Challenge to Change

2018 Integrated Report
Year ended March 31, 2018

Challenge to CHANGE
TOYO draws on its unwavering resolve to change itself.
This is essential for TOYO to break away from a prolonged
period of sluggish earnings.
The President and a number of TOYO employees intend to
express to our stakeholders about TOYO’s plans for rebuild-

TOYO’s MVV

Mission, Vision, Values

ing the Company and achieving growth through this integrated report. We, all members of TOYO, are eager tosteadily convert these plans into action.
We hereby declare our commitment toinstigating CHANGE at TOYO.

MissionVisionValuesTool System

Integrated
ReportContents

Corporate
Brochure

Newsletter Recruitment“TOYO TIMES“ “Intuition“

DigestOverview

Specific data

• Securities Report• Financial Statements• Business Report• Financial Information• Corporate Governance Report

Websitehttps://www.toyo-eng.com/jp/en/

02
04
06

TOYO’s Engineering Business
TOYO’s Strengths
TOYO’s Timeline

08
10
13

Financial & Non-financial Highlights
President’s Message—CHANGE! Challenge to Change
Major Ongoing Projects

14

Special Feature 1: Collaborative Value Creation
Management Project Launch

16
24
26
28

TOYO’s Business Expansion
TOYO’s unique global operations
High-tech application capabilities and external collaboration
Human capital development

30

Special Feature 2: Changing TOYO with employee
initiatives

32
33
36
38

Message from the Chairman
Corporate GovernanceRisk Management Initiatives and Business Risks
Directors, Audit & Supervisory Board Members, andExecutive Officers

40
45

Safety, Quality, Environment
Social Responsibility

46
47

Six-Year Financial and Non-Financial Highlights
Net Sales, Backlog of Contracts(Breakdown by Region/Segment Details)
Consolidated Financial Statements
Corporate Information
Stock Information

48
76
77

TOYO’s mission is to exert its best efforts to solve the problems of its clients and to harmonize its
plant construction projects with the environment and society.
To fulfill this mission and satisfy customers, each individual TOYO staff member is constantly
endeavoring to be innovative, improve technologies, and utilize knowledge and creativity toachieve client value enhancement.
Overall, TOYO’s goal is to be a “Global Leading Engineering Partner”.

Mission:Engineering for Sustainable Growthof the Global Community

Vision:Global Leading Engineering Partner

Values:Integrity, Creativity, Diversity, Learning, Team

Editorial Policy
To enhance the understanding of our philosophy and activities among all of our stakeholders and to establish a deeper relationship of trust, we have published this“Integrated Report”. It provides both our financial information (such as our management policies and financial results) and non-financial information (such as theconnections between TOYO’s businesses and the environment and society).
Caution Concerning Forward-Looking Statements
This integrated report includes certain“ forward-looking statements”. These statements are based on management’s current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ due to changes in economic, business, competitive, technological, regulatory, and other factors.

TOYO ENGINEERING CORPORATION

Integrated Report 201801

Global Leading
Engineering Partner
CHANGES to Achieve“Collaborative Value Creation
Management” TOYO Aims

Four Business Fields
Five Strengths

Global scenario

Development ▶
iness
P22
Bus

Business units

CHANGE!

sive integr
prehenat
Com ineering technolog ed
ies
eng
▶P26
Advanced globalnet▶P
24 work
i

▶P03

Ene

Human capitaldevelopment

en

ha

ts

kil

c
h-te

ls

Hig

Business ▶P16
Plant

ce building
llian
ma
7
mu ▶P2pti

Engineering
Businessppl▶ icatio
P2
n ca
6
pabil
ities

Proje

a
ct m

rg y B usin e ss ▶ P20▶P32

Mission, Vision, Values▶P01

TOYO ENGINEERING CORPORATION

Integrated Report 2018mge -294P2▶

na

Corporate
Governance

▶P28

02

ucture Business ▶P1
astr
8
Infr

O

ng

Technology
and partnering

Safety, Quality,
Environment▶P40

Human capitaldevelopment

Bottom-up

Achieving the Sustainable
Development Goals (SDGs)

Engineering Business
As an engineering company that organizes plant construction projects, TOYO works with various global partners
to deliver finely-tuned engineering services to meet customer needs, from the planning stage right through toplant construction, operation support, and maintenance management.
Scope of frequent services by TOYO
Feasibility study
Feasibility study participationand estimation

EPC

Commercial
operation

Project execution
Project management

Engineering
Procurement

Engineering
Procurement
Construction

Construction
Operation &MaintenanceCollaboration partners
Process licensors
Alliance partners
Equipment manufacturers / Material suppliers
Transportation companies / Construction companies

Connection Between TOYO’s Business and Society
TOYO contributes to the development of people’s lives and society through its engineering business relevant toenergy development, plant construction and infrastructure building.
Contributing to Advancement ofPeople’s Lives and Society

Areas of BusinessPetrochemicalplantsPlastics

Fertilizer
Fertilizer plants
Electricity
Oil and gas
development

Oil refinery and gas
separation plants

Power plants

Urban
infrastructure

Transportation
systems

Water

TOYO ENGINEERING CORPORATION

Integrated Report 201803

TOYO’s Strengths
We further enhance these five strengths and deliver optimal solutions toaddress the diverse and personalized issues of our customers.

TOYO Our Advantages

Search

https://www.toyo-eng.com/jp/en/advantage/

Five Strengths

Project Management
SkillsHigh-tech Application
Capabilities

Optimum Alliance
Building

Our project management skills meetthe customer needs of safety, quality,
and schedule.

We have the high-tech application capabilities to apply the latest cutting-edge
technologies in various product fields.

We have the capacity to set up themost optimal collaborative structurewith multiple global partners.

Comprehensive Integrated
Engineering Technologies

Advanced
Global Networking

Our comprehensive engineering knowhow is based on a track record of numerous EPC projects.

Our advanced global reach is driven by
our global network of overseas groupcompanies.

TOYO’sBusiness Expansion
With our mainstay operations in the areas of plant, infrastructure, and energy development,
we aim to further develop new businesses which can be our core businesses in the future.

Four Pillars of Business Fields

Plant
Business
04

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Infrastructure
Business

EnergyBusiness

Business
Development

TOYO’s Global Network
In aiming to meet the needs of our customers,
we leverage our global network to provide worldwide support.

Toyo-Canada
TPS

11

Toyo-Japan

Calgary, Canada
Established: 1976 / Acquired: 2010
EPC company

Chiba, Japan
Established: 1987
EPC company

Seoul, Korea
Established: 1987
EPC company

Toyo-China

Houston, U.S.A.
Established: 1986
EPC company

Chiba, Japan
Established: 1961
EPC company

OthersChina¥0.5 billion¥5.3 billion
1%
2%
Central and South America¥8.7 billion
3%
North America¥40.7 billion
12%
FY2017
Russia and Central Asia
Net Sales by Region¥11.4 billion3%
JPY 335.6
Southwest Asia, Middle East and Africa
billion¥44.3 billion
13%

Companies
Toyo-Korea

Toyo-USATSPI
Sao Paulo, Brazil
Established: 2012
EPC company

Japan¥ 68.5 billion
20%Southeast Asia
¥ 156.2 billion
46%

Shanghai, China
Established: 2004
EPC company

HoustonIKPTCalgary

Jakarta, Indonesia
Established: 1982 / Acquired: 2011
EPC company

Chiba
Seoul
ShanghaiToyo-Malaysia

Sao Paulo
Jakarta

Kuala Lumpur, Malaysia
Established: 1986
EPC company

Kuala Lumpur
Milan

Toyo-India

MumbaiMumbai, India
Established: 1976
EPC company

Toyo-Europe
Milan, Italy
Established: 1972
Procurement office

5,500
Employees

TOYO ENGINEERING CORPORATION

Integrated Report 201805

TOYO’s Timeline
1960s

1970s

1980s

1990s

Chemicals/Fertilizer
India
Fertilizer

Indonesia
Fertilizer

Trinidad and Tobago
MethanolChina
AmmoniaJapan
Ethylene

Iran
Aromatics

Thai
Ethylene

Korea
HydrogenJapan
NaphthaReforming

Germany
Residue
Upgrading

TurkeyEORBruneiGas-firedPower plantIndonesia
Coal-fired power
plant

Petrochemicals

10

Oil & Gas

Infrastructure

Own Technologies
Others¥7.5 billion
2%

More than70

Product Lines• Toyo-Japan

PharmaceuticalPharmaceuticals etc.,¥9.2 billion
3%
Chemicals/
Fertilizers¥50.2 billion
15%

FY2017
Net sales by sector
JPY 335.6 billion

Power/Railways etc.,¥116.4 billion
35%• Toyo-Europe• Toyo-India• EOEG: Ethylene Oxide/Ethylene Glycol • EOR: Enhanced Oil Recovery• FPSO: Floating Production Storage and Offloading • GTL: Gas to Liquids

06

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Petrochemicals¥140.2 billion
42%

Japan
PharmaceuticalEnvironment
Oil & Gas
¥12.1 billion
3%

Japan
Water Treatment
Facility• Toyo-Malaysia• Toyo-Korea• Toyo-USA• TPS• PCB Detox Treatment: Polychlorinated Biphenyl

2000s

2010s

Venezuela
Fertilizer

Nigeria
Fertilizer

Saudi Arabia
EOEG

Egypt
Ethylene/
Polyethylene

Qatar
GTL

BrazilFPSO

Thai
Gas-firedPower plant

Japan
Photovoltaic
Power Plant

Japan
Pharmaceutical
IngredientsJapan
Pharmaceutical
IngredientsJapan
PCB Detox
Treatment

Japan

CHANGE!
Challenge to Change®

TOYO Our Business• Toyo-Brazil• Toyo-China• Toyo-Canada

Search

https://www.toyo-eng.com/jp/en/products/• IKPT

SearchTOYO Projects
https://www.toyo-eng.com/jp/en/projects/

TOYO ENGINEERING CORPORATION

Integrated Report 201807

Financial and Non-Financial Highlights
Financial Highlights
After the collapse of Lehman Brothers, the favorable conditions of seller’s market driven by the upward momentum in crude oil prices serving
as a tail wind, we set the expansion of operations as a goal in the medium-term management plan started from fiscal 2012. Accordingly, we hadpromoted the proactive sales activities and expanded our global group companies. The rapid expansion, however, had resulted in inadequate risk
management and execution systems, and led to the deterioration of revenues in multiple projects. Despite pushing ahead with earnings recovery measures in the Revival Plan from fiscal 2015, we were unable to prevent cost increase incurred by US ethylene project, of which we had
accepted an order beforehand. Under the current management setup in fiscal 2018, we are currently aiming to stabilize earnings and pursue
future growth as quickly as possible through structural reforms and the accumulation of new orders that guarantee appropriate margins.

Net Sales, Gross Profit, and SG&A Expenses (consolidated)(¥ Billion)(¥ Billion)

50

500

40

400

30

300

20

200

10

100

0

0

-10
-20
-30
(FY)

2008

2009

2010

Gross profit (left scale)

2011

2012

2013

2014

SG&A expenses (left scale)

2015

2016

2017

Net sales (right scale)

Even though net sales dipped below ¥200 billion
after fiscal 2009, we maintained a high gross profit
margin thanks to new orders with favorable conditions. The expansion of operations included in themedium-term management plan started from fiscal 2012 raised the level of SG&A (Selling, Generaland Administrative) expenses to ¥22.0 -25.0 billion
from ¥20.0. On the other hand, gross profit was notenough to cover the increased SG&A expenses dueto the cost increase incurred by multiple projects,
which resulted in the deterioration of earnings. In
fiscal 2015, significant improvement was made to
the operating balance owing to the strengtheningof corporate governance including the examination before order is received, a measure includedin the Revival Plan, the control of SG&A expenses,
and the steady progress of awarded projects. The
deterioration of revenue at the US ethylene project
after fiscal 2016, however, resulted in a gross lossof ¥12.5 billion in fiscal 2017.

Non-Financial Highlights

Lost-Time Incident Rate (LTIR)*1 (consolidated)

Total Recordable Incident Rate (TRIR)*2 (consolidated)(Rate)(Rate)

0.20

2.5
2.0

0.15

1.5
0.10
1.0
0.05

0.5

0
(Year) 2008

0
2009

2010

2011

2012

2013

2014

2015

2016

2017

(Year) 2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

In aiming for zero occupational accidents, TOYO continues to step up its efforts on improving safety. For nine consecutive years since 2009 wehave achieved our safety management KPI of 0.10 or lower for LTIR at all TOYO group companies.
*1. Lost Time Incident Rate (LTIR) = Total Lost Time Incidents × 1,000,000 / Employee-Worked Man-Hours*2. Total Recordable Incident Rate (TRIR) = Number of Recordable Incidents × 1,000,000 / Employee-Worked Man-Hours

08

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Please go to the Six-Year Financial and Non-Financial Highlights on P.46 for more information.

Total Assets, Net Assets, and Equity Ratio (consolidated)(¥ Billion)

(%)

400

40

300

30

200

20

100

10

0

Shareholders’ equity was damaged considerably
due to the booking of large net losses of ¥20.9 billion in fiscal 2014 and ¥26.8 billion in fiscal 2017.
TOYO’s equity ratio dropped to 9.9% at end-fiscal
2017. Our cash reserves are unlikely to negatively
affect our business activities for the time being,
but we recognize that the capital measures are a
key management issue from a perspective of risk
preparedness.

0

(FY)

2008

2009

Total assets (left scale)

2010

2011

2012

2013

Net assets (left scale)

2014

2015

2016

2017

Equity ratio (right scale)

New Orders, Backlog of Contracts (consolidated)(¥ Billion)

1,000
800
600
400
200
0
(FY)

2008

New orders

2009

2010

2011

2012

2013

2014

2015

2016

2017

Backlog of contracts

Under our strategy for the expansion of operations
implemented from fiscal 2012, orders surged to¥365.1 billion in fiscal 2013, ¥470.3 billion in fiscal
2014, and ¥443.5 billion in fiscal 2015, while thebacklog of contracts rose to a record-high ¥823.0
billion in fiscal 2015. The growth of new orders
stayed flat in fiscal 2016 due to a deterioration inplant market triggered by plummeting crude oil
prices started at end-fiscal 2014. Although thebacklog of contracts has been declining, plant market have begun to recover since fiscal 2017. On theother hand, all projects secured after fiscal 2015,
the year in which we enhanced our corporate governance, meet our prescribed margin level, therefore we expect to turn business around by steadily
executing those projects. We anticipate annual
orders of around ¥300 billion for the near term.

Number of Employees*3(non-consolidated)

Number of Foreign National
Employees*3 (non-consolidated)

Number of Female Employees/
Manager Ratio of Female Employees*3(non-consolidated)

1,200

60

200

12

1,000

50

800

40

150

9

600

30

100

6

400

20

200

10

50

3

(%)

0
(FY)

0
2013 2014 2015 2016 2017

(FY)

02013 2014 2015 2016 2017

(FY)

02013 2014 2015 2016 2017

Number of female employees (left scale)Manager ratio of female employees (right scale)

TOYO encourages diversity in its workforce and as a result, the number of foreign employees working at the Head Office is increasing.
We pursue merit-based promotion of executives and employees irrespective of gender and currently more than 10% of our female employees
are in managerial positions.
*3. Excluding temporary employees

TOYO ENGINEERING CORPORATION

Integrated Report 201809

President’s Message

CHANGE!

Challenge to Change

The theme of this integrated report is “CHANGE!”, which
speaks of our commitment to achieving our initial goals
this fiscal year and implementing “TOYO’s CHANGE” thatlead to the enhancement of our corporate value.
We are striving to stress the importance of dialogue with
our stakeholders in aiming to implement “collaborativevalue creation management”.

Haruo Nagamatsu
President and Chief Executive Officer

10

TOYO ENGINEERING CORPORATION

Integrated Report 2018

To Our Stakeholders
In fiscal 2017 we were unable to prevent losses arose from cost
increase at US ethylene project that started in fiscal 2016. As a resultof downward revision of earnings estimates for two straight quarters
beginning in 3Q, we booked a net loss of ¥26.8 billion. I seriously take toheart the fact that after making a course correction on the growth policy
in our medium-term management plan that commenced in fiscal 2012,
we often betrayed the expectations of our stakeholders who believedin TOYO’s recovery based on our Revival Plan implemented from fiscal 2015. Even though recovering the trust of our stakeholders will not
be easy, we keep in mind that the only way to do so is by continuing
to demonstrate TOYO’s growth potential and meaning of existence bysteadily achieving results. I declare my commitment to thoroughly execute action plans of our Revival Plan that have been effective thus far
as well as make TOYO change by setting a goal of transforming TOYO
into a profitable company.
We will tirelessly implement company-wide initiatives to make
“CHANGE” happen and rebuild TOYO by practicing “collaborative value
creation management”. We are striving to stress the importance of dialogue as we recover the trust of all our stakeholders.

Summary of Revival Plan (FY2015-2017)
Since April 2015, TOYO has pursued a Revival Plan to realize “Restructuringof management system”, ”Improvement of management process at
proposal stage”, “Enhancement of project management capacity” and“Change of corporate culture” as four pillars of management policy.
In order to restructure management system, we will strive to enhance
corporate governance. For management process at proposal stage andproject management capacity, we ensure fair profit from new orders bygoing back to practicing core competence as a global EPC contractor,
and maintain profitability without fail by strengthening our project execution system. Some results of these initiatives can be seen in the difference in profitability between orders taken before we set our Revival
Plan in motion and those received after. In fiscal 2018 and in the future
we will continue instilling these initiatives as central to our corporate
governance system with the aim that they contribute to change our corporate culture.
As for the US ethylene project that has generated unprecedented
cost increase and is the cause for recent significant earnings deterioration, we sincerely reflect on the reality that our risk management at the
proposal stage was insufficient and that construction management at
the time of project implementation was inadequate. We will never failto leverage these shortcomings to our management efforts to make
TOYO change from now on.
Haruo Nagamatsu PROFILE
Joined TOYO in April 1981. Took charge of an overseas gas plant project as a mechanical engineer. Also possesses experience with projects in non-hydrocarbon plant fields,
including industrial facilities and monorails in Southeast Asia, the US, and elsewhere. Served as President of Toyo-Malaysia for four years starting in 2000 and helped develop thecompany’s capability to undertake lump-sum EPC contract. After returning to Japan, worked in business development of power generation and transportation systems in thepredecessor division of the Infrastructure Business Unit. Served as project manager of a Floating Production, Storage and Offloading (FPSO) topside project from 2009 and also
has experience working at collaborator’s overseas office in Singapore and other locations which makes more than 20 years of overseas experience all up. Appointed Executive
Officer in 2013 and contributed to the success of projects as General Manager of the Infrastructure Project Division. Appointed Senior Executive Officer and Unit Director of
the Infrastructure Business Unit in April 2016. Assumed office as Director in June 2017. Appointed Representative Director, President and Chief Executive Officer in April 2018.

TOYO ENGINEERING CORPORATION

Integrated Report 201811

Challenges Today(¥ Billion)
2018/3Result2019/3
Forecast

335.6 300.0
Gross profit(12.5) 21.0
Gross profit margin (%)
(3.7)
7.0
SG&A expenses
20.4 19.0
Operating income(32.9)
2.0
Non-operating income
5.1
0.5
and expenses
Ordinary income(27.8)
2.5
Profit attributable to(26.8)
1.0
owners of parent
New orders309.3 300.0
Net sales

12

TOYO ENGINEERING CORPORATION

Integrated Report 2018

My first message to our employees when I assumed office as President
in February 2018 was that we must make every effort to complete US
ethylene project. Since construction work continues on this project
together with our customers and construction firms, I, as President of
the Company, recognize that my responsibility in priority to others is tolead TOYO toward completion of this project. My message about making every effort to complete US ethylene project came from the thoughtthat it is vital for all employees to uniform their mind and offer theirsupport to members working hard at the construction site. I believe
the more difficult projects lead to more valuable project knowledge of
TOYO in the future because of the experiences learned companywide,
not just on-site, and present TOYO the opportunity to become a truly
competitive contractor.
From the perspective of recovery of corporate performance, it is vitalthat we gradually replace our project backlog with projects that yield fair
profit, so in this sense, I think it is my role to constantly demonstratetenacity towards securing profits. In taking the initiative to eliminate
ineffective operations and reduce excessive costs, I strive to raise theawareness so that the entire TOYO Group sticks to generating profits in
its day-to-day operations.
We will also cast a finer net over progress management of neworders and revenue forecasts and ensure more thorough management
operations with a view to recover TOYO’s performance.

For what purpose are we instigating“CHANGE” ?
Engineering business has an inherent feature of global, future-oriented,
and knowledge-intensive industry. In this industry, companies mustleverage the so-called “soft” skills of analytical, conceptual, and humancapabilities to solve various issues, including those concerning the environment, despite the constraints of area and time. The needs of customers also continue to change as the “fourth industrial revolution” rapidlytransforms socioeconomic and business structures. TOYO must pickup on such changes at an early stage and promote to make “CHANGE”
happen with a view to generating business opportunities from theseturning points. I believe consistent determination by management tocarry out reforms is essential to achieving this. We must stick to theidea of learning from our past mistakes and strive to improve quality
and strengthen our comprehensive capabilities. By incorporating digital technology into our engineering know-how and project management
methods, we can not only dramatically enhance productivity, but create
new services. We can maximize our competitiveness by making bestuse of human resources with rich diversity at our global group companies. Based on our comprehensive collaboration with Nippon Steel &Sumikin Engineering, we can expand our business portfolio into non-traditional EPC fields and non-EPC businesses. We will push ahead withthese initiatives for “CHANGE” in order to stabilize earnings and set
ourselves up for the next phase of TOYO’s growth.
I look forward to the continued support and encouragement from all
our stakeholders.

Major Ongoing Projects (As of end-September 2018)

9
1
21 22
3 11

23

15

2

20
4

5

13

6 10 19

14

12
16

17 18

8

7

SectorPetrochemicals

Oil and gas

Power generation,transportation
systems

Chemicals andfertilizers

Name

Place

Scope

1

Ethylene production facility

United States

EPCC

2

Ethylene complex

Malaysia

EPCC

3

Ethylene production facility

ThailandEP

4

Polyethylene production facility

Indonesia

EPCC

5

Synthetic rubber production facility

Indonesia

EPC

6

Butene-1 and MTBE production facility

Indonesia

EPCC

7

Expansion of naphtha cracking furnace

Japan

EPCC

8

Expansion of naphtha cracking furnace

Japan

EPC

9

Gas chemical complex

Turkmenistan

EP

10 Gas processing facility

Indonesia

EPCC

Five of 12 natural gas-fired cogeneration power plants
11
Thailand(7 already completed)

EPCC

12 Kamisu biomass-fired power plant

Japan

EPCC

13 Toyama biomass-fired power plant

Japan

EPCC

14 Minami large-scale photovoltaic power plant

Japan

EPCC

15 Iwaki large-scale photovoltaic power plant

Japan

EPCC

16 Katsuura large-scale photovoltaic power plant

Japan

EPCC

17 Setouchi large-scale photovoltaic power plant

Japan

EPCC

18 Yumesaki large-scale photovoltaic power plant

Japan

EPCC

19 Integrated railway system and trackwork

Indonesia

EPCC

20 Chemical fertilizer production facility

Nigeria

Licensing and EP

21 Chemical fertilizer production facility

India

Licensing and EPCC

22 Chemical fertilizer production facility

India

Licensing and EPCC

23 Ammonia production facility

India

EPCC

EP:
Engineering and Procurement
EPC: Engineering, Procurement and Construction
EPCC: Engineering, Procurement, Construction and Commissioning

TOYO ENGINEERING CORPORATION

Integrated Report 201813

SPECIALFEATURE

1

CHANGE!

COLLABORATIVE VALUECREATION MANAGEMENTPROJECT LAUNCH
Why “Collaborative Value Creation”?
TOYO’s financial results over the last few years indicate that
we have failed to live up to the expectations of our stakeholders. Accordingly, achieving an earnings turnaround is ourmost pressing issue. On the other hand, we understand thatthe goals we should be aiming for should be much higher. In
order for TOYO to form a sustainable base for business operations and make steady progress in returning to a growth track,
I believe we must first establish a clear management stancethat everyone can rely on. We must also constantly develop
human capitals indispensable to the planning and executionof growth strategies based on this management stance andalso aim to realize a corporate culture where our employees
can work vibrantly. That said, corporate stance and culture are
not the things can be achieved as soon as the goals are set,
which is why it is essential that all executives and employees
should be habitually aware of them on a day-to-day basis andincorporate them into their daily operations. Given that ourday-to-day operations are at times susceptible to near-sighted
interests and our own internal logic, in order for us to constantly look at ourselves from an external perspective, we arelearning from the “Guidance for Collaborative Value Creation”

14

TOYO ENGINEERING CORPORATION

Integrated Report 2018

released by the Ministry of Economy, Trade, and Industry(METI) in 2017 for the purpose of improving the quality of dialogue between companies and investors. We have set theball rolling on discussing “collaborative value creation”, a process in which employees participate. The challenge of getting
the Company back on a growth trajectory starts with the penetration of “collaborative value creation” awareness throughout the entire TOYO Group.

Operation of Collaborative Value Creation
Management Project
The President put out a call for “collaborative value creation
management” project participants in April 2018 and around30 employees between in one’s 20s and 40s were assigned
from across the Company. The heads of Business Units, theCTO, and CDO were named as observers, while the projectis managed by the Head of the Corporate Strategy Division.
With a focus on the six categories (values, business model,
sustainability/growth, strategy, performance and KPIs, andgovernance) that comprise the framework of the Guidance forCollaborative Value Creation, this fiscal year we are regularly

engaging in intensive debate of individual key topics such as
TOYO’s core competence, business model, and businessstrategies. The participation of members not affiliated withany of our Business Units brings multi-faceted perspectives
to our discussions on Business Units’ strategies and greatly
stimulates awareness about “value creation” among participants. Going forward, we hope the participation of many more
executives and employees will deepen discussions from theview points of both management and stakeholders and serve
as a foundation for business strategy for the TOYO Group asa whole.

Project Objective
The objective of the project this fiscal year is to inform all of
our stakeholders about TOYO’s stance on the challenge tochange. Through this integrated report, we intend to inform
our stakeholders about the following six goals that encompass the six categories that make up the framework of the
Guidance for Collaborative Value Creation.
• Reforming our four Business Units• Strengthening our global operations

Shinji Yoshimura
General Manager of Corporate Strategy Division• Growth strategies leveraging technology and partnering• Human capital development embracing diversity and flexibility• Bottom-up changes to corporate culture• Enhancing effectiveness of corporate governanceWe also want to share the message with our 5,500-diverse
and talented workforce that “TOYO will change”.
We will continue to implement this project up ahead toensure we always keep in mind what lies beyond our business operations, such as society, the markets, the environment, and people. We are standing at the starting point ofcontinual change at TOYO. We will keep our stakeholders
up to date on the progress of TOYO’s management reforms
through the integrated reports.

TOYO ENGINEERING CORPORATION

Integrated Report 201815

TOYO’s Business Expansion

Plant Business
Since its establishment as an EPC contractor of Japanese quality, TOYO has
continued to deliver various services with roots in local communities aroundthe world mainly in the field of petrochemical, chemical and fertilizer plants.

Business Overview
Since TOYO’s founding in 1961, the Company has built up a
wealth of experience and know-how in the construction of
mainly petrochemical and fertilizer plants. We have developed
multiple advanced technologies for petrochemical plants inspecialized product areas such as ethylene, propylene, different types of polymers, and aromatics, while for chemical andfertilizer plants we have done the same in the areas of urea,
ammonia, and methanol.

Owing to our technological tie-up with Lummus Technology
in USA, which commands a leading share in the market, wehave thus far constructed over 40 ethylene plants. In addition,
based on our robust relationship with ammonia licensor KBR
in USA, we now boast a track record of more than 100 fertilizer plant construction projects utilizing our own urea license
as our advantage.

SWOT Analysis of Plant Business
Strengths

Weakness (Issues)• J apanese-quality EPC execution
capabilities of overseas group companies• E xtensive track record in ethylene andfertilizer fields• Proprietary technologies•A pplication capabilities of cutting-edge
technology• Strengthening project risk management

Opportunities

Threats• I ncreased demand for petrochemical
products driven by global economic
growth• I ncreased production of fertilizers owing
to greater demand for food

Basic Policy• Boosting competitiveness by optimizing
EPC formation

Acquisition of new orders inregions such as Asia, Russia,
and Central Asia

• Fluctuations in plant market• Chain of protectionist economic policies

Participation from thebusiness planning stage ofthe projects• Geopolitical risks• Natural disasters• Addressing environmental conservation

Providing ValueContributing to the construction of plants that yield high-quality products• EPC for fertilizer production facilities (increased crop production)• EPC for petrochemical production facilities (supplying raw materials for plastics)• EPC for refineries (heavy oil processing)• EPC for methanol manufacturing facilities (supplying raw materials for chemicals)• Provision of various licensed technologies

16

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Tomohisa Abe
Unit Director of Plant Business Unit

Market Environment
Growing demand for petrochemical products and fertilizers spurred by global economic
growth and population increase
Demand is steadily growing for petrochemical products
owing to global economic growth and population increase
mainly in emerging markets. Fertilizer projects are also on
the rise due to the need to solve food demands in Asia andAfrica as populations in these regions continue to swell. It
is expected that these demands will continue to grow constantly over the medium- to long-term. The market environment has become more desirable to customer’s decision on

investment in petrochemical and fertilizer plants because theprices of crude oil and gas, the raw materials of petrochemical
products and fertilizers, have stabilized since last year.
That said, the impact of protectionist economic policies
and the political situation in the Middle East remain still uncertain. At the same time, companies will likely need to do more
to protect the environment from issues such as plastic waste.

Business Strategy
Avoiding price competition and expanding orders by leveraging our expert proposal capabilities
With a focus on ethylene, its derivative products, and fertilizers, areas in which there is a strong potential demand over the
medium- to long-term, and where TOYO possesses a competitive technological edge, we aim to expand new orders by
fully demonstrating our strengths in Japanese-quality EPC project execution at our overseas group companies. By geographical region, we see our main markets to be in Southeast Asia
and India, where there is remarkable economic growth, andresource-rich Russia, Central Asia and others. However, owing
to trends in protectionist movement and heightened geopoliticalrisks, we are employing marketing and sales activities with highsensitivity, without limiting our focus to any particular region.

Moreover, to avoid price competition with contractors fromother countries, we are endeavoring to participate in projects
from the customer’s business planning stage by proposing
services only TOYO can deliver, such as high-temperature/pressure-resistant and anti-corrosive engineering services
requiring advanced technological know-how, proprietary technology and highly knowledgeable license design, total optimization with downstream facilities, and flexibility of facilities
to meet diverse customer needs. In addition, in an effort tosecure more appropriate margins, we are working to improve
the accuracy of our risk analyses by further strengthening ourrigorous screening process before getting new orders.

CHANGE! Future Initiatives
Driven by seamless collaboration with overseas group companies, TOYO will continue to build an optimal EPC execution
structure for the Group as a whole and further refine its services to become a provider of high-quality and cost-competitive solutions. To achieve this, our top priority is to increase
our human capitals with the skills to undertake increasingly
large and complex projects, and further bolster our EPC execution capabilities at overseas group companies. This is why
we intend to give employees at all overseas group companies

and construction sites the opportunity to acquire project management know-how and technical knowledge when they aredispatched to sites from the start of a project through to its
completion. More specifically, we will focus on nurturing our
young and mid-level employees – the drivers of future growth
at TOYO – by changing the scheme of intensive office-based
courses to the one which implements the courses at construction sites so employees can master the necessary skills
on-site.

TOYO ENGINEERING CORPORATION

Integrated Report 201817

TOYO’s Business Expansion

Infrastructure Business
Drawing on its many years of plant construction experience, the TOYO Groupis working to expand its operations in social infrastructure fields such as power
generation, transportation systems, and effective utilization of water resources.

Business Overview
For many years TOYO has worked on power generation
and water treatment facilities as part of oil refinery and petrochemical plant construction projects. Beginning with theorder for the construction of a large-scale coal-fired power
plant in Indonesia in the 1990s, we utilized our experiences
to make a full-fledged entry into the business of building infrastructure essential to people’s livelihoods. In 2013 we established the Infrastructure Business Unit. In addition to fossil

fuels, we now have a wealth of experience in photovoltaic
generation facilities, and we can also accommodate the needfor new sources of power generation, such as biomass-fired.
We also deal with businesses related to decommissioning ofreactors at nuclear power plants. In the area of water treatment facilities, we are working to establish 24/7 water supply
in Myanmar, while for transportation systems, we are undertaking a project in Jakarta aimed at easing traffic congestion.

SWOT Analysis of Infrastructure Business
Strengths

Weakness (Issues)•P ower generation and water treatment
technology and know-how accumulated
from plant construction projects• Development of engineers at groupcompanies•S trong alliances with power generationequipment manufacturers• Expanding O&M (operation andmaintenance) support business• Enhancement of cost competitiveness•S ophisticated system integration
capabilities for transportation systems

Opportunities• I ncreased demand for power generation
in Southeast Asia

Threats• Population decline in Japan• Excessive price competition• I ncreased demand for renewable energy
in Japan and overseas• E xports of infrastructure systems backed
by the Japanese government

Basic Policy
Focus on creating andsecuring projects in the brisk
renewable energy market
Accommodate demand for
power generation inSoutheast Asia
Support safe, reliable, andenvironmentally friendly
Japanese infrastructure exports
and participate
in related projects

Providing ValueContributing to affluent lives of people toward “TOYO as Contractor of Infrastructure”• Gas-fired power generation EPC (development of infrastructure for regional economies)• Thermal power generation EPC for emerging countries (assisting regional economic development and nation-building)• Large-scale photovoltaic power generation, biomass power generation, and geothermal power generation EPC (reduction of CO2 emissions)• Nuclear power-related safety facility engineering, reactor decommissioning engineering, and facility EPC (assisting national policies)• Transportation infrastructure EPC (assisting regional economic development and improving living standards)• Helping secure water for domestic use (assisting regional economic development and improving living standards)• Supporting urban development with the goal of regional revitalization (assisting regional economic development and improving living standards)

18

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Shinichi Okazaki
Unit Director of Infrastructure Business Unit

Market Environment
Anticipating steady growth, but market needs are changing considerably
The development of infrastructure in mainly emerging economies has progressed rapidly since the year 2000 and even
now investment in power generation facilities is increasing inSoutheast Asia and other regions. Moreover, with the backingof the Japanese government, Japanese infrastructure for transportation and water supply systems has gained global recognition. These developments present a multitude of business
opportunities. At the same time, the needs of the market arechanging considerably. In Japan, new companies entered thepower generation business when the retail electricity industry was deregulated in 2016, and the use of renewable energy
is being promoted with the aim of reducing CO2 emissions.
Subsequently, the industry is shifting away from large-scaleintensive power generation towards distributed power sources
and VPPs (virtual power plants). While we expect to see newinvestment in the fields of power generation, transportation systems, and the effective utilization of water resources in Japanand overseas, competition to secure orders is also heating up.

Business Strategy
Aiming to avoid excessive price competition, expand orders in various fields, andmaximize project revenue
In the power generation field, we are looking to win orders
while also avoiding excessive price competition by leveraging
our alliances with partners such as US-based GE, which supplies more than half of the world’s gas turbines for power generation. We also aim to maximize project revenue by thoroughly
controlling costs and strengthening our capabilities to execute
safe and high-quality EPC services after receiving orders. In
addition to projects in Japan, we are focused on winning contracts in Indonesia, where TOYO has a group company, and thePhilippines, where we expect to see an increase in projects up
ahead. Over the medium- to long-term, we also set our sights on
expanding into Sub-Saharan Africa. In addition, we have createda specialized project team for nuclear power-related businessin Japan to focus on meeting demand for reactor decommissioning, as well as new standards enforced by Japan’s Nuclear
Regulation Authority.
In the field of transportation systems, we are actively engaged
in proposing solutions for exporting railway infrastructure in lightof the growing problem of traffic congestion mainly in Asia.
In the area of water treatment, we are currently undertaking a
non-revenue water (leakage) reduction project in Myanmar’s capital Yangon together with TSS, a partner company of the Tokyo
Metropolitan Government’s Bureau of Waterworks. Leveraging
our experience with such landmark projects, we plan on expanding our business areas by addressing the growing need to
improve living standards in the cities of emerging countries.

CHANGE! Future Initiatives
Global initiatives to protect the environment are gaining considerable momentum and we see business opportunities inturning points such as the adoption of renewable energy asa main power source for electricity and the growing need for
new forms of urban transportation to alleviate traffic congestion. Going forward, we will focus on nurturing and strengthening the skills of our group company engineers to assist
the exporting of Japanese world-class infrastructure that issafe, secure, and environmentally friendly. We will also strive
to raise the level of our technology across the entire TOYOGroup and bolster our cost competitiveness. Furthermore,
we will harness our partnership with Nippon Steel & Sumikin
Engineering to not only strengthen our traditional EPC services, but also proactively address O&M and investment inbusiness with a view to stabilizing earnings.

TOYO ENGINEERING CORPORATION

Integrated Report 201819

TOYO’s Business Expansion

Energy Business
TOYO offers highly specialized services to provide solutions as one of
only a handful of owner’s engineering companies worldwide in the development of oil and gas fields.

Business Overview
Through its involvement in oil and natural gas drilling projects
since the 1980s, TOYO’s advanced technical support systemand capabilities to provide solutions have received high recognition which led to establish longstanding relationships of trustwith holders of ownership interest and governments of oil-producing nations. On top of this, as one of only a handful of owner’s
engineering companies worldwide, TOYO has signed GESAs*
with more than 20 oil majors and national oil companies. Basedon GESAs, we facilitate business to provide specialized service

by drafting optimal production and facility renovating plans fromthe standpoint of owners and managing projects. In particular,a major strength of TOYO’s service is “the integration of above
ground and subsurface” which makes it possible to develop
a plan not only for production facilities above ground, but forsubsurface facilities by monitoring carefully the ever-changing
nature of oil and gas fields together with our partners, who possess technology and know-how relating to subsurface analysis.
*GESA: General engineering service agreement

SWOT Analysis of Energy Business
Strengths•R elationships of trust with resource owners
and governments of oil-producing nations•C apabilities to provide solutions by
integrating above ground and subsurface•C ollaboration with prominent partners

Weakness (Issues)• Expanding operating revenue• Securing stable earnings over the
longer term
• Pursuing new elemental
technologies

Opportunities

Threats•D emand for renovation at existing oil andgas fields• Decline in resource investment due toeconomic or market downturn•G rowing interest in offshore resource
development• Geopolitical risks•N on-conventional resource development inline with national policies• Shift away from fossil fuels for preventionof global warming• Natural disasters

Basic Policy
Conclude more GESAs
based on relationships oftrust with customers
Expand specialized services
to provide solutions for
efficient production andmaximized use of resources
Realize synergy effects
through partnering

Providing ValueContributing to worldwide stable supply of energy and highly efficient and productive
resource development• Promoting the use of secondary and tertiary enhanced oil recovery methods to extract remaining oil from oilfields• Developing offshore oil and gas fields (opening up new markets with technological innovation)• Forming equal partnerships with oil-producing nations (strengthening friendly relations between countries)•P articipating in the government project for methane hydrate production (contributing to national policies on energy revolution)• Aiding Iraq’s reconstruction (contributing to international community)

20

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Hiroshi Sato
Unit Director of Energy Business Unit

Market Environment
Firm market conditions sparking recovery in appetite to invest in existing oil and gas fields
Operations and development plans at oil and gas fields
around the world came to a halt in succession after the priceof crude oil rapidly plummeted at the end of 2014 in responseto the shale revolution in the US. Oil prices recovered thereafter thanks to an OPEC-led coordinated production cut, andseeking a balanced market for shale oil and gas production in
the US, the price of crude since 2017 has held firm at around$US70/bbl and LNG at roughly $US11/MMBtu. Accordingly,

momentum is growing for renovating activity at existing oil
and gas fields in addition to new developments. Furthermore,requests for assistance in maximizing the value of oil and gas
produced are increasing. On the other hand, for Japan, whoseenergy resources heavily depend on imports, the development of methane hydrate deposits off its coast line is attracting much attention as a national policy to secure its own
energy resources.

Business Strategy
Exerting our unique strengths and promoting technological support services for existing
oil and gas fields
In the energy business, we aim to enter into more GESAs(general engineering service agreements) by focusing on customer needs such as maximized recovery of reserves fromexisting oil and gas fields, development of non-conventional
resources, and maximized use of oil and gas produced.
To achieve maximum recovery of oil and gas from existing
fields where output has diminished, we propose the use of secondary and tertiary enhanced oil recovery methods to improve
oil recovery rates with the injection of water, gas, or chemicals.
For offshore resource development, we adopt a uniqueapproach that integrates subsurface analysis with planning ofabove ground facilities. In 2015, TOYO started a collaboration

with US-based major subsurface analysis service provider
Baker Hughes and Norway’s Aker Solutions, a leading offshore production facilities manufacturer. We are also considering to materialize collaboration in offshore structures andpipeline business with Nippon Steel & Sumikin Engineeringwith whom we concluded a comprehensive collaborationagreement in 2017. Based on these robust alliances, we
intend to boost synergies through the fusion of expertise, proprietary technology, and know-how of each company.
Moreover, we will strive to pick up on the respective needsof producer and consumer countries and maximize added
value of oil and gas produced.

CHANGE! Future Initiatives
By promoting owner’s engineering and further accumulatingknowledge of oil and gas fields, we will continue to offer planning that delivers satisfaction to all of our customers. TOYO
will endeavor to renew GESAs and enter into new ones byleveraging its expertise in secondary and tertiary enhanced oil

recovery methods, as well as the advantages of working withpartner firms. In aiming to secure stable earnings over the
longer term, we will also focus on business investments inexisting oil and gas fields and generate new business opportunities starting with GESAs.

TOYO ENGINEERING CORPORATION

Integrated Report 201821

TOYO’s Business Expansion

Business Development
We focus on developing stock-type businesses to secure stable earnings
by leveraging TOYO’s proprietary energy-saving technology and the digitaltransformation that continues to evolve with the rapid spread of IoT and AI.

Business Overview
The Business Development Division, which we establishedin April 2017, is distinctly different from our EPC businessin that it aims to create a stock-type business model to constantly secure stable profits. Specific initiatives include thejoint development of digital solutions for the fertilizer and petrochemicals industries based on a memorandum signed with
US-based General Electric (GE) in 2016. We also continue to®
solicit orders for, our proprietary technology thatis used widely in the distillation process at oil refinery andpetrochemical plants to realize considerable energy savings.
In addition, we are endeavoring to generate new services instep with the times, utilizing our accumulated knowledge,
technology, and experience.

SWOT Analysis of Business Development
Strengths

Basic Policy

Weakness (Issues)• Knowledge of processes• Pursuing a stock-type business model• Engineering know-how• Addressing distributed power systems• Energy-saving technology• Matching market needs with technology

Promote innovation andbuild new business models
Opportunities•D igital technology innovation, including
IoT and AI

Threats• Obsolescence of existing technology

Further deploy Digital Plant
DX-PLANT™ services• Diversification of energy sources• Addressing environmental conservation

Providing Value
Guiding customers improve plant profitability and realizing low-carbon societies bydrawing fully on the strengths of our energy-saving and digital technologies• Supporting the realization of low-carbon societies (reduction of CO2 emissions)• Assisting emerging countries and regional economies through the transference of technology• Creation of value from non-EPC engineering services

22

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Ikuo Kasama
General Manager of Business Development DivisionMarket Environment
Innovation is urging transformation of business models
Driven by leading-edge digital technologies like IoT and AI, thedigital transformation of business models has evolved considerably recent years even in our plant, infrastructure, and energy
businesses. In contrast, environmental conservation issues arein the global spotlight and a shift away from the fossil fuelsof oil, gas, and coal toward renewable sources of energy is

encouraged in an effort to realize low-carbon societies. In
Japan, the government is rapidly considering infrastructure
improvement for decentralized and levelized power distribution with the use of storage battery systems. The changing
needs of society and digital innovation evolving offer engineering companies like TOYO new business opportunities.

Business Strategy
Promoting sales activities for DX-PLANT™ and
TOYO developed a cloud platform-based system called
DX-PLANT™/Fertilizer to improve fertilizer plant operating
rates and make operation and maintenance more efficientby collecting and visualizing plant operating data. The system was first implemented in 2017 at a plant operated by an
Indonesian state-owned fertilizer company. The system will
be gradually rolled out to more than 100 fertilizer plants that
operate under TOYO’s licenses. The DX-PLANT™ system will
also be expanded for application at ethylene and other petrochemical plants. In addition, we will expand our O&M (operation and maintenance) business and generate consulting
services to guide customers boost profitability by establishing a digital solutions center that connects multiple plants via
IoT networking.
Furthermore, commercial operations of our proprietary®
energy-saving distillation system commenced
in 2016, which realizes more than 50% energy saving compared®

as new businessto conventional distillation towers. We aim to extend thisgroundbreaking system to potential users in Japan and overseas to serve as a stepping stone to plant environmental
measures for lowering carbon footprints in society. We alsoplan on building a performance fee-based business model,
included in our expansion into the ESCO (energy service company)* business.
In other areas, we will look at ways to address the shift todistributed power sources in the wake of the deregulation of
the retail electricity market. We will also actively seek to operate an electric power business centering on renewable energies such as solar power, develop a storage battery system andutilize applications, and participate in the biomass power generation value chain from fuel manufacturing through to supply.
*ESCO (energy service company): Business model to receive a value based on
the realized cost reduction performance through provided services related toenergy-saving

CHANGE! Future Initiatives
We will continue to pursue a stock-type business model
for locking in steady revenue streams and push ahead withchanges to how TOYO does business in step with the times.
Accordingly, we aim to collaborate with teams tasked withthe digitalization of EPC operations under the direction of
the Chief Digital Officer (CDO) and take the lead on IoT- andAI-driven business development.

TOYO ENGINEERING CORPORATION

Integrated Report 201823

Strengthening Competitiveness through
TOYO’s Unique Global Operations

1

Global Operations

Toyo-JapanGroup
companies

Ethylene complex (Malaysia)
Under the leadership of Toyo-Japan, this project is the largest ever for the TOYOGroup. Detailed engineering is carried out by Toyo-India, IKPT, and Toyo-Malaysia,
while group companies including Toyo-India, Toyo-Korea, Toyo-China, Toyo-Europe,and Toyo-USA provide assistance on procuring equipment and materials from suppliers in their respective regions. It is certainly an all-TOYO Group project.

Examples of other projects• Gas chemical complex (Turkmenistan): Engineering and procurement for the ethylene plant is being led by Toyo-India, while the same for the gas processing plantand polypropylene plant is being executed by Toyo-Korea. Toyo-Japan is leading the
project management and procurement of main equipment of whole project•F ertilizer production facilities (India, Nigeria): Project management and basic
engineering is being delivered by Toyo-Japan and detailed engineering and procurement by Toyo-India.
•S ynthetic rubber production facility (Indonesia): Toyo-Japan is leading the project management, while IKPT is in charge of executing engineering, procurement
and construction.

2

Global Operations

Group
companiesGroup
companies

Butadiene production facility expansion (Indonesia)
Toyo-Korea and IKPT was awarded this project in 2017 and are executing engineering,procurement, and construction.

Examples of other projects• Polyethylene production facility (US): Toyo-Korea was awarded the contract toprovide engineering, procurement, module manufacturing, and construction support, while Toyo-Europe and others provided assistance in the area of procurement.
•P etrochemical production facilities (Malaysia): This project falls within the framework of the comprehensive engineering partner agreement for the Asian region
TOYO has concluded with BASF of Germany. Toyo-India was primarily in charge ofengineering and overseas procurement, while Toyo-Malaysia carried out local procurement in Malaysia and construction management. This project was completed
ahead of schedule. Another ongoing project continues to be implemented.

24

TOYO ENGINEERING CORPORATION

Integrated Report 2018

3 Local Operations

Group
companies(solo)

LNG regasification facilities (India)
Toyo-India individually took charge of engineering, procurement, construction and commissioning for this project, which was completed in 2017 ahead of schedule. ToyoIndia is the leading company in India, which has handled four regasification facilities.

Examples of other projects• Domestic projects of overseas companies: Toyo-India, IKPT, Toyo-Korea, ToyoMalaysia, and Toyo-China are contributing to TOYO’s consolidated income bywinning and fulfilling individual domestic projects from receiving orders to the completion of the projects.
•D omestic business in Japan: The domestic EPC business is handled by TEC Project
Services Corporation (TPS). In addition to petrochemical plants, another mainstay
business for TPS is pharmaceutical plants, in which it has a strong track record.

Meticulous transfer of technology from Toyo-Japan has underpinned
the evolution of TOYO’s EPC group companies

Khoo Kai Siang
General Manager ofGroup Operation Department,
Corporate Strategy Division

In 1963 TOYO was awarded its first overseas contract for a fertilizer plant in India,
merely two years after the Company was
founded. TOYO’s unwavering resolve to challenge the unknown laid the foundation for theCompany’s expansion. TOYO continued to
execute projects in various locations aroundthe world and in 1976 established Toyo-India,
its first overseas EPC subsidiary. Since then,the Company has set up business locations incountries where projects are ongoing and has
now grown into a global contractor with nine
EPC group companies in and outside of Japan.
In the early days of their establishment,
local operations were limited to basic functionof project base, but through the accumulationof project experience, the group companies
came to shoulder greater responsibilities as
subcontractor for Toyo-Japan. They now promote from sales activities to execution of
EPC individually. Group companies like ToyoIndia and IKPT have the capacity to fulfill projects worth tens of billions of yen on their own
and thus contribute significantly to boosting
the TOYO Group’s consolidated income.

The evolution of TOYO’s EPC group companies was underpinned by the meticulous
transfer of technology from Toyo-Japan.
Highly experienced Japanese engineers
were continuously dispatched as instructors
to overseas group companies, while local
engineers were assigned to Toyo-Japan toacquire technical skills. So that TOYO could
guarantee the same high-quality engineering services at any of its group companies,
we established an environment for seamlessbusiness execution to ensure the complete
penetration of TOYO standards (TOYO’s project execution criteria), share IT platforms,
and exchange human capital and information
throughout the TOYO Group.
In the midst of rapid and significant changes
in the business environment, TOYO is alsoendeavoring to “CHANGE” its group operations in response to its transformation.
Toyo-Japan will promote a shift to a system devoted to develop high-value-added
business and technologies, in addition to its
efforts to pass on the know-how of existing
EPC functions to group companies.
TOYO ENGINEERING CORPORATION

Integrated Report 201825

Expanding Our Businesses by
Enhancing High-tech Application Capabilities
and Accelerating External Collaboration
Continuing to meet the dynamic demands of times withpersistent efforts for technological innovation

Keisuke Ishii
Chief Technology Officer (CTO)

For many years TOYO worked closely withworld-class technology partners such as
ethylene licensor Lummus Technology andammonia licensor KBR to support economic development in the 20th century
by contributing to increased production ofplastic and fertilizer. Now in the 21st century, global environmental protection isvery much a serious issue for society. We
must realize that modern society is in needof solutions to such issues as the dumping of plastic waste that has arisen in linewith economic growth and the reduction ofgreenhouse gases pointed out in the Paris
Agreement. As CTO, I think it is my mission
to generate new business opportunities sothat TOYO, as an engineering contractor toconstruct industrial plant, can lend its support to solve these societal issues.
One example of our initiatives in thisarea is our IoT- and AI-driven plant operation
support service named “DX-PLANT™”.
This system facilitates highly efficient andenvironmentally friendly plant operations,as well as highly economical maintenanceplanning by combining real-time plant operating data with TOYO’s unique process
technology expertise. TOYO will further
enhance its accumulated expert knowledge and innovation in proprietary technologies to constantly meet the demands ofchanging times at high levels by leveraging
cutting-edge technology in related fields.

Integrating engineering know-how anddigital technology to create new service value
The dramatic advancement of digital technology is leading the way to whole newworlds in lifestyle and business. TOYOis harnessing its innovative technologies to further enhance its competitiveness from the two standpoints of “workrestructuring” and “delivering new value
to customers”.
Regarding work restructuring, we are
improving productivity by incorporating
digital technologies and restructuring ourwork, and aim to achieve a shift away fromlabor-intensive work to those that create
value under a knowledge-intensive model
which demonstrates TOYO’s true value as
an engineering company. In executing EPC
engineering work, we are boosting productivity from a total-optimization point of view

26

TOYO ENGINEERING CORPORATION

Integrated Report 2018by stepping up the integrated digitalization of business processes, already implemented for the engineering stage, into the
procurement, equipment & materials management, construction management, andproject management stages.
As for delivering new value to customers, we are extending the application of
our IoT systems “DX-PLANTTM/Fertilizer”
beyond fertilizer plants to petrochemicalplants and at the same time aim to generate services to utilize data.
TOYO is endeavoring to enhance its
competitiveness and create unprecedented service value by integrating digitaltechnology into the engineering know-how
it has polished thus far.

Masahiko Kita
Chief Digital Officer (CDO)Comprehensive Collaboration with
Nippon Steel & Sumikin Engineering
In December 2017, TOYO and Nippon Steel & Sumikin
Engineering Co., Ltd. (NSENGI) signed a comprehensive collaboration agreement with the aim of cooperating on developing their respective businesses. Both companies will promotecollaboration on a broad-range of businesses and projects
expected to enhance their respective corporate values throughmutual provision of business resources, including businesscollaboration in and outside of Japan, new business development, cooperation in areas of procurement, sharing of engineering know-how, and utilization of human capital.
The business resources of both companies can be mutually complemented because of the differences in businessdomains and fields of expertise. For example, NSENGI’s main
business fields are in steel plants, waste-to-energy plants,
energy solutions services, offshore oil and gas development,
building construction and steel structures, and pipelines. In

contrast, TOYO’s main business fields are petroleum and petrochemical plants, fertilizer plants, social infrastructure projects such as power plants, water facilities, and transportation
systems, as well as energy resource development consulting. Geographically, NSENGI has established a robust businessplatform centered on its domestic operations, while 70-80% of
TOYO’s business lies in overseas markets. Moreover, TOYO is
primarily engaged in EPC businesses but NSENGI, on the other
hand, has built an earnings based in non-EPC businesses, suchas O&M (operation and maintenance).
A steering committee headed by the presidents of bothcompanies has been set up to promote company-wide initiatives on specific collaborative projects. It was also decided at
the committee that the two companies would cooperate in thearea of IoT as well.

Six areas for greater collaboration

Domestic joint
operations

Overseas joint
operations

New businessdevelopment

Procurement
work

Reciprocal
disclosure andsharing ofengineeringknow-how

Human capitalutilization, training
and other areasof cooperation toenhance respective
corporate value

Promoting activities with the aim of enhancing corporate value at both companies
More than six months have already passed
since I came to TOYO from NSENGI toassume a role in promoting collaboration. I
have gained a fresh sense of the sophisticated process technologies and plant engineering know-how TOYO has accumulated
primarily at ethylene and fertilizer plants, its
EPC project execution capabilities acrossdifferent fields, countries, and regions, andits solid client base built up over many years.
I also feel that the promotion of global operations by TOYO group companies in Japanand overseas and the depth of global humancapitals that underpins these operations arewhat sustains the Company’s strength.
Given that NSENGI’s origins lie in the
manufacturing industry, it possesses astrong commitment to plant facilities andmanufacturing technology, evidenced by

its active development and improvementof products and technologies. In the O&M
business, it values on-the-ground work diligently and has steadily implemented various improvements. I think that these arejust some areas to be of reference to TOYO.
Under our comprehensive collaboration, we are working together in an effort toenhance the corporate value of each company by complementing each other’s business domains and resources. I hope that
“CHANGE” at TOYO can be facilitated by
the creation of new values owing to theintegration of both companies’ strengths,
such as the varied experiences and backgrounds of human capital, process and facility technologies, and the ability to execute
EPC projects and implement O&M.

Takashi Suzuki
Deputy Unit Director of Plant
Business UnitTOYO ENGINEERING CORPORATION

Integrated Report 201827

Promoting Change through Human Capital
Development, Leveraging Diversity
and Flexibility
No exaggeration to say diverse human capital andtechnology are our assets

Masayuki Yoshizawa
Representative Director,
Senior Executine Officer

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TOYO ENGINEERING CORPORATION

Integrated Report 2018

TOYO is currently undertaking 23 major
projects in eight countries. With nine EPC(Engineering, Procurement, and Construction)group companies across the globe, roughly
5,500 (consolidated basis) employees are engaged in the engineering businesses. About
1,700 are Japanese, which means that approximately 70% of the TOYO Group’s workforce comprises non-Japanese employees. I
think we can say that TOYO is a diverse global corporation given that most of the projects
it undertakes outside of Japan are done in collaboration with its overseas group companies.
The work done at plant construction sites
fosters the knowledge that becomes the
bedrock of our competitiveness as an engineering company. Through construction site
work experience, employees can appreciate
the quality of engineering, gain opportunities
to sharpen their project management skills,
and acquire project execution capabilities
as a result of collaboration within the TOYOGroup. The important thing for an engineering company undertaking increasingly complex large-scale plant construction projects is
to cultivate personnel with attractive personality capable of embodying leadership in order to drive projects forward. Our goal is tohave all employees in the TOYO Group possess the human qualities that form the coreof trusting relationships with our customers
and business partners.
It is no exaggeration to say that people andtechnology are our only inherent assets because TOYO is an engineering company without stores, factories, products, nor inventory.
For this very reason we see the development/
nurturing of human capital and intergenerational improvement of skills derived fromtechnological inheritance as our top priorities in order to achieve sustainable development and growth in our mainstay business ofplant engineering. In particular, we spare no
pains to ensure that senior members of theCompany are constantly aware of nurturing

mid-level and younger employees based on
the common understanding that 90% of the
responsibilities of a division head is to nurture their subordinates. I think it is the dutyof all executives and employees to pass on
TOYO’s spirit, technology, and methods tosubordinates and junior employees for the
benefit of the next generation.
As part of off-the-job training (Off-JT)
for employees, we have development programs of human capitals in place, including
the TOYO Academy and on-site trainings.
In addition, we have commenced exchangeof personnel with Nippon Steel & Sumikin
Engineering Co., Ltd. (NSENGI), with whom
we concluded a comprehensive collaboration agreement. Moreover, we send several
young employees to our major shareholders,
Mitsui Co., Ltd. and Taisei Corporation, so
they have the chance to enhance their experiences and knowledge of different businessenvironments and accumulate experiences
exposed to the creation of innovation.
That said, there are still many issues for us
to address if we are to become a truly global corporation. It was only this fiscal yearthat Toyo-Japan finally appointed its first female head of department. The appointmentof Ms. Dong Benli as President of Toyo-China
in April 2013 became pioneer in TOYO group,
however, we understand that we are still behind the times in terms of female promotion.
Through our approach to merit-based promotion irrespective of gender, we aim to actively
improve our working environment by streamlining various rules and regulations aimed andimplementing remote working by utilization of
ICT tools, among other initiatives, in order tomake TOYO a rewarding place to work.
We will continue to make constant improvements and changes with a view tomaking TOYO a company where all employees are proud to work. We hope to gain thetrust of our stakeholders and develop TOYO
into a much-loved company.

TOYO’s human capital development
To facilitate human capital development and cultivation collaborating within the TOYO Group, global HR meetings with attendance of HR division heads from each group company are held on a regular basis.
We continue to promote the development of human capital capable to work globally by deepening exchange of people acrossthe TOYO Group. We are also working on further expanding our common training program within the Group by utilizing ICT tools.

Pursuing the development of global human capital• Human capital that can demonstrate management skills and leadership and deliver results in a highly diverse (values, interests) work environment.
• Human capital that has the ability to put issues of sophisticated and complex work into specific action piece by piece and get things done.
Human capital system

Human capital development initiatives• Promoting various career paths• Promotion by selection of young and mid-level employees•D eveloping the next-generation with a combination of junior and senior employees• Change of generation in general managers’ position to invigorate organizations
and encourage agility• Promoting human capital diversity in accordance with one of the TOYO Values,“Diversity”• Promoting respect on work-life balance• Visualizing role models through the presentation of Global Awards• Further utilization of OJT opportunities, including trainings at construction
sites, group companies, and training outside the company• Job rotation and exchanges of people (including programs between overseas
group companies)• Implementation of TOYO Academy commonly within TOYO group.
• Definition of common qualification for qualities and abilities• Common Group seminars (TOYO Global Leaders Seminar)• Off-JT at group companies (language and presentation skills training, etc.)

Development and acquisition of fundamental skills• Technical skills (professional skills for work performance) • Human skills (interpersonal skills) • Conceptual skills (problem-solving skills)

Respecting diversity and creating a rewarding place to work
As an engineering company, TOYO’s only assets are its human capital.
We value diversity among our employees in accordance with one of the TOYO Values, “Diversity”. We are striving to create arewarding workplace environment that respects work-life balance and as a place our employees can be proud of in front of family members and friends.
(Persons)

FY2013

FY2014FY2015FY2016FY2017

1,037

1,084

1,092

1,035

1,030

No. of female employees*1

137

142

159

164

167

No. of female engineers

24

28

34

36

42

No. of female managers*2

9

11

14

14

17

No. of disabled persons hired*3

22

22

22

24

22

No. of persons re-employed

108

115

112

104

102

No. of foreign employees

33

48

54

54

56

No. of male employees taking childcare leave

0

0

0

0

1

(4) 100%(3) 100%(7) 100%(4) 100%(4) 100%

No. of employees*1(No. of female employees taking childcare leave) andpercentage of returnees*4
No. of persons taking paternity leave

11

25

28

18

14

No. of persons working shorter hours for childcare reasons*5

23

18

17

17

21

No. of persons working shorter hours for nursing care reasons

1

1

1

1

1

No. of persons taking family care leave*6

64

66

70

75

94

1

0

0

0

0

49.3%

51.4%

50.5%

55.1%

58.3%

No. of persons with overseas work experience*8

435

409

482

501

440

No. of persons working from home*9

—

—

—

—

71

No. of persons taking nursing care leave
Percentage of annual leave used*7*1 Excludes temporary employees.
*2 Equivalent to Team Manager or General Manager.
*3 Includes subsidiaries in Japan.
*4 Excludes employees currently taking childcare leave.
*5 Includes employees applying for the exemption fromovertime work.
*6 Scope of family in TOYO’s internal rules includes children, spouses, parents, parents-in-law, grandparents, siblings, and grandchildren.
*7 Excludes employees on long-term assignments overseas, employees on temporary assignment, mid-year
recruits, employees on long-term sick leave, andemployees on extended leave.
*8 The number of employees embarking on overseas
assignments in that year.
*9 Implemented on a trial basis since FY2017.
(non-consolidated data)

TOYO ENGINEERING CORPORATION

Integrated Report 201829

SPECIALFEATURE

2

CHANGE!

CHANGING TOYOWITH EMPLOYEE INITIATIVESIn order to effect change at TOYO, we are promoting bottom-up initiatives driven by individual employees.
In April 2017, a working group (WG) on changing mindsets, improving communication, and enhancing productivity was
set up by 26 willing employees to address four separate topics with the goal of changing corporate culture. The WG, whichmostly comprises young, mid-level employees of different ages and divisions, is demonstrating leadership by coming up
with initiatives to be implemented company-wide, focusing on the topics of changing mindsets, improving internal communication, and enhancing productivity. In April 2018 the TOYO Future Architect Department was established within the
Corporate Strategy Division, which made the WG into a formal organization of the Company. The WG is now focusing onseven topics and its 47 members also work concurrently in the TOYO Future Architect Department.
Here, each WG leader discusses the enthusiasm they have for changing TOYO, as well as their respective initiatives.

WG on reaffirming TOYO’s MVV

Hisashi Muramatsu, Energy Project Division

Our WG’s first issue was the question of whether rethinking of the Company’s corporate philosophy, known as the “MVV (Mission, Vision, Values)”, will really lead to change. We have held
workshops where participants could discuss the interpretations of the words in the MVV, which
was composed in English so it could be shared with overseas group companies, as well as talkabout work experiences that came to mind from the MVV. As a result of gradually expanding
these workshops to willing employees, whole departments and divisions, the entire Head Office,overseas group companies, and project sites, more than 2,500 employees took part last year.
While we received many responses from employees saying that the workshops made them realize the importance of sharing with their workmates the significance of working at TOYO, we also
discovered some areas for improvement how to penetrate employee’s mind with MVV. We are
yet to find a definitive answer to our initial query after one year and a half. Even still, we continue
to carry out our activities based on the belief that TOYO can change.

WG on TOYO’s brandIwao Shimizu, Infrastructure Project Division

As a result of delivering TOYO’s services to our stakeholders including clients, they hold a corporate image which they expect on us, and we define this corporate image of their expectations
as our brand. I think the very process of aligning this corporate image of TOYO with the type ofcompany TOYO strives to be is crucial to brand building. Our first initiative is to create a corporate
slogan, that symbolizes TOYO with only a few words, by employees themselves. We sought theopinions of clients and many other business partners, and held discussions with more than 100
employees, from new employees to the Executives. During the creation process we will combine the opinions of our employees into a single goal and we now look forward to the day we canunveil TOYO’s corporate slogan, which we think will truly represent their thoughts.

WG on reusing resources –Plug away from the small things–

Chika Suzuki, Project DivisionThis WG was formed by 12 members wanting to know how they could contribute to changing
TOYO’s corporate culture. We came up with the idea of making effective use of office supplies leftin drawers or around the office. Once we make an internal announcement, various supplies comepouring in, such as stationery no longer being used, or work clothes for construction site work.
We divide the work amongst us, clean up these items during our spare time, and place them ina designated reuse corner of the office. It has become common practice at TOYO for employees to check the reuse corner before buying something new. Although the cost reduction effects
are only minimal, I think our initiative made employees change the way they think about office
expenses. We too are proud that we are playing a role in changing the Company’s corporate culture. Our team hopes to continue plugging away from the small things.

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TOYO ENGINEERING CORPORATION

Integrated Report 2018

COMIT TOYO WG

Shoki Homma, Material and Analysis Technology Division

COMIT TOYO is a slogan of our commitment to TOYO’s work-style reforms through communication and
IT as well as the name of WG. By utilizing ICT tools we aim to enhance operational efficiency and realizesmoother communication. Utilizing the feature that this WG is made up of mostly younger employees,
we are learning about the business processes of each department and division, and at the same time,
replacing hidden inefficiencies with mainly IT tools. We have noticed that in many cases, operational efficiency can be dramatically improved with a little bit of ingenuity regardless of whether you are a newcomer or a veteran with lots of experience. That said, going beyond makeshift measures for improving
business, changing the Company’s system and mindset is also important, which I strongly believe willlead to IT-driven workstyle reforms in the true sense. In committing to this ambitious task, all membersof the WG will draw upon the support of employees to come up with reasonable solutions.

WG on video screenings for employees

Akinobu Hanihara, Construction Planning Department

This WG was launched to plan and operate in-house video screening in the hope of building a sense ofunity within the TOYO Group by bringing Head Office employees closer to what is happening at overseas group companies and to their fellow employees working hard at construction sites in and outside
Japan. Video content includes the progress of construction sites in various countries, seasonal greetingsfrom overseas group companies, and information about the activities and events within the Company.
The programs are shown on monitors in the staff canteen at lunchtime and in staff lounges. We hope,the benefits of lateral deployment of in-house examples of operational reform and the fostering of mutual
understanding owing to shared content with overseas group companies, will help further boost motivation of TOYO Group members.

WG on work innovation

Shigeya Kawada, Energy Project Division

From a viewpoint to identify and review in-house practices having some room for improvement, thisWG set to work on investigating and streamlining internal reports and enhancing the effectiveness of
employee performance appraisal. We surveyed and proceeded to streamline practices prevalent within
the Company that were hindering productivity, including the continued drafting of reports that follow thesame habitual, but inexplicable practices, and the excessive time taken to write reports, which was eating into time that should otherwise be prioritized for other tasks. Furthermore, the addition to the WG of
a member from the Human Capital Development Department led to improvements in the performanceappraisal process, which was consuming too much time on the part of both evaluators and the employees being evaluated. We hope to make changes at TOYO even if it is just one step at a time, by raisingawareness among all employees about what can be improved, highlighting the calls for change, and as
an organization, transforming words into action.

WG on collaboration with NSENGIOsamu Suematsu, Human Capital Development Department

Through comprehensive collaboration with Nippon Steel & Sumikin Engineering Co., Ltd. (NSENGI), theactivities of this WG are aimed at contributing to the enhancement of corporate value of both companies. Just after the announcement of the collaboration in December 2017, there were many young andmid-level employees at both companies with a keen interest in the collaboration, and I too held a strong
desire to contribute. The catalyst for our activities was highly-driven members of both companies coming
together and expressing a mutual interest. Armed with open-mindedness, the ability to act quickly, andabove all things, energetic voluntary initiative, our WG engages in discussion on a weekly basis. We aremaking every effort to ensure that the youthful resonance between both companies generates resultsfrom specific collaborative projects in the near future. While our activities are clearly distinct from thecollaboration discussions led by top management, we would intend to that the outcome of the comprehensive collaboration rests on the shoulders of our WG as we seek to deliver results from our cooperative activities.

MVV workshop

Reuse cornerWorkshop at overseas group company

TOYO ENGINEERING CORPORATION

Integrated Report 201831

Message from the Chairman

32

Corporate GovernanceInitiatives Implemented

Corporate GovernanceFuture Issues to Address

In complying with Japan’s Corporate Governance Codebrought by the Tokyo Stock Exchange, we have establishedinternal guidelines, and streamlined and operated the related
scheme and systems. I think we have made a certain degreeof progress in making the necessary improvements to our
corporate governance framework.
Looking at the things we have changed in terms of corporate governance since launching our Revival Plan, firstly, we
have increased Outside Directors , which have made discussions at Board of Directors meetings more activated. Only
one Outside Director on the Board in 2014, but now threeof eight Directors hail from outside the Company. Together
with the two Outside Auditors, these Independent Officers
possess knowledge derived from backgrounds different tothose of internal Directors and Audit & Supervisory Board
Members, and their diversified opinions & suggestions arereflected in the Board’s decision making.
Secondly, we have strengthened the decision-making process that leads to project orders. After reflecting decision process up to award about the unprofitable projects in the past,
we have revised the process to require the agreement by all
top four directors including the President and the CFO, when
final conditions of the contracts are offered to our customers.
We have also successfully bolstered our overall risk analysis
process about new orders and are proud to say that unprofitable projects can be prevented since our Revival Plan was
set in motion. Moreover, from fiscal 2018, for orders above acertain size, our risk management are reinforced by making
it a condition that the Board of Directors gives its approval ofstrategies and conditions at two stages during proposal activities to obtain new orders.

Given that our corporate governance framework is now
mostly settled, our first task as challenges for the future is tofurther improve its effectiveness. With respect to the Boardof Directors, I think it is significant that we further encourage fundamental debate in order to realize enhancement ofcorporate value over the medium- to long-term, and raise
our level of decision making. To this end, we will step up ourefforts on swiftly advancement of deliberations on important
issues in light of the results of the periodic assessment on theeffectiveness of the Board of Directors. On the premise of it,
we will also endeavor to enhance information and others to
Outside Directors and Outside Auditors.
Our second task is to continuously make sure of appropriate information disclosure and transparency. We will continue
to focus on appropriately disclosing not only financial information, but non-financial information such as management
issues, policies, risks, and countermeasures.
Thirdly, if we are to further consolidate our global network,
which is our greatest strength, we must always act with theintent of maintaining good governance as a corporate group. As
such, the Board of Directors will work together with operation
units and strive to gain an understanding of situations quickly
and accurately and make the necessary decisions on mattersconcerning the TOYO Group’s consolidated management.

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Masaaki Yamaguchi
Chairman

Corporate Governance
Basic Approach
TOYO’s corporate philosophy is to make contributions to ourstakeholders, including shareholders and customers, and also
to fulfill our corporate social responsibilities by conducting ourglobal engineering and construction business in fields such asenergy, oil refining, petrochemicals, general chemicals, social
infrastructure facilities, and various industrial facilities. We
have established and maintain a fair and open management
system to ensure transparent and sound management, we
disclose corporate information in an appropriate and timely
manner to ensure we are accountable to our stakeholders,
and we make sure to prevent unfair transactions, such as
insider trading. Management decision making also takes intofull consideration the interests of general shareholders. We
strive to establish and properly maintain an internal control
system—including compliance and risk management, thefoundations of corporate governance—in an effort to increase
the effectiveness of our management monitoring and supervisory functions. Our basic framework and approach to corporate governance, including our response to Japan’s Corporate
Governance Code, are described in detail in our Corporate
Governance Guidelines available on our website.
TOYO Corporate GovernanceCorporate Governance Structure (as of July 1, 2018)
Form of organization

Company with Audit & Supervisory Board

Adoption of executive officer system

Yes

Number of Directors
Of which, Outside Directors(Independent Officers)

8

Term of Directors

1 yearNumber of Audit &Supervisory Board Members
Of which, Outside Audit & Supervisory
Board Members (Independent Officers)

4
2 (2)

Number of Board of
Directors meetings (FY2017)19
Average attendance ratio of
Outside Directors
94.7%
Average attendance ratio of Outside Audit
97.3%& Supervisory Board Members
Number of Audit &19
Supervisory Board meetings (FY2017)
Average attendance ratio of Outside Audit& Supervisory Board Members
100%
Voluntary committeeof the Board of Directors

Nomination andRemuneration Advisory Committee

Remuneration for Directors and Audit &Supervisory Board Members

Directors (excl. Outside Directors): fixed
remuneration and performance-linked
remuneration
Outside Directors and Audit &Supervisory Board Members: fixedamountAudit firm

Ernst & Young ShinNihon

Search

https://www.toyo-eng.com/jp/en/company/policy/governance/

3 (3)Past Initiatives to Strengthen Corporate GovernanceYear 2017
Year 2015
Year 2014
Year 2008
Year 2006
Year 2003
Adoption of
executive officer
systemEstablishment ofCode of Conduct andcompliance program

Establishmentof Compliance
Committee

Appointment of one
Outside Director

Establishment ofNomination andRemuneration Advisory
Committee

Appointment ofChief Compliance
Officer
Appointment of
three Outside
Directors (increased
from one to three)

TOYO ENGINEERING CORPORATION

Integrated Report 201833

Corporate GovernanceCorporate Governance System
TOYO recognizes the importance of gaining the trust of its
stakeholders, including shareholders and customers, andensuring transparency and fairness in management decision
making as we fulfill our corporate social responsibilities. To
this end, we have established and endeavor to properly maintain the following corporate governance system.
The Board of Directors comprises eight Directors, including three Outside Directors, who deliberate and determine
all important matters related to management and executionof operation, and also monitor and supervise one anotherwith respect to the execution of duties. We also employ an
executive officer system for the purpose of guaranteeing aswift and efficient business execution system. Executive
Officers are appointed by the Board of Directors and, under
the CEO’s directions, execute the duties they have been delegated. The Executive Committee serves as an advisory bodyto the President & CEO and consists of Executive Officers
with specific roles (Senior Executive Officers or above) andthe heads of key divisions. The Executive Committee reports
on and deliberates important matters related to the execution of operation. The Nomination and Remuneration Advisory
Committee also serves as an advisory body to the President& CEO—its members comprising the President & CEO andOutside Officers. The Committee serves to ensure fair andtransparent officer appointments and remuneration by providing opinions to the President & CEO.
The Audit & Supervisory Board consists of four members,
two of which are Outside Auditors. They report and deliberate on the execution of duties by Directors, the establishment
and implementation of internal controls, internal audit guidelines for quarterly and year-end results, and the details andresults of audits.

Shareholders Meeting
Appointment/Removal

Appointment/Removal
Audit

Board of Directors

Audit & Supervisory Board (Members)

Appointment/Removal
LiaisonAccounting Auditor

Audit

LiaisonAppointment/Removal
President and CEO

Nomination andRemuneration Advisory Committee

J-SOX Committee

Executive Committee

ReportCompliance Committee
Crisis (Disaster) Headquarters
Crisis Management TeamInternal Auditing Division

Project Risk Management Committee

Audit
Group Management Division
Supervise

Operation UnitsGroup Companies

Evaluation of Effectiveness of the Board of Directors
An evaluation of the Board of Directors by each Director isconducted every year in order to ensure the effectivenessand appropriateness of decision making and supervision by
the Board of Directors and in an effort to improve such functions. Discussions are made on the understandings of current
status and the areas that require improvement in relation to
the effectiveness of the Board of Directors overall.
For fiscal 2017, an anonymous questionnaire was completed in December 2017 by all Directors and Audit &Supervisory Board Members that comprise the Board of
Directors. The results of the questionnaire were then reported
to the Board of Directors by the Director in charge of theevaluation of effectiveness of the Board of Directors and in
January 2018 the details were analyzed, discussed, and evaluated at the regular Board of Directors meeting.
The responses from the questionnaire regarding the size,
composition, and administration of the Board of Directors

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TOYO ENGINEERING CORPORATION

Integrated Report 2018

were mostly positive, as was the case last year, which confirmed that the Board’s decision making and supervisory functions with respect to the execution of operation are working
appropriately. These results provided reasonable assurance ofthe effectiveness of the Board of Directors overall.
Meanwhile, regarding the suggestion put forward in lastyear’s evaluation that the Board’s composition and methodsof deliberation need to be examined in light of the Board’srole, the Directors voiced the opinion that there remains room
for improvement from the perspective of strengthening theBoard’s supervisory function and shared an awareness thatthey must work on further improving the Board’s functions
and invigorating discussions.
Based on the results of this effectiveness evaluation,
TOYO’s Board of Directors will continue to work on enhancing
its functions by properly examining the issues and addressing
them swiftly.

Outside Directors and Outside Audit & Supervisory Board Members (Outside Auditors)
TOYO appoints Outside Officers with no conflicts of interest
with general shareholders pursuant to the independence criteria prescribed by the Tokyo Stock Exchange.
In addition to the requirement that Outside Directors must
be independent of the TOYO Group’s management, we
appoint candidates that possess considerable knowledge andample experience in areas such as corporate management,risk management, legal compliance, and global management
practices, and who can express objective and practical opinions and give advice from the standpoint of various stakeholders in view of TOYO’s overall management. We also appoint

Outside Audit & Supervisory Board Members that possess
considerable knowledge and ample experience in various disciplines and who can suitably undertake audits with respect
to the appropriateness of the execution of duties and operation by Directors in view of TOYO’s overall management.
We believe obtaining opinions of highly independent
Outside Officers fulfills management’s accountability andensures management transparency. We also think the current system and its implementation is allowing our corporate
governance to function effectively, considering the nature andstructure of our business.
Attendance (FY2017)
Audit &
Board ofSupervisory
Directors
Board

Name

Reasons for Appointment

Hirokazu Hayashi(Outside Director)

Having worked in Japan’s Ministry of Economy, Trade and Industry, Hirokazu Hayashi possesses ample
experience and knowledge of public administration mainly in the areas of trade promotion and policy.
In addition, he possesses outstanding experience and knowledge concerning corporate executive. He
has expressed fair and accurate suggestions and opinions about various managerial issues from an
independent standpoint and has appropriately supervised TOYO’s management. He has been electedbased on the expectation he will continue to appropriately perform his duties as an Outside Director.

17/19(89.5%)—

Masami Tashiro(Outside Director)

Masami Tashiro has extensive international experience working at financial institutions and possesses
ample experience and knowledge as a corporate executive. He has expressed accurate suggestions
and opinions based on a global perspective about the Company’s overall management from an independent standpoint and has appropriately supervised TOYO’s management. He has been electedbased on the expectation he will continue to appropriately perform his duties as an Outside Director.

18/19(94.7%)—

Yusuke Yamada(Outside Director)

Yusuke Yamada has knowledge and experience of securities, financial, and capital markets and possesses ample experience and knowledge as a corporate executive. He has expressed accurate comments and opinions about the Company’s overall management from an independent standpoint andhas appropriately supervised TOYO’s management. He has been elected based on the expectation hewill continue to appropriately perform his duties as an Outside Director.

19/19(100%)—

Yoshiyuki Funakoshi(Outside Audit &Supervisory Board
Member)Having spent many years in corporate management in the chemicals industry, which is closely related toour business, Yoshiyuki Funakoshi has wide-ranging experience and high-level insight concerning management. He has been elected as an Outside Audit & Supervisory Board Member based on the expectation he will leverage his experience to appropriately engage in auditing from an independent standpoint.

19/19(100%)

19/19(100%)

Kiyohito Uchida(Outside Audit &Supervisory Board
Member)Kiyohito Uchida has been elected as an Outside Audit & Supervisory Board Member on the expectation he will engage in fair monitoring and oversight of TOYO’s management from an independent
standpoint based on his knowledge and experience gained as a lawyer. Despite not possessing any
direct experience in corporate management, owing to the aforementioned reasons, we believe he canappropriately execute his duties as an Outside Audit & Supervisory Board Member.

18/19(94.7%)

19/19(100%)

Policies on Remuneration Amounts and Determining Calculation Methods
for Directors and Audit & Supervisory Board Members
Remuneration for TOYO’s Directors (excluding Outside
Directors) comprises a fixed portion—determined in according to each Director’s position—and a performance-linked portion. The performance-linked remuneration is calculated on
the basis of current net profit attributable to owners of theparent and determined by the President & CEO according to
the level of contribution of each Director.
Furthermore, in order to set appropriate remuneration levels for Directors and Audit & Supervisory Board Members andstrengthen accountability, the ratios for both fixed and performance-linked remunerations, as well as the calculation formula for performance-linked remuneration shall be decided
by the Board of Directors based on the results of discussions
between the President & CEO and Outside Officers.
Remuneration for Outside Directors and Audit & Supervisory
Board Members is fixed and not linked to business performance in light of their roles and independence.

Total Remuneration by Type (¥ million)
Number of
Eligible Officers

Total
Remuneration(¥ million)

Base
Remuneration

Stock Options

Bonus

Retirement
BenefitDirectors (excluding Outside Directors)

163

163

—

—

—

8

Audit & Supervisory Board Members(excluding Outside Audit & Supervisory
Board Members)

39

39

—

—

—

2

Outside Officers

30

30

—

—

—

5

Officer Classification

TOYO ENGINEERING CORPORATION

Integrated Report 201835

Risk Management Initiatives and Business Risks
Corporate Ethics, Compliance, and Risk Management
TOYO has established a Code of Conduct, compliance manuals, and other related rules in order to abide by laws andregulations at the root of our corporate activities, as well associal justice and ethics. We also have in place a Compliance
Committee chaired by the Chief Compliance Officer (CCO)
and in April 2018 we newly created a Compliance Department.
We boost awareness about compliance with certain promotion activities and strengthen the management and oversightof our compliance system through regular compliance-related

Compliance e-Learning
participants in FY2017(for new recruits and employees
yet to complete the program)

audits performed by the internal auditing division and Audit &Supervisory Board Members. We are also working to enhanceand expand our program for preventing the bribery of foreign
public officials.
To facilitate the proper and serious handling of reporting on
compliance matters, we have established an internal reporting system, as well as both internal and external hotlines for
consultation and reporting.

Mini compliance test total
participants in FY2017

51

640

Internal reporting/consultations in FY2017

Serious information security
incidents in FY20178(legal violations/corruption 0,
power harassment 5, sexual harassment 0,
labor/employment/moral-related 3)0

Auditing by Internal Auditing Division and Audit & Supervisory Board Members
TOYO has established an Internal Auditing Division (consistingof five members) that is directly controlled by the President.
Internal Auditing Division assesses the legality and rationality of Company operations, and provides advice and counsel
regarding the operational effectiveness and efficiency of theCompany. Additionally, it independently assesses the maintenance and operation of internal controls related to financial
reports, and reports these results to the J-SOX Committee,
the organization immediately under the President.
Audit & Supervisory Board Members audit Directors’ execution of duties through attending important meetings, including those of the Board of Directors, interviewing Directors,

36

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Executive Officers, and employees on the status of operations and the execution of duties, and investigating the progress of the Company’s operations and finances.
The Audit & Supervisory Board, Accounting Auditors, andthe Internal Auditing Division conduct their auditing in cooperation, while giving full consideration to the independenceof one another. Auditing is implemented through close communication such as explaining the observations related to theCompany’s operations, and exchanging opinions on various
topics including their respective yearly auditing plans and critical audit items, auditing methods, inspection and quality control systems, and audit results.

Internal Controls
Based on the recognition that internal controls serve as thefoundation of corporate governance, the Directors establish,
maintain, and evaluate an appropriate internal control system.
They conduct ongoing inspections and make improvements tothe system and periodically review their basic policy for internal controls. Given that internal controls ensure the reliabilityof compliance, risk management, and financial reports, we
also pay sufficient attention to the effectiveness and efficiency
of operations. The establishment of this system enables theBoard of Directors to make decisions based on appropriate
information and subsequently, the execution of business.

Engineering Business Risks
In the execution of our business operations, we engage insales activities for the purpose of ensuring an appropriate
amount of work, and as part of our corporate governance, wehave created and maintain various risk management systems
to prevent project losses, from the proposal stage throughto project completion. However, there exists the possibility
that the risks listed to the right may occur and have a negative impact on the results and financial condition of the Group
stemming from large decreases in order volume, postponement or cancellation of projects, or significant decline in project profitability.
To address these risks, the TOYO Group examines possible countermeasures by carefully gathering information
beforehand and endeavoring to fully understand situations.
We strive to mitigate these risks through possible measures
such as taking out trade insurance, utilizing forward exchange
contracts, setting contract conditions with customers (including diversification of contract types, setting contracted prices
and payment conditions, and risk contribution clauses withcustomers), and utilizing an even spread of equipment/material suppliers and construction contractors.

1. Emergency situations such as war, civil commotion, riots,
terrorism, significant security concerns, and force majeure
events such as the spread of infectious disease, extraordinary natural phenomena, unusual weather or other actsof nature, in the country or region where a project is carried out.
2. Notable changes in a country’s commerce, trade, or financial policies, such as license approvals, customs clearance,
immigration controls, foreign exchange systems, communications, taxes and others.
3. Significant fluctuations in foreign exchange rates.
4. Considerably sharp increases in prices of equipment andmaterials, transportation, construction and others, leading
to tightened supply and demand.
5. Concerns over credit risk of main project suppliers or contracted partners.
6. Significant contraction on a global scale in capital investment in the TOYO Group’s business fields, or a sharp
decrease in opportunities to obtain new orders due tointensified competition.

Compliance Risks
TOYO’s business must abide by a wide range of laws andregulations, including domestic and international labor laws,
personal information protection systems, tax laws, importand export controls, and unfair competition prevention laws.
There is a possibility that changes to these laws or unforeseeable interpretations thereof will place a greater burden on ourcompliance measures. The TOYO Group is working diligently
to bolster its compliance system by making sure employees
have a thorough understanding of our Code of Conduct andcompliance manuals, developing and maintaining a single
internal reporting system for the TOYO Group, and having theCompliance Committee chaired by the CCO take the initiative
to implement compliance awareness activities. Any violation,or potential violation, of the law will likely place greater burdens on the TOYO Group, cause a cessation in sales activities
and damage the Group’s credibility, and negatively impact theGroup’s earnings.

Investment Risks
We strive to mitigate the aforementioned risks with respect
to the business operations of the group companies we invest
in by establishing a collaborative system whereby our groupmanagement division accurately understands and manages
the situations of each group company. For business operations conducted through our Brazilian equity method affiliate,situations in which we are unable to guarantee corresponding
returns on investment, or where additional funding is needed
due to changes in the political and economic climate of Brazil
or credit problems with our business partners may negatively
impact the earnings of the TOYO Group.

TOYO ENGINEERING CORPORATION

Integrated Report 201837

Directors, Audit &Supervisory Board
Members, andExecutive Officers

Front (L–R)
Tomohisa Abe, Masaaki Yamaguchi,
Haruo Nagamatsu, Masayuki Yoshizawa,
Kensuke Waki
Back (L–R)
Yusuke Yamada, Masami Tashiro,
Hirokazu Hayashi, Masayuki Uchida,
Hiroshi Inoue, Yoshiyuki Funakoshi,
Kiyohito UchidaDirectors

38

Chairman

Representative Director,
President & Chief Executive Officer

Masaaki Yamaguchi

Haruo Nagamatsu

1977 Joined the Company
2009 Deputy General Manager, Finance & Accounting Unit2010	Executive Officer; General Manager, Finance &Accounting Unit2013	Director; Senior Executive Officer; Chief Financial
Officer;
General Manager, Finance & Accounting Unit2014	Division Director of General Affairs & Human
Capital Development Unit and Finance &Accounting Unit
2015	Division Director of Finance & Accounting Unit
and Project Management & Control Unit2016	Division Director of Auditing Division, Safety,
Quality & Environment Management Unit,
Finance & Accounting Unit and Procurement Division2017 Chairman (current)

1981 Joined the Company
2000	Managing Director, Toyo Engineering &Construction Sdn.Bhd.
2013	Executive Officer; Deputy Unit Director,
Infrastructure Business Unit; General Manager,
Infrastructure Project Division2016	Senior Executive Officer; Unit Director,
Infrastructure Business Unit2017 Director
2018	Representative Director; President & Chief
Executive Officer(current)

Representative Director,
Senior Executive Officer

Director, Senior Executive Officer

Director, Senior Executive Officer

Masayuki Yoshizawa

Tomohisa Abe

Kensuke Waki

1982 Joined MITSUI & CO., LTD.
President & CEO, Mitsui Gas e Energia do Brasil Ltda.
2006	
2011	Executive Officer; Deputy General Manager,
Corporate Planning Unit of the Company
2014	Senior Deputy General Manager, Osaka Office
MITSUI & CO., LTD.
2015	Director; Senior Executive Officer(current);
Division Director of Corporate Strategy Unit andCorporate Administration Unit of the Company
2016	Representative Director (current); Chief
Compliance Officer; Division Director of IT
Management & Control Division, Corporate
Strategy Unit and Corporate Administration Unit2017	Division Director of Corporate Strategy Unit andCorporate Administration Unit2018	Division Director of Corporate Strategy Division
and Business Development Division (current)

1979 Joined the Company
2009	Group Manager, Asian & Pacific Marketing
Department, Marketing Division 12012	Executive Officer; General Manager, Plant Sales& Marketing Division, International Sales &Marketing Unit
2015	Senior Executive Officer (current); Unit Director,
Plant Sales & Marketing Unit2016	Director (current); Unit Director, Plant Sales &Marketing Unit2017 Unit Director, Plant Business Unit 2
2018	Unit Director, Plant Business Unit (current);
Division Director of Project Control & Sales
Coordination Division, Construction Division,
Procurement Division, Business Development
Strategy of TOYO Group (current)

1983 Joined the Company
2007	General Manager, Accounting Division, Finance& Accounting Unit2014 General Manager, Finance & Accounting Unit2016 Executive Officer
2017 Chief Financial Officer (current)
2018	Director (current); Senior Executive Officer(current); Division Director of Finance &Accounting Division (current)

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Outside Director

Outside Director

Outside Director

Hirokazu Hayashi

Masami Tashiro

Yusuke Yamada

1971 Entered the Ministry of International Trade and Industry
1996 Executive Secretary to the Prime Minister2001	Director-General, Trade and Economic
Cooperation Bureau, Ministry of Economy, Tradeand Industry (METI)
2002	Director-General, Commerce and Information
Policy Bureau, METI
2003	Director-General, Trade Policy Bureau, METI
(Retired from office in September 2005)
Senior Executive Officer and Chief Executive of Regional
2008	
Development Marketing Div., TOKYO GAS Co., Ltd.
2010 Executive Vice President, TOKYO GAS Co., Ltd.
2013	Outside Corporate Auditor, Kamigumi Co., Ltd.;	President, The Distribution Systems ResearchInstitute (current)
2016 Outside Director of the Company (current)

1976 Joined Mitsui Bank, Ltd.
2001	General Manager, International Credit Dept.,
Sumitomo Mitsui Banking Corporation
2002	General Manager, Singapore Branch, Sumitomo
Mitsui Banking Corporation
2003	Executive Officer; General Manager, Singapore
Branch, Sumitomo Mitsui Banking Corporation
2006	Member of the Board, Taiyo Oil Company, Limited2010	Vice President, SMBC International BusinessCo., Ltd.
2012	President and Representative Director, SMBCInternational Business Co., Ltd.
2013 Outside Auditor, ACKG Limited
2015 Outside Director of the Company (current)
2016 Outside Director, ACKG Limited (current)

1977 Joined Nomura Securities Co., Ltd.
1999 Director, Nomura Securities Co., Ltd.
2003	Managing Director, Senior Executive Managing
Director, Nomura Securities Co., Ltd.; Executive
Managing Director, Nomura Holdings, Inc.
2009	Managing Director, Managing Executive Officer,
JAFCO Co., Ltd.
2013 Executive Managing Director, JAFCO Co., Ltd.
2014 Full-time Corporate Auditor, UUUM Inc.
2015	Outside Director of the Company (current);	Outside Director (Audit and Supervisory
Committee Member), UUUM Inc. (current)

Audit & Supervisory
Board Members
Senior Audit &Supervisory Board
MemberExecutive Officers
President & Chief Executive Officer

Haruo Nagamatsu

Masayuki Uchida

Senior Executive Officer

Audit & Supervisory
Board Member

Division Director of Corporate Strategy Division
and Business Development Division

Hiroshi Inoue
Outside Audit &Supervisory Board
MemberYoshiyuki Funakoshi
Outside Audit &Supervisory Board
MemberKiyohito Uchida

Masayuki Yoshizawa

Senior Executive Officer

Tomohisa Abe

Unit Director, Plant Business Unit; Division
Director of Project Control & Sales
Coordination Division, Construction Division,
Procurement Division, Business Development
Strategy of TOYO Group

Senior Executive Officer

Kensuke Waki

Chief Financial Officer, Division Director of
Finance & Accounting Division

Senior Executive Officer

Executive Officer

Executive Officer

Unit Director of Energy Business Unit

President, Toyo do Brasil
Consultoria e Construcoes
Industriais Ltda.;
President & CEO, TS Participacoes
e Investimentos S.A

Project Manager,
RAPID Project

Hiroshi Sato

Senior Executive Officer

Teruhiko Inoue

Chief Compliance Officer;
Division Director of Auditing Department,
Safety, Quality and Environment Management
Division, Security Management Department,
and Corporate Administration Division

Koji Kojima

Takashi Iguchi

Executive Officer

Itsuya Yanagi

Senior Executive Officer

Chairman & Managing Director,
Toyo Engineering India Private
LimitedPresident, Toyo Engineering Korea Ltd.

Executive Officer

Senior Executive Officer

Chief Technology Officer

Toru Osanai

Shinichi Okazaki

Deputy Unit Director of
Infrastructure Business Unit
General Manager of Infrastructure
Sales and Marketing Division

Executive Officer

Casey Matsumuro

Executive Officer

Eiichiro Fukuhara

Executive Officer

Senior Executive Officer

Unit Director of Engineering andTechnology Unit

Deputy Unit Director of Plant Business Unit
General Manager of Project Division

Keiji Morino

Deputy Unit Director of Plant
Business Unit

Keisuke Ishii

Unit Director of Infrastructure Business Unit

Eiji Hosoi

Executive Officer

Hiroshi Fujita

Project Manager,
SECP Project

TOYO ENGINEERING CORPORATION

Integrated Report 201839

Safety, Quality, Environment
Safety, Quality, and Environment (SQE) Management Structure
TOYO has established an SQE Committee that reports directly
to the President. The Committee formulates operating policies
regarding safety, quality, and the environment, and assesses andapproves the results of SQE activities. Based on the basic policies of the SQE Committee, the SQE Promotion Committee,
which is subordinate organization of SQE Committee, provides support to the SQE activities of divisions, departments,and sections, as well as individual projects. Accordingly, with
SQE
Management
Structure

Safety, Quality andEnvironmental Management Division• HSE Management Department• Quality Management Department

the management-linked SQE Committee at the center of the
SQE management structure, collaboration between the SQE
Promotion Committee and the Safety, Quality and Environment
Management Division ensures that a PDCA cycle for SQE ineach division or individual project is implemented and that ongoing improvements are carried out.
All employees also take SQE training course to enhance theirknowledge and awareness of these matters.
Direction

President

Reporting of operational issues
and improvement results

SQE Promotion Committee

SQE Committee

SQE monitoring and auditing

Divisions and departments(Engineering, Procurement, Construction,and Head Office management)

Individual projects

Safety“Safety is fundamentals to our corporate activities”.
Based on this belief and to address three challenges listed in theright that are indispensable to safety management, we diligently
implement a number of safety initiatives in order to achieve zerocasualties on our work execution.

• Strengthening of safety management leadership• Fostering a safety culture• Maintaining and complying with safety standards

Safety Record
The TOYO Group’s safety record over the last 10 years is asfollows. In aiming to achieve zero occupational injury, we continue to step up our efforts on improving safety. We havetherefore adopted the management indicators of lost-time

incident rate (LTIR) and total recordable incident rate (TRIR).
For nine consecutive years since 2009 we have achieved our
KPI of 0.10 or lower for LTIR.

Safety Record (TOYO Group total)(ILO basis: Incidence rate per million hours worked)
Number of incidents

Year(Jan-Dec)40

Man-hours(A)

Fatalities

Lost-time
incidents(LTI)

Total fatalities andMedical treatment
lost-time incidents(no lost time)(B)

Recordable(C)

LTIR*1

TRIR*22.10

2008

130,287,133

5

21

247

26

273

0.20

2009

164,344,003

4

9

156

13

169

0.08

1.03

2010

117,295,032

1

5

56

6

62

0.05

0.53

2011

80,782,919

1

6

12

7

19

0.09

0.24

2012

120,760,052

3

8

16

11

27

0.09

0.22

2013

105,164,018

0

7

16

7

23

0.07

0.22

2014

89,777,237

1

6

13

7

20

0.08

0.22

2015

67,308,769

1

4

9

5

14

0.07

0.21

2016

52,540,748

0

3

23

3

26

0.06

0.49

2017

76,493,784

2

2

31

4

35

0.05

0.46

TOYO ENGINEERING CORPORATION

Integrated Report 2018

*1 Lost-time incident rate (LTIR) = (B) x 1,000,000 / (A)*2 Total recordable incident rate (TRIR) = (C) x 1,000,000 / (A)(B) = fatalities + lost-time incidents(C) = (B) + medical treatment (no lost time)Site Inspections by Managers
Safety management is not viable without strong
leadership. At TOYO’s construction sites, we
rigidly enforce site inspections by managers.

Site inspections (Japan)

Site inspections (Thailand)

Near Misses
Flying or
falling objects
34.6％

Other
19.9％

Being wedged
or entangled
5.8％

Other
41.3％

Neglecting rules
14.0％

Anticipated
accidents

CausesBurns
7.1％
Stumbling or falling over
14.9％

Crash
17.7％

Skip
safety checks
9.3％

Inadequate
management
12.4％

Lack ofarrangement
11.9％
Lack of preparation
11.1％

A “near-miss” is an incident which was prevented just before the occurrence of human or
physical damage.
TOYO is proactively collecting the nearmiss data at sites, analyzing it, and utilizing the results in our safety management toprevent accidents. Data on 14,228 near-missoccurrences were collected from 2008 to
December 2017 and analyzed. Major findings
are as presented:

Safety Campaign
A safety campaign is carried out every year in July at all TOYO group companies for the purpose of raising safety awareness among all employees working
at construction sites and offices.
2018 Campaign Program:

Safety belt and harness hanging experience

1. President’s message
2. Drills of safety status confirmation by
Internet for the time of disaster
3. Voluntary drill by in-house fire-fighting crew
4. Lecture on amendments to the Japanese
law relating the safety harness, and safety
belt/harness hanging experiences

5. Seminar on cancer control for working
generation
6. Safety notices from Security Management
Department
7. Introduction of campaigns at group companies
8. Display of posters, banners, and panels
9. Safety awards

TOYO Group Safety Meeting
Safety managers from overseas groupcompanies meet to build a consensus
and promote safety improvements
through active communication.

The following TOYO group companies participated in the 2017 meeting, hosted by Toyo-China:• Toyo-Japan• Toyo-India• IKPT• Toyo-Korea• Toyo-Malaysia• Toyo-China

TOYO ENGINEERING CORPORATION

Integrated Report 201841

Safety, Quality, Environment

Quality
Toward zero quality-related losses
In line with our “Basic Policies on HSSE,
Quality and Information Security”, TOYO has
thus far delivered high quality products andservices that meet the requirements of ourcustomers and society by establishing a quality management system for all group companies and implementing the PDCA cycle.
Based on the belief that we will nevercompromise on quality in our end products,
additional costs sometimes arise in connection with quality assurance. These additionalcosts have tended to be rather high in recent
years as projects have become much larger
and more complex. Accordingly, we worked
to reinforce our quality management system
last fiscal year, by engaging in thorough discussions and drafting a total of 35 action items
relating to organizational issues of businessexecution, human capital issues, strengthening feedback activities, and individual issues
within the organizations. As an example, ourengineering divisions are strengthening theirpolicies on new technologies, while the procurement divisions revised their supplier evaluation systems. Moreover, the construction
divisions are identifying areas at construction
sites that require quality improvement andthe Head Office is periodically checking thestatus of operations at individual sites.
These actions will be implemented this fiscal year with the aim of yielding results. The
Safety, Quality and Environment Management
Division is taking overall responsibility for thisinitiative by setting the goal of zero quality-related losses for the Company as a whole,monitoring the steady implementation ofaction items by each division, and assessing
the state of quality-related losses during thequarterly management review of project execution divisions.
Circumstances surrounding the plantbusiness are changing daily. The digitalization of operations is also continuing to further advance. In this environment, the action
items we have implemented so far will not beenough to solve all our issues. We constantly
front up to new challenges and are required todeal with them appropriately and swiftly. Up
ahead, not only would I like to see all employees always cognizant of the PDCA cycle forall operations, but I hope to implement training courses and a system to equip workers
with the ability to keenly sense changes in theenvironment and minimize risks.

Toshihiko Nemura
General Manager of Safety, Quality
and Environment Management
Division

Feedback Knowledge Management System (FKMS)
As one initiative to constantly improve our quality management system, TOYO utilizes the FKMS to build a database of feedback
from projects implemented for more than 30 years. The FKMS is operated and utilized by all TOYO group companies as a reference for project execution and helps prevent the reoccurrence of similar troubles.

ISO Certification
Based on international-standard ISO certifications, TOYO endeavors to further
strengthen its safety, quality, environmental, and information security management.

*Assessed and issued by a third-party certification bodyattesting that the activities of the TOYO Group are carried out in accordance with a standardized quality management system and meet the international standard.
ISO9001: 2015 Certificate
Multi-sites certification* that includes
major overseas group companies

42

TOYO ENGINEERING CORPORATION

Integrated Report 2018

ISO14001: 2015 Certificate

ISO27001: 2013 Certificate

Safety, Quality, Environment

Environment
Basic philosophy regarding the environment
TOYO has established the following
basic philosophy with respect to theenvironment and actively addresses
environmental protection issues together with customers to achieve its
stated goals.

(1) TOYO’s corporate activities in the engineering business are deeply connected to not only regional communities, but the global environment atlarge, and therefore must contribute to sustainable development capable ofboth environmental protection and the development of mankind.
(2) TOYO shall strive to actively protect the environment by providing engineering services in harmony with the global environment as a global company.

Reducing adverse environmental impact at construction sites
We make extra sure that pollutants never leave our domestic and overseas construction sites and since acquiring
ISO14001 in 2004 we have constantly achieved our goal ofzero environmental disasters. In addition, our construction

sites periodically send reports on industrial waste volume to
the Head Office and monitor trends in how much is being produced, including the status of waste segregation and the volume of hazardous material.

Reducing environmental impact at Head Office
Under TOYO’s internal environmental management framework, we have established an energy & resource saving
council and a so-called green meeting headed by supervising officers. In these meetings we advance the discussion
regarding the environmental matters at the Head Office, confirm industrial waste volumes, check trends in recycling rates,
monitor whether any leakage accidents have occurred, andexamine causes and countermeasures changes in energy
consumption. We are committed to carefully saving energy
and resources on a daily basis through the efforts such as
replacing with LED lighting, encouraging a paperless office,turning off lights at lunchtime, opening/closing window blinds,
and remembering to shut down computers.

Environmental data
Unit

FY2013

FY2014FY2015FY2016FY2017

%

95

99

96

96

96

Cases

0

0

0

0

0

crude oilequivalent
(kl)

1,413

1,373

1,384

1,381

1,305

%

100

100

100

100

100

Amount of electricity used (Head Office)

MWh

4,648

4,533

4,562

4,445

4,264

Volume of water used (Head Office)1,000m3

33.2

36.2

37.5

34.8

30.2

Volume of disposed waste (Head Office)1,000kg

160

138

166

148

141

%

71.2

65.7

68.8

63.7

63.9

Ratio of industrial waste recycled(domestic construction sites)
No. of toxic material leaks (domestic/overseas sites)

Amount of energy consumed (Head Office)Ratio of copier paper compliant with Japan’s so-called
Act on Promoting Green Procurement (Head Office)Waste recycling rate (Head Office)TOYO ENGINEERING CORPORATION

Integrated Report 201843

Safety, Quality, Environment

Environment®

Collects Multiple Awards
Owing to the fact that the distillation process utilized widely in industrial fields consumes a considerable amount of heat energy, a number ofdifferent energy-saving technologies have been
proposed thus far. With the cooperation of the
National Institute of Advanced Industrial Scienceand Technology, TOYO developed an advanced
heat integrated distillation column (HIDiC) called®
, which functions as an energy-saving distillation system. Needless to say, the big®
gest selling point ofis its ability togreatly reduce energy consumption. The system reduces the amount of heat energy consumed when heating the reboiler at the bottomof the distillation column and when the condenser at the top is used for cooling. As a result,the system not only contributes to energy-saving but also reduces greenhouse gas emissions

because it emits less CO2.
®
The first commercial operation of
was for a distillation column at Maruzen
Petrochemical’s alcohol ketone production unit
in fiscal 2016. The system has reduced theamount of energy consumed at this facility by®
more than 50%. Since then,hasreceived a number of accolades, including the
METI Minister’s Prize for Energy Conservation,
the SCEJ Award for Outstanding Technological
Development, and the Japan Petroleum InstituteAward for Technological Progress.
Following the success of this project, TOYO®
intends to further expand
applications and contribute to the reduction of oil refinery and petrochemical plant operating costs,
realize energy savings, and further mitigate global environmental impacts.

Providing 24/7 Water Supply
In Myanmar’s capital Yangon, TOYO is usinga grant from the Japanese government to undertake a non-revenue water reduction project.
Non-revenue water is water that has been supplied but "lost" before it reaches the consumers,
either through leaks, theft, or metering inaccuracies. Together with TSS, the administrative
body of the Tokyo Metropolitan Government’s
Bureau of Waterworks, TOYO is working to
supply homes in the designated project zone

(population of around 130,000) with 24/7 running water by inspecting water pipes and water flow, replacing pipes and upgrading meters,
and repairing leaks. The project aims to improve
the living environment in local communities, reduce wasted resources, and support the establishment of an environmentally friendly watersupply system.

Environmental and Biodiversity Conservation
Setouchi Future Creations LLC, a special-purpose joint venture company established by
TOYO, Kuni Umi Asset Management, GE Energy
Financial Services, and Chudenko Corporation,completed the construction of Japan’s largest
photovoltaic power plant having a power generating capacity of 235MW on the former Kinkai
Salt Field in Setouchi, Okayama Prefecture.
The construction site was formerly a salt
marsh where rainwater mixes with seawaterand thus harbors a unique ecosystem home tosome rare species of plants and animals. With
the aim of coexisting with nature by protecting the environment as much as possible and

44

TOYO ENGINEERING CORPORATION

Integrated Report 2018

limiting the impact on the plants and animals
that live in the area, the Setouchi large-scale
photovoltaic power plant project established the
Kinkai Habitat on a roughly 16ha salt marsh conservation zone. In order to especially protect thesources of food for rare birds of prey, the project
has left the reed beds untouched and leverages
the existing woodlands and creeks so that biodiversity in the area can be sustained.
By pursuing a harmonious relationship between its business activities and environmental conservation, TOYO will continue to actively
work towards realizing a sustainable society.

Social Responsibility
Contributions to Global Community
Technical Cooperation Projects
As part of technical cooperation projects with organizations such as the Japan
International Cooperation Agency (JICA),
Japan Cooperation Center Petroleum (JCCP)
and others, TOYO has drawn up various master plans, undertaken feasibility studies, anddispatched experts to a number of countries
including Mozambique, Iraq, Tanzania, Iran,and Cabo Verde. Since 2000 we have participated in more than 30 projects in over 10
countries. Currently we are providing assistance to the Tanzanian government on apart of the Project for Domestic Natural Gas
Promotion and Supply System in Tanzania.

In response to requests from foreign governments and public agencies like JICA and
JCCP, we host technical seminars on such
topics as project management skills, environmental technology, and petrochemical
technology. Since 2000 we have welcomed
more than 50 trainee groups. We can accommodate varied requests for short training
courses that last around two weeks or longer OJT-type programs that take two years.
Thus far we have accepted trainees from

Russia, Kazakhstan, Uzbekistan, Cambodia,
Malaysia, Vietnam, Venezuela, and Iran. We
have also taken in approximately 370 trainees from Iraq since 2005 in an effort to assist
the country’s post-war reconstruction. Hailingfrom a broad range of government agencies
and corporations, including Iraq’s Ministry ofOil, oil refineries, gas and oil wholesalers,and engineering companies, the trainee engineers are extremely enthusiastic about learning new skills.

Acceptance of Trainees

Internship Program at Toyo-Malaysia
Since fiscal 2008 we have worked with the
National Institute of Technology (also known
as Kosen) in Japan to run an overseas internship program for technical school students
at Toyo-Malaysia. This program contributes
to Kosen’s goal of nurturing students witha global outlook through the understandingof foreign cultures and the development ofcommunication skills. The internship also
contributes to the technological advancement of the international community by
assisting engineers with the desire to work
abroad. A total of 18 Kosen students havegone through the program so far and two
more are scheduled to join this fiscal year.
During the three-week internship, the students communicate consistently in English.

The training program begins with an understanding of business operations and thenshifts to practical training and construction
site visits tailored to each student’s field ofspecialization. It is customary for the students to deliver a final presentation of what
they have gained through the internship program in English on the last day. Seeing thestudents proudly deliver their presentations
in English, we feel how much they havegrown by the end of the internship and theirunlimited potential to play an active role in
the international community in the future.
TOYO will continue to accept internship students and nurture human capital as a wayof contributing to the advancement of theinternational community.

TOYO ENGINEERING CORPORATION

Integrated Report 201845

Six-Year Financial and Non-Financial Highlights
Toyo Engineering Corporation and Consolidated Subsidiaries
Years ended March 31

Millions of yen

2013

2014

2015

2016

2017

2018

Net sales

228,723

230,124

311,454299,813431,917335,697

Gross profit (loss)

24,20025,155

17,21430,513

15,971(12,521)

Financial Highlights:

10.6

10.9

5.5

10.2

3.7

(3.7)

SG&A expenses

22,606

24,69924,57019,426

17,98020,429Operating income (loss)

1,593

455

(7,356)

11,087(2,009)(32,951)

0.7

0.2

(2.4)

3.7

(0.5)

(9.8)

Ordinary income (loss)

4,032

4,942

(25,280)

3,873

1,603

(27,821)

Profit attributable to owners of parent (loss)

1,457

967

(20,965)

3,038

1,472

(26,846)

Comprehensive income

3,178

4,088

(25,534)

8,492

1,066

(25,758)

Interest bearing debt

40,08744,797

31,91832,64531,84430,841

16.7

17.4

12.2

10.1

10.0

12.2

Gross profit margin (%)

Operating income margin (%)

Interest bearing debt ratio (%)(31,588)(52,137)(58,543)(91,480)(90,858)(75,694)

Debt equity ratio (times)

0.58

0.61

0.71

0.64

0.62

1.23

Equity ratio (%)

28.9

28.5

17.2

15.8

16.2

9.9

Operating activities cash flows(18,986)

21,244(4,192)

46,37618,984(22,824)

Investing activities cash flows(1,587)(1,638)

9,587(11,776)(16,650)

6,386

Financing activities cash flows

(532)

3,167

(14,341)

1,099(1,548)(1,174)

New orders

290,444

365,137

470,369

443,537

116,790309,325

Backlog of contracts

410,492

538,023

659,005

823,066

492,682448,629

5.0

3.0

4.0

4.0

2.0

0.0

4,548

4,747

4,463

4,397

4,287

4,085

1,026

1,037

1,084

1,092

1,035

1,030

7

9

11

14

14

17

CO2 emissions (Chiba Head Office) (Tons)

2,576

2,867

2,808

2,716

2,685

2,538

Energy consumption (Chiba Head Office)(Crude oil equivalent in kiloliters)

1,411

1,413

1,373

1,384

1,381

1,305

71

95

99

96

96

96

0

0

0

0

0

0

0.09

0.07

0.08

0.07

0.06

0.05

0.22

0.22

0.22

0.21

0.49

0.46

Net debt

Dividends per share (annual) (yen)Non-financial Highlights:
Number of employees*1(Number of employees in Toyo-Japan)(Number of female managers in Toyo-Japan)

Industrial waste recycling rate
(Domestic construction sites)
Number of harmful substance leak accidents(Domestic/overseas construction sites)
Lost Time Incident Rate (LTIR)*2

Total Recordable Incident Rate (TRIR)*3*1. Excluding temporary employees*2. Lost Time Incident Rate (LTIR) = Total Lost Time Incidents × 1,000,000 / Employee-Worked Man-Hours*3. Total Recordable Incident Rate (TRIR) = Number of Recordable Incidents × 1,000,000 / Employee-Worked Man-Hours

46

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Net Sales, Backlog of Contracts (Breakdown by Region/Segment Details)

Breakdown by
RegionNet Sales (¥ Billion)

Backlog of Contracts (¥ Billion)

500

1,000

400

800

300

600

200

400

100

200

0

0

2013/3

2014/3

2015/3

2016/32017/3

2018/3

2013/3

2014/3

2015/3

2016/32017/3

Japan

44.4

36.2

40.9

49.9

71.0

68.5

24.4

20.8

123.9

111.6

61.2

2018/364.1

Southeast Asia

69.3

54.5

69.3

84.0

170.8

156.2

123.7

113.4

276.8

338.4

230.3

142.6
153.7

Southwest Asia, Middle East and Africa

31.8

42.4

70.2

39.6

28.4

44.3

90.6

117.8

54.0

89.2

62.1

Russia and Central Asia

6.4

10.6

26.2

44.2

45.6

11.4

31.3

112.9

96.3

56.7

16.1

4.4

North America

—

17.7

52.1

65.3

106.3

40.7

—

86.0

68.6

190.1

95.4

61.1
19.2

Central and South America

52.8

42.8

29.4

5.4

3.0

8.7

96.0

65.9

31.6

29.2

25.0

China

17.2

13.7

10.0

8.0

5.1

5.3

14.3

8.3

4.6

5.9

1.8

3.3

Others

6.8

12.2

13.3

3.4

1.7

0.5

30.1

12.9

3.2

1.9

0.7

0.2

Total

228.7

230.1

311.4

299.8

431.9

335.6

410.4

538.0

659.0

823.0

492.6

448.6

Note: North America has been stated since fiscal 2013.

Breakdown by
Segment Details

Net Sales (¥ Billion)

Backlog of Contracts (¥ Billion)

500

1,000

400

800

300

600

200

400

100

200

0

0

2013/3

2014/3

2015/3

2016/32017/3

2018/3

2013/3

2014/3

2015/3

2016/32017/3

2018/3

43.1

69.8

131.2

127.1

247.8

140.2

105.5

210.8

376.6

494.7

249.4

147.4

Oil & Gas

—

—

—

—

40.2

12.1

—

—

—

—

6.8

24.1

Power/Railways etc.

—

—

—

—

103.2

116.4

—

—

—

—

148.5

105.2

Chemicals/Fertilizers

37.9

44.7

63.7

13.0

22.3

50.2

151.3

138.6

39.5

105.1

79.2

161.6

Pharmaceuticals etc.

—

—

—

—

4.3

9.2

—

—

—

—

4.2

9.5

27.9

45.8

33.9

30.2

14.1

7.5

49.1

59.6

37.5

25.4

4.5

0.8

Petrochemicals

OthersOil refinery

17.6

29.9

51.7

66.5

—

—

51.8

109.1

65.2

18.7

—

—

Energy-related

61.8

16.6

15.6

55.3

—

—

41.5

14.9

135.8

177.4

—

—

General manufacturing facilities

27.2

9.1

4.9

7.7

—

—

7.2

1.1

4.4

1.7

—

—

IT

11.0

12.1

8.4

—

—

—

4.0

3.9

—

—

—

—

Real estate
Total

2.2

2.1

2.0

—

—

—

—

—

—

—

—

—

228.7

230.1

311.4

299.8

431.9

335.6

410.4

538.0

659.0

823.0

492.6

448.6

Note: New segmentation applied from fiscal 2017 are also used for fiscal 2016.

TOYO ENGINEERING CORPORATION

Integrated Report 201847

Financial Section Consolidated Financial Statements
Consolidated Balance Sheets
Toyo Engineering Corporation and Consolidated Subsidiaries As of March 31, 2018 and 2017
Thousands of U.S.
dollars (Note 1)

Millions of yen

Assets

2018

2017

2018

¥ 111,068¥ 126,042$ 1,045,345

62,05788,394

584,065

Current assets:
Cash and deposits (Note 15)
Notes receivables, accounts receivable fromcompleted construction contracts
Short-term investments in securities (Notes 4, 18)

1,049

1,175

9,872

Costs on uncompleted construction contracts (Note 7)

31,79849,536299,275

Deferred income taxes (Note 21)

1,836

3,020

17,280Accounts receivable-other

7,850

6,730

73,882

Other

8,498

7,958

79,981

Allowance for doubtful accounts
Total current assets(970)(1,074)(9,129)223,189

281,784

2,100,602

Property, plant and equipment:
Buildings and structures (Note 4)

16,013

16,297150,710

Machinery, vehicles, tools, furniture and fixtures

5,296

4,999

49,844

Land (Note 4)

6,601

6,898

62,127

Leased assets

45

74

423

Construction in progress

4

5

37

Accumulated depreciation and impairment loss

(15,980)(15,658)(150,400)

Total property, plant and equipment

11,98012,615

112,752

Intangible assets:
Goodwill

1

3

9

Other

956

1,408

8,997

958

1,412

9,016

Investments in securities (Notes 3, 18)

10,335

16,071

97,270Long-term loans receivable

4,572

4,576

43,030Total intangible assets

Investments and other assets:

Net defined benefit asset (Note 20)

886

—

8,338

Deferred income taxes (Note 21)

590

1,123

5,552

Other (Notes 3, 4)
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets
See notes to consolidated financial statements.

48

TOYO ENGINEERING CORPORATION

Integrated Report 2018

5,029

3,981

47,331(4,560)(4,474)(42,917)

16,855

21,277

158,635

29,79335,305

280,404¥ 252,982¥ 317,089$ 2,381,007

Thousands of U.S.
dollars (Note 1)

Millions of yen

Liabilities and Net Assets:

2018

2017

2018

¥ 104,715¥ 123,444

7,125

8,415

Current liabilities:
Notes payable, accounts payable for construction
contracts and other
Short-term loans payable (Notes 4, 6, 8)$

985,552
67,058

624

761

5,872

62,492

87,116588,160

Provision for bonuses

407

654

3,830

Provision for warranties for completed construction

52

209

489

Provision for loss on construction contracts (Note 11)13,8894,085

130,720

Forward exchange contracts

1,808

4,995

17,016

Other

7,368

7,468

69,345

198,485

237,149

1,868,094

23,65923,373

222,672

42

40

395

Deferred income taxes (Note 21)

2,593

1,459

24,404

Net defined benefit liability (Note 20)

1,323

1,802

12,451

123

140

1,157

Income taxes payable
Advances received on uncompleted construction contracts

Total current liabilities
Non-current liabilities:
Long-term loans payable (Notes 4, 6, 8)
Lease obligations

Provision for losses on business of subsidiaries and affiliates

1,578

1,792

14,851

29,32028,608275,952

227,806

265,758

2,144,056

Capital stock (Note 14)18,19818,198171,275

Capital surplus

10,74910,732

101,167

Retained (deficit) earnings(8,165)

19,064(76,847)

(444)

(440)

(4,178)20,33847,554

191,416

Other
Total non-current liabilities
Total liabilities
Contingent liabilities (Note 5)
Net assets:
Shareholders’ equity:

Treasury stock, at cost
Total shareholders’ equity
Accumulated other comprehensive income:

8

2,246

75

Deferred losses on hedges(801)(2,842)(7,538)Foreign currency translation adjustments

4,835

4,319

45,505Remeasurements of defined benefit plans

725

(5)

6,823

4,767

3,718

44,865

71

58

668

Valuation difference on available-for-sale securities

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

25,176

51,331

236,950¥ 252,982¥ 317,089$ 2,381,007

TOYO ENGINEERING CORPORATION

Integrated Report 201849

Consolidated Statements of Operations
Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31, 2018 and 2017
Thousands of U.S.
dollars (Note 1)

Millions of yen

2018

2017

2018

¥ 335,697¥ 431,917$ 3,159,501

Cost of sales (Note 11)348,219

415,945

3,277,355

Gross (loss) profit

Net sales(12,521)

15,971(117,844)

Selling, general and administrative expenses (Notes 9, 10)

20,42917,980192,272

Operating loss

(32,951)(2,009)(310,127)Interest income

1,039

934

9,778

Dividends income

110

535

1,035

Foreign exchange gains, net

—

1,311

—

Equity in earnings of affiliates

5,909

15

55,614

18

680

169

Non-operating income:Reversal of allowance for doubtful accounts

560

1,039

5,270

7,638

4,517

71,887

Interest expenses

317

375

2,983

Loss on valuation of investments in capital of subsidiaries andaffiliates

—

274

—

Miscellaneous income
Total non-operating income
Non-operating expenses:

1,579

—

14,861

Foreign withholding taxes

332

126

3,124

Miscellaneous expenses

278

127

2,616

Foreign exchange losses, net

2,508

903

23,604(27,821)1,603(261,844)

397

310

3,736

Gain on sales of investments in securities

2,714

1,289

25,543Gain on sales of investments in an affiliate

2,349

—

22,108

—

2,625

—

Total extraordinary income

5,461

4,224

51,397(Loss) profit before income taxes(22,359)

5,828(210,437)

Income taxes

1,931

3,384

18,174

Income taxes-deferred

2,500

973

23,529

4,431

4,357

41,703(26,791)

1,471(252,150)

Total non-operating expenses
Ordinary (loss) income
Extraordinary income:Gain on sales of property, plant and equipment (Note 12)

Gain on securities contribution to retirement benefits trust

Income taxes (Note 21):

Total income taxes
Net (loss) profit
Net (loss) profit attributable to :Non-controlling interests
Owners of parent
See notes to consolidated financial statements.

50

TOYO ENGINEERING CORPORATION

Integrated Report 201855
¥ (26,846)

¥

(1)

517

1,472

$ (252,668)

Consolidated Statements of Comprehensive Income (Loss)
Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31, 2018 and 2017
Thousands of U.S.
dollars (Note 1)

Millions of yen

2018

2017

¥ (26,791)¥ 1,471$ (252,150)

Valuation difference on available-for-sale securities(2,237)(1,616)(21,054)

Deferred gains (losses) on hedges

2,049

1,928

19,284Foreign currency translation adjustments

491

(516)

4,621

Remeasurements of defined benefit plans

730

(92)

6,870

Net (loss) profit

2018

Other comprehensive (loss) income (Note 13)

Share of other comprehensive loss of affiliates accounted
for by the equity method
Total other comprehensive (loss) income
Comprehensive (loss) income

(1)

(107)

(9)

1,032

(405)

9,712

¥ (25,758)¥ 1,066$ (242,428)(25,797)

1,066(242,795)

39

(0)

367

Comprehensive (loss) income attributable to :Owners of parent
Non-controlling interests
See notes to consolidated financial statements.

TOYO ENGINEERING CORPORATION

Integrated Report 201851

Consolidated Statements of Changes in Net Assets
Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31, 2018 and 2017
Millions of yen

Balance at April 1, 2016

Capitalstock

CapitalsurplusRetained(deficit)
earnings

Treasurystock,
at cost¥18,198¥17,656¥11,433¥(436)Cash dividends(766)

Reversal of capital surplus(6,157)

Profit attributable to ownersof parent¥10,732¥(4,761)¥3,862¥4,936¥87

Non-controllinginterests

Total
net
assets¥4,124¥58¥51,036
(766)

—

—

1,472

1,472

1,472

(4)

(4)

(4)

0

0

0

(0)

¥18,198¥46,852

Total accumulated
othercomprehensive
income6,157

Net changes of items otherthan shareholders’ equity
Balance at March 31, 2017

Deferred
losses onhedgesRemeaForeign
currency surements
translation of defined
benefitadjustplans
ments

(766)

Purchase of treasury stock
Sale of treasury stock

ValuationdifferenceonavailableTotal
for-saleshareholder’s equity securities¥19,064¥(440)—(1,616)

1,919

(616)

(92)

(406)

(0)

(406)

¥47,554¥2,246¥(2,842)¥4,319¥(5)¥3,718¥58¥51,331

RemeaForeign
currency surements
translation of defined
benefitadjustplans
ments

Total accumulated
othercomprehensive
incomeNon-controllinginterests

Total
net
assets¥3,718¥58¥51,331

Millions of yen

Balance at April 1, 2017

Capitalstock

CapitalsurplusRetained(deficit)
earnings

Treasurystock,
at cost¥18,198¥10,732¥19,064¥(440)Cash dividends
Loss attributable to ownersof parent(0)

Purchase of shares of
consolidated subsidiary17¥18,198¥10,749¥47,554¥(2,842)¥2,246¥4,319

¥(5)

(383)

(383)

(26,846)(26,846)(26,846)

(4)

(4)

(4)

0

0

0

17

17

Net changes of items otherthan shareholders’ equity
Balance at March 31, 2018

Deferred
losses onhedges

(383)

Purchase of treasury stock
Sale of treasury stock

ValuationdifferenceonavailableTotal
for-saleshareholder’s equity securities¥(8,165)¥(444)—(2,237)

2,040

516

730

1,049

12

1,061

¥20,338¥8¥(801)¥4,835¥725¥4,767¥71¥25,176

RemeaForeign
currency surements
translation of defined
benefitadjustplans
ments

Total accumulated
othercomprehensive
incomeNon-controllinginterests

Total
net
assets$34,992$545$483,115

Thousands of U.S. dollars (Note 1)

Balance at April 1, 2017

CapitalsurplusRetained(deficit)
earnings

Treasurystock,
at cost$171,275$101,007$179,425$(4,141) $447,567(3,604)(3,604)(3,604)(252,668)(252,668)(252,668)

(37)

(37)

(37)

0

0

0

160

160

Loss attributable to ownersof parent
Purchase of treasury stock
Sale of treasury stock(0)

Purchase of shares of
consolidated subsidiary160

Net changes of items otherthan shareholders’ equity$171,275$101,167

See notes to consolidated financial statements.

52

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Deferred
losses onhedgesCapitalstock

Cash dividends

Balance at March 31, 2018

ValuationdifferenceonavailableTotal
for-saleshareholder’s equity securities$(76,847)$21,138$(26,748)$40,649$(47)—(21,054)

19,200

4,856

6,870

9,872

112

9,985

$(4,178) $191,416$75$(7,538)$45,505$6,823$44,865$668$236,950

Consolidated Statements of Cash Flows
Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31, 2018 and 2017
Thousands of U.S.
dollars (Note 1)

Millions of yen

2018
Cash flows from operating activities:(Loss) profit before income taxes
Depreciation and amortization
Amortization of goodwill
Decrease in allowance for doubtful accounts
Decrease in net defined benefit liability
Increase in provision for loss on construction contracts
Interest and dividends income
Interest expenses
Foreign exchange losses
Gain on sales of property, plant and equipment
Equity in earnings of affiliates
Gain on sales of investments in securities
Gain on sales of investments in an affiliate
Loss on valuation of investments in capital of subsidiaries andaffiliates
Gain on securities contribution to retirement benefits trust
Decrease (increase) in notes receivable, accounts receivablefrom completed construction contracts
Decrease in costs on uncompleted construction contracts(Increase) decrease in accounts receivable-other(Decrease) increase in notes and accounts payable-trade
Decrease in advances received on uncompleted construction
contracts
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Net increase in time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investments in securities
Proceeds from sales of investments in securities
Proceeds from sales of investments in an affiliate
Net decrease (increase) in short-term loans receivable
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net decrease in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Repayments of finance lease obligations
Cash dividends paid
Other, net
Net cash used in financing activities
Effect of exchange rate change on cash and cash equivalents
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 15)

2018

2017

¥ (22,359)
1,221
(9)
(18)
(334)
9,807
(1,149)
317
147
(396)
(5,909)(2,714)(2,349)

5,828
1,293
(9)
(706)
(1,435)2,697(1,470)
375
424
(297)
(15)
(1,289)—$ (210,437)
11,491(84)(169)(3,143)92,301(10,814)
2,983
1,383
(3,727)(55,614)(25,543)(22,108)——274(2,625)——

26,202
17,716(1,290)(19,511)(10,381)
4,344
6,305
38,231

246,607
166,738(12,141)(183,632)(24,548)(251)(25,429)
5,108
(319)
(2,184)(22,824)(23,933)
1,248
18,8604,768(359)(4,285)18,984(231,040)(2,362)(239,331)
48,075(3,002)(20,555)(214,814)(1,241)
(504)
810
(245)
(8)
2,928
3,837
1,585
(773)
6,386

(700)
(555)
337
(246)
(54)
1,418
—
(16,234)(614)(16,650)(11,680)(4,743)7,623(2,305)(75)
27,557
36,112
14,917(7,275)
60,103(1,433)
7,100(6,446)
(7)
(383)
(4)
(1,174)
1,445(16,167)
122,703¥ 106,536(2,000)11,025(9,784)
(18)
(766)
(4)
(1,548)(2,207)(1,422)
124,125¥ 122,703(13,487)
66,823(60,668)(65)(3,604)(37)(11,049)
13,600(152,160)
1,154,851$ 1,002,691¥

See notes to consolidated financial statements.

TOYO ENGINEERING CORPORATION

Integrated Report 201853

Notes to Consolidated Financial Statements
Toyo Engineering Corporation and Consolidated Subsidiaries

1. BASIS OF PREPARATION
Toyo Engineering Corporation (the “Company”) and its domestic consolidated subsidiaries maintain their accounting records andprepare their financial statements in accordance with accounting principles generally accepted in Japan, and its foreign consolidated subsidiaries maintain their books of account in conformity with those of their respective countries of domicile. The accompanying consolidated financial statements have been compiled from the accounts prepared by the Company in accordancewith the provisions set forth in the Financial Instruments and Exchange Law of Japan and with accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International
Financial Reporting Standards.
For the convenience of readers, the accompanying consolidated financial statements and the relevant notes have also beenpresented in U.S. dollars by translating all Japanese yen amounts at the exchange rate of ¥106.25 to U.S.$1.00 prevailing on
March 31, 2018.
As permitted, amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying
consolidated financial statements (both yen and in U.S. dollars) do not necessarily agree with the sum of the individual amounts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries.
Investments in significant affiliates are accounted for by the equity method. As of March 31, 2018, the numbers of consolidated
subsidiaries and affiliates accounted for by the equity method were 13 and 5, respectively.
Toyo Engineering Korea Limited, Toyo Engineering Corporation (China) and 5 other subsidiaries are consolidated using theirfinancial statements as of their respective fiscal year end, which falls on December 31, and necessary adjustments are made totheir financial statements to reflect any significant transactions from January 1 to March 31. Intercompany accounts and transactions are eliminated in consolidation. The difference between the acquisition cost and the equity in the net assets at the time ofacquisition is amortized in principle within 20 years on a straight-line basis.
(b) Securities
All debt and equity securities other than equity securities issued by subsidiaries and affiliates are classified into one of three categories: trading, held-to-maturity or available-for-sale securities. Trading securities are bought and held principally for the purposeof selling them in the near term. Held-to-maturity securities are those securities which the Company and its consolidated subsidiaries have the ability and intent to hold until maturity. All securities not included in trading or held-to-maturity are classified asavailable-for-sale securities.
Trading securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accumulation of premiums or discounts. Unrealized gains or losses on trading securities are included in earnings. Other
securities classified as available-for-sale securities are recorded at fair value with changes in unrealized holding gain or loss, netof the applicable income taxes, included directly in net assets. Non-marketable securities classified as available-for-sale securities are recorded at cost.
Cost of securities sold is determined by the moving-average method.
(c) Derivative Financial Instruments
The Company and certain consolidated subsidiaries enter into various derivative transactions in order to manage certain risk arising from adverse fluctuations in foreign currency exchange rates and interest rates. Derivative financial instruments are carried atfair value with changes in unrealized gain or loss charged or credited to operations, except for those which meet the criteria fordeferral hedge accounting under which unrealized gain or loss is deferred as a component of net assets.
Deferral hedge accounting is adopted for derivatives which qualify for hedge accounting, under which unrealized gain or loss isdeferred. Hedging instruments are derivative transactions such as foreign exchange forward contract, currency option, currency
swap and interest rate swap, and hedged items are primarily forecast sales and costs denominated in foreign currencies, andreceivables and payables denominated in foreign currencies. Hedge effectiveness is not assessed if the substantial terms andconditions of the hedging instruments and the hedged forecasted transactions are the same. The Company and its consolidated
subsidiaries manage derivative transactions in accordance with their internal “Policies and Procedures for Risk Management”.
(d) Costs on Uncompleted Construction Contracts
Costs on uncompleted construction contracts are stated at cost, determined by the identified-cost method.

54

TOYO ENGINEERING CORPORATION

Integrated Report 2018

(e) Depreciation and Amortization
Depreciation of property, plant and equipment is principally computed by the declining-balance method based on the estimateduseful lives of the assets. However, buildings acquired on or after April 1, 1998, and facilities attached to buildings and structuresacquired on or after April 1, 2016 are depreciated on a straight-line method.
The useful lives of property, plant and equipment are as follows:
Buildings and structures:
3 to 50 years
Machinery, vehicles, tools, furniture and fixtures:
2 to 20 years
Amortization of intangible assets of the Company and its consolidated subsidiaries is calculated principally by straight-line
method. Software for internal use is amortized on a straight-line method 5 years of the estimated available period.
(f) Leases
Depreciation of assets on finance leases which do not transfer ownership of the leased assets to the lessee are calculated by thestraight-line method over the lease period with their residual value estimated at zero.
(g) Allowance for Doubtful Accounts
The Company and its consolidated subsidiaries have provided an allowance for doubtful accounts at an estimated amount of probable and reasonably possible bad debts and an estimated amount computed on the actual percentage of credit losses.
(h) Provision for Bonuses
Provision for bonuses to employees is provided at the expected payment amount for the fiscal year.
(i) Provision for Warranties for Completed Construction
Provision for warranties for completed construction is provided based on past experience.
(j) Provision for Loss on Construction Contracts
Provision for loss on construction contracts is provided in case the material loss is expected for a certain large-scale contract work.
(k) Provision for Losses on Business of Subsidiaries and Affiliates
Provision for losses on business of subsidiaries and affiliates is provided based on the financial position of the subsidiaries
and affiliates.
(l) Retirement Benefits
Net defined benefit liability at year-end is stated based on the fair value of plan assets and the projected benefit obligation.
As to calculation of the projected benefit obligation, the expected benefit payments at the year-end have been recorded mainly
at the amount calculated based on benefit formula.
Actuarial gain or loss is amortized by the straight-line method within the average of the estimated remaining service years of
the employees (over 9 years) in the year following the year of recognition.
Unamortized actuarial gain or loss is provided with tax effect as a component of remeasurements of defined benefit plans
under accumulated other comprehensive income of net assets.
(m) Foreign Currency Translation
Both short-term and long-term receivables and payables in foreign currencies are translated at the rates of exchange in effect atthe balance sheet date and differences arising from the translation of the these accounts are credited or charged to profit or loss.
The balance sheet accounts of the consolidated foreign subsidiaries are translated at the rates of exchange in effect at thebalance sheet date, except for capital stock and capital surplus, which are translated at their historical exchange rates. Revenues,
expenses and net income for the year are translated at the rates of exchange in effect at the balance sheet date. Differences arising from translation of the accounts of foreign subsidiaries and affiliates are presented as “Foreign currency translation adjustments” and “Non-controlling interests” in the accompanying consolidated balance sheets.
(n) Recognition of Revenues
Revenues and costs of construction contracts of which the percentage of completion can be reliably estimated, are recognizedby the percentage-of-completion method. The percentage of completion is calculated at the cost incurred as a percentage of theestimated total cost. The completed-contract method continues to be applied for contracts for which the percentage of completion cannot be reliably estimated.
TOYO ENGINEERING CORPORATION

Integrated Report 201855

(o) Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flows, the Company and its consolidated subsidiaries consider all
highly liquid investments with insignificant risk of changes in value purchased with an original maturity of 3 months or less to
be cash equivalents.
(p) Consumption Taxes
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
(q) Consolidated Tax Return
The Company files a consolidated tax return with domestic fully-owned subsidiaries.
(r) Advances Received on Uncompleted Construction Contracts
Advances received on uncompleted construction contracts from customers are shown as a liability, not as a deduction from theamount of costs on uncompleted construction contracts.
(s) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between carrying amounts of existing assets and liabilities in the financial statements and their respective tax bases. Deferred tax assets and liabilities are measured using the enacted
tax rates and laws which will be in effect when the differences are expected to be reversed.
(t) Research and Development Costs
Research and development costs are charged to income when incurred.
(u) Additional Information(Accounting Standards Issued But Not Yet Effective)
Accounting Standard for Revenue Recognition (The Accounting Standards Board of Japan (“ASBJ”) Statement No. 29, March 30, 2018)
Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30, March 30, 2018)(1) Overview
The accounting standard and implementation guidance mainly focus on the recognition of revenue and cash flows arising fromcontracts with customers. Revenue is recognized by applying the following five-step model.
Step 1: Identify the contract
Step 2: Identify performance obligations
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance obligations
Step 5: Recognize revenue based on progress of performance obligations(2) Effective date
The above accounting standard and implementation guidance are scheduled to be applied from the beginning of the fiscal year
ending March 31, 2022.
(3) Effects of application of the accounting standard and the implementation guidance
At present, the Company is in the process of evaluating the impact on the consolidated financial statements from the adoptionof the accounting standard and implementation guidance.
(Changes in Presentation)(Consolidated Statements of Operations)
Foreign withholding tax, which had been included in “Other” under non-operating expenses for the year ended March 31, 2017,is presented separately for the year ended March 31, 2018 because its materiality has increased.
Income taxes for prior periods, which had been presented separately for the year ended March 31, 2017, is included in“Income taxes” for the year ended March 31, 2018 because its materiality has decreased.
To reflect these changes in presentation, foreign withholding tax of ¥126 million, which had been previously included in“Other” under non-operating expenses, was reclassified as “Foreign withholding tax,” and income taxes for prior periods of ¥825
million, which had been previously presented separately, was reclassified as “Income taxes” for the year ended March 31, 2017.
(Consolidated Statements of Cash Flow)
Increase (decrease) in provision for loss on business of subsidiaries and affiliates, which had been presented separately for theyear ended March 31, 2017, is included in “Other” under cash flows from operating activities for the year ended March 31, 2018
because its materiality has decreased.
To reflect this change in presentation, increase (decrease) in provision for loss on business of subsidiaries and affiliates of¥(317) million, which had been previously presented separately, was reclassified as “Other” for the year ended March 31, 2017.
56

TOYO ENGINEERING CORPORATION

Integrated Report 2018

3. INVESTMENTS IN AND ADVANCES TO UNCOSOLIDATED SUBSIDIARIES AND AFFILIATES
Investments in and advances to unconsolidated subsidiaries and affiliates included in investments in securities and other in the
consolidated balance sheets as of March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

As of March 31,
Investments in unconsolidated subsidiaries and affiliates
Other

2018

2017

2018

¥ 7,447679¥ 9,585624$ 70,089
6,390

4. PLEDGED ASSETS
The following assets at March 31, 2018 and 2017 were pledged as collateral:Thousands of
U.S. dollars

Millions of yen

As of March 31,
Collateral
Short-term investments in securities
Buildings
Land
Other
Total

2018

2017

2018

¥ 1,049
950
1,112
57
¥ 3,170¥ 1,001
1,043
1,146
—
¥ 3,192$ 9,872
8,941
10,465536$ 29,835

These assets above were mainly pledged for issuing the performance bonds. The amount of liabilities with corresponding obligation as of March 31, 2018 and 2017 is as follows:
Thousands of
U.S. dollars

Millions of yen

As of March 31,
Liabilities
Short-term loan payable
Total

2018

2018

2017

¥ 266
¥ 266

—
—

$ 2,503$ 2,503

5. CONTINGENT LIABILITIESContingent liabilities as of March 31, 2018 are as follows:
Guaranteed parties
Toyo Setal Empreendimentos Ltda.
Other
Total

Millions of yen

Thousands of
U.S. dollars¥ 2,03965¥ 2,104$ 19,190
611$ 19,802

Details

Refund guarantee etc.
Loan guarantee etc.

6. COMMITMENT LINE CONTRACTS
In order to maintain access to a stable and effective sources of operating capital, the Company has entered into commitment-line
contracts with 10 trading banks. The status of these commitment-line contracts as of March 31, 2018 and 2017 is as follows:
Thousands of
U.S. dollars

Millions of yen

As of March 31,
Total amount of commitment line contracts
Used amount
Available amount of commitment line contracts

2018

2017

2018

¥ 14,200
1,300¥ 12,900¥ 19,200
9,200¥ 10,000$ 133,647
12,235$ 121,411

TOYO ENGINEERING CORPORATION

Integrated Report 201857

7. COSTS ON UNCOMPLETED CONSTRUCTION CONTRACTS
Costs on uncompleted construction contracts and provision for loss on construction contracts related to the construction contracts
with substantial anticipated losses are not offset. Costs on uncompleted construction contracts corresponding to provision forloss on construction contracts as of March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

As of March 31,
Costs on uncompleted construction contracts

2018

2017

¥ 122

¥ 141

2018
$ 1,148

8. SHORT-TERM AND LONG-TERM DEBT
The average interest rates on the short-term loans outstanding as of March 31, 2018 and 2017 are 2.17% and 0.39%, respectively.
The average interest rates on the current portion long-term loans payable outstanding as of March 31, 2018 and 2017 are
1.26% and 1.16%, respectively.
The average interest rates of the long-term loans payable outstanding as of March 31, 2018 and 2017 are 1.26% and 1.21%,
respectively.
The following schedule shows the maturities of long-term loans payable subsequent to March 31, 2018:
Years ended March 31,
2019
2020
2021
2022
2023
2024 and thereafter

Millions of yen

Thousands of
U.S. dollars¥ 6,558
5,036
9,901
4,242
4,438
40

$ 61,722
47,397
93,18539,924
41,769376

The following schedule shows the maturities of lease obligations subsequent to March 31, 2018:
Years ended March 31,
2019
2020
2021
2022
2023

Millions of yen

Thousands of
U.S. dollars

¥ 14
13
12
9
6

$ 131
122
112
84
56

As of March 31, 2018, short-term loans payable and long-term loans payable with financial covenants concerning financial
condition or business result of the Company and its consolidated subsidiaries and affiliates are amounted to ¥13,677 million($128,724 thousand).

9. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The main components of selling, general and administrative expenses for the years ended March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,
Salaries
Provision for bonuses
Retirement benefit expenses
Depreciation
Research and development costs

2018

2017

2018

¥ 9,952
82
708
324
689

¥ 8,949
161
598
373
493

$ 93,665
771
6,663
3,049
6,484

10. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in cost of sales and selling, general and administrative expenses for the years ended
March 31, 2018 and 2017 amounted to ¥689 million ($6,484 thousand) and ¥493 million, respectively.

58

TOYO ENGINEERING CORPORATION

Integrated Report 2018

11. PROVISION FOR LOSS ON CONSTRUCTION CONTRACTS
Gross amount of increase in provision for loss on construction contracts included in cost of sales in the consolidated statements ofoperations for the years ended March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,
Amount of provision for loss on construction contracts

2018

2017

¥ 13,833¥ 3,9072018$ 130,192

12. GAIN ON SALES OF PROPERTY, PLANT AND EQUIPMENT
Breakdown of gain on sales of property, plant and equipment is as follows:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,
Buildings and structures
Machinery, vehicles, tools, furniture and fixtures
Land
Other
Total

2018

2018

2017

¥ 147
4
221
23
¥ 397

$ 1,383
37
2,080
216
$ 3,736

¥ 310
—
—
—
¥ 310

13. OTHER COMPREHENSIVE INCOME
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,
Valuation difference on available-for-sale securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized
in profit or loss
Valuation difference on available-for-sale securities
before tax effectTax effect
Valuation difference on available-for-sale securities
Deferred gains (losses) on hedges:
Amount arising during the year
Reclassification adjustments for gains and losses realized
in profit or loss
Deferred gains (losses) on hedges before tax effectTax effect
Deferred gains (losses) on hedges
Foreign currency translation adjustments:
Amount arising during the year
The amount of foreign currency translation adjustments
before tax effectForeign currency translation adjustments
Remeasurements of defined benefit plans:
Amount arising during the year
Reclassification adjustments for gains and losses realized
in profit or loss
Remeasurements of defined benefit plans before tax effectTax effectRemeasurements of defined benefit plans
Share of other comprehensive losses of affiliates accounted
for by the equity method:Amount arising during the year
Total other comprehensive income (loss)

2018

2017

2018

¥

(77)

¥ 1,664$(3,060)(3,914)(28,800)(3,137)899(2,237)(2,249)632(1,616)(29,524)
8,461(21,054)

(251)

1,901

(2,362)

3,252
3,000
(951)
2,049

777
2,679
(750)
1,928

30,60728,235(8,950)19,284

491

(516)

4,621

491
491

(516)
(516)

4,621
4,621

1,057

(173)

9,948

(26)
1,030
(299)
730

43
(129)
37
(92)

(244)
9,694
(2,814)6,870(1)¥ 1,032(107)¥ (405)(9)$ 9,712(724)

TOYO ENGINEERING CORPORATION

Integrated Report 201859

14. SUPPLEMENTARY INFORMATION FOR CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2018(a) Type and number of outstanding shares
Number of shares

Type of shares

Issued stock:
Common stock
Total
Treasury stock:
Common stock
Total

Balance at
beginning of year

Increase in shares
during the year

Decrease in shares
during the year

Balance at
end of year

192,792,539
192,792,539——

154,234,032
154,234,032

38,558,507
38,558,507

1,103,172
1,103,172

8,738
8,738

888,262
888,262

223,648
223,648

Note: Issued stock decreased by 154,234,032 shares due to the one-for-five reverse stock split of the Company’s shares effective October 1, 2017.
Treasury stock increased by 8,738 shares due to the purchase of shares less than one unit.
Treasury stock decreased by 886,647 shares due to the one-for-five reverse stock split of the Company’s shares effective
October 1, 2017, and by 1,615 shares due to the sale of shares less than one unit.
(b) Dividends(b-1) Dividends from surplus
Date ofapproval

Resolution
approved byType ofsharesAmount(Millions of yen)Amount(Thousands of
U.S. dollars)

Amount per
share
(Yen)

Amount per
share(U.S. dollars)

Shareholders’
cut-off date

Effective
date

June 27,2017

Annual general
meeting ofshareholders

Common
stock

383

3,604

2.0

0.01

March 31,2017

June 28,2017

For the year ended March 31, 2017(a) Type and number of outstanding shares
Number of shares

Type of shares

Issued stock:
Common stock
Total
Treasury stock:
Common stock
Total

Balance at
beginning of year

Increase in shares
during the year

Decrease in shares
during the year

Balance at
end of year

192,792,539
192,792,539

—
—

—
—

192,792,539
192,792,539

1,089,256
1,089,256

14,076
14,076160
160

1,103,172
1,103,172

Note: Treasury stock increased by 14,076 shares due to the purchase of shares less than one unit.
Treasury stock decreased by 160 shares due to the sale of shares less than one unit.
(b) Dividends(b-1) Dividends from surplus
Date ofapproval

Resolution
approved byType ofsharesAmount(Millions of yen)Amount per
share
(Yen)

Shareholders’
cut-off date

Effective
date

June 29,2016

Annual general meeting ofshareholders

Common
stock

766

4.0

March 31,2016

June 30,
2016(b-2) Dividends with a shareholders’ cut-off date during the fiscal year ended March 31, 2017 but an effective date in the fiscal
year ended March 31, 201860

Date ofapproval

Resolution
approved byPaid fromType ofsharesAmount(Millions of yen)Amount per
share
(Yen)

Shareholders’
cut-off date

Effective
date

June 27,2017

Annual general meeting ofshareholders

Retainedearnings

Common
stock

383

2.0

March 31,2017

June 28,
2017

TOYO ENGINEERING CORPORATION

Integrated Report 2018

15. CONSOLIDATED STATEMENTS OF CASH FLOWS
A reconciliation between the balance of cash and deposits reflected in the accompanying consolidated balance sheets and thatof cash and cash equivalents in the accompanying consolidated statements of cash flows as of March 31, 2018 and 2017 aresummarized as follows:
Thousands of
U.S. dollars

Millions of yen

As of March 31,
Cash and deposits
Time deposits with maturities over 3 months
Cash and cash equivalents

2018

2017

2018

¥ 111,068(4,532)¥ 106,536¥ 126,042(3,338)¥ 122,703$ 1,045,345(42,654)$ 1,002,691

16. LEASES(a) Finance Leases
Future minimum lease payments subsequent to March 31, 2018 for finance leases are omitted as being immaterial.
(b) Operating Leases
Operating Leases (as Lessee)
Future minimum lease payments subsequent to March 31, 2018 for noncancelable operating leases are summarized as follows:
Millions of yen

As of March 31,
Within 1 year
Over 1 year
Total

Thousands of
U.S. dollars

2018

2018

¥

$ 5,938
9,110$ 15,058

631
968¥ 1,600

17. FINANCIAL INSTRUMENTS
1. Condition of Financial Instruments
The Company and its consolidated subsidiaries hold their temporary cash surplus through low-risk financial assets and raise
funds through borrowings from banks.
Derivative financial instruments are utilized for reducing the risk of exchange rate fluctuations, interest rate fluctuations, andcredit. Therefore, there are no derivatives for speculative purposes.
Notes receivable, accounts receivable from completed construction contracts are exposed to credit risks of customers andrisks of exchange rate fluctuations. The Company deals with these risks by organizing careful reviews on awarded contracts,
letters of credit, and export credit insurance. The Company minimizes exchange fluctuation risks by entering into corresponding
forward-exchange contracts, in principle.
Short-term investment securities and investment securities are exposed to volatility risks of market price. The Company manages
these risks by periodic monitoring, as they mainly consist of short-term held-to-maturity bonds and stocks of business partners.
Notes payable, accounts payable for construction contracts and other are mostly due within 1 year.
Borrowings from banks are raised mainly for capital investment or working capital. For some long-term loans payable, theCompany entered into interest swap agreements to minimize risks of interest rate fluctuations.
Regarding derivatives, forward-exchange contracts are used to minimize exchange fluctuation in foreign-currency operations,and interest-swap contracts are used to minimize interest rate fluctuations.
The fair value of financial instruments is based on their quoted market prices, if available, or reasonably estimated amounts if
there is no market price. Since various assumptions and factors are reflected in estimating the fair value, different assumptions
and factors could result in different fair value. In addition, the notional amounts below are not necessarily indicative of the actual
market risk involved in derivative transactions.

TOYO ENGINEERING CORPORATION

Integrated Report 201861

2. Fair Value of Financial Instruments
Book value, fair value, and net unrealized gain or loss of financial instruments consist of the following:
The following does not include items for which it is extremely difficult to determine the fair value.
Millions of yen

At March 31, 2018
(1)Cash and deposits(2)Notes receivable, accounts receivable fromcompleted construction contracts
Less: Allowance for doubtful accounts (*1)
Notes receivable, accounts receivable fromcompleted construction contracts, net

Unrealized
gain / (loss)

Book Value

Fair Value¥ 111,068¥ 111,068¥—

61,10061,119

18

7,850
(1)
7,848

7,848

0

2,126
182,144
104,715566
30,217
135,500

2,126
182,163
104,724
566
30,248135,539

—
19
8
—
30
39

(341)
(802)
(1,144)

(341)
(802)
(1,144)——¥—62,057(956)(3)Accounts receivables-otherLess: Allowance for doubtful accounts (*1)
Accounts receivable-other, net(4)Short-term investments in securities and investments in securities
Available-for-sale securities
Total of assets(1)Notes and accounts payable for construction contracts and other(2)Short-term loans payable(3)Long-term loans payable (including current portion)
Total of liabilities
Derivatives (*2)
not designated as hedging instruments
designated as hedging instruments
Total derivatives¥¥

Thousands of U.S. dollars

At March 31, 2018
(1)Cash and deposits(2)Notes receivable, accounts receivable fromcompleted construction contracts
Less: Allowance for doubtful accounts (*1)
Notes receivable, accounts receivable fromcompleted construction contracts, net

Fair Value$ 1,045,345$ 1,045,345$ —575,058

575,237169

73,882(9)73,86373,8630

20,0091,714,296
985,552
5,327
284,395
1,275,294

20,0091,714,475
985,637
5,327
284,687
1,275,661

—
178
75
—
282
367

(3,209)(7,548)(10,767)(3,209)(7,548)(10,767)——$ —584,065(8,997)(3)Accounts receivables-otherLess: Allowance for doubtful accounts (*1)
Accounts receivable-other, net(4)Short-term investments in securities and investments in securities
Available-for-sale securities
Total of assets(1)Notes and accounts payable for construction contracts and other(2)Short-term loans payable(3)Long-term loans payable (including current portion)
Total of liabilities
Derivatives (*2)
not designated as hedging instruments
designated as hedging instruments
Total derivatives

Unrealized gain /(loss)

Book Value$$(*1) Notes receivable, accounts receivable from completed construction contracts and accounts receivable—other listed above
are offset by the corresponding figures of allowance for doubtful accounts listed above.
(*2) Net receivables and payables derived as a result of derivative transactions are presented. Values in parentheses show
contra-asset account, net liabilities and unrealized loss.
62

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Millions of yen

Unrealized gain /(loss)At March 31, 2017
(1)Cash and deposits(2)Notes receivable, accounts receivable fromcompleted construction contracts
Less: Allowance for doubtful accounts (*1)
Notes receivable, accounts receivable fromcompleted construction contracts, net

Book Value

Fair Value¥ 126,042¥ 126,042¥—

87,53887,562

23(3)Accounts receivables-otherLess: Allowance for doubtful accounts (*1)
Accounts receivable-other, net

6,730
(67)
6,662

6,662

—

5,835
226,078
123,444
2,000
29,788155,232

5,835
226,102
123,4442,000
29,838155,283

—
23
0
—
50
51

(189)
(3,803)(3,992)(189)(3,803)(3,992)——¥—(4)Short-term investments in securities and investments in securities
Available-for-sale securities
Total of assets(1)Notes and accounts payable for construction contracts and other(2)Short-term loans payable(3)Long-term loans payable (including current portion)
Total of liabilities
Derivatives (*2)
not designated as hedging instruments
designated as hedging instruments
Total derivatives

88,394(855)¥¥(*1) Notes receivable, accounts receivable from completed construction contracts and accounts receivable—other listed above
are offset by the corresponding figures of allowance for doubtful accounts listed above.
(*2) Net receivables and payables derived as a result of derivative transactions are presented. Values in parentheses show
contra-asset account, net liabilities and unrealized loss.
(Note 1) Computational method and related issues
Assets(1) Cash and deposits
Book values are used as fair values because they are nearly equal to such book values.
(2) (3) Notes receivables, accounts receivable from completed construction contracts and accounts receivable—otherBook values for items which are settled in a short-term are used as fair values of these items because they are nearly equal tosuch book values. Fair values of other items are based on the present value discounted by an appropriate discount rate coupledwith the remaining maturity and credit risks.
(4) Short-term investment securities and investment securities
Fair value of stock items are based on the market prices and bond items are based on the market prices or their price provided
by financial institutions.
Liabilities(1) Notes payable, accounts payable for construction contracts and otherBook values for items which are settled in a short-term are used as fair values of these items because they are nearly equal tosuch book values. Fair values of other items are based on the present value discounted by an appropriate discount rate coupledwith the remaining maturity and credit risks.
(2) Short-term loans payable
Book values are used as fair values because they are nearly equal to such book values.
(3) Long-term loans payable (including current portion)
The present values of the principal and total interest, discounted by the rate assumed to be applied to the new borrowings under
the same conditions, are used as the fair values.
Derivative Transactions
See “19. DERIVATIVE TRANSACTIONS“.

TOYO ENGINEERING CORPORATION

Integrated Report 2018

63

(Note 2) Financial instruments of which it is extremely difficult to determine the fair value
Unlisted securities that amounted to ¥2,195 million ($20,658 thousand) as of March 31, 2018 and ¥2,210 million as of March
31, 2017 are excluded from the above table because they are deemed extremely difficult to determine the fair values; they do
not have market prices and it is not possible to conduct alternative methods such as the estimation of their future cash flows.
(Note 3) R edemption schedule for monetary assets, and short-term investments and investment securities with maturities
Millions of yen

At March 31, 2018
Cash and deposits
Notes and accounts receivablefrom completed construction contracts
Accounts receivable-other
Available-for-sale securities
Total

Within 1 year

After 1 year
through 5 years

After 5 years
through 10 years

After 10 years¥ 111,068

¥

—

¥—

¥—

54,1887,682
1,049¥ 173,990

7,868
167
—
¥ 8,035

—
—
—
¥—

—
—
—
¥—

Within 1 year

After 1 year
through 5 years

After 5 years
through 10 years

After 10 years$ 1,045,345

$

—

$—

$—

510,004
72,301
9,872$ 1,637,552

74,051
1,571—$ 75,623

—
—
—
$—

—
—
—
$—

Within 1 year

After 1 year
through 5 years

After 5 years
through 10 years

After 10 years

Thousands of U.S. dollars

At March 31, 2018
Cash and deposits
Notes and accounts receivablefrom completed construction contracts
Accounts receivable-other
Available-for-sale securities
Total

Millions of yen

At March 31, 2017
Cash and deposits
Notes and accounts receivablefrom completed construction contracts
Accounts receivable-other
Available-for-sale securities
Total¥ 126,042

¥

—

¥—

¥—

81,7186,662
1,175¥ 215,599

6,675
67
—
¥ 6,743

—
—
—
¥—

—
—
—
¥—

(Note 4) Schedule for repayment of bonds and long-term loans payable
See “8. SHORT-TERM AND LONG-TERM DEBT”.

64

TOYO ENGINEERING CORPORATION

Integrated Report 2018

18. SHORT-TERM INVESTMENTS IN SECURITIES AND INVESTMENTS IN SECURITIESThe acquisition cost, unrealized gain and loss and the related book value of available-for-sale securities with available fair values
at March 31, 2018 are summarized as follows:
Millions of yen

At March 31, 2018
Securities whose carrying value exceeds their acquisition costs:
Equity securities
Subtotal
Securities whose carrying value does not exceed their acquisition costs:
Debt securities
Subtotal
Total

Book value

At March 31, 2018
Securities whose carrying value exceeds their acquisition costs:
Equity securities
Subtotal
Securities whose carrying value does not exceed their acquisition costs:
Debt securities
Subtotal
Total

Book value

Acquisition cost

Unrealized gain

¥ 1,076¥ 1,076

¥
¥

529
529

¥ 547
¥ 547

¥ 1,049¥ 1,049¥ 2,126¥ 1,049¥ 1,049¥ 1,579

¥ —
¥ —
¥ 547

Thousands of U.S. dollars

Acquisition cost

Unrealized gain

$ 10,127$ 10,127$ 4,978$ 4,978$ 5,148$ 5,148$ 9,872$ 9,872$ 20,009$ 9,872$ 9,872$ 14,861$—$—$ 5,148

Proceeds from and gain on sales of securities at March 31, 2018 are as follows:
Millions of yen

At March 31, 2018
Equity securities

Proceeds

At March 31, 2018
Equity securities

Proceeds¥ 3,738

Gain on sales¥ 3,060

Loss on sales¥—

Thousands of U.S. dollars$ 35,181

Gain on sales$ 28,800

Loss on sales$—

The acquisition cost, unrealized gain and loss and the related book value of available-for-sale securities with available fair values
at March 31, 2017 are summarized as follows:
Millions of yen

At March 31, 2017
Securities whose carrying value exceeds their acquisition costs:
Equity securities
Subtotal
Securities whose carrying value does not exceed their acquisition costs:
Debt securities
Subtotal
Total

Book value

Acquisition cost

Unrealized gain

¥ 4,659¥ 4,659

¥
¥

987
987

¥ 3,672¥ 3,672¥ 1,175¥ 1,175¥ 5,835¥ 1,175¥ 1,175¥ 2,163¥—¥—¥ 3,672

Proceeds from and gain on sales of securities at March 31, 2017 are as follows:
Millions of yen

At March 31, 2017
Equity securities

Proceeds¥ 1,532

Gain on sales¥ 1,309

Loss on sales¥—

TOYO ENGINEERING CORPORATION

Integrated Report 201865

19. DERIVATIVE TRANSACTIONS
For the year ended March 31, 2018
1. Derivatives not designated as hedging instruments(1) Currency-related
Millions of yen

Non-market transaction:
Foreign exchange forward contracts
Selling
USD
Buying
USD
EUR
Total

All notionalamounts

Notional
amounts due
over 1 year

¥ 9,548¥ 1,683¥ (347)¥ (347)4556¥ 10,109——¥ 1,683(0)5¥ (341)(0)
5¥ (341)

All notionalamounts

Notional
amounts due
over 1 year

$ 89,863$ 15,840$ (3,265)$ (3,265)

37
5,232$ 95,143——$ 15,840(0)47$ (3,209)(0)47$ (3,209)

Fair value

Computational
method of fairvalue

Unrealized
gain / (loss)

Fair value

Thousands of U.S. dollars

Non-market transaction:
Foreign exchange forward contracts
Selling
USD
Buying
USD
EUR
Total

Unrealized
gain / (loss)

Fair value

2. Derivatives designated as hedging instruments(1) Currency-related
Millions of yen

Main hedged
items

Deferral hedge accounting method:
Foreign exchange forward contracts
Selling
USD
EUR
SEK
THB
BuyingUSD
EUR
SEK
Alternative method:
Foreign exchange forward contracts
Selling
USD
EUR
Buying
USD
EUR
KRW
Total
66

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Accounts
receivableandaccounts
payableAccounts
receivableandaccounts
payableAll notionalamounts

Notional
amounts due
over 1 year

¥ 18,305
2,378
410
2,277

¥ 2,520
1,776——

22,365
3,360
759

3,555
734
263

11,049
167

4,187
—

336
670
190
¥ 62,271———¥ 13,038¥ (117)(1)
Based on29 prices(155) offered byfinancial
institutions
(507)
(3)
(46)

N/A

Based onforwardexchange
contract prices

Thousands of U.S. dollars

Main hedged
items

Deferral hedge accounting method:
Foreign exchange forward contracts
Selling
USD
EUR
SEK
THB
BuyingUSD
EUR
SEK
Alternative method:
Foreign exchange forward contracts
Selling
USD
EUR
Buying
USD
EUR
KRW
Total

Accounts
receivableandaccounts
payableAccounts
receivableandaccounts
payableAll notionalamounts

Notional
amounts due
over 1 year

$ 172,282
22,381
3,858
21,430$ 23,717
16,715——

210,494
31,623
7,143

33,4586,908
2,475

103,990
1,571

39,407
—

3,162
6,305
1,788
$ 586,080———$ 122,710

Fair value

Computational
method of fairvalue

$ (1,101)(9)
Based on272 prices(1,458) offered byfinancial
institutions(4,771)
(28)
(432)

N/A

Based onforwardexchange
contract prices(2) Interest-related
Millions of yen

Transaction type

Main hedged
items

All notionalamounts

Notional
amounts due
over 1 year

Fair value

Computational
method of fairvalue

Accounting method:
Special method forinterest rate swap

Interest swap
contracts
floating for
fixed rateswap

Long-termloans payable

Total¥ 10,420¥ 7,900¥ 10,420¥ 7,900

N/A

Based onprices offeredby financial
institutions

Thousands of U.S. dollars

Transaction type

Main hedged
items

All notionalamounts

Notional
amounts due
over 1 year

Fair value

Computational
method of fairvalue

Accounting method:
Special method forinterest rate swap
Total

Interest swap
contracts
floating for
fixed rateswap

Long-termloans payable$ 98,070$ 74,352$ 98,070$ 74,352

N/A

Based onprices offeredby financial
institutions

TOYO ENGINEERING CORPORATION

Integrated Report 201867

For the year ended March 31, 2017
1. Derivatives not designated as hedging instruments(1) Currency-related
Millions of yen

All notionalamounts

Notional
amounts due
over 1 year

¥ 2,993
440

¥ 85
—

¥ (163)(0)¥ (163)
(0)

28
630
51
¥ 4,143

—
23
—
¥ 108

(0)
(23)
(1)
¥ (189)

(0)
(23)
(1)
¥ (189)Non-market transaction:
Foreign exchange forward contracts
Selling
USD
EUR
Buying
USD
EUR
JPY
Total

Unrealized
gain / (loss)

Fair value

2. Derivatives designated as hedging instruments(1) Currency-related
Millions of yen

Main hedged
items

Deferral hedge accounting method:
Foreign exchange forward contracts
Selling
USD
EUR
SEK
THB
Buying
USD
EUR
SEK
KRW
Alternative method:
Foreign exchange forward contracts
Selling
USD
EUR
Buying
USD
EUR
CAD
KRW
Total

Accounts
receivableandaccounts
payableAccounts
receivableandaccounts
payableAll notionalamounts

Notional
amounts due
over 1 year

¥ 50,504
1,272
6,808
2,018

¥ 19,436
181
128
747

¥ (4,329)
96
406
(26)

53,259
6,607
4,453
518

14,416
459
583
179

562
(304)
(178)
(29)

15,736
477

2,065
—

1,297
868
165
265
¥ 144,255—
52——¥ 38,251

Fair value

N/A

Computational
method of fairvalue

Based onpricesoffered byfinancial
institutions

Based onforwardexchange
contract prices(2) Interest-related
Millions of yen

Transaction type

Main hedged
items

All notionalamounts

Notional
amounts due
over 1 year

Fair value

Long-termloans payable¥ 11,940¥ 11,040

N/A¥ 11,940¥ 11,040

Computational
method of fairvalue

Accounting method:
Special method forinterest rate swap
Total
68

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Interest swap
contracts
floating for
fixed rate
swap

Based onprices offeredby financial
institutions

20. RETIREMENT BENEFITSThe Company and certain consolidated subsidiaries have either funded or unfunded defined benefit plans and lump-sum payment
plans and the defined contribution plans.
The Company and certain consolidated subsidiaries provide lump-sum or pension which is based on salary and service timein the defined benefit plans and introduce cash balance-style pension plans in a part of defined benefit plans. In this institution,
hypothetical individual employee accounts which are equal to the source of deposit and pension by each buyer are established.
In these accounts, the interest credit which is based on the movement of market interest rate and the contribution credit which
is based on the salary level are accumulated. In a part of defined benefit plans, etc., retirement benefit trust is established.
In lump-sum payments plans (part of which becomes funded as a result of benefit trust although the system is unfunded), thelump-sum based on the salary and service time as retirement benefits is provided.
Defined contribution plans and lump-sum payments for certain consolidated subsidiaries are accounted for using the simplified method in which calculates retirement benefit liabilities and retirement benefit expenses.
(1) Changes in defined benefit obligations
Thousands of
U.S. dollars

Millions of yen

April 1
Balance at beginning of year
Service cost
Interest cost
Actuarial gains and losses
Benefit paid
Other
March 31

2018

2017

¥ 19,734
19,734
1,078
218
(359)
(1,309)78¥ 19,441¥ 19,833
19,8331,076
221
44(1,327)(114)¥ 19,734

2018$ 185,731
185,731
10,1452,051(3,378)(12,320)734$ 182,974(2) Changes in plan assets
Thousands of
U.S. dollars

Millions of yen

April 1
Expected return on plan assets
Actuarial gains and losses
Contributions by the employer
Amount of establishment retirement benefit trust
Benefit paid
Other
March 31

2018

2017

¥ 17,932
415
1,064
619
—
(1,142)115¥ 19,004¥ 14,100
336
16
778
3,862
(1,067)(95)¥ 17,932

2018$ 168,771
3,905
10,014
5,825—(10,748)
1,082$ 178,861(3) Reconciliation of defined benefit obligations and plan assets to net benefit liability and asset
The reconciliation of the defined benefit obligations and plan assets to net defined benefit liability and asset recognized in the
consolidated balance sheets as of March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

Funded defined benefit obligations
Plan assets
Subtotal
Unfunded defined benefit obligations
Net amount of liability and asset recognized in consolidatedbalance sheets
Liabilities (net defined benefit liability)
Assets (net defined benefit asset)
Net amount of liability and asset recognized in consolidatedbalance sheets

2018

2017

¥ 18,214(19,004)
(789)
1,226

¥ 18,613(17,932)681
1,120$ 171,425(178,861)(7,425)
11,538

437
1,323
(886)

1,802
1,802
—

4,112
12,451(8,338)437¥ 1,802

¥

2018

$

4,112

TOYO ENGINEERING CORPORATION

Integrated Report 201869

(4) Retirement benefit expenses
Thousands of
U.S. dollars

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial gains and losses
Other
Total

2018

2017

2018

¥ 1,078
218
(415)
(392)
(8)
¥ 480

¥ 1,076
221
(336)
(101)
—
¥ 860

$ 10,145
2,051(3,905)(3,689)(75)$ 4,517(5) Remeasurements of defined benefit plans
Thousands of
U.S. dollars

Millions of yen

2018
Actuarial gains (losses)
Total

2018

2017

¥ 1,030¥ 1,030$ 9,694$ 9,694¥ (129)¥ (129)(6) Accumulated remeasurements of defined benefit plans
The unrecognized actuarial gains and losses recognized in accumulated other comprehensive income (amount before income tax
effect) as of March 31, 2018 and 2017 are as follows:
Thousands of
U.S. dollars

Millions of yen

2018
Unrecognized actuarial gains and losses
Total

2018

2017

¥ 1,023¥ 1,023$ 9,628$ 9,628

¥ (7)
¥ (7)

(7) Major breakdown of plan assets

2018
Components of net periodic benefit cost
Securities
StocksCash and deposits
Other
Total

2017

27%
47%
10%
16%
100%

31%
44%
10%
15%
100%

23% and 21% of total plan assets as of March 31, 2018 and 2017, respectively, are included in the retirement benefit trust.
(8) Basis of actuarial calculation
Basis of calculation of projected benefit obligation for the years ended March 31, 2018 and 2017 are as follows:
Discount rate
Expected rate of return on plan assets
Expected salary increase rate

2018

2017

Mainly 0.08%
Mainly 2.0%
Mainly 3.4%

Mainly 0.08%
Mainly 2.0%
Mainly 3.4%

Defined contribution plans
The contributions by the Company and subsidiaries to the defined contribution plans were ¥235 million ($2,211 thousand) and¥579 million for the years ended March 31, 2018 and 2017, respectively.

70

TOYO ENGINEERING CORPORATION

Integrated Report 2018

21. INCOME TAXESThe statutory tax rate applicable to the Company and its domestic subsidiaries for the year ended March 31, 2018 and 2017 wasapproximately 30.7%. Income taxes of the foreign subsidiaries are based generally on the tax rates applicable in their countries
of incorporation.
(1) Significant components of the deferred income tax assets and liabilities
Thousands of
U.S. dollars

Millions of yen

As of March 31,
Deferred tax assets (gross):
Net defined benefit liability
Deferred losses on hedges
Operating loss carry forwards
Tax adjustment of sales by percentage of completion method
Provision for loss on construction contracts
Provision for bonuses
Accounts payable for construction contracts
Other
Total deferred tax assets (gross)
Deferred tax assets-Deferred tax liabilities
Total deferred tax assets

2018

2017

2018

¥

82
—
71
55
1,394
29
747
494
2,874
(447)
2,427

¥ 1,483
941
492
269
1,112
136
874
1,212
6,524
(2,380)
4,144

$

1,452
162
644
864
3,123
(447)
2,676
¥ (249)

1,341
1,062
638
940
3,982
(2,380)1,602¥ 2,542

13,665
1,524
6,061
8,131
29,392(4,207)25,185$ (2,343)

Deferred tax liabilities (gross):
Undistributed earnings of subsidiaries and affiliates
Valuation difference on available-for-sale securities
Gain on securities contribution to retirement benefits trust
Other
Total deferred tax liabilities (gross)
Deferred tax assets-Deferred tax liabilities
Deferred tax liabilities
Net deferred tax (liabilities) assets

771
—
668
517
13,120
272
7,030
4,649
27,049(4,207)
22,842

Note: The Company and its consolidated subsidiaries had temporary differences excluded from calculation of deferred tax assetsof ¥13,271 million ($124,903 thousand) and ¥6,335 million at March 31, 2018 and 2017, respectively, which are available to
be offset against future taxable income.
(2) The effective tax rate on income before income taxes in the accompanying consolidated statements of operations was notequal to the above-mentioned statutory tax rate for the following reasons for the year ended March 31, 2017.
Year ended March 31,
Statutory tax rate in Japan
Adjustments:
Permanently nondeductible expenses
Permanently nontaxable etc.
Per capita levy on corporate inhabitant tax
Temporary differences excluded from calculation of deferred tax assets
Difference in tax rates for foreign subsidiaries
Difference in tax base between corporate income tax and enterprise tax
Operating loss carry forwards etc.
Equity in earnings of affiliates
Adjustment of tax in prior years
Non-income based tax in foreign countries
Other
Effective tax rate

2017

30.7%
3.9
(0.3)
0.2
8.2
(8.3)
(0.7)
12.8
(0.1)
14.4
8.8
5.2
74.8

As loss before income taxes is recorded, the reconciliation of the difference between the statutory tax rate for and the effective
tax rate for the year ended March 31, 2018 was omitted.

TOYO ENGINEERING CORPORATION

Integrated Report 201871

22. SEGMENT INFORMATION(1) Information by geographical segment based on the locations of projects
Millions of yen

Year ended March 31, 2018
Net SalesJapan

Malaysia

USA

Thailand

India

Other

¥ 68,542¥ 73,151¥ 40,224¥ 55,596¥ 42,946¥ 55,236

Year ended March 31, 2018
Net SalesJapan

Malaysia

USA

ThailandIndia$ 645,101$ 688,480$ 378,578$ 523,256$ 404,197

Year ended March 31, 2018
Property, plant and equipment

Japan

Indonesia

Year ended March 31, 2018
Property, plant and equipmentJapan$ 83,905$ 20,320$ 8,517

Year ended March 31, 2017
Net SalesJapan

Malaysia

USA

Thailand

India

Other

Total

¥ 71,032¥ 96,663¥ 80,714¥ 52,198¥ 17,186¥ 114,120¥ 431,917

Year ended March 31, 2017
Property, plant and equipment

Japan

Total

¥ 335,697

Thousands of U.S. dollars

Other

Total

$ 519,868 $ 3,159,501

Millions of yen¥ 8,915

Other¥ 2,159

Total

¥ 905

¥ 11,980

Thousands of U.S. dollars

Indonesia

Other

Total

$ 112,752
Millions of yen

Millions of yen¥ 8,905

Indonesia¥ 2,671

Other

Total

¥ 1,038¥ 12,615(Changes in presentation)
India, which had been included in “Other” for the year ended March 31, 2017, is presented separately for the year ended March
31, 2018 because the corresponding amount exceeded 10% of net sales on the consolidated statement of operations for the year.
To reflect this change in presentation, ¥17,186 million attributable to India for the year ended March 31, 2017, which had beenpreviously included in “Other,” was reclassified and presented separately.
(2) Information by major clients
Millions of yen

Year ended March 31, 2018
PRPC REFINERY AND CRACKER SDN. BHD.
Chambal Fertilisers and Chemicals Limited
Setouchi Future Creations, LLC
Shintech Louisiana, LLC

Net SalesYear ended March 31, 2018
PRPC REFINERY AND CRACKER SDN. BHD.
Chambal Fertilisers and Chemicals Limited
Setouchi Future Creations, LLC
Shintech Louisiana, LLC

Net Sales

Segment$ 672,950$ 382,522$ 324,103$ 318,277

EPC
EPC
EPC
EPC

Year ended March 31, 2017
PRPC REFINERY AND CRACKER SDN. BHD.
Shintech Louisiana, LLC

Net Sales

Segment¥ 71,501¥ 40,643¥ 34,436¥ 33,817

EPC
EPC
EPC
EPC

Thousands of U.S. dollars

Millions of yen

72

TOYO ENGINEERING CORPORATION

Integrated Report 2018

¥ 95,216¥ 62,733

Segment

EPC
EPC

23. RELATED PARTY INFORMATION
1. Related Party Transactions
For the year ended March 31, 2018
Millions of yen

Name: NEDL-CONSTRUCOES DE
DUTOS DO NORDESTE LTDA.
Category: Affiliate
Address: Brazil
Capital and investments:
13,456 thousands BRL
Business: Construction
Equity ownership percentage:
42% directly
Relation with related party:
Loan for operating fund

Summary of Transaction
transactions amount

Loan for
operatingfund¥—

Thousands of U.S. dollars

Title ofaccount

Accountbalance

Transaction
amountTitle ofaccount

AccountbalanceLong-term
loans
receivable¥ 3,707$—

Long-term
loans
receivable$ 34,889

For the year ended March 31, 2017
Millions of yen

Name: NEDL-CONSTRUCOES DE
DUTOS DO NORDESTE LTDA.
Category: Affiliate
Address: Brazil
Capital and investments:
12,000 thousands BRL
Business: Construction
Equity ownership percentage:
42% directly
Relation with related party:
Loan for operating fund

Summary of Transaction
transactions amount

Loan for
operatingfund¥—

Title ofaccount

Accountbalance

Longterm loans
receivable¥ 3,707

Notes: 1. Interest rate on loan is determined by considering effective market rates.
2. The Company reserved ¥3,707 million ($34,889 thousand) of allowance for doubtful accounts at March 31, 2018,against the loan above.
3. The Company reserved ¥3,707 million of allowance for doubtful accounts at March 31, 2017, against the loan above.
For the year ended March 31, 2018
Millions of yen

Name: Toyo Setal Empreendimentos Ltda. Summary of Transaction
Category: Affiliate
Address: Brazil
Capital and investments:
38,904 thousands BRL
Business: Construction
Equity ownership percentage:
50% indirectly
Relation with related party:
Contingent liabilities

transactions

amountTitle ofaccount

Contingent
liabilities¥ 2,039—

Thousands of U.S. dollars

Accountbalance

Transaction
amountTitle ofaccount

Accountbalance¥—$ 19,190—$—

Notes: 1. Interest rate on loan is determined by considering effective market rates
2. Contingent liabilities are provided for refund guarantee etc. of Toyo Setal Empreendimentos Ltda..

TOYO ENGINEERING CORPORATION

Integrated Report 201873

For the year ended March 31, 2018
Millions of yen

Name: Estaleiros do Brasil Ltda.
Category: Affiliate
Address: Brazil
Capital and investments:
57,749 thousands BRL
Business: Construction
Equity ownership percentage:
50% indirectly
Relation with related party:
Loan for operating fund

Summary oftransactions

Transaction
amountLoan for
operating fund

¥ 543

Repayment ofloan for
operating fund

4,027

Accured interst
income442

Thousands of U.S. dollars

Title ofaccount

Accountbalance

Transaction
amountTitle ofaccount

Accountbalance

Short-term
loans
receivable¥ 3,902$ 5,110

Short-term
loans
receivable$ 36,724

—

—

—

—

37,9014,160

For the year ended March 31, 2017
Millions of yen

Name: Estaleiros do Brasil Ltda.
Category: Affiliate
Address: Brazil
Capital and investments:
57,749 thousands BRL
Business: Construction
Equity ownership percentage:
50% indirectly
Relation with related party:
Loan for operating fund

Summary oftransactions

Transaction
amountTitle ofaccount

Accountbalance

Loan for
operating fund

¥ 16,244

Short-term
loans
receivable¥ 2,775

Repayment ofloan for
operating fund

2,267
—

—

Accured interst
income204

Note: 1. Interest rate on loan is determined by considering effective market rates
2. Summary of Financial Statements of Significant Affiliates
For the years ended March 31, 2018 and 2017, the significant affiliates were Moeco Thai Oil Development Co.,Ltd., MODEC and Toyo
Offshore Production Systems Pte.Ltd. and TS Participações e Investimentos S.A. Their condensed financial information is as follows:
Thousands of
U.S. dollars

Millions of yen

As of and for the years ended March 31,
Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Total net asset deficiencies

2018

2017

2018

¥ 40,885
13,20857,0894,732¥ (7,728)¥ 61,981
15,16885,613
4,144¥ (12,607)$ 384,800
124,310537,308
44,536$ (72,734)

Net sales
Profit before income tax
Profit¥ 24,247
11,388¥ 10,833¥ 44,100
3,651¥ 2,122$ 228,207
107,181$ 101,957

24. AMOUNTS PER SHARE
Yen

As of and for the years ended March 31,
Net assets per share(Loss) profit attributable to owners of parent per share2018¥ 654.91(700.30)

U.S. dollars

2017¥ 1,337.40
38.42

2018
$ 6.16(6.59)(Loss) profit attributable to owners of parent per share is computed based on the (loss) profit available for distribution to shareholdersof common stock and the weighted average number of shares of common stock outstanding during each year.
Net assets per share are computed based on the number of common stock outstanding and the net assets excluding non-controlling interests at the year end.
The Company conducted a one-for-five reverse stock split of common shares effective October 1, 2017. The corresponding
figures shown here have been calculated on the assumption that the reverse stock split had been conducted at the beginning of
the previous fiscal year.
74

TOYO ENGINEERING CORPORATION

Integrated Report 2018

TOYO ENGINEERING CORPORATION

Integrated Report 201875

Corporate Information
Corporate Data
Corporate Name:

Toyo Engineering Corporation

Founded:May 1, 1961

Number of
Employees:

4,085 (Consolidated, as of March 31, 2018)

Corporate Philosophy:

MissionEngineering for Sustainable Growth of the Global Community

VisionGlobal Leading Engineering Partner

ValuesIntegrity, Creativity, Diversity, Learning, Team

Business Activities:

Engineering and Construction for Industrial Facilities
R&D support, design, engineering, procurement, construction, commissioning, technical assistance for industrial facilities:oil, gas, oil & gas development, petrochemicals, chemicals, water treatment, transportation systems, power generation,
nuclear power, advanced production systems, pharmaceutical, fine chemical, distribution systems, biotechnology,
environment and others

History
1961 TOYO was established. Capital: 300 million yen

1986 Toyo U.S.A., Inc. established.

1962 An agreement for engineering service and technical assistance wasconcluded with Lummus Co. (U.S.A.).

1987 Toyo Engineering Korea Limited established.

1963 The first overseas contract for a fertilizer plant with The Fertilizer
Corporation of India Ltd. was awarded.
1964 The first urea plant contract in the former Soviet Union wasawarded.
1965 TOYO was awarded its first ethylene plant contract (Osaka, Japan).
1969 TOYO was awarded the contract for the first ammonia plant in theformer Soviet Union.
1970 TOYO was awarded the contract for two ammonia plants in theformer East Germany.

Toyo Engineering & Construction Sdn. Bhd. established in Malaysia.
1989 Capital: 12,219 million yen
1990 Head Office/Engineering Center (Baytec Building) started operationin Narashino, Chiba.
1993 Capital: 13,017 million yen
1994 TOYO received ISO 9001 registration.
2004 TOYO received ISO 14001 registration.
Toyo Engineering Corporation ,China established.
2006 Capital: 18,198 million yen

1972 International Procurement & Service Corporation (Currently ToyoEngineering Europe, S.r.l.) established.

2007 Relocation of Tokyo head office.

1973 A contract for a urea plant for China was awarded.
1975 Capital: 1,890 million yen

2010 TOYO acquired Tri Ocean Engineering Limited in Calgary, Alberta,
Canada (Currently Toyo-Canada).

1976 Toyo Engineering India Limited established.

2011 The 50th Anniversary

2009 TOYO formulated the Group MVV (Mission, Vision, Values).

TOYO invested in PT. Inti Karya Persada Tehnik (IKPT) in Indonesia.

1978 Capital: 2,970 million yen

2012 TS Participações e Investimentos S.A. established in Brazil.

1980 Capital: 3,300 million yen
TOYO was listed on the second section of the Tokyo Stock
Exchange.

Consolidated Group logo developed.
2018 Haruo Nagamatsu was elected as President and CEO.

1982 Capital: 5,040 million yen
TOYO was listed on the first section of the Tokyo Stock Exchange.

Worldwide Network
HEAD OFFICEOVERSEAS GROUP COMPANIES•Head Office/Engineering Center•Toyo Engineering Korea Limited•Toyo Engineering Europe, S.r.I.

•TEC Project Services Corporation

Chiba, Japan

Seoul, Korea

Milan, Italy•Tokyo Head Office•Toyo Engineering Corporation(China)•Toyo Engineering Canada Ltd.

EPC and maintenance services for plants
and facilities, environmental technology

Tokyo, Japan

Shanghai, China

OVERSEAS OFFICE•Jakarta, Indonesia•Tehran, Iran•Moscow, Russia•PT. Inti Karya Persada Tehnik (IKPT)Jakarta, Indonesia•Toyo Engineering & Construction
Sdn. Bhd.

DOMESTIC GROUP COMPANIESCalgary, Canada•Toyo U.S.A., Inc.
Houston, U.S.A.

•TS Participações e Investimentos
S.A.
Sao Paulo, Brazil•TEC Business Services Corporation
Staffing service, contracted businessservice, translation and interpretation
service, facility management service•TEC Air Service Corporation
Travel and insurance services

Kuala Lumpur, Malaysia•TEC Accounting & Consulting Ltd.

•Toyo Engineering India Private
LimitedBusiness support and consulting foraccounting and accounting systemdevelopment

Mumbai, India•Chiba Data Center Corporation
Data entry, scanning services andcommercial printing

76

TOYO ENGINEERING CORPORATION

Integrated Report 2018

Stock Information(As of March 31, 2018)

Capital Stock¥18,198 million

Stock Exchange Listing

Tokyo Stock Exchange

Authorized Shares

100,000,000

Capital Stock Issued

38,558,507

Number of Shareholders

17,650Administrator of Shareholders’Register

Sumitomo Mitsui Trust Bank, Limited
1-4-1 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan

Major Shareholders

Types of Shareholder
Number of shares Percentage of(thousands)
total (%)

Mitsui & Co., Ltd.

8,754

22.70

Japan Trustee Services Bank, Ltd.
(Sumitomo Mitsui Trust Bank, Limited
Re-trust Account, Mitsui Chemicals, Inc.
Pension Trust Account)

5,140

13.33

The Bank of New York, Non-Treaty
Jasdec Account

1,669

4.33

Taisei Corporation

1,000

2.59

State Street Bank And Trust Company

922

2.39

Japan Trustee Services Bank, Ltd.
Trust Account 9

598

1.55

The Master Trust Bank of Japan, Ltd.
Trust Account

525

1.36

Japan Trustee Services Bank, Ltd.
Trust Account 5

502

1.30

Sumitomo Mitsui Banking Corporation

470

1.21

Japan Trustee Services Bank, Ltd.
Trust Account

419

1.08

Others
1.08%

Financial institutions
25.93%

Individuals
33.64%

Type of
Shareholder(%)

Foreign shareholders
12.45%

Domestic companies
26.90%

Stock Chart
(Yen)

2,000

1,500

1,000

500
Trading Volume (Thousands of Shares)

100,000

0

50,000

0
4

5

6

7

8

9

10

11

12

1

2

3

4

5

6

7

8

FY2015910FY2016

11

12

1

2

3

4

5

6

7

8

9

10

11

12

1

2

3

FY2017*Stock prices are converted taking into account the impact of share consolidation.

TOYO ENGINEERING CORPORATION

Integrated Report 201877

TOYO ENGINEERING CORPORATIONTOYO ENGINEERING CORPORATION
2-8-1 Akanehama,Narashino-shi, Chiba 275-0024, Japan
Tel: 81-47-451-1111 Fax: 81-47-454-1800
https://www.toyo-eng.com/jp/en

Integrated Report 2018