2018 Philosophy Company Philosophy We will endeavor to continuously improve our products, and create value for everyone who we work with. Our Mission To create excitement and surprise with our products that exceed customer expectations and enriches society. Our Vision Our goal is to be a company that: — Stays one step ahead of the future through constant technological innovation; — Drives entrepreneurial and creative spirit through a progressive culture; and — Shares in the enjoyment felt by everyone involved in our activities. Our Fundamental Values: “The TOYO WAY” Fairness Be fair and selfless in one’s actions to benefit society. Pride Take pride in one’s self, work and company, and to persevere. Initiative Show initiative in all matters, and take ownership of one’s actions. Appreciation Demonstrate sincere compassion and appreciation for people and society. Solidarity Continuously advance creativity and innovation by working together to mobilize our corporate knowledge and capabilities. 1 Toyo Tire Corporation Annual Report 2018 Contents 3 Looking at TOYO TIRE by the Data 5 Entering the Period of Our Second Founding 5 Message from the President 9 Growth Strategy for Next Corporate Stage 11 Messages from the Vice Presidents 15 Efforts to Further Improve Our Governance System 15 Message from the Chairman 16 Corporate Governance 18 Directors, Audit & Supervisory Board Members, and Corporate Officers 19 Interviews with the Outside Directors 21 TOYO TIRE’s Sustainability Based on Our Philosophy 23 Putting Our Philosophy into Practice through Each Employee 5 2 TOYO TIRE’s SDGs 27 Consolidated Financial Statements and Notes 56 Independent Auditor’s Report 57 Domestic Facilities and Consolidated Subsidiaries 58 Investor Information Financial and Non-Financial Information Disclosure Tools We offer various tools to help disclose information. Please visit our website view any of our publications for additional information regarding the following topics. Corporate Website https://www.toyotires-global.com/ IR Information Webpage https://www.toyotires-global.com/ir/ Financial Fact Book 2018 目次 Index 1 連結経営実績 Consolidated Operating Performance 3 連結財務状態 Consolidated Financial Position 5 事業セグメント別業績 Business Segment Information 7 連結キャッシュ・フロー／ 1株当たりデータ Consolidated Cash Flows and Per Share Data 9 その他 OtherIndicators Updated on March 31, 2019 最終更新 2019年3月31日 General Affairs Dept., Corporate Infrastructure Division 2-2-13, Fujinoki, Itami City, Hyogo 664-0847, Japan Tel: +81-72-789-9101 Fax: +81-72-773-3270 Publishing date: July 2019* https://www.toyotires-global.com/csr/ *It is English version published. The names of products, services and other items in this brochure are trademarks Japanese version was published in June 2019. or Japanese registered trademarks of Toyo Tire Corporation Corporate Profile Financial Fact Book CSR Report Forward-Looking Statements Forecasts and estimates in this report were determined based on the information available at the time of publication. Actual results and performance could differ significantly from the information listed in this report due to various risks and uncertainties. Accordingly, we caution readers against making any investment decisions solely on the basis of the performance forecasts in this report. Toyo Tire Corporation Annual Report 2018 2 Looking at TOYO TIRE by the Data Net Sales by Business Segments (Year ended December 31, 2018) Tire Business Automotive Parts Business Lines of Business Net Sales* Lines of Business Tires (for passenger vehicles, Automobile components trucks & buses, construction machinery, industrial trucks), other ¥393,220 million related products ¥51,466 million ¥341,694 million * The total for net sales includes net sales from other businesses and adjusted amounts. Regional Data Changes in Tire Production Ratio of Tire Sales Quantity by Geographic Segment (New Rubber Volumes) Thousand tons Million tires 280 40 Replacement Tires 43.2 17.0% 210 （17.4%） 30 7.7% 71.4 9.2% （28.7%） 16.0% 140 20 134.0 33.4% 70 （53.9%） 10 16.7% 0 ’14 ’15 ’16 ’17 ’18 (FY) 0 ’14 ’15 ’16 ’17 ’18 (FY) Japan North America Asia Replacement Tires: RE Japan RE North America RE Europe RE Southeast Asia RE other OE all Market Data Dubai Crude Oil and Domestic Naphtha Prices*1 Natural Rubber TSR #20 Prices (SICOM*2) US$ / bbl Thousands of yen / kl USC / kg 160 80 320 120 60 240 80 40 160 40 20 80 0 ’14/1 ’14/12 ’15/12 ’16/12 ’17/12 ’18/12 0 0 ’14/1 ’14/12 ’15/12 ’16/12 ’17/12 ’18/12 Dubai crude oil Domestic naphtha (right scale) *1 Sources: Dubai Crude Oil—Tokyo, Spot Price, FOB Domestically Produced Naphtha—Custom Clearance Statistics, Ministry of Finance *2 Source: Singapore Commodity Exchange Limited (SICOM) 3 Toyo Tire Corporation Annual Report 2018 Financial Data Net Sales Operating Income / Operating Income Margin Billions of yen Billions of yen % 480 80 16 393.2 360 60 10.8 12 69.0% 42.4 240 40 8 120 20 4 31.0% 0 ’14 ’15 ’16 ’17 ’18 (FY) 0 ’14 ’15 ’16 ’17 ’18 (FY) 0 Japan Overseas Operating income Operating income margin (right scale) Profit (Loss) Attributable to Owners of Parent / Total Assets / Profit Attributable to Owners of Parent Margin Return on Assets (ROA) Billions of yen % Billions of yen % 45 15 600 12 469.4 30 10 450 8.1 9 15 10.6 5 300 6 2.7 0 0 150 3 –15 ’14 ’15 ’16 ’17 ’18 (FY) – 5 0 ’14 ’15 ’16 ’17 ’18 (FY) 0 Profit (loss) attributable to owners of parent Total assets Profit attributable to owners of parent margin (right scale) ROA (right scale) Net Assets / Earnings (Loss) per Share*1 / Capital Ratio Return on Equity (ROE) Billions of yen % Yen % 200 40 300 30 157.3 32.5 150 30 200 20 83.1 100 20 100 6.8 10 50 10 0 0 0 ’14 ’15 ’16 ’17 ’18 (FY) 0 –100 ’14 ’15 ’16 ’17 ’18 (FY)–10 Net assets Earnings (loss) per share Capital ratio (right scale) Return on equity (ROE) (right scale) Capital Expenditure / Depreciation / Cash Dividends per Share*1 / Free Cash Flow Payout Ratio*2 Billions of yen Yen % 60 60 400 45 40 29.7 45 300 25.8 20 30 200 0 15 100 (9.4) 54.1 – 20 ’14 ’15 ’16 ’17 ’18 (FY) 0 ’14 ’15 ’16 ’17 ’18 (FY) 0 Capital expenditure Cash dividends per share Depreciation Payout ratio (right scale) Free cash flow *1 On the effective date of July 1, 2014, the Company merged two shares of common stock into one share. *2 Dividend payout ratio is not calculated in fiscal years incurring loss attributable to owners of parent. Toyo Tire Corporation Annual Report 2018 4 Entering the Period of Our Second Founding Message from the President Takashi Shimizu Representative Director, President & CEO We will strive to attain our new vision for growth. 5 Toyo Tire Corporation Annual Report 2018 Pursuing Growth Investments while production method. Equipment that employs this production Maintaining Our Pace for Profits method is currently in full operation at this plant. Through the A.T.O.M. method, we realize tires with a side In fiscal 2018, ended December 31, 2018, net sales came wall thickness that cannot by imitated by our competitors to ¥393.2 billion, while operating income stood at ¥42.4 and that strike the perfect balance between performance billion (an operating income margin of 10.8%). and aggressive design. We are also moving forward with the Per business segment, net sales in the Tire Business were development, production, and supply of highly differentiated ¥341.7 billion, and operating income was ¥46.9 billion (an SUV tires that can be used in a variety of settings, either on operating income margin of 13.7%), representing year-on-year the highway or off-road, and also offer a sense of luxury. increases for both. In the Automotive Parts Business, net From a global perspective, there has been a trend of sales were ¥51.5 billion, down ¥26.4 billion, resulting in an installing large tires on commercially available vehicles, and in operating loss of ¥4.5 billion. The decline in sales in this busi- Japan the shift toward SUVs continues to progress. To capi- ness corresponds to the portion of sales from the Chemical talize on these trends, we will maintain our policy of expand- Industrial Products Business and the Rigid Polyurethane ing our businesses by fully leveraging our unique strengths. Foam Business, which were transferred in December 2017. Our full-year forecasts for fiscal 2019 initially called for net New Partnership with a View to the sales of ¥400.0 billion and operating income of ¥40.0 billion Next Corporate Stage (an operating income margin of 10.0%). To achieve these forecasts, we are promoting our business activities while The automotive industry is approaching a paradigm shift, pursuing investments to secure future growth, including which is said to occur once every 100 years. It is now investments in R&D and advertising. common knowledge that unprecedented structural reforms Recently, in the second quarter of fiscal 2019, both net are occurring on a full scale, including collaboration between sales and operating income declined against the backdrop of car manufacturers and companies from other industries. such factors as delays in the shipping of certain products and Particularly in the tire industry, profitability has been down the stockpiling of products to be launched in the second half industrywide due to the emergence of new players. This has of the fiscal year, in addition to worsening exchange rates. led to reorganization within the industry that was previously Amid these circumstances, we have made a downward unimaginable, including the restructuring of wholesale busi- revision of ¥15.0 billion to our initial net sales forecasts.