KAITEKIREPORT

2020
Integrated ReportIntroduction

MissionImagine the future. Change for tomorrow.
Imagine our future. How do we get there to a sustainable future?
KAITEKI—the sustainable well-being of people, society and our planet Earth.
For our future, the Mitsubishi Chemical Holdings Corporation (MCHC) Groupwill bring solutions for tomorrow.

We create innovative solutions globally based on
our core values of Sustainability, Health, and Comfort,
striving for the well-being of people,
society and our planet Earth.

VisionRealizing KAITEKI

Value
Sustainability, Health, Comfort

1

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

2

INDEX
01
03
05
06

Introduction
Table of Contents and Editorial Policy
History of the MCHC GroupKey Indicators in KAITEKI Management

1

2

4

Message from
the Management

Message from the President

19

Confronting uncertainty witha long-term business perspective
and continued transformation

Value Creation Story

Value Creation Model—KAITEKI Management

07

Transition of Portfolio Transformation
and Review of the Medium-Term
Management Plan
09
Approach to 2050
—KAITEKI Vision 30

5Foundation of
Sustainable Growth

Sustainability
Message from the CSO

37

Progress with
Sustainability Management

39

Report in Line with the
Recommendations of the TCFD

42

Promoting KAITEKI Health andProductivity Management andHuman Resources Development

43

Message from the Corporate
Officer Supervising HR Management

43

Initiatives to Drive Innovation

45
47

Measuring Innovation throughManagement of Technology (MOT)

50

Message from the CIO

25

Governance11

Corporate Governance3

Update on APTSIS 20

Material Issues andFocus Markets of APTSIS 20

29

Special Feature:
Creating Synergies inthe Healthcare Business

Editorial policy
The Mitsubishi Chemical Holdings (MCHC) Group publishes the KAITEKI Reportas a value creation story that covers the progress and outlook of corporate
activities aimed at the realization of KAITEKI. This report summarizes financial andnon-financial information from the past, present and future projections based onwhat we have determined to be highly pertinent to our decision-making criteria
and results of materiality assessments for corporate activities. In preparation ofthis report, we referred to the International Integrated Reporting Framework
created by the International Integrated Reporting Council. Further informationon the topics of this report is available on Mitsubishi Chemical Holdings website.
For detailed financial information, please refer to our securities reports filed with
the Financial Services Agency. For detailed governance information, please refer
to our corporate governance report submitted to the Tokyo Stock Exchange.
Mitsubishi Chemical Holdings Website

https://www.mitsubishichem-hd.co.jp/english

Securities Reports

https://www.mitsubishichem-hd.co.jp/ir/library/stock_securities_report.html

Corporate Governance Reporthttps://www.mitsubishichem-hd.co.jp/english/pdf/governance.pdf

3

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Risk Management27

Growth Measures in Focus Markets
and Updates on Actions in
the Three Business Domains

Message from an Outside
Director of the Board
Message from the Chairperson

Progress of the Medium-Term
Management Plan

Financial Highlights
Non-Financial Highlights
Shareholder Information
Overview of Business Domains
Summary
FY2019 Financial Results by
Business Segment

Compliance

59
61
63
66

77
79
83
87
91

Performance Products Domain
Industrial Materials Domain
Health Care Domain
Consolidated Financial Statements
Management’s Discussion andAnalysis of Results of Operations,
Financial Position and Cash Flows

95
99
189
189
190

Financial Information
Non-Financial Information
Environmental Data/Social Data

51
53

Directors

Medium-Term Management Plan (FY2016–FY2020)

67
69
71
73
75
75

Financial Summary

Innovation

Message from the CFO

Financial and
Non-Financial Information

Independent Assurance Report

191
192
193
194

Corporate Data
Main Subsidiaries and Affiliates
Main Businesses
Global Network

List of pages on the response to COVID-19

33
35

Reporting period
Fiscal 2019 (April 2019–March 2020), including some information fromfiscal 2020

Overall impact on corporate activities andfuture outlook
Message from the President
19
Message from the CSO
37
Message froman Outside Director of the Board
59
Message from the Chairperson
61(Note) Taiyo Nippon Sanso Corporation converted to a holding company and changed
its trade name to Nippon Sanso Holdings Corporation. Taiyo Nippon Sanso willcontinue operations in Japan for Nippon Sanso Holdings. This report uses thename Taiyo Nippon Sanso for the events that happened before October 2020 as
well as future events for the company’s operations in Japan.

25
27

Our actions in response to COVID-19
Products to prevent the
spread of the virus
Work guidelines toensure employee safety
COVID-19 risk management
Development of a vaccine for the virus

41
43
65
90

Assessment results of corporate value including ESG
Dow Jones Sustainability Indices

FY2020 Reporting boundary
This report covers information relating to Mitsubishi Chemical Holdings
and the MCHC Group. For matters with a different reporting
scope, we clearly specify the reporting boundary covered.
Accounting standards
Mitsubishi Chemical Holdings has adopted International Financial ReportingStandards (IFRS), effective from the first quarter of fiscal 2016, the financial year
ended March 31, 2017. In this report, data in and after fiscal 2016 are based on
IFRS, while other figures are based on J-GAAP unless otherwise noted.

Impact on finances
Message from the CFO
Progress of
the Medium-Term
Management Plan

SAM Sustainability Award
Bronze ClassMSCI JapanESG Select Leaders Index*

MSCI JapanESG Select Leaders Index

MSCI JapanMSCI Japan
Empowering Women Index* Empowering Women Index (WIN)FTSE4Good
Index Series

FTSE Blossom
Japan Index(As of June 30, 2020)* The inclusion of Mitsubishi Chemical Holdings in any MSCI Index, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship,endorsement or promotion of Mitsubishi Chemical Holdings by MSCI or any of its affiliates. The MSCI Indexes are the exclusive property of MSCI. MSCI and the MSCI index names andlogos are trademarks or service marks of MSCI or its affiliates.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 20204

Overview of the MCHC Group

History of the MCHC Group
1946 Spin-off

1998 Merger
Yoshitomi
Pharmaceutical Industries

Mitsubishi
Petrochemical

Mitsubishi Kasei

Key Indicators in KAITEKI Management
Green Cross
2000 Corporate name change

1994 Merger

Tokyo Tanabe

Management
resources to support
value creation

Value created by
the MCHC Group

Robust financial
position

Improvement ineconomic value

WelfideMitsubishi Chemical

1999
Spin-off and merger

2001 Merger

Mitsubishi-Tokyo
Pharmaceuticals
Tanabe Seiyaku

2007 Merger

Mitsubishi Pharma*1

Sales revenue

Total assets

3,580.5 billion

5,132.1 billion¥¥

Mitsubishi Chemical(functional products business)

Mitsubishi
Tanabe Pharma

Mitsubishi Chemical
Functional Products

194.8 billion¥
Strategic
investments

ROE(Return on equity)

4.2%

Capital expenditures

240.4 billion

October 2005¥

2008 Business integration

Acceleration ofoverseas businesses

R&D expenditures

April 2008

Mitsubishi
Chemical Holdings*1

Mitsubishi
Rayon

October 2005

March 2010

Nagahama
Plastics Industries

Life Science
Institute1958 Corporatename change

Mitsubishi Rayon

Globalnetwork
Group sites(number of countries & regions)43(consolidated)

Nippon Sanso
Holdings
Transition to a holding company

Taiyo Sanso

Improvement increativity andproductivity

Response to climate change

Amount ofreused water supplied(meeting quality standards forboth daily and industrial use)

Water withdrawal(excluding seawater)

204 million m

3

Transition of Portfolio Transformation and Reviewof the Medium-Term Management Plan P. 9

Contributing to
the reduction ofenvironmental
impact2

49.1 TWhToyo Sanso*1 Mitsubishi Chemical Corporation and Mitsubishi Pharma Corporation established a joint holding company,
Mitsubishi Chemical Holdings Corporation.
*2 Taiyo Nippon Sanso Corporation will continue operations in Japan for Nippon Sanso Holdings Corporation.

140 %Realizing
KAITEKI

62 million t-CO e

Energy consumption

Taiyo Toyo Sanso

1995 Merger

New productcommercialization rate

Contribution to the reductionof GHG emissions
through products

Sustainability
management

Nippon Sanso

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

69,609October 2020

Taiyo Nippon Sanso

2004 Merger

Value Creation Model

Advancement ofinnovation

69 points

Number of employees

November 2014

Creation, growth,and advancementof businesses byexecuting KAITEKIManagement
P. 7

Diverse humanresources

Shinko Rayon

Taiyo Nippon
Sanso*2

42.9%

Employees’ vitality index

April 2014

1952 Corporatename change

Ratio of overseas revenue¥

April 2017

Mitsubishi
Plastics Industries
1962 Corporatename change

133.4 billion

Mitsubishi
Chemical2017 Integration

Mitsubishi
Plastics

Nagahama
Rubber Industries

Core operating income*

October 2007

Mitsubishi
Chemical*1

Mitsubishi Polyester Film
Mitsubishi Chemical MKV

5(As of the end of March 2020)

780 million tons
Efficient use of water* Core operating income is calculated as operating income (loss) excluding certain gains and expenses attributable to non-recurring factors (gains and losses incurred by business withdrawal
and contraction, etc.). We disclose core operating income as unique gains/losses incurred by staged gains/losses, while considering the comparability with operating income under J-GAAP.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

6

1 Value Creation Story

Value Creation Model—KAITEKI Management

Create New Value Starting with Social Issues

Executing KAITEKI Management
The Mitsubishi Chemical Holdings (MCHC) Group is implementing KAITEKI Management to realize thesociety we envision looking at the future. We strive to promote our value creation cycle, which starts
with our attention to environmental and social issues in line with our mission and value, while taking
into account the rapidly changing global environment and stakeholders’ requirements. This model
enables us to maintain sustainable growth while contributing to the sustainable development of the
global environment and society.

Business portfolio transformation
Growthpotential

Management foundation andsource of competitivenessTechnologicalinnovation

Marketsize

nmental an
nviro
ds
oc
ial

Natural capitalStaHuman capital

MissionGlobal network to achieve
diverse solutions

The MCHC Group’smaterial issuesngviIntellectual capital

Knowledge and technology driving
business model reform

I
m
pr
o

P. 11

Trust relationships andcollaboration with stakeholders

MOT

MOE

ProvidKAITEKI Vision 30

Social and relationship capital

Performance
Products

P. 29

ing
so
l
u
tio

Environmentalandsocial issues

We create innovative
solutions globally based on
our core values of
Sustainability, Health and Comfort,
striving for the well-being of people,
society and our planet Earth.

abilitytifpro

Manufactured capital

Creation,
growth, andadvancementof business

MOS

ns

Social trends

Diverse human resources tosupport value creation

i

s
ue
ss

Sustainability management to
reduce environmental impact

e
ith
w
ng
rti

Industrial
Materials

KAITEKI
value
Achievinga balance between
economic value
and social value
Financial Information

P. 91

Non-Financial
Information

P. 189HealthCareRealizing
KAITEKI
Contribute toan optimized
recycling-oriented
society andsustainable
well-being
KAITEKI Vision 30

P. 11

Overview ofBusiness
Domains

Financial capital

Robust financial position

P. 75

Strengthening
the management foundation

E
KAITEKI Management—Advance the value creation cycle
based on the three axes
Mitsubishi Chemical Holdings Corporation executes KAITEKIManagement to enhance corporate value by implementing thethree axes of sustainability (MOS), innovation (MOT) and capitalefficiency (MOE) in an integrated manner.
Staring with environmental and social issues, we provide
solutions through the utilization of core technologies, andeconomic and social value created by business activities to carryout a sustainable development cycle to create new value.

7

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

MOS

Management of Sustainability

P. 39

Contributing to the resolution of various environmental and social issues andcreating a better future for the sustainability of people, society and the Earth.

MOT

Management of Technology

P. 50

Creating innovations that contribute to the enhancement of economic andsocial value through the development and differentiation of technologies.

MOE

Management of Economics

P. 27

Utilizing a variety of capital resources efficiently, including humanresources, assets, and funds, to enhance economic value, including profits.

S

Resolution of Resolution ofenvironmental social issues
issuesG
Corporate
governance

Sustainability

P. 37

Innovation

P. 45

GovernanceP. 53

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 20208

1 Value Creation Story

Transition of Portfolio Transformation and Review of the Medium-Term Management Plan
Net sales (sales revenue)(Billions of yen)

Sustained Growth(Core) operating income(Billions of yen)through Continuous Portfolio Transformation

5,000

4,000

500

3,923.4

Net sales (sales revenue) (left axis)(Core) operating income (right axis)

3,580.5

3,000(IFRS)

27%
Industrial
36%
Materials
Health Care 37%

300

Performance
Products

16%
Industrial
Materials 47%
Health Care 37%

Performance
Products

2,000

52%
23%
Health Care 25%
Performance
Products

128.5

Industrial
Materials

133.6

2005

Performance
Products
Industrial
Materials
Health Care
Others

33%
18%
46%
3%

125.0

0

2006

2007

165.6
226.4
8.1

66.3

2008

2009

317.2

307.5

(IFRS)(IFRS)

Performance
Products

32%

200

61%
Health Care 7%
Industrial
Materials

280.0

100

130.5
90.2

110.4

194.8
(IFRS)

0

2010

2011

2012

2013

2014

2015

Medium-term management plan and portfolio transformation

KAKUSHIN Plan—Phase 2
FY2005 to FY2007

Growth measures

2016

2017

2018

2019

2020

2030

Medium-term
management
plan target

Become a corporate group with high growth
and a profitable business through Performance
Products, Industrial Materials, and Health Care

Pursuit of business scale through M&A and integrations,and restructuring of unprofitable businesses(FY)
J-GAAP until FY2015
IFRS from FY2016

Realizing KAITEKI—Sustainablegrowth through value creation
based on requirementsfrom society

Restructuring

APTSIS 10

APTSIS 15

FY2008 to FY2010

FY2011 to FY2015

New medium-term
management plan

APTSIS 20

FY2016 to FY2020

FY2021–

Achievements

Achievements

Achievements

Achievements

Raised the ratio of the pharmaceutical business andstrengthened earnings less susceptible to the economy

Expanded the Performance Products domain

Stabilized profitability through structural reformin Industrial Materials domain and the conversionof an industrial gas company into a subsidiary

Accelerated growth of Performance Products domain
through integrations

2005 Establishment of MCHC

Strengthened the pharmaceutical business2007 Establishment of MTPC2008 Integrated MPI, MCC’s functional products business, and three affiliatecompanies
2009 Conversion of Quadrant AG , the world’s largest manufacturer ofengineering plastic products, into a consolidated subsidiary

Shifted to a higher value-added business portfolio
2010 Conversion of MRC into a consolidated subsidiary2010 Withdrawal from the nylon chain business2011 Withdrawal from the PVC chain business
Withdrawal from the SM chain business

Challenges for the next management plan

Challenges for the next management plan

Creation of growth drivers in the Performance Products
domain and structural reform of unprofitable businesses

Structural reforms and profit stabilization in the
Industrial Materials domain
A shift to higher performance and added value

2014–2015 Production optimization of polyolefin
2014 Retained a single naphtha cracker at the Kashima Plant (nowIbaraki Plant)
2014 Conversion of TNSC into a consolidated subsidiary2016 Formed a joint venture to operate the naphtha cracker at theMizushima Plant (now Okayama Plant)
2016 Decided on the equity interest transfer of the terephthalic acidbusiness in India and China

Shift to high performance and added value
2013 Conversion of Qualicaps Co., Ltd., capsules and pharmaceuticalprocessing equipment businesses based in Japan, the US andEurope, into a consolidated subsidiary2014 Established LSII

Strengthening corporate governance2015 Transition to a company with a nominating committee, etc.

MCHC:
MCC:
MPI:
MRC:

9

(IFRS)

380.5(Core) operating income by segment (pie chart)

1,000

400

410.0

Mitsubishi Chemical Holdings Corporation
Mitsubishi Chemical Corporation
Mitsubishi Plastics, Inc.
Mitsubishi Rayon Co., Ltd.

MTPC:
Mitsubishi Tanabe Pharma Corporation
LSII:
Life Science Institute, Inc.
TNSC:
Taiyo Nippon Sanso Corporation
New-MCC: Mitsubishi Chemical Corporation (Apr. 2017–)

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

PVC:
SM:

Polyvinyl chloride
Styrene monomer

Challenges for the next management plan
Driving growth through synergies, developmentof a global management system, and measuresfor low-profit businesses

2016 Converted the Nippon Synthetic Chemical Industry Co., Ltd. into a wholly owned
subsidiary2017 Establishment of the New-MCC
Integration of the three chemical operating companies (MCC, MPI and MRC)

Strengthened management through continuous
business restructuring and investment in growth areas
2018 Started commercial operations of the new MMA plants with the Saudi
Methacrylates Company, in the Middle East
2018 and 2019 Expanded the global market share of the industrial gas business throughM&A activities
2019 Strategic capital alliance with PHC Holdings Corporation through share exchangewith LSI Medience Corporation
2019 Withdrew from the storage media business2020 Converted MTPC into a wholly owned subsidiary

Strengthened global management capabilities
2017 MCC established regional headquarters

Accelerated digital transformation2017 Establishment of the Emerging Technology and Business Development Office
See the following pages for details on the progress of APTSIS 20.
Message from the President P. 19

Progress of the Medium-Term Management Plan P. 27

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202010

1 Value Creation Story

Approach to 2050

Waves of drastic changes

2050

Globalization

Social vision

Digitalization

An optimized
recycling-oriented society
Sustainable well-being

Socialization

Corporate approach

Identify new social issues andprovide ongoing solutions

2030
Approach to formulating
KAITEKI Vision 30[Innovation and Solutions]
The
Earth

KAITEKI Vision 30,

our medium- to long-term basic management strategy
by backcasting from our social vision for 2050
With drastic changes in the industrial structure and business environment,
what should the Mitsubishi Chemical Holdings (MCHC) Group do to continue togrow together with stakeholders?
Considering social and technological trends and backcastingfrom our social vision and corporate approach for the year 2050,
Mitsubishi Chemical Holdings Corporation has clearly defined
Prospective
the vision and the goals of the Group for 2030 tosolutionsformulate KAITEKI Vision 30 (KV30).
KV30 serves as a foundation for
the next medium-term management plan.

Addressing climate change and improving resourceand energy efficiency
Reducing GHG emissions

PeopleContributing to healthy and vibrant lives
Resolving social issues through the reformation ofbusiness models and the utilization of digital technologies
Enabling fulfilling work, improving creativity
and productivity
Personnel system that encompasses diversity,
expertise, and mobility
Organization that accelerates growthby addressing global needs* Life cycle analysis (LCA): A method for quantitatively
assessing the environmental impact throughout the life
cycle of a product or service

Trends in regulatory reinforcement

Present

Paris Agreement: Zero GHG emissions early in second half of this century
Strengthening fuel efficiency standards in each country
2030 European Circular Economy target: 75% recycling of packaging waste
2018 Ocean Plastics Charter announced (G7)
Trend of introducing carbon taxes
Strengthening “soft” laws relating to human rights, etc.

Environmental and social issues
Accelerating climate change
Water stress and pollution
Ocean plastic pollution
Increasing population and aging society
Globalization and widening disparities
Rise of protectionism(populism and trade wars)
Expansion of regional economic zones
Increasing medical expenses
Changing values resulting fromthe spread of infection

11

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Backcastingfrom our vision
for 2050 to set
our 2030 goals

Carbon management through LCA*
Establishing technologies for the utilization of CO2, etc.

Promoting an optimal circular economy

Society

Backcasting
approach

Projecting to
the next medium-term
management plan

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202012

Approach to 2050—KAITEKI Vision 30

1

Future envisioned by the MCHC Group

Business domain to address social issues

Implementing reform with 2030 as a waypoint

The MCHC Group aims to realize its own sustainable growth while creating a society where all of today’s social issues havebeen resolved by 2050 through providing solutions to social issues. The vision for 2030 in KV30 is not a final goal, but justa waypoint for reforms that we will pursue with a long-term perspective to realize the society we envision for 2050.

What will the future be like in 2050?
Data and digital technologies are used as an infrastructure, biotechnology has become well-developed,
and a society in which all current social issues have been solved.

This is the society envisioned for 2050.

Sustainablecarbon cycle,

Healthy andvibrant lives

Sustainable cities
with smart communication andenergy systems

Identify social
issues (MOS)

Risk
2 assessment

Identify social issues that the MCHC
Group should help solve by reviewing
megatrends and SDGs along with our
mission and value standards.

Backcasting

MCHC Group’s vision for 2030

Solve social issues for a sustainable future
through leadership as a global solutions provider

1

Business portfoliotransformation
Selection of business domains
Business model reform

2

Thorough sustainability
management

3

Specify the social issues that the
MCHC Group should address.

Hold discussions with internal andexternal stakeholders toquantitatively assess risks left
unmanaged.

Business domains

GHG reduction

GHG reduction

Resource management

Realize a recycling-based society for materials

Carbon cycle

Food and water supply

Contribute to ensuring the stability of food and water supply

Food and water supply

Healthy andvibrant lives

Realize a society where people can enjoy healthy and vibrant lives

Medical advances

DigitalContribute to building the infrastructure for a data society thatrealizes optimization at the social system level

Digital society infrastructure

SafetyContribute to the realization of safe and comfortable lives

Human interface

Human resources andwork styles

Provide workplaces where people who are enthusiastic
about solving social issues can work with motivation[Human resources system reforms(Energy/Mobility)

P. 18 ]

Risks of leaving social issues unmanaged
Risk 1

Sustainable food supply
SocialissuesLoss of new growth opportunities

Institutional investors emphasize ESG

Risk actualization of existing businesses
due to changes in customer demands,
tighter regulations, and policy changes

Loss of growth opportunities
due to delays in portfolio
reforms that solve social issues

Impairment of brand value if response
to social issues is inadequate

Sustainable water supply and use
Realization of healthy and vibrant lives
Realization of safe and comfortable lives
Improvement of communications and digital processing technologies
Human resources and work styles
Business portfolio that contributes to solving social issues

Impact of risk
(Billions of yen)

Risk 3

Loss or contraction of existing business

Sluggish stock prices and higher
interest rates due to insufficient
ESG response

Sustainable resource management

Risk 2

Loss of corporate and brand value

Loss of outstanding young personnel
who strongly demand corporate social
responsibility

Increase in business costs due toactualization of risks related to social issues
Carbon tax burden
Rising food prices
Operating loss due to extreme weather
Increase in medical insurance
Shut-down of operation due tospread of infections

Reduction in operating profit
by cutting medical costs

Loss of new growth opportunities
due to delays in business model
reforms and technological innovations
to form platforms
Loss of growth opportunities
due to delayed globalization

Decline in competitivenessdue to delays in digitalization

DX-based business optimization
Development competition based on MI*

Reformation Transformation of business models (from goods to solutions)
responding
to structural Strengthening response to environmental and social impacts
changes
Reforming systems related to people and work styles

Human capital systemand framework reforms

Find the direction for
resolving the identified social
issues, and specify thebusiness domains.

Directions for contributions to solving issues

GHG reduction and effective use

Three perspectives leading to the visionbusiness
4 Specify
domains

Specifysocial issues

Contribute to climate change mitigation throughGHG reduction and effective utilization

Accelerate growth and enhance corporate value by making
the resolution of social issues a business opportunity
Establish an innovative R&D structure and keep providing solutions to social issues
Build infrastructure to ensure environmental impact neutrality by reinforcing
sustainability management
Create flexible human resources systems that embrace the diversity, expertise,and mobility of its people
Foster digital natives who are sufficiently skilled to accelerate growth
Intensify our global management structure to meet regional needs and accelerate growth3

Social issues and business domains for the MCHC Group
Social issues

Diverse society

the risks associated with social issues and structural changes,
and estimated that they were in the range of ¥1 trillion. Under
KV30, we aim to minimize these risks, position the resolution ofsocial issues as business opportunities, and continue to reform
our business portfolio to achieve sustainable improvements incorporate value.

Process for specifying social issues and business domains

1
Freedom fromfood andwater scarcity

Resource circulation

meaning we achieve
GHG Impact Neutral

With the aim of realizing the society that we envision for 2050,
Mitsubishi Chemical Holdings has identified the social issues
that we should contribute to resolving, reviewing SDGs andmegatrends along with our mission and value standards. The
resolution of these social issues has been defined as a businessdomain Mitsubishi Chemical Holdings should work on. When
identifying social issues, the Company quantitatively assessed

Loss of competitiveness due to delayed
efforts for a change in HR structure tomeet changes in social structure

Deterioration of balance sheet
Decline in the value of stock
Operating income loss

230

20

410

160

220

* Materials informatics (MI): AI-based method to design new materials and explore alternative materials rapidly and efficiently.

13

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202014

Approach to 2050—KAITEKI Vision 30

1

Selection of growth businesses as the pillars of the portfolio
We are building a business portfolio from a medium- tolong-term perspective in order to achieve sustainable growth.
When selecting growth businesses, we considered GHG
emissions regulations, plastic recycling, and other regulations
that affect our business areas. We analyzed market andtechnological trends between now and 2030, with an eye to2050, and chose prospective solutions. Among these solutions,
we narrowed them down to identify the growth businesses
based on the following three criteria: market growth potential,
room for technological innovation, and market size.

Growth business selection process
After 2030
Business domainsthat contributeto solvingsocial issues(MOS)

Regulatory
trendsMarket andtechnologicaltrendsYes

Market growth rate
Room for technologicalinnovation (MOT)

Prospective
solutionsMarket size (MOE)

Precision medicine

OthersHealthComfortYes

Chemical andmaterial recycling

Electrification solutions

Advancementof innovation

No

Otherscustomer needs. In other words, we will improve our solution
levels and expand the scope of problem solving andoptimization to the entire social system. The MCHC Group will
increase the added value of its growth businesses andstrengthen its earning power by improving solution levels andadvancing innovation.

Regenerative medicine

Reflecting solution levelsof business domains

Sustainability

Mitsubishi Chemical Holdings believes that it is necessary to
make fundamental changes to our business models in order
to expand growth businesses that will form the pillars of ourbusiness portfolio. Under KV30, we will reform our businessmodels that provide high value-added solutions to meet thedemands of society in addition to supplying products to meet
Business model reformation

As of 2030

No

Growth businesses as the pillars of the portfolio for 2030

Business model reformation through the improvement ofsolution levels and the advancement of innovation

Preventive care

Materials
technology
innovations
Data
accumulation
Algorithms/
architecture
Open innovation
Human resourcesLong-term storage,
alternative food and flavor
solutionsBio-based polymers
Next-generation high-speed
communication solutions
Next-generation
display solutions
Symbiosis of human androbot space solutions

CO2 capture
and utilization

Lighter mobility

Decentralized foodand water system

Semiconductor
solutions
Decentralized energy
management

Social systems

GHG reduction
Use energy
more efficiently
ExpandrenewableenergyDecentralizedenergy management
Capture anduse GHGs
CO2 capture
and utilization

High-capacity
and high-speedtransmission
Next-generation
high-speed
communication
solutions

KAITEKI

Reduceenvironmental
impacts offood
Reduceproduction

food losses

Regenerative
medicine

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

5

6

Optimizing entire
customer businesses

Optimizing subsystems
as core of social systems

Optimizing entire
social systems

Provingclinical outcomes

Improving
patient outcomes

Improving patientand family QOL

Materializing medical
systems that extend
healthy life expectancies

Contributing touniversal health coverage

Digitalsociety
infrastructure

The MCHC Group aims to increase the share ofsales revenue from growth businesses fromthe current level of approximately 25% to over
70% by 2030 by boldly transforming thebusiness portfolio to businesses focused on
solving social issues.

Sales revenue target for 2030
GHG reduction
Carbon cycle

Over

Food and water supply
Digital society
infrastructure
Human interface
Medical advances

70%

25%

2030

2018

[¥6.0 trillion][¥3.9 trillion]

Providecare

MaintainhealthCurediseases

Medical advances
Innovation and solutions

Topic
Working to achieve a carbon cycle system through CO2 capture and artificial photosynthesis

Preventive care

Food and water supply

15

Diversify
communication
techniques

Precision medicine

Long-term storage,
alternative foodand flavor solutions

Social issues requiring resolution and priority business areas

4

Optimizing
customer operations

2

Next-generation
display solutions

Decentralized
food andwater system

Increase
food
production

Increaseprocessing
capacity

Semiconductor
solutionsChemical andmaterial recycling
Recycleresources

3

Customizing products
through consultations

Developing a businessportfolio focused on
growth businesses

Symbiosis of humanand robot space solutions

The sustainable well-beingof people, society andour planet Earth.

Bio-based polymers

Healthcare
solution levels

Spec products

Safe andsecure social
systems

Chemical processes
with low environmental
impacts

Carboncycle

Solution levels

Comfortable andenjoyable lifestyles

Lighter mobility
Electrification
solutionsUse natural
resources1

Human interface

Artificial photosynthesis is a technology for converting the CO2 captured from exhaustgas from power plants and factories into basic chemicals that can be used as raw
materials for products including plastics by utilizing clean hydrogen produced from solar
energy and water. Mitsubishi Chemical Corporation is working on the Artificial
Photosynthetic Project led by the New Energy and Industrial Technology Development
Organization (NEDO), with the aim of conducting a large-scale demonstration by 2030
and the social implementation of a carbon cycle system using artificial photosynthesis by2040. On January 23, 2020, we gave a presentation on artificial photosynthesis as one of
the representative examples of such innovative technology at the Council for Science,
Technology and Innovation held by the Prime Minister’s Office.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202016

Approach to 2050—KAITEKI Vision 30

2

3

Thorough sustainability management

Human capital system and framework reforms

Improving sustainability and strengthening the management basethrough five measures

Implementing human resources systems and organizational
reforms which embrace diversity, mobility, and expertise

Under KV30, we are working to improve environmental and social sustainability and strengthen our management base throughfive measures toward the realization of the society we envision for 2050.

In order to achieve reform, it is necessary to not only change
goals and processes but also create a workplace in whichpeople with diverse values and expertise can thrive. Based on
this recognition, the MCHC Group will strive to reform humanresources systems to make them more fully embrace diversity,
mobility, and expertise. Meanwhile, highly inclusive humanresources systems may result in higher mobility with strong

Sustainability management

1

Evolve LCA tools

We will elevate our LCA evaluations from the current environmental
impact of products to cover the entire value chain, including the impact
on society.

2

Reduce environmental
impactIn addition to reducing and making effective use of GHGs throughout theentire value chain, we will work to reduce our environmental impact bycontributing to the sustainable supply and use of water and resource
management for all of society, including our business activities.

3
4
5

Promotea circular economy

Feasibility studies
of KAITEKI factories

Build a sustainability
management systemcentrifugal force. For this reason, the MCHC Group is working
to strengthen engagement by associating KAITEKI withindividual jobs so that each employee is aware of why they
are doing their job within the MCHC Group. We will put into
practice our mission both inside and outside the Company,
with KAITEKI as a centripetal force.

Human resources system reforms and global management

Global trends

Globalization

Digitalization

Socialization

People and work styles

Diversity

Mobility

Expertise

Perspectives inhuman resources
system reforms

Respect for individuals

Flexibility

Market value/performance

Providing workplaces thatempower self-actualization

Human resources systems
that embrace diversity,
mobility, and expertiseCompensation and treatment
based on employee market values
and performance

Through the development of technologies and business models formaterial and chemical recycling, and the provision of bio-based polymers,
we will contribute to promoting a circular economy.

We aim to realize an ecosystem that integrates KAITEKI factories, which
provides solutions to social issues, with local communities.

We will build a sustainability management system by developing
decision-making processes and management foundations in order toachieve these four measures.

Five pillars that form the foundation for highly accommodating human resources systems
1. Ensuring pay for job/performance
2. Human resources systems designed according to each type of operation/job
3. Strengthening functions to create skills and minds that can meet global needs
4. The right jobs for the right people globally by using a common platform of

GHG emissions
26% reduction in Japan by fiscal 2030 compared to fiscal 2013
Aim to reduce emissions in line with target levels in each country and region

talent management

Building a foundation for achieving environmental impact neutrality by 2050

Topic
Evolution of LCA tools—Joining the Value Balancing AllianceIn December 2019, Mitsubishi Chemical Holdings became thefirst Japanese company to join the Value Balancing Alliance(VBA), which was established to develop a new method of
measuring corporate value. In cooperation with the OECD andseveral audit firms, VBA has expanded the concept of LCA to
include not only environmental impact but also social
impact in aiming to establish a method for measuringcorporate value and accounting standards based on thisframework. This enables companies to convert their impact on
the environment, people, and society into a monetary value

17

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020and for this value to be compared and analyzed acrosscompanies. The Company has joined the VBA steeringcommittee and the team responsible for the development
and studying of methods for measuring enterprise value.
Through the development of methodologies at VBA, we will
evolve from the conventional LCA, which evaluates theenvironmental impact of products, to a higher level of LCA,
which evaluates the impacts through the entire value chain,including the impact on society. In doing so, we aim toenhance the measurement of KAITEKI value.

5. Cluster-type organizations that enable complex problem solving

Topic
Project to study approaches to people and organizations
Members with diverse backgrounds of the MCHC Group gathered for a project toconsider measures related to people as part of KV30. In order for the MCHC Group toachieve sustainable growth by enhancing job satisfaction and improving creativity andproductivity, project members held discussions on the vision for the Group in 2030 andwhat needs to be done to achieve that vision, while taking into consideration the value
and businesses that should be provided to society. The project members then madeproposals to management on approaches to people and organizations. The perspectives
that the MCHC Group should focus on were then derived based on the keywords ofdiversity, mobility, and expertise.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202018

2 Message from the Management

Message from the President

Confronting uncertainty
with a long-term business perspective
and continued transformation
Hitoshi Ochi
Representative Corporate Executive Officer
President & Chief Executive Officer

Our mission in a significantly
changing environment
First and foremost, I would like to extend my deepest
condolences to those who have lost their lives or family
members to COVID-19, and offer my heartfelt compassion to
those who are suffering from the virus. I would also like tothank healthcare workers and all those who are doing theirbest to prevent the spread of the virus.
As this unprecedented and unexpected situation
continues to unfold, I am, as CEO, fully aware of the
responsibility I bear to lead Mitsubishi Chemical Holdings
Corporation through various ever-changing challenges.
Among these challenges, myself and the management
team have focused on maintaining and restoring global
supply chains. At the Mitsubishi Chemical Holdings (MCHC)
Group, we offer a variety of materials and components to awide range of industries. These include lifeline products suchas medical, pharmaceutical, hygiene, and food products thatare essential for overcoming situations such as the one we are
currently experiencing. As the pandemic disrupts supply
chains, we have continued to take measures appropriate toeach region and workplace. We also hold regular remotemeetings to maintain a close collaboration with bothdevelopment and production teams, thereby fulfilling our

19

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020social mission of ensuring a stable supply of products. Our
reliable provision of products and technology can also help
prevent the spread of COVID-19 and thereby support
healthcare providers.
As a group that also operates a pharmaceutical business,
the MCHC Group considers the development of vaccines that
can help prevent infection as one of its top priorities. At
Medicago Inc., a subsidiary of Mitsubishi Tanabe Pharma
Corporation, researchers have focused their efforts ondeveloping its proprietary virus-like particle (VLP) vaccine.

Pursuing sustainability amidst
an uncertain future
The threat of COVID-19 is expected to continue for theforeseeable future. Consequently, people’s way of life and how
we all conduct business are drastically evolving. In light of this,we have witnessed digital technologies leading the way, with
disrupted supply chains already starting to be rebuilt.
Digital technologies have also helped reduce energy
consumption while promoting more diverse ways of working.
Furthermore, it ensures the decentralization of populations
and functions traditionally concentrated in large cities.
In the short term, these changes require work style andbusiness process transformation. In the medium to long term, acomplete replacement of the existing, obsolete business modelis needed.
I believe these changes can shine a light on how toachieve sustainability—an important question for businesses
today. Pressing social challenges such as a rising global
population, global warming, food and water shortages, andenergy and resource depletion are urgent issues that need tobe addressed, yet the outlook for an immediate solution
remains unclear. At the same time, advanced technology
innovations are being launched more quickly than everbefore. To be able to lead a business into the future with asense of certainty we need to mobilize as much knowledge
and data as possible to predict future events and take thenecessary action. That is why the management has been
discussing our goals in the coming years based on our visionof society in 2050.
COVID-19 is a symbolic example of the uncertain outlook
the global environment and international society and economy
face. This situation affirms the assumptions that we havediscussed. Our medium- to long-term basic management
strategy KAITEKI Vision 30 (KV30), released in February 2020, is
expected to fulfill our aims steadily and help us navigate towardsustainable growth through these unchartered waters.

KAITEKI Vision 30—Setting forth our goals
in 2030
KV30 aims to achieve a world where all the social challenges
we face today have been resolved toward 2050. We strive toachieve this by transforming our business model andbecoming a global solutions provider that can help society.
For that, we need to transform our portfolio to one that canhelp address social challenges and increase the added valueof our business by working outside the traditional frameworkof a chemical company.
In the past, our KAITEKI Management (see page 7) has
enabled us to pursue the maximum corporate value while
creating both economic and social value through innovation.
However, current trends indicate we need to taketransformation to the next level. Issues that need to beaddressed include global efforts to address environmental andsocial challenges such as the UN’s Sustainable Development
Goals (SDGs), and seeking stricter regulations such as thetoughening of the Paris Agreement. There is a need tocarefully identify long-term risks within the Group andleverage digital technologies to accelerate and convert
innovation into opportunities.
In 2018, the management began discussions for KV30. As
part of this process, we identified the risks deriving from social

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202020

2 Message from the Management

Message from the President

challenges and structural changes, and estimated damage tocorporate value at ¥1 trillion if those risks were left unmanaged.
We then identified our goals in 2030 based on theseassumptions. We also set an ambitious target to enable our six
business areas, including medical advances, sustainable carbon
cycle, and digital society infrastructure, to address social
challenges and generate over 70% of our total sales by 2030.
I believe in transparency when conducting business,
which is why we disclose medium- to long-term operationalrisks and opportunities to our valued stakeholders. It is also inour business and society’s interests to help resolve social
challenges through our practices, and expand growth
opportunities as well.

Results and progress of the medium-term
management plan APTSIS 20
While taking urgent measures to address COVID-19, APTSIS 20
will come to an end in fiscal 2020.
In fiscal 2019, the prolonged trade friction between the US
and China unfortunately dampened the demand forautomotive applications and semiconductors. This was followedby the outbreak of COVID-19, which caused economic activities
to be restricted and revenues and profits to be reduced in the
fourth quarter. KPIs for the Management of Economics (MOE)
Indices were also significantly lower compared to the previous
quarter. Furthermore, the outlook for fiscal 2020 remains unclear
apart from the semiconductor market, where demand isshowing signs of recovery. This makes our financial goals,
including ¥410 billion of core operating income, a 13% ROE anda 9% ROS, extremely unlikely to be achieved at the end of thecurrent medium-term management plan.
Even in this challenging environment, we managed todeliver tangible results in achieving creation of synergies
through the integration of three chemical operating companies
and the improvement of infrastructures by strengthening
portfolio management. This was realized through theimplementation of the basic policies of APTSIS 20, which aimed
for us to become a corporate group with high growth, and a
profitable business through the Performance Products,
Industrial Materials, and Health Care domains (see page 23
about strengthening portfolio management on APTSIS 20). We
have also made solid progress in the development of strong
operational infrastructures, by successfully accelerating digitaltransformation (DX) and improving both global management
and R&D structures. I have summarized our progress below:

Numerical targets and results (KPIs for MOE Indices)
FY2018Results

FY2019Results

APTSIS 20

FY2020 Targets

Core operating income ¥317.2 billion ¥194.8 billion¥410.0 billion

Net income
attributable toowners of the parent¥169.5 billion¥54.1 billion¥220.0 billion

ROE

12.7%

4.2%

13.0%

ROS

8.1%

5.4%

9.0%

1.26 times

1.79 times

1.0 times

Net D/E ratio

1. Accelerating the growth of the Performance Products
domain and strengthening the infrastructure of
the Industrial Materials domain by integrating threechemical companies
To be able to achieve growth as a chemical company, we
integrated three chemical operating companies into the new
Mitsubishi Chemical Corporation in 2017, built systems tofacilitate synergies, and strengthened our Performance
Products domain. We also built a new plant in the Middle East
to further extend our world-leading share in methyl
methacrylate (MMA), and overall competitiveness in our
Industrial Materials domain. We aim to expand our industrial
gas-related business globally through M&A mainly in Europe
and the US.

have been widely used in the field of pharmaceuticaldevelopment. To deliver speedy R&D results in suchenvironments, we need to find a way to achieve sustainable
R&D investments in the chemical and biotechnological fields.
The potential of the pharmaceutical areas that Mitsubishi
Tanabe Pharma focuses on, including immunity disorders andthe central nervous system, as well as the expanding trend of
the global healthcare market, were important factors in ourdecision to make it the MCHC Group’s wholly owned subsidiary.
With a large range of pharmaceutical products that can address
unmet medical needs, we expect the company, driven by thedesire to resolve social challenges, to achieve strong growth.

2. Improved global management structure
As the domestic market approaches saturation, APTSIS 20 set
the goal in fiscal 2016 of increasing our overseas sales
revenue ratio from 39.5% to 50% and above, and we achieved
the overseas sales ratio of 42.9% in fiscal 2019. Meanwhile, toenable the quick provision of solutions to address regional
needs and challenges, we started to improve our digital
network platform about two years ago to allow the sharing of
information across the world and aid in timely decision
making within each region of Europe, Americas, and China.

We are developing a new medium-term management planthat will start in fiscal 2021. Since 2011, we have pursued our
KAITEKI Management in earnest and aim to achieve sustainablegrowth by balancing both social and economic values at our
three business domains. At the same time, by withdrawing
from unprofitable business areas and making Mitsubishi Rayon
Co., Ltd. and Taiyo Nippon Sanso Corporation our consolidated
subsidiaries, we underwent a major portfolio restructuring andcreated a more stable revenue structure. We have also
strengthened our foundation in terms of environment, social,and governance (ESG), which led to us achieving a world-class
rating in the Dow Jones Sustainability World Index. We are now
working on a new medium-term management plan startingfrom fiscal 2021 based on the KV30 strategy, which combines
our expertise with our vision for future society.
To be able to achieve that, the first two years of the new
medium-term management plan will be focused on building
further resilience toward the post-COVID-19 era andstrengthening operational structures. The final three years will becentered around getting growth back on track as set out in KV30.
With COVID-19 severely disrupting global supply chains, I
believe rebuilding them is one of the most important activities
during the resilience period. Partly prompted by the emergenceof nationalism in recent years, an increasing number ofcountries are becoming self-sufficient in lifeline products.
Businesses are also expected to localize their geographicallydispersed global supply chains, while maintaining the global
sharing of information. APTSIS 20’s commitment to meeting thespecific needs and challenges of each region is therefore
validated and should continue to be pursued.
In this changing business landscape, I would like to ensurethat the MCHC Group’s comprehensive strengths are
reevaluated. With our extensive range of businesses, we canrespond flexibly to changing markets. Most importantly, we

3. Accelerated digital transformation (DX)In recent years, science and technology have advanced at atruly astonishing rate. Liaising with major international IT
companies has convinced me of the potential impact of DX,
leading to the launch of the Emerging Technology andBusiness Development Office in 2017. Since then, we havehired talented personnel based on advice from anexternally-hired Chief Digital Officer. As a result, R&D leveraging
materials informatics* have already started. Also, in the field ofplant optimization, we have replaced the traditional deductive
approach of gathering facts to identify solutions with an
inductive approach consisting of formulating hypotheses
through data analytics.
* Materials informatics: AI-based method to design new materials andexplore alternative materials rapidly and efficiently

4. Making Mitsubishi Tanabe Pharma Corporation ourwholly owned subsidiary
In March 2020, Mitsubishi Chemical Holdings made Mitsubishi
Tanabe Pharma (see page 35) its wholly owned subsidiary
based on our long-term perspective of effectively using ourcapital in order to deliver productive synergy. In recent years,
cutting-edge technologies such as AI and quantum computing

21

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Leveraging the Group’s strengths toprovide solutions to social challenges

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202022

2 Message from the Management

Message from the President

have a unique capacity to create value as a chemical
conglomerate. By building robust operational infrastructuresand by leveraging both the individual and synergistic strengthsof each region, I am confident that we will be able to create
unique solutions in the target business areas set forth in KV30.

Developing personnel and a corporate culture
for a new era
No matter how grand a vision or how precise a prediction, we
will not be able to achieve anything without people who
deliver the vision, as well as a culture that encourages each
person to challenge what is new.
What supports this is strong corporate governancefocused on providing a comfortable and safe working
environment, compliance, and fair human resource/resource
allocation policies.
In particular, we have ensured the safety of our employees
by remembering past accidents and using the lessons learned
to identify the appropriate ways to maintain production
facilities, as well as by using the latest technologies to develop
and implement accident prevention procedures. We have also

strived to prevent accidents and disasters at approximately 330
subsidiaries overseas by providing employees with necessary
training to make them aware of the operational andequipment procedures.
In the area of compliance, we have focused onstrengthening our internal control system by using the internal
control map introduced in fiscal 2018, to ensure we adhere to
the laws, regulations, and standards of each country.
Our corporate governance has also been bolstered bytransitioning to a company with nominating committee, etc. in2015 and separating execution from supervision in order toensure the agility, objectivity, and transparency of the operation.
In addition to stronger operational infrastructures, theprevalence of human resources who can think and act
independently, and a corporate culture that can facilitate active
discussions, will become increasingly important in the coming
years while we strive to deliver on the KV30 targets. As part ofthis effort, we have embarked on the work style reforms,
focused on the satisfaction levels of each employee, andhighlighted the theme of the human resources system reforms
and global management.

Listening to diverse views to create value
The theme of the 2020 World Economic Forum Annual Meetingin Davos was Stakeholders for a Cohesive and Sustainable
World. This promoted the idea of “stakeholder capitalism,”
where businesses should serve all stakeholders as well asshareholders. This concept can bring value to every stakeholder
through ongoing and open dialogue, while also helping us topursue social and environmental sustainability. This focus
coincides with both our KAITEKI Management and theunderlying values of KV30.
While COVID-19 continues to bring significant changes tothe world, the MCHC Group is continuing to transform itself
and improve its KAITEKI value by striving to create both socialand economic values in line with our KAITEKI Management andby listening and talking to our diverse stakeholders.
In conclusion, I would like to extend my gratitude for yourcontinued understanding and support regarding the activitiesof the MCHC Group.

Inspection of Medicago second factory construction

Strengthening portfolio management on APTSIS 20
Changes brought by COVID-19• Positioning each business, subsidiary, and affiliate based on domain-specific indicators• Accelerating resource allocation and portfolio optimization through periodical monitoring

Changes to the economy and businesses

Indicators

Actions• Implementation of the PDCA cycle throughperiodical monitoring• Resource allocation plans• Portfolio decisions (including the reduction,
withdrawal, and sale of a business)• Expanded global multipolarization with a more fragmented economy• Tendency to focus on stable procurement within each region

Growth potential (sales growth rate)• Full-scale transition to non-face-to-face interaction• Significant improvements in work style reforms andoperational efficiency

4%/year• Increased government involvement in the economy≥

Impacts on individuals/society• Increased awareness of health and wellness• Increased sensitivity to safety and security• Development and proliferation of virtual technologies• Transition to remote approaches• Increased social value(Projected global economic growth rate: 3.5%*1)
Next-generation
businesses• R&D• Open innovations

Withdrawal
Sale
Establishmentof a joint
ventureBusinesses
to be restructured• Restructuring

Growthbusinesses
Growth strategies• R&D • Synergy• M&A

Cash-generating
businesses
Growth strategies• Synergy • M&A

Trends in corporate activities to address the impacts of COVID-19

Profitability (ROS)
Performance Products
Industrial Materials
Health Care

≥8%
≥5%
≥14%

Capital efficiency (ROIC)
Performance Products
Industrial Materials
Health Care

≥8%
≥5%
≥8%*2

During COVID-19• Efforts to ensure productivity in the social-distancing environment(digitalization, automation, more efficient communication systems
including internal/external meetings)• Review and revision of investment plans based on past demand
forecasts• Development of solutions to address new needs; Reformation
toward and the building of a new business model• Accelerated restructuring of the portfolio in response to theemergence of new values

Post-COVID-19• Accelerated growth driven by the provision of solutions toachieve a sustainable society envisioned in KV30
• Development of next-generation advanced medical care,pharmaceuticals, regenerative medicine, and healthcare
systems• Creation of solutions by maximizing the potential of digitaltechnologies; Accelerated advancement of productivity• Creation of new businesses and business models in response
to COVID-19• Development of a global management structure to meetregional needs in an increasingly multipolarized world*1 Average annual growth forecast from 2016 to 2020 by IMF *2 Calculated by excluding cash and deposits

23

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202024

2 Message from the Management

Message from the CFO

Efforts for asset efficiency

We are further enhancing
our asset efficiency andrefortifying the financial baseto raise corporate value—our KAITEKI value• Shorten the cash conversion cycle (CCC)**Action plan benchmarks

8%

About

Hidefumi Date10%

improvement

improvement

About

About

99 days

91 days89 days

FY2016FY2019Target for FY2020• Establish a cash management system (CMS) in four
regions (Europe, North America, Japan and Asia)

Managing Corporate Executive Officer
Chief Financial Officer• Sell assets with lowered ownership value by regularly
verifying their value

Portfolio management with balanced risk-returnand incorporating social issues

In the current circumstances, we will focus
on further strengthening our financial basein fiscal 2020

¥450 billion, already surpassing the initial five-year target of¥300 billion. Through these measures, we have constructed asystem that has enabled us to consistently maintain ROE above
10% since fiscal 2016.
In fiscal 2019, however, the impacts of the trade friction
between the United States and China and the COVID-19
pandemic led us to record core operating income of ¥194.8
billion and net income attributable to owners of the parent of¥54.1 billion. We expect business conditions to continue to be
severe in fiscal 2020, making it unlikely we will be able to attainthe KPI set in APTSIS 20.
Our net debt-to-equity ratio swelled to 1.79 times uponmaking Mitsubishi Tanabe Pharma Corporation a wholly owned
subsidiary at the end of March 2020. While actively and flexibly
responding to the changing financial conditions during the
COVID-19 pandemic, we will continue working to bring the net
debt-to-equity ratio down to under 1.0 times as quickly as possible.

Under the current medium-term management plan APTSIS 20,
we are putting more emphasis than I ever have as CFO on
raising ROE and improving ROIC management to establish
efficient profit generation.
To improve our low asset efficiency, which was producing
ROE of roughly 5%, we created a system enabling us to focus on
profitability and agile management by initiating balance sheet
management for each business domain and applying the ROIC
tree to visualize each domain’s invested capital. In addition, weshortened the cash conversion cycle (CCC), set up a four-region
Europe-North America-Japan-Asia cash management system(CMS), and regularly reviewed the purpose of asset holdings
and sold unnecessary assets. In the three years since its
inception, we have achieved asset efficiency of approximately

Changes in consolidated financial indicators(%)

Ratio of equity attributableto owners of the parent (left axis)

ROE(left axis)

30.0

23.0
20.0

10.0

24.5
1.06

1.17

15.1

5.2

Net D/E ratio(right axis)(Times)

27.3

24.7

17.8
1.26
0.89

12.7

1.79
22.8
4.2

29

1.0

2016

2017

2018
IFRS

25

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

2019

1.0

13

0

2015

2.0

2020
Targets

0(FY)

To ensure a full reemergence in fiscal 2021, it is essential that westrengthen our capital efficiency by building up our cash flow asmuch as possible and quickly put our business on a growth track.
In fiscal 2017, we initiated a global structure that delegates
substantial authority to our operating companies around theworld. While pursuing the management indicators of sales
revenue growth rate, ROS, and ROIC, the system facilitates quick
decision-making catered to each specific business region andbusiness portfolio management that fully leverages ourtechnological advantages and business models (see page 23).
In our role as a holding company, we are also focused on
guiding post-merger integration (PMI)* to enhance the value ofthe Mitsubishi Chemical Holdings (MCHC) Group. Following amerger, we hold meetings to review the PMI status andcontinuously verify that the anticipated synergies arematerializing. In the three years since the fiscal 2017 integrationof the three chemical operating companies and creation of the
new Mitsubishi Chemical Corporation, the synergies frombusiness collaboration and growth generated some ¥13.8 billion,
while savings from streamlining amounted to ¥17.9 billion.
Our acquisition of a European firm in the industrial gas fieldgave us a broad-based business foundation in four regions—Japan,
the US, Europe, and Asia-Oceania. We are further strengthening the
Nippon Sanso Holdings Group management by giving thebusiness headquarters in each region greater authority to makebusiness decisions.
Portfolio management will be guided by the medium- tolong-term basic management strategy KAITEKI Vision 30 (KV30)(see page 11). Business portfolio decisions will therefore seek tocontrol risk while also controlling return by examining growthpotential from various perspectives.
In the past, we were focused on rehabilitating low-profit
businesses where ROIC was less than the weighted average
cost of capital (WACC). We will now consider reorganizing or
restructuring a business even if it is currently profitable bytaking a broader view of its future growth potential andexamining its business efficiency, including intangible assets
like a company’s position in the overall industry, its technology
portfolio, and its synergy creation system.

We will also consider the risk-return in terms of social issues
and business domains designated in our KAITEKI Management
or KV30 that the MCHC Group has committed to contribute tosolve these issues.
* Post-merger integration (PMI) is the three-stage integration process
after M&A of management integration, business integration, andawareness integration.

Resource allocation and shareholder return policy
Our approach to resource allocation has not changed
fundamentally from when we announced APTSIS 20 in 2015. We
seek to maintain an appropriate balance with equal weighting
on investing in growth businesses, providing ample shareholder
returns, and strengthening our financial position.
I have always believed that the higher the accountability,
the lower the cost of capital for a company, and consider it myduty to provide and explain concrete measures related tofinancial and non-financial information. Mitsubishi Chemical
Holdings Corporation’s efforts in this area have been
increasingly recognized in recent years, and the Company has
been selected as a constituent in a socially responsible
investment (SRI) index.
The current business conditions and uncertain outlook
make it increasingly difficult to continue fulfilling our
responsibility to provide full accountability. In fiscal 2020, ourtop priority will be managing our business portfolio in relation
to the COVID-19 pandemic, and our focus will be onreconsidering investment plans for projects that are not urgent
for growth and on reducing costs.
Our shareholder return policy is to preserve an appropriatebalance between investing for growth and strengthening ourfinancial position, and we remain committed to maintaining astable dividend and to providing a medium-term consolidated
payout ratio of 30%.
However, considering the overall current situation andbusiness outlook, we have regretfully decided to reduce thefiscal 2019 year-end dividend from the initial plan of ¥20 per
share to ¥12 per share and plan to distribute ¥24 per share infiscal 2020.
I will continue fulfilling my duties as CFO by providing fullaccountability to our shareholders and all stakeholders and bylowering corporate risk and capital costs to enhance ourcorporate value.

Shareholder returns
Basic earnings per share (right axis)

Cash dividends per share (left axis)
(Yen)
50

25

0

147.1
106.7
15

32
20

40

119.2

32
38.1

31.7
2015

(Yen)
150

2016

2017

2018

2019

24
34.5
2020
Forecasts

75

0
(FY)

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

26

3 Update on APTSIS 20

Medium-Term Management Plan (FY2016–FY2020)

Progress of the Medium-Term Management Plan
Higher cash-generating capability owing to improved performance and asset reduction
APTSIS 20 Basic policy

Medium-Term Management Plan (FY2016–FY2020)

Efficiency

Promotion of integration and synergies in the MCHC Group
Accelerate overseas business development and advancewell-integrated management
Strengthen portfolio management with an awareness of earnings

Core operating income

Performance Products

400

Industrial Materials

Strengthening foundations

307.5

240

94.2

Net income attributable to owners of the parent

410.0

160

114.7

211.8
156.3

194.4

169.5

98.4

0

ROE (%)ROS (%)Net D/E ratio

5-year plan (original)

140.0

62.6
118.3

81.2

54.1

96.0

56.9

225.0

Others +0.2

Others -0.1

Others -2.7

Health Care +14.6
Others -0.7

2016 Results2017 Results

2018 Results

2019 Results

15.1
9.1
1.06

17.8
10.2
0.89

12.7
8.1
1.26

4.2
5.4
1.79

49.0

Health Care -1.0
Others -6.0

2020 Forecasts

Performance Products

66.0
Others -1.0

2020 Targets

13.0
9.0
1.00

Review of APTSIS 20
FY2016 to FY2018 results
We steadily achieved core operating income in excessof ¥300 billion through continuous business portfoliotransformation. In addition, we worked to strengthen
our management base for further growth, including
early commercialization of the seeds ofnext-generation businesses and strengthening ouraccess to global markets and marketing capabilities.

FY2019 results to FY2020 forecasts
Income decreased due to the impact of trade friction between the US and China, the drastic downturnin the global economy caused by the impact of COVID-19 that emerged in 2020, and the impact of notrecording royalties (see page 77) in the Health Care domain during arbitration proceedings. Factors suchas delays in M&As, mainly in the Performance Products domain, and an increase in interest-bearing debt
due to the conversion of Mitsubishi Tanabe Pharma Corporation into a wholly owned subsidiary, made itdifficult to achieve the medium-term targets for fiscal 2020. We will continue to strengthen ourmanagement base and make steady efforts to get closer to our targets.

Priority management measures in APTSIS 20
Performance Products

Industrial Materials

Health Care

Reinforcement and expansion of business foundation by strengthening portfolio management (promoting the growth strategies)

P. 19–26

150

2016–20192016–2020

05-year plan (review)(FY)

Industrial Materials

P. 19–26

Overseas revenue ratio—FY2019 result: 42.9% FY2020 target: 50%

Investments and loans

Capital expenditures

R&D expenditures(Billions of yen)(Billions of yen)

1,500

1,500

1,500

1,200

1,200

1,200

900

900

900

600

600

600

300

300

300

0

0

2016–2019 2016–2020
Progress

5-year plan0

2016–2019 2016–2020(FY)

Progress

The MCHC Group has introduced the sustainability indices (MOS) thatreflect our material issues as sustainability KPIs. The MOS Indices are
divided into three categories: global environment items, healthcare
items, and corporate responsibility initiative items. We are monitoring
the progress of each index on a quantitative basis converted from theoriginal point systems and working to improve sustainability.

KPI

P. 45–50

P. 43–44

Strengthening the management base (considering further streamlining, including organizational restructuring,by converting MTPC into a wholly owned subsidiary)27

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

(FY)

5-year plan

2016–2019 2016–2020(FY)

Progress

5-year plan

(FY)

Sustainability targets

Provide products and services that
contribute to reducing GHG emissions
Contribution to the reduction of
GHGs emissions

P. 81–82, P. 85–86, P. 89–90

Deepening KAITEKI Health and Productivity Management, promotion of work style reforms

2019(Billions of yen)

(We selected indices with large impacts on our operation from MOS Indices.)

Mitsubishi Chemical established regional headquarters (2017)

Early commercialization of the seeds of next-generation businesses (R&D, open innovation, digital transformation)

2018

Review (FY2016 to FY2019)
As many of our plants were operating at high capacity, we strived for stable
operations, steadily reduced the environmental impact of production
activities, while all global environment-related indicators performed well.
Meanwhile, although there is an improved awareness of safety andcompliance, efforts to strengthen the basis of our continued existence are stillinsufficient and there is a gap from the targets. We will continue to strengthen
our management base by thoroughly implementing ESG initiatives.

Major results regarding products and services

Aiming to achieve synergies from the integration of ¥50.0 billion by FY2020 (Growth through collaboration: ¥35.0 billion +operational efficiency: ¥15.0 billion)(Total synergies and growth amounted to approximately ¥13.8 billion in collaboration from FY2017 to FY2019 and ¥17.9 billion
in rationalization from FY2017 to FY2019)

Intensifying marketing and access to the global market

2017

OthersHealth Care

Positioning each business, subsidiary, and affiliate based on domain-specific indicators
Accelerating resource allocation and portfolio optimization through periodical monitoring
Consideration and acceleration of restructuring businesses and reduction of 25% (approximately 190 companies) of 760 subsidiaries and affiliates equivalent to total sales revenue of ¥300.0 billion(Restructuring businesses and reduction of 164 subsidiaries and affiliates equivalent to total sales revenue of ¥240.0 billion was carried out in FY2017 to FY2019)

Generating synergies from the establishment of the new Mitsubishi Chemical
Corporation (The integration of the three chemical operating companies)

2016

(FY)

Progress in resource allocation (investments and loans, capital expenditures, and R&D expenditures)

220.0

194.8

100

130

Progress

Target in APTSIS 20

200

120

90

100

0

120.0

51.0

80

100

2016–2020

68.6
205.4

Financial
structurereforms

300
100

317.2

94.0

400

300

390

200

Health Care

690

420
400

Net cash flows from operating activities

500

90

600

Realize a highly productive corporate structure through cost-cutting
and other measures
Strengthen our financial position
Thorough safety and compliance measures

380.5

320

Reduction of cross-holding shares
Working capital reduction
Reduction of cash and deposits
Assets sales
Improvement of profits and others

700

Numerical targets KPIs based on Management of Economics (MOE)(Billionsof yen)Changes in net cash flows from operating activities(Billionsof yen)800

Be a high growth/high profit-model company through businesses in the Performance Products,
Industrial Materials and Health Care domains
GrowthDetails of cash generated by asset reduction(Billionsof yen)FY2019 Results

FY2020 Targets

0.62

1.50

Progress of MOS Indices(Point)300

152(hundreds of millions of tons-CO2 equivalent)

Provide products and services that
help to solve water resource problems
Total supply of reused water

157

189

164

99
7.8

17.0

(hundreds of millions of tons)

Progress with Sustainability Management P. 39

2016

Result2017

Result2018

Result2019

Plan

Result2020(FY)

TargetMitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

28

3 Update on APTSIS 20

Medium-Term Management Plan (FY2016–FY2020)

Material Issues and Focus Markets of APTSIS 20
In the preparation of the medium-term management plan
APTSIS 20, we conducted a materiality assessment based on
macro-trends analysis, and identified material issues for KAITEKIManagement through discussions on the risks andopportunities of the Mitsubishi Chemical Holdings (MCHC)
Group. We prioritized these issues based on their impact on
corporate activities. Over the past four years, we have steadily
implemented the management and individual businessstrategies developed based on these material issues.
To address those issues with high priorities, we selectedfocus markets where we should focus our efforts for providing
solutions by leveraging the entire MCHC Group’s innovation

Identification of materiality

capabilities. We are implementing our growth strategy bymaking the maximum use of the strengths of all businesssegments while collaborating with each other (see page 33).
Based on the medium- to long-term basic management
strategy KAITEKI Vision 30, we are reviewing material issues toflexibly respond to changes in society in preparation for the
next medium-term management plan starting in fiscal 2021.
Furthermore, through initiatives to address the material
issues identified of the MCHC Group, we will contribute to the
SDGs adopted at the United Nations in 2015.

Macro-trends
Increasing climate change

Increasing global population

Aging population

Pollution and shortage ofwater resources

Advancing globalization anddevelopment of emerging economies

Increasing medical costs

Digitalization, modularization, andICT introduction in the industries

Expansion of regional economic zones

Progress of regenerative medicine
and personalized medicine

Extraction of risks and opportunities
for the MCHC Group (see page 31)

Identification process of materiality
PROCESS1

Set issues to be researched
and analyzed

Sorted corporate activities under APTSIS 20 by analyzing
macro-trends through discussions on risks and opportunities for
the MCHC Group. Reviewed material issues identified in theprevious assessment (conducted in 2014) and added new issues.

Identification and prioritization of material management issuesof the MCHC Group

Materiality matrix

PROCESS

3

Identify and prioritize material issues
the MCHC Group needs to address

PROCESS

4

Create the materiality matrix

Energy and resources
Extremely highAssess issues
from the viewpoint of stakeholders

Compliance, Process Safety, Corporate Governance

Ordered and quantitatively assessed the importance of theidentified issues based on public sustainability data,
questionnaires, and interviews with experts.

Mitsubishi Chemical Holdings Corporation management
identified relevant material issues for management strategies,
policies and activities under APTSIS 20 and prioritized them(three highest priority issues related to the MCHC Group’s
existence and 21 material issues to be addressed).

Created a materiality matrix based on the importance (themagnitude of effect) for stakeholders and importance for the
MCHC Group as the two axes.

Climate change

Water

Human resources
development and training

Food and agriculture
Diversity and inclusion

Occupational health and safety
Product responsibility

Health and wellness
Very high2

Importance for stakeholders

PROCESS

Most important key management issues related to the MCHC Group’s existence

Medical care
CSR in supply chain

Contribution to communities

Human rights awarenessInformation security
and privacy

High

Biodiversity

PROCESS

5

Company approval procedures

Smart society
Social infrastructure

Discussed and approved the process for materiality assessment
and the materiality matrix in the Mitsubishi Chemical Holdings
Management Committee (currently the Corporate Executive
Officers Committee) and the Board of Directors.

Fulfilled living

Stakeholder engagement

Initiative and leadership

Information andcommunication technology

High

Very highExtremely highImportance for the MCHC Group29

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202030

3 Update on APTSIS 20

Medium-Term Management Plan (FY2016–FY2020)

Material Issues and Focus Markets of APTSIS 20
Classification of the materiality
Key management issues that the MCHC Group should address through its
corporate activities, innovation, and provision of products and services with theaim of achieving the sustainable well-being of our planet EarthMaterial issues related to
the global environment

Key management issues that the MCHC Group should address through its
corporate activities, innovation, and provision of products and services in theaim of creating the sustainable well-being of society

Material issues related tosocial systems
Material issues related topeople (the company andits organization)

Key management issues that the MCHC Group should address in its internal
operations and social relations as a corporate group aiming to realize KAITEKI

Selection of focus markets
Automobiles, Aircraft(Mobility)

Health CareContribute to the efficient use ofresources and energy and the mitigationof climate change by reducing theweight of automobiles and aircraft,promoting electric vehicles, and offering
environmentally friendly products(switching to renewable materials).

Contribute to people’s lives and healthby developing ethical pharmaceuticals
and regenerative medicines to meet
unmet medical needs and by offering
health management-related services.

Risks for the MCHC Group

Opportunities for the MCHC GroupAPTSIS 20
P. 27

P. 33

Energy and resources• Depletion of natural resources such as fossil resources
and rare metals• Transformation and diversification of resources andenergy supply sources• Practical application of renewable energy andaccelerated technological development

Climate change• Increasing risk of extreme weather events and natural
disasters associated with climate change• Strengthening regulations caused by climate change• Expanding products to mitigate and adapt to climatechange• Acquiring medium- to long-term support from stakeholders• Expanding water stress due to higher demand, climatechange and other factors• Increasing health risk due to shortages of hygienic water• Expanding businesses such as water purification andrecycling

Food and agriculture• Destabilization in society due to imbalance in the
demand and supply of food

• Increase of factory-production of foods

Health and wellness• Increasing lifestyle disease and mortality rates• Increasing failure risk of health insurance systems• Expanding health information service market(shifting from treatment to prevention)

Medical care

• Increasing number of entries into the medical andhealthcare business (increase in competition)• Manifestation of unmet medical needs• Advancing digitization of medical treatment andhealth information data through ICT

Product responsibility• Loss of social credibility due to deterioration ofquality, safety, environmental performance• Interruption of the business• Building a relationship of trust with business partners• Customer retention and acquisition, expansion of thebusiness

Medical, Food, Bio Products

Packaging, Labels, Films

Contribution tocommunities• Impact on business activities due to decreased
reliability• Building trusted relationships by actively engaging in exchanges
with and contributing to the communities of business operations• Business stabilization through coexistence with thelocal communities

Contribute to solving medical issues
and promoting health maintenance by
providing medical-related products,
pharmaceutical materials andfunctional food ingredients, etc.

Contribute to the safe storage anddistribution of food and the reductionof food loss by providing high gas
barrier films for food and medical
packaging.

Human resources
development and training• Labor shortage, outflow of human resources• Securing and training of talented human resources• Increasing creativity and vitality

Occupational healthand safety• Impact on production due to physical damages andpersonal injuries, etc., loss of social trust• Harassment• Long working hours• Securement of wellness and safety of employees• Enhancement of labor productivity• Enhancement of motivation

Human rights
awareness• Delay and interruption of the business due tohuman rights abuse• Building optimal supply chain management

Information security
and privacy• Loss of social trust due to information leakage andfalsification, interruption of the business• Interruption of the business by cyber attacks• Stabilization of business activities

Diversity and inclusion• Loss of competitiveness from failing to respond todiversifying needs• Securing and training talented human resources• Enhancement of value creation process by accepting
diversified human resources and values

Water

APTSIS 20

Growth measures infocus markets

Material issues

The global
environment

Targets for the
medium-term
management plan

IT, Electronics, Displays

Environment, Energy

Contribute to a smart society and more
comfortable lifestyles by providing
high-performance materials for use
in next generation displays andsemiconductor materials, etc.

Contribute to energy conservation, theeffective use of water resources,
improvement of productivity in the
agricultural, fishery, and livestockindustries and adaptation to climatechange by providing lithium-ion battery
materials, water treatment-related
products, plant factories, and disasterprevention and mitigation products, etc.

Sustainability(MOS) Indices
P. 40

KPIs for KAITEKI Healthand Productivity
Management
P. 44

Socialsystems

People(the company
and itsorganization)

Most important key management issues related to the MCHC Group’s existence

31

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Compliance, Process Safety, Corporate Governance

Innovation (MOT) IndicesP. 50

Social values(Related SDGs)

Building the resilient foundation of the Group
ESG, Innovation, Health and Productivity Management,
human resources development, etc.
Sustainability P. 37

Innovation P. 45

Corporate Governance P. 53

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

32

3 Update on APTSIS 20

Medium-Term Management Plan (FY2016–FY2020)

Growth Measures in Focus Markets and Updates on Actions in the Three Business Domains

We will expand our business in the six focus markets by generating synergies among
related business segments

Medical, Food, Bio Products
Sales revenue

Growthmeasures(Billions of yen)Three business domains

Performance Products

Focus markets

Industrial Materials (Chemicals, Industrial Gases)

Health Care

Related business segments*

200

Lightweight composites
Environment-friendly materials

Performance Products

IT, Electronics, Displays

Flat panel display materials
Semiconductor-related materials

Performance Products

Industrial Gases

Medical, Food,
Bio Products

Food ingredients
Pharmaceutical materials
Medical-related products

Performance Products

Industrial Gases

Health Care

Ethical pharmaceuticals
Regenerative medicine

Health Care

150

150
100

Automobiles, Aircraft(Mobility)

Chemicals

80

100

90

50

Progress

0
2015

2018

2019

2020
Target(FY)

Battery materials
Water treatment systems and devices

Growthmeasures(Billions of yen)

600

540

398*

400

Performance Products

570

530

200

Packaging, Labels, Films

Food packaging films
Industrial-use films

Performance Products02015* For details on related segments

Overview of Business Domains

2018

2019

P. 75

2020
Target(FY)

Progress* Sales revenue includes the impact of business transfer to
LSI Medience Corporation
The key actions in FY2019 are in bold characters

Sales revenue

Growthmeasures(Billions of yen)

420

Respond to the trend toward CASE* in the automotive industry, reinforce response toenvironmental issues
Reinforce carbon fiber and composite materials business and accelerate overseas expansion
Accelerate overseas expansion of resin compounds business* CASE: Connected, Autonomous, Shared, Electric

300

300

320

295

150

Progress
0
2015

2018

2019

2020
Target(FY)

Reinforcing overseas network for carbon fiber and composite
materials business
Invested in C.P.C. Srl; constructed a new carbon fiber sheet moldings
composite (CF-SMC) production facility in Italy; acquired c-m-p
gmbh, a German carbon fiber prepreg manufacturer
Expanding adoption of CF-SMC: Toyota Prius PHV, etc.
Polypropylene: Commenced commercial operation (150,000 MT/Y)
at the Goi Plant (January 2020)
Acquired two plastic compound producers (India and Indonesia)

Sales revenue

Growthmeasures

Reinforce display-related products business: LCD, OLED materials
Expand semiconductor-related business:
Production capacity increase in high-performance and high-quality polyester films
for multi-layered ceramic condenser (MLCC); expand precision cleaning
agent-related business; develop thermal management materials

Progress

Optical films: Constructed a new production line in China andstarted its operation
OPL film: Constructed a new production line at the Kumamoto Plant
Precision cleaning of semiconductor manufacturing equipment:
Acquired Cleanpart Group GmbH (US)Polyester films: Production capacity increase at PT. MC PETFilm Indonesia

Sales revenue
410

300

300

150
0

33

2018

2019

Expand sales of lithium-ion battery materials
Accelerate development of wastewater treatment business in China andwater supply treatment business in Japan
Develop products that reduce environmental impact

210

200
135

140

144

100

Progress

0
2015

2018

2019

2020
Target(FY)

Sales revenue(Billions of yen)

Growthmeasure

300

312

220

2015

Growthmeasures(Billions of yen)

Accelerated the global expansion of the electrolyte business(Europe, US, and China)
Started full-scale sales of wastewater treatment facilities for farming villages
and pig farms in China
Expanding the business of biodegradable polymers andbio-based polymers

Packaging, Labels, Films(Billions of yen)

350

Making Mitsubishi Tanabe Pharma Corporation a wholly owned
subsidiary through TOB
Started phase 3 clinical trials of RADICAVA oral suspension and
ND0612 in the United States
Acquired Proof of Concept* for erythropoietic protoporphyria treatment in
the United States
In addition to acute myocardial infarction, started clinical trials on
spinal cord injury using Multilineage-differentiating stressenduring cells (Muse cells)
Obtained a license to manufacture regenerative medicine products
Completed strategic alliance with PHC Holdings Corporation throughshare exchange with LSI Medience Corporation

Environment, Energy

IT, Electronics, Displays

450

Reinforce pipelines for ethical pharmaceuticals
Develop the business in the United States
Commercialize virus-like particle (VLP) vaccine
Commercialize regenerative medicine* Proof of Concept: Demonstrating the feasibility of a new discovery or concept

Automobiles, Aircraft (Mobility)

450

Acquired a US high-performance engineering plastic company,
Piper Plastics, Inc.
Food emulsifier: Expanding sales mainly in China and other ASEAN countries
Respiratory-related business including home healthcare services:
Acquired IMI Co., Ltd.
Supplying oxygen gas for aquaculture

Health Care

Health Care

Sales revenue

Environment, Energy

Expand the implant materials business
Expand the nutrition-related business
Expand the medical gases business

2020
Target(FY)

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

230

200
165

170

167

100

Progress

0
2015

2018

Barrier application: Accelerate overseas expansion of food packaging films,
production capacity increase and sales expansion of new high-barrier
performance products
High-performance film: Develop new products by combining the Mitsubishi ChemicalGroup’s technologies

2019

2020
TargetStarted full-scale operation of a new polyester film line (US) in 2018
Launch of high-barrier performance deep-formed microwavable containers
Constructing a new DIAMIRON production site in Thailand
Increasing the production capacity for Soarnol at Noltex LLC (US)(FY)

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

34

3 Update on APTSIS 20

Medium-Term Management Plan (FY2016–FY2020)

Special Feature: Creating Synergies in the Healthcare Business

Using a Healthcare Platform to
Accelerate the Business Transformation
Mitsubishi Chemical Holdings Corporation made Mitsubishi Tanabe
Pharma Corporation a wholly owned subsidiary in March 2020 as part ofits efforts to shift the Mitsubishi Chemical Holdings Group’s technologicaland human resources into the growing healthcare industry.
This special feature presents some of the Group’s initiatives togenerate synergies.

Pursuing medical advances for the growing
global healthcare market

Creating an original healthcare platform
as a solutions provider

with a view to swiftly overcome the challenges ahead bymaking the most of the subsidiary’s strengths. They include its
unique and innovative ability to develop new drugs, extensive
experience and expertise in meeting good practice guidelines
and regulations related to clinical and manufacturing, etc. in
the pharmaceutical industry, an established supply chain withpharmaceuticals distribution and sales networks, and an
excellent reputation among medical professionals and patients.
Moreover, Mitsubishi Chemical Holdings has beenpromoting broader collaboration among its R&D organizationsin an effort to spark further innovation. The Group’s R&D has also
focused on using chemicals to develop biocompatible materials,
developing medical-use gas applications, and utilizing
Multilineage-differentiating stress enduring cells (Muse cells) for
regenerative medicine. To accelerate development for its three
aforementioned growth businesses in the future, however, theGroup plans to step up efforts to combine biotechnology andmaterials science, compile and analyze healthcare-related data,
and utilize digital technologies for processes spanning frompreventive care to treatment. By converting Mitsubishi Tanabe
Pharma into a wholly owned subsidiary, Mitsubishi Chemical
Holdings gained technologies, talent, and other resources for

The global healthcare market is confronting major issues today.
Among them, various countries are struggling to fund theirhealthcare systems as costs rise due to either aging or growing
populations. Meanwhile, life expectancy is expected toincrease as a result of advancements in medical technologies.
To respond to these trends, our Health Care domain must
create new business models.
Since it was established in 2005, Mitsubishi Chemical
Holdings recognized healthcare as a core business forgenerating stable earnings, and now designates medical
advances as a key business in its medium- to long-term basic
management strategy KAITEKI Vision 30 (KV30) formulated in
response to the social needs and technological trends (seepage 11). Specifically, the Company has targeted preventive
care, precision medicine, and regenerative medicine as growthbusinesses that can contribute to medical advances after taking
into consideration their market growth and scale as well as
innovation potential.
Taking a major step forward, Mitsubishi Chemical Holdings
made Mitsubishi Tanabe Pharma a wholly owned subsidiary

Aiming to maximize synergies
across the Groupits operations involved in biotechnology, chemistry, anddigitalization. By making the most of those resources while
promoting Group-wide R&D, the Company is aiming tomaximize returns from its steady investment in R&D and bolster
its pipeline in the future.

To establish our medical advances businesses in line with KV30,
the Group will work to apply digitalization to enable lifelong
disease management and create a healthcare platform needed
for promoting preventive care and precision medicine during
the period of its next medium-term management plan. As astep in this direction, Life Science Institute, Inc. formed astrategic capital alliance with PHC Holdings Corporation, amajor Japanese healthcare company in August 2019. Bothcompanies will continue to actively promote collaboration
through the alliance.
In addition, it will be necessary for the Group to reform its
business model (as shown in the diagram below). Accordingly,
while various deregulations and reforms will be essential for
eventually contributing to universal health coverage, Mitsubishi
Chemical Holdings intends to take the lead in promoting
related systems while negotiating with relevant organizations as
a key player in the industry. Furthermore, the Group will strive toimprove healthcare systems designed to help people stay ingood health over their entire lives by providing optimal andefficient services spanning from preventive care to treatment.

Mitsubishi Chemical Holdings established a committee to
explore ways to generate synergies in the Group’s healthcare
businesses in December 2019. The committee is examining
Group-wide strategies and decision-making processes from thefollowing points of view: business operations, corporate
cooperation, and digital transformation (DX), and is taking steps
toward executing concrete measures. The committee is also
studying ways for the Group’s businesses to help people deal
with the COVID-19 pandemic.
As one example of how the Group can generate synergy
effects, the four operating companies have begun
collaborating to develop Muse cell-based products (see thetable below). Specifically, Mitsubishi Chemical Corporation is
producing cell scaffolding materials and other related materials,
Taiyo Nippon Sanso Corporation is using its cold chain topreserve the cells, and Mitsubishi Tanabe Pharma is providing
human resources and know-how in the development,
production and marketing of pharmaceuticals. The Group isaiming to acquire approval for the product in fiscal 2021 andpreparing to market it in the future.
The Group is also carrying out various other projects
designed to generate synergies with the goal of increasing its
corporate value of the medium to long term.

Action items to generate Group synergies—Plan for operating companies to jointly develop Muse cell-based products
Activities

Mitsubishi Chemical

Mitsubishi Tanabe Pharma

Production of cell scaffolding
materials and other culture
peripheral materials, anddevelopment of mass culture
equipment

Utilization of human resources
and know-how in thedevelopment, manufacture, andsales of pharmaceuticals

Life Science InstituteTaiyo Nippon Sanso

Collaboration in developing Muse cell-based products

Business model reformation for medical advances domain
Regenerative medicine

Processing/culturing
and formulating ofMuse cells

Establishing a cold chain
for frozen storage ofMuse cells

Increasing added value
through improvement insolution levels andadvancement of innovation

Provide medical care for tissue regeneration and functional recovery

Advancementof innovation• Materials
technology
innovations• Data accumulation• Algorithms/
architecture

Preventive care
Provide preventive careagainst diseases (including
the prevention of serious
illness) throughpharmaceuticals, vaccines,
and self-medication

Precision medicine
Provide optimal medical carefor each patient throughaccurate diagnosis
and treatment

Business operations

Regenerative medicine

Pharmaceuticals +medical materials

Began studying the development of new materials and high-affinity materials

Marketing andsales collaboration

Started examining how to improve various products for hospitals and clinics,
and strengthening marketing of services using each company’s sales channels

R&D collaboration

Began examining research themes such as protein modeling and other technologies witha view to launch new businesses in the future

Microbiomes

Started researching microbiome analysis
and control technologies while exploring new businesses• Open innovation

Healthcare platform• Human resources

Levels ofhealthcare
solutions
Solutions to provide
at every level

35

1 2

Provingclinicaloutcomes

Provide drugs
based onefficacy andsafety evidence

3

Improving
patient
outcomes

Optimizetreatment
benefits andtechniques foreach patient

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

4

Improving
patient andfamily QOL

Provide treatment
techniques that
alleviate family burdens
while optimizing
patient outcomes5

Materializing medical
systems that extend
healthy life expectancies

Contribute to systems
that enable lifelong
disease management

6

Contributing touniversal healthcoverageContribute to society
by optimizing andstreaming medical care

Development of
an infectious disease
prevention and pandemic
response businessCorporate cooperation
DX/integrated healthcare platform

Planning for initiative studies on how to generate synergies

Centralized legal affairs department allowing forincreased efficiency and enhanced capabilities
Began examining how to step up Group-wide collaboration

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202036

4 Foundation of Sustainable Growth

Sustainability

Major initiatives in which the MCHC Group participates
Joined in

Message from the CSO

Determined to meet the social demands,
realize our sustainable growth, andachieve a recycling-oriented society
Yoshihiro Ikegawa

September 2018
January 2019
January 2019

Initiative related to circular economy
Japan Initiative for Marine Environment(Founding member)

Japan Clean Ocean Material Alliance(Chair of Technology WG)

Alliance to End Plastic Waste(Founding member/Executive Committee member)

Ellen MacArthur Foundation’s Circular Economy 100

March 2019

(The first Japanese chemical company to join the CE100)

August 2019

Carbon Recycling Fund Institute (Chairperson)

December 2019

Value Balancing Alliance (the first Japanese company to join)

As ESG factors are becoming increasingly important criteria forevaluating the medium- to long-term corporate value, we
became the first Japanese company to join the Value Balancing
Alliance (VBA) in December 2019. This non-profit organization
aims to change the way to measure corporate performance,
and its impact on the environment, society and people.
Through the development of a new impact measurement
standard at the VBA, we aim to bring our LCA tools to anadvanced level. This will help the Group’s overall economic,
environmental, and social impact to be measured and used toensure an improved operation.
At the MCHC Group, we introduced the Management of
Sustainability (MOS) Indices in 2011 in an effort to clearlymonitor our progress in sustainability. With this in mind, we will

The MCHC Group’s structure for promoting KAITEKI

FY2019 KAITEKI Promotion Committee discussions

Developing a new method to measure social value

As the risks related to environmental and social issues become
more apparent, businesses are expected to actively contributetoward achieving a sustainable society. Based on thisrecognition, the Mitsubishi Chemical Holdings (MCHC) Group
formulated our medium- to long-term basic management
strategy KAITEKI Vision 30 (KV30). This involves us visualizing
what the Group should look like in 2030 by backcasting fromour vision of an ideal society in 2050 (see page 11). Accordingly,
we strive to solve social issues for a sustainable future throughleadership as a global solutions provider.
The impacts of COVID-19 will bring significant changes tothe way people think and behave. At the same time, social
value will increase in its importance. We will turn these social
issues into business opportunities. I believe it is our Group’s
mission to continue to provide new solutions whiletransforming to a value-adding business model that can
respond to social needs. With this approach, the entire Groupwill tirelessly work to achieve a society where many of the social
issues we face today will have been resolved by 2050.

Thorough execution of sustainability management
Despite the current uncertainty, our medium- to long-termsustainability strategies to provide comprehensive solutions toenvironmental challenges, such as climate change andresource/energy depletion, remain unchanged and we willcontinue to work on these issues. KV30 sets forth five measures

37

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

to build foundations for achieving environmental impact
neutrality. These include evolving life cycle analysis (LCA) tools,
reducing our environmental impact, promoting a circular
economy, feasibility studies of KAITEKI factories, and building asustainability management system (see page 17). We aim toprogressively strengthen our management foundation that
supports business model reforms by implementing specificprocedures in the next medium-term management plan andensuring a thorough execution of sustainability management.

Achieving an optimized recycling-oriented society
Since the launch of the Circular Economy Promotion
Committee in May 2019, we have held a series of discussions
regarding our policies and target resources to achieve a circular
economy. We have also discussed the development of
infrastructures for leveraging LCAs. The results of these
discussions are reflected in KV30. With respect to climatechange, we will strive to reduce GHG emissions by 26% in Japanby 2030, compared with 2013 levels, and our steps towardachieving overall GHG reduction and its effective utilization
across the value chain. We are addressing the issue of plastic
waste by providing products and technologies with our
bio-based polymers business, as well as developing materials
and technologies suitable for recycling. We have also worked
with the Alliance to End Plastic Waste to develop technologies
and solutions through the value chain and promote projects
and educational programs to reduce waste. With these
initiatives, we are making steady progress in establishing asocial system that can enable optimal resource circulation.

Strengthening operations to drive new growth
We have provided workshops for general managers in order toenhance efforts to promote our KAITEKI approach. With theseworkshops as a starting point, we promoted the adoption of
KAITEKI in each workplace, fostering a culture to address social
challenges through business activities. In fiscal 2020, in order topromote KV30, we intend on expanding these workshops toyounger employees leading the next generation. Each
employee must take ownership of social issues and think how
to address them through their business activities and actions.
This can increase the Group’s resilience and provide a strong
driving force to realize KV30.
With the medium-term management plan APTSIS 20 in its
final year, we are accelerating our activities regarding
sustainability to consolidate our foundations for new growth.
While the impacts of the COVID-19 pandemic are predicted totransform people’s values and social structures in the coming
years, we will continue to work toward a long-term increase of
our corporate value by recognizing that these changes provide
plenty of business opportunities. We will also promote a
resilient business strategy focused on sustainability.

Managing Corporate Executive Officer
Division Manager, Corporate Strategy Division
Chief Sustainability Officer

Achieving growth by turning social issues
into business opportunities

reorganize MOS Indices based on our material issues in the next
medium-term management plan, and will use these indices ascriteria to measure progress on our business portfoliotransformation. We will also disclose appropriate information to
our valued stakeholders, which will enhance the transparencyof our operations.

Mitsubishi Chemical Holdings

July 2019• Progress of MOS activities• The circular economy promotion:
Organizational structure and mission, etc.
• KV30 targets to reduce GHG emissions• TCFD• Activities for KAITEKI Health andProductivity Management• Progress of MOT activities

February 2020

• Progress of MOS activities• Discussion on the circulation of carbon,
water, and plastic• LCA-related activities: Joining the VBA• Addressing the issue of ocean plastic• Activities for KAITEKI Health andProductivity Management

Board of Directors
ReportingCorporate Executive
Officers Committee

Corporate Executive Officer,
President and CEO
Proposal ofpriority mattersfor deliberation*1
Consultation

Reporting

KAITEKI Promotion Committee
Enhancement ofcorporate value froma financial perspective

Enhancement ofcorporate value froma non-financial perspective

Bottom line
Capital efficiency
Portfolio management

ESG*2
Innovation*3
Health management

Circular Economy
Promotion Committee

Each division (each office)/operating company*1 Where necessary *2 Governance issues are mainly addressed by committees such as theNominating Committee *3 Determination of the direction of technologies, etc.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202038

4 Foundation of Sustainable Growth

Sustainability

Progress with Sustainability Management
The Mitsubishi Chemical Holdings (MCHC) Group has introduced Management of
Sustainability (MOS) Indices, which quantify the degree of contribution to sustainability, as
its own management indicators.
This report describes MOS Indices-related achievements (see page 40) and efforts (seepages 41 and 44) related to the targets based on material issues that have a significant impact on
the environment, society and financial value, in addition to the important indicators related tothe basis of our continued existence. For details on these achievements, please visit our website.

Materiality matrix
Importance for stakeholders
Importancefor the MCHC Group

Establish core measures andtargets based on the material
issues in the formulationof APTSIS 20 (see page 30)

Material issues

Energy and resources

Website (Sustainability)
https://www.mitsubishichem-hd.co.jp/english/sustainability/
Sustainability IndicesP. 40

Non-Financial Information

Non-Financial Highlights

Water

Food and agriculture

Health and wellness
Socialsystems
Medical care

The global environment
The contribution to the reduction ofenvironmental impact through products andservices was not achieved due to a decrease insales and demand for related products. Despite anincrease in the environmental burden caused by
the acquisition of a major business, we have madesteady progress in reducing the environmental
impact of production through energy-saving
and production efficiency improvements. We willachieve environmental impact neutrality throughthe five measures of sustainability management
under the KAITEKI Vision 30 (KV30) (see page 17).

Social systems
A positive contribution was made to theprevention of diseases, as sales of related
products grew steadily. Meanwhile, thetarget for comfort value provision was
not achieved as related products did not
expand on the scale envisioned. Under
KV30, we have identified solutions that
contribute to solving social issues as
growth businesses. Through businessmodel reformation, we will expand
products and services that contribute to
optimizing the entire social system (seepage 16).

P. 71

Core measures

Address the depletion of natural resources and promote energy saving by switching to renewable raw materials,
curbing the use of rare metals, reducing raw fuel consumption and promoting 3R and zero emissions.

Reduce GHG emissions, promote LCA and utilize low-carbon resources and energy, while creating andexpanding business opportunities that mitigate or adapt to climate change.

Use water resources efficiently and clean wastewater while helping to solve water resource issues by providing
safe and clean water through our products and services.

Develop solutions to food and agricultural issues by preserving food resources, resolving maldistribution andproviding products and services that improve agricultural productivity.

Promote the use of health information and disease prevention by improving lifestyle habits throughself-medication and expanding healthcare products and services, and contribute to the improvement ofpeople’s health.

Assessment criteria(Units)

FY2019Plan

FY2019Results

Reduce burden on the atmospheric environment(GHG, SOx and NOx emissions)

Per-unit impact on the environment(LIME/¥100 million)

573

554

549

Reduce burden on the water environment(Total phosphorous, total nitrogen in wastewater and
COD emissions)

Per-unit impact on the environment(LIME/¥100 million)

6.5

6.0

6.1

Reduce burden on the soil environment (total landfill)

Per-unit impact on the environment(LIME/¥100 million)

5.7

6.7

5.1

Promote use of renewable energy

Volume of renewable energy
generated and supplied (MW)

57.6

48.9

50.0

Provide products and services that contribute to reducing
GHG emissions

Contribution to the reduction of
GHG emissions (hundreds ofmillions of tons-CO2 equivalent)

0.82

0.62

1.50

Provide products and services that help solve water
resource problems

Volume of reused water supplied(hundreds of millions of tons)

8.4

7.8

17.0

Provide products and services that help solve
food problems

Growth in sales of related products
and services (%)

10.2

7.7

30.0

Contribute to medical treatment: Pharmaceuticals provision(Contribution to treatment, increased effectiveness)

Contribution index for
pharmaceuticals provision (points)

13.0

12.7

15.0

Contribute to the prevention of diseases: Provide vaccines

Vaccine provision index (points)

11.4

15.0

14.0

Provide products and services that contribute to
a comfortable society and better lifestyles

Growth rate in the comfort value
provision index (%)

19.0

6.5

40.0

Customer satisfaction index (points)(Results of customer satisfaction
survey)

47

44

47

Improvement rate in the number ofcomplaints (%)

56

27

50

Promote communication with business partners(Regarding CSR procurement, status of initiatives such as
distribution of guidelines, checklists, monitoring of thesituation, interviews/visits/audits)Communication improvement index(points)

151

127

100

Improve awareness of compliance(Results of awareness survey)

Compliance awareness improvement
index (points)

21

21

21

Prevent accidents and injuries

Reduction rate of safety incidents (%)

42

-47

60

Build a dynamic and cooperative organization(Employee satisfaction, rate of taking paid leave, percentageof employees working long hours, rate of number of days ofsick leave, percentage of female managers)

Employee wellness index (points)

17.4

8.8

16.0

Sustainability (MOS) Indices(Data elements)

Improve patient QOL and help people’s lives and health by developing pharmaceuticals that meet unmet
medical needs, and improving medical care including regenerative medicine and remote medicine technologies.
Initiatives to provide products and services
trusted by society

People(the company
and itsorganization)

39

Product responsibility

To ensure that customers can use products and services without concern, pursue initiatives to ensure thequality and safety of products throughout their lifecycle and minimize adverse effects on the environment.

Contribution
to communities

Broadly contribute to society through business activities while deepening understanding of various
communities and continually responding to their requests and expectations.

Human resources
development and training

Offer equal opportunities in hiring, placement, promotion and skills development, while acquiring anddeveloping human resources for the medium to long term. Raise employee awareness of the Corporate
Philosophy and increase corporate value by implementing the philosophy.

Occupational healthand safety

Implement safety management in accordance with national and regional laws and regulations and makeworkplaces safe while maintaining and improving the physical and mental health of employees.

Human rights awarenessRespect the dignity and rights of all people in corporate activities and require that business partners refrainfrom violating human rights or engaging in inappropriate discrimination.

Information security
and privacy

Recognize the importance and responsibilities associated with protecting information assets and manage
information properly to prevent the leakage of confidential information of customers, business partners,
Mitsubishi Chemical Holdings or other parties.

Diversity and inclusion

Incorporate a diverse range of human resources and views without regard to nationality, age or belief, andpromote diversity and inclusion through our corporate activities, thus enhancing corporate value.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

People (the company and its organization)
The awareness of compliance among employees has
improved over the years through a variety of training
programs. Although the number of safety-related incidents
has improved compared to the previous year (down 3),
accidents continue to occur. We are working to strengthen
our management base by implementing accident
prevention measures that utilize the latest technologies,
sharing information on accidents, and developing humanresources who are responsible for safety at work sites.
With regard to employee wellness, long working hours areon the rise. We are working to improve work-life balancethrough work style reforms and raising awareness of how
to achieve results in a limited amount of time.

P. 189The Global
environment
Climate change

Review of FY2019

FY2020
SelfRelated
Targets assessment SDGs

Not metNot metMitsubishi Chemical Holdings Corporation KAITEKI REPORT 202040

4 Foundation of Sustainable Growth

Sustainability

Report in Line with the Recommendations of the Task Forceon Climate-Related Financial Disclosures (TCFD*)

Case studies of addressing the material issues
The Group’s Materiality

Building a CO2-free hydrogen refueling system
Taiyo Nippon Sanso Corporation installed an on-site CO2-freehydrogen refueling system using renewable energy at its
Kawasaki Mizue Plant, which was subsidized by the Ministry of theEnvironment, and Kanagawa Prefecture. This integrated system
uses electricity from solar power to generate hydrogen without
generating CO2 with a water electrolysis hydrogen generator,
which can then be used in a fuel cell forklift truck. This system isused as a model for medium-scale on-site refueling stations andcontributes to the realization of a hydrogen society.
* Fiscal 2018 Subsidy for Projects to Control Carbon Dioxide Emissions (Project toPromote Low Carbon Social Infrastructure Using Renewable Hydrogen - Regional
Renewable Energy Hydrogen Station Introduction Project), Kanagawa Prefecture
Subsidy for Hydrogen Supply Facility Installation (Fuel Cell Forklift Truck Hydrogen
Supply System Subsidy)• Energy and resources

In October 2018, Mitsubishi Chemical Holdings Corporation announced its support for the final recommendations prepared by
the Task Force on Climate related Financial Disclosures (TCFD). The Mitsubishi Chemical Holdings (MCHC) Group has beenworking to enhance its climate change-related measures, such as reducing GHG emissions, promoting energy-saving activities,
and expanding product groups that contribute to the reduction of GHG emissions, while progressively expanding its disclosureof related information as it strives to increase corporate value.

• Climate change

On-site CO2-free hydrogen refueling system* In June 2017, TCFD announced the final recommendations concerning disclosure of information to encourage companies to voluntarily disclose to investors the impacts ofclimate change-related risks and business opportunities on corporate finances.

Solar power generation
Power company-supplied electricity

The report based on the TCFD recommendations is also posted on the website.

Renewable energy

On-site CO2-free hydrogen refueling system

Renewablehydrogenstation cubicle(System linked
power supply)

Water
electrolysis
hydrogengenerator

Mitsubishi Chemical Holdings identified climate change as a material management issue by conducting the materiality assessment (see page29) under the medium-term management plan APTSIS 20, and has conducted appropriate measures. Management issues based on materiality
assessments are then associated with management indicators to evaluate the progress of measures taken (see “Metrics and targets” below).
Mitsubishi Chemical Holdings monitors the progress against the target set for each operating company under the KAITEKI Initiative Structure(see page 38) centering on the KAITEKI Promotion Committee, an advisory body to the president of Mitsubishi Chemical Holdings.

Fuel cell
forklift truckhydrogen
supply system(Low-pressure
supply system)

URL: https://www.mitsubishichem-hd.co.jp/english/ir/library/

Governance

Strategy and risk management
Category

Providing opportunities to learn about initiatives
to address global warming through games
Mitsubishi Chemical Holdings Corporation has exhibited “Planet
Earth KAITEKI Stadium” at Kandu, a work experience theme park,
starting from 2019. At this exhibition, children are able toexperience the issue of global warming through games. As partof efforts to develop the next generation of human resources, theCompany has positioned this stadium as a place to foster anContributions toprevent the spreadof COVID-19

The Group’s Materiality• Contributions to communities• Medical care

The MCHC Group is working to ensure a stable supply of
products and support activities that contribute to theprevention of the spread of COVID-19. In response to a requestfrom the Ministry of Health, Labour and Welfare, Mitsubishi
Tanabe Pharma Corporation provides the National Institute of
Infectious Diseases with active pharmaceutical ingredients to
be used in the screening of drugs used for the treatment of thecoronavirus. Medicago Inc. (Canada) succeeded in producing
plant-derived virus-like particles (VLPs) for COVID-19 and began
its clinical trials in July. Meanwhile, Mitsubishi Chemical
Corporation has provided acrylic panels to prevent airborne
droplet infection, and J-Film Corporation has developed plastic
gowns and face shields.
These products arebeing supplied to
medical institutions.

Acrylic panels to prevent droplet infection

41

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

The Group’s Materiality

Submitted a voluntaryaction declaration for theWhite Logistics Movement

Related pages

Under APTSIS 20, response to climate change has been identified as a material issue through materiality assessment,
and the risks and opportunities that are recognized as well as core measures have been reported.
Moreover, in formulating our medium- to long-term management basic strategy KAITEKI Vision 30 (KV30) for 2030,
we identified opportunities and risks related to the social issues that the MCHC Group will face over the period to 2030.
Business opportunities, including the following opportunities related to climate change, have been identified as
growth businesses for the MCHC Group that contribute to solutions to social issues. The Group will expand its scaleand strengthen its profitability through the implementation of the next medium-term management plan.

• Climate changeinterest in science and technology
and to communicate efforts toaddress environmental and social
issues, while emphasizing theimportance of daily efforts toward asustainable future.

Report on FY2019

Business
opportunities
and risks fromperceivedsocial issues
Planet Earth KAITEKI Stadium

Use energy more efficiently: Lighter mobility, electrification solutions, and chemical processes with low
environmental impacts
Expand renewable energy: Decentralized energy management
Capture and use GHGs: CO2 capture and utilization
Use natural resources: Bio-based polymers
Recycle resources: Chemical and materials recycling
We quantitatively assess the risk of leaving social issues unmanaged. We recognize the increased carbon tax burden
and reduced profitability due to lower demand for our products as risks that have a particularly large impact inrelation to climate change. We aim to achieve a safe and secure society by minimizing damage and ensuring business
continuity in the event of a large-scale natural disaster while providing solutions that contribute to disasterprevention and mitigation.

The Group’s Materiality

APTSIS 20 : The Group’s material
issues (page 29)
KV30:• Growth businesses as thepillars of the portfolio (page 15)• Risks of leaving social issues
unmanaged (page 14)
Corporate governance:
Risk management (pages 63–65)• Measures against major risks• Occupational healthand safety

Mitsubishi Chemical, Mitsubishi Chemical Logistics
Corporation, and Taiyo Nippon Sanso have endorsed the White
Logistics Movement advocated by the Ministry of Land,
Infrastructure, Transport and Tourism, the Ministry of Economy,
Trade and Industry, and the Ministry of Agriculture, Forestry
and Fisheries. They have submitted their respective
declarations of voluntary action to the secretariat of the White
Logistics Movement.
The handling of hazardous chemical products andhigh-pressure gas requires specialized skills and knowledge, andthe shortage of drivers has become a serious problem. We willfurther collaborate with logistics companies and secure asustainable logistics environment through the White Logistics
Movement in order to improve the sustainability of a safe,
stable, and secure supply chain.
Please take a look at some case studies of initiatives to solve
environmental and social problems through our businesses.
• Working to achieve a carbon cycle system throughP. 16
CO2 capture and artificial photosynthesis
P. 46• Developing fully biodegradable multilayer barrier packaging• Applying complementary technological expertise to develop GaN substrates• Helping to reduce food loss and save resources with high-performance barrier films• Creating more employee-friendly workplaces by reducing stressful
P. 86
and physically demanding work
• Development of a VLP vaccine for COVID-19
P. 90

P. 46

P. 82

Impact on businessscale and risks
from perceived
social issues• We aim to increase the percentage of revenue and profit from growth businesses, including the GHG reduction area,
to over 70% and approximately ¥4 trillion or more by 2030.
• We estimate that the risks associated with social issues and structural changes, including climate change, could be aslarge as ¥1 trillion in 2030.

KV30:• Sales revenue targets for 2030
(page 16)
• Risks of leaving social issues
unmanaged (page 14)

Risk management• We will strive to avoid the occurrence of major risks and minimize losses when they occur under our risk
management system (see page 63).
• We view climate change as a risk that is expected to grow further over the medium- to long-term, and we plan toincorporate it into KV30 and the next medium-term management plan, and consider how to manage this risk.

Corporate governance:
Risk management (pages 63–65)• Risk management system• Measures against major risks• Measures against future risks

Metrics and targets
Category

Report on FY2019

Related pages

Metrics andtargets to assess
risks andopportunities

Among the management indices that assess the improvement of sustainability (MOS Indices), we have set the
reduction of burdens on the atmospheric environment such as in terms of greenhouse gases (per-unit impact on theenvironment) and the degree of contribution to the reduction of GHGs by providing products and services that
contribute to reducing GHG emissions. Based on these, we set targets for the final year of the medium-term
management plan (fiscal 2020), and assess the degree of achievement every year.
In addition, we have established new medium- to long-term targets to be achieved by fiscal 2030 under KV30. We
are now in the process of formulating specific action plans to reduce GHG emissions by 26% compared to the fiscal
2013 level in Japan.

Scope 1 to 3
GHG emissions

Please see GHG emissions in “Non-Financial Highlights” for the performance in fiscal 2019. We have received
independent assurance for GHG emissions, and are working to disclose highly reliable information.

Corporate
executive
remuneration

The performance-based evaluation of the remuneration of corporate executive officers and executive officers isdetermined based on the degree of achievement of the targets for each fiscal year. The evaluation is determined byusing indices including those associated with the improvement of sustainability in addition to economic and capitalefficiencies, such as indices associated with climate change through the promotion of energy-saving activities. For
details, please refer to the Securities Report.

Sustainability (MOS) Indices(page 40)
KV30: Thorough sustainability
management (page 17)

Non-Financial Highlights (page 71)
Environmental data/Independent
Assurance Report (pages 189–190)

Corporate governance:
Director remuneration (page 57)

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202042

4 Foundation of Sustainable Growth

Sustainability

Promoting KAITEKI Health and Productivity Managementand Human Resources Development
The Mitsubishi Chemical Holdings (MCHC) Group is promoting KAITEKI Health and Productivity Management*
to help employees realize their potential to the fullest.

Approach to KAITEKI Health and Productivity Management

ICT-based Health Support System

Creativity and Productivity

i2 Healthcare
EffectKPI

A proprietary system that enables each employee to see personal healthdata on their devices, integrating health data collected daily via wearable
devices, health checkup results, and work style related information.

Vitality Index* Kenkokeiei, which means Health and Productivity Management in Japanese, is a registered trademark of the Workshop for the Management of Health on Company and Employee,
an NPO. In terms of using KAITEKI Health and Productivity Management, the trademark is authorized to be used by the NPO.

ResultMessage from the Corporate Officer Supervising
HR Management

Advancing the reform of ourhuman resources system andorganizations by focusing on
diversity, mobility, and expertise
Ken Fujiwara
Managing Corporate Executive Officer
Chief Group Compliance Officer
Chief Health Officer

Initiatives for KAITEKI Health and Productivity
Management

Generating a higher level of creativity
and productivity

The MCHC Group believes that people are the driving force
behind the sustainable growth for society. We consider them a
key management resource. To provide an environment where adiverse workforce can thrive with a sense of a social mission
while creating value, we promote KAITEKI Health andProductivity Management at the center of our Group-wide
efforts to reform our human resources (HR) management systemand organizations.
Based on our three core KPIs (see page 44), we place anemphasis on supporting health and work style reforms. These
measures include promoting diversity, supporting flexible work
styles, HR development, and improving the health conditions of
our employees and their families.
To support our employees’ health, we utilize our ICT-based
health support system—i2 Healthcare. We provide employeeswith wearable devices that monitor quality of sleep, level ofphysical activity and heart rate. In addition to theaforementioned data, working hours and health check results
can also be viewed on a dedicated user page throughi2 Healthcare, leading to increased health awareness andimproved personal care for everyone.
By utilizing an ICT-based communication infrastructure
system, our efforts to reform the way our employees work has
helped enable flexible working arrangements, leading to amore rewarding and fulfilling working environment.

Due to the impact of COVID-19, our lifestyle and work practices
have changed at a rapid and alarming pace. However, our goals
and initiatives remain unchanged. We will continue our efforts
to reform our HR management system and organizations as
discussed in our medium- to long-term basic management
strategy KAITEKI Vision 30 (see page 18). With this in mind, weare adapting our HR management system into a morecomprehensive one, which accommodates diversity, mobility,and expertise, as well as executing a more global management
system. This will bring about our ultimate goal of generating ahigher level of creativity and productivity within ourorganization. As a person who oversees HR, I will continue toproactively lead and promote our efforts to reform our HR
management system and organizations.
Our response to COVID-19
At the MCHC Group, we prioritized the health and safety of ouremployees and their families, as well as our partners and customers.
In response to the Japanese government’s declaration of a state of
emergency, we decided to order our employees to work remotely fromhome. At production sites, we have managed to maintain ouroperational activities by taking measures to ensure the maximum safetyof our employees, such as minimizing the required workforce andintroducing staggered working hours. We will continue to encourage
our colleagues to work remotely, avoid busy commuting hours, andconduct meetings and training online to help prevent infection inaccordance with the new work-life arrangement guidelines.
See page 65 for more details about our response.

43

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

KPI

Activity

Wellness Index

Health Support

KPI Work Style Index

Work Style Reforms
My page

Plan

Management Leadership

Three Core KPIs for KAITEKI Health and Productivity Management
Description
Vitality Index
Index for employees’ jobsatisfaction, enthusiasm,
trust and growth

FY2019 Results

69 pts15 pts(Base year
+ 6 points)

Increase positive choices by 15 points
or more in the health survey*.

Index for levels ofwork style awareness,behavior and initiatives

72 pts

10 pts(Base year
+ 5 points)

Increase positive choices by 10 points
or more in the health survey.

Wellness Index

46 ptsWork Style Index

Index for health checkup
items, lifestyle quality andlevel of life satisfaction

Review of FY2019

FY2020 Targets

10 ptsFor the 10 health criteria items,
increase the number of items met
by each employee by one item(= 10 points) or more.

(Base year
+ 1 point)* We conduct the health survey to assess each employee’s awareness and approach to KAITEKI
Health and Productivity Management.

In fiscal 2019, the Vitality Index was up 6 points (40% achievementrate), the Work Style Index was up 5 points (50% achievement rate),and the Wellness Index was up 1 point (10% achievement rate).
Looking at the Work Style Index, Japan’s Labor Standards Act wasamended from April 2019 to make the use of paid leavecompulsory, which triggered changes in awareness and behaviors
in terms of how people work at workplaces and among individual
employees. As for the Wellness Index, we see use of wearable
devices have some effect on employees’ awareness and behaviors.
However, we believe it’s more important for employees to becomeaware of their own condition and to continue to change theirmindset and behaviors, and it can be assumed that it will takesome time for the results of health checks to show up in thenumbers. We will improve creativity and productivity throughmeasures for health support and work style reforms, andpromoting PDCA cycle by using i2 Healthcare.

Case studies of addressing the material issues
Disease prevention and health promotion

Step up the development of human resources with digital skills

Health support for employees
working away from home

Development of a data
science education program

The Group’s materiality• Occupational health and safety

The MCHC Group believes it is important for employees tomaintain and improve their physical and mental health to lead afulfilling working life. Taiyo Nippon Sanso Corporation has
mandated transferred employees working away from their family
to undergo thorough physical examinations and brain scans from
April 2019, which were previously optional. This has the aim ofdetecting illnesses at an early stage and preventing them frombecoming serious. We willcontinue to support
disease prevention andhealth promotion among
employees through avariety of measures.

The Group’s materiality• HR development and training

In order to leverage medical big data and accelerate digitalbusiness development, Mitsubishi Tanabe Pharma Corporation
is fully implementing career recruitment and training with thegoal of doubling the number of employees with digital skills by
fiscal 2021. As part of these initiatives, in November 2019, thecompany began joint development with Shiga University of adata science education program for professionals working at
pharmaceutical and life science companies, and selected
approximately 20 participants within the company for the trial.
Starting from fiscal 2020, the program continues to be
implemented as a one-year educational program and will beoffered to companies outside the Group to promote digitaltransformation across the industry.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202044

4 Foundation of Sustainable GrowthInnovation

Rapidly launching new products in our focus markets
The MCHC Group accelerates innovation by leveraging the core technologies ofour four operating companies.
Focus Markets

Message from the CIO

IT, Electronics,
Displays

Examples of
Next-generation Businesses

Especially in this time ofdisruptive change,
innovation is the driver of ourbusiness growth and ourcontribution to society

Larry Meixner
Larry Meixner

Managing Corporate
ExecutiveCorporate
Officer Executive Officer
Managing
Chief Innovation Officer
Chief Innovation Officer
Chief Technology Officer
Chief Technology Officer

Power semiconductormaterials
Case Study 2

Medical, Food,
Bio Products

Automobiles,
Aircraft (Mobility)

Environment,
EnergyPackaging,Labels, Films

Next-generationenergyCirculareconomy-related/recycling

Composite materials
for 3D printers

Next-generation
display materials

Biodegradable
polymers

Heat management
materials

Multi-materials

Case Study 1

Next-generation
battery materials

Health Care

Next-generation
pharmaceuticals& diagnostics

Disease prevention(VLP vaccine)

Regenerative
medicine-relatedmaterials

MCHC Group
core technologies

Case studies of addressing the material issues
We are living in a time of extraordinary change. Even before theemergence of the global pandemic in 2020, powerful trends ofinnovation in diverse fields, such as data science and biology,
were already transforming every aspect of society and business.
The Mitsubishi Chemical Holdings (MCHC) Group addresses a
broad range of societal needs, and our business is thus deeply
connected to these powerful trends. However, seizing thenascent business opportunities of this new era requires
creativity, agility, and the courage to profoundly change ourown ways of thinking.
To achieve early commercialization of next-generation
businesses in our growth markets, the MCHC Group takes amulti-faceted approach to innovation. For example, we havedeveloped BioPBS to overcome the difficult challenge ofsimultaneously achieving excellent material performance andbiodegradability. And we are deploying complementary
capabilities across the MCHC Group to secure a uniquely strong
position in the strategically important gallium nitride (GaN)
market. As these examples illustrate, sustainable development
and leverage across MCHC Group companies are recurring
themes in our efforts to realize our medium- to long-term basic
management strategy KAITEKI Vision 30 (see page 11).
My team in the MCHC Emerging Technology and Business
Development Office has established platforms that transcend
the boundaries of our operating companies in areas including

45

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

digital transformation, corporate venture partnerships, andstrategic market development (see pages 47–49). Silicon
Valley-based Diamond Edge Ventures, Inc. (established in 2018)
and our Japan-based venture team work seamlessly withinternal business units to build deep partnerships with
innovative startup companies worldwide. Meanwhile, ourDigital Transformation Group collaborates with the MCHC
Group business, production, and R&D teams to realize
near-term operational excellence, while creating andimplementing next-generation business models. The benefit
these platforms provide to the MCHC Group runs far deeper
than the immediate contribution to bottom-line profit. By
creating a common vision with our startup company partners,
and by reexamining our current practices through the lens ofdigital transformation, we expand our innovation perspective.
This perspective amplifies our ability to grow our business andcontribute to society.
Innovation also plays a key role in KAITEKI Management
and is embodied in the Management of Technology (MOT)
Indices. These indices highlight our progress in the journey
toward innovation leadership. In this era of disruptive change,
there are extraordinary opportunities for growth. To realize ourpotential, we must think globally, continuously strengthen ourinnovation, and leverage synergies within the MCHC Group.

Group companies have been developing the following next-generation products.

1

Developing fully biodegradable multilayer
barrier packaging

Mitsubishi Chemical Corporation is developing a biodegradable
gas-barrier packaging, making use of plant-derived andbiodegradable material BioPBS. Waste reduction can beachieved because each of the multiple layers is biodegradable,
and the product can even be composted. Since this packaging
maintains the freshness and aroma of contents, the company ispromoting the new product for use in coffee capsules andother applications.

The Group’s Materiality• Food and agriculture• Climate change

New biodegradable adhesive resin
G-Polymer (Specialty PVOH):
Biodegradable gas-barrier resin
BioPBSBioPBS
Coffee capsules made of
biodegradable polymer

Cross-sectional view

2

Applying complementary technologicalexpertise to develop GaN substrates

The MCHC Group has been developing GaN substrates fornext-generation power devices, recognizing that this material
enables devices with more efficient energy transduction,
leading to reduced CO2 emissions. Mitsubishi Chemical used
its proprietary liquid phase epitaxy method to successfully
grow large GaN single-crystals with low defect density,
suitable for commercialization in power semiconductors.
Meanwhile, Taiyo Nippon Sanso Corporation has jointly
developed a low-cost GaN crystal production process andequipment with the Tokyo University of Agriculture andTechnology, applying a vapor phase epitaxy method.

The Group’s Materiality• Energy and resources• Climate change

Compared with equipment based on conventional methods,
this new process can continuously form high-quality crystals
at three times the growth rate and only about one-fifth thedefect density. The MCHC Group will continue working toaccelerate product development.

4-inch size GaN
single-crystal

Newly developed GaN
crystal production equipment

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202046

4 Foundation of Sustainable GrowthInnovation

Initiatives to Drive Innovation

Creating business value andfostering a new corporate culture
through digital transformation

Creating new business opportunities
through corporate venture partnerships
and investments

To accelerate value creation, the MCHC Group promotes digitaltransformation (DX) across all operations, from R&D to manufacturing andsupply chain management.

Recognizing that strategic partnerships with promising startups can create
opportunities for business growth, the MCHC Group established a global
venture capital network based in Tokyo, Japan and Silicon Valley, California.

Three strategies to realize DX
The Mitsubishi Chemical Holdings (MCHC) Group approach to
DX is centered on three principal strategies.
First, we are optimizing operations across the full range of
MCHC Group businesses. For example, we are digitalizing global
supply chain communications in the MMA business, enabling
dependable product supply to customers worldwide evenwhen market conditions fluctuate. In other businesses, weleverage production plant data to reduce downtime andimprove product quality, and we apply AI-based technologies
to increase product development efficiency.
Second, we are creating new business models. We use
digital technology to create new customer touch points andfoster customer engagement in product development. The
results are propelling the MCHC Group beyond the traditional
B2B model by providing novel solutions to customers andmaking supply chains more dependable and resilient.
Finally, we are developing and applying technologies, suchas quantum computing, that hold the potential to revolutionize
business and R&D processes. These activities will enable the
MCHC Group to remain a digital leader within our industry andadapt to market changes more quickly than our competitors.

Promoting MCHC Group-wide DX through“MCHC Methods”

Creating business growth for both the MCHC Groupand our startup partners

Corporate venture capital investment throughDiamond Edge Ventures, Inc. (DEV)The MCHC Group has developed unique approaches todigitalization that can be leveraged by all companies of theGroup, in businesses ranging from chemicals to healthcare
services. Through these “MCHC Methods,” we promote greaterfamiliarity with digital technologies and enable closer
collaborations. In addition, to keep employees up to date on
the latest digital applications, we offer a DX training programand machine learning project workshops covering 12
essential topics.
There is now a renewed appreciation of the importance of
DX in responding and adapting to “black swan” events like the
COVID-19 pandemic. While the outlook surrounding the
pandemic is uncertain, the Group is prepared to take on any
future challenges by establishing a more resilient business modeland integrating both in-person and online communications.

The MCHC Group has much to offer our startup partners,
including access to markets, manufacturing at scale, resources,
and capital. Our deep connection with business units across theGroup ensures that our startup partnerships yield powerfulbusiness synergies. Beyond our investments, we have facilitatedmore than 70 collaborations between select startups and
MCHC Group business units, leading to numerous successful
proof-of-concept demonstrations.

Even in long-established industries, startup partnerships canignite revolutionary change. DEV was established to tap into
this rich international source of innovation and help create the
MCHC Group of tomorrow. We partner with and invest in
startups directly related to our current businesses, and we also
explore emerging areas to create the next pillar of growth for
the MCHC Group.

AddiFab ApS
Denmark

Envisioning a better pathfor people’s lives

Korea
180kt

Al Jubail (Saudi)
250kt

Shanghai (China)
175kt

Huizhou (China)
90kt

Naohiko Uramoto
Otake (Japan)
217kt

Memphis (US)165kt
Beaumont (US)135kt

Kaohshiung (Taiwan)
105kt
Singapore
130kt

Map Ta Phut (Thailand)
180kt

ACH method

47

C4 direct oxidation process

Startup partner
DigiLens, Inc.
United States

Fluence Analytics, Inc.
United States

Global MMA supply network linked via
digital technologies

Cassel (UK)
217kt

Startup investments by Diamond Edge Ventures, Inc. (As of March 31, 2020)

New ethylene method

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Lactips S.A.
FranceExecutive Officer andChief Digital Officer

Specialty and scope of collaboration

Comments from startup partner

Specialty: Enabling the next generation of
waveguide-based AR/VR displays
Collaboration: Development of plastic substrates for
AR/VR waveguides“DEV has proven to be a knowledgeable investor
willing to advocate for us to the MCHC Group’sbusiness units, to its corporate leaders, and toother like-minded investors.” Chris Pickett, CEO.

Specialty: Real-time monitoring of polymerization
reactors through realization of IIoT*
Collaboration: Polymer process optimization in R&D
labs and plants; new product development“We’ve been impressed by the speed and breadthof our engagements with multiple business units
in both Japan and the US” Alex Reed, CEO.

Specialty: Additive manufacturing technology
merging 3D printing and injection molding
Collaboration: Partnership in parts manufacturing;
joint development of materials“After the investment, DEV has been essential in
helping to develop the business with Mitsubishi
Chemical Corporation.“ Lasse Staal, CEO.

Specialty: Fully biodegradable natural polymer
contributing to circular economy
Collaboration: Development of “green” materials
and applications for customers; enhancement of
biodegradability focus in product portfolio“We are very happy with DEV’s investment, as they
led a win-win process with the MCHC Group’s
affiliates by identifying and following our
engagements until a product is on the market.”Marie Hélène Gramatikoff, CEO.

* IIoT: Industrial Internet of Things

DX offers the potential to create changes that directly
benefit people’s lives. The ability of people andorganizations to recognize the relevance and properly
apply these changes in newly created systems is the key tosuccess. Drawing on my past experiences, for example as a
research leader with IBM Corporation and as President of
the Japanese Society for Artificial Intelligence,
I have worked for many years to connect people andorganizations using digital technologies. I am now applying
my expertise throughout the MCHC Group to enable ourown DX, with the aim of offering even more benefit topeople and communities in the future.

Stepping up investment in semiconductormaterials and healthcare startups
The MCHC Group has identified semiconductor materials andhealthcare as strategic business areas. Accordingly, we havebegun actively exploring relevant investment opportunities in the
United States, Europe, and Japan. We have built our corporate
venture framework with a long-term perspective, maintaining

active and steady engagement to maximize the success of ourstartup partners. Although the COVID-19 pandemic has caused
disruption around the world and greatly changed our businessenvironment, we continuously provide investment funds andpartnership opportunities to startups with the potential to drive
the innovations and solutions most needed in the world today.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202048

4 Foundation of Sustainable GrowthInnovation

Measuring Innovation through Management ofTechnology (MOT)

Empowering R&D throughopen innovation
In addition to developing components and materials, the MCHC Group
constantly explores innovative ways to apply new technologies andimprove manufacturing processes and logistics. We focus on promoting
open innovation with other companies, government organizations, anduniversities. Examples of such activities led by Mitsubishi Chemical aredescribed below.

Collaborating in quantum computing
research projects
As part of its efforts to promote open innovation in the field of
quantum computing, Mitsubishi Chemical joined IBM Q
Network Hub at Keio University upon its launch in fiscal 2018.
The hub brings scientists together to develop algorithms
related to chemistry, AI, and finance, through its access to IBM
quantum computers implemented with a universal gate set.
Mitsubishi Chemical assigned researchers to work onsite
together with researchers from IBM and Keio University to
explore world first applications for the chemical industry. To
date, the researchers successfully simulated chemical reactions
in lithium-air batteries in 2019, and predicted the performanceof organic light-emitting diodes in 2020. Working withcompany members from the finance sector, they also improved
the calculation accuracy of AI algorithms running on quantum
computers developed by IBM. The research results were
published in three papers via arXiv, a widely recognizedopen-access site administered by Cornell University forsubmitting scientific papers before publication in journals. The
papers were also submitted to scientific journals, and one was
accepted by the journal Quantum Machine Intelligence.

In addition, Mitsubishi Chemical began a joint-research
project with QunaSys Inc., a venture firm specializing inquantum computing algorithm development, in fiscal 2019.
This project successfully developed a method for calculating
absorption spectra of dye materials, and the results were
published on arXiv.

Joint development of a new algorithm forreducing noise
Initially, error noise from gate operation on quantum
computers was a major hurdle to achieving the required
computational accuracy. Since it was proved that the issue
may be addressable by error mitigation algorithms,
expectations have risen for near-term adoption of quantum
computers in business, and an era of worldwide competition
has begun. Our achievements at IBM Q Network Hub are also
due to an error noise mitigation algorithm originallydeveloped by the research team from Mitsubishi Chemical
along with researchers from IBM and Keio University. We
expect that our algorithm will be generally useful in a wide
range of fields.

Message from the Chief Marketing Officer
Developing new businesses quickly and efficiently through trial and error

Naoko Ichikawa

Our first step in developing new businesses is to fully understand the target market andcustomers. The bird’s-eye view derived from this understanding helps us build a businessmodel hypothesis. To launch a sustainable food and water supply business, for example, we
consider how the MCHC Group may contribute to a circular economy encompassing theentire value chain from initial agricultural production through distribution and consumption.
We value three perspectives in designing a new business model: 1) empoweringcollective capabilities across the MCHC Group, 2) collaborating with external partners, and 3)
integrating digital and physical technologies. To rapidly compete in markets in Europe, theUnited States, and China, a rigid strategic plan is not sufficient. The key is to progress througha trial and error approach, listening constantly to feedback from customers and business
partners to overcome the many challenges in getting new businesses off the ground.

Executive Officer andChief Marketing Officer

49

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

The Mitsubishi Chemical Holdings (MCHC) Group has createdthree MOT Indices to measure our overall technologicalstrength over time. These indices comprise: 1) R&D Indices toevaluate the efficiency of our R&D efforts, which are critical for
realizing innovation, 2) Intellectual Property Indices to measure
the value of our overall technology assets, and 3) Advanced
Technology Indices to assess enhancements through emerging
technologies and digital transformation (DX). By tracking these
indices quantitatively, the MCHC Group defines steps to bolster
its collective technological capabilities. The results also guide us
in quickly establishing businesses offering practical solutions in
key markets (see page 32).

Targeting key markets
Focus markets
Automobiles, Aircraft (Mobility)

Health Care

IT, Electronics, Displays

Environment, Energy

Medical, Food, Bio Products

Packaging, Labels, Films

Establishingnext-generation
businesses• Practical solutions

MOT Indices
Monitoring
technologicaldevelopment• Sustainable development

FY2019 Results
Fiscal 2019 results for the R&D and Intellectual Property Indices show steady progress toward fiscal 2020 targets.
MOT Indices

FY2019 overview

Evaluation points• Percentage of targeted R&D milestones achieved• Percentage of sales from newly developed products

Newly developed products accounted for a higher percentage
of sales than the previous fiscal year, with particularly highpercentages achieved by Mitsubishi Chemical Corporationand Mitsubishi Tanabe Pharma Corporation.

Intellectual Property
Indices• Relative priority placed on intellectual property in businessstrategies• Relative contribution of intellectual property in securing
competitiveness• Number of patents applied for in Japan and other countries

Taiyo Nippon Sanso Corporation substantially increased its
patent applications from joint R&D compared to fiscal 2018.
In total, patent applications were higher than in fiscal 2018,
but further strategic measures are required.

Advanced Technology
Indices• Number of new technologies developed• Relative progress in adopting digital and other emerging
technologies

Progress was achieved toward our goal of Group-wide
DX, and the level of digital maturity improved comparedto fiscal 2018. We are expecting to accelerate progresseach year.

R&D Indices

In fiscal 2020, the final year of the current medium-term
management plan, the MCHC Group will conduct innovation
management with the goal of reaching its target of 100%. We
will emphasize facilitating close collaborations and increasing
employee capability with digital technologies across the entire
MCHC Group. We will also continue to examine and improve
the practical effectiveness of the three MOT Indices for realizing
greater innovation and increasing the overall competitivenessof the MCHC Group.

FY2019 MOT results compared withFY2020 targets
FY2018FY2019(Percentage)

Targeting 100% by FY2020

100

*
80

60

40

20

0

R&D IndicesIntellectual Property Advanced Technology
Indices
Indices* Result differs slightly from figure disclosed in the previous fiscal year due to a change incalculation method

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202050

4 Foundation of Sustainable Growth

GovernanceDirectors(As of June 24, 2020)

MCHC: Mitsubishi Chemical Holdings Corporation
MCC: Mitsubishi Chemical Corporation
MPI: Mitsubishi Plastics, Inc.
MRC: Mitsubishi Rayon Co., Ltd.
MTPC: Mitsubishi Tanabe Pharma Corporation
LSII: Life Science Institute, Inc.
TNSC: Taiyo Nippon Sanso Corporation
NSHD: Nippon Sanso Holdings Corporation

Chairperson of the Nominating Committee
Member of the Nominating Committee
Chairperson of the Audit Committee

Director of the Board, Chairperson

Director of the Board,
Corporate Executive Officer,
President and Chief Executive Officer

Director of the Board,
Managing Corporate Executive Officer,
Chief Financial Officer

Director of the Board,
Managing Corporate Executive Officer,
Chief Group Compliance Officer

Yoshimitsu Kobayashi

Hitoshi Ochi

Hidefumi Date

Ken Fujiwara

Dec. 1974 Joined Mitsubishi Chemical Industries Ltd.
Jun. 2003 Executive Officer, MCC
Apr. 2005 Managing Executive Officer, MCC
Jun. 2006 Director of the Board, MCHC
Feb. 2007 Director of the Board,
Managing Executive Officer, MCC
Apr. 2007 Director of the Board,
President and Chief Executive Officer, MCHC
Director of the Board, President and Chief
Executive Officer, MCC
Apr. 2012 Director of the Board, Chairperson,
MCC (until Mar. 2017)
Apr. 2015 Director of the Board, Chairperson,
MCHC (current)

Apr. 1977 Joined Mitsubishi Chemical Industries Ltd.
Jun. 2007 Executive Officer, MCHC
Executive Officer, MCC (until Mar. 2010)
Apr. 2009 Director of the Board, MPI (until Mar. 2011)
Jun. 2009 Director of the Board, Executive Officer, MCHC
Jun. 2010 Director of the Board, Managing Executive
Officer, MCHC
Director of the Board, MRC (until Jun. 2011)
Apr. 2011 Director of the Board, MCHC (until Jun. 2011)
Director of the Board, Managing Executive
Officer, MCC (until Mar. 2012)
Apr. 2012 Director of the Board, President and Chief
Executive Officer, MRC (until Mar. 2018)
Jun. 2012 Director of the Board, MCHC
Apr. 2015 Director of the Board,
President and Chief Executive Officer, MCHC
Jun. 2015 Director of the Board, Corporate Executive Officer,
President and Chief Executive Officer, MCHC (current)

Apr. 1982 Joined Mitsubishi Chemical Industries Ltd.
Apr. 2013 Executive Officer, MCC (until Mar. 2015)
Apr. 2015 Executive Officer, MCHC
Apr. 2018 Managing Corporate Executive Officer, MCHC
Jun. 2019 Director of the Board,
Managing Corporate Executive Officer,
MCHC (current)
Director of the Board,
TNSC (currently NSHD) (current)

Apr. 1984 Joined Mitsubishi Chemical Industries Ltd.
Apr. 2015 Executive Officer, MCHC
Apr. 2017 Executive Officer, MCC (until Mar. 2018)
Apr. 2018 Managing Corporate Executive Officer, MCHC
Jun. 2018 Director of the Board,
Managing Corporate Executive Officer, MCHC
(current)
Jun. 2020 Director of the Board, MTPC (current)

Director of the Board

Director of the Board

Director of the Board

Glenn H. Fredrickson

Shigeru Kobayashi

Hiroshi Katayama

Jan. 1990 Associate Professor,
Departments of Chemical Engineeringand Materials, University of California,
Santa Barbara (UCSB)
Jul. 1991 Distinguished Professor,
Departments of Chemical Engineeringand Materials, UCSB (current)
May 1998 Chairperson, Department of Chemical
Engineering, UCSB (until Jul. 2001)
Mar. 2001 Director, Mitsubishi Chemical Center for
Advanced Materials, UCSB (current)
Apr. 2014 Managing Executive Officer, MCHC
Jun. 2014 Director of the Board,
Managing Executive Officer, MCHC
Jun. 2015 Director of the Board,
Managing Corporate Executive Officer, MCHC
Apr. 2017 Director of the Board, MCHC (current)

Apr. 1980 Joined Mitsubishi Chemical Industries Ltd.
Apr. 2013 Executive Officer, MPI
Apr. 2015 Director of the Board, Executive Officer, MPI
Apr. 2016 Director of the Board,
Managing Executive Officer, MPI
Apr. 2017 Managing Executive Officer,
MCC (until Mar. 2019)
Jun. 2019 Director of the Board, MCHC (current)
Corporate Auditor, LSII (until Jun. 2020)
Jun. 2020 Corporate Auditor, MCC (current)

Apr. 1983 Joined Mitsubishi Chemical Industries Ltd.
Apr. 2014 Executive Officer, MCC
Apr. 2017 Executive Officer, MCC
Apr. 2018 Managing Executive Officer,
MCC (until Mar. 2020)
Jun. 2020 Director of the Board, MCHC (current)
Corporate Auditor, LSII (current)

Outside Director of the Board

Outside Director of the Board

Outside Director of the Board

Outside Director of the Board

Outside Director of the Board

Hideko Kunii

Takayuki Hashimoto

Chikatomo Hodo

Kiyomi Kikuchi

Tatsumi Yamada

May 1982 Joined Ricoh Co., Ltd.
Jun. 2005 Corporate Senior Deputy CEO, Ricoh Co., Ltd.
(until Mar. 2008)
Apr. 2008 Chairperson, Ricoh Software Co., Ltd.
(currently Ricoh IT Solutions Co., Ltd.)
Apr. 2009 Associate Director, Ricoh Co., Ltd. (until Mar. 2013)
Jul. 2009 Chairperson, Ricoh IT Solutions Co., Ltd.
(until Mar. 2013)
Apr. 2012 Professor, Graduate School of Engineering
Management, Shibaura Institute of Technology
Apr. 2013 Deputy President, Shibaura Institute ofTechnology (until Mar. 2018)
Oct. 2013 Head of the Office of the Gender Equality
Promotion Center, Shibaura Institute ofTechnology (until Mar. 2018)
Jun. 2015 Outside Director of the Board, MCHC (current)
Apr. 2018 Visiting Professor, Graduate School ofEngineering Management, Shibaura Institute ofTechnology (until Mar. 2019)
Apr. 2019 Visiting Professor, Shibaura Institute ofTechnology (current)

Apr. 1978 Joined IBM Japan, Ltd.
Apr. 2000 Director of the Board, IBM Japan, Ltd.
Apr. 2003 Managing Executive Officer, IBM Japan, Ltd.
Jan. 2007 Senior Managing Executive Officer,
IBM Japan, Ltd.
Apr. 2008 Director of the Board, Senior Managing Officer,
IBM Japan, Ltd.
Jan. 2009 Director of the Board, President, IBM Japan, Ltd.
May 2012 Director of the Board, Chairperson,
IBM Japan, Ltd.
Apr. 2014 Chairperson, IBM Japan, Ltd.
Jan. 2015 Vice Chairperson, IBM Japan, Ltd.
Jun. 2016 Outside Director of the Board, MCHC (current)
May 2017 Honorary Executive Advisor, IBM Japan, Ltd.
(current)

Sep. 1982 Joined Accenture Japan Ltd
Sep. 2005 Representative Director, Accenture Japan Ltd
Apr. 2006 Representative Director and President,
Accenture Japan Ltd
Sep. 2015 Director and Chairperson, Accenture Japan Ltd
Sep. 2017 Director and Senior Corporate Advisor,
Accenture Japan Ltd
Jul. 2018 Senior Corporate Advisor,
Accenture Japan Ltd (current)
Jun. 2019 Outside Director of the Board, MCHC (current)

Apr. 1986 Joined The Dai-Ichi Kangyo Bank, Ltd.
(currently Mizuho Bank, Ltd.) (until Dec. 1990)
Apr. 1999 Registered as a lawyer
Asahi Law Offices
Sep. 2002 Allen & Overy LLP (London)
May 2003 Admitted to the bar of the State of New York
Oct. 2003 Asahi Law Offices
Sep. 2004 Taiyo Law Office(currently Paul Hastings LLP/Gaikokuho
Kyodo Jigyo)
Sep. 2006 JPMorgan Securities Japan Co., Ltd.
Apr. 2008 TMI Associates (current)
Jun. 2019 Outside Director of the Board, MCHC (current)

Apr. 1976 Joined Sumitomo Corporation (until Jun. 1993)
Mar. 1980 Registered as a Certified Public Accountant
Jul. 1993 Chuo Audit Corporation (until Mar. 2001)
Apr. 2001 Board member, The International AccountingStandards Board (until Jun. 2011)
Sep. 2011 KPMG AZSA LLC (until Jun. 2018)
Jan. 2012 Board Member, KPMG AZSA LLC(until Jun. 2015)
Feb. 2014 Founding member, International Integrated
Reporting Council (current)
Oct. 2014 Trustee of International Valuation Standards
Council (current)
Sep. 2015 Specially Appointed Professor, Faculty ofCommerce at Chuo University (current)
Apr. 2016 Member, Certified Public Accountants andAuditing Oversight Board, Financial Services
Agency (current)
Jun. 2020 Outside Director of the Board, MCHC (current)

Member of the Audit Committee
Chairperson of the Compensation Committee
Member of the Compensation Committee

51

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202052

4 Foundation of Sustainable Growth

GovernanceCorporate Governance

Roles of the Board of Directors

Mitsubishi Chemical Holdings Corporation (MCHC) aims to contribute to the sustainable development of people,
society, and the Earth, in addition to solving environmental and social issues through corporate activities for therealization of KAITEKI.
With our eyes on these objectives, we are focusing on establishing a better corporate governance structure by
improving management transparency through proper disclosure and dialogue with stakeholders, while enhancing
both the soundness and efficiency of management.

Corporate governance structure for sound management and greater efficiency (As of June 24, 2020)
MCHC is a company with a nominating committee, etc. As such, we are enhancing our supervision functions and speedy
decision-making for greater management agility with the aim of improving the transparency and fairness of our management. Under
this governance system, the Board of Directors and the three committees (Nominating, Audit, and Compensation Committees) oversee
business management while the corporate executive officers are responsible for making decisions and operating our business.
Outside director

The Board of Directors determines basic management policies, such as medium-term business strategies and annual budgets.
As a general rule, corporate executive officers are entrusted with the responsibility of executing operations in accordance withthese basic policies, excluding matters that must be legally resolved by the Board of Directors. The Board of Directors primarily
supervises the execution of duties by the corporate executive officers.

Framework and roles of the committees (As of June 24, 2020)
Nominating Committee

Audit Committee

Compensation Committee

Chairperson

Outside director

Internal director (full-time)

Outside director

Composition(including
chairperson)

Outside directors - 4
Internal director - 1

Outside directors - 3
Internal directors (full-time) - 2

Outside directors - 3
Internal directors - 2

Internal director

PurposeThe Nominating Committee
nominates candidates for directors
and corporate executive officers aswell as potential successors for thepresidents of the major directly owned
subsidiaries that are not listedcompanies (Mitsubishi Chemical
Corporation, Mitsubishi Tanabe
Pharma Corporation, and Life Science
Institute, Inc.).

The Audit Committee audits theexecution of duties by corporate
executive officers and directors andreviews the Group’s internal control
systems, etc.

The Compensation Committee
determines the amount of
remuneration to be paid to individual
directors and corporate executive
officers as well as to the presidents ofthe major directly owned subsidiaries
that are not listed companies(Mitsubishi Chemical, Mitsubishi Tanabe
Pharma, and Life Science Institute).

Activities
in FY2019

The Committee met 6 times in total.
Reports were presented on matterssuch as succession plans, executive
appointments based on these plans,
and appointments of representativesof major subsidiaries. Discussions werealso held on methods for evaluating
CEO performance and the standards
for appointing CEOs (including
qualifications, abilities, andexperience).

The Committee met 13 times in total.
The areas of focus for the previous
fiscal year were the adequacy andeffectiveness of the internal control
system and the progress of themedium-term management plan
APTSIS 20. Based on the audit plan, theCommittee carried out audits on theexecution of duties by directors andcorporate executive officers,
conducted inspections on the directly
owned subsidiaries and exchanged
opinions with the accounting auditor.

The Committee met 7 times in total todiscuss the standard remuneration to
be paid to the executives and to review
the performance-linked remuneration.

Shareholders’ meeting

Board of Directors

Delegation of businessexecution decisions/oversight ofbusiness execution

Nominating Committee
Audit Committee

Auditing

Cooperation

Audit
Committee
Secretariat
Auditing

Accounting
auditorCompensation Committee

Financialauditing

MCHC’s executing departments
Corporate Executive
Officers Committee

Chief Group
Compliance Officer

President

Corporate Executive Officers
Committee makes decisions
on important matters

Corporate executive officers
Internal
Auditing Division(Internal Audit Office)Executive officer in charge of
the Internal Control DivisionInternal
auditing

Departments

Oversight for
implementation

Internal Control Division(Internal Control Office)Management administration,internal controls, auditing, etc.
Examination

MCHC subsidiaries

Corporate governance history
Category

Initiatives

Medium- tolong-term
targets(including
those alreadyachieved)

53

June 2013

June 2014

June 2015

June 2016

June 2019

Appointment andinauguration ofan outside director

Appointment andinauguration of
a foreign director

Appointment andinauguration ofa female director
Transition to a company witha nominating committee, etc.

Increase the numberof outside directors

Increase the numberof female directors

Increase diversity of
the Board of Directors

Increase diversity of
the Board of Directors
Improve managementtransparency and fairness
as well as management
supervision functions

Strengthen management
supervision functions

Strengthen management
supervision functions

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Increase diversity of
the Board of Directors

Corporate executive officers

Audit system (trilateral audits)

The corporate executive officers decide on and implement theoperational execution based on basic management policies
developed by the Board.
Regarding important matters in the management of the
MCHC Group, deliberations are made at the Corporate
Executive Officers Committee, which is a council formed ofcorporate executive officers. In addition to determining thedivision of duties of each corporate executive officer for othermatters, appropriate and efficient decision-making is madepossible by clarifying the decision-making authority of thecorporate executive officer in charge.

The Audit Committee cooperates with the internal audit
departments and the accounting auditor to enhance thetrilateral audits (conducted by the Audit Committee,
accounting auditor, and the internal audit departments).
The Committee holds discussions in advance with theInternal Audit Office on the internal audit plans made by theoffice and has regular meetings with the office to exchange
opinions and receive information on the results of internal
audits and other issues.
The Committee also cooperates closely with theaccounting auditor. It receives reports on the audit process,plans, progress status on audit work, and the results of audits,and exchanges information and opinions with the auditor.

Corporate Executive Officers Committee
The Corporate Executive Officers Committee is composed of all
corporate executive officers. It deliberates and decides onimportant matters concerning the management of MCHC andthe MCHC Group, and also monitors the Group’s business basedon basic management policies.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202054

4 Foundation of Sustainable Growth

GovernanceDiversity of directors

Main agenda items discussed at the Board of Directors’ meeting during FY2019

The Board of Directors decides on the MCHC Group’s basic management policies and supervises the execution of business in an
appropriate manner. The Board of Directors consists of diverse directors with a high level of expertise.
Management
experience

Finance andaccounting

Sciencetechnology,
IT and production

Riskmanagement

Businessstrategies
and marketing

Laws andregulations, etc.

Globalityand diversity

Yoshimitsu Kobayashi
Hitoshi Ochi
Hidefumi Date
Ken Fujiwara

Main agenda reported at the Board of Directors’ meeting

Review of the meaningfulness of strategic shareholdings

Formulation of KAITEKI Vision 30

Outcomes of engagement activities with institutional investors

Discussions on converting a listed subsidiary into
a wholly owned subsidiary

Effectiveness of internal control system

Governance structure of listed subsidiaries

Budgeting and planning of investments for the next fiscal year

Business monitoring

Glenn H. Fredrickson
Shigeru Kobayashi
Hiroshi Katayama
Hideko Kunii

FY2019 assessment of the Board’s effectivenessTakayuki Hashimoto

The annual evaluation exercise was facilitated by questionnaires which all the Board members participated in, and its outcomes werediscussed at the Board meeting. Based on the discussion, the chairperson evaluated the effectiveness of the Board.

Chikatomo Hodo
Kiyomi Kikuchi

Questionnaire

Tatsumi Yamada(Notes) 1 Each director is expected to have up to three fields of expertise as set above.
2 In order to enhance the supervisory function, a majority of the Board of Directors are non-executive directors.
(Directors indicated with the symbol ( ) act in an executive function.)

Period: Questionnaire survey conducted fromMarch through April 2020
Target: All 12 members of the Board of Directors

Policies on the nomination of director candidates• Structure of the Board of Directors

The Nominating Committee shall appoint a potential director who meets the following criteria:• Has a high level of expertise, profound insights into relevant fields, and can make decisions independently and fairly, which are qualities
that are required in fulfilling duties as a director of a company with a nominating committee, etc.
• Has high ethical standards and a law-abiding spirit.
• Is healthy enough to fulfill the responsibilities of a director.
• For outside directors, they meet the independence criteria set separately and are able to devote sufficient time to fulfill their duties. In
addition, the Committee shall ensure diversity among outside directors.

• Discussions held at the Board of Directors(portfolio management, risk management, andcorporate governance)• Themes that should be discussed intensively by
the Board of Directors (only for comments)

2. Major shareholder

A person who directly or indirectly holds 10% or more of the MCHC’s
total voting rights or a person engaged in execution of operation of acompany that directly or indirectly holds 10% or more of theCompany’s total voting rights.

3. Major business partner(1) A person engaged in execution of operation of a company*1
whose major business partner includes MCHC and group
operating companies (Mitsubishi Chemical, Mitsubishi Tanabe
Pharma, Life Science Institute, and Nippon Sanso Holdings; thesame shall apply hereafter.)(2) A person engaged in execution of operation of a major business
partner*2 of the Company and group operating companies.

4. Accounting auditor• The majority of the results of the questionnaire
were positive.

Based on the action items below, we arecommitted to continuously increasing the Board’s
effectiveness through activities such as:• Topics to be focused on in meetings of theBoard of Directors

The effectiveness of the Board of Directors
has generally been secured.

• Portfolio management and risk managementin the COVID-19 era• Meanwhile, the following comments were maderegarding discussions at meetings of the Boardof Directors.

• Creation of an environment for enhanced
discussions• In terms of risk management, there is room for
improvement in the way risks are perceived
and assessed in the context of global businessdevelopment.

The Company shall elect those as outside directors who do not fall under any of the following and are capable of overseeing theCompany’s management from a fair and neutral standpoint, free of any conflicts of interest with general shareholders.
(1) A person engaged in execution of operation of the Group(executive director, corporate executive officer, executive officer,
manager, employee, partner, etc.; the same shall apply hereafter.)(2) A person who has been engaged in execution of operation of the
MCHC Group in the past 10 years.

Next steps for further improvements• More dynamic discussions on portfolio
management are needed.

Standards for independence of outside directors

1. Related party of the Company

Summary of evaluation results• There should be additional discussions on therole and position of the Board of Directors of
the holding company and various committees.

5. Transaction as an individual

A person who receives money and other financial benefits of ¥10 million
or more per year from the Company or group operating companies.

• Role, function, and nature of the Board of
Directors of the holding company• Improving the infrastructure and operations tofurther promote the remote holding of
meetings of the Board of Directors• Prompt sending of materials for the Board of
Directors in advance• Improving the efficiency of explanation of theagenda on the day of the meeting of the Boardof Directors

6. Donation

A person who receives a donation or financial assistance of ¥10 million ormore per year from the Company or group operating companies or aperson engaged in execution of operation of a company that receives adonation or financial assistance of ¥10 million or more per year from theCompany or group operating companies.

7. Reciprocal assumption of the position of director

A person engaged in execution of operation of a company that has
elected any of the directors and employees of the MCHC Group as
its director.

Assessment of the CEO
The Nominating Committee assesses the performance of the CEO from multiple perspectives using indices (see page 7) based on thethree axes of KAITEKI Management (MOS, MOT, and MOE), and also discusses the appropriateness of the continuation of duties by theCEO, using metrics such as 360-degree feedback. The Nominating Committee provides feedback on the results of discussions to theindividuals involved to improve the quality of management.

8. Close relatives, etc.

(1) Close relatives, etc. of a person engaged in execution of important
operations of the MCHC Group (spouse, relatives within thesecond degree of relationship or any person who shares the same
livelihood; the same shall apply hereafter.)(2) Close relatives, etc. of any person who meets the definition of
items 3 through 7 above.

Accounting auditor of the MCHC Group or an employee thereof*1 If the said business partner receives from the Company and group operating companies an amount equivalent to 2% or more of its annual consolidated net sales in thelatest fiscal year, this company shall be considered as the one whose major business partner includes the Company.
*2 If the Company and group operating companies receive from the said business partner an amount equivalent to 2% or more of the Company’s annual consolidated net
sales in the latest fiscal year or the said business partner loans to the MCHC Group an amount equivalent to 2% or more of the Company’s total consolidated assets, thesaid business partner shall be considered as a major business partner of the Company.
*3 For requirements 3 through 7, these include cases where the requirements have been met in the past three years.

55

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202056

4 Foundation of Sustainable Growth

GovernanceDirector remuneration
Policy on deciding remuneration for
directors and officers
The remuneration system for directors, and that for corporate
executive officers shall be different. Remuneration isdetermined by the Compensation Committee based on thefollowing concepts.
Basic policy for deciding remuneration for directors• In view of supervising and auditing our management from an
independent and objective standpoint, we have only establishedbasic remuneration (fixed remuneration).
• In order to secure human resources suitable for fulfilling our
responsibilities as a director, the level of remuneration will be
determined by taking into account trends in other companies,
expected roles, and functionals, etc.
(Note) For a director concurrently serving as a corporate executive officer, theremuneration for a corporate executive officer shall apply.

Basic policy for deciding remuneration for corporate
executive officers• The remuneration system shall strongly encourage the integrated
practice of the three axes of KAITEKI Manegement (MOS:Management of Sustainability, MOT: Management of Technology,
and MOE: Management of Economics) in an aim to realize KAITEKI
as the Group’s vision.
• The remuneration system shall effectively function as an incentive
to promote improvements in short- and medium-term performanceas well as sustainable corporate and shareholder value.
• The level of remuneration shall be competitive in order to ensure
the retention and acquisition of excellent management personnel
to drive the Group’s sustainable growth.
• A fair and reasonable remuneration determination process shallbe implemented to ensure accountability to all stakeholders,
including shareholders, customers, and employees.

Composition of the remuneration of corporate
executive officers
In light of the basic policy, the remuneration of corporate
executive officers was reviewed in fiscal 2019, and fromfiscal 2020, we have decided to increase the ratio of
performance-linked remuneration and stock-based
remuneration for corporate executive officers to more effective
ratios, and have introduced a new restricted stock remuneration
plan. We have also decided to add an individual evaluation(non-financial evaluation) to the cash bonus evaluation.

The remuneration level for corporate executive officers is set at
a competitive level and an appropriate remuneration

Fixed
remuneration

Variable
remuneration

Basic remuneration

Individual
evaluation(non-financial
evaluation)

Basic remuneration

Cash bonus

Fixed remuneration(50%)

Restricted
Share
stock
remuneration compensation

Performance-linked
remuneration(37.5%)
Stock-linked pay(25%)(Note) The remuneration composition ratio is calculated based on the standard
amount (amount paid if 100% of the target is achieved with respect toperformance-linked remuneration).

How performance-linked remuneration is determined
The Compensation Committee deliberates and decides on
performance-linked remuneration based on the following formula.
Cash bonus
In principle, the amount paid varies between 0% and 200% of
the standard amount set for each position, depending on thestatus of achievement of annual targets (KAITEKI value
evaluation) and individual evaluation in the three management
axes of KAITEKI Management.

Standard amountby position

x

KAITEKI value
evaluation(0% to 200%)x

Individual
evaluation(±20%)

Overview
Basic remuneration for the performance of duties, set according to the role and responsibility of each corporate
executive officer (such as their role and whether they have representative rights)

Cash is paid each fiscal year based on the KAITEKI value evaluation and individual evaluation (including the status
Performance- Cash bonusof achievement of goals in the medium- to long-term management plan and demonstration of leadership).
linkedremuneration Share remuneration Points are awarded according to the KAITEKI value evaluation each fiscal year, and common shares of theCompany equivalent to the number of accumulated points are provided upon retirement.

Restricted stock compensation

57

KAITEKI value evaluation

Cash bonus payment for each individual =Remuneration level

Remuneration composition

composition ratio every year by the Compensation Committee,
using data from an external specialist organization’s survey on
executive remuneration for each position and responsibility andafter conducting a comparative evaluation of remunerationlevels and the linkage with performance for other companies ofthe same size in terms of domestic sales.
Performance-linked remuneration consists of a cash bonus
and stock remuneration, and is designed to motivate
management to maintain a balance between short-, medium-,and long-term performance and improvement in corporate andshareholder value.
The remuneration composition ratio for fiscal 2020 for
the president was 50% for basic remuneration, 25% for
performance-linked remuneration as a cash bonus (standard
amount), 12.5% for performance-linked remuneration as stock
remuneration (standard amount), and 12.5% for restricted stock(base amount). Remuneration is set for other corporate
executive officers in the same manner as the president, with ahigher percentage of variable remuneration for higher positions.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Remuneration to further promote the creation and enhancement of medium- to long-term sustainablecorporate value and the sharing of value with shareholders. Restricted stock equivalent to a standard amountdetermined by position are issued each fiscal year and the restrictions on transfer will be lifted upon retirement.

Share compensation
This is a framework in which common shares of the Company are
distributed through the Board Incentive Plan (BIP) trust. Points areawarded every year depending on the status of achievement ofannual targets (KAITEKI value evaluation). Common shares of theCompany and dividends from those common shares equivalent
to the number of points accumulated are then provided tocorporate executive officers at the time of retirement.
Number of points granted to individuals =Base points by position x KAITEKI value evaluation (0% to 200%)

Return of remuneration
As necessary, the Company may utilize other temporary
remuneration or benefits, after separate discussions by theCompensation Committee. In the event of a serious case of
misconduct or violation by a director or corporate executive
officer, the Company may request that the director or corporate
executive officer in question forfeit the beneficial interest in theexecutive officer’s remuneration (based on a malus clause) or
return the remuneration (clawback).

Total amount of executive remuneration
The total amount of remuneration by executive category forfiscal 2019 is as follows.

KAITEKI value evaluation
The remuneration system is designed to make employees
strongly aware of KAITEKI Management as a means of achieving
KAITEKI, the Company’s vision by using the management
indices of MOS, MOT, and MOE in the KAITEKI Management
program promoted by the Company as the evaluation basis for
performance-linked remuneration.
The specific evaluation indices and evaluation ratios for
KAITEKI value evaluation are as follows.
Indices

Details

Ratio

MOS
Indices

Indices related to matters such as the reduction of
global environmental impact, contribution to healthand medical care, contribution to social issues,compliance, and prevention of accidents and fires

10%

MOT
Indices

Indices related to R&D efficiency, technologicaladvantages, and consistency with social needs

10%

MOE
Indices

Indices related to matters such as core operating
income, ROE, ROIC, and free cash flow

80%

The KAITEKI value evaluation is based on the achievementof target values for each fiscal year, which are determined after
deliberation by the Corporate Executive Officers Meeting andverified as appropriate by the Compensation Committee.
The Compensation Committee also works with theNominating Committee to confirm the fairness andreasonableness of the level of achievement compared to thetargets declared at the beginning of the relevant fiscal year.

Individual evaluation
The targets for the president are determined at the start of the
fiscal year for evaluation, after deliberation by the Compensation
Committee and Nominating Committee regarding the targets
declared by the president. The evaluation is deliberated anddetermined by the Compensation Committee and Nominating
Committee at the end of the fiscal year for evaluation, based ona self-evaluation by the president.
Targets for corporate executive officers other than thepresident are determined at the start of the fiscal year forevaluation through interviews with the president and eachcorporate executive officer, and are deliberated and approvedby the Compensation Committee. The evaluation is determinedthrough interviews with the president and corporate executive
officer at the end of the fiscal year under review, subject todeliberation and approval by the Compensation Committee.
The Compensation Committee works together with theNominating Committee to confirm the fairness andreasonableness of the targets and evaluation of each corporate
executive officer.

No. ofpersons

Category

Amount of remuneration paid, etc.
(Millions of yen)Basicremuneration

Performance
remuneration

Total

Directors(inside)

6

212

15

227

Directors(outside)

7

71

—

71

Corporate
executive officers

7

287

91

378

Sum total

20

570

106

676

(Notes) 1 The total amount of remuneration, etc. MCHC and its subsidiaries paid toofficers is shown as the amount of remuneration, etc. paid above.
2 The amount of remuneration, etc. the Company paid is ¥296 million to
thirteen directors (of which, ¥71 million to seven outside directors) and¥371 million to seven corporate executive officers.
3 The Company remunerates directors who concurrently serve as Corporate
Executive Officers for their services as corporate executive officers.
4 Performance remuneration to directors (inside) is stock remuneration
with a BIP trust paid to directors who concurrently served as corporate
executive officers in the previous fiscal year as performance
remuneration at the time of standing as corporate executive officers.
5 Performance remuneration to corporate executive officers is remuneration
paid by the Company based on cash bonus and stock remuneration
with a BIP trust.

Board Incentive Plan (BIP) trust
Under this incentive plan set for five consecutive fiscal years(including the three fiscal years beginning with the fiscal year
ended March 31, 2019 and ending with the fiscal year ending
March 31, 2021) corresponding to the period of the Company’s
medium-term management plan, corporate executive officers will
be given points according to their titles and achievement level forthe fiscal year targets and the targets set in the medium-term
management plan. This is an incentive plan under which theCompany’s shares and dividends generated from the Company’s
shares that are equivalent to the number of accumulated points
calculated after the retirement of the corporate executive officer
are provided as executive remuneration.
[Beneficiary]
MCHC’scorporate executive officers[Trustor]
MCHC(1) Establishment (2) MCHC’s
sharesof the trust(2) Payment
for the shares(3) Provision of
MCHC’s shares[Trustee]
Mitsubishi UFJ Trust andBanking Corporation

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202058

4 Foundation of Sustainable Growth

Governance

Message froman Outside Director of the Board

The focus of my mission is tocreate a business groupwhere employees can engage
in rewarding activities while
maximizing both profitsand social well-being
Chikatomo Hodo
Outside Director of the Board

Q1

59

It’s been a year since your appointment
as an outside director. Has your view ofthe overall operation of the MCHC Groupchanged over the past year?

Q2

What do you think of your role andexpected responsibilities as
an outside director?

I look at the Group’s various innovative businesses andI have a positive outlook for our future society.

With KAITEKI guiding us, our task is to support portfoliotransformation and ESG activities.

As a business consultant who had been involved with theoperation of various enterprises, including the competitors andclients of Mitsubishi Chemical Holdings Corporation, I was awareof the diverse nature of our Group’s businesses. Now, being apart of it has made me understand its true diversity and thepotential of its products and services within society. This ranges
from the materials it produces for essential industrial and social
infrastructure, to its innovation in the field of science, with its
outstanding research and production of performance chemicals,
pharmaceuticals, and healthcare solutions.

With a view to enhance the medium- to long-term corporate
value, I believe my role is to monitor the operation as objectively as
possible, and to keep Mitsubishi Chemical Holdings’ stakeholders
and shareholders engaged. By drawing on my wealth ofexperience, I will outline two ways they can do this.
Firstly, Mitsubishi Chemical Holdings should further accelerate
its portfolio transformation which is an important role of a holding
company. It has already focused on creating synergy between
businesses based on its original concept called KAITEKI. The
medium- to long-term basic management strategy KAITEKI Vision
30 (KV30) is expected to spearhead their efforts to address
challenges faced by the international community, and enable
portfolio transformation that can help create sustainability. Whilethese long-term transformation objectives should be encouraged,
there is a tendency for investors to view businesses that are too
diversified in a negative light. This is called conglomerate discount. I
am therefore determined to turn this mindset into a conglomeratepremium. Mitsubishi Chemical Holdings is a business group whose
operations have brought significant benefits to society. My role is
to maximize the potential of the Group and continue its valuable
contribution into the future. It is a challenging but extremely
rewarding job.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

During my 30-year professional career as a consultant,
I have not only been involved in a range of transformationsat businesses and government organizations but have also
given lectures at universities. By leveraging this priorknowledge, as well as my experience interacting with
influential leaders in and outside of Japan, I aim to offer
multifaceted support to help create a mechanism of open
innovation and develop an ecosystem. I will also leverage
my global networks to facilitate the utilization of digitaltechnologies that are essential for a successful transformation.
Secondly, Mitsubishi Chemical Holdings should strive toachieve ESG goals, an important index to evaluate companies inrecent years, and also to strengthen measures for profitability. It
has become one of the first companies to adopt a company witha nominating committee, etc., and is focused on businesses that
contribute to environmental and social objectives through
KAITEKI Management. In fact, with KV30 recognizing theimportance of achieving a circular economy as one of its pillars,
the Group holds a leadership position in ESG. However, while
many Japanese companies traditionally consider the needs ofdiverse stakeholders, my concern is that they are less vigorous in
improving profitability such as ROI and ROIC. Without earnings,
there would be no investment in human resources andtechnologies that are essential for future environmental andsocial performance. On the other hand, COVID-19 has madeemployee retention and supply chain collaboration more
important than ever. What the current situation indicates is thatpriorities differ in both ESG and revenue terms, depending on
which time scale is considered, and that there is no clear answer.
My mission as a member of the MCHC Group is to identify thebest possible investment balance and help it achieve growth byaddressing social challenges.

Q3

express deeper and more objective thoughts, and I am going topropose such meetings to be arranged in the near future.

Q4

What challenges do you think
the MCHC Group will face in the future?

We encourage the Group to further disseminate
information that contributes to improving
global sustainability.
In the short term, it will face the consequences of COVID-19.
The pandemic has already affected the Group’s performance,
while their market and industry structures are also likely tochange in the longer term, requiring wide-ranging discussions
about its impact.
Since my appointment, I have felt the MCHC Group has
relatively low social recognition. While many people expect
businesses to address global social challenges such as the SDGs,
the Group, unfortunately, is not one of the first companies that
potential recruits think of when it comes to this issue. This willcause the degradation of human resources and R&D skills,
leading to a loss of opportunities. To prevent this fromhappening, it is imperative to ensure a thoroughimplementation of the human resources system reforms andglobal management as set out in KV30.
During my previous employment, I took part in various
activities to improve employees’ engagement. I am now planningto improve the MCHC Group’s human resources systems andprocesses, while understanding the motivation of its
approximately 70,000 employees throughout the world. At thesame time, I would like to encourage the Group to disseminate
information on how excited they are to provide new innovative
solutions for social issues.

How effective do you think Board
meetings are in ensuring yoursupervisory responsibility?

With the provision of information before meetings, theBoard is well informed and active in discussions.
l feel that sufficient information is provided regularly from the
Corporate Strategy Division to outside directors in advance ofBoard meetings. At these meetings, we have made important
decisions, including the one to acquire 100% ownership ofMitsubishi Tanabe Pharma Corporation last year. The officer
in charge and the Corporate Strategy Division shared theinformation prior to Board discussions. Even when there aredifferences in opinions, I believe that the Board has managed toarrive at conclusions through a professional and healthy processof discussion. One thing I would desire is the opportunity foroutside directors to meet exclusively to discuss certain
preselected topics, even though a liaison meeting led by outside
directors is held every month. I believe this would allow us to

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202060

4 Foundation of Sustainable Growth

GovernanceOutside directors’ major activities and attendance at Board of Directors’ and Committee meetings
Status of activities

Taigi
Ito

During the Board of Directors’ meetings, he provided input on such matters as finance andaccounting as well as risk management, drawing on his experience and profound insight as acertified public accountant.
At the Audit Committee, he fulfilled his assigned duties as an outside member of the
Audit Committee in terms of conducting audits based on audit plans, focusing on matterssuch as the development and operations of the internal control system, and intensive
auditing regarding the progress of the medium-term management plan APTSIS 20 during the
fiscal year under review. At the Compensation Committee, he led meetings as its chair withrespect to major agenda items such as the levels of compensation for corporate executive
officers and the proportion of performance-linked remuneration, and otherwise fulfilled his
assigned duties in part by reporting outcomes of discussions to the Board of Directors.

Message from the Chairperson

We will provide expert solutions
that can help achievea sustainable society inorder to increase corporate
and shareholder value
Yoshimitsu Kobayashi
Chairperson

HidekoKunii

Overview of the Board of Directors
As the Board of Directors of a company with a nominating
committee, etc., we are responsible for developing basic
business policies and supervising the overall operation of thebusiness. During fiscal 2019, the Board had a total of 11
meetings. At the meeting held in September, we spent a longtime discussing our medium- to long-term basic management
strategy KAITEKI Vision 30, which visualizes what the Mitsubishi
Chemical Holdings (MCHC) Group should look like in 2030
considering the Earth, society, and people by backcasting fromour vision of society in 2050. During our meeting in November,
active discussions were exchanged about the plan to acquire
100% ownership of Mitsubishi Tanabe Pharma Corporation.

Situations surrounding the MCHC GroupThe COVID-19 pandemic has brought significant changes not
only to society and the economy but also to the way we live
and work. The need to coexist with the virus by adopting
practices such as reducing physical contact and maintaining
social distancing, is making digital technologies more vital thanever. In Japan, however, we face the urgent need to accelerate
digital transformation. The rapid rise in telework due to thepandemic, highlighted how far behind we were in this fieldcompared with other countries.
On the other hand, physical contact is a necessary part of ahealthy and comfortable life. In areas such as healthcare,nursing care, entertainment, and sports, physical contact with

61

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

people and objects is essential. As a leading manufacturer, ourgroup deals directly with these related objects at production
and research sites, and through the provision of products andservices in the Performance Products, Industrial Materials(Chemicals and Industrial Gases) and Health Care domains, wehelp people lead a comfortable and fulfilling life. With regard to
the current pandemic, we offer a wide range of durable
physical products to help prevent infection. This includes
plastic gowns and face guards designed for healthcare
professionals, water-soluble laundry bags to be used athealthcare facilities, and transparent acrylic panels that can beinstalled as partitions at reception counters. We will continue toprovide cutting-edge solutions that can help address a variety
of pressing social challenges.

TakayukiHashimoto

Chikatomo
Hodo

Our efforts to realize KAITEKI
The current COVID-19 crisis is expected to accelerate theexisting trend to invest in ESG. More and more people will
expect businesses to contribute to wider society, which will
ultimately transform the way businesses are valued.
As we move forward with our next medium-term
management plan in fiscal 2020, the Board of Directors faces animportant task of transforming our portfolio in order to respondto the current and post-pandemic situations. As chairman, my
mission is to proactively lead discussions so that outside
directors can perform to their full potential. Although the futureremains uncertain, we will continue our efforts to increase
corporate and shareholder value in order to achieve KAITEKI.

Attendance at Board of Directors
and other meetings (FY2019)

Name

Kiyomi
KikuchiDuring the Board of Directors’ meetings, she provided input on matters such as women’s
empowerment, science technology, and IT, drawing on her profound insight in diversity
promotion as well as her extensive experience in company management and her expertisein the information processing domain.
As a member of the Nominating Committee, she fulfilled her assigned duties by providing
appropriate input regarding major agenda items for the fiscal year under review such as senior
management turnover and recruiting requirements and assessments for CEO. At the Audit
Committee, she appropriately fulfilled her assigned duties as an outside member of theCommittee in terms of conducting audits based on audit plans, focusing on matters such as thedevelopment and operations of the internal control system, and intensive auditing regarding the
progress of APTSIS 20 during the fiscal year under review.
During Board of Directors’ meetings, he provided input mainly in relation to global
management, business portfolio strategy, and risk management, drawing on his extensive
experience in company management and profound insight in digital business.
At the Nominating Committee, he led meetings as its chair with respect to major agenda
items such as senior management turnover and recruiting requirements and assessments for
CEO, and otherwise fulfilled his assigned duties in part by reporting outcomes of discussions
to the Board of Directors. As a member of the Compensation Committee, he executed his
duties by providing appropriate input regarding major agenda items for the fiscal year underreview such as the levels of compensation for corporate executive officers and the proportionof performance-linked remuneration.
During the Board of Directors’ meetings, he provided input on such matters as global
management, functions of a pure holding company, and business models for enhanced
corporate value, drawing on his extensive experience in company management and profoundinsight in management knowhow.
As a member of the Nominating Committee, he fulfilled his assigned duties by providing
appropriate input regarding major agenda items for the fiscal year under review such as senior
management turnover and recruiting requirements and assessments for CEO. As a member of
the Compensation Committee, he executed his duties by providing appropriate input regarding
major agenda items for the fiscal year under review such as the levels of compensation forcorporate executive officers and the proportion of performance-linked remuneration.
During the Board of Directors’ meetings, she provided input on such matters as the functions
and responsibilities of the Board of Directors, legal risk assessments in individual cases,
compliance matters, drawing on her experience and profound insight as a lawyer.
As a member of the Nominating Committee, she fulfilled her assigned duties by providing
appropriate input regarding major agenda items for the fiscal year under review such as senior
management turnover and recruiting requirements and assessments for CEO. At the Audit
Committee, she appropriately fulfilled her assigned duties as an outside member of theCommittee in terms of conducting audits based on audit plans, focusing on matters such as thedevelopment and operations of the internal control system, and intensive auditing regarding
progress of APTSIS 20 during the fiscal year under review.

Board ofDirectors’
meetings

11/11

100%

Audit
Committee
meetings

13/13

100%

Compensation
Committee
meetings

7/7

100%

Board ofDirectors’
meetings

11/11

100%

Nominating
Committee
meetings

6/6

100%

Audit
Committee
meetings

13/13

100%

Board ofDirectors’
meetings

11/11

100%

Nominating
Committee
meetings

6/6

100%

Compensation
Committee
meetings

4/5

80%

Board ofDirectors’
meetings

7/7

100%

Nominating
Committee
meetings

5/5

100%

Compensation
Committee
meetings

5/5

100%

Board ofDirectors’
meetings

7/7

100%

Nominating
Committee
meetings

5/5

100%

Audit
Committee
meetings

10/10

100%

Outside Director Liaison Committee

Training

Apart from the Board of Directors’ meetings, the Outside
Director Liaison Committee holds a monthly meeting, which is
attended by outside directors, the chairman of the Board of
Directors and the president of the Company, to share importantmanagement information and exchange frank opinions on
management issues. In particular, it ensures that the outside
directors are able to fully exercise their expertise and insight.

Outside directors are constantly briefed on the MCHC Group’sbusiness and organizations and are regularly given the opportunity
to visit the Group’s business locations in Japan and abroad and to
discuss with the management team. Internal directors are also
given opportunities to develop the qualities required of directors
through training sessions on compliance and internal control
and a range of seminars held by external organizations.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

62

4 Foundation of Sustainable Growth

GovernanceRisk Management

Risk management process

The Mitsubishi Chemical Holdings (MCHC) Group defines risks as “potential events that could, during the course of
corporate activities, undermine public trust or damage the corporate value of the MCHC Group.” We recognize,
analyze, and evaluate risks, and prevent the materialization of significant risks. We take measures to minimize thepersonal, economic, and social damage arising if such risks materialize.

2 Risk assessment and measures

examination
3 Detailedof risk measures

All operating companies of theGroup regularly identify bothinternal risks associated withbusiness types and models, andexternal risks such as country
specific risks and economic risks.

Each operating company prioritizes the risks
identified using a uniform framework based on
impact and frequency. Senior managers specify
risks with significant impacts on the Groupmanagement as major risks. The relevant
departments then implement appropriate risk
mitigation measures as instructed.

Risk measures are periodicallyscrutinized. Countermeasuresagainst the major risks, in particular,
are reported to each Chief Risk
Management Officer at operatingcompanies.

4 Auditing
To ensure the proper
administration of these risk
management systems, theInternal Audit Officeperiodically conducts audits
and reports to the Chief Risk
Management Officers.

Charter of Corporate Behavior

Risk management system

Measures against major risks

The MCHC Group Charter of Corporate Behavior, consisting of
13 chapters, explicitly declares that we act with sound ethics
and good common sense in every aspect of our corporate
activities. It also stipulates that we share the fundamental
behavioral principles for sustainable development, ourapproach to major issues for contributing to the realization of
KAITEKI, and the basic ideas on and initiatives for the realizationof KAITEKI, with our business partners and others.

The MCHC Group is engaged in corporate activities with theobjective of improving corporate value. These activities are
related to social conditions, the global environment, andvarious other externalities, and they involve potential risks.
We have in place a risk management system whereby the
MCHC President is responsible for the entire risk management
across the Group, in accordance with the MCHC Group Risk
Management Basic Rules. The status of the management ofsignificant risks and risk management policies that affect theentire Group are deliberated on and decided by the MCHC’s
Risk Management Committee. Such deliberations and decisions
are reported to the Board of Directors as needed.
The presidents of operating companies are responsible forestablishing each company’s risk management system andconducting management through each Risk Management
Committee. As part of our risk management system, werecognize the importance of fostering an awareness of risk
management among executives, managers and employees ingeneral. For this reason, all individuals are expected to be
involved in risk management from their own standpoints.

The MCHC Group has categorized the following risks as high priority. In recognition of these risks, we strive to avoid the occurrence ofsuch risks and minimize damage when they do occur.

MCHC Group Charter of Corporate Behavior
01 Awareness and Responsibility

08 Fair Business Practices

02 Accountability and Transparency

09 Customer Satisfaction

Legal Compliance and Fairness,
03
Equitability, and Integrity

10 Information Management

04 Valuing Stakeholders

11 Science and Technology

05 Respecting Human Rights

12 Community Involvement

06 Employment and Labor

13 Shared Standards

07 Environment and Safety

Risk management system conceptual diagram

Reporting
MCHC

Accidents, work injuries, and large-scale natural disasters
As a safety measure to prevent any accidents at each operating
site, we enhance the quality of training for operators formaintaining appropriate operations and safe facilities. In theevent of accidents, we analyze the cause, plan countermeasures,and verify the effectiveness of these countermeasures. We also
strive toward advance prevention and recurrence prevention of
accidents by sharing technical and operational measures among
Group companies. In preparation for large-scale natural disasters,
we conduct special training customized based on the conditions
for the head offices, branches, and offices of each operatingcompany to minimize damages and to secure business
continuity under such an event.
Compliance
In order to instill compliance within the Group, we have taken
comprehensive necessary actions such as preparing the Group
Charter of Corporate Behavior and rules and standards,
distributing a compliance guidebook, providing training andseminars, implementing regular audits, as well as operating andmaintaining a compliance hotline. We also strengthen
compliance at overseas operations, by adjusting codes ofconduct and implementation rules in accordance with therules, regulations, and social norms of the country.

Information security
MCHC has developed the Group Information Security Policy, inorder to protect information assets and to maintain corporate
value as a whole. Also, we continuously reinforce information
security capabilities at our global business sites. We are also
promoting awareness of strict compliance with the Group
Information Security Policy among all employees by providing
special training, including practical drills in response to targeted
attack mails or other training via an e-learning system.
Subsidiary governance
MCHC clarifies the responsibilities of corporate organizations
and improves systematic approaches to reduce overall Grouprisks in the governance of subsidiaries in Japan and overseas.
For example, in order to mitigate risks arising from laws andsystems specific to the countries in which we operate, we havecollected and disseminated cases of significant accidents andviolation of laws in each country to raise awareness of thoserisks at overseas Group companies.
Furthermore, in preparation for political or other changes insuch countries, we have established a system of communication
between the local area, the operating companies, and theCompany to ensure awareness of governance issues.

Each Operating Company’s Board of Directors

Board of Directors of MCHC
Supervising

Reporting
Each Operating
Company

Risk Management Committee

Participating
Risk Management Committee Chairperson: President(Chief Risk Management Officer)

Vice-Chairperson
Secretariat(Internal Control Office)Committee members

63

1 Identification of risks

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Instructing

Supervising

Each company’s Risk Management
Committee
Risk Management Committee Chairperson:
Each company’s President(Chief Risk Management Operating Officer)

Vice-Chairperson

Reporting

Secretariat

Committee members

Case studies of addressing the material issues
Mitigating environmental risks associated withplant effluent leakage
The MCHC Group promotes initiatives to effectively use waterand improve the quality of water in its business activities inorder to conserve water resources.
Mitsubishi Chemical Corporation mitigates the risk of plant
effluent containing pollutants in excess of standards by
operating its wastewater treatment facilities appropriately.
Furthermore, the company has installed sensors to detect andshut off abnormal wastewater at an early stage and amonitoring system to ensure thorough management as

The Group’s Materiality• Water

precautions.
At some plant sites, drains and septic tanks have been
consolidated to reduce the number of areas where such risks
emerge. Facilities have also been remodeled to prevent plant
effluent from being mixed with rainwater in preparation for thetorrential rains like those that have been occurring frequently inrecent years. Mitsubishi Chemical is working to achieve zeroenvironmental problems throughout the company throughsuch measures.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

64

4 Foundation of Sustainable Growth

GovernanceCompliance

Measures against future risks
The MCHC Group is also addressing future risks by planning a medium- to long-term strategy.

Climate change
While the chemical industry is an industry with high GHG
emissions, it can also contribute to the reduction of GHGs
through its products. There is a risk that future earnings may beaffected if we are unable to comply with customer requests for
products such as automobiles and lighting fixtures, for which
environmental standards and energy efficiency are important.
For this reason, the Group is developing products that
contribute to combating climate change by setting quantitative
targets for the provision of products and services that help toreduce GHG emissions.

Digital technologies
Digital technologies represented by AI and IoT show potential
to create dramatic changes in the chemical industry. The Group
could face the risk of losing its competitive advantage in themarket if it does not properly adjust to the new digital era.
Under the new structure, we apply AI and IoT in process control,
product quality inspection, automation of analysis, and thedevelopment of new materials and medicines in order tomaintain and acquire a competitive position in the market.

Our response to COVID-19
The MCHC Group puts priority on the safety and healthof its employees and their families and its business
partners. We are making efforts to ensure stableproduction while taking every measure possible toprevent the spread of COVID-19.
The Mitsubishi Chemical Group established an
emergency headquarters and took the necessary
infection prevention measures according to each region
and business location in February 2020. To ensure thecontinuity of production in order to fulfill its social
responsibility as an integrated chemical manufacturer. The
Mitsubishi Tanabe Pharma Group has established a Crisis
Management Division based on its Crisis Management
Guidelines. It has established a system to ensure thecontinuity of production and distribution ofpharmaceuticals, their quality and safety, and a stablesupply of high-quality pharmaceuticals. The Taiyo Nippon
Sanso (currently Nippon Sanso Holdings) Group has
ensured that all regional business continuity plan (BCP)
response units around the world are familiar with theroutes and rules for reporting to the BCP response unit at
headquarters. There have been no problems withproduction and supply systems in Japan and overseas, andthe group has continued to operate as normal. The Life
Science InstituteD Group established an emergency
headquarters and utilizes telework whenever possible,
based on the nature and characteristics of the work ofeach department.

The adoption of new lifestyles has been proposedby a national panel of experts considering the response
to COVID-19 in Japan, based on the assumption that it
will take some time until the health, safety, and securityof people can be sufficiently ensured through theestablishment of treatments and the development of a
vaccine going forward. The Group is creating guidelines
for work styles, including new lifestyles, such asencouraging telework and ensuring social distance inaccordance with the “Prevention of COVID-19 andStrengthening of Health Management for Workers in
Businesses which are Required Continuation Under theEmergency” released by the Ministry of Health, Labourand Welfare and the “Guidelines for Preventing the
Spread of Novel Coronavirus Disease (COVID-19) in
Manufacturing Workplaces” and “Guidelines forPreventing the Spread of Novel Coronavirus Disease(COVID-19) in Offices” released by the Japan Business
Federation. The MCHC Group will continue its efforts tocontribute to overcoming the COVID-19 crisis byproviding products that can help prevent infection inrecognition of its social responsibility as a provider of awide range of materials and medical products.
COVID-19 is expected to continue to have an
impact on the business of the MCHC Group for the time
being, and a review of medium- to long-term businessdevelopment plans is being considered as well (seepages 19 to 24).

For the Mitsubishi Chemical Holdings (MCHC) Group, the word “compliance” is a broad term covering corporate
ethics and general social norms, not only basic adherence to laws.
We regard compliance as one of the most important management issues for ensuring that we continue to exist
as a company and be trusted by the public. Accordingly, we take various measures to instill a culture of compliancethroughout the entire Group.

Compliance promotion structure

Hotline systems

The Chief Group Compliance Officer (Group CCO) is appointed
by the Board of Directors, and the Internal Control Officesupports the Group CCO, acting as a secretariat forcompliance matters.
The secretariat prepares standard training tools, organizes
training courses, and has established hotlines and educational
system for overseas Group companies to support the Group’s
activities. It seeks to ensure compliance in accordance with local
conditions through Regional Headquarters (RHQ) established in
the US, Europe, and China. Each operating company has its own
Compliance Promotion Committee as well as an Internal
Control Department that serves as secretariat. They operate
hotline systems and implement training courses and seminars,
business audits and compliance awareness surveys based on
the MCHC Group Compliance Promotion Rules.
If an actual or potential compliance violation is found, thedepartment with issues will report and consult with the CCO ofeach company and the Group CCO, receive guidance anddirections, and take appropriate corrective actions andmeasures to prevent recurrence.

Hotline systems are managed and operated with the Group,
operating companies’ Internal Control Departments, andexternal lawyers serving as contact points. In fiscal 2019, 142cases were reported via the hotline systems. We respond toreported issues through our investigation teams, which areheaded by the managers of the Internal Control Departments.
Corrective measures are taken promptly in line with the relevant
regulations under the direction of the CCO.

Measures and results in FY2019
In fiscal 2019, we commissioned an external agency to survey
employees’ awareness of compliance within the Group in Japanin order to continuously monitor the spread of complianceawareness.
At the same time, we have quantified the responses toquestions related to matters such as individual awareness andbehavior and the workplace climate as a complianceimprovement awareness index and incorporated it into our
MOS Indices.
We have conducted various training programs, hotline
management, and awareness surveys overseas, and confirmed
an increased awareness of compliance among employees.
The compliance departments will continue sharing
information between Japan, the US, Europe, China, and otherparts of Asia, and will promote compliance as a Group throughthis network.

Case studies of addressing the material issues
Compliance training
In the Group, we have conducted compliance training in Japanand overseas for all officers and employees based on hierarchy.
We provide a variety of learning settings, including lecture-styletraining for large groups and discussion-style training for small
groups to enhance the effectiveness of such training.

Compliance training at Mitsubishi Chemical (Thailand)

65

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202066

5 Financial and Non-Financial Information

With the start of the medium-term management plan APTSIS 20, we have adopted the International Financial Reporting Standards (IFRS) fromfiscal 2016. Core operating income is calculated as operating income (loss) excluding certain gains and expenses attributable to non-recurring
factors (gains and losses incurred by business withdrawal and contraction, etc.) as defined under IFRS. We disclose core operating income as
our unique gains/losses incurred by staged gains/losses, considering the comparability with the operating income of J-GAAP.

Financial Summary

J-GAAP (FY2009–FY2015)

Figures for years indicated with (*) do notinclude results from discontinued operations.

International Financial Reporting Standards (IFRS FY2015–FY2019)

2009

2010

2011

2012

2013

2014

2015

For the year

Millions of yen

For the year
Sales revenue

2016*

2017

2018*

or decrease
2019* Increase(%)
2019

Thousands of
US dollars

Millions of yen

3,543,352

3,376,057

3,724,406

3,840,341

3,580,510(6.77%)

32,848,716Core operating income

300,410

307,522

380,489

314,104

194,820(37.98%)

1,787,339

Income before taxes

252,791

258,343

344,077

284,846

122,003(57.17%)

1,119,294

46,444

Net income attributable to owners of the parent

51,358156,259

211,788

169,530

54,077(68.10%)496,119

2,515,079

3,166,771

3,208,168

3,088,577

3,498,834

3,656,278

3,823,098

Operating income

66,342

226,493

130,579

90,241

110,460

165,681280,026

Income (loss) before income taxes andminority interests in consolidated subsidiaries

43,311

169,552

127,474

82,900116,594

165,621

198,248

Net income (loss) attributable to owners of the parent

12,833

83,58135,486

18,59632,24860,859Net sales

2015*

Total comprehensive income

37,51386,74264,19994,900134,016

173,692

7,695

Total comprehensive income

34,302

226,493

297,476

205,898475(99.77%)

4,358

Capital expenditures

119,025

117,806

116,145

132,221

133,339

165,057

176,508

Capital expenditures

213,134

206,482

225,189

231,742

240,390

3.73%

2,205,413

Depreciation and amortization

129,574

148,697

145,695

129,549

131,571

151,253

180,374

Depreciation and amortization

182,656

174,040

178,895

199,332

239,824

20.31%

2,200,220

R&D expenditures

136,863

130,825

138,545

134,723

134,260

132,217

138,364

R&D expenditures

126,782

126,290

138,833

142,822

133,368(6.62%)

1,223,560

Net cash provided by (used in) operating activities

116,073

288,853

217,954

206,504

177,027

329,776

388,663

Net cash provided by (used in) operating activities

299,612396,643

397,940

415,575

452,003–

4,146,817

Net cash provided by (used in) investing activities(327,006)(101,064)(63,404)(169,758)(159,789)(277,223)(202,796)

Net cash provided by (used in) investment activities(234,078)(289,056)(335,933)(895,068)(87,563)–(803,330)

Net cash provided by (used in) financing activities

94,437(149,493)(164,146)(26,250)(8,307)(2,061)(156,957)

Net cash provided by (used in) financing activities(40,945)

1,411(150,592)

519,062(450,523)–(4,133,239)

At year-end

At year-end

Total assets

3,355,097

3,294,014

3,173,970

3,307,758

3,479,359

4,323,038

4,061,572

Total assets

4,223,774

4,463,547

4,701,415

5,572,508

5,132,149(7.90%)

47,083,936

Property, plant and equipment

1,167,073

1,088,369

1,032,738

1,061,551

1,118,050

1,498,146

1,390,727

Property, plant and equipment

1,403,437

1,431,681

1,433,509

1,683,354

1,742,216

3.50%

15,983,633

Short-term and long-term debt

1,454,126

1,304,589

1,164,128

1,198,799

1,258,186

1,603,595

1,465,752

Interest-bearing debt

1,579,575

1,693,742

1,606,123

2,246,751

2,388,060

6.29%

21,908,807

Total net assets

1,032,865

1,114,003

1,144,954

1,203,316

1,314,870

1,588,601

1,554,528

Equity attributable to owners of the parent

972,197

1,091,398

1,285,750

1,377,947

1,170,222(15.07%)

10,735,982

Per share

Yen

Per share

Yen

US dollars

9.32

58.72

24.06

12.61

21.89

41.40

31.70

Basic earnings per share

35.06

106.73147.14119.2238.08(68.06%)0.3

490.99514.30522.77553.54611.95669.77636.43Equity attributable to owners of the parent

663.71758.30893.26970.46824.07(15.08%)

7.6

8.00

10.00

10.00

12.00

12.00

13.00

15.00

Cash dividends

15.00

20.00

32.00

40.00

32.00

(20.00%)0.3

Return on assets (ROA) (%)

1.4

5.1

3.9

2.6

3.4

4.2

4.7

Return on assets (ROA) (%)

5.9

5.9

7.5

5.5

2.3

(3.2pt)–Return on equity (ROE) (%)

1.9

11.6

4.6

2.3

3.7

6.4

4.8

Return on equity (ROE) (%)

5.2

15.1

17.8

12.7

4.2

(8.5pt)–Shareholders’ equity ratio (%)

20.0

23.0

24.2

24.6

25.8

22.6

22.9

Ratio of core operating income to sales revenue (ROS) (%)

8.5

9.1

10.2

8.2

5.4

(2.8pt)–Net debt-to-equity ratio (times)

1.17

1.06

0.89

1.26

1.79

–

–

Ratio of equity attributable to owners of the parent (%)

23.0

24.5

27.3

24.7

22.8

(1.9pt)–68,98869,291

69,23072,02069,609(3.35%)–Net income (loss) - basic
Net assets
Cash dividends

Key indicators

Key indicators

Other

53,907

Number of employees

53,882

53,97955,13156,031

68,263

68,988

Other
Number of employees(Millions of yen)

Net sales (left axis)

Sales revenue (left axis)

Operating income (right axis)

4,000,000

3,166,771

3,000,000

2,515,079

3,208,168

3,088,577

3,498,834

3,823,098

226,4933,543,352 3,376,057
300,410130,579
66,342(Millions of yen)

280,026

2,000,000
1,000,000

3,656,278Core operating income (right axis)

3,724,406 3,840,341

3,580,510

380,489

300,000

314,104

307,522

165,681
90,241

194,820

110,460

02009

APTSIS 10
FY2008–FY2010

2010

2011

Step1

2012

FY2011–FY2012

2013

Step2

2014

FY2013–FY2015

2015

APTSIS 15(Notes) 1 In this report, the fiscal year refers to the period beginning April 1 and ending March 31 of the following year. Fiscal 2019 refers to the year ended March 31, 2020.
2 US dollar amounts are converted from yen at the rate of ¥109.0 = US $1.00.
3 Return on assets (ROA) (%) is calculated by dividing income before tax by the average of the beginning and ending balances of total assets.

67

200,000
100,000

0

Transitions in the medium-term
management plan

400,000

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

2015

*

2016

*

2017

2018

*

2019

*

(FY)

APTSIS 20
FY2016–FY2020(Notes) 4 Return on equity (ROE) (%) is calculated by dividing net income attributable to owners of the parent by the average of the beginning and ending balances of equity attributableto owners of the parent.
5 When non-recurring depreciation on non-current assets is recorded, the amount is included in depreciation and amortization.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

68

5 Financial and Non-Financial Information

Financial Highlights

Financial Indicators(Note) Figures for years indicated with (*) do not include
results from discontinued operations.

Net income and ROS/ROE(Core) operating income
ROE

ROS

Net income attributable to owners of the parent

Total assets and ROA
Total assets (left axis)(left axis)(right axis)

ROA (right axis)(Billions of yen)
6,000(Billions of yen)

7.5

(%)

400

20

380.5

280.0

15.1

200

4.8

5.2

46.4

51.4

15

12.7
10

8.2

5.4
4.2
54.1

0

5

0

2015*
J-GAAP

2016*

2017

2018*

2019*

(FY)

IFRS (International Financial Reporting Standards)(Billions of yen)
400

364.4

5,132.1
6
200

5.5

185.8

4

65.5
0

2.3

J-GAAP

107.5

62.0

IFRS

2

IFRS

0

0

194.8

169.5

10.2

(%)
8

1,500
J-GAAP

211.8

9.1
156.3

8.5

7.3
100

307.5

300.4

3,000

314.1

5,572.5

5.9
5.9
4,061.5
4,701.4
4,223.8 4,463.5
4.7

4,500

17.8
300

Free cash flow

2015*

2016*

2017

2018*

2019*

-479.5

-500

2015*

(FY)

Total assets amounted to ¥5,132.1 billion. Although property, plant andequipment increased as a result of the adoption of IFRS 16 Leases, there was adecrease of ¥440.4 billion year on year due to efforts to reduce cash and cash
equivalents and a decrease in trade receivables resulting from the fact that theend of the previous fiscal year fell on a holiday. ROA was 2.3%, down 3.2 points
year on year.

2016*

2017

2018*

2019*

(FY)

During fiscal 2019, net cash flows from operating activities was ¥452.0 billion, mainly
due to a decrease in working capital as a result of falling raw material prices. In cash
flows from investing activities, ¥677.6 billion was spent on industrial gas businessacquisitions in Europe and the US in fiscal 2018. Despite significant fixed asset
acquisitions of ¥236.1 billion, there was an outflow of only ¥87.6 billion due to a
reduction in cash on hand. Accordingly, free cash flow was ¥364.4 billion.

Net interest-bearing debt andnet D/E ratio

Ratio of equity attributable toowners of the parent

Net D/E ratio (right axis)

Net interest-bearing debt (left axis)(%)
40(Billions of yen)
2,400

30

1,800

(Times)2.0

1.79
We implemented business portfolio reforms under the previous medium-term management plan (for fiscal 2011 to fiscal 2015) andthe present plan, APTSIS 20, launched in fiscal 2016. As a result, we stabilized sales revenue in the Industrial Materials domain andincreased sales volumes mainly in the Performance Products domain. In fiscal 2017, we set new records for both core operating
income and net income attributable to owners of the parent.
During fiscal 2019, economic activity was suppressed by the impact of the COVID-19 pandemic starting from the fourth quarter, in
addition to weak demand mainly for semiconductors and automotive applications due to factors including the prolonged trade
friction between the US and China. Under these circumstances, core operating income dropped by ¥119.3 billion (38.0%) to ¥194.8
billion and ROS fell to 5.4%, down 2.8 points year on year. Net income attributable to owners of the parent declined ¥115.4 billion(68.1%), to ¥54.1 billion, and ROE also decreased to 4.2%, down 8.5 points year on year.

Sales revenue and ratio of overseas revenue(Billions of yen)
4,000

3,823.0

3,543.4

3,724.4 3,840.3
3,376.1

3,580.5

Asia Pacific(%)
60

EuropeOthers10

1,547.0

1,664.6

J-GAAP

1,534.4

2015*

30

1,000

80

1,000

15

500

40

40.4

J-GAAP

39.5

IFRS

J-GAAP

0

2015*

2016*

2017

2018*

2019*

(FY)

Sales revenue decreased by ¥119.3 billion (6.8%) year on year, as a result of factors
including a decline in market prices in the Industrial Materials domain and a
decline in sales volume in the Performance Products domain, against a backdropof weak demand. The ratio of overseas revenue dropped to 42.9%, down 0.5
points year on year.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

IFRS

0

0

2015*

2016*

2017

2018*

2019*

(FY)

Overseas revenue was down year on year due to factors including a decline in themarket for MMA monomers in the MMA business in Europe, the US, and Asia, as
well as the impact of exchange rate differences due to the strong yen, despite
growth from the acquisitions of an industrial gas business in Europe and the US.

1.0

1,139.5

IFRS

2016*

2017

2018*

2019*

0

2015*

(FY)

R&D expenditures

213.1

32.00

40.00 38.08

(FY)

206.5

225.2

231.7

240.4

126.8

126.3

138.8

142.8

133.4

60

32.00

IFRS

2015*

2019*

176.5

180

120

J-GAAP2018*

Capital expenditures(Billions of yen)240

119.22106.73

20.00

2017

R&D expenditures and capital expenditures

Cash dividends per share

147.1431.70 35.06
15.00 15.00

2016*

Net interest-bearing debt rose to ¥2,089.9 billion, up ¥353.7 billion year on year,
owing to the conversion of Mitsubishi Tanabe Pharma Corporation into a wholly
owned subsidiary. In addition, the net debt-to-equity ratio deteriorated by 0.53
and increased from the end of the previous fiscal year to 1.79 times. We aim to
improve this ratio to 1.0 times or below, and remain agile and flexible in response
to financial fluctuations as COVID-19 spreads.

138.3

0

1,155.9

0.89

0.5
J-GAAP

Equity attributable to owners of the parent decreased ¥207.7 billion year on yearto ¥1,170.2 billion. Consequently, the ratio of equity attributable to owners of theparent decreased 1.9 points year on year to 22.8%.

120

1,333.6

1.26

1.06

0

2,000

41.6

42.9

43.3

IFRS

0

1,500

43.4

1,134.4
1,024.0

1.5

2,089.9

600

(Yen)
160

1,430.0

1.17

1.10
1,200

Basic earnings per share(Billions of yen)
2,000

1,659.0

22.8

20

45

3,000

69

North America

23.0

24.7

Basic earnings per share andcash dividends per share

Overseas revenue by region

Ratio of overseas revenue (right axis)

Sales revenue (left axis)

22.9

27.3

24.5

1,736.2

J-GAAP

IFRS

0

2016*

2017

2018*

2019*

(FY)

Basic earnings per share amounted to ¥38.08 during fiscal 2019. The full-year cash
dividend per share is based on an overall consideration of our financial positions andfuture business conditions. The full-year cash dividend per share has regrettably been
decreased by ¥8 per share year on year to ¥32 per share, due to a decrease in net income
attributable to owners of the parent caused by factors including the spread of COVID-19.

2015*

2016*

2017

2018*

2019*

(FY)

R&D expenditures were ¥133.4 billion, as we continued to focus on refining
existing technologies and developing new technologies. Capital expenditures
increased to ¥240.4 billion, up ¥8.7 billion year on year, due to the expansion of
production facilities, mainly in the Performance Products domain.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202070

5 Financial and Non-Financial Information

Non-Financial Highlights

Non-Financial Indicators
GHG emissions
Japan

Number of directors and outside directors

Outside Japan (left axis)

Directors (executive)

Per unit of revenue (right axis)

Lost-time injury frequency rate (LTIFR)
Japan

Directors (non-executive)

GlobalIndependent (outside) directors(1,000 t-CO2e)(t-CO2e/100 millions of yen)

20,000(Persons)
16

1.20

600

1.11
12

4

464

15,000

450

5,519

3

3

0.90

5

4

4

6

10,000300

11,110

5,000

8

5

6

4

0

2015

2016

2017

5

5

5

4

4

4

3

3

3

2018

2019

2020

0.60

2016

2017

2018

2019

(FY)

Along with the formulation of the medium- to long-term basic management strategy KAITEKI Vision 30 (KV30), we retrospectively
reviewed the boundaries for the indicators in line with the range of activities. The fiscal 2019 emissions have been assured by a third
party based on the revised boundary. In fiscal 2019, our GHG emissions (Scope 1 + Scope 2) were nearly flat year on year at 16,629
thousand t-CO2e, partly due to the acquisition of large businesses, despite repeated emission reduction activities. GHG reduction isviewed as one of the most important social issues under KV30. In addition to contributing to the reduction of emissions through our
products and services, we are considering and working to further accelerate the reduction of GHG emissions from business activities
including production.

0.30

0.26
0.24

0

2015

(FY)

2016

2017

2018

2019

(FY)

Mitsubishi Chemical Holdings Corporation transitioned to a company withnominating committee, etc., in June 2015.

The LTIFR in Japan was 0.50, a deterioration from the previous fiscal year. Meanwhile,
the global LTIFR, for which data started to be gathered and calculated in fiscal 2017,
was 1.09. Although we have been working to improve the LTIFR at overseas
business locations, the rate is still high compared to the rate in Japan. We will strive
to reduce the LTIFR by stepping up efforts to prevent occupational accidents
through measures such as ensuring compliance with basic behavioral andoperational rules for safety, sharing information on occupational accidents througha database, and undertaking risk assessments.

Employee satisfaction

Paid leave utilization rate*

4.00

(%)
100

3.75

3.74

75

3.62

3.64

3.69

3.50

3.65

Energy consumption

Japan

Outside Japan(GWh)
50,000(Million m3)
200

33

14,25637,500150

25,00012,500

2017

2018

2019

(FY)

2017

2018

2019

(FY)

(%)
16

Percentage of female employees

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

2015

2016

2017

2018

2019

2019

(FY)

15.8

15.9

14.7
15.1

(Millions of yen)
40

5,040

15.3

10

7.1

7.7

4,883

4,500

(FY)

7

R&D expenditures per R&D personnel

Number of R&D personnel(Persons)
6,000

27.4

The boundaries were expanded to include global activities as well from fiscal
2016. Along with the formulation of KV30, we retrospectively reviewed theboundaries for the indicators in line with the range of activities, and the fiscal 2019
water withdrawal has been assured by a third party based on the revised
boundary. Alleviating global water supply concerns is viewed as one of the mostimportant social issues under KV30. We will continue to promote effective use ofwater resources and reduction of water intake to ensure that our use of water
resources does not place a significant burden on the region.

2018* For the scope of data aggregation, see page 189.

0

2016

2017

Number of R&D personnel and
R&D expenditures per R&D personnel

13

2015

2016

Percentage of female employees andpercentage of female managers*

50

The boundaries were expanded to include global activities as well from fiscal
2016. Along with the formulation of KV30, we retrospectively reviewed theboundaries for the indicators in line with the range of activities, and the fiscal 2019consumption has been assured by a third party based on the revised boundary.
Our energy consumption was nearly flat year on year in fiscal 2019 thanks toenergy conservation activities through the installation of equipment, despite theacquisition of large businesses. Because improving production efficiency byimplementing energy-saving activities and stabilizing process operations is
directly linked to GHG reductions, we will continue to reduce energy
consumption as an important initiative to realize KV30.

2015

The paid leave utilization rate was much the same as the previous fiscal year. We
will continue to implement measures aimed at achieving a work-life balance.

Percentage of female managers

171

0

2016

The level of employee satisfaction fell 0.04 points from the previous fiscal year to
3.65. We will foster health and productivity management and work style reforms
to further raise the level of satisfaction.

100

34,854

67.6

70.8

0

2015

Outside Japan

66.8

71.1

25

3.00

Water withdrawal (excluding seawater)

65.4

50

3.25

71

0.48

0

2015

Japan

0.50

0.30

150

0

1.09

0.99

8.0

8.6

8.9

4

25.9

4,843
28.7

4,961
28.9

4,774

30

27.9

3,000

20

1,500

10

0

0

2015

2016

2017

2018

2019

(FY)

The percentage of female employees increased by 0.1 points to 15.9% from theprevious fiscal year while the percentage of female managers was 8.9%, up 0.3
points from the previous fiscal year. We are continuing to implement measures forthe empowerment of women.
* For the scope of data aggregation, see page 189.

2015

2016

2017

2018

2019

(FY)

For fiscal 2019, the number of R&D personnel decreased by 187 persons from theprevious fiscal year to 4,774 persons. R&D expenditures per R&D personnel
remained at the same level as the previous fiscal year, ¥27.9 million.
(Note) IFRS basis since fiscal 2016

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202072

5 Financial and Non-Financial Information

Shareholder Information

Basic Policy on Shareholder Returns

Shareholder information (As of March 31, 2020)
Major shareholders

The Mitsubishi Chemical Holdings Corporation aims to improve shareholder value byenhancing corporate value. We consider achieving a balance between growthinvestment and improving our financial position in our dividend policy.
Targeting a medium-term consolidated payout ratio of 30%

Securities code

Shares per unit

Paying stable dividends

Basic earnings per share and cash dividends per share
Basic earnings per share (left axis)

Authorized shares

(Yen)

147.1

150

32

90

40

119.2

32

24

20

60

38.1

34.5

31.7

0

2015

2016

J-GAAP

6,000,000,000
1,506,288,107

Number of shareholders

261,886

2017

2018

2019

2020

Forecasts

100Composition of shareholders
Securities Corporations(FY)

FY2019IFRS (International Financial Reporting Standards)

Percentage(%)

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

112,930

7.9

Japan Trustee Services Bank, Ltd. (Trust account)

82,784

5.8

Meiji Yasuda Life Insurance Company

64,389

4.5

Nippon Life Insurance Company

42,5093.0

Japan Trustee Services Bank, Ltd. (Trust account 7)

29,952

2.1

Japan Trustee Services Bank, Ltd. (Trust account 4)

27,571

1.9

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

26,663

1.9

JPMorgan Chase Bank 385151

22,304

1.6

MUFG Bank, Ltd.

20,553

1.4

SMBC Nikko Securities Inc.

20,141

1.4(Notes) 1 In addition to the above, Mitsubishi Chemical Holdings holds 83,046 thousand shares astreasury stocks, but these shares are non-voting pursuant to the provisions of Article 308,
Paragraph 2 of the Companies Act.
2 Equity investment ratios are calculated to the exclusion of the treasury stock (83,046 thousand shares).
3 In addition to the above, equity investments of MUFG Bank, Ltd. In Mitsubishi Chemical
Holdings include 2,375 thousand shares of stock (representing the equity investment ratio of
0.2%) held in the name of “The Nomura Trust and Banking Co., Ltd. (Retirement Benefit Trust
MUFG Bank Account)” over which MUFG Bank, Ltd. retains the right to issue instructions
regarding the exercise of the relevant voting right.

30
20

15
30

100

50

40

106.7

Outstanding shares

Number of shares(Thousands)

Name(First Section of
the Tokyo Stock Exchange)

Cash dividends per share (right axis)

(Yen)

120

4188

4.1%

Other Japanese Corporations

Japanese Financial Institutions

Foreign Shareholders

41.9%(As of March 31, 2020)

Governments and5.0% Local Governments 0.0%

21.7%

Japanese Individuals and Others*

27.2%* Shares held by the Group as treasury stock are included in “Japanese Individuals and Others.”

Stock price and stock trading volume
FY2015¥ 587.5

Stock price
PER

(Yen)

PBR

1,500

FY2019 IR Report

FY201618.5 times
0.9 times

FY2017FY2018Stock price¥ 779.4

Stock pricePER

6.5 times
0.8 times

PER

Stock price¥ 861.4

Stock price ¥ 1,030.5

PER

8.1 times
1.1 times

PER

PBR

PBR

7.0 times
1.2 times

PBR

FY2019PBR¥ 642.8

16.9 times
0.8 times

MCHC stock price (left axis)

1,000

(Yen)

60,000Mitsubishi Chemical Holdings engages in active and constructive dialogs with shareholders, customers, and other stakeholders throughvarious opportunities and aims to cooperate for realization of KAITEKI by sharing issues and goals. In dialogs with shareholders andinvestors, we will ensure appropriate disclosures so as to gain the trust of our shareholders and encourage the long-term holding of ourshares. We also intend to engage in active dialogs with shareholders and reflect such dialogs in our corporate activities.
Activities

40,000500

20,0001 General Meeting of Shareholders

Nikkei stock average (Closing price) (right axis)

0

300,000
200,000

Stock trading
volume2

For domestic andoverseas
institutional
investors, analysts

100,000

Held on June 24, 2020

IR briefings (large meetings)

2 sessions, May: IR Day, Feb.: Business briefing
Materials are available on the website (in Japanese and English)

Top management’s dialogue
with investors

Small meetings (Jun., Dec.), Visits to investors
Overseas roadshows (2 times)

Conference call, following
the financial results announcement

4 sessions (following the quarterly financial results announcement)
Audio data available on the website (in Japanese and English)

Participation in conferences
held by securities firms

3 sessions (3 sessions in Japan)

Visits to operating sites

One session, Sep.: Fukuoka area plant tour

Other IR activities

Individual meetings following the financial results
announcement and small meetings on specific subjects

IR briefings

5 sessions for approximately 2,000 attendees(including those in the online sessions and in briefings by the CEO and CFO)

0

(Thousandshares)Description

IR Day02015 Apr.
J-GAAP2016 Apr.

2017 Apr.

2018 Apr.

2020 Mar.

IFRS (International Financial Reporting Standards)

Stock price: As of March 31
PER: Share price as of March 31/Basic earnings per share (Net income (loss)-basic per share in the J-GAAP)PBR: Share price as of March 31/Equity attributable to owners of the parent per share (Net assets per share in the J-GAAP)73

2019 Apr.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020individual
3 For
investors

Business briefing

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

74

5 Financial and Non-Financial Information(Notes)1 Figures for fiscal 2016 do not include results from discontinued operations.
2 Figures for fiscal 2019 do not include results from discontinued operations and havebeen adjusted to reflect changes in the scope of certain segments.
3 Former segment results posted in fiscal 2015 and fiscal 2016 before reportablesegments were reorganized are presented for reference purposes only.

Overview of Business Domains | Summary
Sales revenue and YoY change

Performance Products
domainPercentage of
total sales revenue

30.0%

Sales revenue (left axis)

5.5%(Billions of yen)(%)(Billions of yen)

20

3,500

10.0

160

160

100

20

1,650

12.5

187.5

15

2,625

7.5

120

120

75

15

1,081.6 0

125.0

10

1,750

5.0

80

80

50

10

5.6

968.2

7.7

1,170.1
1,145.9

-7.6
-12.5

0

-25

2015 20162016 2017 2018 201902016 2017 2018 2019002015 2016

(FY)

IFRS

J-GAAP

Current segment

2016 2017 2018 201902015 2016

Total assets (left axis)(Billions of yen)

2,200

25

250.0

20

3,500

10.0

160

1,650

1,900.4

10.3

1,558.7

205.4

12.5

187.5

6.1
0

125.0

550

-12.5

62.5

9.7

114.7
7.6 7.4

100.5

15

11.3

130.8

9.4
3,190.0

118.3 10
6.2

4.8

2,625

151.0

2,306.3
2,246.8
2,040.6
6.0 2,070.4
1,750 4.7

7.1

120

111.2
95.4

5.0

123.5

117.2

110.6

104.3

0

2015 2016
J-GAAP2016 2017 2018 2019

0

IFRS

J-GAAP

Current segment

2016 2017 2018 2019

5

875

2.5

Sales revenue (left axis)

20

120

75

15

80

50

10

40

25

132.4

118.1

(%)

2,200

25

250.0

20

0

-1.3

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 20202015 2016
J-GAAP

Current segment

2016 2017 2018 2019

1.0

J-GAAP

Current segment

Former segment

10.0

160

14.6

15

2,625

7.5

0.7

0.7 0

2016 2017 2018 2019

(FY)

IFRS
Current segment(Billions of yen)
160

Percentage of R&D expenditures tototal sales revenue (right axis)(Billions of yen)

(%)

100

20

20.1

92.1

86.3
7.2

0.7

R&D expenditures (left axis)

Depreciation and amortization (right axis)(Billions of yen)

1.0

Former segment

Capital expenditures (left axis)(%)

2015 2016

(FY)

IFRS

15.4 13.0 13.5 13.4

0

9.0

1.7

1,100

10

1,750

5

875

4.9

103.4 98.4
81.2

413.1

-12.5

-24.3

-25

2015 2016 2017 2018 2019
IFRS

10.4

125.0

-2.0

554.0 547.0 556.6 545.7

0J-GAAP0

5

18.1 16.8

120

120

75

77.0
15.6

90.6

83.0

16.6 16.6

15

14.1

4.2

1.6%

IFRS

(Billions of yen)
9.8
3,500

18.0

187.5

0

Return on assets (ROA) (right axis)(Billions of yen)

12.5

Current segment

(%)

40

(FY)

Total assets (left axis)(Core) operating margin (right axis)

1,650

2016 2017 2018 2019

Former segment(%)

413.1 billion

2015 2016

Current segment(Core) operating income (left axis)

18.7

0

J-GAAP(Billions of yen)

550

0

(FY)

IFRS
Former segment

(FY)

3.9

0

2015 2016(FY)

2016 2017 2018 2019

IFRS

0.9
-25

2.3

100

160

-17.3
0

2.5

5

Percentage of R&D expenditures tototal sales revenue (right axis)(Billions of yen)

97.1 99.4

80

2.4

25.0

R&D expenditures (left axis)

142.6

7.5

2.8

Former segment(Billions of yen)

2,947.5

194.4

3.1

2015 2016
J-GAAP

Depreciation and amortization (right axis)(%)

29.6 27.6 29.7

29.0 28.2

0(FY)

Capital expenditures (left axis)

Return on assets (ROA) (right axis)(Billions of yen)

1,816.0 16.5

25

Current segment

Former segment(%)

1,731.4

2016 2017 2018 2019IFRS

J-GAAP

Current segment(Billions of yen)

2,003.5

40

0

(%)

2,094.7

56.7

54.4 54.9 55.7

48.3 47.2

(FY)

IFRS
Former segment(Core) operating margin (right axis)

YoY change (right axis)

75

40(Billions of yen)

Health Care domain

ROIC

2.5

76.3

3.0

(Core) operating income (left axis)

YoY change (right axis)

875

68.3 65.2
62.8

54.8 56.1

62.6

0Former segment

Sales revenue (left axis)

5

68.6

J-GAAP

1,140.4 1,215.1 1,216.6 1,176.3
937.5 961.1

5.8

5.9

94.2 94.0

2015 2016

5.2

8.2

62.5

Current segment

Former segment

¥

8.8

8.6

74.7 78.6

(FY)

IFRS

J-GAAP

3.8%

Sales
revenue

8.0

2.1
1,072.6911.4

550

1,900.4 billion

12.0%

8.1

6.8

4.1

¥

Percentage of
total sales revenue

(%)

(%)

7.9

(Billions of yen)

Percentage of R&D expenditures tototal sales revenue (right axis)(Billions of yen)

250.0

-5.1

ROIC

R&D expenditures (left axis)

Depreciation and amortization (right axis)(Billions of yen)

1,100

Sales
revenue

Capital expenditures (left axis)

Return on assets (ROA) (right axis)

25

Industrial Materials
domain53.0%

Total assets (left axis)(Core) operating margin (right axis)

R&D expenditures andpercentage of total sales revenue(%)

Former segment

Percentage of
total sales revenue

Capital expenditures anddepreciation and amortization

2,200

1,081.6 billion

ROIC

Total assets and ROA(Billions of yen)

-5.9

¥

(Core) operating income (left axis)

YoY change (right axis)

1,100

Sales
revenue(Core) operating income and margin

4 Current segment results in fiscal 2016 for year-on-year changes insales revenue and ROA are presented for reference purposes only.
5 ROA was calculated as core operating income divided by the fiscal
year average of total assets.

62.5

1,059.0 1,101.5
56.9

3.5

0

0

2015 2016 2017 2018 2019
J-GAAP

IFRS

80

2.5

40

0

21.3
0

2015 2016 2017 2018 2019

(FY)
J-GAAP

IFRS

80

50

10

40

25

5

0

0

1,130.5
1.3

14.6

(FY)

1,166.8 1,171.4

5.0

0

28.5

16.2

27.5

17.9

18.0

19.1

19.5

20.5
24.2

2015 2016 2017 2018 2019

(FY)
J-GAAP

IFRS

02015 2016 2017 2018 2019

(FY)
J-GAAP(FY)IFRS

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202076

5 Financial and Non-Financial Information

Overview of Business Domains

FY2019 Financial Results by Business Segment

Functional Products

Performance Products domain
Performance Products segment
In fiscal 2019, this segment posted sales revenue of ¥1,081.6 billion, a decrease of ¥73.9 billion year on year, reflecting sales revenue declines
in both sub-segments. In the Functional Products sub-segment, sales revenue was down due to decreased sales volume ofhigh-performance engineering plastics supplied by the Advanced Moldings and Composites business amid sluggish demand forsemiconductor and automotive applications. This more than offset increased sales volume in the Environment and Living Solutions business.
In the Performance Chemicals subsegment, the decrease in sales revenue reflected deteriorating market conditions following favorable
conditions in fiscal 2018, despite the Advanced Polymers business posting higher sales volume of phenol and polycarbonate chain materials
and eliminating disruptions caused by scheduled maintenance and repairs by completing them in the previous fiscal year.
On the profit front, core operating income totaled ¥62.6 billion, down ¥8.7 billion compared with the previous fiscal year. The
decrease was mainly the result of the aforementioned decline in sales volume of high-performance engineering plastics as well as
deteriorating conditions in the phenol-polycarbonate chain materials market.

Performance Products segment

Factors underlying YoY change in core operating income(Billions of yen)
70

Selling/procurement
Difference
price difference in sales volume

Cost
reductions

Other
differences*

71.3
-2.6

65

0.1
-12.5

0

2018

In the Chemicals segment, sales revenue amounted to ¥1,057.1 billion, down ¥218.8 billion year on year. By subsegment, sales revenue
decreased in the MMA sub-segment mainly due to weakening demand and deteriorating conditions in the market for MMA
monomer. In the Petrochemicals sub-segment, declining prices of raw materials passed on as lower sales prices pushed down sales
revenue, despite an increase in sales volume due to shortened periods of scheduled maintenance and repairs of ethylene production
facility. In the Carbon Products sub-segment, sales revenue was down as a result of decreased sales volume of needle coke along withlower sales prices resulting from declining raw material prices.
Meanwhile, core operating income fell ¥97.7 billion year on year to ¥30.3 billion. This was mainly a result of the deteriorating
conditions in the MMA monomer market, despite the increased sales volume of petrochemicals following the shortening of scheduled
maintenance and repairs of facilities.

2019

(FY)

Chemicals segment

Factors underlying YoY change in core operating income(Billions of yen)

120

Selling/procurement
Difference
price difference in sales volume

Cost
reductions

Other
differences*

In fiscal 2019, this segment posted sales revenue of ¥843.3 billion, up ¥110.5 billion, and core operating income of ¥88.0 billion, an
increase of ¥24.7 billion year on year. Both results reflected contributions from business acquired in Europe and the United States inthe second half of the previous fiscal year.

Food packaging materials,
industrial-use films, medical
and sanitary films

Environmentand Living
Solutions

Aqua solutions, ion-exchange
resins, separator and aqua
chemicals, agricultural andinfrastructure solutions

Advanced
Moldings andComposites

High-performance engineering plastics,
carbon fiber and composite materials,
alumina fibers, functional moldings andcomposites, fibers and textiles

Performance Chemicals
Advanced
Polymers

Performance polymers,
phenol and polycarbonate,polybutylene terephthalate,sustainable polymers

High
Performance
Chemicals

Coating materials, epoxy resins,
resin additives, inorganic
chemicals, food ingredients

New Energy

Lithium-ion battery materials,
LED materials, scintillator
GaN substrate

128.0

80

2.6

40

-80.8

-4.7

30.3
-14.8

0

2018

2019

Chemicals(FY)

Industrial Gases segment

Industrial Gases segment

High
PerformanceFilms* Includes differences in inventory valuation and gains/losses on equity method investments

Industrial Materials domain
Chemicals segment

Optical films, displayand semiconductor-related
products

62.6

6.3

60

Information,
Electronics andDisplays

Factors underlying YoY change in core operating income(Billions of yen)

Selling/procurement
Difference
price difference in sales volume

19.8

80
60

Cost
reductions

Other
differences*

1.2

3.7

MMA

MMA and PMMA

Petrochemicals

Basic petrochemicals and basic
chemical derivatives, polyolefins

CarbonProducts

Coke, carbon materials,
carbon black, synthetic rubber

88.0

63.3
0

40
0

2018

2019

(FY)

* Includes differences in inventory valuation and gains/losses on equity method investments

Health Care domain
Health Care segment
In fiscal 2019, this segment posted sales revenue of ¥413.1 billion, a decrease of ¥49.5 billion, and core operating income of ¥14.6
billion, down ¥39.2 billion year on year. These decreases were mainly due to falling royalty revenue, which more than offset higher
sales of mainstay ethical pharmaceuticals in Japan.
With respect to royalty revenue, Novartis Pharma AG filed for arbitration against Mitsubishi Tanabe Pharma Corporation in
February 2019, claiming no obligation to pay a portion of royalties on sales of Gilenya, a treatment for multiple sclerosis. Therefore,
these royalties were excluded from sales revenue, in accordance with International Financial Reporting Standard 15 Revenue fromContracts with Customers, since the arbitration proceedings continued into fiscal 2019.

Industrial Gases

Factors underlying YoY change in core operating income*1(Billions of yen)
60

Selling/procurement
Difference
price difference in sales volume

Cost
reductions

Other
differences*2

Health Care

53.8
-4.3

40
20

7.8

2.1

2018

Pharmaceuticals

Pharmaceuticals

Life Science

Capsules and pharmaceuticalprocessing equipment (PPE)*,
active pharmaceutical ingredientsand intermediates

14.6

-44.8
2019

(FY)

*1 The factors above do not include results from LSI Medience Corporation, which wasremoved from the scope of consolidation in 2019
*2 Includes differences in inventory valuation and gains/losses on equity method investments

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Industrial gases, industrial
gas-related equipment
and facilities

Health Care segment

077

Industrial Gases* The capsules and PPE businesses were transferred to the High Performance Chemicals
Business Domain of Mitsubishi Chemical Corporation in July 2020.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202078

5 Financial and Non-Financial Information

Overview of Business Domains

Optical Films business

Optical Films business• We have a strong market position in Japan and can provide solutions
for various optical applications.

• We must respond to greater than expected short-termchanges in market demand.

High Performance Films businessHigh Performance Films business• We provide technological capabilities for adding various functions tofilms, such as gas-barrier, porous, and multilayer films.

• The operations of this business are concentrated mainly
in Japan.

High-Performance Engineering Plastics business

High-Performance Engineering Plastics business• We operate a global network of facilities capable of handling a broad range
of operations from plastic production to molding and processing.

• This business is particularly vulnerable to social, economic,
and foreign exchange risks in various regions of the world.

Carbon Fiber and Composite Materials business

Strengths• This business can leverage a vertically integrated value chain
spanning from carbon fibers to intermediate basematerials and composite materials.

Performance
Products Domain

Optical Films business• Market demand for high-performance andhigh-precision optical films is growing.

In its Performance Products domain, theMitsubishi Chemical Holdings Group is targeting
five growing markets with a diverse range of
products and solutions, and applying its
advanced technologies to differentiate andimprove product performance.

Weaknesses

S W
O T

Opportunities

Threats

Carbon Fiber and Composite Materials business• This business mainly sells products outside Japan,
exposing it to foreign exchange risks.

Optical Films business• The optical film market is shrinking due to disruptive
innovations.

High Performance Films businessHigh Performance Films business• As a group, we are able to offer high-performance products tomarkets outside Japan.

• Demand for these films in Japan is forecast to decline
over the medium term.

High-Performance Engineering Plastics business

High-Performance Engineering Plastics business• Demand is rising for engineering plastics from the aircraft,
semiconductor, and medical equipment industries.

• The market is shrinking with the growing adoption of 3D
printers and other new technologies.

Carbon Fiber and Composite Materials business

Carbon Fiber and Composite Materials business• These materials are increasingly in demand for use as automobile
parts, wind turbine blades, and pressure vessel materials.

• Competition is intensifying as manufacturers of thesematerials in emerging countries improve product quality.

Financial results and main products

Functional
Products

FY2019
Sales revenue¥

675.0 billion

Information,
Electronics andDisplays
Optical films, displays andsemiconductor-related products¥

36.9 billion

Environment andLiving Solutions
Aqua solutions, ion-exchange resins,
separator and aqua chemicals,
agricultural and infrastructure solutions

Performance
Chemicals

FY2019
Sales revenue¥

406.6 billion

New Energy

Display- and semiconductor-related products and services:
With a focus on creating new value tailored to customers’ needs,
we also offer a wide range of materials for displays as well as
semiconductor precision cleaning services.

Agricultural solutions: We also provide various materials including
highly durable and functional plastic sheets for greenhouses, andservices for vegetable plant systems which ensure year-roundcultivation of high-quality vegetables.

Phenol and polycarbonate: Operating globally with a leading
market share in Asia, we supply phenol and polycarbonate byintegrating its proprietary manufacturing processes with polymer
design and compound technologies.

High-performance films: We optimally combine our polymer
design, molding, surface treatment, and composite material
technologies to produce films with added functions, such as
gas-barrier properties, weather resistance, moisture permeability,and easy-to-unseal functions. Our films are used in a wide range ofindustries, including the food packaging and medical products
industries.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Advanced Moldings
and Composites

High-performance engineering plastics: As a leading global
manufacturer of high-performance engineering plastics, we
provide products to the industrial machinery, automotive, aircraft,
and medical equipment industries.
Carbon fiber and composite materials: We have established aworld-leading integrated product chain spanning frompolyacrylonitrile- and pitch-based carbon fibers to intermediatematerials and molded products made from such fibers.

25.7 billion

Lithium-ion battery materials,
phosphors, scintillators, GaN substrates

Performance polymers: We help our customers innovate by
supplying a broad range of products for medical and industrial use as
well as for consumer goods, including thermoplastic elastomers,
performance polyolefins, and polyvinyl chloride compounds.

High-performance engineering plastics,
carbon fiber and composite materials,
alumina fibers, functional moldings andcomposites, fibers and textiles¥

Performance polymers, phenol andpolycarbonate, polybutylene
terephthalate, sustainable polymers

Aqua solutions: We supply essential products for drinking water andwastewater treatment, including water treatment chemicals,
membrane filters, and ion-exchange resins, while aiming to develop
solutions for global water shortages and pollution.

Food packaging materials, industrial-use
films, medical and sanitary films

FY2019Core operating income

Advanced Polymers

Optical films: We supply optical films for displays, including
polyester films, optical clear adhesive sheets, and polyvinyl alcohol
films, while promptly meeting increasingly advanced specifications
and requirements in growing global markets.

High Performance Films

79

FY2019Core operating income

Lithium-ion battery materials: This business manufactureselectrolytes and anode materials for electric vehicle lithium-ion
batteries according to the latest customer specifications, leveraging
its global supply network and technical expertise spanning frommaterial development to safety assessments.
Phosphors, scintillators, GaN substrates: We provide
phosphors for fluorescent backlights and LEDs, and scintillators forsecurity devices and medical diagnostic equipment, such as CT
scanners. We also develop gallium nitride (GaN) substrates
equipped in lasers and other high-performance devices.

High Performance Chemicals
Coating materials, epoxy resins, resin additives, inorganic chemicals, food ingredients

Coating materials: Applying advanced technologies for
combining, mixing, and evaluating chemical ingredients, we offer
environmentally conscious value-added coating materials used in avariety of products, including paint, ink, adhesives, hair careproducts, and resists for semiconductors.

Food ingredients: We also supply food ingredients ranging fromvitamin E to food emulsifiers such as sugar ester—for which wehave secured a leading global market share—and are expanding
this business beyond the food industry to the pharmaceuticals andcosmetics industries.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

80

5 Financial and Non-Financial Information

APTSIS 20

Overview of Business Domains

PoliciesKeystrategies

Planned investment from FY2016 to FY2020• Provide high-performance products andsolutions on a global scale by accelerating
growth through cooperation and integration

Total
investment ¥This business has been developing
display-use optical films, color resist for LCDs,
optical components for OLED displays, aswell as products and services forsemiconductor manufacturing. We areworking to expand this business by tailoringproducts and services to the diverse needsof customers that seek more advanced
information processing technologies.

Investment
in R&D¥billion170

billionCore operating income• Expand businesses offeringhigh-performance and high-value-added
products and solutions• Accelerate global development• Enhance innovation through businessintegration• Achieve profitability of New Energy
businesses at an early stage

Strategy for expanding theInformation, Electronics andDisplays business390(Billions of yen)

160
80

94.2

94.0

2016

2017

120.0
68.6

62.6

51.0

2018

2019

2020
2020
Forecast Target

0

(FY)

Products and services offered
INPUT

Data

Processing

MemorySemiconductors

OUTPUT

Data

Displays

High-purity chemicals
Semiconductor
manufacturing

Advanced cleaning
Equipment components

Focus

New organizations established to promotesemiconductor-related products for solid business foundation

With the widespread use of AI and IoT in recent years, andbacked by the shift in the auto industry to connected,
autonomous, shared, and electrified (CASE) vehicles, thesemiconductor market has been growing substantially andis expected to expand even further in the future. In tandemwith this trend, market demand for peelable polyester films
is projected to rise dramatically in the future, particularly for
their use in production of multilayer ceramic capacitors andother semiconductor devices. Until now, demand has
mainly been driven by the use of polyester films in mainstay
optical applications.
Recognizing this opportunity, Mitsubishi Chemical has
begun constructing a new polyester film manufacturing facility

in Indonesia. Boasting annual production capacity of 25,000
tons, the new plant is scheduled for completion around the endof 2021. Furthermore, in April 2020, the company set up a
centralized headquarters to oversee semiconductor-related
products and services in the Information, Electronics andDisplays business for the purpose of more quickly offeringsolutions to semiconductor manufacturers around the world. It
also created a new organization to uniformly promote thesesolutions globally under a single brand. On this momentum,
Mitsubishi Chemical is working to establish a solid foundation
for its semiconductor-related products business and raise its
presence in the industry.

Wafer recovery
Precision cleaning

Projected market demand for multilayer
ceramic capacitors
Demand to(Trillions of capacitors)
more than double
12

Multilayer ceramic capacitors
Essential components for electrical circuits of devices

DIAFOIL optical-use
biaxially oriented
polyester film

OPL film for polarizer

Color resist for LCDs

CLEARFIT opticalclear adhesive sheet

Growing adoption ofautonomous driving systems and IoT

10

Ceramic dielectricMaterials for OLED displays

8

6Strategy for expanding the Advanced Moldings and Composites businessThis business supplies high-performance engineering plastics, carbon fiber
components, and composite materials for a wide range of industrial
applications in the automobile, aerospace, building construction, and medical
device industries. We are aiming to expand the business globally by adding
more value to its products. Toward that end, Mitsubishi Chemical Corporation
began constructing a new carbon fiber sheet molding compound production
facility in Italy with a view to supply carbon fiber reinforced plastic
components to luxury car manufacturers in Europe.
The company is also actively pursuing M&A in order to expand its value
chain and bolster its position in strategic markets. Accordingly, it acquired aGerman prepreg manufacturer in 2020, thereby expanding its prepreg
production network to Europe in addition to Japan and the US, and isaccelerating its expansion of composite material production of automobile
and aircraft secondary structural components. Mitsubishi Chemical has also
been acquiring chemical recycling companies in an effort to facilitate thecirculation of chemical resources by integrating raw materials recycling into
manufacturing operations.

Strategy for expanding the New Energy businessWe manufacture and supply highly differentiated lithium-ion battery
electrolytes and anode materials that meet stringent safety requirements inthe auto industry, and are widely used by electric vehicle manufacturers today.
Building on that success, the New Energy business is working to quickly
develop innovative and profitable products that can help customers use
energy more efficiently. To expand this business over the long term andbolster its international competitiveness, we are increasing production
capacity at our manufacturing plants around the world while strengthening
our global supply network.

81

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

External
electrodes

4Internal electrode

Peelable films are used in
the process of layeringinternal electrodes during
production

20

Mitsubishi Chemical’s carbon fiber reinforced plastic isused for the roof of the Audi RS5 Coupé Carbon Edition
Photos courtesy of Audi AG

2017

Over 700 are used in a single smartphone

2018

2019

2020

2021

2022

2023

2024

2025

(FY)

In-house estimates

ManufacturingRawmaterials

Contributing toresource circulation
Recyclingchemicalresources

Usage

Helping to reduce food loss and save resources
with high-performance barrier films

RecoveryElectrolyte manufacturing subsidiaries
by region

China*
UK

Japan*

Solutions for environmental and social issues

US

Mitsubishi Chemical’s DIAMIRON co-extruded multilayer
film and Soarnol of ethylene vinyl alcohol copolymer
gas-barrier film are used as food packaging materials.
Featuring outstanding barrier properties, the productspreserve the freshness and quality of food for relatively
long periods of time. In Japan, market demand for foodpackaging materials has been on the rise amid a shift toindividually packed products and problems associatedwith food loss, which have reflected changing lifestyles inrecent years. In response, Mitsubishi Chemical intends toprovide a wide range of food packaging materials,
including biodegradable multilayer barrier films that arefriendly to the environment.

Soarnol used to produce a mayonnaise container
Material

Function

Low-density
polyethylene

Enables container flexibility andprevents moisture and electrostatic

Recyclable
layer
Adhesive
layer

Recyclable material

Allows product recycling

Adhesive resin

Bonds the outer and barrier layers

Barrierlayer

Ethylene vinyl
alcohol copolymer

Forms an oxygen barrier
and enables container molding

Adhesive
layer

Adhesive resin

Bonds the inner and barrier layers

Inner
layer

Low-density
polyethylene

Enables container flexibility andprevents moisture and electrostatic

Outer
layer

* In 2020, a new joint venture was established with Ube Industries, Ltd.
for electrolyte manufacturing

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202082

5 Financial and Non-Financial Information

Overview of Business Domains

MMA business

MMA businessPetrochemicals businessPetrochemicals business• We use three manufacturing methods and hold the top share of the
global MMA market.

• Earnings in this business fluctuate according to raw material
prices and global market conditions.

• We have amassed advanced technologies across a broad product chain
ranging from basic petrochemicals to derivatives.

• This business is sensitive to changing prices of crude oil andother commodities.

Carbon Products business

Carbon Products business• We possess exceptional coking coal blending technologies andcoke quality management technologies.

Industrial Gases business• As a group, we hold the top share of Japan’s industrial
gases market and can supply these gases to markets
around the world.

MMA businessIndustrial Materials
Domain• Our international operations have enough capacity tomeet growing global demand.

Petrochemicals business• Earnings in this business fluctuate depending on
coking coal prices.
Strengths

S W
O T

Opportunities• This business can leverage technology license agreements andproprietary catalysts in growing markets around the world.

Carbon Products business• We can tap into growing demand for coke as crude steel production
expands in developing countries such as India.

In its Industrial Materials domain, the Mitsubishi Chemical
Holdings (MCHC) Group strives to increase the use of renewable
resources while providing products and technologies that meetthe current needs of growing industries and markets.

Weaknesses

Industrial Gases business• As a group, we can take advantage of growing investment opportunities
around the world and rising demand for gas applications in theelectronics and medical device industries.

Threats

Industrial Gases business• Business earnings in Japan are impacted byelectricity costs.

MMA business• Our products face competition from alternative
materials.

Petrochemicals business• Competition in Japan has intensified due to greaterthan expected imports of petrochemicals derived
from US shale and Chinese coal.

Carbon Products business• Demand for coke could decline as steel manufacturers
consolidate their blast furnaces as part of restructuring.

Industrial Gases business• Our international competitors have become larger following
mergers of major European and American gas companies.

Financial results and main products

MMA

FY2019
Sales revenue¥

276.4 billion

FY2019Core operating income¥

24.3 billion

CarbonProducts

FY2019
Sales revenue

83

FY2019Core operating income¥

8.1billion

Coke, carbon materials, carbon black, and synthetic rubber

MMA: Our production capacity of this organic compound accounts for about 40% of total global
capacity. We produce this through three methods* using different raw materials, and are pursuing
advancements in its manufacturing processes while leveraging cost competitiveness and access to raw
materials through a global supply chain.

Coke: Coke is an essential material for the global steel industry, and the coal tar produced in its
manufacturing process is also used as a raw material for many types of products. We procure coal froma number of countries and blend it with 60 to 70 types of raw materials to produce coke of various
quality grades.
Carbon black: Carbon black is used to make many common goods, such as tires, printing ink, andrubber coloring. We apply strict quality controls at every stage of the carbon black manufacturing
process, from raw material processing to finished product inspections.

PMMA: We manufacture this thermoplastic, which boasts excellent transparency, weather-resistance,
and formability, for a wide range of products, particularly acrylic sheets for signs, display cases andaquarium tanks. It is also used in auto parts, optical components, consumer electronics components, andplastic optical fibers.

FY2019
Sales revenue

246.3 billion

Methyl methacrylate (MMA) and polymethyl methacrylate (PMMA)* The acetone cyanohydrin (ACH) method, C4 direct oxidation process, and Mitsubishi Chemical Corporation’s new
ethylene method called Alpha technology.

Petrochemicals¥¥

534.4 billion

FY2019Core operating loss¥

2.1billion

Industrial
Gases

FY2019
Sales revenue¥

843.3 billion

FY2019Core operating income¥

88.0 billion

Basic petrochemicals and basic chemical derivatives, polyolefins

Industrial gases and related equipment and facilities

Basic petrochemicals and basic chemical derivatives: This business supplies olefins, including ethylene andpropylene, and aromatics, such as benzene and toluene. It also sells terephthalic acid and various derivatives fromethylene, propylene and C4. The MCHC Group operates two ethylene plants in Japan, one in Ibaraki Prefecture
owned by Mitsubishi Chemical, and another in Okayama Prefecture owned by Asahi Kasei Mitsubishi Chemical
Ethylene Corporation, a 50:50 joint venture company between Mitsubishi Chemical and Asahi Kasei Corporation.
Polyolefins: Applying our proprietary catalyst and process technologies, this business supplies high-quality andhigh-performance polyethylene and polypropylene materials, which are used to manufacture a diverse range of
products spanning from auto parts and electrical wires to medical equipment and food packaging. As a global
supplier of these high-performance materials, we are expanding this business into growing industries around theworld, including the auto industry.

Industrial gases: Having secured the top share (40%) of Japan’s market for industrial gases, which
includes oxygen, nitrogen and argon, we are working to expand this business in other major markets of
the world, particularly in North America, Europe, Asia, and Oceania.
Industrial gas-related equipment and facilities: Building on a long history of achievements, such as
constructing Japan’s first air separation units in 1935, we have earned a strong reputation around theworld as a manufacturer of industrial gas-related equipment and facilities, including space-simulationchambers and liquid helium equipment.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202084

5 Financial and Non-Financial Information

Overview of Business Domains

Policies

APTSIS 20• Stabilize earnings by improving
cost competitiveness• Accelerate growth and increasepresence in the global market

Planned investment from FY2016 to FY2020
Total
investment ¥1,280

Investment
in R&D¥billion80

billionCore operating income(Billions of yen)

• Enhance cost competitiveness• Accelerate global expansion of theKeystrategies MMA and Industrial Gases businesses• Restructure businesses

250
125

205.4
114.7

225.0
118.3

96.0

2019

2020
2020
Forecast Target

0

2016

2017

2018

(FY)

Strategy for expanding the MMA business

Leveraging a dependable global supply network

With about 40% of global production capacity for MMA, we are working tomaintain our overwhelming competitive advantage as the leading global
supplier by optimizing manufacturing processes, and to expand globally by
boosting production capacity. Global expansion is being driven by one of ouroperating companies Mitsubishi Chemical, the world’s only supplier capableof producing MMA through three different methods: the ACH method, C4
direct oxidation process, and its own new ethylene method called Alphatechnology. It carries out highly advanced global supply chain management
utilizing digitalization to promptly monitor supply and demand in every
region of the world, as well as market trends, raw material availability, andcosts incurred for each manufacturing method. It is also applying digitalization
to optimize manufacturing processes and maintain a competitive edge in the
global market while securing stable earnings.

United Kingdom
China
ACH 217kt
ACH 175kt
C4 90kt

Strategy for improving competitiveness in
the Petrochemicals businessSaudi Arabia
New ethylene
method250kt

United States
ACH 300kt

TaiwanACH 105kt

Industrial Gases segment
Group company takes a major step forward with shift to a holding company structure

Amid a growing concentration of companies in the industrial
gas industry, Nippon Sanso Holdings Corporation has been
aiming to solidify its position by globalizing its operations, which
is a basic policy of its medium-term management plan, Ortus
Stage 2, launched in April 2017. Accordingly, the company
acquired part of the European operations of Praxair, Inc., a
US-based industrial gas supplier, in December 2018, and set up a
global supply network covering four operating regions: Japan,
the US, Europe, and Asia and Oceania.
To build on this momentum against the backdrop ofchanging geopolitical and economic trends, the company’s
management recognized the need to leverage the collective
capabilities of the group led by Nippon Sanso Holdings, andboost its competitiveness against major players in the global
industrial gas market. Therefore, from October 2020, it was
decided to shift to a holdings company structure and changed
the name to Nippon Sanso Holdings, and create a morecompetitive group operating structure.
Through this shift, the company will allocate authority
among its operating companies in each of the aforementioned
regions, and clarify responsibilities for business execution to
speed up management decision-making. It also plans tostrategically distribute operational resources and formulate
strategies for the group as a whole while stepping up corporate
governance and improving its risk management system.

Shifting to a new global management system

US PJ
New ethylene
method(under feasibility study)

New global management systemeffective from October 2020

Global operating companies

Global headquarters

Taiyo Nippon Sanso

Nippon Sanso Holdings Corporation
ThailandC4 180kt

Singapore
New ethylene method 130kt

Corporate
management

Annual production capacity of MMA
C4 directoxidation
process560kt

ACH
method904kt

Newethylenemethod380kt

Excluding steel producers, Mitsubishi Chemical is one of the largest coke manufacturers in theworld, and provides a dependable supply of coke to a wide range of steel makers in Japan andaround the globe. To improve its international competitiveness and maximize earnings, thecompany is making continuous efforts to add more value to its coke byproducts.

Strategicplanning

Corporate
governanceEuropeTotal: 1,844kt
Approx. 40% of
global capacity

Envisioned plastic waste recycling process

Strategy for improving competitiveness in
the Carbon Products business

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

South Korea
C4 180kt

Japan
C4 110kt
ACH 107kt

We have carried out major structural reforms in the Petrochemicals business, such as
consolidating its naphtha cracking operations and withdrawing from unprofitablebusinesses. Building on this progress, we are now proceeding to upgrade
manufacturing facilities and optimize production systems as a means to improve
competitiveness and maximize earnings going forward.
As part of these efforts, Mitsubishi Chemical and ENEOS Corporation (former
JXTG Nippon Oil & Energy Corporation) are currently studying chemical recycling
technologies to reuse plastic waste as raw materials for oil refining andpetrochemical production. Toward that end, in November 2019, it formed a 50:50
joint venture company in the city of Kashima, Ibaraki Prefecture, through a limited
liability partnership with JXTG Nippon Oil & Energy Corporation (currently ENEOS
Corporation), thereby promoting cooperation between Japan’s oil refinery andpetrochemical industries. Both partners will aim to boost their international
competitiveness by converting plastic waste into raw materials for gasoline andother fuels and using these raw materials more efficiently in production processes,
and optimizing the production of petrochemical products.

85

194.4

Focus

India
Taiyo Nippon
Sanso Corporation(Japan)Nippon Gases
Euro-Holdings S.L.U.
(Europe)

Matheson
Tri-Gas, Inc.
(US)

Plastic
waste

China

Thermos K.K.

Asia and Oceania
regional groupcompanies

UnitedStatesJapan

Southeast Asia
Australia

Nippon Gases Euro-Holdings

Matheson
Tri-GasTreatment
facilities

Customers

Crude oil

Derivatives
and polymer
products

Oil refining
Naphthacracking

Solutions for environmental and social issues
Creating more employee-friendly workplaces by reducing stressful andphysically demanding work
Mitsubishi Chemical practices sound management based on the principles of the
MCHC Group’s KAITEKI Health and Productivity Management. Accordingly, thecompany has been taking steps to make its workplaces more motivating anddynamic for its diverse employees with a view to raise productivity and promote
innovation. For example, measures to reduce stressful and physically demanding
work were initiated in fiscal 2019 along with other priority initiatives based on over
2,000 ideas and suggestions collected from employees working at factories andother workplaces throughout the company. While requests to reduce heavy
physical labor had been technically difficult to realize in the past, the company has
begun adopting AI, IoT, robotics, and other new technologies to solve these issues
and make it easier for all employees to participate in the workplace.

Powered exoskeletons are being considered asa way to reduce physically demanding work

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

86

5 Financial and Non-Financial Information

Overview of Business Domains

Pharmaceuticals business• We have advanced drug discovery and IKUYAKU (drug fosteringand evolution) capabilities.
• We have established a solid presence in priority drug markets,particularly drugs for immuno-inflammatory diseases.

Pharmaceuticals business• Our expansion into global markets has been
relatively slow, particularly in North America.

Life Science business• Our products target a wide range of applications
spanning from sick care to healthcare.
• We have outstanding product development
and technological capabilities in regenerative
medicine.

Life Science business
Strengths

Weaknesses

Opportunities

Threats

Pharmaceuticals business• Needs in the healthcare and medical sectors
are diversifying.
• The aging of populations in many countries isdriving up demand for healthcare.

Health Care Domain

S W
O T

Life Science business• Big data is increasingly being used for healthcare andmedical ICT.
• Governments are promoting public health and serious
disease prevention to control spiraling healthcare costs.
• People are growing more aware of personal healthmanagement, including self-medication.

In its Health Care domain, the Mitsubishi Chemical Holdings Groupnot only works to provide treatments for diseases but also
products and services that help people around the world live
longer and healthier lives.

• We must further diversify our products andservices to meet a broad range of customer needs.

Pharmaceuticals business• Discovering new drugs is increasingly
challenging and stricter drug approval
processes result in higher R&D costs.
• Governments are taking various measures tocontrol healthcare expenditures.

Life Science business• Economic incentives are lacking for healthcare
businesses and services.

Financial results and main products
HealthCare

FY2019
Sales revenue¥

413.1 billion

FY2019Core operating income¥

14.6 billion(Figures do not include results from discontinued operations.)

Pharmaceuticals businessLife Science business

Drugs for immuno-inflammatory diseases: Mitsubishi Tanabe
Pharma Corporation has held the No. 1 share in Japan’s drug market
for immuno-inflammatory diseases by maximizing the respective
benefits provided by three products: REMICADE (for inflammatory
autoimmune diseases such as rheumatoid arthritis), Simponi (forrheumatoid arthritis and ulcerative colitis), and Stelara (for Crohn’sdisease, ulcerative colitis, and other indications). Through its leading
product, REMICADE, in particular, we have secured a steady sales
stream and dependable reputation among medical professionals.

REMICADE

Simponi87

CANAGLU

CANALIA

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Next-generation healthcare: One of our operating companies,
Life Science Institute, Ltd., has initiated clinical trials
of a formulation (development code CL2020) for treating acute
myocardial infarction, ischemic stroke, epidermolysis bullosa, andspinal cord injury based on Multilineage-differentiating stressenduring cells (Muse cells) which were discovered by Professor
Mari Dezawa’s group at Tohoku
University. Meanwhile, our Group’s
Tonomachi Cell Processing Center
obtained a license for manufacturing ofregenerative medicine products inAugust 2019, and is making preparations
to launch products to the market.
Muse cells

Pharmaceutical development solutions: Our Life Sciencebusiness manufactures active pharmaceutical ingredients andintermediates. It has also manufactured high-quality,
high-performance hard-shelled capsules, including the world’s first
hypromellose capsules made from plant-derived materials. The
business has also applied its capsule manufacturing technology andexpertise to supply pharmaceutical processing equipment (PPE).
(The capsules and PPE businesses were transferred to the High Performance
Chemicals Business Domain of Mitsubishi Chemical Corporation in July 2020.)

RADICUT

StelaraDrugs for diabetes and kidney diseases: Mitsubishi Tanabe
Pharma has developed three drugs: TENELIA—the first type 2
diabetes mellitus drug developed in Japan—as well as CANAGLU
and CANALIA, and we are working to establish a solid presence inthis field by collecting clinical results and expanding sales channels
for these three drugs.

TENELIA

Drugs for central nervous system disorders: Mitsubishi Tanabe
Pharma has been obtaining approval for RADICUT (RADICAVA in theUS) as a treatment for amyotrophic lateral sclerosis (ALS) in countries
around the world, starting with Japan in June 2015, followed by South
Korea, the US, Canada, Switzerland, China, and Indonesia. Evidence has
shown that the drug is effective in removing free radicals remaining
in the body, thereby protecting motor neurons from damage causedby resultant oxidative stress. This slows the decline of physicalfunctioning and progress ofmuscle atrophy in ALS patients.
The drug is an intravenous
infusion, but we are currently
developing an oral suspension.

Vaccines: Mitsubishi Tanabe Pharma jointly established a company
to produce vaccines, BIKEN Co., Ltd., with Osaka University’s
Research Institute for Microbial Diseases. Since commencing
operations in September 2017, the joint venture has been
producing in-demand vaccines and helping stabilize the supply of
vaccines. We aim to increase total vaccine production capacity by
20 to 30% in the future.

Influenza vaccine

TETRABIK

Varicella vaccine

Healthcare and medical ICT: In Japan, the population is aging
rapidly and rural areas have increasingly less access to medical care.
To address these issues, we are striving to improve the quality of
medical care through new products and services. For example, it has
been applying digitalization to develop diagnostic support systems
that can lessen the workloads of medical doctors, and is currently
promoting Open Shared Business (OSB)* to develop AI-based
diagnostic imaging systems.
* OSB (Open Shared Business) is theoriginal framework of Mitsubishi
Chemical Holdings Corporation forworking with organizations outside theGroup. We promote collaboration inboth R&D and business and build adistinctive value chain by using the
OSB framework.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

88

5 Financial and Non-Financial Information

Overview of Business Domains

PoliciesKeystrategies

APTSIS 20• Enable global growth of the Pharmaceuticalbusiness• Establish and improve the healthcare andmedical business utilizing ICT and regenerative
medical products

Planned investment from FY2016 to FY2020• Accelerate expansion of the Pharmaceuticalbusiness globally, particularly in the US.
• Strengthen drug discovery capabilities• Bolster IKUYAKU (drug fostering and evolution)and marketing to maximize the value of new drugs
and priority products• Expand the healthcare and medical business
utilizing ICT• Expand the regenerative medicine business• Improve profitability and global expansion of
the business for pharmaceutical capsulesCore operating income (loss)

Growth strategies in the Pharmaceutical business
Mitsubishi Tanabe Pharma has set forth four challenges forachieving its goals in its medium-term management plan, OpenUp the Future, which ends in March 2021. One of these challenges
is maximizing pipeline value. As part of these efforts, the company
filed for approval of Vadadustat (generic name) for the treatmentof renal anemia in Japan and entered into a licensing agreement
for the introduction of Inebilizumab (generic name) for thetreatment of optic neuromyelitis-related diseases in fiscal 2019.
On a global level, Mitsubishi Tanabe Pharma revised its
development plan in the United States based on the results of a
Phase 3 clinical trial of a plant-derived virus-like particle (VLP)
vaccine (development code MT-2271) for the prevention ofseasonal influenza. The company has confirmed a certain levelof efficacy in comparison with a placebo and a control (vaccine
grown in chicken eggs). Considering the merits of theplant-derived VLP platform technology, it is investigating thedevelopment of a seasonal influenza vaccine with an adjuvant*to further improve the efficacy of the vaccine compared to thecurrent formulation.

Total
investment ¥(Billions of yen)

100

460

98.4

billion81.2

50

Investment
in R&D¥440

billion

14.6

0

2016

2017

2018

2019

-1.0

2020
Forecast

Shift from treatment to prevention anddisease avoidance
2020
Target(FY)(Note) The figure for fiscal 2019 does not include results from discontinued operations.

Four objectives for creating future possibilities
1

Maximizepipeline value

2

Strengthen
IKUYAKU (drugfostering andevolution)and marketing3

Accelerate
expansionin the US4

Raise
productivity

FY2019 results
Started late-stage
development of
9 candidates

Late-stage development target

10 drug discoveries

5-year cumulative R&D investment¥ 400 billion

Japan sales revenue target

FY2019 results¥313.9 billion
74.6%¥ 300 billion

Sales ratio of new drugs and priority
products target

75 %US sales revenue target

FY2019 results¥23.1 billion
RADICAVA
approvedin 6 countries¥ 40 billion
Export RADICAVA to more countries
Strategic investment from FY2019 to FY2023¥ 300 billion

Reduction of the cost of sales andSG&A expense reduction target¥ 30 billion

Maximum workforce target

5,000

FY2020 forecasts

Sales revenue of ¥383.5 billion
Core operating income of ¥10 billion

89

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

clinical trials, the exploratory clinical trial for acute myocardial
infarction and the clinical trial for ischemic stroke have met
expectations in terms of preliminary results.
The company aims to commercialize CL2020 as soon as
possible in order to meet the expectations of the many patientsand their families who have expressed interest in it.

Intravenous
administrationof Muse cells

Review reports

AI

Data gathering

Damaged brain

Signals from injured cell
(SOS signal)

Public clinical trial data

• Compile database for clinical trial information

Clinical trial design• Support preparation of clinical trial protocol• Estimate clinical trial data

Purpose
Improve probability of success

Sales revenue of ¥430 billion
Core operating income of ¥60 billion

Migration todamaged brain cells
through blood vessels

Medical papers

AI

FY2019 results¥32 billion
reduction
Workforce cut to4,782 employees

Growth strategies in the Life Science businessOne of our operating companies, Life Science Institute, isdeveloping a Muse cell-based formulation (development code
CL2020), which is a regenerative medicine product, with the aimof becoming a truly unique healthcare solutions company.
Muse cells were discovered by Professor Mari Dezawa’s
group at Tohoku University in 2010. These pluripotent stem cells
have the capacity to differentiate into a range of human cells.
Muse cells are considered as non-tumorigenic, and they naturally
exist in the connective tissue of the human body. Moreover, they
do not need to be induced to differentiate into target cells, andcan be simply administered intravenously to accumulate andengraft injured tissues for repair.
Life Science Institute is currently conducting clinical trials on
CL2020 as a treatment for acute myocardial infarction, ischemic
stroke, epidermolysis bullosa, and spinal cord injury. Of these

The focus of the Japanese government’s healthcare policy has
shifted from treatment to prevention and disease avoidance.
There is also a growing awareness of the importance of healthmanagement by individuals. For the lifestyle-related disease of
diabetes, prevention of an increase in severity is a pressing issue inorder to avoid rising medical expenses.
The TOMOCO diabetes care app developed by Mitsubishi
Tanabe Pharma in collaboration with Habitus Care Inc. encourages
daily recording of diet, exercise, medication, and blood glucose
levels, and follows up with a plan of action developed by an
instructor. In doing so, the app supports efforts to prevent
diabetes from becoming more severe by encouraging behavior
change in addition to medical care.

considerable time and know-how based on the knowledge andexperience of skilled human resources. Mitsubishi Tanabe
Pharma is working together with Hitachi, Ltd., to combine AI
that supports information and data collection and AI that
supports clinical trial design. The companies have confirmedthat it is possible to reduce the time required to collectinformation by approximately 70% compared to conventional
work that relies on the know-how of skilled personnel.
Together, we will continue to work toward reducing the timeand cost of new drug development and improving theprobability of success.

FY2020 targets* An adjuvant is a substance used in combination with a vaccine to enhanceor supplement the effectiveness of pharmaceuticals, and it can be expected
to improve immunogenicity.

Developing Muse cell-based products in response
to unmet medical needs

Applying digitalization in healthcare

As a group, we have established a unique healthcare platform that leverages chemistry, biotechnology, and digitaltechnologies. We have also introduced AI to streamline and improve operations.

66.0

56.9

Focus

Operational streamlining and improvements by IKUYAKU(drug fostering and evolution) and marketing
Clinical trials are an important process that determines the
success or failure of new drug development. They aim to verify
the efficacy and safety of new drug candidates. This is why
clinical trials require elaborate implementation plans, as well as

Shorten clinical trial Period

Mitsubishi Tanabe Pharma’s marketing teams are working
to improve the efficiency of operations through theestablishment of a system that accumulates and analyzes dataon activities such as the history of physician visits and thedetails of inquiries from physicians, derives efficient patterns forsales activities, and automatically sends papers and othercontent of interest to physicians via email.

Solutions for environmental and social issues
Development of a VLP vaccine for COVID-19
Medicago Inc., a subsidiary of Mitsubishi Tanabe Pharma, began Phase 1
clinical trials of a plant-derived VLP vaccine for COVID-19 in July 2020. The
company is committed to steadily advancing the development of thevaccine so that, if approved, it can be delivered to the public as soon as
possible in order to contribute to the prevention of COVID-19, an urgent
public health issue.

Accumulate at the site of an ischemic strokeand spontaneously differentiate into
nerve cells and blood vessels
Injured brain tissue repaired and function restored

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202090

5 Financial and Non-Financial Information

Consolidated Financial Statements

Consolidated Financial Summary

Mitsubishi Chemical Holdings Corporation and Consolidated Subsidiaries
Years ended March 31
IFRSJapan GAAP

Millions of yen
April 2015
(Transition date)

2016

2017

2018

2015

2016

2017

¥ 3,498,834¥3,656,278¥3,823,098¥3,432,398

2014
For the Year:For the Year:Sales revenue

Millions of yen

2020

2019

¥

—

¥3,543,352¥3,376,057¥ 3,724,406¥ 3,840,341¥ 3,580,510

Net sales

Income before taxes—

252,791

258,343

344,077

284,846

122,003

Ordinary income

103,092

163,059

270,616

258,073

Net income—

104,858

216,515

276,362

216,729

86,560Net income attributable to owners of the parent

32,24860,85946,444113,237

Net income attributable to owners of the parent—

51,358156,259

211,788

169,530

54,077

Total comprehensive income

134,016

173,692

7,695

205,319

Total comprehensive income—

34,302

226,493

297,476

205,898

475

Net cash provided by operating activities

177,027

329,776

388,663333,150

Net cash used in investing activities(159,789)(277,223)(202,796)(264,566)

Total comprehensive income attributable to owners of
the parent—

253

165,709

233,619

161,655

Net cash provided by (used in) operating activities—

299,612396,643

397,940

415,575(6,664)—(234,078)(289,056)(335,933)(895,068)(87,563)—(40,945)

1,411(150,592)

519,062(450,523)

252,749

267,148

363,510

277,624

321,541

228,211

At Year-End:Total assets

993,011

972,197

1,091,398

1,285,750

1,377,947

1,170,222

4,368,998

4,223,774

4,463,547

4,701,415

5,572,508

5,132,149

Yen

40,123

263,770

360,012

Total net assets

1,314,870

1,588,601

1,554,528

1,608,324

Total assets

3,479,359

4,323,038

4,061,572

4,295,260¥636.43¥691.18

At Year-End:Yen
Per Share:
Net assets

Per Share:
Equity attributable to owners of the parent(156,957)

Cash and cash equivalent at end of period

Net cash provided by (used in) financing activities

Equity attributable to owners of the parent(2,061)
243,055

Net cash provided by (used in) financing activities

Net cash provided by (used in) investing activities

Cash and cash equivalent at end of period(8,307)
179,556

452,003¥677.98¥663.71¥758.30¥893.26¥970.46

Net income attributable to owners of the parent —
Basic

—

35.06

106.73147.14119.22

Net income attributable to owners of the parent —Diluted—35.03

105.95136.06110.05¥824.07
38.08
35.21

¥611.95¥669.77

Net income attributable to owners of the parent —Basic

21.89

41.40

31.70

77.35

Net income attributable to owners of the parent —Diluted

21.45

41.37

31.68

76.78

25.8

22.6

22.9

23.2

Ratios:Shareholders’ equity ratio (%)

Ratios:Ratio of equity attributable to owners of the parent (%)

22.7

23.0

24.5

27.3

24.7

22.8

Ratio of earnings attributable to owners of the parent(ROE) (%)

—

5.2

15.1

17.8

12.7

4.2

Price earnings ratio (Times)

—

16.8

8.1

7.0

6.5

16.9

Other:
Number of employees (People)

68,263

68,98869,291

69,23072,02069,609Temporary employees (People)

6,101

6,967

6,878

7,428

7,558

6,753

Return on equity (ROE) (%)

3.7

6.4

4.8

11.8

Price earnings ratio (Times)

19.5

16.8

18.5

11.1

Number of employees (People)

56,031

68,263

68,98869,291(Temporary employees in parentheses) (People)(5,208)(6,101)(6,967)(6,878)Other:

Notes: 1. The consolidated financial statements for the fiscal year ended March 31, 2017, are based on Japanese standards, and have not been audited pursuant
to Paragraph 1 of Article 193-2 of the Financial Instruments and Exchange Act.
2. Sales revenues do not include consumption taxes.

Notes: 1. The consolidated financial statements have been prepared in keeping with International Financial Reporting Standards ("IFRS") since the fiscal year,
ended March 31, 2017.
2. Sales revenues do not include consumption taxes.
3. In the fiscal year ended March 31, 2017, the Company classified terephthalic acid operations in India and China as discontinued. The Company
accordingly presents sales revenue and income before taxes for the fiscal years ended March 31, 2016, and 2017, as amounts for continuing operations
after excluding discontinued operations.
4. The company has classified the businesses of LSI Medience Corporation (LSIM) and its subsidiaries and affiliate as discontinued operations for the year
ended March 31, 2020, based on the exchange all of its shares in LSIM. Therefore, figures for the previous fiscal year have been restated.

91

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202092

5 Financial and Non-Financial Information

Consolidated Financial Statements

Segment Information

Mitsubishi Chemical Holdings Corporation and Consolidated Subsidiaries
Years ended/as of March 31
The Overview of Reporting Segments is detailed in Note 4 (Segment Information).
Sales revenue

Core Operating Income (Loss)
Millions of yen

REPORTING SEGMENT

2020

2019

Net Sales

Millions of yen
2020

2019

Millions of yen
GEOGRAPHIC SEGMENT

Performance Products¥1,155,496¥ 1,081,612¥ 71,338

62,668Japan

Chemicals

1,275,973

1,057,054

127,950

30,265

Overseas

1,244,709

1,212,699

Industrial Gases

732,837

843,340

63,323

87,973Total¥ 3,923,444¥ 3,580,510

Health Care

462,563

413,140

53,782

14,638Others

213,472

185,364

7,932

12,3193,840,341

3,580,510

324,325

207,863——(10,221)(13,043)¥3,840,341¥3,580,510¥314,104¥194,820

Subtotal
Elimination and corporate
Total

¥

2020

2019

Total assets
2020

2019

Japan

¥1,213,619¥ 1,176,280¥ 54,838

Chemicals

1,343,146

1,121,561

60,38664,809Industrial Gases

1,849,857

1,825,927

58,554

86,164

Health Care

1,171,411

1,130,496

16,274

20,469OthersSubtotal¥

56,725

1,002,178

916,415

3,273

6,259

6,580,211

6,170,679

193,325

234,426

Adjustments(1,007,703)(1,038,530)

2,732

4,186

Total

¥5,572,508¥5,132,149¥196,057¥ 238,612

Capital Expenditures
2020

151,792

95,328¥ 317,187¥ 194,820¥ 76,344¥ 29,655¥ 25,021

71,04357,59810,053

10,002

Industrial Gases

72,05674,748

3,494

3,390

Health Care

17,98524,24090,61383,003

Subtotal

3,729

3,130

273

230

229,581

236,060

134,088

121,646

Adjustments
Total

Overseas sales
Overseas sales as a percentage of consolidated net sales

2020

2019
¥1,664,575¥1,534,363

42.4%

42.9%

Millions of yen¥ 64,768

OthersMillions of yen
OVERSEAS SALES

2020

2019

Chemicals

Performance Products¥ 99,492¥ 165,395

R&D Expenditures
Millions of yen

2019

2020

2019

Millions of yen
2020

2019

Performance Products

REPORTING SEGMENT

Millions of yen
GEOGRAPHIC SEGMENT

Total

Depreciation and Amortization
Millions of yen

REPORTING SEGMENT

Core Operating Income (Loss)

Overseas* Inter-segment revenue and transfers are not included.

¥ 2,367,811¥ 2,678,735

2,161

4,330

9,748

11,722¥231,742¥240,390¥142,822¥ 133,368

Employees
NumberREPORTING SEGMENT

23,713

Performance Products

23,950Chemicals

8,168

8,245

Industrial Gases

19,22919,719Health Care

11,9898,800

Others

7,857

8,235

71,19368,712

Subtotal

93

2020

2019

Corporate

827

897

Total

72,02069,609Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202094

5 Financial and Non-Financial Information

Management’s Discussion and Analysis of Results of Operations, Financial Position and Cash Flows

Sales revenue and core operating income
In the fiscal year ended March 31, 2020, business conditions
remained adverse for the Mitsubishi Chemical Holdings (MCHC)
Group. One key factor was that demand stagnated, particularly
for semiconductor and automotive applications, amid
prolonged US–China trade friction. Another was that the
COVID-19 pandemic in the fourth quarter constrained
economic activity around the globe.
It was against this backdrop that consolidated sales
revenue for the term decreased ¥259.8 billion from a year
earlier, to ¥3,580.5 billion. Core operating income dropped¥119.3 billion, to ¥194.8 billion. Operating income declined¥150.5 billion, to ¥144.3 billion. This was due mainly to
impairment charges on non-recurring expenses in the HealthCare domain. The ratio of core operating income to sales
revenue was 5.4%, from 8.2% in the previous term.
In keeping with an exchange of all of its shares in LSI
Medience Corporation, the Group classified the businesses ofthat consolidated subsidiary and its subsidiaries and affiliate as
discontinued operations. In the fiscal year ended March 31,
2020, the Group accordingly classified earnings related to thosebusinesses as discontinued operations in comparison with theprevious fiscal year.

Performance Products segment(Functional Products and Performance Chemicals)
Sales revenue decreased ¥73.9 billion, to ¥1,081.6 billion. Core
operating income was down ¥8.7 billion, to ¥62.6 billion.
In the Functional Products sub-segment, sales revenue
declined despite higher sales volumes in environment andliving solutions. The drop reflected lackluster demand,principally in semiconductor and automotive applications andSales revenue and ratio ofoverseas revenue(Core) operating income and ROS

Sales revenue (left axis)
Ratio of overseas sales revenue (right axis)(%)(Billions of yen)

4,000

60

400

3,840.3
3,823.0
3,724.4
3,580.5
3,543.4
3,376.1

3,000

43.4

40.4

39.5

41.6

43.3

42.9 45

2,000

30

300

200

7.3
1,000

J-GAAP

15

IFRS

0

2015*

2016*

2017

2018* 2019*

314.1

9.1

10.2
8.2

(FY)

In the fiscal year ended March 31, 2020, non-recurring items
recorded a loss of ¥50.5 billion, representing an increase in loss of¥31.2 billion compared to the previous fiscal year. The key factor
was an impairment loss related to the healthcare business.
Operating income for the fiscal year under review wasaccordingly ¥144.3 billion, down ¥150.5 billion.

(%)(Billions of yen)

20

300

15

147.14225

194.8 10

150

5

75

160

106.73211.8

119.22(Billions of yen)
150

138.3
126.8 126.3

Income taxes and net income
Income taxes in the fiscal year under review was ¥52.3 billion,
down ¥18.2 billion, owing largely to lower income before taxes.
The effective tax rate after applying tax-effect accounting was
42.9%, whose difference from the statutory rate was 12.3 points.
As a result of these factors, net income dropped ¥130.1
billion, to ¥86.6 billion. Net income attributable to owners of
the parent was ¥54.1 billion, down ¥115.4 billion.

R&D expenditures
MCHC Group companies maintain independent R&D programs
and collaborate closely with each other by sharing technology
and market information, conducting joint research, andundertaking and outsourcing R&D. They are also working
proactively with businesses outside the Group to refine anddevelop technologies.
The Group has 4,774 R&D employees. R&D expenditures
totaled ¥133.4 billion in the fiscal year under review.

Reference

R&D expenditures(Yen)

Financial income was ¥7.2 billion, down ¥3.0 billion, owing
largely to lower interest and dividend income.
Financial expenses were ¥29.5 billion, up ¥9.4 billion froma year earlier. This reflected the impact of ¥3.7 billion inforeign exchange losses and higher interest expense
associated with increased interest-bearing debt related to theacquisition of businesses for the Industrial Gases segment inEurope and the United States.
Income before taxes thus dropped ¥162.8 billion, to¥122.0 billion.

138.8 142.8

Foreign exchange(Exchange rate at each fiscal year-end)

Domestic naphtha average price ofeach fiscal year

(Yen/US$)(Yen/kl)

120

133.4

120

113

112

106

111

80,000109

90

60,000100

49,400

169.5

156.3

80

60

40,00030

20,00042,80041,90042,90034,70050

100

J-GAAP0

8.5

Non-recurring items and operating income

Net income attributable to owners of the parent(left axis)
Basic earnings per share (right axis)

380.5
300.4 307.5
280.0

OthersSales revenue decreased ¥28.1 billion, to ¥185.4 billion. Core
operating income rose ¥4.4 billion, to ¥12.3 billion.

Net income attributable to owners of
the parent and basic earnings per share(Core) operating income (left axis)
ROS (right axis)(Billions of yen)

Health Care segment(Pharmaceuticals and Life Science)
Sales revenue declined ¥49.5 billion, to ¥413.1 billion. Core
operating income was down ¥39.2 billion, to ¥14.6 billion.
In Pharmaceuticals, sales revenue and core operating
income decreased. This was primarily attributable to lower
royalty revenues and despite higher sales volumes in mainly
priority products in domestic ethical pharmaceuticals. Someroyalty revenue from Novartis Pharma AG for Gilenya, atreatment agent for multiple sclerosis, has not beenrecognized as sales revenue in accordance with IFRS 15
Revenue from Contracts with Customers due to the start ofarbitration proceedings since February 2019. Due to theongoing proceedings, sales revenue has not been recognizedand decreased in the fiscal year under review.

Chemicals segment(MMA, Petrochemicals and Carbon Products)
Sales revenue decreased ¥218.8 billion, to ¥1,057.1 billion. Core
operating income was down ¥97.7 billion, to ¥30.3 billion.
In the MMA sub-segment, sales revenue was down amid
weaker demand and a downturn in MMA monomer andother markets.
In the Petrochemicals sub-segment, while sales volumes
increased because of a smaller impact from scheduled
maintenance and repairs at the ethylene production facility,
prices declined owing mainly to lower raw materials costs
and other factors.
In the Carbon Products sub-segment, sales revenue wasdown, reflecting lower coke prices as a result of reduced raw
material costs as well as because of decreased needle cokesales volumes.
Core operating income decreased owing mainly to thedownturn in MMA monomer and other markets. This was
despite higher sales volumes stemming from the lower impactof the scheduled maintenance and repairs in petrochemicals.

Results by segment

Financial income/Expenses and income
before taxes

Industrial Gas segment (Industrial Gases)
Sales revenue rose ¥110.5 billion, to ¥843.3 billion. Core
operating income was up ¥24.7 billion, to ¥88.0 billion.
In Industrial Gases, sales revenue and core operating
income increased after including the performances ofEuropean and US businesses acquired in the second half ofthe previous fiscal year.

lower sales volumes in high-performance engineering plastics
and other products for advanced moldings and composites.
Sales revenue was down in the Performance Chemicals
sub-segment. This reflected a downturn in what was afavorable market in the first half of the previous fiscal year
for phenol-polycarbonate chain materials in advanced
polymers. This situation offset the impact of higher sales
volumes in the absence of the previous fiscal year’sscheduled maintenance and repairs.
Core operating income in this segment declined owing
to a downturn in the market for phenol-polycarbonate chainmaterials in advanced polymers and lower sales volumes inhigh-performance engineering plastics and other products
for advanced moldings and composites.

Results of operations

5.4
IFRS

J-GAAP

0

0

2015*

31.70

2016*

2017

2018* 2019*

(FY)

40
38.08
54.1

35.06

46.4 51.4

IFRS

J-GAAP

0

0

2015*

2016*

2017

2018* 2019*

(FY)

0

IFRS

0

2015*

2016*

2017

2018* 2019*

(FY)

0

2015

2016

2017

2018

2019

(FY)

2015

2016

2017

2018

2019

(FY)

(Note) Figures for years indicated with (*) do not include results from discontinued operations.

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Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 202096

5 Financial and Non-Financial Information

Management’s Discussion and Analysis of Results of Operations, Financial Position and Cash Flows
Total equity at year-end was ¥1,450.8 billion, down
¥575.1 billion. Key factors were decreases in non-controllinginterests and in additional paid-in capital in line with
Mitsubishi Tanabe Pharma Corporation becoming a wholly
owned subsidiary and a reduction in foreign currencytranslation differences of overseas subsidiaries. As a result of
these factors, the ratio of equity attributable to owners of theparent was down 1.9 points, to 22.8%.
The net D/E ratio was up 0.53, to 1.79.
The balance of main account items at March 31, 2020,and details of increases and decreases are as follows.

Sources and funds and liquidity
Under the medium-term management plan APTSIS 20, theMCHC Group has set out the basic policy of “Aim to become acorporate group with a high-growth and high-profit businessstructure through the Performance Products, Industrial Materials
and Health Care domains.” It has also set basic management
indicators comprising core operating income, ROS (ratio of core
operating income to sales revenue), net income attributable toowners of the parent, ROE (return on equity attributable toowners of the parent) and net debt-to-equity ratio. We seek toimprove corporate value while maintaining an appropriatebalance between investing in growth businesses, enhancing
shareholder returns and strengthening our financial position.
The MCHC Group funds working capital and capital
expenditures largely by drawing on internal reserves, loans andbonds. The Group deployed a cash management system to
employ its funds efficiently and cut financial expenses. Goingforward, management will pursue Group-wide improvements
in capital efficiency by consolidating Group fund procurement
and management functions.

Net cash provided by (used in) operating activities
Net cash provided by operating activities in the fiscal year
ended March 31, 2020 was ¥452.0 billion, up ¥36.4 billion from ayear earlier, owing mainly to posting of income before taxes anddepreciation and a decrease in working capital from a drop in
raw materials costs.

Net cash provided by (used in) investing activities
Net cash used in investing activities was ¥87.6 billion, down
¥807.5 billion. This was primarily despite ¥236.1 billion in
acquisitions of property, plant and equipment and intangible
assets, and reflected the impact of divesting fund investments.

AssetsTrade receivables
Trade receivables dropped ¥156.6 billion, to ¥698.5 billion.
Inventories
Inventories decreased ¥16.5 billion, to ¥606.5 billion.

Net cash provided by (used in) financing activities
Net cash used in financing activities was ¥450.5 billion, up ¥969.6
billion from a year earlier. This was despite borrowings and bonds
to fund spending of ¥398.1 billion to acquire additional shares in
Mitsubishi Tanabe Pharma and ¥87.9 billion in expenditures for
dividend payments, and reflected repayments from free cash flow
and constraining cash and cash equivalents, resulting in inflows
from increases in borrowings, bonds, and other interest-bearing
debt remaining at ¥37.3 billion.
As a result of these factors, cash and cash equivalents at theend of the period were ¥228.2 billion, down ¥93.3 billion from ayear earlier.

Property, plant and equipment and intangible assets
Property, plant and equipment and intangible assets increased¥700.0 million, to ¥2,252.8 billion.

Liabilities
Interest-bearing debt
Interest-bearing debt was ¥2,388.1 billion, up ¥141.3 billion,
owing mainly to a ¥100.6 billion increase in lease liabilities on
the day that the Company adopted IFRS 16.

Financial position
At March 31, 2020, total assets were ¥5,132.1 billion, down
¥440.4 billion from a year earlier. The decline was despite anincrease in property, plant and equipment associated with the
adoption of IFRS 16 Leases, and reflected efforts to constrain
cash and cash equivalents and a decrease in trade receivables,as the previous term ended on a holiday.
Total liabilities were ¥3,681.3 billion, up ¥134.7 billion,
primarily because of a rise in lease liabilities with the
adoption of IFRS 16.

EquityRetained earnings
Retained earnings decreased ¥2.6 billion, to ¥1,071.3 billion. Thiswas despite an net increase in net income attributable to ownersof the parent, and reflected a decrease due to dividend payments.

Total equity and equity attributable toowners of the parent/Ratio of equity
attributable to owners of the parent

Total assets(Billions of yen)

6,000

2,000

5,572.5

5,132.1

4,800

4,463.5
4,061.54,223.8

4,701.4

1,500

1,919.5
1,698.2
1,554.5 1,596.2
22.9 23.0

1,000

932.2

0

J-GAAP

IFRS

1,285.8

1,091.4

24.7

2016*

2017

2018* 2019*(FY)(Billions of yen)

40

2,100

1,400

22.8

1,378.0

1,170.2

Net cash provided by (used in)operating activities

Net cash provided by (used in) investing
activities and capital expenditures(Times)2,089.9

1.10

1.26

1.17
1.06

1,139.5
1,134.4
1,024.0
1,155.9
0.71 0.68 0.89
0.66

20

1.80

(Billions of yen)(Billions of yen)(Billions of yen)

500

400

250

1.79
1.35

400

396.6 397.9

388.6

1.44

300

415.6

452.0
200

299.6

IFRS

J-GAAP

0

2015*

2016*

2017

2018* 2019*

(FY)

0

0.45

IFRS

2015*

2016*

2017

2018* 2019*

(FY)

176.5

-200

100

-400

0

-87.6
-289.1

2018* 2019*

(FY)

199.3

100

-335.950
J-GAAP-895.1-900

2017180.3 182.7 174.0 178.9

150

IFRS

2016*

239.8

IFRS

-202.7-234.1

2015*

200

0

200

J-GAAP0

213.1 206.5 225.2 231.7 240.4

J-GAAP

0.90

0.86

0.59

10

Depreciation and amortization

Net cash provided by (used in) investing activities
Capital expenditures

700

0

2015*

(%)

1,450.8 30

500

1,200
J-GAAP

972.2

24.5

Capital expenditures for the fiscal year ended March 31, 2020
were ¥240.4 billion, up ¥8.7 billion from a year earlier. These
expenditures were largely applied to the construction of new

Net interest-bearing debt (left axis)
Net D/E ratio (right axis)
Net D/E ratio (incl. minority interests) (right axis)

1,736.2
27.3

3,600

2,400

2,025.9

Capital expenditures

Net interest-bearing debt andnet D/E ratio
Net D/E ratio (incl. minority interests)

Equity attributable to owners of the parent (left axis)
Total equity (left axis)
Ratio of equity attributable to owners of the parent (right axis)(Billions of yen)facilities or the expansion and renewal of existing facilities, andrationalization investments in other facilities.
Key expansions in the Performance Products segment
included Mitsubishi Chemical Corporation’s capacity increasefor polyvinyl alcohol film production facilities and consolidated
subsidiary Noltex LLC’s boost in capacity for ethylene vinyl
alcohol copolymer resin. In the Chemicals segment, Japan
Polypropylene Corporation constructed new production facilities.
In the Industrial Gases segment, the Group set up new air
separator facilities in China. In the Health Care segment, Medicago
Inc. installed vaccine production facilities.

Cash flows

2015*

2016*

2017

2018* 2019*

0
(FY)

IFRS

2015*

2016*

2017

2018* 2019*(FY)(Note) Figures for years indicated with (*) do not include results from discontinued operations.

97

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5 Financial and Non-Financial Information

Financial Information

Business Risks

conditions. They also encompass the prices of fuels and materials, including crude oil and naphtha, as well as ofutilities, procurement volume, foreign exchange rates, and related laws and regulations.
If there is a delay in the pandemic abating, earnings would likely be even lower, depending on how long it

The MCHC Group (“the Group”) faces the following key risks, which could adversely affect its operating results and financial position. Thistakes. While the Group has taken steps to prevent infections, as described earlier, there is a risk that earnings

section contains forward-looking statements based on information deemed relevant at March 31, 2020. The business risks presented are not all-would plunge in the unlikely event of a workplace infection cluster or other development necessitating anencompassing. In recognition of exposure to risks such as those detailed below, the Group conducts risk assessments once a year. Based on

operational halt.

these assessments, risk management systems are established and revised in consideration of the risks faced by specific businesses. In thismanner, the Group is working to prevent the risks from occurring and minimize the impacts of such risks be realized.

1. Overcoming the
COVID-19
Pandemic and its
Risks

The COVID-19 pandemic has hit the world hard by causing a significant decline in economic activity. The MCHC
Group responded to the Japanese government’s emergency declaration and requests from local governments byacting as needed at business sites to prevent infections and safeguard the health of employees, their families,
and customers.
In principle, we have prohibited all office employees from going to work in locations that the declarationencompasses. These people either telework or take time off at home. We have endeavored to keep plants andother facilities running by functioning with skeleton crews, staggering working hours, and stepping up efforts toprevent infections, such as by mandating mask usage.
At all business sites, we have banned conferences, meetings, and dinners related to work, and as well as
domestic and overseas business trips. We have also forbidden employees from attending or participating in
events, seminars, or other heavily attended gatherings.
We set up protocols and channels for employees and their families to report to us if they suspect they are
infected with COVID-19. We also produced and disseminated guidelines on self-isolation periods at home andprerequisites for resuming work.
In the Health Care business, we requested medical representatives to refrain from visiting existing orprospective customer institutions. We also strengthened IT systems so these people can deliver information
online when visits are impossible.
We will encourage teleworking and social distancing among our people and formulate and share new work
practice guidelines. These will be in keeping with requests from the Ministry of Health, Labour and Welfare toprevent workplace infections and strengthen health management. They will also reflect Japan Business
Federation guidelines on preventing infections at manufacturing sites and in office. The ministry drew on thelifestyle recommendations of an advisory panel that the Japanese government set up to help ensure the people’s
health, safety, and security in view of how long it might take to establish COVID-19 treatment methods anddevelop vaccines. In keeping with our social responsibilities as a materials and medical products supplier, we willkeep providing products that help prevent infections and overcome the pandemic.
It remains difficult to predict when the COVID-19 pandemic will abate. Nonetheless, MCHC has produced
the following results forecast for the fiscal year ending March 31, 2021, that assumes that performances should
recover from the third quarter and factors in the exposure of each business to the pandemic.

(1) Performance Products Domain (Performance Products Segment)
In the Functional Products subsegment, we expect earnings to decline ¥16.8 billion owing to lower sales in theautomotive, construction, and information electronics sectors. In the Performance Chemicals subsegment, we
project a ¥12.8 billion drop in earnings owing to lower automotive materials sales and worsening inventory
valuation differences as a result of fluctuating raw materials prices for polycarbonate resins.
We accordingly expect Performance Products Domain core operating income to decrease ¥29.6 billion

2. Other Risks

Key risks other than the impact of the COVID-19 pandemic include the following.
(a) Performance Products Domain (Performance Products Segment)
These products must satisfy high-quality and performance requirements, and the Group must develop and supply
them at the appropriate times to meet market needs. Group business results (“results”) may be adversely affected
if market needs change far more than the Group envisages, or if the Group is unable to ensure the timely supplyof products that meet market needs, including issues with the availability of raw materials. If supply is interrupted
for raw materials that can only be procured from certain areas or specific suppliers, then this could adversely
affect results.
The Group outsources production of most information and electronics-related materials to other Asian
manufacturers, so disasters or other issues with those facilities could disrupt the supply structure, adversely
affecting results. Specifically, film and sheet products rely greatly on demand for liquid crystal display (LCD)
panels, so drastic fluctuations in demand for LCD panels could adversely affect results.

(b) Industrial Materials Domain (Chemicals Segment and Industrial Gases Segment)
In this area, MCHC consumes large volumes of naphtha and other raw materials, and uses considerable amountsof electricity and steam in production processes. For those reasons, drastic fluctuations in the costs of naphtha,
fuels, and other resources owing to changes in crude oil prices; the demand and supply balance for raw fuels or
naphtha; or the impact of foreign exchange rates could adversely affect results if MCHC is not fully able to adjust
its product prices, or if there are delays in such adjustments. MCHC relies on suppliers from certain areas for its
raw fuels, and an inability to secure required fuels at the right times could adversely affect results. A worldwide
recession or increased production capacity among rivals could adversely affect results if it becomes impossible tomaintain the product demand and supply balance or MCHC is unable to generate revenues and earnings or reachgoals that are commensurate with its capital expenditures.
MCHC relies heavily on certain business partners for some products in the Industrial Materials domain. For
example, the coke business depends greatly on specific steelmakers, so if the steel output of those companies
declines, such as because of dramatic fluctuations in the demand and supply of raw steel, the performances ofsuch business partners could adversely affect MCHC’s results.

(c) Health Care Domain (Health Care Segment)
The results of the pharmaceuticals business are subject to the Group being unable to reach revenue andearnings targets by adequately expanding sales volumes of existing treatments or rationalizing operations in
response to lower prices from periodic revisions in National Health Insurance prices of pharmaceuticals. Results
are also subject to government policies in each country to constrain medical expenditures.
In general, lead times for drug research and development are far longer than in other industries, whereas thepercentage of drugs receiving approval is not high. It is therefore difficult to produce accurate forecasts for theowing to the COVID-19 pandemic.

certainty or timing of commercialization. Results are thus subject to drugs not being commercialized as planned.

(2) Industrial Materials Domain (Chemicals and Industrial Gases Segments)

competition with rival offerings, volumes declining on reports of new side effects when usage of these drugs

In the Chemicals segment, lower methyl methacrylate sales revenues primarily in Asia, should cut earnings by¥9.9 billion. A ¥15.9 billion earnings reduction would come from inventory valuation difference amid a decline inraw material prices in the petrochemical business, with a decrease in coke and carbon materials sales revenues
in the carbon business decreasing earnings another ¥7.9 billion. Industrial Gases segment earnings should fall
¥10.6 billion amid lower sales revenues.
The downside core operating income impact of the pandemic on the Industrial Materials Domain should thus

Even where drugs are commercialized, results are subject to sales volumes being lower because of intensified
becomes broad-based, generic drugs are commercialized after patents expire, or when approval is withdrawn.
Following its decision not to seek approval in the United States for MT-2271, a plant-based Virus Like Particle(VLP) vaccine for seasonal influenza, the Group posted an impairment loss of ¥24.1 billion on intangible assets(in-process research and development expenses) related to that vaccine for the year ended March 31, 2020. Thisfactor should not significantly affect performance for the year ending March 31, 2021.
We undertake activities on commission in such fields as joint research and development, product derivations

be ¥44.3 billion.

and introductions, manufacturing, and sales. Changes in or cancellations of contracts with business partner,(3) Health Care Domain (Health Care Segment)

pharmaceutical supplies from these enterprises could affect business results.

In the Health Care domain, we forecast a core operating income decline of ¥4.6 billion because the COVID-19
pandemic has constrained medical consultations.

operating downturns or business policy changes among business partners, or delays or slowdowns inIn the pharmaceutical intermediates and active pharmaceutical ingredients business and the capsules forpharmaceutical products, results are subject to lower sales volumes of customers’ pharmaceuticals following
revisions in National Health Insurance prices or patent expiries on customer products.

Total core operating income should drop ¥78.5 billion owing to the impact of the pandemic. For the year ending

99

March 31, 2021, the Group forecasts sales revenue of ¥3,334 billion, core operating income of ¥140 billion,(d) Service Business

operating income of ¥137 billion, income before taxes of ¥114 billion, net income of ¥77 billion, and net income

The Group includes companies offering engineering and logistics services. Those companies secure some

attributable to owners of the parent of ¥49 billion. Factors affecting these forecasts would include the timing of theexternal orders. Significant fluctuations in demand within and outside the Group, or in market conditions

COVID-19 pandemic abatement in Japan and overseas, domestic and foreign demand and product market

worldwide, could adversely affect results.

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100

5 Financial and Non-Financial Information

Financial Information(e) Overall Operations
The Group’s broad overseas activities include exporting products and manufacturing around the world. In addition
to pandemics, risks in countries or regions relating to Group businesses, notably of conflicts, terrorism, civil wars,

amount could differ. As of the date of submitting these business risks, there were no events necessitating a review
of estimates.
In the year ended March 31, 2020, the Group posted impairment losses on intangible assets (in-process

riots, demonstrations, deteriorating security, and other international geopolitical problems, unforeseeable issues

research and development) relating to technologies of Medicago Inc., which Mitsubishi Tanabe Pharma

with regulations, taxation, working conditions, customs, and other country risks, large-scale natural disasters,

Corporation acquired, and goodwill on the pharmaceutical formulation materials business. For details ofdifficulties hiring and retaining employees, inadequate supplies from utilities or other infrastructural shortfalls,

impairment losses, see Note 16 Impairment Losses in the Consolidated Financial Statements.

changes in the economic and financial climates, or other risks impacting specific countries or regions could
adversely affect results.

(k) Pension and Severance Plans
The measurement of defined benefit obligation is through actuarial calculations, and assumptions include(f) Interest-Bearing Debt
The Group aims to balance its growth and innovation strategies with efforts to enhance its financial position.
MCHC’s results could be adversely affected in a situation where interest payments on interest-bearing debt rises,
such as because interest-bearing debt increases, interest rates rise, or MCHC’s credit rating declines owing tofluctuating Group performances. Results could also be adversely affected if it becomes essential to procure funds
to upgrade facilities and the Group must obtain financing at unfavorable terms.

discount rates and other estimates.
Management considers its assumptions reasonable, although changes in retirement benefit obligations andexpenses owing to changes in the fair value of pension assets, as well as changes in the interest rate climate andthe retirement benefits and pension systems could affect business performance and the financial position.

(l) Impact of Inventory Valuations
The Group states inventory assets principally at cost based on the weighted average method. Declines in the(g) Acquisitions, Mergers, or Restructuring
Results could be adversely affected if mergers, acquisitions, or joint ventures created in Japan or abroad toexpand scale or overhaul MCHC’s business portfolio fail to deliver anticipated synergies or other benefits, or if theGroup’s financial burden thereby increases or, if after mergers or acquisitions, the Group encounters new debt orother issues that it did not initially envisage. Other factors that could adversely affect results include

costs of naphtha or raw materials during the fiscal period could detract from earnings by affecting relatively
expensive inventories at the start of a term, thereby increasing the cost of sales. Earnings would conversely rise if
fuel costs rose during the fiscal period. Changes in fuel costs could therefore affect results. Any book value writedown based on lower profitability could adversely affect results.

reorganizations as part of business selection and concentration initiatives, through which MCHC withdraws from(m) Changes in Foreign Exchange Rates

unprofitable businesses or liquidates affiliates.

The Group endeavors to minimize the short-term impact of fluctuations in foreign currency transactions, primarily
for exports and imports, notably by using forward foreign exchange contracts. Changes in exchange rates in the(h) Deferred Tax Assets
Recoverability of Deferred Tax Assets

The Group engages in production and sales in Asia, Europe, North America, and other locations overseas. It

While incurring tax losses in previous fiscal years, the Group recognizes deferred tax assets only if likely able totranslates sales, expenses, assets, and other items denominated in foreign currencies in such regions into yen in

offset future taxable income based on future taxable income forecasts as described in Note 3. Significant

its consolidated financial statements. Even if the foreign currency valuations of such items remain unchanged, the

Accounting Policies 7. Income Taxes, in the Consolidated Financial Statements. This amount stood at ¥74 billion

yen equivalents could change after conversion from other currencies, so foreign exchange rate fluctuations could

as of March 31, 2020, so the assessment of the recoverability of deferred tax assets is material in accounting

affect the Group’s results and financial position.

estimates.
Key assumptions entailing management judgments shape future business plans that are the basis for futuretaxable income. Significant assumptions are primarily forecasts for sales revenue growth and market trend
projections for raw material prices. Although management deems its assumptions reasonable, they could be
affected by future uncertain fluctuations in economic conditions. If future taxable income differs from forecasts andassumptions, the recoverability of deferred tax assets could differ.

(i) Valuation of Securities
Fair Values of Financial Instruments
The Group mainly classifies stocks and investments as equity financial assets measured at fair value mainly
through other comprehensive income. Assessments are based on unadjusted published prices or reasonably
available inputs in active markets as described in Note 36. Financial Instruments 8. Fair Value of Financial
Instruments, in the Consolidated Financial Statements. Calculations incorporate appropriate valuation techniques,
such as comparable peer analyses.
Authorized officials approve these assessment methods, and management considers them reasonable.
Nonetheless, but changes in such preconditions as observable market information and the financial positions ofissuers could cause fair values to change, affecting other comprehensive income and the financial position.

(j) Impairment of Fixed Assets
Impairment of Non-Financial Assets
The Group conducts impairment tests on property, plant and equipment, goodwill, and intangible assets inaccordance with Note 3. Significant Accounting Policies. 14. Impairment of Assets, in the Consolidated Financial
Statements. When conducting these tests, the Group makes decisions about indications of impairment and about
recognizing impairment losses and determines the value in use and fair value estimates.
The significant assumptions in measuring value in use of goodwill are estimates, discount rates, and growth
rates for future cash flows under five-year business plans. The main factors shaping future cash flows are sales
volume expansion and market growth rates.
The significant assumptions in measuring the usage value of intangible assets (in-process research anddevelopment) related to technology are prospects for obtaining regulatory approval of sales and post-launch sales
forecasts and discount rates.
Management considers its judgments and assessments reasonable, although they are subject to fluctuations
in future economic conditions that it has not envisaged. If assumptions change, calculations of recoverable

101

short, medium, and long terms may affect results.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020(n) Laws and Regulations
The Group’s operations are subject to related laws and regulations in Japan and abroad. Such laws andregulations may govern security and safety, the environment and chemical substances, pharmaceutical safety
policies, and other areas relating to Group operations.
The Group maintains voluntary rules that are stricter than legal provisions while pursuing thoroughcompliance to satisfy laws and regulations in engaging in business activities. Dramatic changes in laws andregulations or strengthened legislation could further restrict the Group’s activities or increase its costs.
Furthermore, should the Group violate laws or regulations, it could be ordered to halt operations at plants, andtrust from society could be lost. All these factors have the possibility of influencing results.
When exporting products, for example, the Group must comply with the Foreign Exchange and Foreign
Trade Act. The Group established a secure export control program, provides employee education through elearning and training, and takes other measures to prevent legal and regulatory infringements. If an officer or
employee of the Group nevertheless violates laws and regulations, the resulting fines, administrative dispositions(prohibitions on exports or cancellations of comprehensive permits), or stricter regulations could affect theGroup's business progress and results.

(o) Product Liability
The Group manufactures and sells products that conform with standards as ISO 9001, the international standard
for quality management systems. The Group endeavors to prevent product liability problems from arising when
launching products or improving quality by previously evaluating such liability risks. The Group cannot guarantee,
however, that all of its products will be free of defects. It therefore has product liability insurance to cover possible
accidents. Regardless, product defects that could cause major product liability exposure with damages exceeding
the range of such insurance could adversely affect results.

(p) Accidents and Disasters
The Group regularly inspects its plants and otherwise endeavors to prevent accidents at facilities. It cannot,
however, completely prevent or mitigate accidents at such facilities, nor natural disasters such as earthquakes.
Accidents that damage property, cause human suffering or loss of life, or create environmental pollution could
adversely impact production activities and reduce social trust in the Group, thereby adversely affecting results.
Natural disasters that damage property, cause human suffering or loss of life, or significantly damage orfunctionally degrade the social infrastructure and chronically affect the Group’s activities could affect results.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

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5 Financial and Non-Financial Information

Financial Information

The Group has prepared for these emergencies by establishing an information gathering system based on
business continuity plans, through which it is endeavoring to maintain core businesses while restoring operations
as swiftly as possible.

Consolidated Statement of Income

Mitsubishi Chemical Holdings Corporation and Consolidated Subsidiaries
Years ended March 31(q) Information Management
The Group strictly manages corporate and personal information in its possession. Problems resulting from leaksof such information could decrease competitiveness or reduce social trust in the Group, which may adversely
affect results. Although the Group has taken various measures to safeguard against cyber attacks, if problems
were to arise with the plant control systems of business sites, it would take steps that include adjusting production
volumes to maintain safety, which could adversely affect results.

(r) Research and Development
The Group deems research and development as pivotal to supporting sustainable corporate growth, and has longundertaken solid R&D. It intends to deploy resources in a planned and sustainably stable manner from long-term
perspectives. Results could be adversely affected, however, if the fruits of R&D are far less than anticipated.

(s) Intellectual Property
The Group takes ample precautions to avoid violating the intellectual property of third parties. Nonetheless,injunctions or damages claims by third parties on the basis of patent or other infringements could adversely affectresults.

(t) Climate Change and Other Environmental Issues
Companies face increasing pressure to disclose such risks as global warming and environmental issues asfinancial information. The Group engages in environmental management companywide, and has expressed its
support for the recommendations of the Task Force on Climate-related Financial Disclosures.
Impositions of carbon taxes and such greenhouse gas emission regulations as the emissions trading systems
in countries in which the Group operates could affect business performance. Increases in natural disasters
stemming from climate change and water resource shortages owing to droughts could affect Group manufacturing
sites.

(u) Litigation
The Group maintains various businesses. In engaging in business, or in reorganizing or restructuring operations,
the Group could face litigation from business partners or other third parties relating to intellectual property or theGroup’s products. It is impossible to predict or assess the results of such lawsuits, which could adversely affectresults.
Some royalty revenue from Novartis Pharma AG for Gilenya multiple sclerosis treatment has not beenrecognized as sales revenue in accordance with IFRS 15 Revenue from Contracts with Customers, as arbitration
proceedings are underway between the Group and that company, which has questioned the validity of a license
agreement, and the royalty revenue does not meet a revenue recognition requirement, which is that parties to thecontract have approved it and are committed to fulfilling their respective obligations.

Year ended March 31, 2019
Continuing operations:
Sales revenue (Notes 4 and 7)
Cost of sales
Gross profit

Millions of yen
Year ended March 31, 2020

¥ 3,840,341(2,765,813)
1,074,528¥ 3,580,510(2,593,247)
987,263

Selling, general and administrative expenses
Other operating income (Note 10)
Other operating expenses (Note 10)
Share of profit of associates and joint ventures (Note 4)
Operating income (Note 4)(776,927)
21,311(50,977)
26,817294,752(800,572)
27,571(83,373)
13,396144,285

Financial income (Note 11)
Financial expenses (Note 11)
Income before taxes

10,226(20,132)
284,846

7,206(29,488)
122,003

Income taxes (Note 12)
Net income from continuing operations(70,589)
214,257(52,335)
69,668Discontinued operations:
Net income from discontinued operations (Note 6)
Net income

2,472¥ 216,729

16,892¥ 86,560

Net income attributable to:
Owners of the parent
Non-controlling interests
Net income¥ 169,530
47,199¥ 216,729¥ 54,077
32,483¥ 86,560

Earnings per share:
Basic earnings per share attributable to owners of the parent(Note 13)
Continuing operations
Discontinued operations
Total
Diluted earnings per share attributable to owners of theparent (Note 13)
Continuing operations
Discontinued operations
Total

(Yen)

¥ 117.49
1.73¥ 119.22¥¥ 108.45
1.60¥ 110.05

¥

¥

¥

26.19
11.89
38.08

24.27
10.94
35.21

The accompanying notes are an integral part of these consolidated financial statements.

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5 Financial and Non-Financial Information

Financial Information

Consolidated Statement of Financial Position

Consolidated Statement of Comprehensive Income

Mitsubishi Chemical Holdings Corporation and Consolidated Subsidiaries

Mitsubishi Chemical Holdings Corporation and Consolidated Subsidiaries
Years ended March 31

Net income

Year ended March 31, 2019
¥216,729

Millions of yen
Year ended March 31, 2020
¥ 86,560

Other comprehensive income:Items that will not be reclassified to profit or loss:
Net gain (loss) on revaluation of financial assets
measured at fair value (Note 26)
Remeasurements of defined benefit pensions plans(Note 26)
Share of other comprehensive income (loss) of
associates and joint ventures for using the equity method(Note 26)
Total items that will not be reclassified to profit or loss

4,743

(15,912)(4,482)(735)

March 31, 2019
AssetsCurrent assets:
Cash and cash equivalents (Note 22)

(183)

368

(16,830)(5,751)(63,517)(3,152)36(2,296)(5,774)

Items that may be subsequently reclassified to profit orloss
Exchange differences on translation of foreign operations(Note 26)
Net gain (loss) on derivatives designated as cash flow
hedges (Note 26)
Share of other comprehensive income (loss) of
associates and joint ventures for using the equity method(Note 26)
Total items that may be subsequently reclassified to profit
or loss
Total other comprehensive income (net of tax)
Total comprehensive income(11,199)(69,255)(10,831)¥205,898(86,085)¥ 475

Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests¥161,655
44,243¥(6,664)
7,139

The accompanying notes are an integral part of these consolidated financial statements.

¥

321,541¥

228,211

Trade receivables (Note 21)855,107

698,516

Inventories (Note 20)

623,049

606,505

Other financial assets (Note 18)

248,262

117,628

Other current assets (Note 19)
Subtotal

107

Millions of yen
March 31, 2020

Assets held for sale (Note 23)
Total current assets

76,072

90,1402,124,031

1,741,000

17,8108,281

2,141,841

1,749,281

1,683,354

1,742,216

Non-current assets:
Property, plant and equipment (Note 15)
Goodwill (Note 14)

648,806

616,769

Intangible assets (Note 14)568,787

510,575

Investments accounted for using the equity
method (Note 17)

183,067

169,958

Other financial assets (Note 18)

228,571

226,488

Other non-current assets(Note 19)

33,57342,813

Deferred tax assets (Note 12)

84,50974,0493,430,667

3,382,868¥5,572,508¥5,132,149

Total non-current assets
Total assets (Note 4)

The accompanying notes are an integral part of these consolidated financial statements.

105

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

106

5 Financial and Non-Financial Information

Financial Information

Liabilities and Equity
Current liabilities:
Liabilities
Trade payables (Note 35)

Millions of yen
March 31, 2020

March 31, 2019¥492,404¥

398,061

Bonds and borrowings(Note 30)

1,108,643

Income tax payable

31,76819,287

Other financial liabilities (Note 32)

727,307

222,377

359,540

Provisions (Note 29)

8,296

7,968

Other current liabilities(Note 34)

138,089

122,575

2,001,577

1,634,738

11,7231,761

2,013,300

1,636,499

Subtotal
Liabilities directly associated withassets held for sale (Note 23)
Total current liabilities
Non-current liabilities:
Bonds and borrowings(Note 30)

1,555,947

Other financial liabilities (Note 32)

26,75588,533Retirement benefit liabilities (Note 28)

120,816

125,611

Provisions (Note 29)

28,29431,893

Other non-current liabilities (Note 34)

41,97180,840

Deferred tax liabilities(Note 12)

177,410

161,997

1,533,354

2,044,821

3,546,654

3,681,320

Total non-current liabilities
Total liabilities
Equity1,138,108

Common stock: (Note 24)

50,00050,000Additional paid-in capital (Note 24)

321,477

176,715

Treasury stock (Note 24)(63,560)(63,485)

1,073,873

1,071,260(3,843)(64,268)

1,377,947

1,170,222

647,907

280,607

Total equity

2,025,854

1,450,829

Total liabilities and equity¥ 5,572,508¥ 5,132,149

Retained earnings (Note 24)
Other components of equity (Note 24)
Equity attributable to owners of theparentNon-controlling interests

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated Statement of Changes in Equity

Mitsubishi Chemical Holdings Corporation and Consolidated Subsidiaries

Year ended March 31, 2019

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

¥50,000

Balance at April 1, 2018
Cumulative effects of changes in accounting
policies
Restated balance at April 1, 2018

Additional
paid-in capital¥—

Net income
Other comprehensive income (Note 26)
Total comprehensive income

Balance at March 31, 2019

Millions of yen

Treasurystock

321,111¥ (43,569)——

50,000321,111(43,569)

—
—
—

—
—
—

—
—
—

—
—
—
—
—
—
—
—
—

Purchase of treasury stock (Note 24)
Disposal of treasury stock (Note 24)
Cash dividends (Note 25)
Share-based payment transactions (Note 27)
Share-based payment transactions ofsubsidiaries (Note 27)
Changes in interests in subsidiaries
Business combinations or businessdivestitures
Changes in scope of consolidation
Transfer from other components of equity toretained earnings
Transfer from other components of equity to
non-financial assets, etc.
Total transactions with owners

—
—

—
—
—

—
—
—
—
—
—
—

609

—

(204)

¥956,946(85)
956,861
169,530—

169,530(20,033)
42(39)

Retainedearnings——(52,867)

—
—
—
—

(24)
373

—
—

—

—

—

366

(19,991)(52,518)¥50,000¥321,477¥(63,560)¥1,073,873

Other components of equity

Balance at April 1, 2018
Cumulative effects ofchanges in accounting
policies
Restated balance at April
1, 2018
Net income
Other comprehensive
income (Note 26)
Total comprehensive
incomePurchase of treasury
stock (Note 24)
Disposal of treasury
stock (Note 24)
Cash dividends(Note 25)
Share-based paymenttransactions (Note 27)
Share-based paymenttransactions ofsubsidiaries (Note 27)
Changes in interests in
subsidiaries
Business combinations
or business divestitures
Changes in scope of
consolidation
Transfer from othercomponents of equity toretained earnings
Transfer from othercomponents of equity to
non-financial assets, etc.
Total transactions withownersBalance at March 31, 2019107

Commonstock

Net gain(loss) on
revaluationof financial
assetsmeasured
at fair value

Remeasurements ofdefinedbenefitpensionsplans

Exchangedifferencesontranslationof foreign
operations—¥(50,455)——

51,544—¥51,544¥

Net gain(loss) on
derivatives
designatedas cashflow
hedges

Total

Equityattributableto ownersof theparentNoncontrollinginterests

Total equity¥173¥1,262¥1,285,750¥633,740¥1,919,490

—

—

—

(85)

(61)

(146)

(50,455)

173

1,262

1,285,665

633,679

1,919,344

—

—

—

—

—

169,530

47,199216,7294,152(3,823)(5,075)(3,129)(7,875)(7,875)(2,956)(10,831)

4,152(3,823)(5,075)(3,129)(7,875)

161,655

44,243205,898

—

—

—

—

—

(20,033)—(20,033)

—

—

—

—

—

3

—

3

—

—

—

—

—

(52,867)(38,025)(90,892)

—

—

—

—

—

609

—

609

—

—

—

—

—

—

25

25

—

—

—

—

—

(204)

5,796

5,592

—

—

—

—

—

—

2,265

2,265

—

—

—

—

—

(24)

(76)

(100)

(4,196)

3,823

—

—

(373)

—

—

—

—

—

—

3,143

3,143

3,143

—

3,143

(4,196)

3,823

—

3,143

2,770

(69,373)(30,015)(99,388)—¥(55,530)¥187¥(3,843)¥1,377,947¥647,907¥2,025,854¥51,500¥

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020108

5 Financial and Non-Financial Information

Financial Information

Year ended March 31, 2020
Commonstock¥50,000

Balance at April 1, 2019

Additional
paid-in capital¥

321,477

Net income
Other comprehensive income (Note 26)
Total comprehensive income

—
—
—

—
—
—

Purchase of treasury stock (Note 24)
Disposal of treasury stock (Note 24)
Cash dividends (Note 25)
Share-based payment transactions (Note 27)
Share-based payment transactions ofsubsidiaries (Note 27)
Changes in interests in subsidiaries (Note 24)
Business combinations or businessdivestitures
Changes in scope of consolidation
Transfer from other components of equity toretained earnings
Total transactions with owners

—
—
—
—
—
—
—
—
—
—

—

(146,638)¥50,000

Balance at March 31, 2020

¥ (63,560)

—
—
—

—

Mitsubishi Chemical Holdings Corporation and Consolidated Subsidiaries

Retainedearnings¥1,073,873

75(56,690)¥176,715¥(63,485)¥1,071,260(56,804)————

Balance at April 1, 2019
Net income
Other comprehensive
income (Note 26)
Total comprehensive
incomePurchase of treasury
stock (Note 24)
Disposal of treasury
stock (Note 24)
Cash dividends(Note 25)
Share-based paymenttransactions (Note 27)
Share-based paymenttransactions ofsubsidiaries (Note 27)
Changes in interests in
subsidiaries (Note 24)
Business combinations
or business divestitures
Changes in scope of
consolidation
Transfer from othercomponents of equity toretained earnings
Total transactions withownersBalance at March 31, 2020

Remeasurements ofdefinedbenefitpensionsplans

Exchangedifferencesontranslationof foreign
operations—¥(55,530)¥51,500¥

Net gain(loss) on
derivatives
designatedas cashflow
hedges

¥187

Total

¥(3,843)

13,824

15,797

34

1,567(23,922)(1,720)(316)

Gain on sales of shares of subsidiaries and associates(7,546)(530)Interest and dividend income(9,627)(6,886)¥1,377,947

Noncontrollinginterests¥647,907

Total equity¥2,025,854
86,560(11,737)(1,744)(47,243)(17)(60,741)(60,741)(25,344)(86,085)(11,737)(1,744)(47,243)(17)(60,741)(6,664)

7,139

475

—

—

—

—

—

(27)

—

(27)

—

—

—

—

—

2

—

2

—

—

—

—

—

(56,804)(31,111)(87,915)

—

—

—

—

—

194

—

194

—

—

—

—

—

—

(14)

(14)

—

—

—

—

—

(146,638)(347,666)(494,304)

—

—

—

—

—

1,782

3,737

5,519

—

—

—

—

—

430

615

1,045

(1,428)

1,744

—

—

316

—

—

—

(1,428)

1,744

—

—

316

(201,061)(374,439)(575,500)¥280,607

Interest expense

18,86824,515(Increase) decrease in trade receivables

25,149122,281(Increase) decrease in inventories(13,193)

7,139

Increase (decrease) in trade payables(20,090)(79,540)

Increase (decrease) in retirement benefit assets and liabilities, net(1,324)

(719)

8,261

34,960507,067

Others

32,483¥1,450,829

Subtotal

493,564

Interest received

4,816

3,040

Dividends received

27,781

25,310Interest paid

(18,114)(21,847)

Income tax (paid) received, net(92,472)(61,567)

415,575

452,003(225,740)(223,478)

Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment

7,170

14,995Purchase of intangible assets(4,839)(12,601)

Purchase of other financial assets(453,070)(348,240)

Proceeds from sales/redemption of other financial assets

438,748453,694

Purchase of investments in subsidiaries(655,629)(5,490)

Proceeds from sales of investments in subsidiaries
Proceeds from loss of control due to share exchange (Note 6)

16,6192,836—

14,432

Payments for transfer of businesses(50,900)(3,000)Net (increase) decrease in time deposits

31,581

25,236992(5,947)(895,068)(87,563)

Net increase (decrease) in short-term borrowings

428,298(330,088)

Net increase (decrease) in commercial papers

44,0002,000

Proceeds from long-term borrowings

213,182

490,580

Repayment of long-term borrowings(122,954)(183,865)

Proceeds from issuance of bonds

132,036

149,185

Redemption of bonds(65,000)(60,000)

Repayment of lease liabilities(3,893)(30,555)

Net (increase) decrease in treasury stock(20,030)(25)

Dividends paid to owners of the parent(52,867)(56,804)

Dividends paid to non-controlling interests(38,011)(31,070)

OthersNet cash provided by (used in) investing activities
Cash flows from financing activities:

Proceeds from stock issuance to non-controlling interests

6,548

3

Payment for acquisition of subsidiaries’ interests from non-controllinginterests(1,418)(399,834)

Net cash provided in (used in) financing activities

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020——

(8,533)

Others

109

5,169

—

54,077

The accompanying notes are an integral part of these consolidated financial statements.

48,647

Loss on sales and retirement of property, plant and equipment(3,839)Equityattributableto ownersof theparent¥(64,268) ¥1,170,222(13,401)

17,340Gain on reversal of impairment loss

—

¥170

(26,850)

Impairment loss

Gain on sales of non-current assets—¥(102,773)

Share of profit of associates and joint ventures

430

—

—

239,824

Gain on share exchanges—¥

25,585

199,332

Provision for loss on business liquidation—¥38,335¥122,003

Depreciation and amortization

Loss on sales of shares of subsidiaries and associates

Other components of equity
Net gain(loss) on
revaluationof financial
assetsmeasured
at fair value¥284,846
3,210

Income before taxes from discontinued operations——(144,762)

1,782

Income before taxes

54,077———

Millions of yen
Year ended March 31, 2020

Cash flows from operating activities:

—

—
—
—
—
—
—
—

194

Year ended March 31, 2019

54,077

(27)
102

(100)

Consolidated Statement of Cash Flows

Millions of yen

Treasury
stock

(829)

(50)

519,062(450,523)

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020110

5 Financial and Non-Financial Information

Financial Information

Effect of exchange rate changes on cash and cash equivalents

6,207(10,184)

45,776(96,267)

277,624

321,541

Net increase (decrease) in cash and cash equivalents resulting fromtransfer to assets held for sale

(1,899)2,103

Net increase (decrease) in cash and cash equivalents resulting fromchange in scope of consolidation

40

834

¥321,541¥228,211

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period

Cash and cash equivalents at the end of the period (Note 22)

Notes to Consolidated Financial Statements
Mitsubishi Chemical Holdings Corporation and Consolidated Subsidiaries

Note 1
Reporting Entity

The accompanying notes are an integral part of these consolidated financial statements.

Mitsubishi Chemical Holdings Corporation (the “Company”) is a corporation domiciled inJapan, whose shares are listed on the First Section of the Tokyo Stock Exchange. The
registered address of its Head Office is presented on its website(https://www.mitsubishichem-hd.co.jp/). The Company’s Consolidated Financial Statements
for the year ended March 31, 2020 comprise those of the Company, its subsidiaries andassociates, and interests under joint arrangements (collectively, the “Group”). The Group’s
three principal domains are Performance Products, Industrial Materials, and Health Care.
Further details are presented in Note 4 Segment Information.

Note 2Basis of Presentation 1. Compliance with IFRSThe accompanying consolidated financial statements of the Group have been prepared inaccordance with International Financial Reporting Standards (IFRS) issued by theInternational Accounting Standards Board. The provisions of Article 93 of the Ordinance on
Terminology, Forms, and Preparation Methods of Consolidated Financial Statements apply,as the Company meets the requirements for a “Specified Company applying DesignatedInternational Financial Reporting Standards” prescribed in Article 1-2 of said ordinance.
2. Approval of Consolidated Financial Statements
The Group's consolidated financial statements were approved on June 24, 2020, by Hitoshi
Ochi, Representative Corporate Executive Officer, President and Chief Executive Officer,and Hidefumi Date, Managing Corporate Executive Officer and Chief Financial Officer.
3. Basis of Measurement
The consolidated financial statements are prepared on a historical cost basis, except for
certain financial instruments measured at fair value presented in Note 3 Significant
Accounting Policies.
4. Presentation Currency
The consolidated financial statements are presented in Japanese yen, which is theCompany’s functional currency, rounded to the nearest million yen.
5. Use of Judgments, Estimates and Assumptions
Management has made a number of judgments, estimates and assumptions relating to theapplication of accounting policies, reporting of revenues and expenses and assets andliabilities in the preparation of these consolidated financial statements in accordance with
IFRS. Actual results may differ from these estimates.
Estimates and underlying assumptions are continually evaluated. The effect ofchanges to accounting estimates is recognized in the reporting period in which the revision
was made and in future periods.
Information regarding judgments, estimates, and assumptions used in applying
accounting policies that could materially affect the Company’s consolidated financial
statements is included in the following notes:

•
•
•
•

111

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Impairment of Non-Financial Assets (Note 14, Goodwill and Intangible Assets, Note 15,
Property, Plant and Equipment and Note 16, Impairment Losses)
Recoverability of Deferred Tax Assets (Note 12, Income Taxes)
Measurement of Defined Benefit Obligations (Note 28, Retirement Benefits)
Fair Value of Financial Instruments (Note 36, Financial Instruments)

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020112

5 Financial and Non-Financial Information

Financial Information

Significant assumptions used in making estimates for the year ended March 31, 2020
include the following.

(Assumptions relating to impacts of COVID-19 pandemic)
The COVID-19 pandemic that originated in China and spread rapidly around the world inMarch 2020, particularly in Europe and the United States, has suppressed economic
activity and depressed demand.
While the outlook is unclear, management has estimated future taxable income forassessing deferred tax assets and future cash flows from goodwill impairment tests, etc., on
the assumption, based on information available at the end of the year ended March 31,
2020, that the pandemic’s impact will continue in the next fiscal year.

When measuring lease liabilities, the Group discounts lease payments using the incremental
borrowing rate as of the date of initial application. The weighted average incremental borrowing rateapplied is 1.981%.
A reconciliation between total future minimum payment lease payments for non-cancelable
operating leases at the end of the previous fiscal year and lease liabilities as of the date of initial
application is as follows:

6. Newly Applied Standards and Interpretations
Main standards and interpretations newly applied by the Group from the year ended March
31, 2020, are as follows.
Standard and Interpretation
IFRS 16
LeasesOverview of Introduction or Revision
Accounting standards and disclosure methods for leases
have been revised. Specifically, under a single lessee
accounting model, right-of-use assets and lease liabilities
for leases with terms exceeding 12 months are recorded in
the financial statements, in principle.

When transferring the right to control the use of assets specified in lease contracts in exchange forconsideration over a certain period, the Group recognizes lease transactions and the right-of-use
assets and lease liabilities as of the lease commencement dates. Determining whether anarrangement is, or contains, a lease is based on the substance of an arrangement regardless ofwhether it takes the legal form of a lease.
Lease liabilities are measured as the discounted present value of unsettled portions of lease
payments at the lease commencement date. Right-of-use assets are initially measured by adjusting
initial direct costs, prepaid lease fees, and other charges for lease liabilities, adding costs for the
obligation to restore to original condition and other requirements based on lease contracts.
Lease payments are allocated to the repayment portion of the net financial expenses and leaseliabilities so that the amount produces a constant periodic rate of interest with respect to theremaining balance of the lease liability, with financial expenses being recognized in profit or loss.
Right-of-use assets are depreciated over their service lives where ownership of the underlying
assets transfer to the lessees by the end of lease periods or where the costs of right-of-use assets
reflect the exercise of purchase options. In other cases, assets are depreciated systematically overthe shorter of service lives or lease periods.
For leases ending within 12 months or whose underlying assets are of low value, related lease
payments are systematically recognized as costs for lease periods.
As a result of the adoption of IFRS 16, the carrying amount of the Group’s lease-related assets
increased by ¥100.2 billion, and lease liabilities increased by ¥100.6 billion as of the date of initial
application.
The Company applied a method to recognize the cumulative impact of adopting this standard on
the date of initial application, recognized as a transitional measure, although there was no cumulative
impact on the adoption date.
In adopting IFRS 16, the Company did not review whether or not contracts are, or contain leases asof the adoption date, and adopted a method, recognized as a transitional measure, in which it
maintained assessments based on IAS 17 Leases and the IFRIC 4 Determining Whether an
Arrangement Contains a Lease.
Under IAS 17, the Group classified lease contracts as finance leases when substantially all risks andeconomic value associated with the ownership of leased assets were transferred. The Groupotherwise classified these contracts as operating leases. Under IFRS 16, lease assets and leaseliabilities are recognized based on the substance of transaction without classifying them.
For leases classified as finance leases under IAS 17, the carrying amount of right-of-use assets
and lease liabilities is calculated as the carrying amount of the lease assets and lease liabilities
measured based on IAS 17immediately before the date of initial application.
For leases classified as operating leases under IAS 17, lease liabilities as of the date of initial
application are measured at the present value, calculated by discounting total remaining lease
payments using the lessees incremental borrowing rate. For right-of-use assets, lease liabilities aremeasured by adjusting for prepaid and accrued lease payments.
The Group applied the following methods recognized as transitional measures in adopting IFRS 16 forleases classified as operating leases under IAS 17.
 As an alternative to impairment reviews, right-of-use assets are adjusted by any provision for
onerous contract amounts under IAS 37 Provisions, Contingent Liabilities, and Contingent Assets
immediately before the date of initial application.
 Recognition exemptions for right-of-use assets and lease liabilities apply to leases with leaseterms of 12 months or less.
 Exclude initial direct costs from measurements of right-of-use assets on the date of initial

113

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

application.
Use hindsight when determining the lease term if the contract includes extension or termination
options.

Millions of yen
Total future minimum lease payments for non-cancelable operating leases as ofMarch 31, 2019
Total future minimum lease payments for non-cancelable operating leases as ofMarch 31, 2019 (after discounting by the incremental borrowing interest rate asof April 1, 2019)
Finance lease obligations as of March 31, 2019
Short-term leases or leases of low value assets for which liabilities are notrecognized
Extension options that are reasonably likely to be exercised and termination
options that are reasonably unlikely to be exercised
Lease liabilities as of April 1, 2019

¥ 48,720
45,194
16,329(6,181)
61,601
116,943

7. New Standards and Interpretations Not Yet Applied
As of the reporting date, the Group did not apply new standards or interpretations issued by
the approval date for the Consolidated Financial Statements, as their application was notmandatory and would not have materially affected the Consolidated Financial Statements.
Note 3
1. Basis of Consolidation
Significant
Accounting Policies (1) Subsidiaries
Subsidiaries are entities controlled by the Group. The Group has control over an entity if
it has exposure or rights to variable returns from its involvement with the investee andhas the ability to affect those returns through its influence over the investee.
In preparing its consolidated financial statements, the Company based the financial
statements of each Group company prepared as of the same closing date based oncommon Group accounting policies. Subsidiaries’ financial statements are adjusted, if
necessary, when their accounting policies differ from those of the Group.
The Group consolidates entities from the date on which it acquires control until thedate on which it loses control.
All intergroup balances, outstanding receivables and obligations, unrealized gains
and losses are eliminated on consolidation.
A change in ownership interest of a consolidated subsidiary, without a loss ofcontrol, is accounted for as an equity transaction. Differences between adjusted noncontrolling interest amounts and fair value are recognized directly as equity attributableto owners of the parent.
In the event of a loss of control, the Group measures and recognizes any remaining
investments at fair value. Any gain or loss arising from a loss of control is recognized in
profit or loss.
Non-controlling interests in a subsidiary's net assets are recognized separately fromthose under the Group's control. The comprehensive income of consolidated subsidiaries
is attributed to owners of the parent and non-controlling interests even if this results inthe non-controlling interests having a deficit balance.
(2) Associates
Associates are entities in which the Group has significant influence over the financial andoperational policies but does not have control or joint control. Normally, the Group isassumed to be able to exercise significant influence when it holds 20% to 50%
ownership. Other factors considered in assessing whether or not the Group can exercise
significant influence include sending any of its officers being on the Board of Directors. In
such cases, the Group may be considered to be able to exercise significant influence
over an associate even if its investment accounts for less than 20% of voting rights.
The Group accounts for investments in associates under the equity method. Suchinvestments are recognized at cost upon acquisition. After acquisition, the Group's shareof net assets of associates is adjusted and recorded in the consolidated statement of

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

114

5 Financial and Non-Financial Information

Financial Information

financial position.
The consolidated financial statements reflect the Group's share of earnings inassociates. If amounts recognized in other comprehensive income of associates change,
the Group's share with respect to those changes is also recognized in othercomprehensive income.
The Group's consolidated financial statements have been adjusted to eliminate its
share in unrealized gains and losses arising from transactions between it and associates.
Associates prepare their financial statements for the same reporting period as theGroup, adjusting their accounting policies to align with those of the Group.
In the event that the Group loses significant control over an associate, it assesses
and recognizes the remaining investment at fair value as of the day on which it lost suchinfluence. Gains and losses arising from the loss of significant influence are recognizedin profit or loss.
In preparing the consolidated financial statements, the requirements of local laws
and shareholder agreements made it effectively impossible to match reporting dates of
all associates to that of the Group. For certain associates for which it was impracticableto provisionally settle accounts on the Group's reporting date owing to business or otherfactors, the Group uses relevant provisional financial statements for the period ending
December 31. Significant transactions or events between the reporting dates of those
associates and the consolidated closing date are reflected in the consolidated financial
statements.
(3) Joint Arrangements
A joint arrangement is an arrangement in which unanimous consensus from the parties
that have joint control of decision-making over related activities is required.
A joint venture is a joint agreement through which parties with joint control over anarrangement have rights to the net assets of an arrangement.
The Group uses the equity method to account for its equity interests in joint
ventures.
A joint operation is one in which parties with joint control of an arrangement haverights to assets and obligations for liabilities relating to the joint arrangement.
If the Group holds an interest in a joint operation, the Group recognizes assets,
liabilities, revenues and expenses generated from joint operating activities only to theextent of its interest. Inter-company transactions among the Group’s companies as well
as receivable and payable balances and unrealized gains and losses arising from suchtransactions are eliminated.
The principal joint operation is The Saudi Methacrylates Company, in which theGroup and Saudi Arabia have a 50-50 interest. That company manufactures methyl
methacrylate monomer, acrylic resin, and other offerings.
2. Business Combinations
The Group uses the acquisition method to account for business combinations.
If the initial accounting for a business combination is incomplete by the end of thereporting period in which the combination occurs, the Group reports provisional amounts
and adjusts the amounts in a measurement period that does not exceed one year fromthe acquisition date.
The Group measures the cost of an acquisition as the aggregate of theconsideration transferred, measured at acquisition-date fair value and the amount of any
non-controlling interest in the acquiree.
For each business combination, the Group measures components of non-controllinginterests in the acquiree at fair value or the amounts of non-controlling interests in theacquiree's identifiable net assets.
The Group accounts for acquisition-related costs as expenses in the periods inwhich such costs are incurred.
When the Group acquires a business, the Group classifies or designates theidentifiable assets acquired and liabilities assumed on the basis of the contractual terms,
economic conditions and other pertinent conditions as they exist at the acquisition date.
In principle, the Group generally measures the identifiable assets acquired and theliabilities assumed at their acquisition-date fair values.
If a business combination is achieved in stages, the Group reassesses the equity of
the acquiree before acquisition of control at fair value on the acquisition date, andrecognizes the resulting gain or loss in profit or loss. The Group accounts for the equity
interest of the acquiree booked in other comprehensive income before the acquisition on

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the same basis as would be required if the Group had disposed directly of the previously
held equity interest.
Goodwill is measured as the difference by which total value recognized astransferred consideration and non-controlling interests exceeds the net value ofidentifiable assets acquired and liabilities assumed.
If the total amount recognized as transferred consideration and non-controllinginterests is less than net amount of identifiable assets acquired and liabilities assumed,
the Group recognizes the difference as profit or loss.
After initial recognition, the Group does not amortize goodwill acquired through abusiness combination, but records goodwill at cost less any accumulated impairment
loss. The Group conducts impairment tests annually or when there are signs of
impairment.
3. Foreign Currency Translations
The consolidated financial statements of the Group are presented in Japanese yen,which is the Company's functional currency.
In addition, each company in the Group determines its individual functional currency
and measures transactions using these functional currencies.
Foreign currency denominated transactions are translated into functional currencies
at spot exchange rates as of the transaction dates or at similar rates.
Foreign currency monetary assets and liabilities are translated into the functional
currency using the spot exchange rate on the date of end of the consolidated reporting
period. Exchange differences arising from translations or settlement are recognized in
profit or loss. However, exchange differences arising from financial instruments
designated as hedging instruments of net investments in foreign operations (foreignsubsidiaries, etc.), financial assets measured through other comprehensive income andcash flow hedges are recognized in other comprehensive income.
The Group translates assets and liabilities of foreign operations using the spot
exchange rate at the end of the reporting period, and revenue and expenses using the
spot exchange rate on the transaction date or an approximate rate in Japanese yen,respectively. The Group accounts for any exchange differences arising in such
retranslation in other comprehensive income.
On the disposal of a foreign operation, accumulated exchange differences related to
the foreign operation are recognized in profit or loss in the corresponding period of
disposal.
4. Sales Revenue
The Group recognizes sales revenue based on the following five-step model in amounts
reflecting the Group’s anticipated entitlements in exchange for goods or services
transferred to customers.
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The Group offers an array of products and services to domestic and foreign customers
through its business activities. The Group operates in four business areas centered onfour operating companies. They are Mitsubishi Chemical Corporation, Mitsubishi Tanabe
Pharma Corporation, Life Science Institute, Inc., and Taiyo Nippon Sanso Corporation.
The business segments are Performance Products, Chemicals, Industrial Gases, andHealth Care.
Regarding product sales in these businesses, once customers gain control overdelivered products and it is determined that the performance obligations are met, sales
revenue is recognized upon product delivery.
Sales revenue is measured at the amount of consideration promised in contracts
with customers, net of discounts, rebates and returns.
Considerations in product sales contracts are generally collected within one year
after control of products transfers to customer, and do not include significant financial
elements.

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Financial Information

5. Government Grants
Government grants are recognized at fair value when there is reasonable assurance that
the Group will comply with grant terms and that the grant will be received.
Government grants related to income are recognized as income on a systematic
basis over the periods in which the Group recognizes as expenses the related costs forwhich the grants are intended to compensate.
Government grants relating to assets are deducted from asset acquisition costs.
6. Borrowing Costs
The Group capitalizes borrowing costs that are directly attributable to the acquisition,
construction or production of assets that require considerable time before use asintended or sale as part of the cost of that asset. The Group recognizes all otherborrowing costs as expenses in periods incurred.
7. Income Taxes
The Group calculates current tax liabilities or assets for the current and prior periods asamounts that it expects to pay to or recover from taxation authorities. The Group uses
tax rates and tax laws enacted or substantively enacted by the end of a reporting period
to determine tax amounts.
The Group uses the asset and liability method to record deferred taxes for differences
between carrying amounts of assets or liabilities on the accounts at the end of thereporting period and the tax basis (temporary differences).
In principle, the Group recognizes deferred tax liabilities for all future taxable
temporary differences. Deferred tax assets are recognized to the extent that it is probablythat taxable income will be available against which deductible temporary differences andfor tax credits and tax loss carryforwards can be used.
As exceptions, however, the Group does not recognize deferred tax assets ordeferred tax liabilities for the following temporary differences: The initial recognition of goodwill
 The initial recognition of assets or liabilities in transactions that are not businesscombinations and do not affect profits in the accounts at the time of transactions or
taxable profits or losses.
 Deductible temporary differences arising from investments in subsidiaries andassociates, and interests in joint ventures to the extent that it is probable that thetiming of the reversal of the temporary difference in the foreseeable future and it is notprobable that future taxable profits will be available against which they can be utilized.
 Taxable temporary differences arising from investments in subsidiaries andassociates, and interests in joint ventures to the extent that the timing of the reversalof the temporary difference is controlled and that it is probable the temporary
difference will not reverse in the foreseeable future.
The Group reviews the carrying amount of deferred tax assets and liabilities (including
unrecognized deferred tax assets) at the end of each reporting period. The Groupcalculates deferred tax and liabilities based on tax rates and tax laws that have beenenacted or substantively enacted by the end of the reporting period, estimating tax rates
at the time assets materialize or liabilities are settled.
8. Earnings per Share
The Company calculates basic earnings per share by dividing the net income attributable
to ordinary shareholders by the weighted average number of ordinary shares, adjusted
for treasury stock during that period. The Company calculates diluted earnings per shareby adjusting the effects of all potentially dilutive shares.

117

Company calculates net realizable value by deducting the estimated selling price in theordinary course of business from the estimated costs required to make a sale.
11. Assets Held for Sale and Discontinued Operations
The Company classifies a non-current asset (or disposal group) as held for sale if its
carrying amount is expected to be recovered principally through a sale transaction rather
than through continuing use. This applies only if the asset (or disposal group) is available
for immediate sale in its present condition and a sale is highly probable within one year.
The Company measures a non-current asset (or disposal group) classified as held forsale at the lower of the carrying amount and fair value, less the cost to sell.
The Group does not depreciate or amortize property, plant or equipment or intangible
assets classified as held for sale.
Discontinued operations include units that have been disposed of or are classified asheld for sale. The Group recognizes an operation as discontinued if it is a Groupbusiness and is scheduled for disposal.
12. Property, Plant and Equipment
The Group applies the cost model to measure property, plant and equipment.
The Group carries property, plant and equipment at acquisition cost less accumulated
depreciation and accumulated impairment losses.
The acquisition cost includes direct costs of acquisition, estimated costs of
dismantlement, removal and restoration, and borrowing costs that satisfy capitalization
criteria.
Except for land, property, plant and equipment, less the residual value at the end of
the reporting term, is depreciated using the straight-line method.
Depreciation is computed over the following estimated useful lives for the following
major classes of assets:
Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures

3 to 50 years
2 to 22 years
2 to 25 years

13. Intangible Assets
The Group uses the cost model to measure intangible assets.
Intangible assets are stated at acquisition cost less accumulated amortization andimpairment losses.
Separately acquired intangible assets are initially recognized at cost. The acquisition
cost of an intangible asset acquired in a business combination is measured at fair value
at the acquisition date.
Expenditure on an internally generated intangible asset is recognized as an expense
when it is incurred, excluding development expenditures that satisfy the criteria for
capitalization.
The Group amortizes intangible assets with finite useful lives on a straight-line basis
over their useful lives. It tests intangible assets when there are indications of impairment.
Amortization periods and methods for intangible assets with finite useful lives arereviewed at year-end. Any changes are applied to the future as changes in accounting
estimates.
Amortization is over the following estimated useful lives for the following majorclasses of intangible assets:
Technology-related intangible assets
Customer-related intangible assets
Software4 to 20 years
5 to 30 years
3 to 5 years

9. Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand, demand deposits, and short-term
investments that are readily convertible to cash, which are subject to insignificant risks ofchanges in value, and whose maturities are three months or less from the date ofacquisition.

The Group does not amortize intangible assets with indefinite useful lives, andconducts impairment tests individually or by cash-generating unit (or groups of cashgenerating units) annually, and whenever there are indications of impairment.

10. Inventories
The cost of inventories comprises all purchase costs, processing costs, and all costs
incurred in bringing the inventories to their present location and condition.
Inventories are measured at the lower of acquisition cost and net realizable value. The
Company mainly uses the weighted average cost formula to calculate costs. The

14. Impairment of Assets(1) Impairment of Non-Financial Assets
The Group assesses whether indications of asset impairment exist at the end of eachreporting period. If there are such indications and annual impairment testing isnecessary, the Group estimates recoverable amounts, which are the higher amount of

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Financial Information

fair value less costs of disposal and value in use. If a recoverable amount of an asset
cannot be estimated, the Group estimates the recoverable amount of each cashgenerating unit or group of cash-generating units of the asset class. If the carrying
amount of an asset exceeds its recoverable amount, the Group recognizes an
impairment loss and reduces the carrying amount of the asset to its recoverable amount.
In measuring value in use, the Group determines the present value of cash flow
projections, discounted by pre-tax rates reflecting current market assessments of thetime value of money and risks specific to the asset. The Group estimates cash flow
projections using a business plan for five years or less, in principle. Cash flow projections
beyond the business plan period use long-term-average growth rates according toindividual circumstances.
The Group uses an appropriate valuation model supported by an available fair value
index to measure fair value less costs of disposal.
The Group allocates goodwill after acquisition dates to individual or groups of cash
generating units expected to benefit from corporate combination synergies.
For goodwill, intangible assets with indefinite useful lives and intangible assets not yet
available for use, the Group tests for impairment annually and when there are indicationsof impairment.
(2) Reversal of Impairment Loss
For assets other than goodwill, at the end of each reporting period the Group evaluates
whether assumptions used to measure recoverable amounts have changed for
impairment losses recognized in prior periods and if there are indications that suchlosses have decreased or disappeared.
If such indications exist, the Group reverses impairment losses if recoverable
amounts exceed the Group's carrying amounts of assets or cash-generating units. Anyreversal is limited to the lower of the estimated recoverable amount or the carrying valuethat would have been determined, net of accumulated depreciation, had no impairment
loss been recognized in prior periods.
Impairment loss reversals are recognized in profit or loss.
Goodwill impairment losses are not reversed.
15. Leases
Year ended March 31,2019
A lease contract is classified as a finance lease if it transfers substantially all the risks
and rewards incidental to ownership of a leased asset to the Group. An operating leaseis a lease other than a finance lease.
In finance lease transactions, leased assets and lease obligations are recognized in
the consolidated statement of financial position at the lower of the fair value of theleased property or the present value of the minimum lease payments, each determinedat the inception of the lease. Lease payments are apportioned between the financial costand reduction of lease obligations based on the interest method. Financial costs arerecognized in profit or loss. Leased assets are depreciated on a straight-line basis overthe useful lives or lease term, whichever is shorter.
In operating lease transactions, lease payments are recognized as an expense in theConsolidated Statement of Income on a straight-line basis over the lease terms. Variable
lease is charged as expenses in the period when they are incurred.
Determining whether an arrangement is, or contains, a lease is based on thesubstance of the arrangement regardless of whether it takes the legal form of a lease.
Year ended March 31, 2020
When transferring the right to control the use of assets specified in lease contracts in
exchange for consideration over a certain period, the Group recognizes leasetransactions and the right-of-use assets and lease liabilities as of the commencement
date of the lease. Determining whether an arrangement is, or contains, a lease is basedon the substance of an arrangement regardless of whether it takes the legal form of alease.
Lease liabilities are measured as the discounted present value of unsettled portionsof lease payments at the lease commencement date. Right-of-use assets are initiallymeasured by adjusting initial direct costs, prepaid lease fees, and other charges for leaseliabilities, adding costs for the obligation to restore to original condition and otherrequirements based on lease contracts.
Lease payments are allocated to the repayment portion of the net financial expenses
and lease liabilities so the amount produces a constant periodic rate of interest on theremaining balance of the lease liability, with financial expenses being recognized in profit
or loss.
Right-of-use assets are depreciated over their service lives where ownership of the

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Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

underlying assets transfer to the lessees by the end of lease periods or where the costsof right-of-use assets reflect the exercise of purchase options. In other cases, assets are
depreciated systematically over the shorter of service lives or lease periods.
For leases ending within 12 months or leases for which the underlying asset is of low
value, related lease payments are systematically recognized as costs over the lease
periods.
16. Provisions
A provision is recognized when the Group has a present obligation (legal or constructive)
as a result of a past event, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation, and the amount of theobligation can estimated reliability.
Where the effect of the time value of money is material, the provision is measured at
the present value of the expenditures expected to be required to settle obligations. The
discount rate used in measuring the present value is a pre-tax rate that reflects current
market assessments of the time value of money and risks inherent in the liability.
17. Retirement Benefits
The Group operates a defined benefit plan and defined contribution plan as employee
retirement benefit plans.
The Group uses the projected unit credit method to determine the present value of its
defined benefit obligations and the related current and past service costs for each plan.
The rate used to discount post-employment benefit obligations is determined byreferring to market yields at the end of the reporting period on high quality corporate
bonds.
The fair value of any plan assets is deducted from the present value of the defined
benefit obligation in determining the amount of the net defined benefit liabilities or assets
of defined benefit plans.
Remeasurements of liabilities and assets associated with defined benefit retirement
plans are recognized in other comprehensive income in the period incurred and
immediately reflected in retained earnings. Prior service costs are recognized as
expenses in the periods incurred.
The Group recognizes contributions payable to defined contribution plans as
expenses at the time of contribution.
18. Capital(1) Ordinary Shares
The Company allocated the issue price of ordinary shares between common stock
and additional paid-in capital.
(2) Treasury Shares
Acquired treasury stock is recognized at cost and deducted from equity, while thedifference between the carrying value of treasury stock and its value at the time ofsale is recognized in additional paid-in capital.
19. Share-Based Payment
The Company and some subsidiaries employ equity-settled share-based compensationplans.
Under such plans, services received are measured at fair value as of the date capitalfinancial instruments are granted. If granted capital financial instruments are
immediately determined, all services received on the grant date is recognized as
expenses, that amount being recognized as an increase in equity. If granted capitalfinancial instruments are determined after a certain period of time, they are recognized
as expenses over the vesting period from the date granted, that amount being
recognized as an increase in equity.
20. Financial Instruments(1) Financial Assets (Except Derivatives)(i) Initial Recognition and Measurement
The Group initially recognizes trade receivables at the date of occurrence. The Groupinitially recognizes all other financial assets on the transaction dates on which theGroup becomes a contract party.
Financial assets are classified as financial assets measured at fair value throughprofit or loss or other comprehensive income and financial assets measured atamortized cost. The Group determines classifications at initial recognition.
Debt financial instruments are classified as financial assets measured at amortized

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Financial Information

cost if both of the following conditions are met.
• Financial assets are based on a business model where the aim is to hold financial
assets to recover contractual cash flows• Contractual terms of financial assets give rise on specified dates to cash flowsthat are solely payments of principal and interest on principal amounts
outstanding
Debt financial instruments meeting the following conditions and measured at fairvalue are classified as financial assets measured at fair value through othercomprehensive income. Otherwise, they are classified as financial assets measured atfair value through profit or loss.
• Financial assets are based on a business model where the aim is to hold financial
assets to collect contractual cash flows and sell assets• Contractual terms of financial assets give rise on specified dates to cash flowsthat are solely payments of principal and interest on principal amounts
outstanding
Equity instruments other than those for trading purpose are designated asmeasured at fair value through profit or loss or as measured at fair value through othercomprehensive income. Such designations are applied subsequently on a consistentbasis.
Except for financial assets measured at fair value through profit or loss, financial
instruments are measured at fair value plus transaction costs attributable directly tothem.
(ii) Subsequent Measurements
After initial recognition, financial assets are measured based on the followingclassifications:(a) Financial Assets Measured at Amortized Cost
Financial assets measured at amortized cost are measured at amortized cost using
the effective interest method.
(b) Other Financial Assets
Financial assets other than those measured at amortized cost are measured at fairvalue.
Changes in the fair value of financial assets measured at fair value arerecognized in profit or loss or in other comprehensive income.
Changes in the fair value of equity instruments designated as measured at fairvalue through other comprehensive income are recognized in other comprehensive
income and the amount in other comprehensive income is transferred to retained
earnings when equity instruments are derecognized or when the fair value of equity
instruments declines significantly.
(iii) Derecognition
The Group derecognizes a financial asset only when the contractual rights to the cash
flows from the financial asset expire or when the Group transfers the financial asset
and the substantially all the risks and rewards of ownership of the financial asset aretransferred.
If the Group neither transfers nor retains substantially all the risks and rewards ofownership of a transferred asset and retains control of the transferred asset, the Group
recognizes the residual interest in the transferred asset and the associated liability to
be payable to the extent of the Group’s continuing involvement.
(iv) Impairment
At each closing date, the Group assesses whether the credit risk on a financial asset
or a financial asset group measured at amortized cost or a financial guarantee contract
has increased significantly since initially recognizing the impairment of a financial
asset or financial guarantee contract.
If, at the closing date, the credit risk of a financial asset or a financial asset group
has not increased significantly since initial recognition, the Group measures the loss
allowance for that financial asset at an amount equal to 12-month expected credit
losses. However, the Group recognizes the expected credit losses of trade receivables
over the remaining period from the initial recognition.
If a credit risk has increased significantly since initial recognition, the Group recognizes
an expected credit loss over the remaining period as a loss allowance.
The Group assesses whether the credit risk has increased significantly using thechange in the risk of default, and assesses whether the default risk has changed
mainly using delinquent (past due information).
The Group measures a credit loss using the discounted present value of thedifference between the contractual amount receivable and the estimate amount

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receivable based on the past credit loss.
(2) Financial Liabilities (Except Derivatives)(i) Initial Recognition and Measurement
Financial liabilities are classified into financial liabilities measured at fair value throughprofit or loss and financial liabilities measured at amortized cost. The Group
determines classifications at initial recognition.
Although all financial liabilities are measured at fair value at initial recognition,
financial liabilities measured at amortized cost are measured at cost after deducting,from the fair value, transaction costs that are directly attributable to the financial
liabilities.
(ii) Subsequent Measurement
After initial recognition, financial liabilities are measured based on classifications asfollows:(a) Financial Liabilities Measured at Fair Value through Profit or Loss
Financial liabilities measured at fair value through profit or loss are measured atfair value. After initial recognition, portions of changes in fair value attributed to thechange in credit risk of the Group are recognized in other comprehensive income,and the balance is recognized in profit or loss.
(b) Financial Liabilities Measured at Amortized Cost
After initial recognition, financial liabilities measured at amortized cost aremeasured at amortized cost using the effective interest method. Amortization underthe effective interest method and gains or losses on derecognition is recognized in
profit or loss.
(iii) Derecognition
Financial liabilities are derecognized when the obligation is discharged, canceled or
expired, or when they are exchanged with substantially different terms or their terms
are modified substantially.
(3) Complex Financial Instruments
The Group measures and initially recognizes hybrid financial instrument liabilities at thefair value of similar liabilities that do not have equity conversion options. Equity ismeasured and initially recognized at fair value after deducting the fair value of theliabilities of complex financial instruments overall. Direct transaction costs are allocatedaccording to initial carrying amount ratio of liabilities and equity. After initial recognition,complex financial instruments liabilities are measured at amortized cost using theeffective interest method. The Company does not remeasure complex financial
instrument equity after initial recognition.
(4) Offsetting of Financial Instruments
Financial assets and financial liabilities are offset and presented as a net amount in the
consolidated statement of financial position only when there is a legally enforceable rightto set off the recognized amounts and the Group intends either to settle on a net basis or
to realize the asset and settle the liability simultaneously.
(5) Derivatives and Hedge Accounting
The Group uses derivatives, including forward foreign exchange contracts and interest
rate swap contracts, to hedge foreign exchange and interest rate risks. These derivatives
are initially measured at fair value when contracts are entered into and are subsequently
remeasured at fair value.
Changes in the fair value of derivatives are recognized in profit or loss, although
gains or losses on hedging instruments relating to the effective portions of cash flow
hedges and hedges of net investments in foreign operations are recognized in othercomprehensive income.
At the inception of hedging relationships, the Group formally designates anddocuments relationships to which hedge accounting applies and the objectives andstrategies of risk management for undertaking the hedges. The documentation includes
identifying hedging instruments, the hedged items or transactions, the nature of the risks
being hedged and how the hedging instrument effectiveness (including its analysis of thesources of hedge ineffectiveness and how it determines the hedge ratio) is assessed inoffsetting the exposure to changes in hedged item fair value or cash flows attributable tohedged risks. When designating a hedging relationship and on an ongoing basis, theGroup analyses whether a derivative used to a hedge transaction is effective to offset thechange in the fair value or the cash flow of a hedged item. The Group specifically

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5 Financial and Non-Financial Information

Financial Information

determines that a hedge is effective when the economic relationship between the hedged
item and the hedging instrument is offset.
Hedges that meet the requirements for hedge accounting are classified in thefollowing categories and accounted for in accordance with IFRS 9 “Financial
Instruments”.
(a) Fair Value Hedges
Changes in the fair value of derivatives are recognized in profit or loss. For changes in
the fair value of hedged items attributable to the hedged risks, carrying amounts ofhedged items are adjusted, with changes recognized in profit or loss.
(b) Cash Flow Hedges
The effective portion of gains or losses on hedging instruments is recognized in othercomprehensive income, while the ineffective portion is recognized immediately in profit
or loss.
Hedging instrument amounts recognized in other comprehensive income arereclassified to profit or loss when the transactions of the hedged items affect profit orloss. Where hedged items result in the recognition of non-financial assets or liabilities,
the amounts recognized in other comprehensive income are accounted for as
adjustments to the original carrying amount of non-financial assets or liabilities.
When forecast transactions are no longer expected to occur, any related
cumulative gain or loss that has been recognized in equity as other comprehensive
income is reclassified to profit or loss. When hedging instruments expire, are sold,terminated or exercised without the replacement or rollover of other hedging
instruments, or when the hedge designation is revoked due to change in the risk
management objective, accumulated amounts that have been recognized in othercomprehensive income continue to be recognized in other comprehensive income until
the forecast transactions occur.
(c) Hedges of Net Investments in Foreign Operations
Hedges of net investments in foreign operations are accounted for similarly to cash
flow hedges. The effective portion of gains or losses on hedging instruments is
recognized in other comprehensive income. The ineffective portion is recognized in
profit or loss. At the time of the disposal of the foreign operations, any related
cumulative gain or loss recognized in equity as other comprehensive income isreclassified to profit or loss.
(6) Fair Value of Financial Instruments
The fair value of financial instruments that are traded in active financial markets at the
fiscal year-end refers to quoted prices or dealer quotations.
If there is no active market, the fair value of financial instruments is determined referring
to appropriate valuation models or prices presented by related financial institutions.

Note 4
Segment
Information

1. Overview of Reporting Segments
The Group’s reporting segments are the components for which separate financial
information is available, and the Board of Directors regularly assesses this information in
deciding how to allocate resources and evaluate results. No operating segments orcomponents have been aggregated in preparing the reporting segment information.
The Group operates in four business areas centered on four operating companies.
They are Mitsubishi Chemical Corporation, Mitsubishi Tanabe Pharma Corporation, Life
Science Institute, Inc., and Taiyo Nippon Sanso Corporation. The business segments are
Performance Products, Chemicals, Industrial Gases, and Health Care.
The businesses in each reporting segment are as follows:Business
Domains

Business
Segments

Performa
nce
Products

Performa
nce
Products

Sub Business Segments
Functional
Products

Information,
Electronics &Displays
High Performance
Films
Environment andLiving Solutions
Advanced
Moldings andComposites

Performancechemicals

Chemicals MMA
PetrochemicalsCarbonProducts

HealthCare

Industrial
Gases
HealthCare

Optical Films, Displays, andSemiconductor-Related Products
Packaging and Industrial Films
Aqua and Separator Solutions,
Infrastructure Solutions, and Agricultural
Materials
High-Performance Engineering Plastics,
Fibers and Textiles, Carbon Fiber andComposite Materials, Functional Moldings
and Composites, Alumina Fibers Light andMetal Products

Advanced
Polymers

Performance and Engineering Polymers
and Sustainable ResourcesHigh Performance
Chemicals

Performance Chemicals and Materials andFood Ingredients
Lithium Ion Battery Materials and Energy
Transduction Materials

New energy
Industrial
Materials

Businesses

MMA

MMA

Petrochemicals

Basic Petrochemicals, Polyolefins, andBasic Chemical Derivatives

Carbon Products

Carbon Products
Industrial Gases
Ethical Pharmaceuticals
Life Science

Accounting policies for reportable segments are identical to those Group accounting
policies stated in Note 3, Significant Accounting Policies. Inter-segment sales and transfers
are based mainly on prevailing market prices.
In keeping with an exchange of all of its shares in LSI Medience Corporation, theCompany classified the businesses of that consolidated subsidiary and its subsidiaries andaffiliate as discontinued operations. Segment revenues and operating results for the years
ended March 31, 2019 and 2020, present the amounts from continuing operations,excluding those of discontinued operations. Details of discontinued operations aredescribed in Note 6, Discontinued Operations.

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Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020124

5 Financial and Non-Financial Information

Financial Information

2. Revenues and Operating Results for the Group's Reporting Segments
The Group evaluates results based on segment profits.

Adjustments to income before tax from segment operating results are as follows:
Millions of yen

Year ended March 31, 2019
Millions of yen

Sales revenue
External revenue
Inter-segment revenue
Total
Segment profit (loss)
Core operating income (Note3)
Segment assets
Other items
Depreciation andamortization
Share of profit ofinvestments accounted forusing the equity method
Investments accounted forusing the equity method
Capital expenditures

Performance
Products

REPORTING SEGMENT
Industrial
Chemicals
Health CareGases

¥1, 155,496
65,137¥1, 220,633¥1, 275,973
63,778¥1, 339,751¥ 732,837
7,504¥ 740,341¥¥ 127,950¥ 63,323

71,338

Total

Others(Note 1)

Subtotal¥ 462,563
705¥ 463,268¥ 3,626,869
137,124¥ 3,763,993¥ 213,472
131,812¥ 345,284¥ 3,840,341
268,936¥ 4,109,277¥—(268,936)¥ (268,936)¥ 3,840,341—¥ 3,840,341¥¥ 316,393¥¥ 324,325¥ (10,221)¥ 314,104

53,782

7,932

Adjustments
Consolidated(Note 2)

1,213,619

1,343,146

1,849,857

1,171,411

5,578,033

1,002,178

6,580,211(1,007,703)

5,572,508

54,83860,38658,554

16,274

190,052

3,273

193,325

2,732

196,057

8,189

14,692

3,836

(21)

26,69682

26,778—26,77862,524

68,182

34,318

16,536

181,560

1,507

183,067—

183,067

64,76871,04372,056

17,985

225,852

3,729

229,581

2,161

231,742

Notes:
1. The Others category consists of businesses not included in reporting segments and mainly includes
engineering, transportation, and warehousing operations.
2. The segment profit (loss) adjustment includes corporate costs of ¥(10,189) million not allocated to reporting
segments and inter-segment eliminations of ¥(32) million. Corporate costs include expenditures on basin
testing, research, and other activities not allocated to reporting segments.
The segment assets adjustment includes corporate assets of ¥95,968 million not allocated to reporting
segments and inter-segment eliminations of ¥(1,103,671) million. Corporate assets include financial assets notallocated to reporting segments.
3. Segment profit (loss) is Operating profit in accordance with IFRS after excluding earnings from non-recurring
factors, such as losses from business withdrawals and downsizings, representing core operating income.

Year ended March 31, 2020
Millions of yen

Sales revenue
External revenue
Inter-segment revenue
Total
Segment profit (loss)
Core operating income (Note3)
Segment assets
Other items
Depreciation andamortization
Share of profit ofinvestments accounted forusing the equity method
Investments accounted forusing the equity method
Capital expenditures

REPORTING SEGMENT
Industrial
Health Care
Gases

Total

Others(Note 1)

Subtotal¥ 413,140603¥ 413,743¥ 3,395,146
118,494¥ 3,513,640¥ 185,364
183,336¥ 368,700¥ 3,580,510
301,830¥ 3,882,340¥—(301,830)¥ (301,830)¥ 3,580,510—¥ 3,580,510¥

14,638¥ 195,544¥ 12,319¥ 207,863¥ (13,043)¥ 194,820

1,825,927

1,130,496

5,254,264

916,415

6,170,679(1,038,530)

5,132,149

64,80986,164

20,469228,167

6,259

234,426

4,186

238,612

4,733

4,964

3,569

8

13,274158

13,432—

13,432

59,46060,832

31,94916,145

168,386

1,572

169,958—

169,958

76,34457,59874,74824,240232,9303,130

236,060

4,330

240,390

Performance
Products

Chemicals¥1, 081,612
63,116¥1, 144,728¥1, 057,054
47,875¥1, 104,929¥ 843,340
6,900¥ 850,240¥¥

30,265¥ 87,973

1,176,280

1,121,561

56,72562,668Adjustments
Consolidated(Note 2)

Notes:
1. The Others category consists of businesses not included in reporting segments and mainly includes
engineering, transportation, and warehousing operations.
2.The segment profit (loss) adjustment includes corporate costs of ¥(13,060) million not allocated to reporting
segments and inter-segment eliminations of ¥17 million. Corporate costs include expenditures on basic testing,research, and other activities not allocated to reporting segments.
The segment assets adjustment includes corporate assets of ¥84,412 million not allocated to reporting
segments and inter-segment eliminations of ¥(1,122,942) million. Corporate assets include financial assets notallocated to reporting segments. Intersegment elimination transactions mainly comprise cash management
system-based loan eliminations.
3. Segment profit (loss) is Operating profit in accordance with IFRS after excluding earnings from non-recurring
factors, such as losses from business withdrawals and downsizings, representing core operating income.
4. From the first quarter of the year ended March 31, 2020, the Company reviewed segments for some businesses
and consolidated subsidiaries and changed its method of allocating some common expenses. The Company
used new classifications to present segment information for the previous year.

125

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Segment operating results

Year ended

Year ended

March 31, 2019

March 31, 2020

¥314,104¥194,820

2,507

7,902

—

1,720

Gain on sales of property, plant andequipment
Reversal of impairment loss
Gain on sales of shares of subsidiaries andassociates
Impairment loss (Note)

7,538

523

(11,775)

Loss on sales and disposal of fixed assets(43,916)(8,542)

Early retirement program expenses(9,900)(931)

Loss on sales of subsidiaries and associates(2,008)(34)(1,512)

Provision for loss on business liquidation(5,169)—Others(2,946)(3,344)

294,752

144,285

10,226

7,206

Operating income
Financial income
Financial expenses(20,132)

Income before taxes(29,488)¥284,846¥122,003

Note: See Note 16 Impairment Losses for details.

3. Geographic Information
The breakdown of external sales revenue and non-current assets is as follows:
External sales revenue
Year ended
March 31, 2019Japan
Asia and Oceania(China)North America
EuropeOthersTotal¥2,175,766
770,445(292,023)
468,874
389,681
35,575¥3,840,341

Millions of yen
Year ended
March 31, 2020

¥2,046,147
645,049(246,220)453,750
405,719
29,845¥3,580,510

Note: Sales revenue is classified by country or region according to the locations of sales destinations .

Non-current assets
Millions of yen

Japan
Asia and Oceania
North America
EuropeOthersTotal

As of March 31, 2019

As of March 31, 2020

¥1,219,668
425,233
460,392
786,908
16,929¥2,909,130¥1,230,218
417,522459,990757,228
12,086¥2,877,044

Note: Non-current assets are based on the locations of the assets and do not include financial instruments,
deferred tax assets and retirement benefit asset.

4. Information about Major Customers
This information has been omitted because no external customers account for more than
10% of sales revenue.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

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5 Financial and Non-Financial Information

Financial Information

Note 5Business
Combinations

Year ended March 31, 2019
1. Taiyo Nippon Sanso Corporation acquisition of European business of Plaxair of
the United States
Consolidated subsidiary Taiyo Nippon Sanso Corporation acquired the European businessof Plaxair, Inc., of the United States on December 3, 2018, through subsidiary Nippon
Gases Euro-Holding S.L.U. and other entities.
(1) Overview of business combination
1. Names and business descriptions of acquired companies
Name: Praxair Espana S.L.U. and 36 other entities
Description of business: Praxair’s European operations, including industrial gas
businesses in Germany, Spain, Portugal, Italy, Norway,
Denmark, Sweden, Netherlands, and Belgium, carbon dioxidebusinesses in the United Kingdom, Ireland, Netherlands, andFrance, and helium-related businesses
2. Main reason for business combination
Taiyo Nippon Sanso Corporation aims to enhance its global competitiveness amid an
ongoing industry reorganization and solidify its position by pursuing a long-term businessvision of generating ¥1 trillion in sales revenue, an operating margin of 10%, and a returnon capital employed of more than 10%, deriving more than half of its sales revenues fromoverseas markets. The acquisition is a major step toward materializing that vision, andalso represents a solid, strategically significant investment opportunity.
Europe’s industrial gas market ranks second only to North America’s, and features astable competitive climate. Acquiring businesses with market shares in areas that it had
yet to tap enable the company to make strong progress in globalizing. While acquiring
highly profitable businesses of a certain scale and network (including manufacturing
units), it also secures talented people, including top management, and businessplatforms. Under such business foundations, Taiyo Nippon Sanso Corporation will
cultivate products, including by drawing on offerings that are compatible withenvironmental regulations, while pursuing a policy of strengthening the Group’s crossfunctional capabilities, including by expanding marketing to global enterprises.
3. Acquisition date
December 3, 2018

5. Percentage of voting rights acquired
100%

Millions of yen

Acquisition date
(December 3, 2018)¥635,847¥635,847(3) Assets acquired, liabilities assumed, non-controlling interests, and goodwill
Millions of yen

127

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

208,301
5,998
4,196
458,123
23,882
13,593
12,254
6,942
72,444
1,297
130,412
327,7112,265
310,401

Notes
1. Composition of property, plant and equipment and intangible assets
Property, plant and equipment mainly comprised ¥136,460 million in machinery, equipment, and vehicles.
Intangible assets of ¥203,900 million were mainly for customers.
2. Goodwill
Goodwill mainly comprises anticipated synergies and excess earnings capabilities arising from acquisition that
do not match specific recognition criteria. Goodwill is not deductible for tax purposes.

(4) Acquisition-related expenses
Acquisition-related costs were ¥6,722 million, of which ¥2,695 million in selling, generaland administrative expenses and ¥548 million in financial expenses were included in theConsolidated Statement of Income for the year ended March 31, 2019. The Consolidated
Statement of Financial Position for the year included ¥(771) million in bonds andborrowings in current liabilities and ¥(2,708) million in bonds and borrowings in non-current
liabilities. Acquisition-related expenses in the Consolidated Statement of Financial Position
were costs of bond issue expenses and debt origination costs from obtaining to acquisition
funds deducted from fair value at the time of initial recognition of the bonds and borrowings
during the year ended March 31, 2019 that were not posted as financial expenses at theend of the period.

2. Acquisition of hydrogen and carbon monoxide business and related businessassets in United States by Matheson Tri-Gas(2) Fair value of consideration transferred

Current assets:
Cash and cash equivalents
Trade receivables
Inventories
OthersNon-current assets:

190,561(5) Impact on Group business results
The Consolidated Statement of Income for the year ended March 31, 2019 included sales
revenue of ¥55,101 million and net income of ¥6,167 million that the acquired company
generated subsequent to the acquisition date.
If the business combination were on April 1, 2018, the start of the year ended March 31,
2019, the Group’s pro forma sales revenue would have been ¥4,040,646 million, with net
income of ¥226,781 million. The pro forma information has not been audited.

4. Method for gaining control of acquired company
Acquisition of shares for cash

Cash
Cost of the acquisition

Property, plant and equipment(Note 1)Intangible assets (Note 1)
Investments accounted for using
the equity method
OthersAcquired assets
Current liabilities:
Trade payables
Other financial liabilities
OthersNon-current liabilities:
Retirement benefit liabilities
Deferred tax liabilities
OthersLiabilities assumed
Net assets acquired and liabilities assumed
Non-controlling interests
Goodwill (Note 2)

Acquisition date
(December 3, 2018)¥

4,354
32,664
8,368
3,681

Through Matheson Tri-Gas, Inc., a wholly owned subsidiary of consolidated subsidiary
Taiyo Nippon Sanso Corporation acquired a portion of the hydrogen and carbon monoxide(HyCO) business and related U.S. assets of Linde Gas North America LLC.
(1) Overview of business combination
1. Name of counterparty company and description of business
Name: Linde Gas North America LLC
Description of business: Portion of HyCO business (see note) of Linde Gas North
America LLC in the United States
Note: Large-scale supply of hydrogen and carbon monoxide derived from natural gas and other sources withsteam reforming and other apparatuses through pipelines to petroleum refining and petrochemicalindustries

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

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5 Financial and Non-Financial Information

Financial Information

2. Main reason for business combination
Under the Ortus Stage 2 medium-term management plan, Taiyo Nippon Sanso
Corporation aims to strategically expand in the gas technology area through mergers andacquisitions, and explored fully entering the HyCO business from the perspective ofbolstering its product lineup to strengthen its proposal capabilities. The acquisition will
enable the company to materialize that goal, generating the following envisaged benefits
for the Taiyo Nippon Sanso Group.
(i) Secure stable medium- and long-term earnings from on-site supplies of hydrogen andcarbon monoxide(ii) Secure human and technological resources to streamline HyCO business operations(iii) Strengthening proposal capabilities for new on-site demand (including oil refining andpetrochemicals) in the United States
3. Acquisition date: February 27, 2019
4. Method for gaining control of acquired company
A portion of the HyCO business of Linde Gas North America LLC in the United States andrelated U.S. business assets was acquired for cash by consolidated subsidiary Matheson
Tri-Gas, Inc.

Year ended March 31, 2020
There were no significant business combinations in the year ended March 31, 2020.
Note 6
Discontinued
Operations

1. Outline of Discontinued Operations
On May 14, 2019, Life Science Institute, Inc.(LSII), a consolidated subsidiary in the HealthCare segment, came to an agreement on a strategic capital partnership with PHC Holdings
Corporation (PHCHD), which engages in the health care business in Japan and overseas.
In this agreement, it was determined that LSII would exchange all of its shares in LSI
Medience Corporation (LSIM) for a part of PHCHD shares. On August 1, LSII completed theplanned share exchange. In fiscal 2019, the company accordingly classified the earnings
related to LSIM and its subsidiaries and affiliate and gains on the share exchange
discontinued operations. Figures for the previous fiscal year have been restated, with thediscontinued operations presented separately.
2. Profit or Loss from Discontinued Operations
Details of net income from discontinued operations in the Consolidated Statement of
Income are as follows:(2) Fair value of consideration transferred
Millions of yen

Cash
Cost of the acquisition

Acquisition date(February 27, 2019)¥46,133¥46,133(3) Assets acquired, liabilities assumed, and goodwill
Millions of yen

Current assets
Non-current assets:
Property, plant and equipment(Note 1)Intangible assets (Note 1)
Acquired assets
Non-current liabilities
Liabilities assumed
Net assets acquired and liabilities assumed
Goodwill (Note 2)

Acquisition date(February 27, 2019)¥ 215
31,387
7,852
39,454498
498
38,956
7,177

Although this acquisition was accounted for on a provisional basis in the previous fiscal
year, initial accounting for the business combination was completed in the second quarterof the year ended March 31, 2020. The Company accordingly adjusted provisional amounts
above. The impact of the revisions is immaterial.
Notes:
1. Composition of property, plant and equipment and intangible assets
Property, plant and equipment mainly comprised ¥31,361 million in machinery, equipment and vehicles.
Intangible assets of ¥7,852 million were mainly customer-related intangible assets.
2. Goodwill
Goodwill mainly comprises anticipated synergies and excess earnings capabilities arising from acquisition that
do not match specific recognition criteria. Goodwill is tax deductible for fixed periods.

(4) Acquisition related expenses
Acquisition-related expenses were ¥149 million and were included in selling, general andadministrative expenses in the Consolidated Statement of Income for the year ended
March 31, 2019.

Revenue (Note 1)
Cost
Income from discontinued operations
before taxes
Income taxes (Note 2)
Net income from discontinued operations

Year ended
March 31, 2019¥83,304(80,094)

Millions of yen
Year ended
March 31, 2020
¥52,754(27,169)¥ 3,210¥25,585(738)¥ 2,472(8,693)¥16,892

Notes:
1. In the fiscal year ended March 31, 2020, this included ¥23,922 million from a gain on share exchanges.
2. In the fiscal year ended March 31, 2020, this included ¥(8,117) million from income taxes related to gain on
share exchanges.

3. Cash Flows from Discontinued Operations
Cash flows from discontinued operations included in the Consolidated Statement of Cash
Flows are as follows:

Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Total

Year ended
March 31, 2019¥5,197(2,512)(173)¥2,512Millions of yen
Year ended
March 31, 2020
¥ 2,886
12,608(994)¥ 14,500

4. Supplementary Information Relating to Cash FlowsThe net assets and liabilities of LSI Medience Corporation and its subsidiaries excluded asof the date of the share exchange in connection with the share exchange and shares
included for PHC Holdings Corporation are as follows:

Cash and cash equivalents (Note)
Net amount of assets other than cash and cash equivalents andshares accepted
Liabilities (Note)

Share exchange date(August 1, 2019)¥753
28,232(52,957)

Note:
In keeping with the loss of control of LSI Medience Corporation and its subsidiaries, the net of ¥(753) million of
cash and cash equivalents held by LSI Medience Corporation and its subsidiaries and proceeds from collections ofloans to LSI Medience Corporation and its subsidiaries of ¥15,185 million is presented in the Consolidated
Statement of Cash Flows as ¥14,432 million in proceeds from loss of control due to share exchange in Cash flows
from investing activities.

(5) Impact on Group business results
If the business combination were on April 1, 2018, the start of the year ended March 31,
2019, the Group’s pro forma sales revenue would have been ¥3,933,102 million, with net
income of ¥219,046 million. The pro forma information has not been audited.

129

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5 Financial and Non-Financial Information

Financial Information

Note 7
Sales Revenue(1) Disaggregation of sales revenue
The Group operates in four business areas centered on four operating companies. They are
Mitsubishi Chemical Corporation, Mitsubishi Tanabe Pharma Corporation, Life Science
Institute, Inc., and Taiyo Nippon Sanso Corporation. The business segments are Performance
Products, Chemicals, Industrial Gases, and Health Care. Progress reports on enhancing
overseas sales ratios as a key operational measure go regularly to the Board of Directors.
The relationship between geographic and segment revenue described in Note 4 Segment
Information is as follows.
In keeping with Taiyo Nippon Sanso Corporation’s acquisition of European operations in
the previous fiscal year, the Company revised its geographic classification from countries toregions owing to an increase in the proportion of sales revenues in Europe. The Company
accordingly reclassified the Japan, United States, China, and Others categories used in theprevious fiscal year as Japan, Asia and Oceania, North America, Europe, and Others. China
is internally disaggregated within Asia and Oceania in keeping with its importance. Sales
revenue for the previous fiscal year is based on the revised classifications.
Year ended March 31, 2019
Millions of yen

Japan
Performance
Products
ChemicalsIndustrial
Gases
Health Care
Others
Total

Asia and Oceania(China)North
America

EuropeOthersTotal¥157,877¥14,048¥1,155,496¥ 585,187¥233,643¥ (96,954) ¥164,741

771,327

317,074(110,702)

80,32591,616

15,631

1,275,973

369,033

124,597(22,128)

178,035

59,324

1,848

732,837

322,576
127,643

27,062
68,069(7,767)(54,472)

42,736
3,037

67,567
13,297

2,622
1,426

462,563
213,472¥2,175,766¥770,445¥(292,023) ¥468,874¥389,681¥35,575¥3,840,341

Notes:
1. Amounts are shown as sales revenue from external customers.
2. Sales revenue is mostly recognized from contracts with customers. Sales revenue recognized from othersources is immaterial.

Year ended March 31, 2020
Millions of yen

Japan
Performance
Products
ChemicalsIndustrial
Gases
Health Care
Others
Total

Asia and Oceania(China)North
America

EuropeOthersTotal¥ (91,758) ¥159,769¥147,847¥11,075¥1,081,612¥ 554,891¥208,030

684,145

237,233(91,894)

65,43954,836

15,401

1,057,054

361,317

120,368(18,306)

190,100

170,307

1,248

843,340329,264
116,530¥2,046,147

26,702
52,716¥645,049(6,968)35,596(37,294)2,846¥(246,220) ¥453,750

19,852
12,877¥405,719

1,726
395¥29,845

413,140
185,364¥3,580,510

Notes:
1. Amounts are shown as sales revenue from external customers.
2. Sales revenue is mostly recognized from contracts with customers. Sales revenue recognized from othersources is immaterial.

Performance Products Segment
This segment encompasses the functional products business (information, electronics anddisplays, high-performance films, environment and living solutions, and advanced moldings
and composites) and the performance chemical business (advanced polymers, highperformance chemicals, and new energy). We sell to domestic and overseas customers.
Once customers gain control over products, when products are delivered to customerdesignated locations, the legal title and physical possession of products and significant
risks associated with product possession and rewards have been transferred, and we
accordingly determine at that stage that we have satisfied our performance obligations and131

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

recognize sales revenue. Sales revenue from selling these products is measured attransaction prices relating to agreements with customers.
Sales revenue is measured at the amount of consideration promised in contracts withcustomers, net of discounts, rebates and returns. Rebates and other estimates use themost frequent techniques based on experience. Sales revenue is recognized only to theextent of no possibility of a significant reversal. Considerations in product sales contracts
are generally collected within one year after control of products transfers to customer, anddo not include significant financial elements.
Chemicals Segment
In the Chemicals segment, we conduct the MMA, petrochemicals, and carbon products
businesses, and sell to domestic and overseas customers.
Upon satisfying performance obligations in selling products in these businesses,
calculations of transaction prices and payment terms are identical to those of the
Performance Products segment.
Industrial Gases Segment
In this segment, our gas business serves the steel, chemical and electronics industries. We
manufacture such household items as stainless steel thermoses. We sell to domestic andoverseas customers.
Upon satisfying performance obligations in selling products in these businesses,
calculations of transaction prices and payment terms are identical to those of the
Performance Products segment.
Health Care Segment
Here, we engage in the ethical pharmaceuticals business (researching and developing andmanufacturing ethical pharmaceuticals) and the life science business (manufacturing of
capsules and pharmaceutical processing equipment, active pharmaceutical ingredients andintermediates), selling to domestic and foreign customers.
Upon fulfilling performance obligations in selling products in these businesses,
calculations of transaction prices and payment terms are identical to those of the
Performance Products segment.
Royalty income generated in the Health Care business is from contracts in which theGroup has permitted third parties to produce or sell products or use technology. One-off
contract payments are recognized as sales revenue when performance obligations are met
at certain points. If such obligations are not met, the transaction is recorded as deferredsales revenue and recognized as sales revenue over a certain period as obligations are
met. Milestone payments are recognized only to the extent that significant returns areunlikely after reaching contractual milestones. Running royalties are measured based oncontractor sales calculations, etc., and sales revenue is recognized as sales occur. Royalty
income is generally received within one year of establishing contractual rights, and does
not include significant financing components.
With regard to royalty revenue and other income, consolidated subsidiary Mitsubishi
Tanabe Pharma Corporation received a petition for arbitration from Novartis Pharma AG(“Novartis”) of Switzerland in February 2019. Novartis claimed that some provisions of alicense agreement entered into in 1997 (“Agreement”) were invalid and that Novartis had
no obligation to pay some royalties. Mitsubishi Tanabe Pharma Corporation claimed theright to receive all royalties payable under the Agreement, and will appropriately pursue thisright through arbitration.
Due to arbitration proceedings, the Company decided not to recognize sales revenue
in accordance with IFRS 15 for some royalty revenue. Since arbitration proceedings remain
ongoing, some sales revenue was not recognized as revenue for some royalties in the year
ended March 31, 2020.
The portion for which this revenue is not recognized has been posted to other noncurrent liabilities, and the cumulative amount will be recognized at the end of arbitration.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020132

5 Financial and Non-Financial Information

Financial Information(2) Contract balance
Receivables from contracts with customers, contract assets, and liabilities are as follows:

Receivables arising from contracts
with customers
Contract assets
Contract liabilities

As of April 1, 2018Year ended
March 31, 2019

Millions of yen
Year ended
March 31, 2020

¥851,576¥850,802¥706,659

7,893
16,582

12,562
16,234

11,87323,158The Group mainly posts contract assets for compensation from work in progress and posts
contract liabilities for advance payments from customers and for deferred sales revenue.
Of sales revenue recognized in the years ended March 31, 2019 and 2020, ¥10,227
million and ¥9,245 million, respectively, were included in contract liabilities at the start of theterms. Sales revenue recognized from performance obligations satisfied during the two years
was ¥63,960 million and ¥16,950 million, respectively. There were no significant changes inoutstanding contract assets and liabilities.
(3) Transaction price allocated to the remaining performance obligations
Total transaction price allocated to the remaining performance obligations and sales
revenue recognition periods were as follows. Transactions with estimated contract terms ofless than one year are excluded.

Due within one year
Due after one year
Total

Year ended
March 31, 2019¥15,443
26,317¥41,760

Millions of yen

Year ended
March 31, 2020
¥28,903
19,507¥48,410(4) Assets recognized from costs to obtain or fulfill contracts with customers
In the years ended March 31, 2019 and 2020, no assets were recognized from the costs toobtain or fulfill contracts with customers. As a practical expedient, costs are recognized as
expenses when incurred if the amortization period of the asset to be recognized is one year
or less.

Note 8
Employee Benefit
Expenses

The breakdown of employee benefit expenses is as follows:

Wages and salaries
Retirement benefit costs
Total

Year ended
March 31, 2019

¥ 552,558
30,249¥ 582,807

Millions of yen
Year ended
March 31, 2020

¥ 562,253
31,333¥ 593,586

Note: Remuneration for key executives is excluded. Remuneration to major executives is as described in Note 38
Related Parties.

Note 9Research andDevelopment
Expenses

Research and development expenses recognized in the years ended March 31, 2019 and2020 were ¥142,822 million and ¥133,368 million, respectively.

Note 10
Other Operating
The breakdown of other operating income is as follows:
Income and Other
Operating Expenses

Gain on sales of property, plant and equipment
Insurance income
Rent income
Subsidy income
Reversal of impairment loss
Gain on sales of shares of subsidiaries andassociates
Others
Total

Year ended
March 31, 2019

¥ 2,783
936
2,269
61
—

Millions of yen
Year ended
March 31, 2020

¥ 8,533
2,529
2,079
2,006
1,720

7,546

530

7,716
¥ 21,311

10,174¥ 27,571

The breakdown of other operating expenses is as follows:

Impairment loss
Loss on sales and disposal of fixed assets
Loss on reduction of fixed assets
Loss on sales of shares of subsidiaries andassociates
Provision for loss on business liquidation
Others
Total

Year ended
March 31, 2019

¥ 17,340
13,776
57

Millions of yen
Year ended
March 31, 2020

¥ 48,647
15,793
1,988

34

1,567

5,169
14,601¥ 50,977—
15,368¥ 83,373

The provision for loss on business liquidation is as described in Note 23 Assets Held for
Sale.
See Note 16 Impairment Losses for details.

133

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5 Financial and Non-Financial Information

Financial Information

Note 11
Financial Income
and Financial
Expenses

Year ended March 31, 2020
The breakdown of financial income is as follows:

Millions of yen
Year ended
March 31, 2020

Year ended
March 31, 2019

Financial income
Interest income
Financial assets measured at amortized cost
Dividend income
Financial assets measured at fair value
through other comprehensive income
Foreign exchange gains
OthersTotal¥ 2,699¥ 4,429
5,192

4,187

360
245
¥10,226—320¥ 7,206

The breakdown of financial expenses is as follows:
Millions of yen
Year ended
March 31, 2020

Year ended
March 31, 2019

Financial expenses
Interest expenses
Financial liabilities measured at amortized
cost
Foreign exchange losses
OthersTotal¥ 18,863¥ 24,515—
1,269¥ 20,132

3,661
1,312
¥ 29,488

Note 12
Income Taxes

1. Deferred Tax Assets and Liabilities
As of March 31, 2019 and 2020, significant components of deferred tax assets and liabilities
are as follows:Year ended March 31, 2019

Deferred tax assets:
Tax losscarryforwards
Net defined benefit
liabilities
Property, plant andequipment
Employees’ bonuses
Inventory
Employees’ paid
leave
Others
Total
Deferred tax liabilities:
Valuation of assets
Property, plant andequipment
Securities and otherinvestments
Retained earnings offoreign subsidiaries
OthersTotal
Net deferred tax assets

135

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

April 1, 2018

Amounts
recognized in
profit or loss

¥ 57,423¥ 6,392

31,130(1,741)

Amounts
recognized inothercomprehensiv
e income¥—

Millions of yen
Others (Note)¥

March 31,
2019

254

¥ 64,069

1,631

1,842

32,862

15,477

1,641

—

120

17,23815,138
7,006

(369)
3,530

—
—

46
57

14,815
10,593

6,887

582

—

676

8,145

50,981¥ 184,042

5,136¥15,171

(708)
2,287

56,792¥ 204,514

¥

1,383
3,014

¥

¥ (81,690)¥ 4,641—¥ (67,737)¥ (144,786)(50,070)(13,697)—(10,415)(74,182)(35,700)—(2,397)

3,789(34,308)(13,910)(4,186)——(18,096)(23,546)¥ (204,916)¥ (20,874)(3,717)¥( 16,959)¥ (1,788)(303)¥ (2,700)
¥
314

1,523
¥ (72,840)¥ (70,553)(26,043)¥ (297,415)¥ (92,901)

Deferred tax assets:
Tax losscarryforwards
Net defined benefit
liabilities
Property, plant andequipment
Employees’ bonuses
Inventory
Employees’ paid
leave
Others
Total
Deferred tax liabilities:
Valuation of assets
Property, plant andequipment
Securities and otherinvestments
Retained earnings offoreign subsidiaries
OthersTotal
Net deferred tax assets

Amounts
recognized inothercomprehensiv
e income

April 1, 2019

Amounts
recognized in
profit or loss

¥ 64,069¥( 10,830)

32,862

(733)

¥

—

Millions of yen
Others (Note)

March 31,
2020

¥

(289)

¥ 52,950(1,979)30,719569

17,238

1,486

—

14

18,73814,815
10,593(1,834)
(483)

—
—

(522)
(42)

12,45910,068

8,145

188

—

(379)

7,954

56,792¥ 204,514

7,090¥ (5,116)

122
691

330
¥ (2,867)

64,334¥ 197,222¥ (144,786)¥ 13,164

—

¥

5,063

¥ (126,559)(74,182)(3,949)—1,583(76,548)(34,308)(8,117)

5,978

1,876

(34,571)(18,096)

3,266

—

(18)

(14,848)(26,043)¥ (297,415)¥ (92,901)(7,093)¥ (2,729)¥ (7,845)

(1)
5,977
6,668

493
8,997
6,130

(32,644)¥ (285,170)¥ (87,948)

¥

¥
¥

¥
¥

Notes:
1. Others include exchange differences on translation of foreign operations and changes owing to businesscombinations, etc.
2. Amount recognized in profit or loss includes ¥8,117 million in income taxes related to share exchange gains.

In recognizing deferred tax assets, the Group considers whether it can use all or part of future
deductible temporary differences or unused tax loss carryforwards with respect to expected futuretaxable income. In evaluating the recoverability of deferred tax assets, the Group considers theplanned reversal of deferred tax liabilities, expected future taxable income, and tax planning. In
addition, future taxable income estimates are based on future business plans. The primary
assumptions are prospects for revenue growth and market trends for raw material prices. Management
expects to recover recognized deferred tax assets in keeping with the forecasts for future taxable
income when past taxable income levels and deferred tax assets can be deductible. Althoughmanagement deems its assumptions reasonable, they could be affected by future uncertain
fluctuations in economic conditions. If future taxable income differs from forecasts and assumptions,the recoverability of deferred tax assets could differ.

Future deductible temporary differences and unused tax loss carryforwards (on an income
basis), not recognized as deferred tax assets are as follows:

Future deductible temporary differences
Unused tax loss carryforwards
Unused tax credit carryforwards

Year ended
March 31,2019
¥106,112
374,604
25,095

Millions of yen
Year ended
March 31,2020
¥112,005
392,703
28,458Unrecognized deferred tax assets corresponding to the above are as follows.
Millions of yen

Future deductible temporary differences
Unused tax loss carryforwards
Unused tax credit carryforwards

Year ended
March 31,2019
¥30,172
58,308
6,365

Year ended
March 31,2020
¥32,543
63,884
6,879

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

136

5 Financial and Non-Financial Information

Financial Information

The breakdowns of tax loss carryforwards not recognized as deferred tax assets (on an
income basis) by expiration date are as follows:
Millions of yen

Tax loss carry forwards:
Due within one year
Due after one year and not later than five years
Due after five years and not later than 10 years
Due after 10 years and not later than 20 years
Indefinite
Total

Unused tax credit carryforwards
Due within one year
Due after one year and not later than five years
Due after five years and not later than 10 years
Due after 10 years and not later than 20 years
Indefinite
Total

Year ended
March 31,2019
¥ 65,918
51,16993,82995,56868,120¥374,604

Year ended
March 31,
2020
¥

8,543
85,155124,571
89,591
84,843¥392,703

Year ended
March 31,2019Year ended
March 31,
2020

¥

¥

83
8,811
—
—
16,201¥25,095

744
8,852
—
—
18,862¥28,458

3. Effective Tax Rate Reconciliation Schedule
The Company is principally subject to corporate taxes, resident taxes and business taxes.
The statutory effective tax rate that is the base for these taxes was 30.6% in the years ended
March 31, 2019 and 2020. For overseas subsidiaries, local corporate income taxes are
imposed.
A reconciliation of the statutory tax rates to the effective tax rates for the years ended
March 31, 2019 and 2020, was as follows:

Statutory tax rate
Unrecognized deferred tax assets
Goodwill impairment
Permanent differences
Foreign taxes
Difference of statutory tax rate in overseas subsidiaries
Share of profit of investments accounted for using the equity
methodTax credits for research and development costs
Tax effect on undistributed earnings
Others
Effective tax rate

Year ended
March 31, 2019Year ended
March 31, 2020

1.8
1.0
(5.1)

30.6%
17.1
4.1
3.1
3.0
(6.4)

(2.8)

(3.3)

(1.9)
1.4
0.4
24.8%

(2.8)
(2.7)
0.2
42.9%

30.6%
(0.6)
—

As of March 31, 2019 and 2020, total temporary differences related to undistributed earningsof subsidiaries for which deferred tax liabilities were not recognized were ¥1,142,046 millionand ¥1,306,312 million, respectively.
The Group does not recognize deferred tax liabilities related to temporary differences when
it can control the timing of the reversal of the temporary differences and it is highly probablethat temporary differences will not be reversed in the foreseeable future.
2. Income Taxes
The breakdown of income taxes is as follows:
Income taxes relating to discontinued operations are disclosed in Note 6 Discontinued
Operations.

Income taxes
Deferred income taxes
Total

137

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Year ended
March 31, 2019

¥68,886
1,703¥70,589

Millions of yen

Year ended
March 31, 2020

¥53,139(804)¥52,335

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

138

5 Financial and Non-Financial Information

Financial Information

Note 13Per Share
Information

Note 14
The bases for calculating basic and diluted earnings per share attributable to owners of
the parent were as follows:
1. Basic Earnings per ShareYear ended
March 31, 2019

Net income used to calculate basic earnings per share:
Net income from continuing operations attributable to owners of
the parent
Net income from discontinued operations attributable to ownersof the parent
Net income attributable to owners of the parent
Average number of ordinary shares during period
Basic earnings per share attributable to owners of the parent:
Continuing operations
Discontinued operations
Basic earnings per share attributable to owners of the parent¥ 167,063¥ 37,186

2,467

16,891¥ 169,530¥ 54,077(Thousands of shares)

1,419,982(Yen)¥117.49
1.73¥119.22

1. Schedule of Goodwill and Intangible Assets
The acquisition cost, accumulated amortization, accumulated impairment losses andcarrying amount of goodwill and intangible assets were as follows:Year ended March 31, 2019
Acquisition cost

Millions of yen

Year ended
March 31, 2020
(Millions of yen)

1,422,018

Goodwill andIntangible Assets

¥
¥

26.19
11.89
38.08

Intangible assets

Goodwill
Balance as ofApril 1, 2018
Acquisitions
Acquisitions
throughbusiness
combinations
Sale or
disposal
Transfers
Exchangedifferences ontranslation offoreign
operations
Balance as ofMarch 31,2019Technology-related
intangible assets

Customer-related
intangible assets

Other

Total

¥324,201¥282,798¥112,842¥76,414¥63,136¥535,190

—

3,192

7,127

7,922

3,149

21,390334,121

1,688

216,914

2,470

511

221,583—(4,061)(2)(6,981)(1,790)(12,834)

—

(14)

—

(3)

9

(8)

(9,516)

8,010(4,431)

(311)

1,161

4,429

¥648,806¥291,613¥332,450¥79,511¥66,176¥769,750

Accumulated amortization, accumulated impairment losses
Technologyrelated intangible
assetsGoodwillYear ended
March 31, 2019

Average number of diluted ordinary shares during period:
Average number of ordinary shares during period
Impact of potentially dilutive ordinary shares
Convertible bond-type bonds with subscription rights tosharesSubscription rights to shares
Average number of diluted ordinary shares during period

Diluted earnings per share attributable to owners of the parent:
Continuing operations
Discontinued operations
Diluted earnings per share attributable to owners of the parent

Year ended
March 31, 2020
(Millions of yen)

¥ 167,063¥ 37,186

285

285¥ 167,348¥ 37,471

2,467

16,891¥ 169,815¥ 54,362

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Balance as ofApril 1, 2018
Amortization
Impairment
lossesSale or
disposalExchangedifferences ontranslation offoreign
operations
Balance as ofMarch 31,2019

1,422,018

1,419,982

119,685

122,565

1,388
1,543,091

1,568
1,544,115(Yen)¥108.45
1.60¥110.05

¥
¥

24.27
10.94
35.21

Customerrelated
intangible
assetsSoftware

Other

Total

¥—

¥55,449¥33,221¥57,014¥34,355¥180,039—

7,422

10,595

7,805

4,012

29,834

—

383

—

165

63

611

—

(3,696)—(6,808)(1,755)(12,259)

—

1,728

407

(294)

897

2,738

¥—

¥61,286¥44,223¥57,882¥37,572¥200,963

Carrying amountMillions of yen(Thousands of shares)

Note:
In the calculation of basic and diluted net income per share attributable to owners of the parent, the Company
stocks held by Board Incentive Plan trust are included in shares of treasury stock deducted in calculating the
average number of shares during the period.

139

Millions of yen

Intangible assets

2. Diluted Earnings per Share

Net income used to calculate diluted earnings per share:
Net income from continuing operations used to calculate
basic earnings per share
Adjustment
Net income from continuing operations used to calculate
diluted earnings per share
Net income from discontinued operations used to calculate
diluted earnings per share
Net income used to calculate diluted earnings per share

SoftwareIntangible assets

Goodwill
Balance as ofApril 1, 2018
Balance as ofMarch 31,2019Technology-related
intangible assets

Customer-related
intangible assets¥324,201¥227,349¥79,621¥19,400¥28,781¥355,151¥648,806¥230,327¥288,227¥21,629¥28,604¥568,787

Software

Other

Total

Year ended March 31, 2020
Acquisition cost
Goodwill
Balance as ofApril 1, 2019
Acquisitions
Acquisitions
throughbusiness
combinations
Sale or
disposal
Transfers
Exchangedifferences ontranslation offoreign
operations
Balance as ofMarch 31,
2020

Millions of yen
Intangible assets
Technology-related
intangible assets

Customer-related
intangible assets

Other

Total

¥648,806¥291,613¥332,450¥79,511¥66,176¥769,750

—

6,347

—

5,985

4,644

16,976

7,992

144

5,353

35

(278)

5,254

(268)

(25,524)(14)(6,918)(9,221)(41,677)

(546)

—

831

(245)

(2)

584

(22,941)(27,661)(12,572)(5,351)(1,596)(47,180)¥633,043¥244,919¥326,048¥73,017¥59,723¥703,707

Software

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

140

5 Financial and Non-Financial Information

Financial Information

Accumulated amortization, accumulated impairment losses
Millions of yen
Intangible assets
Technologyrelated intangible
assetsGoodwill
Balance as ofApril 1, 2019
Amortization
Impairment
lossesSale or
disposalExchangedifferences ontranslation offoreign
operations
Balance as ofMarch 31,
2020¥

Customerrelated
intangible
assetsSoftware

Other

Total

—

¥61,286¥44,223¥57,882¥37,572¥200,963—

7,227

16,606

6,947

3,169

33,94916,274

24,1028353

22

24,260—(25,610)—(3,693)(7,992)(37,295)—(22,302)(1,269)(4,441)(733)(28,745)¥ 16,274¥44,703¥59,643¥56,748¥32,038¥193,132

Carrying amountMillions of yen
Goodwill
Balance as ofApril 1, 2019
Balance as ofMarch 31,2020

Intangible assets
Technology-related
intangible assets

Customer-related
intangible assets¥648,806¥230,327¥288,227¥21,629¥28,604¥568,787¥616,769¥200,216¥266,405¥16,269¥27,685¥510,575

Software

Other

Total

There were no material internally generated assets in the years ended March 31, 2019 and2020.
The amortization of intangible assets is included in Cost of sales, Selling, general andadministrative expenses and Net income from discontinued operations in the Consolidated
Statement of Income.
2. Significant Intangible Assets
Significant intangible assets in the Consolidated Statement of Financial Position include
technology-related intangible assets that the Company obtained in acquiring Mitsubishi
Rayon Co., Ltd. (now Mitsubishi Chemical Corporation), in March 2010. The carrying
amounts of these intangible assets were ¥18,254 million as of March 31, 2019 and ¥15,532
million as of March 31, 2020. The remaining amortization periods were 5 to 9 years.
The carrying amount of technology-related intangible assets of Medicago Inc., which
Mitsubishi Tanabe Pharma Corporation acquired in September 2013, was ¥25,967 million in
the year ended March 31, 2019, and classified as intangible assets with indefinite useful
lives. In the fiscal year ended March 31, 2020, the carrying amount of such intangible assets
was fully impaired, and stated in Note 16 Impairment Losses.
The carrying amounts of customer-related intangible assets of Taiyo Nippon Sanso
Corporation, which the Company acquired in November 2014, were ¥28,187 million as ofMarch 31, 2019, and ¥26,083 million as of March 31, 2020. The remaining amortization
periods were 8 to 13 years.
The carrying amounts of technology-related intangible assets of NeuroDerm Ltd. which
Mitsubishi Tanabe Pharma Corporation acquired in October 2017, were ¥134,076 million asof March 31, 2019 and ¥131,467 million as of March 31, 2020. This item is classified as
intangible assets with indefinite useful lives.
The carrying amount of customer-related intangible assets of European businesses which
Taiyo Nippon Sanso Corporation acquired in December 2018, were ¥194,267 million as ofMarch 31, 2019 and ¥186,453 million as of March 31, 2020. The remaining amortization
periods were mainly 28 years.

NeuroDerm Ltd. in 2017 (both in the Health Care segment), included in Technology-related
intangible assets. At March 31, 2020, the carrying amount of intangible assets with indefinite
useful lives was ¥168,180 million. The main item was in-process research and development
expenses related to NeuroDerm. Given that the assets are at the research and development
stage, have yet to obtain marketing approval from regulatory authorities, and cannot be in use,
the assets are classified as intangible assets with indefinite useful lives.
Intangible assets with indefinite useful lives are subject to impairment testing at certain
times every year, regardless of whether there are indications of impairment.
In impairment tests, recoverable amounts of intangible assets are measured by theirvalue in use.
In calculating value in use, the Company uses estimates of future cash flows based on
management-approved business plans. The business plans are based on experience andexternal information. Except on justifiable grounds, the plans are, in principle, for up to five
years, the significant assumptions being the prospects for obtaining regulatory approval forsales, post-launch sales forecasts, and discount rates.
The Company used a pretax weighted average cost of capital of 5.5% to 14.8% in theyear ended March 31, 2019, and 7.7% to 13.0% in the year ended March 31, 2020. The
discount rates for in-process research and development expenses related to NeuroDermwere 14.8% and 13.0% in years ended March 31, 2019 and 2020, respectively.
Although management deems these assumptions reasonable, they are subject touncertain fluctuations in future economic conditions. If assumptions change, calculations ofrecoverable amount may differ.
Impairment losses recognized for intangible assets with indefinite useful lives are asstated in Note 16 Impairment Losses.
4. Goodwill
The carrying amounts of goodwill allocated to cash-generating units (groups of cashgenerating units) are as follows:
Millions of yen

Reporting segment

Performance Products

ChemicalsIndustrial Gases

Health CareCash-Generating Unit
(Groups of CashGenerating Units)
High performanceengineering plastics
Other

March 31, 2020

¥ 21,029¥ 25,497

37,03636,024

Total¥ 58,065¥ 61,701

MMA¥ 36,813¥ 36,813

Other

2,887

2,859

Total

¥ 39,700¥ 39,672

Industrial gases
EthicalPharmaceuticals
Pharmaceuticalformulation materials
Other¥459,013¥441,805¥ 59,246¥ 57,303

32,626

16,288

156

—

Total
Total

March 31, 2019

¥ 92,028¥ 73,591¥648,806¥616,769

The recoverable amount of goodwill in cash-generating units and groups of cash generating
units is measured by the value in use.
The value in use is based on a management-approved five-year plan reflecting pastexperience and external source of information. After considering future uncertainties after the
five-year period, the Company assumed a zero growth rate, with value equaling cash flows
in the fifth year. Estimated future cash flows are shaped largely by sales volume expansions
and market growth rates. While management has determined that its main assumptions arereasonable, they are subject to uncertain changes in economic conditions, and calculationsof recoverable amounts could differ if assumptions change.

3. Intangible Assets with Indefinite Useful Lives
The carrying amount of intangible assets with indefinite useful lives was ¥192,381 million atMarch 31, 2019. The main item was in-process research and development expenses
recognized when Mitsubishi Tanabe Pharma Corporation acquired Medicago Inc. in 2013 and141

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

142

5 Financial and Non-Financial Information

Financial Information

The discount rates used for measuring recoverable amounts are as follows:
Reporting segment
Performance Products
ChemicalsIndustrial Gases
Health CareCash-Generating Unit
(Groups of CashGenerating Units)
High performanceengineering plastics
MMA
Industrial gases
Ethicalpharmaceuticals
Pharmaceuticalformulation materials

March 31, 2019

Note 15
March 31, 2020

8.1%

7.5%

7.7%
7.7%

5.9%
5.9%

5.5%

7.7%

6.5%

7.2%

It was possible that the recoverable amount of goodwill allocated to pharmaceuticalformulation materials would equal the carrying amount if the discount rate rose 1.9% in theprevious fiscal year. In the year ended March 31, 2020, the Company recorded impairment
losses because recoverable amounts were less than carrying amounts. See Note 16
Impairment Losses for details.

Property, Plant andEquipment

The acquisition cost, accumulated depreciation, accumulated impairment losses andcarrying amount of property, plant and equipment were as follows:
1. Schedule of property, plant and equipment
Year ended March 31, 2019
Acquisition cost
Millions of yen

Balance as ofApril 1, 2018
Acquisitions(Note 1)
Acquisitions
throughbusiness
combinations
Sale or
disposal
Transfers(Note 2)
Exchangedifferences ontranslation offoreign
operations
Balance as ofMarch 31,
2019

Buildings andstructures

Machineryand vehicles

Tools,
furniture andfixtures

¥1,082,503¥2,950,161¥317,268¥283,707¥149,428¥4,783,067

31,620184,832

23,936

1,992(11,923)

230,457

12,259171,121

29,263

9,923

8,451

231,017(16,081)(71,148)(12,196)(2,349)(913)(102,687)(2,338)(2,867)(1,671)(482)(12,894)(20,252)(3,038)

(978)

189

(2,680)707(5,800)¥1,104,925¥3,231,121¥356,789¥290,111¥132,856¥5,115,802

Constructionin progress

Land

Total

Accumulated depreciation, accumulated impairment losses

Balance as ofApril 1, 2018
Depreciation
Impairment
lossesSale or
disposal
Transfers(Note 2)
Exchangedifferences ontranslation offoreign
operations
Balance as ofMarch 31,2019

Millions of yen

Buildings andstructures

Machineryand vehicles

Tools,
furniture andfixtures¥745,969¥2,350,556¥243,400

25,906125,004

18,507

6,958

4,418

415

(13,906)(66,379)(11,416)(1,599)(4,111)(1,626)(3,555)

123¥759,773¥2,409,611

Constructionin progressLand¥7,891

Total¥1,742¥3,349,558——

169,417

2,283

2,655

16,729

(377)

(219)

(92,297)(6)

281(7,061)

834

(422)

(878)

(3,898)¥250,114¥9,369¥3,581¥3,432,448

Notes:
1. In addition to the increase in the construction in progress account from new acquisitions, the net amount,
including figures in parentheses for transfer amounts is shown for each tangible fixed asset.
2. Transfers include a transfer to assets held for sale.

Carrying amount

Balance as ofApril 1, 2018
Balance as ofMarch 31,
2019

143

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Millions of yen

Buildings andstructures

Machineryand vehicles

Tools,
furniture andfixtures¥336,534¥599,605¥73,868¥275,816¥147,686¥1,433,509¥345,152¥821,510¥106,675¥280,742¥129,275¥1,683,354

LandConstructionin progress

Total

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

144

5 Financial and Non-Financial Information

Financial Information

2. Right-of-use assets (lease assets)

Year ended March 31, 2020
Acquisition cost

Balance as ofApril 1, 2019
Adjustment
due to applying
IFRS 16
Adjustedbalance as ofApril 1, 2019
Acquisitions(Note 1)
Acquisitions
throughbusiness
combinations
Sale or
disposal
Transfers(Note 2)
Exchangedifferences ontranslation offoreign
operations
Balance as ofMarch 31,
2020

Buildings andstructures

Machineryand vehicles

Tools,
furniture andfixtures¥1,104,925¥3,231,121¥356,789¥290,111¥132,856¥5,115,802

62,633

14,501

9,744

7,851

—

94,7291,167,558

3,245,622

366,533

297,962

132,856

5,210,531

46,563

166,556

24,266

2,523

17,287257,195

1,148

1,029

158

300

14

2,649

(46,642)(55,342)(39,081)(4,690)(1,239)(146,994)

Constructionin progress

Land

Millions of yen

As of March 31, 2019

Total

(12,898)(2,504)(404)(6,149)(15,894)(37,849)(1,680)(40,585)(10,768)(1,445)(119)(54,597)¥1,154,049¥3,314,776¥340,704¥288,501¥132,905¥5,230,935

Accumulated depreciation, accumulated impairment losses
Millions of yen

Balance as ofApril 1, 2019
Adjustment
due to applying
IFRS 16
Adjustedbalance as ofApril 1, 2019
Depreciation
Impairment
lossesSale or
disposal
Transfers(Note 2)
Exchangedifferences ontranslation offoreign
operations
Balance as ofMarch 31,2020

Machineryand vehicles

Tools,
furniture andfixtures¥759,773¥2,409,611¥250,114¥9,369¥3,581¥3,432,448

—

—

—

—

—

—

759,773

2,409,611

250,114

9,369

3,581

3,432,448

41,889142,127

20,695

1,164—

205,875

2,500

4,725

760

4

124

8,113

(29,656)(52,245)(32,218)

(440)

(3)

(114,562)(14,424)

(775)

(158)

—

—

(15,357)(3,108)(18,432)(4,043)(2,092)(123)(27,798)¥756,974¥2,485,011¥235,150¥8,005¥3,579¥3,488,719

Constructionin progress

Land

Total

Carrying amountMillions of yen
Buildings andstructures

Machineryand vehicles

Tools,
furniture andfixtures¥407,785¥836,011¥116,419¥288,593¥129,275¥1,778,083¥397,075¥829,765¥105,554¥280,496¥129,326¥1,742,216

Land

Constructionin progress

Total

Right-of-use assets increased ¥18,211 million in the year ended March 31, 2020.
Depreciation of property, plant and equipment is included in Cost of sales and Selling,
general and administrative expenses and Net income from discontinued operations in theConsolidated Statement of Income.
Expenditure on construction work in progress for property, plant and equipment isincluded in construction in progress.

145

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Buildings and structures
Machinery and vehicles
Tools, furniture and fixtures
Total¥1,221
3,557
3,529¥8,307The carrying amounts of right-of-use assets included in property, plant and equipment are as
follows:
Millions of yen
As of March 31, 2020

Buildings and structures
Machinery and vehicles
Tools, furniture and fixtures
Land
Total

¥57,565
16,716
11,837
6,681¥92,799

Note 16
Impairment Losses

Buildings andstructures

Notes:
1. In addition to the increase in the construction in progress account from new acquisitions, the net amountincluding figures in parentheses for transfer amounts is shown for each tangible fixed asset.
2. Transfers include a transfer to assets held for sale.

Balance as ofApril 1, 2019
Balance as ofMarch 31,
2020

The carrying amounts of leased assets included in property, plant and equipment were as
follows:

Millions of yen

In principle, the Group determines its cash-generating units considering operational,
production processes, regions, and other factors based on business units. The Group tests
idle assets individually to recognize impairment losses.
Impairment losses and gain on reversal of impairment loss in the years ended March 31,
2019 and 2020, are included in Other operating income and Other operating expenses,
respectively, in the Consolidated Statement of Income.
Impairment losses
Millions of yen
Year ended
March 31, 2019Year ended
March 31, 2020

Property, plant and equipment
Buildings and structures¥ 6,958¥ 2,500
Machinery and vehicles
4,418
4,725
Tools, furniture and fixtures
415
760
Land
2,283
4
Construction in progress
2,655
124
Total of property, plant and equipment¥16,729¥8,113
Goodwill—
16,274
Intangible assets (Note)
611
24,260Total impairment losses¥17,340¥48,647
Note: The impairment loss on intangible assets with indefinite useful lives was ¥24,069 million.

Gain on reversal of impairment loss
Property, plant and equipment
Land
Total gain on reversal of impairment loss

Millions of yen

Year ended
March 31, 2020

Year ended
March 31, 2019
¥
¥

—
—

¥1,720¥1,720The main assets for which impairment losses were recognized are as follows:

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Financial Information

Year ended March 31, 2019Use
Pharmaceuticals researchfacilities

Note 17
Location

Category

Mitsubishi Tanabe Pharma
Corporation’s Toda Office

Buildings andland, etc.

Reportingsegment

Impairment
loss

Health Care

¥5,271
million(Toda, Saitama Prefecture)

Individually
The carrying amounts of individually insignificant investments in joint ventures accounted
Insignificant
for using the equity method are as follows:
Investments
Accounted for Using
Equity Method

Composition of Impairment Losses
Pharmaceuticals research facilities¥5,271 million (including ¥3,537 million in buildings and structures, ¥1,720 million in land,and ¥14 million in others)
Consolidated subsidiary Mitsubishi Tanabe Pharma Corporation decided to close its Toda
Office in line with a research bases reorganization. Because of the likelihood of the property,
plant and equipment of the office becoming idle owing to the closure, its book value has
been reduced to the recoverable amount. The recoverable amount is measured at ¥4,062
million, representing the fair value, less disposal costs based on the appraised property
value. The fair value hierarchy is Level 3.
For such assets, a real estate sales contract was concluded in the year ended March
31, 2020, and its recoverable amount is expected to increase. A reversal of impairment lossof ¥1,720 million (¥1,720 million on land) is thus recorded in Other operating income in theConsolidated Statement of Income.

Carrying amounts of investments injoint ventures

Share of profit from continuing operations using equity method
Share of profit from discontinued operations using equity method
Share of other comprehensive income using equity method
Share of total shareholders' equity in total comprehensive income

Millions of yen
Impairment loss

Reporting segment
Health Care

¥16,274

Intangible Assets
Location

Year ended
March 31, 2019

¥14,18633(1,180)¥13,039

Millions of yen
Year ended March
31, 2020¥5,0995(3,146)¥1,958Carrying amounts of individually insignificant investments in associates accounted forusing the equity method are as follows:
Millions of yen

Management expects profitability in the pharmaceutical formulation materials business of the HealthCare segment to decrease owing to a deteriorating business climate and reviews of plans based onprevailing circumstances. The Company thus lowered the carrying amount of goodwill related to thepharmaceutical formulation materials business to the recoverable amount of ¥16,288 million.
The recoverable amount is measured using value in use. The cash flow forecast underpinningvalue in use is based on experience and external information sources, and is based on a
management-approved five-year business plan that reflects management’s assessment of futurebusiness trends.
The significant assumptions used to calculate the value in use are the growth and discount rates.
Taking into account uncertainties subsequent to the five-year plan, management assumes that thegrowth rate will be zero, with cash flows remaining the same as in the fifth year. The Company used apretax weighted average cost of capital of 7.2% in the year ended March 31, 2020 (6.5% in theprevious year) for cash-generating units.
Under the assumptions above, if the discount rate used to calculate the value in use increases
0.5%, the impairment loss would rise ¥3,371 million.

Use¥84,956¥92,615

Equity in earnings of joint ventures accounted for using the equity method for total
comprehensive income is as follows:Year ended March 31, 2020
Goodwill
Main details
Goodwill on pharmaceuticalformulation materials

Millions of yen
As of March 31, 2020

As of March 31, 2019

Category

Reportingsegment

Carrying amounts of investments in associates

As of March 31, 2019

As of March 31, 2020

¥90,452¥85,002

Equity in earnings of associates accounted for using the equity method for total
comprehensive income is as follows:

Share of profit from continuing operations using equity method
Share of other comprehensive income using equity method
Share of total shareholders' equity in total comprehensive income

Year ended
March 31, 2019¥12,631(1,009)¥11,622

Millions of yen
Year ended
March 31, 2020

¥8,297(2,811)¥5,486

Millions of yen
Impairment loss

Development
Intangible assets
Medicago Inc.
of virus-likerelated to(headquarteredHealth Care
¥24,069
particletechnology (inin Quebec,
vaccines forprocess R&D
Canada)seasonal flu
expenses)
The Company reduced the overall carrying amount of intangible assets related to technology (inprocess R&D expenses) owing to Medicago's decision to stop U.S. development of a virus-like particle
vaccine (MT-2271) for seasonal flu.
The recoverable amount is based on value in use, which is zero.

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Financial Information

As stocks are held mainly to maintain and strengthen business and collaborative ties andfinancial transactions, they are designated as equity financial assets measured at fair value
through other comprehensive income.

Note 18

Other Financial
AssetsThe breakdown of other financial assets is as follows:

As of March 31, 2019

Stocks and investments
Bonds
Accounts receivable
Time deposits
Certificate of deposits
Other
Allowance for doubtful accounts
Total
Current assets
Non-current assets
Total¥192,413
30,00041,50736,560129,500
48,403(1,550)¥476,833¥248,262
228,571¥476,833

The Company endeavors to enhance the efficiency and effective use of its assets by selling(derecognizing) equity financial assets measured at fair value through other comprehensive
income. Fair values upon sales and cumulative gains or losses (before tax) on sales are as
follows. Cumulative gains or losses (after tax) recognized in other components of equity aretransferred to retained earnings at the time of sale.

Millions of yen
As of March 31, 2020

¥192,481
50,00032,553
10,7385,000
55,380(2,036)¥344,116¥117,628
226,488¥344,116

Year ended
March 31, 2019

Fair value
Cumulative gains or losses¥15,148
7,989

Millions of yen
Year ended
March 31, 2020

¥13,117
2,668

Dividend income from equity financial assets measured at fair value through othercomprehensive income is as follows:

Stocks and investments are classified mainly as equity financial assets measured at fairvalue through other comprehensive income. Bonds, accounts receivable, time deposits andcertificate of deposits are classified as financial assets measured mainly at amortized cost.

Year ended
March 31, 2019

Derecognized financial assets
Financial assets held at year-end

The major issues and fair values of equity financial assets measured at fair value throughother comprehensive income are as follows:

¥ 287
4,910

Millions of yen
Year ended
March 31, 2020

¥

134
4,053

Note 19
As of March 31, 2019
Company nameSUZUKEN CO., LTD.
TOHO HOLDINGS CO., LTD.
Alfresa Holdings Corporation
MEDIPAL HOLDINGS CORPORATION
JFE Holdings Corporation
Tosoh Corporation
Mitsubishi UFJ Financial Group, Inc.
Daicel Corporation
KOATSU GAS KOGYO CO., LTD.
Mitsubishi Research Institute, Inc.

Millions of yen

Other Assets¥9,924
9,873
7,011
5,591
4,833
3,834
3,481
3,085
2,862
2,790

As of March 31, 2019

Net defined benefit assets
Prepaid expenses
Accrued income tax
Advance payment
Other
Total
Current assets
Non-current assets
Total

As of March 31, 2020
Company name
TOHO HOLDINGS CO., LTD.
Alfresa Holdings Corporation
MEDIPAL HOLDINGS CORPORATIONSUZUKEN CO., LTD.
IBIDEN CO., LTD.
Mitsubishi Research Institute, Inc.
Tosoh Corporation
KOATSU GAS KOGYO CO., LTD.
Shin-Etsu Chemical Co., Ltd.
Mitsubishi UFJ Financial Group, Inc.

Millions of yen¥8,101
4,482
4,289
3,774
3,145
2,744
2,742
2,427
2,167
2,142

As well as the assets above, the Group holds financial assets measured at fair value
through other comprehensive income for which quoted prices in active markets areunavailable, mainly comprising stocks related to the Chemicals, Health Care and Industrial
Gases product segments.
Investments in Chemicals -related stocks were ¥64,579 million as of March 31, 2019,and ¥62,128 million as of March 31, 2020. Investments in Health Care-related stocks were
¥6,659 million as of March 31, 2019, and ¥43,929 million as of March 31, 2020.
Investments in Industrial Gases-related stocks amounted to ¥9,295 million as of March 31,
2019, and ¥7,864 million as of March 31, 2020.

149

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

The breakdown of other assets is as follows:¥25,390
28,31831,5107,258
17,169¥109,645
76,07233,573¥109,645

Millions of yen
As of March 31, 2019¥35,329
34,916
23,8407,522
31,346¥132,953
90,14042,813¥132,953

Note 20

Inventory

The breakdown of inventory is as follows:

As of March 31, 2019

Finished goods
Raw materials and supplies
Work in process
Total¥365,278
177,863
79,908¥623,049

Millions of yen
As of March 31, 2020

¥356,999
175,083
74,423¥606,505

Inventories measured at net realizable value as of March 31, 2019 and 2020 were ¥96,463
million and ¥80,516 million, respectively.
In the years ended March 31, 2019 and 2020, write-downs of inventories recognized as
expenses were ¥7,483 million and ¥7,523 million, respectively.

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Financial Information

Year ended March 31, 2020
Assets held for sale and directly related liabilities directly as of March 31, 2020, stemmed
mainly from the conclusion of a real estate sales agreement for the Toda Office of
Mitsubishi Tanabe Pharma Corporation, a consolidated subsidiary of the Company in the
Health Care segment.
Assets held for sales relating the Toda Office is measured at the carrying amountbecause the fair value after deducting the sale cost (projected sale value) exceeds the
carrying amount. The assets were divested on April 24, 2020.

Note 21
Trade Receivables

The breakdown of trade receivables is as follows:

As of March 31, 2019

Accounts receivable
Allowance for doubtful accounts
Total

Millions of yen
As of March 31, 2020

¥706,659(8,143)¥698,516¥863,364(8,257)¥855,107

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

Note 24
CapitalNote 22
Cash and Cash
Equivalents

As of March 31, 2020, other components of equity related to assets held for sale wereimmaterial.

1. Common stock and Treasury Stock
Number of shares authorized and issued is as follows:

The breakdown of cash and cash equivalents is as follows:

As of March 31, 2019

Cash and deposits
Short-term investments
Total¥219,968
101,573¥321,541

Millions of yen
As of March 31, 2020

¥207,640
20,571¥228,211

Note 23

Number of shares authorized
Number of shares issued:
At the beginning of the period
Increase (decrease)
At the end of the period

Year ended
March 31, 2019

6,000,000
1,506,288—
1,506,288

Thousands of sharesYear ended
March 31, 2020

6,000,000

1,506,288—
1,506,288

The Company's shares are ordinary shares without par value. The shares issued were fully
paid.

Assets Held for Sale The breakdowns of assets held for sale and directly related liabilities are as follows:

Changes in the number of shares of treasury stock during the year are as follows:
As of March 31, 2019

Assets held for sale:
Cash and cash equivalents
Trade receivables
Inventories
Property, plant and equipment
Other financial assets
Others
Total
Liabilities related directly to assets
held for sale:
Trade payables
Other financial liabilities
Provision
Others
Total

Millions of yen
As of March 31, 2020

¥ 2,152
5,165
7,359
1,782
532
820
¥17,810

¥

¥

¥

2,090
3,563
5,169
901
¥ 11,723

49
660
1,029
6,047
83
413
¥8,281

102
152
—
1,507
¥ 1,761

Year ended March 31, 2019
Assets held for sale and directly related liabilities as of March 31, 2019, were primarily therecording media and other global businesses of the Verbatim Group, as subsidiary of
Mitsubishi Chemical Media Co., Ltd. (MCM), a consolidated subsidiary of the Group in theperformance products segment, and covered sales of assets related to those businesses of
MCM.
Assets held for sale and liabilities related directly to them are classified as held for salebased on a resolution of the Corporate Executive Officers Committee on March 28, 2019, tostrengthen portfolio management. The fair value is based on the price negotiated with thebuyer. The hierarchy is Level 3.
Of the difference between the fair value (expected selling price) after deducting selling
costs and the book value, the estimated loss exceeding the book value of non-current
assets is posted as a provision for loss on business liquidation.
On June 14, 2019, MCM entered into a transfer agreement relating to the abovebusiness with CMC Magnetics Corporation of Taiwan.
As of March 31, 2019, the amount of other components of equity relating to assets held forsale was ¥(528) million.

151

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

At the beginning of the period
Increase (note 1)
Decrease (note 2)
At the end of the period

Year ended
March 31, 2019

66,902
19,584(84)
86,402Thousands of sharesYear ended
March 31, 2020

86,40235(207)
86,230Notes:
1. An increase in the number of shares of treasury stock in the year ended March 31, 2019, was due to theacquisition of 19,549,000 shares through a resolution of the Board of Directors and the purchase of 35,000
shares of less than one unit.
An increase in the number of shares of treasury stock in the year ended March 31, 2020, was due to thepurchase of 35,000 shares of less than one unit.
2. A decrease in the number of shares of treasury stock in the year ended March 31, 2019, was due to thepayment of 71,000 shares through the exercise of stock options, 9,000 shares from the Board Incentive Plantrust, and the sale of 3,000 shares of less than one unit.
A decrease in the number of shares of treasury stock in the year ended March 31, 2020, was due to thepayment of 103,000 shares through the exercise of stock options, 101,000 shares from the Board Incentive Plantrust, and the sale of 2,000 shares of less than one unit.
3. Company stocks held by the Board Incentive Plan trust are included.
March 31, 2019: 3,285,000 shares and March 31, 2020: 3,184,000 shares

2. Additional paid-in capital and Retained Earnings
Additional paid-in capital comprises amounts arising from capital transactions that are notincluded in common stock. The main component is legal capital surplus and other capitalsurplus. Retained earnings comprise legal retained earnings and other retained earnings.
The Japanese Company Law mandates that at least half of paid-in capital beappropriated as common stock and the rest be appropriated as a legal reserve within thelegal capital surplus. Under that law, the legal capital surplus can be incorporated in common
stock by resolution at a shareholders’ meeting.
Amounts classified as equity elements at the time of issuance of convertible bond typebonds with stock acquisition rights are included in other capital surplus as a capital elementof compound financial products.
That law requires that 10% of the surplus appropriated for dividends be retained until the
total amount of the legal capital surplus and legal retained earnings reaches a quarter of theamount of common stock. The accumulated legal retained earnings can be appropriated for

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5 Financial and Non-Financial Information

Financial Information

deficit disposition, and legal retained earnings may be available for dividends by resolution ata shareholders' meeting.
3. Other Components of Equity
Other components of equity are as follows:

Note 25
Dividends

Dividends paid to shareholders are as follows:Year ended March 31, 2019

(Financial Assets Measured at Fair Value through Other Comprehensive Income)Unrealized gains on financial assets are measured at fair value through othercomprehensive income.
(Remeasurement of Defined Benefit Pension Plans)This remeasurement is for differences between actuarial assumptions at the beginning of theyear and actual experience and the effects of changes in actuarial assumptions. This amountis recognized in other comprehensive income when it occurs and is immediately transferredfrom other components of equity to retained earnings.
(Exchange Differences on Translation of Foreign Operations)
These are the adjustments result from consolidating the financial statements of foreign
operations, and the cumulative amount of effective portions of hedges from gains or losses
on hedge instruments designated as net investment hedges.
(Effective Portion of Net Change in Fair Value of Cash Flow Hedges)
This is the cumulative amount of effective portions of hedges from gains or losses arisingfrom changes in the fair value of hedging instruments relating to cash flow hedges.
4. Capital Transactions with Non-Controlling Interests(Making Mitsubishi Tanabe Pharma Corporation a wholly owned subsidiary)(1) Tender Offer
The Company implemented a tender offer as part of a series of transactions to acquire all of
the shares of consolidated subsidiary Mitsubishi Tanabe Pharma Corporation (MTPC) from
November 19, 2019, to January 7, 2020. The tender offer was completed, as the total
number of the tendered shares was greater than the minimum number of shares to bepurchased. The Company thereby acquired 197,355 thousand shares of MTPC’s common
stock for ¥396,684 million (excluding transaction costs) on January 15, 2020, lifting theCompany’s ownership of shares with voting rights from 56.4%, to 91.6%.
(2) Demand for Sale of Shares
On January 17, 2020, the Company notified MTPC that it would request non-controlling
MTPC shareholders to sell all of their MTPC shares of common stock. That day,MTPC’s
Board of Directors resolved to approve of the demand. With the demand going into effect on
March 2, 2020, the Company acquired 47,308,000 of these shares for ¥95,088 million(excluding transaction costs), with MTPC becoming a wholly owned subsidiary of thecompany.

Date ofapproval
May 16,2018
November 1,
2018

Resolution
approved by
Board ofDirectors
Board ofDirectors

Type ofsharesCommonstock
Commonstock

Amount(Millions ofyen)Amount per
share
(Yen)

¥24,470¥17¥28,463¥20

Entitlement
date
March 31,2018
September
30, 2018

Effective
date
June 5,2018
December 4,
2018

Note: Total dividends from a resolution of the Board of Directors on November 1, 2018, included ¥66 million in dividends for theCompany stock held by the Board Incentive Plan trust.

Year ended March 31, 2020
AmountAmount per
Date of
Resolution
Type ofEntitlement
Effective(Millions ofshareapproval
approved byshares
date
date
yen)
(Yen)
March 31,
June 4,
May 22,
Board ofCommon¥28,463
¥20
2019
2019
2019
Directors
stock
September
December 3,
November 1,
Board ofCommon¥28,464¥20
30, 2019
2019
2019
Directors
stock
Note:
Total dividends from a resolution of the Board of Directors on May 22, 2019, and November 1, 2019, included ¥66 million and ¥57
million, respectively, in dividends for the Company stock held by the Board Incentive Plan trust (excluding shares equivalent to theaccumulated number of points granted).

Dividends with a record date in the year ended March 31, 2020, with an effective date in
the following fiscal year are as follows:Year ended March 31, 2020
AmountAmountResolution
Type of
Paid
Entitlement
Effective(Millions
per shareshares
from
date
date
of yen)(Yen)
Date of approval approved byMarch 31,
June 10Retained
May 26,
Board ofCommon¥12¥17,079
2020
2020
earnings
2020
Directors
stock
Note:
Total dividends included ¥34 million in dividends of for the Company stock held by the Board Incentive Plan trust (excluding sharesequivalent to the accumulated number of points granted).

The non-controlling interest (NCI) transaction associated with the acquisition of additional
shares was accounted for as a capital transaction. The difference between the adjustment of
NCI and the fair value of consideration and transaction costs is directly recognized as equity
attributable to owners of the parent. The transaction outline is as follows.

NCI carrying amount acquired
Consideration paid to NCI (Notes 1, 2, 3)
Decrease in equity attributable to owners of theparentMillions of yen
Year ended March 31, 2020
¥348,615(493,271)¥144,656

Notes:
1. As of March 31, 2020, ¥95,433 million in payments had yet to be completed, and was deducted in calculating
Payments for acquisition of subsidiaries’ interests from non-controlling interests in the Consolidated Statement of
Cash Flows.
2. Payments for MTPC stock held by the MTPC Board Incentive Plan trust were deducted from the consideration
paid to NCI.
3. Consideration paid to NCI included transaction costs.

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Financial Information

Note 26
Other
Comprehensive
Income(2) Changes in the Number of Stock Options
Changes in each item of other comprehensive income during the year are as follows:Year ended
March 31, 2019

Financial assets measured
at fair value through other comprehensive
income:Amounts arising during period
Tax effects
Net amountRemeasurements of defined benefit pension
plans:
Amounts arising during period
Tax effects
Net amount
Exchange differences on translation of foreign
operations:
Amounts arising during period
Reclassification adjustments
Tax effects
Net amount
Effective portion of net change in fair value ofcash flow hedges:
Amounts arising during period
Reclassification adjustments
Tax effects
Net amount
Share of other comprehensive income (loss) ofinvestments accounted for using equity
method:Amounts arising during period
Reclassification adjustments
Net amount
Total other comprehensive income

Millions of yen
Year ended
March 31, 2020

7,629
(2,886)¥ 4,743¥(21,955)
6,043¥(15,912)¥ (6,227)
1,745¥ (4,482)¥ (1,312)
577¥ (735)¥ (6,848)
1,032
65¥ (5,751)¥ (64,738)
1,149
72¥(63,517)¥ (3,220)(1,322)
1,390¥ (3,152)¥¥ (2,193)
4¥ (2,189)¥ (10,831)¥ (5,966)9¥ (5,957)¥ (86,085)

¥

¥

129
(69)
(24)
36

Note 27
Share-based
Payment

155

Outstanding at the beginning of the period
GrantedExercised
Forfeited
ExpiredOutstanding at the end of the period
Exercisable at the end of the period

Year ended
March 31, 2019

921,300
178,500(71,300)——
1,028,500
123,350

Number of sharesYear ended
March 31, 2020

1,028,500—(103,400)——
925,100
286,050

The exercise price for all stock options is ¥1 per share.
The weighted average share prices for exercised stock options were ¥967.8 and¥772.4 in the years ended March 31, 2019 and 2020, respectively.
The weighted average remaining contractual years of stock options outstanding at
year-end were 11.4 years and 10.1 years as of March 31, 2019 and 2020, respectively.
(3) Fair Value of Stock Options
The weighted average fair value of stock options granted in year ended March 31, 2019 asof the measurement date was ¥834.
The Company employs the Black-Scholes model to calculate the fair value of stock
options, using the following assumptions.
Millions of yen

Share price
Share price volatility (note 1)
Expected period (note 2)
Expected dividends (note 3)
Risk-free interest rate (note 4)

Year ended

Year ended

March 31, 2019

March 31, 2020

¥954.731.808%
3.98years¥32 per share(0.102)%

Notes:
1. For the year ended March 31, 2019, the calculation was based on the daily stock price for the previous 3.98
years.
2. Using a period up to the expected average exercise time from the grant date.
3. Based on the latest dividends for each fiscal year.
4. The yield on Japanese government bonds for the expected period.

—
—
—
—
—

(4) Share-Based Compensation Expenses
1. Stock Option System(1) Details of Equity-Settled Share-Based Compensation Plan
Based on a resolution of the Remuneration Committee, the Company issues share-based
compensation stock options as a form of performance-related payment to its corporate
executive officers (directors excluding outside directors until the year ended March 31, 2015.
The same shall apply hereinafter) and executive officers who will share with shareholders
not only the benefits due to a rise in the Company’s stock price but also losses due to a
decline in the stock price as an incentive to boost corporate performance and enhancemedium- to long-term corporate value taking into consideration the Company’s financial
results for each fiscal year as well as the status of achieving of business targets by the
corporate executive officers or executive officers (including those who have the retired)based on their degree of contribution, etc.
All stock options that the Company issues are equity-settled share-based compensation.
There are no vesting conditions. The exercise period is principally 20 years from the date of
grant, and is, in principle, effective for 5 years from the day after the first year after recipientslose their status as director, executive officer, executive, or corporate auditor of theCompany and/or its subsidiaries.
In line with the deployment of a share-based compensation plan using the Board
Incentive Plan trust, there will be no new share-based compensation stock option grants
from the fiscal year ending March 2020.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Stock option-related expenses was ¥149 million in the year ended March 31, 2019 and wasposted in Selling, general and administrative expenses in the Consolidated Statement of
Income.
For stock options that do not have vesting conditions, bulk expenses are applied at thetime of grant.
2. Share-Based Compensation Plans using Board Incentive Plan Trusts of theCompany and Mitsubishi Chemical Corporation(1) Details of Share-Based Compensation Plans
In the year ended March 31, 2019, the Company and Mitsubishi Chemical Corporation
began offering performance-based share compensation plans (“the Plans”) to executive
officers and directors (excluding non-residents of Japan, the same applying hereafter) andthe president & CEO of Mitsubishi Chemical Corporation and to directors and executives
concurrently serving as executive officers (excluding nonresidents of Japan; executive
officers and directors collectively referred to as executive officers below).
The Plans cover five consecutive fiscal years (initially, three through the fiscal year
ending March 2021) that correspond to the period covered by the Company’s medium-term
management plan. Based on assessments of progress toward corporate performance

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Financial Information

targets, each executive officer is granted a number of points each year according to that
person’s position. The Company stocks equivalent to accumulated points calculated after
the retirements of executive officers (1 point = 1 share) are provided as executive
remuneration.
The Plans employ the Board Incentive Plan trust. The Company and Mitsubishi
Chemical Corporation contribute funds to acquire the Company stocks through the trust,which delivers the shares to executive officers.
The Plans are accounted for as equity-settled share-based compensation.

Note 28(2) Number of Points Granted during the Period and Weighted Average Fair Value of Points
The number of points granted during the period and weighted average fair value of points
are as follows. The fair value on the day points were granted uses the share price on thatday since the share price on the day of grant is a close approximation of fair value.

Retirement Benefits The Company's consolidated subsidiaries maintain lump-sum retirement and retirement
benefit plans. The retirement benefit plans are defined benefit (fund- and contract-type) anddefined contribution plans. Some consolidated subsidiaries also maintain welfare pension
plans.

Number of points granted
during the period
Weighted average fair value ofpoints (yen)Year ended
March 31, 2020

Year ended
March 31, 2019464,540

197,008

991

985(3) Share-Based Compensation Expenses
Stock option-related expenses were ¥460 million and ¥194 million in the years ended
March 31, 2019 and 2020, respectively. These expenses were presented within Selling,
general and administrative expenses and Cost of sales in the Consolidated Statement of
Income.
3. Share-Based Compensation Plan using the Board Incentive Plan Trust of
Mitsubishi Tanabe Pharma Corporation(1) Details of Share-based Compensation Plan
Mitsubishi Tanabe Pharma Corporation (MTPC), a consolidated subsidiary of the Company,
has introduced a performance-based share compensation plan (hereinafter, “the plan”)
from the fiscal year ended March 31, 2018. The plan clarifies the linkage between
remuneration of MTPC’s board directors and executive officers (excluding non-residents ofJapan and outside board directors; hereinafter “MTPC directors and executive officers”)
and the MTPC group’s business performance. The objectives of introducing the plan are toprovide incentives to MTPC directors and executive officers to strive for sustained growthof the MTPC group and enhance medium- to long-term corporate value, as well as raisemanagement team morale. These objectives will be achieved by sharing with shareholders
not only the benefits of rises in MTPC’s share price but also the risk of share price decline.
MTPC has adopted a Board Incentive Plan (BIP) trust as the structure for the plan. Under
the plan, MTPC shares are acquired through the trust using money contributed by MTPC
as the source of funds. In accordance with “Rules relating to grant of shares” establishedby MTPC, from the date of commencement of the plan, points (1 point = 1 share) are
granted to MTPC directors and executive officers each year on the final day of the fiscal
year during the period in which the plan applies. Vesting conditions include the requirementthat the recipient is a current office holder as an MTPC director or executive officer, andpoints are granted according to office held and the degree of achievement of performancetargets. In principle, when MTPC directors and executive officers retire from office, by
carrying out the prescribed beneficiary vesting procedures, they are able to receive sharesof the Company, with the number of shares corresponding to the number of points granted.
The plan is accounted for as equity-settled share-based compensation.
In line with that entity’s delisting on February 27, 2020, in March 2020 the Company
revised its provisions for incorporating stock compensation in performance compensation
for monetary benefits.

(2) Number of Points Granted during the Period and Weighted Average Fair Value of Points
The number of points granted during the period and weighted average fair value of points
are as follows. The fair value on the day points were granted uses the share price on thatday since the share price on the day of grant is a close approximation of fair value.

Number of points granted
during the period
Weighted average fair value ofpoints (yen)157

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Year ended
March 31, 2019Year ended
March 31, 2020

11,975

4,749

2,532

2,416

(3) Share-Based Compensation Expenses
Stock option-related expenses were ¥33 million and ¥14 million in the years ended March
31, 2019 and 2020, respectively. These expenses were presented within Selling, generaland administrative expenses in the Consolidated Statement of Income.

1. Defined Benefit Plans
The defined benefit plans of the Company's consolidated subsidiaries are mainly cash
balance pension plans. Benefits under these plans are based on such conditions as years ofservice, points gained from results and contributions during employment. Investment yields
are determined after taking into consideration the yields of 10-year national government
bonds.
Cash balance pension plans are managed by corporate pension funds that are legally
separated from the consolidated subsidiaries of the Company pursuant to Japan's Defined
Benefit Corporate Pension Plan Act. Consolidated subsidiaries, or pension fund directors,
and pension investment management institutions are legally required to accord top priority toplan participants, and must manage plan assets based on prescribed policies.
Contract-type cash balance plans are run in line with Bureau of Health and Welfareapproved pension provisions. The management and operation of reserve funds is throughcontracts with trust banks and other entrusted management institutions on the basis of dutyof care and damages stipulations for trustees.
Funded cash balance pension plans are run by corporate pension funds. If fund directors
neglect to faithfully discharge their duties concerning reserve management and operations,they assume liability for fund damages.
Defined benefit plan amounts in the Consolidated Statement of Financial Position are as
follows:

Present value of the defined benefit obligation
Fair value of the plan assets
Net defined benefit liabilities
Retirement benefit liabilities
Retirement benefit assets
Net defined benefit liabilities

As of March 31,
2019¥617,139(521,713)¥ 95,426¥120,816(25,390)¥ 95,426

Millions of yen
As of March 31,
2020¥577,815(487,533)¥ 90,282¥125,611(35,329)¥ 90,282

For defined benefit plans, amounts recognized as expenses in the Consolidated Statementof Income are as follows:

Current service cost
Prior service cost
Interest expense
Interest income
Total

Year ended
March 31, 2019

¥19,091
31
4,477(3,913)¥19,686

Millions of yen
Year ended
March 31, 2020

¥18,935
301
3,887(3,901)¥19,222

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

158

5 Financial and Non-Financial Information

Financial Information

The fair value of plan assets are as follows:

Changes in the present value of the defined benefit obligation are as follows:

Outstanding at the beginning of the period
Current service cost
Interest expense
Remeasurements:
Actuarial gains and losses arising fromchanges in demographic assumptions
Actuarial gains and losses arising fromchanges in financial assumptions
Other
Benefits paid
Prior service cost
Acquisitions through business combinations
Exchange differences on translation of foreign
operations
Outstanding at the end of the period

Year ended
March 31, 2019

¥613,261
19,091
4,477

Millions of yen
Year ended
March 31, 2020

(3,806)

5,466

(605)

1,349
(37,797)31
12,817(2,128)(35,268)301
204(1,597)(20,844)¥617,139¥577,815

Changes in the fair value of plan assets are as follows:

Outstanding at the beginning of the period
Interest income
Remeasurements:
Return on plan assets
Contributions by the employer
Benefits paid
Acquisitions through business combinations
Exchange differences on translation of foreign
operations
Outstanding at the end of the period¥529,998
3,913

Millions of yen
Year ended
March 31, 2020

¥521,713
3,901

629
13,563(32,429)5,275(7,851)
13,694(29,092)106764(14,938)¥521,713¥487,533

The principal actuarial assumptions used to calculate present values of defined benefit
obligations are as follows:

Discount rate

As of March 31, 2019

As of March 31, 2020

0.57%

0.60%

In the event of a 0.5% increase or decrease in the discount rate, the principal actuarial
assumption, the impact on the present value of defined benefit obligation as of March 31,
2019 and 2020 would be as follows. This sensitivity analysis assumes that all actuarial
assumptions other than that subject to analysis are held constant.
As of March 31, 2019

Increase by 0.5%
Decrease by 0.5%¥(33,558)
21,757

Millions of yen
As of March 31, 2020¥(29,659)
23,401

Note: The discount rate is determined by referring to yields on high-quality bonds with maturities similar to periods
in which benefits are anticipated. The sensitivity analysis is therefore based on a minimum reasonablediscount rate of 0%.

159

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Millions of yen¥617,139
18,935
3,887

41

Year ended
March 31, 2019

As of March 31, 2019

Fair value withquoted prices in

Cash and cash equivalents
Equity instruments
Domestic equities
Foreign equities
Other
Debt instruments
Domestic bonds
Foreign bonds
Other
General accounts of life insurancecompanies
Other
Total

active markets

Fair value without
quoted prices in
active markets

Total

—

¥ 15,601

37,55033,413———
101,119

37,55033,413
101,119

8,766
25,256———168,237

8,766
25,256168,237—

103,260

103,260—¥120,586

28,511¥401,127

28,511¥521,713¥ 15,601¥

As of March 31, 2020
Millions of yen
Fair value withquoted prices in

Cash and cash equivalents
Equity instruments
Domestic equities
Foreign equities
Other
Debt instruments
Domestic bonds
Foreign bonds
Other
General accounts of life insurancecompanies
Other
Total

active markets

Fair value without
quoted prices in
active markets

Total

—

¥ 30,560

29,785
13,901———
67,56429,785
13,901
67,564

3,426
44,251———
162,899

3,426
44,251
162,899—

104,747

104,747—¥121,923

30,400¥365,610

30,400¥487,533¥ 30,560¥

The Company's consolidated subsidiaries secure the total investment returns required
within an acceptable range of risk to sufficiently fund payments of pension benefits andlump-sum payments, and endeavor to minimize long-term contributions and amassfinancing for payments of benefits.
To achieve targeted rates of return, management sets percentages of policy assets
based on medium- to long-term perspectives, reviewing them regularly, and endeavors tomaximize returns in keeping with risk assumptions.
Standard and special contributions to defined benefit plans cover the expenses necessary
to provide benefits.
In keeping with laws and regulations, the Company regularly recalculates pension
financing to balance pension funding for the future. The recalculations review basal rates(including projected mortality, withdrawal, and interest rates) related to setting
contributions, and validating premiums.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

160

5 Financial and Non-Financial Information

Financial Information

Scheduled contributions to plan assets for the year ending March 31, 2021 are ¥11,915
million.

Year ended March 31, 2020
Millions of yen

The Company's consolidated subsidiaries may pay premium benefits to employees onretirement.
Some domestic consolidated subsidiaries have established retirement benefits trusts.
The weighted average durations of defined benefit plan obligations as of March 31, 2019and 2020 were10.8 years and 10.5 years, respectively.
2. Defined Contribution and Public Plans
Amounts recognized as expenses under defined contribution and public plans are as
follows:

Defined contribution plan cost
Public plan cost

¥ 9,556
24,669¥ 8,451
24,821

retirement
obligations

Provisions

environmental

Other

Total

measures¥7,601¥3,061¥7,990¥36,590

Arising during the year

10,687

—

2,470

2,971

16,128Interest cost associatedwith passage of time

235

11

—

12

258

Utilized

(35)

(818)

(1,481)(1,959)(4,293)(5,400)(98)(5)(2,684)(8,187)

(554)

—

(1)

(58)

(613)

(160)

—

29

109

(22)

¥22,711¥6,696¥4,073¥6,381¥39,861¥—¥2,060¥5,707¥ 7,968

Exchange differences ontranslation of foreign
operations
Other

Current liabilities

The breakdowns and schedule of provisions are as follows:

litigation¥17,938

As of March 31, 2020

Note 29

Provision for

Provision for

As of April 1, 2019

Unused amounts reversed

Millions of yen
Year ended
March 31, 2020

Year ended
March 31, 2019

Asset

¥201

Non-current liabilities

22,510

6,696

2,013

674

31,893

Total¥22,711¥6,696¥4,073¥6,381¥39,861

Year ended March 31, 2019
Millions of yen
Assetretirement
obligations

As of April 1, 2018

Provision for
litigation

Provision forenvironmental

Other

Total

measures¥16,703¥8,571¥3,466¥9,435¥38,175

Arising during the year

1,414

992

1,054

7,065

10,525Interest cost associatedwith passage of time

557

12

—

57

626

Utilized(146)(1,974)(1,462)(5,665)(9,247)

Unused amounts reversed

(139)

—

—

(2,672)(2,811)

427

—

3

108

538

(878)

—

—

(338)

(1,216)¥17,938¥7,601¥3,061¥7,990¥36,590

¥

—

¥ 841

¥7,426¥ 8,296

Exchange differences ontranslation of foreign
operations
Other
As of March 31, 2019
Current liabilities¥29

Non-current liabilities

17,909

7,601

2,220

564

28,294

Total¥17,938¥7,601¥3,061¥7,990¥36,590

Asset retirement obligations
The Company covers recovery obligations for the rental real estate of the Group byrecording projected payments based on historical amounts. These expenses are expected
to be paid after one year or more; however, they may be affected by future business plans.
Reserves for Possible Losses in Connection with Litigation
Reserves for possible losses in connection with litigation are set aside for payments tosettle lawsuits and in preparation for payments that may arise in the future. The main
provisions for loss on litigation are as follows:(1) Reserve for Health Management Allowances for HIV Compensation
To provide for future payments of health management allowances in connection with alawsuit for damages filed by plaintiffs infected with HIV, the consolidated subsidiary,
Mitsubishi Tanabe Pharma Corporation (MTPC) has set aside an estimated amount forsuch future payments.
Based on a letter confirming a settlement concluded in March 1996, an amountequivalent to the present value of the estimated future expenditure based on the payments
to date for AIDS patients who have reached a settlement is recognized.
(2) Reserve for Health Management Allowances for Sub-acute Myelo-Optical

Neuropathy (SMON) Compensation
MTPC has made a provision in the accompanying consolidated financial statements for theestimated future medical treatment payments to be made over the remaining lives of theparties entitled to such payments under the compromise settlement.
(3) Reserve for HCV Litigation
To provide for losses that may arise in the future from a settlement of lawsuits filed byplaintiffs infected with HCV (hepatitis C virus), MTPC has set aside an estimated amountfor payments related to such settlement based on estimates of the number of people
receiving relief and the amount of relief payments required under a law which stipulates

161

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162

5 Financial and Non-Financial Information

Financial Information

The breakdown of bonds is as follows:that relief be provided to people who contacted hepatitis C from specific fibrinogenproducts or specific coagulation factor IX products.
Reserve for environmental measures
The Company records estimated losses to cover future losses from construction andenvironmental remediation activities. These expenses are expected to be paid after one
year or more; however, they may be affected by future business plans.
Note 30
Bonds andBorrowings

The breakdown of bonds and borrowings is as follows:

As of March 31,
2019

Short-term borrowings
Current portion of long-term borrowings
Commercial paper
Current portion of bonds
Loans due to the transfer of trade receivables
Loans due to the transfer of trade receivables ofsubsidiaries
Bonds
Convertible bond-type bonds with subscription rights tosharesLong-term borrowings
Total
Current liabilities
Non-current liabilities
Total¥ 771,340
180,873
68,00060,00024,322Millions of yen
As of March 31,
2020¥ 422,290
155,532
70,00055,00021,586

4,108

2,899

392,065

486,823

148,403148,779

597,640¥2,246,751¥1,108,643
1,138,108¥2,246,751

920,345¥2,283,254¥ 727,307
1,555,947¥2,283,254

Bonds and borrowings are classified as financial liabilities measured at amortized cost.
The average interest rates for short- and long-term borrowings as of March 31, 2019were 0.736% and 1.585%, respectively.
The average interest rates for short- and long-term borrowings as of March 31, 2020
were 0.578% and 1.162%, respectively.
Repayment terms for long-term borrowings are from 2020 to 2059.
Loans due to the transfer of trade receivables are liabilities for transfers that do not meetthe criteria for derecognition as financial assets.
Borrowings by consolidated subsidiaries from trade receivable transfers are liabilities
related to transfers to consolidated subsidiaries.

As of March 31,
2019¥ 10,000
10,00010,00010,00010,00015,00015,00025,00015,00015,00010,00010,00020,00010,00010,00010,00010,00020,00015,00015,00012,000
8,000
5,000
—
—
—
—
—
—
10,0005,000
10,00015,00015,000———Millions of yen
As of March 31,
2020¥ 10,000——
10,00010,00015,00015,000—15,00015,00010,00010,00020,00010,00010,00010,00010,00020,00015,00015,00012,0008,000
5,000
10,00012,0008,000
20,00020,00029,825——
10,00015,00015,00019,908
9,947
19,9001.410%

99,15399,3231.870%

7,912

7,920

¥452,065¥541,823

Note

Name of bond

Term

1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
2
3
4
4
4
4
4
4
5

2nd unsecured bond
4th unsecured bond
6th unsecured bond
8th unsecured bond
9th unsecured bond11th unsecured bond12th unsecured bond13th unsecured bond14th unsecured bond15th unsecured bond16th unsecured bond17th unsecured bond18th unsecured bond19th unsecured bond20th unsecured bond
21st unsecured bond22nd unsecured bond23rd unsecured bond24th unsecured bond25th unsecured bond26th unsecured bond27th unsecured bond28th unsecured bond29th unsecured bond30th unsecured bond
31st unsecured bond32nd unsecured bond33rd unsecured bond34th unsecured bond
38th unsecured bond
6th unsecured bond12th unsecured bond13th unsecured bond14th unsecured bond15th unsecured bond16th unsecured bond17th unsecured bond
1st series deferrable interest
and callable unsecured
subordinated bonds
2nd series deferrable interest
and callable unsecured
subordinated bonds
Subtotal
Zero coupon convertible bondtype bonds with subscription
rights to shares due 2022
Zero coupon convertible bondtype bonds with subscription
rights to shares due 2024
Subtotal
Total

2011-2021
2012-20192012-20192013-20202013-2023
2013-20202013-2023
2014-20192014-2021
2014-2024
2015-2022
2015-2025
2015-20202015-2022
2015-2025
2016-2021
2016-2026
2016-2036
2018-2028
2018-2038
2018-2028
2018-2038
2018-2048
2019-2029
2019-2039
2019-2049
2020-2027
2020-2030
2020-2040
2009-20192009-20192014-2021
2016-2021
2016-2026
2019-2024
2019-2026
2019-2029

Interest
rate
1.204%
0.556%
0.665%
0.948%
1.226%
0.604%
0.918%
0.319%
0.482%
0.800%
0.433%
0.755%
0.281%
0.476%
0.711%
0.120%
0.320%
0.850%
0.370%
0.890%
0.410%
1.000%
1.380%
0.330%
0.830%
1.214%
0.230%
0.280%
0.690%
2.020%
1.940%
0.558%
0.140%
0.390%
0.130%
0.190%
0.300%

2019-2054
2019-2059

6

1
1

2017-2022

0.196%

74,561

74,7072017-2024

0.312%

73,842

74,072

148,403¥600,468

148,779¥690,602

Notes:
1. These corporate bonds are issued by the Company.
2. These corporate bonds are issued by Mitsubishi Chemical Corporation, a domestic consolidated subsidiary. Asof March 28, 2016, the Company began managing the bonds because the company took over them based on
the absorption-type company split.
3. This corporate bond is issued by Mitsubishi Plastic, Inc. (now Mitsubishi Chemical Corporation), a domestic
consolidated subsidiary. As of March 28, 2016, the Company began managing the bond because the company
took over it based on the absorption-type company split.
4. These corporate bonds are issued by Taiyo Nippon Sanso Corporation, a domestic consolidated subsidiary.
5. These corporate bonds are issued by Taiyo Nippon Sanso Corporation, a domestic consolidated subsidiary. A
fixed interest rate from the day following January 29, 2019 to January 29, 2024 and a variable interest rate fromthe day following January 29, 2024 (with a step-up in the interest rate scheduled for January 30, 2024).
6. These corporate bonds are issued by Taiyo Nippon Sanso Corporation, a domestic consolidated subsidiary. A
fixed interest rate from the day following January 29, 2019 to January 29, 2029 and a variable interest rate fromthe day following January 29, 2029 (with a step-up in the interest rate scheduled for January 30, 2029).

163

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

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164

5 Financial and Non-Financial Information

Financial Information

Assets pledged as collateral and collateralized obligations are as follows:
Assets pledged as collateralMillions of yen
As of March 31, 2020

As of March 31, 2019

Buildings and structures
Machinery and vehicles
Land
Other
Total

Year ended March 31, 2020

¥ 6,291
11,5906,417
773¥25,071¥ 6,248
11,9796,667
763¥25,657

As of April 1, 2019
Adjustment due toapplying IFRS 16
Adjusted balance
as of April 1, 2019
Cash flows
Increase(decrease) due totransfer toliabilities related
directly associatedwith assets held
for sale
Changes fromacquisition or lossof control oversubsidiaries orother businesses
Changes owing to
new leases andcontract changes,
etc.
Impact of foreignexchange rate
fluctuations, etc.
As of March 31,
2020

Collateralized obligations
Millions of yen
As of March 31, 2020

As of March 31, 2019

Trade payables
Short-term borrowings
Current portion of long-termborrowings
Long-term borrowings
Other
Total

¥ 389
49

¥ 312
46

1,486

2,304

6,882
50
¥ 8,856

6,088
20¥ 8,770

Note 31
Changes in
Liabilities
Relating to
Financing Activities

Short-termborrowings¥799,770

Commercial
paper

Bonds (Note)

Millions of yen
Lease liabilities(Note)¥778,513¥600,468

—

—

—

—

¥ 16,329
100,614799,770

68,000778,513600,468

116,943(330,088)

2,000

306,715

89,185(30,555)

(100)

—

(600)

—

—

331

—

732

—

(9,627)

—

—

—

—

29,284(23,138)—(9,483)949(1,239)¥446,775¥70,000¥1,075,877¥690,602¥104,806

Note: Including amounts due or scheduled for redemption within one year.

Changes in liabilities relating to financing activities are as follows:

Note 32
Other Financial
Liabilities

Year ended March 31, 2019

As of April 1, 2018
Cash flows
Increase(decrease) due totransfer toliabilities related
directly associatedwith assets held
for sale
Changes fromacquisition or lossof control oversubsidiaries orother businesses
Changes owing to
new leases andcontract changes,
etc.
Impact of foreignexchange rate
fluctuations, etc.
As of March 31,
2019

Short-termborrowings¥375,829
428,298

Commercial
paper¥24,000
44,000Long-term
borrowings (Note)

Bonds (Note)¥673,266
90,228¥533,027
67,036

Millions of yen
Lease liabilities(Note)

—

—

—

1

841

—

5,978

—

—

—

—

—

—

2,780

(4,798)

—

9,041

405

107

¥799,770¥68,000¥778,513¥600,468¥16,329

The breakdown of other financial liabilities is as follows:

Accounts payable-otherAccrued expenses
Lease obligations
Lease liabilities
Deposits
Other
Total
Current liabilities
Non-current liabilities
Total¥17,334(3,893)(400)¥ 124,855
75,174
16,329—8,699
24,075¥249,132¥222,377
26,755¥249,132

Millions of yen
As of March 31, 2020

¥ 212,111
78,052—
104,806
30,66522,439¥448,073¥359,540
88,533¥448,073

Other financial liabilities are mainly classified as financial liabilities measured at amortized
cost.

Lease
Transactions

1. Finance Leases (Lessee)
Future minimum lease payments and the present value of future minimum lease payments
are as follows:

Due within one year
Due after one year and not later than
five years
Later than five years
Total

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

As of March 31, 2019

Note 33

Note: Including amounts due or scheduled for redemption within one year.

165¥68,000

Long-term
borrowings (Note)

Total future
minimum lease
payments¥ 3,849

As of March 31, 2019
Future financecosts

Millions of yen

Present value¥ (184)¥3,665

7,711

(403)

7,308

5,444
¥17,004(88)¥ (675)

5,356¥16,329

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

166

5 Financial and Non-Financial Information

Financial Information

2. Operating Lease (Lessee)
Future minimum lease payments under non-cancellable operating lease contracts are as
follows:

Due within one year
Due after one year and not later than five years
Later than five years
Total

Millions of yen
As of March 31, 2019¥14,638
24,504
9,578¥48,720

Financial
Instruments¥ 16,450
2,676
5,574
¥ 24,700¥ 1,507
10,841353¥ 43,256

Note 34
The breakdown of other liabilities is as follows:

As of March 31,
2019

Employees’ bonuses
Employees’ paid leave related obligations
Advances received
Accrued consumption taxes
Social insurance premiums received
Deferred income from out-licensing agreements
Other (Note)
Total
Current liabilities
Non-current liabilities
Total¥ 48,537
35,646
14,243
12,3196,199
3,777
59,339¥180,060¥138,089
41,971¥180,060

Millions of yen
As of March 31,
2020¥ 40,495
35,443
16,522
13,051
3,719
3,090
91,095¥203,415¥122,575
80,840¥203,415

Note:
Others include amounts recorded as liability for some royalties without recognizing revenue. See Note 7
Revenues for details.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

As of March 31,
2019¥492,404

Millions of yen
As of March 31,
2020¥398,061

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

3. Profit or Loss and Cash Outflows Related to Lease Transactions
Profit or loss and cash outflows related to lease transactions are as follows.
Millions of yen
Year ended March 31, 2020

Trade payables are as follows:

Accounts payable

Note 36

4. Additional Information Related to Lease Transactions
Many of the leasing activities of the Group entail real estate leasing, with land andbuildings being leased mainly as office and factory land. To provide business flexibility,
some leases contain extension and termination options. The Group assesses whether it isreasonably certain to exercise extension options (or not to exercise termination options)and determines the lease periods.
Under the Group’s leasing activities, there are no significant restrictions or covenants
imposed by leasing or sale and leaseback transactions.

167

Trade Payables

In the year ended March 31, 2019, lease fees recognized as expenses were ¥22,154
million.

Depreciation of right-of-use assets
Underlying assets of land, buildings and structures
Underlying assets of tools, furniture and fixtures
Underlying assets of machinery and vehicles
Total
Expenses related to short-term leases
Expenses related to leases of low-value assets
Variable lease payments
Total cash outflows for leases

Other Liabilities

Note 35

1. Capital Management
Under the APTSIS 20 medium-term management plan (fiscal 2016 to 2020), which
commenced from the year ended March 31, 2017, the Group aims to become a fastgrowing, highly profitable corporate entity through its business domains in Performance
Products, Health Care and Industrial Materials. The Company aims to balance efforts toinvest in growth business, bolster shareholder returns, and reinforce its financial position
and thereby enhance enterprise value. Key benchmarks are core operating income, core
operating income return on sales, net income attributable to owners of the parent, return on
equity, and the net debt-to-equity ratio.

As of or year
ended
March 31, 2019
Return on Equity (ROE) (Note 1)
Net D/E ratio (Note 2)

12.7%
1.26

As of or year
ended
March 31, 2020

4.2%
1.79

Notes:
1. Net income attributable to owners of the parent / equity attributable to owners of the parent (averages of
beginning and end of fiscal years)
2. Net interest-bearing debt*1 / equity attributable to owners of the parent (end of fiscal years)*1Net interest-bearing debt = Interest-bearing debt - (cash and cash equivalents + cash reserves*2)*2 Cash reserves comprise certificates of deposits, securities, and other instruments other than cash equivalentsthat the Group holds to manage surplus funds.

2. Financial Risk Management
The Group is exposed to financial risks in the course of doing business in an array of fields
around the world. It manages risks based on certain policies to reduce or avoid such risks.
The policy with derivatives transactions is to restrict their use to actual demand. The Group
does not enter into derivative transactions for speculative purposes. The relevant officers are
informed about contract balances, fair value, and other elements of these transactions basedon internal regulations for transaction authority and limits.
3. Credit Risk
The Group is exposed to customer credit risk for trade and other receivables acquired in thecourse of business. The securities that the Group holds are exposed to the credit risk ofissuers. Derivatives transactions that the Group conducts to hedge financial risks are
exposed to the credit risks of counterparty financial institutions.
In keeping with its credit management rules, the Group regularly monitors the tradereceivables and long-term loans of major customers, oversees due dates and balances foreach counterparty, and endeavors to swiftly identify and mitigate collections concerns arisingfrom deteriorating financial positions. The Group only invests in bonds with high ratings, so
credit risk is inconsequential. Derivatives transactions are only entered into with financial
institutions with high credit ratings to minimize credit risk from nonperformance bycounterparties. The Group prevents excessive concentrations of credit risk through special
management procedures.
At the end of the fiscal year, the Group recognizes impairment losses based on historicalrates to the Allowance for doubtful accounts, for significant uncollectible financial assets, andfor insignificant financial assets. The Allowance for doubtful accounts relating to such assets
is included in Trade receivables and Other financial assets in the Consolidated Statement of
Financial Position.

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168

5 Financial and Non-Financial Information

Financial Information

Changes in the Allowance for doubtful accounts, measured at amounts equivalent toprojected losses for the entire period, are as follows.

As of March 31, 2020
Millions of yen

There were no significant differences between projected 12-month credit losses on loans
and the projected credit losses for the entire period.
Millions of yen
Year ended
March 31, 2020

Year ended
March 31, 2019

Outstanding at the beginning of the period
Addition
Decrease (intended use)
Decrease (reversal)
Other
Outstanding at the end of the period¥9,807
2,637(1,445)(406)(414)¥10,179¥6,713
5,465(1,462)(699)(210)¥9,807The maximum exposure to the credit risks of financial assets is the carrying amount after
impairment presented in the Consolidated Statement of Financial Position.
The Group holds real estate, securities, etc. as collateral for receivables against certain
customers.
Maximum exposure on credit risk of financial guarantee contracts is the amount ofguarantee obligations etc. described in "Note 40 Contingent Liabilities".
4. Liquidity Risk
The Group's trade payables obligations and borrowings are exposed to liquidity risk. The
Group manages this risk by producing cash plan and ensuring liquidity by maintaining
commitment lines with several financial institutions.
Outstanding financial liabilities (including derivative financial instruments) by fiscal year are
as follows:

Non-derivative
financialliabilities:
Trade payables
Short-termborrowings
Commercial
paper
Bonds
Long-term
borrowings
Lease
obligations
Accounts
payable-otherAccruedexpenses
OthersDerivative
liabilities:
Foreignexchange
forwardcontracts
Currency
swaps
Interest rate
swaps

Carrying
amountContractual
cash flow

Due within
one year

Due after
one yearthrough
two years¥398,061¥398,061¥398,061¥

446,775

446,775

446,775—

Due after
two years
throughthree years

¥

—

—

Due after
three years
throughfour years

¥

—

—

Due after
four years
throughfive years

Due after
five years

¥

¥

—

—

—

—

—

70,00070,00070,000

—

—

—

—

—

690,602

693,000

55,000125,000

20,000100,000

35,000358,000

1,075,877

1,080,863

155,532

114,698

106,578

137,557

114,916

451,582

104,806

116,458

30,26422,517

13,475

10,584

8,853

30,765

212,111212,111212,111

—

—

—

—

—

78,052

78,052

78,052

—

—

—

—

—

51,82951,82940,879

268

22

2

2

10,656

¥

25

¥

25

¥

25

¥

—

¥

—

¥

—

¥

—

¥

—

1,181

1,181

1,181

—

—

—

—

—

69

69

18

11

11

11

11

7

For financial guarantee agreements, maximum amounts based on performance requests are
the outstanding guaranteed liabilities described in Note 40 Contingent Liabilities.

As of March 31, 2019
Millions of yen
Carrying
amountNon-derivative
financialliabilities:
Trade payables
Short-termborrowings
Commercial
paper
Bonds
Long-term
borrowings
Lease
obligations
Accounts
payable-otherAccruedexpenses
OthersDerivative
liabilities:
Foreignexchange
forwardcontracts
Currency
swaps
Interest rate
swaps
Others169

Contractual
cash flow

Due within
one year

Due after
one yearthrough
two years

Due after
two years
throughthree years

Due after
three years
throughfour years

Due after
four years
throughfive years

Due after
five years

The total commitment line and borrowing balance is as follows:
As of March 31, 2019

¥492,404¥492,404¥492,404

799,770799,770799,770

¥

—

¥

—

—

¥

—

—

¥

—

—

¥

—

—
—

68,00068,00068,000

—

—

—

—

—

600,468

603,000

60,00055,000125,000

20,000100,000

243,000

778,513780,598

181,298

114,325

84,03664,49596,187240,257

16,32917,003

3,849

2,690

2,185

1,624

1,213

5,442

124,855

124,855

124,855

—

—

—

—

—

75,17475,17475,174

—

—

—

—

—

32,63532,635

19,866

1,563

262

2

2

10,940

¥

38

¥

38

¥

38

¥

—

¥

—

¥

—

¥

—

¥

—

4

4

1

1

1

1

—

—

89

84

75

9

—

—

—

—

8

8

8

—

—

—

—

—

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Total commitment line
Borrowing balance
Unused balance¥131,589
7,769¥123,820

Millions of yen
As of March 31, 2020

¥135,878—¥135,878

We are also diversifying funding, notably by obtaining uncommitment-based overdraft
facilities with several financial institutions and by securing frameworks to issue commercial
paper or register corporate bond issues.
5. Foreign Exchange Risk
Foreign currency denominated receivables and payables from the Group's global operations
are exposed to foreign exchange fluctuation risk. The Group uses foreign exchange forward
contracts and currency swaps as needed to hedge against the foreign currency risk
associated with such receivables and payables.
The Group’s net investments in foreign operations are exposed to foreign exchange
fluctuation risk. The Group hedges such risk as needed using foreign currency-denominatedloans.
Foreign Exchange Sensitivity Analysis
If the yen at the end of the fiscal year was 1% higher against the U.S. dollar and the euro for
the foreign currency denominated financial instruments that the Group held at the year end,
the impact on income before taxes in the Consolidated Statement of Income would be as
follows.
This analysis is based on multiplying each currency risk exposure by 1%, based on theassumption that other variables (including other foreign exchange rates and interest rates)
are held constant.

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170

5 Financial and Non-Financial Information

Financial Information

Millions of yen
Year ended
March 31, 2020

Year ended
March 31, 2019

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

¥(39)
(6)

¥(388)
118

6. Interest Rate Risk
Interest rate risk within the Group arises from interest-bearing debt net of cash equivalents.
The Group raises funds needed to do business and make capital investments throughborrowings and the issuance of corporate bonds. Borrowings and corporate bonds withfloating rates are exposed to interest rate fluctuation risk.
The Group uses derivatives transactions (interest rate swaps) to hedge against interest rate
fluctuation risk.
Interest Rate Sensitivity Analysis
In the event the interest rate on financial instruments that the Group holds at the end of eachfiscal year increases by 100 basis points, the impact on income before taxes in theConsolidated Statement of Income would be as follows:
The analysis is for financial instruments affected by interest rate fluctuations andassumes that other factors, including the impacts of foreign exchange fluctuations, are held
constant.
Millions of yen
Year ended
March 31, 2020

Year ended
March 31, 2019

Income before taxes¥(3,300)¥(3,426)

7. Market Price Fluctuation Risk
The Group's securities holdings are exposed to market price fluctuation risk.
With respect to securities, the Group regularly reviews the fair value and financial
positions of issuers (business partners), and constantly reviews holdings by taking into
account its relationships with business partners.
8. Fair Value of Financial Instruments
Financial instruments are classified into the following three-level fair value hierarchy:
Level 1: Unadjusted quoted prices for identical assets or liabilities in active markets
Level 2: Valuations measured by direct or indirect observable inputs other than Level 1
Level 3: Valuations measured by significant unobservable inputs
Whether any financial instruments are determined to have been transferred between
levels is considered at year-end. There were no significant transfers between levels in theyears ended March 31, 2019 and 2020.
(1) Financial instruments measured at fair value on a recurring basis
Financial assets and liabilities measured at fair value on a recurring basis were as follows:
As of March 31, 2019

As of March 31, 2020

Millions of yen

Level 1
AssetsStocks andinvestments
Stocks andinvestments held forsale
Derivatives
Total

Level 2

Level 3

Total—

¥ 117,431¥ 192,481

20

—

11

31

—

169

—

169

169

¥ 117,442¥ 192,681¥ 75,050¥75,070¥¥

Liabilities
Derivatives¥—¥1,275

¥

—

¥

1,275

Total

¥

—

¥1,275

¥

—

¥

1,275

Stocks and investments
The fair value of marketable shares classified as Level 1 is based on unadjusted
quoted prices in active markets for identical assets or liabilities.
The fair value of Level 3 unlisted shares and investments for which quoted prices
in active markets are unavailable is calculated by using reasonably available inputs
through similar company comparisons or other appropriate valuation techniques.
Illiquidity discounts are added as needed.
Derivative assets and liabilities
The fair value of Level 2 derivative assets and liabilities is based on such observable
inputs as prices provided by counterparty financial institutions or exchange andinterest rates and such like.
The fair value of Level 3 financial instruments is calculated by valuation specialists
determining valuation methods for each relevant financial instrument in accordancewith valuation policies and procedures that include valuation methods for fair value
calculations approved by suitably authorized personnel
Changes in Level 3 financial instruments are as follows:Year ended
March 31, 2019

Millions of yen
Year ended
March 31, 2020

Balance at beginning of period¥73,244¥84,173
Other comprehensive income (Note)
13,354(1,712)
Purchase and share exchange acceptance
1,794
37,860
Sales or redemptions(3,582)(289)
Others(637)(2,590)
Balance at end of period¥84,173¥117,442
Note: Included in “Financial assets measured at fair value through other comprehensive income” inthe Consolidated Statement of Comprehensive Income

Millions of yen

Level 1
AssetsStocks andinvestments
Stocks andinvestments held forsale
Derivatives
Total

Level 2

Level 3

Total—

¥84,164¥192,413

449

—

9

458

—

258

—

258

¥108,698¥ 258¥84,173¥193,129¥108,249¥

Liabilities

171

Derivatives

¥

—

¥ 139

¥

—

¥

139

Total

¥

—

¥ 139

¥

—

¥

139

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

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5 Financial and Non-Financial Information

Financial Information(2) Financial instruments measured at amortized cost
The carrying amounts and estimated fair values of the financial instruments measured atamortized cost are as follows:
As of March 31, 2019

Assets:Debt securities
Total
Liabilities:
Long-term borrowings
Bonds
Total

Millions of yen

Fair value
Level 2
Level 3Carrying
amounts

Level 1¥¥

30,00030,000

¥
¥

—
—

¥
¥

¥ 778,513
600,468¥1,378,981

¥

—
—
—

¥ 793,472
609,081¥1,402,553

¥

—
—

Total

¥29,982¥29,982¥¥¥¥ 793,472
609,081¥1,402,553

¥

—
—
—

29,982
29,982As of March 31, 2020
Millions of yen

Assets:Debt securities
Total
Liabilities:
Long-term borrowings
Bonds
Total

Carrying
amounts

Level 1¥¥¥¥50,00050,000¥1,075,877
690,602¥1,766,479

¥
¥

—
—
—
—
—

Fair value
Level 2
Level 3¥¥——

¥1,094,455
695,108¥1,789,563¥49,960¥49,960
¥
¥

—
—
—

Total
¥
¥

49,96049,960¥1,094,455
695,108¥1,789,563

The carrying amounts of financial assets and liabilities measured at amortized cost, otherthan debt securities, long-term borrowings and bonds presented in the tables above, areapproximately the same as the fair values of such financial assets and liabilities.
Debt securities
The fair value of Level 3 subordinated and other bonds is calculated with reference toprices provided by counterparty financial institutions.
Long-term borrowings
The fair value of Level 2 long-term loans is based on the present value, calculated bydiscounting the total principal and interest by the interest rate assumed for similar new
borrowings.
Bonds
The fair value of Level 2 corporate bonds is based on the market price.
9. Transfers of Financial Assets
The Group transfers some operating receivables to a business entity comprising third-party
financial institutions. The entity operates as part of these institutions and purchases a large
amount of assets from customers other than those of the Group, so trade receivables that
the Group transferred constitute a small proportion of the entity's total assets. The
relevance of the Group to the assessment of exposure to the risks of this entity is thereforelow.

(2) Transfers of financial assets that are derecognized overall
In the years ended March 31, 2019 and 2020, expenses arising from transfers of tradereceivables that were derecognized in their entirety were ¥224 million and ¥224 million,
respectively.
10. Derivative Transactions(1) Derivative transactions to which hedge accounting is applied
The analysis of contract amounts of derivative transactions by due dates is as follows:
As of March 31, 2019

Cash flow
hedgesForeignexchange risk:
Foreignexchange
forwardcontracts
Interest rate
risk:
Interest rate
swaps
OthersDue after
one yearthrough
two years

Due after
two years
through
three
years

Due after
three
years
throughfour years

¥

¥

¥

Contract
amountDue within
one year¥5,436¥4,76663,89360,332

2,284

292

292

—

670

—

Millions of yen
Due after
four years
throughfive years

Due after
five years

—

¥ —

¥

—

284

284

284

425

—

—

—

—

As of March 31, 2020

Cash flow
hedgesForeignexchange risk:
Foreignexchange
forwardcontracts
Currency
swaps
Interest rate
risk:
Interest rate
swaps
OthersHedge of net
investments inforeign
operations
Foreignexchange risk:
Foreigncurrency-denominatedborrowings

Due after
Due after
one year
two years
through two
through
years
three years

Millions of yen
Due after
Due after
three years four years
Due after
throughthrough five five years
four years
years

Contract
amountDue within
one year¥12,983¥12,983

17,89917,899

—

—

—

—

—

3,639

2,298

298

298

298

298

149

—

—

—

—

—

—

—

74,718

—

—

—

—

—

74,718

¥

—

¥

—

¥

—

¥

—

¥

—

(1) Transfers of financial assets that are not derecognized overall
As of March 31, 2019 and 2020, Trade receivables included ¥20,097 million and ¥9,202
million, respectively, of trade receivables that were transferred without satisfying financial
asset derecognition requirements. Bonds and borrowings included ¥24,322 million and¥21,586 million in transfers. These fair values approximate their carrying values. The net
positions mainly stem from differences in periods for retained portions relating to sales oftrade receivables and deposits of trade receivables and repayments of borrowings. If
debtors defaulted on these trade receivables, the Group would be deemed to hold most of
the risks and economic value of ownership of the transferred assets, as payment
obligations would revert to the Group.

173

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

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174

5 Financial and Non-Financial Information

Financial Information

The principal rates on forward exchange contracts and currency swap transactions and theprincipal rates on payments under interest rate swaps are as follows:

Cash flow hedges
Foreign exchange risk:
Foreign exchange forward contracts
U.S. dollars
Euros
Currency swaps
British pounds
Interest rate risk
Interest rate swaps
Pay fixed rate, receive floating rate

As of March 31,
2019Millions of yen
As of March 31,
2020¥107.13-111.82¥124.43-131.48¥103.93-111.68¥118.23-122.43—¥143.19

0.23%-2.30%

Amounts for items designated as hedges are as follows:
Millions of yen
As of March 31, 2019
Change in fairvalue of hedged
item used as thebasis forrecognizing
hedge
ineffectivenessCash flow hedges
Foreign exchange risk:

0.23%-0.70%

Amounts for derivatives designated as hedges are as follows:
As of March 31, 2019
Contract
amountCarrying amount
AssetsLiabilities

Items in
Consolidated
Statement of
Financial Position

Millions of yen
Change in fair valueof hedged item usedas the basis forrecognizing hedge
ineffectivenessCash flow hedges
Foreign exchange risk:
Foreign exchange
forward contracts¥ 5,436

¥

46

¥ 27

Other financial
assetsOther financial
liabilities

Planned to purchase
Foreign currencydenominated debt andinterest
Interest rate risk:¥

Interest on borrowings
OthersHedge of net investments
in foreign operations
Foreign exchange risk:
Exchange rate
fluctuations in net
investments

63,893

158

89

Interest rate currency
swaps

—

—

—

Others

292

—

8

¥

Contract
amountAssetsLiabilities(1,180)(23)

Millions of yen
Change in fair valueof hedged item usedas the basis forrecognizing hedge
ineffectivenessCash flow hedges
Foreign exchange risk:
Other financial
assets¥ 23
Other financial
liabilities
Other financial
1,181
liabilities

Foreign exchange
forward contracts¥ 12,983

Currency swaps

17,899

—

3,639

—

69

—

—

—

—

8

74,718—74,718

Bonds andborrowings

937

¥

96

(54)

¥

69

—
—

1,181

37

1,127

95

138

45

—

23

38

(8)

19

—

—

—

(937)

—

474

Millions of yen

53

Other financial
liabilities

Items in
Consolidated
Statement of
Financial Position

¥

54
—

—

(28)

As of March 31, 2020
Carrying amount¥Year ended March 31, 2019

Other financial
assetsOther financial
liabilities—

28

Details of cash flow hedges and hedges of net investments in foreign operations are as
follows:

Interest rate risk:
Interest rate swaps

Cash flow
hedge
reserve

As of March 31, 2020
Change in fairvalue ofhedged item
Foreign
Cash flowused as thecurrency
hedge
basis fortranslation
reserve
recognizing
surplushedge
ineffectiveness¥Cash flow hedges
Foreignexchange risk:
Foreignexchange
forwardcontracts
OthersInterest rate risk:
Interest rate
swaps
Interest ratecurrency swaps
OthersConsolidated
Statement of
Income items
in which
ineffective
portions ofhedges areincluded in
profit or loss

Consolidated
Statement of
Income items
including profit
fromreclassification
adjustments

Changes in fairvalue of hedges
recognized inothercomprehensive
incomeIneffective
portions ofhedgesrecognized in
profit or loss¥(2,960)

¥—

¥—

(199)

—

—

—

48

—

—

61 Financial expenses

(24)

—

—

(832) Financial expenses

(17)

—

—

Reclassification
adjustmentsfrom cash flow
hedge reserve
to profit or loss¥(124) Financial expenses

—

—

—

54

(1,181)

Interest rate risk:
Interest rate swaps
OthersHedge of net
investments in foreign
operations
Foreign exchange risk:
Foreign currencydenominatedborrowings

175

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Other financial
liabilities(138)

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

176

5 Financial and Non-Financial Information

Financial Information

Year ended March 31, 2020

Note 37
Millions of yen

Changes in fairvalue of hedges
recognized inothercomprehensive
incomeCash flow hedges
Foreignexchange risk:
Foreignexchange
forwardcontracts
Currency
swaps
Interest rate risk:
Interest rate
swaps
OthersHedge of net
investments inforeign operations
Foreignexchange risk:
Foreigncurrencydenominatedborrowings

Ineffective
portions ofhedgesrecognizedin profit orloss

Consolidated
Statement of
Income items
in which
ineffective
portions ofhedges areincluded in
profit or loss

Reclassification
adjustmentsfrom cash flow
hedge reserve
to profit or loss

Consolidated
Statement of
Income items
including profit
fromreclassification
adjustments

¥32

¥—

¥—

¥23 Financial expenses

37

—

—

—

(39)

—

—

38 Financial expenses

6

—

—

—

Total

Name of subsidiary——

Location

As of March 31, 2019

As of March 31, 2020

Japan, others

43.6%

—

Japan, others

49.4%

49.4%

Note:
Consolidated subsidiary Mitsubishi Tanabe Pharma Corporation became a wholly owned subsidiary in the year
ended March 31, 2020. See Note 24 Capital for details.

As of March 31, 2020, there were no significant non-controlling interests in the Mitsubishi
Tanabe Pharma Corporation, so cumulative non-controlling interests and summarized
financial information for the year are not stated.
Net income attributable to non-controlling interests of relevant subsidiaries and dividends
paid to non-controlling interests are as follows:
Millions of yen

—

937

—

As of March 31, 2019
Contract
Over oneFair value
amountyear

Currency swaps

Percentage of non-controlling interest

TAIYO NIPPON SANSOCORPORATION—¥ 7,250¥ —¥1As of March 31, 2020
Contract
Over oneFair value
amountyear¥ 5,370¥ —Year ended March 31, 2020

Year ended March 31, 2019—

Amounts relating to items not designated as hedges are as follows:forward contracts

Subsidiaries with significant non-controlling interests in years ended March 31, 2019and 2020, were as follows:

Mitsubishi Tanabe
Pharma Corporation(2) Derivative transactions to which hedge accounting is not applied

Foreign exchange

Subsidiaries

¥ 37

626

458

38

339

269

34

¥ 7,876

¥458

¥ 39

¥ 5,709

¥269

¥ 71

Net income (loss)
attributable tonon-controllinginterests
Dividends paid to
non-controllinginterests

Mitsubishi Tanabe
PharmaCorporation

TAIYO NIPPONSANSOCORPORATION

Mitsubishi Tanabe
PharmaCorporation

TAIYO NIPPONSANSOCORPORATION¥10,714¥21,528¥(1,371)¥26,681

13,982

5,735

13,8796,391

Cumulative non-controlling interests of relevant subsidiaries are as follows:
Millions of yen
As of March 31, 2019
Mitsubishi Tanabe
TAIYO NIPPON SANSO
Pharma Corporation
CORPORATION

Cumulative noncontrolling interests
amounts¥369,091¥ 219,605

As of March 31, 2020
TAIYO NIPPON SANSOCORPORATION¥ 222,418

Summary financial information on relevant subsidiaries is as follows. Summary financial
information below is calculated based on the amounts before elimination in consolidation,
adjusting goodwill and other items recognized at the time of a business combination.
Summary Consolidated Statements of Financial Position
Millions of yen
As of March 31, 2019
Mitsubishi Tanabe
TAIYO NIPPON SANSO
Pharma Corporation
CORPORATION

Current assets
Non-current assets
Total
Current liabilities
Non-current liabilities
Total
EquityTotal

177

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

¥ 588,433
438,606¥1,027,039
91,69955,406¥ 147,105
879,934¥1,027,039¥ 347,143
1,508,420¥1,855,563
719,177
626,225¥1,345,402
510,161¥1,855,563

As of March 31, 2020
TAIYO NIPPON SANSOCORPORATION¥ 367,302
1,464,947¥1,832,249
331,903996,880¥1,328,783
503,466¥1,832,249

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

178

5 Financial and Non-Financial Information

Financial Information

Summary Consolidated Statements of Income and Consolidated Statements ofComprehensive Income

Receivables and obligations to major related parties as a result of the above transactions
are as follows:
Millions of yen

Millions of yen
Year ended March 31,

Year ended March 31, 2019TAIYO NIPPON SANSOCORPORATION2020
TAIYO NIPPON SANSOCORPORATION¥424,767
32,216¥740,341
42,017¥850,239
51,39640,894

26,161

9,608

Mitsubishi Tanabe
Pharma Corporation

Sales revenue
Net income
Total comprehensive
incomeAs of March 31, 2019

Receivables
Accounts receivable
Others
Total
Obligations
Accounts payable
Others
Total

Summary Consolidated Statements of Cash Flows

Joint venture

Associates

As of March 31, 2020

Joint venture

Associates¥12,538509¥13,047¥ 9,658
2,145¥11,803¥14,302635¥14,937¥ 7,274
1,548¥ 8,822¥3,4672¥ 3,469¥4,516841¥5,357¥3,15411¥ 3,165¥4,418204¥4,622

Remuneration for key Group executives is as follows:
Millions of yen
Year ended March 31, 2019

Millions of yen

TAIYO NIPPON SANSOCORPORATION2020
TAIYO NIPPON SANSOCORPORATION¥ 41,460¥ 98,686¥150,084(31,212)(754,969)(62,630)(25,869)

664,925(46,242)

531

3,128

(1,096)¥(15,090)¥ 11,770¥ 40,116

Mitsubishi Tanabe
Pharma Corporation

Cash flows fromoperating activities
Cash flows frominvesting activities
Cash flows fromfinancing activities
Effect of exchange
rate changes on cash
and cash equivalents
Net increase(decrease) in cash
and cash equivalents

Remuneration and bonuses
Share-based compensation
Total

Year ended March 31,

Year ended March 31, 2019Year ended March 31, 2020

¥1,788116¥1,904¥1,952237¥2,189Note 39
Commitments

Commitments relating to acquisitions of property, plant and equipment and intangible
assets are as follows:

Acquisitions of property, plant andequipment and intangible assets

As of March 31, 2019

Millions of yen
As of March 31, 2020

¥152,883¥169,921

Note 40
Note 38
Related Parties

1. Related Party Transactions
Transactions with major related parties are as follows. For sales of goods and services,the principal transactions are product sales, while the main transactions for goods
purchases are purchases of raw materials. The terms for transactions with relatedparties are similar to those of independent third-party transactions.

Contingent
Liabilities

Millions of yen
As of March 31, 2019

Joint ventures
Associates
General business partners
Others
Total

Millions of yen
Year ended March 31, 2019

Joint venture
Sales of goods
and services
Purchases ofgoods andservices

Associates

Year ended March 31, 2020

Joint venture

Associates¥64,441¥37,058¥62,576¥29,449

23,13845,82424,024

40,687

Guarantee Obligations
Guarantees and similar undertakings for borrowings from joint ventures, associates andfinancial institutions of general business partners are as follows.

¥6,741
247
225
1,170
¥8,383Acquisition of Gelest, Inc. through Mitsubishi Chemical America, Inc. (MCA)
Mitsubishi Chemical Corporation (MCC) has decided to acquire, through MCA, this American
innovator, manufacturer, and supplier of silicones, organosilanes, and metal-organics.
MCA entered into a definitive agreement with Gelest Intermediate Holdings, Inc.,
Gelest's parent, to acquire all of the latter’s issued and outstanding shares on April 30, 2020.
The transaction should be completed within six months of that date.
Combining Gelest’s extensive capabilities with MCC's technologies, operating
resources, and customer network should greatly expand the breadth of MCC's customer
solutions.
Overview of Gelest, Inc.

Head office and plant:
Establishment:
Number of employees:
Key businesses:

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

¥8,201
372
361
1,262
¥10,196Note 41
Subsequent Event179

As of March 31, 2020

Morrisville, Pennsylvania
1991
Approximately 240 (as of July 1, 2019)
Developing, manufacturing, and selling silicon chemicals,
methacrylates, and metal-organic compounds

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

180

5 Financial and Non-Financial Information

Financial Information

181

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5 Financial and Non-Financial Information

Financial Information

183

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5 Financial and Non-Financial Information

Financial Information

185

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5 Financial and Non-Financial Information

Financial Information

187

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5 Financial and Non-Financial Information

Independent Assurance Report

Non-Financial Information

Indicators with this icon have been assured by KPMG AZSA Sustainability Co., Ltd. for fiscal 2019.

Environmental Data
Scope of data
aggregation

The data covers the four operating companies (Mitsubishi Chemical Corporation, Mitsubishi Tanabe Pharma Corporation,
Life Science Institute, Inc., and Taiyo Nippon Sanso Corporation) and their domestic and overseas Group companies. (Group
companies are directly-owned consolidated subsidiaries.) Because of the expanded boundary of the KAITEKI Vision 30(KV30), one domestic joint operation company was added to the fiscal 2019 data.

FY2016FY2017FY2018FY2019

Greenhouse gas emissions (Scope 1 + Scope 2) (1,000 metric t-CO2e)*14,26914,815

14,187

16,629*4

Scope 1

7,223

7,470

6,787

8,455

Energy consumption/Greenhouse gasses (GHG)*1
2

Scope 2

7,046

7,345

7,400

8,174

Scope 3*5

54,37049,64049,26051,820

Energy consumption (GWh)*3

38,95040,977

39,126

49,110*1 Based on the GHG protocol, energy used to produce electricity and steam sold externally and the resulting CO2 emissions are not excluded. The data for fiscal 2019 includes half ofenergy consumption and GHG emissions by the joint operation.
*2 The emission factors specified in the Act on Promotion of Global Warming Countermeasures are used for the calculation of emissions in Japan. GHG emissions that are not subject toreporting under the Act are mostly calculated based on the mass balance of chemical reactions. Overseas Scope 1 emissions are calculated with the emission factors specified in the
Act on Promotion of Global Warming Countermeasures, and overseas Scope 2 emissions are calculated with power company-specific emission factors or country level emission factors
for electricity published by the IEA.
*3 The unit higher heating values for fuels specified in the Act on the Rational Use of Energy are used.
*4 In addition to adding the one domestic joint operation company to the boundary for fiscal 2019 data, GHG emissions from businesses acquired in previous years and from the expandedboundary for KV30 resulted in an increase of 2,442 thousand metric tons of CO2e year on year. However, if these effects are excluded, GHG emissions were reduced by 54 thousand metrictons of CO2e year on year.
*5 See page 3 of the non-financial data sheet on the Company’s website for the calculation method for Scope 3 GHG emissions.

FY2016FY2017FY2018FY2019

8.96

8.12

7.54

8.28

4.77

4.42

3.81

3.15

COD emissions (1,000 metric tons)*

2.00

2.08

1.84

1.80

Total nitrogen emissions in water discharged (1,000 metric tons)*6

6.06

6.04

5.64

5.67

Total phosphorous emissions (1,000 metric tons)*

0.09

0.07

0.10

0.11

Environmental impact
NOx emissions (1,000 metric tons)
SOx emissions (1,000 metric tons)
66*6 COD emissions, total nitrogen emissions and total phosphorous emissions each show total quantity of emissions discharged into rivers, lakes and oceans. Emissions into sewage
systems and off-site wastewater treatment plants are excluded.

FY2016FY2017FY2018FY2019

189

193

189

204

Constitution of employees (MCHC Group)

FY2016FY2017FY2018FY2019Number of consolidated employees

69,291

69,23072,02069,609Number of employees by district

In Japan

44,034

43,40643,70940,732

Outside Japan

25,25725,82428,311

28,877

Water use
Water withdrawal (Million m ) (excluding seawater)
3

Social Data

Aggregation period
Scope of data
aggregation

Each fiscal year from April 1 to March 31, or as of March 31
The figures show those employed by Mitsubishi Chemical, Mitsubishi Tanabe Pharma, Life Science Institute, and Taiyo
Nippon Sanso (including those seconded to other companies but excluding those seconded from other companies).

FY2016FY2017FY2018FY201921,736

21,77022,064

23,116

Male

18,45918,44018,57819,444

Female

3,277

3,330

3,486

3,672

Percentage of female employees (%)

15.1

15.3

15.8

15.9

Percentage of female managers (%)*7

7.7

8.0

8.6

8.9

67.6

65.4

71.1

70.8

0.30

0.26

0.99

1.09

Diversity/Work-life balance/Occupational safety
Number of employees
Number of employees by gender

Paid leave utilization rate (%)*

8

Lost-time injury frequency rate (LTIFR)* *9, 10*7 Percentage of female employees out of all employees at assistant manager level and above.
*8 The denominator is the number of days newly granted and the numerator is the number of days acquired in the reporting fiscal year. The denominator does not include the numberof days carried over from the previous fiscal year.
*9 Scope of data aggregation: The data for fiscal 2016 and fiscal 2017 covers the figures from domestic operations of the four operating companies (Mitsubishi Chemical, Mitsubishi
Tanabe Pharma, Life Science Institute, and Taiyo Nippon Sanso) and their Group companies with operating divisions active within Japan. The data from fiscal 2018 covers these four
operating companies and their domestic and overseas Group companies with operating divisions active.
*10 The LTIFR is the number of lost-time injuries and fatalities per million hours worked.

189

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

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190

Corporate Data

Main Subsidiaries and Affiliates

Mitsubishi Chemical Holdings Corporation (As of October 1, 2020)

Direct investees(As of October 1, 2020)

Company namePrincipal businesses

Paid-in capital

Equity participation (%)

Mitsubishi Chemical Corporation

Manufacturing and marketing of chemical products¥53.2 billion

100.0

Mitsubishi Tanabe Pharma Corporation

Manufacturing and marketing of pharmaceuticals¥50.0 billion

100.0¥50.0 billion

Life Science Institute, Inc.

Healthcare solutions business and holding shares of companies
that manage the said businesses, etc.

¥9.3 billion

100.0

Sales revenue (consolidated)¥3,580.5 billion (FY2019, ended March 31, 2020)

Nippon Sanso Holdings Corporation*

Subsidiary management and group operations in industrial gases¥37.3 billion

50.6

Number of employees (consolidated)

69,609 (As of March 31, 2020)

Paid-in capital

Equity participation (%)

Head office

1-1 Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8251

Establishment

October 3, 2005

Paid-in capital* As of October 1, 2020, Taiyo Nippon Sanso’s corporate name changed to Nippon Sanso Holdings.

Indirect investees Company name
Performance
Products domain

Organizational structure (As of October 1, 2020)
Holding company
Formulation of Group strategies, optimal allocation of management resources, supervision of business management and others

Mitsubishi Chemical Holdings Corporation*1
Function-sharing companies
100%

100%

Investigation into future societal issues and research for proving solutions to those issues

The KAITEKI InstituteOverseas administrative representatives in North America, Europe and China

Mitsubishi Chemical Holdings America

100%
100%

100%

Industrial
Materials domain

Mitsubishi Chemical Holdings (Beijing)
Mitsubishi Chemical Holdings Europe
Common functions for accounting and financial affairs

Mitsubishi Chemical Holdings Corporate Staff
Functions for partnering with and investment in startup companies

100%

Operating companies
100%

100%

50.6%

Mitsubishi Chemical
Corporation

Mitsubishi Tanabe
Pharma Corporation

Life Science Institute, Inc.

Nippon Sanso Holdings
Corporation*1 *2

Paid-in capital

Paid-in capital

Paid-in capital

Paid-in capital¥53.2 billion¥50.0 billion¥9.3 billion¥37.3 billion

Sales revenue (consolidated)

Sales revenue (consolidated)

Sales revenue (consolidated)

Sales revenue (consolidated)¥2,338.0 billion
Business lines¥379.8 billion¥38.3 billion*3
Business lines

Business lines

Performance products,
industrial materials,
and others

Pharmaceuticals
and others

Healthcare and medical ICT,
pharmaceutical development
solutions, andnext-generation healthcare

Subsidiary management
and group operationsin industrial gases

Business domains

Business domain

Business domain

Business domain

Performance Products

Health Care

Health Care

Industrial Materials

Industrial Materials

OthersGroup companies

Group companies

Group companies*1 Listed company *2 As of October 1, 2020, Taiyo Nippon Sanso’s corporate name changed to Nippon Sanso Holdings. *3 Figures do not include discontinued operations.

191

Health Caredomain¥850.2 billion

Business lines

Group companies

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Performance Products segment
J-Film Corporation

Manufacturing and marketing of plastic films¥1.2 billion

100.0

Shinryo Corporation

Semiconductor-related services, andenvironmental and recycling-related business¥500 million

100.0

Mitsubishi Chemical Infratec Co., Ltd.

Manufacturing and marketing of house andbuilding materials and infrastructure materials¥0.4 billion

100.0

Mitsubishi-Chemical Foods
Corporation

Manufacturing and marketing of food andpharmaceutical ingredients¥0.5 billion

100.0

MC Ionic Solutions US, Inc.

Manufacturing and marketing of electrolytes
for lithium-ion batteries

US$100100.0

Mitsubishi Chemical
Advanced Materials AG *1

Management of subsidiaries that engage
in the engineering plastic business

CHF28 million

100.0

Mitsubishi Chemical
Performance Polymers, Inc.

Manufacturing and marketing of thermoplastic
compounds and functional polyolefins

US$100100.0

Mitsubishi Polyester Film, Inc.

Manufacturing and marketing of polyester film

US$100100.0

Chemicals segment
Kansai Coke and Chemicals Co., Ltd.

Manufacturing and marketing of coke

¥6.0 billion

51.0Japan Polyethylene Corporation

Manufacturing and marketing of polyethylene¥7.5 billion

58.0Japan Polypropylene Corporation

Manufacturing and marketing of polypropylene¥11.8 billion

65.0

Mitsubishi Chemical LuciteGroup Limited

Management of subsidiaries that engage
in the MMA business£111 million

100.0

Taiyo Nippon Sanso Corporation

Manufacturing and sale of industrial gases andrelated equipment¥1.5 billion

100.0

JFE Sanso Center Corporation

Manufacturing and sale of industrial gases¥0.09 billion

60.0

NIPPON EKITAN Corporation

Manufacturing and marketing of industrial gases¥0.6 billion

84.2

Nippon Gases
Euro-Holdings S.L.U.

Management of subsidiaries that engage
in the industrial gases business€100 million

100.0Matheson Tri-Gas, Inc.

Manufacturing and marketing of industrial gases

US$56

100.0

API Corporation

Manufacturing and marketing of contracted
manufactures of active pharmaceutical ingredients,
intermediates, and investigational new drugs¥4.0 billion

100.0

Qualicaps Co., Ltd.*2

Manufacturing and marketing of capsules forpharmaceuticals, health and nutrition foods, andpharmaceutical processing equipment (PPE)¥2.9 billion

100.0

Mitsubishi Tanabe Pharma Factory Ltd.

Manufacturing and marketing of pharmaceuticals¥1.1 billion

100.0

Mitsubishi Tanabe Pharma
Holdings America, Inc.

Planning and execution of targets and strategies relating
to development of the pharmaceutical business in the US
and management of US subsidiaries

US$167100.0

Mitsubishi Chemical Engineering
Corporation

Engineering and construction services¥1.4 billion

100.0

Mitsubishi Chemical Logistics
Corporation

Logistics and warehouse services¥1.5 billion

100.0

Industrial Gases segment

Diamond Edge Ventures

Business operations in the three business domains of Performance Products, Industrial Materials and Health Care100%

Principal businesses

Health Care segment*1 Quadrant AG changed corporate name to Mitsubishi Chemical Advanced Materials.
*2 Qualicaps’ capsules and PPE businesses were transferred to the High Performance Chemicals Business Domain of Mitsubishi Chemical Corporation in July 2020.

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

192

Global Network

Main Businesses
Mitsubishi Chemical Group
Life Science Institute Group(As of March 31, 2020)

Mitsubishi Tanabe Pharma Group
Nippon Sanso Holdings Group

Main businesses, products and services
Information,
Electronics andDisplays

High Performance
Films

Environment andLiving Solutions

Main uses
Optical films
Electronics

Optical clear adhesive
sheet, CLEARFIT

Food packaging film,
DIAMIRON

Optical PVOH*1 film,
OPL film

Acrylic film, ACRYPLEN

Color resist

Moisture-proof PVC sheet
for tablet and capsule
packaging, VINYFOIL

Display- and semiconductor-related
products
Food packaging materials

Foods and household goods

Industrial-use films

Industrial materials

Medical and sanitary films

Medical care

Aqua solutions

Environment, infrastructure, household goods,
medical care, foods
Environment, energy, industrial-use chemicals,
electronics, medical care, foods

Ion-exchange resins
Water treatment
components,
equipment andfacilities

Hydroponic system
for leafy vegetables,
Napperland

FRP*2 panel water tank,
HISHITANK

Separator and aqua chemicals

Environment, electronics, medical care, foods

Agricultural solutions

Agriculture

Infrastructure solutions

Environment, infrastructure, industrial materials

Number of subsidiaries
and affiliates (Japan)

281

Engineering plastics

Carbon fiber andcompounds materials

Alumina fibers

Advanced
Polymers
Thermoplastic
elastomer, TEFABLOC

Polycarbonate

Biodegradable
polymer, BioPBS

Carbon fiber and composite materials

Automobiles, aircraft, industrial materials, sporting goods

Alumina fibers

Automobiles, industrial materials

Functional moldings and composites

Industrial materials, automobiles, electronics

Fibers and textiles

Household goods, industrial materials

Performance polymers

Automobiles, industrial materials, electronics,
household goods, foods, medical care

Phenol and polycarbonate

Industrial-use chemicals, automobiles, electronics

Polybutylene terephthalate

Automobiles, electronics, household goods,
industrial materials

Sustainable polymers
Coating materials
Epoxy resins

High Performance
Chemicals

Resin additives
Acrylic resins

Epoxy resin, jER

Sugar ester

New Energy
Lithium-ion battery
materials

Phosphors

Scintillator

MMA
MMA monomers

Acrylic molding
material, ACRYPET

417

Total:

698

Mitsubishi Chemical Holdings Europe GmbH
Kasteler Strasse 45, 65203 Wiesbaden, Germany
TEL: [+49] (0)611-962-6923

Mitsubishi Chemical Holdings Corporation
1-1 Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8251, Japan
TEL: [+81] (0)3-6748-7200

High-performance engineering plastics Automobiles, electronics, industrial materials, medical care

Advanced
Moldings
and Composites

Number of subsidiaries andaffiliates (outside Japan)

Europe

135

Japan

281

North
America

62

Industrial materials, automobiles, electronics,
household goods, industrial-use chemicals, aircraft

Inorganic chemicals

Automobiles, electronics, industrial-use chemicals

Food ingredients

Foods (beverages, confectionary, nutrition products, etc.)

Lithium-ion battery materials

Automobiles, electronics, energy

LED materials

Electronics, automobiles

Scintillator

Medical care, security devices

MMA and PMMA

Automobiles, electronics, industrial materials,
household goods

Basic petrochemicals andbasic chemical derivatives

Industrial-use chemicals

Polyolefins

Automobiles, electronics, household goods,
industrial materials, medical care

Africa1

Asia
Pacific

210

Latin
America9

Acrylic resin products

Petrochemicals
Ethylene production
facility

Petrochemical
derivatives

Automotive gasoline
tank

Coke
Carbon materials

Carbon Products

Carbon black
Coke

Carbon materials

Carbon black

Synthetic rubber

Industrial materials
Industrial materials, automobiles, household goods

Industrial gases

Industrial Gases
Separate gases(oxygen, nitrogen, argon)

Electronics materialgases

Air separation units

Treatment agent for
autoimmune diseases

Therapeutic agent
for ALS, RADICUT

VaccinePharmaceuticals

Industrial gas-related equipment
and facilities

Ethical pharmaceuticals

Industrial materials, industrial-use chemicals,
electronics, automobiles, foods, medical care

Pharmaceutical processing
equipment (PPE)Pharmaceuticalintermediates

Active pharmaceutical ingredientsand intermediates*1 Polyvinyl alcohol *2 Fiber reinforced plastic *3 Capsules and PPE businesses were transferred to the High Performance Chemicals Business Domain of Mitsubishi Chemical Corporation in July 2020.

193

Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020

Mitsubishi Chemical Holdings (Beijing) Co., Ltd.

Medical care, health

Medical care, healthCapsules*3

655 Third Avenue, 15th Floor,
New York, NY 10017, US
TEL: [+1] 212-672-9400

Room 710, Beijing Fortune Building, Dong San Huan Bei Lu 5,
Chao Yang District Beijing 100004, PRC
TEL: [+86] (0)10-6590-8621

Capsules and PPE*3

Life Science

Mitsubishi Chemical Holdings America, Inc.

Disclaimer: This report contains forward-looking statements that reflect Mitsubishi Chemical Holdings Corporation’s assumptions and beliefs based on currently
available information. Actual results may differ materially from forecasts due to various risk factors and uncertainties. These include, but are not limited to, demandin Japan and overseas, exchange rates, price and procurement volume of crude oil and naphtha, market trends, technological innovation, National Health Insurance
drug price revisions, product liabilities, lawsuits, laws and regulations, as the Mitsubishi Chemical Holdings Group is engaged in a wide range of businesses,
including information, electronics and displays, advanced moldings and composites, advanced polymers, MMA, petrochemicals, carbon products, industrial gases,
and pharmaceuticals.
Mitsubishi Chemical Holdings Corporation KAITEKI REPORT 2020194