Creating for Tomorrow

Creating for Tomorrow Hibiya Mitsui Tower 1-1-2 Yurakucho, Chiyoda-ku, Tokyo 100-0006 Japan www.asahi-kasei.com/ Corporate Governance and Financial and Non-Financial Asahi Kasei Group Overview Management Strategy Business Overview Risk Management Information Contents Asahi Kasei Group Overview Editorial policy For greater ease of understanding among our 2 At a Glance We, the Asahi Kasei Group, stakeholders regarding the Asahi Kasei Group’s 4 Financial and operating climate and overall business activities, Non-Financial Highlights Group Mission contribute to life and living the Asahi Kasei Report focuses on areas of particu- lar interest such as our management strategy, Management Strategy financial and non-financial highlights, business conditions, and management configuration, as well for people around the world. 6 Message from the President as our efforts toward sustainability in society. Details 13 Asahi Kasei’s Digital of our financial performance and CSR activities are Transformation (DX) Initiatives disclosed on our website. 14 Sustainability 18 Value Creation Model Period under review 20 Value Creation at Work The period under review is fiscal 2019 (April 2019 Providing new value to society 24 Human Resources to March 2020). Some qualitative information 28 New Business Creation Group Vision by enabling “living in health and comfort” pertaining to April to September 2020 has also 30 Financial and Capital Policy been included. and “harmony with the natural environment.” Business Overview Organizational scope The scope of the report is Asahi Kasei Corp. and its 32 Addressing Social Issues and Transforming Our Business Portfolio consolidated subsidiaries (in other cases, noted in Sincerity —Our Path to Three Sectors— the text). Asahi Kasei’s three operating segments —Being sincere with everyone. 34 Review of Operations are Material, Homes, and Health Care. The titles and positions of corporate officers and other per- Group Values Challenge Corporate Governance and sonnel as shown in this report are current as of —Boldly taking challenges, continuously seeking change. Risk Management October 2020. Creativity 40 Corporate Governance Guidelines consulted —Creating new value through unity and synergy. 42 Directors The GRI Standards, the standards of the 44 Interviews with Outside Directors Sustainability Accounting Standards Board, ISO 47 Risk Management 26000, and other guidelines were consulted during 48 Initiatives Regarding Climate the preparation of this report. Change Disclosure Based on the TCFD Recommendations Disclaimer Group Slogan Creating for Tomorrow 50 SASB Disclosure Information Index The forecasts and estimates shown in this report are dependent on a variety of assumptions and eco- Financial and nomic conditions. Plans and figures depicting the Non-Financial Information future do not imply a guarantee of actual outcome. 52 Consolidated Financial Statements 58 Company Information/ Investors Information 1 Corporate Governance and Financial and Non-Financial Asahi Kasei Group Overview Management Strategy Business Overview Risk Management Information At a Glance The Asahi Kasei Group operates in three business sectors: Material, Homes, and Health Care. Priority Fields for Provision of Value and Related Products April 2019 marked the start of a new three-year medium-term management initiative, “Cs+ for Tomorrow 2021,” which aims for sustainable growth of corporate value. Material Environment & Energy Mobility Life Material Fiscal 2019 Net Sales and Operating Income Sales in fiscal 2019 were on a par with the previous year, the second highest ever, while operating income declined 15.4% from the previous year. ¥ 2,151.6 billion ¥177.3 billion Hipore™ and Celgard™ separators Engineering resin UVC LEDs for lithium-ion batteries Health Care Health Care 15.8% 20.9% Material Operating Material Net sales 51.2% income 44.3% Ion-exchange membrane chlor-alkali Lamous™ artificial suede Household products electrolysis process Dinamica™ automotive interior material Homes Homes 33.0% 34.9% Homes Home & Living Note: Percentages shown exclude the “Others” category and “corporate expenses and eliminations” Notable Facts (as of March 31, 2020) Hebel Haus™ unit homes Hebel Village™ apartments for seniors Hebel Maison™ apartment buildings Employees Consolidated subsidiaries Global bases 40,689 211 More than 20 Health Care Of which, overseas employees countries and regions Health Care account for nearly 40% Overseas sales ratio Credit rating* 40% AA Japan Credit Rating Agency (JCR) Pharmaceutical products Planova™ virus removal filters ZOLL AED Plus™ automated external defibrillator * As of June 12, 2020 2 3 Corporate Governance and Financial and Non-Financial Asahi Kasei Group Overview Management Strategy Business Overview Risk Management Information Financial and Non-Financial Highlights Net sales (domestic & overseas), operating income, operating margin EBITDA1, depreciation and amortization, EBITDA margin Greenhouse gas (GHG) emissions / net sales4 Energy intensity 5 (¥ billion) (¥ billion) (¥ billion) (Million tons CO2 equivalent) (Index) (Index) 100 2,500 300 400 5 4.83 Target: 100 100 2,170.4 2,151.6 4.35 2,042.2 4.22 4.16 –35% 1,940.9 311.9 313.6 92 3.95 2,000 1,883.0 240 274.8 295.6 4 by FY2030 80 90 209.6 300 268.4 86 198.5 83 15.3 13.7 77 81 177.3 14.2 14.3 14.5 79 1,500 165.2 159.2 180 3 71 68 60 80 77 200 1,000 120 2 40 70 118.3 8.5 9.7 9.7 109.6 109.2 113.5 104.0 8.5 8.2 100 500 60 1 20 60 0 0 0 0 0 0 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) EBITDA Depreciation and amortization (tangible, intangible, and goodwill) GHG emissions (left scale) GHG emissions / net sales (right scale) Domestic sales Overseas sales (left scale) EBITDA margin (%) 4 Indexed to GHG emissions from production processes (tons CO2 equivalent) / net sales (¥) Operating income (right scale) Operating margin (%) 1 Operating income, depreciation, and amortization in fiscal 2013 as 100 5 Indexed to energy consumption per unit of production in fiscal 2015 as 100 In fiscal 2019, sales were flat year-on-year while operating income declined. The The amount of depreciation and amortization is increasing with proactive capital In the medium-term management initiative, we are targeting a 35% decrease in the We promote energy conservation at every stage of our business activities to prevent positive impact of new consolidations due to M&A was offset by the impact of the expenditures and M&A activity. EBITDA is regarded as a key performance indicator index of GHG emissions to net sales from the fiscal 2013 level by fiscal 2030. global warming and conserve limited resources. Over the past five years, we have global economic downturn in the Material sector. Overseas sales reached approxi- (KPI) signifying the generation of cash flow. The decrease in depreciation and amortiza- Various efforts to further reduce emissions are being applied to achieve this target. made steady improvements, lowering our energy consumption per unit of production mately 40% of total net sales in fiscal 2019 with expansion of overseas business, tion in fiscal 2018 resulted from a change in the method of depreciation of property, by 1% annually on average. including through M&A. plant and equipment from the declining-balance method to the straight-line method. Net income attributable to owners of the parent, EPS ROE2, ROIC3 Workplace injury frequency rate6,7 Number of employees (¥ billion) (¥) (%) 200 200 20 3.0 2.79 30,000 170.2 24,700 25,325 2.5 25,000 23,321 23,720 24,115 147.5 150 150 15 14.0 1.86 115.0 121.93 11.1 2.0 20,000 10.5 1.81 105.66 103.9 14,583 15,364 100 91.8 100 10 8.6 1.5 15,000 7.6 9.7 10,555 82.34 74.85 9,500 10,000 8.8 1.0 1.26 10,000 65.69 7.9 7.8 50 50 5 6.6 0.84 0.35 0.41 0.5 0.30 0.30 0.44 5,000 0 0 0 0 0 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) 2015 2016 2017 2018 2019 (FY) Japan Overseas ROE ROIC 6 Number of accidental deaths and injuries resulting in the loss of one or more workdays, per million man-hours worked Net income attributable to owners of the parent (left scale) 2 Net income per shareholders’ equity Japan Overseas 7 Among domestic and overseas subsidiaries and affiliates applying the Asahi Kasei Group EPS (right scale) 3 (Operating income – income taxes) / average annual invested capital Responsible Care Program Net income in fiscal 2019 declined due to a decrease in operating income, impair- In fiscal 2019, ROE declined due to the decrease in net income. ROIC also While the frequency rate of lost-workday injuries among overseas employees has As the result of proactive business expansion including M&A, we now have over ment losses on noncurrent assets, and business structure improvement expenses. declined due to an increase in invested capital associated with an increase in improved significantly, this rate has deteriorated among employees in Japan. We are 40,000 employees, with overseas employees accounting for nearly 40% of the total. As a result, EPS also decreased. interest-bearing debt accompanying the acquisition of Veloxis Pharmaceuticals making improvements by applying measures to avoid recurrence based on analysis We have manufacturing, research, and sales sites in more than 20 countries and Inc. (hereinafter Veloxis) and the decrease in operating income. of the causes of injuries that have occurred, while implementing preventive mea- regions around the world. sures based on risk assessments. Capital expenditure,

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