TOYO KANETSU K.K.

TKK Report 2019

Contents

Introduction1 	Management Principles of
the Toyo Kanetsu Group

2 History of Toyo Kanetsu
4 Consolidated Financial Highlights
6 	The Toyo Kanetsu Group’s
Value Creation Process

Management Strategy

818

To Our Shareholders
The Toyo Kanetsu Group’s Material Issues

Business Review

22
24
26

ESG Section

28
29
34

Board of Directors
Corporate Governance
The Environment and Society

Financial and Corporate Data

36 Consolidated Balance Sheets
38 	Consolidated Statements of Profit or Loss
and Comprehensive Income

39
40
41

Consolidated Statements of Changes in Equity
Consolidated Statements of Cash Flows
Corporate Profile and Stock Information

Logistics Solutions Business
Plant & Machinery Business
Other Businesses

Editorial Policy
Beginning in fiscal 2019, Toyo Kanetsu K.K. (hereinafter, “Toyo Kanetsu” or “the Company”)
will publish the TKK Report as an integrated report to convey information about its finances,management strategy, business environment, and ESG (environmental, social, and governance) issues, with the aim of furthering an understanding of its corporate value from a
medium- and long-term perspective. In preparing this report, the Company referred to theInternational <IR> Framework of the International Integrated Reporting Council (IIRC). We
welcome any feedback from and opinions of readers in order to make this report better andeasier to understand.
Details about results for fiscal 2018, the fiscal year ended March 31, 2019, are available in the
Financial Section of TKK Report 2019, which is on the Company’s website.

https://www.toyokanetsu.co.jp/global/ir/tkk_report.php
Please visit the Company’s website for other information for investors.

https://www.toyokanetsu.co.jp/global/ir/
Cautionary Note Regarding Forward-Looking Statements
In this report, contents not based on historical fact are future estimates and projections about Toyo Kanetsu and the
Toyo Kanetsu Group’s plans, strategies, and earnings that were made by the Company and the Group based on
currently available information. Actual results may differ significantly from these forward-looking statements due tobusiness-related risks and various uncertain factors.

Introduction

Management Principles of the Toyo Kanetsu GroupThe Toyo Kanetsu Group aims to boldly work toward solving issues faced by society with its
innovative and pioneering technologies, in order to contribute to the development of society
while achieving sustainable improvements in its corporate value.

Founding Philosophy:
Be Creative, Be Good for Society
Five Principles in the
Toyo Kanetsu Group’s Code of Conduct

Unwavering principles passed
down through the generations

Founding Philosophy
Code of Conduct• Adhere to laws, regulations, and rules• Fulfill responsibilities to society• Conduct business activities
transparently and in good faith• Adhere to standards of ethical conduct• Create health-conscious work
environments

Management Vision
Innovative solutions for logistics& energyLong-term objectives andguideposts to achieve as
principles take shape

Management Vision
Long-Term Vision

Long-Term Vision
Target Group consolidated net sales of¥70.0 billion in 2030 by pursuing new
growth opportunities after securing
stable sources of earnings

		 Please refer to page 11.

Business strategies, including
concrete action plans andnumerical targets, for realizing
our vision

Slogan shared by all Group
employees working toachieve our principles
and vision

Medium-Term Business Plan
Annual Plan

Medium-Term Business Plan
(Fiscal 2019–Fiscal 2021)

		

Please refer to page 12.

Cha lleng e & Chang e

1

History of Toyo Kanetsu—Social Infrastructure and Business—
Toyo Kanetsu was established in 1941 as Toyo Kanetsu Kogyo K.K.
In the 1950s, the Company developed highly distinctive products
and services in fields that eventually evolved into its current Logistics
Solutions Business and Plant & Machinery Business, growing while
meeting the needs of the times. Our founders’ ambition for givingback to society while constantly eyeing future needs has been
passed down through the generations, and is now a cornerstoneof our operations. The advanced technological capabilities andinnovative solutions offered by Toyo Kanetsu have continued tosupport social infrastructure, earning the unwavering trust andapproval of customers.

2

Logistics Solutions
Business
The Logistics Solutions Business traces its
roots back to the production of conveyors
for civil engineering and construction workthat began in 1955. In the 1970s, thebusiness entered the airport logistics fieldwith its first delivery of a baggage handlingsystem for Fukuoka Airport. In the 1980s,
Toyo Kanetsu began to deliver New PosiSorters, Climbing Sorters, digital picking
systems, and other advanced solutions forcommerce and retailers. In these ways, theCompany has been at the forefront ofsolving issues for and fulfilling the needs ofcustomers in the logistics industry. Morerecently, we have supported constantly
changing logistics infrastructure with theaggressive deployment of cutting-edge
technologies such as AI and IoT.

Plant & Machinery
Business
The Plant & Machinery Business began in1950 with the production of a fully weldedtank instead of using rivets, as was customary back then. Since then, the Company has
developed the business while accumulating
technologies and experience. Toyo Kanetsu
was the first Japanese tank manufacturer toacquire accreditation from the American
Petroleum Institute, certification from theAmerican Society of Mechanical Engineers,and ISO 9001, an international quality certification. In the liquefied natural gas (LNG) field,
the Company has gradually built up a trackrecord since the dawning of LNG storage
tanks, which covers such milestones as
winning an order for a large-scale LNG storage tank in Brunei in 1969 as well as building
some of the world’s largest LNG storage
tanks. Backed by its extensive track record,
Toyo Kanetsu will engage in research anddevelopment for next-generation energy
storage systems while supporting energy
infrastructure with its project execution
capabilities and maintenance services.

3

Introduction

Consolidated Financial Highlights (Years ended March 31)
Toyo Kanetsu K.K. and Consolidated Subsidiaries

FY2011FY2012FY2013¥48,395¥40,733¥45,503

Operating profit

1,473

2,271

4,341

Ordinary profit

1,432

2,745

4,776

714

1,526

2,879

Total assets

51,49358,07854,515

Total net assets

29,62430,86233,789Basic earnings per share*1

59.29

125.27241.77

Dividends per share*1

40.00

40.00

50.00

Net assets per share*1

2,447.66

2,577.06

2,821.75

Equity ratio

57.3

52.9

61.6

Dividend payout ratio

67.5

31.9

20.7

Return on equity (ROE)

2.4

5.1

9.0

Return on assets (ROA)

2.7

5.0

8.5

Net sales

Profit attributable to owners of parent

Net cash provided by (used in) operating activities

5,236

4,154

2,606

Net cash provided by (used in) investing activities(554)(1,198)(402)

Net cash provided by (used in) financing activities(2,327)(2,274)(767)

Figures are rounded down to the nearest million yen.
*1	Toyo Kanetsu conducted a 10:1 reverse stock split for ordinary shares effective on October 1, 2017.
As a result, figures prior to the fiscal year ended March 31, 2017 have been restated for basic earnings per share, dividends per share, and net assets per share.
*2	Figures denominated in U.S. dollars were converted at a rate of ¥111/$1, referring to the prevailing rate on March 31, 2019.

Net Sales by Business Segment(Millions of yen)

50,00040,00030,00020,00010,0000

Net Sales by Business Segment

4

2015

2016

2017

2018

FY2015FY2016FY2017FY2018Logistics Solutions Business

17,206

21,71125,93929,274

Plant & Machinery Business

22,78813,852

10,0308,421

Other Businesses

7,170

7,030

6,470

8,237

Adjustment

(592)

(661)

(682)

(745)

FY2014

FY2015FY2016FY2017FY2018(Reference) FY2018(Millions of yen)(Thousands of U.S. dollars)*2¥52,457¥46,572¥41,932¥41,758¥45,188

3,588

3,024

3,080

2,265

1,406

$407,105
12,667

3,891

3,227

3,441

2,646

1,771

15,956

3,019

1,906

3,746

2,362

1,025

9,234

55,92851,36853,22855,81864,756583,393

36,58034,37635,481

36,66635,234317,423(Yen)(U.S. dollars)*2

260.76174.53373.78251.26112.80

1.02

40.00

50.00

120.00100.00100.000.90

3,159.08

3,339.15

3,702.00

3,941.68

3,897.68

35.11
(%)

65.0

66.9

66.7

65.7

54.4

15.3

28.6

32.1

39.8

88.7

8.6

5.4

10.7

6.5

2.9

7.1

6.0

6.6

4.8

2.9
(Millions of yen)(Thousands of U.S. dollars)*2

(213)

4,041

(2,131)

3,726(6,698)(60,350)(1,120)(766)(1,714)(85)(1,315)(11,850)(1,774)(3,640)(2,820)

2,032

3,249

29,274

Operating Profit (Loss) by Business Segment(Millions of yen)

3,000
2,000
1,000
0
–1,000–2,000Operating Profit(Loss) by Business Segment

2015

2016

2017

2018

FY2015FY2016FY2017FY2018Logistics Solutions Business

667

1,981

1,931

1,907

Plant & Machinery Business

1,921

633

(178)

(1,221)Other Businesses

855

958

914

1,108

5

Introduction

The Toyo Kanetsu Group’s Value Creation Process

Founding Philosophy

Social Issues Affecting“Be creative, 		the Toyo Kanetsu Group
Respond to Japan’s
declining population• Labor shortages due to declining
birth rate and aging society• Decline in purchasing power• Shortages of skilled laborers

Business Activities and Strengths

Logistics Solutions Business• Ability to propose totalsolutions that include
maintenance•	Trust from customers anda reputation based on trackrecord of deliveries tobroad range of industries

Respond to changes in
consumer spending patterns• Sharp rise in small-lot distribution from growth in e-commerceStrengthen industrial
infrastructure

Plant & Machinery Business• Technologies for constructing and maintaining largescale tanks that require
advanced technologies• Trust from customers anda reputation around theworld based on many yearsof high quality and safety• Aging energy infrastructure• Building of social foundation
resilient to breakdowns andnatural disasters

Other Businesses• Market recognition of products and advanced technologicalcapabilities in specific fields

Combat climate change• Expansion of use of liquefied
natural gas as energy source• Strong need for energy
conservation technology

Foundation That Supports Businesses• Advent of a hydrogen society

Provide better work
environments• Need for training and deployment of personnel andproductivity improvements(workstyle reforms)• Importance of ensuring
occupational health and safety

6

Corporate
culture• High awareness of contributions to society

Humanresources• Advanced technical capabilities and specialization

Partnerships• Flexible, rapid decision-making ability• Abundant experience in overseas projects• Close partnerships with partner companies,
universities, and research institutions built on
extensive experiencebe good for society”
Value Propositions

Reduce burden on workers
with labor-saving technologies
using AI and robotics
Realize highly efficient logistics
for diversifying patterns ofconsumer spending
Provide never-stopping
logistics that supports supply
chains and consumer spending

Provide highly dependablesocial infrastructureManagement Vision

Innovative solutions
for logistics & energy

Realize attractive workplaces
with systems and environmentsthat facilitate work and areinclusive of diversity

Financialfoundation

Governance• Sound financial foundation that enables
growth investments in technology andbusiness operations• Governance structure that enables
highly efficient and transparent
work management• Appropriate risk management

7Management Strategy

To Our Shareholders

Toru Yanagawa
President andRepresentative Director

8

TKK continues to take on new challenges
with passion and determination
as an innovator opening up new eras.

Publication of TKK Report 2019
The Toyo Kanetsu Group began publishing its integrated report in fiscal 2019. I hope TKK Report 2019will serve as a starting point for an ongoing dialogue with investors and other stakeholders about our
vision for the future, as well as our strategies and measures for getting there. With this in mind, weare enhancing the disclosure of ESG (environmental, social, and governance) and other non-financial
information, and we must also redouble related efforts. With the publication of this report, we havealso identified material issues that relate to the Group (important management issues for realizing
sustainable improvements in corporate value).*1
The operating environment has become increasingly uncertain amid rapid changes. Against thisbackdrop, we believe it is more important than ever to raise our profile and earn the trust of not only
our customers but of all stakeholders. For this reason, it is essential to incorporate ESG perspectives
into management with the aim of achieving sustainable growth across the Group, and also make aconcerted effort to reflect the SDGs*2 in corporate management.
*1 Please refer to page 18 for more details about our material issues.
*2 Sustainable Development Goals: 17 goals adopted by the United Nations to be achieved between 2016 and 2030

Management Philosophy and Vision
The Company’s management philosophy is “Be creative, be good for society” and its management
vision is “Innovative solutions for logistics & energy.” The Toyo Kanetsu Group aims to boldly work
toward solving issues faced by society with its innovative and pioneering technologies, in order to contribute to the development of society while achieving sustainable improvements in its corporate value.

Review of the Group’s Previous Medium-Term Business Plan (Fiscal 2016–Fiscal 2018)
Under the previous Medium-Term Business Plan (fiscal 2016–fiscal 2018), the Toyo Kanetsu Groupstruggled in terms of performance. In the final year of the business plan, consolidated net sales
increased 8.2% year on year, to ¥ 45.1 billion, thanks to higher sales in the Logistics Solutions
Business. However, consolidated operating profit fell 37.9%, to ¥1.4 billion, owing to weak orders in

9

Management Strategy

To Our Shareholders

the Plant & Machinery Business. Profit attributable to owners of parent also decreased a sharp
56.6%, to ¥1.0 billion.
The Company was unable to attain the consolidated management targets it declared in theprevious business plan, which called for net sales of ¥48.2 billion, operating profit of ¥3.1 billion,
an overseas sales ratio of 15.0%, and ROE of 7.2%. We truly regret not being able to meet the
expectations of investors and other stakeholders in this regard.
One of the reasons for these disappointing results was the tougher-than-anticipated operating
environment for the Plant & Machinery Business. The Company was unable to win orders for new
construction projects involving large-scale liquefied natural gas (LNG) storage tanks, its field ofexpertise, amid relaxed supply–demand conditions in the LNG market. To compensate, theCompany strengthened the maintenance business and worked to develop business fields peripheral
to storage tanks. However, we fell short of our fiscal 2018 targets for net sales of ¥12.4 billion andoperating profit of ¥2.2 billion in the business.
In the Logistics Solutions Business, demand for facilities was brisk at domestic airports inanticipation of a surge in overseas tourists visiting Japan for the 2020 Tokyo Olympic and Paralympic
Games, in addition to strong demand for automated logistics facilities amid labor shortages, and a
sharp increase in distribution volume alongside growth in the domestic e-commerce market. As aresult, net sales were ¥9.3 billion and operating profit was ¥0.3 billion higher than the fiscal 2018
targets we set for the business. Over the course of the previous business plan, however, althoughtargets were achieved in fiscal 2016, and net sales continued to increase thereafter, operating profit
declined for two consecutive fiscal years. We attribute this to our being unprepared for labor shortages
and a rapid increase in wages.
I believe our slow response to changes in the operating environment and the times was toblame for the poor performance in both businesses during the previous business plan.

Every Employee Must Rapidly Respond to Changes
In retrospect, we now understand that each and every employee of the Group must be highly awareof the importance of staying ahead of changes in the operating environment and the times in order
Consolidated Net Sales and Operating Profit(Billions of yen)

Results during previous
Medium-Term Business Plan

60

46.5
40

3.02

41.9

3.08

41.7

4.5

48.2

45.1

3.10

3.0

2.26
20

0

FY2015Net sales

10

1.5

1.40

FY2016

Operating profit (right)

FY2017FY2018FY2018ResultsPlan0for the Group to reach the next stage of growth. With this in mind, we identified the domains that
the Group should focus on through 2030, and drew up a long-term vision for the Group to sharewith all employees (see the chart below).
Under this vision, Toyo Kanetsu aims to attain ¥70.0 billion in consolidated net sales for theGroup by 2030 by securing earnings in stable domains such as maintenance, increasing earnings in
growth domains that have been in focus for the past few years, and ultimately by making inroads
into future domains.
In the context of future domains, we have set our sights on fully autonomous and unattended
logistics systems in the Logistics Solutions Business, large-scale liquid hydrogen storage tanks in
the Plant & Machinery Business, and new businesses that contribute to society in the other businesses and new businesses category. To realize these ambitions, there are currently many hurdles
to overcome. However, we cannot do so if we shy away from challenges and only focus on shortterm performance while sticking to existing businesses and services. I firmly believe we can lay afoundation for the future by focusing on initiatives for future domains and keeping our employees
aware of this future while constantly taking on challenges and changing with the times.

The Toyo Kanetsu Group’s Long-Term Vision for 2030
Pursuing new growth opportunities from a foundation of stable earnings sources

Target for Group consolidated net sales in 2030: ¥Futuredomains

Large-scale liquid hydrogenstorage tanks

Small-scale LNG
tanks

Growthdomains

Plant incidental
equipment

70.0 billion

Fully autonomous, unattended logistics systems

New businesses that contribute tosociety

Manufacturers, apparel e-commerce

Acquisition of domestic sales rights in
CVC* investment business

Overseas tank maintenanceRefrigerator freezer
field

International airport
development

Create new business via M&A

Overseas LNG projects

Integrated logistics

Introduction of robots

Industrial
equipment

Steel pipe pile
construction

Plant material processing

Introduction of new products for airports

Steel frame building
construction

Environmental
surveys

Maintenance using IoT and AI technologies* Corporate venture capital

Logistics centers for e-commerce

Stabledomains

Domestic tank maintenance

Logistics systems maintenanceAsbestos inspections
Real estate leasing

Plant & Machinery
Business
Sales target: ¥17.0 billion

Logistics Solutions
Business
Sales target: ¥40.0 billion

Other businesses andnew businesses

13.0 billion

Sales target: ¥11

Management Strategy

To Our Shareholders

New Medium-Term Business Plan
The Toyo Kanetsu Group has formulated a new Medium-Term Business Plan (fiscal 2019–fiscal 2021)
that positions these three years as a period for establishing a foundation for realizing its long-term
vision. Under the new business plan, the Company aims to reinforce its business foundation whilereflecting on the previous business plan and taking into account changes in the external environment. We are implementing measures to improve profitability in the Logistics Solutions Businessand rebuild business in the Plant & Machinery Business, selectively concentrating on other businesses, and moving to quickly achieve profitability in new businesses. The medium-term aims ofmanagement are to increase the ability of the entire Group to generate profits and to establish afoundation for growth. For fiscal 2021, the Company targets consolidated net sales of ¥54.3 billion,
operating profit of ¥3.95 billion, and ROE of 8.0%.

Establish a Foundation for Growth while Improving Profitability
Utilizing Full Capabilities of Group Businesses

Reflect on previous
business plan
Take into accountchanges in the external
environment

Reinforce businessfoundation

Long-term vision

Logistics Solutions
Business

Enhance
profitability

Plant & Machinery
Business

Rebuild business

Other businesses

Implement selective
concentration

New businesses

Quickly achieve
profitability

Establish
foundation forgrowthNew Medium-Term Business Management Plan
(Billions of yen)

41.9
40

3.08
10.7%

20

0

45.1

41.7

1.40

FY20162.9%

FY2017FY2018Operating profit (right)

ROE

5

54.3

48.5

44.7
1.78

2.26
6.5%

Net sales

12

New Medium-Term Business Plan Targets

Results

60

3.95

4
3

2.80

2

3.7%
FY2019

5.2%

8.0%
1

FY2020

FY20210

Business Strategies

Logistics Solutions Business
Enhancing profitability and solidifying its foundation as a key businessamid uncertainties
In the logistics field, robust demand is likely to persist for technologies that save and reduce labor
amid a shrinking working population and diversifying laborers in Japan, while the e-commercemarket continues to expand. However, this demand could lose momentum if economic conditions
sour. In airport logistics, we anticipate demand related to the expansion of airports in tandem withgrowth in the low-cost carrier (LCC) market and the economic development of Southeast Asian
countries. However, demand for equipment is also likely to fade after brisk investment ahead of the2020 Tokyo Olympic and Paralympic Games.
Toyo Kanetsu intends to solidify its foundation in high-growth businesses by sharpening its
competitiveness and expanding business domains, while building a structure able to generatestrong earnings in business environments with high uncertainties. We believe we must evolve froma supplier of mainly logistics equipment (hardware) into an innovator in solutions for the entire
logistics value chain (software). Forming alliances with external partners will be essential to achieve
this transformation. For AI, IoT, and other technologies, the Company is already collaborating withventure firms and other partners, as well as with universities and research institutions. We are also
deepening our relationships with major logistics companies with an eye on building collaborativemodels that tie together the value chain.

Plant & Machinery Business
Laying the groundwork for the future by rebuilding business and staying
determined to eliminate operating losses
In the domestic market, demand for maintenance services should remain steady as facilities age,
despite risks that the business environment will remain challenging, in part due to restructuring in
the oil industry and weakening demand for petroleum products in Japan. In overseas markets, there
are signs of recovery with the starting up of new large-scale projects based on expectations fortighter supply–demand conditions in tandem with the predicted increase in demand for LNG inemerging countries from 2023.

13

Management Strategy

To Our Shareholders

In this operating environment, Toyo Kanetsu aims to win orders for large-scale projects andachieve stable profitability through the rebuilding of the Plant & Machinery Business.
Compared with the period of the previous Medium-Term Business Plan, the market environment looks likely to improve for large-scale LNG storage tanks, a key product. With the competitive
landscape worsening, however, there is no guarantee that we will be as profitable as in the past.
It is important that we come up with strategies for future growth while reflecting on the previous
business plan. The Company will move forward with the development of large-scale liquid hydrogenstorage tanks in line with its long-term vision, and continue with initiatives to develop peripheralbusiness fields, such as manufacturing steel products other than storage tanks and acquiring
maintenance projects overseas.

Other Businesses
Turning other businesses into stable sources of earnings for the Group while
selectively concentrating resourcesGroup companies are engaged in other businesses including industrial machinery, building construction,and environmental surveys and assesments. The building construction market is likely to continue
dealing with rising construction costs, while the industrial machinery market should remain robustwith brisk demand for construction projects and growing needs for labor-saving solutions amid adeclining birth rate and an increasing elderly population. The market for environmental surveys andassessments should remain favorable overall with demand for asbestos inspections as buildings
are torn down.
In this operating environment, Toyo Kanetsu will selectively concentrate resources and strive
to grow by identifying promising fields in each of its businesses, while working to secure stablesources of earnings.

New Businesses
Aiming to rapidly achieve profitability, creating new pillars to complement thetwo core businesses, and further advancing Group operations
For the Toyo Kanetsu Group to achieve further growth, the Company is aware of the need to create

14

new businesses that will become a third pillar to complement the Logistics Solutions Business andthe Plant & Machinery Business, and is keen to launch and nurture new businesses that will rapidly
contribute to consolidated earnings.
On the subject of new businesses, we believe it is not necessary to insist that new businesses
have synergies with existing businesses. For example, large-scale storage tanks and logistics
equipment, currently key sources of earnings for the Group, have little connection with our original
founding business in industrial kilns. To start new businesses, we therefore had to boldly take on
new challenges. In large-scale storage tanks, Toyo Kanetsu was a pioneer in expanding operations
overseas, and in logistics equipment, it established competitive advantages by diversifying fromconveyor system production and sales to airport baggage handling systems. At the time, thesewere probably major challenges for the Company. In a similar vein, launching new businesses thatwill become a third pillar, and their subsequent development, will only be possible if we take on
new challenges. While retaining our focus on social infrastructure, we will pursue possibilities
through any means, including M&A and tie-ups with external partners. We have already started
taking on new challenges. In 2017, Toyo Kanetsu established a corporate venture capital (CVC) fundto aggressively invest in promising venture firms around the world. In 2018, it began the environmental surveys and assesments business via M&A activities, and entered into the biomass power
generation business.

Implementing Measures to Reinforce the Business Foundation
The Toyo Kanetsu Group will further embed in its corporate spirit the idea of “Challenge & Change,” byencouraging its employees to embrace change and achieve results. At the same time, the Company will
implement the following measures to reinforce Group governance and further improve corporate value.
First of all, we aim to reform our corporate culture into one able to adapt to change and constantly
produce business results. With this in mind, we are concentrating on implementing specific measures.
We are nurturing organizations where employees from diverse backgrounds, including women and
non-Japanese people, can thrive. We are also improving work environments so that all Group
employees can work to the best of their ability. Moreover, we are accelerating the pace of personnel
training and improvements to the skill sets of each individual through multi-track career options in
our renewed human resource system. Through these initiatives, we are keen to support the healthand motivation of our employees. In April 2019, in order to empower women in the workplace, theCompany created an action plan based on the Act on Promotion of Women’s Participation andAdvancement in the Workplace.
Next, we are taking steps to strengthen the operations of Group organizations by sharing
business assets, such as personnel and know-how from the merger with Toyo Kanetsu Solutions
K.K., and to reduce common costs while implementing measures to enhance efficiency, such as
consolidating overlapping functions.

15

Management Strategy

To Our Shareholders

Lastly, we aim to further reinforce the corporate governance structure and increase corporate
value from an ESG standpoint. As I mentioned, we are promoting ESG management with the inaugural publication of our integrated report, and are focusing efforts on optimizing Group management resources through a capital policy that emphasizes improvements in corporate value. In orderto reinforce corporate governance,*3 Toyo Kanetsu transitioned to a “company with an audit andsupervisory committee” structure in 2015 and adopted an outside director system at an early stage.
In August 2019, the Company introduced a performance-linked stock compensation system fordirectors (excluding outside directors and directors on the Audit and Supervisory Committee) and
executive officers who are ranked managing executive officer or higher and who are not directors.
This system clarifies the link between director compensation and the Company’s performance andstock value, and pairs the risks and returns from changes in the share price that shareholders facewith the incentives for directors and specified executive officers. We believe this will heighten theirmotivation to increase consolidated earnings and corporate value over the medium and long term.
*3 Please refer to page 29 for more details about corporate governance.

Revising Our Basic Capital Policy and Policy on Shareholder Returns,
Strengthening of Direct Returns via Dividends
When formulating its new Medium-Term Business Plan, Toyo Kanetsu also revised its policy onshareholder returns (see below) with the aim of ensuring capital for executing business strategies
and increasing shareholder returns via dividends. While continuing to effectively utilize borrowings
as a means of optimally allocating capital, the Company intends to use a portion of the profits it
earns for investments in new businesses and other investments to increase corporate value, as

Revising Policies to Focus More on Direct Returns to Shareholders
Shareholder return policy
from fiscal 2016 to fiscal 2018

Shareholder return policy
from fiscal 2019 to fiscal 2021

• Consolidated dividend payout ratio:• Consolidated dividend payout ratio:

at least

at least

30 %(Minimum annual dividend of ¥10 per share*)• Consolidated total return ratio:
at least

100 %(Unless there are considerable capital needs)* Annual dividend of ¥100 per share from fiscal 2017
in accordance with a 10:1 stock merger on
October 1, 2017

16

50 %

(Unless there are considerable capital needs)(Minimum annual dividend of ¥100 per share)• Retained earnings will be applied toinvestments and capital expenditures
for increasing corporate value• Share buybacks will be flexibly
undertaken

well as for capital investments, in addition to taking a flexible stance on buying back its own shares.
Toyo Kanetsu has maintained a shareholders’ equity ratio of at least 50%, and sees no need for
greater stability in this respect. Management has therefore raised its target for the dividend payout
ratio to place more emphasis on directly returning value to shareholders. Management has not set
a target for the total return ratio, and is instead taking a flexible approach based on trends in performance and other factors.

In Conclusion
After spinning out the logistics systems business into Toyo Kanetsu Solutions K.K. in 2002, theCompany and its subsidiary have developed their own businesses under this structure. While a partof the same Group, these two entities have followed separate paths. This situation may have been anatural outcome because their businesses supplied products and services to vastly different typesof customers. Due to rapid changes in the operating environment, like those we encountered during
the previous business plan, this business structure was no longer working well to address theissues faced by our customers.
The merger of Toyo Kanetsu and Toyo Kanetsu Solutions K.K. is one solution to this issue.
Although their businesses differ, personnel who have experience in both businesses should be
able to come up with new business ideas. By sharing insight and know-how, employees should be
able to more quickly deploy ideas for new technologies that can be applied in both businesses,
including IoT and AI. Through such collaboration across business lines, we expect to also forge
tie-ups with external partners.
Naturally, change may not always be positive, and can lead to collisions and friction in organizations.
However, we must overcome these obstacles in order to realize “Innovative solutions for logistics &energy,” our management vision for the future.
We have created the long-term vision for where we want to be in 2030. With our eyes on thisambitious vision, the entire Group is advancing in unison with the spirit of “Challenge & Change.” I am
confident this will put us on a path toward sustainable improvements in corporate value while meeting the expectations of all our stakeholders.
We will keep everyone updated on our progress through the continued annual publication of ourintegrated report. I would like to thank you in advance for your understanding and continued supportof the Toyo Kanetsu Group.
July 2019

Toru Yanagawa
President and Representative Director

17Management Strategy

The Toyo Kanetsu Group’s Material Issues

1. Basic Approach to Material Issues
In March 2019, the Toyo Kanetsu Group identified 10 important management issues (material issues) to prioritize
in management with the objective of sustainably improving corporate value through business activities.
By solving these issues, the Group will ensure sustained growth and financial performance. Our material
initiatives are designed to help achieve the relevant Sustainable Development Goals (SDGs), and by aggressively
working to solve these issues, we will fulfill the role expected of us by society.

2. The Toyo Kanetsu Group’s Three Categories of Material Issues
Toyo Kanetsu has divided material issues into three categories (A, B, and C) in accordance with their characteristics. First, the four topics in Category C contain issues that must be addressed for the success of the Group’sbusinesses. Next, the four topics in Category B are important management issues that must be dealt with tocontinue improving corporate value. Through these efforts, the Company aims to help solve issues described by
the two topics in Category A, social issues that could have a major impact on the Group’s businesses.

A

Social issues that
could have a major impact
on corporate value(1) Respond to changes in the business environment causedby climate change(2) React to the decline in Japan’s population(3) Train and deploy human resources

B

Initiatives addressing
material issues
for sustainably improving
corporate value(4) Develop and use new technologies(5) Promote collaboration with partner firms(6) Increase productivity(7) Ensure occupational health and safety

C

Initiatives prerequisite
for sustainably
improvingcorporate value(8) Execute steadfast compliance and corporate governance(9) Practice sophisticated risk management(10) Evolve corporate culture into one that encourages employees
to quickly and proactively take on challenges

See pages 20 and 21 for more details about each material issue.

18

3. Process for Identifying Material Issues
Toyo Kanetsu went through the following process to identify material issues, while paying due consideration toopinions inside and outside the Company and referencing global standards.

1

Research andpreparation

Management examined methods for identifying issues that are important forsustaining the growth of the Toyo Kanetsu Group and of society, referring tointernational guidelines, such as the SDGs and the Sustainability AccountingStandards Board (SASB), as well as to the Corporate Governance Code. We
furthered the understanding of our employees in these areas by holding inhouse seminars about environmental, social, and governance (ESG), the SDGs,
and integrated reports.

2

List of social issues,
identification ofimportant issues

All members of upper management participated in multiple discussions aboutmaterial issues to reach a consensus on the strengths of the Toyo Kanetsu
Group, social issues that directly affect its operations, and the role that theGroup should play in the future. As a result, we identified priority social issues
needing to be solved, as well as the Group’s own issues that must be solved.

3

Incorporation of
oppinions ofstakeholders

4

Identification ofmaterial issues

Toyo Kanetsu exchanged opinions with outside experts and institutional
investors, listened to the concerns and expectations of stakeholders of the
Toyo Kanetsu Group, and made a list of identified issues.

The material issues discovered through this process were deliberated by theManagement Council and the Board of Directors, which identified and approved
10 material issues for the Toyo Kanetsu Group to address in the future.

4. Initiatives after Identifying Material Issues
The Toyo Kanetsu Group engages in business activities while positioning these 10 material issues as important
guides to consider when formulating business strategies and making decisions in each business.
Progress on initiatives for addressing material issues will be monitored by the director in charge of the
Corporate Division. By the end of fiscal 2019, plans call for setting qualitative and quantitative key performanceindicators (KPIs) and numerical targets for each material issue. The Company also plans to disclose this information in the TKK Report starting in fiscal 2020. Through dialogue with stakeholders, management will keep track ofchanges in stakeholder concerns and expectations for the Group while monitoring social trends. If deemednecessary, the Company will flexibly revise its material issues.

19Management Strategy

The Toyo Kanetsu Group’s Material Issues

5. The Toyo Kanetsu Group’s Material Issues: Details of the 10 Material issues
and Potential Contribution to the SDGs from Their Achievement

A(1) Respond to changes in thebusiness environment
caused by climate change

Climate change may have a major impact on the Company’s business environment. Thereis the risk of a negative impact from weaker demand for storage tanks as energy use
shifts away from fossil fuels. While considering measures to combat global warming, theCompany will work on projects related to demand for fossil fuel alternatives, such ashydrogen energy, and develop products and services with excellent environmental performance. In these and other ways, Toyo Kanetsu will seek out new business opportunities ina bid to sustain business growth.

(2) React to the decline inJapan’s population

It has become harder to secure human resources due to the decline in Japan’s population
amid a declining birth rate and an increase in the number of elderly citizens. The Company
understands the importance of maintaining workplaces with systems and environmentsthat facilitate work and creating rewarding work.
In logistics systems, there is the risk that the contraction in the population will lower
the purchasing power of consumers and lead to weaker demand overall. By developing
labor-saving systems and taking other steps amid labor shortages, the Company believes
it can turn this into a major growth opportunity.

B

20

Social issues that could have a major impact on corporate value

Initiatives addressing material issues for sustainably improving corporate value(3) Train and deploy humanresources

To sustain growth, the Company must train its employees, imbuing them with knowledge
and technical skills related to its businesses, while also enhancing leadership skills,
international awareness, and responsiveness to changes in the business environment. We
must advance measures to secure, train, and deploy diverse human resources.

(4) Develop and use newtechnologies

The development and use of new technologies will allow the Company to provide new
products and services, in addition to strengthening the competitiveness of existing
businesses. Moreover, new technologies are likely to become the driving force behind
new business creation. In particular, efforts to develop new technologies in the fields ofAI, robotics, and failure prediction should be effective in solving the social issue ofincreasing efficiency in distribution by helping conserve and reduce labor, as well as
stabilize operations.

(5) Promote collaboration
with partner firms

The value chains in the Company’s businesses depend on numerous partners inside andoutside Japan involved in the supply of parts and materials, installation work, and IT
engineering. Toyo Kanetsu works with its partners to supplement areas where it has
insufficient resources and provide cutting-edge technologies, such as AI and IoT. These
partnerships expand the scope of business domains that Toyo Kanetsu can enter andincrease opportunities to start new businesses.

(6) Increase productivity

Amid stronger demand from customers for delivering high-performance, low-price equipment, Toyo Kanetsu must always increase productivity with innovative technologies inorder to continue winning orders and booking sales.

C

Initiatives prevequisite for sustainably improving corporate value(7) Ensure occupational healthand safety

Safety is a priority issue in everything that Toyo Kanetsu does. If a safety or health problem
arises with employees, our most important resource, there is a risk that corporate value
will be damaged considerably. Since accidents must not happen, the Company is reinforcing its safety-first mind-set by creating and implementing safety management plans toprevent accidents from occurring.

(8) Execute steadfast complianceand corporate governanceToyo Kanetsu’s business in the social infrastructure field would not be possible without thetrust of society. Compliance with laws and regulations is fundamental to earning trust
through business activities. Behavior in breach of compliance risks the future of theCompany by interfering with its business activities. As a corporation, we require that all
employees maintain a value system in which compliance is their highest priority. Toyo
Kanetsu continues to reinforce corporate governance as well.

(9) Practice sophisticatedrisk management

Since Toyo Kanetsu engages in operations related to social infrastructure, management
properly and quickly responds to demand from society when a problem arises while taking
steps to prevent accidents from occurring. As the scope of business expands with new
businesses and projects overseas, and as the fabric of society changes with greater
speed, the risks the Company must address have grown in number and magnitude. Toyo
Kanetsu aims to further strengthen its ability and systems for identifying, assessing, andminimizing various risks, such as by improving its credit and project screening capabilities
and strengthening internal security, in addition to preparing for emergency situations
around the world.

(10) Evolve corporate culture
into one that encourages
employees to quickly
and proactively takeon challenges

In order to advance existing businesses and create new ones, we must nurture a corporate
culture where all of our employees can work together as one on challenges in new fields.

—Challenge & Change—

Key guidelines referred to when identifying material issues
SASB

The SDGs

Corporate Governance CodeThe Sustainability AccountingStandards Board (SASB) in the U.S.
has published standards for eachsector on the disclosure of ESG
elements likely to have a major
financial impact in the future.

In 2015, the United Nations adopted
the SDGs as 17 international objectives for 2030, comprising 169 targets
and 244 indicators.

The Tokyo Stock Exchange created the
Corporate Governance Code as a
guide for corporate conduct for listedcompanies in Japan.

21

Business Review

Logistics Solutions Business
Since its creation in 1955, the Logistics Solutions
Business has had a customer-first policy for making every
effort to always produce the best products and satisfy
demand from our customers. Furthermore, we havedelivered various logistics solutions that meet diverse
and increasingly advanced needs.

Takashi Owada
Director
Managing Officer and Division Manager,
Logistics Solutions Division

Value Provided by the Logistics Solutions Business
The airport baggage handling system the Company

monitoring customers’ logistics systems 24-hours adeveloped in 1971 used its accumulated conveyor

day, anticipating when failures may occur based ontechnologies to solve a fundamental issue faced bysignals that include minor vibrations or different

airports. The system was highly praised by customers,

sounds, electrical currents, and temperatures, and thenspurring its wider deployment. Today, Toyo Kanetsu has

performing maintenance on the logistics system ina formidable market position with an 80% share ofquestion at an optimal time. We have also developed

baggage handling systems at domestic airports.

“Dr. Butsuryu,*” which uses AI and IoT to detect

As online shopping has taken off in recent years,

abnormalities in equipment while still in operation on

logistics systems for distributing products have

distribution lines. Dr. Butsuryu enables predictive main-

become more important, and companies have moved

tenance services for performing maintenance in ato strengthen their logistics functions in response. In

timely fashion without stopping logistics systems.

addition, demand for same-day deliveries has emerged.

We also provide an innovative solution called

While an order can be placed instantly online, logistics

Goods to Person (GTP) for alleviating labor shortages

is essential for delivering the ordered product. Our

and improving productivity. Instead of people walking

systems, which enable same-day deliveries by quickly

around to pick up products, the products move to theand accurately sorting ordered products, have been

person’s station, thereby saving time and labor caused

installed in the Japan-based warehouses of major global

by people having to walk around. At a certain logistics

e-commerce firms, earning strong praise from them.

center, this solution improved picking productivity by

The logistics industry faces major issues today,
including keeping up with growth in the online shoppingand other e-commerce markets, reliably operating
logistics centers for same-day deliveries despite ashrinking working-age population, and improving productivity to eliminate personnel shortages. Not satisfied
with the status quo, the Logistics Solutions Business ispursuing innovative solutions for these issues.
We are developing predictive maintenance services
that support dependable operations at logistics centers. Predictive maintenance services entail remotely
Dr. Butsuryu

22five times. GP3 is a more advanced version of GTP

long tail product storage and picking, it is possible tothat, in addition to picking, offers a solution for packing,create an automated logistics system for all products

improving productivity, and further saving space.

that saves labor. Work that previously required 400

Full Line GP3 is an even more advanced solution

people can now be done by as few as 50.
Based on our philosophy of “Be creative, be goodfor high-frequency product picking and shipping.
Combined with the AutoStore system optimized forfor society,” we aim to be an innovator in solutions forthe logistics field, and continue to takeLong tail product storage and picking

on the challenge of creating fully autonomous and unattended logistics systems
by 2030.
* “Butsuryu” means logistics in Japanese and is thename of the Company’s official mascot character.

Multishuttle

AutoStore

GP3

Full line picking and packing
Full Line GP3Achieving the Objectives of the New Medium-Term Business Plan
We are keen to establish a production and sales

The business environment has been favorable lately,
but uncertainties are likely to increase over the medium

structure in Southeast Asia that leverages collabora-

and long term as capital investments at customers runs

tion with overseas partners to develop businesstheir course. In this business environment, we are

overseas. Toyo Kanetsu will accelerate overseas

building a structure able to realize strong earnings andbusiness development, beginning with airport bag-solidifying the foundation to become a high-growth

gage handling systems.

business by honing competitiveness and expanding

The Logistics Solutions Business is working dili-business domains. As a measure to achieve this, we

gently to achieve the objectives of the new Medium-aim to aggressively pursue tie-ups with external partners.

Term Business Plan, and will continue to grow andIn order to offer innovative solutions to our custom-

aim higher.

ers, we believe we must evolve from a supplier ofmainly logistics equipment (hardware) into an innovatorin solutions for the entire logistics value chain (software).
By forging ties with external partners, we aim to inte-

Net Sales and Operating Profit in the Logistics
New Medium-Term Business Managemen
Solutions Business(Billions of yen)40

grate new products with existing core products while
proactively introducing cutting-edge technologies.

30

4

29.2

For the purpose of expanding the maintenancebusiness with AI and IoT, we are fostering collaboration

20

1.9

between industry and academia, such as our partnercompanies and top-class institutions in Japan, including

28.0

27.5

27.0

3.0

3

2.5

2.2

2

10

1

the National Institute of Advanced Industrial Science andTechnology and the Tokyo University of Science. Throughopen innovation that fuses together our leading knowledge in logistics with the latest developments in AI and
IoT, we aim to offer solutions and services that will lead

0

FY2018Results
Net sales

FY2019FY2020

FY2021

0

New Medium-TermBusiness Plan
Operating profit (right)

to the next generation of logistics centers.

23

Business Review

Plant & Machinery Business
The Plant & Machinery Business engages inthe engineering, procurement, and construction(EPC) of tanks and auxiliary facilities designed toefficiently store energy. We support society
with our strong project execution capabilities
at each phase of management.

Hiroshi Ohgi

Masayuki Takeda

Managing Officer andDirector
Division Manager,
Senior Managing Officer and Division
Domestic Plant & Machinery
Manager, Overseas
Division
Plant & Machinery Division

Value Provided by the Plant & Machinery BusinessIn the Plant & Machinery Business, since fabricating its

The plant has also contributed to the industrial develop-

first fully welded tank in 1950 after the resumption ofment of Indonesia through the training of local

oil refining in Japan, Toyo Kanetsu has delivered more

personnel and technology transfers.

than 5,700 tanks to domestic and overseas projects

In Japan, Toyo Kanetsu provides tank maintenancemainly for oil refineries, oil storage terminals, and LNG

services for oil refineries and oil storage terminals(liquefied natural gas) export and import terminals as a

across the nation. Domestic laws mandate periodic

leading player in the construction of large-scale tanks.

overhaul inspections of large-scale tanks. Toyo Kanetsu

Toyo Kanetsu entered the market for LNG storage

plays a vital role in ensuring the safe operation oftanks when it began to take shape in the 1960s, andstorage facilities with its advanced technologies andplayed a key role in the formation of supply chains by

know-how accumulated from the fabrication and instal-delivering a large number of tanks. Storing LNG

lation of large-scale tanks over many years. Through our

temperatures of around –162°C requires special steelbusiness activities in Japan and around the world,

and advanced engineering and installation technologies.

we believe it is our mission to fundamentally support

Toyo Kanetsu has always been a leader in the industry,

economic activities in society through the constructiondelivering one of the world’s largest LNG storage tanks

and maintenance of resilient, vital energy infrastructure(83 meters in diameter, 60 meters in height, andto ensure the stable supply of energy.

230,000 cubic meters of storage capacity), for example,
developing its technologies while responding toHydrogen, which has a light environmental footprint, is attracting expectations as a future form ofchanges in laws, regulations, and standards. The
Company has delivered over 100 large-scale LNG
storage tanks in countries around the world, for amarket share of nearly 30% (based on the numberof large-scale LNG storage tanks).
In 1978, we opened the Batam Plant, a fabrication
plant for tank materials in Batam, Indonesia. Having
been in operation for more than 40 years, the Batam
Plant is highly regarded in the industry for its welding
and fablication technologies that comply with stringent
laws and regulations in Japan and global standards.
Batam Plant

24

energy. Hydrogen can be produced from various

Roof and shell part

resources, and it does not emit CO2 emissions when

(Restrains radiative heat transfer)

Multi-layer insulation (MLI)

used. While hydrogen is drawing attention as a gateway
to a low-carbon society, in liquid form, it must be stored

Vacuum insulation

Φ22 m

35 m

at the ultra-low temperature of –253°C, colder than(Restrains conductive heat transfer)

Liquidhydrogen（20 K）

LNG. Accordingly, storing liquid hydrogen requires
highly advanced technologies. Leveraging its accumu-

Anchor strap part

CFRP
(Restrains conductive heat transfer)
Bottom part
GFRP hollow section

lated expertise in low-temperature tanks, Toyo Kanetsu
is jointly developing a large (10,000-kiloliter) liquid hydrogen tank with the Tokyo Institute of Technology, aiming

support columns(Restrains conductive and radiative
heat transfer)

Large-scale hydrogen tank

to contribute to a low-carbon society in the near future.

Achieving the Objectives of the New Medium-Term Business Plan
Under the previous Medium-Term Business Plan, thefabrication capacity at the Batam Plant in Indonesia to

Plant & Machinery Business incurred an operating loss

work with steel products as well as tanks, and by

due to postponements and scrapped plans for large-

establishing a plant maintenance business base inscale projects, which resulted in a loss of anticipatedJohor, Malaysia.
It is essential that the Company strengthens its

large-scale orders. During the new Medium-TermBusiness Plan, our basic aim is thus to return to operat-

ability to win orders by enhancing technological capabili-

ing profitability.

ties and productivity. Toyo Kanetsu intends to establish

With a challenging business environment lately, it isa stronger competitive position by further improving theimperative that we establish a business structure morelevel of safety and quality management, its ability toresilient to fluctuations in orders. In Japan, Toyo Kanetsu

manage project schedules, and its capabilities in tankexpects steady demand in the maintenance businessengineering, procurement, fabrication, and construction,

as existing facilities age, despite the negative impact

which represent its accumulated core technologies.

from restructuring in the petroleum industry and declin-

Looking ahead, Toyo Kanetsu will focus its tirelessing demand for petroleum products. The Company isefforts on winning orders and returning to a sustainably

focusing on profitability in business development.

profitable business structure, amid signs that newOverseas, Toyo Kanetsu aims to aggressively
expand business domains. Reaching beyond its tradi-

projects are getting started for several large-scale LNG
storage tanks.

tional domains, the Company is keen to address abroader spectrum of customer needs by increasing therange of products that can be produced and expanding

Net Sales and Operating Profit (Loss) in the Plant &Machinery Business(Billions of yen)

20

2

15.5

15

10

5

0

LNG storage tank project

13.0

0.30

10.3

8.4

0.00
–0.65

FY2019FY2020

0

–1

–1.22
FY20181

FY2021Results

New Medium-TermBusiness Plan

Net sales

Operating profit (loss) (right)–225

Business Review

Other Businesses
In addition to its two mainstay businesses, Toyo Kanetsu has subsidiaries that produce andsell industrial machinery, engage in the building construction business, and conduct
environmental surveys and assessments. While supporting society, these subsidiaries
provide the Group with a stable stream of earnings.

Value Provided by Each BusinessIndustrial Machinery

for its products. The need for winches and balancers is

For more than 60 years, Toyo Koken K.K. has been

likely to strengthen as the use of tools for conserving

involved in the industrial machinery business, a pioneer

and reducing labor increases in tandem with the risingin equipment for moving heavy loads. It has a firm

number of senior citizens and women working on

foothold in the industry, producing and selling winches,

production sites amid labor shortages due to decliningbalancers, and other products mainly used at building

a birth rate and aging society. Toyo Koken intends toconstruction sites and inside factories. Toyo Koken has

meet this market need by developing new products

an extensive product lineup of winches, which are usedtailored to the requirements of worksites.

in building construction and other industries to carryheavy loads, and is proud to be number one in thewinch category in terms of shipments. Mighty Puller
and Baby Hoist are the brand names of some of its
category-leading products. These brands have grown to
win the support of numerous customers. Its balancers
allow workers to lift and easily move heavy loads inmanufacturing plants and elsewhere. Toyo Koken ranks
number two in terms of market share in the balancer
industry, having won accolades from many customers

Winch

Building Construction

environments, facilitating the formation of building

Toyo Kanetsu Builtec K.K. operates a building construc-construction foundations that are strongly resilient totion business that provides high-quality buildings withearthquakes and flooding. Moreover, the company leases

environmental performance taken into consideration. It

gondolas and building scaffolding that are useful whenhas put in place a structure for flexibly proposing solu-

old buildings are repaired and renovated. In these ways,

tions in tune with the times while incorporating original

Toyo Kanetsu Builtec supports safe and efficient con-construction methods with its own design department.

struction projects for its building construction customers.

Balancer

Toyo Kanetsu Builtec mainly concentrates on a wide
variety of small and medium-sized buildings, including
shared living environments, welfare-related facilities, andretail stores. Toyo Kanetsu Builtec is a certified construction firm for NS ECO-PILE™, a screwed steel pile thatoffers substantial benefits in terms of workability, economic efficiency, and environmental considerations. With
this certification, Toyo Kanetsu Builtec has establishedconstruction technologies that perform in challenging

26

Construction of residential complex

Steel pile driving work

Environmental Surveys and Assessments

developing technologies in industry–academia partner-

Kankyo Research Co., Ltd. is in charge of the environ-ships, such as the use of IoT in inspection and analysis

mental surveys and assessments business, which offers

methodologies. Kankyo Research aims to be on thevarious inspection, measurement, and analysis services

frontier of technologies for improving the environment.

related to asbestos, sick houses syndrome, noises,
vibrations, and bad smells. For the inspection and analysis of asbestos, which is harmful to the health of people,
Kankyo Research has a large number of certified technicians who are among the best in their class in the industry. Asbestos removal requires technologies for precisely
and properly disposing of asbestos. Backed by its knowhow gained from extensive experience, as well as its
own high-performance analyzers, Kankyo Research iscapable of processing over 10,000 asbestos samples
annually. Amid increasingly complex needs for environmental assessments, Kankyo Research is aggressively

Asbestos inspection

Achieving the Objectives of the New Medium-Term Business Plan
A basic policy under the new Medium-Term Businessearnings. With an eye on our business portfolio, wePlan is to selectively concentrate resources in otherwill fine-tune our business structures with the aim ofbusinesses, and the Company aims to expand busi-

improving productivity through more efficient opera-

ness profits by proactively investing resources intions, while strengthening our marketing and sales

growth fields.

capabilities in each business.

In the industrial machinery business, Toyo Koken
aims to bring new products to market and strengthen
sales overseas amid projections for brisk growth in

Net Sales and Operating Profit in Other Businesses

demand related to building construction projects and

12(Billions of yen)

2.0

labor-saving demand.
In the building construction business, Toyo Kanetsu

9

Builtec anticipates growth in steel pile driving andgondola leasing operations alongside robust demand6

for construction.
In the environmental surveys and assessments

8.2
1.10

8.5

8.2

7.6
0.98

1.00

1.5

1.10

3

1.0

0.5

business, demand is likely to expand strongly forasbestos inspection and analysis services as aging
buildings are renovated or dismantled.
By concentrating resources in these growth fields,
Toyo Kanetsu aims to secure a stable source of0

FY2018Results
Net sales

FY2019FY2020

FY2021

0

New Medium-TermBusiness Plan
Operating profit (right)

27

ESG Section

Board of Directors (As of June 27, 2019)28

Shigeharu
Nakamura

Toshiaki
Hiwatari

Kazuhito
Watanabe

TakashiOwada

KazutoAbe

TsuneoNagai

Outside Director and
Audit & Supervisory
Committee Member

Outside Director and
Audit & Supervisory
Committee Member

Director
Managing Officer and
Deputy Division
Manager, Logistics
Solutions Division

Director
Managing Officer andDivision Manager,
Logistics Solutions
Division

Director and
Audit & Supervisory
Committee Member

Outside Director and
Audit & Supervisory
Committee Member

Keisuke
KodamaIsao
Shimomae

Toru
Yanagawa

Masayuki
TakedaDirector
Senior Managing Officer
and Division Manager,
Corporate Division

Director andExecutive Vice President

President andRepresentative Director

Director
Senior Managing Officer
and Division Manager,
Overseas Plant & Machinery
DivisionCorporate GovernanceToyo Kanetsu has disclosed its Corporate Governance Guidelines (in Japanese only) on its website.
URL https://www.toyokanetsu.co.jp/ir/corporate.php

Basic Approach
Toyo Kanetsu manages its operations while considering
the perspectives of its stakeholders, including shareholders, customers, suppliers, employees, creditors,
and local communities, and striving to ensure efficiency,
soundness, and transparency in management. The

Company has a corporate governance system thatfacilitates precise decision-making, rapid businessexecution, and proper supervision and monitoringof operations.

Corporate Governance System
On June 26, 2015, Toyo Kanetsu switched from a “company with a board of auditors” to a “company with anaudit and supervisory committee” structure. By giving
voting rights in the Board of Directors to directors who
are members of the Audit & Supervisory Committee(including a number of outside directors), we strengthened the functions of the Board of Directors, as well as
auditing and supervisory functions, with the aim ofbuilding a more effective corporate governance system.

Board of Directors
The Company’s Board of Directors consists of a maximum of four directors who are members of the Audit &Supervisory Committee (including one inside director, inprinciple) and no more than seven directors who are notmembers of the Audit & Supervisory Committee, for no
more than 11 directors. These directors have extensive
experience, deep insight, high levels of specialization,and international perspectives for ensuring a Board of

Corporate Governance System (as of June 27, 2019)

General Meeting of Shareholders
Appointment, dismissal

Board ofDirectors

Appointment,
dismissal,
non-reappointment

Appointment, dismissal

Non-committee member
directors

Committee member
directors

Audit & Supervisory
Committee

LinkageAccounting auditor

Auditing,

Consultation
Supervision

Business
Execution
Division

Recommendation supervision

Nomination and Compensation Committee

ReportMonitoring,guidance

Audit

President andRepresentative Director

Management Council
Business execution in each division(businesses, Group companies, etc.)

Audit

Monitoring,guidance

ReportControlsupportInternal Control
Division

Audit andcontrolassessment

Linkage

Internal Audit
Division

29

ESG Section

Corporate GovernanceDirectors that is diverse and of an appropriate size.
Directors who are members of the Audit & Supervisory
Committee are selected for their experience in corporate management and in-depth understanding of theCompany’s operations, as well as for their knowledge in
the necessary fields of finance, accounting, and law. At
least one of these directors is an expert in finance andaccounting. The Company will examine the possibility of
nominating a female director in the future while trying
to achieve an appropriate balance between the diversity
and size of the Board of Directors.
​	 Utilizing the framework provided by the “company
with an audit and supervisory committee” structure,
the Board of Directors meets once a month, in principle, to deliberate and decide on important mattersthat are fundamental to the Company based on resolutions approved by the General Meeting of
Shareholders; matters that should be discussed andauthorized as defined by laws, regulations, and the
Articles of Incorporation; and important matters related
to management principles, aims, strategic directions,and business execution. The Board of Directors also
monitors business execution. From the standpoint ofenhancing the effectiveness and efficiency of businessexecution, important matters related to the operationsof the Company and the Group are deliberated andconsulted on by the Management Council, and thendecided by the Board of Directors. In accordance withlaws, regulations, and the Articles of Incorporation,certain decisions related to important aspects of business execution are entrusted to a certain director, andcore management matters that are especially importantmust be approved by the Board of Directors.

Audit & Supervisory Committee
The Audit & Supervisory Committee has four members,
including three outside directors to form a majority inaccordance with the Companies Act. The Audit &Supervisory Committee conducts organizational audits
using the internal control system with the intention of
improving corporate value from an independent andobjective standpoint, fully aware of the authority given
only to members of the committee and of the importanceof the roles and duties they are expected to perform. The
Audit & Supervisory Committee also audits and monitors
business execution from an independent and objective

30

vantage point. For this reason, candidates who willserve as both outside directors and members of the
Audit & Supervisory Committee are independent andhighly specialized and possess extensive experience ascorporate managers.
The Audit & Supervisory Committee meets once amonth, in principle, and has one full-time member. Whilecoordinating with the Internal Audit Division and theaccounting auditor, committee members participate inBoard of Directors’ and other important meetings, read
documents of significance, listen in on updates to business execution, visit important bases for audits, monitor
and evaluate updates to the internal control system, andaudit business reports and other briefings materials by
investigating conditions at subsidiaries, all in accordancewith the auditing policies and auditing plans determinedby the Audit & Supervisory Committee. While monitoring and evaluating whether the accounting auditor isproperly conducting audits, the committee receives
reports and explanations from the accounting auditor
about the state of progress on its work, and also audits
financial statements, supplementary documents, andthe consolidated financial statements.

Nomination and Compensation Committee
Toyo Kanetsu established the Nomination and Compensa­
tion Committee, on which outside directors form amajority, as an advisory body to the Board of Directors
to ensure transparency and appropriateness in thenomination of director candidates and decisions related
to their compensation. In this regard, the Company has
put in place a structure where fair and highly transparent
procedures are followed, including the creation of opportunities for outside directors to get involved and advise on
matters in an appropriate manner. For matters concerning
the nomination and compensation of directors, the committee meets as often as required to deliberate andmake recommendations, and then the Board of
Directors arrives at a final decision.
The committee comprises four directors who aremembers of the Audit & Supervisory Committee,
including a representative director and three outside
directors. As of June 27, 2019, Outside Director Toshiaki
Hiwatari is the chair of the Nomination andCompensation Committee.

Evaluation of Effectiveness of the Board of Directors
In order to confirm that the Board of Directors is functioning effectively overall, each director completes aself-evaluation every year after gathering the necessary
information from relevant divisions for evaluating the effectiveness of the Board of Directors, which then reaches a
final evaluation decision while referring to these opinions on
its effectiveness. In addition to evaluating the effectivenessof the Board of Directors, evaluations are conducted every
year on whether the entire corporate governance systemis operating in accordance with the Company’s Corporate
Governance Guidelines, with the objective of constantly
improving the effectiveness of overall corporate governance.

Summary of Results of EffectivenessEvaluation in Fiscal 2018
The Company’s Board of Directors evaluated the effectiveness of the Board of Directors mainly by asking,“Is the Board of Directors operating in accordance with
the Corporate Governance Guidelines?”(1) Method of Evaluation
From March to May 2019, the Board of Directors conducted an evaluation of its effectiveness by following
the procedures outlined below.
1.	The secretariat provided the reference materials
needed to evaluate effectiveness.
2.	The Board of Directors asked questions about thereference materials supplied by the secretariat,
exchanged opinions, and asked for additional information to be provided.
3.	Each director completed a self-evaluation based on ascoring sheet for effectiveness.
4.	At the Board of Directors’ meeting held on May 14,
2019, the directors discussed the self-evaluations
and reached a decision on the final evaluation.
(2)	Results of Evaluation and Analysis of Effectivenessof Board of Directors
Through this evaluation process, the Company’s Board of
Directors affirmed that the Board of Directors is functioning effectively overall. Below is a summary of the resultsof the evaluation.
1.	The Company’s Board of Directors is appropriately
structured and operating in accordance with its
Corporate Governance Guidelines.

2.	Each director is fully aware of the roles and responsibilities expected of him by the Board of Directors,
and is properly discharging his duties as a director.
3.	The Company’s Board of Directors has clarified its
strategic direction by creating and disclosing its new
Medium-Term Business Plan (fiscal 2019–fiscal 2021).
	  Along with the new business plan, the Board of
Directors developed a new basic capital policy andrevised its shareholder return policy, emphasizing
management from the perspective of shareholders.
4. The Board of Directors established the Nomination
and Compensation Committee as an advisory body to
the Board of Directors. This committee deliberates
matters concerning the nomination and compensation of directors, and makes sure this decision-making
process is fair and transparent with the appropriate
level of involvement of independent outside directors.
By introducing a performance-linked stock compensation system for Board members, the Board of Directors
is motivating management to increase corporate value
and earnings over the medium and long term, whilealigning their values closer to those of shareholders.
(3)	Future Issues and Response
The Board of Directors will continue to ensure theeffectiveness of the Board of Directors, undertaking
the following measures so that the Board of Directors
can adequately fulfill its vital roles, including setting thestrategic direction for the Company and facilitating
independent and objective audit functions:
1.	Gather information necessary for making decisions,
2.	Debate deeply from multiple perspectives, and3.	Take appropriate risks and proactively and boldly
make decisions.
In addition to evaluating the effectiveness of theBoard of Directors, evaluations are conducted every
year on whether the entire corporate governancesystem is operating in accordance with the Company’s
Corporate Governance Guidelines, with the objective ofconstantly improving the effectiveness of overall corporate governance.

31

ESG Section

Corporate GovernanceMatters Related to Outside Directors
NameToshiaki Hiwatari

Tsuneo Nagai

Shigeharu Nakamura

Number of Company shares owned

0 shares2,000 shares

0 shares

Attendance at Board of Directors’
meetings

12/12 times (100%)

12/12 times (100%)

12/12 times (100%)

Attendance at Audit & Supervisory
Committee meetings

13/13 times (100%)

13/13 times (100%)

13/13 times (100%)

Attendance at Nomination andCompensation Committee meetings

7/7 times (100%)

7/7 times (100%)

7/7 times (100%)

Professional knowledge as aprosecutor and attorney

Extensive experience and broad
knowledge of corporate management as a manager at listedcompanies (different sector)

Extensive experience andknowledge of corporate
management as a manager atfinancial institutions

Field of expertise

Note: Number of shares as of June 27, 2019. Meeting attendance shown for fiscal 2018.

Director Compensation
Policy for Deciding Method to Calculate
Amount of Compensation
Toyo Kanetsu has created policies and procedures fordetermining the compensation of directors who are notmembers of the Audit & Supervisory Committee. The

Company has a transparent process for deciding compensation, with the Board of Directors determining theamount of compensation following deliberation andrecommendations by the Nomination and Compensation
Committee, on which outside directors form a majority.

Total Compensation by Director Category, Total Compensation by Type, and Number of Eligible Directors in Fiscal 2018

Director category

Total amount ofcompensation(¥ million)

Basic compensation

Performance-based compensation

Directors (excluding members of the Audit &Supervisory Committee and outside directors)

84

46

38

4

Directors (members of the Audit & Supervisory
Committee) (excluding outside directors)

15

15

—

1

Outside directors

24

24

—

3

Total amount of compensation by type (¥ million)

Number of eligible
directors (people)

Notes: 1 The above amounts do not include salaries and bonuses as employee directors.
2 Based on the Articles of Incorporation and resolutions approved by the General Meeting of Shareholders.

Method for Calculating Director
Compensation from Fiscal 2019
The 111th General Meeting of Shareholders, held on
June 27, 2019, approved a resolution to introduce a
performance-linked stock compensation system fordirectors (excluding outside directors and directors who
are members of the Audit & Supervisory Committee)
and executive officers (who are ranked managing executive officer or higher and who are not directors).
This system grants points to these directors andexecutive officers based on their rank and achievementof earnings targets each fiscal year, as a motivation toincrease corporate value over the medium and longterm and better align the views of management with32

those of shareholders. In principle, these directors andexecutive officers are eligible to receive shares of theCompany’s stock (one point equivalent to one share ofordinary stock) and monetary compensation based on
their total number of accumulated points through atrust account set up for this purpose, after their retirement or after earnings have been recorded for the final
fiscal year of each medium-term business plan.
From fiscal 2019, compensation for directors who
are not members of the Audit & Supervisory
Committee shall consist of (1) basic compensation,
which is a fixed amount depending on their rank, (2)additional compensation, which is linked to theCompany’s earnings, and (3) performance-linked stockcompensation, the combined total of which is within
the limits for compensation approved by resolution of
the General Meeting of Shareholders. Additional compensation shall be determined as a specific amountaccording to a compensation table, with consideration
paid to performance indicators, such as the total return
ratio, and consolidated net income before income
taxes and other adjustments as a basic reference. In
the stock compensation system, Companywide ROE
and segment profits shall be used as the indicators for
performance targets. For these directors and managing
officers who do not belong to a business division or
who belong to the Corporate Division, Companywide
ROE shall be the only indicator applied. For these

directors and managing officers who belong to a business division, Companywide ROE and the segment
profit for their division shall be used as indicators.
On occasion, a bonus may be paid to directors only
if approved by a separate resolution by the General
Meeting of Shareholders and only when corporate
earnings exceed a certain threshold. Compensation for
directors who are members of the Audit & Supervisory
Committee shall only consist of fixed compensation,
the total amount of which shall be within the maximum
compensation approved by resolution of the General
Meeting of Shareholders, determined in deliberations
by directors who are members of the Audit &Supervisory Committee.

Cross-Shareholdings
Toyo Kanetsu has the following basic policies on holding
cross-shareholdings and the exercise of voting rights.
(1)	Toyo Kanetsu does not have cross-shareholdings forpurposes other than strengthening relationships andpartnerships with customers and suppliers, with theobjective of increasing corporate value. New
acquisitions of cross-shareholdings, as well as
buying and selling shareholdings, are conducted andreported to the Board of Directors in accordancewith internal rules.
(2)	Every year, the Board of Directors examines the
purpose for owning individual shares, the benefits
and risks of holding these shares, and whether theholdings align with the cost of capital, to determine
whether it is appropriate to own these shares.
(3)	With regard to the exercise of voting rights, theCompany shall, in principle, be in opposition when
there are concerns that its purpose for owning thestock does not align with management, such as when:
1.	Earnings have worsened for several years at theinvestee, with no sign of a recovery in sight, and2.	Significant problems come to light in internal
controls related to financial reporting by theinvestee, and improvements seem unlikely.
(4)	In the event that a company that owns Company
shares for cross-shareholding purposes indicates its
intention to sell these shares, Toyo Kanetsu shallnot take inappropriate action that may interfere withthe sale of the shares, such as suggesting thecompany would lose business with Toyo Kanetsu.
(5)	The Company shall not engage in business transactions with a company (in which it owns stock forcross-­shareholding purposes) that conflict with its
interests as well as with the common interests of
its shareholders, such as continuing to conductbusiness without adequate evidence of economic
rationality for the business transactions.

Risk Management
In light of the growing and increasingly complex risks in
its business environment, Toyo Kanetsu implements
measures to enhance risk management. For example,
seminars and workshops about risk management topics
are held four times a year for relevant employees, andhave in the past covered topics such as initial responses
to emergency situations overseas, mass communications during emergency situations, meaningful

responses to virus outbreaks, and initial responses inthe event of a major earthquake striking Tokyo.
With abnormal weather occurring more frequently,
as a company with its head office in Koto Ward, Tokyo,
Toyo Kanetsu has created a business continuity plan
(BCP) manual for specific emergencies, such as flooding, while taking measures to prevent fires and stockpile emergency food supplies.

33

ESG Section

The Environment and Society

Environmental Initiatives
Environmental Management

Environment-Related BusinessToyo Kanetsu conducts its business activities inaccordance with its Environmental Policy, aiming tocontribute to the realization of a sustainable society.
The Logistics Solutions Business, and the Company’shead office organization (including the Plant & Machinery
Business) have obtained ISO 14001 international certification for their environmental management systems.
We have set up these systems in accordance with therequirements of the ISO 14001 international standard,taking a balanced approach to business activities interms of the environment, society, and the economy,
while paying due consideration to the preservation of the
global environment. We also conduct internal environmental audits every year.

Toyo Kanetsu promotes environmental activities in thecourse of conducting business on the basis that addressing environmental issues such as climate change areimportant facets of its business strategy. The Company
supplies products with excellent environmental performance, such as Ecoloveyor, which consumes little energy,
in the Logistics Solutions Business and LNG storage
tanks in the Plant & Machinery Business. TKK is also
developing large-scale liquid hydrogen tanks as a part ofnext-generation environmental systems. Furthermore,
the Company is involved in a renewable biomass power
station project in Uruma City, Okinawa Prefecture.

Response to Climate Change
In view of the need for initiatives to reduce greenhousegases around the world, the Company takes part ininitiatives for helping realize a low-carbon or carbon-freesociety by collaborating with governments, industrial
groups, and other companies with the aim of contributing to international objectives outlined in the Sustainable
Development Goals (SDGs) and the Paris Agreement.

CG rendering of the completed biomass power station

For more information about its Environmental Policy, please see the Company’s website.
URL https://www.toyokanetsu.co.jp/global/company/policy.html

Social Initiatives

34

Human Resource Development

Work Environments

In light of the changes in the social environment aroundthe Company, as well as its management integration
with Toyo Kanetsu Solutions K.K., Toyo Kanetsu
renewed its human resource system in April 2019,focusing on multi-track career options (selection ofcareer path by individual employee, as a manager or a
specialist, in consideration of his/her skill sets) andcompensation for employees who showed outstanding
performance, including those who took on new challenges. We also updated our training and skills development systems accordingly.

People from diverse backgrounds are the Toyo Kanetsu
Group’s greatest asset. We strive to provide better
work environments where all employees, regardless ofnationality, gender, or age, can work to the best of theirabilities. Employees are surveyed every year about
their level of satisfaction at work, and this information
is used to grasp issues affecting organizations and to
improve satisfaction further.
The Company currently has few women in management positions (or as candidates for such positions).
Accordingly, under the new human resource system,

Safety meeting attended by employees of all Group companies
in fiscal 2019

we have set targets for promoting female employees
to team leader positions (15% from 2020), and we arerevising work conditions so it is easier for employees totake leave or reduce work hours for child-rearing.
Regarding making our work environments better,
we are properly managing overtime work hours andencouraging employees to take paid vacation. In fiscal
2018, the ratio of annual paid vacation taken (calculatedusing the same method as the Ministry of Health,Labour and Welfare) was 53.4%, and we aim toincrease this ratio to at least 70% by fiscal 2022.

Occupational Health and Safety
As a manufacturer, the Toyo Kanetsu Group views
occupational health and safety as one of its mostimportant management issues. Based on its Occupational
Health and Safety Policy, the Logistics Solutions Businesshas obtained OHSAS 18001 international certification
for its occupational health and safety management
system. The Company’s head office organization(including the Plant & Machinery Business) haveacquired ISO 45001 international certification for theiroccupational health and safety management systems.
Moreover, we viewed the management integrationin April 2019 as an opportunity to reform our organization, and established the Safety, Environment, andQuality Assurance Department as an organization
under the direct control of the president to take chargeof occupational health and safety across the entire

Group, with the aim of steadily implementing occupational health and safety management.
While updating organizations and systems, we areclarifying responsibilities and working to improve occupational health and safety by sharing safety targets
between the head office and work sites, holding annual
Group safety meetings, patrolling work locations, andmaintaining and augmenting safety systems, including
at partner companies.

Quality
Toyo Kanetsu aims to provide products and services
that bring high levels of satisfaction to its customers.
The Logistics Solutions Business and the Plant &Machinery Business (only related to newly constructed
low-temperature tanks) have obtained ISO 9001
international certification for their quality management
systems through operations based on our Quality Policy.

Local Communities
The Toyo Kanetsu Group aims to contribute to the development of local communities through its business activities and social contribution activities, and for its businesssites to coexist with local communities. As a member ofthe Koto Ward Social Contribution Network (Korabora),
Company employees volunteer at events within Koto
Ward and participate in other activities. Employees also
periodically donate blood and help clean up neighborhood parks.

For more information about its Quality Policy, please see the Company’s website.
URL https://www.toyokanetsu.co.jp/global/company/policy.html

35

Financial and Corporate Data

Consolidated Balance Sheets
Toyo Kanetsu K.K. and Consolidated Subsidiaries(Millions of yen)

AssetsPrevious fiscal period(As of March 31, 2018)

Current fiscal period(As of March 31, 2019)

Current assets¥ 12,421¥ 7,666

Notes and accounts receivable–trade

9,387

23,267

Lease investment assets

1,781

1,499

Securities

500—

Cash and deposits

40

38

Work in process

3,819

4,252

Raw materials and supplies

1,640

1,670

Other

494

534

Merchandise and finished goods

Allowance for doubtful accounts
Total current assets

(21)

(22)

30,06438,906

Non-current assets
Property, plant and equipment
Buildings and structures, net

3,457

3,321

Machinery, equipment and vehicles, net

1,152

1,021

Tools, furniture and fixtures, net

282

310

10,707

10,556

110

622

Land
Construction in progress
Other, net
Total property, plant and equipment
Intangible assets

0

12

15,71015,845

368

357

8,730

8,671

Investments and other assets
Investment securities
Deferred tax assets

58

63

Retirement benefit asset

398

332

Other

778

868

Allowance for doubtful accounts

(292)

(289)

Total investments and other assets

9,674

9,646

Total non-current assets

25,75325,85055,81864,756

Total assets

36

(Millions of yen)

Liabilities

Previous fiscal period(As of March 31, 2018)

Current fiscal period(As of March 31, 2019)¥ 2,033¥ 1,570

4,604

7,849

Current liabilities
Notes and accounts payable–trade
Short-term loans payable
Current portion of long-term loans payable
Accrued expenses

15

514

3,380

7,534

Income taxes payable

316

659

Advances received

417

2,020

Provision for bonuses

242

227

Provision for loss on order received

183

121

Provision for warranties for completed construction

580

555

Other

924

870

12,69821,922

4,627

Total current liabilities
Non-current liabilities
Long-term loans payable

3,080

Deferred tax liabilities

1,591

1,267

Deferred tax liabilities for land revaluation

1,107

1,095

Retirement benefit liability

325

358

Asset retirement obligations

321

224

Other

27

27

6,453

7,599

19,151

29,522Previous fiscal period(As of March 31, 2018)

Current fiscal period(As of March 31, 2019)18,580Total non-current liabilities
Total liabilities

Net assets

Shareholders’ equity
Capital stock

18,580Capital surplus

1,273

1,273

Retained earnings

15,75014,549Treasury shares(1,397)(1,077)

Total shareholders’ equity

34,20733,324

Accumulated other comprehensive income

2,995

2,621

Revaluation reserve for land

133

106

Foreign currency translation adjustment

(676)

(759)

Remeasurements of defined benefit plans

5

(61)

2,458

1,907

0

1

Valuation difference on available-for-sale securities

Total accumulated other comprehensive income
Non-controlling interests
Total net assets

36,66635,234

Total liabilities and net assets¥55,818¥64,756

37

Financial and Corporate Data

Consolidated Statements of Profit or Loss andComprehensive Income
Toyo Kanetsu K.K. and Consolidated Subsidiaries(Millions of yen)Previous fiscal year
(From April 1, 2017
to March 31, 2018)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Dividend income
Foreign exchange gains
Miscellaneous income
Total non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Miscellaneous loss
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sales of non-current assets
Gain on sales of investment securities
Gain on bargain purchase
Disaster donations
Other
Total extraordinary income
Extraordinary losses
Loss on valuation of investment securities
Loss on disaster
Other
Total extraordinary losses
Profit before income taxes
Income taxes–current
Income taxes–deferred
Total income taxes
ProfitProfit (loss) attributable to:
Owners of parent
Non-controlling interests
Other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of tax
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:
Owners of parent
Non-controlling interests

38

Current fiscal year
(From April 1, 2018
to March 31, 2019)¥41,758
34,172
7,585
5,319
2,265

¥45,188
38,194
6,994
5,588
1,406

11
283
5
134
434

12
302
—
136
452

33
—
19
53
2,646

49
19
17
87
1,771

98
320
—
—
—
418

36
74
87
46
1
246

—
—
94
94
2,971

237
159
20
418
1,599

582
26
609
¥ 2,362

748
(173)
574
¥ 1,025¥ 2,362(0)¥ 1,025
(0)

1,003
14
(23)
(9)
985
¥ 3,347

(374)
—
(83)
(66)
(523)
¥ 501

¥ 3,347
(0)

¥

501
(0)

Consolidated Statements of Changes in Equity
Toyo Kanetsu K.K. and Consolidated Subsidiaries(Millions of yen)
Shareholders’ equity
Capital stock Capital surplus

Balance as of March 31, 2017¥18,580¥1,273Retainedearnings

Treasuryshares¥16,447¥(2,323)

Total
shareholders’equity¥33,978

Changes of items during period
Dividends of surplus(1,150)(1,150)

Profit attributable to ownersof parent

2,362

2,362

Reversal of revaluation reserve
for land

30

Purchase of treasury shares(1,939)Retirement of treasury shares30(1,013)(1,013)

1,939—

Net changes of items other thanshareholders’ equity
Total changes of items during period
Balance as of March 31, 2018

—

—

(697)

926

229

¥18,580¥1,273¥15,750¥(1,397)¥34,207

Changes of items during period
Dividends of surplus

(930)

(930)

Profit attributable to ownersof parent

1,025

1,025

Reversal of revaluation reserve
for land26

26

Purchase of treasury shares(1,323)Retirement of treasury shares(1,004)(1,004)

1,323—

Net changes of items other thanshareholders’ equity
Total changes of items during period
Balance as of March 31, 2019——

(1,201)

319

(882)

¥18,580¥1,273¥14,549¥(1,077)¥33,324(Millions of yen)
Accumulated other comprehensive income
Valuationdifference on
available-forsale securities

Balance as of March 31, 2017

¥1,992

Deferred
gains orlosses onhedges¥(14)

Revaluation
reserve forland

Foreigncurrencytranslation
adjustment¥163¥(652)

Total
Remeasureaccumulated
ments ofother
definedcom­prehensive
benefit plansincome¥14¥1,503

Noncontrollinginterests¥—

Total net
assets¥35,481

Changes of items during period
Dividends of surplus(1,150)

Profit attributable to ownersof parent

2,362

Reversal of revaluation reserve
for land

30

Purchase of treasury shares(1,013)Retirement of treasury shares—

Net changes of items other thanshareholders’ equity

1,003

14

(30)

(23)

(9)

955

0

956

Total changes of items during period

1,003

14

(30)

(23)

(9)

955

0

1,185

Balance as of March 31, 2018

¥2,995¥—¥133¥(676)¥ 5¥2,4580¥36,666

Changes of items during period
Dividends of surplus(930)

Profit attributable to ownersof parent

1,025

Reversal of revaluation reserve
for land26(1,004)Purchase of treasury shares—

Retirement of treasury shares
Net changes of items other thanshareholders’ equity
Total changes of items during period
Balance as of March 31, 2019

(374)

(26)

(83)

(66)

(550)

0

(550)

(374)

—

(26)

(83)

(66)

(550)

0

(1,432)¥2,621¥—¥106¥(759)¥(61)¥1,907¥1¥35,234

39

Financial and Corporate Data

Consolidated Statements of Cash Flows
Toyo Kanetsu K.K. and Consolidated Subsidiaries(Millions of yen)

Cash flows from operating activities
Profit before income taxes
Depreciation
Impairment loss
Gain on bargain purchase
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in retirement benefit liability
Decrease (increase) in retirement benefit asset
Increase (decrease) in provision for loss on order received
Increase (decrease) in provision for warranties for completed
construction
Interest and dividend income
Interest expenses
Disaster donations
Loss on disaster
Foreign exchange losses (gains)
Loss (gain) on valuation of investment securities
Loss (gain) on sales of investment securities
Loss (gain) on sales of non-current assets
Loss on retirement of non-current assets
Decrease (increase) in notes and accounts receivable–trade
Decrease (increase) in lease investment assets
Decrease (increase) in inventories
Decrease (increase) in advance payments
Increase (decrease) in notes and accounts payable–trade
Increase (decrease) in advances received
Other, net
SubtotalInterest and dividend income received
Interest expenses paid
Disaster donations received
Payments associated with disaster loss
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities
Proceeds from sales and redemption of securities
Purchase of non-current assets
Proceeds from sales of non-current assets
Purchase of investment securities
Proceeds from sales and redemption of investment securities
Purchase of shares of subsidiaries resulting in change in scope of
consolidation
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Purchase of treasury shares
Proceeds from share issuance to non-controlling shareholders
Cash dividends paid
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

40

Previous fiscal year
(From April 1, 2017
to March 31, 2018)

Current fiscal year
(From April 1, 2018
to March 31, 2019)¥ 2,971
737
72
—
(37)
(28)
(58)
(489)

¥ 1,599
728
—
(87)
(3)
(13)
4
(62)

68

(25)

(294)
33
—
—
18
—
(320)
(98)
19
3,375
(257)
342
252
(1,272)
(773)
74
4,336
294
(32)
—
—
(872)
3,726

(315)
49
(46)
159
72
237
(74)
(31)
8
(13,749)
272
(419)
95
3,714
1,621
(134)
(6,400)
314
(50)
46
(159)
(449)
(6,698)

100
(436)
295
(634)
500

500

(1,080)

375

(717)

74

—

(427)

91
(85)

(40)
(1,315)

2,250
2,000
(60)
(1,013)
1(1,145)
2,032
(64)
5,609
6,810
¥12,420

3,217
2,000
(38)
(1,004)
1
(926)
3,249
(45)
(4,810)12,420¥ 7,609

Corporate Profile and Stock Information (As of March 31, 2019)

Corporate Profile

Major Shareholders

Corporate nameToyo Kanetsu K.K.

Headquarters

11-1, Minamisuna 2-chome, Koto-ku, Tokyo
136-8666, Japan

EstablishedMay 16, 1941

Capital18.58 billion yen

Number ofissued shares

9,323,074

Share unit

100

Employees

996 (on a consolidated basis)

Ticker code

6369

Share registrar

Mitsubishi UFJ Trust and Banking
Corporation

Share registrar
address andcontact
information

Stock Transfer Agency Department
Mitsubishi UFJ Trust and Banking
Corporation
1-1 Nikko-cho, Fuchu City,Tokyo 137-8081
TEL (free dial within Japan): 0120-232-711
Mailing address:
P.O. Box 29, Shin-Tokyo Post Office,Tokyo 137-8081, Japan

Name

Resona Bank Limited
Leopalace21 Corporation
Nippon Life Insurance Company
The Master Trust Bank of Japan, Ltd.
(trust account)
Japan Trustee Services Bank, Ltd.
(trust account)
UBS AG LONDON A/C IPBSEGREGATED CLIENT ACCOUNTNORTHERN TRUST CO. (AVFC) RE
IEDU UCITS CLIENTS NONLENDING 15 PCT TREATY ACCOUNT
Daiei Real Estate & Development
Co., Ltd.
The Nomura Trust and Banking Co.,
Ltd. (Investment Trust Account)
GOVERNMENT OF NORWAY

Number ofshares(Thousands)

Shareholding
(%)

439
423
414
394

4.85
4.68
4.58
4.36

258

2.85

233

2.58

225

2.49

212

2.35

175

1.94

163

1.80

Notes: 1	In addition to the aforementioned, the Company holds 283,000 shares of treasury stock.
2	The calculation of the percentage of total shares outstanding excludes treasury stock.

Stock exchange
listings

Tokyo Stock Exchange First Section

Shareholders and Distribution of Shares

Independent
auditorGyosei & Co.

Japanese individuals andothers 28.9%

Japanese financial

Treasury stock 3.0%

Japanese securities firms

Overseas institutions andOther corporations 18.7%

institutions 30.8%

1.3%

individuals 17.3%

Note: Percentage of total shares outstanding held by shareholder

Share Price and Trading Volume
Share price (¥) (left)
Trading volume (1,000 shares) (bottom right)
TOPIX (¥) (top right)
Note: Takes into account a 10:1 reverse stock split carried out on October 1, 2017
6,000

2,400

5,000

2,000

4,000

1,600

3,000

1,200

2,000

4,000

1,000

2,000

0

4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3FY2014FY2015FY2016FY20170

FY2018

Toyo Kanetsu will publish the TKK Report (integrated report) annually beginning in fiscal
2019, with the aim of improving corporate value from an ESG standpoint. We hope thisreport will serve as a constructive tool for dialogue with all of our stakeholders, and we
aim to make the report easier to understand while referencing the opinions of our
stakeholders. Please tell us your opinions about this report.

Keisuke Kodama
Director
Senior Managing Officer and Division Manager, Corporate Division

41

TOYO KANETSU K.K. TKK Report 2019

Contact Information

Toyo Kanetsu K.K.
Corporate Planning Department
Corporate Division
TEL: +81-3-5857-3333 FAX: +81-3-5857-3170
E-MAIL: tkkreport@toyokanetsu.co.jp
URL: https://www.toyokanetsu.co.jp/global/• This report was produced using paper from raw materials from FSC®-certified forests and recycled resources;a non-VOC (volatile organic compound), plant-based ink; and a waterless printing process that does not emit harmful effluents.

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