥60.7 billion. Performance Chemicals In the resins business, sales of both automotive and home appliance applications were slow primarily due to the impact of the slowdown in the Chinese economy and stagnation of production activities due to the novel coro- navirus pandemic. The chemicals business was affected by the decline in the basic chemicals market. In the films business, sales of battery separator films for lithium-ion secondary batteries increased reflecting demand growth, while polyester films were affected by the inventory adjustment for optical as well as electronic parts related applications. The electronic & information materials busi- ness saw strong performance of OLED related materials and electronic circuit materials. As a result, overall sales of Performance Chemicals segment declined 11.3% to ¥770.8 billion compared with the previous year. Operating income fell 13.2% to ¥58.7 billion. Toray Industries, Inc. Integrated Annual Report 2020 109 Operating Income by Segment (Billions of yen) 200 154.5 146.9 156.5 141.5 131.2 123.5 150 100 50 0 -50 500 250 0 ■ Adjustments (Billions of yen) 1,000 976.3 (Times) 1.20 938.9 750 700.3 704.3 816.3 716.4 0.86 0.86 0.75 0.71 0.74 0.70 0.90 0.60 0.30 0.00 Carbon Fiber Composite Materials The Carbon Fiber Composite Materials segment remained strong as a whole. Demand for aircraft application as well as performance of industrial applications in the environ- ment and energy-related fields such as compressed natu- ral gas tanks and wind turbine blade remained strong, and recovery in the demand for sports applications. As a result, overall sales of Carbon Fiber Composite Materials segment increased 9.7% to ¥236.9 billion com- pared with the previous year and operating income rose 81.6% to ¥21.0 billion. Environment & Engineering In the water treatment business, demand for reverse osmosis membranes and other products grew strongly on the whole in Japan and overseas. Among domestic subsidiaries in the segment, a con- struction subsidiary was negatively affected by the decline of high profit project orders, and an engineering subsidiary experienced decreases in the shipment of some electron- ics related equipment. As a result, overall sales of Environment & Engineering segment declined 2.1% to ¥252.3 billion compared with the previous year and operating income declined 8.1% to ¥11.2 billion. Life Science In the pharmaceutical business, sales of orally active pros- tacyclin derivative DORNER® were affected by the intro- duction of its generic versions. While sales of pruritus treatment REMITCH®* were also influenced by the intro- duction of its generic versions, its shipment was strong partly due to the growth in the entire market. FINANCIAL POSITION 2,010.7 2,104.4 2,214.6 2,388.8 2,204.9 Analysis of Assets, Liabilities and Net Assets Net Sales by Segment As of March 31, 2020, Toray Group’s total assets stood (Billions of yen) at ¥2,650.7 billion, down ¥137.7 billion from the end of 2,500 the previous year. Current assets fell ¥62.9 billion as trade receivables declined, and non-current assets fell ¥74.8 bil- lion due primarily to a decline in investment securities. 2,026.5 2,000 Total liabilities declined ¥103.3 billion from the end of the previous year to ¥1,471.1 billion, owing mainly to declines in trade payables and long-term debt. 1,500 Net assets decreased by ¥34.4 billion compared with the end of the previous year to ¥1,179.6 billion, reflecting a change in foreign currency translation adjustments. Net 1,000 assets less non-controlling interests and stock acquisition rights stood at ¥1,093.7 billion. The equity ratio at March 31, 2020 came to 41.3%, a 0.7 percentage-point increase compared with the level at the end of the previous year. 500 0 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others Total Assets and Net Assets Interest-bearing Liabilities and D/E Ratio (Billions of yen) 2,800 2,788.4 2,575.9 2,650.7 (%) 80 2,357.9 2,278.4 2,396.8 In the medical devices business, shipment of dialyzers 2,100 grew strongly in Japan and overseas. As a result, overall sales of Life Science segment declined 0.8% to ¥53.3 billion compared with the previous year, while operating income rose 24.9% to ¥1.6 billion. *REMITCH® is a registered trademark of Torii Pharmaceutical Co., Ltd. Others Net sales declined by ¥0.3 billion (1.5%) from the previous year to ¥18.2 billion, and operating income increased by ¥0.3 billion (10.1%) to ¥3.4 billion. 1,400 700 0 41.8 41.5 42.6 42.3 40.6 41.3 1,080.8 1,024.9 1,100.2 1,169.2 1,213.9 1,179.6 60 40 20 0 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ■ Total Assets ■ Net Assets —Equity Ratio * “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018) is applied from the year ended March 31, 2019 and onward. The related figures for the year ended March 31, 2018 are retrospectively restated accordingly. ■ Interest-bearing Liabilities —D/E Ratio Toray Industries, Inc. Integrated Annual Report 2020 110 Cash Flows (Billions of yen) 300 196.1 141.3 174.0 176.2 129.2 41.7 38.7 0.6 225.8 83.4 -140.7 -154.4 -135.2 -142.4 -57.5 -84.0 -186.7 -260.2 200 100 0 -100 -200 -300 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ■ Cash Flows from Operating Activities ■ Cash Flows from Investing Activities —Free Cash Flows Net Sales by Segment (Billions of yen) 2,500 2,388.8 2,204.9 2,214.6 2,104.4 2,010.7 2,026.5 Operating Income by Segment (Billions of yen) 200 154.5 146.9 156.5 141.5 131.2 123.5 2,000 1,500 1,000 500 0 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others Cash Flows from Investing Activities Net cash used in investing activities totaled ¥142.4 billion, down ¥117.9 billion (45.3%) compared with the previous Total Assets and Net Assets year. This largely reflected the absence of payments for (%) (Billions of yen) the purchase of shares in subsidiaries that resulted in a 2,800 80 change in the scope of consolidation, which were recorded ¥114.6 billion in the previous year. 2,278.4 2,357.9 2,575.9 2,788.4 2,650.7 2,396.8 150 100 50 0 -50 500 250 0 ■ Adjustments (Billions of yen) 1,000 Interest-bearing Liabilities and D/E Ratio 976.3 (Times) 1.20 938.9 750 700.3 704.3 816.3 716.4 0.86 0.86 0.75 0.71 0.74 0.70 0.90 0.60 0.30 0.00 Cash Flows from Financing Activities 2,100 60 Net cash used in financing activities came to ¥67.6 billion, down by ¥186.5 billion compared with the net cash inflow of ¥118.9 billion in the previous year. Major cash-decreas- 1,400 40 ing factors included a decrease of ¥147.5 billion (62.9%) in proceeds from long-term debt of ¥87.0 billion compared with ¥234.5 billion for the previous year, and an increase in repayment of long-term debt of ¥91.6 billion, up by ¥24.7 20 (37.0%) billion from the previous year. 1,169.2 1,080.8 1,024.9 1,100.2 0 0 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ■ Total Assets ■ Net Assets —Equity Ratio ■ Interest-bearing Liabilities —D/E Ratio 1,179.6 1,213.9 41.8 41.5 42.6 41.3 40.6 42.3 700 CASH FLOWS For the year ended March 31, 2020, net cash provided Operating Income by Segment by operating activities exceeded net cash used in invest- (Billions of yen) ing activities by ¥83.4 billion. Meanwhile, net cash used in 200 financing activities came to ¥67.6 billion owing mainly to the decrease in interest-bearing liabilities. As a result, after counting exchange rate changes, cash and cash equiva- 150 lents as of March 31, 2020 amounted to ¥183.7 billion, up by ¥10.6 billion (6.1%) compared with the end of the previ- ous year on a consolidated basis. 100 146.9 141.5 131.2 156.5 123.5 154.5 0 Cash Flows from Operating Activities Net cash provided by operating activities increased by 50 ¥49.5 billion (28.1%) compared with the previous year to ¥225.8 billion. Looking at major movements, the decrease in trade receivables was held to ¥37.2 billion compared with the increase of ¥33.6 billion in the previous year. In the year ended March 31, 2020, the Group reported a decrease in inventories of ¥18.1 billion compared with -50 a decrease of ¥28.4 billion for the previous year and a decrease in trade payables of ¥23.6 billion compared with ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals a decrease of ¥11.8 billion in the previous year. ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others ■ Adjustments Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 Total Assets and Net Assets Interest-bearing Liabilities and D/E Ratio Cash Flows (Billions of yen) 2,800 2,788.4 2,575.9 2,650.7 (%) 80 (Billions of yen) 1,000 976.3 938.9 (Times) 1.20 (Billions of yen) 300 2,357.9 2,278.4 2,396.8 41.8 41.5 42.6 42.3 40.6 41.3 1,080.8 1,024.9 1,100.2 1,169.2 1,213.9 1,179.6 60 40 20 0 750 700.3 704.3 816.3 716.4 0.71 0.74 0.70 0.75 0.90 0.86 0.86 196.1 200 100 141.3 174.0 176.2 129.2 41.7 38.7 0.6 225.8 83.4 500 250 0 0.60 0 0.30 -100 -200 0.00 -300 -57.5 -84.0 -140.7 -154.4 -135.2 -142.4 -186.7 -260.2 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ■ Total Assets ■ Net Assets —Equity Ratio ■ Interest-bearing Liabilities —D/E Ratio ■ Cash Flows from Operating Activities ■ Cash Flows from Investing Activities —Free Cash Flows Toray Industries, Inc. Integrated Annual Report 2020 111 Net Sales by Segment (Billions of yen) 2,500 2,388.8 2,204.9 2,214.6 2,104.4 2,010.7 2,026.5 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ■ Fibers & Textiles ■ Performance Chemicals ■ Plastics & Chemicals ■ IT-related Products ■ Carbon Fiber Composite Materials ■ Environment & Engineering ■ Life Science ■ Others Cash Flows (Billions of yen) 196.1 141.3 174.0 176.2 129.2 41.7 38.7 0.6 225.8 83.4 -140.7 -154.4 -135.2 -142.4 -57.5 -84.0 -186.7 -260.2 Mar/ ‘15 ‘16 ‘17 ‘18 ‘19 ‘20 ■ Cash Flows from Operating Activities ■ Cash Flows from Investing Activities —Free Cash Flows 2,000 1,500 1,000 500 0 2,100 1,400 700 0 300 200 100 0 -100 -200 -300 Consolidated Balance Sheets Toray Industries, Inc. and Consolidated Subsidiaries March 31, 2020 and 2019 Assets Current assets: Cash (Note 5) Time deposits (Notes 4 and 5) Trade receivables (Notes 5 and 7): Notes receivable Accounts receivable Inventories (Note 3) Prepaid expenses and other current assets (Notes 5 and 6) Allowance for doubtful accounts Total current assets Property, plant and equipment (Notes 4 and 13): Land Buildings Machinery and equipment Construction in progress Other Accumulated depreciation Millions of yen Thousands of U.S. dollars (Note 2) 2020 2019 2020 ¥ 142,496 ¥ 140,701 $ 1,309,706 31,202 27,806 286,783 53,856 429,905 393,655 79,907 (2,569) 56,346 474,712 419,527 74,517 (2,280) 495,000 3,951,333 3,618,153 734,439 (23,612) 1,128,452 1,191,329 10,371,801 72,566 77,687 666,967 666,509 651,084 6,126,002 1,994,262 1,989,553 18,329,614 134,496 147,128 143,847 121,512 1,236,176 1,352,279 3,014,961 2,983,683 27,711,039 (2,008,452) (1,986,807) (18,460,037) Property, plant and equipment, net 1,006,509 996,876 9,251,002 Intangible assets (Note 13): Goodwill Other Total intangible assets Investments and other assets: 71,950 78,741 85,712 85,537 661,305 723,722 150,691 171,249 1,385,028 Investments in unconsolidated subsidiaries and affiliated companies (Note 5) 149,339 163,052 1,372,601 Investment securities (Notes 4, 5 and 6) 152,956 188,000 1,405,846 Long-term loans receivable Deferred tax assets (Note 10) Other (Notes 4 and 8) Allowance for doubtful accounts 5,579 18,215 41,437 2,477 21,978 56,171 (2,491) (2,781) 51,278 167,417 380,855 (22,895) Total investments and other assets 365,035 428,897 3,355,101 Total assets ¥ 2,650,687 ¥ 2,788,351 $ 24,362,932 See accompanying notes to consolidated financial statements. Toray Industries, Inc. Integrated Annual Report 2020 112 Liabilities and Net Assets Current liabilities: Millions of yen Thousands of U.S. dollars (Note 2) 2020 2019 2020 Short-term bank loans (Notes 4 and 5) ¥ 132,358 ¥ 175,567 $ 1,216,526 Current portion of long-term debt (Notes 4, 5 and 7) Commercial paper (Note 5) Trade payables (Notes 5 and 7): Notes payable Accounts payable Income taxes payable (Note 10) Accrued liabilities Other current liabilities (Note 4) Total current liabilities Non-current liabilities: Long-term debt (Notes 4, 5 and 7) Deferred tax liabilities (Note 10) Net defined benefit liability (Note 8) Other non-current liabilities (Note 4) Total non-current liabilities Total liabilities Net assets (Note 11): Stockholders’ equity: Common stock: Authorized—4,000,000,000 shares Issued—1,631,481,403 shares Capital surplus Retained earnings Treasury stock, at cost 108,131 10,000 94,094 — 993,851 91,912 36,482 38,824 335,313 175,841 201,730 1,616,186 11,185 59,937 96,841 630,775 13,578 64,850 107,850 696,493 102,803 550,892 890,083 5,797,564 673,068 702,761 6,186,287 33,916 48,758 100,575 100,730 32,781 25,665 311,728 924,403 301,296 840,340 877,914 7,723,713 1,471,115 1,574,407 13,521,278 147,873 147,873 1,359,127 118,062 849,268 117,760 817,263 1,085,129 7,805,772 (20,308) (20,358) (186,654) Total stockholders’ equity 1,094,895 1,062,538 10,063,373 Accumulated other comprehensive income: Net unrealized gains (losses) on securities Net deferred gains (losses) on hedges Foreign currency translation adjustments Remeasurements of defined benefit plans Total accumulated other comprehensive income Stock acquisition rights (Note 9) Non-controlling interests Total net assets Total liabilities and net assets 44,096 1,162 (44,114) (2,291) (1,147) 1,602 84,222 64,662 75 896 2,862 68,495 1,338 81,573 405,294 10,680 (405,460) (21,057) (10,542) 14,724 774,099 1,179,572 1,213,944 10,841,654 ¥ 2,650,687 ¥ 2,788,351 $ 24,362,932 Toray Industries, Inc. Integrated Annual Report 2020 113 Consolidated Statements of Income Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2020 and 2019 Net sales Costs and expenses: Cost of sales (Notes 3, 8, 13 and 14) Selling, general and administrative expenses (Notes 8, 9, 13 and 14) Operating income Other income (expenses): Interest expenses Interest and dividend income Equity in earnings (losses) of unconsolidated subsidiaries and affiliated companies (Note 15) Gain (loss) on sales and disposal of property, plant and equipment, net Loss on impairment of fixed assets (Note 16) Gain (loss) on sales and loss on write-down of investment securities, net Gain on return of assets from retirement benefits trust Settlement package Other, net Income before income taxes Income taxes (Note 10): Current Deferred Net income Net income attributable to non-controlling interests Millions of yen Thousands of U.S. dollars (Note 2) 2020 2019 2020 ¥ 2,214,633 ¥ 2,388,848 $ 20,355,083 1,776,276 307,171 2,083,447 131,186 1,935,486 311,893 2,247,379 141,469 16,326,066 2,823,263 19,149,329 1,205,754 (7,235) 7,024 (7,161) 6,883 (10,805) 9,619 (3,163) (7,569) 2,383 — — (17,775) (37,140) 94,046 28,201 930 29,131 64,915 9,190 9,751 (18,414) (625) 2,532 (864) (15,771) (14,050) 127,419 37,293 2,338 39,631 87,788 8,415 (66,498) 64,559 (99,311) (29,072) (69,568) 21,903 — — (163,373) (341,360) 864,393 259,200 8,548 267,748 596,645 84,467 Net income attributable to owners of parent ¥ 55,725 ¥ 79,373 $ 512,178 See accompanying notes to consolidated financial statements. Consolidated Statements of Comprehensive Income Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2020 and 2019 Net income Other comprehensive income (Note 17) Net unrealized gains (losses) on securities Net deferred gains (losses) on hedges Foreign currency translation adjustments Remeasurements of defined benefit plans Share of other comprehensive income of unconsolidated subsidiaries and affiliated companies accounted for by the equity method Total other comprehensive income Comprehensive income Total comprehensive income attributable to: Owners of parent Non-controlling interests See accompanying notes to consolidated financial statements. Toray Industries, Inc. Integrated Annual Report 2020 114 Millions of yen Thousands of U.S. dollars (Note 2) 2020 2019 2020 ¥ 64,915 ¥ 87,788 $ 596,645 (20,488) 1,037 (44,857) (5,083) (9,579) 1,064 (4,767) (1,325) (188,309) 9,531 (412,289) (46,719) (2,904) (605) (26,691) (72,295) ¥ (7,380) (15,212) ¥ 72,576 (664,476) $ (67,831) ¥ (13,917) ¥ 65,491 $ (127,914) 6,537 7,085 60,083 Consolidated Statements of Changes in Net Assets Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2020 and 2019 Stockholders’ equity Accumulated other comprehensive income Millions of yen Common stock Capital surplus Retained earnings Treasury stock, at cost Total stockholders’ equity Net unrealized gains (losses) on securities Net deferred gains (losses) on hedges Foreign currency translation adjustments Remeasure- ments of defined benefit plans Total accumulated other com- prehensive income Stock acquisition rights Non- controlling interests Total net assets Balance as of April 1, 2018 ¥ 147,873 ¥ 117,572 ¥ 763,504 ¥ (20,631) ¥ 1,008,318 ¥ 74,290 ¥ (901) ¥ 4,830 ¥ 4,158 ¥ 82,377 ¥ 1,334 ¥ 77,159 ¥ 1,169,188 Changes in: Dividends Net income attributable to owners of parent Purchase of treasury stock Disposal of treasury stock Change in equity attributable to parent arising from transaction with non-controlling shareholders Other Items other than stockholders’ equity, net (25,608) 79,373 14 174 (2) 273 (6) 2 (25,608) 79,373 (2) 287 174 (4) (9,628) Total changes — 188 53,759 273 54,220 (9,628) Balance as of March 31, 2019 ¥ 147,873 ¥ 117,760 ¥ 817,263 ¥ (20,358) ¥ 1,062,538 ¥ 64,662 Balance as of April 1, 2019 ¥ 147,873 ¥ 117,760 ¥ 817,263 ¥ (20,358) ¥ 1,062,538 ¥ 64,662 (25,608) 79,373 (2) 287 174 (4) 976 976 75 75 ¥ ¥ (3,934) (1,296) (13,882) (3,934) (1,296) (13,882) 4 4 4,414 4,414 (9,464) 44,756 ¥ ¥ 896 896 ¥ 2,862 ¥ 68,495 ¥ 1,338 ¥ 81,573 ¥ 1,213,944 ¥ 2,862 ¥ 68,495 ¥ 1,338 ¥ 81,573 ¥ 1,213,944 Changes in: Dividends Net income attributable to owners of parent Purchase of treasury stock Disposal of treasury stock Change in equity attributable to parent arising from transaction with non-controlling shareholders Other Items other than stockholders’ equity, net (25,612) 55,725 10 292 (25,612) 55,725 (1) 61 292 (1) 51 1,892 1,892 (20,566) 1,087 (45,010) (5,153) (69,642) Total changes — 302 32,005 50 32,357 (20,566) 1,087 (45,010) (5,153) (69,642) (25,612) 55,725 (1) 61 292 1,892 264 264 2,649 (66,729) 2,649 (34,372) Balance as of March 31, 2020 ¥ 147,873 ¥ 118,062 ¥ 849,268 ¥ (20,308) ¥ 1,094,895 ¥ 44,096 ¥ 1,162 ¥ (44,114) ¥ (2,291) ¥ (1,147) ¥ 1,602 ¥ 84,222 ¥ 1,179,572 Stockholders’ equity Accumulated other comprehensive income Thousands of U.S. dollars (Note 2) Common stock Capital surplus Retained earnings Treasury stock, at cost Total stockholders’ equity Net unrealized gains (losses) on securities Net deferred gains (losses) on hedges Foreign currency translation adjustments Remeasure- ments of defined benefit plans Total accumulated other com- prehensive income Stock acquisition rights Non- controlling interests Total net assets Balance as of April 1, 2019 $ 1,359,127 $ 1,082,353 $ 7,511,608 $ (187,114) $ 9,765,974 $ 594,320 $ 689 $ 8,235 $ 26,305 $ 629,550 $ 12,298 $ 749,752 $ 11,157,574 Changes in: Dividends Net income attributable to owners of parent Purchase of treasury stock Disposal of treasury stock Change in equity attributable to parent arising from transaction with non-controlling shareholders Other Items other than stockholders’ equity, net (235,404) 512,178 17,390 92 2,684 (9) 469 (235,404) 512,178 (9) 561 2,684 17,390 (235,404) 512,178 (9) 561 2,684 17,390 (189,026) 9,991 (413,695) (47,362) (640,092) 2,426 24,347 (613,318) Total changes — 2,776 294,164 460 297,399 (189,026) 9,991 (413,695) (47,362) (640,092) 2,426 24,347 (315,919) Balance as of March 31, 2020 $ 1,359,127 $ 1,085,129 $ 7,805,772 $ (186,654) $ 10,063,373 $ 405,294 $ 10,680 $ (405,460) $ (21,057) $ (10,542) $ 14,724 $ 774,099 $ 10,841,654 See accompanying notes to consolidated financial statements. Toray Industries, Inc. Integrated Annual Report 2020 115 Consolidated Statements of Cash Flows Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2020 and 2019 Cash flows from operating activities: Income before income taxes Adjustments to reconcile income before income taxes to net cash provided by operating activities: Depreciation and amortization Loss on impairment of fixed assets Interest and dividend income Equity in losses (earnings) of unconsolidated subsidiaries and affiliated companies Interest expenses Loss (gain) on sales and disposal of property, plant and equipment, net Loss (gain) on sales and write-down of investment securities, net Increase (decrease) in net defined benefit liability Decrease (increase) in trade receivables Decrease (increase) in inventories Increase (decrease) in trade payables Other, net Subtotal Interest and dividends received Interest paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Purchase of investment securities Proceeds from sales of property, plant and equipment Proceeds from sales of investment securities Acquisition of shares of consolidated subsidiaries resulting in change in scope of consolidation (Note 18) Other, net Net cash used in investing activities Cash flows from financing activities: Net increase (decrease) in short-term debt Proceeds from long-term debt Repayment of long-term debt Cash dividends paid Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation Other, net Net cash provided by (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Millions of yen Thousands of U.S. dollars (Note 2) 2020 2019 2020 ¥ 94,046 ¥ 127,419 $ 864,393 107,382 7,569 (7,024) 101,711 18,414 (6,883) 10,805 (9,619) 7,235 3,163 (2,230) (999) 37,191 18,116 (23,582) (6,851) 244,821 16,420 (5,550) (29,924) 225,767 7,161 (9,751) 666 (1,451) (33,582) 28,427 (11,843) (464) 210,205 15,704 (7,098) (42,572) 176,239 986,967 69,568 (64,559) 99,311 66,498 29,072 (20,496) (9,182) 341,829 166,507 (216,746) (62,969) 2,250,193 150,919 (51,011) (275,037) 2,075,064 (140,147) (7,317) 6,018 8,372 (169,630) (4,131) 19,254 8,387 (1,288,116) (67,252) 55,313 76,949 — (114,564) — (9,290) (142,364) 437 (260,247) (85,386) (1,308,493) (30,024) 87,026 (91,581) (28,934) (18,596) 234,530 (66,843) (29,875) (274) (344) (3,807) (67,594) 19 118,891 (5,206) 10,603 (327) 34,556 (275,956) 799,871 (841,737) (265,938) (2,518) (34,991) (621,268) (47,849) 97,454 Cash and cash equivalents at beginning of year 173,078 134,315 1,590,790 Beginning balance of cash and cash equivalents at subsidiaries not previously included in consolidation — 4,207 — Cash and cash equivalents at end of year ¥ 183,681 ¥ 173,078 $ 1,688,244 See accompanying notes to consolidated financial statements. Toray Industries, Inc. Integrated Annual Report 2020 116 Consolidated Statements of Cash Flows Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2020 and 2019 Notes to Consolidated Financial Statements Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2020 and 2019 1. SIGNIFICANT ACCOUNTING POLICIES a) Basis of Presenting Consolidated Financial Statements The accompanying consolidated financial statements of Toray Industries, Inc. (the Company) and its consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Act of Japan and its related accounting regulations, and in conformity with accounting principles and practices generally accepted in Japan, which are dif- ferent in certain respects as to application and disclosure require- ments of International Financial Reporting Standards (IFRS). For the preparation of consolidated financial statements, the accounting policies and procedures applied to a parent com- pany and its subsidiaries for similar transactions and events under similar circumstances should be unified, in principle. However, financial statements prepared by overseas subsidiar- ies in accordance with IFRS or the generally accepted account- ing principles in the United States tentatively may be used for the consolidation process. In addition, some items should be adjusted in the consolidation process so that net income is accurately accounted for, unless they are not material. Certain items presented in the original consolidated finan- cial statements in Japanese have been reclassified for the convenience of readers outside Japan. b) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and substantially all of its subsidiaries. Assets and liabilities of the consolidated subsidiaries are revalued to fair market value when the Company acquires control over the subsidiaries. Investments in unconsolidated subsidiaries and affiliated companies are accounted for by the equity method. All intercompany accounts and transactions have been eliminated in consolidation. The difference between the con- sideration transferred and the net identifiable assets of the subsidiaries is recognized as goodwill and amortized princi- pally over its estimated useful life not exceeding twenty years on a straight-line method. c) Cash and Cash Equivalents Cash and cash equivalents at March 31, 2020 and 2019 include cash, short-term time deposits which may be withdrawn on demand without diminution of principal and highly liquid invest- ments with original maturities of three months or less. Cash and cash equivalents consisted of: Millions of yen Thousands of U.S. dollars 2020 2019 2020 Cash ¥ 142,496 ¥ 140,701 $ 1,309,706 Time deposits 31,202 27,806 286,783 Less—Time deposits with maturities of over 3 months Marketable securities with original maturities of 3 months or less (4,788) (2,841) (44,007) 14,771 7,412 135,763 Cash and cash equivalents ¥ 183,681 ¥ 173,078 $ 1,688,244 d) Financial Instruments Derivatives: All derivatives are stated at fair value, with changes in fair value included in net income or loss for the period in which they arise, except for derivatives that are designated as “hedging instruments” (see Hedge Accounting below). Securities: Held-to-maturity debt securities that the Company and its con- solidated subsidiaries have the intent to hold to maturity, are stated at cost after accounting for premium or discount on acquisition, which are amortized over the period to maturity. Other securities for which market quotations are avail- able are stated at fair value. Net unrealized gains or losses on these securities are reported as a separate item in net assets at a net-of-tax amount. Other securities for which market quotations are unavail- able are stated at cost, except as stated in the paragraph below. In cases where the fair value of held-to-maturity debt securities or other securities has declined significantly and such impairment of the value is not deemed temporary, those securities are written down to fair value and the resulting losses are included in net income or loss for the period. Hedge Accounting: Gains or losses arising from changes in fair value of derivatives designated as “hedging instruments” are deferred as a sepa- rate item of net assets at a net-of-tax amount and included in net income or loss in the same period during which the gains and losses on the hedged items or transactions are recognized. The derivatives designated as hedging instruments by the Company and its consolidated subsidiaries are principally interest rate swaps and forward foreign exchange contracts. The related hedged items are trade accounts receivable and payable, long-term bank loans and debt securities issued by the Company and its consolidated subsidiaries. The Company and its consolidated subsidiaries have a pol- icy to utilize the above hedging instruments in order to reduce their exposure to the risk of interest rate and foreign currency fluctuations. Thus, their purchases of the hedging instruments are limited to, at maximum, the amounts of the hedged items. The Company and its consolidated subsidiaries evaluate the effectiveness of hedging activities by reference to the accumulated gains or losses on the hedging instruments and the related hedged items from the commencement of the hedges. Toray Industries, Inc. Integrated Annual Report 2020 117 i) Consumption Taxes Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. j) Retirement Benefits The Company and some of its consolidated subsidiaries have unfunded lump-sum benefit plans, funded contributory pen- sion plans and/or defined contribution pension plans covering eligible employees. Under the terms of the unfunded lump-sum benefit plans, eligible employees are entitled under most circumstances, upon mandatory retirement or earlier voluntary severance, to indemnities based on compensation at the time of severance and years of service. The funded contributory pension plans and the defined contribution pension plans provide, in general, pension pay- ments for life commencing from age 60. To provide for the payment of retirement benefits to employees, net defined benefit liability is recognized at an amount equal to the expected retirement benefit obligations net of the fair value of pension assets at the end of the period. Past service cost is amortized as incurred using the straight-line method over a certain period within the employ- ees’ average remaining years of service (primarily 12 years). Actuarial gains and losses are amortized from the follow- ing fiscal year after recognition using the straight-line method over a certain period within the employees’ average remain- ing years of service (primarily 12 years). Unrecognized actuarial gains and losses and unrecog- nized past service cost are recognized in remeasurements of defined benefit plans in accumulated other comprehensive income under the net assets section, net of deferred taxes. An allowance is separately provided against retirement benefits for the members of the boards of some consoli- dated subsidiaries and is included in “other non-current lia- bilities” on the consolidated balance sheets. The amount is calculated based on the internal company policies as the esti- mated amount that would be payable if all such board mem- bers were to retire at the balance sheet date. k) Appropriation of Retained Earnings Cash dividends are recorded in the fiscal year when the pro- posed appropriation of retained earnings is approved by the Board of Directors and/or stockholders. l) Foreign Currency Transactions All monetary assets and liabilities denominated in foreign cur- rencies, whether long-term or short-term, are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. Resulting gains and losses are included in net income or loss for the period. e) Allowance for Doubtful Accounts In the Company and its domestic consolidated subsidiaries, an allowance for doubtful accounts, including receivables and loans, is determined from the amounts considered unlikely to be recovered, estimated from past actual bad debt ratio records for general receivables and from studying the probability of recovery in individual cases where there is concern over claims. f) Inventories Inventories are stated at the lower of acquisition cost, princi- pally determined by the moving average method, or net sell- ing value to reflect any decreased profitability of inventories. g) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation for property, plant and equipment (except leased assets) is principally computed by the straight-line method at rates based on estimated useful lives that are as follows: Buildings Machinery and equipment 3–60 years 3–15 years Right-of-use assets are depreciated using the straight- line method over the shorter of the useful lives of the assets or the lease terms. The depreciation method of other leased assets under finance leases is principally identical to the method applicable to its own fixed assets. h) Income Taxes Income taxes of the Company and its domestic consolidated subsidiaries consist of corporate income taxes, local inhabitants taxes and enterprise taxes. Deferred income taxes are deter- mined using the asset and liability approach, where deferred tax assets and liabilities are recognized for temporary differ- ences between the tax basis of assets and liabilities and their reported amount in the financial statements. The Company also provides for the anticipated tax effect of future remittances of retained earnings from subsidiaries and affiliated companies. The Company and some of its consolidated subsidiaries file consolidated tax returns in their respective countries. With regard to items to be transitioned from the consoli- dated taxation system to the group tax sharing system insti- tuted in the “Act for Partial Amendment of the Income Tax Act, etc. (Act No. 8 of 2020)” and items to be amended in the non-consolidated taxation system in line with the transition to the group tax sharing system, the Company and some of its domestic consolidated subsidiaries did not apply the pro- vision of Paragraph 44 of the “Implementation Guidance on Tax Effect Accounting (Accounting Standards Board of Japan (ASBJ) Guidance No. 28, February 16, 2018),” pursuant to Paragraph 3 of the “Practical Solution on the Treatment of Tax Effect Accounting for the Transition from the Consolidated Taxation System to the Group Tax Sharing System (PITF No. 39, March 31, 2020).” Accordingly, the amounts of deferred tax assets and deferred tax liabilities are stated based on the provisions of tax acts in effect before the amendments. Toray Industries, Inc. Integrated Annual Report 2020 118 m) Translation of Foreign Currency Financial Statements Translation of foreign currency financial statements of over- seas subsidiaries into Japanese yen for consolidation purposes is made by using the current exchange rates prevailing at their balance sheet dates, with the exception that the translation of stockholders’ equity is made by using historical rates. Revenue and expense accounts are principally translated at the average exchange rates during the year. Differences in yen amounts arising from the use of different rates are presented as “for- eign currency translation adjustments” in net assets except for the portion belonging to non-controlling shareholders, which is included in “non-controlling interests” in net assets. n) Changes in Accounting Policies Leases (IFRS 16) Effective from the year ended March 31, 2020, overseas subsidiaries subject to IFRS have applied IFRS 16 “Leases.” Accordingly, those subsidiaries recognize assets and liabilities for all leases in which they are lessees, in principle, and some of the assets that have been included in “Investments and other assets” are reclassified to “Property, plant and equip- ment.” When applying IFRS 16, the cumulative effect of the application is recognized at the beginning of application, in accordance with transitional provisions. As a result, “Other” in “Property, plant and equipment,” “Other current liabilities” in “Current liabilities,” and “Other non-current liabilities” in “Non-current liabilities” as of March 31, 2020 increased by ¥20,735 million ($190,579 thousand), ¥2,676 million ($24,596 thousand), and ¥8,971 million ($82,454 thousand), respectively, and “Other” in “Investments and other assets” decreased by ¥9,278 million ($85,276 thousand). The effect of the changes on the profit or loss for the year ended March 31, 2020 is immaterial. o) Standards Issued but Not Yet Adopted Accounting Standard and Implementation Guidance on Revenue Recognition • Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020) • Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30, March 31, 2020) (1) Overview This is a comprehensive accounting standard for revenue rec- ognition. The standard establishes the following five-step model that an entity applies when recognizing revenue from customers: Step 1: Identify the contract(s) with a customer. Step 2: Identify the performance obligations in the contract. Step 3: Determine the transaction price. Step 4: Allocate the transaction price to the performance obli- gations in the contract. Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation. (2) Scheduled Date and Impact of Adoption The Company will not adopt the standard and implementation guidance nor has it evaluated the impact of adoption because the Company plans voluntary adoption of IFRS starting from the first quarter of the year ending March 31, 2021. Accounting Standard for Fair Value Measurement, etc. • Accounting Standard for Fair Value Measurement (ASBJ Statement No. 30, July 4, 2019) • Implementation Guidance on Accounting Standard for Fair Value Measurement (ASBJ Guidance No. 31, July 4, 2019) • Accounting Standard for Measurement of Inventories (ASBJ Statement No. 9, July 4, 2019) • Accounting Standard for Financial Instruments (ASBJ Statement No. 10, July 4, 2019) • Implementation Guidance on Disclosures about Fair Value of Financial Instruments (ASBJ Guidance No. 19, March 31, 2020) (1) Overview ASBJ developed “Accounting Standard for Fair Value Measurement” and “Implementation Guidance on Accounting Standard for Fair Value Measurement,” which provide guid- ance for fair value measurement in order to improve compara- bility with internationally recognized accounting standards. The accounting standard and implementation guidance apply to the fair value of financial instruments and trading inventories. In addition, “Implementation Guidance on Disclosures about Fair Value of Financial Instruments” was revised to include the provisions that require entities to disclose the fair value of finan- cial instruments by level of the fair value hierarchy. (2) Scheduled Date and Impact of Adoption The Company will not adopt the standards and implementation guidance nor has it evaluated the impact of adoption because the Company plans voluntary adoption of IFRS starting from the first quarter of the year ending March 31, 2021. Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections • Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections (ASBJ Statement No. 24, March 31, 2020) (1) Overview This revised standard establishes a disclosure requirement of the outline of accounting principles and procedures applied by an entity in cases where directly relevant accounting standards are not available. (2) Scheduled Date and Impact of Adoption The Company will not adopt the standard nor has it evaluated the impact of adoption because the Company plans voluntary adoption of IFRS starting from the first quarter of the year end- ing March 31, 2021. Toray Industries, Inc. Integrated Annual Report 2020 119 Accounting Standard for Disclosure of Accounting Estimates • Accounting Standard for Disclosure of Accounting Estimates (ASBJ Statement No. 31, March 31, 2020) the impact of adoption because the Company plans voluntary adoption of IFRS starting from the first quarter of the year end- ing March 31, 2021. (1) Overview This standard stipulates guidance on disclosure that provides users of financial statements with information to understand the accounting estimates that relate to the amounts stated in the financial statements of a year and that may have a mate- rial impact on the financial statements of the subsequent year. (2) Scheduled Date and Impact of Adoption The Company will not adopt the standard nor has it evaluated p) Assumptions on the novel coronavirus pandemic for accounting estimates The Company’s evaluation of goodwill and other accounting estimates were premised on the assumption that the world economy, which was severely stalled by the novel coronavirus pandemic, would begin recovering from the second half of the year ending March 31, 2021, but that the recovery would be slow and would not be complete until the year ending March 31, 2022 or later. 2. U.S. DOLLAR AMOUNTS The Company and its domestic consolidated subsidiaries main- tain their accounting records in yen. The U.S. dollar amounts included in the accompanying consolidated financial state- ments and notes thereto represent the arithmetic results of translating yen into U.S. dollars at the rate of ¥108.8 to $1.00, the approximate exchange rate prevailing on March 31, 2020. The inclusion of such U.S. dollar amounts is solely for the con- venience of readers outside Japan and is not intended to imply that the assets and liabilities that originated in yen have been or could be readily converted, realized or settled in U.S. dollars at this or at any other rate. 3. INVENTORIES At March 31, 2020 and 2019, inventories consisted of the following: Merchandise and finished goods Work in process Raw materials and supplies Millions of yen 2020 2019 Thousands of U.S. dollars 2020 ¥ 214,957 ¥ 228,480 $ 1,975,708 79,520 99,178 85,880 105,167 730,882 911,563 ¥ 393,655 ¥ 419,527 $ 3,618,153 Losses recognized and charged to cost of sales as a result of valuation at March 31, 2020 and 2019 were ¥4,696 million ($43,162 thousand) and ¥4,502 million, respectively. Toray Industries, Inc. Integrated Annual Report 2020 120 4. SHORT-TERM BANK LOANS, LONG-TERM DEBT AND LEASE OBLIGATIONS Short-term bank loans at March 31, 2020 and 2019 represented bank overdrafts and short-term notes. The Company is not required to pay commitment fees on unused balances of the bank overdraft agreements. Long-term debt and lease obligations at March 31, 2020 and 2019 were as follows: Loans principally from banks and insurance companies with interest rates primarily from 0.06% to 11.50%, maturing serially through 2032: Unsecured Secured Lease obligations maturing serially through 2050: Unsecured Yen notes with an interest rate of 0.93% due 2022 Yen notes with an interest rate of 1.01% due 2023 Yen notes with an interest rate of 0.25% due 2024 Yen notes with an interest rate of 0.24% due 2025 Yen notes with an interest rate of 0.38% due 2027 Yen notes with an interest rate of 0.38% due 2028 Yen notes with an interest rate of 0.83% due 2038 Zero coupon convertible bonds due 2019 Zero coupon convertible bonds due 2021 Less amounts due within one year At March 31, 2020, assets pledged as collateral were as follows: Time deposits Property, plant and equipment, net Investment securities Others Millions of yen 2020 2019 Thousands of U.S. dollars 2020 ¥ 490,860 ¥ 456,402 $ 4,511,581 339 453 3,116 15,356 20,000 20,000 40,000 40,000 60,000 40,000 20,000 — 50,000 796,555 111,254 3,829 20,000 20,000 40,000 40,000 60,000 40,000 20,000 50,000 50,000 800,684 94,493 141,140 183,824 183,824 367,647 367,647 551,471 367,647 183,824 — 459,559 7,321,278 1,022,555 ¥ 685,301 ¥ 706,191 $ 6,298,722 Millions of yen 2020 ¥ 908 247 1,236 655 Thousands of U.S. dollars 2020 $ 8,346 2,270 11,360 6,020 ¥ 3,046 $ 27,996 The annual maturities of long-term debt and lease obligations subsequent to March 31, 2020 were as follows: Years ending March 31: 2021 2022 2023 2024 2025 2026 and thereafter Millions of yen 2020 Thousands of U.S. dollars 2020 ¥ 111,254 $ 1,022,555 102,076 97,297 106,021 50,500 329,407 938,199 894,274 974,458 464,154 3,027,638 ¥ 796,555 $ 7,321,278 Toray Industries, Inc. Integrated Annual Report 2020 121 5. FINANCIAL INSTRUMENTS Conditions of Financial Instruments a) Policy in Relation to Financial Instruments The policy of the Company and its consolidated subsidiaries is to manage funds only by short-term deposits, etc. and to raise funds by borrowing from banks and issuing corporate bonds. The Company and its consolidated subsidiaries use derivatives to hedge risks associated with foreign currency exchange rates and fluctuations of borrowing interest rates and do not enter into derivative transactions for speculative or trading purposes. b) Contents and Risk of Financial Instruments and Risk Management System Trade receivables are operating receivables and therefore are exposed to customer credit risk. Under its internal reg- ulations, the Company carefully manages the payment peri- ods for receivables and outstanding balances of all customers and regularly monitors the credit standing of major clients. Consolidated subsidiaries also monitor and manage the credit standings of their clients. Operating receivables and payables denominated in foreign currencies that arise from the global business operations are also exposed to foreign currency exchange risk. The Company and its consolidated subsidiaries hedge this risk mainly through the use of forward exchange contracts against positions after netting receivables and pay- ables denominated in the same foreign currencies. Likewise, the Company and its consolidated subsidiaries mainly use cur- rency swaps to hedge the foreign currency exchange risk of bank loans denominated in foreign currencies. Investment securities are mostly the shares of corpora- tions with which the Company and its consolidated subsid- iaries have business relationships and are exposed to the risk of market price fluctuations. The fair value of the invest- ment securities and financial positions of the issuing entities (clients) are regularly monitored. Trade payables are operating payables, most of which are due and payable within one year. Short-term bank loans and commercial paper are financing instruments mainly for operating transactions, while long-term bank loans and bonds are primarily for capital expenditures. Bank loans and bonds are exposed to the risk of interest rate fluctuation. Those with floating rates bear the risk of higher nominal interest expenses when interest rates rise, whereas those with fixed rates bear the risk of higher real interest expenses when interest rates fall. The Company and its con- solidated subsidiaries use derivative transactions (interest rate swap transactions) to minimize the risk of interest rate fluc- tuation, taking into consideration the balance between fixed interest rates and floating interest rates. Hedging instruments, hedged items, the policy for uti- lizing such hedging instruments and the method for evalu- ating the effectiveness of hedging activities are described in Note 1. SIGNIFICANT ACCOUNTING POLICIES d) Financial Instruments, Hedge Accounting in the Notes to the Consolidated Financial Statements. Derivative transactions are executed and managed in accordance with the internal regulations prescribing the autho- rization for transactions. To mitigate credit risk, the Company and its consolidated subsidiaries carry out derivative transac- tions only with highly rated financial institutions. c) Supplemental Explanation on Fair Value of Financial Instruments The fair value of financial instruments is based on market prices, or reasonable estimate of fair value for instruments for which market prices are not available. Estimates of fair value are subject to fluctuation because they employ various factors and assumptions. In addition, the contract amount of deriva- tives in Note 7. DERIVATIVES in the Notes to the Consolidated Financial Statements is not an indicator of market risk associ- ated with derivative transactions. Toray Industries, Inc. Integrated Annual Report 2020 122 Fair Value of Financial Instruments Carrying value, fair value and unrealized gain (loss) as of March 31, 2020 and 2019 were as follows. In addition, financial instruments, for which it is extremely difficult to measure the fair value, are not included. (Please refer to Note 2 below) Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Investment securities in subsidiaries and affiliated companies Other securities Assets Trade payables Short-term bank loans Commercial paper Bonds Long-term bank loans*2 Liabilities Derivative transactions*3 Hedge accounting is not applied Hedge accounting is applied Derivative transactions Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Investment securities in subsidiaries and affiliated companies Other securities Assets Trade payables Short-term bank loans Commercial paper Bonds*1 Long-term bank loans*2 Liabilities Derivative transactions*3 Hedge accounting is not applied Hedge accounting is applied Derivative transactions Millions of yen 2020 Carrying value Fair value Unrealized gain (loss) ¥ 173,698 ¥ 173,698 ¥ 483,761 483,761 78 50,503 164,176 81 39,022 164,176 — — 3 (11,481) — ¥ 872,216 ¥ 860,738 ¥ (11,478) ¥ 212,323 ¥ 212,323 ¥ 132,358 10,000 290,000 491,199 132,358 10,000 289,746 491,182 — — — (254) (17) ¥ 1,135,880 ¥ 1,135,609 ¥ (271) ¥ ¥ (450) ¥ (450) ¥ 1,837 1,387 1,837 1,387 ¥ ¥ — — — Millions of yen 2019 Carrying value Fair value Unrealized gain (loss) ¥ 168,507 ¥ 168,507 ¥ 531,058 531,058 101 73,940 188,586 105 62,426 188,586 — — 4 (11,514) — ¥ 962,192 ¥ 950,682 ¥ (11,510) ¥ 240,554 ¥ 240,554 ¥ 175,567 175,567 — 340,000 456,855 — 345,092 456,478 — — — 5,092 (377) ¥ 1,212,976 ¥ 1,217,691 ¥ 4,715 ¥ ¥ (587) 779 192 ¥ ¥ (587) 779 192 ¥ ¥ — — — Toray Industries, Inc. Integrated Annual Report 2020 123 Thousands of U.S. dollars 2020 Carrying value Fair value Unrealized gain (loss) Cash and time deposits Trade receivables Investment securities $ 1,596,489 4,446,333 $ 1,596,489 4,446,333 $ Held-to-maturity debt securities Investment securities in subsidiaries and affiliated companies Other securities 717 464,182 1,508,971 744 358,658 1,508,971 — — 28 (105,524) — Assets Trade payables Short-term bank loans Commercial paper Bonds Long-term bank loans*2 Liabilities Derivative transactions*3 Hedge accounting is not applied Hedge accounting is applied Derivative transactions $ 8,016,691 $ 7,911,195 $ (105,496) $ 1,951,498 1,216,526 $ 1,951,498 1,216,526 $ 91,912 2,665,441 4,514,697 91,912 2,663,107 4,514,540 — — — (2,335) (156) $ 10,440,074 $ 10,437,583 $ (2,491) $ $ (4,136) 16,884 12,748 $ $ (4,136) 16,884 12,748 $ $ — — — *1 Bonds include bonds due within one year. *2 Long-term bank loans include long-term bank loans due within one year. *3 Receivables and payables arising from derivative transactions are indicated in net amounts. Total net payables, if any, are shown in parentheses. Notes: 1. Estimation method for fair value of financial instruments and items related to securities and derivative transactions Assets Cash and time deposits and Trade receivables Carrying value is used for fair value since the items will be settled within the short term and the fair value is approxi- mately equal to the carrying value. Investment securities Equity securities are valued at quoted market price. Debt securities, etc. are valued at quoted market price or at the price provided by financial institutions. For information on securities classified by holding purpose, please refer to Note 6. SECURITIES of the Notes to the Consolidated Financial Statements. Liabilities Trade payables, Short-term bank loans and Commercial paper Carrying value is used for fair value since the items will be settled within the short term and the fair value is approxi- mately equal to the carrying value. Bonds The fair value of bonds is based on market price. However, for floating-rate bonds and fixed-rate bonds converted to float- ing using interest rate swaps accounted for under the special accounting method for interest rate swaps, the fair value is approximately equal to the carrying value because the interest rates are adjusted periodically. Therefore, the fair value is based on the carrying value. Long-term bank loans The fair value of long-term bank loans is estimated by discounting the principal amounts and interest based on estimated interest rates if similar new loans were entered into in the current period. The fair value of long-term bank loans for which the special accounting method for interest rate swaps is applied is estimated by discounting the total principal amount and inter- est (accounted for together with the interest rate swaps) based on estimated interest rates if similar new loans were entered into in the current period. For long-term bank loans at floating interest rates, however, the fair value is approximately equal to the carrying value because the interest rates are adjusted periodically. Therefore, the fair value is based on the carrying value. Derivative transactions Please refer to Note 7. DERIVATIVES in the Notes to the Consolidated Financial Statements. Toray Industries, Inc. Integrated Annual Report 2020 124 2. Financial instruments for which it is extremely difficult to determine the fair value Millions of yen 2020 2019 Thousands of U.S. dollars 2020 Unlisted equity securities ¥ 87,012 ¥ 78,466 $ 799,743 These securities have no quoted market price and the fair value is extremely difficult to determine. Therefore, they are not included in the preceding table. 3. Redemption schedule for receivables and investment securities with maturities at March 31, 2020 and 2019 Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Other securities Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Other securities Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Other securities Millions of yen 2020 Due within one year Due after one year through five years Due after five years through ten years ¥ 173,698 483,684 6 17,068 ¥ — 77 59 10 ¥ 674,456 ¥ 146 ¥ — — 13 50 ¥ 63 Millions of yen 2019 Due within one year Due after one year through five years Due after five years through ten years ¥ 168,507 531,058 32 7,412 ¥ 707,009 ¥ — — 58 12 ¥ 70 ¥ — — 11 53 ¥ 64 Thousands of U.S. dollars 2020 Due within one year Due after one year through five years Due after five years through ten years $ 1,596,489 $ — 4,445,625 55 156,875 708 542 92 $ 6,199,044 $ 1,342 $ — — 119 460 $ 579 Due after ten years ¥ — — — — ¥ — Due after ten years ¥ — — — — ¥ — Due after ten years $ — — — — $ — 4. The redemption schedule for long-term debt is disclosed in Note 4. SHORT-TERM BANK LOANS, LONG-TERM DEBT AND LEASE OBLIGATIONS of the Notes to the Consolidated Financial Statements. Toray Industries, Inc. Integrated Annual Report 2020 125 6. SECURITIES At March 31, 2020 and 2019, information on securities classified as held-to-maturity debt securities was as follows: Held-to-maturity debt securities ¥ 78 Carrying value Millions of yen 2020 Thousands of U.S. dollars 2020 Fair value ¥ 81 Unrealized gains Unrealized losses Carrying value Fair value Unrealized gains Unrealized losses ¥ 4 ¥ 1 $ 717 $ 744 $ 37 $ 9 Millions of yen 2019 Carrying value Fair value Unrealized gains Unrealized losses Held-to-maturity debt securities ¥ 101 ¥ 105 ¥ 4 ¥ 0 At March 31, 2020 and 2019, information on securities classified as other securities was as follows: Millions of yen 2020 Thousands of U.S. dollars 2020 Carrying value Acquisition cost Unrealized gains Unrealized losses Carrying value Acquisition cost Unrealized gains Unrealized losses Other securities ¥ 164,176 ¥ 102,409 ¥ 72,077 ¥ 10,310 $ 1,508,971 $ 941,259 $ 662,472 $ 94,761 Millions of yen 2019 Carrying value Acquisition cost Unrealized gains Unrealized losses Other securities ¥ 188,586 ¥ 97,348 ¥ 96,192 ¥ 4,954 Toray Industries, Inc. Integrated Annual Report 2020 126 7. DERIVATIVES The Company and its consolidated subsidiaries had the following derivative contracts outstanding at March 31, 2020 and 2019: Hedge accounting is not applied Millions of yen Thousands of U.S. dollars Forward foreign exchange contracts: Buying U.S. dollar Buying euro Buying Thai baht Buying Malaysian ringgit Buying Australian dollar Buying Japanese yen Selling U.S. dollar Selling euro Selling Chinese yuan Selling Indonesian rupiah Selling Japanese yen Foreign currency swaps: Contract amount 2020 Fair value Unrealized gain (loss) Contract amount 2020 Fair value Unrealized gain (loss) ¥ 10,168 ¥ 183 ¥ 183 $ 93,456 $ 1,682 $ 1,682 1,854 593 218 1 3,712 16,558 4,036 1,648 78 3,666 (6) (30) 0 0 (3) (140) (8) (39) 3 (123) (6) (30) 0 0 (3) 17,040 5,450 2,004 9 34,118 (55) (276) 0 0 (28) (55) (276) 0 0 (28) (140) 152,188 (1,287) (1,287) (8) (39) 3 (123) 37,096 15,147 717 (74) (358) 28 (74) (358) 28 33,695 (1,131) (1,131) Receiving U.S. dollar, paying Thai baht 3,529 (287) (287) 32,436 (2,638) (2,638) ¥ — ¥ (450) ¥ (450) $ — $ (4,136) $ (4,136) Millions of yen 2019 Fair value Contract amount Unrealized gain (loss) ¥ 6,481 ¥ 24 ¥ 24 10,298 375 649 4,453 15,505 1,777 931 87 136 (28) 4 4 (19) (102) 17 (25) 0 0 (28) 4 4 (19) (102) 17 (25) 0 0 8,331 (114) (114) Forward foreign exchange contracts: Buying U.S. dollar Buying euro Buying Thai baht Buying Malaysian ringgit Buying Japanese yen Selling U.S. dollar Selling euro Selling Chinese yuan Selling Thai baht Selling Indonesian rupiah Selling Japanese yen Foreign currency swaps: Receiving U.S. dollar, paying Thai baht 3,688 (348) (348) ¥ — ¥ (587) ¥ (587) Toray Industries, Inc. Integrated Annual Report 2020 127 Hedge accounting is applied Hedge accounting method Deferral hedge method Type of contract and primary hedged items Forward foreign exchange contracts: For trade receivables and trade payables Buying Japanese yen Selling U.S. dollar Selling euro Selling Chinese yuan Foreign currency swaps: For long-term bank loans Millions of yen 2020 Contract amount Fair value Estimation method for fair value ¥ 1,379 4,035 938 492 ¥ 12 Forward foreign exchange quotes (1) (58) 2 Special accounting method for interest rate swaps Allocation method for forward foreign exchange contracts Receiving U.S. dollar, paying Korean won Receiving Japanese yen, paying Korean won 2,482 7,084 233 Prices provided by financial institutions 927 Interest rate swaps: For long-term bank loans Floating-rate receipt, fixed-rate payment 99,785 224 Prices provided by financial institutions Interest rate swaps: For long-term bank loans Floating-rate receipt, fixed-rate payment Floating-rate receipt, floating-rate payment 486 26,900 —*1 — Forward foreign exchange contracts: For forecast transactions denominated in foreign currencies Buying U.S. dollar Buying euro Buying Chinese yuan Buying Korean won Selling U.S. dollar Selling euro Selling British pound Selling Chinese yuan Selling Hong Kong dollar Forward foreign exchange contracts: For trade receivables and trade payables Buying U.S. dollar Buying euro Buying Chinese yuan Buying Thai baht Buying Korean won Buying Japanese yen Selling U.S. dollar Selling euro Selling British pound Selling Chinese yuan Foreign currency swaps: For long-term bank loans 17,727 13,020 544 237 15,884 3,636 9 1,606 1,123 9,994 166 98 16 24 1 26,299 7,240 21 8 Receiving U.S. dollar, paying Japanese yen 127,703 355 Forward foreign exchange quotes 8 2 10 64 1 0 40 18 — *2 — —*2 — ¥ — ¥ 1,837 Toray Industries, Inc. Integrated Annual Report 2020 128 Hedge accounting method Deferral hedge method Type of contract and primary hedged items Forward foreign exchange contracts: For trade receivables and trade payables Buying Japanese yen Selling U.S. dollar Selling euro Selling Chinese yuan Foreign currency swaps: For long-term bank loans Millions of yen 2019 Contract amount Fair value Estimation method for fair value ¥ 1,638 1,150 647 182 ¥ (2) Forward foreign exchange quotes (11) 3 1 Special accounting method for interest rate swaps Allocation method for forward foreign exchange contracts Receiving U.S. dollar, paying Korean won Receiving Japanese yen, paying Korean won 4,900 7,782 80 225 Prices provided by financial institutions Interest rate swaps: For long-term bank loans Floating-rate receipt, fixed-rate payment 40,000 29 Interest rate swaps: For bonds and long-term bank loans Prices provided by financial institutions Floating-rate receipt, fixed-rate payment Floating-rate receipt, floating-rate payment Fixed-rate receipt, floating rate payment 504 26,900 40,000 —*1 — Forward foreign exchange contracts: For forecast transactions denominated in foreign currencies Buying U.S. dollar Buying euro Buying Chinese yuan Buying Thai baht Buying Korean won Selling U.S. dollar Selling euro Selling British pound Selling Thai baht Selling Japanese yen Forward foreign exchange contracts: For trade receivables and trade payables Buying U.S. dollar Buying euro Buying British pound Buying Chinese yuan Buying Japanese yen Selling U.S. dollar Selling euro Selling British pound Selling Chinese yuan Selling Thai baht Foreign currency swaps: For long-term bank loans Receiving U.S. dollar, paying Japanese yen Forward foreign exchange quotes 376 (8) (4) 111 (20) (9) 8 0 0 0 —*2 — 23,887 730 537 426 2,158 21,422 649 10 1 52 12,383 217 1 72 4 28,612 3,685 13 44 6 129,389 — ¥ —*2 ¥ 779 — Toray Industries, Inc. Integrated Annual Report 2020 129 Hedge accounting method Deferral hedge method Type of contract and primary hedged items Forward foreign exchange contracts: For trade receivables and trade payables Buying Japanese yen Selling U.S. dollar Selling euro Selling Chinese yuan Foreign currency swaps: For long-term bank loans Thousands of U.S. dollars 2020 Contract amount Fair value Estimation method for fair value $ 12,675 37,086 8,621 4,522 $ 110 Forward foreign exchange quotes (9) (533) 18 Special accounting method for interest rate swaps Allocation method for forward foreign exchange contracts Receiving U.S. dollar, paying Korean won Receiving Japanese yen, paying Korean won 22,813 65,110 2,142 Prices provided by financial institutions 8,520 Interest rate swaps: For long-term bank loans Floating-rate receipt, fixed-rate payment 917,142 2,059 Prices provided by financial institutions Interest rate swaps: For long-term bank loans Floating-rate receipt, fixed-rate payment Floating-rate receipt, floating-rate payment 4,467 247,243 —*1 — Forward foreign exchange contracts: For forecast transactions denominated in foreign currencies Buying U.S. dollar Buying euro Buying Chinese yuan Buying Korean won Selling U.S. dollar Selling euro Selling British pound Selling Chinese yuan Selling Hong Kong dollar Forward foreign exchange contracts: For trade receivables and trade payables Buying U.S. dollar Buying euro Buying Chinese yuan Buying Thai baht Buying Korean won Buying Japanese yen Selling U.S. dollar Selling euro Selling British pound Selling Chinese yuan Foreign currency swaps: For long-term bank loans Receiving U.S. dollar, paying Japanese yen 162,932 119,669 5,000 2,178 145,993 33,419 83 14,761 10,322 91,857 1,526 901 147 221 9 241,719 66,544 193 74 3,263 Forward foreign exchange quotes 74 18 92 588 9 0 368 165 —*2 — —*2 — 1,173,741 $ — $ 16,884 *1 The fair value of interest rate swaps to which a special accounting method is applied is included in the fair value of bonds and long-term bank loans in Note 5. FINANCIAL INSTRUMENTS of the Notes to the Consolidated Financial Statements because such interest rate swaps are accounted for together with the cor- responding bonds and long-term bank loans. *2 The fair value of forward foreign exchange contracts to which the allocation method is applied, except for forecast transactions, is included in the fair value of trade receivables, trade payables and long-term bank loans in Note 5. FINANCIAL INSTRUMENTS of the Notes to the Consolidated Financial Statements since such forward foreign exchange contracts are accounted for together with the corresponding trade receivables, trade payables and long-term bank loans. Toray Industries, Inc. Integrated Annual Report 2020 130 8. RETIREMENT BENEFIT PLAN The changes in the retirement benefit obligation during the years ended March 31, 2020 and 2019 were as follows: Retirement benefit obligation at beginning of the year ¥ 184,139 ¥ 190,262 $ 1,692,454 Millions of yen 2020 2019 Thousands of U.S. dollars 2020 Service cost Interest cost Actuarial gains and losses Retirement benefit paid Past service cost Other 7,010 1,434 1,133 7,171 1,549 (109) (12,764) (14,225) 279 (2,195) (294) (215) 64,430 13,180 10,414 (117,316) 2,564 (20,175) Retirement benefit obligation at end of the year ¥ 179,036 ¥ 184,139 $ 1,645,551 The changes in the plan assets at fair value during the years ended March 31, 2020 and 2019 were as follows: Plan assets at beginning of the year Expected return on plan assets Actuarial gains and losses Contributions Retirement benefit paid Return of assets from retirement benefits trust Other Millions of yen 2020 2019 Thousands of U.S. dollars 2020 ¥ 107,849 ¥ 117,288 $ 991,259 2,053 (8,990) 7,039 (7,958) — (1,749) 2,417 (2,154) 7,547 (8,858) (7,867) (524) 18,869 (82,629) 64,697 (73,143) — (16,075) Plan assets at end of the year ¥ 98,244 ¥ 107,849 $ 902,978 The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets as of March 31, 2020 and 2019 for the Company’s and its consolidated subsidiaries’ defined benefit plans: Millions of yen 2020 2019 Thousands of U.S. dollars 2020 Funded retirement benefit obligation ¥ 85,272 ¥ 90,262 $ 783,750 Plan assets at fair value Unfunded retirement benefit obligation Net liability for retirement benefits in the balance sheets (98,244) (107,849) (12,972) (17,587) 93,764 80,792 93,877 76,290 Net defined benefit liability 100,575 100,730 Net defined benefit asset (included in other non-current assets) (19,783) (24,440) (902,978) (119,228) 861,801 742,574 924,403 (181,829) Net liability for retirement benefits in the balance sheets ¥ 80,792 ¥ 76,290 $ 742,574 Toray Industries, Inc. Integrated Annual Report 2020 131 The components of retirement benefit expense for the years ended March 31, 2020 and 2019 were as follows: Service cost Interest cost Expected return on plan assets Amortization of actuarial gains and losses Amortization of past service cost Gain on return of assets from retirement benefits trust Millions of yen 2020 ¥ 7,010 1,434 (2,053) 2,727 267 — 2019 ¥ 7,171 1,549 (2,417) 2,465 (36) (2,532) Thousands of U.S. dollars 2020 $ 64,430 13,180 (18,869) 25,064 2,454 — Retirement benefit expense ¥ 9,385 ¥ 6,200 $ 86,259 In addition to the above, special severance payments of ¥1,687 million ($15,506 thousand) and ¥1,705 million were recognized for the years ended March 31, 2020 and 2019, respectively. Contributions to defined contribution pension plans of ¥7,323 million ($67,307 thousand) and ¥7,118 million were recognized for the years ended March 31, 2020 and 2019, respectively. The components of remeasurements of defined benefit plans included in other comprehensive income (before tax effect) for the years ended March 31, 2020 and 2019 were as follows: Past service cost Actuarial gains and losses Total Millions of yen 2020 2019 ¥ (19) ¥ 258 (7,254) (2,114) ¥ (7,273) ¥ (1,856) Thousands of U.S. dollars 2020 $ (175) (66,673) $ (66,847) The components of remeasurements of defined benefit plans included in accumulated other comprehensive income (before tax effect) as of March 31, 2020 and 2019 were as follows: Unrecognized past service cost Unrecognized actuarial gains and losses Total Millions of yen 2020 2019 ¥ (193) ¥ (212) 3,358 ¥ 3,165 (3,896) ¥ (4,108) Thousands of U.S. dollars 2020 $ (1,774) 30,864 $ 29,090 The fair value of plan assets, by major category, as a percentage of total plan assets as of March 31, 2020 and 2019 was as follows: Bonds Stocks General accounts of life insurance companies Cash and time deposits Other Total 2020 2019 14% 40% 31% 15% 0% 9% 45% 27% 16% 3% 100% 100% The expected rate of return on plan assets is determined based on the current and anticipated allocation of plan assets and the current and expected long-term returns on diverse assets that compose the plan assets. The key assumptions used in accounting for the above plans were as follows: Discount rate Expected rate of return on plan assets Expected rate of salary increase Toray Industries, Inc. Integrated Annual Report 2020 132 2020 2019 primarily 0.6% primarily 0.6% primarily 2.0% primarily 2.0% primarily 5.9% primarily 5.9% 9. STOCK OPTION PLANS 1. Stock option expenses included in selling, general and administrative expenses amounted to ¥325 million ($2,987 thousand) and ¥290 million for the years ended March 31, 2020 and 2019, respectively. 2. Information on stock options issued The following table summarizes the stock options outstanding as of March 31, 2020. Company name Toray Industries, Inc. Position and number of grantees Class and number of shares to be issued upon exercise Grant date Vesting conditions Vesting period Exercise period Company name Position and number of grantees Class and number of shares to be issued upon exercise Grant date Vesting conditions Vesting period Exercise period Company name Position and number of grantees Class and number of shares to be issued upon exercise Grant date Vesting conditions Vesting period Exercise period No.1 Stock Option Plan No.2 Stock Option Plan No.3 Stock Option Plan Members of the Board of the Company Directors of the Company 28 32 26 32 26 26 Common stock 747,000 shares 844,000 shares 583,000 shares August 20, 2011 August 4, 2012 August 10, 2013 Based on the number of months that have elapsed during the vesting period Based on the number of months that have elapsed during the vesting period Based on the number of months that have elapsed during the vesting period June 24, 2011- June 22, 2012 August 21, 2011- August 20, 2041 June 22, 2012- June 26, 2013 August 5, 2012- August 4, 2042 June 26, 2013- June 25, 2014 August 11, 2013- August 10, 2043 Toray Industries, Inc. No.4 Stock Option Plan No.5 Stock Option Plan No.6 Stock Option Plan Members of the Board of the Company Directors of the Company 25 27 23 31 23 30 Common stock 569,000 shares 358,000 shares 381,000 shares August 9, 2014 August 22, 2015 August 20, 2016 Based on the number of months that have elapsed during the vesting period Based on the number of months that have elapsed during the vesting period Based on the number of months that have elapsed during the vesting period June 25, 2014- June 24, 2015 August 10, 2014- August 9, 2044 June 24, 2015- June 28, 2016 August 23, 2015- August 22, 2045 June 28, 2016- June 27, 2017 August 21, 2016- August 20, 2046 Toray Industries, Inc. No.7 Stock Option Plan No.8 Stock Option Plan No.9 Stock Option Plan Members of the Board of the Company Directors of the Company 23 31 17 35 17 44 Common stock 374,000 shares 387,000 shares 500,000 shares August 19, 2017 August 18, 2018 August 17, 2019 Based on the number of months that have elapsed during the vesting period Based on the number of months that have elapsed during the vesting period Based on the number of months that have elapsed during the vesting period June 27, 2017- June 26, 2018 August 20, 2017- August 19, 2047 June 26, 2018- June 25, 2019 August 19, 2018- August 18, 2048 June 25, 2019- June 23, 2020 August 18, 2019- August 17, 2049 Toray Industries, Inc. Integrated Annual Report 2020 133 The following table summarizes movements of stock options during the year and price information on stock options as of March 31, 2020. The number of stock options are translated into the number of shares. (1) Number of stock options Company name Toray Industries, Inc. No.1 Stock Option Plan No.2 Stock Option Plan No.3 Stock Option Plan Stock acquisition rights not yet vested As of March 31, 2019 Granted Forfeited Vested As of March 31, 2020 Stock acquisition rights already vested As of March 31, 2019 Vested Exercised Forfeited As of March 31, 2020 — — — — — 159,000 — 5,000 — 154,000 — — — — — 216,000 — 6,000 — 210,000 — — — — — 194,000 — 5,000 — 189,000 Company name Toray Industries, Inc. No.4 Stock Option Plan No.5 Stock Option Plan No.6 Stock Option Plan Stock acquisition rights not yet vested As of March 31, 2019 Granted Forfeited Vested As of March 31, 2020 Stock acquisition rights already vested As of March 31, 2019 Vested Exercised Forfeited As of March 31, 2020 — — — — — 236,000 — 5,000 — 231,000 — — — — — 193,000 — 11,000 — 182,000 — — — — — 271,000 — 9,000 — 262,000 Company name Toray Industries, Inc. No.7 Stock Option Plan No.8 Stock Option Plan No.9 Stock Option Plan Stock acquisition rights not yet vested As of March 31, 2019 Granted Forfeited Vested As of March 31, 2020 Stock acquisition rights already vested As of March 31, 2019 Vested Exercised Forfeited As of March 31, 2020 Toray Industries, Inc. Integrated Annual Report 2020 134 — — — — — 313,000 — 20,000 — 293,000 110,000 — — 110,000 — 277,000 110,000 19,000 — 368,000 — 500,000 — 348,000 152,000 — 348,000 — — 348,000 (2) Price information Company name Yen Toray Industries, Inc. No.1 Stock Option Plan No.2 Stock Option Plan No.3 Stock Option Plan Exercise price Weighted average price at exercise Fair value per share at the grant date ¥ 1 824 513 ¥ 1 824 394 Yen ¥ 1 824 546 Company name Toray Industries, Inc. No.4 Stock Option Plan No.5 Stock Option Plan No.6 Stock Option Plan Exercise price Weighted average price at exercise Fair value per share at the grant date ¥ 1 824 605 ¥ 1 824 987 Yen ¥ 1 824 902 Company name Toray Industries, Inc. Exercise price Weighted average price at exercise Fair value per share at the grant date No.7 Stock Option Plan No.8 Stock Option Plan No.9 Stock Option Plan ¥ 1 824 899 ¥ 1 824 710 U.S. dollars ¥ 1 — 684 Company name Toray Industries, Inc. Exercise price Weighted average price at exercise Fair value per share at the grant date Company name Exercise price Weighted average price at exercise Fair value per share at the grant date Company name Exercise price Weighted average price at exercise Fair value per share at the grant date No.1 Stock Option Plan No.2 Stock Option Plan No.3 Stock Option Plan $ 0.01 7.57 4.72 $ 0.01 7.57 3.62 $ 0.01 7.57 5.02 U.S. dollars Toray Industries, Inc. No.4 Stock Option Plan No.5 Stock Option Plan No.6 Stock Option Plan $ 0.01 7.57 5.56 $ 0.01 7.57 9.07 $ 0.01 7.57 8.29 U.S. dollars Toray Industries, Inc. No.7 Stock Option Plan No.8 Stock Option Plan No.9 Stock Option Plan $ 0.01 7.57 8.26 $ 0.01 7.57 6.53 $ 0.01 — 6.29 Toray Industries, Inc. Integrated Annual Report 2020 135 3. Estimation method and assumptions used for the per share fair value of stock options (1) Estimation method Black-Scholes model (2) Assumptions used for the per share fair value of stock options Company name Expected volatility*1 Expected holding period*2 Expected dividend*3 Risk-free rate*4 Toray Industries, Inc. No.9 Stock Option Plan 24.079% 6 years ¥16 per share ($0.15) (0.347)% *1 The expected volatility is based on actual share prices during 6 years from August 18, 2013 to August 16, 2019. *2 The expected holding period is calculated based on the service period of past members of the Board. *3 This is based on the dividend for the year ended March 31, 2019. *4 The risk-free interest rate is the yield on Japanese government bonds for the period that corresponds to the remaining life of the option. Because it is difficult to reasonably estimate the number of options that will expire in the future, only the number of options that have actually forfeited is applied. 10. INCOME TAXES The statutory tax rate in Japan for the years ended March 31, 2020 and 2019 was 30.6%. At March 31, 2020 and 2019, significant components of deferred tax assets and liabilities were as follows: Millions of yen 2020 2019 Thousands of U.S. dollars 2020 ¥ 6,544 ¥ 6,496 $ 60,147 10,542 31,402 15,367 15,104 35,360 114,319 (13,397) (13,180) (26,577) 87,742 5,803 20,869 22,637 21,665 17,814 14,655 10,379 31,035 14,924 15,362 36,944 115,140 (12,673) (15,213) (27,886) 87,254 6,157 21,195 22,154 28,990 19,746 15,792 96,893 288,621 141,241 138,824 325,000 1,050,726 (123,134) (121,140) (244,274) 806,452 53,336 191,811 208,061 199,127 163,732 134,697 103,443 ¥ (15,701) 114,034 ¥ (26,780) 950,763 $ (144,311) Deferred tax assets: Accrued bonuses Depreciation and impairment loss Net defined benefit liability Net operating loss carryforwards (Note) Unrealized intercompany profits Other Valuation allowance for net operating loss carryforwards (Note) Valuation allowance for deductible temporary differences Total valuation allowance Total deferred tax assets Deferred tax liabilities: Reserve for tax purpose reduction entry Depreciation Undistributed earnings of subsidiaries and affiliated companies Unrealized gains on securities Acquisition-related basis differences Other Total deferred tax liabilities Net deferred tax assets (liabilities) Toray Industries, Inc. Integrated Annual Report 2020 136 Note: Breakdowns of net operating loss carryforwards and valuation allowance by expiry date as of March 31, 2020 and 2019 are as follows: Net operating loss carryforwards* Valuation allowance Deferred tax assets Due within one year ¥ 365 (341) ¥ 24 Due after one year through two years Due after two years through three years ¥ 897 (403) ¥ 494 ¥ 487 (335) ¥ 152 Net operating loss carryforwards* Valuation allowance Deferred tax assets Due within one year ¥ 1,108 (1,106) ¥ 2 Due after one year through two years Due after two years through three years ¥ 537 (434) ¥ 103 ¥ 841 (401) ¥ 440 Millions of yen 2020 Due after three years through four years ¥ 857 (785) ¥ 72 Millions of yen 2019 Due after three years through four years ¥ 591 (522) ¥ 69 Due after four years through five years ¥ 619 (376) ¥ 243 Due after four years through five years ¥ 1,105 (891) ¥ 214 Due after five years Total ¥ 12,142 (11,157) ¥ 15,367 (13,397) ¥ 985 ¥ 1,970 Due after five years Total ¥ 10,742 (9,319) ¥ 14,924 (12,673) ¥ 1,423 ¥ 2,251 Thousands of U.S. dollars Due within one year $ 3,355 (3,134) $ 221 Due after one year through two years $ 8,244 (3,704) $ 4,540 Due after two years through three years $ 4,476 (3,079) $ 1,397 2020 Due after three years through four years $ 7,877 (7,215) $ 662 Due after four years through five years $ 5,689 (3,456) Due after five years Total $ 111,599 (102,546) $ 141,241 (123,134) $ 2,233 $ 9,053 $ 18,107 Net operating loss carryforwards* Valuation allowance Deferred tax assets * The amount is determined by multiplying the corresponding net operating loss carryforwards by the effective statutory tax rate. The reconciliation of the statutory tax rate and the effective income tax rate is omitted because the difference between the statu- tory tax rate and the effective income tax rate was less than 5% of the statutory tax rate for the years ended March 31, 2020 and 2019, respectively. 11. NET ASSETS The Corporation Law of Japan provides that an amount equal to 10% of the amount to be disbursed as distributions of cap- ital surplus (other than the capital reserve) and retained earn- ings (other than the earned reserve) be transferred to the capital reserve and the earned reserve, respectively, until the sum of the capital reserve and the earned reserve equals 25% of the capital stock account. Such distributions can be made at any time by resolution of the stockholders, or by the Board of Directors if certain conditions are met. At the June 2020 annual stockholders’ meeting, stockhold- ers approved the payment of cash dividends of ¥8.00 per share, aggregating to ¥12,806 million ($117,702 thousand) which has not been reflected in the accompanying consolidated financial statements for the year ended March 31, 2020. Toray Industries, Inc. Integrated Annual Report 2020 137 12. COMMITMENTS AND CONTINGENT LIABILITIES At March 31, 2020, commitment line of credit to unconsolidated subsidiaries and affiliated companies was as follows: Total commitment line of credit Loans receivable outstanding Balance This commitment does not necessarily imply that the unused amount may be fully utilized. At March 31, 2020 and 2019, contingent liabilities were as follows: Millions of yen Thousands of U.S. dollars 2020 ¥ 380 207 ¥ 173 2020 $ 3,493 1,903 $ 1,590 As guarantors of loans to: Unconsolidated subsidiaries and affiliated companies Other Notes discounted Export bills discounted Notes endorsed Contingent liabilities associated with securitization of receivables 13. LEASES Millions of yen 2020 2019 ¥ 7,708 2,791 ¥ 10,499 ¥ 1,977 8,156 1,160 ¥ 552 ¥ 6,579 3,341 ¥ 9,920 ¥ 1,550 6,140 1,755 ¥ 1,187 Thousands of U.S. dollars 2020 $ 70,846 25,653 $ 96,498 $ 18,171 74,963 10,662 $ 5,074 Right-of-use assets Certain overseas subsidiaries capitalize leases of, mainly, buildings and land use rights in accordance with IFRS 16. Finance leases The Company and its consolidated subsidiaries hold certain buildings, machinery and equipment and intangible assets by leases. Operating leases Future minimum lease payments under uncapitalized non-cancellable operating leases subsequent to March 31, 2019 were as follows: Due within one year Due after one year Total Millions of yen 2019 ¥ 903 5,535 ¥ 6,438 The figures for the year ended March 31, 2020 are not disclosed due to the decrease in materiality. 14. RESEARCH AND DEVELOPMENT EXPENSES Research and development expenses included in cost of sales and selling, general and administrative expenses for the years ended March 31, 2020 and 2019 were ¥66,881 million ($614,715 thousand) and ¥66,355 million, respectively. Toray Industries, Inc. Integrated Annual Report 2020 138 15. EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED SUBSIDIARIES AND AFFILIATED COMPANIES Equity in earnings (losses) of unconsolidated subsidiaries and affiliated companies for the year ended March 31, 2020 includes a lump amortization charge of ¥18,668 million ($171,581 thousand) in connection with the goodwill of an equity-accounted investee, Pacific Textiles Holdings Limited, recognized in accordance with “Practical Guidelines on Accounting Standard for Investments Using the Equity Method (JICPA Accounting Practice Committee Statement No. 9, February 16, 2018)” and “Practical Guidelines on Accounting Standards for Capital Consolidation Procedures in Preparing Consolidated Financial Statements (JICPA Accounting Practice Committee Statement No. 7, February 16, 2018).” 16. LOSS ON IMPAIRMENT OF FIXED ASSETS The Company and its consolidated subsidiaries grouped operating assets based on the classification under the management accounting. For assets to be disposed of and idle assets, each individual asset is considered to constitute a group. For the year ended March 31, 2020, the carrying value of operating assets with declining profitability, assets to be disposed of and other assets was written down to the recoverable amount. As a result, the Company and its consolidated subsidiaries recognized loss on impairment in the amount of ¥7,569 million ($69,568 thousand). The major assets for which the loss on impairment was recognized were as follows: Location Use Classification Millions of yen Loss on impairment Thousands of U.S. dollars Loss on impairment Markgröningen, Germany, etc. Gumi, Gyeongsangbuk-do, Korea Saint-Maurice-de-Beynost, France Machinery and equipment ¥ 905 $ 8,318 Composites production facilities Construction in progress Other 180 645 1,654 5,928 Film production facilities Machinery and equipment ¥ 1,331 $ 12,233 Other 4 37 Film production facilities Machinery and equipment ¥ 1,266 $ 11,636 Tokai, Aichi, Japan Research and development facilities Machinery and equipment ¥ 1,031 $ 9,476 The recoverable amount of the above assets was measured at value in use and net selling price. The value in use was calculated by discounting the future cash flows at discount rates of 7% to 8%. The net selling price of assets available for sale was calculated based on the appraisal value and others, and that of assets difficult to convert to other uses or sell was assessed at zero. For the year ended March 31, 2019, the carrying value of goodwill, intangible assets and other assets of some consolidated sub- sidiaries was fully written down because the originally anticipated income was not expected any longer. As a result, the Company and its consolidated subsidiaries recognized loss on impairment in the amount of ¥18,414 million. The major assets for which the loss on impairment was recognized were as follows: Location Use Classification Millions of yen Loss on impairment Seoul, Korea, etc. Fibers & Textiles Goodwill Other intangible assets Yokohama, Kanagawa, Japan Environment & Engineering Goodwill 6,054 5,154 ¥ 1,654 Machinery and equipment ¥ 840 The recoverable amount of the above assets was measured at value in use, and that of goodwill and other intangible assets was assessed at zero. Toray Industries, Inc. Integrated Annual Report 2020 139 17. OTHER COMPREHENSIVE INCOME The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive income for the years ended March 31, 2020 and 2019. Net unrealized gains (losses) on securities: Amount arising during the year Reclassification adjustments for gains and losses included in net income Before tax effect Tax effect Net unrealized gains (losses) on securities Net deferred gains (losses) on hedges: Amount arising during the year Reclassification adjustments for gains and losses included in net income Basis adjustments for assets Before tax effect Tax effect Net deferred gains (losses) on hedges Foreign currency translation adjustments: Amount arising during the year Remeasurements of defined benefit plans: Amount arising during the year Reclassification adjustments for gains and losses included in net income Before tax effect Tax effect Remeasurements of defined benefit plans Share of other comprehensive income of unconsolidated subsidiaries and affiliated companies accounted for by the equity method: Amount arising during the year Reclassification adjustments for gains and losses included in net income Share of other comprehensive income of unconsolidated subsidiaries and affiliated companies accounted for by the equity method Millions of yen Thousands of U.S. dollars 2020 2019 2020 ¥ (26,443) ¥ (12,196) $ (243,042) (3,001) (29,444) 8,956 (20,488) 1,809 (362) 51 1,498 (461) 1,037 (1,296) (13,492) 3,913 (9,579) 1,414 (25) 130 1,519 (455) 1,064 (27,583) (270,625) 82,316 (188,309) 16,627 (3,327) 469 13,768 (4,237) 9,531 (44,857) (4,767) (412,289) (9,982) 2,709 (7,273) 2,190 (5,083) (2,923) 19 (2,904) (1,753) (103) (1,856) 531 (1,325) (422) (183) (605) (91,746) 24,899 (66,847) 20,129 (46,719) (26,866) 175 (26,691) Total other comprehensive income ¥ (72,295) ¥ (15,212) $ (664,476) Toray Industries, Inc. Integrated Annual Report 2020 140 18. SUPPLEMENTARY CASH FLOW INFORMATION In the year ended March 31, 2019, the Company acquired TenCate Advanced Composites Holding B.V. (now known as Toray TCAC Holding B.V.) and its subsidiaries. The following table shows the breakdown of assets and liabilities at the date of initial consolida- tion and the reconciliation of the net payments and consideration transferred with regard to the acquisition. Current assets Non-current assets Goodwill Current liabilities Non-current liabilities Foreign currency translation adjustment Consideration transferred Cash and cash equivalents Net payments for acquisition 19. SEGMENT INFORMATION Millions of yen 2019 ¥ 11,422 72,566 65,783 (13,864) (18,940) 150 ¥ 117,117 (2,553) ¥ 114,564 1. Outline of reportable segments The reportable segments of the Company and its consolidated subsidiaries are components for which discrete financial information is available and whose operating results are regularly reviewed by the Board of Directors to make decisions about resource allocation to the segments and assess performance. The Company identifies the following five segments according to the nature of the products and market for their products. Reportable segment Main products Fibers & Textiles Performance Chemicals Filament yarns, staple fibers, spun yarns, woven and knitted fabrics of nylon, polyester, acrylic and others; nonwoven fabrics; nonwoven material created using ultra-fine fibers in an “Island in the Sea” configuration; apparel products Nylon, ABS, PBT, PPS and other resins and molded products; polyolefin foam; polyester, polyethylene, polypropylene and other films and processed film products; raw materials for synthetic fibers and other plastics; fine chemicals; electronic and information materials and graphic materials Carbon Fiber Composite Materials Carbon fibers, carbon fiber composite materials and their molded products Environment & Engineering Comprehensive engineering; condominiums; industrial equipment and machinery; IT-related equipment; water treatment membranes and related equipment; materials for housing, building and civil engineering applications Life Science Pharmaceuticals, medical devices, etc. 2. Measurement of sales, income, assets and other material items of reportable segments The accounting policies for the reportable segments are the same as those described in Note 1. SIGNIFICANT ACCOUNTING POLICIES. The figures of segment income are based on operating income. Intersegment sales are determined based on consider- ation of the market price and related information. Toray Industries, Inc. Integrated Annual Report 2020 141 3. Information on sales, income, assets and other material items of reportable segments Fibers & Textiles ¥ 883,137 1,226 ¥ 884,363 ¥ 60,686 ¥ 748,047 Carbon Fiber Composite Materials 17,297 Performance Chemicals ¥ 770,814 ¥ 236,922 848 ¥ 788,111 ¥ 237,770 ¥ 58,736 ¥ 20,959 ¥ 935,396 ¥ 605,939 Millions of yen 2020 Environment & Engineering ¥ 252,282 65,033 ¥ 317,315 ¥ 11,246 ¥ 254,833 Life Science ¥ 53,250 1 ¥ 53,251 ¥ 1,625 ¥ 65,965 Total 26,829 Others*1 ¥ 18,228 ¥ 2,214,633 111,234 ¥ 45,057 ¥ 2,325,867 ¥ 3,395 ¥ 156,647 ¥ 91,531 ¥ 2,701,711 Adjustments*2 — ¥ (111,234) ¥ (111,234) ¥ (25,461) ¥ (51,024) Consolidated Total *3 ¥ 2,214,633 — ¥ 2,214,633 ¥ 131,186 ¥ 2,650,687 28,951 42,602 27,477 4,565 2,420 1,898 107,913 (531) 107,382 58,711 52,932 1,677 14,567 2,956 8,920 139,763 (362) 139,401 37,853 64,397 22,764 10,532 2,508 1,986 140,040 727 140,767 Millions of yen 2019 Fibers & Textiles ¥ 974,265 1,372 ¥ 975,637 ¥ 72,880 ¥ 795,382 Performance Chemicals ¥ 868,847 18,985 ¥ 887,832 ¥ 67,702 ¥ 1,002,305 Carbon Fiber Composite Materials ¥ 215,913 820 ¥ 216,733 ¥ 11,542 ¥ 640,161 Environment & Engineering ¥ 257,673 74,960 ¥ 332,633 ¥ 12,236 ¥ 255,338 Life Science ¥ 53,653 — ¥ 53,653 ¥ 1,301 ¥ 70,792 Total 26,536 Others*1 ¥ 18,497 ¥ 2,388,848 122,673 ¥ 45,033 ¥ 2,511,521 ¥ 3,084 ¥ 168,745 ¥ 83,764 ¥ 2,847,742 Consolidated Total *3 Adjustments*2 ¥ — ¥ 2,388,848 — ¥ 2,388,848 ¥ 141,469 ¥ 2,788,351 (122,673) ¥ (122,673) (27,276) ¥ (59,391) ¥ 29,342 39,099 25,042 4,531 2,638 1,416 102,068 (357) 101,711 76,464 50,969 1,611 12,205 2,849 8,248 152,346 (318) 152,028 51,726 67,004 43,079 7,621 2,126 3,430 174,986 (2,290) 172,696 Thousands of U.S. dollars 2020 Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others*1 Total Adjustments*2 Consolidated Total *3 11,268 158,980 $ 8,117,068 $ 7,084,688 $ 2,177,592 $ 2,318,768 597,730 $ 8,128,336 $ 7,243,667 $ 2,185,386 $ 2,916,498 $ 557,776 $ 539,853 $ 192,638 $ 103,364 $ 6,875,432 $ 8,597,390 $ 5,569,292 $ 2,342,215 7,794 9 246,590 $ 489,430 $ 167,537 $ 20,355,083 $ — $ 20,355,083 — $ 489,439 $ 414,127 $ 21,377,454 $ (1,022,371) $ 20,355,083 $ 14,936 $ 31,204 $ 1,439,770 $ (234,017) $ 1,205,754 $ 606,296 $ 841,278 $ 24,831,903 $ (468,971) $ 24,362,932 (1,022,371) 1,022,371 266,094 391,563 252,546 41,958 22,243 17,445 991,847 (4,881) 986,967 539,623 486,507 15,414 133,888 27,169 81,985 1,284,586 (3,327) 1,281,259 347,914 591,884 209,228 96,801 23,051 18,254 1,287,132 6,682 1,293,814 Sales to outside customers Intersegment sales Total sales Segment income Segment assets Depreciation and amortization Investment in unconsolidated subsidiaries and affiliated companies accounted for by the equity method Capital expenditures *4 Sales to outside customers Intersegment sales Total sales Segment income Segment assets Depreciation and amortization Investment in unconsolidated subsidiaries and affiliated companies accounted for by the equity method Capital expenditures *4 Sales to outside customers Intersegment sales Total sales Segment income Segment assets Depreciation and amortization Investment in unconsolidated subsidiaries and affiliated companies accounted for by the equity method Capital expenditures *4 *1 “Others” represents service-related businesses such as analysis, physical evaluation and research. *2 a) “Adjustments” of segment income for the year ended March 31, 2020 of ¥(25,461) million ($(234,017) thousand) includes intersegment eliminations of ¥203 million ($1,866 thousand) and corporate expenses of ¥(25,664) million ($(235,882) thousand). “Adjustments” of segment income for the year ended March 31, 2019 of ¥(27,276) million includes intersegment eliminations of ¥(1,018) million and corporate expenses of ¥(26,258) million. The corporate expenses con- sist of the headquarters’ research expenses that are not allocated to each reportable segment. b) “Adjustments” of segment assets for the year ended March 31, 2020 of ¥(51,024) million ($(468,971) thousand) includes intersegment eliminations of ¥(75,977) million ($(698,318) thousand) and corporate assets of ¥24,953 million ($229,347 thousand). “Adjustments” of segment assets for the year ended March 31, 2019 of ¥(59,391) million includes intersegment eliminations of ¥(79,609) million and corporate assets of ¥20,218 million. The corporate assets consist of the headquarters’ research assets that are not allocated to each reportable segment. *3 “Segment income” is reconciled to operating income. *4 “Capital expenditures” do not include the increase in assets resulting from inclusion of subsidiaries in consolidation. Toray Industries, Inc. Integrated Annual Report 2020 142 4. Related information a) Geographic information on sales to outside customers Millions of yen 2020 Asia Japan China Others North America, Europe and other areas Total Sales to outside customers ¥ 961,742 ¥ 391,797 ¥ 425,305 ¥ 435,789 ¥ 2,214,633 Millions of yen 2019 Asia Japan China Others North America, Europe and other areas Total Sales to outside customers ¥ 1,085,701 ¥ 426,788 ¥ 454,401 ¥ 421,958 ¥ 2,388,848 Thousands of U.S. dollars 2020 Asia Japan China Others North America, Europe and other areas Total Sales to outside customers $ 8,839,540 $ 3,601,075 $ 3,909,053 $ 4,005,414 $ 20,355,083 Sales amounts are allocated to countries or regions according to the customers’ location. b) Geographic information on property, plant and equipment Millions of yen 2020 Asia North America, Europe and other areas Property, plant and equipment, net ¥ 326,860 ¥ 200,018 ¥ 172,597 ¥ 134,290 ¥ 172,744 ¥ 1,006,509 Japan Republic of Korea Others U.S.A. Others Total Property, plant and equipment, net ¥ 331,978 ¥ 212,713 ¥ 166,506 ¥ 131,848 ¥ 153,831 ¥ 996,876 Japan Republic of Korea Others U.S.A. Others Total Millions of yen 2019 Asia North America, Europe and other areas Property, plant and equipment, net $ 3,004,228 $ 1,838,401 $ 1,586,369 $ 1,234,283 $ 1,587,721 $ 9,251,002 Japan Republic of Korea Others U.S.A. Others Total Thousands of U.S. dollars 2020 Asia North America, Europe and other areas Toray Industries, Inc. Integrated Annual Report 2020 143 5. Loss on impairment of fixed assets by reportable segment Millions of yen 2020 Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others Elimination & Corporate*1 Total Loss on impairment ¥ 901 ¥ 3,844 ¥ 1,779 ¥ 5 ¥ 9 ¥ — ¥ 1,031 ¥ 7,569 Millions of yen 2019 Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others Elimination & Corporate Total Loss on impairment ¥ 13,322 ¥ 1,145 ¥ 776 ¥ 2,395 ¥ 776 ¥ — ¥ — ¥ 18,414 Thousands of U.S. dollars 2020 Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others Elimination & Corporate*1 Total Loss on impairment $ 8,281 $ 35,331 $ 16,351 $ 46 $ 83 $ — $ 9,476 $ 69,568 *1 “Elimination & Corporate” of loss on impairment for the year ended March 31, 2020 of ¥1,031 million ($9,476 thousand) includes loss on impairment of corpo- rate assets that are not allocated to each reportable segment. 6. Amortization and balance of goodwill by reportable segment Millions of yen 2020 Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others Elimination & Corporate Total Amortization of goodwill ¥ 24 ¥ 4,312 ¥ 6,292 ¥ 314 Balance of goodwill 57 6,367 64,385 1,141 ¥ — — ¥ — — ¥ — ¥ 10,942 — 71,950 Millions of yen 2019 Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Amortization of goodwill ¥ 1,297 ¥ 4,384 ¥ 5,054 ¥ 864 Balance of goodwill 81 10,705 73,337 1,589 Life Science Others ¥ — — ¥ — — Elimination & Corporate ¥ — — Total ¥ 11,599 85,712 Thousands of U.S. dollars 2020 Fibers & Textiles Performance Chemicals Carbon Fiber Composite Materials Environment & Engineering Life Science Others Elimination & Corporate Total Amortization of goodwill $ 221 $ 39,632 $ 57,831 $ 2,886 Balance of goodwill 524 58,520 591,774 10,487 $ — — $ — — $ — $ 100,570 — 661,305 Toray Industries, Inc. Integrated Annual Report 2020 144 20. AMOUNTS PER SHARE Basic net income per share is computed based on the net income attributable to owners of parent available for distribu- tion to stockholders of common stock and the weighted-av- erage number of shares of common stock outstanding during the year. Diluted net income per share is computed based on the net income attributable to owners of parent available for distri- bution to the stockholders and the weighted-average number of shares of common stock outstanding during the year after giving effect to the dilutive potential of shares of common Net income attributable to owners of parent: Basic Diluted Cash dividends applicable to the year Net assets 21. RELATED PARTY TRANSACTIONS Year ended March 31, 2020 No items to be reported. Year ended March 31, 2019 No items to be reported. stock to be issued upon the exercise of warrants and stock acquisition rights. Amounts per share of net assets are computed based on the net assets available for distribution to the stockholders and the number of shares of common stock outstanding at year end. Cash dividends per share represent the cash dividends proposed by the Board of Directors applicable to the respec- tive years together with any interim cash dividends paid. Yen 2020 2019 U.S. dollars 2020 ¥ 34.83 ¥ 49.61 34.58 16.00 683.61 49.56 16.00 706.95 $ 0.32 0.32 0.15 6.28 Toray Industries, Inc. Integrated Annual Report 2020 145 Independent Auditor’s Report The Board of Directors Toray Industries, Inc. Opinion We have audited the accompanying consolidated financial statements of Toray Industries, Inc. and its consolidated subsidiaries (the Group), which comprise the consolidated balance sheet as at March 31, 2020, and the consolidated statements of income, compre- hensive income, changes in net assets, and cash flows for the year then ended, and notes to the consolidated financial statements. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at March 31, 2020, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with accounting principles generally accepted in Japan. Basis for Opinion We conducted our audit in accordance with auditing standards generally accepted in Japan. Our responsibilities under those stan- dards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consoli- dated financial statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management, the Corporate Auditor and the Board of Corporate Auditors for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern and disclosing, as required by accounting principles generally accepted in Japan, matters related to going concern. The Corporate Auditor and the Board of Corporate Auditors are responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influ- ence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in Japan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. • Consider internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances for our risk assessments, while the purpose of the audit of the consolidated financial statements is not expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclo- sures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evi- dence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw atten- tion in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inade- quate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation in accordance with accounting principles generally accepted in Japan. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. Toray Industries, Inc. Integrated Annual Report 2020 146  We communicate with the Corporate Auditor and the Board of Corporate Auditors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Corporate Auditor and the Board of Corporate Auditors with a statement that we have complied with the ethical requirements regarding independence that are relevant to our audit of the financial statements in Japan, and to communi- cate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where appli- cable, related safeguards. Interest Required to Be Disclosed by the Certified Public Accountants Act of Japan Our firm and its designated engagement partners do not have any interest in the Group which is required to be disclosed pursuant to the provisions of the Certified Public Accountants Act of Japan. Convenience Translation The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2020 are presented solely for convenience. Our audit also included the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 2 to the consolidated financial statements. Ernst & Young ShinNihon LLC Tokyo, Japan June 23, 2020 /s/ Kazuhiko Suzuki Designated Engagement Partner Certified Public Accountant /s/ Takeshi Isogai Designated Engagement Partner Certified Public Accountant /s/ Tsuyoshi Nakano Designated Engagement Partner Certified Public Accountant Toray Industries, Inc. Integrated Annual Report 2020 147 Stakeholder Engagement Toray Group has established Basic Policies to Promote Dialogue with Stakeholders. We are proactively communi- cating with various stakeholders in all aspects of our corporate activities, and periodically report on and discuss the content of these activities with management. With the goal of strengthening our system for engaging with stakeholders, we established a new organization to supervise communications in general in April 2018, and we are working on centralizing the function of information transmission for both internal and external of the Company. Engaging with Stockholders and Investors Engaging with Employees The Group actively communicates with institutional investors and securities company analysts by providing information materials when requested and holding same-day results brief- ings when quarterly earnings are announced. In addition to IR materials, including integrated annual reports, the Group also provides a wide range of information on management policies and strategies, as well as financial and earnings information in the Investor Relations section of the Toray website. We also hold briefings on business for stockholders in order to deepen their understanding of Toray Group. In fiscal 2019, Toray held four results briefings and held 543 meetings with investors and analysts. Using in-house newsletters, the company intranet, and com- pany-wide bulletin boards, Toray Group actively promotes communication with its employees to not only disseminate information on company policies and issues, but to improve cohesion of the Toray brand and heighten each employee’s sense of belonging. In addition to messages from the President being provided in all media, in-house newsletters are published in Japanese, English, and Chinese, with the goal of sharing information and promoting understanding of current projects and key manage- ment and business topics. In addition, in 2017, we established TORAY NAVI Lite, an intranet site geared toward Group companies in and outside of Japan, representing the construction of global infrastructure for the sharing of information. Engaging with Customers Engaging with the Mass Media Toray believes that the customer comes first. We closely com- municate with our customers, mainly through our marketing and sales departments, and periodically conduct customer satisfaction surveys. The results of these surveys are shared internally at Board meetings and through in-house newsletters as we strive to provide even higher quality customer service. We have also established showrooms at a number of locations, including the head office in Tokyo, the Toray Shiga Plant, and the Toray Human Resources Development Center in Mishima, Shizuoka Prefecture, showing our businesses and product applications in an easy-to-understand manner to the pub- lic so as to deepen their understanding of Toray Group’s stance toward contributing to solving various problems by creating and providing innovative technologies and cutting-edge materials. Toray recognizes that public relations and corporate commu- nication activities have a role in fulfilling responsibilities for information disclosure as well as influencing public opinion. Accordingly, Toray’s Corporate Communications Department actively engages with a wide range of media organizations, acting as the public’s point of contact with the Company. Based on Toray’s Information Disclosure Principles, the department provides fair and impartial information, even if it may cast the Company in a bad light, in a timely and appro- priate manner. In fiscal 2019, the Company issued 160 press releases and responded to 298 media requests for information. Engaging with Business Partners Engaging with Local Communities While providing materials and products as a manufacturer of advanced materials, Toray Group must engage in upstream management of its supply chains to better fulfill the needs of its customers, including the areas of production facilities and procured raw materials and resources. Accordingly, the Group has established its Basic Purchasing Policies and Basic Distribution Policies to emphasize this approach and ensure fair business activities. Throughout the Group we are promoting proper and fair transactions, adherence to laws, environmen- tal preservation, respect for human rights, improvements in quality and other policies in initiatives with regard to corporate responsibility in procurement, purchasing, and distribution. In addition to holding informal gatherings for discussion reg- ularly, Toray Group strives to engage in more active dialogue with nearby residents in a variety of other settings, including by participating in events sponsored by local governments and inviting local residents onto plant grounds for summer festivals. Following Toray Group Social Initiative Policies, we aim for our social contribution activities to contribute to sustain- able development while meeting the expectations of local communities. Specifically, we also proactively engage in CSR activities organized together with NPOs, including Arakawa River Clean- aid Forum and Biwako Trust. Toray Industries, Inc. Integrated Annual Report 2020 148 External Evaluation Toray was included in the following SRI indices as of September 30, 2020. Included in the Dow Jones Sustainability Index Asia Pacific Toray is included in the Asia Pacific Index of the Dow Jones Sustainability Indices (DJSI), an SRI index administered by U.S.-based Dow Jones and Switzerland-based RobecoSAM. Included in the MSCI ESG Indexes Toray is included in the MSCI ESG Indexes. MSCI provides institutional investors (from pension funds to hedge funds) across the globe with various tools to support investment decisions. Included in the Ethibel Pioneer & Excellence Registers Toray is included in the Ethibel Pioneer and Ethibel Excellence investment registers of Forum Ethibel, a Belgian non-profit organization promotes socially responsible investment. that Selected for Inclusion in the FTSE4Good Index Series Toray was selected for inclusion in the FTSE4Good Index Series. The FTSE4Good Index Series was developed by UK-based FTSE Russell. Those com- panies that implement outstanding ESG practices are selected for this index series. Selected for Inclusion in the SOMPO Sustainability Index This Index is used for SOMPO Sustainable Management, a responsible investment prod- uct for pension funds and insti- tutional investors that invests in a wide range of companies with a strong reputation for ESG (Environmental, Social, Governance). Selected for Digital Transformation Stocks (DX Stocks) 2020 Jointly organized by the Ministry of Economy, Trade and Industry and the Tokyo Stock Exchange, com- panies that proactively engage in digital transformation (DX) are selected and announced as Digital Transformation Stocks. TORAY REPORT 2019 received the Gold Award during the 2020 International ARC Awards, the world’s largest annual report competition. TORAY REPORT 2019 received the Gold Award during the 2020 International ARC Awards, the world’s largest annual report competition. TORAY REPORT 2019 received the Bronze Award in the Corporate Activity Report category during the 41st Japan BtoB Advertising Awards in 2020. Toray Industries, Inc. Integrated Annual Report 2020 149 Integrated Annual Report Award ListToray Group Worldwide Network Toray Group operates businesses in 29 countries and regions including Japan. Consolidated subsidiaries Subsidiaries accounted for by equity method Total subsidiaries Affiliates accounted for by equity method Companies subject to consolidation Japan Overseas Total 62 27 89 13 102 123 34 157 23 180 185 61 246 36 282 (As of March 31, 2020) Japan France Indonesia Consolidated Subsidiaries Consolidated Subsidiaries Consolidated Subsidiaries n Toray Films Europe S.A.S. n Toray Carbon Fibers Europe S.A. l n P.T. Indonesia Toray Synthetics l P.T. Toray Polytech Jakarta China Thailand Consolidated Subsidiaries Consolidated Subsidiaries l n Ichimura Sangyo, Co., Ltd. n Toray Plastics Precision Co., Ltd. n Toray Fine Chemicals Co., Ltd. n Soda Aromatic Co., Ltd. n Toray Advanced Film Co., Ltd. l Suido Kiko Kaisha, Ltd. l Toray Construction Co., Ltd. l Toray Engineering Co., Ltd. n Toray Medical Co., Ltd. l Toray Systems Center, Inc. l Toray Enterprise Corp. n Toray International, Inc. n Chori Co., Ltd. Affiliates Accounted for by Equity Method l l Toray Fibers (Nantong) Co., Ltd. l Toray Sakai Weaving & Dyeing (Nantong) Co., Ltd. l Toray Polytech (Nantong) Co., Ltd. l Toray Industries (H.K.) Ltd. n Toray Plastics (China) Co.,Ltd l Toray Industries (China) Co., Ltd. Affiliates Accounted for by Equity Method l Pacific Textiles Holdings Ltd. l n Du Pont-Toray Co., Ltd. Republic of Korea l Toray Opelontex Co., Ltd. l Japan Vilene Company, Ltd. n Dow Toray Co., Ltd. n Sanyo Chemical Industries, Ltd. United Kingdom Consolidated Subsidiaries l Toray Textiles Europe Ltd. Italy Consolidated Subsidiaries l Alcantara S.p.A. Consolidated Subsidiaries l n n l Toray Advanced Materials Korea Inc. n Toray Battery Separator Film Korea Limited n STEMCO, Ltd. Affiliates Accounted for by Equity Method n STECO, Ltd. Malaysia Consolidated Subsidiaries l Penfabric Sdn. Berhad l n Penfibre Sdn. Berhad n Toray Plastics (Malaysia) Sdn. Berhad l Toray Textiles (Thailand) Public Company Limited l n Thai Toray Synthetics Co., Ltd. U.S.A. Consolidated Subsidiaries n Toray Plastics (America), Inc. n Toray Resin Co. n Toray Composite Materials America, Inc. n Zoltek Companies, Inc. n Toray Advanced Composites USA Inc. Others l Fibers & Textiles n Performance Chemicals n Carbon Fiber Composite Materials l Environment & Engineering n Life Science l Others n Trading Major Offices and Plants in Japan Osaka Head Office Branches Nagoya, Hokuriku, Kyushu, Tohoku, Chugoku & Shikoku Plants Shiga, Seta, Ehime, Nagoya, Tokai, Aichi, Okazaki, Mishima, Chiba, Tsuchiura, Gifu, Ishikawa, Nasu Overseas Offices U.S.A. Toray Industries (America), Inc. Republic of Korea Toray Industries Korea Inc. Germany Toray Industries Europe GmbH India Toray Industries (India) Private Limited China Toray Industries, Inc., Beijing Office Brazil Toray do Brasil Ltda. Toray Industries, Inc. Integrated Annual Report 2020 150 Investor Information (As of March 31, 2020) Common Stock: Issued: 1,631,481,403 shares (including treasury stock) Cash Dividends Per Share Total for the year Number of Stockholders: 203,269 Interim FY 2019 ¥16.00 8.00 FY 2018 ¥16.00 8.00 Annual General Meeting: The annual general meeting of stockholders is normally held in June in Tokyo. Listings: Common stock is listed on the Tokyo Stock Exchange. Independent Auditor: Ernst & Young ShinNihon LLC Transfer Agent: Sumitomo Mitsui Trust Bank, Limited 1-4-1, Marunouchi Chiyoda-ku, Tokyo 100-0005, Japan Principal Stockholders Shares held Percentage of shares held* The Master Trust Bank of Japan, Ltd. (Trust Account) 136,884,100 Japan Trustee Services Bank, Ltd. (Trust Account) 106,705,100 Nippon Life Insurance Co., Ltd. Taiju Life Insurance Co., Ltd. Japan Trustee Services Bank, Ltd. (Trust 7 Account) 71,212,250 35,961,000 33,635,400 National Mutual Insurance Federation of Agricultural Cooperatives 32,193,000 Japan Trustee Services Bank, Ltd. (Trust 5 Account) JP Morgan Chase Bank 385151 Sumitomo Mitsui Banking Corporation Japan Trustee Services Bank, Ltd. (Trust 4 Account) 28,900,900 26,571,366 25,522,000 24,769,300 8.55 6.67 4.45 2.25 2.10 2.01 1.81 1.66 1.59 1.55 * Percentage of shares held is calculated excluding 30,707,673 shares of treasury stock. Stock Price Range Composition of Stockholders (Thousands of shares) (Yen) 1,500 1,200 900 600 300 0 2015 April Treasury Stock 30,708 1.88% Individuals and Others 359,728 22.05% Non-Japanese Investors 379,914 23.29% Japanese Financial Institutions 688,956 42.23% Japanese Securities Companies 34,409 2.11% Other Japanese Companies 137,764 8.44% 2016 April 2017 April 2018 April 2019 April 2020 March Corporate Data (As of March 31, 2020) Toray Industries, Inc. Head Office Nihonbashi Mitsui Tower, 1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo 103-8666, Japan Telephone: 81 (3) 3245-5111 Facsimile: 81 (3) 3245-5054 www.toray.com URL: Established: January 1926 Paid-in Capital: ¥147,873,030,771 Number of Employees: 48,031 Parent company: 7,568 Japanese subsidiaries: 10,430 Overseas subsidiaries: 30,033 Toray Industries, Inc. Integrated Annual Report 2020 151 Toray Integrated Annual Report 2020 April 1, 2019–March 31, 2020 Printed in Japan Issued: November 2020 T o r a y I n t e g r a t e d A n n u a l R e p o r t 2 0 2 0 T o r a y I n d u s t r i e s , I n c . 

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