TKK Report

2020

The Toyo Kanetsu Group aims to boldly work toward
solving issues faced by society with its innovative andpioneering technologies, in order to contribute to
the development of society while achieving sustainableimprovements in its corporate value.

Contents
Introduction
1

Management Principles

2

Snapshot4Consolidated Financial Highlights

6	The Toyo Kanetsu Group’s Value
Creation Process

Management Strategy
8

To Our Stakeholders

18	The Toyo Kanetsu Group’s
Material Issues

Editorial Policy
Beginning in fiscal 2019, Toyo Kanetsu K.K. (hereinafter, “Toyo Kanetsu” or “the Company”) publishes
annually its TKK Report, an integrated report toconvey information about its finances, management
strategy, business environment, and ESG (environmental, social, and governance) issues, with the aimof 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 tomake this report better and easier to understand.

Business Review
30

Logistics Solutions Business

Details about results for fiscal 2019, the fiscal year

32

Plant & Machinery Businessended March 31, 2020, are available in the

34	Other Businesses(Life & Work Environmental Business Division)

Governance
36

Board of Directors

38

Corporate Governance44

Business Risks

45

Message from Outside Directors

Financial and Corporate Data
46

Consolidated Balance Sheets48	Consolidated Statements of Profit
or Loss and Comprehensive Income49	Consolidated Statements of
Changes in Equity
50	Consolidated Statements ofCash Flows
51	Corporate Profile and Stock
Information

Financial Section of TKK Report 2020, which ison the Company’s website.
https://www.toyokanetsu.co.jp/global/ir/
tkk_report.php
Please visit the Company’s website for otherinformation 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 weremade by the Company and the Group based on currently
available information. Actual results may differ significantly
from these forward-looking statements due to businessrelated risks and various uncertain factors.

Introduction

Management Principles

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
Long-term objectives andguideposts to achieve as
principles take shape

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 forlogistics & energy

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

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

Management Vision
Long-Term Vision

Medium-Term Business Plan
Annual Plan

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

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

Challenge & Change

1Snapshot

The Toyo Kanetsu Group’s Business“Be creative, be good for society”
Since its establishment in 1941 as Toyo Kanetsu Kogyo K.K., Toyo Kanetsu has operated andexpanded its business centered on the logistics and energy fields. Our founders’ ambition
for giving back to society while constantly eyeing future needs lives on today as our management principles and serves as the driving force for the Group’s business supportingsocial infrastructure through innovative solutions and advanced technological capabilities.

Logistics Solutions Business
Domestic
market shareNo.

1

Digital picking systems in
the co-op industry

Domestic
market share

80+%

Airport baggage handlingsystems

We support logistics infrastructure by offering solutions capitalizing on our exceptional comprehensive proposal capabilities, which encompass processes from the design of sorting,picking, and handling systems to maintenance for customers
centered on the logistics and airport industries. In recent
years, to address constantly changing social issues and industry needs, we have aggressively deployed cutting-edge­technologies such as AI and the Internet of Things (IoT),
and robotics as we work to establish more efficient logistics­centers and airport baggage handling systems.

2

Plant & Machinery BusinessWe are contributing to the stable supply of energy and themaintenance of the safety of energy storage facilities inJapan and overseas with advanced project execution and main-

5,700

tenance capabilities for the construction of large-scale storage
tanks as our inherent strength. In the liquefied natural gas(LNG) storage tank field in particular, we have accumulated adelivery track record since the field’s early days, garnering trust
and acclaim from many customers.
More recently, we have been+

Number of storage
tanks we havedelivered globally

Globalmarket share15+%

LNG storage tanks

engaging in research and development for next-generation energy
storage systems by applying theadvanced technological capabilities
that we have cultivated.

Other Businesses (Life & Work Environmental Business Division)
Besides its two core businesses, the Toyo Kanetsu Group has
established the Life & Work Environmental Business Division
centered on Group companies responsible for its industrial
machinery, building construction, and environmental surveys
and assessments businesses. We are contributing to safe environments and infrastructure creation through efforts that include
supplying products that support those working on construction andmanufacturing sites and the construction of housing and welfare­facilities, as well as asbestos inspections andvarious types of e
­ nvironmental measurement.
Domestic market shareNo.

2

Balancers

Industry shipment track record

No.

1

Winches3

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

FY2012FY2013

FY2014¥45,503¥48,395¥52,457

Operating profit

2,271

4,341

3,588

Ordinary profit

2,745

4,776

3,891

Profit attributable to owners of parent

1,526

2,879

3,019

Total assets

58,07854,51555,928

Total net assets

30,86233,78936,580

Basic earnings per share*1

125.27241.77260.76

Net sales

Dividends per share*1

40.00

50.00

40.00

Net assets per share*1

2,577.06

2,821.75

3,159.08

Equity ratio

52.9

61.6

65.0

Dividend payout ratio

31.9

20.7

15.3

Return on equity (ROE)

5.0

9.0

8.6

Return on assets (ROA)

5.0

8.5

7.1

Net cash provided by (used in) operating activities

4,154

2,606

(213)

Net cash provided by (used in) investing activities(1,198)(402)(1,120)Net cash provided by (used in) financing activities(2,274)(767)(1,774)The Group prepares its consolidated financial statements under Japanese generally accepted accounting principles (GAAP).
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 ¥108.81/$1, referring to the prevailing rate on March 31, 2020.

Net Sales by Business Segment(Millions of yen)
50,00040,00030,00020,00010,0000

Net Sales by Business Segment

4

2016

2017

2018

2019

FY2016FY2017FY2018FY2019Logistics Solutions Business

21,71125,93929,27428,887

Plant & Machinery Business

13,852

10,030

8,421

9,950

Other Businesses

7,030

6,470

8,237

7,813

Adjustment

(661)

(682)

(745)

(133)

FY2015

FY2016FY2017FY2018FY2019(Reference) FY2019(Millions of yen)(Thousands of U.S. dollars)*2¥46,572¥41,932¥41,758¥45,188¥46,518$427,515

3,024

3,080

2,265

1,406

2,591

23,820

3,227

3,441

2,646

1,771

2,970

27,297

1,906

3,746

2,362

1,025

1,717

15,78351,36853,22855,81864,75660,985560,476

34,37635,481

36,66635,23434,602

318,008(Yen)

174.53373.78251.26

195.87112.80(U.S. dollars)*2

1.80

50.00

120.00100.00100.00100.000.91

3,339.15

3,702.00

3,941.68

3,897.68

4,095.51

37.63

66.9

66.7

65.7

54.4

56.7

28.6

32.1

39.8

88.7

51.1

5.4

10.7

6.5

2.9

4.9

6.0

6.6

4.8

2.9

(%)

4.7
(Millions of yen)(Thousands of U.S. dollars)*2

63,926

4,041(2,131)

3,726(6,698)

6,955

(766)

(1,714)(85)(1,315)(812)(7,468)(3,640)(2,820)

2,032

3,249

(2,351)(21,614)

Operating Profit (Loss) by Business Segment(Millions of yen)
3,000
2,000
1,000
0
–1,000–2,0002016

2017

Operating Profit (Loss) by Business Segment

FY2016FY2017

Logistics Solutions Business

1,981

Plant & Machinery Business

633

Other Businesses

958

2018

2019

FY2018FY2019

1,931

1,907

2,812

(178)

(1,221)

(305)

914

1,108

880

5

The Toyo Kanetsu Group’s Value Creation Process

Social Issues Affecting

Founding Philosophy

the Toyo Kanetsu Group

Respond to Japan’s declining
population• Labor shortages due to declining birthrate and aging society• Decline in purchasing power• Shortages of skilled laborers

Respond to changes in consumer
spending patterns• Sharp rise in small-lot distribution fromgrowth in e-commerceStrengthen industrial infrastructure• Aging energy infrastructure• Building of social foundation resilient tobreakdowns and natural disasters“Be creative, be goodBusiness Activities and Strengths

Logistics Solutions Business• Ability to propose total solutions that include maintenance• Trust from customers and a reputation basedon track record of deliveries tobroad range of industries

Page 30

Plant & Machinery Business• Technologies for constructing and maintaining
large-scale tanks that require advanced technologies• Trust from customers and a reputation around the world
based on many years of high quality
Page 32
and safety

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

Other Businesses(Life & Work Environmental Business Division)• Market recognition of products and advanced
technological capabilities in specific fields

Page 34

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

A

Social issues that could
have a major impact on
corporate value

Page 20

Creation of new businesses leveraging M&A and CVC,
and reinforcement of existing businesses and pursuitof growth opportunities

Foundation That Supports Businesses

Human resources• Advanced technical capabilities andspecialization• Abundant experience in overseas projects

Partnerships• Close partnerships with partner companies,
universities, and research institutions built on
extensive experience

B

6

Initiatives addressing material issues to sustainably
improve corporate value

Page 22

for society”
Value Propositions
Reduce burden on workers withlabor-saving technologies using AI, the IoT,
and robotics

Realize highly efficient logistics fordiversifying patterns of consumer spending

Management Vision

Innovative

Provide never-stopping logistics that
supports supply chains andconsumer spending

Research and development of large-scaleliquid hydrogen storage tanks

solutions forlogistics & energy

Provide highly dependablesocial infrastructure

Realize attractive workplaces with systems
and environments that facilitate work andare inclusive of diversity

Financialfoundation• Sound financial foundation that enables growth­investments in technology andPage 46
business operations

Governance• Governance structure that enables highly efficientand transparent work management
Page 36• Appropriate risk management

Corporate
culture• High awareness of contributions to society• Flexible, rapid decision-making ability

C

Initiatives prerequisite for sustainably
improving corporate value

Page 25

7

Management Strategy

To Our Stakeholders

Fiscal 2019— First Steps toward Our Long-Term Vision
The Toyo Kanetsu Group took important steps in fiscal 2019. The Company completed its merger
with Toyo Kanetsu Solutions K.K., formerly our subsidiary, and set forth its management vision ofrealizing “Innovative solutions for logistics & energy” while launching a new Medium-Term Business
Plan (fiscal 2019–fiscal 2021) after announcing its long-term vision for 2030.
In addition, with the objective of sustainably improving corporate value, the Company formulated 10 important management issues (material issues) to prioritize by leveraging its strengths, andpledged to stakeholders—with the publication of its integrated report, the TKK Report—tostrengthen environmental, social, and governance (ESG) initiatives and contribute to realizing theUnited Nations Sustainable Development Goals*1. Against that backdrop, I would now like toconvey my views on the accomplishments and issues arising from these initiatives and our policies
going forward.
*1 Adopted at a United Nations summit, the Sustainable Development Goals (SDGs) are 17 goals to be achieved by 2030.

Promotion of the Group Medium-Term Business Plan
(Fiscal 2019–Fiscal 2021)
Under the Group’s vision, Toyo Kanetsu aims to attain Group consolidated net sales of ¥70.0 billion
by 2030 by securing earnings in stable domains, such as maintenance services for logistics systems
and maintenance for tanks in Japan, increasing earnings in growth domains that have been in focus
for the past few years, and ultimately by making inroads into future domains. The Toyo Kanetsu
Group has positioned its Medium-Term Business Plan (fiscal 2019–fiscal 2021) as a strategy forestablishing a foundation for the leap forward to realizing its long-term vision. The medium-term
policy of management is to increase the ability of the entire Group to generate profits by improving
profitability in the Logistics Solutions Business, rebuilding business in the Plant & Machinery
Business, pursuing selection and concentration on other businesses, and moving quickly to achieve
profitability in new businesses, while reinforcing its business foundations. For the concluding year
Logistics Solutions Business

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

Reflect on previous
business plan
Take into accountchanges in theexternal environment

8

Reinforce business foundation

Long-term vision

Logistics Solutions
Business

Enhance
profitability

Plant & Machinery
Business

Rebuildbusiness

Other businesses

Implement
selective
concentration

New businesses

Quicklyachieve
profitability

Establish
foundation forgrowthWe Will Anticipate Social Change ThroughDialogue and Offer Solutions

Toru Yanagawa
President andRepresentative Director

9

To Our Stakeholders(fiscal 2021) of the current Medium-Term Business Plan, the Company targets consolidated net
sales of ¥54.30 billion, operating profit of ¥3.95 billion, and ROE (return on equity) of 8.0%.
In fiscal 2019, the first year of the current Medium-Term Business Plan, consolidated net sales
increased 2.9% year on year, to ¥46.5 billion, and consolidated operating profit soared 84.3% year
on year, to ¥2.5 billion. Consolidated operating profit increased substantially thanks to factors including a decrease in losses in the Plant & Machinery Business, in addition to an improvement in the
profitability of the Logistics Solutions Business. Despite recording an extraordinary loss of ¥0.4
billion because of recognition of an impairment loss on shares held due to the steep fall in shareprices accompanying the global spread of the COVID-19 pandemic, profit attributable to owners ofparent increased 67.5% year on year, to ¥1.7 billion, and ROE rose 2.0 percentage points year on
year, to 4.9%. As a result, we were able to surpass our initial forecasts—announced on May 14,
2019, when we formulated the current Medium-Term Business Plan—for consolidated net sales by
4.1%, operating profit by 45.6%, and ROE by 1.2 percentage points.

Positive and Negative Impacts of the Spread of the COVID-19 Pandemic
Although the first year of the current Medium-Term Business Plan got off to a good start overall, as
has been demonstrated, the end of the fiscal year saw the spread of the COVID-19 pandemic. The
Company established a countermeasures project team on February 14, 2020, ensured the safety of
employees and their families, and has implemented various policies, including measures restricting
business trips and meetings and enforcement of staggered working hours and working from home,from the standpoint of preventing the social spread of the pandemic. Although we experienced
issues including temporary delays in the delivery of products and parts procured from overseas, we
continued our business with a sense of our mission of underpinning logistics and energy infrastructure and have successfully maintained our supply chain.
While the impact of COVID-19 on performance was minor in fiscal 2019, I believe it will be difficult to avoid going forward. As I will explain again later, the business environment of the Plant &Machinery Business has become increasingly severe due to factors including the collapse of crude
oil prices triggered by the spread of COVID-19. In the Logistics Solutions Business, on the other
hand, although we are anticipating negative impacts, such as construction delays and suspensions,the increase in the use of e-commerce has created a favorable tailwind and we expect growing
demand for labor-saving systems to reduce the risk of infection, as the wave of automation andlabor-saving that we envisioned arrives earlier than we had forecast. However, since it is difficult topredict how long the pandemic will continue, the degree of impact it will have going forward isunknown and we must continue to remain vigilant.
In light of these circumstances, while we are forecasting a 3.4% year-on-year increase in consolidated net sales in fiscal 2020, to ¥48.1 billion, we expect operating profit to decline 16.7% year on
year, to ¥2.1 billion, and ROE to decrease 0.2 percentage points, to 4.7%, taking into consideration
the impact of COVID-19. Meanwhile, our management targets for fiscal 2021, the concluding year of
the current Medium-Term Business Plan, will remain unchanged for the time being given that we are
not able to forecast the impact of the COVID-19 pandemic at the present time. As we move forward,10

we will revise these targets appropriately and make an announcement without delay when we are ina position to make a reasonable forecast.

(Billions of yen) Previous
Medium-Term Business Plan

Current
Medium-Term Business Plan

60

41.9
40

3.08
10.7%

20

46.5

45.1

41.7
2.26

3.95

2.16
4.9%

2.9%

4
3

2.59

1.40

6.5%

5

54.3

48.1

2

8.0%

4.7%

1

0

0

FY2016FY2017FY2018FY2019Results

Net sales

Operating profit (right)

FY2020

FY2021

Forecast

Plan

ROE

Business Strategies
Logistics Solutions Business:
Accelerating the Resolution of Social Issues through Next-Generation Technologies

I will now discuss the conditions and policies in each of our businesses. As our basic policy in theMedium-Term Business Plan highlights, the focus in the Logistics Solutions Business is on improving profitability. In fiscal 2019, although net sales decreased 1.3% year on year, to ¥28.8 billion, operating profit increased 47.4% year on year, to ¥2.8 billion, as the Logistics Solutions Business posted
a record high in profits thanks to an accumulation of factors, including an improvement in the profitability of large-scale projects due to the strengthening of project control management, an expansion
in the maintenance business, and a reduction in expenses.
In fiscal 2020, we will follow a policy of securing a solid foundation for establishing a high-growthbusiness that is able to respond to changes in the structure of the post-COVID-19 society by tapping
into next-generation technologies and new markets while further raising our cost-competitiveness.
Although we anticipate a 0.4% increase in consolidated net sales year on year, to ¥29.0 billion, we
expect an 8.3% decrease in operating profit year on year, to ¥2.5 billion, due to the temporary impact
of construction delays and suspensions accompanying the spread of the COVID-19 pandemic.
The e-commerce industry is one of the mainstay domains of the Logistics Solutions Business.
The business counts among its customers almost all major general e-commerce business operators
in Japan and boasts a leading delivery track record for logistics systems. Moreover, the business has
a proven track record of deliveries to many logistics centers in the cooperative industry in Japan,
centered on digital picking systems that maintain its top position in the industry. The markets forboth of these industries have continued to expand in recent years due to changes in consumer

11

To Our Stakeholders

behavior. In addition, as investment in logistics systems is expected to increase further as a result of
the rise in stay-at-home consumption accompanying the spread of COVID-19, the Logistics Solutions
Business will achieve robust growth by addressing needs that include multiple-item management,
prompt delivery, and labor productivity improvement.
The Logistics Solutions Business has a market share of more than 80% for baggage handlingsystems (BHSs) at domestic airports. Amid a low point in demand for capital investments aimed atthe 2020 Tokyo Olympic and Paralympic Games, the decline in inbound passenger numbers stemming from the spread of COVID-19 is expected to further contribute to the decline in demand in the
airport domain. As a measure in response to these changes in the business environment, we areworking with determination to play a part in realizing the One ID check-in to boarding process concept utilizing facial recognition technology, the introduction of which is being promoted as the first of
its kind in the world. We have already begun delivery of self-service baggage drop units that will
become an important element of the One ID concept, and we are working proactively to introduce
other innovations, such as automatic handling robots and baggage image-analysis technology. In
these ways, we are addressing needs, not only for BHSs, but also peripheral business fields.
In terms of the impact of the spread of COVID-19, I am particularly interested in the development of fully automated logistics systems that entail no infection risk because they do not require
human intervention. The technologies offered by the Logistics Solutions Business already include atechnology called Goods to Person (GTP). As this technology moves products for picking to the worker’s station, not only does it raise work efficiency and reduce the number of people involved in thework, it also makes it possible to carry out work in a fixed position while maintaining social distance.
Going forward, if we add picking functions using robots to this technology it will become completely
labor-free. To that end, we are advancing the development of robots tailored to this field while12

considering collaborations with outstanding robot-related companies, and we have high hopes forthis technology. Further, in order to roll out our predictive maintenance services that optimize thetiming of parts changes and other forms of maintenance via the visualization of equipment operating
conditions and the prediction of abnormalities, we advanced their development by leveraging AI andIoT technologies in concert with a variety of partners. Those innovative partnerships resulted in therelease of these services in April 2020, with non-stop logistics as our guiding principle. In addition,with the aim of using conveyorless systems into the future, we are also moving ahead with thedevelopment of a control platform that controls automatic guided vehicles (AGVs), operation methods for which differ depending on manufacturers, in an integrated manner. The promotion of digitaltransformation (DX) leveraging AI and the IoT in the Logistics Solutions Business will help resolve
the issue of the decline in the working-age population in Japan while, if we can realize conveyorless
logistics, we will be able to lower CO2 emissions significantly by reducing electricity consumption,
which is in alignment with our material issues initiatives.
For more details about initiatives in the Logistics Solutions Business, please refer to Business Review: Logistics Solutions Businesson page 30.

Plant & Machinery Business:
Confronting the Harsh Business Environment and Reducing Costs

Conditions in the environment surrounding the Plant & Machinery Business remained harsh, asorders received declined 13.4% year on year, to ¥9.9 billion, due to the failure to capture orders forany large-scale projects in fiscal 2019. However, net sales grew 18.1% year on year, to ¥9.9 billion,
due to the accumulation of tank maintenance projects for oil refineries in Japan and overseas orders
unrelated to tanks, such as the manufacture of steel products. On the profit front, operating loss
improved ¥0.9 billion year on year, to ¥0.3 billion, due to the implementation of significant cost cutting, in addition to a gain on the reversal of provisions recorded in previous fiscal years.
When we formulated the current Medium-Term Business Plan, we assumed that oil- and gasrelated demand would recover due to factors including the economic growth of emerging countries
in recent years. Our plan to rebuild the Plant & Machinery Business was premised on an improvement in the market environment, given that we had been seeing the emergence of new construction projects for large-scale liquefied natural gas (LNG) storage tanks. However, the spread of the
COVID-19 pandemic has severely affected the energy market. Amid a slump in crude oil prices,energy demand is expected to decline into the future and there are already moves to reduce oil- andgas-related capital investments. Although we are forecasting a 14.6% year-on-year increase in net
sales, to ¥11.4 billion, for the business in fiscal 2020 by capturing all manner of earnings opportunities centered on tank maintenance in Japan, we expect operating loss to worsen ¥0.1 billion year on
year, to ¥0.4 billion. While our Medium-Term Business Plan aims to return the business to profitability in fiscal 2020, at the present time I regret to say that will be difficult to achieve.
Our policy going forward will be to further advance cost reductions and keep expenses down to
the minimum required for operating the business to reduce losses as much as possible. On the other
hand, we will work to secure profits centered on domestic tank maintenance. In Japan, periodic open
inspections of storage tanks for crude oil and other products are mandatory under the Fire Service Act.

13

To Our Stakeholders

For that reason, amid a decrease in sales for new tank construction projects, we are able to maintain acertain level of tank maintenance sales, which serve as a stable source of earnings. Partly to protect
aging domestic oil infrastructure, we will work to increase profitability while gradually securing orders.
In addition, we will also take steps to raise earnings at overseas subsidiaries.
From a long-term standpoint, we are carrying out research and development that aims to realize alarge-scale liquid hydrogen storage tank for the power generation business, which we expect to be
introduced on a full-scale around 2030. In addition, we have advanced development through industrial-academic collaboration since 2015, for which the New Energy and Industrial Technology
Development Organization (NEDO) *2 decided to provide a subsidy in August 2019. Taking on thischallenge in partnership with the government and universities is of great significance to the Company,
going beyond the scope of a single project. I would like to contribute to the construction of a hydrogen society by drawing on our world-class technologies in low-temperature and cryogenic tanks.
*2 NEDO: Established in 1980 to promote the development and introduction of new energy technologies, NEDO is one of the largest
public research and development organizations in Japan.
For more details about initiatives in the Plant & Machinery Business, please refer to Business Review: Plant & Machinery Business on
page 32.

Other Businesses (Life & Work Environmental Business Division):Contributing to the Creation of Environments and Infrastructure Sensitive to People

In fiscal 2019, adopting a basic policy of selection and concentration, we were able to favorably
advance the strengthening of existing businesses and laying of groundwork for new products andbusinesses, centered on various Group companies responsible for the industrial machinery, building
construction, and environmental survey and assessment business. In fiscal 2020, despite the temporary impact of construction delays and suspensions due to the spread of COVID-19, we expect
other businesses to maintain an overall business performance at the same level as fiscal 2019, witha 0.2% year-on-year decrease in net sales, to ¥7.8 billion, and a 3.4% year-on-year increase in operating profit, to ¥0.9 billion.
In other businesses, each Group company steadily contributed to consolidated earnings by leveraging their respective business characteristics. In addition, we increased sales by adding Kankyo
Research Institute Inc. to the Group through M&A. Based on these circumstances, the Company
established the Life & Work Environmental Business Division in April 2020, consolidating in thedivision Toyo Koken K.K., Toyo Kanetsu Builtec K.K., and Kankyo Research Institute Inc.—Group companies that are well-established as generators of earnings—and a corporate venture capital (CVC)
fund that has been active since 2017. Adopting a policy of contributing to the creation of environments and infrastructure that are sensitive to people, the division will pursue the development andprompt achievement of profitability in new businesses, the expansion of growth domains in existing
businesses, and synergies within the Group while leveraging M&A and CVC. At the same time, wewill aim to enter new domains that go beyond existing businesses.

14

Our CVC is expanding its investment regions to Singapore and Australia, rather than just Japanand the United States, and has carried out new investments in an aggregate total of eight start-up
companies related to AI, the IoT, and robotics, thereby engaging in open innovation. As a result of
these efforts, effects are beginning to emerge, such as a timetable for increasing the processing
capability of our key product, in collaboration with an AI start-up company, in the Logistics Solutions
Business. Going forward, we will make cautious investment decisions, including the freezing of new
investments for the foreseeable future, taking into account the impact of the spread of COVID-19.
For more details about initiatives in other businesses, please refer to Business Review: Other Businesses (Life & Work Environmental
Business Division) on page 34.

Promoting ESG Management Based on Our Material Issues
As discussed in the TKK Report 2019, the Toyo Kanetsu Group identified 10 important material
issues*3 in March 2019 after discussions by management, with the objective of accelerating recognition and initiatives regarding such aspects as corporate social responsibility (CSR) and ESG.
Initiatives for each of these material issues contribute to the achievement of their corresponding
Sustainable Development Goals (SDGs). In addition to communicating these material issues outside
the Company, I believe that what is important is to instill them into employees, who will lead theinitiatives. To that end, although we are making use of internal newsletters and training, I have proactively communicated to employees on this topic in a variety of situations, including my greetings at
the beginning of the year. I believe that the awareness among employees toward ESG, the SDGs,
and the material issues has risen considerably.
Among the material issues I regard as particularly important are “(1) Respond to changes in thebusiness environment caused by climate change” and “(2) Respond to the decline in Japan’s population,” as outlined in strategies for the Logistics Solutions Business, as well as “(4) Develop and use
new technologies,” such as AI and the IoT, which will hold the key to resolving these issues. I also
view “(9) Practice sophisticated risk management” as particularly important from an information
security perspective. Needless to say, the other six material issues remain important. For example,
in regard to “(3) Train and deploy human resources,” due to the nature of our business category, we
had been slow to promote women to management. However, through efforts that include the introduction of a new human resource system and the implementation of an ­effective plan, we havemade moves to facilitate the participation of women as future management. In addition, we aretrying to change our corporate culture by reforming the way we think in order to fully promote DX
and develop the next business model.
*3 For more details about our material issues, please refer to The Toyo Kanetsu Group’s Material Issues on page 18.

15

To Our Stakeholders

Creating Synergies through Management Integration
It may be said that the greatest effect of the management integration with Toyo Kanetsu Solutions
K.K., our former subsidiary, is that it has made it easier for the Logistics Solutions and Plant &Machinery businesses to supplement each other in terms of human resources. In the short term,
the merger will enable us to absorb ups and downs in the business environment. Furthermore, froma long-term perspective, it will be significant in leading to the cultivation of human resources whowill play a role in future management by allowing them to experience both businesses throughmoving between the business divisions. Further, we reorganized the Safety, Environment, andQuality Assurance Department as an organization under the direct control of the Company’s president, with the goal of centrally managing the strengthening of our occupational health and safety
management system and quality management functions. We will utilize throughout the entire Group,
including the Logistics Solutions Business, the expertise and know-how regarding safety that the
Plant & Machinery Business, which handles a diverse range of dangerous materials, has cultivatedover many years.

Aiming for a Consolidated Dividend Payout Ratio of At Least 50%,
Based on Our Shareholder Return Policy
The Company formulated its shareholder return policy, described below, based on optimizing thebalance between financial soundness and returning profits to its shareholders. While continuing toeffectively 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 well as for capital investments, in addition to taking a flexible stand on buying
back its own shares. As the Company maintains a sufficiently stable shareholders’ equity ratio of
more than 50%, it has set a target for its consolidated dividend payout ratio of at least 50%.

Shareholder return policy during the Medium-Term Business Plan
(fiscal 2019–fiscal 2021)
Consolidated dividend payout ratio:
at least 50% (minimum annual dividend of ¥100 per share)
Unless there are considerable capital needs(1)	Retained earnings will be applied to investments and capital expenditures forincreasing corporate value(2)	Share buybacks will be flexibly undertaken

16For fiscal 2019, we paid a full-year dividend of ¥100 per share, for a consolidated dividend payout
ratio of 51.1%, based on this shareholder return policy. In addition, during fiscal 2019 we implemented share buybacks of 589,700 shares at a cost of approximately ¥1.4 billion.

In Conclusion
Like the impact on society of the spread of the COVID-19 pandemic, we do not know when or how
the business environment will change. To respond to those changes, I believe management thatemphasizes dialogue among people is required. It is important to get a sense of what the societyof the future will demand by increasing dialogue with a variety of stakeholders, including customers, business partners, and industries—even those that have no direct connection with theCompany’s business.
The Plant & Machinery Business, our original business, built a track record as a leading player bytaking the initiative to expand overseas to the Middle East and Southeast Asia and then responded
swiftly when demand shifted from oil to gas. Today, although the Plant & Machinery Business isfacing an exceptionally severe business environment, if we can draw on our DNA of “Challenge &Change” that flows within us continuously, there is no doubt we can revive this business. The
Logistics Solutions Business also endured a challenging period until a few years ago. Preparing ourselves for the fact that the business environment can change dramatically, just like it has with the
COVID-19 pandemic, we must take action, including the pursuit of cutting-edge technologies. To beable to realize “Innovative solutions for logistics & energy,” the Toyo Kanetsu Group will continuously
take on the challenge of solving social issues by leveraging the Group’s comprehensive strengths to
the fullest, under the slogan of “Challenge & Change.”
I would like to thank all our stakeholders, including shareholders and other investors, in advancefor their understanding and continued support of the Toyo Kanetsu Group.
August 2020

Toru Yanagawa
President and Representative Director

17

The Toyo Kanetsu Group’s Material Issues

1

Basic Approach to Material Issues

The Toyo Kanetsu Group has identified 10 important management issues (material issues) to prioritize in management with the objective of sustainably improving corporate value through business activities. By solving theseissues, the Group will ensure sustained growth and financial performance. Our material initiatives are designed
to help achieve the relevant 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. The two topics in category A are social issues that could have a major impact on the Group. We will provide
value to society and improve corporate value by contributing to the resolution of those two issues, primarily
through our business activities. The four topics in category B are important management issues to be addressedin order for the Group to carry out these business activities sustainably. In addition, the four topics in category C
are prerequisites for improving corporate value and must be addressed for the success of the Group’s business.

A

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

B

Initiatives addressing
material issues to­sustainably improve
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
improving corporate
value(8) Execute steadfast compliance and corporate governance(9) Practice sophisticated risk management(10) Evolve our corporate culture into one that encourages employees
to quickly and proactively take on challenges

Please refer to pages 20 to 29 for more details about each material issue.

18

3 Process for Identifying Material Issues and KPIs*
By paying due consideration to opinions inside and outside the Company and referencing global standards, Toyo
Kanetsu identified material issues in March 2019 through the following process. In addition, we set KPIs in
August 2020.
* Key Performance Indicators: Indicators for visualizing the progress of identified material issues.

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 adopted at the UN Sustainable
Development Summit in 2015 and the Sustainability Accounting Standards Board(SASB), as well as to the Corporate Governance Code. We furthered the understandingof our employees in these areas by holding in-house seminars about ESG, the SDGs,
and integrated reports.

2

List of social issues,
identification ofimportant issues

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

3

Incorporation of ­opinionsof stakeholders

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.

4

Identification of­material 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.

5

Setting of KPIs

Referring to guidelines, examples from other companies, interviews with relevantinternal divisions, and other sources of information, we set KPIs by conducting discussions at internal meetings with the participation of members of management, after
having listed several candidate KPIs for each material issue.

4 Our Approach
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.
In regard to initiatives for addressing material issues, the director in charge of the CSR Committee is tasked
with monitoring progress in resolving the issues. In addition, through dialogue with various stakeholders, management will keep track of changes in stakeholder concerns and expectations of the Group while monitoringsocial trends, including the prolonging of the COVID-19 pandemic. If deemed necessary, the Company will flexibly revise its material issues and KPIs.
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 KPIs and numericaltargets for each material issue. The Company also plans to disclose this information in the TKK Report starting infiscal 2020. Through dialogue with stakeholders, management will keep track of changes in stakeholder concernsand expectations for the Group while monitoring social trends. If deemed necessary, the Company will flexibly
revise its material issues.

19

The Toyo Kanetsu Group’s Material Issues

A

Social issues that could have a major impact on corporate value(1) Respond to changes in the business environment caused by climate change
Climate change may have a major impact on the Company’s business environment. There is
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, the Company
will work on projects related to demand for fossil fuel alternatives, such as hydrogen energy,
and develop products and services with excellent environmental performance. In these andother ways, Toyo Kanetsu will seek out new business opportunities in a bid to sustain business growth.

KPI

FY
CO2 Emissions

2018

2019

2020 (Target)

Unit

1,789

1,688

1,671

t-CO2

Toyo Kanetsu, non-consolidated. The figure for fiscal 2018 includes Toyo Kanetsu Solutions.

We aim to achieve a 1% reduction every fiscal year (compared with the previous fiscal year),in compliance with ISO 14001.

TopicsEnvironmental Management System
Toyo Kanetsu has obtained ISO 14001 certificationand established an Environmental Policy, which it
shares throughout the Company. Setting up an environmental management system while adhering to therequirements of the ISO standard, we conduct internal environmental audits every year and revise ourtargets as well as seek to raise environmental awareness among employees.

Looking ahead to the coming of a hydrogen society, the Plant & Machinery Business conducts researchand development aimed at the practical realization of alarge-scale liquid hydrogen storage tank, in collaboration with Hokkaido University. In fiscal 2019, one of theCompany’s projects was awarded a subsidy from the
New Energy and Industrial Technology Development
Organization (NEDO). We have also been engaged in
the biomass power generation business since 2017.

For details of Environmental Policy, please visit our website.
https://www.toyokanetsu.co.jp/global/company/policy.html

Initiatives through Our Business Activities
Toyo Kanetsu recognizes environmental problems
such as climate change as important issues for thesustainability of society and its business, and aims to
reduce its environmental footprint through its business activities.
The Logistics Solutions Business contributes toenergy conservation inside logistics centers through theprovision of distributed-drive conveyors (Ecoloveyor).

20

Roof and shell part
Multi-layer insulation (MLI)(Restrains radiative heat transfer)

35m

Φ22m
Liquid hydrogen(20K)

Vacuum insulation(Restrains conductive heat transfer)

Anchor strap part
CFRP
(Restrains radiative heat transfer)

Bottom part
GFRP hollow section
support columns
Large-scale liquid hydrogenstorage tank

(Restrains conductive andradiative heat transfer)(2) Respond to the decline in Japan’s population
It has become harder to secure human resources due to the decrease 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 environments thatfacilitate work and of creating rewarding work.
In the Logistics Solutions Business, there is a 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.

KPI

FY
Rate of Annual Paid Vacation Taken

2018

2019

2020 (Target)

Unit

54

58

70

%

Toyo Kanetsu, non-consolidated. The rate for fiscal 2018 includes Toyo Kanetsu Solutions.

We encouraged employees to take at least eight days of annual paid vacation in fiscal 2019. We
will aim to raise the minimum number of days taken to 10 in fiscal 2020 and 13 in fiscal 2021.

TopicsDevelopment of a Comfortable Work Environment
With the goal of continuously securing precious humanresources, the Toyo Kanetsu Group is working todevelop a comfortable employment environment inwhich employees can achieve a good work-life balance.
Based on the action plan regarding the participation
and advancement of women in the workplace and thedevelopment of the next generation of humanresources, we are carrying out initiatives that encourage male employees to take childcare leave and examining an extension to the period for reduced working
hours, in addition to proactively calling for all employees to take annual paid vacation. We are also adopting
flexible working styles that include staggered working
hours and working from home, while conducting lecture meetings that encourage women’s participation
and advancement. In these ways, we are establishing a
comfortable work environment for women and, in turn,all employees, and raising awareness.

Initiatives through Our Business Activities
The Logistics Solutions Business offers solutions tailored to labor reduction and labor-conserving needs
that have been increasing in recent years due to thedecline in the working-age population in Japan.
Moreover, as COVID-19 countermeasures, these solutions are effective in securing social distancing in logistics centers.
 details, please refer to Business Review: Logistics Solutions
For
Business on page 30.

21

The Toyo Kanetsu Group’s Material Issues

B

Initiatives addressing material issues to sustainably improve corporate value(3) Train and deploy human resources
To sustain growth, the Company must train its employees, imbuing them with knowledge andtechnical skills related to its businesses, while 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.

KPI

FY
Female Semi-Managerial Team
Leaders as a Percentage of Total
Semi-Managerial Team Leaders

2018

2019

2020 (Target)

Unit

–

2.2

15.0

%

Toyo Kanetsu, non-consolidated
Note: A percentage is not recorded for fiscal 2018 because this fiscal year preceded the introduction of the team leader system.

Topics
To strengthen its business continuity amid the increasingly volatile operating environment, Toyo Kanetsu is
working to develop and leverage its human resources,
the most important element of business continuity.
In April 2019, the Company launched a new humanresource system, which will serve as a framework tofacilitate the active participation of diverse humanresources. The new system makes it possible for
employees to choose their career path from a multitrack course comprising organizational management
and the deepening of specializations, while reflecting
the wishes of each individual. We aim to manage
human resources to facilitate a higher performance by
employees, in ways that include appointing them asadvanced specialists and team leaders under the new
system. In addition to fine-tuning the system, we arepromoting opportunities for each and every employee
to consider their careers by carrying out career design
training and other initiatives.
In terms of training, we implement programs for
new employees and continuously conduct
Companywide English-language courses, while in the
Logistics Solutions Business we incorporate external
expertise through collaborations with the public sector
and universities, as well as plan training led by internal
speakers to pass down their skills. In these ways, we22

are carrying out in-house educational initiatives.
In addition, under the internships that we havebeen implementing since fiscal 2018, we create opportunities for participating students to communicate with
employees, visit business sites, and experience actual
work, under a program that fosters a sense of working
while deepening students’ understanding of our business and industry. The program also acts as an opportunity for existing employees to encounter the
innovative ideas of the younger generation and refine
their own teaching skills. In fiscal 2019, the program
received public recognition when students who participated in it received an award for excellence (first prize)at the results presentation ceremony of the Japan
Internship Promotion Consortium.

(4) Develop and use new technologies
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 businesscreation. In particular, efforts to develop new technologies in the fields of AI, the IoT, robotics,
and failure prediction should be effective in resolving the social issue of increasing efficiency
in logistics by helping to conserve and reduce labor, as well as stabilize operations.

TopicsPromotion of Digital Transformation
Leveraging the latest technologies such as AI and the
IoT, the Logistics Solutions Business is promoting DX
while strengthening internal systems and developing
human resources.
As an example of these efforts, on a simulationbasis the Company achieved a 20% rise in the efficiency of incomings and outgoings at logistics centersby developing an optimal AI algorithm for automatedcase storage systems—our key product—using digitaltwin and deep learning technologies through collaboration with an AI start-up company. Amid a trend of thedelivery of larger systems accompanying the growing
scale of logistics centers, we aim to contribute toimproving the productivity of logistics centers bymaking efficient use of AI technologies in response to
the increasing difficulty of controlling systems throughmanual programming.

Simulator using digital twin technology

Open Innovation through CVC Initiatives
Since establishing a CVC fund in 2017, we haveinvested in promising start-up companies with innovative technologies in Japan and overseas. Our activities
in Japan, the United States, Singapore, and Australia
help us to not only incorporate outstanding technologies through interactions with start-ups but alsoacquire the latest technological information and open
innovation initiatives.

23

The Toyo Kanetsu Group’s Material Issues

B

Initiatives addressing material issues to sustainably improve corporate value(5) Promote collaboration with partner firms
The value chains in the Company’s businesses depend on numerous partners inside and outside
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 the IoT. These partnerships expand the scope of businessdomains that Toyo Kanetsu can enter and increase opportunities to start new businesses.

TopicsIn the Logistics Solutions Business, we have established a collaboration with a partner factory inIndonesia, where we are advancing technology transfers and quality guidance to local partners and expanding the production of airport baggage handling systems
while maintaining our high quality. In addition, thebusiness operates predictive maintenance services byapplying the IoT sensors developed through collaboration with a university-launched start-up company withoutstanding IoT technologies.
In the Plant & Machinery Business, we have established collaborative relationships at many worksites

over the years with partner firms that carry out welding, assembly, operation of heavy machinery, and othertasks at construction sites. As labor shortages at worksites have become a prominent issue, we are maintaining a stable construction system by strengthening
relationships with such partner firms.
Moreover, in recent years we have been searchingfor new partner firms by leveraging the matching services provided by the Organization for Small & Medium
Enterprises and Regional Innovation, JAPAN (SME
Support Japan*).
* SME Support Japan is an independent administrative agency providing
various support measures to promote growth for Japanese SMEs.

(6) Increase productivity
Amid stronger demand from customers for the delivery of high-performance, low-price equipment,
Toyo Kanetsu must continuously increase productivity with innovative technologies to keep winningorders and booking sales.

KPI

FY
Operating Profit per Employee

2018

2019

2020 (Target)

Unit

–

2,608

2,706

Thousands of yen

Toyo Kanetsu, non-consolidated
Note: A figure is not recorded for fiscal 2018 because this fiscal year preceded the business integration with Toyo Kanetsu Solutions.

TopicsIn the Logistics Solutions Division, we are advancing
plans for internal system renewal with the goal of
overall optimization, from sales through to maintenanceservices. In 2019, we augmented our order processing
system by extending the No. 3 building of our

24

Wakayama Plant, which primarily undertakes conveyor
production. Concurrently, in the Plant & Machinery
Business, we are making effective use of resources atexisting production bases while carrying out exhaustive
cost reductions.

C

Initiatives prerequisite for sustainably improving corporate value(7) Ensure occupational health and 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 to prevent accidents from occurring.

KPI

FY

2018

2019

2020 (Targets)

Units

Frequency rate of industrial accidents

0.63

0.95

0.00

Severity rate of industrial accidents

0.00

0.01

0.00

Casualties/
million working hours
Days lost/
thousand working hours

0

0

0

Cases

Number of fatal work accidents

Toyo Kanetsu, non-consolidated. The figures for fiscal 2018 include Toyo Kanetsu Solutions.

TopicsBased on its Occupational Health and Safety Policy, theToyo Kanetsu Group seeks to ensure and improve
occupational health and safety by acquiring and updating ISO 45001 certification, holding Group safety meetings, implementing work location patrols, andmaintaining and augmenting safety systems, including
at partner firms.
In addition, the Safety, Environment, and Quality
Assurance Department, which was reorganized as anindependent organization under the direct control of theCompany’s president in April 2019, is working to reform
systems and rules to promote occupational health andsafety management, which had hitherto been conducted by business domain, in an integrated manner.
In terms of quality maintenance and improvement,Group businesses have obtained ISO 9001 certificationand conduct operations based on their respective
quality policies. We aim to offer high-quality products
and solutions that continually satisfy customers.

(8) Execute steadfast compliance and corporate governanceAs compliance with laws and regulations is a vital cornerstone for Toyo Kanetsu to conduct trustworthy business activities, the Company requires that all employees maintain a value system in which
compliance is their highest priority. In addition, Toyo Kanetsu continuously reinforces its corporate
governance system.

TopicsThe Toyo Kanetsu Group is developing a corporate
governance system that facilitates precise decisionmaking, rapid business execution, and proper supervision and monitoring of operations, while ensuring
efficiency, soundness, and transparency in management. At the same time, we strive to engage in dialogue with stakeholders through the annual publicationof the TKK Report, the holding of results briefings, andother forms of communication.
In regard to compliance, we raise employee awareness by implementing internal training, communicating
information via our internal newsletter, and conducting
self-assessments, while revising our manual in accordance with changes in the law and social affairs. In
these ways, we lay the basis for fair business activities.

25

The Toyo Kanetsu Group’s Material Issues

C

Initiatives prerequisite for sustainably improving corporate value(9) Practice sophisticated risk management
Since Toyo Kanetsu engages in operations related to social infrastructure, management
responds properly and quickly 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, therisks the Company must address have grown in number and magnitude. Toyo Kanetsu aims tofurther strengthen its ability and systems for identifying, assessing, and minimizing 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.

KPI

2018

2019

2020 (Targets)

Units

Rate of information security training
participation*

–

100

100

%

Number of training sessions held on
risk management

4

6

3

Times

FY

Toyo Kanetsu and consolidated subsidiaries* A rate is not recorded for fiscal 2018 because this fiscal year preceded the implementation of Companywide training.

TopicsDisaster and Business Continuity PlanCountermeasures
The Toyo Kanetsu Group takes measures that include
securing supplies for emergencies, implementing
periodic evacuation drills, and carrying out workshops
on life-saving techniques in each of its business bases.
Further, in fiscal 2019, following the expansion of our
Wakayama Plant, we concluded an agreement with thelocal authority to allow community residents to use theroof area as an evacuation shelter. Additionally, we heldinternal training based on the theme of responding toemergencies, increasing employees’ crisis management awareness.
In addition, recognizing the spread of the COVID-19
pandemic as constituting a serious risk to its business

Rooftop of Wakayama Plant No. 3

26

continuity, the Toyo Kanetsu Group will fulfill its responsibility to provide services related to social infrastructure and the supply chain for daily necessities, with thesafety of its stakeholders, including employees, as the
top priority. With the goal of preventing the spread of
infection, the Company is taking measures internallyand externally, such as implementing telework andstaggered working hours from March 2020.
Information Security Measures
In fiscal 2019, we revised our information security
policy and established a top-down security structure byappointing the Division Manager of the Corporate
Division as Chief Information Security Officer (CISO)
and setting up the Information Security Committee, inwhich various division managers take part. In addition,
we established the Computer Security Incident
Response Team (CSIRT) within the committee, established a full-time department and personnel, and developed an appropriate initial response system to preventor respond to the occurrence of an incident, while
joining the Nippon CSIRT Association and sharing
information with other companies.

(10) Evolve our corporate culture into one that encourages employees toquickly and proactively take on 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—
KPI

FY

2018

2019

2020 (Target)

Unit

Commendation System: Improvement
Proposal Submission Rate

74.6

76.4

100

%

Submission rate = Total number of proposals submitted (Toyo Kanetsu, non-consolidated) ÷ number of eligible Toyo Kanetsu
employees at the end of the second fiscal quarter.
Total number of proposals is the aggregate; multiple proposals from one person are all counted.

TopicsDevelopment of a CSR and ESG Management
Promotion Structure
To further evolve the promotion of CSR activities and
ESG based management, the Toyo Kanetsu Groupdeveloped a new structure from fiscal 2020. We
appointed a director in charge of CSR and established
the Companywide, cross-functional CSR Committee,
in which each division manager takes part, while­establishing a section in charge of CSR within the
Corporate Division.

Improvement Proposal System
To fulfill its slogan of “Challenge & Change,” Toyo
Kanetsu commends outstanding operational improvement ideas submitted by Group employees. By establishing a framework to recognize the proactive
operational improvement activities of individual employees, we aim to raise employee motivation and further
increase operational efficiency.

Reinforcement of the Management Foundation

Kazuhito
Watanabe
Director
Managing Officer andDivision Manager,
Corporate Division

In its Medium-Term Business Plan (fiscal 2019–fiscal 2021), the Toyo Kanetsu Group adopts abasic policy of creating a corporate culture thathelps its employees to enthusiastically realizechange and achieve results while further improving
Group governance.
We have set forth three measures in thisregard: (1) reforming our corporate culture into one
able to adapt to change and constantly produce
business results, (2) strengthening the operationsof the Group, and (3) further reinforcing our corporate governance structure and increasing corporate
value from an ESG standpoint. The Group will work
hard to steadily execute these measures andthereby achieve the next leap forward for theGroup’s businesses.

27

The Toyo Kanetsu Group’s Material Issues

Toyo Kanetsu Group ESG Data Highlights
FY

Material issues

A(1) Respond to changes
in the businessenvironment causedby climate change*1

Units

927

885

kl

Energy consumption (electricity)

3,030

2,951

Thousand kWh

Energy consumption (LPG)

112

95

t

Energy consumption (city gas)

0.1

0.1

Thousand m3

1,789

1,688

t-CO2

CO2 emissions per unit of net sales*2

–

0.04

t-CO2/millions ofyen

Water consumption

10.0

10.2

Thousand m3

Total amount of waste generated

227

190

t

Paper consumption

8.3

7.7

t

95

–

%

CO2 emissions

Rate of employee participation in environmental
management training*3
Rate of employees voluntarily leaving the Company*

2.6

2.8

%

Average number of service years

15.7

15.3

Years

Number of employees taking childcare leave

5

6

Persons

Number of employees taking childcare leave (male)

02Persons

Number of employees taking childcare leave (female)

5

4Persons

Number of employees working shortened hours

66

Persons

Number of employees working shortened hours (male)00Persons

Number of employees working shortened hours (female)66Persons

Number of employees taking nursing care leave

00

Persons

Number of employees returning to work after childcare leave

2

3

Persons

Rate of annual paid vacation taken

54

58

%

Average number of work hours*5,6

–

2,015

Hours

Average number of overtime work hours*6

–

23

Hours

4

(2) Respond to the decline
in Japan’s population*1

Initiatives addressing material issues to sustainably improve corporate value
552

560

Persons

Number of employees (male)

455

457

Persons

Number of employees (female)

97

103

Persons

Average age of employees

43.9

44.0

Years old

Average age of managers

52.7

53.0

Years old

Number of new graduate recruits

16

19

Persons

Number of new graduate recruits (male)

812Persons

Number of new graduate recruits (female)87Persons

Number of mid-career recruits

14

11

Persons

Number of non-Japanese employees

47Persons

Managers as a percentage of all employees

14.5

15.4

%

Number of semi-managerial team leaders*8–

46

Persons

Female Semi-Managerial Team Leaders as a Percentage
of Total Semi-Managerial Team Leaders*8

–

2.2

%

Number of employees*7(3) Train and deploy
human resources*1

52,311

84,215

Thousands of yen

Annual cost of training (per employee)

95

150

Thousands of yen

Number of rewards provided for qualification acquisition

23

21

Cases

Amount of money provided in rewards for qualificationacquisition

1,950

1,100

Thousands of yen

Number of employees acquiring an importantqualification*9

109

106

Persons

Annual cost of training

28

2019

Social issues that could have a major impact on corporate value
Energy consumption (crude oil equivalent)

B

2018

2018

2019

Units

543,183

541,497

Thousands of yen

Sales revenue per employee–

55,076

Thousands of yen

Operating profit per employee

–

2,608

Thousands of yen

Frequency rate of industrial accidents

0.63

0.95

Casualties/
million working hours

Severity rate of industrial accidents

0.00

0.01

Days lost/
thousand working
hours

Number of fatal work accidents

0

0

Cases

1.26

3.50

Casualties/
million working hours

3,168,563

3,146,153

Hours

1

1

Times

FY

Material issues(4) Develop and use
new technologies*10(6) Increase productivity*2

C

Annual cost of research and ­development (consolidated)

Initiatives prerequisite for sustainably improving corporate value(7) Ensure occupational
health and safety*1

Frequency rate of industrial accidents not resulting inlost work time
Total number of work hours
Number of Group safety meetings held(8) Execute steadfast
compliance andcorporate governance

Number of safety patrols implemented

185

185

Times

Response rate for stress checks

95.4

94.0

%

Rate of compliance training participation*1,11

91.8

92.5

%

Number of helpline (whistleblower system) cases*1

7

7

Cases

Rate of information security training participation*

–

100

%

Rate of safety confirmation drill participation(annual average)

88.5

93.6

%

Number of risk management training sessions

4

6

Times

Number of automated external defibrillator (AED)
certificate holders

13

39

Persons

Commendation system:
Number of improvement proposals*13

950

1,066

Cases

Commendation system:
Improvement proposal submission rate*14

74.6

76.4

%

12

(9) Practice sophisticatedrisk management*10(10) Evolve our corporate
culture into one thatencourages employees toquickly and proactively
take on challenges*1	Toyo Kanetsu, non-consolidated. The figure for fiscal 2018 includes Toyo Kanetsu Solutions.
*2	A figure is not recorded for fiscal 2018 because this fiscal year preceded the business integration with Toyo Kanetsu Solutions.
*3	The rate for fiscal 2018 excludes Toyo Kanetsu Solutions employees. Not implemented in fiscal 2019 due to the impact of COVID-19.
*4	Includes full-time employees (including senior employees but excluding assignees) + contract employees + temporary workers +number of incoming assignees.
*5	Includes full-time employees (including senior employees but excluding assignees).
*6	A figure is not recorded for fiscal 2018 because this fiscal year preceded the introduction of the attendance management system.
*7	Includes directors and full-time employees.
*8	A figure is not recorded for fiscal 2018 because this fiscal year preceded the introduction of the team leader system.
*9	Number of employees who are architects, engineers, or construction management engineers.
*10	Toyo Kanetsu and consolidated subsidiaries.
*11	Includes directors, executive officers, and new employees, including those at Group companies.
*12	A rate is not recorded for fiscal 2018 because this fiscal year preceded the implementation of Companywide training.
*13	Overall number of proposals for the Group as a whole, including subsidiaries. Total number of proposals is the aggregate; multiple proposals
from one person are all counted.
*14	Submission rate = Total number of proposals submitted (Toyo Kanetsu, non-consolidated) ÷ number of eligible Toyo Kanetsu employees at the endof the second fiscal quarter.
Total number of proposals is the aggregate; multiple proposals from one person are all counted.

29

Business Review

Logistics Solutions Business
Adopting a customer-first policy,
the Logistics Solutions Business will tackle the challenge ofaddressing social issues through solutions that shape thefuture of logistics while responding to customer needs.

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

In Step with the Logistics Needs of Different Eras
The Logistics Solutions Business was launched in 1955
to produce conveyors for civil engineering and construction work. Subsequently, due to needs forstrengthening logistics functions, such as those toimprove production efficiency during the era of rapid
economic growth, the business has developed trailblazing systems for the distribution industry and airportsthat were the largest and first of their kind in Japan
while introducing cutting-edge technologies from overseas. In these ways, the business has provided a variety of solutions to diversifying and increasingly
sophisticated needs in step with the changing times.
The digital picking system that the Logistics
Solutions Business introduced from the United Statesin 1981, the first such system launched in Japan,
became the standard system in the co-op industry. To
this day, the Company continues to maintain its leading
market share of these systems. In the e-commerceindustry, which has seen dramatic growth in recent
years, we entered the market when catalog mail order
was the norm, prior to the expansion of e-commerce.
In this industry, where we focus on Multishuttle systems, a key product addressing sophisticated logistics
needs including high-mix, low-volume logistics andsame-day deliveries, we count among our customers
almost all major general e-commerce business operators in Japan and boast a leading delivery track record.
In airports, we have been providing airport baggage
handling systems since 1971. Through the delivery to
65 domestic airports, such as Haneda, Narita
International, and Chubu International airports, of systems of high reliability and serviceability that are passenger-, operator-, and baggage-friendly, we havecaptured a market share of over 80% for baggage
handling systems in Japan.

Logistics Solutions Matched to the Social Patterns of the “Era with COVID-19”
In the distribution industry, the e-commerce and co-op
markets in which the Logistics Solutions Business has
built a track record have been growing rapidly in recent
years. However, the decrease in Japan’s working-age
population, due to the country’s falling birth rate andaging society, has become a serious issue on the logistics for the industry. Moreover, amid expectations offurther market growth stemming from the entrenchment of and increase in stay-at-home consumption due
to the spread of COVID-19, responding to new issues—
including the preparation of business continuity plansthat make contingencies for the risk of infection inside
logistics centers, where workers are forced to work in

30“Three Cs”, closed spaces, crowded places, and closecontact settings—has become an urgent task.
The Logistics Solutions Business offers logistics
solutions addressing these social issues. Goods to
Person (GTP), a picking system deploying the enhanced
functionality of Multishuttle systems, is one of thesetechnological solutions. Instead of a picking worker
walking to pick up
products for delivery,
the product moves tothe worker’s station,
thereby saving laborand increasing
CG rendering of GTP

Notifies failure warning

Logistics Center

2 Abnormality alarmfunction

Failureprediction

1 Continuous
monitoring function

Monitoring data

Predictive
maintenancesystem4 Visualization function
3 Online function
5 Reporting function

Monitoring

Notifies failure warning

2 Abnormality alarmfunction

IoT sensor units (TKK-PMD series)
for predictive maintenance

Planned maintenanceing function

TKK
Service
centerIn addition, as part of our DX efforts, we are working to increase the overall efficiency of logistics centersthat optimize layouts by taking into account data on
incomings, outgoings, and storage, which is actual
work data, in determining logistics center layouts andworkers’ movements. We are also advancing the development of picking systems utilizing robots (Goods to
Robot (GTR)), an innovation that will further increasenon-contact work processes, and considering thecomplete automation of logistics centers. In theseways, we will offer new logistics value in the “era with
COVID-19”.
Customerefficiency. At the same time, as workers can undertake
picking at their separate stations while maintaining a
distance from others and without moving around thewarehouse, this technology is also effective in helping
people maintain social distancing.
For logistics centers, which are also a type of social
infrastructure, to operate 24 hours a day, 365 days ayear, optimal maintenance of machinery and equipment
is indispensable. To that end, we released predictive
maintenance services leveraging AI and the IoT in April
2020. Using IoT sensors newly developed by theCompany, predictive maintenance services enablenon-stop logistics by optimizing the timing of partschanges and other forms of maintenance via the visualization of equipment operating conditions and prediction of abnormalities. A major general electronic
components manufacturer has already decided to
install this service.

Achieving the Objectives of the Medium-Term Business Plan
The Logistics Solutions Business has posted recordhigh profits by making exhaustive efforts to improve
profitability, the basic policy of the Medium-TermBusiness Plan, through strengthening project control
management for large-scale projects and other measures from the first year (fiscal 2019) of the MediumTerm Business Plan. Even in a business environmentthat is highly uncertain because of the impact of
COVID-19, we will establish a solid foundation for ahigh-growth business while responding to socialtransformation.
As mentioned earlier, amid the emergence of new
growth opportunities for logistics centers, we will tackle
the challenge of solving social issues, such as addressing the decline in the working-age population andresponding to COVID-19, through a range of next-generation solutions.
For airports, on the other hand, the impact of COVID19 has prompted a dramatic decline in air passenger
numbers and demand for airport equipment is facing achallenging phase. To address this situation, theCompany launched the delivery of a self-service baggage
drop machine as a peripheral business field to the airport
baggage handling systems. Furthermore, the Company
is developing the local airport baggage handling systems

market in Indonesia and Thailand through proactive
business activities in these countries while strengthening of cooperation with local partners, with the goal of
expanding its geographical business fields.
In addition, to augment our order processing
system in response to the expanding logistics systems
market, we are working to renew internal systems that
optimize the Logistics Solutions Business as a whole,such as digitalizing the value chain, from sales throughto maintenance services. We will further increase profitability by linking these efforts to strengthening competitiveness, increasing productivity through efficient
project control management.
Net Sales and Operating Profit in the
Logistics Solutions Business(Billions of yen)
40
30
20

6.0

29.2

28.8
2.81

1.90

29.0

28.0

2.58

3.00

3.0
1.5

10
0

4.5

FY2018FY2019Results
Net sales

FY2020

FY2021

Forecast

Plan

0Operating profit (right)

31

Business Review

Plant & Machinery Business
The Plant & Machinery Business engages in the engineering,procurement, and construction (EPC) of tanks and auxiliary
facilities designed to efficiently store energy and other ­products.
We support society with our strong project ­execution capabilities at each phase of project control management.

Hiroshi Ohgi
Senior Managing Officer and Division Manager, Plant & Machinery Division

Together with Energy Infrastructure
In the Plant & Machinery Business, since fabricating its
first fully welded tank in 1950 after the resumption ofoil refining in Japan, Toyo Kanetsu has delivered morethan 5,700 tanks to domestic and overseas projects
mainly for oil refineries, oil storage terminals, and LNG
export and import terminals as a leading player in theconstruction of large-scale tanks.
Toyo Kanetsu entered the market for LNG storage
tanks when it began to take shape in the 1960s andplayed a key role in the formation of supply chains bydelivering a large number of tanks. Storing LNG attemperatures of around –162Cº requires special steel
and advanced engineering and installation technologies. Toyo Kanetsu has always been a leader in theindustry, delivering one of the world’s largest LNG
storage tanks (83 meters in diameter, 60 meters inheight, and 230,000 cubic meters of storage capacity),
for example, developing its technologies while responding to changes in laws, regulations, and standards. The
Company has delivered over 100 large-scale LNG storage tanks in countries around the world, for a market
share of approximately 15% (based on the number oflarge-scale LNG storage tanks).

In Japan, Toyo Kanetsu provides tank maintenanceservices for oil refineries and oil storage terminals
across the nation. Domestic laws mandate periodic
overhaul inspections of large-scale tanks. Toyo Kanetsu
plays a vital role in ensuring the safe operation of storage facilities with its advanced technologies and knowhow accumulated from the fabrication and installmentof large-scale tanks over many years.
In 1978, we opened the Batam Plant, a fabrication
plant for tank materials in Batam, Indonesia. Having beenin operation for more than 40 years, the Batam Plant ishighly regarded in the industry for its welding and fabrication technologies that comply with stringent laws inJapan and global standards. The plant has also contributed to the industrial development of Indonesia throughthe training of local personnel and technology transfers.

Batam Plant

Developing New Markets Using Our Accumulated Technologies
We believe it is our mission to fundamentally support
economic activities in society through the construction
and maintenance of resilient, vital energy infrastructure32

to ensure the stable supply of energy. Therefore, leveraging the know-how we have established to datethrough maintenance in Japan, and with the goal ofadvancing business expansion in Southeast Asia—
where we boast a significant tank delivery trackrecord—we opened a workshop in the Pengerang
district of Johor, Malaysia, that will act as the base forour maintenance business. This base has the geographical advantage of being able to quickly respond tomaintenance demand at large-scale plants in Malaysia
as well as in surrounding countries. We are currently
promoting sales to capture a wide range of demand by
taking full advantage of that location while leveraging
our abundant delivery track record, technological capabilities, and network.
Hydrogen, which has a light environmental footprint, is attracting expectations as a future form ofenergy. Hydrogen can be produced from various
resources, and it does not produce CO2 emissions
when used. While hydrogen is drawing attention as agateway to a low-carbon society, in liquid form, it must
be stored at the ultra-low temperature of around–253Cº, colder than LNG. Accordingly, storing liquidhydrogen requires highly advanced technologies. Byleveraging its accumulated expertise in low-temperaturetanks, Toyo Kanetsu is developing a large (10,000-­kiloliterclass) liquid hydrogen storage tank while conducting
joint development through industry-academia collaboration and the backing of a subsidy from NEDO, aiming tocontribute to the realization of a low-carbon society inthe near future.

Pengerang workshop

Achieving the Objectives of the Medium-Term Business Plan
Amid an ongoing severe business environment, thePlant & Machinery Business advanced measures toreturn to profitability as its basic aim of rebuilding business under the Medium-Term Business Plan andreduced losses in the first year of the plan (fiscal 2019)
more than initially projected. However, we expect plantrelated capital expenditures to be significantly delayedor revised due to the impact of the COVID-19 pandemic,
making it difficult at this time to achieve our aim of
returning to profitability in fiscal 2020.
In response, we will further reduce costs and promote measures that include making effective use of ourassets by temporarily dispatching skilled engineers toother companies and leasing construction equipment
and materials, in addition to installing and operating such
equipment and materials on a contract basis.
Also, we will improve our order system for tankmaintenance, which is a source of earnings in Japan,
and increase profitability while augmenting earnings
overseas through such efforts as increasing orders forvarious steel products other than tanks at our Batam
Plant in Indonesia and entering into the plant maintenance business centered on Malaysia.

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

20

15.5

15
10
5
0

-1.22
FY2018Net sales-0.30

FY2019Results
Maintenance work

11.4

9.9

8.4

0.30

-0.47

2.0
1.0
0
-1.0

FY2020

FY2021

Forecast

Plan

-2.0

Operating profit (loss) (right)

33

Business Review

Other Businesses (Life & Work Environmental Business Division)
Besides its two core businesses, the Toyo Kanetsu Group operates the industrial machinery, building
construction, and environmental surveys and assessments businesses. In fiscal 2020, the Company
established the Life & Work Environmental Business Division centered on Group companies responsible for these three businesses and will aim to contribute to the creation of environments and infrastructure that are sensitive to people.

Value Provided by Each Business34

For more than 60 years, Toyo Koken K.K. has been
involved in the industrial machinery business as a pioneer in equipment for moving heavy loads. It has a firm
foothold in the industry, producing and selling winches,balancers, and other products mainly used at building
construction sites and inside factories. Toyo Koken has
an extensive product lineup of winches, which are usedin building construction and other industries to carryheavy loads and is proud to be number one in thewinch category in Japan in terms of domestic deliveries. Mighty Puller and Baby Hoist are the brand namesof some of its category-leading products. These brandnames have grown to win the support of numerous
customers. Its balancers allow workers to lift and moveheavy loads at will using the principles of leverage. Toyo
Koken ranks number two in terms of market share in
the balancer industry in Japan, having won accolades
from many customers at worksites, principally including
those at manufacturing plants.
Leveraging its winch technology that boasts animpressive track record, Toyo Koken released Slope
Walker, a new product tailored to disaster

preparedness and aging infrastructure countermeasureneeds. This product allows for work to be carried out
safely and efficiently by assisting ascent and descenton slopes (steep inclines such as mountain surfaces),
which is a considerable burden for workers.
We are seeing an increasing need for products
such as winches and balancers, which contribute to
reducing and conserving labor, as the number of seniorcitizens and women working on production sites rises
due to labor shortages caused by the declining birthrate and aging society. Toyo Koken underpins thoseworking in a variety of settings, such as construction
sites and plants, through development and proposal
capabilities matching the requirements of worksites.

Toyo Kanetsu Builtec K.K. operates a building construction contract business that provides high-quality buildings with environmental performance taken into
consideration. It has put in place a structure for flexibly
proposing solutions in tune with the times while incorporating original construction methods with its own
design department. Toyo Kanetsu Builtec mainly concentrates on small and medium-sized buildings, including shared living environments, welfare-related
facilities, and retail stores.
In addition, in its steel pipe pile business, Toyo
Kanetsu Builtec has built up a lengthy track record in
the civil engineering field, including for bridges andlarge-scale equipment, where the strengthening offoundations is emphasized as a countermeasureagainst natural disasters, as well as in the construction
field that includes shared living environments andoffice buildings as a certified construction firm for NS
ECO-PILETM, a screwed steel pile that offers substantial
benefits in terms of workability and economic efficiency. Toyo Kanetsu Builtec also conducts business forgondolas and building scaffolding that are useful whenaging buildings are repaired and renovated, thereby
protecting the lives of people through safe and reliable
technologies.

Winch

Balancer* NS ECO-PILETM is a registered trademark of Nippon Steel Corporation and Nippon
Steel Metal Products Co., Ltd.

Construction of residential complex

Steel pile construction work

Kankyo Research Institute Inc. is in charge of the environmental surveys and assessments business, which
offers various inspection, measurement, and analysis
services related to asbestos, sick building syndrome,noises, vibrations, and bad smells. For the inspection
and analysis of asbestos, which is harmful to the healthof people, Kankyo Research Institute has a large
number of certified technicians who are among thebest in their class in the industry. Asbestos removal
requires technologies for precisely and properly disposing of asbestos. Backed by its know-how gained fromextensive experience, as well as its own high-performance analyzers, Kankyo Research Institute is capableof processing over 20,000 asbestos samples annually.
Amid increasingly diverse and sophisticated needs
for environmental assessments in recent years, Kankyo
Research Institute developed a real-time monitoring
system leveraging IoT technology as a new environmental measurement tool. This system makes it

possible to identify and confirm more than 10 types ofenvironmental information, including temperature,humidity, CO2, atmospheric pressure, noises, vibrations, and dust in real time, anytime and anywhere
using a smartphone, tablet, personal computer, orother device.
Kankyo Research Institute will continue to serve asa general consultant on the environment by making useof the know-how and technology it has cultivatedthrough its track record of more than 30 years in environmental analysis while contributing to the creation of asociety that is sensitive to people and the environment.

Real-time monitoring system

Achieving the Objectives of the Medium-Term Business Plan

Akira Kakihara
Managing Officer andDivision Manager,
Life & Work Environmental
Business Division

Net Sales and Operating Profit in the Other Business(Billions of yen)

12
9

2.0

8.2

6

7.8

7.8

1.10

0.88

8.5
1.10

0.91

3
0

1.5
1.0
0.5

FY2018FY2019Results
Net sales

FY2020

FY2021

Forecast

Plan

Operating profit (right)

0

Adopting a basic policy of selection and concentrationin other businesses in the current Medium-TermBusiness Plan, we increased business profits by proactively investing resources in growth fields and promoting the fine-tuning and stabilization of our businessstructures. Despite an uncertain market environment
due to the impact of COVID-19, the division, centeredon Toyo Koken, Toyo Kanetsu Builtec, and Kankyo
Research Institute, is developing and moving to achieve
profitability in new businesses, expanding growthdomains in existing businesses, and pursuing synergies among Group businesses, while leveraging M&A
and CVC investments.
Although we will make cautious decisions as wetake into account the impact of COVID-19 in regard toinvestments using M&A and CVC, we will aim tostrengthen existing businesses centered on the
Logistics Solutions Business and enter new domains
where growth is expected in the future. We will also aim
to contribute to the development of Group businesses
by further advancing collaboration with start-up companies, including existing CVC investment businesses.

35

Governance

Board of Directors (As of June 26, 2020)

Shigeharu Nakamura

Toshiaki Hiwatari

Kazuhito Watanabe

Keisuke Kodama

Outside Director andOutside Director andDirector

Director and

Audit & Supervisory

Audit & Supervisory

Managing Officer andExecutive Vice President

Committee Member

Committee Member

Division Manager,
Corporate Division36

Toru Yanagawa

Takashi Owada

Kazuto Abe

Tsuneo Nagai

President andDirector

Director andOutside Director andRepresentative

Managing Officer and Division

Audit & Supervisory

Audit & Supervisory

Director

Manager,

Committee Member

Committee Member

Logistics Solutions Division37

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 inmanagement. The Company has a corporate governance system that facilitates precise decision-making,rapid business execution, and proper supervision andmonitoring of operations.

Strengthening of Corporate Governance
2000

Introduces an executive officer system

2005

Establishes the Compliance Committee
Changes the maximum number of directors stipulated in the
Articles of Incorporation from 20 to seven

2008

Abolishes the retirement allowance scheme for directors

2015Transitions to a “company with an audit and supervisorycommittee” structure (shortening the term of office of
directors from two years to one year)
Changes the Articles of Incorporation to stipulate themaximum number of directors who are not Audit &Supervisory Committee members as seven and the
maximum number of Audit & Supervisory Committee
members as four
Appoints outside directors (three members of the Audit &Supervisory Committee members)
Establishes the Nomination and Compensation Committee(chaired by an outside director)

2015

Formulates a shareholder return policy
Establishes the Corporate Governance Guidelines

2016Commences evaluations of the effectiveness of the Board of
Directors
Formulates a basic capital policy

2018R evises the Articles of Incorporation to allow an executive
officer to be appointed as president

2019Introduces a performance-linked stock compensation system

2020

Establishes the CSR Committee

Structure
Director compensation system
Operational policy

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 maximumof 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, andinternational perspectives for ensuring a Board of Directorsthat is sufficiently diverse and of an appropriate size.

38

Directors who are members of the Audit &Supervisory Committee are selected for their experiencein corporate management and/or in-depth understandingof the Company’s operations, as well as for their knowledge in the necessary fields of finance, accounting, andlaw. At least one of these directors is an expert infinance and accounting. The Company will examine thepossibility 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 and authorized as
defined by laws, regulations, and the Articles ofIncorporation; 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 importance of the roles and duties they are expected toperform. The Audit & Supervisory Committee also
audits and monitors business execution from an independent and objective vantage point. For this reason,candidates who will serve as both outside directors andmembers of the Audit & Supervisory Committee are
independent and highly specialized and possess extensive experience as corporate 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 andCompensation Committee, on which outside directors
form a majority, as an advisory body to the Board of
Directors to ensure transparency and appropriatenessCorporate Governance System (as of June 26, 2020)

General Meeting of Shareholders
Appointment, dismissal

Board ofDirectors

Non-committee member
directors

Committee member
directors

Consultation
Supervision

Business
Execution
Division

Appointment,
dismissal,
non-reappointment

Appointment, dismissal

Audit & Supervisory
Committee

Recommendation

LinkageAccounting auditor

Auditing,supervision

Nomination and Compensation Committee

ReportMonitoring,guidance

Audit

President andRepresentative Director

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

Controlsupport

Audit

Monitoring,guidance

Internal Control
Division

Audit andcontrolassessment

Linkage

Internal Audit
Division

39

Corporate Governancein the nomination of director candidates and decisions
related to their compensation. In this regard, theCompany has put in place a structure where fair andhighly transparent procedures are followed, including
the creation of opportunities for outside directors to
get involved and advise on matters in an appropriatemanner. For matters concerning the nomination andcompensation of directors, the committee meets asoften as required to deliberate and makerecommendations, 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 26, 2020, 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 theeffectiveness of the Board of Directors, which thenreaches a final evaluation decision while referring tothese opinions on its effectiveness. In addition to evaluating the effectiveness of the Board of Directors, evaluations are conducted every year on whether the entire
corporate governance system is 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 2019
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 2020, 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 basedon a scoring sheet for effectiveness.
4.	At the Board of Directors’ meeting held on May 25,
2020, the directors discussed the self-evaluations
and reached a decision on the final evaluation.

40

(2) R
 esults of Evaluation and Analysis ofEffectiveness of Board of Directors
Through this evaluation process, the Company’s Boardof Directors affirmed that the Board of Directors isfunctioning effectively overall. Below is a summary of
the results of 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 andresponsibilities expected of him by the Board of
Directors, and is properly discharging his duties
as a director.
3.	The Board of Directors formulated and disclosed
the new Medium-Term Business Plan (fiscal
2019–fiscal 2021) to clarify the Company’s strategic direction and has disclosed the status ofprogress of this plan at results briefings. In addition, the Board of Directors newly published the
TKK Report 2019 as an integrated report to provide information to shareholders on the status of
the Company’s approach to ESG (non-financial
information).
4.	The Board of Directors established theNomination and Compensation Committee as anadvisory body to the Board of Directors. This
committee deliberates matters concerning thenomination and compensation of directors, andmakes sure this decision-making process is fair
and transparent with the appropriate level ofinvolvement of independent outside directors.
5.	The Board of Directors has made strenuous
efforts in regard to COVID-19 countermeasures toprevent the spread of infection, based on thegovernment’s state of emergency declaration.

(3) Future Issues and Response
The Board of Directors will continue to ensure theeffectiveness of the Board of Directors, undertaking thefollowing measures so that the Board of Directors canadequately 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.	Discuss deeply from multiple perspectives, and3.	Take appropriate risks and proactively and boldly
make decisions. Further, invigorate discussion

regarding important internal management issues by
the Management Council, the Board of Directors,
and other bodies while endeavoring to promote thedigitalization of corporate management.
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.

Matters Related to Outside Directors
NameToshiaki Hiwatari

Tsuneo Nagai

Shigeharu Nakamura

Professional knowledge as aprosecutor and attorney

Extensive experience andbroad knowledge of corporate management as an
executive at listed companies(different sector)

Extensive experience andbroad knowledge of c­ orporate
management as an executive
at financial institutions

Field of expertise

Number of Company shares owned

260 shares

2,260 shares

260 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

8/8 times (100%)

8/8 times (100%)

8/8 times (100%)

Note: Number of shares as of June 26, 2020. Meeting attendance shown for fiscal 2019.

Director Compensation
Policy for Deciding Method to Calculate
Amount of Compensation for Directors
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 andCompensation Committee, of which outside directors
form a majority.
Compensation for directors who are not membersof the Audit & Supervisory Committee comprises fixedcompensation, additional compensation, and performance-linked stock compensation, the combined totalof which is within the maximum amount for compensation approved by resolution of the General Meetingof Shareholders.
Compensation for directors who are members of

the Audit & Supervisory Committee comprises fixedcompensation only, the total of which is within the
maximum amount for compensation approved by resolution of the General Meeting of Shareholders anddetermined in deliberations by directors who are­members of the Audit & Supervisory Committee.
a. Fixed Compensation and Additional Compensation
Within the maximum amount for compensation
approved by resolution of the General Meeting of
Shareholders, the amount of fixed compensation isdetermined according to rank while additional compensation, which is linked to the Company’s earnings, isdetermined as a specific amount according to a compensation table, with consideration paid to performanceindicators, such as the total return ratio, dividend payout
ratio, and consolidated profit before income taxes andother adjustments as a basic reference. On occasion, abonus may be paid to directors only if approved by a41

Corporate GovernanceTotal Compensation by Director Category, Total Compensation by Type, and Number of Eligible Directors in Fiscal 2019

Director category

Total amount ofcompensation(¥ million)

Total amount of compensation by type (¥ million)
Fixedcompensation

Additional
compensation

Number of
Performance-linked eligible directors
stock compensation

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

149

77

56

15

6

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

16

16

—

—

1

Outside directors

26

26

—

—

3

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

separate resolution of the General Meeting of
Shareholders and only when the Company’s earnings
exceed a certain threshold.
b. Performance-Linked Stock Compensation
Performance-linked stock compensation is paid to
directors (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. The
period for the compensation runs for three fiscal years
from the fiscal year beginning on April 1, 2019 (theperiod of the present Medium-Term Business Plan). The
purpose of introducing the performance-linked stockcompensation system is to clarify the link between
compensation for eligible directors and executive officers and the Company’s earnings and stock value. By
facilitating the sharing by eligible directors and executive officers of the risks and returns arising fromchanges in the share price with shareholders, thissystem heightens the motivation of executives to further improve the Company’s performance and increase
its corporate value over the medium to long term. The
process for determining this system began when the
introduction of a performance-linked stock compensation system was brought to the Nomination andCompensation Committee at a regular meeting of theBoard of Directors on June 28, 2018. Subsequently,
following various examinations of issues such as thesystem’s significance, compensation amounts, scopeof eligible individuals, and performance-linkedco-­efficient by said committee, introduction of thesystem was recommended at the Board of Directors’
meeting held on May 13, 2019, and approved by aresolution at the 111th General Meeting of Shareholders
held on June 27, 2019.
In addition to the resolution approved at theGeneral Meeting of Shareholders, this system grants

42

points to eligible directors and executive officers inaccordance with their rank and achievement of earnings
targets each fiscal year, based on the share delivery
regulations of the Performance-Linked Stock
Compensation System for Directors, which was established by the Company. In principle, these directors andexecutive officers are eligible to receive shares of theCompany’s stock (one point is equivalent to one shareof ordinary stock) and monetary compensation basedon 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
year of each medium-term business plan. These points,
shares of the Company’s stock, and amounts of monetary compensation are approved by the Board of
Directors after the General Meeting of Shareholders in
the relevant fiscal year.
As a performance-linked co-efficient that serves as
an indicator for granting performance-linked stock compensation to eligible directors and executive officers,
the Company has adopted consolidated ROE for thosewith responsibilities on a Companywide basis, andCompanywide ROE and divisional operating profit at a
rate of 50% each for those with responsibility for eachbusiness as a method for calculating points. ROE has
been adopted because it is publicly disclosed information and an indicator of improvement in medium- tolong-term corporate value, which is expected by shareholders. At the same time, it is an effective indicator as
an incentive for directors and executive officers who
aim to achieve the ongoing growth of the Company.
Divisional operating profit has been adopted because itis an indicator for the division for which directors andexecutive officers have responsibility as well as being
publicly disclosed information. In fiscal 2019,
Companywide ROE and divisional operating profit targets and results were as follows.

TargetResultLevel of achievement

3.70%

4.97%

Division Operating Profit (Logistics Solutions Business)

2,200 million yen

2,812 million yen

120% or more

Division Operating Profit (Plant & Machinery Business)–650 million yen–305 million yen

120% or more

Companywide ROE

120% or more

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
for purposes other than strengthening relationships
and partnerships with customers and suppliers,
with the objective of increasing corporate value.
New acquisitions of cross-shareholdings, as well as
buying and selling shareholdings, are conducted
and reported to the Board of Directors in accordance with 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 company, with no sign of a recovery insight, 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 shares of
Toyo Kanetsu for cross-shareholding purposes
indicates its intention to sell these shares, theCompany shall not take inappropriate action that
may interfere with the sale of the shares, such as
suggesting the company would lose business with
the Company.
(5) Toyo Kanetsu 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
Under the Company’s risk management system, basedon its Risk Management Rules, the Division Manager of
the Corporate Division oversees the risk managementof the Company and the Group as the risk management
officer. Under the command of the risk management
officer, a department in charge of Group-wide risk management identifies risks and monitors evaluations andresults. Important risks are regularly reviewed after
considering changes in the business environment andthe status of risk responses, and we strive to ensurethat effective risk countermeasures are being appropriately implemented in a timely manner.
We recognize that the effects of the spread of
COVID-19, which emerged in 2020, pose a significant
risk to the Company on many fronts. In fiscal 2019, theimpact on our business results was limited. In fiscal

2020, however, there is a downside risk to businessperformance due to the cancellation or delay of someprojects that were ordered as well as delays in the
supply of products and parts purchased overseas. In
addition, constraints on oil- and gas-related capital
investments, based on an observed decrease in energy
demand, and lower demand for airport-related equipment due to a sharp drop in the number of air travelers
could adversely affect the Group’s business results overthe medium to long term.
From a financial perspective, in preparation for aworsening of our cash flows due to the global spread of
COVID-19, we will prepare for contingencies, while
making careful investment decisions and ensuring that
we have sufficient liquidity on hand for our needs.

43

Business Risks

Out of all the risks that could affect our business activities, in addition to risks arising from the effect of the spread of
COVID-19, some that would have a significant impact are shown below. However, this is not an exhaustive list ofrisks related to the Group and there are risks that are difficult to foresee.
* Note that forward-looking statements contained in this section are based on the understanding of the Company as of the submission date (June 26, 2020)of the Securities Report (in Japanese only) for the fiscal year ended March 31, 2020.

Category

Nature of risk
Logistics Solutions Business• Slowdown in investments in logistics-related facilities due a lower volume of logistics as a result ofa recession or the declining birthrate and aging population• 	Decline in demand for air travel

1 Global economic andenergy market trends,
etc.

Plant & Machinery Business• Cancellation, postponement, or major revision of investment plans due to factors including global economic
trends, economic and social conditions in oil and gas producing and consuming countries, energy andenvironmental policies in various countries, and trends in crude oil and LNG prices• In addition, the following risks are also possible in the event of a deterioration of the economic environment:a) Fluctuations in foreign exchange ratesb) Fluctuations in interest ratesc) Valuation of securities held
Logistics Solutions Business• An unexpected increase in costs due to various factors, such as compressed construction periods due to
unexpected changes in construction plans under pressure to shorten delivery times and delivery deadline
adjustments due to carrying out multiple large projects simultaneously within a certain time period• Impact on the execution of projects in the event that products purchased from specific overseas business
partners cannot be purchased in a stable manner
Plant & Machinery Business

2 Execution of projects• Shortages of construction workers and rising purchase prices of materials and equipment• Deterioration in profits from projects and adverse effect on the Group’s social reputation due to serious
quality complaints or problems with products• In addition, the Group’s overseas operations carry the following inherent risks:a) Unexpected changes in laws and regulationsb) Political and economic instabilityc) Difficulties in securing human resourcesd) Unfavorable tax system revisionse) Social disorder due to terrorism, war, epidemics, disasters, or other factors

3

Intensifying competition
for orders• Unreasonable downward pressure on profitability• Impact on the Group’s ability to obtain orders due to changes in terms of customer policies and plans,
the business environment of the industry, and industry restructuring4

Launch of new
businesses• Impact on business results over the medium to long term in the event that strategic investments do notachieve initial expectations of synergies or do not lead to the launch of new businesses

5 Climate change• Impact on the business environment in the event that demand for tanks decreases due to a shifting energy mix• Decrease in social trust as a result of the occurrence of soil, air, water, marine, and other pollution caused bybusiness activities

Information security
6 and maintenance of­information
infrastructure• Damage to the Group’s reputation for reliability due to the loss or leakage of confidential information as aresult of unforeseen cyberattacks• Loss of business opportunities in the event that the Group lags behind in DX initiatives

7 Securing and developing human resources• Impact on business activities from an outflow of human resources and rise in recruitment costs

8 Occupational healthand safety• Compensation for damages, criminal penalties, administrative punishment, and loss of social trust in theevent of problems or an accident

9 Natural disasters andepidemics• Serious material damage and human injury caused by greater-than-expected natural disasters

10 Compliance• Financial penalties and a reduction in the public’s trust in the Group stemming from violation of laws andregulations in Japan and overseas

Details are available in the Financial Section of TKK Report 2020, which is on the Company’s website.
https://www.toyokanetsu.co.jp/global/ir/tkk_report.php

44

Message from Outside Directors

TsuneoNagai
Outside Director and
Audit & Supervisory
Committee Member

It is important for the corporate management of any
company to make steady progress on day-to-day business matters. I am of the opinion that TKK has done thiswell. I also believe it is important to take on challenges
that may seem impossible at first. The Company must
contemplate what can be done or how to change in orderto solve a challenge and, in doing so, it can become an
innovative solution provider. For people who have beenroutinely successful in the past, taking on seemingly
impossible challenges is the hardest, and they tend tolook for reasons why it will fail. It is essentially importantto change the approach by examining a new direction fortaking on a challenge instead of looking for a solution
based on what one can already do.
Looking at TKK now, I can see in the Logistics
Solutions Business how the Company is on a path toward

Shigeharu
Nakamura
Outside Director and
Audit & Supervisory
Committee Member

Today, corporations are being asked to play a greater rolein contributing to solutions for various social and global
issues, such as the SDGs. TKK is well positioned toaggressively tackle these social and global issues,­without circumventing such issues, as it engages in thefields of energy and the environment. I believe TKK
made the right decision when it began publishing an
integrated report in fiscal 2019 as a means of reportingon its progress addressing these issues while identifying
material issues.
The 10 material issues identified by the TKK Groupare a natural choice, in my opinion, including potential
contributions to the SDGs. Of these, I think TKK is making
solid progress on the category C issues related to corporate infrastructure, namely, (7) Ensure occupational healthand safety, (8) Execute steadfast compliance and corporate governance, (9) Practice sophisticated risk management, and (10) Evolve our corporate culture into one that

becoming an innovator. That being said, the Plant &Machinery Business has yet to embark on this necessarypath, in my view. In this context, following businessintegrations that reshuffled a large number of personnel,
including managers, and their knowledge around theCompany, conducting management through more rapid
decision-making would be an effective solution for sustaining growth in corporate value as well as for restructuring the Plant & Machinery Business.
I believe TKK has kept its corporate governancestructure in tune with the changing times and operating
conditions. Rules about corporate governance are constantly subject to change, requiring a proactive approachinstead of a passive one, and I feel that the Company has
been proactive enough in this regard. I also think management needs to continue with efforts to improve its
effectiveness.
As an outside director,, I will voice various opinionsfrom different viewpoints, based on my career and experience to date. By doing so, I hope to change the tone ofBoard of Directors’ meetings, which tend to focus onreports from inside officers, into venues where frankopinions are exchanged among the directors, furthering
their shared understanding of issues.

encourages employees to quickly and proactively take onchallenges. In my view, TKK has an adequate base fromwhich to tackle the category A social issues that could
have a major impact on its corporate value, such as (1)Respond to changes in the business environment causedby climate change, and (2) Respond to the decline inJapan’s population. Another area in which the Company
has made gradual progress is the empowerment of
women in the workplace, but I believe more needs to bedone in terms of providing guidance and training from along-term perspective, including thinking about how best
to draw out the latent abilities of female employees.
My impression of the Company’s employees is thatthey are passionate about their jobs and put everything
into their work. I also think TKK is concentrating efforts on
improving its corporate governance. What I am concerned about is that inside executives have rarely commented on topics outside of their own areas of
responsibility at Board of Directors’ meetings. In my
opinion, only by asking questions about other businessareas and sometimes voicing an opinion critical of otherbusiness divisions can the executives deepen their understanding across businesses. For TKK to advance further
as a corporation, I believe the scope of topics for discussion must be widened in the Board meetings, and, as an
outside director, I intend to assist in this regard.

45

Financial and Corporate Data

Consolidated Balance Sheets(Japanese GAAP)(Millions of yen)Previous fiscal period

Current fiscal period(As of March 31, 2019)(As of March 31, 2020)

Cash and deposits¥ 7,666¥11,507

Notes and accounts receivable—trade23,267

15,413

Investments in leases

1,499

937

AssetsCurrent assets

38

27

Work in process

4,252

5,179

Raw materials and supplies

Merchandise and finished goods

1,670

1,977

Other

534

435

Allowance for doubtful accounts

(22)

(16)

38,90635,461

Buildings and structures, net

3,321

4,218

Machinery, equipment and vehicles, net

1,021

1,016

Total current assets
Non-current assets
Property, plant and equipment

310

364

10,556

10,568Construction in progress

622

253

Other, net

1220

15,845

16,442357

381

Investment securities

8,671

8,013

Deferred tax assets

63

45

Retirement benefit asset

332

38

Other

868

889

Allowance for doubtful accounts

(289)

(286)

Tools, furniture and fixtures, net
Land

Total property, plant and equipment
Intangible assets
Investments and other assets

Total investments and other assets
Total non-current assets
Total assets

46

9,646

8,699

25,85025,523¥64,756¥60,985

(Millions of yen)

Liabilities

Previous fiscal period

Current fiscal period(As of March 31, 2019)(As of March 31, 2020)

Current liabilities
Notes and accounts payable–trade
Short-term borrowings
Current portion of long-term borrowings
Accrued expenses¥ 1,570

¥

919

7,849

7,849

514

619

7,534

4,763

Income taxes payable

659

553

Advances received

2,020

2,790

Provision for bonuses

227

267

Provision for loss on order received

121

241

Provision for warranties for completed construction

555

389

Other

870

455

21,922

18,848Long-term borrowings

4,627

4,488

Deferred tax liabilities

1,267

1,520

Deferred tax liabilities for land revaluation

1,095

1,095

Retirement benefit liability

358

152

Asset retirement obligations

224

235

Other

27

40

7,599

7,534

29,522

26,382

Total current liabilities
Non-current liabilities

Total non-current liabilities
Total liabilities

Previous fiscal period

Current fiscal period(As of March 31, 2019)(As of March 31, 2020)

Share capital

18,58018,580Capital surplus

1,273

1,273

Retained earnings

14,54915,224

Treasury shares(1,077)(2,355)

Total shareholders’ equity

33,32432,722

2,621

2,666

Net assets

Shareholders’ equity

Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges—

0

Revaluation reserve for land

106

106

Foreign currency translation adjustment

(759)

(729)

Remeasurements of defined benefit plans
Total accumulated other comprehensive income

(61)

(165)

1,907

1,878

1

1

Total net assets

35,23434,602

Total liabilities and net assets¥64,756¥60,985

Non-controlling interests

47

Consolidated Statements of Profit or Loss and Comprehensive Income(Japanese GAAP)(Millions of yen)

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating profit

Previous fiscal year

Current fiscal year

(From April 1, 2018
to March 31, 2019)(From April 1, 2019
to March 31, 2020)¥45,188
38,194
6,994
5,588
1,406

¥46,518
37,355
9,162
6,570
2,591

12
302
—
136
452

9
277
5
160
452

49
19
17
87
1,771

59
—
14
74
2,970

36
74
87
46
1
246

0
578
—
—
—
579

237
159
20
418
1,599

673
39
48
761
2,788

748
(173)
574
¥ 1,025

759
311
1,070
¥ 1,717¥ 1,025(0)¥ 1,717
(0)

(374)
—
(83)
(66)
(523)
501

44
0
30
(104)
(29)
¥ 1,688501(0)¥ 1,688(0)Non-operating income
Interest income
Dividend income
Foreign exchange gains
Other
Total non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Other
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 attributable toProfit attributable to owners of parent
Loss attributable to 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 toComprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

48

¥
¥

Consolidated Statements of Changes in Equity(Japanese GAAP)(Millions of yen)
Shareholders’ equity
Share capital Capital surplus

Balance as of March 31, 2018¥18,580¥1,273Retainedearnings

Treasuryshares¥15,750¥(1,397)

Total
shareholders’equity¥34,207

Changes during period
Dividends of surplus

(930)

(930)

Profit attributable to ownersof parent

1,025

1,025

Reversal of revaluation reserve
for land

26

Purchase of treasury shares(1,323)Cancellation of treasury shares26(1,004)(1,004)

1,323—

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

(1,201)

319

(882)

¥18,580¥1,273¥14,549¥(1,077)¥33,324

Changes during period
Dividends of surplus(903)

Profit attributable to ownersof parent

1,717

Purchase of treasury shares(138)

Disposal of treasury shares

(903)
1,717
(1,416)(1,416)138—

Net changes in items other thanshareholders’ equity
Total changes during period
Balance as of March 31, 2020

—

—

675

(1,277)(602)¥18,580¥1,273¥15,224¥(2,355)¥32,722(Millions of yen)
Accumulated other comprehensive income

Balance as of March 31, 2018

Valuationdifference on
available-forsale securities

Deferred
gains orlosses onhedges

Revaluation
reserve forland

Foreigncurrencytranslation
adjustment¥2,995¥—¥133¥(676)

Total
Remeasureaccumulated
ments ofother
definedcom­prehensive
benefit plansincome¥ 5¥2,458

Noncontrollinginterests¥0

Total net
assets¥36,666

Changes 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—

Cancellation of treasury shares
Net changes in items other thanshareholders’ equity
Total changes 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

Changes during period(903)

Dividends of surplus
Profit attributable to ownersof parent

1,717

Purchase of treasury shares(1,416)—

Disposal of treasury shares
Net changes in items other thanshareholders’ equity
Total changes during period
Balance as of March 31, 2020

44

0

—

30

(104)

(29)

0

(29)

44

0

—

30

(104)

(29)

0

(631)

¥2,666¥0¥106¥(729)¥(165)¥1,878¥1¥34,60249

Consolidated Statements of Cash Flows(Japanese GAAP)(Millions of yen)

Cash flows from operating activities
Profit before income taxes
Depreciation
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 trade receivables
Decrease (increase) in investments in leases
Decrease (increase) in inventories
Decrease (increase) in advance payments–trade
Increase (decrease) in trade payables
Increase (decrease) in advances received
Other, net
SubtotalInterest and dividends received
Interest 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
Payments into time deposits
Proceeds from withdrawal of time deposits
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 borrowings
Proceeds from long-term borrowings
Repayments of long-term borrowings
Purchase of treasury shares
Proceeds from disposal of treasury shares
Proceeds from share issuance to non-controlling shareholders
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

50

Previous fiscal year

Current fiscal year

(From April 1, 2018
to March 31, 2019)(From April 1, 2019
to March 31, 2020)¥ 1,599
728
(87)
(3)
(13)
4
(62)

¥ 2,788
718
—
(9)
(195)
139
120

(25)

(165)

(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)

(287)
59
—
39
(17)
673
(578)
6
(18)
7,865
562
(1,221)
1(3,428)
769
(287)
7,533
287
(67)
—
(24)
(772)
6,955

—
—
500
(1,080)
375
(717)
74

(166)
118
—
(1,424)
4
(250)
878

(427)

—

(40)
(1,315)

27
(812)

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

—
480
(514)
(1,566)149
0(901)(2,351)
1
3,793
7,609
¥11,402

Corporate Profile and Stock Information (As of March 31, 2020)
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

995 (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

Stock exchange
listings

Tokyo Stock Exchange First Section

Independent
auditorGyosei & Co.

Name

The Master Trust Bank of Japan, Ltd.
(trust account)
Japan Trustee Services Bank, Ltd.
(trust account)
Resona Bank Limited
Nippon Life Insurance Company
Daiei Real Estate & Development
Co., Ltd.
UBS AG LONDON A/C IPBSEGREGATED CLIENT ACCOUNT
Japan Trustee Services Bank, Ltd.
(trust account 5)
Mizuho Bank,Ltd.
JP MORGAN CHASE BANK 385151
Tomohiro Yoshida

Number ofshares(Thousands)

Shareholding
(%)

482

5.65

427

5.00

419
414
212

4.91
4.85
2.49

181

2.12

174

2.04

153
133
128

1.80
1.56
1.50

Notes: 1 In addition to the aforementioned, the Company holds 790,040 shares oftreasury stock.
2 The calculation of the percentage of total shares outstanding excludes treasury
stock.

Shareholders and Distribution of Shares
Japanese individuals

Japanese financial

and others 31.0%

institutions 30.7%
Japanese securities firms

Treasury stock 8.5%

3.0%
Other corporations

Overseas institutions

11.9%

and individuals 14.9%

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 3FY2015FY2016FY2017FY20180

FY2019Thank you for taking the time to read TKK Report 2020. With the aim of improving corporate value
from an ESG standpoint, the Group began publishing the TKK Report in fiscal 2019. In fiscal 2020,
which sees the publication of our second integrated report, we enhanced the report’s content whilereferencing the valuable opinions of our stakeholders. We will continue to work to improve the reportand strive to make it a tool for constructive dialogue with all stakeholders. Please feel free to contact
us if you have any opinions on this report.
Keisuke Kodama
Director and Executive Vice President
Chair of the CSR Committee

51

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.

Printed in Japan