KANSAI PAINT CO., LTD. Corporate Report 2017 CO., LTD. KANSAI PAINT 2 017 Corporate Report Year Ended March 31, 2017 Profile Established in 1918, Kansai Paint Co., Ltd. has grown Company Profile into Japan’s most progressive manufacturer in various fields related to coatings. Name: Kansai Paint Co., Ltd. Head office: 6-14, Imabashi 2-chome, Today, the company enjoys a well-established Chuo-ku, Osaka 541-8523, position as one of the world’s leading Japan paint manufacturers. Date established: May 17, 1918 The various products provided by the Kansai Capitalization: 25,658 million yen Number of employees: 14,828 (consolidated) Paint Group are highly valued and trusted in a broad Principal business lines: Manufacturing and sale variety of fields, due to the important role our of paints coatings play, such as protection, beautification, Design, manufacturing, special functionality, and environmental sensitivity. and sale of coating equipment Moreover, with Kansai Paint’s proprietary Control and undertaking research and development capabilities at its core, the of painting work Company is providing its clients around the world Design of color schemes Corporate website: http://www.kansai.co.jp/ with unparalleled customer service by expanding its manufacturing, distribution, and sales activities worldwide. Contents Five-Year Summary of Selected Financial Data …… 01 A Message from the President ……………………… 02 Management Philosophy and Vision ……………… 04 Board of Directors …………………………………… 06 Business Review ALESCO at a Glance ………………………… 08 Business Overview by Segment …………… 10 Research and Development Operations …… 12 Product Focus ……………………………… 14 Environmental Activities Policies on Environmental Conservation … 16 Environmental Management ……………… 17 ALES ECO PLAN 2018 ……………………… 18 Corporate Brand …………………………… Materials Balance 20 Our “ALESCO” brand name is formed from the Latin Green Procurement and word “ALES,” meaning “wing” and “ESCO,” which ………………… Supply Chain Management 21 stands for “Excellent Specialty Company.” In Latin, …… Management of Chemical Substances 22 “alesco” itself means to grow and mature. Therefore, …… Environmental Conservation Activities 23 “ALESCO” expresses the concept of Kansai Paint growing continuously and flying with its wings spread Social Activities toward the future as a leading specialty company. …………… Occupational Safety and Health 26 The “ALESCO” corporate brand expresses to the …………………… Treatment of Employees 28 world the image of the superb quality and excellent ……………………… Consumer Protection 29 value of Kansai Paint and its Group companies. Social Action Programs …………………… 29 Financial Section …………………………………… 31 Directory ……………………………………………… 67 Five-Year Summary of Selected Financial Data (Years ended March 31, 2017, 2016, 2015, 2014 and 2013) Consolidated Basis Thousands of Millions of yen U.S. dollars *1 2017 2016 2015 2014 2013 2017 For the year: Net sales ¥330,236 ¥328,119 ¥349,334 ¥320,454 ¥294,053 $2,943,542 Operating income 35,311 34,772 31,580 29,636 24,171 314,743 Income before income taxes and non-controlling interests 40,468 47,431 36,867 39,087 32,437 360,710 Net income attributable to owners of the parent 24,169 28,344 20,409 21,560 17,758 215,429 At year-end: Total assets ¥540,458 ¥430,198 ¥448,085 ¥400,092 ¥362,625 $4,817,346 Net assets 296,165 293,903 303,627 258,016 222,798 2,639,852 Yen U.S. dollars *1 Per share amounts: Net income *2 ¥93.16 ¥106.41 ¥76.61 ¥80.91 ¥66.62 $0.83 Diluted net income *3 83.46 - - - - 0.74 * 1: For convenience only, U.S. dollar amounts in this report have been translated from Japanese yen at the rate of ¥112.19 to U.S.$1.00, the exchange rate at March 31, 2017. * 2: Net income per share is calculated based on the weighted average number of shares of common stock in issue during the year. * 3: Diluted net income per share is not recorded for the fiscal years ended March 31, 2016, 2015, 2014 and 2013 because there were no dilutive shares during those fiscal years. • Net sales • Operating income • Income before income taxes and non-controlling interests (Millions of yen) (Millions of yen) (Millions of yen) 400,000 40,000 50,000 47,431 349,334 34,772 35,311 328,119 330,236 320,454 31,580 39,087 40,468 29,636 40,000 36,867 300,000 294,053 30,000 32,437 24,171 30,000 200,000 20,000 20,000 100,000 10,000 10,000 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 • Net income attributable to • Total assets • Net assets owners of the parent (Millions of yen) (Millions of yen) (Millions of yen) 35,000 600,000 350,000 540,458 303,627 293,903 296,165 300,000 30,000 28,344 500,000 448,085 430,198 258,016 25,000 24,169 400,092 250,000 21,560 400,000 222,798 20,409 362,625 20,000 17,758 200,000 300,000 15,000 150,000 200,000 10,000 100,000 5,000 100,000 50,000 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Kansai Paint Co., Ltd. Corporate Report 2017 1 A Message from the President following the inauguration of the new administration, uncertainty about the outlook for emerging economies, and geopolitical risks. The Japanese economy remained on a moderate recovery path, supported by factors such as a pickup in capital investment. The domestic business results of the Kansai Paint Group were affected by sluggish growth in demand for paints and coatings as a full-scale recovery in consumer spending failed to materialize, and sales declined year on year. At the same time, profit increased as a result of total cost reduction efforts. In our markets outside of Japan, business performance in India improved substantially amid continuing growth in its economy. Elsewhere in Asia, however, business performance was weak as full-scale recovery in overall coatings demand failed to materialize because of weak automobile production in Thailand and Malaysia, among other factors, despite recovery in automobile production in China and signs of an economic upturn in Indonesia. Business results deteriorated substantially in Africa, reflecting an economic slump in South Africa and neighboring countries, a sharp increase in raw materials prices To all of our stakeholders: accompanying currency depreciation, and the occurrence of one-time expenses. In Europe, there The Kansai Paint Group’s management philosophy is were signs of recovery in business performance in to contribute to society by providing products and Turkey. Overall sales in the Other Regions segment services that satisfy our customers. increased year on year, thanks to the contribution from The coatings business, the core business of the a U.S. subsidiary consolidated in the year under review. Group, is supported by customers in wide-ranging In addition, overseas business operations as a whole market sectors, including automobiles and other were significantly affected by currency conversion. For industrial products, buildings, structures, and ships. these reasons, although overall overseas sales The basis and reason for the Group’s existence is our exceeded the prior-year level, profit declined year on mission to continuously increase the satisfaction of year. A gain on the sale of fixed assets in India these customers, and we are committed to recorded in fiscal 2015 did not re-occur in fiscal 2016. contributing to society at large by enhancing In addition, in March 2017 the Company acquired shareholder value and strengthening the business the shares of the Helios Group, a European coatings foundation through realization of ever-higher manufacturer, and made it a consolidated subsidiary. customer satisfaction. In February 2017, Kansai Plascon Africa Ltd., a consolidated subsidiary of the Company, acquired the Overview of the Fiscal Year Ended shares of the companies comprising the Sadolin Paint March 2017 Group, the market share leader in the coatings market in the East Africa Community. Detailed figures on a consolidated basis for the fiscal year under review, fiscal 2016, ended March 31, 2017, Outlook for the Fiscal Year are presented later in this report. To summarize, the Ending March 2018 Company achieved net sales of ¥330,236 million (US$2,944 million), up 0.6%year on year, operating In the outlook for the global economy, despite income of ¥35,311 million (US$315 million), up 1.5%, concerns about the trend in U.S. economic and and net income of ¥24,169 million (US$215 million), monetary policies under the new administration, down 14.7%, all on a consolidated basis. Annual uncertainty surrounding the economic outlook for dividends were ¥22 per share. China and other emerging countries, and geopolitical The global economy showed gradual recovery in risks, expectations are for continuing strong economic the year under review, even amid concerns about growth in India, steady economic recovery in the U.S., the impact of economic policy trends in the U.S. and gradual economic recovery in Europe and the 2 Kansai Paint Co., Ltd. Corporate Report 2017 ASEAN region. 3. Strengthening of the Group Management In Japan, moderate economic recovery is expected to Foundation result from the effects of government policies amid To support acceleration of globalization and contribute continuing improvement in the employment and to its further acceleration, establish and implement personal income environment. However, there are headquarters functions to control the Kansai Paint concerns about delayed economic improvement in some Group and serve as a management foundation for sectors and downward pressure on corporate earnings increasing collaboration and providing benefits to resulting from fluctuations in raw materials prices. Kansai Paint and its Group companies. Through In these circumstances, the Kansai Paint Group will implementation of the headquarters functions, further focus its capabilities on achieving the key policies in the strengthen the Group companies and businesses in three-year mid-term management plan—accelerated each region and create synergies and maximize Group globalization, increased profitability, and strengthening profit through sharing and effective utilization of of the group management foundation—and engage in enterprise resources within the Group.