2018

Integrated Report
Year Ended March 31, 2018

We pride ourselves on our ability to act on customer feedback and topartner with a wide range of industries to help improve the quality of life.
Market responsiveness and collaborative innovation are our two corevalues. These values are at the heart of everything we do as we shape
the future through gas technologies, crafting a harmonious relationshipbetween people, society and the planet. We are the Taiyo Nippon Sanso
Group, where professionals come together.

Philosophy

Guiding Principles“Market-driven
collaborative innovation:
Improving the future
through gases”

Progressive, united in creativity,
forward-looking
We pledge to listen to the views of
stakeholders and to contribute—throughboth our gas technologies and collaboration
with partners in other industries—tothe creation of a spiritually andmaterially wealthy society.

Corporate Symbol
Taiyo Nippon Sanso’s corporate logo represents the seamlessintegration of state-of-the-art technology and nature, as well as
the Company’s business domain, founded on its advanced
technologies for controlling oxygen, nitrogen, argon and othergases. The logo also evokes the Company’s resolve to achieve
growth through superior quality and transparency and toensure a future that is clean, safe and healthy.

CONTENTS
Our Business

Our Foundation

Milestones in Value Creation ............................................... 2
Taiyo Nippon Sanso’s History of Achievement..................... 4
Value Creation Process ....................................................... 6

Corporate Governance ......................................................26
Messages from Outside Members of the Board .................29
Members of the Board of Directors, Members of the Audit
and Supervisory Board and Executive Officers .................30
Working with Stakeholders ................................................32
Environmental Protection Initiatives ....................................34

Our Strategies
A Message to Stakeholders ................................................ 8Special Features
1. TNSC Technical Academy:
A New Training Facility Designed to Improve Group
Technological and Safety Capabilities ............................14
2. The Taiyo Nippon Sanso Health Management
Declaration and Efforts to Create a Corporate Climatethat Prioritizes Employee Health.....................................16

Our Performance

Financial and Corporate Information
Six-Year Summary .............................................................36
Management’s Analysis of Operating Results andFinancial Position .............................................................37
Consolidated Financial Statements ....................................40
Investor Information ...........................................................76
Corporate Data..................................................................77

Strategic Perspectives
Gas Business in Japan ......................................................18
Gas Business in the United States .....................................20
Gas Business in Asia and Oceania.....................................22
Thermos Business .............................................................24

Purpose of Report/Editorial Policy

Scope of Reporting

In line with our philosophy, “Market-driven collaborative innovation: Improving
the future through gases,” we strive to manage our operations in a mannerthat enables us to contribute—through our gas technologies and collaboration
with partners in other industries—to the creation of a spiritually and materiallywealthy society.
The purpose of this report is to provide financial information, including that
related to corporate strategies and operating conditions, and non-financial
information, such as that related to environmental protection and social contribution initiatives and to corporate governance, with the aim of giving shareholders, investors and other stakeholders an accurate overall picture of the
Taiyo Nippon Sanso Group and its activities.

In principle, this report covers the activities of Taiyo Nippon Sanso andthe companies of the Taiyo Nippon Sanso Group. For certain non-financial
information, however, the scope is limited to the domestic activities of theparent company alone. Accordingly, entities covered by individual graphs
are specified.

Period Covered
Data in this report is for fiscal year 2018, ended March 31, 2018, althoughsome fiscal year 2019 activities are also featured.

Guidelines Used
This report was prepared in accordance with Environmental Reporting
Guidelines (2018 Edition), published by Japan’s Ministry of the Environment,
and the GRI Sustainability Reporting Guidelines (2013), published by the
Global Reporting Initiative (GRI).

Taiyo Nippon Sanso Corporation | Integrated Report 20181

Milestones in Value Creation

1964
Opened first on-site plant (Shunan Plant;
currently Shunan Sanso Co., Ltd.)

1910–2004
Nippon Sanso Corporation

1964
Began full-scale imports and sales ofhelium gas

1910
Established as Nippon Sanso Ltd.
1935
Completed Japan’s first air
separation unit

1910 –1940s

1950s

1960s

Market needs

Market needs

Market needs

Acetylene, oxygen

OxygenNitrogen (inert gas)

Industries supplied

Industries supplied

Industries supplied

Railroad, shipbuilding, army and navy

Steel, shipbuilding

Petrochemicals, electronics

Principal applications

Principal applications

Principal applications

Welding, cutting

Blast furnaces (gases for blowing into
blast furnaces)

Oil refining
Inhibition of oxidation
Prevention of contamination

1968
Established Kashima Sanso Co., Ltd.,to supply industrial gases to an industrial
complex in Kashima, a joint venture with
Mitsubishi Petrochemical Co., Ltd.
(currently Mitsubishi Chemical
Corporation)

1946–1994
Taiyo Sanso Co., Ltd.
1946
Established as Taiyo
Sanso Co., Ltd.;
completed first production
facility and commenced
sales in 1947

1918–1994
Toyo Sanso K.K.
1918
Established as Toyo Sanso K.K.

2

Taiyo Nippon Sanso Corporation | Integrated Report 20181953
Installed oxygen production equipment and dissolved
acetylene production equipment and commenced
operations at the Kawasaki Plant, a comprehensive
production facility in Mizue-cho, Kawasaki
1955
Commenced operations at the Takasaki Plant, the first dedicated liquefied oxygenstorage and filling facility in Japan, which featured state-of-the-art equipment

1978
Developed world’s firststainless steel vacuuminsulated bottle
1980
Established Japan Oxygen, Inc., in the United States

1992
Acquired industrial gases
manufacturer Tri-Gas, Inc., in the
United States (merged with
Matheson in 1999 to create
Matheson Tri-Gas, Inc.)

2003
Established industrial gases manufacturingand marketing company Shanghai Nippon
Sanso Gas Co., Ltd. (currently Shanghai
Taiyo Nippon Sanso Gas Co., Ltd.), in China

1982
Established joint venture National Oxygen Pte. Ltd.
in Singapore
1983
Acquired Matheson Gas Products, Inc., of theUnited States
1989
Acquired the Thermos Group, the world’s largest
manufacturer of vacuum-insulated bottles

1970s –1980s

1990s

2000s

Market needs

Market needs

Market needs

Oxygen, nitrogen, argon, xenon,
krypton, neon, monosilane gas,othersHydrogen, nitrogen

Electronics materials gases

Industries supplied

Industries supplied

Industries supplied

Automobiles, energy, medicine,engineering

Semiconductors, liquid crystal
displays (LCDs)

Semiconductors, nonferrous/
ferrous metals, aerospace/aircraft

Principal applications

Principal applications

Hydrogen fuel cells
New energy with low environmental
impactMedical equipment
Linear motor cars

Light-emitting diodes (LEDs)

Principal applications

Various production processes
Inhibition of oxidation
Plasma cutting
Smelting/deoxidation
Removal of impurities from
specialty steel
Emission spectrometry
Rocket fuel1987
Became a designated general supplier of
specialty materials gases of Taiwan
Semiconductor Manufacturing Company
Limited (TSMC), marking the launch offull-scale overseas supplies of gases forsemiconductor-related applications

1995 –2004
Taiyo Toyo Sanso Co., Ltd.
1995
Commenced operations under the
Taiyo Toyo Sanso name
1996
Established Fu Yang Gas Co., Ltd., anindustrial gases and semiconductormaterials gases production and sales
company, in Hsinchu, Taiwan

1994
Merger agreement signed by Taiyo
Sanso and Toyo Sanso

2001
Established Japan Fine Products Co.,
Ltd., a supplier of specialty gases forsemiconductor-related applications, ina joint venture with Nippon Sanso
Corporation

Taiyo Nippon Sanso Corporation | Integrated Report 20183

Taiyo Nippon Sanso’s History of Achievement
Years ended/ending March 31

Operating profit margin

8.0%
6.9%

6.7%

7.6%

7.3%
5.9%

Revenue (Net sales)(Billions of yen)

507.7
458.5

6.4%

6.5%
5.3%

495.7

483.6

477.4

468.3

2011

2012

2013

433.3

397.3

300.0

2005

2006

2007

2004–present
Taiyo Nippon Sanso Corporation

2008

2009

2010

2008
Established Dalian Changxing Island Taiyo Nippon Sanso Gas Co., Ltd., in China
and installed air separation unit2009
Acquired Matheson Tri-Gas acquires Valley National Gases LLC, thelargest independent industrial gases distributor in the United States

2010
Matheson Tri-Gas acquired Western International Gas
and Cylinders, Inc., a leading U.S. wholesale supplierof acetylene
Created as Taiyo Nippon Sanso through the merger of
Nippon Sanso and Taiyo Toyo Sanso (October 1)

2004
Developed Water-18O, a pharmaceutical ingredient
for reagents used in PET diagnostics

2012
Acquired Singapore-basedindustrial gases and welding
equipment manufacturer
Leeden Limited; merged
the company with National
Oxygen in 2014 to create
Leeden National Oxygen Ltd.

2006
• Matheson Tri-Gas acquires Linweld Inc., an industrial gases production and marketing company in the western andcentral United States• Purchased helium source contracts and other related assets of the former BOC Group plc (currently Linde AG) in the
United States and Europe• Acquired all shares in Hitachi Sanso K.K. and changed the company’s name to Taiyo Nippon Sanso Higashikanto
Corporation

4

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Japanese GAAPIFRSCore operating profit margin (%)
9.4%

9.6%

9.3%

9.5%

8.0%
6.3%

6.0%

10.0%

6.8%

800.0

594.4

559.3

670.0

646.2

641.5
522.7

1,000.0

581.5

Medium-term management plan

Ortus Stage 2

2014

2015

2016

2016

2013

2017

2018

2019
(Target)2021(Target)Long-term
vision2017

Launched Hydro Shuttle
package-type hydrogen
refueling station

Established JFE Sanso Center’s Kurashiki Plant

2018
Established TNSC Technical Academy

2014• Matheson Tri-Gas acquired U.S. carbon dioxide
gas manufacturer Continental Carbonic
Products, Inc.
• Became a wholly owned subsidiary of Mitsubishi
Chemical Holdings Corporation2015
Acquired liquefied petroleum gas (LPG) and industrial gases distributor Renegade Gas
Pty Ltd in Australia

2016• Matheson Tri-Gas acquired a portion of the U.S. gas
business of France’s Air Liquide S.A., together withrelated assets• Acquired industrial gases and LPG manufacturer
Supagas Holdings Pty Ltd of Australia• Established Yahata Sanso Center in a joint venture with
Nippon Steel & Sumitomo Metal Corporation

Taiyo Nippon Sanso Corporation | Integrated Report 2018

5

Value Creation Process
In line with our philosophy, “Market-driven collaborative innovation: Improving the future
through gases,” we will continue working to apply our state-of-the-art gas technologies withthe aim of addressing issues affecting society and the environment, thereby helping tocreate new social value and at the same time increasing our corporate value.
Management resources

The Taiyo Nippon Sanso Group’s Businesses

1. Technologicalprowess

Industrial gases

2. Supply base

Plant and engineering

3. Sales channels
Electronics-related products
Quality

4. Human resources
Medical

5. Financial foundation
Energy6. Group capabilities
Thermos

Principal Industrial
Sectors We Serve
We supply diverse industrial
gases, including oxygen,nitrogen and argon, to customers in a broad range ofindustries, contributing to therealization of a spiritually andmaterially wealthy society.

6

OxygenNitrogen

OxygenNitrogen

Nitrogen

Argon

O2

N2

O2

N2

N2

Ar

Electronicmaterials
gases

Steel

ChemicalsElectronics

Since 1964, we have installed on-siteplants (“sanso centers”) at steel production facilities to ensure stable supplies ofindustrial gases, thereby supporting the
growth of Japan’s leading steelmakers.

We supply gases to chemical production sites through pipeline networks
extending across large-scale industrial
complexes, ensuring uninterrupted supplies of nitrogen, which are essential to
the safety of such facilities.

We construct total gas centers (TGCs),
which supply nitrogen and electronics
materials gases, on sites adjacent tolarge-scale semiconductor fabs.

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Philosophy“Market-driven collaborative innovation:
Improving the future through gases”
Management strategies

Stakeholders

Global environment

Compliance• Energy and resources• Climate change

Society

Value chain• Health and wellness• Medical care

Development/production• Food and agriculture• Fulfilled life

SupplyGovernanceSale

People (companies and organizations)• Product responsibility• Human development and training

Use (in customer industries)• Occupational health and safety• Human rights awareness• Information security and privacy• Diversity and inclusion• Contribution to communities• Stakeholder engagement

SafetyCarbondioxideOxygenArgon

Acetylene

Nitrogen

O2

Ar

C2H2

N2

Transportation equipment
and machinery

Food

Life sciences/medical

EnergyWe provide a variety of products that
represent applications of nitrogen-filled
packaging, freezing and other foodrelated gas technologies, under thebrand name Bistranza.

In 2004, we started operation of theworld’s first plant for producing stable
isotope Water-18O, used in reagents for
positron emission tomography (PET),
through the application of air separation
technologies. We have since establishedthe world’s most extensive supply
framework for this crucial material.

We supply environment-friendly, safe
propane for use in homes, commercial
premises and other premises that playa role in everyday life.

Cutting and welding are key processes
in automobile manufacturing facilities,
shipyards and construction sites. In addition to gases for cutting and welding, we
supply such facilities with a variety ofrelated equipment and materials.

CO2

OxygenNitrogen

O2

N2

LPG

Taiyo Nippon Sanso Corporation | Integrated Report 20187

A Message to Stakeholders

In line with our philosophy, “Market-driven collaborative
innovation: Improving the future through gases,” we haveworked consistently to contribute to the realization of a spiritually and materially wealthy society by capitalizing on ourgas technologies to work in collaboration as a vital partner tocompanies in a host of industries, including steel, chemicals,
electronics, automobile, construction, shipbuilding, food andhealthcare.
Since our founding in 1910, we have grown together withJapan’s industrial sector. We subsequently expanded into
overseas markets, beginning with the creation of a representative office in Singapore and a local subsidiary in the UnitedStates in 1980. Subsequent efforts focused on broadening
our operations in the United States, as well as on establishing a presence in China, Southeast Asia, India and other
Asian markets. In 2015, we entered the Australian market.
Today, our global network encompasses more than 80 gas
production facilities in 19 countries and territories.

We are grateful for the ongoing support of our stakeholders, without whom the sustained growth we have enjoyed todate would not have been possible. To fulfill the responsibilities implied in our corporate slogan, “The Gas Professionals,”
we remain committed to fulfilling our responsibility to maintaina safe and secure supply of gases to our customers aroundthe world, as well as contributing to a society that enjoys
both spiritual and material wealth by pursuing the development of innovative technologies. To this end, we will continue
to be attentive to the views of customers and to advance thedevelopment of new gas technologies.
It is my hope that readers find this year’s integrated report
both informative and interesting and that it contributes to abetter understanding of the Taiyo Nippon Sanso Group today
and its goals for the future.
September 2018
Yujiro Ichihara
Representative Director,
President CEO

8

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Perception of the Operating Environment
Up until the 1990s, a substantial number of companies wereactive in the global industrial gases market, but since thebeginning of this century we have seen a steady realignmentof the industry, as a result of which today there are essentially
five leading competitors: Air Liquide S.A. of France, Linde AG
of Germany, Praxair and Air Products and Chemicals, Inc., of
the United States and Taiyo Nippon Sanso. In 2016, global
leader Air Liquide acquired U.S. firm Airgas, Inc., while in2017 the Linde Group, then the world’s second-largest manufacturer, signed a business combination agreement withnumber three Praxair, accelerating the shift toward a global
market dominated by a few giants. Going forward, we recognize that to swiftly establish Taiyo Nippon Sanso as a major
global player, we must take decisive steps to reinforce ourcompetitiveness worldwide, expand the scale of ouroperations and rapidly execute key strategies.

Long-Term Vision
Our long-term vision, formulated in May 2014, calls for the
prompt achievement of consolidated revenue of ¥1 trillion, an
operating profit margin of 10%, a return on capital employed(ROCE) of 10% or above and an overseas revenue ratio of

50% or above. Through the implementation of initiatives
under our current medium-term management plan, we areworking decisively to sharpen our global competitive edge
and secure our position as a major player.

Long-Term Vision: Projected Evolution of Performance

Striving for the Early Achievement of Our ¥1 Trillion Revenue Target
As the realignment of the global industrial gas industry progresses,
we will continue working to enhance our global competitivenesswith the aim of ensuring a robust market position.
Years ended/ending March 31¥581.5billion

2017

2021

Ortus Stage 1
Reinforce operating
foundation

Ortus Stage 2
Promote growth

Structural reform¥1
trillion¥800.0billionInnovation

Globalization

Long-term vision

Accelerate growth

M&A

Taiyo Nippon Sanso Corporation | Integrated Report 20189

A Message to Stakeholders

Ortus Stage 2
In fiscal year 2018, ended March 31, 2018, we embarked ona new four-year medium-term management plan, Ortus
Stage 2, the second phase of our drive to realize our longterm vision, formulated in May 2014. Ortus Stage 2 builds
on the success of Ortus Stage 1, a three-year plan thatcommenced in fiscal year 2015.
The overarching goal of Ortus Stage 2, which is positioned
as the second phase of our drive to realize our long-term

vision, is to promote growth. The new plan carries over thefour key strategies of Ortus Stage 1, the theme of which was
reinforcing our operating foundation, which are summarized
as “structural reform,” “innovation,” “globalization” and“M&A.” Ortus Stage 2 also sets forth five new basic new
strategic policies.
Note: “Ortus” is a Latin word meaning “beginning” or “birth.”

Progress to Date

Results in Year One: Up from the Preceding Period and Above Targets
In fiscal year 2018, revenue amounted to ¥646.2 billion andcore operating profit was ¥60.0 billion, as a result of which
the core operating profit margin was 9.3%, while overseas
revenue as a percent of total revenue reached 43.3% and

ROCE came to 8.4%. In the gas business in Japan, revenue
and operating profit were bolstered by an increase in the areaof on-site gases, which reflected the positive impact of theOctober 2017 start of operations at the Kurashiki Plant of

Actual Results and Financial Targets Under Ortus Stage 2¥1,000.0

Years ended/ending March 31

Final year of
Ortus Stage 1

Revenue

Ortus

Stage

¥800.0¥670.0(Billions of yen)¥646.2¥620.0¥581.52

Core
operatingprofit¥76.0(Billions of yen)

RevenueCore operating
profit*1
Core operating
profit margin
Overseas revenue
ratio
ROCE *2

¥64.0

¥54.7

¥56.5

¥60.0

2017 (Actual)(IFRS)

2018 (Target)(IFRS)

2018 (Actual)(IFRS)

2019 (Target)(IFRS)

2021 (Target)(IFRS)¥581.5¥620.0¥646.2¥670.0¥800.0

54.7

56.5

60.0

64.0

76.0

9.4%

9.1%

9.3%

9.6%

9.5%

40.8%

—

43.3%

—

45.0%

8.4%

7.9%

8.4%

8.5%

9.0%

*1 Core operating profit: Calculated by subtracting losses (nonoperating items) produced by nonrecurring factors from operating profit*2 ROCE = Core operating profit / (outstanding interest-bearing debt + equity attributable to owners of parent)

10

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Long-term
visionJFE Sanso Center Corporation, and by robust shipments ofelectronics materials gases to semiconductor and liquid
crystal display (LCD) manufacturers.
The gas business in the United States also reported higher
revenue and operating profit. Principal contributing factors
were the recognition of a full year of results for a businessacquired from Air Liquide in September 2016, which had asignificant positive impact on revenue, and firm sales of bulk
gases and packaged gases and hard goods, underpinned by
U.S. economic growth.
In the gas business in Asia and Oceania, increases inrevenue and operating profit reflected a full year ofcontributions from Supagas Holdings Pty Ltd in Australia andbrisk shipments of electronics materials gases in China,
Taiwan and South Korea.
In the Thermos and other businesses segment, solid salesin Japan, centered on vacuum-insulated mugs, and the
expansion of sales channels in South Korea pushed up
revenue. In contrast, operating profit declined, despite
steadily increasing sales volume in Japan, owing to higher
expenses, primarily for advertising, and efforts to clear
long-term inventories. Segment operating profit was also
hampered by flagging results at equity-method affiliates,
including alfi GmbH.

Basic Policies of Ortus Stage 2

The first basic policy of Ortus Stage 2 is to expand our domestic gas
business.
In Japan, the key concept underlying our efforts is “Total
TNSC,” by which we mean maximizing the power of the
Taiyo Nippon Sanso Group by strengthening collaboration
among Group companies to further cement our leading
position in the Japanese market.
Another basic policy of Ortus Stage 2, carried over from
Ortus Stage 1, is to promote globalization. Looking ahead,
we will continue to actively expand operations in overseas
markets. Ortus Stage 2 also outlines policies for fortifying
safety, quality and compliance efforts to support sustainablegrowth, advancing an R&D strategy that will broaden ourbusinesses’ potential, and strengthening corporate functions.

We recognize safety, quality and compliance, the focus ofone of the basic policies of Ortus Stage 2, as crucial to business continuity. Accordingly, we are stepping up efforts tofortify our capabilities in these areas. Of note, we recently
established the TNSC Technical Academy, a training facility
designed with the purpose of improving Groupwide technological and safety capabilities and further bolstering techniques for preventing industrial gas-related accidents. We
have also created a framework for promoting compliance,
establishing a global compliance committee to facilitate thesharing of related information and deliberations regarding key
compliance-related issues.

Five Basic Policies

Expanding domesticgas business

Safety, quality andcompliance

Accelerating
R&D strategy• Expand gas-related
businesses such as
equipment, in addition
to the gas business• Sustain growth ofbusinesses in Japan(M&As inside Japanand changes to sales
channels)• Strengthen safety,
quality and complianceefforts• Strengthen collaboration with regional
holding companies
in overseas markets
where businesses are
expanding• Accelerate R&D with
open innovation• Concentrate onprioritized development fields based on
portfolio strategies• Make a larger
contribution to
profitability

Globalization

Strengthening
corporate functions• Increase overseas
M&As and capital
investments• Establish new
businesses• Implement humanresource, informationand finance strategies• Strengthen corporate
functions to provide
stronger support to
TNSC and Group
companies

Taiyo Nippon Sanso Corporation | Integrated Report 201811

A Message to Stakeholders

Core Strategies of Ortus Stage 2

Under Ortus Stage 2, we continue to advance the core strategies of Ortus
Stage 1. Related efforts in year one of the new plan yielded notable results.
Thanks to efforts to advance the “structural reform” strategy,
the Total TNSC concept has taken hold among employees
across the Group. Acknowledging the importance of rallying
the Taiyo Nippon Sanso Group’s resources by strengthening
collaboration to provide customers with comprehensive solutions, Group companies in each region gather to actively
exchange information and consider proposals. We are confident that the cumulative benefits of these efforts will help
boost profitability. To integrate production and logistics management, we recently established the Production & Logistics
Division, which is working to optimize gas production facility
operations and rationalize logistics by implementing initiatives
that are helping to reduce costs.
Under the banner of “Innovation,” we have leveraged corecompetencies to develop and market new products in suchareas as combustion (oxygen burners), materials (carbon
nanotubes) and regenerative medicine. In addition, with theaim of entering the additive manufacturing (3D printing) market, we have capitalized on external resources by investing inand forming partnerships with manufacturers of 3D printers,
metal powders and metal components.

Initiatives implemented in line with the “Globalization”
strategy have sought to expand our business areas andenhance profitability. In Myanmar, a market we enteredrecently, we began operating the country’s first air separation
unit. In Singapore and the United States, we have built new
carbon dioxide gas plants. We are currently promoting active
capital investments aimed at boosting profitability, includingin the expansion of electronics materials gas production
facilities in China and South Korea in response to steadily
expanding demand from customers in the electronics
industry.
Under Ortus Stage 1, we made several major acquisitions
with the goal of expanding our business territory overseas.
Guided by Ortus Stage 2, the focus of our M&A strategy is toexpand our business reach and reinforce our operational
density. We will also continue to actively capitalize on M&A
opportunities that will broaden our business areas by securing access to key related technologies that further advanceour gas technologies, as well as in those existing businesses
with the potential of growing into core businesses.

Four Key Strategies

1. Structural reform

Maximize Group power by augmenting
collaboration• Strengthen collaboration insales and marketing functions• Integrate engineering functions• Consolidate production andlogistics• Promote shared services

3. Globalization

Enhance governance• Strengthen the functions of global operations• Strengthen the functions of regional holding
companies

Growth strategies• Expand business areas• “Total Electronics”

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Taiyo Nippon Sanso Corporation | Integrated Report 2018

2. Innovation

Promote innovation by capitalizing on external
resources and IoT• Innovation in R&D• Innovation in engineering• Innovation in sales approaches• Innovation in production and logistics

4. M&A

Seek promising M&A opportunities to ensuresustainability and accelerate growth• Expand business territory and reinforce
operational density• Acquire new products, technologies andsupply chains• Expand medical businessas well as to realize our long-term management vision, we
will continue to advance a wide variety of strategies designed
to ensure sustainable growth in the years ahead and increase
corporate value over the medium to long term.

This look at Ortus Stage 2 has focused on progress todate. Going forward, we will continue to steadily implement
initiatives to bolster our operating foundation in line with thebasic policies of the plan, as well as promote measures toexpand our operations set forth in the plan’s core strategies.
We reported growth in annual earnings every year fromfiscal year 2015, the first year of our previous medium-term
management plan, through fiscal year 2018, the first yearof the current plan. To achieve the goals of Ortus Stage 2,

Cash Dividends per ShareJapanese GAAPIFRSYears ended March 31

12

(Yen)
11

Year-end
Interim

9

6

7
11
9

6

6

2014

2015

7

2016

2017

2018

Basic Earnings per ShareJapanese GAAPIFRSYears ended March 31

113.04(84.87*)

(Yen)

80.28

59.72
49.42

47.98

2014

2015

2016

2017

2018*

* Owing to the a reduction of the federal corporate income tax rate resulting from changes to U.S. tax legislation, income taxes in fiscal year 2018 declined
significantly from the previous period. Discounting the impact of this factor, basic earnings per share would have been ¥84.87.

Taiyo Nippon Sanso Corporation | Integrated Report 201813

Special Feature

1

TNSC Technical Academy:
A New Training Facility Designed to ImproveGroup Technological and Safety Capabilities
In line with our belief that selling gases iscommensurate with selling safety and peaceof mind, we view ensuring the safety of ouroperations as a priority challenge. In June 2018,
we established TNSC Technical Academy, atraining facility designed with the purpose of
improving Groupwide technological and safety
capabilities, further bolstering techniques forpreventing industrial gas-related accidents andensuring technical skills are passed on tosubsequent generations.

Enabling Employees to Experience the Technologies andRisks of Compressed Gases First-Hand
Having declared “Reinforce safety, quality and compliance”
one of the basic policies of our new medium-term management plan, Ortus Stage 2, we are taking steps to fortify oursafety management framework. In addition, we are working
to promote employees’ acquisition of technical skills andensure such skills are passed on.
“Although we address safety across the entire Taiyo
Nippon Sanso Group on an ongoing basis, a number ofmajor industrial accidents have occurred in recent years at
Group facilities both in Japan and overseas, including one
the Oita Sanso Center in 2014. This prompted us to conduct
inspections of all equipment, including that not yet regulated
under Japan’s High Pressure Gas Safety Act, and to review
day-to-day safety practices,” says Senior Executive Officer
Hiroyuki Tanizawa, Executive General Manager of theTechnological Affairs Division and Chief Sustainability Officer.
“However, industrial accidents do not occur solely as a resultof equipment issues. The ability of employees to sense
danger is critical and a decline in
employee hazard awareness arealso concerns,” he continues.
“With increased automation,equipment breakdowns havebecome rare. This has reduced
the frequency of equipment
issues, but it has also reduced
opportunities for employees
to come in direct contact withequipment. As a consequence,
we have seen a weakening ofrisk awareness and skill acquisiHiroyuki Tanizawa
Senior Executive Officer
tion, both of which in the past
Executive General Manager,
would have been nurtured on
Technological Affairs Div.
the front lines.”
Chief Sustainability Officer

14

Taiyo Nippon Sanso Corporation | Integrated Report 2018

The TNSC Technical Academy, the goal of which is tofoster human resources and pass skills on to new generations of employees, was established to compensate for thislack of front-line nurturing. The academy, which comprises alaboratory, a showroom and a training room, provides “TNSC
Technical Seminars,” through which it focuses on instillingunderstanding of basic technologies and providing hands-on
hazard training. In addition to equipment that make it possible to actually simulate becoming entangled or caught inmachinery, stumbling or falling, becoming caught up in rotating devices, and dangers associated with electrical and othergeneral processes, the academy’s laboratory makes partial
use of virtual reality technologies. What makes the laboratory
truly unique is that it also facilitates the simulation of dangers
unique to working with high-pressure gases, including falling
gas cylinders, high-pressure gas blowouts, liquid gas sealing,oxygen enrichment, adiabatic compression, cryogenic temperatures, oxygen deficiency, and combustion and explosion.
The laboratory is thus set up to anticipate all types ofaccidents and problems that employees might face on thefront lines.
The TNSC Technical Academy’s showroom seeks toreinforce understanding of the inner workings, operating
principles and other aspects of equipment not discernablefrom the outside and features cutaway models of cylinders,valves, instruments, vaporizers and other equipment. The
training section, which comprises one large and one smallclassroom and is large enough to accommodate a maximumof 54 individuals, employs state-of-the-art information andcommunications technologies to maximize the benefitsof training.

Enhancing Technology Training Provided
at the TNSC Technical Academy
Going forward, we will take steps to expand the TNSCTechnical Seminars program as the foundation of technology

training offered by the TNSC Technical Academy. In addition
to the basic training currently provided, which focuses onskill acquisition, we plan to will add courses that emphasize,for example, discussions focused on the causes of accidents
and measures for preventing their recurrence based on
actual case studies, with the aim of enhancing awarenessand understanding of safety across the entire Taiyo Nippon
Sanso Group. We will also develop hierarchical training
for each year of employment and optional training tailoredto specific jobs, which will be offered in combination
with hands-on hazard training. (See training frameworktable below.)
In June 2018, we created a three-day basic technicaltraining and hands-on hazard training course for new recruits
using a unique new curriculum developed for the facility. In
August, we launched full-scale job-specific hands-on hazard
training courses for Group employees in Japan. Over the
next five years, we plan to create a system that will facilitate
the intake of approximately 1,800 students annually. By
doing so, we hope to create a framework that enables
employees from Group companies worldwide to participate
in training repeatedly to ensure they maintain a sharp
awareness of hazards.
Fostering instructors and developing curricula will be crucial to achieving these objectives. Accordingly, from the ranksof experienced employees, we will appoint individuals who
have both front-line experience and leadership skills. At thesame time, we will advance the development of new levelspecific curricula that eliminates duplication, ensuring that
there is always something new for employees to learn nomatter how many times they participate in training.

TNSC Technical Academy
OutlineDate opened: June 1, 2018
Total floor space:
960 m2 (two stories)
Organization:
Laboratory (37 pieces of hazard
training equipment), showroom andtraining section

Training equipment designed
to simulate a gas cylinder
falling overThis piece of equipment helps
employees learn weight and difficultof supporting a gas cylinder that isabout to fall over. The simulation
involves the cylinder being placed ona horizontal 3 cm-thick wooden board
and enables employees to experience
what it is like when cylinder supports
collapse and understand the power
unleashed when a cylinder tips over.

Device for confirming powerof high-pressure gas blowout
This device makes it possible to learn
the pressure when sealed highpressure gas blows out and scatters
together with metal fragments fromthe cylinder by observing the latter
penetrate a wooden board.

Improving Group Technological Prowess and Creatinga Safety-Oriented Corporate Culture
In light our rapid global expansion, we are promoting theswift development of a training framework for overseas
Group companies that matches the framework we have put
in place in Japan. With the aim of promoting the understanding of and support for a safety-oriented corporate culture, wehave held a safety conference in each of the past three
years, which have been attended by top executives, management-level employees and safety management officers
from Group companies, as a consensus-building exercise.
We are currently exploring the launch of hands-on hazard
training for Group employees in 2020 with the goal of
encouraging the creation of a safety-oriented corporate
culture and reinforcing our framework for ensuring safety.
“Making use of facilities at the TNSC Technical Academy, we
will begin by taking steps to increase the risk awareness ofyoung employees,” explains Mr. Tanizawa. “Through these
efforts, we will endeavor to create such a corporate culture,
as well as to promote employees’ acquisition of technicalskills and ensure such skills are passed on, thereby fostering
the next generation of The Gas Professionals.”
By advancing training for the employees that will be
responsible for safety and product quality in the years
ahead, we will continue striving to improve our technicaland safety capabilities and to reinforce efforts to eliminate
industrial accidents.

Virtual reality device that
reproduces the sensation offalling
Designed to help individuals learn
the risk of falling, this device uses
virtual reality technology and also
blows air onto the individual using it
to more realistically reproduce thesensation of falling from an altitude.

Taiyo Nippon Sanso’s Training Framework
Level-specific training (compulsory)
Clerical positions
Technical positions

Job-specific training (optional)

Skilled positions

Management/
When promoted

Hands-on hazard training

5th year of
employment

Hands-on hazard training

2nd–4th yearsof employment

Basic technology
seminars

New recruits

Basic technology training and hands-on
hazard training for new recruits

TNSC
technical
seminars

Hands-onInternal
hazardE-learning certification/
training
othersThe TNSC Technical Academy will provide levelspecific and job-specific training. When it opened
in June 2018, the facility began providing training
for new recruits.
The positive impact of hands-on hazard training was reflected in the response of participants inthe facility’s first round of training for new recruits,
with comments received including, “I learned not
only by seeing and listening to instructors, but also
by actually experiencing hazards first-hand,” “Ilearned the importance of remembering that hazards lurk in every situation and always keeping myantennae up” and, “Hands-on training gave me aconcrete understanding of how terrifying accidents
and disasters actually are.”Taiyo Nippon Sanso Corporation | Integrated Report 201815

Special Feature

2

The Taiyo Nippon Sanso HealthManagement Declaration andEfforts to Create a Corporate
Climate that Prioritizes
Employee HealthOn April 1, 2017, we announced the “Taiyo Nippon
Sanso Health Management Declaration,” the statedgoal of which is create work environments that supportand motivate employees. This declaration reiterates ourbelief that employee health is the driving force behind
everything we do and our commitment to promoting
employee wellness and work style reforms.

Earning White 500 Certification in 2018
In February 2018, we earned certification in the large
enterprise category (dubbed the “White 500”) of the 2018
Health & Productivity Outstanding Entities Recognition
Program, which is organized by Japan’s Ministry of Economy,
Trade and Industry (METI) and Nippon Kenko Kaigi (“Japan
Health Council”). By spotlighting outstanding companies
working to promote health and productivity management,
the Health & Productivity Outstanding Entities Recognition
Program seeks to create an environment in which thesecompanies gain enhanced public recognition as organizations that approach employee health and productivity froma management perspective and promote strategic healthrelated initiatives. With concepts such as “work style reform”
and “health management” gaining enormous attention, thisprogram has become a key yardstick for evaluating theefforts of companies in Japan. “Taiyo Nippon Sanso has
traditionally looked for three key qualities in its employees:
health, integrity and resourcefulness. The first of these,
health, encapsulates our belief that the health of a company’s
employees is the driving force behind everything it does, isspelled out clearly in our healthmanagement declaration,”
explains Executive Officer
Satoshi Wataru, Executive
General Manager of the HR
Division and the Corporate
Planning Office and Chief
Health Officer. “In addition,
one goal outlined in our current
medium-term management
plan, Ortus Stage 2, is toreform work styles and promote
diversity. I think our White 500
Satoshi Wataru
Executive Officer
certification reflects steps we
Executive General Manager,
have taken on both the system
HR Division and Corporate Planningand policy front.”
Office; Chief Health Officer

16

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Taiyo Nippon Sanso’s Health Management Declaration
Creating a work environment that supports andmotivates employees
We look for three key qualities in our employees, namely, health, integrity
and resourcefulness. With the aim of giving form to the first of these,
health, and recognizing that employee health is the driving force behind
everything we do, we hereby declare our commitment to promoting soundcorporate management and helping realize a spiritually affluent society
through the creation of a health-first corporate culture.
Recognizing the health and wellness of all of our employees as a crucial
corporate asset, we will also strive to realize secure and pleasant workplaces.
We also understand that the health and wellness of each individual
employee and of his or her family is a critical motivating factor for employees in both their professional and private lives. Accordingly, we encourage
employees to be proactive in maintaining their own health and ask for theiractive participation in the creation of a health-first corporate culture.
April 1, 2017
Yujiro Ichihara
Representative Director, President CEO
Taiyo Nippon Sanso Corporation

In fiscal year 2018, the Mitsubishi Chemical HoldingsGroup has provided a full-scale definition of its KAITEKI
Heath and Productivity Management concept, setting concrete targets and implementing initiatives. Taking such developments in to account, we are promoting measures in three
categories: Healthy people, healthy workplaces, and healthyfamilies and communities.

Established in 2017, the Health & Productivity
Outstanding Entities Recognition Program wasestablished with the aim of recognizing major
enterprises and small and medium-sizedcompanies with particularly excellent health andproductivity management practices that areconsistent with community health issues andhealth promotion activities undertaken by
Nippon Kenko Kaigi.

Advancing Health Management that Balances Wellness
Support with Work Style Reforms
Our health management program centers on employee wellness and work style reforms. To support employee wellness,
we have begun distributing wearable health monitoring
devices (see below), in addition to subsidizing employees
using healthcare facilities and taking part in health promotion
programs. By increasing the visibility of individual healthrelated data, we aim to encourage greater awareness of theimportance of lifestyles improvements and to better inform
health management initiatives. We have also collaborated
with industrial physicians and health insurance associations
to assign such physicians to all sites across Japan, enabling
us to respond to health issues related to extreme overwork,and have expedited support for individuals taking leave fortreatment of mental health issues returning to work, revised
items covered in annual health checks to facilitate the early
detection of cancer, and introduced subsidies for employees
obtaining influenza vaccines and treatment to quit smoking.
Our efforts to advance work style reforms have included
introducing flexible work arrangements and the infrastructure
to ensure the feasibility thereof, and introduced a new attendance system that enhances the daily management andvisibility of working hours. As well, we have adopted a return
to work scheme*, an overseas leave system that allows
employees to accompany spouses on overseas assignments

and a system that allows employees to limit the areas towhich they will accept transfers, and have revised our systemof short work hours for employees seeking to balance thedemands of a career with childcare and/or nursing care
responsibilities. In addition, we have adopted a flextime system at a number of sites and a system that allows employees
to take allotted vacation time in hourly units. Going forward,
we will consider the introduction of telecommuting. “To mymind, health management is the creation of workplaces thatenable individual employees to cultivate skills, expertise andhumanity,” says Mr. Wataru, “but most of all that makeemployees want to come to work. While people are responsible for managing their own health, but it’s not something
you can do entirely on your own. Maintaining sound communication with those around us is the real secret to a healthy
mind and body. Accordingly, I look forward to fostering a corporate climate that prioritizes employee health in a mannerthat encourages each of us to be attentive to the heath of
our colleagues.” Looking ahead, we will continue working tocreate and maintain work environments that support andmotivate employees, and in so doing to drive growth incorporate value.
* A return to work scheme facilitates the reemployment of employees who
have resigned due to pregnancy, childcare or nursing care responsibilities or
the transfer of a spouse. Our system also makes it possible for employees
who have resigned because their spouse has been transferred to anotherlocation to be employed at that location if an appropriate opening exists.

Principle Initiatives
Visiting Health Improvement Programs

Distribution of Wearable Health Monitoring Devices

Under its KAITEKI Health and Productivity Management concept, in
fiscal year 2018 Mitsubishi Chemical Holdings Group launchedemployee health support programs, which it also offered at Taiyo
Nippon Sanso corporate headquarters and at the Keihin Factory. The
programs, which emphasize both the mind and the body, include the
KAITEKI Health Seminar, which focuses on the relationships among
food, sleep and exercise and a sleep seminar that explores sleep
debt and correct approaches to repayment, as well as exercises torefresh the mind and the body, function-improving stretching classes
designed to prevent stiff shoulders and back pain, and ball exercises.
Going forward, we plan to improve the number and variety of programs offered with the aim of further assisting efforts to help improve
employees health.

One of our key initiatives in fiscal year 2018 was to distributewristband-style wearable health monitoring devices that enable individuals to track activity and sleep levels, among others, on a daily
basis. The trackers are currently being used by approximately 1,300
employees with the aim of increasing awareness of their own healthby scrutinizing daily data. In July 2018, we inaugurated a system
whereby employees can exchange steps walked for points, which
can be used for various services or donated to charity. We are currently considering also offering points in exchange for going to annual
health checks and visiting a clinic for health guidance, among others,with the goal of adding an element of fun that encourages employees
to continue taking care of their health. We are also looking at exploring the scope of these initiatives to include Taiyo Nippon Sanso
Group companies and the families of employees.

Above: adidas Functional Training,a core training program
designed to improve rangeof motion and flexibility
Right: Comprehensive diet andexercise seminar

Alta-HR wristband-form wearable devices were distributed to employees. These devices
enable individuals to monitor sleep quality (shown above), total daily activity (steps taken,
distance covered, amount of time active, calories consumed) and other data.

Categories

Key Themes

Examples of Initiatives

Healthy people

Encourage healthy lifestyles

Provide information on lifestyle improvement; subsidize various programs

Healthy workplaces

Healthy families andcommunities

Improve health awareness

Organize walking events; provide feedback on diagnostic data

Reform working styles

Take steps to prevent extreme overwork; encourage employees to use annual vacation days

Promote measures to prevent occupational
accidents that consider human factors

Prevent industrial accidents involving falls by advancing efforts to increase employees’ physicalstrength; make effective use of the TNSC Technical Academy

Create secure, healthy workplaces

Promote efforts to prevent all types of harassment

Bolster awareness of family healthCommunicate health-related information; distribute childcare, nursing care and other handbooks

Taiyo Nippon Sanso Corporation | Integrated Report 201817

Strategic Perspectives

Gas Businessin JapanTaiyo Nippon Sanso is Japan’s
leading manufacturer of industrial gases, with a domestic marMarket Presence andket share of approximately 40%.
Competitive Advantages
Taiyo Nippon Sanso Group companies in this business include
Nippon Ekitan Corporation,
Japan’s top supplier of carbon dioxide gas and dry ice;
Nissan Tanaka Corporation, a manufacturer of cutting
and other equipment; and Taiyo Nippon Sanso Gas andWelding Corporation, which provides welding materials.
As a comprehensive supplier of industrial gases andperipheral products, with a product range encompassing diverse industrial gases, as well as plants andequipment, we provide a full selection of products andservices to customers in diverse industries, including
steel, chemicals, electronics, automobiles, shipbuilding,food and healthcare.
We use a number of delivery formats for industrial
gases. The on-site format involves installing on-siteplants (air separation units) on or adjacent to customers’ production facilities, from which we supply separated gases directly by pipeline. Bulk gases are liquefied
gases supplied in bulk form to the customer’s site using
tanker trucks. Packaged gases are gases that are compressed and supplied to customers in cylinders. We
have established a nationwide network of production
and sales locations and an official dealer system, theTaiyo Nippon Sanso Major Club, creating a robust supply chain that enables us to respond accurately andeffectively to the needs of users across Japan. Our
principal competitive advantage is our portfolio of basic
cryogenic, high-pressure, insulating, gas control andother technologies, which we have nurtured over many
years. We continue to develop new applications forthese technologies with the goal of addressing
increasingly diverse customer needs.

Outline of Business

Fiscal Year 2018 in Brief
Revenue: +6.5% from fiscal year 2017
Industrial gases
Electronics-related
products
LPG

Revenue increased, underpinned by
the start of operations at JFE Sanso
Center’s Kurashiki Plant
Revenue was bolstered by robust
sales of electronics materials gases
Revenue was up, as higher importprices promoted sales priceincreases

Interview: Growth Strategies for the Gas Business
Q1 What is your perceptionof the current operating
environment in Japan?
We have no choice but toacknowledge the challenges ofa mature economy like Japan’s.
At the same time, a matureeconomy also presents unique
opportunities, as evidenced by
active investments aimed at
improving efficiency and reducing labor requirements, as wellas in increasing quality and proKenji Nagata
moting product differentiation,
Member of the Board,across all industries. Our principal
Senior Executive Officer
customers—manufacturers in the
Executive General Manager,
steel, chemicals, transportation,
Gas Businesses Division
food and other industries—are
performing well, and thanks
to such investments we look forward to stable growth indemand for industrial gases. The electronics industry is also
expected to see continued growth, underpinned by technological advances, notably in artificial intelligence and theInternet of Things (IoT). Causes for concern include increases
in costs for electric power and product transport, the former
due to rising fuel prices and the latter to labor shortages.
Accordingly, we will continue to implement initiatives aimed
at reducing production and logistics costs.

Q2 Can you tell us about the principal measures
you plan to pursue in fiscal year 2019?
Our basic emphasis will be on advancing the strategies set
forth in Ortus Stage 2. In industrial gases, efforts will centeron stepping up innovation and advancing the Total TNSC
concept. To promote innovation, we will reinforce efforts todevelop applications for gas technologies in areas such as
food packaging, heat treatment and combustion, as well as
seek to cultivate demand by not only supplying products but

Revenue and Segment Profit
Years ended/ending March 31(Billions of yen)
400

40

300

30

200

20

100

10

Segment profit: +4.4% from fiscal year 2017
Industrial gases
Electronics-related
products

18

Profit declined as rising crude oil
prices pushed up costs
Profit was bolstered by robust salesof electronics materials gases

Taiyo Nippon Sanso Corporation | Integrated Report 2018

0

0
2012

Revenue

2013

2014

2016
2015
Japanese GAAP

2016
IFRS

2017

2018

2019
Forecast

Segment profit

Note: Effective from fiscal year 2019, other businesses currently accounted for in the Thermos and Other Businesssegment will be shifted to the Gas Business in Japan and the segment will be renamed the Thermos Business.
Accordingly, the basis for calculating the revenue and segment profit forecast for fiscal year 2019 differs fromthat used for calculating revenue and segment profit reported for the years up to and including fiscal year
2018. Calculated on the same basis as the fiscal year 2019 forecast, revenue and segment profit in fiscal
year 2018 would have been ¥2.5 billion and ¥0.6 billion lower, respectively, than reported results.

in Japan

One of the basic policies of Ortus Stage 2 is to expand ourdomestic gas business. The business was identified as a priority under the current plan’s predecessor, Ortus Stage 1, but
strategies for its growth were a bit difficult to discern among
strategies for furthering globalization and making forwardlooking investments in growth areas. Keeping this in mind, in
Ortus Stage 2 we set forth a clear policy. We have a matureeconomy. Significant new economic growth is unlikely. The

challenge is thus to find ways of expanding this business insuch an environment. To this end, we will begin implementing
two key strategies in fiscal year 2019. The first is to focus on
both hard and soft deliverables. To date, we have grown ourdomestic gas business by diversifying our range of hard
products, that is, the supply of gases, installation of gas supply equipment and the provision of electronics-related products (gas-refining equipment and exhaust gas abatement
systems) and products realized through the application of
combustion, welding and other gas-related processing technologies. We will of course continue to expand this side of
the business. In addition, we will step up efforts to incorporate soft capabilities accumulated over many years, including
our safety know-how and our equipment maintenance andhigh-temperature/high-pressure environment simulation technologies, and position ourselves to supply both hard products and soft services, thereby responding to the needs ofcustomers and adding depth and breadth to the business.
We are confident this will support expansion going forward.
Our second strategy in this segment is to further advance
the Total TNSC concept. The companies of the Taiyo Nippon
Sanso Group, including Nippon Ekitan, Nissan Tanaka
and Taiyo Nippon Sanso Gas and Welding, boast diverse
customer bases, technologies and expertise. In a growing
economy, sharpening the competitive advantages of suchcompanies would be sufficient to drive growth. However,in a mature economy, characterized by low growth andincreasingly diverse customer needs, we must strive to bring
together the customer bases, technologies and expertise ofGroup companies with the aim of providing comprehensive
solutions and expanding the scope of operations.
We have succeeded in increasing sales of industrial gases
and peripheral products by responding effectively to changes
in Japan’s industrial structure, underscoring the fundamental expandability of this business. Today, our strategic
approach to growing and evolving our domestic gas business is to combine hard and soft deliverables and provide
comprehensive solutions.

Percentage of Revenue

Business Sites in Japan

also fortifying our soft capabilities, which include providing
safety services and assisting customers in modifying processes. In line with the Total TNSC concept, we will maximize
Group synergies by working with other Group companies,
combining resources with the common goal of benefitting
customers, with the aim of expanding revenue and earnings
not solely for industrial gases, but also for gas equipment. In
the area of carbon dioxide gas, we expanded production
capacity in Mizushima, Okayama Prefecture, and Chita, Aichi
Prefecture, but a tight supply–demand situation persisted,pushing up production and logistics costs. We will continue
working to ensure stable supplies and reduce costs, but wewill likely seek to implement further sales price increases.
Our Ortus Stage 2 medium-term management plan sets
forth a strategy for transforming our medical business into a
new core business. To this end, we have positioned products
for home healthcare, respiratory therapy and biotechnology,
as well as stable isotopes, as key areas of focus and are taking decisive steps to expand operations by developing andlaunching innovative products and seeking advantageous
M&A opportunities.
In the area of energy-related products, we will continue
working to expand sales by securing demand from users
switching from petroleum to liquefied petroleum gas (LPG)
and liquefied natural gas (LNG). In addition, we will look for
M&A opportunities that will expand our commercial rights inthe area of products for consumer use.

Q3 What are the principal growth strategies forthe gas business in Japan?

(Fiscal year 2018)

53.0%(¥342.4 billion)(Billions of yen)
Industrial gases (¥236.4)

Bulk and on-site gases (¥136.9)

Electronics-related products (¥74.3)
Packagedgases and Plants andhardequipment
goods(¥40.7)(¥35.0)Electronics
gases(¥48.2)

Energy-related
products (¥31.7)

Gases(¥28.8)

Medical (¥23.5)
Equipment and installation (¥26.0)
Equipment (¥2.9)

Air separation unit
(Kurashiki Plant,
JFE Sanso Center)

Head office
Branches
Branch offices/sales offices
R&D facilities
Sanso centers/liquid oxygen facilities
Semiconductor gas production facilities

Taiyo Nippon Sanso Corporation | Integrated Report 201819

Strategic Perspectives

Gas Businessin the United States
We first established operationsin the United States in the 1980s.
Initial efforts to broaden ourMarket Presence andpresence, which began in 2004,
Competitive Advantages
focused on the southern statesand emphasized reinforcing ouroperations through an ambitious
M&A program that included multiple major and otherdeals and capital investments. These and later efforts
facilitated the establishment of a robust operating foundation that includes California, which boasts the largest
state economy, as well as Texas and Louisiana, leadersin the development and production of petroleum. In
September 2016, we acquired a portion of Air Liquide’s
U.S. operations, a move that enabled us to build anindustrial gas supply network that stretches from thesouthern to the eastern and Midwestern states,
establishing us as a major national player.
Our U.S. operations center on supplying packaged
and bulk gases. In recent years, we have secured
major-site orders from customers in the steel andpetrochemicals industries, as a result of which our
on-site supplies have also increased. We also offer
an extensive supply of original hard goods, including
welding equipment, which we sell along with packaged
gases, for which we are number three in terms ofmarket share. We have also diversified our productlineup by acquiring manufacturers of acetylene andcarbon dioxide gas, as a result of which we are now
the largest supplier of the former and second-largest
supplier of the latter in the United States.

Outline of Business

Fiscal Year 2018 in Brief

Interview: Growth Strategies for the Gas BusinessQ1 How is the U.S. gas
business positioned
within the Group?
Our gas business in the UnitedStates is positioned as a key
engine of global growth. Having
acquired specialty gas manufacturer Matheson Gas Products,
Inc, in 1983, and industrial
gases firm Tri-Gas, Inc., in 1992,
in 1999 we merged the twocompanies to create Matheson
Tri-Gas, Inc. Since 1983, we
Tsutomu Moroishi
have expanded our U.S. operaExecutive officer
tions by acquiring industrial gas
Executive General Manager,
manufacturers, independent gas
Global Operations Division
distributors and key businessassets, promoting active capital
investment to install plants and securing large-scale on-siteorders. In fiscal year 2018, revenue in our U.S. gas businessexceeded ¥170 billion and accounted for approximately 25%
of consolidated revenue.

Q2 What is your perception of the current
operating environment in the United States?
We supply industrial gases to customers in practically every
industry, so our performance tends to mimic economic
growth trends. The U.S. market for industrial gases is estimated at $23 billion annually, making it the world’s largest,and expected to continue expanding by 3%–4% annually, intandem with the economy, reflecting the positive impact ofrobust results in steel- and energy-related industries and areduced corporate tax rate on business conditions. Prospective major customers are numerous and the environment
today is conducive to the stable expansion of our operations.

Revenue: +17.2% from fiscal year 2017
Revenue was bolstered by the
Impact of acquisition acquisition of a business from
Air Liquide
Revenue was bolstered by robust
results for bulk gases (notably an
Industrial gases
increase in shipments of carbon
dioxide gas), as well as for packaged
gases and hard goods
Currency translation The depreciation of the yen had
effects
a positive impact
Segment profit: +12.3% from fiscal year 2017
The acquisition of a business from
Impact of acquisition
Air Liquide pushed profit up
Profit was bolstered by robust results
for bulk gases (notably an increase
Industrial gases
in shipments of carbon dioxide gas),
as well as for packaged gases andhard goods
Currency translation The depreciation of the yen had
effects
a positive impact

20

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Revenue and Segment Profit
Years ended/ending March 31(Billions of yen)
200

20

150

15

100

10

50

5

0

0
2012

Revenue

2013

2014

2015
2016
Japanese GAAP

2016
IFRS

2017

2018

2019
Forecast

Segment profit

Note: In fiscal year 2016, a change in accounting period by Matheson Tri-Gas, Inc., resulted in the inclusion of
15 months of results for the company.

in the United States
Q3 What are your strategies for growing thisbusiness in the years ahead?
In 2016, we acquired a portion of Air Liquide’s U.S. gas
business, as a result of which our production, distribution
and sales network now extends across continental UnitedStates. One strategic priority is to expand large-scale on-site
supplies, which provide stable earnings over the medium tolong term. While these efforts previously centered on thesouthern United States, where we have a robust backup
supply configuration in place, going forward we will look tosecure major on-site orders nationwide. Our carbon dioxide
gas business, launched in 2014 with the acquisition ofContinental Carbonic Products, Inc., continues to see steady

Scott Kallman
Chairman, President and CEO
Matheson Tri-Gas, Inc.

growth, and we will step up efforts to expand our liquefied
carbon dioxide and dry ice production capabilities to include
areas where we do not yet have a presence.
Securing access to a stable source of helium, for which
supplies are currently short and prices high worldwide, isanother key strategy for us in the United States.
We will also continue to seek M&A opportunities andpromote capital investment aimed at building density, as wellas to expand our portfolio of high-value-added products by
expanding into such areas as purification and electronics.
Through such efforts, we will seek to maximize Group synergies and expand the U.S. gas business’ contribution to
consolidated results.

Matheson Tri-Gas continues to pursue a vertical integration strategy by developing packaged, bulk
liquid, on-site and pipeline capabilities in each of the markets in which we compete. This is being
achieved through ongoing acquisitions of independent packaged gas distribution channels and theexecution of capital projects to install gas pipelines and expand our production capacity for liquidargon, liquid nitrogen, liquid oxygen, liquid carbon dioxide and dry ice. Sales of these core gas
products are supplemented by sales of product line extensions such as specialty gases, acetylene,
welding supplies and safety products. Our objective is to meet all of our customers’ gas andgas-related equipment requirements through extended product offering and cross-selling efforts.
Plans are also underway to improve our product applications support, which will further boost thepositive impact of these efforts.
In the electronics-related products business, we are supporting increased sales volumes of key
semiconductor process gases from our production facility in Tennessee and enhancing the value ofour products through advanced purification technologies.
We are committed to our acquisition and capital project strategy. Emphasis is also being placedon gaining synergies from acquired packaged distribution channels and loading recently installed
production capacity with new customers.
Across all businesses we continue to actively manage our pricing and reduce our costs toincrease profitability.

Business Sites in the United States

Percentage of Revenue(Fiscal year 2018)26.7%(¥172.6 billion)(Billions of yen)
Industrial gases (¥161.5)

Bulk and on-site gases (¥77.7)

Electronics-related products (¥11.0)

Packaged gases and hard goods (¥83.7)

Electronics Gases (¥7.2)
Equipment and installation (¥3.8)

Corporate headquarters
Air separation units
Carbon dioxide gas production facilities
Nitrous oxide production facilities
Filling stations and distribution facilities

Taiyo Nippon Sanso Corporation | Integrated Report 201821

Strategic Perspectives

Gas Businessin Asia and Oceania
Our operations in Asia andOceania center on the supply ofindustrial gases to customers inMarket Presence andSoutheast Asia, China, India andCompetitive Advantages
Australia, and of electronicsrelated products to customers in
China, Taiwan and South Korea.
We entered the Singaporean market in the early
1980s by establishing National Oxygen Pte. Ltd. andhave expanded our operations there in the years since.
In 2012, we acquired Leeden Limited, a leading supplier of packaged gases, hard goods and safety products with an extensive network across Southeast Asia.
In 2014, we merged Leeden with National Oxygen,thereby strengthening our operations in Singapore
and Malaysia.
We have also established a presence in thePhilippines and Vietnam, where we are currently the top
manufacturer of liquefied gases in terms of production
capacity, and continue to seek promising investment
opportunities in both countries that will position us tocapitalize effectively on economic growth. Further
expanding our geographic reach, we established basesin Indonesia—Southeast Asia’s largest industrial gases
market—in 2014, acquired a local distributor inAustralia in 2015, and established an operatingcompany in Myanmar in 2016.
In the area of electronics-related products, we arecapitalizing on rising demand in China, Taiwan andSouth Korea. Guided by our Total Electronics strategy,
we are taking steps to reinforce the relationships wehave built with customers in these markets and to
expand sales of electronics-materials gases, of which
we are a leading supplier, as well as to offer exhaustgas abatement systems, high-purity gas refining
equipment and installation services.

Outline of Business

Interview: “Total Electronics” Growth Strategies
Q1 How do you see themarket environment
in the semiconductor
industry?
With the rapid advance ofdigitization in both the industrial
and consumer sectors, evidenced by the use of IoT-enabled
artificial intelligence, robots, automated driving, smart appliancesand smart cities, among others,
demand is rising for semiconductors, crucial to data sensing, storTakashi Kuroiwa
age, transmission and analysis. In
General Manager,
2017, the global market for semiTotal Electronics
conductors market increased by
Taiyo Nippon Sanso (China)
more than 20%, topping $400
Investment Co., Ltd.
billion. Growth of 15% is forecast
in 2018, driven by high demand for memory products. A
worldwide sales forecast of $500 million was announced at
SEMICON West 2018, held in July 2018 in San Francisco.
Two-thirds of worldwide sales are in Asia, specifically Japan,
China, Taiwan, South Korea and Singapore. China is promoting a plan to open approximately 20 300 mm-wafer fabs by2022, which is projected to boost the country’s monthly production capacity to 2.5 times the current level. China is also
expected to spend $17.3 billion on fab equipment in 2019,
surpassing South Korea and Taiwan, which are forecast to
spend $16.3 billion and $12.3 billion, respectively, accounting for 2/3 of such spending worldwide. Although uncertainties remain, economic friction between China and theUnited States arising from the U.S. imposition of trade sanctions for intellectual property theft, high growth in the global
semiconductor market is generally expected to persist
through 2020.

Fiscal Year 2018 in Brief
Revenue: +20.1% from fiscal year 2017
Industrial gases
Electronics-related
products
Currency translation
effects

The consolidation of Supagas
underpinned an increase in revenue
Revenue rose, reflecting higher sales
in China, Taiwan and South Korea
The depreciation of the yen had
a positive impact

Revenue and Segment Profit
Years ended/ending March 31(Billions of yen)
120

12

90

9

60

6

30

3

Segment profit: +78.8% from fiscal year 2017
Industrial gases
Electronics-related
products
Currency translation
effects

22

Profit advanced, owing to
the consolidation of Supagas
Profit increased, reflecting
higher sales in China, Taiwan andSouth Korea
The depreciation of the yen had
a positive impact

Taiyo Nippon Sanso Corporation | Integrated Report 2018

0

0
2012

Revenue

2013

2014

2015
2016
Japanese GAAP

2016
IFRS

2017

2018

2019
Forecast

Segment profit

Note: In fiscal year 2016, a change in accounting period by certain subsidiaries resulted in the inclusion of 15
months of results for these companies.

Q2 Can you explain the Total Electronics concept,
which was introduced in April 2017, and tell us
about related initiatives since then?
For the foreseeable future, the principal objective of the Total
Electronics concept is to promote collaboration among
Group companies in our core electronics materials gases forsemiconductors by creating a cross-organizational functionthat facilitates the integration of customer information and thedevelopment of a unified Groupwide strategy with a view to
growing this business globally. Our previous business model
was regional and self-contained in nature, meaning that individual overseas subsidiaries responded to the needs ofcustomers scattered across their respective countries or
territories. To reinforce growth, we created a Total Electronics
function involving key sales and manufacturing managers
and marketing managers from each local subsidiary andembarked on the process of integrating management of thecustomer information and business strategies of Group companies. We are also formulating plans for capital investments
to establish and expand key specialty gas production facilities
and for the development of sales strategies and R&D plans.

strategic roadmaps makes it possible for us to optimize
investments to enhance product mix, output, quality, timing
and location of production.

Q4 How will you proceed with application of the
Total Electronics concept going forward?

One of our principal strengths is our global presence, thatis, our global network of Group companies that respond to
the diverse needs of core customers in different regions, thelineup of original products and external procurement capabilities and on-site service capabilities that make this possible.
Of particular note, our electronics materials gas production
facilities, from which we serve the East Asian and North
American markets, and on-site total gas management
capabilities, enable us to respond directly to customer
wishes. In addition, we have added R&D functions to ourelectronics materials gas production facilities, thereby creating a framework that supports swift product development.
Understanding our customers’ medium- to long-term

Our strategies for the specialty gases business are linked toOrtus Stage 2 and we have set a goal for revenue in fiscal
year 2021, the final year of the plan, of ¥60 billion. We haveset a long-term target of lifting our market share to 20%,from approximately 15% at present. Accordingly, we must
continue to expand our business in East Asia, notably China,
Taiwan and South Korea, in line with our customers’ strategic
roadmaps. We are currently exploring the construction of
new production facilities for diborane and fluoromethane
at Matheson Gas Products Korea, Co., Ltd.’s Asan Plant,
which is scheduled to start supplying customers in the
fourth quarter of fiscal year 2019. In China, Yangzhou Taiyo
Nippon Sanso Semiconductor Gases Co., Ltd. is currently
building production facilities for diborane and fluoromethaneat its plant in Yangzhou Chemical Industry Park in Jiangsu
Province. In preparation for an expected increase in demandin China beginning in 2020 and in light of the government’s
policy of promoting production within the country, we willcontinue to make additional investments in China and to
expand collaboration with local manufacturers. In the area of
product development, we will seek to link R&D sites in Japan,
South Korea and the United States in an organic manner into
the Total Electronics function with the aim of expanding into
the area of precursors and other liquid materials.
Looking ahead, we plan to utilize IoT technologies to integrate safety, quality and production control at our production
facilities for electronics material gases in Japan, China, South
Korea and the United States. By thus creating a businessmodel that ensures stable supplies of competitively priced
Taiyo Nippon Sanso-brand products, thereby increasing
customer satisfaction, we aim to boost our share of the
global market for electronics material gases to 20%.

Percentage of Revenue

Business Sites in Asia and Oceania

Q3 What are Taiyo Nippon Sanso’s principal
competitive advantages in the area ofelectronics-related products?

(Fiscal year 2018)

Regional
headquarters
Air separation units
Branches and sales
offices

16.0%(¥103.1 billion)(Billions of yen)
Industrial gases (¥65.8)

Bulk and on-site gases (¥41.0)

Electronics-related products (¥37.2)

Plants andequipment(¥13.6)

Packaged gases and hard goods(¥11.0)Electronics gases (¥31.0)

Air separation unit in
Yangon, Myanmar(Taiyo Nippon Sanso
Myanmar Co., Ltd.)

Equipment and installation(¥6.2)

Taiyo Nippon Sanso Corporation | Integrated Report 201823

Strategic Perspectives

Thermos Businesses
Our Thermos business dates
Outline of Business back to 1978, when predecessor Nippon Sanso Corporation,
Market Presence andseeking new applications forCompetitive Advantages
existing gas technologies,
began developing vacuuminsulated bottles. In the years
since, we have expanded our product lineup to include
sport-use vacuum-insulated beverage bottles, portablevacuum-insulated mugs and other popular offerings.
From our production facilities in Malaysia, China andthe Philippines, we currently provide stable supplies ofhigh-grade Thermos-branded products in more than
120 countries worldwide.
The Thermos Group is particularly noted for its
excellent development capabilities, with approximately
30% of its annual production accounted for by newly
released products, and continues working to expand
its operations in a manner that effectively grasps
market needs by enhancing its product lineup andbusiness domains. Backed by rigorous quality control,
the Thermos brandcontinues to gain
acceptance in markets
around the world.

Fiscal Year 2018 in Brief
Revenue: +3.5% from fiscal year 2017
Japan
Overseas

Sales were firm, led by portablevacuum-insulated mugs
Revenue was bolstered by the
expansion of sales channels inSouth Korea

Segment profit: –16.5% from fiscal year 2017
Japan
Overseas

24

Profit declined, owing to higher costs(mainly for publicity and advertising)Results at overseas equity-method
affiliates flagged

Interview: Growth Strategies for the Thermos BusinessQ1 Can you tell us a bit
about the evolution of
the Thermos business?
Today’s Thermos business beganwith the 1978 development of
the world’s first stainless steel
high vacuum-insulated bottle by
one of our predecessors, Nippon
Sanso. Made entirely of stainlesssteel, this revolutionary unbreakable bottle overcame the durability issues associated withglass-lined vacuum-insulated
Keiichiro Chujo
bottles, and its launch was a
President and CEO
major milestone in the evolution
Thermos K.K.
of this industry. In 1989, Nippon
Sanso acquired the Thermos
business from Household
International, Inc., of the United States and commenced
production and sales of Thermos-brand vacuum-insulatedbottles. In 2001, Nippon Sanso spun the business off as a
subsidiary, Thermos K.K.

Q2 How has the operating environment changed?
In Japan, the idea of carrying around one’s own beveragebottle as being ecologically sound and cool began to takehold around 2006. With the economic downturn precipitatedby the collapse of Lehman Brothers Holdings Inc. in 2008,
the trend was further fueled by rising frugality, further driving
the popularity of portable vacuum-insulated mugs. Against a
backdrop of market growth, in 2012 we released the ultralight JNL series, which rapidly swept the domestic market
thanks to their light weight—approximately 30% lower thanconventional products—and to their compact size and slim
profile, with a cumulative total of 15 million units sold to date.
This, together with a recent increase in inbound demand
attributable to rising number of overseas tourists visiting
Japan, has further bolstered overall demand for vacuum-

Revenue and Segment Profit
Years ended/ending March 31(Billions of yen)
40

12

30

9

20

6

10

3

0

0
2012

Revenue

2013

2014

2015
2016
Japanese GAAP

2016
IFRS

2017

2018

2019
Forecast

Segment profit

Note: Effective from fiscal year 2019, other businesses currently accounted for in the Thermos and Other
Business segment will be shifted to the Gas Business in Japan and the segment will be renamed the
Thermos Business. Accordingly, the basis for calculating the revenue and segment profit forecast for
fiscal year 2019 differs from that used for calculating revenue and segment profit reported for the years
up to and including fiscal year 2018. Calculated on the same basis as the fiscal year 2019 forecast,revenue and segment profit in fiscal year 2018 would have been ¥2.5 billion and ¥0.6 billion lower,
respectively, than reported results.
Taiyo Nippon Sanso Corporation | Integrated Report 2018

insulated bottles. Overseas, we expect demand to continue
rising in South Korea, China and Southeast Asia. In Europe,
we will work to stimulate demand while at the same time
expanding the number of categories in which we offer products and striving to bolster awareness of the Thermos brand.

Q3 What are your growth strategies for the
Thermos business?

high-performance speakers with dual-structure vacuuminsulated bodies and insulated drinking containers for babies,
to realize products that help shape bold new lifestyles.

Topic

Our principal sales strategy is to continue promoting area
marketing tailored to cultural and dietary customs in different
parts of the world. In Japan, we have traditionally focused on
products designed for carrying about outdoors, but we
intend to create an entirely new product category based on
the idea of cultivating demand for use indoors, as well as topromote active publicity and advertising with the aim ofbolstering the value of the Thermos brand. We have recently
expanded our network of directly operated brick-and-mortar
shops, organized around the theme of “lifestyles with
Thermos,” opening outlets in Tokyo’s Futako–Tamagawa
district in March 2017 and the Minato Mirai area of
Yokohama in June 2018. Strategies overseas center on
expanding our sales channels and further reinforcing the
Thermos brand, as well as to expand operations in areas
other than stainless steel vacuum-insulated bottles.
Thermos-brand products are currently manufactured at threefacilities worldwide. Going forward, we will expand our production capacity at all three locations to facilitate swift,
effective responses to rising demand in global markets.

In response to soaring demand for our mainstay
ultralight compact vacuum-insulated bottles, werecently established a new production facility in thePhilippines, which commenced operations in 2017.
The new facility, which is fitted with state-of-the-art
production equipment, boasts an annual production
capacity of 10 million units.

New production facility in the Philippines(Vacuumtech Philippines Inc.)

Q4 What are your hopes for the future?
As a global manufacturer of vacuum-insulated bottles, weseek to provide products that enhance lifestyles and areenvironment-friendly, in line with the concept “Thermos:
Maintaining a tasty temperature.” Looking ahead, we intend
to expand our product portfolio beyond vacuum-insulatedbottles, leveraging the insulating technologies we havefostered as pioneer in this field, as well as our ability toenvision unique lifestyles, to develop offerings such as

The Thermos Group’s Global Network

Percentage of Revenue(Fiscal year 2018)

4.3%(¥27.9 billion)(Billions of yen)
Thermos and Other Businesses (¥27.9)

Thermos (¥25.3)

Other(¥2.5)

Head office
Sales offices
Production facilities

Taiyo Nippon Sanso Corporation | Integrated Report 201825

Corporate Governance

Basic Philosophy
Our Board of Directors has established corporate governance principles, which serve as guidelines for corporate
governance across the Taiyo Nippon Sanso Group. From theperspective of ensuring sustainable growth and increasing
corporate value over the long term, and taking into accountthe positions of shareholders, customers, employees andlocal communities, we strive to guarantee the transparency
and fairness of management, as well as to ensure the effective use of available management resources, while bolstering
the strength of management through prompt and decisivedecision making. Accordingly, we continue to promote efforts
to enhance our corporate governance capabilities in line withthe following five basic beliefs:(1) We will respect shareholder rights and ensure equality.
(2) We will consider the benefits of shareholders and otherstakeholders, and work appropriately in partnership withthose stakeholders.
(3) We will ensure transparency by releasing appropriate
corporate information at appropriate times.
(4) By separating supervisory and executive functions, we will
improve effectiveness of the Board of Directors’ supervisory function over the company’s business executions.
(5) We will engage in constructive dialogue with shareholders
in order to contribute to the sustainable growth of thegroup and the medium- to long-term improvement ofcorporate value.

Initiatives to Improve Corporate Governance
Date

Area

Initiative

June 2015

Composition of theBoard of Directors

Revised Articles of Incorporation to reduce the maximum number of directors on the Board of
Directors from 20 to 15 to accelerate decision making
Reduced the number of directors on the Board of Directors from 16 to 11
Appointed two independent outside directors

June 2015–
July 2015

Compliance

Established the position of Chief Compliance Officer (CCO) with the aim of ensuring theeffectiveness of compliance
Established the Corporate Audit Office to assist the efforts of the CCO

October 2015

Other

Formulated principles of corporate governance
Formulated disclosure policy

June 2016

Committees

Established the Advisory Committee on Appointments and Remuneration, consisting of thechairperson of the Board of Directors, the president (CEO) and independent outside directors, toimprove the transparency and objectivity of procedures for appointing and determining
remuneration for directors

June 2016

Remuneration for
directors

Introduced performance-linked bonuses tied to degree of achievement of medium-term
management plan targets as an incentive with the goal of driving medium-term growth

July 2017

Committees

Established the Information Management Committee to create an appropriate framework for thejoint management of information among pertinent departments

February 2018

ComplianceAppointed a Group CCO and six regional CCOs (North America, East Asia, Taiwan, Southeast
Asia, India and Australia) to reinforce compliance Groupwide and created Group global andregional compliance frameworks and formulated global compliance management regulations thatdefine the roles thereof
Established Global Compliance Committee to facilitate the sharing of information on the status ofcompliance within the Group, the progress of legal proceedings and the provision of compliancetraining, among others, and to deliberate key related issues

June 2018

Risk management

Established the TNSC Technical Academy with the purpose of providing safety training andensuring technical skills are passed on, crucial considerations from the perspective of technologicalrisk management

Evaluation of the Board of Directors’ EffectivenessThe process for evaluating the effectiveness of the Board of
Directors centers on questionnaires distributed to individual
directors, completed and submitted to the chairperson. At
the meeting of the Board of Directors in March 2018, directors evaluated the current level of effectiveness of the Board,
based on opinions expressed in the questionnaires, anddiscussed issues and remedial measures. As a result, it wasdetermined that Board of Directors is effectively discharging
its assigned duties. Based on a proposal by the chairperson,
it was agreed at the meeting of the Board of Directors in May
2018 that directors will take steps going forward, includingreconsidering the role of the committees comprising ourinternal control system, to further enhance the Boards ability
to properly fulfill its responsibilities.

Management Structure
We have adopted an internal auditing system and clarified
accountability on a fiscal year basis by setting the term ofoffice for our directors at one year. In fiscal year 2018, theBoard of Directors met 11 times to discuss important matters and hear reports on the status of business activities.

26

Taiyo Nippon Sanso Corporation | Integrated Report 2018

We have also established the Advisory Committee on
Appointments and Remuneration, a discretionary committee
under the Board of Directors that includes the president(CEO) and is chaired by an independent outside director. The
Board of Directors consults with the Advisory Committee on

Appointments and Remuneration to select candidates for the
position of director, Audit & Supervisory Board member andexecutive officer and candidates to succeed the president(CEO), as well as regarding revisions to the internal regulations governing the Board of Directors, thereby ensuring thetransparency and objectivity of decision making. In addition,
we have established a Management Committee, whichmeets as necessary, helping to facilitate swift management
decisions.

Auditing Structure
To ensure adequate monitoring capabilities, our Audit &Supervisory Board comprises four auditors, three of whomsatisfy the requirements for outside auditors. Two of the outside auditors (Kazunari Higuchi, and Naoya Fujimori, currently
in their second terms, attended all 11 meetings of the Boardof Directors in fiscal year 2018, while the third—Akihiro
Hashimoto—attended 9 of the 9 meetings held after he took
office. Audit & Supervisory Board members met with theindependent auditors 9 times in fiscal year 2018 and accompanied the independent accountants on their periodic site

audits. This enables them to keep abreast of the status ofaudit implementation and to exchange opinions with theindependent accountants on key aspects of the auditing
process and on the assessment of internal control risks
associated with auditing. Audit & Supervisory Board members are also briefed on essential aspects of audits and theassessment of risks associated with internal control by theinternal auditing body. They also oversee management
appropriateness and efficiency.

Remuneration for Directors
In fiscal year 2018, remuneration for 11 directors (including
four who retired during the period) totaled ¥355 million, whilethat for five auditors (including one who retired during theperiod) totaled ¥103 million. Remuneration for directors
consists of basic remuneration and performance-linked

bonuses (medium- and short-term). Medium-term performance-linked bonuses are tied to degree of achievement of
medium-term management plan targets, while short-term
performance-linked bonuses are tied to year-on-year
improvements in consolidated operating results.

Internal Control System
also established Compliance, Risk Assessment, Technological Risk Management and Information Management committees with the aim of reinforcing compliance and ensuring theeffectiveness of our internal control system.

In line with Japan’s Companies Act, we have established asystem for ensuring appropriate business practices and are
reinforcing internal control by clarifying decision-making
authority and business processes, among others. We have

Auditing and Risk Management Structure
General Meeting of Shareholders
Appointment/dismissal

Audit & Supervisory
Board
Four members
three of whom are outside

Appointment/dismissal

Advisory Committee on
Appointments andRemuneration
Audit ofoperations

Consultation

Response

Appointment/dismissal

Board of Directors

Reporting

Independent auditors

7 members
two of whom are outside

Appointment/dismissal

Audit of accounts

Supervision

Audit ofaccounts

Representative Director, President CEO
Management Committee

Compliance Committee
Chairperson: CCO

Coordination

Coordination

Coordination

Risk Management Committee

Chairperson: Individual responsible for Groupwide internal
control management

Corporate Audit Office

Technological Risk Management Committee

Chairperson: Executive General Manager of the Technological
Affairs DivisionInternal audit

Information Management Committee

Chairperson: Individual responsible for Groupwide internal
control management

Divisions and Group companies

Taiyo Nippon Sanso Corporation | Integrated Report 201827

Corporate GovernanceCompliance Committee
In addition to formulating the Taiyo Nippon Sanso Group
Code of Business Conduct, which sets forth standards toguide the daily conduct of all Group employees from the perspectives of compliance with laws and regulations, corporate
ethics and internal regulations, we have published a related
guidebook and work to promote awareness of the code. To
reinforce adherence to the code, we have also established
the Compliance Committee, which is chaired by the GroupCCO and meets twice annually to hear reports on the statusof compliance within the Group and the progress of efforts toaddress previously detected issues. The committee also confirms the progress of legal proceedings to which the Groupis party. Overseas, we have appointed six regional CCOs
(North America, East Asia, Taiwan, Southeast Asia, India andAustralia) to spearhead regional compliance efforts, including
the provision of training that addresses region-specific risks,and have clarified the route for reporting compliance violations. In addition, we have established the Global Compliance
Committee, which is chaired by the Group CCO. The Global
Compliance Committee is briefed on the status of regional
compliance efforts and the progress of legal proceedings
to which the Group is party by regional CCOs, with whomit shares information. Both the Compliance Committee and
the Global Compliance Committee briefs the Management
Committee and the Board of Directors on their activities.
Risk Assessment Committee
We have established the Risk Assessment Committee toassess and consider efforts to address persistent risks withpotential to affect business execution and risks that havemanifested as actual issues. The committee, which is chairedby the individual in charge of Groupwide internal control,
meets once annually. In addition to assessing risks identified
as likely to affect performance in terms of frequency andquantitative impact, the committee reports on accidents at
production facilities, product defects and other issues that
represent the manifestation of risks. Should it determine thatrisks remain for which management systems do not yet exist,
the committee pinpoints the departments responsible andimplements appropriate measures. The committee also
reports on its activities to the Management Committee andthe Board of Directors.
Technological Risk Management Committee
We place a high priority on the reduction of risks related tosecurity, the environment, product quality and safety, andintellectual property, and have established the Technological
Risk Management Committee to prevent such risks frommanifesting into actual issues. The committee, which ischaired by the executive general manager of the Technological Affairs Division, has established dedicated teams to
manage risks in different categories. The committee meets
twice annually to ensure an accurate grasp of risks that havemanifested as actual issues and reports on these meetings,
as well as on efforts to address such risks, to the Boardof Directors.
Each February, the Technological Risk Management
Committee holds the Technological Risk Management
Conference, chaired by the president. The conference is
responsible for making decisions on the coordination of risk
management for the Group as a whole, as well as for annual
technological risk management policies and priority issues.
Information Management Committee
To ensure the appropriate management of personal, technological, business, accounts-related and other information,
pertinent departments have cooperated to establish theInformation Management Committee. The committee, which
is chaired by the individual responsible for Groupwide internal
control management, has created a management framework
tailored to different types of information and oversees theimplementation of measures to ensure the security of information systems. It also provides education and training on
procedures for managing information, and determines
policies for responding in the event of major incidents pertaining to information management. The committee reports
on its activities to the Management Committee and theBoard of Directors.

President’s Basic Policy on Technological Risk Management
To fulfill the responsibilities implied in our corporate slogan, “TheGas Professionals,” we recognize that we have an obligation toensure stringent compliance with relevant laws and regulations
and to prioritize the management of key technological risks, i.e.,risks related to security, product quality, product safety, the environment and intellectual property. Accordingly, we have formulated
the President’s Basic Policy on Technological Risk Management.
We will continue taking steps to minimize such risks and toenhance customer satisfaction across all areas of our operations.
These include ensuring the President’s Basic Policy on
Technological Risk Management is fully understood and appliedby every Taiyo Nippon Sanso Group employee, as well as formulating and implementing a Groupwide technological risk management system and effective business continuity planning (BCP) to
guarantee critical operations are maintained in the event of a disruption caused by an earthquake or other major disaster. At thesame time, we will work to contribute to greater public safety andenvironmental preservation, thereby earning the trust of society atlarge, ensuring the sound growth of our businesses and building
greater corporate value.

28

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Safety:Implement decisive, practical measures
to ensure the safety of our operations,in line with our belief that selling gas iscommensurate with selling safety andpeace of mind.
Product quality:
Accurately grasp the increasingly sophisticated and diverse customer needs andsocial imperatives and respond by ensuring
optimum product quality.
Product safety:
Minimize safety risks at all stages of the
product life cycle to ensure the safety andsecurity of the products we supply.
Environment:
Take steps to reduce the negative
impact of our operations on the global
environment and to prevent pollution.
Intellectual property: Obtain and make use of intellectual
property rights as necessary to preclude
competition with other companies.
(As of June 27, 2014)

Messages from Outside Directors

We spoke to our two outside directors regarding their assessment of our current corporate
governance system, remaining challenges and how they see their roles.
How do you view Taiyo Nippon
Sanso’s current challenges andfuture outlook?
The process of formulating Ortus
Stage 2 began with active discussions
involving divisions, the management
conference and the Board of Directors.
This bottom-up approach was exemplary in that it generated a sense of
Akio Yamada
unity and an enthusiasm for achieving
Outside Director
the targets of the plan among executives and employees. In the current
period, we are promoting active, boldinvestments and initiatives in line with this plan that will underpin sustainable growth going forward. Looking ahead, we willneed to advance M&A activities worldwide with the aim ofdriving our growth as a global organization both in name an in
substance and ensuring we remain a competitive challenger.
There is also an increasing need for swift management decision making, so this is another challenge requiring prompt
attention.
What steps are being taken to reinforce corporate
governance?
Taking into account the positions of our various stakeholders,
we strive to guarantee the transparency and fairness of management. To assess the performance of the Board of
Directors, we conduct surveys using questionnaires and takesteps to address issues identified, including thorough deliberation and the implementation of remedial measures. In light of
the introduction of a revised version of Japan’s Corporate
Governance Code in June 2018, the Advisory Committee on
Appointments and Remuneration is expected to formulate aplan for the appointment/dismissal of, and selection of successors for the CEO, including outlining criteria and standards
for the long-term fostering of human resources and management candidates, from a global perspective. Because of theunique nature of our businesses, we place an emphasis on
the management of technological risks, including those related
to security, quality and product safety, and report on our activities at meetings of the Board of Directors. Recognizing themanagement of technological risks for Group companies
worldwide as particularly critical, we will continue to promote
initiatives with an unyielding sense of purpose.
What can you tell us about the effectiveness of thecorporate governance system?
Taiyo Nippon Sanso is a company with a Board of Corporate
Auditors. Three of our full-time corporate auditors are highly
experienced individuals who satisfy the requirements foroutside auditors. Our auditing methods and processes are
extremely robust. We exchange opinions with outside auditors, which enables us to gain useful input, and communicate
these opinions to those responsible for business execution.
Looking ahead, we will continue working to strengthen ourinternal control framework and to ensure active, swift
management decisions in response to changes.

As someone with an independent,
objective perspective, what do you
think is the principal challenge
facing Taiyo Nippon Sanso today?
We established a presence in North
America through Matheson Tri-Gas.
In 2016, we acquired Supagas
Holdings in Australia, which became
a consolidated subsidiary. These
Mitsuhiro Katsumaru
and other decisive efforts to expand
Outside Director
our overseas operations havetransformed us into a truly globalorganization. As such, a certain levelof corporate governance, sustainable growth and social
contribution befitting a global organization is expected of us.
Fostering leaders and successors with the ability to makeresolute management decisions with a medium- to long-term
perspective and a view to the future will thus continue to bea major focus.
What can you tell us about Taiyo Nippon Sanso’s
principal strengths and future potential?
Our mission is to ensure safe and stable supplies of industrial
gases. Industrial gases are indispensable to the survival andgrowth of basic industries such as steel and chemicals, butthey are also expected to play a critical role in such areas asadvanced medicine and environmental conservation in theyears ahead. The fact that we have a solid market is ourprincipal strength.
What do you see as important to increasing theeffectiveness of the Board of Directors?
Japan’s Corporate Governance Code was launched in June
2015. In the years since, we have promoted active discussion regarding our corporate governance system, spearheaded by the Board of Directors. Outside directors are
unfettered by past constraints, so we have been able toexpress our opinions without reservation throughout theprocess of reexamining our corporate culture, separating
execution and supervisory functions, and promoting efficient
corporate management. I think we have helped to ensure
active debate at Board of Directors’ Meetings. Going forward, we will continue to leverage our ability to speak freely
to bring further depth to Board of Directors’ discussions.
How do you see your role going forward and whatchallenges do you anticipate?
I would like to pay particular attention to ensuring complianceand managing risks. Scandals and accidents are a major
hindrance to a growing company. I believe that remaining
focused helps one avoid becoming complacent, so that’s
what I will endeavor to do.

Taiyo Nippon Sanso Corporation | Integrated Report 201829

Members of the Board of Directors, Members of the Audit &Supervisory Board and Executive Officers(As of June 20, 2018)

Members of the Board of Directors

Representative Director,
President CEO
Yujiro Ichihara

Member of the Board,
Senior Managing Executive Officer,
Executive General Manager,
Engineering Div.
Masahiro Uyehara

Member of the Board,
Senior Managing Executive Officer,
Executive General Manager,
Gases Business Div.
Kenji Nagata

Member of the Board (Outside Director)
Akio Yamada

Member of the Board (Outside Director)
Mitsuhiro Katsumaru

Member of the Board
Kenkichi Kosakai

Member of the Board,
Managing Executive Officer,
Chief Compliance Officer
Shoji Yoshisato

Members of the Audit & Supervisory Board

Kazunari Higuchi*

30

Naoya Fujimori*Taiyo Nippon Sanso Corporation | Integrated Report 2018(*Outside Auditor)

Akihiro Hashimoto*

Junzo TaiExecutive Officers

Senior Executive Officer
Senior Executive Officer
Hiroyuki Tanizawa
Norikazu Ishikawa
Executive General Manager, General Manager,
Technological Affairs Div.
South East Asia
Chief Sustainability Officer

Senior Executive Officer
Hirohisa Yanagida
General Manager,
Kanto Regional Branch

Senior Executive Officer
Haruhiko Yasuga
General Director,
Vietnam Japan Gas Joint
Stock Company

Senior Executive Officer
Senior Executive Officer
Masahisa Kanzaki
Nobuaki Kobayashi
Executive General Manager, Executive General Manager,
Energy Div.
Research & Development
Div.

Executive Officer
Executive Officer
Yasuhiko Kawano
Kunihiro Kobayashi
Executive General Manager, General Manager,
Chubu Regional BranchInnovation Div.

Executive Officer
Yuki Endo
General Manager,
Kitakanto Regional Branch

Executive Officer
Toshikazu Kurishita
General Manager,
Kyushu Regional Branch

Executive Officer
Executive Officer
Tsutomu Moroishi
Satoshi Wataru
Executive General Manager, Executive General Manager,
Global Operations Div.
Human Resources,
Corporate Planning,
Chief Health Officer

Executive Officer
Toyoyuki Sato
Deputy Executive
General Manager,
Research &Development Div.

Executive Officer
Masaharu Takagi
Deputy Executive
General Manager,
Gases Business Div.

Executive Officer
Executive Officer
Executive Officer
Masanobu Narita
Daiji Nakajima
Toru Yanagawa
Executive General Manager, Executive General Manager, General Manager,
On-Site & Plant Div.
Production & Logistics Div. Kansai Regional Branch

Executive Officer
Yasushi Nagaoka
Deputy Executive
General Manager,
Plant Engineering Center,
Engineering Div.

Executive Officer
Executive Officer
Executive Officer
Takeshi Miki
Tsuneo Tanaka
Yoshifumi Koide
Executive General Manager, Executive General Manager, Deputy Executive
General Manager,
Corporate Administration Div. Medical Div.
Technological Affairs Div.

Executive Officer
Kouichi Take
General Manager,
Chugoku Shikoku
Regional Branch

Taiyo Nippon Sanso Corporation | Integrated Report 201831

Working with Stakeholders
Recognizing that our longevity and future prosperity depend on our ability to earn the trust of society as a whole, we haveestablished a framework for fulfilling our responsibilities to stakeholders and are implementing a variety of initiatives aimed atmaintaining a strong corporate culture.

Young Researchers’ Conferences Encourage Technical Exchanges and the Presentation of Research
We hold young researchers’ conferences four times annuallyat our Tsukuba and Yamanashi laboratories (the facilities host
one conference each independently and collaborate to hostthe remaining two). The conferences provide an opportunity
for young researchers to present their research, thereby
improving their communication skills, as well as to posequestions to other researchers, which increases their comprehension. To encourage active discussion among young
employees, there is a rule in place that management
members do not ask questions.

The Tsukuba Laboratory began conducting young
researchers’ conferences, with more than 500 individuals
having presented their research to date. Researchers takeparticipate actively in Q&A
sessions and lead theexchange of opinions on
individual presentations,
underlining the importanceof these events as asource of new ideas andresponses to issues.
Conferences provide an opportunity forcommunication among young researchers
from across the Group

Local Subsidiary Participates in the 5th Japan Vietnam Festival
In January 2018, affiliate Vietnam Japan Gas Joint Stock
Company (VJG) participated in the fifth annual Japan Vietnam Festival in Ho Chi Minh City. This was the second consecutive time the company has taken part in this annual
event. Organized around the theme “What does VJG do?”the company’s booth used models to introduce visitors to
VJG’s operations. The company also conducted a sciencelab lesson for children, an undertaking that proved particularly popular in 2017. This year’s lab lesson explored ways inwhich industrial gases are used in food preparation. To illustrate the theme, participating children were given snacks inpackages filled with nitrogen gas, a key VJG product. The
event served as an opportunity to increase familiarity withindustrial gases among both local and Japanese residents of
Ho Chi Minh City. Looking
ahead, we will continue topromote initiatives aimed atincreasing communication
with the communities
where we operate aroundthe world.
VJG’s booth welcomed more than 500 visitors

Communication with Shareholders and Investors
In addition to our annual general meeting of shareholders, we
conduct results presentations, facility tours and other events
for institutional investors and buy-side analysts. Results presentations make use of visual aids to deepen understandingof our operations, operating results and our forecasts for the
future. Facility tours are designed to enhance understandingof what we do and include regularly scheduled visits to bothfacilities and research laboratories. In March 2018, we conducted a tour of the production facility of Group company
International Carbon Dioxide Co., Ltd., in Chiba Prefecture,with the aim of introducing shareholders and investors to ourcarbon dioxide gas business.
We also put out a number of regular publications for shareholders and investors, including full-term and interim business reports. Effective from fiscal year 2018, we combined
our annual report with our environmental and social responsibility report into a single integrated report. This document
provides both financial information, such as that related tobusiness strategies and operations, and non-financial information, including that related to environmental protection,social contribution and corporate governance, with the aim

32

Taiyo Nippon Sanso Corporation | Integrated Report 2018of giving readers an accurate overall picture of the Taiyo
Nippon Sanso Group.
Enhancing our corporate website is another key focus of
our efforts. As well as various key documents, the website
provides a compact outline of our various businesses in acompact, easy-to-understand form and other content thatgive even first-timers a clear view of the Group and its
activities.

Tour of plant for institutional investors andsecurities analysts

Results presentation

Taiyo Nippon Sanso Major Club Official Dealer System
In April 2005, we launched an official dealer system, dubbed
the Taiyo Nippon Sanso Major Club, with the aim of responding accurately and effectively to the needs of end users
across Japan. In addition to providing official dealers(“partner companies”) with competitive products, weleverage our position to provide a wide range of services,
including domestic and overseas sales support, technicalassistance and management consultation.
The Taiyo Nippon Sanso Major Club—comprising the core
Partners’ Club and two functional subgroups, the LP Gas
Club and the Medical Club—boasts a robust national network that is instrumental in ensuring our products are delivered safely and reliably to end users. For each constituent
club, we offer seminars and training sessions on operationalsafety and other themes. Partner companies also promote a
variety of ongoing independent skill-building initiatives aimed
at enhancing customer satisfaction and improving their own
performance as responsible corporate citizens. Going forward, we will continue working to reinforce customer satisfaction and enhance our reputation as an organization worthyof trust through ongoing initiatives with Taiyo Nippon Sanso
Major Club partners.

Organization of the Taiyo Nippon Sanso Major Club

Logo

*The Partners Club is divided into seven regional blocks:
Tohoku, Kita-Kanto, Kanto, Chubu, Kansai, Chugoku–Shikoku and Kyushu.

LP Gas Club
(Functional subgroup)

Partners’ Club*

Medical Club
(Functional subgroup)

Inaugurated: April 1, 2005

Chairperson: Representative Director,
President CEO
Taiyo Nippon Sanso

Number of participating dealers:
288 (as of July 2018)

Secretariat: Gases Business Division,
Taiyo Nippon Sanso

The Major Club Magazine
helps us communicate withMajor Club members.

Training session

Lab Lessons Using Liquid Nitrogen
Our Taiyo Nippon Sanso Kids’ Science Class lab lessons
seek to encourage children to take an interest in science bygiving them the chance to participate in hands-on experiments using liquid nitrogen. These lab lessons enable
children to actually experience the use of liquid nitrogen by,
for example, freezing a rose. In fiscal year 2018, we conducted a lab lesson as part of nearby Shinagawa Municipal
Ushiroji Elementary School’s annual open house, in which we
Shinagawa Municipal
Ushiroji Elementary School
open house
A total of 29 fifth-year students
took part in the 2017 edition of thisannual lab lesson. Experiments
conducted included generating
white smoke using the samemechanism that results in clouds
and testing roller coastersuperconductivity.

participate every year. We also conducted lab lessons using
liquid nitrogen at events sponsored by official dealers andcustomers’ plants, community events and on a variety ofother occasions. The lessons received high marks not only
from children, but also from teachers, parents and guardians,
and local residents. Looking ahead, we will continue looking
to expand opportunities to offer of lab lessons to broaden
understanding of the Taiyo Nippon Sanso Group.
Saitama Prefectural Office
open house, Saitama
Residents’ Day
Approximately 230 individuals
took part in a highly successful
lab lesson conducted aspart of this event.

Official dealer events
Lab lessons conducted at official dealer events were
designed for participation by parents and children
together and made use of liquid nitrogen, dry ice
and other materials.

Taiyo Nippon Sanso Corporation | Integrated Report 201833

Environmental Protection Initiatives
In addition to ensuring a solid grasp of the environmental impact of the Taiyo Nippon Sanso Group’s business activities,
we promote a broad range of initiatives aimed at helping mitigate global warming, the central theme of our environmental
protection efforts. Of particular note, we are taking steps to reduce energy consumed per unit of production at gas production facilities, promoting energy-saving measures at various sites, and striving to increase the efficiency of transport bytanker truck.

Environmental impact of oxygen, nitrogen and argon production
Air Separation Unit: Simplified Process Flow
Main heat exchanger
Cold box

Distillation column

Purifier unit
(Removal of CO2 and water)

Argon
GaseousnitrogenAtmospheric
airLiquefied nitrogen and oxygen

The production of core Taiyo Nippon Sanso Group products
oxygen, nitrogen and argon requires a considerable amount ofelectric power. Emissions of CO2 resulting from the use of electric power used for this purpose accounts for approximately
98% of total Group emissions.
Air separation units produce oxygen, nitrogen and argon
simultaneously by separating atmospheric air into its constituent gases. Air is first compressed, a process that is highly
energy-intensive and thus uses a significant amount of electric
power. Compressed air is cooled almost to the point where thegases liquefy, after which it is ready for the distillation column,
where it is separated into its gas and liquid components using
a thermal distillation process. Nitrogen, which has a low boilingpoint, concentrates in the gas and is withdrawn from the topof the column, while oxygen, which has a higher boiling point,concentrates in the liquid and is withdrawn from the bottomof the column. Argon, which has an intermediate boiling point,
is withdrawn from the middle of the column.

Waste gas
Gaseousoxygen

Air
inlet

Air
compressor

Atmospheric air(Raw material)

Ambient temperature

Cryogenic temperature

Reducing Energy Consumption at Gas Production Facilities
Our efforts to contribute to the prevention of global warming
center on reducing energy consumption at gas production
facilities. We have established an Energy Saving Working
Group as a subsection of or Environmental Management
Committee to guide these efforts. In fiscal year 2018, consumption of energy per unit of production by such facilities
was down 1.8% from fiscal year 2006, the base year used
for this measurement. Moreover, these facilities’ consumptionof electric power per unit of production was down 27.8% fromfiscal year 1991. Efforts by gas production facilities to reduceenergy consumption included developing and installing energyefficient air separation units, replacing air separation unit components with new high-efficiency versions, and optimizing
facility operations to better reflect demand. These facilities also
promote initiatives line with the Commitment to a Low-Carbon
Society plan formulated by the Keidanren (Japan Business
Federation) and the Japan Chemical Industry Association(JCIA)’s action plan for realizing a low-carbon society.

Consumption of Energy and Electricity per Unit of Production by
Gas Production Facilities(Million kWh) 100

1991 = 100

100

8,000

72.2

6,000

75
4,922

4,000

50

2,909
2,000

25

0

0

1991
2014
2015
2016
2017
2018
(Years ended March 31)
Base year
Electricity consumed
Electricity consumed per unit of production (index)
Scope of data: Gas production facilities belonging to and gas production companies managed
by Taiyo Nippon Sanso.
Note: Increases in fiscal years 2017 and 2018 reflect the expansion of the scope of data toinclude Yahata Sanso Center and JFE Sanso Center’s Kurashiki Plant, respectively.

Other Initiatives
Challenges and targets

Principal initiatives

Progress as of
fiscal year 2018

• Cut unnecessary electric power consumption by office and lighting
equipment• Replace air conditioning, OA, lighting, shared and other equipment with
Down 1.0%
energy-efficient new models(from fiscal year 2017)• Implement no overtime days and Cool Biz (liberal summer dress code
to reduce use of air conditioning)• Optimize shipping routes(2) Increase the efficiency of transport by • Rethink delivery intervals
Down 28.6%
tanker truck to reduce fuel used in the • Promote the weighing of cargo in the presence of the customer(from fiscal year 1991)
transport of products• Introduce new-model tanker trucks• Reinforce green driving training(3) Contribute to environmental protection
Down 1,734,000
Take steps to bolster sales of hydrogen refueling stations, SCOPE-JET®,
through our products by increasing
MG Shield®, SF6 Recovery Service and Thermos products.
tonnes of CO2
sales of environment-friendly products(1) Promote energy-saving measures atvarious sites to reduce electric power
consumption

Relevant companies/
departments/sites
All Taiyo Nippon Sanso sites(excluding gas production
facilities)

Group and subcontracted
logistics companies

Taiyo Nippon Sanso anddomestic Group companies

Note: Contributions to the reduction of greenhouse gas emissions were calculated in accordance with the Japanese Ministry of Economy, Trade and Industry’s Guideline for Quantifying GHG Emission
Reduction Contribution (formulated in March 2018).

34

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Raw material

Atmospheric air isthe raw material used to produce
industrial gases.

Argon

0.9%

Oxygen

Other

0.1%

20.9%

Electric power used here
represented 99.8% of total
electric power consumption.

Atmospheric air consists of oxygen,nitrogen, argon and other gases.

Nitrogen 78.1%

Electric power

5,586 million kWh

Other energy

1,161,000 GJ

Development and production

Resources/materials

Gas filling
stations

INPUT

Gas production
facilities

Greenhouse gas emissions
4,217,000 tonnes CO2
Calculated Emissions due to the use
in tonnes of electric powerof CO2Emissions due to the useof other energy
Emissions of greenhousegases other than CO2

OUTPUT

Chemical substances
504 tonnes
We recycled and reused
Water 11.41 million m3

Supplied bytanker trucks

68,000 tonnes CO2

Chemical substancesdischarged
30 tonnes
Water discharged
3.8 million m3 (Estimate)
Industrial waste
discharged 3,538 tonnes

water and curbed
resource consumption.

Supplied incylinders

4,147,000 tonnes CO2

Supplied bypipeline

2,000 tonnes CO2

Volume ofindustrial waste
recycled
1,644 tonnes

SupplyDiesel oil/gasoline*1

18,000 kL

INPUT

OxygenNitrogen

O2

N2

Ar

LPG

Specialty
gases

CarbondioxideHydrogenHelium

CO2

H2

He

Liquefied gases are transported from production facilities bytanker truck to filling stations, where vaporized gases arecompressed into cylinders.

Electric power*2
Other energy
Diesel oil/gasoline*3

Argon

OxygenNitrogen

Argon

O2

N2

Ar

OxygenNitrogen

Argon

O2

N2

Ar

Sales

14 million kWh
18,000 GJ

INPUTGreenhouse gas emissions
47,000 tonnes CO2

OUTPUT

Sites

Service vehicles

300 kL

Greenhouse gas emissions
9,000 tonnes CO2
OUTPUT

Calculated Emissions due to the use
in tonnes of electric powerof CO2Emissions due to the useof diesel oil/gasoline
Emissions due to useof other energy

7,000 tonnes CO2
1,000 tonnes CO2
1,000 tonnes CO2

Industrial waste discharged
954 tonnes
Volume ofindustrial waste
recycled
521 tonnes

Use
Most industrial gases return tothe atmosphere after use,
resulting in minimal waste.

Customers• Steel/nonferrous metals• Glass/
papermaking• Electronics• Healthcare• Petroleum/chemicals• Food• Others• Automobiles/
machinery*1 Used by Group-designated consignors*2 Used by Group sites*3 Used by Taiyo Nippon Sanso service vehicles*4 Calculated based on item 3 in the “Other initiatives” table on page 34.

Industrial gases are used in a broad
range of industries, from healthcare
and food to petroleum/chemicals
and electronics.

Total greenhouse gas
emissions
4,273,000 tonnes CO2
Contribution to the reduction ofgreenhouse gas emissions*4
1,734,000 tonnes CO2

Taiyo Nippon Sanso Corporation | Integrated Report 201835

Six-Year Summary
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries(Millions of yen)

Financial indicators
Years ended/as of March 31

IFRS

IFRS

Japanese
GAAP

IFRS

Japanese
GAAP

Japanese
GAAP

Japanese
GAAP

2018

2017

2016

2016

2015

2014

2013

¥646,218¥581,586¥594,421¥641,516¥559,373¥522,746¥468,387

Core operating profit

60,03354,73647,456————

Operating profit

59,86253,66448,92543,36235,29731,48924,884

Profit (loss) attributable to owners of parent

48,91934,74029,03025,845

20,764

20,194(2,071)

Revenue

Selling, general and administrative expenses/
revenue

27.7%

28.4%

27.1%

28.4%

26.7%

26.4%

26.8%

Return on equity

13.3%

10.3%

9.1%

8.2%

7.0%

8.4%

(1.0)%

Return on capital employed

8.4%

8.4%

8.1%

7.4%

6.2%

6.2%

Capital expenditures

62,56943,79652,65753,611

Investment and loans

4,556

102,034

25,507

Depreciation and amortization

43,26640,04839,696

Amortization of goodwill

5.5%

35,201

32,532

31,71532,941

5,710

35,7495,672

44,86435,56833,507

29,400

—

—

—

7,352

4,959

3,668

2,719

3,255

3,323

3,238

3,348

3,430

3,170

3,177

Interest-bearing debt

326,959

359,528

266,215

274,424

266,276

278,063

253,424

Net interest-bearing debt

274,968

304,308

215,492

223,638

212,855

219,727

228,681

Net debt-to-equity (times)

0.71

0.87

0.67

0.71

0.67

0.80

1.12

Total equity attributable to owners of parent

386,457

351,576

320,457

337,974

341,207

298,475

224,253

Total assets

931,047924,281787,505

783,248782,357

731,677

615,820

Research and development expenses

Amounts of per share of common stock:
Profit (loss)

113.04

80.28

67.08

59.72

47.98

49.42

(5.25)Cash dividends

23.00

20.00

16.00

16.00

13.00

12.00

12.00

Dividends payout ratio

20.3%

24.9%

23.9%

26.8%

27.1%

24.3%

Price earnings ratio (times)

14.25

16.22

15.92

17.88

34.16

16.43

(121.52)—

Non-financial indicators
2018

2017

2016

2015

2014

2013

Number of directors

Years ended/as of March 31

7

10

11

17

15

15

Number of outside directors

2

2

2

0

1

1

28.6%

20.0%

18.2%

0.0%

6.7%

6.7%

Outside directors as a percentage of total
number of directors
Number of employees

16,746

15,86014,107

14,127

13,142

12,955

11,468

Number of overseas employees

10,574

10,033

8,332

8,332

7,395

6,977

5,848

59.1%

59.0%

56.3%

53.9%

51.0%

Overseas employees as a percentage of total
number of employees

63.1%

63.3%

CO2 emissions (thousands of tonnes)*1

4,273

3,777

3,401

3,512

3,359

3,153

Energy consumption (thousands of GJ)*1

55,61151,47945,50445,736

46,18643,922

Electric power (millions of kWh)

5,600

5,209

4,607

4,611

4,630

4,400

Other energy (thousands of GJ)

1,179

901

790

963

1,234

1,193

Patents owned in Japan

738

701

689

684

636

590

Patents owned overseas

356

328

295

300

293

272

Composition:

Patent portfolio*2

1* CO2 emissions and energy consumption figures are for Taiyo Nippon Sanso sites and affiliated companies in Japan.
*2 Patent information for each year is for Taiyo Nippon Sanso and is as of December 31 of the previous year.

36

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Management’s Analysis of Operating Results and Financial Position

Operating Results

the establishment of a new on-site plant in October 2017. In
contrast, revenue from equipment and plants was down from

Consolidated revenue in fiscal year 2018, ended March 31,

the previous period, when a large-scale air separation plant2018 increased 11.1% from fiscal 2017, to ¥646,218 million.

project bolstered revenue in this category. Among electron-

Cost of sales was up 12.5%, to ¥411,447 million, and was

ics-related products, sales of electronics materials gases

equivalent to 63.7% of revenue, up 0.8 percentage point.

were robust, underpinned by higher demand for use in LCD

Selling, general and administrative expenses rose 8.3%, toand semiconductor manufacturing. In the energy field, reve-¥178,690 million, equivalent to 27.7% of revenue, 0.7 per-nue from sales of LPG soared as rising import prices

centage point lower than in the previous period. As aprompted sales prices hikes. As a consequence of these andconsequence, operating profit advanced 11.5% to ¥59,862

other factors, revenue from external customers increased

million, and the operating profit margin edged up 0.1 per-

6.5%, to ¥342,449 million, and segment profit advanced

centage point, to 9.3%. Core operating profit—operating

4.4%, to ¥30,760 million.

profit excluding gains or losses associated with nonrecurring
factors such as withdrawals or from or the scaling down of

Gas Business in the United Statesbusinesses—amounted to ¥60,033 million, an increase of

The consolidation of a business acquired from Air Liquide in

9.7%, or ¥5,297 million.

September 2016 contributed significantly to revenue in the

Owing to these and other factors, profit attributable toarea of industrial gases. Among existing businesses, revenue

owners of parent advanced 40.8%, to ¥48,919 million. Basicfrom bulk gases was up, owing partly to higher shipments ofearnings per share rose ¥32.76, to ¥113.04, while ROCE

carbon dioxide gases. Shipments of packaged gases andremained level at 8.4%.

hard goods were firm, underscored by economic recovery.

At the general meeting of shareholders held on June 20,

For reasons such as these, revenue from external customers

2018, shareholders approved a proposal to pay a year-end

advanced 17.2%, to ¥172,646 million, and segment profit

dividend of ¥12.00 per share, up ¥1.00, bringing cash divi-rose 12.3%, to ¥13,559 million.

dends for the period, which comprised interim and year-end
dividends, to ¥23.00 per share. This represented a payout

Gas Business in Asia and Oceania

ratio of 20.3%.

The December 2016 consolidation of Supagas Holdings inCapital expenditures, on a final acceptance basis, totaled

Australia had a positive impact on results in the area of¥62,569 million, an increase of ¥18,773 million. Depreciationindustrial gases, as did increased revenue in China andand amortization rose ¥3,218 million, to ¥43,266 million.

Thailand. In electronics-related products, revenue from elec-

Research and development expenses declined ¥68 million,

tronics materials gases soared, reflecting demand gains into ¥3,255 million, equivalent to approximately 0.5% ofChina, South Korea and Taiwan. Thanks to these and otherrevenue.

factors, revenue from external customers climbed 20.1%, to¥103,166 million, while segment operating profit soared
78.8%, to ¥9,236 million.

Results by Segment
Thermos and Other Businesses
Gas Business in Japan

Revenue rose steadily, bolstered by firm sales of portable

In the area of industrial gases, revenue from core air

vacuum–insulated mugs in Japan. As a consequence, reve-

separated gases (oxygen, nitrogen and argon) was solid,nue from external customers for the period advanced 3.5%,

particularly to customers in the key steel and chemicals

to ¥27,956 million. Nonetheless, segment profit decreased

industries. Revenue from on-site gas services rose, owing to

16.5%, to ¥8,366 million.

Taiyo Nippon Sanso Corporation | Integrated Report 201837

Financial Position

Net cash used in financing activities came to ¥39,859
million, compared with ¥80,777 million provided by such

Total assets as of March 31, 2018, amounted to ¥931,047

activities in the previous fiscal year. Contributing factors

million, up 0.7%, or ¥6,765 million. The appreciation of the

included repayments of long-term borrowings, proceeds

yen, which was ¥5.95 higher against the U.S. dollar at fiscalfrom long-term borrowings and redemption of bonds.

year-end than it was a year earlier, had a negative impact of

As a result of the Company’s operating, investing andapproximately ¥21,400 million. Total current assets rose

financing activities, the balance of cash and cash equivalents

3.8%, or ¥10,170 million, to ¥278,302 million, bolstered byat end of fiscal year, after accounting for the effects ofincreases in operating receivables and cash and cash equiv-

exchange rates, was ¥47,809 million, down ¥5,048 million

alents. Non-current assets edged down 0.5%, or ¥3,404 mil-from the previous fiscal year. Free cash flow was ¥31,111

lion, to ¥652,744 million, owing to declines in goodwill andmillion, compared with ¥103,597 million in fiscal year 2017.

intangible assets.
Current liabilities rose 3.5%, or ¥7,485 million, to¥221,087 million, thanks to higher trade payables andBusiness Risks

income taxes payable. Non-current liabilities declined 10.8%,
or ¥35,929 million, to ¥297,887 million, reflecting a decrease

Management Policy- and Business-Related Risks

in bonds and borrowings and deferred tax liabilities. The cur-

Capital Investment

rent ratio, at 126%, was up 0.3 percentage points. Interest-

The Company maintains large-scale gas supply facilities forbearing debt as of March 31, 2018, declined 9.1%, or

major customers and needs to spend heavily to build, main-¥32,569 million, to ¥326,959 million.

tain and upgrade these facilities. Accordingly, interest rate

Total equity advanced 9.3%, or ¥35,209 million, to¥412,072 million. This was attributable to an increase in profit

trends could have a material impact on the Company’sbusiness performance.

attributable to owners of parent and a decline in retained
earnings paid as dividends. As a consequence, total equity

Manufacturing Costs

attributable to owners of parent as a percentage of total

Electricity is the major component of the cost of manufactur-

liabilities and net assets rose 3.5 percentage points, toing such core products as oxygen, nitrogen and argon.

41.5%. Total equity attributable to owners of parent per share

Accordingly, a sharp increase in the price of crude oil could

was ¥893.01, up ¥80.6. The interest-bearing debt ratio wasresult in substantially higher electricity charges, which the

0.79 times, compared with 0.95 times at the end of fiscal

Company may be unable to reflect in the pricing of its

year 2017.

products.
Overseas Factors

Cash Flows

The Company maintains operations overseas, particularly in
the United States and Asia. Political and economic changes

Net cash provided by operating activities amounted toin countries where the Company has operations may have an¥83,199 million, up ¥8,603 million from fiscal year 2017.

adverse impact on its business performance.

Principal factors behind this result included higher profit

38

before income taxes and deprecation and amortization and

Legal Issues

an increase in trade receivables.

Unanticipated changes to existing laws and the introduction

Net cash used in investing activities, at ¥52,088 million,of new laws—particularly in countries overseas where thewas down ¥94,994 million. This was attributable largely toCompany maintains operations—may adversely affect thepurchase of property, plant and equipment and sales andCompany’s business performance. Revisions to environmen-

proceeds from sales and redemption of investments.

tal laws that result in a tightening of restrictions may lead to

Taiyo Nippon Sanso Corporation | Integrated Report 2018

an increase in costs to ensure compliance, which may also

Retirement Benefit Liabilities

adversely affect the Company’s business performance.

A sudden deterioration in retirement plan returns resulting in

Because the Company does business both in Japan andan increase in retirement benefit costs may have an adverse

overseas, there is a risk that it may become involved in legal

impact on the Company’s business performance.

disputes or be the subject of investigations and/or legal
action by relevant authorities in the markets in which it oper-

Natural Disasters and Contingencies

ates. Such legal and regulatory action may adversely affect

The occurrence of earthquakes or other natural disasters

the Company’s operations, business performance, financial

in areas where the Company has manufacturing facilities

condition, reputation and reliability.

may damage those facilities. In particular, damage to theCompany’s large-scale manufacturing facilities may lead toTechnological and Safety Factors

a significant decline in production capacity and incur major

Technological Development

recovery costs. Such factors may adversely affect theWith the aim of realizing distinctive, market-leading tech-Company’s business performance. Major accidents occur-

nologies that will ensure its position as a leading global

ring as a result of contingencies, including those attributableplayer, the Company promotes technological development

to human factors, may also adversely affect the Company’s

activities aimed at facilitating future business expansion.

business performance.

However, the creation of new products and technologies
entails various risks.

Medium-Term Management Plan
The Company’s ability to meet the targets of its medium-term

Intellectual Property

management plan may be adversely affected by a number of

The Company’s business depends on proprietary tech-factors, including changes in the operating environment.

nological development. The Company endeavors to obtain
intellectual property rights as necessary for its proprietary

Capital Alliance with Mitsubishi Chemical Holdings

technologies. However, there are no guarantees that its

Mitsubishi Chemical Holdings Corporation owns a 50.59%

technologies are completely protected.

stake in the Company. With the aim of further strengthening
the capital alliance between the two companies, established

Product Safety and Security

on May 13, 2014, and enhancing corporate value, the two

The Company sells high-pressure gases and related equip-

companies have agreed that Mitsubishi Chemical Holdings

ment, including toxic and flammable gases for electronics-

will maintain its stake in the Company at the current level.

related applications. While the Company strives to ensure theAccordingly, the Company does not at present anticipate any

effective management of related risks, it cannot guarantee

increase or decrease in the percentage of its shares held by

the safety and security of all of its products.

Mitsubishi Chemical Holdings. However, there is still achance that the capital alliance will change. Any such change

Financial Risks and Other Factors

has the potential to significantly affect the Company’s

Foreign Exchange Risk

financial condition and business performance.

The Company exports products for sale outside of Japan.
The Company strives to hedge foreign exchange risks byentering into forward exchange contracts and other derivative transactions. However, the Company may not be able torespond to sudden fluctuations in currency rates, which
therefore may have an adverse impact on its businessperformance.

Taiyo Nippon Sanso Corporation | Integrated Report 201839

Consolidated Financial Statements
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

Consolidated Statements of Financial Position(Millions of Yen)
Notes

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)

Cash and cash equivalents

6¥ 47,809¥ 52,857

Trade receivables

7

164,247

149,979

Inventories

851,481

51,935

Other financial assets

13

6,412

5,533

Other current assets

14

8,351

7,826

278,302

268,132

AssetsCurrent assets

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

9391,930

379,553

Goodwill

10

119,221

123,602

Intangible assets

10

44,93251,305Investments accounted for using the equity method

12

28,14822,958Other financial assets

13

60,836

65,178Retirement benefit asset

19

2,338

8,443

Other non-current assets

14

704

709

Deferred tax assets

28

4,632

4,399

652,744

656,149¥931,047¥924,281

Total non-current assets

Total assets
See notes to consolidated financial statements.

40

Taiyo Nippon Sanso Corporation | Integrated Report 2018

(Millions of Yen)
Notes

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)

Trade payables

15¥ 79,483¥ 73,046

Bonds and borrowings

16

87,372

88,720Liabilities and equity
Liabilities
Current liabilities

Income taxes payable

9,342

6,289

31,69330,152Other financial liabilities

17

Provisions

20

754

534

Other current liabilities

21

12,441

14,858221,087

213,602

Total current liabilities
Non-current liabilities
Bonds and borrowings

16

233,694

263,833

Other financial liabilities

17

4,923

5,622

Retirement benefit liability

19

4,511

4,216

Provisions

20

5,742

5,859

Other non-current liabilities

21

14,937

13,783

Deferred tax liabilities

28

34,07740,501

297,887

333,816

518,975

547,419

Total non-current liabilities
Total liabilities
EquityShare capital

22

37,34437,344

Capital surplus

22

53,072

52,988Treasury shares

22

(256)

(250)

Retained earnings

22

305,400

261,717

Other components of equity

22

Total equity attributable to owners of parent(9,105)(224)

386,457

351,576

Non-controlling interests

25,61425,286

Total equity

412,072

376,862¥931,047¥924,281

Total liabilities and equity

Taiyo Nippon Sanso Corporation | Integrated Report 201841

Consolidated Statements of Profit or Loss
(Millions of Yen)FYE2018
Notes (From April 1, 2017 to March 31, 2018)

Revenue
Cost of sales
Gross profit

4

FYE2017(From April 1, 2016 to March 31, 2017)¥ 646,218(411,447)
234,770¥ 581,586(365,578)
216,007(178,690)
4,069(3,123)(165,071)
2,571(2,241)12

2,836
59,862

2,397
53,664

Financial income
Financial costs
Profit before income taxes

27
27

1,299
(5,264)55,897

1,429(4,918)50,176

Income taxes
Profit28(5,143)¥ 50,754(13,963)¥ 36,212¥ 48,919
1,834¥ 34,740
1,472¥ 113.04¥

Selling, general and administrative expenses
Other operating income
Other operating expenses
Share of profit of investments accounted for using theequity method
Operating profit

26
26

Profit attributable to:
Owners of parent
Non-controlling interests
Earnings per share
Basic earnings per share (Yen)

29

80.28

See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income(Millions of Yen)FYE2018
Notes (From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥ 50,754¥36,212

24
24

1,644
819

5,534
1,563

24

21
2,485

12
7,109

24

(10,099)

(787)

24

26

268

24

429

(995)

(9,643)(7,157)¥ 43,596(1,514)
5,594¥41,807¥ 41,871
1,725¥40,733
1,074

ProfitOther comprehensive income
Items that will not be reclassified to profit or loss
Financial assets measured at fair value through othercomprehensive income
Remeasurements of defined benefit plans
Share of other comprehensive income of investments
accounted for using the equity method
Total of items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss
Exchange differences on translation of foreign operations
Effective portion of net change in fair value of cash flow
hedgesShare of other comprehensive income of investments
accounted for using the equity method
Total of items that may be reclassified subsequently to
profit or loss
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:
Owners of parent
Non-controlling interests
See notes to consolidated financial statements.

42

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Consolidated Statements of Changes in Equity(Millions of Yen)FYE2018 (From April 1, 2017 to March 31, 2018)

Balance at April 1, 2017
ProfitOther comprehensive income
Comprehensive income
Purchase of treasury shares
Disposal of treasury shares
Dividends
Changes in ownership interest in subsidiaries
Transfer from other components of equity to retained earnings
Change in scope of consolidation
Other changes

Notes

Share capital

Capital surplus

Treasury shares

Retainedearnings

24¥37,344——¥52,988——¥(250)——¥261,717
48,919
—

—
—
—
—
—
—
—
—

—
—
0
—
84
—
—
—

—
(6)
0
—
—
—
—
—

48,919——(9,524)
—
1,832
2,455
—

22
22
23

Total transactions with owners
Balance at March 31, 2018

—

84

(6)

(5,236)¥37,344¥53,072¥(256)¥305,400

Total

Total equity
attributable toowners ofparentNon-controllinginterests

Total equity

Other components of equity

Balance at April 1, 2017
ProfitOther comprehensive income
Comprehensive income
Purchase of treasury shares
Disposal of treasury shares
Dividends
Changes in ownership interest in
subsidiaries
Transfer from other components ofequity to retained earnings
Change in scope of consolidation
Other changes

Financial assets
measured at fairvalue throughother Remeasurements
comprehensive of defined benefit
income
plans

Notes

Exchangedifferences ontranslation offoreign
operations

Effective portionof net change infair value of cash
flow hedges

24¥(16,135)—(9,563)

¥(64)
—
26

¥15,975
—
1,675

¥ —
—
814

¥ (224)—(7,048)¥351,576
48,919(7,048)¥25,286
1,834
(108)

¥376,862
50,754(7,157)22
22
23(9,563)
—
—
—

26
—
—
—

1,675
—
—
—

814
—
—
—

(7,048)———41,871(6)
0(9,524)

1,725
—
—
(814)

43,596(6)
0(10,338)

—

—

—

—

—

84

(1,161)(1,077)

—
—
—

—
—
—

(1,018)
—
—

(814)
—
—

(1,832)
—
—

—
2,455
—

—
552
26

—
3,008
26

Total transactions with owners
Balance at March 31, 2018——

(1,018)(814)(1,832)(6,990)(1,396)(8,387)¥(25,699)¥(38)¥16,632¥ —¥(9,105)¥386,457¥25,614¥412,072(Millions of Yen)FYE2017 (From April 1, 2016 to March 31, 2017)

Balance at April 1, 2016
ProfitOther comprehensive income
Comprehensive income
Purchase of treasury shares
Disposal of treasury shares
Dividends
Changes in ownership interest in subsidiaries
Transfer from other components of equity to retained earnings
Change in scope of consolidation
Other changes

Notes

Share capital

Capital surplus

Treasury shares

Retainedearnings

24¥37,344——¥55,545——¥(244)——¥232,877
34,740
—

—
—
—
—
—
—
—
—

—
—
(0)
—
(2,557)
—
—
—

—
(6)
0
—
—
—
—
—

34,740——(7,792)
—
1,150
741
—

22
22
23

Total transactions with owners—(2,557)(5)(5,900)¥37,344¥52,988¥(250)¥261,717

Total

Total equity
attributable toowners ofparentNon-controllinginterests

Total equity

—
—
1,539

¥(5,066)—
5,992¥320,457
34,740
5,992¥24,409
1,472
(397)

¥344,866
36,212
5,594

1,539
—
—
—

5,992
—
—
—

40,733(6)
0(7,792)

1,074
—
—
(963)

41,807(6)
0(8,755)

Balance at March 31, 2017

Other components of equity

Balance at April 1, 2016
ProfitOther comprehensive income
Comprehensive income
Purchase of treasury shares
Disposal of treasury shares
Dividends
Changes in ownership interest in
subsidiaries
Transfer from other components ofequity to retained earnings
Change in scope of consolidation
Other changes

Financial assets
measured at fairvalue throughother Remeasurements
comprehensive of defined benefit
income
plans

Notes

Exchangedifferences ontranslation offoreign
operations

Effective portionof net change infair value of cash
flow hedges

24¥(14,840)—(1,294)¥(332)—
268¥10,107
—
5,479

22
22
23

(1,294)
—
—
—

268
—
—
—

5,479
—
—
—

—

—

—

—

—

(2,557)262(2,294)

—
—
—

—
—
—

389
—
—

(1,539)——(1,150)
—
—

—
741
—

—
606
(102)

—
1,347
(102)

Total transactions with owners
Balance at March 31, 2017

—

—

389

¥(16,135)¥ (64)¥15,975¥(1,539)(1,150)(9,614)(197)(9,811)¥¥ (224)¥351,576¥25,286¥376,862—

See notes to consolidated financial statements.

Taiyo Nippon Sanso Corporation | Integrated Report 201843

Consolidated Statements of Cash Flows(Millions of Yen)FYE2018
Notes (From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥ 55,897¥ 50,176

43,26640,048Cash flows from operating activities
Profit before income taxes
Depreciation and amortization
Impairment losses

163

231

Interest and dividend income(1,299)(1,271)

Interest expenses

5,005

4,484

Share of (profit) loss of investments accounted for using theequity method(2,836)(2,397)

Loss (gain) on sale and retirement of property, plant andequipment, and intangible assets(Increase) decrease in trade receivables

(949)

(727)

(13,857)(2,818)(Increase) decrease in inventories

1,061

232

Increase (decrease) in trade payables

5,871

(770)

(Increase) decrease in retirement benefit asset

(209)

112

Increase (decrease) in retirement benefit liability

144

1,855

Other
Subtotal

(722)

2,335

91,53591,490Interest received

226

273

Dividends received

2,687

2,650

Interest paid

(4,994)(4,493)

Income taxes refund (paid)(6,256)(15,325)

Net cash provided by operating activities

83,19974,596(58,266)(41,442)

Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment

2,387

2,459

Purchase of investments(787)(2,944)

Proceeds from sales and redemption of investments

7,543

4,630

—

(20,020)

Payments for acquisition of subsidiaries
Payments for acquisition of business
Other

5

Net cash used in investing activities(343)(77,775)(2,621)(11,989)(52,088)(147,082)

Cash flows from financing activities
Net increase (decrease) in short-term borrowings

1,619

434

Proceeds from long-term borrowings

29,780122,212

Repayments of long-term borrowings(45,275)(48,839)

Proceeds from issuance of bonds
Redemption of bonds
Purchases of investments in subsidiaries not resulting inchange in scope of consolidation
Dividends paid

23

Dividends paid to non-controlling interests

30,000(10,000)(10,000)(3,044)(1,279)(9,524)(7,792)

(814)

(963)

Other

(2,600)(2,994)

Net cash provided by (used in) financing activities(39,859)

80,777

Effect of exchange rate changes on cash and cash
equivalents

1,841(5,404)

Net increase (decrease) in cash and cash equivalents(6,907)2,886

Balance of cash and cash equivalents at beginning offiscal year

52,85749,216

Increase (decrease) in cash and cash equivalents resulting
from change of scope of consolidation

1,640

727

Increase in cash and cash equivalents resulting from merger

218

27

¥ 47,809¥ 52,857

Balance of cash and cash equivalents at end of fiscal year
See notes to consolidated financial statements.

44—

Taiyo Nippon Sanso Corporation | Integrated Report 20186

Notes to Consolidated Financial Statements
Taiyo Nippon Sanso Corporation and Consolidated Subsidiaries

1. Reporting Entity
Taiyo Nippon Sanso Corporation (the “Company”) is a company
located in Japan and is listed on the First Section of the Tokyo Stock
Exchange. The registered address of the Company’s head office isdisclosed on its website (http://www.tn-sanso.co.jp/en). The consolidated financial statements of the Company and its subsidiaries (collectively, the “TNSC Group”) comprise interests in the TNSC Group,
its associates and joint arrangements, with March 31 as the end of
the fiscal year. The TNSC Group conducts gas businesses in Japanand overseas, mainly for customers in the steel, chemical, and electronics industries. In addition, the TNSC Group manufactures andsells housewares such as stainless steel vacuum bottles, and conducts real-estate rental and other businesses. Details are describedin Note “4. Segment Information.”
The Company’s parent is Mitsubishi Chemical Holdings
Corporation.

2. Basis of Preparation(1) Conformity with IFRSThe consolidated financial statements of the TNSC Group have been
prepared in compliance with International Financial ReportingStandards (IFRS) published by the International AccountingStandards Board. Since the Company meets the requirements of a“Specified Company Applying Designated IFRS” prescribed under
Article 1-2 of the Japanese Ordinance on Terminology, Forms, andPreparation Methods of Consolidated Financial Statements, theCompany has adopted the provisions of Article 93 of said ordinance.
(2) Approval of financial statements
The TNSC Group’s consolidated financial statements were approved
by Yujiro Ichihara, President and CEO of the Company, on June 20,
2018.
(3) Basis of measurement
The TNSC Group’s consolidated financial statements were preparedon a historical cost basis, except for certain assets and liabilities
including financial instruments measured at fair value as described in
Note “3. Significant Accounting Policies.”(4) Presentation currency
The TNSC Group’s consolidated financial statements are presented
in Japanese yen, which is the functional currency of the Company,
and amounts are rounded down to the nearest million yen.
(5) Use of judgments, estimates, and assumptions
In preparing the TNSC Group’s consolidated financial statements inaccordance with IFRS, management is required to make judgments,
estimates and assumptions that affect the application of accounting
policies and reported amounts of assets, liabilities, income andexpenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. The impacts of changes in accounting estimates are recognized in the accounting period in which the estimates are changed
and in future accounting periods affected.
Major information on accounting judgments, estimates, andassumptions that may have significant impacts on the TNSC Group’s
consolidated financial statements is as follows:• Impairment of non-financial assets (“11. Impairment Losses”)• Recoverability of deferred tax assets (“28. Income Taxes”)• Measurement of defined benefit obligations (“19. Postemployment Benefits”)• Fair value of financial instruments (“31. Financial Instruments”)• Contingent liabilities (“35. Contingent Liabilities”)(6) New accounting standard applied from the fiscal year.
The major accounting standard applied by the TNSC Group from the fiscal year ended March 31, 2018 is as follows:
Accounting standard

Outline of newly established/revised standard

IAS 7This standard revised the disclosure of changes in liabilities arisingfrom financing activities.

Statement of Cash FlowsAs a result of the application of the above, “Changes in liabilities arising from financing activities” in “30. Cash Flow Information” are disclosed.
(7) Early adoption of new accounting standards
The TNSC Group has early adopted IFRS 9 “Financial Instruments” from April 1, 2016.

Taiyo Nippon Sanso Corporation | Integrated Report 201845

(8) New accounting standards and interpretations that are not yet applied
Regarding the major accounting standards and interpretations issued before the approval date of the consolidated financial statements, theaccounting standards and interpretations that are not yet applied as of March 31, 2018 because the application is not mandatory are as follows.
The impact of the application of IFRS 15 on the TNSC Group’s consolidated financial statements has been estimated to be minimal. As a transitional measure in applying the accounting standard, the TNSC Group adopts a method to retrospectively recognize cumulative effects at thedate of initial application (modified retrospective method). The impact of the application of IFRS 16 is under evaluation and cannot be estimatedat present.

Accounting standards andinterpretations

Timing of mandatory
application(Effective fiscal year
beginning on or after)

Effective fiscal year of
the TNSC GroupIFRS 15

Revenue from January 1, 2018
Contracts with
Customers

Fiscal year ending
March 31, 2019

IFRS 16

LeasesFiscal year ending
March 31, 2020

January 1, 2019

Outline of newly established/revised standards and interpretations

This standard revised the existing accounting treatments anddisclosure requirements on revenue recognition.
Specifically, the standard requires entities to recognize revenue
to depict the transfer of goods or services to customers in an
amount that reflects the compensation to which the entities
expect to be entitled in exchange for such goods and services.
This standard revised the existing accounting standard anddisclosure requirements on lease transactions.
Specifically, the standard introduces a single model, and for allleases with a term of more than 12 months, the standard in principle requires a lessee to reflect the right-of-use of its assets andan obligation to make lease payments on the financial statements.

3. Significant Accounting Policies(1) Basis of consolidation
1) Subsidiaries
Subsidiaries refer to companies controlled by the TNSC Group. The
TNSC Group judges that it controls a company if the TNSC Group
has the exposure or rights to variable returns arising from its involvement in the investee and has the ability to influence such returns due
to power over the investee.
In preparing the consolidated financial statements, the financial
statements of each Group company prepared at the same closing
date based on the unified accounting policies of the TNSC Group areused. If accounting policies applied by a subsidiary are different fromthe accounting policies applied by the TNSC Group, adjustments are
made to the financial statements of such subsidiary as necessary.
Consolidation of subsidiaries begins on the date when the TNSCGroup acquires control over the subsidiaries until the date when thecontrol over the subsidiaries is lost.
Transactions between consolidated companies, as well as the balance of receivables and payables and unrealized gains and losses
arising from such transactions, are eliminated in preparing theconsolidated financial statements.
If there is a change in interests in consolidated subsidiaries without
involving a loss of control, it is accounted for as an equity transaction.
The difference between the adjustment amount of the non-controllinginterest and the fair value of the consideration is recognized directly inequity as equity attributable to owners of parent.
In the event of a loss of control, the TNSC Group measures andrecognizes the remaining investment at fair value on the date when
the control has been lost. Gains and losses arising from the loss ofcontrol are recognized in profit or loss.
Non-controlling interests in consolidated subsidiaries’ net assets
are identified separately from the TNSC Group’s interests. Comprehensive income of consolidated subsidiaries is attributable to owners of parent and non-controlling interests, even if this results in the
non-controlling interests having a deficit balance.
2) Associates
Associates refer to companies over which the TNSC Group has asignificant influence on their financial and operating policies but does
not have control or joint control.
The TNSC Group accounts for investments in associates using theequity method.
Investments in associates under the equity method are recognizedat cost at the time of acquisition and recorded in the consolidated
statements of financial position after adjusting the TNSC Group’s
interests in changes in net assets of the associates after acquisition.
The consolidated statement of profit or loss reflect the TNSCGroup’s interests in the performance of associates. If there is a

46

Taiyo Nippon Sanso Corporation | Integrated Report 2018change in the amount recognized in other comprehensive income ofassociates, the TNSC Group’s interests in such change arerecognized in other comprehensive income.
Adjustments are made to consolidated financial statements inorder to eliminate the TNSC Group’s interests in unrealized gains andlosses arising from transactions between the TNSC Group andassociates.
Financial statements of associates are prepared for the same
reporting period as the TNSC Group. Adjustments are made to makeaccounting policies of the associates consistent with the TNSCGroup’s accounting policies.
In the event of loss of significant influence over associates, the
TNSC Group measures and recognizes the remaining investment at
fair value on the date when significant influence is lost. Gains andlosses arising from the loss of significant influence are recognized in
profit or loss.
3) Joint arrangements
Joint arrangements refer to arrangements that require the unanimous
consent of the parties sharing control over decision-making on relevant activities.
A joint venture (jointly controlled entity) refers to a joint agreement
where parties with joint control over the arrangement have the rightto the net assets of such arrangement.
If the TNSC Group has a share in a joint venture, the TNSC Groupaccounts for such share using the equity method.
A joint operation (jointly controlled business) refers to a business inwhich parties with joint control substantially have the right to assets
and the obligation to liabilities related to joint arrangements.
If the TNSC Group has a share in a joint operation, the TNSCGroup recognizes the investment concerning such joint operation
only at the equivalent amount of the TNSC Group’s interests in theassets, liabilities, income, and expenses arising from jointly-controlled
operating activities. Transactions between the TNSC Group companies, as well as the balance of receivables and payables and unrealized gains and losses arising from such transactions are eliminated.
The TNSC Group has more than 50% of voting rights of Sakai Gas
Center, Inc. The TNSC Group judges that said company qualifies asa joint operation.
(2) Business combinations
Business combinations are accounted for using the acquisition
method.
If the initial accounting for business combinations has not been
completed by the end of the period in which the business combinations occurred, they are accounted for at a provisional amount for theitems for which the accounting is incomplete. The provisional amountis adjusted during the measurement period, which is within one year
from the acquisition date.
The consideration transferred in a business combination is calculated as the sum of acquisition-date fair values of assets transferredby the acquirer, liabilities incurred by the acquirer to former owners of
the acquiree, and equity interests issued by the acquirer.
Non-controlling interests in the acquiree are measured for eachbusiness combination either at fair value or at the amount equivalent
to the non-controlling interest in proportion to the fair value ofidentifiable net assets of the acquiree.
Acquisition-related costs incurred in connection with businesscombinations are recognized as expenses for the period in whichsuch costs were incurred.
When the TNSC Group acquires a business, it classifies and designates assets to be acquired and liabilities to be assumed based oncontract terms, economic conditions and related conditions at theacquisition date. In addition, identifiable assets acquired and liabilities
assumed are in principle measured at fair value on the acquisition
date.
If a business combination is achieved in stages, the interest held
before acquiring the control of the acquiree is revalued at fair value atthe acquisition date, and the difference is recognized in profit or loss.
The amount of the interest in the acquiree that was recorded in othercomprehensive income before the acquisition date is accounted forin the same manner as in the case where the acquirer disposed of its
interests.
Goodwill is measured as the amount of the aggregate amount of
the consideration transferred and the amount recognized as noncontrolling interests exceeding the net of identifiable assets acquired
and liabilities assumed.
If the aggregate amount recognized as the consideration transferred and non-controlling interests is less than the net of identifiable
assets acquired and liabilities assumed, the difference is recognizedin profit or loss.
After initial recognition, goodwill acquired through a business combination is not amortized but is recorded at the amount initially recognized less the accumulated impairment loss. In addition, impairment
tests are performed each year and whenever there is an indication of
impairment.

The TNSC Group classifies its financial assets into (a) financial
assets measured at amortized cost and (b) financial assets measured
at fair value through other comprehensive income. The classification
is determined at the time of initial recognition of the financial assets.

(3) Foreign currency translation
The consolidated financial statements of the TNSC Group are presented in Japanese yen, the functional currency of the Company. In
addition, each company within the TNSC Group designates its ownfunctional currency, and transactions of each company are measured
in its functional currency.
Transactions denominated in a foreign currency are translated intofunctional currencies at the spot exchange rate at the transaction
date or at a rate similar thereto.
Monetary assets and liabilities denominated in a foreign currency
are translated into functional currencies at the spot exchange rate at
the end of the reporting period. Translation differences arising fromsuch translation and settlement are recognized in profit or loss.
However, financial assets measured through other comprehensive
income and translation differences arising from cash flow hedges arerecognized in other comprehensive income.
The assets and liabilities of foreign operations are translated into
Japanese yen at the spot exchange rate at the end of the reporting
period, and the income and expenses of foreign operations are translated into Japanese yen at the spot exchange rate at the transaction
date or at a rate similar thereto. The translation differences arerecognized in other comprehensive income.
If a foreign operation is disposed of, the cumulative translation differences related to such operation are recognized in profit or loss forthe period in which the disposal occurs.

(a) Financial assets measured at amortized cost
Financial assets measured at amortized cost are measured atamortized cost using the effective interest method.
(b) Financial assets measured at fair value through othercomprehensive income
Financial assets other than financial assets measured at amortizedcost are measured at fair value.
For financial assets measured at fair value through other comprehensive income, changes in fair value are recognized in othercomprehensive income. If they are derecognized or their fair value
significantly declines, they are transferred to retained earnings.

(4) Financial instruments
1) Financial assets (excluding derivatives)(i) Initial recognition and measurement
The TNSC Group initially recognizes trade receivables at the datewhen they are incurred. All other financial assets are initially recognized at the transaction date when the TNSC Group becomes acontractual party to such financial assets.

(a) Financial assets measured at amortized cost
Debt financial assets are classified as financial assets measured atamortized cost if both of the following criteria are met:
• Financial assets are held based on a business model with anobjective of holding financial assets to recover contractual
cash flows.
• Contractual terms of financial assets give rise to cash flowsthat are solely payments of principal and interest on theprincipal amount outstanding on a specified date.
Financial assets measured at amortized cost are measured atfair value plus transaction costs directly attributable to theacquisition of such financial assets.
(b) Financial assets measured at fair value through othercomprehensive income
Debt financial assets are classified as financial assets measured atfair value through other comprehensive income if both of thefollowing criteria are met:
• Financial assets are held based on a business model with anobjective of collecting contractual cash flows and selling
financial assets.
• Contractual terms of financial assets give rise to cash flowsthat are solely payments of principal and interest on theprincipal amount outstanding on a specified date.
Equity financial assets are designated as financial assets measured at fair value through other comprehensive income, and suchdesignation is applied on an ongoing basis.
Financial assets measured at fair value through other comprehensive income are measured at fair value plus transaction costs
directly attributable to the acquisition of such financial assets.
(ii) Subsequent measurement
After initial recognition, financial assets are measured according totheir classification as follows:(iii) Derecognition
The TNSC Group derecognizes financial assets only if contractual
rights to cash flows arising from the financial assets cease to exist, or
if the financial assets are transferred and substantially all the risks andrewards have been transferred.
If the TNSC Group does not transfer or retain substantially all therisks or rewards but continues to control the financial assets transferred, recognition of such financial assets is continued to the extent
to which the TNSC Group has a continuing involvement, and in thatcase, related liabilities are also recognized.
(iv) Impairment
The TNSC Group recognizes impairment of financial assets based onwhether there is a significant increase in credit risk from the time ofinitial recognition in financial assets or financial asset groups measured at amortized cost at the end of each reporting period.
For financial assets or financial asset groups measured at amortized cost, expected credit losses for 12 months are recognized asallowance for doubtful accounts, if credit risk has not significantly
increased from the time of initial recognition. However, for tradereceivables, expected credit losses over the remaining period arerecognized.

Taiyo Nippon Sanso Corporation | Integrated Report 201847

If there is a significant increase in credit risk from the time of initialrecognition, expected credit losses over the remaining period arerecognized as allowance for doubtful accounts.
Whether or not the credit risk has significantly increased is judged
based on a change in the default risk. In judging whether there is any
change in the default risk, overdue (past-due information) is mostly
considered.
In addition, expected credit losses are measured based on the discounted present value of the difference between the amount receivable on a contract basis and the amount expected to be received
based on past credit losses, etc.

TNSC Group determined that a hedge is effective in the case where
the economic relationship between the hedged item and the hedging
instruments results in an offset.
Hedges that meet strict criteria for hedge accounting are classified
and accounted for under IFRS 9 as follows.

2) Financial liabilities (excluding derivatives)(i) Initial recognition and measurement
The TNSC Group classifies its financial liabilities into (a) financial liabilities measured at amortized cost and (b) financial liabilities measured
at fair value through profit or loss. The classification is determined atinitial recognition of the financial liabilities. All financial liabilities are initially measured at fair value. However, financial liabilities measured atamortized cost are measured at fair value less transaction costs
directly attributable to such financial liabilities.

(ii) Cash flow hedges
The effective portion of gain or loss on the hedging instruments is
recognized as other comprehensive income, and the ineffective portion is immediately recognized in profit or loss.
The amount related to the hedging instruments recorded in othercomprehensive income is transferred to profit or loss when hedgedtransactions affect profit or loss. If the hedged item results in the recognition of non-financial assets or non-financial liabilities, the amountrecognized in other comprehensive income is treated as an adjustment of the initial carrying amount of the non-financial assets or nonfinancial liabilities.
If forecasted transactions are no longer expected to occur, thecumulative gain or loss previously recognized as equity through othercomprehensive income is transferred to profit or loss.
If the hedging instrument is terminated or exercised without expiration, sale or exchange or renewal to another hedging instrument, or if
it no longer qualifies for hedge accounting due to events such as achange in risk management objective, the cumulative gain or loss
previously recognized in equity through other comprehensive income
is continuously recorded in equity until the forecasted transaction
occurs, or is no longer expected to occur.

(ii) Subsequent measurement
After initial recognition, financial liabilities are measured according totheir classification as follows:(a) Financial liabilities measured at amortized cost
Financial liabilities measured at amortized cost are measured atamortized cost using the effective interest method after initial recognition. Amortization by the effective interest method and gains
and losses from derecognition are recognized in profit or loss.
(b) Financial liabilities measured at fair value through profit orloss
For financial liabilities measured at fair value through profit or loss,
the portion related to changes in the TNSC Group’s credit risk fromchanges in fair value and interest expenses is recognized in othercomprehensive income after initial recognition, and the remaining
amount is recognized in profit or loss.
(iii) Derecognition
The TNSC Group derecognizes financial liabilities in cases of the performance, exemption or expiration of the obligation of financial liabilities, the exchange occurs under substantially different terms, orwhen there has been a substantial modification of the terms.
3) Offset of financial instruments
Financial assets and financial liabilities are offset only if there is a current enforceable legal right to offset the recognized amounts, and if
there is an intention to settle at a net amount or realize the assets
and settle the liabilities simultaneously. They are then recorded at a
net amount in the consolidated statements of financial position.
4) Derivatives and hedge accounting
The TNSC Group uses derivatives such as forward exchange contracts, interest rate swap contracts and currency swap contracts tohedge currency risks and interest rate risks. These derivatives are initially measured at fair value at the time when the contracts wereentered and remeasured at fair value thereafter.
Fair value changes of derivatives are recognized in profit or loss.
However, the effective portion of cash flow hedges is recognized inother comprehensive income.
At inception of the hedge, the TNSC Group formally designatesand documents the hedging relationships to which hedge accounting
is applied and the risk management objective and strategy for undertaking the hedge. Such documentation includes specific hedging
instruments, hedged items or transactions, the nature of the risk
being hedged, and how the TNSC Group will assess effectiveness ofthe hedging instruments in fair value changes when offsetting theexposure to changes in fair value or cash flows of the hedged items
attributable to the hedged risks. The TNSC Group evaluates whether
or not derivatives used for hedging transactions are effective for offsetting changes in fair value or cash flows of the hedged items at
inception of the hedge and on an ongoing basis. Specifically, the48

Taiyo Nippon Sanso Corporation | Integrated Report 2018(i) Fair value hedges
Fair value changes in derivatives are recognized in profit or loss. For
fair value changes in the hedged items attributable to the risks to behedged, the carrying amount of the hedged items is adjusted andrecognized as profit or loss.

5) Fair value of financial instruments
The fair value of financial instruments traded in active financial markets as of the end of the reporting period refers to quoted prices inmarkets or dealer prices.
The fair value of financial instruments for which active markets do
not exist is calculated by referring to appropriate valuation techniquesor prices provided by counterparty financial institutions.
(5) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, deposits thatcan be withdrawn at any time, and short-term investments with amaturity of three months or less from the acquisition date that arereadily convertible into cash and subject to an insignificant risk ofchanges in value.
(6) Inventories
The cost of inventories includes costs of purchase, costs of conversion, and all other costs incurred in bringing the inventories to theirpresent location and condition.
Inventories are measured at the lower of cost and net realizablevalue. The weighted average method is principally used to calculate
the cost. In addition, the net realizable value is calculated at the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to
make the sale.
(7) Property, plant and equipment
The TNSC Group adopts the cost model for measurement ofproperty, plant and equipment.
Property, plant and equipment are presented at cost lessaccumulated depreciation and accumulated impairment losses.
The cost includes the costs directly attributable to the acquisitionof the assets, the costs of their dismantlement, removal or
restoration, and the borrowing costs that meet the recognition
criteria.
All property, plant and equipment other than land are depreciated
so that the depreciable amount, which is cost less the residual value
at the end of the fiscal year, is allocated on a systematic basis using
the straight-line method.

Estimated useful lives of major property, plant and equipment are
as follows:
Buildings and structures:
Machinery and vehicles:
Tools, furniture and fixtures:

3 to 50 years
3 to 20 years
2 to 25 years(8) Intangible assets
The TNSC Group adopts the cost model for measurement ofintangible assets.
Intangible assets are presented at cost less accumulated
amortization and accumulated impairment losses.
Intangible assets acquired separately are initially measured at cost.
The cost of intangible assets acquired through business combinations is measured at fair value as of the acquisition date. For internallygenerated intangible assets, except for development costs that qualify for capitalization, all expenditures are recognized as expenses forthe periods when they are incurred.
Intangible assets with finite useful lives are amortized over theirestimated useful lives using the straight-line method. Impairment
tests are performed whenever there is an indication of impairment.
Estimated useful lives and method of amortization of intangible
assets with finite useful lives are reviewed at the end of each reporting period, and if there is any change, it is applied prospectively as achange in accounting estimates.
Estimated useful lives of major intangible assets are as follows:
Customer-related intangible assets:

5 to 20 years

Intangible assets with indefinite useful lives and intangible assets
not available for use are not amortized. Impairment tests are performed separately or by a cash-generating unit whenever there is anindication of impairment.
(9) Leases
Lease contracts are classified as finance leases if the risks andrewards incidental to ownership of the lease assets are substantiallytransferred to the TNSC Group. Otherwise, they are classified as
operating leases.
For finance lease transactions, lease assets and lease liabilities arerecorded in the consolidated statements of financial position at thelower of the fair value of the leased property and the present value ofthe minimum lease payment calculated at the inception date of thelease. In addition, lease payments are allocated to financial expenses
and repayment of lease liabilities under the interest method, and suchfinancial expenses are recognized in profit or loss. Lease assets are
depreciated using the straight-line method over the shorter of theirestimated useful lives or the lease term.
For operating lease transactions, lease payments are recognized
as expenses using the straight-line method over the lease term. In
addition, variable lease payments are recognized as expenses for theperiod when they are incurred.
Whether or not a contract is a lease or whether or not a lease isincluded in a contract is determined according to the substance ofthe contract, even if it is not in the legal form of a lease.
(10) Impairment of assets
1) Impairment of non-financial assets
The TNSC Group assesses at the end of each reporting period
whether there is any indication that an asset may be impaired. If any
such indication exists, and if assets need to be annually tested for
impairment, the TNSC Group estimates the recoverable amount of
the asset. The recoverable amount of the asset is the higher of anasset’s fair value less costs of disposal and its value in use. If therecoverable amount of each asset cannot be estimated, the recoverable amount of a cash-generating unit or a group of cash-generating
units to which the asset belongs is estimated. If the carrying amountof a cash-generating unit or a group of cash-generating units
exceeds the recoverable amount, impairment loss of the asset is recognized and write-downs of the asset are recorded up to the recoverable amount. In measuring the value in use, the discounted present
value of expected future cash flows is calculated using the pre-tax

discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset. The business planused to estimate future cash flows is in principle limited to five years.
Future cash flows beyond the projected period of the business plan
are calculated based on the long-term average growth rate according
to individual circumstances.
In calculating fair value less costs of disposal, an appropriate
valuation model is used supported by indices of fair value available.
Goodwill is allocated to individual cash-generating units, or groupsof cash-generating units, that are expected to benefit from the synergies of a business combination after the acquisition date.
Goodwill or intangible assets with indefinite useful lives, and intangible assets not available for use are tested for impairment annuallyor whenever there is an indication of impairment.
2) Reversal of an impairment loss
For assets other than goodwill, impairment losses recognized in theprevious fiscal years are assessed at the end of the reporting period
as to whether or not there is any indication of possibility of a decreaseor extinguishment of loss, due to factors such as a change in theassumption used in calculating the recoverable amount. If such indication exists, the recoverable amount of such assets, cashgenerating units or groups of cash-generating units is estimated. Ifsuch recoverable amount exceeds the carrying amount of such
assets, cash-generating units or groups of cash-generating units, theimpairment loss is reversed up to the lower of the recoverable amountcalculated and the carrying amount less the accumulated depreciation if the impairment loss was not recognized in previous fiscal years.
The reversal of impairment loss is recognized in profit or loss.
For goodwill, impairment loss is not reversed.
(11) Assets held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as “assets held
for sale” if their carrying amount is expected to be recovered principally through a sale transaction rather than through continuing use.
The above requirements only apply if the sale is highly probablewithin one year and such assets (or disposal groups) are available for
immediate sale in their present condition. Non-current assets (or disposal groups) classified as assets held for sale are measured at thelower of their carrying amount and fair value less costs to sell.
Property, plant and equipment and intangible assets classified asassets held for sale are not depreciated or amortized.
Discontinued operations include a component of an entity that has
already been disposed of or classified as assets held for sale, andthey are recognized if they constitute one operation of the TNSCGroup and if there is a plan to dispose of one of the operations.
(12) Borrowing costs
For assets that necessarily take a substantial period of time to prepare for intended use or sale, borrowing costs directly attributable toacquisition, construction or production of such assets are capitalized
as part of the cost of such assets. Other borrowing costs are recognized as an expense for the period when they are incurred.
(13) Retirement benefits
The TNSC Group provides defined benefit plans and defined
contribution plans as retirement benefit plans for employees.
The TNSC Group separately calculates the present value of thedefined benefit obligations, related current service costs and past
service costs for each plan using the projected unit credit method.
The discount rate is calculated based on market yields at the endof the reporting period on high quality corporate bonds.
Liabilities or assets related to the defined benefit plans are calculated by deducting the fair value of plan assets from the present valueof defined benefit obligations.
Remeasurements of liabilities or assets relating to the defined benefit plans are all recognized in other comprehensive income for theperiod when they are incurred, and immediately reflected in retained
earnings. In addition, past service costs are expensed for the period
when they are incurred.
Expenses related to defined contribution plans are recognized as
expenses for the period when they are incurred.

Taiyo Nippon Sanso Corporation | Integrated Report 201849

(14) Provisions
A provision is recognized when the TNSC Group has a present obligation (legal or constructive) as a result of a past event, when it isprobable that an outflow of resources embodying economic benefits
will be required to settle the obligation, and when a reliable estimate
can be made of the amount of the obligation.
The TNSC Group measures the provisions at the present value of
expenditures expected to be required to settle the obligation, whenthe effect of the time value of money is material. In calculating thepresent value, the TNSC Group uses a pre-tax discount rate thatreflects current market assessments of the time value of money andthose risks specific to the liability.
(15) Equity
1) Ordinary shares
The issue price of ordinary shares is recorded in share capital andcapital surplus.
2) Treasury shares
When the TNSC Group purchases treasury shares, the consideration
paid is recognized as a deduction from equity.
When the TNSC Group disposes of treasury shares, the difference
between the carrying amount and the consideration at the time ofdisposal is recognized in capital surplus.
(16) Revenue
1) Revenue recognition
Revenue is recognized to the extent that it is probable that economic
benefits will flow to the TNSC Group and the amounts can be measured reliably. In addition, revenue is measured at the fair value ofconsideration received after deducting trade discounts, rebates,
value added taxes, etc. or consideration receivable.
2) Sale of goods
Revenue arising from the sale of goods is recognized when the
TNSC Group has transferred to the buyer the significant risks andrewards of ownership, when the TNSC Group retains neither effective
control over the goods sold nor continuing managerial involvement to
the degree usually associated with ownership, when the amount ofrevenue can be measured reliably, when it is probable that the economic benefits associated with the transaction will flow to the TNSCGroup, and when the costs incurred or to be incurred in respect of
the transaction can be measured reliably.
3) Construction contracts
If the outcome of construction contracts can be reliably estimated,
the revenue related to the construction contracts is recognized inproportion to the stage of completion of construction contracts at theend of the reporting period. If the outcome of construction contracts
cannot be reliably estimated, the revenue related to construction
contracts is recognized only to the extent that contract costs
incurred are expected to be recoverable. If the total contract cost is
likely to exceed the total revenue related to construction contracts,
such excess is immediately recognized as an expense.
4) Rendering of services
For rendering of services, revenue is recognized by reference to thestage of completion of the transaction, in principle when the estimateof the outcome can be measured reliably. If the estimate cannot be
made, the costs incurred are recognized as expenses for the period
when they are incurred, and the revenue is recognized only to theextent that the costs incurred are expected to be recoverable.

5) Dividends
For dividends, income is recognized when shareholders’ rights toreceive payment are established.
(17) Government grants
A government grant is recognized at fair value when there is reasonable assurance that the TNSC Group will comply with any conditions
attached to the grant and the grant will be received.
Government grants are recognized in profit or loss on a systematic
basis over the periods in which the TNSC Group recognizes
expenses for the related costs for which the grants are intended tocompensate.
Government grants related to assets are recorded by deducting
the amount of such grants from the cost of the assets.
(18) Income taxes
Current taxes for the current and prior periods are calculated at theamount expected to be paid to (recovered from) taxation authorities.
The rates and laws used to calculate the tax amount are those thathave been enacted or substantively enacted at the end of thereporting period.
Deferred taxes are recorded as the difference between the tax
bases and the carrying amounts of assets and liabilities at the end of
the reporting period (temporary difference) using the asset andliability method.
Deferred tax liabilities are in principle recognized for all taxable temporary differences. Deferred tax assets are recognized for deductible
temporary differences, unused tax losses and unused tax credits tothe extent that it is probable that taxable profit will be available
against which the deductible temporary differences can be utilized.
However, there are exceptions in which deferred tax assets andliabilities are not recorded for the following temporary differences:• Arising from initial recognition of goodwill• Arising from initial recognition of an asset or liability in a transaction other than a business combination which does not affecteither the accounting income or the taxable profit (or loss) at thetime of the transaction• For deductible temporary differences associated with investments in subsidiaries and associates, and interests in joint
arrangements, when it is probable that the reversal will notoccur in the foreseeable future, or it is less probable that taxable
profit will be available against which the deductible temporary
differences can be utilized• For taxable temporary differences associated with investments
in subsidiaries and associates, and interests in joint arrangements, when the TNSC Group is able to control the timing of thereversal of the temporary differences and it is probable that thereversal will not occur in the foreseeable future
The carrying amount of deferred tax assets and liabilities (including
unrecognized deferred tax assets) is reviewed at the end of eachreporting period. Deferred tax assets and liabilities are calculated at
the tax rates that are expected to apply to the period when theassets are realized or liabilities are settled, based on tax rates thathave been enacted or substantively enacted at the end of thereporting period.
(19) Earnings per share
The amount of basic earnings per share is calculated by dividing
profit attributable to ordinary shareholders of the Company by theweighted average number of ordinary shares outstanding after
adjusting for treasury shares during the period. The amount of diluted
earnings per share is calculated by adjusting the effects of all dilutive
potential ordinary shares with dilutive effects.

4. Segment Information(1) Overview of reportable segments
The reportable segments of the TNSC Group are those for which
discrete financial information is available and whose operating results
are regularly reviewed by the Board of Directors to make decisions
about resource allocation and to assess performance.
The TNSC Group conducts gas businesses in Japan and overseas, mainly for customers in the steel, chemical, and electronics
industries, and has built production and sales structures for its main

50

Taiyo Nippon Sanso Corporation | Integrated Report 2018

products in Japan, the United States, and Asia and Oceania. In addition, the TNSC Group manufactures and sells housewares such as
stainless steel vacuum bottles, and conducts real-estate rental andother businesses. Therefore, the Company has established the following four reportable segments: Gas Business in Japan, Gas
Business in the United States, Gas Business in Asia and Oceania,
and Thermos and Other Businesses.

The principal products and services included in the four segments are shown in the table below.
Reportable segments

Major products and services

Gas Business in Japan
Gas Business in the United States
Gas Business in Asia and Oceania

Oxygen, nitrogen, argon, carbon dioxide, helium, hydrogen, acetylene, gas-related equipment, specialty
gases (electronic materials gases, pure gases, etc.), electronics-related equipment and installation,
semiconductor manufacturing equipment, cutting and welding equipment, welding materials, plants andmachinery, liquid petroleum gas (LPG) and related equipment, medical-use gases (oxygen, nitrous oxide,etc.), medical equipment, stable isotopes
Housewares, real-estate rental

Thermos and Other Businesses

The accounting methods adopted for the reported operating
segments are the same as the TNSC Group’s accounting policies
described in “3. Significant Accounting Policies.”

Revenue from intersegment transactions and transfers is based
primarily on prevailing market prices.

(2) Revenue and profit (loss) amounts by reportable segment
FYE2018 (From April 1, 2017 to March 31, 2018)(Millions of Yen)Gas Business inJapan

Revenue
Revenues from externalcustomers
Intersegment revenues
and transfers
Total
Segment profit (Note 2)
Other items
Depreciation andamortization
Impairment losses
Share of profit (loss)of investments
accounted for using
the equity method

Gas Business in
Gas Business in
Thermos andthe United States Asia and Oceania Other Businesses

Total¥342,449¥172,646¥103,166¥27,956¥646,218

10,788353,237
30,76011,430184,076
13,5592,132
105,299
9,236

1,424
29,3808,366

16,1180

19,319
—

6,603
—

279

(121)

(28)

Reconciling
items(Note 1)¥

Amounts on theConsolidated
Statements ofProfit or Loss—

¥646,218

25,775
671,993
61,922(25,775)(25,775)(1,888)—646,218
60,033

1,219—

43,2610

5—43,266
0

3,357

3,487

0

3,488

Notes: 1. The ¥1,888 million negative reconciling item for segment profit is comprised of ¥309 million of intersegment eliminations and companywide expenses of¥1,578 million that were not allocated to any particular reportable segment. These companywide expenses related principally to basic research expenses
that were not allocated to a particular reportable segment.
2. Segment profit represents core operating profit, which is calculated as operating profit excluding certain gains or losses attributable to non-recurring factors(losses incurred by business withdrawals, streamlining, and others).

FYE2017 (From April 1, 2016 to March 31, 2017)(Millions of Yen)Gas Business inJapan

Revenue
Revenues from externalcustomers
Intersegment revenues
and transfers
Total
Segment profit (Note 2)
Other items
Depreciation andamortization
Impairment losses
Share of profit (loss)of investments
accounted for using
the equity method

Gas Business in
Gas Business in
Thermos andthe United States Asia and Oceania Other Businesses

Total¥321,416¥147,274¥85,875¥27,018¥581,586

8,160
329,576
29,4508,473
155,748
12,074

1,081
86,957
5,165

1,349
28,36810,017

15,627
4

17,557
—

5,964
85

104

(178)

4

Reconciling
items(Note 1)¥

Amounts on theConsolidated
Statements ofProfit or Loss—

¥581,586

19,065600,651
56,707(19,065)(19,065)(1,970)—581,586
54,736

942—

40,09189(43)—

40,048
89

4,412

4,341

(0)

4,341

Notes: 1. The ¥1,970 million negative reconciling item for segment profit is comprised of ¥357 million of intersegment eliminations and companywide expenses of¥1,613 million that were not allocated to any particular reportable segment. These companywide expenses related principally to basic research expenses
that were not allocated to a particular reportable segment.
2. Segment profit represents core operating profit, which is calculated as operating profit excluding certain gains or losses attributable to non-recurring factors(losses incurred by business withdrawals, streamlining, and others).

Taiyo Nippon Sanso Corporation | Integrated Report 201851

Reconciliation of segment profit with profit before income taxes is as follows:(Millions of Yen)

Segment profit
Gain on sales of fixed assets
Share of profit (loss) of investments accounted for using the equity
methodImpairment losses
Other
Operating profit
Financial income
Financial costs
Profit before income taxes

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥60,033
1,209¥54,736
1,012

(651)
(162)
(565)
59,862
1,299(5,264)¥55,897(1,943)(141)—
53,664
1,429(4,918)¥50,176(3) Information about geographical area
A breakdown of revenues from external customers and non-current assets by geographical area are as follows:
Revenues from external customers(Millions of Yen)Japan
The United States
Asia, Oceania and others
Total

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥360,108
165,739
120,370¥646,218¥338,239
141,009102,336¥581,586

Note: Revenue is classified by country or region based on the customers’ location.

Non-current assets(Millions of Yen)Japan
The United States
Asia, Oceania and others
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥155,759
292,821108,207¥556,788¥146,740
304,824
103,604¥555,169

Note: Non-current assets are classified by their location, and they do not include financial assets, deferred tax assets or retirement benefit asset.

(4) Information about major customers
Information about major customers is not disclosed since there is no single external customer that accounts for 10% or more of revenue.

5. Business Combinations
FYE2018 (From April 1, 2017 to March 31, 2018)
There were no significant business combinations.

FYE2017 (From April 1, 2016 to March 31, 2017)
Acquisition of Industrial Gas Operations(1) Overview of business combination
1) Name and business description of acquirees
Names of acquirees:
Air Liquide Industrial U.S. LP and
Airgas, Inc.
Business description:
Gas separation, carbon dioxide,packaged gases and nitrous oxidebusinesses

the East and Midwest of the United States, solidifying its position as a manufacturer, improving its supply stability and customer trust nationwide, reinforcing production capacity for its
carbon dioxide business, and entering the packaged gas business in Alaska and the nitrous oxide business, thereby expanding into new domains and solidifying foundations and profitabilityof Matheson Tri-Gas, Inc. through expansion in the UnitedStates, the world’s largest industrial gas market.
4) Method for gaining control of acquirees
A wholly owned subsidiary Matheson Tri-Gas, Inc. acquired partof the American industrial gas operations and related businessassets of Air Liquide Industrial U.S. LP and Airgas, Inc.
(2) Fair value of consideration transferred

2) Acquisition date
September 8, 2016
3) Main reason for business combination
The objective was to become a national supplier by expanding
gas separation business network of Matheson Tri-Gas, Inc. in

52

Taiyo Nippon Sanso Corporation | Integrated Report 2018

(Millions of Yen)
Acquisition date
(September 8, 2016)

Cash
Total of consideration transferred¥77,402¥77,402(3) Goodwill, assets acquired and liabilities assumed(Millions of Yen)
Acquisition date
(September 8, 2016)

Current assets:
Inventories
Other
Non-current assets:
Property, plant and equipment (Note 2)
Intangible assets (Note 2)
Assets acquired
Current liabilities
Non-current liabilities
Liabilities assumed
Net assets acquired and liabilities assumed
Goodwill (Note 3)

¥

406
369

28,911
24,502
54,188
43
3,744
3,787
50,401¥27,001

Notes: 1. Adjustment of provisional amounts
The consideration transferred is allocated to assets acquired andliabilities assumed on the acquisition date based on fair value. The
provisional amounts were adjusted as the allocation of the consideration transferred was completed in the second quarter of the fiscal
year ended March 31, 2018. The impact of this adjustment is
insignificant.
2. Details of property, plant and equipment and intangible assets
Property, plant and equipment are mainly machinery and vehicles of¥23,346 million. Intangible assets are customer-related intangible
assets of ¥24,502 million.
3. Goodwill
Goodwill mainly comprises anticipated synergies and excess earnings capabilities arising from acquisition that do not match specificrecognition criteria. Goodwill is deductible for a certain period underfull taxation.

(4) Acquisition-related costs
Acquisition-related costs were ¥421 million, and are included in“Selling, general and administrative expenses” in the consolidated
statements of profit or loss.
(5) Impact on the TNSC Group’s results
The TNSC Group’s consolidated statements of profit or loss include
revenue and profit generated by the acquirees subsequent to theacquisition date of ¥14,742 million and ¥1,162 million, respectively.
The revenue and profit (pro forma information) assuming that thebusiness combination was undertaken on April 1, 2016, the beginning of the fiscal year, are ¥593,123 million and ¥37,302 million,
respectively. The pro forma information has not been audited.

Acquisition of Supagas Holdings Pty Ltd(1) Overview of business combination
1) Name and business description of acquired company
Name of acquired company: Supagas Holdings Pty Ltd andrelated landBusiness description:
Sells LPG, industrial gases(including oxygen, nitrogen, argon,
and carbon dioxide), and related
equipment
2) Acquisition date
December 16, 2016
3) Main reason for business combination
The Company acquired Renegade Gas Pty Ltd in July 2015 to
fully enter the Australian industrial gas market. Renegade Gas
Pty Ltd operates principally in New South Wales, Queensland,and elsewhere on Australia’s east coast. The Company planned
to further expand its operations in Australia. In acquiring
Supagas Holdings Pty Ltd, the Company augmented existing

operations, including in Victoria and Western Australia, to complete a nationwide sales network. It was thereby able to reinforce its national account efforts and its user supply structure.
In leveraging a nationwide sales network, the Company is positioned to capitalize on infrastructural demand, which should
continue to expand solidly, while cultivating new resources andenergy-related demand. The Company should also materialize
synergies with Renegade Gas Pty Ltd to boost earnings andundertake activities to further expand its Australian business.
4) Percentage of voting rights acquired
100.0%
5) Method for gaining control of acquired company
Consolidated subsidiary, TNSC (Australia) Pty Ltd acquired all of
the shares and related land of Supagas Holdings Pty Ltd bypurchasing shares for cash and exchanging shares.
(2) Fair value of consideration transferred(Millions of Yen)
Acquisition date
(December 16, 2016)

Cash
TNSC (Australia) Pty Ltd shares
Total of consideration transferred¥20,737 (Note 1)
841¥21,578

Note: 1. In addition, the TNSC Group also made a cash loan of ¥7,686 million
to the acquired company. This loan, which is repayable by theacquired company, is classified in the consolidated statements ofcash flows within “Cash flows from investing activities” as “Other.”
The acquired company is using this loan to fund debt repayment.

(3) Number of shares transferred and method for measuring
fair value thereof
A total of 9,158,348 ordinary shares were transferred to the former
owners of Supagas Holdings Pty Ltd and the fair value, based on thefinancial position, results, and other numbers for TNSC (Australia) Pty
Ltd, was agreed between the parties.
(4) Goodwill, assets acquired and liabilities assumed(Millions of Yen)
Acquisition date
(December 16, 2016)

Current assets:
Cash and cash equivalents
Trade receivables
Inventories
Other
Non-current assets:
Property, plant and equipment
Intangible assets
Other
Assets acquired
Current liabilities
Non-current liabilities
Liabilities assumed
Net assets acquired and liabilities assumed
Goodwill (Note 2)

¥

717
1,566
334
112

10,2294,577
125
17,660
1,189
8,536
9,725
7,935
¥13,643

Notes: 1. Adjustment of provisional amounts
The consideration transferred is allocated to assets acquired andliabilities assumed on the acquisition date based on fair value. The
provisional amounts were adjusted as the allocation of the consideration transferred was completed in the third quarter of the fiscal year
ended March 31, 2018. The impact of this adjustment is
insignificant.
2. Goodwill
Goodwill mainly comprises anticipated synergies and excess earnings capabilities arising from acquisition that do not match specificrecognition criteria. Goodwill is not tax-deductible.

Taiyo Nippon Sanso Corporation | Integrated Report 201853

(5) Acquisition-related costs
Acquisition-related costs were ¥542 million, and are included in“Selling, general and administrative expenses” in the consolidated
statement of profit or loss.

(6) Impact on the TNSC Group’s results
The TNSC Group’s consolidated statement of profit or loss includes
revenue and profit generated by the acquired company subsequent
to the acquisition date of ¥2,073 million and ¥70 million, respectively.
The revenue and profit (pro forma information) assuming that thebusiness combination was undertaken on April 1, 2016, the beginning of the fiscal year, are ¥588,072 million and ¥36,771 million,
respectively. The pro forma information has not been audited.

6. Cash and Cash Equivalents
A breakdown of cash and cash equivalents is as follows:(Millions of Yen)FYE2018(March 31, 2018)

FYE2017(March 31, 2017)

Cash and deposits¥47,809¥52,857

Total¥47,809¥52,857

7. Trade Receivables
A breakdown of trade receivables is as follows:(Millions of Yen)

Notes and accounts receivable—tradeFYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥166,578¥151,965

Allowance for doubtful accounts
Total(2,330)(1,985)¥164,247¥149,979

Trade receivables are classified as financial assets measured at amortized cost.

8. Inventories
A breakdown of inventories is as follows:(Millions of Yen)

Merchandise and finished goods
Work in process
Raw materials and supplies
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥33,604
9,153
8,723¥51,481¥32,493
10,837
8,604¥51,935

Amounts of inventories measured based on net realizable value at March 31, 2018 and March 31, 2017 were ¥3,362 million and ¥6,641
million, respectively.
Amounts of write-downs of inventories recognized as expenses for FYE2018 and FYE2017 were ¥262 million and ¥195 million, respectively.

9. Property, Plant and Equipment(1) Table of changes
Changes in costs, accumulated depreciation and accumulated impairment losses, and carrying amounts of property, plant and equipment are
as follows:
FYE2018 (From April 1, 2017 to March 31, 2018)
Costs(Millions of Yen)

Balance at April 1, 2017
Individual acquisition
Acquisition through business combination, etc.
Sale and disposal
Transfer
Exchange differences on translation of foreign
operations, etc.
Balance at March 31, 2018

54

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Machinery andvehiclesBuildings andstructures

Construction inLand
progress¥608,772
37,071
1,510(11,695)(1,064)¥131,784
4,776
2,619
(1,387)(0)¥46,873
609
1,214(1,392)(96)(7,857)¥626,736(436)¥137,356

153¥47,361

Tools, furnitureand fixtures

Total¥36,358
11,097
—
(296)
(235)

¥114,870
8,468
216(2,598)(29)¥938,659
62,023
5,560(17,370)(1,426)(5,626)¥41,297(4,618)¥116,308(18,386)¥969,061

Accumulated depreciation and accumulated impairment losses(Millions of Yen)

Balance at April 1, 2017
Depreciation
Impairment losses
Acquisition through business combination, etc.
Sale and disposal
Transfer
Exchange differences on translation of foreign
operations, etc.
Balance at March 31, 2018

Machinery andvehiclesBuildings andstructures

Construction inLand
progress

Tools, furnitureand fixtures¥(406,839)(27,961)—(1,163)
10,690599¥(78,371)(4,380)
(162)
(541)
1,093
0

¥(3,135)
—
(0)
—
323
(0)

Total

¥—
—
—
—
—
—

¥(70,759)(6,589)
(0)
(124)
2,178
12

¥(559,106)(38,930)(163)(1,828)14,285612

4,862¥(419,810)

511¥(81,850)(10)¥(2,822)

—
¥—

2,635
¥(72,647)

7,999¥(577,130)

Machinery andvehiclesBuildings andstructures

Construction inLand
progress

Tools, furnitureand fixtures¥201,933¥206,925¥53,413¥55,506

Total¥36,358¥41,297¥44,111¥43,661¥379,553¥391,930

Machinery andvehiclesBuildings andstructures

Construction inLand
progress

Tools, furnitureand fixtures¥548,336
31,10432,747(6,807)
2,898¥127,978
2,205
2,085
(722)
91

¥43,871
850
2,360
(164)
(131)

Total

¥34,279
2,004
282
(122)
(109)

¥104,145
6,513
9,470
(2,462)(2,634)¥858,612
42,67846,946(10,279)114

493¥608,772

144¥131,784

86¥46,87324¥36,358(162)¥114,870

586¥938,659

Construction inLand
progress

Tools, furnitureand fixtures

Total

Carrying amounts(Millions of Yen)

Balance at April 1, 2017
Balance at March 31, 2018

¥43,737¥44,538

FYE2017 (From April 1, 2016 to March 31, 2017)
Costs(Millions of Yen)

Balance at April 1, 2016
Individual acquisition
Acquisition through business combination, etc.
Sale and disposal
Transfer
Exchange differences on translation of foreign
operations, etc.
Balance at March 31, 2017

Accumulated depreciation and accumulated impairment losses(Millions of Yen)

Balance at April 1, 2016
Depreciation
Impairment losses
Acquisition through business combination, etc.
Sale and disposal
Transfer
Exchange differences on translation of foreign
operations, etc.
Balance at March 31, 2017

Machinery andvehiclesBuildings andstructures¥(384,252)(25,642)(0)(3,450)5,633
389¥(74,660)(4,505)
(4)
(2)
604
17

¥(3,115)
—
(114)
—
101
—

¥—
—
—
—
—
—

¥(64,678)(6,372)(0)(2,252)2,206
180¥(526,706)(36,519)(118)(5,705)
8,546
587

483
¥(406,839)

179¥(78,371)(8)¥(3,135)—¥—

156¥(70,759)

811¥(559,106)

Machinery andvehiclesBuildings andstructures

Construction inLand
progress

Tools, furnitureand fixtures

Total¥164,084¥201,933¥53,318¥53,413¥39,467¥44,111¥331,906¥379,553

Carrying amounts(Millions of Yen)

Balance at April 1, 2016
Balance at March 31, 2017¥40,756¥43,737¥34,279¥36,358

Depreciation of property, plant and equipment is included in “Cost of sales” and “Selling, general and administrative expenses” in the
consolidated statement of profit or loss.
(2) Leased assets
Carrying amounts of leased assets under finance leases included in property, plant and equipment are as follows:(Millions of Yen)

Machinery and vehicles
Other
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥2,248
1,838¥4,087¥2,387
1,732¥4,119

Taiyo Nippon Sanso Corporation | Integrated Report 201855

10. Goodwill and Intangible Assets(1) Table of changes
Changes in costs, accumulated amortization and accumulated impairment losses, and the carrying amounts of goodwill and intangible assets
are as follows:
FYE2018 (From April 1, 2017 to March 31, 2018)
Costs(Millions of Yen)
Intangible assets

Balance at April 1, 2017
Individual acquisition
Acquisition through business combination, etc.
Sale and disposal
Exchange differences on translation of foreign
operations, etc.
Balance at March 31, 2018

Goodwill

Customer-related
intangible assets

Other

Total

¥125,238
264
1,046
—

¥59,648———¥16,252
478
9
(145)

¥75,900
478
9
(145)

(5,776)¥120,773(3,157)¥56,490(535)¥16,059(3,693)¥72,549

Accumulated amortization and accumulated impairment losses(Millions of Yen)
Intangible assets

Balance at April 1, 2017
Amortization
Sale and disposal
Exchange differences on translation of foreign
operations, etc.
Balance at March 31, 2018

Goodwill

Customer-related
intangible assets

Other

Total

¥(1,636)——¥(14,235)(3,416)—¥(10,359)
(977)
142

¥(24,594)(4,394)142

84¥(1,551)873¥(16,778)

355¥(10,838)

1,229¥(27,617)

Carrying amounts(Millions of Yen)
Intangible assets

Balance at April 1, 2017
Balance at March 31, 2018

Goodwill

Customer-related
intangible assets

Other

Total

¥123,602¥119,221¥45,412¥39,711¥5,892¥5,220¥51,305¥44,932

FYE2017 (From April 1, 2016 to March 31, 2017)
Costs(Millions of Yen)
Intangible assets

Balance at April 1, 2016
Individual acquisition
Acquisition through business combination, etc.
Sale and disposal
Exchange differences on translation of foreign
operations, etc.
Balance at March 31, 2017

Goodwill

Customer-related
intangible assets

Other

Total

¥ 82,797
208
40,855—¥29,244—
27,935—¥14,593
715
1,196
(118)

¥43,837
715
29,131(118)

1,376¥125,238

2,468¥59,648(135)¥16,252

2,333¥75,900

Accumulated amortization and accumulated impairment losses(Millions of Yen)
Intangible assets

Balance at April 1, 2016
Amortization
Impairment losses
Sale and disposal
Exchange differences on translation of foreign
operations, etc.
Balance at March 31, 201756

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Goodwill

Customer-related
intangible assets

Other

Total

¥(1,617)—(27)—¥(11,534)(2,645)(38)—¥ (9,476)
(924)
(46)
87

¥(21,010)(3,569)(85)87

8¥(1,636)(17)¥(14,235)(0)¥(10,359)(17)¥(24,594)

Carrying amounts(Millions of Yen)
Intangible assets

Balance at April 1, 2016
Balance at March 31, 2017

Goodwill

Customer-related
intangible assets

Other

Total

¥ 81,179¥123,602¥17,710¥45,412¥5,117¥5,892¥22,827¥51,305

There were no significant internally generated intangible assets for
FYE2018 or FYE2017.
Amortization of intangible assets is included in “Cost of sales” and“Selling, general and administrative expenses” in the consolidated
statement of profit or loss.
Research and development costs recognized as expenses for
FYE2018 and FYE2017 were ¥3,255 million and ¥3,323 million,
respectively.
The carrying amount of assets with indefinite useful lives in theintangible assets above was ¥1,110 million at March 31, 2018.
Principally, the assets were trademarks acquired at the time of abusiness combination, and the TNSC Group determined that theiruseful lives cannot be estimated because the assets will exist for as
long as the business continues.
(2) Significant intangible assets
Significant intangible assets recorded in the consolidated statementof financial position were customer-related intangible assets held byMatheson Tri-Gas, Inc., a consolidated subsidiary. Their carrying
amounts at March 31, 2018 and March 31, 2017 were ¥35,912
million and ¥41,131 million, respectively. The remaining period ofamortization is principally 18 years.

11. Impairment Losses
The TNSC Group groups assets into the smallest cash-generating units that generate cash flows largely independently. For idle assets,
recognition of impairment loss is determined by individual assets.
Impairment losses for FYE2018 and FYE2017 were ¥163 million and ¥231 million, respectively. Impairment losses were included in “Other
operating expenses” in the consolidated statement of profit or loss.
There were no individually significant impairment losses incurred for FYE2018 or FYE2017.
Carrying amounts of goodwill and intangible assets with indefinite useful lives allocated to a cash-generating unit (group of cash-generating units)
are as follows:(Millions of Yen)
Cash-generating unit
(group of cash-generating units)

Matheson Tri-Gas, Inc.
Renegade Gas Pty Ltd
Supagas Holdings Pty Ltd
Other
Total
The carrying amounts of intangible assets with indefinite useful
lives at March 31, 2018 and March 31, 2017 were ¥1,110 million and¥1,174 million respectively, and were included in Supagas Holdings
Pty Ltd.
The recoverable amount of a cash-generating unit (group of
cash-generating units) is measured by value in use.

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥ 87,540
9,314
14,377
9,100¥120,332¥ 92,403
9,492
15,207
7,673¥124,776

Value in use is calculated reflecting past experiences andexternal information based on business plans within five years
approved by the management. Cash flows exceeding the period ofa business plan are determined by reference to the long-term average growth rate of a market or a country that the cash-generating
unit belongs to.

Growth rates and discount rates used in the measurement of the value in use are as follows:

Cash-generating unit
(group of cash-generating units)

Matheson Tri-Gas, Inc.
Renegade Gas Pty Ltd
Supagas Holdings Pty Ltd

Growth rate

FYE2018(March 31, 2018)
Discount rate

Growth rate

FYE2017(March 31, 2017)
Discount rate

3.8%
3.0%
3.0%

9.7%
8.5%
8.5%

4.0%
4.4%
4.4%

8.8%
11.0%
11.0%

The TNSC Group determined that it is less probable to incur significant impairment even if the major assumptions used in the impairment test
fluctuate to a reasonably predictable extent.

Taiyo Nippon Sanso Corporation | Integrated Report 201857

12. Investments Accounted for Using the Equity Method
The carrying amount of investments in joint ventures accounted for using the equity method that are individually insignificant is as follows:(Millions of Yen)FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥914¥1,302Carrying amount of investments in joint ventures
Share of comprehensive income of joint ventures accounted for using the equity method is as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥(1,048)30¥(1,017)¥(2,112)(49)¥(2,162)

Share of profit (Note)
Share of other comprehensive income
Total share of comprehensive income

Note: For FYE2017, impairment losses of ¥1,943 million were recognized since the recoverable amount was less than the carrying amount of investments in certain
joint ventures.

The carrying amount of investments in associates accounted for using the equity method that are insignificant is as follows:(Millions of Yen)FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥27,234¥21,656

Carrying amount of investments in associates
Share of comprehensive income of associates accounted for using the equity method is as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥3,884420¥4,305¥4,510(934)¥3,576

Share of profit
Share of other comprehensive income
Total share of comprehensive income

13. Other Financial Assets
A breakdown of other financial assets is as follows:(Millions of Yen)

Equity securities and investments in capital
Other
Allowance for doubtful accounts
Total
Current assets
Non-current assets
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥48,675
19,424(850)¥67,248¥ 6,41260,836¥67,248¥51,767
19,453(509)¥70,711¥ 5,533
65,178¥70,711Equity securities and investments are classified as equity financial assets measured at fair value through other comprehensive income. Otheris classified mainly as financial assets measured at amortized cost.
Equity securities are designated as equity financial assets measured at fair value through other comprehensive income because they are held
mainly for the purpose of maintaining and strengthening business and collaborative relationships and financial transaction relationships, etc.
Names of issuers and fair value of principal equity financial assets measured at fair value through other comprehensive income are as follows:
FYE2017 (March 31, 2017)

FYE2018 (March 31, 2018)(Millions of Yen)

58

(Millions of Yen)

Name

AmountName

Amount

JFE Holdings, Inc.
Tosoh Corporation
Azbil Corporation
Koatsu Gas Kogyo Co., Ltd.
IBIDEN CO., LTD.

¥5,515
4,649
3,468
2,957
2,096

JFE Holdings, Inc.
Tosoh Corporation
Azbil Corporation
Koatsu Gas Kogyo Co., Ltd.
IBIDEN CO., LTD.

¥4,661
4,353
3,141
2,382
2,296

Taiyo Nippon Sanso Corporation | Integrated Report 2018

In order to improve the efficiency and effective utilization of assets held, the TNSC Group conducts sales (derecognition) of equity financial assets
measured at fair value through other comprehensive income. The fair value at the time of sales and cumulative gains or losses on sales are as
follows. Cumulative gains or losses (after tax) recognized in other comprehensive income in equity were transferred to retained earnings at thetime of sales.
(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥7,503
1,507¥4,627(561)

Fair value
Cumulative gains or losses

For equity financial assets measured at fair value through other comprehensive income, dividends received were recognized as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)

¥ 72
994

¥ 63
935

Financial assets that were derecognized
Financial assets held at the end of the fiscal year

14. Other Assets
A breakdown of other assets is as follows:(Millions of Yen)

Prepaid expenses
Other
Total
Current assets
Non-current assets
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥3,796
5,260¥9,056¥8,351704¥9,056¥5,6632,871¥8,535¥7,826709¥8,535

15. Trade Payables
A breakdown of trade payables is as follows:(Millions of Yen)

Notes and accounts payable—trade
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥79,483¥79,483¥73,046¥73,046

Trade payables are classified as financial liabilities measured at amortized cost.

16. Bonds and Borrowings
A breakdown of bonds and borrowings is as follows:(Millions of Yen)

Short-term borrowings
Current portion of long-term borrowings
Current portion of bonds
Long-term borrowings
Bonds
Total
Current liabilities
Non-current liabilities
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥ 35,403
36,96915,000
193,694
40,000¥321,067¥ 87,372
233,694¥321,067¥ 34,973
43,747
10,000208,833
55,000¥352,553¥ 88,720
263,833¥352,553

Bonds and borrowings are classified as financial liabilities measured at amortized cost.
Average interest rates applicable to short-term borrowings and long-term borrowings at March 31, 2018 were 2.22% and 1.52%, respectively.
Average interest rates applicable to short-term borrowings and long-term borrowings at March 31, 2017 were 1.61% and 1.50%, respectively.
The repayment term of long-term borrowings at March 31, 2018 is from 2018 to 2035.

Taiyo Nippon Sanso Corporation | Integrated Report 201859

A breakdown of bonds is as follows:(Millions of Yen)
Company
name
Name

*1
*1
*1
*1
*1

The 10th Domestic Unsecured
Straight Corporate Bonds
The 11th Domestic Unsecured
Straight Corporate Bonds
The 12th Domestic Unsecured
Straight Corporate Bonds
The 13th Domestic Unsecured
Straight Corporate Bonds
The 14th Domestic Unsecured
Straight Corporate Bonds
Total

Issuance date

FYE2018(March 31, 2018)

FYE2017 Interest rate
(March 31, 2017)(%) Collateral

June 14, 2012¥—

¥10,000

0.44

None

June 14, 2017

February 27, 2014

15,00015,0000.32

None

February 27, 2019

February 27, 2014

10,00010,0000.56

None

February 26, 2021

December 15, 2016

15,00015,0000.14

None

December 15, 2021

December 15, 2016

15,000¥55,000

15,000¥65,000

0.39

None

December 15, 2026

Maturity date

*1 The bonds were issued by the Company.

Assets pledged as collateral and secured obligations are as follows:
Assets pledged as collateral(Millions of Yen)FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥1,540¥1,540¥1,468¥1,468Property, plant and equipment
Total
Secured obligations(Millions of Yen)FYE2018(March 31, 2018)

FYE2017(March 31, 2017)

¥826
137
¥963

¥906
73
¥980

Bonds and borrowings
Other financial liabilities (current)
Total

17. Other Financial Liabilities
A breakdown of other financial liabilities is as follows:(Millions of Yen)FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥ 5,892
21,6807,002
2,041¥36,617¥31,693
4,923¥36,617¥ 6,975
21,1693,699
3,931¥35,775¥30,152
5,622¥35,775

Lease liabilities
Accrued expenses
Accounts payable—other
Other
Total
Current liabilities
Non-current liabilities
Total
Other financial liabilities are mainly classified as financial liabilities measured at amortized cost.

18. Lease Transactions(1) Finance leases
Minimum lease payments and their present value are as follows:(Millions of Yen)FYE2018(March 31, 2018)

One year or lessMore than one year but within five years
More than five years
Total

60

Taiyo Nippon Sanso Corporation | Integrated Report 2018

FYE2017(March 31, 2017)

Minimum lease
payments

Future financecharges

Present value

Minimum lease
payments

Future financecharges

Present value¥2,0163,375
615¥6,008¥ (24)(72)(18)¥(115)¥1,992
3,303
597¥5,892¥2,5004,071
707¥7,279¥(125)(152)(26)¥(304)¥2,374
3,919
681¥6,975

(2) Operating leases
Future minimum lease payments under non-cancellable operating lease contracts are as follows:(Millions of Yen)

One year or lessMore than one year but within five years
More than five years
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥ 3,159
7,161
3,897¥14,219¥ 3,193
7,082
2,845¥13,120

Lease payments recognized as expenses for FYE2018 and FYE2017 were ¥6,745 million and ¥4,415 million, respectively.

19. Post-employment Benefits
The Company and certain consolidated subsidiaries have funded andunfunded retirement defined benefit plans and defined contributionplans for employees’ retirement benefits, and the plans coversubstantially all the employees.
(1) Defined benefit plans
Major defined benefit plans of the Company’s consolidated subsidiaries are cash balance plans. Amounts of benefits under the cash balance plans are set based on various conditions such as years ofservice, points based on achievements during the service period, etc.

The investment yield is determined taking into consideration the yieldon government bonds.
In accordance with laws and regulations, the pension plans aremanaged by the Company’s consolidated subsidiaries or a pension
fund that is legally separate from the Company’s consolidated subsidiaries. The Company’s consolidated subsidiaries, or the Board of
Directors of the pension fund and the trustees of pension fund management are required by laws and regulations to act in the best interest of policyholders, and responsible for operating plan assets basedon the prescribed policies.

Amounts of defined benefit plans in the consolidated statements of financial position are as follows:(Millions of Yen)

Present value of defined benefit obligations
Fair value of plan assets
Net amount of defined benefit obligations and assets
Retirement benefit liability
Retirement benefit asset
Net amount of defined benefit obligations and assets

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥ 32,929(30,756)¥ 2,173¥ 4,511(2,338)¥ 2,173¥ 32,694(36,921)¥ (4,226)¥ 4,216(8,443)¥ (4,226)

For defined benefit plans, amounts recognized as expenses in the consolidated statements of profit or loss are as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥1,294
198(178)¥1,314¥1,398174(141)¥1,432Current service cost
Interest expenses
Interest income
Total
Changes related to the present value of defined benefit obligations are as follows:(Millions of Yen)

Balance at beginning of the fiscal year
Current service cost
Interest expenses
Remeasurements
Actuarial gains and losses arising from changes in financial
assumptions
Retirement benefits paid
Other
Balance at end of the fiscal year

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥32,694
1,294
198¥33,942
1,398
174

132
(1,645)
255¥32,929(594)(2,097)(129)¥32,694

Taiyo Nippon Sanso Corporation | Integrated Report 2018

61

Changes related to the fair value of plan assets are as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥36,921
178¥35,926
141

1,343
918
(1,403)(7,201)¥30,756

1,538
981(1,847)
180¥36,921

Balance at beginning of the fiscal year
Interest income
Remeasurements
Return on plan assets
Contributions from companies
Retirement benefits paid
Other (Note)
Balance at end of the fiscal year

Note: Plan assets decreased by ¥7,185 million, due to the cancellation of the retirement benefit trust during the fiscal year ended March 31, 2018.

Major actuarial assumptions used to calculate the present value of defined benefit obligations are as follows:

Discount rate

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)

0.57%

0.66%

If discount rates, the major actuarial assumptions, fluctuate, the present values of defined benefit obligations at March 31, 2018 and March
31, 2017 change as follows. This sensitivity analysis is based on the assumption that all actuarial assumptions other than actuarial assumptions
subject to analysis remain constant.
(Millions of Yen)

Increase by 0.5%
Decrease by 0.5%

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥(1,522)
1,659¥(1,563)
1,705

Fair values of plan assets at March 31, 2018 are as follows:(Millions of Yen)
Plan assets for which there
are quoted market prices
in an active market

Cash and cash equivalents
Equity financial instruments
Jointly managed trusts
Total equity financial instruments
Debt financial instruments
Jointly managed trusts
Total debt financial instruments
Life insurance general accounts
Other
Total

¥1,618Plan assets for which there
are no quoted market prices
in an active market

¥

Total

—

¥ 1,618

—
—

4,494
4,494

4,494
4,494

—
—
—
—
¥1,61812,856
12,856
11,767
19¥29,137

12,856
12,856
11,76719¥30,756

Plan assets for which there
are quoted market prices
in an active market

Plan assets for which there
are no quoted market prices
in an active market

Fair values of plan assets at March 31, 2017 are as follows:(Millions of Yen)

Cash and cash equivalents
Equity financial instruments
Domestic equity securities
Jointly managed trusts
Total equity financial instruments
Debt financial instruments
Jointly managed trusts
Total debt financial instruments
Life insurance general accounts
Other
Total

62

Taiyo Nippon Sanso Corporation | Integrated Report 2018

¥4,236

¥

Total

—

¥ 4,236

5,153
—
5,153

—
5,872
5,872

5,153
5,872
11,025————¥9,3909,718
9,718
11,886
53¥27,530

9,718
9,718
11,88653¥36,921

Under the TNSC Group’s plan asset management policy, the purpose of management is to secure the required combined returns
over the medium and long term to the extent of allowable risks inorder to ensure payments of the benefits of the defined benefit
obligations in the future.
For plan assets, the TNSC Group seeks to reduce risks by diversifying investments widely in domestic and foreign equity securities,
debt securities and life insurance general accounts based on asset
allocation objectives of a policy asset mix formulated to achieve
management objectives.

For asset allocation, the TNSC Group sets the allocation to be
maintained for the medium and long term, based on the correlation
between expectations of risks and returns for the medium and longterm and actual management results of each asset. The TNSC Group
reviews asset allocation according to the situation as necessary, suchas when there is a significant change in the market environment.
For FYE2019, the TNSC Group plans to contribute ¥999 million toplan assets.
The weighted average durations of the defined benefit obligation atMarch 31, 2018 and March 31, 2017 were 12.0 years and 12.2
years, respectively.

(2) Defined contribution plans and public pension systems
Amounts recognized as expenses under defined contribution plans and public pension systems are as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥1,867
4,079¥1,641
3,870

Expenses under defined contribution plans
Expenses under public pension systems

20. Provisions
A breakdown of changes in provisions is as follows:
FYE2018 (From April 1, 2017 to March 31, 2018)(Millions of Yen)

Balance at April 1, 2017
Increase during the fiscal year
Decrease during the fiscal year (intended use)
Decrease during the fiscal year (reversal)
Other
Balance at March 31, 2018
Current liabilities
Non-current liabilities
Total

Provision for
construction warranties

Asset retirement
obligations

Other provisions

Total

¥ 471
410
(172)
(34)
—
¥ 674
¥ 674
—
¥ 674

¥5,859
67
(102)
—
(81)
¥5,742¥—
5,742¥5,742

¥ 63
80
(48)
(14)
—
¥ 80
¥ 80
—
¥ 80

¥6,394
557
(323)
(49)
(81)
¥6,496¥ 754
5,742¥6,496

Provision for
construction warranties

Asset retirement
obligations

Other provisions

Total

¥ 616
170
(226)
(88)
—
¥ 471
¥ 471
—
¥ 471

¥ 594
4,999
(73)
—
338
¥5,859¥—5,859¥5,859

¥102
22
(60)
(0)
—
¥ 63
¥ 63
—
¥ 63

¥1,313
5,191
(360)
(89)
338
¥6,394¥ 534
5,859¥6,394FYE2017 (From April 1, 2016 to March 31, 2017)(Millions of Yen)

Balance at April 1, 2016
Increase during the fiscal year
Decrease during the fiscal year (intended use)
Decrease during the fiscal year (reversal)
Other
Balance at March 31, 2017
Current liabilities
Non-current liabilities
Total

Provision for construction warranties
In order to prepare for construction-related compensation expenses
for machinery and device products, provision for construction warranties is recorded based on the latest estimated amount of compensation based on shipment amounts of machinery and device
products in the previous fiscal year. Of these, amounts expected tobe paid within one year are recorded. However, there is uncertainty inthe occurrence of construction-related compensation expenses.

Asset retirement obligations
If the TNSC Group has legal obligations required by laws andregulations or contracts concerning retirement of fixed assets that areused for the ordinary course of business, such as obligations to
restore the original condition accompanying lease contracts of factory facilities and properties used by the TNSC Group, asset retirement obligations are recognized based on the estimated amount of
future expenditures calculated based on historical results, etc.
Although these expenses are expected to be paid mainly after one
year or more, they will be affected by future business plans, etc.

Taiyo Nippon Sanso Corporation | Integrated Report 201863

21. Other Liabilities
A breakdown of other liabilities is as follows:(Millions of Yen)

Advances received
Deferred income
Employees’ bonuses
Employees’ paid absence
Other
Total
Current liabilities
Non-current liabilities
Total

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥ 2,499
4,233
3,908
2,193
14,543¥27,378¥12,441
14,937¥27,378¥ 4,840
4,716
3,483
2,310
13,290¥28,641¥14,858
13,783¥28,641

22. Equity(1) Share capital and treasury shares
Numbers of shares authorized and shares issued are as follows:(Thousand shares)
FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)

1,600,000

1,600,000

433,092—
433,092

433,092—
433,092

Number of shares authorized
Number of shares issued
Beginning of the fiscal year
Changes during the fiscal year
End of the fiscal year
All shares are ordinary shares with no par value. Shares issued are fully paid.
Changes in the number of treasury shares during the fiscal year are as follows:(Thousand shares)

Beginning of the fiscal year
Increase
Decrease
End of the fiscal year

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)

328
4
(0)
332

323
4
(0)
328

Major factors of changes during the fiscal year were due to the purchase or requests for sales of shares less than one unit.
(2) Capital surplus and retained earnings
Capital surplus consists of amounts not included in share capital aspart of the amounts arising from capital transactions, and the main
component is capital reserve. Retained earnings consist of legal
retained earnings and other reserves.
The Companies Act of Japan stipulates that more than one-half of
payments or delivery in relation to the issuance of shares shall be
included in share capital, and the remaining shall be included in capital reserve. Capital reserve may be incorporated into share capital byresolutions of the shareholders’ meeting.
In addition, the Act stipulates that one-tenth of the amount to be
paid as cash dividends from surplus shall be appropriated as capitalreserve or legal retained earnings until the total amount of capitalreserve and legal retained earnings equals one-fourth of sharecapital.
The accumulated legal retained earnings may be used to eliminate
or reduce a deficit, and the legal retained earnings may be reversedby resolution of the shareholders’ meeting.

(3) Other components of equity
Other components of equity are as follows:(Exchange differences on translation of foreign operations)Exchange differences on translation of foreign operations are translation differences arising when consolidating the financial statements offoreign operations prepared in foreign currencies.
(Effective portion of net change in fair value of cash flow hedges)
The effective portion of net change in fair value of cash flow hedges
is the cumulative amount of the effective portion of hedges as part ofgains or losses arising from changes in fair value of the hedging
instrument related to cash flow hedges.
(Financial assets measured at fair value through othercomprehensive income)
Other components of equity include valuation differences in fairvalue of financial assets measured at fair value through othercomprehensive income.
(Remeasurements of defined benefit plans)Remeasurements of defined benefit plans are the effect of differences
between actuarial assumptions at the beginning of the fiscal year andthe actual results and the effect of changes in actuarial assumptions.
These are recognized in other comprehensive income when incurred,and immediately transferred from other components of equity toretained earnings.

64

Taiyo Nippon Sanso Corporation | Integrated Report 2018

23. Dividends
Payments of dividends are as follows:
FYE2018 (From April 1, 2017 to March 31, 2018)
Resolution

Type of stock

Ordinary General Meeting of
Shareholders held on June 20, 2017
Board of Directors’ meeting held on
November 1, 2017

OrdinarysharesOrdinarysharesTotal cash dividends(Millions of Yen)

Dividends per share(Yen)

Record date

Effective date

¥4,762¥11

March 31, 2017

June 21, 2017

4,762

11 September 30, 2017

December 1, 2017

FYE2017 (From April 1, 2016 to March 31, 2017)
Resolution

Type of stock

Ordinary General Meeting of
Shareholders held on June 21, 2016
Board of Directors’ meeting held on
November 2, 2016

OrdinarysharesOrdinarysharesTotal cash dividends(Millions of Yen)

Dividends per share(Yen)

Record date

Effective date

¥3,896¥9March 31, 2016

June 22, 2016

3,896

9 September 30, 2016

December 1, 2016

The dividends of whose effective date falls in the next fiscal year are as follows:
FYE2018 (From April 1, 2017 to March 31, 2018)
Resolution

Type of stock

Ordinary General Meeting of
Shareholders held on June 20, 2018

OrdinarysharesTotal cash dividends(Millions of Yen)

Dividends per share(Yen)

Record date

Effective date

¥5,194¥12

March 31, 2018

June 21, 2018

Total cash dividends(Millions of Yen)

Dividends per share(Yen)

Record date

Effective date

¥4,762¥11

March 31, 2017

June 21, 2017

FYE2017 (From April 1, 2016 to March 31, 2017)
Resolution

Type of stock

Ordinary General Meeting of
Shareholders held on June 20, 2017

Ordinaryshares

24. Other Comprehensive Income
Changes in each item in other comprehensive income during the year are as follows:(Millions of Yen)

Financial assets measured at fair value through other comprehensive
incomeAmount arising during the fiscal year
Tax effects
Net amountRemeasurements of defined benefit plans
Amount arising during the fiscal year
Tax effects
Net amount
Exchange differences on translation of foreign operations
Amount arising during the fiscal year
Net amount
Effective portion of net change in fair value of cash flow hedges
Amount arising during the fiscal year
Reclassification adjustments
Tax effects
Net amount
Share of other comprehensive income of investments accounted forusing the equity method
Amount arising during the fiscal year
Net amount
Total other comprehensive income

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥ 2,434
(789)
1,644

¥ 7,952(2,418)
5,534

1,210
(391)
819

2,132
(569)
1,563

(10,099)(10,099)

(787)
(787)

(15)
52
(11)
26

36
350
(119)
268

451
451
¥ (7,157)

(983)
(983)
¥ 5,594

Taiyo Nippon Sanso Corporation | Integrated Report 201865

25. Employee Benefit Expenses
Employee benefit expenses other than post-employment benefits are as follows:(Millions of Yen)

Wages and salaries
Social security contributions
Total

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥91,537
7,312¥98,849¥86,426
7,180¥93,607

26. Other Operating Income and Other Operating Expenses
A breakdown of other operating income is as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

Grant income
Gain on sales of property, plant and equipment
Other
Total

¥ 714
1,518
1,836
¥4,069FYE2017(From April 1, 2016 to March 31, 2017)

¥

90
1,142
1,338
¥2,571

A breakdown of other operating expenses is as follows:(Millions of Yen)

Impairment losses
Loss on retirement and sales of property, plant and equipment
Loss on reduction of property, plant and equipment
Other
Total

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)

¥ 163
569
714
1,677
¥3,123

¥ 231
420
89
1,501
¥2,241

27. Finance Income and Finance Costs
A breakdown of finance income is as follows:(Millions of Yen)

Interest income
Financial assets measured at amortized cost
Dividend income
Financial assets measured at fair value through other comprehensive
incomeOther
Total

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)

¥ 232

¥ 273

1,066
—
¥1,299998
158¥1,429A breakdown of finance costs is as follows:(Millions of Yen)

Interest expenses
Financial liabilities measured at amortized cost
Foreign exchange losses
Other
Total

66

Taiyo Nippon Sanso Corporation | Integrated Report 2018

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥5,005189
69¥5,264¥4,484255
178¥4,918

28. Income Taxes(1) Deferred tax assets and deferred tax liabilities
Major factors giving rise to deferred tax assets and deferred tax liabilities and their changes are as follows:
FYE2018 (From April 1, 2017 to March 31, 2018)(Millions of Yen)

Recognized in
profit or loss

Recognizedin othercomprehensive
income¥ 2,266
4,489
2,204
2,117
5,684
16,762¥134(1,316)
(40)
(186)
44
(1,364)

¥

—
—
—
—
(49)
(49)

¥ —
—
—
—
—
—

¥ 2,400
3,172
2,164
1,931
5,679
15,347(7,186)(35,164)(4,235)(6,277)(52,864)¥(36,102)

—
9,520
(105)
(881)
8,533
¥ 7,168

(752)
—
—
(390)
(1,142)¥(1,192)

—
—
—
681
681
¥681

(7,938)(25,644)(4,341)(6,868)(44,793)¥(29,445)

Recognized in
profit or loss

Recognizedin othercomprehensive
income¥ 2,203
4,201
2,144
2,189
4,579
15,319¥¥(4,603)(32,093)(3,749)(6,062)(46,509)¥(31,190)—(3,071)(485)(537)(4,094)¥(2,566)

April 1, 2017

Deferred tax assets
Employees’ bonuses
Accrued expenses
Property, plant and equipment (excess depreciation, etc.)
Unrealized gains (inventories and property, plant and equipment)
Other
Total
Deferred tax liabilities
Securities and other investments
Property, plant and equipment (excess depreciation, etc.)
Retained earnings of overseas consolidated subsidiaries, etc.
Other
Total
Net deferred tax liabilities

Other(Note) March 31, 2018

FYE2017 (From April 1, 2016 to March 31, 2017)(Millions of Yen)

April 1, 2016

Deferred tax assets
Employees’ bonuses
Accrued expenses
Property, plant and equipment (excess depreciation, etc.)
Unrealized gains (inventories and property, plant and equipment)
Other
Total
Deferred tax liabilities
Securities and other investments
Property, plant and equipment (excess depreciation, etc.)
Retained earnings of overseas consolidated subsidiaries, etc.
Other
Total
Net deferred tax liabilities

62
287
60
(72)
1,190
1,527

Other
(Note) March 31, 2017

—
—
—
—
(86)
(86)

¥ —
—
—
—
1
1

¥ 2,266
4,489
2,204
2,117
5,684
16,762(2,582)——(437)(3,020)¥(3,106)

—
—
—
759
759
¥760

(7,186)(35,164)(4,235)(6,277)(52,864)¥(36,102)

Note: Other includes exchange differences on translation of foreign operations.

For recognition of deferred tax assets, the TNSC Group considers
the possibility that some or all deductible temporary differences will
be available for future taxable income. For the assessment of therecoverability of deferred tax assets, the TNSC Group considers theplanned reversal of deferred tax liabilities, projected future taxable
income and tax planning. For deferred tax assets recognized, the
TNSC Group believes that it is probable the tax benefits will be

realized based on historical taxable income levels and the projectionof future taxable income during periods when deferred tax assets
may be deducted.
Deductible temporary differences for which deferred tax assets
have not been recognized at March 31, 2018 and March 31, 2017
were ¥14,799 million and ¥14,217 million, respectively.

(2) Income taxes
A breakdown of income taxes is as follows:(Millions of Yen)

Current income taxes
Deferred income taxes
Total
In the United States, the Tax Cuts and Jobs Act was enacted on
December 22, 2017, and the federal corporate income tax rate has
been reduced effective January 1, 2018. Accordingly, deferred tax
assets and deferred tax liabilities as of the end of the third quarter ofthe fiscal year ended March 31, 2018 and thereafter are calculated

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥12,311(7,168)¥ 5,143¥11,396
2,566¥13,963

using an effective tax rate based on the revised tax rate corresponding to the fiscal year in which the temporary differences, etc. are
expected to reverse.
As a result, income taxes decreased by ¥12,193 million for the
fiscal year ended March 31, 2018.

Taiyo Nippon Sanso Corporation | Integrated Report 201867

(3) Table of reconciliation of effective tax rates
The Company is mainly subject to corporate income tax, inhabitant tax and enterprise tax. The statutory tax rate based on these taxes for
FYE2018 and FYE2017 was 30.86%. Overseas subsidiaries are subject to the corporate income tax, etc. of their location.
A breakdown of major items that caused differences between the statutory tax rate and the effective tax rate is as follows:
FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)30.86%
0.27
0.13(1.17)
0.19

30.86%
0.41
0.10
0.30
0.97

(1.57)(1.60)—(21.81)
2.30
9.20%(2.24)—(0.97)
27.83%

FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥48,919432,762¥113.04¥34,740
432,766¥80.28

Statutory tax rate
Permanently non-deductible or non-taxable items
Unrecognized deferred tax assets
Differences in tax rates for overseas consolidated subsidiaries
Retained earnings of overseas consolidated subsidiaries, etc.
Share of profit of investments accounted for using the equity
methodReversal of deferred tax liabilities of overseas consolidated
subsidiaries
Impact of reduction in U.S. federal corporate income tax rate
Other
Effective tax rates

29. Earnings Per Share
Basic earnings per share and the basis of calculation are as follows:

Profit attributable to owners of parent (Millions of Yen)
Average number of shares during the fiscal year (Thousand shares)
Basic earnings per share (Yen)
Note: Diluted earnings per share are not presented as there are no dilutive potential shares.

30. Cash Flow Information
Changes in liabilities arising from financing activities
Changes in liabilities arising from financing activities are as follows:
FYE2018 (From April 1, 2017 to March 31, 2018)(Millions of Yen)

Short-term borrowings
Long-term borrowings (Note)
Bonds (Note)
Total

Balance atApril 1, 2017

Changes fromcash flows

Changes frombusiness
combinations, etc.

Non-cash changes
Exchangedifferences ontranslation of foreign
operations, etc.

¥ 34,973
252,580
65,000¥352,553¥ 1,619(15,495)(10,000)¥(23,875)

¥—
54
—
¥54

¥(1,190)(6,475)—¥(7,665)

Balance at
March 31, 2018

¥ 35,403
230,664
55,000¥321,067

Note: Balances include the current portion of long-term borrowings and bonds.

31. Financial Instruments(1) Equity management
The TNSC Group manages equity aiming at maximizing corporate value through sustainable growth. The major indices used by the Company inequity management are return on capital employed (ROCE) and net D/E ratio.
FYE2018(March 31, 2018)

FYE2017(March 31, 2017)

8.4%
0.71

8.4%
0.87

Return on capital employed (ROCE) (Note 1)
Net D/E ratio (Note 2)
Note 1: Core operating profit / invested capital (average of the beginning and the end of the fiscal year)
Invested capital refers to total of interest-bearing liabilities and equity attributable to owners of parent.
Note 2: Net interest-bearing liabilities / equity attributable to owners of parent
Net interest-bearing liabilities refer to interest-bearing liabilities less cash and cash equivalents.

(2) Matters related to risk management
The TNSC Group is exposed to financial risks in the course of conducting business activities in various countries and regions throughout a wide range of fields. In order to reduce or avoid such risks, the
TNSC Group manages risks based on certain policies, etc.

68

Taiyo Nippon Sanso Corporation | Integrated Report 2018

In addition, derivative transactions are used to hedge currency
fluctuation risk or interest rate fluctuation risk. In principle, derivativetransactions are only conducted based on actual demand and notused for speculative purposes.

(3) Credit risk
Trade receivables, etc., which are receivables arising from the TNSCGroup’s business activities, are exposed to the credit risk of customers. In addition, derivative transactions that the TNSC Group uses tohedge financial risks are exposed to the credit risk of financial
institutions that are counterparties to the transactions.
In accordance with internal policies of each Group company, suchas credit management regulations, the TNSC Group monitors due
dates and outstanding balances of individual customers and establishes a system to periodically assess credit status. The TNSC Group
thereby aims to early identify and alleviate collection concerns due toa deteriorating financial situation. In addition, derivative transactions
are limited to financial institutions with high creditworthiness in orderto minimize counterparties’ credit risk related to contract default.
The TNSC Group records allowance for doubtful accounts at an
unrecoverable amount for individually significant financial assets, andat an amount based on historical experience, etc. for individuallyinsignificant financial assets, at the end of each fiscal year. Allowancefor doubtful accounts related to such financial assets is included in“Trade receivables” and “Other financial assets” in the consolidated
statements of financial position.

Allowance for doubtful accounts is as follows. Since the amount of expected credit losses for 12 months is not material, it is added to the
expected credit losses for the entire period.
(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥2,495
1,253
(249)
(255)
(62)
¥3,180¥2,470
992
(538)
(421)
(8)
¥2,495

Balance at beginning of the fiscal year
Increase during the fiscal year
Decrease during the fiscal year (intended use)
Decrease during the fiscal year (reversal)
Other
Balance at end of the fiscal year

The maximum exposure to credit risk of financial assets is the carrying amount after impairment that is presented in the consolidated financial
statements.
(4) Liquidity risk
The TNSC Group’s trade payables and borrowings, etc. are exposed to liquidity risk. The TNSC Group manages the risk by preparing cash
management plans and secures liquidity by establishing commitment lines with several financial institutions.
Balances of financial liabilities (including derivative instruments) by due date are as follows:
FYE2018 (March 31, 2018)(Millions of Yen)

Non-derivative financial liabilities
Trade payables
Accounts payable—other
Short-term borrowings
Long-term borrowings
Bonds
Lease liabilities
Accrued expenses
Other
Derivative liabilities
Forward exchange contracts
Currency swaps
Interest rate swaps

More than
one year
but within
two years

More than
two years
but within
three years

More than
three years
but withinfour years

More thanfour years
but within
five years

More than
five years

¥

¥

¥

¥

¥

Carrying
amountUndiscounted
contractual
cash flows

One yearor less¥ 79,483
7,002
35,403
230,664
55,0005,892
21,6801,829¥ 79,483
7,002
35,403
230,664
55,0005,981
21,6801,829¥79,483
7,002
35,40336,96915,0002,016
21,680
856

97
24
90

97
24
99

97
4
56

—
4
30

—
4
5

—
4
—

—
2
—

More than
one year
but within
two years

More than
two years
but within
three years

More than
three years
but withinfour years

More thanfour years
but within
five years

More than
five years

¥

¥

¥

¥

¥

—
—
—
56,712
—
1,896
—
277

—
—
—
56,335
10,000
798
—
1

—
—
—
39,79415,000
463
—
1

—
—
—
15,835
—
190
—
1

—
—
—
25,017
15,000
615
—
690
—
4
6

FYE2017 (March 31, 2017)(Millions of Yen)

Non-derivative financial liabilities
Trade payables
Accounts payable—other
Short-term borrowings
Long-term borrowings
Bonds
Lease liabilities
Accrued expenses
Other
Derivative liabilities
Forward exchange contracts
Currency swaps
Interest rate swaps

Carrying
amountUndiscounted
contractual
cash flows

One yearor less¥ 73,046
3,699
34,973
252,580
65,0006,975
21,1693,676¥ 73,046
3,699
34,973
252,580
65,0007,279
21,1693,676¥73,046
3,699
34,97343,747
10,0002,500
21,169
2,728

86
2
166

86
2
171

86
0
70

—
—
—
39,112
15,000
1,789
—
1
—
0
69

—
—
—
57,989
—
1,596
—
228
—
0
25

—
—
—
53,792
10,000
453
—
1
—
0
5

—
—
—
35,14015,000
231
—
14
—
0
0

—
—
—
22,79815,000
707
—
700
—
0
0

Taiyo Nippon Sanso Corporation | Integrated Report 201869

Unused overdraft agreements and loan commitment lines are as follows:(Millions of Yen)

Unused overdraft agreements and loan commitment lines

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥69,409¥60,728(5) Currency risk
Receivables and payables denominated in foreign currencies arising from the TNSC Group’s global business development are exposed to therisk of exchange rate fluctuations. The TNSC Group hedges trade receivables and payables denominated in foreign currencies, borrowings, andloans by using forward exchange contracts and currency swaps as necessary.
Currency sensitivity analysis
The following is the impact on profit before income taxes on the consolidated statements of profit or loss from the foreign currency financial
instruments held by the TNSC Group at the end of the fiscal year, if the yen appreciates by 1% against the U.S. dollar and Euro, respectively, atthe end of the fiscal year.
This analysis is calculated by multiplying each exposure of currency risk by 1%. It is assumed that there is no impact of the fluctuation of eachexchange rate on other variables (foreign exchange rates of other currencies, interest rates, etc.).
(Millions of Yen)

U.S. dollar (1% appreciation of the yen)Euro (1% appreciation of the yen)

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)

¥(21)
(4)

¥(1)
(0)

(6) Interest rate risk
The TNSC Group’s interest rate risk arises from interest-bearing liabilities, net of cash equivalents, etc. Borrowings and corporate bonds that are
based on floating interest rates are exposed to interest rate fluctuation risk.
The TNSC Group hedges such risks by using derivative transactions (interest rate swaps) as necessary.
Interest rate sensitivity analysis
The following is the impact on profit before income taxes on the consolidated statements of profit or loss if the interest rate rises by 1% forfinancial instruments held by the TNSC Group at the end of the fiscal year.
This analysis is intended for financial instruments impacted by fluctuations in interest rates, and it is assumed that other factors, such as theimpact of exchange rate fluctuations, remain constant.
(Millions of Yen)

Profit before income taxes

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥(674)¥(760)(7) Risk of market price fluctuations
Securities, etc. held by the TNSC Group are exposed to the risk of market price fluctuations.
The TNSC Group periodically evaluates the fair value and the financial status of issuers (business partners) for securities, etc., and eachsupervising department reviews the holding status taking into consideration the relationship with the business partners on an ongoing basis.
(8) Fair value of financial instruments
For fair value hierarchy of financial instruments, Level 1 to Level 3 is categorized as follows:
Level 1: Fair value measured by the unadjusted quoted prices in active markets of identical assets or liabilities
Level 2: Fair value calculated using an observable prices directly or indirectly, other than Level 1
Level 3: Fair value calculated by valuation techniques including inputs not based on significant observable market data
Transfers between levels of financial instruments are determined at the end of each reporting period. There were no financial instruments withsignificant transfers between levels for FYE2018 or FYE2017.
1) Financial instruments measured at fair value on a recurring basis
Financial instruments measured at fair value are as follows:
FYE2018 (March 31, 2018)(Millions of Yen)

AssetsEquity securities and investments in capital
Derivative assets
Total
Liabilities
Derivative liabilities
Total

70

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Level 1

Level 2

Level 3

Total

¥38,272—¥38,272

¥ —
192
¥192

¥10,403—¥10,403¥48,675
192¥48,867

¥
¥

¥212
¥212

¥
¥

¥
¥

—
—

—
—

212
212

FYE2017 (March 31, 2017)(Millions of Yen)

AssetsEquity securities and investments in capital
Derivative assets
Total
Liabilities
Derivative liabilities
Total

Level 1

Level 2

Level 3

Total

¥35,218—¥35,218

¥ —
214
¥214

¥16,548—¥16,548¥51,767
214¥51,982

¥
¥

¥255
¥255

¥
¥

¥
¥

—
—

—
—

255
255

Equity securities and investments in capital
The fair value of marketable equity securities categorized as Level 1 is based on unadjusted quoted prices in active markets of identical assets or
liabilities.
The fair value of unlisted stocks categorized as Level 3, for which quoted prices are not available in active markets, is calculated using thesimilar company comparison method or other appropriate valuation techniques based on reasonably available inputs. In addition, certain
illiquidity discounts, etc. are added as necessary.
Derivative assets and liabilities
The fair value of derivative assets and derivative liabilities categorized as Level 2 is calculated based on observable inputs such as prices
provided by counterparty financial institutions or exchange rates and interest rates.
For financial instruments categorized as Level 3, the evaluator determines the valuation techniques to measure each financial instrument
covered in accordance with valuation policies and procedures including valuation techniques to measure fair value approved by the appropriate
authorized person, and the fair value is calculated. The results are reviewed and approved by the appropriate authorized person.
Changes in financial instruments classified as Level 3 are as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)¥16,548(2,200)752(71)(4,104)(521)¥10,403¥16,366(1,044)
2,620(572)(1,383)561¥16,548

Balance at beginning of the fiscal year
Other comprehensive income (Note)
Purchase
Sale
Change in the scope of consolidation
Other changes
Balance at end of the fiscal year

Note: This is included in “Financial assets measured at fair value through other comprehensive income” in the consolidated statements of comprehensive income.

2) Financial instruments measured at amortized cost
The carrying amount and fair value of financial instruments measured at amortized cost are as follows:
FYE2018 (March 31, 2018)(Millions of Yen)

Liabilities
Long-term borrowings
Bonds
Total

Carrying amount

Level 1

Level 2

Level 3

Fair value
Total¥230,664
55,000¥285,664¥——¥—¥229,382
55,127¥284,509¥——¥—¥229,382
55,127¥284,509

FYE2017 (March 31, 2017)(Millions of Yen)

Liabilities
Long-term borrowings
Bonds
Total

Carrying amount

Level 1

Level 2

Level 3

Fair value
Total¥252,580
65,000¥317,580¥——¥—¥252,020
65,171¥317,192¥——¥—¥252,020
65,171¥317,192

For financial instruments measured at amortized cost other than long-term borrowings and bonds, their fair value reasonably approximatesthe carrying amount.
Long-term borrowings
The fair value of long-term borrowings is calculated based on the present value calculated by discounting the total amount of principal andinterest by the interest rate assumed when similar borrowings are newly made.
Bonds
The fair value of bonds is calculated based on market price.

Taiyo Nippon Sanso Corporation | Integrated Report 201871

(9) Transfer of financial assets
At March 31, 2018 and March 31, 2017, for trade receivables transferred without meeting the requirements for derecognition of financial assets,¥2,101 million and ¥2,176 million were included in “Trade receivables,” respectively, and the amounts received due to the transfer of ¥1,520 million and ¥1,565 million were included in “Bonds and borrowings,” respectively. Of these Trade receivables, it is determined that the TNSC Groupholds almost all of the risks and rewards related to ownership of the transferred assets, because it will assume the payment obligations if theissuer of the notes or the debtor fails to make payment.
(10) Derivative transactions
1) Derivative transactions for which hedge accounting is applied
Analysis of contract amounts, etc. of the hedging instruments by due date is as follows:
FYE2018 (March 31, 2018)(Millions of Yen)

Contract
amounts, etc.

One yearor lessMore than
one year
but within
two years¥ 6,673¥6,634¥

19,8201,064

15,451

1,271

271

271

Contract
amounts, etc.

One yearor lessMore than
one year
but within
two years

More than
two years
but within
three years

More than
three years
but withinfour years

More thanfour years
but within
five years¥ 6,714¥ 6,714

29,267

10,149Cash flow hedges
Currency risk
Forward exchange contracts
Interest rate risk
Interest rate swaps

39

More than
two years
but within
three years¥

More than
three years
but withinfour years

More thanfour years
but within
five years

—

¥ —

¥ —

More than
five years

¥

—
1,489

FYE2017 (March 31, 2017)(Millions of Yen)

Cash flow hedges
Currency risk
Forward exchange contracts
Interest rate risk
Interest rate swaps

¥

—
1,076

¥

—
15,465

¥

—

¥ —

1,286

286

More than
five years

¥

—
1,003

Major forward rates of foreign exchange contracts and major interest rates of interest rate swaps are as follows:

Cash flow hedges
Currency risk
Forward exchange contracts
U.S. dollar
EuroInterest rate risk
Interest rate swaps
Fixed payables and floating receivables

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥103.36–¥111.91¥130.41–¥132.96¥101.02–¥114.65¥112.94–¥127.35

0.34%–0.70%

0.34%–0.74%

Amounts related to items designated as hedging instruments are as follows:
FYE2018 (March 31, 2018)(Millions of Yen)
Carrying amount

Changes in fair value used to
calculate ineffective portion ofhedges for the fiscal year

Contract
amounts, etc.

AssetsLiabilities¥ 6,673¥115¥97

Other financial assets
Other financial liabilities¥ 27

19,82047

90

Other financial assets
Other financial liabilities

121

Cash flow hedges
Currency risk
Forward exchange contracts
Interest rate risk
Interest rate swaps

72

Items on the
consolidated statementsof financial position

Taiyo Nippon Sanso Corporation | Integrated Report 2018

FYE2017 (March 31, 2017)(Millions of Yen)
Carrying amountItems on the
consolidated statementsof financial position

Changes in fair value used to
calculate ineffective portion ofhedges for the fiscal year

Contract
amounts, etc.

AssetsLiabilities¥ 6,714¥77¥ 86

Other financial assets
Other financial liabilities¥143

10,1491

166

Other financial assets
Other financial liabilities

248

Cash flow hedges
Currency risk
Forward exchange contracts
Interest rate risk
Interest rate swaps

Amounts related to items designated as hedged items are as follows:(Millions of Yen)FYE2018(March 31, 2018)
Changes in fairvalue used to
calculate ineffective
portion of hedges
for the fiscal year

FYE2017(March 31, 2017)

Cash flow hedge
reserves

Changes in fairvalue used to
calculate ineffective
portion of hedges
for the fiscal year

Cash flow hedge
reserves

¥ 27

¥ 17

¥ 96

¥ 34

121

(56)

171

(98)

Changes in fair valueof hedging
instruments
recognized in othercomprehensive
incomeIneffective portion ofhedges recognized in
profit or loss

Items on the
consolidated
statements of profit
or loss that include
ineffective portion ofgain or loss onhedgesReclassification
adjustments fromcash flow hedge
reserves toprofit or loss

Items on the
consolidated
statements of profit
or loss that include
gain or loss due toreclassification
adjustments

¥ 27

¥—

¥—

¥(14)

Finance costs

121

—

—

51

Finance costs

Changes in fair valueof hedging
instruments
recognized in othercomprehensive
incomeIneffective portion ofhedges recognized in
profit or loss

Items on the
consolidated
statements of profit
or loss that include
ineffective portion ofgain or loss onhedgesReclassification
adjustments fromcash flow hedge
reserves toprofit or loss

Items on the
consolidated
statements of profit
or loss that include
gain or loss due toreclassification
adjustments

¥ 96

¥—

¥—

¥164

Finance costs

171

—

—

78

Finance costs

Cash flow hedges
Currency risk
Planned purchase
Interest rate risk
Interest on borrowings
Details of cash flow hedges are as follows:
FYE2018 (From April 1, 2017 to March 31, 2018)(Millions of Yen)

Cash flow hedges
Currency risk
Forward exchange contracts
Interest rate risk
Interest rate swaps
FYE2017 (From April 1, 2016 to March 31, 2017)(Millions of Yen)

Cash flow hedges
Currency risk
Forward exchange contracts
Interest rate risk
Interest rate swaps2) Derivative transactions for which hedge accounting is not applied
Amounts related to items not designated as hedging instruments are as follows:(Millions of Yen)FYE2018(March 31, 2018)

Currency swaps

FYE2017(March 31, 2017)

Contract amount,
etc.

More than one year

Fair value

Contract amount,
etc.

More than one year

Fair value

¥793

¥171

¥5

¥863

¥726

¥133

Taiyo Nippon Sanso Corporation | Integrated Report 201873

32. Subsidiaries
For FYE2018 or FYE2017, there were no individually significant subsidiaries with non-controlling interests.

33. Related Parties
Remuneration for major executives
Remuneration for the TNSC Group’s major executives is as follows:(Millions of Yen)FYE2018(From April 1, 2017 to March 31, 2018)

FYE2017(From April 1, 2016 to March 31, 2017)

¥458
¥458

¥583
¥583

Remuneration and bonuses
Total

34. Commitments
Commitments on acquisition of property, plant and equipment and intangible assets are as follows:(Millions of Yen)

Acquisition of property, plant and equipment and intangible assets

FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥12,057¥16,71235. Contingent Liabilities
Guaranteed obligations
Guarantees and quasi-guarantees for borrowings from financial institutions are as follows:(Millions of Yen)FYE2018(March 31, 2018)

FYE2017(March 31, 2017)¥¥

Joint ventures
Associates
Other (Note)
Total

77
343
1,333
¥1,754—363
1,728¥2,092

Note: Other mainly consists of guarantees for employees’ bank loans based on the employees’ house ownership support system.

36. Subsequent Events
Not applicable.
(2) Other
Quarterly information for FYE2018 (From April 1, 2017 to March 31, 2018)
First quarter of
FYE2018First half of
FYE2018First three quarters of
FYE2018

FYE2018

Revenue (Millions of Yen)
Profit before income taxes (Millions of Yen)
Profit attributable to owners of parent (Millions of Yen)
Basic earnings per share (Yen)¥150,861
13,6247,611
17.59¥305,714
27,681
17,67140.83¥471,460
43,65339,97792.38¥646,218
55,897
48,919113.04(Quarterly period)First quarter

Second quarter

Third quarter

Fourth quarter

17.59

23.25

51.54

20.66

(Cumulative period)

Basic earnings per share (Yen)74

Taiyo Nippon Sanso Corporation | Integrated Report 2018

Report of Independent Auditors

Taiyo Nippon Sanso Corporation | Integrated Report 201875

Investor Information(At March 31, 2018)

Number of shares authorized:

1,600,000,000

Number of shares issued:

433,092,837

Number of shareholders:

15,721

Major Shareholders:Thousands of shares owned

Percentage of total

Mitsubishi Chemical Holdings Corporation

218,996

50.59

Taiyo Nippon Sanso Client Shareholding Society

18,931

4.37

Mizuho Bank, Ltd.

16,365

3.78

JFE Steel Corporation

12,627

2.92

Meiji Yasuda Life Insurance Company

10,007

2.31

Japan Trustee Services Bank, Ltd. (Trust Account)

9,752

2.25

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

9,751

2.25

The Norinchukin Bank

7,000

1.62

Japan Trustee Services Bank, Ltd. (Trust Account 9)

4,917

1.14

Employee Shareholding Association

3,586

0.83

Notes: 1. The Company holds 178,000 treasury shares.
2. Percentage of total is calculated excluding treasury shares.

Common Stock Price Range and Trading Volume

Stock price

Trading volume(Yen)(Thousands of shares)

2,400

60,0002,000

50,0001,600

40,0001,200

30,000800

20,000400

10,000

0

76

2014
4

2015
1

Taiyo Nippon Sanso Corporation | Integrated Report 2018

2016
1

2017
1

2018
1 3

0

Corporate Data
(At March 31, 2018)

Company name:Taiyo Nippon Sanso Corporation (Stock code: 4091)

Date founded:

October 30, 1910

Paid-in capital:¥37,344 million

Head office:1-3-26 Koyama, Shinagawa-ku, Tokyo 142-8558, Japan
Tel: +81-3-5788-8000

Number of employees:

16,746

Independent public accountants: Ernst & Young ShinNihon LLC
Stock exchange listing:Tokyo

Transfer agent:Mizuho Trust & Banking Co., Ltd.
2-8-4 Izumi, Suginami-ku, Tokyo 168-8507, Japan
Tel (toll free in Japan): 0120-288-324

Contact:

Corporate Communications Department, Taiyo Nippon Sanso Corporation

Number of Employees and Percentage of Total Labor Force by Reportable Segment

Shared/support (275)1.7%

Gas Business in Japan (5,430)

32.4%

Thermos Businesses (2,426)

14.5%

Gas Business in Asia and Oceania (4,010)

23.9%

Gas Business in the United States (4,605)

27.5%

Disclaimer Regarding Forward-Looking Statements
This integrated report contains forward-looking statements, including operating results forecasts, which reflect management’s assumptions and beliefs based on
information available at the time of publication. These statements are inherently subject to risks and uncertainties and are not intended as a guarantee or promise
regarding the achievement of these results. Investors are cautioned to refrain from relying solely on these forward-looking statements in making investment decisions.
Please note that various factors may cause actual results to differ materially from these statements.

Taiyo Nippon Sanso Corporation | Integrated Report 201877

1-3-26, Koyama, Shinagawa-ku,Tokyo 142-8558, Japan
Tel: 81-3-5788-8000
www.tn-sanso.co.jp/en

Printed in Japan