DKS REPORT2017

DKS Co. Ltd.

Chemistry provides
a solution.
DKS Credo

Contributing to the nation andsociety through industry

DKS Mottoes

Quality First
Cost Reduction
R&D Efforts

DKS Group Logo

The DKS Group logo symbolizes“Act for a Leap,”
our step for globalization.
It describes the bridge for growth toward“Challenge to 1000.”

CONTENTS
About the DKS GroupDKS Report 2017 Editorial Policy
In 2016, the DKS Group began to publish its annual report (DKS
Report), which added information about the Company's finances andmanagement strategy to what had been in its Environmental andSocial Report. For DKS Report 2017, we considered the International
Integrated Reporting Framework promoted by the International
Integrated Reporting Council (IIRC).
From this fiscal year we are publishing an English-language
edition. As our business activities become increasingly internationalin nature, we aim to communicate to all our stakeholders including
those outside Japan. Starting with the disclosure of environmental,social and governance (ESG), and nonfinancial information
associated with DKS’s sustainable growth, we will also convey
management’s vision, business results, growth strategy, capital
policy and other information.
In this Report, by visualizing those“invisible assets”that raise
corporate value, we attempt to describe the Company's current
conditions and its journey to the future, so as to be able to inform thereaders of the creation of value across the short, medium and longterms. Looking to the future, we will use the DKS Report as acommunication tool with all our stakeholders.
Please refer to our official website for detailed information
about the financial and nonfinancial information of the DKS Group.

Organizations Covered by this Report
DKS Co. Ltd.“( DKS”or“the Company”) and Group companies(collectively“the DKS Group”)

Period Covered by this Report

In principle, this Report contains our activities and data during
FY 2016 (from April 1, 2016, to March 31, 2017). The data on the
Industrial Accident Severity Rate (ASR) and the Industrial Accident
Frequency Rate (AFR) were obtained from January to December 2016.

Reference Guidelines

International Integrated Reporting Framework by the International
Integrated Reporting Council (IIRC),“Environmental Reporting
Guideline 2012”by the Ministry of the Environment,“Environmental
Accounting Guideline 2005”by the Ministry of the Environment,“Environmental Accounting Guideline for Chemical Industries(November 2003)”by the Japan Chemical Industry Association (JCIA)
Posted The Emission of Notification Substances under the PRTR Law in FY 2016
on the Transition of the Environmental Impact at Branches and Yokkaichi Chemical
Website Safety Securement and Disaster Prevention【Forward-Looking Statements】Statements contained in this report regarding

2 History of DKS
4 Advantages and Strengths of DKS Businesses
6 Vision for the Future and the Value Creation Process of the DKS Group
8 Important CSR Issues
10 Review of the Medium-Term Management Plans
12 Message from the CEO
18 Financial/Capital Strategies and Total Shareholder Return
20 Financial and Nonfinancial 11-Year Summary
22 Financial and Nonfinancial Highlights

Five Operating Segments
24 Five Core Business Segments
25 Surfactants
26 Amenity Materials
27 Polyurethane Materials
28 Functional Materials
29 Electronic Device Materials
30 Product Pickup
31 The Three Core Technologies of DKS

Business Foundations
32 Important Issue 1: Quality and Safety Management
34 Important Issue 2: Research and Development
36 Important Issue 3: Human Resource Management
38 Important Issue 4: Consideration for the Environment
42 Important Issue 5: Responsibility as a Global Company
46 Management

Data
48 Fundamental Knowledge of Surfactants
50 Glossary
52 Consolidated Balance Sheets
53 Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
54 Consolidated Statements of Cash Flows
55 Group Companies
56 Corporate Data
57 Major Production Bases

the plans, projections and strategies of DKS that are not historical fact constituteforward-looking statements about future financial results and are subject torisks and uncertainties. As such, actual results might differ significantly fromthese forward-looking statements due to changes in various external
environmental factors. Consequently, DKS hopes for your understanding as it
does not guarantee the certainty of such forward-looking statements.

DKS REPORT 20171

About the DKS Group

History of DKS

From Kyoto to the World and to the Future
We respond to the needs of the future
by developing materials andtechnologies ahead of the times.

From Foundation to
Establishing a Business Base

Consolidating DKS’s Status as a
Textile Oil Solution Manufacturer
Business born in the1909 Ohno Kungyokudo incense shop

1915 Dai-ichi Kogyo Seiyaku establishedStarted mass production of1916 industrial soap (first in Japan)
Shanghai plant established1931 (first operations overseas)
1939 Yokkaichi Plant opened

Started business in 1909 by developing and selling asilk cocoon unwinding agent, an agent to spin a silk
yarn from waste cocoons. Subsequently, the Company
developed and sold various textile oil agents using
sulfation and formulation technologies and met theneeds of the textile industry. Following the outbreak ofWorld War I in 1914, the Company introduced the first
domestically made soap, Gembu Marseille Soap, tothe textile industry, which previously had been
completely dependent on imports.
In 1918, Dai-ichi Kogyo Seiyaku (DKS) was“Cost
incorporated under the mottoes“Quality First,”
Reduction”and“R&D Efforts”to meet growing
demand. Redoubling its efforts to expand into
household goods such as shampoo, laundry
detergent and bath soap, the contributions of theseproducts to the Company enabled DKS to find its
breakthrough in the hard times in and after WorldWar I. With industrial modernization being promoted
during the postwar depression, the textile industry
shifted from natural to synthetic fibers. In response,
DKS developed numerous new soap products andtextile oil agents. The basis of the DKS surfactants
was established in those days.

Expands Business Scope andModernizes Operations

Shift from Oil Agent Maker
to a Comprehensive
Chemical Maker
1949 Becomes a public company
1957 Forms partnership with Shell Oil Company
1959 Establishes Yokkaichi Chemical Company Limited(becomes wholly owned subsidiary in 2011)1960 Completes construction of Japan’s first production
facilities of CMC, which employed the solvent method(Ohgata Plant, Niigata Prefecture)
1963 Forms alliance with General Mills
DKS took proactive steps to shift from its traditional oil
agent manufacturing to becoming a diversified
chemicals maker by getting ready for the age of freecompetition with the arrival of postwar modernizationand industrialization, as well as streamlining andmodernizing its facilities.
In 1950, DKS built a spray-drying tower requiredfor producing synthetic detergents using drying
technologies cultivated through the development of
the MONOGEN powder. In 1959, DKS establishedYokkaichi Chemical (which became a wholly owned
subsidiary in 2011) to engage in full-scale production
and sales of nonionic surfactants, the market for
which was growing based on their performance anduser friendliness.
In 1960, DKS made a long-term plan to address
rapid market changes and intensifying competition
driven by technological innovation. DKS engaged in thedevelopment of surfactant applications by actively
forming business alliances with overseas companies.
In addition, the Company entered new fields that
included polymer flocculants and the polyether
business in anticipation of the growth of thepolyurethane market, which is positioned downstreamof the rapid growing petrochemical industry.

The Source of DKS’s Unique Technologies
During the recession following the end of WorldWar I in 1918, DKS streamlined operations while
taking steps to enhance its production facilities andexpand sales channels. In 1920, DKS formulated
provisions for awarding in-house inventors toencourage new product development, which in turnled to the creation of superior new products andpatents. Staying ahead of competitors, DKS in 2002
established a patent reward program to encourage
the creation of new businesses.

the root of DKS’s textile oil agents

1915 Gembu Marseille Soap
1934 Higher alcohol-based detergent DK300(later MONOGEN)

1937 MONOGEN

Establishes Foundation for
Future Growth and Withdraws
from Household Businesses
1969 Establishes Nippon Levulose Co., Ltd., thepredecessor of Dai-ichi Kagaku Kogyo Co., Ltd.
(absorbed in 2001, becomes the Shiga Plant)

1978 Capital participation in Chin Yee Chemical
Industries Ltd. in Taiwan, accompanying
the textile industry shift to Southeast Asia

In 1968, amid intensifying price competition inindustrial fields, DKS strengthened new productdevelopment and its division system while upgrading
its R&D structure by establishing the Central
Research Laboratory. DKS intensifies thedevelopment of applications in the food andindustrial fields for CELLOGEN̶which features
superior quality and variety compared to natural
thickeners̶and successfully commercialized thefood emulsifier sucrose fatty acid esters.
Commencing the development of flame retardants,
DKS contributed to the development of industrial
products such as those used in home appliances in
the 1970s. In household goods, DKS developed
popular consumer items that included the householdcleaners ALCO and MONOGEN UNI. DKS’s earnings
deteriorated due to stagnation in core product fields
including textiles, automobiles and paints during thesubsequent oil shock. In 1973, DKS withdrew fromthe household goods business, profits for which had
been eroding amid intensifying competition, marking
the start of DKS’s renaissance.

1970 Constructs sucrose fatty acid
ester plant

Declares Transition in All Detergents

Establishes Yokkaichi
Chemical to manufactureand sell nonionicsurfactantsCore Products
1909 SILKREELER cocoon unwinding agent,

Strengthening andRenaissance

Builds the Ohgata Plant, thefirst facilities in Japan tocommence manufacturingof solvent-method CMC(CELLOGEN)

1949 CELLOGEN (CMC; synthetic thickener)
1950 Nonionic surfactant NOIGEN
1951 Cationic surfactant CATIOGEN
1958 Professional liquid textile softener
TAFFULON, industrial liquid
detergent TEEPOLIn 1966, DKS did not hesitate to accept
higher costs and did undertook two largetransformation initiatives in the areas oftechnology and main raw materials by
rapidly switching to highly biodegradable
materials after it was discovered thatsynthetic detergent raw materials with poor
biodegradability were causing pollution.

1964 Releases new formula household

synthetic detergent MONOGEN UNI

1969 Releases plastic flame retardant
PYROGUARD

1970 Releases food emulsifier DK ESTER
1971 Releases pure fructose Levulose

Global Events
1914 Outbreak of World War I
1915 Japan as No. 1 in cotton cloth export volume worldwide
Japan as No. 2 in rayon production worldwide
1916 Outbreak of the Pacific War
2

DKS REPORT 20171945 World War II ends

There is a shift toward industrial
streamlining/modernization and industrialization.
The chemical industry transitions from fertilizers
to petrochemicals.
The late 1950s marks the arrival of the home
appliance era, with the washing machine, therefrigerator and the vacuum cleaner beingreferred to as the“three sacred treasures”inJapan.

1960 High economic growth begins, urban
pollution problems become evident

1964 Tokyo Olympics are held, the Tokaido
Shinkansen goes into operation

1970 Government enacts 14 bills to address pollution
1973 First oil shock1979 Second oil shock1986 Establishes Kyoto Elex Co., Ltd.
1987 Establishes K&D

Fine Chemical Corporation (K&DF)

1988 Establishes Dai-ichi Ceramo Co., Ltd.,to enhance its electronics materials business1992 Establishes Tianjin Dai-ichi

Fine Chemicals Co., Ltd. in China

1996 Establishes PT. Dai-ichi Kimia Raya
in Indonesia

2002 Establishes Elexcel Corporation withthe aim of making next-generation
solar cells commercially viable

In response to the unprecedented recession
following the second oil shock, DKS starting in
1981 audaciously reallocated management
resources mainly toward overseas businessexpansion and reorganizing production facilities
to add value to R&D activities.
DKS subsequently established joint
ventures with two other companies in different
industries to meet new needs, while establishingjoint ventures in China and Indonesia to increase
sales by capturing rising demand for textile
auxiliaries in neighboring countries. Following
the collapse of the bubble economy in 1992,
however, DKS posted its first losses since its
foundation. Setting the goal of becoming aleading company in highly functional chemicals,
DKS rolled out its three-year DKS Rebirth Plan in
1998, under which the Company began reducing
staff, shutting down and then selling the Kyoto
Plant, generating earnings in each division, andimproving operational and research quality.
In 2003, DKS teamed up with an overseas
maker to develop and market nonionicsurfactants with low environmental impact for
the Japanese market.

2011 Yokkaichi Chemical becomesa wholly owned subsidiary2015 Completes construction of
the Kasumi Plant in Yokkaichi
From 2004, DKS created a highly profitable businessportfolio and developed and expanded new
high-value-added businesses. Raising electronics
materials and IT as next-generation business pillars,
DKS took steps to transition from a traditionalsurfactant company to the leading industrial chemical
supplier.
Aiming to make qualitative changes toward its
100th anniversary in 2009, DKS launched its six-year
management plan, the CHANGE100. Aiming to maintainstable earnings, DKS adopted a business divisionsystem, upgraded its management infrastructure,
started using non-petrochemical raw materials andenhanced its financial standing. Heading toward thesecond half of the CHANGE100 plan, in 2012 DKS also
saw post-acquisition merger benefits from Yokkaichi
Chemical, purchased land for a new plant andundertook a public offering. Undertaking initiatives
aimed at qualitative changes adhering to its corporate
credo, DKS established a foundation for making thenext leap forward.
In 2015, DKS formulated a five-year management
plan aimed at creating new value and built the Kasumi
Plant in Yokkaichi that year to serve as a mother plant
to integrate the Company’s production, sales anddevelopment functions. In so doing, DKS has
established a platform for its second renaissance.

Built and transferred the 2009 100th anniversary
research laboratory inKisshoin, Kyoto

In 2015, DKS completed construction of the Kasumi
Plant at the Yokkaichi Branch to serve as a motherplant and established a framework for producing
electronic materials and rock hardening agents for
the Linear Chuo Shinkansen. The Yokkaichi Branch
serves as a substantive plant for productdevelopment and manufacturing because Yokkaichihas a cluster of the automobile, electricity/electronics
and pharmaceutical industries, as well asuniversities. DKS aims to make this complex atechnology park for increasing corporate value.

1981 Releases UV/EB-curable monomers and2005 Releases ionic liquid

1986 Releases waterborne polyurethaneSUPERFLEX

2009 Release polyurethane1990 Releases industrial washing agent

2015 Releases cellulose

oligomers NEW FRONTIERDK BE-CLEAR

1993 Releases polymerizable surfactant HITENOL1982 Tohoku and Joetsu Shinkansen lines go
into operation
economy collapses, Gulf War
1990 Bubble
breaks out

1995 Great Hanshin-Awaji Earthquake occurs

Passing the technologies
from our long history to thenext generation̶the next
big step

Act for a Leap
Targets (fiscal year ending March 2020)
Net sales
Operating income
Operating margin
ROE
Overseas sales ratio

Making Yokkaichi a Technology Park

Product brochures at that time

About the DKS Group(merges with Gembu in 2014)

Kyoto, to develop new technologies

Five Operating Segments

1982 Establishes Dai-ichi Clean Chemical, Inc.

2006 Builds a new research laboratory in Kisshoin,

Business Foundations

Aims to Become a Leading Company
in Highly Functional Chemicals

Resolutions for the 100th Foundation
Anniversary, Upgrading theFoundation for Future GrowthManagement Policy Outline
1. Create new corporate value
2. Create a clear corporate image
3. Ensure more profound corporate governance
4. Maintain and increase optimal ROE levels
5. Create advantages through collaboration
6. Accelerate and enhance mother plant functions

ELEXCEL IL
EIMFLEXnanofiber thickener
RHEOCRYSTA

Data

Rebuilds Operations and
DKS Rebirth

Qualitative Change andSecond Renaissance2008 Lehman Brothers
Crisis

2011 Great East Japan

Earthquake occurs

DKS REPORT 20173

About the DKS Group

Advantages and Strengths of DKS Businesses

To preserve
the global
environment

Chemistry provides a solution
Surfactants
We have provided highly
functional surfactants since
our foundation in 1909.

Machines& metals

Chemicals

Functional Chemicals

For safe
andsecure living

We provide solutions for theindividual needs of various
industries by proposing andcreating additional value
based on our chemical
technology-derived
substances/material
technologies (detergents,
emulsifiers, dispersants,
thickeners, foaming agents).

Plastic Materials

We provide plastic additives andresin materials indispensable
for various plastics that haveremarkable characteristics
not found in natural materials(radcure monomers/oligomers,
flame retardants, antistatic
agents, lubricants, anti-clouding
agents, antioxidants).

For happy
andconvenientsocieties

4

DKS REPORT 2017

Amenity Materials
We provide materials andapplication technologies to
add comfort in daily living
environments.

Polyurethane
Materials

We provide industrial
materials and polyurethanematerials (paints, adhesives,
civil engineering andconstruction materials andelectric insulation materials).

Functional
Materials

LivingFood

Civilengineering

IT

Environment& recycling

We provide flame retardants,
radcure resins, waterborne
polyurethanes, etc., forapplications essential tohome appliances and daily
life.

Machines& metals

Electronic Device
Materials

Environment& recycling

We provide ceramic materials,
conductive pastes, etc., forapplications in home
appliances and electronic
components.

IT

DKS Group Products Around Us
About the DKS GroupDKS Group products support a variety of products usedin our daily life.

Rock hardening
agentsWaterproof
roofing materials

Feed binders

Five Operating Segments

Oil spill treatment
agentsConductive pastes
for solar batteries
Precision cleaning
agents

Optical fiber connectors

Business Foundations

Sealants forelectric insulation

Building reinforcing
agentsData

Silicon wafer detergents

Food additives
Coatings for building
material and furniture

ShampoosSurface modifiers
Flame retardants
IT & electronicmaterials

DKS REPORT 20175

About the DKS Group

Vision for the Future and the Value Creation Process
Vision for the Future

DKS Materiality(Five Important Issues)

Quality and
SafetyManagement▶P.32

Consideration
for theEnvironment

ResearchandDevelopment

▶P.34

Human
Resource
Management

2015

▶P.36

Five-Year Management Plan
REACT1000 (2015–2020)

Responsibility
as a Global Company
▶P.38

▶P.42

Value Creation Process

Principal Management
Resources(Results for the fiscal year ended March 2017)

Manufacturing capital

Research &development

Business Model

Sales & Marketing

Manufacturing bases: 11(includes four overseas)
Raw materials used:carbon, petroleum, coal,ore minerals, plants, wood

Product
designFunctional
improvement

DKS business activities

Chemistry
providesa solution.

MarketingIntellectual capital
Patents held: 855

Human capital
Employees: 967

Massproduction

Financial capital
Net assets: ￥28,044 million
Interest-bearing debt: ￥25,713 million

Production
management

Social capitalPrimary agencies(Zenkoku Ichi-Ko Kai): 34

Procurement

Manufacturing

Natural capital
Energy consumption: 25,200 kL
Water consumption: 4,937,000 m3

Value
Drivers

6

DKS REPORT 2017

Uni-Top Strategy
Responding to market needs▶Message from the CEO P.12

R&D Foundation▶The Three Core Technologies

of DKS P.31

▶Research and Development P.34

About the DKS Groupof the DKS Group2025 Vision

Back casting

as the top company forindustrial chemicals

Five Operating Segments

2020

From Kyoto
to the world
and to the future,

Research & Design

Samplemaking

Surfactants▶P.25

PrototypemakingAmenity Materials
▶P.26

Order
takingPolyurethane
Materials▶P.27

Functional
Materials
Management▶P.28

Electronic Device
Materials
Governance▶P.29

Employees
Skills acquisition
Work-life balance
Work motivation
Diversity

Business Foundations(Five core business segments)

DKS Stakeholders
andValue Creation

Shareholders
GrowthEfficient and transparent
management
Shareholder returns

Customers
Coexistence and mutual prosperity
through the joint development ofhigh-value-added productsSocietyData

New Product Development/
Product Improvement

Regional economic revitalization
driven by contributions to thedevelopment of local communities

Strong and transparent
business promotion structure▶Corporate Governance P.42

DKS REPORT 20177

About the DKS Group

Important CSR Issues
Basic Policies
We are confronted with a broad range of issues, from environmental problems such as global warming, resource
depletion and a crisis of biodiversity to an increasing population that causes food resource and energy problems
amid rapid globalization and an increasingly information-based society. We look to take on these challenges and toprotect our environment and way of life while improving safety and level of comfort. To do these things, we pursue“Chemistry provides a solution”and contribute to the establishment of a sustainable society.

Identifying Important CSR Issues (Materiality)
At DKS, we are formulating“materiality,”tackling issues from a long-term perspective. In the formulation of materiality,s Sustainable Development Goals (SDGs),* ISO26000 and other global guidelines, given the
we have referenced the UN’important demands that international society places on DKS as we work to advance business globally.
*At the UN Sustainable Development Summit held in September 2015, there were 17 SDGs adopted to findsolutions to issues the world is facing.

Materiality Identification Process
Having mapped the aspects derived from Steps 1 and 2,
we identified five facets of materiality mainly in terms of priority.

STEP1
Identify theimportancefor the Company

STEP4

STEP3

STEP2
Identify theimportancefor stakeholders

Identify themateriality

Drawa materiality map

Importancefor stakeholders

Identify five critical issues of importance
Extremely
high

High

Importance for DKS

8

DKS REPORT 2017

Quality andsafetymanagement
Consideration
for theenvironment

Researchanddevelopment

Human
resource
management

Responsibility
as a global company

Relationship between the Five Important DKS Issues and Global Guidelines
RelationtoRelationship with
global guidelines
global guidelines

Activity details

SDGs

Provide CMC, SE and CNF

Consumer issues

Ensure quality assurance andsecure product safety

Review the quality
management system

Consumer issues

Reduce work accidents,
DKPM activities

Labor practices

Quality andPromote occupational
Safety Management safety and healthRespond to potential and apparent
SUS5 strategy
needs with“Uni-top”strategy promotion

Consideration for
the Environment

Responsibility asa Global Company

Uni-unite strategy

Promote an intellectual property strategy Patent strategy
Secure and nurture outstanding
human resources

Study abroad,internal training system

Promote diversity

Active roles for women, reemployment ofsenior citizens, employment of the handicapped

Enhance worker health

Mental healthcare

Grow globally and contribute toregional economies

DKS Singapore established, overseas
development, nurturing human resources

Respond to climate change(reduce GHGs)

Prevent of global warming(clean energy)

Environment

Manage chemical substances

Reduce emissions ofchemical substances (reduce VOCs)

Environment

Reduce industrial waste

Raise the recycling rate andlower the final disposal volumes

Environment

Preserve the air, environment &water resources

Remove pollutants, prevent air & waterpollution, lower the environmental impact

Environment

Respond to frequent natural disasters

Risk Management Manual (BCP)

Environment

Five Operating Segments

Human Resource
Management

Promote“new combinations”
with a cluster configuration

Consumer issues

Labor practices

Raise management transparency with the Timely disclosure, website posting
appropriate disclosure of information

Organizational
governance

Implement risk management

Risk Management Control Committee

Organizational
governance

Strengthen relationships
with communities

Cleanup activities, participation incommunity events, lecture delivery, Yokkaichi
City district local communication meeting

Participation incommunity anddevelopment

Address food andagricultural issues

Provide CMC for agriculture,
RSPO certificate for SE

Human rights

Business Foundations

Research andDevelopment

ISO26000

Develop and provide highly
safe industrial materials

About the DKS GroupDKS’s important
CSR issues

Contribute to the“smart society” Logistics that use IoT

Seven Core Subjects of ISO26000
Organizational
governanceCommunity
involvement
anddevelopment

ConsumerissuesFair operating
practices

Seven Core
Subjects

Environment

Data

Sustainable Development Goals (SDGs)
Stipulated by the United Nations

HumanrightsLabor
practices

DKS REPORT 20179

About the DKS Group

Review of the Medium-Term Management Plans
ADD21(Ambitious Dynamics DKS
for the 21st Century)― Tolerance to Changes
April 2004–March 2009
Consolidated net sales ￥50 billion

Targeted Figures Ratio of ordinary income to sales 7%

CHANGE100 Stage II

April 2009–March 2012

April 2012–March 2015

Consolidated net sales ￥55 billion or higher
Operating margin 4% or higher

Consolidated net sales ￥60 billion or higher
Operating margin 5% or higher“Each of Us Holds the Key to Success ”“Each of Us Holds the Key to Success”

Slogan“With High Aspirations, We Will

VisionBusiness Expansion andSustainable Corporate Value Growth

Building a Business Structure Necessary
Staying Ahead of the Times as
as a Leading Industrial Chemical Company a Leading Industrial Chemical Company

Management
Policies

1. Putting the concept“R&D is the engineof the Company”into practice to realize
customer satisfaction
2. Continuously complementing andexpanding the values of the Company
3. Reinforcing the business byemphasizing the“three actuals”(actual
work site, actual goods and actual
situation)
4. Enhancing corporate governance
5. Promoting compliance management
6. Establishing an ideal company structureby the 100th anniversary (April 2009)

1. Securing a stable profit structure
2. Pursuing greater businessefficiency
3. Developing and strengthening our
foundation to realize the“technology makes the Company”
concept
4. Accelerating the creation of new
products
5. Enhancing compliancemanagement
6. Improving managerial skills andhuman resource development

Plan Outline

1. Increasing sales and building astable earnings-generating
business portfolio
2. Developing and expanding new
high-value-added businesses
3. Generating strong awareness ofand benefits from realizing targets
after establishing themanagement infrastructure

1. Enhancing the enterprise’s power (marketing clout, cost-saving ability, technicalstrength and organizational power) = Heightening our corporate value
2. Promoting selection and concentration = Determining the withdrawal fromunderperforming segments based on our exit rule
3. Optimizing the allocation of management resources = Funneling people, goods and capital
4. Seeking more productivity = Seeking more profitability through the integrated
business division approach
5. Creating new businesses and strengthening cooperation with the parties concerned =Developing inorganic materials, dispersion technology, electronics materials, etc.
6. Focusing on priority business segments = Promptly reaping the benefits of an existing,ongoing, highly profitable business

Review

In the final year of the plan (FY 2009),
business conditions became severe,characterized mainly by declining
demand and falling sales prices amid
surging raw material naphtha prices
caused by high crude oil prices and thesubsequent global recession triggeredby the financial crisis in the UnitedStates. Against this backdrop, DKS
undertook such initiatives as boostingsales of core products, developing newmarkets in growing fields that include
IT and the environment, focusing on
developing new materials, continuallyrevising prices, and cutting operating
expenses and other costs. Despite
these efforts, the Company’s earnings
fell below the plan’s targets.

The initial year saw the impact of thefinancial crisis triggered by the
Lehman Brothers bankruptcy. With
revenues growing over the next two
years, however, DKS successfully
achieved a target of the plan byrecording final fiscal year (fiscal year
ended March 2012) consolidated net
sales of ¥56.2 billion. In contrast, theCompany was unable to reach theplan’s operating income target due tooperating income decreasing in the
final fiscal year amid sharp demand
drops and ongoing high raw
resources prices.

Although DKS aimed to increase net
sales from ¥56.2 billion the previous
fiscal year to ¥60 billion, the fiscal
year ended March 2015, the final yearof the plan, ended with consolidated
net sales at ¥55.5 billion, below thetarget because of delays ininvestment to raise production in corebusinesses and stagnation in thesolar cell field. On the other hand,
DKS achieved its operating margin
target given record-high operating
income, ordinary income and net
income. While missing its quantitative
targets, DKS saw success inqualitative terms.

● Introduced an integrated business● Increased business divisions’● Upgraded the management infrastructure

Further instillation of a profitability
mind-set

Improve the corporate culture to bringa profitability mind-set to the forefront
Realize a balance in three areas:
1. Maintain a strong balance sheet:
Simultaneously increase assets andliabilities/capital
2. Revamp the business portfolio:
Select and concentrate on
future-oriented businesses
3. Optimize human resources:
Develop highly capable employeesthat cross generational lines

Maintain a robust and healthy balance
sheet to increase earnings

Successes

Issues10

CHANGE100 Stage I―Changing the Corporate Culture ―Expansion along with Earnings

DKS REPORT 2017

Shine Brightly in the 21st Century.”

division approach that verticallylinks the research, production andmarketing divisions, and promoteda change in consciousness toward
the concept of emphasizing
earnings based on strict budget
management and clarifying
responsibilities

1. Expanding peripheral businessfields2. Enhancing and reinvigorating
domestic production facilities
3. Accelerating the creation of new
businesses
4. Pursuing cost reductions
5. Improving management
capabilities and developing humanresources
6. Enhancing overseas expansion andstrengthening administration

Basic Strategies

profits by instilling a profitability
mind-set● Launched and promoted the
Human Resources Development
Project aimed at instilling anawareness of management in all
departments(e.g., commenced introducing a new ERP
system) for the future● Maintained a healthy balance sheet(increased the capital adequacy ratio)● Made new investments for growth (madeYokkaichi Chemical a wholly owned
subsidiary) to expand business fields,
purchased land, began preparation for a
new plantNet Sales

Results(¥ billion)
70

48.9

50.0
46.5

3/05 3/06 3/07 3/08

3/09

50
39.0

41.9

46.0

About the DKS Group

67.0
60.0 or higher
56.2 55.0 or higher 54.6 55.6
52.8
51.8
51.2

60

40

Target

52.3

44.4

30
20
10

ADD21

3/10 3/11

3/12

3/13 3/14

3/15

3/16

CHANGE100 StageⅠ CHANGE100 Stage Ⅱ

3/17

3/20 (Target)

REACT1000

Operating Income

Results(¥ billion)
7

Five Operating Segments

0Target
6.0

6
5

3

2.7

2
1
0

1.2

3/05

1.6
0.9
3/06

1.0
3/07

0.6
3/08

2.5

2.0

1.8

3/12

3/13

2.9

3.4

0.3
3/09

ADD21

3/10

3/11

3/14

3/15

3/16

CHANGE100 StageⅠ CHANGE100 Stage Ⅱ

6.5
5.3

3

1.3

3/05

3/06

5.0％ or higher

4.5

2.2

1
0

4.0％ or higher
3.4
3.6

3.6
2.1

2

5.3

Data

5
3.1

Target

9.0

7.5

7.0

6
4

3/20 (Target)

Results

(％)
9
7

3/17
REACT1000

Operating Margin
8

3.9

3/07
ADD21

3/08

0.6
3/09

Business Foundations

4

3/10

3/11

3/12

CHANGE100 StageⅠ

3/13

3/14

3/15

CHANGE100 Stage Ⅱ

3/16

3/17

3/20 (Target)

REACT1000

DKS REPORT 201711

About the DKS Group

Message from the CEO

Aiming to be a“Uni-top,”
top niche player
In line with the declaration of our second renaissance, we have launched
new initiatives to become a chemical materials maker with a prominent
presence in a smart society.

SAKAMOTO Takashi
Chairman CEO

Review of FY 2016 and Progress on
Management Plan
As of this year, DKS has reached the midpoint of its five-year
management plan REACT1000. Management has set atarget for net sales of ¥75.0 billion in the fiscal year ending
March 31, 2020, compared with the ¥55.5 billion posted in

12

DKS REPORT 2017

FY 2014. At the time, nominal GDP was projected to grow 3%
in Japan, so 6% seemed like a reasonable pace ofcompound annual growth for a private-sector corporation,
and we decided to base our five-year targets on thisassumption and aimed to achieve an operating margin of 8%
and return on equity (ROE) of 10%. Stable growth as acompany is expressed as growth in net sales. Investors andAbout the DKS Group
Five Operating Segments

Management aims to shorten periods of weak sales andminimize any declines. Internally, we discussed thecurvature of an upward sales trajectory. Management
revised down its sales target from ¥75.0 billion to ¥67.0
billion for the fiscal year ending March 31, 2020. We thendecided to have all employees implement reforms to theirbusiness practices with the objective of attaining this revised
target. As the title of Dylan’s song suggests, moss does not
grow on a rolling stone. Similarly, employees who put in theirbest effort shine. Rolling into a positive spiral, this is what weare going to do in the middle of the management plan.
We have named a matrix of action guidelines toward
our four stakeholders after the five-year plan REACT Matrix,
using the five initials R, E, A, C and T (Return, Export,
Advance, Create and Train). In this matrix, we have created
20 keywords. Let me present examples of how this matrix
works. DKS built a plant to produce electronic materials andproducts for the Linear Chuo Shinkansen on 100,000 square
meters of newly acquired land in Yokkaichi. We moved astorage battery subsidiary company to this location andmaximized its capability. DKS also set up a safety training
center. We acquired land for a new plant in Taiwan to develop
more Asian markets. DKS was recognized by the Japan
Institute of Invention and Innovation for its cellulose
nanofibers. Regarding shareholder returns, DKS boughtback its own shares and raised its dividend by ¥2 per share.
In the domains peripheral to the current business, DKS is
methodically advancing projects in NEXT new fields andDREAM new businesses.

Business Foundations

the market focus on growth potential. As a company that
pursues“Chemistry provides a solution,”management
focuses its efforts on addressing four distinct stakeholders:customers, shareholders, society and our employees. We
hope that our shareholders, a component of the financial
markets, see us as a company with growth potential. While
growing, DKS is ready to generate profits, the source offunds for payout to shareholders.
DKS has reported record-setting profits for three years
in a row. However, growth in net sales has been sluggish.
Net sales declined back-to-back over the first two years of
the five-year plan. We were able to expand profits thanks tocontributions from highly profitable new businesses, stable
low prices for raw materials such as naphtha andmanagement’s efforts to reduce costs. DKS has steadily
improved its business structure so that we can generateearnings constantly. However, there are two reasons why
DKS did not achieve its target for net sales, an indicator of its
growth potential. The first reason was extreme weakness inthe solar cell business, an existing business that we have
tried to expand strongly. The second reason was weak sales
overseas, contrary to expectations for growth in Asia. We
initially targeted sales of ¥65.5 billion in the second year of
the plan but only reached ¥52.2 billion. We have not changed
our profit-linked benchmarks in the five-year plan though;instead, we decided to alter our target for net sales. We callthis action“rolling.”
I selected Bob Dylan’s Nobel Prize for Literature as oneof my seven wonders of the world of 2016. It is rather
significant for the academy to recognize a rock singer as awellspring of literature. One song that he wrote was“Like a
Rolling Stone.”It was around the time of the Nobel Prizeceremony that DKS decided to“roll”the targets of net sales.

Scope of REACT1000 and AND100×6
Shareholders

Customers

Society

P/E and P/B for 1000

Active partner

Positive economic cycle

Increase the overseas ratio

Annual reportMarket development

Mother plant

A (ADVANCE)C (CREATE)ACTUAL100×6

BrandsNEXT100×6

T (TRAIN)

Withdraw fromDREAM100×6
unprofitable businesses
Change from undervalued stock Diplomacy withto growth stock
special assignments

Training & education

Outside executive meetings

Public classes

R (RETURN)
E (EXPORT)

Increase IT sales

Data

Employees
Give proper credit for
their contributions

Regional revitalization

DKS REPORT 201713

About the DKS Group

Message from the CEO

Rolling Model (image)(¥ billion)
8

90
80

7

60
Net sales

6

Net sales (left)
Operating income (right)

550

Net sales4¥67.0 billion
Operating income
3¥6.0 billion

40
30

2

20
10
0

CHANGE100
StageⅠ

ADD21
3/04

3/05

3/06

3/07

3/08

3/09

3/10

3/11

Outlook for the Chemical Industry
The chemical industry must contribute increasingly to humans,
all living organisms and the earth. Monikers such as Industry
4.0, the Fourth Industrial Revolution and Society 5.0 are
expressions of the dawning of a new era. The economy
continues to evolve by the ambitions of people. Reflecting on
the history of humans and our future, I observed the sevenwonders of the world of 2016. One such wonder is having comeacross a modern version of Xu Fu. Emperor Qin Shi Huang, thefirst emperor to unite all of China under his rule, sought out anelixir of eternal life. In search of a miracle cure, Xu Fu traveled
east to Japan. He is enshrined at the Xu Fu shrine (or Jofuku
Jinja in Japanese) in Wakayama. Before reaching the east,
chemistry’s origins can be traced back to archeology andalchemy. Even after all this time, people cannot make gold. The
origins of chemistry are in alchemy and the search for eternallife. I have met a researcher who has spent half his life looking
for an elixir of eternal life. Chemistry is truly interesting.
In April 2017, I was invited to an inauguration party for
Mitsubishi Chemical Holdings Corporation. One of the guests
said that he expected the integration of Mitsubishi Chemical totrigger restructuring in the chemical industry. Dow Chemical
and DuPont will merge together in the United States. The
chemical industries in Europe and the United States have moved
toward a smaller number of larger players, such as BASF. In
Japan, on the other hand, companies have been dispersed since
the breakup of the zaibatsu conglomerates after World War II andhave survived to this day. I believe the Tokyo Stock Exchange has
the largest number of listed chemical companies among the

14

Operating income

70

DKS REPORT 2017

1

CHANGE100
Stage Ⅱ
3/12

3/13

3/14

REACT1000
3/15

3/16

3/17

3/18

3/19

0

advanced countries. It is notable that only one Japanesechemical company has gone bankrupt since World WarⅡ. Some
insist that the large number of big and small companies has led
to inefficiencies that explain the weaker profitability of Japanesechemical makers compared to rivals in Europe and the UnitedStates. However, I believe Japan is a place where not-so-big
companies can realize their identity and embody the fun ofmanufacturing. DKS is a small company but has thrived for a
century making chemical intermediate materials.
I sometimes review Shinbijon 2050“( New Vision 2050”), a
book published last year in Japan. It examines the grossnational product per capita during the thousand years from the11th century to the 20th century. Even after the Industrial
Revolution in the 18th century, the scale of the gross national
product changed little. Then, it expanded 15 times during the
100 years of the 20th century. What will happen to the global
economy in the 21st century? This is the main topic of thebook. The book expects the economy to expand a little but isunlikely to grow 15 times in scale again. Declining birthrates
and the aging populace in Japan and China will keep growth in
the global population in check, and that economic activity willenter a new cycle of elusive growth. Given limited natural
resources, the book posits that a time will come when theworld recycles and reuses existing materials with the aim of
reducing carbon emissions. I cannot help but believe thatchemistry will be a key to creating new materials andcomponents that support industry in a sound material-cycle
society. Chemistry, which began with the search for eternal life
through alchemy, will evolve into a creator of added value for amaterial-cycle society.

About the DKS Group
Five Operating Segments

DKS Smile Curve
HigherBoostearnings inniche fields

Value added

Business Foundations

earnings

Production Custom
Innovative Prototyping
and
and
Sales
technologies development
processing orders“Create”“Make”

Solutions“Sell”

Environment, Society andCorporate Governance (ESG)
Environmental initiatives, social responsibility and corporate
governance go hand in hand. The time has come whencompanies are scrutinized for their ESG activities. Work-stylereforms to increase productivity have become a national
priority in Japan. When DKS celebrated its 100th anniversary
seven years ago, the Company disclosed its policy on
work-style reforms in its Declaration of Action for Executives
and Employees. Staying one step ahead of social trends, wehave focused efforts on health management. In December
2016, DKS received high marks from the Development Bank of

DKS REPORT 2017

Data

DKS produces a large variety of products in small lots. At theend of the Meiji era 100 years ago, the production of silk
products had been encouraged as an export industry. In Kyoto,
there is a 500-year-old incense store called Ohno Kungyokudo
in front of the Nishi Hongwanji Temple. When Oda Nobunaga,a samurai in the Sengoku period, attacked the Hongwanji
Temple in Osaka, Buddhist monks fled with their textbooks of
Shinran Shonin, the founder of the temple, on their backs to
the old capital, Kyoto. It is said that by carrying their importantteachings on their backs, Hongwanji Kennyo, the 11th head of
Hongwanji Temple, granted the surname“Ouno/Ohno”to thestore owner (ou in Japanese means to carry a thing on one’sback). DKS was founded as a venture to make a chemical
agent for spinning silk yarn at Ohno Kungyokudo. The
Company also developed surfactants. The Company grewsteadily after the release of a new surfactant product
MONOGEN, but it eventually succumbed to price competition.
Amid a wave of commoditization, the Company decided towithdraw from the household products business in 1973. DKS
has followed a unique path to become a specialized
manufacturer of industrial materials. This represents ourrenaissance as a supplier of industrial chemicals, our current
business. That is when we began to specialize in the small-lot
production of a wide variety of products.
When commencing the current five-year management
plan, we declared our second renaissance. DKS aims to be acompany that shines in a smart society, using the new landacquired in Yokkaichi, the first land we have purchased sinceWorld War II. Toyo Keizai, Inc.’s Company Handbook describes
DKS as a leader in industrial chemical agents with areputation for strong technologies. We believe this reflects ourrich variety of products not found at other companies and ourtechnologies backed by 100 years of experience. DKS has
amassed a diverse range of technologies derived from its
large number of products. Innovation is defined as the
combination of established knowledge with new knowledge.
Innovation arises when established knowledge is applied to
new ideas, and it does not necessarily entail the invention of
new things. I believe this innovation is a unique trait of DKS
and one of its strengths. It is the way of“Uni-top,”a path
toward leadership through uniqueness in our field. Our second
renaissance has begun with the notion of“Uni-top,”and wewill make the best use of our strengths to become a distinctive
leader in the chemicals domain.
“SUS5”is our rallying cry, which brings the entire
company together. The first S stands for Smile. There is asmile curve that represents profitability in the manufacturing
process. Profitability is high in the design and development
stage, as shown by the upturn on the left-side dimple of thesmile. The production process is not that profitable, as
represented by the chin of the smile. Profitability turns upwardagain for the solution-based marketing and sales process on
the right-side dimple of the smile curve. DKS, atechnology-based company, is on the right- and left-side
dimples. We keep smiling as we endeavor. The next letter, U,
stands for Unite, which represents our approach toestablishing advantages via collaboration. DKS is collaboratingwith players in other fields, including universities. The second
S stands for Straps, the shoe laces that tighten to fit. The
bottom, middle and top of an organization all have their own
roles to fulfill. By tying these layers together, we can leverage
our full capabilities as a company. The 5 represents ourtargets for a 5% ratio of R&D spending to net sales, 5%time/person devotion to self-designated research and Society
5.0.

＝

Aiming to Be a Company Valued
for Its Uniqueness15

About the DKS Group

Message from the CEOJapan both for its environmental efforts and healthmanagement. This was the first time that a Kyoto-based
manufacturer received two such awards at the same time.
DKS received the highest ranking of“A”for its environmental
score. Our initiatives as a plant-holding manufacturer and in
the R&D activities of eco-friendly materials are recognized. In
surveys of all employees since the Declaration, DKS obtained
the best results among the eight Kyoto-based companies thatparticipated in the survey.
Last year, we implemented a manager evaluation systemthat was created with help from a leading consulting company.
The system is based on the concept of adding points forevaluations instead of subtracting. The system is simple andtransparent, linking evaluation and promotion. Care was taken
so that the system serves to motivate everyone, including
general employees (union workers), to understand a clear
career path from manager to the executive level. Directors
watch other directors and audit & supervisory board members
monitor directors, and at the same time, the labor union
checks management. The union assumes the role ofgovernance. Public companies are governed by the corporate
governance code, the stewardship code and standard rules.
Prior to their enforcement, we discussed the details with
officials of the securities exchange. They said that complying
with the rules is desirable, but it is sufficient for companies to
explain why some rules are not complied with. We address
corporate governance through our management principles
and make efforts to increase corporate value.
For example, we will not set up a third-party organization
for nominating a successor to the position of CEO. For acompany like DKS that is built on technologies with a large
variety of products in small lots, it would be extremely difficult
for a nomination committee to find a qualified successor. I
believe the grooming of a successor is the top management's
most important duty. For a while, DKS did not satisfy
conditions in the corporate governance code for selecting
independent directors. We created instead the Outside
Director and Audit & Supervisory Board Member Committee
as an independent organization. It serves as a platform outside
the Board of Directors for the representative directors to
discuss internal matters with outside directors and audit &supervisory board members and hear their opinions. Outside
directors and audit & supervisory board members, who comefrom different backgrounds such as the machinery or electric
equipment industries and labor-related government agencies,
give us their shrewd and constructive opinions on various
topics. We intend to continue holding meetings of theCommittee. During the fiscal year, DKS held 36 IR meetings.

16

DKS REPORT 2017

We wish to be a proactive company in communicating withinstitutional investors.

Financial Strategy, Capital Policy
and Investment Goals
During the past 20–30 years of slow growth in Japan’seconomy, DKS has not always been in a healthy financial
position. Lackluster earnings cast a shadow over financial
indicators. The Company struggled through its lowest point
during the six years of the DKS Rebirth Plan, which spanned
from the end of the previous century to the beginning of thiscentury. DKS let go of its main plant in Kyoto where theCompany had been founded, its head office and research
center. We had nothing left. We were in an anguished state. It
was a dark period before the light brightened with our second
renaissance. There is no miracle drug that can revive the dead.
Luckily, we reached an awareness for our needed actions
through the management quality award activities, and that
became the basis of our actions. DKS implemented whatever
was possible as its financial strategy during the five years of
the ADD21 Plan, which began in 2004. This laid the foundation
for the CHANGE100 Plan as the next stage of businessdevelopment. In the end, strong shareholders’equity,
profitability and growth potential―the three parameters thatserved as the guiding light of our financial strategy―took us
out of the dark tunnel.
Finally, during our 100th anniversary year, we were surethat the tide had turned, and we made it with the help of the
30–40-year-old weary equipment. The outbreak of the financial
crisis in September 2008 was an opportunity to wipe ourfinancial slate clean. Through M&A, DKS turned Yokkaichi
Chemical Co., Ltd. into a wholly owned subsidiary. We decided
to move the aging Yokkaichi Plant. We planned to raise thenecessary funds through bank loans and the equity markets.
We drew up plans for borrowing costs and capital budgets.
DKS issued 3.5 million shares to raise funds in March 2011,
testing the waters for another issuance of 10 million shares
three years later. Our shareholders’equity ratio, which had
slumped to 25%–29% during the dark years, recovered to38.9% as of March 31, 2017. Our financial strategy and capital
policy marked a major milestone with the purchase of 100,000
square meters of land near Kasumi, Yokkaichi City, and theplan to construct a new plant on this land. ROE is 9.5%, justshy of our target of 10%. DKS bought back its own shares andraised the dividend by ¥2 to ¥12 per share.
Our investment policy is based on our financial reach,with the intention of keeping spending below depreciation forConclusion
Although I will not mention all of my seven wonders of theworld for 2016, the U.K.’
s decision to exit the European Union
was one of them. The election of President Trump came as asurprise to many, however, I was not surprised. Before theelection, it had been projected that the yen would strengthen
and that stocks would fall if Trump were elected. Most news
reporters and commentators were of this opinion. Japanesestocks plummeted the day after the election but haverecovered all lost ground since then. Moreover, the yen did not
appreciate. These trends continue today. The fact that all these

About the DKS GroupDKS REPORT 2017

Business Foundations

Five Operating Segments

people did not expect a victory by Trump is also one of theseven wonders of the world. We intend to manage operations
proactively and stand by our changes, but drawing up accurate
forecasts is always a challenge. What is crucial to business
operations is what you do about events that have alreadyoccurred, that is, management that stands the wonders.
I had an opportunity to interview an author who has
written 25 or more books about cutting-edge companies
around the world. I identified two main themes in theanswers to my questions. Q1: What drives you to researchcompanies and publish so many books? A: I’
m glad you
asked an analog question. After the Bubble Economy
collapsed, I wrote a lot about the struggles of Japanesecompanies. I am sad about that. I wanted to write of the day
when Japanese companies would unfurl their wings and fly
out into the world again. Q2: Waiting for the Fourth Industrial
Revolution, we are working on new businesses to continue asa compact company that makes a wide variety of products insmall quantities. What should we take into consideration? A: I
recommend that you customize yourself to frontier domains
and functions (e.g., addressing special orders). Management
should focus on maximizing the power of the inherited“secret sauce”of your specialties such as the manufacturingof many products in small quantities. It is what Japanesecompanies are good at.
It appears that chemistry will be even more interesting in
the Society 5.0 era.“The day is approaching when Japan,
which lost out on IT strategies, will lead the world in the IoT
domain. Chemistry will be one of the keys.”This was theconclusion of the author I interviewed. Recently, I was asked byan analyst which company was our model. I gladly and
immediately answered,“3M.”The analysts around me seemedsurprised. 3M generates 100 times the sales of DKS and has
3.5 times as many products. It is truly a global company that
dominates in terms of the small-lot production of a large
variety of products. Sixteen years ago, I first learned about
3M’
s customer-inspired approach to development. 3M is ablue-chip company that has increased dividends for more than
50 years. We will spark innovations through new combinationsof proven technologies, collaborating with companies indifferent sectors and supporting the healthcare industry. DKS
aims to be a company that meets the needs of all four
stakeholder categories.

Data

the year. DKS began preparing to invest in equipment for
future growth with its sights set on a V-shaped recovery after
the 2008 financial crisis. The purchase of the land in
Yokkaichi and the construction of the new plant werebudgeted at ¥12 billion. That spending, including theconstruction of the new plant, has pushed annual
depreciation higher than in the past. DKS has invested
roughly the whole amount budgeted in the CHANGE100 Plan,
which was calculated based on its financial reach. There are
six new pillars in the first stage of our second renaissance.
These projects have code names such as Cindy, Dianne andSuzanna. DKS plans to invest another ¥12 billion over the
next three years in line with these six pillars and tomodernize equipment. This spending during the first stage of
our second renaissance will lay the groundwork for further
progress in the second stage.
It is said in Japan that a goddess named RORA will smileon the country in 2020. RORA represents the R in R&D (R&D
spending by financially sound Japanese corporations will
support the economy that year), the O in the 2020 Tokyo
Olympics, the R in Reform (demand for reform (i.e.,renovation) will increase for condominium buildings,
industrial infrastructure to support Japan’s rapid growth(e.g., bridges) and quake-resistant reinforcement in Tokyo)
and the A in Assistance (growth in demand for householdchore assistance services is expected). Since DKS createdthe REACT1000 Plan, the economic assumptions underlying
the plan have not changed despite changes around the world.
The U.S. economy is robust, and the financial health andearnings of Japanese companies are stable. Indeed, these
indicators are stronger than anticipated. However, such
trends do not make us optimistic about achieving our rolled
targets for earnings under the five-year plan. I believe thesetargets are within reach as we unite and move with purpose
and clarity toward achieving them.

17About the DKS Group

Financial/Capital Strategies and Total Shareholder Return
１ Financial Position
As of the end of the fiscal year ended March 31, 2017, the Company had total assets of ¥69.0 billion, net assetsof ¥28.0 billion, a capital adequacy ratio of 38.9%, cash and cash equivalents of ¥9.3 billion and interest-bearing
debt of ¥24.6 billion; the net D/E ratio was 0.54.
Regarding cash flows for the period, cash flows provided by operating activities were ¥3.7 billion, slightly
lower than the previous year due to factors that included an increase in accounts receivable at the end of the
fiscal year to a record-high level. For this reason, following on from the previous fiscal year (¥8.4 billion), capital
investment amounted to ¥3.7 billion, mainly consisting of investment in new equipment (e.g., Kasumi Plant).
Negative cash flows from investment activities came to ¥3.3 billion, but we were able to maintain positive free
cash flow.
In January 2017, while identifying trends in the stock market, we decided for the first time to repurchasestock as part of our capital policy to promote aggressive returns to shareholders; we acquired 2.26 million
shares for ¥1 billion. As a result, in conjunction with dividends the total payout ratio for the fiscal year ended
March 2017 was 65.6%.

2 Financial Analysis of the Past 10 Years
The performance and financial results of the DKS Group for the period from April 2006 to March 2017 are
analyzed as follows. (Cumulative totals are the totals over the 10-year period from April 2007.)

18

April 2006–
March 2007

April 2016–
March 2017

Net Sales¥46.0 billion¥52.2 billion

Increased 13.5%

Ordinary Income¥792 million¥3.77 billion

Increased approx. 4.7 times

Profit Attributable to Owners of Parent¥468 million¥2.48 billion

Increased approx. 5.3 times

Total Assets¥45.5 billion¥69.0 billion

Increased 51.6%

Net Assets¥15.9 billion¥28.0 billion

Increased ¥12.1 billion due to retained earnings and two capital increases

Interest-Bearing Debt

¥14.8 billion¥24.5 billion

Increased ¥9.7 billion mainly due to capital investment funds

Cash and Cash Equivalents¥2.1 billion¥9.3 billion

Increased to ensure liquidity on hand

Net D/E Ratio

0.80

0.54

Improved due to increases in net assets and cash deposits

Net Debt/EBITDA

5.25

2.42

Repayment capacity enhanced by improved profitability

Assessment/Comments

Total for 10 years from April 2007

Assessment/Comments

Profit Attributable to Ownersof Parent Cumulative Total¥10.5 billion

Weak in the past 10 years; there was an impact
from the financial crisis of 2008

Capital Investment
Cumulative Total¥31.6 billion

Invested aggressively for growth since the fiscal year
from April 2014 onward and invested more than
¥11.8 billion, the amount of depreciation

Depreciation Cost Cumulative Total¥19.9 billion

FCF Cumulative Total¥(1.6) billion

For 10 years, FCF was almost zero

Dividend Cumulative Total¥3.3 billion

Dividend increased for three consecutive periods

Capital Increase¥4.4 billion

Implemented public offerings on two occasions(March 2011, December 2014)

Share Buyback¥1.0 billion

Determined a shareholder return policy in January 2017

DKS REPORT 2017

3

About the DKS Group

Past Total Shareholder Return

Total shareholder return (TSR) by dividend and stock price was as follows. Following the stock price decline
brought about by the financial crisis in 2008, the stock price recovered upward and diagonally to an annual rate of
4.4% for the past 10 years.
DKS

180

TOPIX

TOPIX Chemicals Index

160
140
120
100
80
Five Operating Segments

60
40
20
0
3/20083/20093/201010 years

3/20113/20125 years

3/20133/2014

3 years

3/20153/2016

2 years

3/2017

1 yearCumulative
total

Annualrate

Cumulative
total

Annualrate

Cumulative
total

Annualrate

Cumulative
total

Annual
rate

DKS

54.0%

4.4%

82.8%

12.8%

37.5%

11.2%

14.2%

6.9%

28.6%

TOPIX

8.0%

0.8%

96.2%

14.4%

33.7%

10.2%

2.3%

1.1%

14.7%

TOPIX Chemicals Index

52.2%

4.3%

138.3%

19.0%

71.7%

19.8%

15.5%

7.5%

28.3%

Business Foundations

3/2007

4 Future Financial Strategies/Shareholder Returns

DKS REPORT 2017

Data

Under REACT1000, our current five-year management plan, we have set“maintaining and enhancing anappropriate ROE level”as a management policy. In addition, as an action point we are promising all ourshareholders a change from comparative value stock to growth stock. For our financial strategy going forward,
while supporting medium- to long-term growth, we would like to implement measures to optimize the cost ofequity.
Because we are a chemical manufacturer, continuous investments in plant and equipment, as well as R&D
expenditures, are indispensable for achieving medium- to long-term growth. While maintaining continuing
financial discipline, we are therefore investing for growth, and the main source of that investment will beinternal reserves and interest-bearing debt. In addition, we believe an important option will be to conduct policy
flexibly, such as making capital increases for growth or financially strategic acquisitions of treasury stock, basedon our financial situation and stock market trends.
Specifically, we will steadily raise PBR to 1 or above by improving and maintaining ROE to a level above thecost of equity. Also, while maintaining financial discipline, we will bring about a reduction in the cost of capital toan appropriate level by using moderate leverage. While aiming for sustainable dividend growth, we will aim to
optimize the cost of capital through flexible shareholder return measures in conjunction with share buybacks.

19About the DKS Group

Financial and Nonfinancial 11-Year Summary
Financial Data (Millions of yen)

3/20073/20083/20093/2010Net Sales

46,031
15,460
9,013
7,909
9,415
4,232
7,110
991
792
468
4,005
1,463
2,084
1,951
(3,448)(1,497)273
15,95845,543
14,856

48,875
16,574
8,645
8,075
10,576
5,003
7,726
623
351
436
3,040
1,778
2,058
2,964
(2,743)221
195
16,172
46,166
16,25946,52815,880
8,316
7,504
9,406
5,420
7,572
298
(28)
(350)
2,929
1,700
1,936
1,383
(2,678)(1,295)
117
14,43841,74916,25944,352
14,373
7,397
7,161
9,467
5,950
6,692
1,575
1,239
503
873
1,733
1,863
3,061
(1,661)1,400
195
15,31644,291
14,49911.99
389.677.00

11.17
392.735.00(8.99)
350.233.00

12.89
367.84
5.00

15.4
4.5
2.2
3.0
1.1
33.4
0.8
324
27.0
0.8
2.2

15.8
4.2
1.3
2.9
1.0
33.2
0.9
228
20.4
0.6
2.2

16.3
4.2
0.6
(2.4)
(0.8)
32.7
1.0
195
0.6
1.5

15.1
4.2
3.6
3.6
1.2
32.4
0.8
266
20.6
0.7
1.9

946
667
7
13.8
6
7
62.4

934
647
8
14.2
5
8
66.3

894
609
7
14.3
6
6
72.3

910
582
7
14.6
8
4
71.4

Surfactants
Amenity Materials
Polyurethane Materials
Functional Materials
Electronic Device Materials
Overseas Sales
Operating Income
Ordinary Income
Profit Attributable to Owners of Parent
Capital Expenditures
Depreciation and Amortization
R&D Expenses
Net Cash Provided by (Used in) Operating Activities
Net Cash Provided by (Used in) Investing Activities
Free Cash Flows
Cash Dividends Paid
Net Assets
Total Assets
Interesting-Bearing Debt1
Per-Share Data (Yen)Net Profit
Net Assets
Cash Dividend
Major IndicesOverseas Sales Ratio (％)
R&D Expenses to Sales Ratio (％)
Operating Margin (％)
Return on Equity (％)
Return on Assets (％)
Equity Ratio (％)
Net D/E Ratio (times)
Year-End Stock Price (yen)PER (times)
PBR (times)
Dividend Payout Ratio (％)－

Nonfinancial Data
No. of Employees (consolidated)
No. of Employees (non-consolidated)
No. of Employees Outside Japan
Ratio of Female Employees to Total Employees (non-consolidated)
No. of Employees Who Utilized the Child-Care Leave System (non-consolidated)
No. of Employees Who Utilized the Child-Care Part-Time Work System (non-consolidated)
Annual Paid Leave Rate (non-consolidated + assigned employees) (%)
No. of Patents Held (overseas) 2
Generated Waste Amount (tons) 3
CO2 Emissions (consolidated) (thousands of tons) 3－

11,01551.6－

12,800
46.6

－

8,579
43.1

1. Lease obligations not included in interest-bearing debt.
2. The collation method was amended to a legal effective date basis from FY 2016.
3. Data are presented on a non-consolidated basis up to FY 2009 and on a consolidated basis including Yokkaichi Chemical from FY 2010.

20

DKS REPORT 2017

－

9,912
37.4

3/2015

3/2016

51,245
15,131
7,046
8,761
11,441
8,863
8,748
2,732
2,439
1,155
1,111
1,836
2,010
2,502
(616)
1,886
298
16,49847,741
14,09856,24918,7797,220
8,634
10,228
11,386
8,296
2,033
1,742
165
2,312
2,252
2,273
2,309
(2,869)(560)
298
16,94951,357
15,70051,843
19,486
6,825
8,466
9,666
7,398
7,323
1,754
1,544
797
3,664
2,003
2,340
2,477
(3,548)(1,071)
298
18,20055,416
18,712

54,614
20,3597,141
9,564
10,680
6,868
8,103
2,477
2,374
1,336
1,512
2,104
2,506
3,553
(1,793)1,760
298
19,886
57,57020,67955,597
21,573
6,856
9,442
11,216
6,508
8,743
2,944
2,717
1,782
3,948
2,153
2,439
2,322
(3,229)(907)
474
26,15664,42021,32252,782
20,7797,208
8,934
11,259
4,600
9,131
3,439
3,200
2,198
8,485
2,087
2,380
4,197
(7,687)(3,490)528
26,74566,05723,22752,254
19,793
6,986
9,093
12,517
3,862
8,794
3,944
3,773
2,489
3,786
2,335
2,393
3,750
(3,336)414
608
28,044
69,046
24,59429.38
367.857.00

3.87
377.777.00

18.68
404.397.00

31.32
440.007.00

38.69
472.409.00

41.64
485.0510.00

47.40
529.94
12.00

17.1
3.9
5.3
7.7
2.5
32.9
0.5
261
8.9
0.7
2.7

14.7
4.0
3.6
1.0
0.3
31.4
0.6
246
63.6
0.7
2.9

14.1
4.5
3.4
4.8
1.5
31.1
0.7
250
13.4
0.6
2.8

14.8
4.6
4.5
7.4
2.4
32.6
0.6
322
10.3
0.7
2.2

15.7
4.4
5.3
8.2
2.9
38.7
0.4
387
10.0
0.8
2.3

17.3
4.5
6.5
8.7
3.4
38.8
0.5
328
7.9
0.7
3.1

16.8
4.6
7.5
9.5
3.7
38.9
0.5
427
9.0
0.8
2.8

861
554
5
14.8
6
6
69.0

995
533
6
14.8
10
7
66.7

979
526
6
14.8
10
11
62.7
636 (237)
14,421
51.9

969
514
5
16.0
8
8
63.7
660 (245)
12,724
52.0

944
508
6
15.9
11
9
61.0
722 (299)
13,876
51.3

982
495
7
17.0
9
10
64.5
822 (344)
13,191
50.9

967
486
7
17.5
6
13
62.4
855 (378)
17,364
52.5－

15,774
57.5－

13,39549.8

3/2017

DKS REPORT 2017

About the DKS Group

3/2014

Five Operating Segments

3/2013Business Foundations

3/2012Data

3/201121

About the DKS Group

Financial and Nonfinancial Highlights
Financial Highlights (Consolidated)● Operating Income/Operating Margin● Net Sales/Overseas Sales Ratio(¥ million)(％)(¥ million)

60,00030

4,000

51,84350,00054,614 55,597 52,782 52,254

3,500

25

40,00030,00014.8

14.1

20,0003/2013 3/2014 3/2015 3/2016 3/2017

1,754

2,000
1,500

10

1,000

0

0

2,944

2,477

2,500

15

10,000
0

3,000

20

16.8

17.3

15.7

3,944

5.3

4.5

2

500

3/2013 3/2014 3/2015 3/2016 3/2017

(Yen)

(％)

(¥ million)

3.0

30,0002.5

25,000

10

9

8
6
4

2.1

2.0

7

7

1.8

1.7

2.4

10

0

3/20133/20143/20153/2016 3/2017

20,67921,3223/20143/201523,227

10,000

1.0

5,000

0

0

3/20133/2016 3/2017*Lease obligations not included in interest-bearing debt.

Nonfinancial Highlights (Group/Non-consolidated)● Number of Patents Held* (Group)

Outside Japan

200
0

236

246

389

422

297

316

378

13

9

9

7

10

99

8

438

447

477

3/2013 3/2014 3/2015 3/2016 3/2017

DKS REPORT 2017

3
0

1

1

2

52.0

51.3

50.9

52.5

40

7
2

60
50

5

6

*The collation method was amended to a legal
effective date basis from FY 2016.

22

Female(1,000t)
71.3Child-Care Part-Time Work System
70

11

12

● CO2 Emissions (Group)

Male(People)
15

800

400

the Child-Care Leave/Child-CarePart-Time Work Systems (Non-consolidated)Japan(Patents)
1,000

600

● Number of Employees to Utilize

1

3/2013 3/2014 3/2015 3/2016 3/2017

30
20
10
0

0

24,59415,0001.5

218,71220,000

2.0

8
6

3.4

● Interest-Bearing Debt*

12

7.5

6.5

10

4

● Dividend per Share/Dividend on Equity (DOE)

12

3,439

(％)

3/2005 3/2014 3/2015 3/2016 3/2017

● ROE● Net Profit Margin

(％)
10.0

7.4

8.0
6.0

About the DKS GroupROE Analysis Based on the DuPont Model

8.7

8.2

(％)

9.5

6.0

4.2

4.0

4.8

3.2

2.5

4.0

4.8

1.5

2.0

0

3/20133/20143/20153/20160

3/20173/20133/20143/2015● Asset Turnover Ratio● Financial Leverage(Times)(Times)

0.94

1.0

0.95

0.86

0.8

4.0

0.76

0.80

3.32

3.19

3.0

0.6

2.95

3/20163/20172.61

2.63

3/20163/2017

Five Operating Segments

2.0

2.0

0.4

0

3/20133/20143/201503/20173/20163/20133/20143/2015● Generated Waste Amount● Ratio of Female Employees● Annual Leave Rate(t)
20,000

(％)
20

(％)
80

14,421

12,724

13,876 13,191

15

14.8

17.5
16.0 15.9 17.0

(Non-consolidated + Assigned Employees)

7060

62.7 63.7 61.0 64.5 62.4

50

10,000

10

5,000

5

0

0

40

Data

15,00017,364(Non-consolidated)

Business Foundations

1.0

0.2

30
20
10
3/2013 3/2014 3/2015 3/2016 3/2017

3/2013 3/2014 3/2015 3/2016 3/2017

03/2013 3/2014 3/2015 3/2016 3/2017

DKS REPORT 201723

Five Operating Segments

Five Core Business Segments
Surfactants

37.9%
of salesProviding highly functional surfactants since the Company’s founding in 1909●

Nonionic surfactants●

Cationic surfactants●Anionic surfactants●

Amphoteric surfactants

Major
products/
applications
IT & electronics

Amenity
Materials●of salesSucrose fatty acid esters
Cellulose polymers●●

Vinyl polymers
Acrylic polymers

Major
products/
applications
Fish/animal feed

Polyurethane
Materials●of salesCosmetics & personal care

Polyether polyols
Urethane prepolymers●

Urethane systems

Major
products/
applications
Civil engineering

Functional
Materials●of salesRadiation-curable monomers/oligomers
Waterborne polyurethanes●of salesDKS REPORT 2017●

Flame retardants
Amide-based lubricants

Flame retardants for plastics

Conductive pastes for electronics
Injection molding pellets

Films

●

Functional inorganic materials

Major
products/
applications
Ceramic materials

24●

Providing ceramic materials and conductive pastes forhome electronics components●

7.4%

Synthetic lubricants

Major
products/
applications
Electronics

Electronic Device
Materials

Construction

Providing products that are essential to daily life and home electronics,
for example, flame retardants, radcure resins, waterborne polyurethanes
●

23.9%

Food

Providing industrial materials and urethane raw materials, for example, paints,
adhesives, civil engineering and construction materials, electric insulating materials
●

17.4%

MetalsProviding materials and peripheral application technologies necessary
for a comfortable living environment
●

13.4%

Soap & detergents

Solar cells

Net Sales (¥ million)

YoY change－4.7%

25,00020,00019,486

20,35921,573

20,77919,793

About the DKS Group

Surfactants
Operating Income (¥ million)
2,500

YoY change
－4.4%
2,190

2,094

2016

2017

2,000
1,607

10,000

1,000

5,000

500

2013

2014

2015

2016

2017

Segment outline
Since the Company’s founding in 1909, the surfactants
segment has been a core business for more than 100 years.
DKS surfactants provide high added value to a wide varietyof B2B products in the energy, machinery, metal, colorant,
rubber, plastic, IT, electric and electronic sectors.
DKS is developing products in line with the recent
increase in environmental awareness around the world. In
particular, it is developing and manufacturing eco-friendly
products mainly at its Yokkaichi and Shiga branches using
natural oils and petrochemicals as raw materials.

A review of the fiscal year ended March 2017and an outlook for the future
The fiscal year ended March 2017 saw a moderate slump
in both sales and operating income.
Although demand was firm for rubber and plastic
applications in Japan and overseas, domestic sales in soap
and detergent applications dropped noticeably amid adownturn in naphtha prices. Overseas, sales slumped in
textile applications.
The segment is working to accelerate the shift of theKasumi Plant to a mother plant. Construction of newnonionic surfactant facilities was launched in November
2016.
The Company is focusing on leveraging its coretechnologies to develop highly functional products in linewith the needs of its customers in Japan and around theworld.

0

2013

1,181

2014

2015

The strengths of DKS andthe main functions of the business
The history of soap, which is representative of surfactant
products, traces back to the ancient Romans. After that
period, the focus moved from just the washing of dirt fromhands and feet to also include items offering the functionsof dispersion and emulsification, particularly those affecting
the surface of different substances, such as oil and water.
The functions required of surfactants have become
more diversified and more sophisticated as the industries ins customers operate have evolved.
which the Company’
DKS has developed polymerizable surfactants thatfunction as surfactants and then enhance the properties oftarget materials such as water resistance and is working
on expansion of the market.
s five-year management plan REACT1000 aims to
DKS’
expand sales as a“Uni-top”market leader by leveraging
our fine-grinding technology to meet the performancerequests of our customers.

Business Foundations

0996

Five Operating Segments

1,500

Strategies for future/risks and opportunities
The surfactants domain is where DKS can take advantage ofits technologies and experience accumulated over many
years. Growth in demand for polymerizable surfactants is
expected in the paint/coating and adhesive/binder industries.
Meanwhile, the Company faces many competitors in thisdomain, including domestic chemical manufacturers
producing detergents and dispersants. To maintainprofitability in the segment, the Company is focused on
spurring growth by developing high-value-added productsthat meet customers’needs and/or are eco-friendly.

DKS REPORT 2017

Data

15,00025

Five Operating Segments

Amenity Materials
Net Sales (¥ million)

Operating Income (¥ million)

10,000
8,000

6,825

7,141

6,856

7,208

YoY change
－3.1%

500

6,986

400

6,000

300

4,000

200

2,000

100

0

2013

2014

2015

2016

2017

409

413

2016

2017

249
180

2013

2014

2015

Segment outline

The strengths of DKS andthe main functions of the business

The Amenity Materials segment provides materials andperipheral application technologies necessary for a
comfortable living environment. The Company provides
materials suitable to the products of customers in a wide
range of industries including foods, pharmaceuticals,
cosmetics, toiletries, fisheries/livestock, textiles,
pulp/paper, civil engineering, agrochemicals andagro-materials.
In addition to core-technology surfactants, DKS
manufactures products made from natural raw materials,
including sugar and pulp, at the Shiga and Ohgata
s commitment tobranches in line with the Company’
preserving the environment.

With more than 65 years of experience in cellulose
polymers using pulp and more than 50 years of experiencein sucrose fatty acid esters using sugar, the Company has
a long history in product development and is developing
markets based on the basic and application technologies
accumulated to date.
In areas such as food and cosmetics, taste and texture
can be greatly affected by thickening, dispersing or
emulsifying. The effects of the products providing thesefunctions become clear when used in customer products.
The Company is focused on expanding sales by
providing its customers with highly functional productsthat are both safe and reliable.

A review of the fiscal year ended March 2017and an outlook for the future

Strategies for future/risks and opportunities

Although sales in the business were somewhat sluggish,
operating income improved marginally in the fiscal year
ended March 2017.
In the domestic market, cellulose polymer materials
used in energy and environmental applications performed
well, and demand for binders used in aquaculture feed
was strong. While food application demand for sucrose
fatty acid esters derived from raw material sugar was firmin Japan and overseas, sales overseas in cosmetics
applications were somewhat weak.
The segment views the overseas markets as a growthfield and explores its customer base to improve the
comfort of daily life by providing highly functional products.

26

0

400

YoY change＋0.9%

DKS REPORT 2017

While the Amenity Materials business targets companies
operating in a wide range of industries, the domestic
market for the segment appears unlikely to expand moving
forward given current demographic trends. The Company
nevertheless targets stable sales and profitability in Japan
in line with the customer base acquired to date. On theother hand, DKS targets an expansion in product sales
overseas, which the Company views as an area for growth,
especially for food and cosmetics-related applications.
s competitors in the field can be said to
The Company’
include food additive manufacturers.

9,56410,000

9,442

8,466

8,934

9,093

Operating Income (¥ million)
350

306

300

8,000

250

293

232

230

6,000

200

YoY change－44.8%

4,000

150

127

Five Operating Segments

YoY change＋1.8%

Net Sales (¥ million)

About the DKS Group

Polyurethane Materials

100
2,000

2014

2015

2016

2017

Segment outline
The segment provides polyurethane materials and industrial
materials, including paints, adhesives, civil engineering andconstruction materials, and electric insulation materials.
The main areas of development include lower density softurethane foams, polyether polyols for rigid urethane foams
with enhanced heat insulation and flame retardancy, androck hardening agents primarily used for mountain tunnel
projects and polyether polyols to make flexible or rigid
urethane foams.
Petrochemicals used as the mainstay raw materials inthe segment are mainly manufactured at the Yokkaichi
Branch.

A review of the fiscal year ended March 2017and an outlook for the future
Sales in the segment in the fiscal year ended March 2017
were generally firm, though operating income declined by a
substantial margin.
Sales of synthetic lubricants that are eco-friendly and inline with HFC regulations were somewhat sluggish amid adecline in naphtha prices, whereas construction chemicalsales were down sharply. On the other hand, the increase inpublic works projects contributed to favorable growth insales of civil engineering–related chemicals, especially foruse in mountain tunnels. Marginal profits remained low anddecreased on a year-on-year basis due to changes in thesales mix.
With the launch of production at the Kasumi Plant,
which came online in 2016, the Company aims to expand
sales to the Linear Chuo Shinkansen project of tunnel
construction chemicals, for which the Company has a strong
share and proven track record.

0

2013

2014

2015

2016

2017

The strengths of DKS andthe main functions of the business
The main functions of products in the segment areadhesion, insulation and water stopping, which are allareas in which the Company gains an advantage from its
unique technologies and experience. The Company has
established a safety education and training center at theKasumi Plant, where production takes place; aims topromote the training of human resources throughout thegroup to generate synergies; and is working to build on its
strengths to better meet the needs of its customers.

Business Foundations

2013

Strategies for future/risks and opportunities
The Kasumi Plant, which was built at the Yokkaichi third
complex, began full-scale operations in December 2015. Furthers plan to
expansions are progressing in line with the Company’make the facility a mother factory. The Company aims to develop
and manufacture high-quality products through a combinationof applied technologies and the most cutting-edge equipment.
Risks to the segment include competitors and the growthpotential of the market. While maintaining a focus on thepotential for growth in the target market, the Company also
aims to improve manufacturing capacity and its technologicalabilities to best its competitors.
The segment is developing water-reactive (foaming) polyols
and synthetic lubricants that are eco-friendly and in line with
HFC regulations, and in IT products is working to reduce volatileorganic compounds (VOCs) by developing a single-component
waterborne insulating coating. Although environment-related
measures can be considered risks, we remain committed tofinding opportunities to develop eco-friendly products.
Competitors in this business include civil engineering andbuilding construction firms, as well as electronic materials
manufacturers.
DKS REPORT 2017

Data

0

50

27

Five Operating Segments

Functional Materials
Net Sales (¥ million)

YoY change＋11.2%

15,00012,517

12,0009,666

10,68011,216

900

6,000

600

3,000

300

2013

2014

2015

2016

2017

The Functional Materials segment supplies various plastic
additives indispensable to the highly functional plastics andrubber used in our living environment such as personal
computers, smartphones and home electronics, as well asradiation-curable monomers and oligomers, flame retardants,
antistatic agents, lubricants, anti-clouding agents andantioxidants, among others.
Waterborne polyurethanes being developed since 1973 areused in coating wood and plastic, metal and paper coating agents,
film and wood adhesives, and paper/fiber binding.
Although the Ohgata and Yokkaichi branches have been themain manufacturing bases for these products, the manufacturingof new products now takes place at the Kasumi Plant.

A review of the fiscal year ended March 2017and an outlook for the future
Sales and operating income both expanded sharply comparedwith the previous year in the fiscal year ended March 2017.
In Japan, performance was strong in waterborne
polyurethanes for textile applications, whereas radiation-curable
resins for IT and electronics applications and brominated flame
retardants for rubber and plastic applications bounced back after
declining in the fiscal year ended March 2016. Thanks to recent
years spent developing the market, radiation-curable resins madea strong contribution to sales as new highly functional products.
Overseas, sales were weak in radiation-curable resins for IT
and electronics applications and phosphorus-based flame
retardants, but there was notable growth in brominated flame
retardants for rubber and plastic applications.
Brominated flame retardants are used mainly in plastics inthe electronics and electrical fields and in housing thermal
insulation. Growth was particularly clear in applications tied to the
IT and electronics fields.
DKS REPORT 2017

1,305

1,200

11,259Segment outline

28

1,500

9,000

0

YoY change＋93.8%

Operating Income (¥ million)

0

767
578

673

212

2013

2014

2015

2016

2017

The strengths of DKS andthe main functions of the business
The technology used in radiation-curable monomers andoligomers is called radcure (UV or EB curing) in which a resin
composition such as paint is instantaneously dried and cured byirradiating it with ultraviolet light (UV) or an electron beam (EB).
Radcure technology is widely used in a variety of fields toconserve resources and energy and to reduce theenvironmental impact. Its uses include clear paint for building
materials and furniture; anticorrosive paint for metals; resist
materials for semiconductors, dry films and LCDs; coating
agents for mobile phones, optical fibers, plastics and paper;
printing inks and plate-making materials; and adhesives.
Brominated flame retardant raw materials are sourced
from bromine production sites worldwide, with the market forplastic applications mainly overseas. Brominated flame
retardants demonstrate higher flame retardancy thanconventional phosphorus and inorganic flame retardants.
Waterborne polyurethanes allow the polyurethanes, a kindof plastics, to be dispersed in water and are therefore
increasingly essential as the world moves away from organic
solvents.
DKS is developing a variety of products through the
combination of technologies that exhibit flame retardancy andsurface coating.

Strategies for future/risks and opportunities
Target markets for this business include those with strong
growth potential and areas both in Japan and overseas inwhich the Company believes it can demonstrate its strengths.
While competitors include electronic materials manufacturers
and overseas flame retardant manufacturers, the Company islooking to secure growth through its unique technologies andproposal capabilities.

8,0007,398

Operating Income (¥ million)
94

100
6,868

80

6,508

6,000
4,600
4,000

YoY change－16.0%

40

3,862

20

60

64

3

10

0

Five Operating Segments

Net Sales (¥ million)

About the DKS GroupElectronic Device
Materials

(20)
2,000

(40)

0

(80)

(60)
2015

2016

2017

Segment outline
As evidenced by the spread of the Internet andsmartphones, as well as the increase in solar power
generation facilities, there has been a clear
advancement in the information society and a concerted
effort to create a more eco-friendly society. Since the1980s, DKS has been developing ion-conductive
polymers and ionic liquids and continues to advance thesupply of products in these areas of growth. We are also
developing and supplying lithium-ion battery materials,
ceramic materials and conductive pastes.
Mainstay products in the electronic device materials
segment are produced at subsidiary companies Dai-ichi
Ceramo (Shiga) and Kyoto Elex (Kyoto).

A review of the fiscal year ended March 2017and an outlook for the future
In the fiscal year ended March 2017, sales in thesegment declined sharply, and although operating
income recovered from the level in the fiscal year ended
March 2016, it nevertheless remained at a low level.
Sales of electronic device materials segment
dropped sharply in the fiscal year ended March 2017.
There was a particularly sharp downturn in sales ofceramic material injection molding pellets andconductive pastes for solar cells that are used in solar
power generation equipment. However, earnings in thesegment showed signs of hitting the bottom, thanks tofirm sales of new products marketed to the IT andelectronic materials sectors.

2013

2014

2015

(65)
2016

2017

The strengths of DKS andthe main functions of the business
DKS is focused on developing business activities at thesubsidiary companies that make use of the Company's
surfactant technologies. The Company's surface
chemistry, which is its core technology, is used in the
mixing techniques of resins and ceramic powders ororganic materials and metal powders. We can conduct
mixing operations under special conditions or with a highlevel of viscosity thanks to our unique and extensive
experience and detailed know-how in the process.
The main features of our products are their highdegree of efficiency and precision. As an example, ionicliquids are compounds made of ion pairs, which generally
C or less.
assume a liquid state at temperatures of 100°
They have no vapor pressure and are nonflammable.
Because they are highly safe and efficient thanks tohaving high ion conductivity, we are developing electrolyte
applications for lithium-ion batteries and capacitors.
These liquids are also attracting attention as
next-generation materials in the energy device field andas green solvents for reducing environmental impact.

Business Foundations

2014

Strategies for future/risks and opportunities
Data

2013

We expect a tough operating environment ahead for thesegment as there is some degree of uncertainty overthe potential growth for the industry and existing
applications for segment products. On the other hand,
we aim to achieve growth and meet the quality
demanded by our customers by making full use of thes technologies and promoting R&D efforts togroup’
advance the development of next-generation products.

DKS REPORT 201729

Five Operating Segments

Product Pickup
Rock hardening agent:

GANBANThe DKS polyurethane business was launched in 1960 by the Company producing soft urethane foam raw materials at the Yokkaichi Branch.
The urethane market at the time was characterized by excessive competition, and DKS focused on advancing the development ofhigh-value-added products, making use of existing technologies to expand our lineup of waterproofing materials, flooring materials,
all-weather paving materials and water-stopping materials for civil engineering and construction projects.
GANBAN is an agent used to help prevent tunnel collapses and is a high-value-added urethane product that is economically efficientand has a low level of impact on the environment.

Contributing to safety in mountain tunnel construction and the advancement of construction technologies
Forested mountains account for approximately
two-thirds of total land area in Japan, and mountaintunnels stand alongside roads and ports in playing animportant role not only for industry but also as socialsinfrastructure supporting the daily life of the country’citizens. It is accordingly important to ensure safety inmountain tunnels, where construction is difficult due tothe dangers of falling rocks.

GANBAN helps prevent tunnel collapses as it shows
excellent levels of permeability and through injection
can reliably fill fine cracks in ground surfaces. GANBAN
also contributes to the enhanced sophistication ofmountain tunnel construction in Japan, which has been
described as among the best in the world. Specifically,
the product forms into a strong and solid form quickly,
ensuring safety during tunnel excavation work.

GANBAN in tunnel construction
As a solidifying agent for rock that can easily crumble, GANBAN is highly effective in preventing collapses.

The tunnel structure
Shortcrete
Rockbolt

1
3

H-section steel beams

Tunnel opening

GANBAN application site
30

DKS REPORT 2017

2
4

Injection of GANBAN

The Three Core Technologies of DKS
About the DKS Group

DKS was founded in 1909 for the development and sales of a cocoon unwinding agent for use in spinning. Since
its founding, the Company has cultivated three categories of technology: synthesis, blending and analysis. These
have created the base for DKS, allowing it to create unique technologies to meet the requirements of manyindustries.

Emulsionpolymerization

Battery evaluation

Emulsion/
dispersion

Polymermodification

Precision cleaning
agent evaluation

Inorganic powder
mixingEthylene oxide
addition

Food application
evaluation

Functional
urethane design

Surfactants

Interface/surface
evaluation

Blending
technology

Synthesis
technology

Analysistechnology

Business Foundations

Flame retardation

Data

Nano dispersion

Five Operating Segments

Urethanization

Cocoon unwinding agent
DKS REPORT 201731

Business Foundations
Important Issue

1 Quality and Safety Management

Basis of Quality Assurance
Our Company established its Quality Assurance Management Regulations and Quality Policy in 1995. Providing high-quality,
safe and reliable products based on quality assurance, we are working to realize improvements in customer satisfaction.
1．We establish quality-related management standards for each department that cover
the entire process, from product planning to customer service throughdesign/development, manufacturing and sales. Through the appropriate operation ofsuch standards, we strive to provide high-quality products that are safe and reliable,
maintain and improve product quality, and provide quality assurance for our customers.
2．To effectively bring about quality assurance functions throughout the entire Company,
we establish and maintain a quality management system.
3．All our employees must observe this basic concept of quality assurance and carry outtasks in accordance with the Quality Assurance Management Regulations.

Quality Policy

Quality Control System
Having established a Quality Policy in 1995 and obtained ISO 9001 certification, we conduct companywide quality management
activities. As basic tools for quality management, we execute PDCA cycles and provide products and services that satisfy
customer demands and comply with laws and regulations. In addition to day-to-day quality management activities (such as
product quality review meetings, corrective measures and preventive actions relative to complaints/nonconformity, audits,change control and quality education), we implement periodic reviews of the management system. Having completed theswitch to the revised ISO 9001:2015 in FY 2016, we are promoting the further integration of ISO and business activities.
● QC System Diagram

Management Committee

RC Promotion Conference

Production Control Headquarters

Procurement Department
Material procurement
Logistics Department
Order taking and shipping

Functional Chemicals Business Division
Plastic Materials Business Division
Sales
Department

R&D
Department

Production
Department

RHEOCRYSTA Business Division
Domestic Subsidiaries Division

Customers

Product Quality Review Meeting

Business Headquarters

Procurement & Logistics Center

QMS Committee

Quality Assurance (PL) Meeting

International Business Division(General Manager of) Branch
Quality Control Section

Environmental, Safety
and Quality Affairs
Department

Quality analysis(Raw materials, products)
Issuance of certificate
of analysis

Quality control(supervision)
Legislative management
RC promotion activities

BranchQuality Assurance (QA) System
Having put in place a QA system basedon our Quality Assurance Management
Regulations and keeping our Quality
Policy in mind, we promote QA
activities̶from productdesign/development, manufacturing
and sales to customer service througheach relevant department. We arecompiling quality manuals andworking to ensure product safety andquality, as well as trying to prevent
quality-related issues before theyarise.

32

DKS REPORT 2017

● QA System Diagram

Chairman CEO
Management Committee
Environment, Safety &QA Department
Quality Assurance (PL) Meeting
QMS Committee

Executive General Manager i/c
Business Headquarters
General Managers/Business Divisions
General Managers/Sales Departments
General Managers/R&D Departments
General Managers/Production Departments

Executive General Manager i/c
R&D Headquarters
General Manager/
Corporate R&D Department

Executive General Manager i/c
Production Control Headquarters

Product Safety (chemical substance management from design/development)
About the DKS GroupTo undertake the appropriate management of chemical substances, we have prepared the chemical substance management regulations. In our productdevelopment, we not only realize the quality demanded by customers but also obtain information on raw materials from the design/development stage andconduct product hazard assessments and environmental impact assessments, as well as conduct investigations into their conformity with applicable laws
and regulations. We take measures to ensure that, as chemical substances, their safety and impact on the environment is taken into consideration.
● Product Safety Mechanism

Customers & Local Communities
Search & Investigation

Design & Development

Commercial Production

Research & Preproduction

Required Quality(Product Sales)

Securing of Product Safety

Realization of quality
Safety confirmation● Environmental impact
assessment● Investigation of conformity withapplicable laws and regulations● Investigation of raw materials

Commercial
Production Review
Occupational/Process
Safety & Disaster Prevention
Production technology review
Product evaluation (safety/packaging)● Compliance with applicable laws
and regulations● Environmental impact assessment● Securing of raw materials● Creation of SDS and technicaldocuments

Stable Supply
Technical Service
Quality control
Response to improvement requests● Provision of product information● Regulatory compliance● Environmental conservation● Securing of distribution safety

●

●

●

●

●

●

Provision of Product and Technical Information

Efforts to Reduce Complaints/Nonconformity Products

Our products are utilized in a variety of fields, and we
provide product and technical information tailored tothe characteristics of each product and service. We
always respond to requests and inquiries from ourcustomers quickly, adequately and in good faith. To
introduce our existing products and/or new products,
we strive to promote close communication withcustomers through our everyday businessnegotiations and send out our information using
brochures and technical documents. We also provide
the latest information̶covering, for example,
product properties, applicable laws and regulations,transportation, handling methods and emergency
measures̶by means of safety data sheets (SDS)
and actively promote the provision of information on
the chemical substances contained in our products
via MSDSplus.
We have sequentially updated our SDS andlabeling to remain in compliance with the revised Act
on the Evaluation of Chemical Substances andRegulation of Their Manufacture, etc., and theIndustrial Safety and Health Law, as well as therevised Japanese Industrial Standards (JIS).

Because we position quality-related nonconformity(complaints/deviation) as an important issue forsecuring quality, we check any description of
nonconformity, determine the cause and verify thecorrective action and its effectiveness. We also
attempt to handle any product complaints we havereceived quickly, adequately and in good faith.
Information on complaints and nonconformity is
managed centrally via the Company’s intranet, andwe implement measures to prevent recurrences
and/or similar occurrences and monitor related
actions. Each production branch sets a goal for
reducing the number of complaints/nonconformity
cases and monitors progress. In FY 2016, theCompany evaluated the effectiveness of corrective
measures to date as a priority issue for reducing
complaints and quality nonconformity. At the sametime, we strengthened quality improvement actions
by Quality Review Meetings in each department. As aresult, in FY 2016, we recorded the lowest evernumber of complaints. In the years to come, we will
make progress in reducing the number ofnonconformity cases by further ingenious efforts.

DKS REPORT 2017

Business Foundations

Investigation of technologicalinformation● Investigation of laws
and regulations●

Product Design

Data

Planning

Five Operating Segments

Process Safety andDisaster Prevention

Process Review

33

Business Foundations
Important Issue

2 Research and Development

Efforts in R&D̶DKS’s Foundation That Underpins Strategies
As an industrial chemical manufacturer, it is our management philosophy to continue to be a prominentcompany that responds to the expanding chemical requirements of industries. To realize that philosophy, we arefocusing on the development of electronic materials and rock-hardening agents for tunnel construction,
expansion of the sugar derivatives business, product improvement in areas peripheral to our existing businessand R&D for high-value-added products. With innovative wisdom and technologies, we are pursuing“Chemistry
provides a solution”in every industry and developing products that can contribute to a sustainable society.

R&D System
Starting in FY 2016, we reformed the R&D departments under the businessdivisions: the Functional Chemicals R&D Department, which mainly
conducts development for the Surfactants and Amenity Materials segments;
the Plastic Materials R&D Department, which is responsible for developmentof products for the Polyurethane and Functional Materials segments; and the
RHEOCRYSTA Business Division’s Development Group, which develops
cellulose single nanofibers that have been successfully practically applied forthe first time in the world. In the Electronic Materials segment, the Plastic
Materials R&D Department and the subsidiary companies’R&D
departments cooperate to focus on new developments. Support for thebusiness divisions comes from the divisional R&D departments, which areresponsible for developing Companywide research topics, new businesses
and new technologies, and the Production Technology Department, which
engages in the creation of and innovation in production technologies. We areworking to accelerate R&D through collaboration not only within the Groupbut also with customers, universities and public research institutions.

● R&D System Diagram

R&D Investments

Number of Patents Obtained

In FY 2016, the total expenses required for R&D amounted to¥2,393 million, which represented 4.6% of net sales. The total
number of R&D personnel of the Company and the domestic
subsidiary companies was 174, which was equivalent to around
18% of all employees (as of March 31, 2017).

Mindful of future business development, we actively promote thefiling and obtaining of intellectual property (IP) rights based on
R&D results. Recently, to provide our business operations withstronger backup, we have been focusing on improving the qualityof our patents. We will continue to respond to the globalization of
our business and continue to acquire rights securely forimportant domestic and foreign markets.

● R&D Costs(¥ million)
3,000

2,439

2,380

Joint research
Personnel exchanges

Customers
Closed/open
innovation

National projects

DKS Group R&D Departments
Functional
Chemicals
R&D
Department

Plastic
Materials
R&D
Department

RHEOCRYSTA
Business
Division
Development
Group

Subsidiarycompanies'
R&D
departments

Intragroup collaboration

Corporate R&D Departments/Production Technology Department

Outside Japan

1,000

1,000

In Japan

800
2014

2015

2016

(FY)

● Research Personnel(Persons)
200

Government
agencies● Number of Patents Held

2,393

2,000

0

Universities
Public research
institutions

172

169

174

600

344

378

478

477

299

400

150
100

423

200

50
0

34

0
2014

DKS REPORT 2017

2015

2016

(FY)

2014

2015

2016

(FY)

*The collation method was amended to a legal effective date basis from FY 2016.

Our Products and Technology Development
About the DKS Group

Eco-Friendly Products and Technology Development
We supply products that meet environmental requirements, including global warming prevention, energy and resource saving,environmental protection and prevention of environmental pollution, and engage in the development of related technologies.
Environmental
Requirement

Functions &FeaturesOur Product Lineup & Technology/Application

Halogen-freeness
Energy efficiency

Energy & Resource
SavingEffective resource
utilization
Extension of life span

Binder for lithium-ion batteries

ELEXCEL ACG Series

Gel polymer for lithium-ion batteries

DD-1200C Series

Conductive paste for solar cells (lead-free)

DK BE-CLEAR Series

Waterborne detergents

DK POLYOL 3000 Series

HFC1 -free water-reactive polyols for urethane foams and insulating materials

COLOURSOL CT-171D

Dye accelerating/leveling agents for polyester

NEW FRONTIER Series

Solvent-free UV/EB-curable monomers/adhesives, coating agentsDK SYSTEM NF Series

HFC-free systems for rigid polyurethane foams and insulating materials

Slag anti-solidification agents
ELEXCEL IL Series

Ionic liquids/energy device materials

EIMFLEX Series

Polyurethanes for electric insulation/sealants

NOIGEN XL Series, NOIGEN TDS Series

Nonionic surfactants/emulsifiers, cleaning agents

RHEOCRYSTA Series

Cellulose single-nanofiber water dispersion thickener

AH212

Organic alkaline agents

SUPERFLEX Series

Polyurethane water dispersions and paints, coating, binders

EIMFLEX WF Series

Waterborne polyurethanes for electric insulation/sealants

ELASTRON Series, ELASTRON BN Series

Thermoreactive polyurethane water dispersions, binders, adhesives

NEW FRONTIER Series

Solvent-free UV/EB-curable monomers/adhesives, coatings

Reduction ofenvironmental impact

HITENOL Series, NOIGEN Series

Polymerizable surfactants, emulsifiers for emulsion polymerization

TRIBIO Series

Polylactic acid modifier agent

Removal ofcontaminants

SEACLE N-800

Marine oil spill treatment agents

DEOPELLET Series

Foul odor gas absorbents for absorption towers

Eco-friendliness
Environmental
Protection,
Prevention ofEnvironmental
Pollution

CELLBINDER Series

VOC2 reduction

Products to Meet Environmental Requirements
Having developed RHEOCRYSTA, a cellulose nanofiber
product made from cellulose̶a recyclable, eco-friendly
material̶DKS is advancing the development ofapplications that make the best use of its uniqueproperties as a high-performance additive. We are also
developing hydrophobic cellulose nanofibers dispersed inorganic solvents to expand the scope of its applications.
DKS began to manufacture and sell HITENOL andBusiness Foundations

Clean energy

1. HFC: Hydrofluorocarbons
2. VOC: Volatile organic compounds

NOIGEN Series polymerizable surfactants in the 1980s.
Such eco-friendly products as water-based paints andadhesives, which have been popular in recent years, offer
excellent water resistance and adhesiveness. The new
HITENOL AR Series products offer excellent
copolymerization qualities with a wide range ofmonomers and improve the water resistance of andinhibit the formation of bubbles in paints and adhesives.

Data

Global Warming
Prevention

Five Operating Segments

Lithium-ion batteries

DKS REPORT 201735

Business Foundations
Important Issue

3 Human Resource Management

Securing Superior Human Resources, Ensuring Diversity
Human Resource Philosophy
Respect for Humanity
Our fundamental human resource philosophy isrooted in the idea that our people are our assets andmust be nurtured and treasured.
Our basic understanding is that the growth of ourpeople will support the growth of the Company. The
employees are supposed to actively play their roles ineach workplace; learn, grow and, exhibit theircapabilities; and try to fulfill themselves. This way,
we believe that they become the power of prosperityof the Company and the source to make it eternal.

Human Resource Development Policies
1. Development of Professional Workers
We aim to train professional human resources who have highmarket value and can work on their own initiative.
(1) People possessing advanced, specialized skills(2) People who recognize and achieve their roles and goals(3) People who raise and solve issues themselves(4) People who demonstrate leadership in the workplace
2. Development of Autonomous Personnel
Switch to human resources able to work on theirown initiative through their own motivation

Respect for Human Rights and Diversity▶Efforts to Prevent Harassment

We are trying to prevent harassment through, for example,
educational programs in hierarchical training courses. Several
persons are selected as contacts, even from outside the
Personnel Department, so that anyone can easily findsomeone to talk to and get advice from, and in addition,
whistleblower portals in and out of the Company are in place.
▶Work-Style Reforms●

Work-Life Balance

We promote well-balanced work and home/family lifestyles,
and various benefit programs are in place. Every worker, as acorporate citizen, should be able to work all the time withenthusiasm and enjoyment, including our Chairman, Mr.
Sakamoto, who also chairs the Kyoto Labor Standards
Association. For FY 2016, the actual ratio of annual paid leave
taken was 62.4%. In the years to come, we will promote
initiatives toward achieving 70%, which is the target by the
Cabinet Office.
▶Promotion of Employee Participation and Advancement

Having set up an Employee Participation and Advancement
Promotion Committee chaired by the Company chairman, weare aiming for a human resource group capable of successfully

contributing to improvements in Company performance. We
aim to create an environment in which we can maximize theabilities of diverse employees, including women, seniors andpeople with disabilities, and enable them to take an active part.

Promotion of Women’s Participation and Advancement
In addition to an environment that facilitates many andcontinuous working years for women, in the years to come wewill maintain a work environment that enables women todevelop their careers and implement measures aimed at having
7.0% or more of managerial positions occupied by women. As ofthe end of April 2017, the ratio had risen to 6.3% compared with
5.3% as of the end of April 2016.
●●Retiree Reemployment System

In reemploying all applicants as“senior challenge staff,”weconduct monozukuri (manufacturing) by handing down thetechniques and skills that make the best use of the experience
they have accumulated over many years.
●

Employment of People with Disabilities

We are actively working to create opportunities for people withdisabilities to play active roles in the workplace according totheir individual abilities and aptitudes.

Human Resource Development/Education▶Global Human Resource Development

We are undertaking a variety of projects based on the DKSGroup’
s globalization strategy.
In recent years, our efforts have focused on accepting, on ashort-term basis, local staff of overseas bases at domestic
departments in Japan, the active recruitment of non-Japaneseexchange students, and the conducting global skill training
sessions geared toward employees ranging from the young tothose in mid-level positions. We are also actively involved in otherinitiatives, such as study abroad programs, in-house language
programs and select training sessions for local staff managers.
We will continue to accelerate the globalization of the DKSGroup.
36

DKS REPORT 2017

▶Education Courses

Education programs for our employees are supported by three pillars:
in-house on-job training, external education to learn skills and abilities,
and assisting self-development. We make use of our Shichijo Sembon
Main Branch, the location of the Company’s founding, and the new
Kasumi Plant at the Yokkaichi Branch as the venues for education andtraining. We have enhanced systems to support the capacity building of
employees by, forexample, promoting andsubsidizing schooling andqualification acquisition.
The entire Company isputting efforts into humanresource training.
General view of a training session

Efforts in Health Management
About the DKS Group

Health Declaration
Regarding its employees as Company assets, DKS will strive to maintain and improve their health.

Efforts in Health Management

We conduct health checkups that exceed the statutory
requirements. The health checkup participation rate, there-checkup participation rate and the health guidance
implementation rate all stand at 100%. The resulting diagnosesof physical and mental health checkups are reported anddiscussed at the Safety and Health Meeting and the SHMS
Committee, which involve
management. An education
program regarding preventive
measures against
lifestyle-related diseases is
implemented for all employees.
For employees who work
long hours, we have established
our own standards that exceed
the statutory requirements andhave industrial physicians

We are continuing the Company’s own workplace environment
improvement activities not only at manufacturing sites but also in
administrative departments.
▶Acquisition of Health Management Ratings

In FY 2016, we acquired a health management rating from theDevelopment Bank of Japan Inc. As this was the first time abusiness in the manufacturingindustry in Kyoto acquired sucha rating along with anenvironmental rating, theachievement was noted by the
media.
The purpose of acquiring
the rating is to assess
Company efforts through theeyes of external organizations,which will lead to further
improvements in the years tocome.

DBJ health management rating certificate

Communication with Employees▶Holding of“Festa”▶Information Transmission inside the Company

Publishing the in-house newsletter“DKSCOM”every othermonth, our Public & Investor Relations
6
Department works to instill the 47
management policies and visions, as well 「ユニ・トップ」でつなごう
as to foster communications within the
Company. Feedback is also taken into
consideration in planning the newsletters
so that information can be disseminatedand clearly understood by all employees
in a timely fashion.
あの人どんな人？
！
こんな人！

むらき

村木

現在の仕事と趣味についてお聞きしました。

つかさ

司さんから

2017

四日市事業所総括課 資材職場

片桐 優大 さん
かたぎり

今回は四日市事業所総括課の片桐さんからです。

DAI-ICHI KOGYO SEIYAKU COMMUNICATION MAGAZINE

ゆうだ い

四日市事業所で産業廃棄物担当をしています。

適正に処理委託し、廃棄物で製造が止まることのないように取り組んでいます。環境ＩＳＯやＤＫＰＭの事務局もやっています。そろそろ資材職場に

ひだか

今回は趣旨を変え、濱地職長と伊勢のお菓子博を視察してきました。

透 さん

全て食べられなかったので、村木部長含め３名で出直す予定です。

とおる

四日市事業所の設備保全とエネルギー管理を担当しています。

四日市事業所は老朽化設備が多く、修理が大変です。その分、突発修理時の対応力が身につき、大変勉強にはなります（笑）。エネルギー管理では、省エネ設備の導入ではなく、設備休止による省エネを主に進めています。

「食」に興味あり日髙さんは・・・

不思議な意見を言った

りしますが、勉強家です。
同期で配属先が同じだったこともあり、仲は良いですが、よく言い合いをしていました（笑）。今では保全のエース？です。

ゴー ルデンウィークに大 阪 の食博覧会に行ってきました。日本

中 のさまざまな 食 べ 物 が あり、珍しいものもたくさん食べることができました。

石田さんは・・・

新 入 社 員 の 時に電 気

保全関係のことを教えて

い ただきました 。い つも気さくに、関 西 弁で話す

姿 は 、ひとことで 表 すと

滋賀事業所保全原動課

石田
いしだ

聡 さん

さとし

滋賀事業所で生産設備の管理を担当しています。

滋賀に来て１年半経ちますが、設備を覚えるのに苦労しています。
設備の老朽化が進んでいるため、保全原動課と製造課で相談しながら優先順位を「大阪のおっちゃん」です

つけて更新を進めています。

（笑）。

「趣味は何ですか？」と聞かないでください。

個人情報は、社内報「DKSCOM」制作のみに使用しています。

2017年の年間標語

社外秘

社外には配布しないでください

INDEX
1

トップメッセージ

D A I - I C H I KO G Y O S E I YA K U C O M M U N I C AT I O N M A G A Z I N E

日髙

6

来て２年が経ちますが、資材業務が覚えられずすみません･･･。

“ホルモン事業部会”の食べ放題の視察に行っています。

四日市事業所保全原動課

2017

We hold Festa, which are festivals for each region, to promote
the good health of employees and their families and broad
exchanges. Elaborately planned events, such as barbecues,
bowling, chartered trains and large sporting activities, areuseful in facilitating active inter-departmental andintergenerational communications.

Five Operating Segments▶Enhancement of Health Management▶Improvement of Working Environments

Business Foundations

As one measure to assist in the mental healthcare of ouremployees, we have introduced a consultation service staffed byclinical psychotherapists, industrial counselors and industrial
healthcare staff. In FY 2016, we maintained a mental healthcheckup participation ratio of 100%. Everyone, including all
part-time workers, is eligible to undergo the checkup.
We also conduct mental health education, based on anannual plan, for all employees.

conduct interviews with all of them.
Employees acquire a qualification to be instructors in
Automated External Defibrillator (AED) training, and training
sessions are held with the cooperation of local fire departments.
We cooperate with the Japanese Red Cross Society and conduct
in-house blood donation drives.

2式

第154期上期始業

4

第153期決算解説

7

ご安全に！

と育つ
「人」
を考える、
「人」

14

DKPM活動NEW FACE

911

新任課長紹介

2017

15

者紹介

永年勤続表彰受賞
トピックス
まずはこれだけ

19
20
21

挑戦カード 201722ス
すこやか☆ニュー

54

！
こんな人！
あの人どんな人？

55

編集後記

第 6 回 高機能プラスチック展

趣味を聞かれると困るのですが、一応、年に1～２回はマラソン大会に出場するようにしています。普段練習をしていないので、１０ｋｍを制限時間

ギリギリで走破するのが限界です。

吉田さんは・・・

昔、
啓明寮に住んでいたときに、次は資材部の吉田さん、

お願いします。

私生活ですごくお世話になった先輩で、ジョギングを始めるきっか

けを作ってくれた人でもあります。

イケメンでスポーツマン･･･でした（笑）。

本人 前列右端

編集後記■■■■■■。

Vol.55（No.398）
2017年6月1日（kiri）

第一工業製薬 コミュニケーション マガジン©2017 DKS Co. Ltd.
発 行 第一工業製薬株式会社

広報IR室

本紙記事の無断転載および社外への配布をお断りします。

DKS REPORT 2017

Data

▶Mental Healthcare37

Business Foundations
Important Issue

4 Consideration for the Environment

Basic Philosophy and Basic Policies for Environmental and Safety Practices
Basic Philosophy

Basic Policies

Our basic philosophy is to contribute to society bymaking a company that thrives together with local
communities and employees by supplying productsthat satisfy customers. Based on this, ourenvironmental and safety philosophy is to contributeto the sustainable development and realization of
happy societies by considering the human health,safety and environmental preservation throughout thelife cycle of each product from development to
scrapping.

(1) Throughout the life cycle of each product fromdevelopment to scrapping, we evaluate and minimize theimpact of business activities on the environment and makethe best efforts to preserve the environment.
(2) We aim at accident- and disaster-free operations to secure
the safety of both local communities and employees.
(3) We confirm the safety of raw materials, semi-finishedproducts and final products to prevent health-relateddisorders of all relevant people including, but not limited to,employees, logistic/transportation workers, customers andgeneral consumers.
(4) We strive to continuously improve the safety andenvironment not only by strictly complying with relevant
legislation and regulations but also by self-management.

Responsible Care (RC) Activity Promotion System
We set up the safety and environment philosophy, basic and action
policies, based on which we promote our corporate activities
related to quality, safety and the environment. Such issues are
discussed and decided by the RC Promotion Conference, which is
the top decision-making body and is chaired by the president.
Moreover, we regularly hold environmental preservation
meetings, safety and health meetings and quality

assurance/product liability meetings chaired by the quality, safety
and environment personnel and joined by the production branch
general managers and relevant department managers. In thesemeetings, corporate targets, action plans and results are
discussed to promote the RC activities. Under each of thesemeetings is a committee to make, implement and evaluate
specific action plans for continuous improvements.

● RC Promotion System Diagram

Management
Committee

Environment
Preservation Meeting

EMS1
Committee

RC(Environment, Safety andQuality Assurance)
Promotion Conference

Safety and
Health Meeting

SHMS2
Committee

Quality Assurance/
Product Liability Meeting

QMS3
Committee

Environment Preservation
Committee
Safety and Health Committee
Kyoto Central Branch
Production Branches● Tokyo Headquarters● Offices●●

Quality Assurance (PL)Committee●

Production Branches

1. EMS: Environmental Management System
2. SHMS: Safety and Health Management System
3. QMS: Quality Management System

Management Systems
The Company promotes the comprehensive safety
management of chemical substances based on the RC Code,which consists of the seven management systems stipulated
based on Japan Chemical Industry Association (JCIA) policies:
environmental conservation, safety and disaster prevention,

occupational safety and health, logistics safety, chemical
product/product safety, dialogue with society and management
system. In addition, the Company is working on improvements
in environmental conservation and quality, using
environmental ISO and quality ISO standards as tools.

Observation of Environmental Laws and Regulations
Environmental risk management is an important measure tominimize environmental risks and/or consequent damages
caused by risks. We comply with environmental-related
legislation and regulations and agreements with local
municipal governments, based on the Declaration of Action by
Board Members and Employees. All our production sites in38

DKS REPORT 2017

Japan are regularly checked for environmental compliance inaccordance with the ISO 14001–based environmental
management system. Up-to-date information on legislation ischecked and understood on a timely basis and disseminatedinternally to ensure compliance. Recently, education programs
using an e-learning system have started.

Environment-Related Complaints
About the DKS GroupIn FY 2016, we received one complaint relating to a bad smell. We promptly took emergency action, immediately investigated the cause
and examined remedial measures. As a result, we concluded that drastic measures were necessary to ensure the prevention of arecurrence and are in the process of gaining the understanding of local residents.

Environmental Accounting
In FY 2016, the DKS Group’s investment for environmental-related systems was spent mainly in the field of resource recycling. We incurredcomparatively high environmental conservation-related costs in environmentally responsive R&D. The economic benefits therein include
profits on the actual sales of valuable resources and the amount of cost savings, and are not based on estimated economic benefits.
● Investments and Costs of Environmental Protection Activities

Main Activities

Costs within
the plant premises
Upstream/downstream cost
Administrative cost
R&D cost
Social activity cost

Investment (Millions of yen) Costs (Millions of yen)

Air/water/other pollution prevention
Global environment preservation, energy saving
Resource recycling, resource saving, waste treatment/disposal
Lowering environmental impact in containers/packaging
ISO acquisition/completing surveillance audits, greening branch premises
Environmentally responsive R&D
Providing support grants for environmental protection toenvironmental preservation groups or local communities

Environmental damage cost
Total

15.6
6.0
2,000.4
0.0
8.0
0.0

153.8
66.3
361.3
0.6
41.9
489.5

0.3

1.7

0.0
2,030.3

0.0
1,115.1

Five Operating Segments

Category● Economic Effects Generated by Environmental Protection Measures

Category
Profit on sale of valuable resources
Amount of cost savings through energy saving
Amount of cost savings through resource saving
Total

Main Activities

Cost (Millions of yen)

Profit on sale of metal scrap, waste oil and waste alkali, etc.
Amount of cost savings in electric power and fuels
Amount of cost savings through reduction of water use/waste

5.8
0.0
2.8
8.6

● FY 2016 Activity Targets and Results, FY 2017 Activity Targets

Business Foundations

Evaluation A: Significant result B: Result in line with the target C: Target remains unachieved

FY 2016 Results Evaluation Refer to Page FY 2017 Activity Targets
8.6% increase
1% improvement compared
P. 40
C
compared with FY 2015
with FY 2016
29.5% reduction compared26.6% reduction
with FY 2005 on average fromin FY 2016 comparedC
P. 40
FY 2016 to FY 2019with FY 2005
22.7% increase
1% fiscal year rateC
compared with the
improvement inP.
41
previous fiscal year
non-consolidated DKS
C
3.5% or less in FY 20195.9％
13.3% reduction compared
SOx emissions
Awith FY 2015
Emission/discharge
Emission/discharge control
4.9%
increasecomparedC
NOx emissions
control of environmental with FY 2015of environmental pollutants
Reduction ofpollutants in the air
in the air
environmental
6.0% increase comparedC
P. 41
impact substance Dust emissions
with FY 2015
emissions
0.8% increase comparedC
Water discharge Emission/discharge control with FY 2015
Emission/discharge control
of environmental pollutantsof environmental pollutants
37.3%
increasecomparedin waterin waterC
COD emissions
with FY 2015
Proper management
PRTR Law–designated Emission reduction of PRTR 22.5% reduction compared
Reduced emissions of PRTRAP. 40
of chemical substances substances emissions Law–designated substances with FY 2015
Law–designated substances
3% increase
Promotingthegreen
procurement
45.2%,
decreased
6.3
percentage
Improvement of the green
Promotion of green procurement
Cーratio of office supplies
points compared with FY 2015
procurement ratio of office supplies
No occupational accidents
No occupational accidents
B
Zero cases occurred
Posted (days away from work)(days away from work)
Elimination of disasters/accidents
on ourEliminating severe accidents
website Elimination of severe accidents
Bassociated with production facilities No accidents occurred
involving production facilities
Promotion of an environmental
Promotion of an environmental
Environmental management system management system
MaintainedB
P. 38
management system

1. Derived from energy in the production and administrative sectors
2. The ratio of the final disposal amount to the generated waste amount
3. We have decided not to set numerical targets for the Group until the method of recycling sludge newly generated from the wastewater
treatment plant is established at a subsidiary company.
DKS REPORT 2017
*GHG: Greenhouse gas

Data

Target Parameter Management Items FY 2016 Activity Targets
Promotion of energy Energy consumption 1% improvementsavingper unit
compared with FY 2015
29.5% reduction compared
Reduction of GHG* CO 1
with FY 2005 on average from2emissions
FY 2016 to FY 2019
Waste generation 1% improvement in the
Reduction of
fiscal year rate of
per unit
industrial waste
nonconsolidated DKS3
Final disposal rate2 3.5% or less in FY 201939

Business Foundations

4 Consideration for the EnvironmentI

Important Issue

Global Warming Prevention (Energy Saving)In FY 2016, energy consumption in the DKS Group amounted to 25,200kl, a 4.5% increase compared with the previous fiscal year, and energy
consumption per unit increased 8.6%, which means that we wereunable to achieve our fiscal year targets. An increase in energy
consumption due to the operation of a new facility and a decrease inproduction volume (down 3.7%) due to a change in product composition● Targets and Performance in FY 2016

were major contributory factors. We also recorded 52,500 tons ofcarbon dioxide emissions in FY 2016, a 3.0% increase compared withthe previous fiscal year, but a 26.6% reduction compared with FY 2005,
meaning that the first-year medium-term target was not reached.
We will continue to work to improve the efficiency of our energy
use toward the achievement of our medium-term targets.

Evaluation A: Significant result B: Result in line with the target C: Target remains unachieved

Target Parameter Management Items

Activity Targets

Performance in FY 2016

Evaluation

Energy consumption
1% improvement compared with FY 2015 8.6% increase compared with FY 2015
per unit

Promotion of energy
saving

29.5% reduction compared with FY 2005 26.6% reduction compared with FY 2005
in FY 2016
on average from FY 2016 to FY 2019

Reduction of GHG*
CO2emissionsCC*GHG: Greenhouse gas

Energy Consumption(1,000 kL)
30

30.4
24.3

25
20

121

15
10

24.2
117

200

25.2

24.2

175

132

122

Index of Energy Consumption per Unit

(Yokkaichi, Ohgata, Shiga, administrative sectors, domestic affiliates)
Index of energy consumption per unit

150
125
100

100

5

75

0

50
2005
2013
2014
2015
2016 (FY)
Notes: 1. Index of energy consumption per unit [2005 = 100]
2. Domestic subsidiaries include Yokkaichi Chemical,
Kyoto Elex and Dai-ichi Ceramo.

● Changes in CO2 Emissions(Yokkaichi, Ohgata, Shiga, administrative sectors, domestic subsidiaries,
derived from non-energy)(1,000t)
80
70
60
50
40
30
20
10
0

71.3
52.0

51.3

50.9

52.5

CO2

● Changes in Energy Consumption

2005
2013
2014
2015
2016 (FY)
Note: Carbon dioxide emissions in administrative sectors include fuels
for Company cars.

Proper Management of Chemical Substances
The DKS Group had a total of 65 notification substances under the PRTR
Law in FY 2016. The total amount of emissions was 50.6 tons, which
resulted in a 14.7-ton (22.5%) decrease compared with the previous year.
The breakdown was 50.1 tons to air, 0.54 tons to water and none to land.
In FY 2016, the amount of waste transfer recorded was 283.6 tons, a● Targets and Performance in FY 2016

9.1-ton (3.1%) reduction compared with the previous fiscal year due to theuse of recycled solvents and changes in the variety configuration. We will
advance improvements in production processes and the introduction ofrecovery equipment, while continuing to make efforts to reduce theemissions/discharge of PRTR substances into the environment.

Evaluation A : Significant result B : Result in line with the target C : Target remains unachieved

Target Parameter

Management Items

Activity Targets

Performance in FY 2016

Evaluation

Proper managementof chemical substances

PRTR Law–designatedsubstances

Emission reduction of PRTR
Law-designated substances

22.5% reduction comparedwith FY 2015

A

● Changes in Emissions of PRTR Law-Designated Substances

(t)
80

76.4

60
40
20
0

35.3
0.35
2012

64.8

35.8
0.41
2013

(t)
8

50.1

6
4

0.38
2014

0.49
2015

0.54
2016 (FY)

20

Emissions to Water

Emissions to Air(DKS, Yokkaichi Chemical)
Emissions to air ■■ Emissions to water ■■Notes: 1. The numerical values show the total amount for DKS and Yokkaichi Chemical.
2. For the emission amount of notification substances under the PRTR Law in
FY 2016 (among all notification coverage substances, those of which theemission or transfer amount was 0.01 tons or more), please visit our website.
https://www.dks-web.co.jp/english/download/index.html

40

DKS REPORT 2017

Reducing Emissions of Environmental Impact Substances● Targets and Performance in FY 2016

Activity Targets

Performance in FY 2016

Evaluation

SOx emissions
NOx emissions
Dust emissions

Emission/discharge control ofenvironmental pollutants in the air

13.3% reduction compared with FY 2015
4.9% increase compared with FY 2015
6.0% increase compared with FY 2015

A
C
C

Water discharge
COD emissions

Emission/discharge control ofenvironmental pollutants in water

0.8% increase compared with FY 2015
37.3% increase compared with FY 2015

CC

2.9 114.8

2.5

2.0

97.7
1.8

2.1
0.9
26.8

1.3
0.8
16.7

1.3

0.7
17.6

(t)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0

SOx/Dust Emissions

NOx Emissions

(t)
140
120
100
80
60
40
20
0

● Changes in Water Discharge and COD Emission Amounts(Yokkaichi, Ohgata, Shiga, Yokkaichi Chemical)
Water discharge ■■ COD emissions ■■(1,000 m3)
4,000
3,000
2,000

3,541
3,045 2,992
23.7
19.3

3,908
25.9

18.9

15.3

1,000
0

2012 2013 2014 20152016 (FY)
Note: Yokkaichi Chemical possesses no facilities that generate SOx,
NOx or dust emissions.

3,877

2012

2013

2014

2015

2016

(FY)

(t)
35
30
25
20
15
10
5
0

COD emissions(Yokkaichi, Ohgata, Shiga)
SOx emissions ■■ NOx emissions ■■ Dust emissions ■■Water Discharge● Changes in SOx, NOx and Dust Emissions

Five Operating Segments

Evaluation A: Significant result B: Result in line with the target C: Target remains unachieved

Target Parameter Management Items
Reduction ofenvironmental
impact substanceemissions

Water Pollution Prevention
In FY 2016, the DKS Group recorded 3,908,000 cubic meters in the amountof water discharge, a 0.8% increase compared with the previous year, and25.9 tons of COD emissions, a year-on-year increase of 37.3%. We willcontinue to make efforts to reduce the water discharge and COD emission
amounts by, for example, conducting reviews of our production processes
and optimizing the operation methods at our effluent treatment facilities.

About the DKS GroupAir Pollution Prevention
Compared with the previous fiscal year, the DKS Group’s air-pollutant
emissions in FY 2016 showed a 13.3% reduction in SOx emissions andincreases in NOx and dust emissions of 4.9% and 6.0%, respectively.
We will move ahead with facility improvements and studies ofoperational methods with the aim of making further energy-efficiency
enhancements.

The amount of waste generated by the DKS Group in FY 2016 amounted to
17,364 tons, an increase of 4,172 tons compared with the previous fiscal
year. The waste generation per unit result was 22.7% worse (an increase)than the previous fiscal year, and thus we were unable to achieve ourtarget of a 1% improvement (decrease) in the annual rate. The recycling
rate was 91.6%, which marked a 4.1-percentage-point deterioration(decrease) compared with the previous fiscal year. The final disposal● Targets and Performance in FY 2016

amount was 1,023 tons, representing a significant year-on-year increase.
One contributory factor was that not all the sludge generated wasrecycled until a new facility was operating stably, and thus final disposal
was fully carried out. For that reason, the final disposal rate was 5.9%, adeterioration (increase) of 4.5 percentage points compared with theprevious fiscal year. In the year ahead, we will move ahead with a review ofour sludge recycling and work to reduce the final disposal amount.

Evaluation A: Significant result B: Result in line with the target C: Target remains unachieved
Activity Targets

Performance in FY 2016

Evaluation

Waste generation
per unit

1% improvement in the fiscal year rateof non-consolidated DKS

22.7% increase compared with FY 2015

C

Final disposal rate

3.5% or less in FY 2019

5.9%

C

Amount and External Recycling Rate

● Changes in Final Disposal Amount and Final Disposal Rate

(Yokkaichi, Ohgata, Shiga, Kyoto, Yokkaichi Chemical)

16,00012,000

96.1

96.2

95.6
14,421

96.1

95.7

95.7

96.2
91.6

95.4
95.7
13,876 13,191 17,364

12,724
13,784
13,276 12,621
12,223

15,904

(%)
100
80
60

8,000

40

6,000

20

0

0

2012 2013 2014 20152016 (FY)
Note: Domestic subsidiaries include Yokkaichi Chemical andKyoto Elex.

Final disposal amount ■■ Final disposal rate

Final Disposal Amount(t)
20,000External Recycling Rate

Generated Waste Amount/
External Recycling Amount(Yokkaichi, Ohgata, Shiga, Kyoto, Yokkaichi Chemical)
Generated waste amount ■■ External recycling amount ■■External recycling rate(DKS
DKS Group)

(t)
1,200

5.9

(%)
6.0

1,000

1,023

5.0

800
600
400
200
0

4.0
3.0

1.6
235

1.5

1.2

1.4

193

171

180

2.0
1.0

Data

● Changes in Generated Waste Amount, External Recycling

Final Disposal Rate

Target Parameter Management Items
Reduction of waste

Business Foundations

Waste Reduction

02012 2013 2014 2015
2016
(FY)
Note: The ratio of the final disposal amount to the generated waste amount
DKS REPORT 201741

Business Foundations
Important Issue

5 Responsibility as a Global Company

Corporate Governance
Basic Concept

We are operating the business based on our Company
Credo“contributing to the nation and society throughindustry”along with our three Company Mottoes̶
“Cost Reduction”and“R&D Efforts,”“Quality First,”
which were the founders’spirit.
To aim for the establishment of a management basethat can gain and maintain the trust of society, as well as
to conduct transparent and fair corporate activities thatare rooted in corporate social responsibility (CSR), we
pursue higher governance as management policy andposition it as one of our most important tasks.
Specifically, we established a basic policy for the internal

control system in 2006 and keep revising it.
Through these practices, we will strengthen ourmanagement base so that we can earn high trust fromall stakeholders, including our customers and society.
We also believe it is important to conduct corporate
activities with transparency and fairness rooted in CSR.
To continuously enhance corporate value, we will
establish a management base that can earn the trust ofsociety. In addition, we have established and are working
to strengthen a corporate management system andother corporate governance systems that support our
corporate activities.

Status and Features of Governance
We make all management decisions within the Board of Directors,
which includes outside directors. We discuss in advance all matters to
be brought to the Board of Directors at the Management Committee,
while ensuring that we comply with laws and regulations, as well as
our articles of incorporation, and that decisions are made rationally.
We are a company with an audit & supervisory board, themembers of which include in-house and outside members. Audit &Supervisory Board members ask directors and employees to submit
the reports necessary for auditing the execution of duties̶such as
management plan status reports, decisions made by the
representative directors, situations relative to managing the risk ofloss and important changes to accounting policies. The full-time audit& supervisory board members attend meetings of the Management
Committee, the Risk Management Control Committee and theCompliance Control Committee, while conducting daily audits.
Regarding important audit-related issues, Audit & Supervisory Board

members exchange opinions during regular meetings with therepresentative directors, with whom they strive to deepen a mutual
understanding and relationships of trust.
The auditing of accounts is performed by our accounting auditor,
KPMG AZSA LLC, with audit & supervisory board members present on
an as-needed basis. We also have established the Outside Executive
Meetings as a mechanism to utilize the opinions of outside directors
and outside audit & supervisory board members in management. In
addition to securing opportunities for proposals from outside
directors, through these meetings we are working on collaboration
between outside directors and our management team through theexchange and sharing of information. Having also established an
Internal Audit Department as a system for verifying the internal
control system relative to financial reports, we collaborate with audit &supervisory board members and the accounting auditor.

Status of Response to the CG CodeRegarding the status of our compliance with the Corporate
Governance Code, which covers the code of conduct to which
publicly listed companies should adhere, we are completely incompliance with the exception of the following four principles.
▶Each Corporate Code of Conduct Principle with which DKS

Is Not in Compliance and Reason for Non-Compliance【Supplementary Principle 1-2-4】

On the basis of our shareholder composition and theshareholding ratio of overseas investors, we have decided
that it is not necessary for us to use the electronic
exercise of voting rights or provide an English translationof the Notice of Convocation at this time.

【Principle 1-4 Cross Shareholdings】

We conduct the verification of cross-shareholdings from a mediumto long-term perspective, comprehensively consider the purpose ofownership, rationality, investment amount, etc., and decide whether
to make such investments. Regarding judgments on the exercise of
those voting rights, we make comprehensive judgments on
investment portfolio companies and, because we need to make42

DKS REPORT 2017

qualitative and comprehensive judgments in accordance withindividual shareholdings, we have not established unified criteria.
【Supplementary Principle 4-1-3】

The succession planning for the CEO and other top executives
remains a most important matter for company continuity, and it isimportant to carefully judge evident and potential management
ability. We therefore judge that it is appropriate for our Company
to make it a matter solely for the chief executive officer, who isfamiliar with the inner workings of the Company.

【Supplementary Principle 4-11-3】

As a result of our efforts to analyze and evaluate the effectiveness of
the Board of Directors as a whole, with regard to the effectiveness of
the Board of Directors, including the appropriateness of the numberof Board of Directors’meetings, the matters to be discussed,
content, etc., by the directors, including outside directors, and audit& supervisory board members, we have been credited for efforts
that are generally thought adequate and judge that the effectivenessof the entire board of directors is being maintained. As providing asummary of these analyses and evaluation results would concern
internal confidentiality, we will not disclose their current status.

▶Approach to Executive Remuneration

Based on the size of the role for which each director is
responsible and his or her position, we set specificallocations for the monetary compensation that provides abonus for the granting shares with restriction on transfer to a
maximum of ¥100 million per annum (of which the portion foroutside directors shall be ¥6 million or less per year, andwhich does not include the wage salaries of individuals
serving concurrently as employees and executives), as
determined by the resolution of the 153rd Ordinary General
Meeting of Shareholders held on June 27, 2017. In addition,
the total number of shares of common stock that the●

By resolution of the 141st Ordinary General Meeting of
Shareholders held on June 29, 2005, we set the amount of thenormal monetary compensation to a prescribed maximum
monthly amount of ¥6 million (equating to ¥72 million per annum).

●

By resolution of the 153rd Ordinary General Meeting of
Shareholders held on June 27, 2017, we set specific allocations
for the monetary compensation that provides a bonus for the
granting shares with restriction on transfer to a prescribedmaximum annual amount of ¥20 million. In addition, the total
number of shares of common stock to be thus issued or disposedof will be up to a maximum of 100,000 shares per annum.
In addition, we introduced a stock-linked compensation planusing stock with restriction on transfer from FY 2017. Besides
executive directors, outside directors and audit & supervisoryboard members will also be eligible. Believing it important toattend to duties while remaining constantly aware of the interestsof all shareholders, even if the content of the duties of officers
responsible for the management of the Company differs
according to law, this plan was presented and, after paying
sufficient heed to the amount and allocation to be granted,
passed by resolution of the 153rd Ordinary General Meeting of
Shareholders. Regarding the result of the resolution, 65.58% and55.03% were in favor of the plan for directors and audit &supervisory board members, respectively.

Business Foundations●

Based on the size of the role for which each director is
responsible and his or her position, we set the amount of thenormal monetary compensation to a maximum monthly
amount of ¥22 million (equating to ¥264 million per annum;
which does not, however, include the wage salaries ofindividuals serving concurrently as employees and executives),
as determined by resolution of the 141st Ordinary General
Meeting of Shareholders held on June 29, 2005. Changes basedon performance evaluations of the Company as a whole in theprevious fiscal year are made once a year and changes basedon performance evaluations of the division of which eachdirector is in charge of twice a year and decided within a certain
range. In the case of outside directors, however, we have set apredetermined amount.

Five Operating Segments

Company will thus issue or dispose of is to be up to a
maximum of 500,000 shares per annum.
Audit & supervisory board member remunerationconsists of normal monetary remuneration and monetarycompensation that provides a bonus for the granting shareswith restriction on transfer.

Executive remuneration consists of normal monetary
remuneration and monetary compensation that provides abonus for the granting of restricted stock compensation.
●

About the DKS Group

Executive Remuneration● Executive Remuneration (Fiscal year ended March 2017)

Executive Position

Total by Type of Remuneration (Millions of yen)
Total Remuneration(Millions of yen) Basic Remuneration Stock Options
BonusesNumber of
Executives

Director(excluding outside director)

209

209

ー

ー

11

Audit & supervisory board members(excluding outside audit &supervisory board members)

33

33

ー

ー

2

Outside executives

15

15

ー

ー

7

Data

● Significant Portion of Salary Paid to Executive Directors Who Concurrently Serve as Employees (Fiscal year ended March 2017)

Total (Millions of yen)

Number of Executives

Details

53

6

Salary (including bonuses) as employees

DKS REPORT 201743

Business Foundations
Important Issue

5

Responsibility as a Global Company

Compliance
Basic Concept
Since the Compliance Control Committee was established in 2004, our Company has been continuously engaged in the building andmaintenance of our compliance system, as well as in activities to instill compliance practices in our employees. Recognizing thatcompliance activities are indispensable for continuing as a sound company, we will further strengthen our activities in the years to come.

Corporate Philosophy
The corporate philosophy around which the Company forms thebasis of its actions is indicated in our Company credo, Company
mottos and Code of Corporate Ethics; these are outlined in our
Declaration of Action by Board Members and Employees. For
employees to always be able to confirm the corporate philosophy,
we have created and distributed to all persons working in the
Company a pocket-sized Corporate Philosophy Handbook.
▶Code of Corporate Ethics

To establish corporate ethics that contribute to putting theCompany policies into practice, we established a six-item set ofprinciples as the Code of Corporate Ethics and adhere to theword and spirit of all laws and regulations, as well asinternational rules. We also respect the culture and customs ofeach country and region where we conduct our businessactivities and declare that we will act with social common sense.
▶Declaration of Action by Board Members

and Employees▶Activities to Implement and Instill Compliance Practices

We have set up internal and external whistleblower hotlinesthat enable employees to consult and report on violations oflaws and regulations. We also provide compliance assessments
for each department, information such as commentary on
various laws through the Company intranet, e-learning
programs in a quiz format for the promotion of complianceawareness and knowledge consolidation. Since 2010, we havedeclared October every year to be Corporate Ethics Month, andwe are carrying out activities to establish and instill the theme.
The theme for 2016 was information management, and wereviewed the information management system at our Company
and carried out activities to enhance its management.
To ascertain the achievement and the degree by whichthese compliance activities have been instilled, we conduct a
Compliance Awareness Survey once a year for all employees,
internally announce the results and try to extract the issues
from employees so that these are addressed in the following
fiscal year.

Regarding the six-item set of principles established as theCode of Corporate Ethics, we
broke down the content as towhat kind of behavior isactually required, clearlystate the guidelines for theactions of executives andemployees (including
seconded and contract
employees, as well as
temporary employees) anddeclare that these guidelines
will be implemented as acode of conduct.

Company Credo

Corporate philosophy handbook

Code of Corporate Ethics

44

DKS REPORT 2017

Company Mottoes"October is a Corporate
Ethics Month"Company Credo

Risk Management (Risks and Responses to Them)
About the DKS Group

Basic Concept
Diverse and becoming more complex, the corporate risk surrounding the Company could result in increased
adverse impacts on the Company itself, as well as on employees, shareholders, customers and local
communities. We position risk management as an important issue for our management.

Risk Management
Company car management procedures; measures against
information leakage risks and calling the entire Company’s
attention to them; the extraction of individual risks in eachbranch/department and approaches to continuous
improvement; occasional reviews of and improvements to theBusiness Continuity Plan (BCP) covering earthquake
countermeasures; and risk management responses for
employees who are on overseas business trips or on assignment
overseas. In addition to developing training that simulates anactual disaster, we will further promote knowledge to enhance
our BCP measures and raise risk management awareness.

Five Operating Segments

To address the risk surrounding the Company, we haveestablished a Risk Management Control Committee composedof representatives of each department. Be they in Japan oroverseas, we are working to operate and maintain crisis
management systems on a daily basis so that we can obtaincrisis information as soon as possible, ascertain the situationand take appropriate measures. To deal with potential and/or
evident risks, we have taken several steps, including establishing
Risk Management Procedures, Product Liability (PL) Prevention
and Management Procedures and Information Security Rules.
Major activities implemented in FY 2016 were a review ofBusiness Continuity Plan (BCP) and Earthquake Countermeasures
Countermeasures, which summarizes emergency measures tobe taken when an earthquake occurs. The manual was
distributed to all employees to thoroughly familiarize them withthe standards of behavior and safety confirmation methods
required in an emergency.
In FY 2017, we will continue to conduct well-planned safety
confirmation training exercises in each department and theentire Company. As disaster prevention measures, we will also
devise BCP initiatives, deploy them in our Business Continuity
Management (BCM) and promote initiatives for business
continuation.

Business Foundations

Every year, the Risk Management Control Committee
repeatedly conducts well-planned safety confirmation training
exercises in all departments in preparation for the unlikely
event of an earthquake and works to improve and raiseknowledge of crisis awareness. As with past years, in FY 2016
we occasionally conducted training, by department or on a
Companywide basis, to confirm people’s safety using mobile
phones and in situations in which there was no management
present, as well as safety confirmation drills for establishingcontact from offsite business locations. Our Company createdthe pocket-sized Manual on Major Earthquake

Data

Manual on Major Earthquake Countermeasures

Information Security
Now forming an important foundation of the economy andin society, the role of IT controls is increasingly significant.
Having established an information security policy, measure
standards and implementation procedures, we are buildinga system to ensure information security against

information system risks, such as cyber terrorism andinformation leaks. Recognizing the importance of theinternal control system, we are also working with the
Financial Reporting Control Committee, the IT System
Control Committee and the Internal Audit Department.

DKS REPORT 201745

Business Foundations

Management (as of June 27, 2017)
Board of Directors

SAKAMOTO Takashi

AKASE Yoshinobu

Chairman CEO

Representative Senior
Managing Director
Executive General Manager
in charge ofBusiness Headquarters

URAYAMA Isaｍu

ONISHI Hideaki

Managing Director
Executive General Manager
in charge ofFinancial Headquarters

Managing Director
Executive General Manager
in charge of
R&D Headquarters

FUJIOKA Toshinori

KITADA Akira

Director
Executive General Manager of
RHEOCRYSTA Business Division(Business Headquarters)

Director
Executive General Manager
in charge of Production
Control Headquarters,
Environment,
Safety & Quality Affairs

IWAISAKO Koichi

OKAMOTO Osami

Director
Executive General Manager ofDomestic Subsidiaries Division(Business Headquarters),
President of Osaka Branch

Director
Executive General Manager
of Plastic Materials
Business Division(Business Headquarters),
in charge of Tokyo Headquarters

YAMAJI Naoki
Director
Executive General Manager
in charge of Corporate Planning
Headquarters,
COO Office,
Personnel & General Affairs
Headquarters

46

DKS REPORT 2017

TATARA Hiroshi

Director (outside)

Director (outside)

TAKASHIMA Masahiro

TANIGUCHI Tsutomu

Director (outside)

Director (outside)

Business Foundations

AOKI Sunao

Five Operating Segments

About the DKS Group

Board of Directors

Audit & Supervisory Board

SEKIGUCHI Hisashi

Audit & Supervisory Board
MemberAudit & Supervisory Board
MemberIDE Hidehiko

TANAKA Haruo

Audit & Supervisory Board
Member (outside)

Audit & Supervisory Board
Member (outside)

Data

NISHIZAKI Shinichi

DKS REPORT 2017

47

Data

Fundamental Knowledge of Surfactants
Generally, an“interface”refers to the border area between two materials of different states of solid, liquid or gas. A surface
active agent, or surfactant, is a term for a chemical that exhibits functions and improves the performance of these interfaces.

1 Basic Structure of Surfactants
Surfactants have a unique chemical structure that has
both hydrophilic and hydrophobic properties. Using thisstructure, surfactants can achieve a variety of effects suchas emulsification, dispersion, foaming and adsorption by
weakening surface tension or forming molecularaggregates or micelle (spheres).

Surfactant molecular structure

Water

Oil / water
Fine powder

Emulsifies

Add surfactants

Oil

Surface (interface) tension reduced

Functions of surfactants by reducing surface tension

Emulsion
Disperses

a Extremely thin solutionb Thin solutionc Critical micelled Extra critical micelle

Dispersion
Makes
foam

Air
Water

Foams

concentration

concentration

2 Surfactant Types
Surfactants have four main structural types based on thefunctions they are designed to achieve. Of these four types,
three are ionic surfactants that transform into electrolytic
dissociation ions (atoms or groups of atoms bearing anelectrical charge) when dissolved in water, and the remaining
Types of SurfactantsAnionic surfactants

Cationic surfactants

Amphoteric surfactants

type is nonionic surfactants, which do not form ions. The threeionic surfactants are further subdivided based on the type ofion they form in water: anionic (or negative ion) surfactants,
cationic (or positive ion) surfactants and amphoteric(containing both positive and negative ions) surfactants.

Characteristics

Main Applications

Superb emulsifying and dispersing● Good foaming● Not susceptible to temperature

Laundry detergent

Adsorbed by textiles, etc.
Antistatic effects● Sterilizing effectHair conditioner●●●

Non-irritative to the skin
Superb solubility in water● Synergetic effects with other surfactants●●

Balance of hydrophilic and hydrophobic
properties easily adjustable● Superb emulsifying andsolubilizing properties● Low foaming● Susceptible to temperature

ShampooShower gel
Fabric softener

Disinfectant
Shower gel

Dishwashing liquid

Shampoo●

Nonionic surfactants

48

DKS REPORT 2017

Laundry detergent

Emulsifier/solubilizer

Dispersant

Metal processing oil

Applications

Emulsifying,dispersing

Mixes water and oil and makes an
emulsion. Makes a uniform
dispersion with fine particles floatingon the water surface.

Ice cream, margarine,
paints, inks

Moistening,permeating

Makes wetting andpermeation easier

Spreads agrochemicals thin anduniform on the leaf surfaces. Evenly
disperses dyestuff and finishing
agents on textiles and leathers.

Pesticide spraying,permeation of dyestuff andfinishing agents on textiles
Foaming, defoaming

Making or
removing foamTakes in air bubbles in water andstabilizes. Prevents foaming.

Foam concrete,
light gypsum boards

Mixes incompatible
substances

Cleaning

Removes dirt

Softening,smoothing

Softens and smooths

Antistatic

Prevents static electricity

Rustproofing
Prevents rustLeveling, fixing

Prevents uneven dying,enhances dye fastness

Sterilizing

Five Operating Segments

Actions and Effects

Removes dirt by moistening the surface
Household detergents,of textiles and dirt, taking the dirt off thebath soaps, machinery,textiles by penetrating in between them,
metalsand emulsifying/dispersing the dirt.
Improves the smoothness of yarns inthe spinning and/or knitting process
and makes soft and smooth-textured
textiles.

Textile finishing agents,
metal processing oils

Prevents static electricity generation bymaking the surfaces smooth. Makes static
electricity easier to escape by forming awater-absorptive coating on the surface.

Antistatic anddustproofing treatment
for synthetic fibers andplastic products

Adheres to the metal surface andforms a coat to prevent oxygen (air)and water from contacting the metal
and causing rust.

Metal surface
treatment

Makes the dyestuff gradually beabsorbed by the textiles and brings
about uniform dyeing.

Textile printing

A positively charged surfactant isabsorbed to negatively charged
bacteria, destroys the cells andsterilizes.

Hand sanitizer

Business Foundations

Function

About the DKS Group

3 Main Actions and Applications

Domestic wastewater contains surfactants. Most
such wastewater is collected and treated at publicsewage treatment plants and released to theenvironment although some could be released
directly to rivers/oceans or land.

Data

4 Environmental Impact of Surfactants
Because surfactants are biodegradable, even if
released into the environment they eventuallydegrade to carbon dioxide and water by bacteria. To
preserve the natural environment, products withhigh biodegradability are being developed andproactively used in Japan.

DKS REPORT 2017

49

Data

Glossary

50

Terminology

Description

Antioxidant

An additive used to prevent oxidation and deterioration caused by exposure to oxygen in the air.

Antistatic agent

A compound to prevent the electrification of synthetic fibers and plastics caused by static electricity, for which asurfactant is mainly used. It is applied to the surface of target materials by spraying and lets static electricity escape.

BCP

An abbreviation for Business Continuity Plan through which, in the event of a disaster or other crisis, companies do
not allow critical operations to go offline. Even if business activities are unavoidably interrupted, important functions
will be restarted within the recovery time objective, and to minimize the risks involved in interrupted operations
strategic preparations for continuing business are carried out in advance.

CELLOGEN

DKS brand of Sodium Carboxymethyl Cellulose (CMC) products. They are a typical anionic water-soluble polymer madefrom cellulose, widely used as a thickener, stabilizer, emulsion/dispersion stabilizer, protective colloid and so on.

Cellulose
nanofibers

Very thin nano-sized fibers prepared by detangling cellulose, which makes up the cell walls of plants. The width of
the fibers is about 10 nm (nano = a billionth). They are made from wood-derived pulp, and when used in plastics andrubbers, they enhance the strength of these materials while reducing thermal expansion/contraction.

CMC

An abbreviation for Sodium Carboxymethyl Cellulose.

CNF

An abbreviation for Cellulose Nanofibers.

*See CELLOGEN.

*See cellulose nanofibers.

Cocoon unwindingagent

An agent to spin a silk yarn from cocoons.

COD emissions

COD is an abbreviation for Chemical Oxygen Demand, which refers to the chemical demand for oxygen. The value indicatesthe oxygen volume needed for oxidizing underwater objects, and is one of the major indicators used for water quality.

Conductive paste

A paste used to fix a sample on a stage or be applied on a test piece to make it conductive. Some of these products
use silver particles or carbon black as a filler dispersed in resin, or others use colloidal graphite dispersed in water.

Cost per unitof energy

An indicator used to express energy efficiency. It indicates the total energy consumption (in forms such as electricity
and heat) required to manufacture a certain volume or value of products. It is generally used to assess the progress ofcompanies’energy conservation efforts. For example, if 1 billion kcal of energy is used to manufacture 100 million yen
of value, the cost per unit of energy is 1 billion kcal / 100 million yen = 10 kcal / 1 yen. Accordingly, smaller values
indicate high manufacturing efficiency, energy conservation and contributions to slowing global warming.

DKPM activities

DKPM is an abbreviation for DKS Productive Maintenance. With 5S (sorting, setting in order, shining, standardizing,and sustaining) as the foundation, these activities strengthen the company structure and develop the framework for
management and improvement.

DuPont model

Also called the DuPont System; a method to analyze return on equity (ROE) by breaking it down to three categories
using the indices below. The name refers to its use by the chemical company DuPont for financial analysis.
ROE (current net income / capital stock) = Financial leverage × Asset rotation ratio × Sales profit ratio

Feed binder

An additive to raise the viscosity of feed for domestic animals and fish.

Flame retardant

Depending on the usage environment, materials used in electric appliances, building materials and otherhousehold goods can cause a fire. To ensure our daily living stays safe, it is important to make these materials
hardly flammable and minimize the release of smoke and other toxic substances. Flame retardant is a generalterm used to refer to the compounds used to achieve these goals.

Industrial
clusters

An accumulation of specialized organizations, government agencies and incubator organizations for nurturing venturecompanies that support businesses, universities, research facilities, law offices and accounting firms in specific growing
fields such as telecommunications, bio, medicine and the environment. The term cluster refers to structures such as thebunches that grapes grow in, and the goal of this concept is mutual competition and coordination between manufacturing
and government agencies to promote technological innovation, develop new products and services, and improve
manufacturing education and regional prosperity. The system is also called production corporation accumulation.

IoT logistics

IoT is an abbreviation for Internet of Things. IoT logistics involves attaching a sensor or other device to items instorage or transit (packages) and enables acquisition of real-time location information over the Internet, with thegoal of improving logistics efficiency.

KPI

An abbreviation for Key Performance Indicators. These indicators are used to evaluate the extent to which set goals
have been achieved.

LubricantWhen processing powder, solid, or granulated materials, lubricants are additives used to reduce the friction
between both materials and processing machinery and the particles of the materials themselves. These
compounds improve fluidity, releasability and processing efficiency.

Materiality

A term that refers to how essential something is. Originally, it referred to the general rule of importance in theaccounting field for items that could have major effects on financial affairs. Recently, important issues in CSR
activities are also identified as“materiality,”and more and more companies are using this approach of conducting
CSR activities and reporting the results.

DKS REPORT 2017

Description

MSDSplus

MSDS stands for Material Safety Data Sheet. MSDSplus is a common format to transfer information for the chemicalcomponents of products recommended by the Joint Article Management Promotion-consortium (JAMP). It contains
information such as applicable laws/regulations, the presence or absence of controlled substances in the product,
substance names, CAS numbers and concentration, and it is used to share information with downstream users.

Polymerizablesurfactant

A surfactant used for emulsion polymerization (monomers are emulsified/dispersed in water where the emulsifier
is dispersed and lets polymerization occur by a water-soluble catalyst).

Polyurethane

A general term for polymer compounds with urethane bonding, having high abrasion resistance, chemical
resistance, solvent resistance and aging resistance. It can be used as a paint or an adhesive by dissolving in asolvent, or as fibers. Urethane foams obtained by aerating polyurethane are used for furniture and construction
materials, as well as packing material and mattresses.

Polyurethane
water dispersion*See polyurethane.

Precision detergents

A surfactant blend formulation used for cleaning precision parts of electric/electronic/precision machinery.

PRTR Law

Act on Confirmation, etc., of Release Amounts of Specific Chemical Substances in the Environment and Promotion of
Improvements to the Management Thereof or Law concerning Pollutant Release and Transfer Register (Act No. 86, 1999).

Radiation-curable
monomers andoligomers

A general term for resins that harden in response to specific light wavelengths, such as ultraviolet light. Low molecularweight compounds used when creating polymers are called monomers. Molecules with a chemical structure not aslarge as polymers and created through the repetition of smaller numbers of polymerization are called oligomers.

Recycling ratio

The ratio of disused and waste materials that are recycled and reused to conserve resources and prevent
environmental pollution.

Responsible
Care (RC)
activities

Voluntary control activities by the companies in the chemical industry that promote the safe handling of materials inevery step of the process from manufacturing to distribution, consumption and disposal. First proposed by the
Chemistry Industry Association of Canada in 1985. The Japan Responsible Care Council was founded in 1995.

RSPO

An abbreviation for the Roundtable on Sustainable Palm Oil. The RSPO is a nonprofit organization with voluntary
membership that seeks to reform the market into one that considers sustainable harvesting to be a standard
element of palm oil products. The organization is managed by palm oil industry personnel in seven different sectors.

SDS

An abbreviation for Safety Data Sheets. The same materials previously were called Material Safety Data Sheets(MSDS), however, since April 2012, all have been designated as SDS as used in the United Nations’Globally
Harmonized System of Classification and Labelling of Chemicals (GHS).

SE

An abbreviation for Sucrose Esters. Sucrose esters, or sugar esters, are a food additive.

Sealant forelectric insulation

A material to seal precision components without gaps to avoid exposure to the air.

Shinbijon 2050“
( New Vision 2050”)

A book by H. Komiyama and K. Yamada published in 2016. The subtitle states that we can overcome global warming
and the low birthrate and aging population in Japan, and the content discusses science and technology predictionsfor 2050 based on a society with consideration for the environment.

Smile curve

A smile curve is a curve used in the electronics and industrial equipment industries to express a value-added
structure. The value added by manufacturing and processing, which is located in the middle of the value chain, is thesmallest, and the value added by R&D and sales/aftermarket service on the two sides is the largest. The resulting
curve is called a smile curve because the shape is higher on the two sides and lower in the middle just like a smile.

Sucrose fatty
acid esters

Approved food additive in Japan since 1959. The high safety of sucrose fatty acid esters is recognized byinternational organizations (FAO/WHO). They are a nonionic surfactant with sucrose as the hydroxyl group and fatty
acid from an edible oil as the lipophilic group, used in many food products as emulsifiers.

SUS5

The management strategy of DKS. S for Smile: to raise profits through smile-curve technological development. U
for Unite: to carry out development in close contact with customers. S for Straps: to tighten the roles of the bottom,
middle and top parts of a shoe lace. 5: to carry out innovation of actions at a 5% R&D spending ratio.

Unit emission ofindustrial waste

Unit consumption refers to the quantities of production factors (e.g., raw materials, power, labor force) necessary to
produce a certain quantity of a product. In the same way, we measure the waste generated by the production of as contribution to conservation of the environment.
unit quantity of a product as an indicator of the Company’

Urethane foam

A porous synthetic rubber material made from polyurethane. Used for applications such as thermal insulating
material, sound absorption material and bedding.

VOC

An abbreviation for Volatile Organic Compounds. VOC is a general term for organic compounds that are volatile and exist in agaseous form in the air, and the term encompasses a wide variety of compounds such as toluene, xylene and ethyl acetate.

Water-reactive(foaming) polyols

Products in our polyurethane materials business segment. POLYGROUT, the water stopping material for civilengineering, is a typical example.

About the DKS Group

Terminology

Business Foundations

Five Operating Segments

A liquid solution of polyurethane dispersed in water.

DKS REPORT 2017

Data

*See sucrose fatty acid esters.

51

Data

Consolidated Balance Sheets(Millions of yen)
Assets2016

2017

Current assets
Cash and deposits
9,401
9,379
Notes and accounts receivable - trade 13,253 14,832
Merchandise and finished goods
7,069
6,692
Work in process
41
35
Raw materials and supplies
1,689
1,683
Prepaid expenses
234
245
Deferred tax assets
332
339
Other current assets
1,991
2,750
Allowance for doubtful accounts(7)(10)
Total current assets
34,007 35,947
Non-current assets
Tangible fixed assets
Buildings and structures
22,528 24,525
Accumulated depreciation (12,548) (13,170)
Buildings and structures, net
9,980 11,355
Machinery, equipment and vehicles 29,862 32,313
Accumulated depreciation (25,939) (26,667)
Machinery, equipment and vehicles, net
3,922
5,646
Tools, furniture and fixtures
3,585
3,573
Accumulated depreciation (3,185) (3,166)
Tools, furniture and fixtures, net
400
407
Land
9,436
9,358
Leased assets
1,586
1,570
Accumulated depreciation
(764)
)870)
Leased assets, net
821
700Construction in progress
2,596
922
Total tangible fixed assets
27,158 28,390
Intangible assets
548
387
Investments and other assets
Investment securities
3,263
3,217
Long-term loans receivable25
23
Long-term prepaid expenses
380
324
Deferred tax assets
44
51
Net defined benefit assets
138
264
Other intangible fixed assets
497
445
Allowance for doubtful accounts(6)(6)
Total investments and other assets
4,343
4,320
Total non-current assets
32,050 33,098
Total assets
66,057 69,046

52

DKS REPORT 2017

Liabilities

2016

2017

Current liabilities
Notes and accounts payable - trade 10,250 10,464
Short-term loans payable
8,312
6,001
Lease obligations
345
299
Income taxes payable545
532
Provision for bonuses
567
603
ー
Provision for directors’bonuses
16
Accrued business office taxes
33
35
Accrued expenses
228
386
Deferred tax liabilities
02
Other current liabilities
2,001
2,222
Total current liabilities
22,300 20,547
Non-current liabilities
Long-term loans payable
14,915 18,593
Lease obligations
1,044
819
Deferred tax liabilities
265
426
Net defined benefit liability
416
262
Asset retirement obligations
72
72
Other non-current liabilities
297
279
Total non-current liabilities
17,011 20,454
Total liabilities
39,312 41,001
Net assets
Shareholders’equity
Capital stock
8,895
8,895
Capital surplus
7,228
7,218
Retained earnings
9,339 11,300
Treasury shares(149) (1,120)
Total shareholders’equity
25,313 26,293
Accumulated other comprehensive income
Valuation difference on available(161)145
for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined
benefit plans

(9)
301

(2)
206

193

212

Total accumulated othercomprehensive income

324

561

Subscription rights to shares
Non-controlling interests
Total net assets
Total liabilities and net assets

7
1,100
26,74566,0573
1,186
28,044
69,046

Consolidated Statements of Income(Millions of yen)
52,25438,532
13,721

4,243
5,495
9,738
3,439

4,142
5,634
9,777
3,944

13
58
72
20
16
65
246

6
54
82
15
15
86
261

305
179
484
3,200

274
158
432
3,773

88
88

55
55

165
68
234
3,054
888
13
902
2,152
(46)
2,198

187
93
281
3,547
830
84
915
2,632
143
2,489

Five Operating Segments

52,78239,604
13,177

About the DKS Group2017

Business Foundations

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Selling expenses
General and administrative expenses
Total selling, general and administrative expenses
Operating profit
Non-operating income
Interest income
Dividend income
Share of profit of entities accounted for using equity method
Foreign exchange gains
Insurance income
Other non-operating income
Total non-operating income
Non-operating expenses
Interest expenses
Other non-operating expenses
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sales of investment securities
Total extraordinary income
Extraordinary losses
Impairment loss
Loss on disposal of non-current assets
Total extraordinary losses
Profit before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
ProfitProfit (loss) attributable to non-controlling interests
Profit attributable to owners of parent

2016

Consolidated Statements of Comprehensive Income(Millions of yen)
2017

2,152

2,632

(891)
5
(99)
(49)
(25)
(1,059)
1,092
1,158
(66)

306
6
(69)
17
(36)
224
2,857
2,726
131

DKS REPORT 2017

Data

ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Remeasurements of defined benefit plans
Share of other comprehensive income of entities accounted for using equity method
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

2016

53

Data

Consolidated Statements of Cash Flows(Millions of yen)
Cash flows from operating activities
Profit before income taxes
Depreciation
Increase (decrease) in allowance for doubtful accounts
Interest and dividend income
Interest expenses
Share of loss (profit) of entities accounted for using equity method
Impairment loss
Loss (gain) on disposal of tangible fixed assets
Loss (gain) on sales of investment securities
Decrease (increase) in notes and accounts receivable - trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable - trade
Increase (decrease) in net defined benefit liability
Other cash flows from operating activities
SubtotalInterest and dividend income received
Interest expenses paid
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
Purchase of tangible fixed assets
Proceeds from sales of tangible fixed assets
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of shares of subsidiaries and associates
Collection of short-term loans receivable
Proceeds from subsidy income
Other cash flows from investing activities
Net cash provided by (used in) investing activities
Cash flows from financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Repayments of lease obligations
Purchase of treasury shares
Proceeds from disposal of treasury shares
Cash dividends paid
Dividends paid to non-controlling interests
Payments from changes in ownership interests in subsidiaries that
do not result in change in scope of consolidation
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
54

DKS REPORT 2017

2016

2017

3,054
2,087
0
(71)
305
(72)
165
68
(88)
531
540
(1,103)
(254)
(244)
4,919
140
(302)
(559)
4,197

3,547
2,335
3
(61)
274
(82)
187
93
(55)
(1,614)
409
227
(246)
(311)
4,708
121
(274)
(804)
3,750

(1,600)1,600(7,829)

(82)

ー

(3)
143
(96)
1
150
(53)
(7,687)ー(3,900)
27
(2)
441
ー

1
212
(33)
(3,336)620
5,000(3,604)
(359)
0
19
(474)
(46)

(3,190)8,393(3,772)(346)(1,004)
21
(526)
(39)

ー

(10)

1,154
(46)
(2,381)
11,783
9,401

(477)
(42)
(105)
9,401
9,296

Group Companies
Domestic Group Companies
Ownership ofVoting Rights (%)

Connection to
DKS’s Business●Yokkaichi Chemical Company
Limited1, 3

Yokkaichi, Mie100

Gembu Co., Ltd.

Chuo-ku, Osaka

100●

Dai-ichi Kenkou Co., Ltd.

Chuo-ku, Tokyo

100●

Dai-ichi Ceramo Co., Ltd.

Higashiomi, Shiga

100●

Kyoto Elex Co., Ltd.

Minami-ku, Kyoto

50.03

●

●

Elexcel Corporation

Yokkaichi, Mie80

K&D Fine Chemical Corporation5

Chuo-ku, Chiba

50

●

●

●

Surfactants
Polyurethanematerials
Surfactants
Amenity materials
Polyurethanematerials

Details of Connection to
DKS's Business●●●

Manufacturing of surfactants
and polyurethane materials, etc.
Sales of surfactants andamenity materials, etc.
Sales of civil engineering andconstruction-use chemicals, etc.

Electronic devicematerials●

Rental of land and buildings

Electronic devicematerials●

Building leasing

Electronic devicematerials
Surfactants●●

About the DKS Group

LocationContracted research related todye-sensitized solar batteries andmedium-sized lithium batteries

Five Operating Segments

Name

Manufacturing of surfactants, etc.

Overseas Group Companies
Ownership ofVoting Rights (%)

P.T. Dai-ichi Kimia Raya

Karawang, Indonesia

91.53

Chin Yee Chemical Industries,
Co., Ltd.

Taipei, Taiwan

51

DKS (Shanghai) International
Trading Co., Ltd.

Shanghai, China

100

Sisterna B.V.

Roosendaal,
the Netherlands

94.9

Shuang Yi Li (Tianjin) New
Energy Co., Ltd.

Tianjin EconomicTechnological Development
Area, China

100

Chin Yee Chemical Technologies(Wuxi) Co., Ltd.4

Wuxi, Jiangsu, China

57 (57)

Chin Yee International
Investment Co., Ltd.4

Bandar Seri
Begawan, Brunei

DDFR Corporation Ltd.5
Dai-ichi Kogyo Seiyaku(Singapore) Pte. Ltd.6

Connection to
DKS’s Business
Surfactants
Amenity materials● Functional materials●●

Surfactants
Amenity materials● Functional materials●●

Surfactants
Amenity materials● Functional materials●

Details of Connection to
DKS's Business
●

●

●

●

●

●

Amenity materials
Electronic devicematerials●●●

Functional materials●

57 (14)●

Functional materials●

Hong Kong SAR, China

50●

Functional materials

Singapore

100

2

2

Surfactants
Amenity materials● Functional materials
●
●

●
●

Manufacturing and salesof surfactants, etc.
Manufacturing and salesof plastic lubricants, etc.

Business Foundations

Location

Importing and exporting
operations for the company’sproducts, etc.
Sales of sucrose fatty
acid esters
Manufacturing and sales oflithium-ion polymer batteries
Manufacturing and salesof functional materials
Investment activities into Chin Yee
Chemical Technologies (Wuxi) Co., Ltd.
Purchasing of flame retardants
Sales of surfactants,
flame retardants,
food additives, etc.

Data

Name

1. Specified subsidiary
2. Figures in ( ) in ownership ratio of voting rights indicate indirect ownership ratio included in the total.
3. The ratio of total sales of Yokkaichi Chemical Company Limited to consolidated sales (excluding internal sales between consolidated
companies) is more than 10%.
4. Equity-method non-consolidated subsidiaries
5. Equity-method affiliates
6. Non-consolidated subsidiary
Note: Except for Nos. 4-6, all are consolidated subsidiaries.
DKS REPORT 2017

55

Data

Corporate Data (as of March 31, 2017)
Corporate NameDKS Co. Ltd.

Foundation

April 1909

Incorporation

August 1918

Paid-in Capital

8,895 million yen

Headquarters / Laboratory
5 Ogawara-cho, Kisshoin, Minami-ku, Kyoto 601-8391,
Japan
Phone: +81 75 323 5911 Fax: +81 75 326 7356

Number of Employees 486 (consolidated: 967)

Main Branch
55 Nishishichijo Higashikubo-cho, Shimogyo-ku, Kyoto
600-8873, JapanTokyo Headquarters
8th Floor, Yaesuguchi Daiei Building, 1-3-1 Kyobashi,
Chuo-ku, Tokyo 104-0031, Japan
Phone: +81 3 3275 0561 Fax: +81 3 3275 0593

Total Number of
53,421,609 shares
Shares Outstanding
Share Unit Number 1,000 shares
Number of
Shareholders

5,118

Stock Listing

Tokyo Stock Exchange

Securities Code

4461

Date of Record

Every year on March 31, and other dates
as necessary and publicly announced in advance

Annual Meetingof Shareholders

Every year in late June

Shareholder
Mizuho Trust & Banking Co., Ltd.
Registry Administrator 1-2 Yaesu 1-chome, Chuo-ku, Tokyo

Osaka Office
2nd Floor, Osaka Asahi Seimei Building, 4-2-16 Koraibashi,
Chuo-ku, Osaka 541-0043, Japan
Phone: +81 6 6229 1717 Fax: +81 6 6229 1793
Nagoya Branch
7th Floor, Nagoya International Center Building, 1-47-1
Nagono, Nakamura-ku, Nagoya 450-0001, Japan
Phone: +81 52 571 6331 Fax: +81 52 586 4539
Kyushu Office
4th Floor, Hakata Ekimae Daiichi Building, 1-2-3
Hakata-eki Minami, Hakata-ku, Fukuoka 812-0016, Japan
Phone: +81 92 472 6353 Fax: +81 92 472 4989

List of Major Shareholders (Top 10)
Shareholder Name

Number of Shares

Ratio of Shareholding (%)

Japan Trustee Services Bank, Ltd. (Trust account)

4,235,000

8.36

The Dai-ichi Life Insurance Company, Limited

3,067,000

6.05

Mizuho Bank, Ltd.

2,135,000

4.21

The Bank of Kyoto, Ltd.

2,085,000

4.11

Asahi Mutual Life Insurance Company

1,697,000

3.35

s Business Partners
Shareholding Association of DKS’

1,391,000

2.74

DFA International Small Cap Value Portfolio

1,363,000

2.69

The Master Trust Bank of Japan, Ltd. (Trust account)

1,300,000

2.57

DKS Employee Shareholding Association

1,290,317

2.55

854,000

1.69

Japan Trustee Services Bank, Ltd. (Trust account 5)

Shareholder Distribution
Composition by Shareholder
Securities companies

Financial institutions

Treasury stock 5.14%

Foreign corporations, etc.

Treasury stock

Japanese corporations

0.72%

0.63%
0.02%

1.50%

Japanese
corporations

2.19%

56

Composition by Shareholdings

DKS REPORT 2017

Individuals and others

94.94%

Securities companies

1.75%

6.28%

Foreign corporations, etc.

10.47%

Financial
institutions
Individuals
and others

36.49%

39.87%

Main Production Bases
Ohgata Branch

Kasumi Plant, Yokkaichi Branch

Plants, Ohgata Branch

Address: 1-23-5 Kasumi, Yokkaichi, Mie
Area: 101,138 m2
Main products: Polyurethane materials, functional materials

Address: 230 Saigata, Ohgata-ku, Joetsu, Niigata
Area: 87,732 m2
Main products: CMC, waterborne polyurethanes,
professional detergents, polyvinylpyrrolidone

Yokkaichi Branch Chitose Plant

Shiga Branch

Chitose Plant, Yokkaichi Branch

Plant, Shiga Branch

Address: 7 Chitose-cho, Yokkaichi, Mie
Area: 17,355 m2
Main products: Polyether polyols, urethane
prepolymer, EV-EB curable monomers/oligomers,
anionic surfactant, cationic surfactants

Address: 427 Gokasho Hiyoshi-cho, Higashiomi, Shiga
Area: 106,813 m2
Main products: Sucrose fatty acid esters, foodadditives, metal surface treatment agents,
surfactants, solvent-alternative aqueous andnon-aqueous detergents

Data

Business Foundations

Five Operating Segments

About the DKS Group

Yokkaichi Branch Kasumi Plant

DKS REPORT 201757

DKS Co. Ltd.
5 Ogawara-cho, Kisshoin, Minami-ku, Kyoto 601-8391, Japan
TEL: +81 75 323 5911 FAX: +81 75 326 7356
https://www.dks-web.co.jp/english/index.html
Published: October 2017