Bridge Report: (4634)Toyo Ink SC Holdings

President Katsumi Kitagawa	Toyo Ink SC Holdings, Co., Ltd. (4634)

Company Information

Stock Information

* Share price as of closing on the end of March 13. Number of shares outstanding, ROE and BPS are as of the end of the previous term.

Earnings Trends

* Estimates are those of the Company. Net income is net income attributable to the shareholders of the parent company.
* The values of December 2017 are for 9 months. A 1-for-5 reverse split was conducted on July 1, 2018.

This Bridge Report provides Toyo Ink SC Holdings, Co., Ltd.’s financial updates of the term ended December 2018, and more.

Table of Contents

Key Points
1. Company Overview
2. Fiscal Year December 2018 Earnings Results
3. Fiscal Year December 2019 Earnings Forecast
4. Mid-Term Business Plan “SIC-I” in 2019
5. Conclusions
＜Reference1：Mid-Term Business Plan “SIC-I” (FY 2018 to FY 2020) ＞
＜Reference2：Regarding Corporate Governance＞

Key Points

• The sales for the term ended Dec. 2018 were 290.2 billion yen, up 3.6% year on year. The “Colorants & Functional Materials Related Business,” “Polymers & Coatings Related Business,” and “Packaging Materials Related Business” were healthy. Overseas sales expanded mainly in Asia, and shipment volume increased. However, in the latter half of the year, the business was affected by the slowdown in the Chinese market and the smartphone market. Operating income was 15.3 billion yen, down 25.3% year on year. Although there were positive factors such as the increase in sales volume and the revision of prices, the skyrocketing material prices, including the prices of solvents due to the increase in naphtha price, and the decline in selling prices negatively affected the profit, resulting in decrease in profits.

   

• The sales for the term ending Dec. 2019 are expected to be 300 billion yen, up 3.4% year on year. The sales from the “Colorants & Functional Materials Related Business,” “Polymers & Coatings Related Business,” and “Packaging Materials Related Business” are expected to continue to grow. Operating income is expected to increase 14.1% year on year to 17.5 billion yen. Although there is a continuing impact of rising raw material prices, it will be offset by growing sales volume, widespread acceptance of revised prices and cost reduction, leading to increased profits. Profits are expected to increase in all segments. The dividend is to be 90.00 yen/share, up 5 yen/share from the previous term. The estimated payout ratio is 43.8%.

   

• According to the forecast of operating income fluctuation factors for the term ended Dec. 2018, the impact of soaring raw material prices was expected to be negative 2 billion yen. However, in reality, it was negative 5.5 billion yen, which became the largest factor of profit decline in the previous term. As efforts such as increasing sales volume and penetrating price revisions are steadily making progress, in the short term, we would like to watch how the company will absorb the soaring raw material prices which are expected to be negative 1.6 billion yen during this term. Meanwhile, in the medium term, how actively the company can promote various investments that were not implemented sufficiently in the previous fiscal year and how quickly it can launch products related to growth keywords such as IoT, 5G, and the environment are the points of focus.

   

1. Company Overview

Toyo Ink SC Holdings is Japan’s top manufacturer of printing inks. Using the processing technologies of pigments and resins that are the raw materials of inks, the Company manufactures various products such as LCD color filters and
electromagnetic shielding films. The Toyo Ink Group is comprised of Toyo Ink SC Holdings, 66 consolidated subsidiaries in and outside Japan, and 9 equity method affiliate companies. They are operating business in 22 countries around the world (The end of December 2017).Under the long-term scheme “Scientific Innovation Chain 2027 (SIC 27),” whose concept is to contribute to the improvement of sustainability of ordinary citizens, life, and the global environment by innovatively thinking, scientifically executing, and connecting each activity by each and every employee, it is aiming for a transformation to have a corporate structure that enables sustainable growth towards 2027.

1-1 Corporate History

The origin of Toyo Ink dates back to 1896, when founder Kamataro Kobayashi opened Kobayashi’s Ink Shop as sole proprietorship in Nihonbashi, Tokyo. In 1907, it was reorganized and renamed as Toyo Ink Manufacturing Co., Ltd. During the Meiji period, many newspapers and magazines, including the Yomiuri Shimbun (founded in 1874) and the Asahi Shimbun (founded in 1879), were launched. The government also printed an increasing number of materials including textbooks to enhance educational levels under the policy of increasing wealth and military power. Under these circumstances, the demand for printing inks expanded rapidly.
Initially, inks in the Japanese market were mostly imported products; however, as the national policy favored high quality
domestically produced inks, the Company, with its advanced technological skills, successfully expanded its business with clients such as the Printing Bureau of the Ministry of Finance and other government bodies, in addition to private printing companies. Exports also grew during the same time. The Company’s rapid growth was also due in part to the early introduction of integrated manufacturing system from raw materials (pigments, resins) to finished products (printing inks). Another contributing factor may be that the Company, since its inception, had strong ties with Toppan Printing Co., Ltd., which, by then, was among Japan's largest printing companies. The Company survived the difficult times of the Great Kanto Earthquake and the World War II and experienced rapid growth again during the period of high economic growth after the war. The Company was listed on the Second Section of the Tokyo Stock Exchange in 1961 and moved to the First Section of the Tokyo Stock Exchange in 1967.
The Company is expanding its businesses from manufacturing of printing inks to other fields such as LCD film materials, using its wide range of technologies and know-how cultivated through manufacturing and processing of raw materials such as pigments and resins. In 2011, the Company adopted a holding company system for further expansion and growth of the Group, and changed its name to Toyo Ink SC Holdings, Co., Ltd.

1-2 Management Philosophy

The Toyo Ink Group’s Corporate Philosophy was established in April 1993. It consists of three parts, namely, corporate philosophy, corporate policies, and guiding principles. The Philosophy embodies the original roots of the brand of the corporate group and serves as guidelines that each employee of the Group should always keep in mind and act on as a business professional. In April 2014, “improving shareholder satisfaction” was added to its guiding principles. With this revision, the Company is aiming to improve satisfaction of all stakeholders.

<Toyo Ink Management Philosophy>

All employees must always carry this philosophy system printed on a credo card, read it out in the 5-minute meeting every week at each division, and repeatedly confirm its meaning through discussion. This way, the employees are expected to have deeper understanding and implement the philosophy.
Furthermore, the “Toyo Ink Group Management Philosophy” is printed on the first page of every single issue of the Company's in-house magazine, which is published for the Group's unity and circulated to the entire Group including the overseas locations. Also, the above-mentioned credo has “Japanese/English” version as well as “Chinese/English” version to share and spread the management philosophy globally.

1-3 Market Environment

1-3-1 Overview
(Market trend)
The production value of the Japanese printing industry is declining especially in the realm of publication printing of newspapers and magazines as a result of increasing digitization and aliteracy.
In the realm of commercial printing, on the other hand, of posters, catalogues, fliers, POP, etc. demand is fairly steady. Furthermore, printing on food and pharmaceutical packages and plastic containers is steadily increasing at the compound annual growth rate (CAGR) of 2.42% from 2004 to 2017.

Meanwhile, overseas, especially in newly emerging countries, both printing on papers (offset printing) and printing on film of food packages (gravure printing, flexographic printing) are expected to grow, and the Company is focusing on responding to the demand.
As innovation of printing machine is progressing, quality of printing is enhancing. Overseas local inks, in many cases, cannot respond to such demand for high quality, which may lead to more demand of excellent Japanese ink.

(Printing houses and printing ink manufacturers)
According to the “Census of Manufactures 2017: Report by Industry” by METI, there were 10,589 business entities in the printing and related industries in 2016. 10,187 (96.2%) of them are small and medium-sized enterprises with fewer than 100 employees.

The Company’s customers such as printing companies purchase printing inks and carry out printing. However, printing cannot be done simply by setting printing inks and papers and starting the machine. Printing companies are faced with needs such as “selection of the ink for the new types of paper,” “producing special color” and “producing premium look,” and challenges such as improving printing efficiency and taking environmental measures. The Company provides its customers with information on new products and various pieces of concerning these needs and challenges. Most of the 26,000 printing companies in Japan can hardly conduct business without such solutions. Therefore, printing ink manufacturers play a crucial role in the printing industry.
Thus, the Company’s customers seek direct dealings with the Company. As a result, nearly 80% of the Company’s domestic sales come from direct sales to its customers. These strong relationships with the customers are among the Company’s major characteristics.

1-3-2 Other companies in the industry
There are six major listed companies including Toyo Ink in the ink industry in Japan.
While (4631) DIC is the number one company in the world, Toyo Ink is the top runner in Japanese printing ink industry, and ranks first or second in most product categories. Globally, the Company is ranked third (The second is a European firm). (4633) SAKATA INX is the second largest shareholder of the Company. The Company and SAKATA INX complement each other mainly in logistical aspects. The two companies concluded a capital and business alliance agreement in 2000.

*Sales and operating income are based on forecasts of each company for this FY. ROE and PBR are based on actual results of the previous term end. Unit: Million Yen, Times. Total market value is as of closing on March 7, 2019.

1-4 Business Description

1-4-1 Concerning “printing inks”
Followings are the summary of printing inks, one of the major product categories of the Company, categorized by “raw materials” and “types and purposes of use.”

<Composing elements of printing inks>

High-level diffusion technologies are required when various inks are produced by combining the above three raw materials.
Since its foundation, the Company has also been expanding its business categories by exploring application of these raw materials in the process of manufacturing them.

<Types and intended use of major printing inks>

1-4-2 Business segments
The business activities of the Company are classified into four segments: the “Colorants & Functional Materials Related Business,” “Polymers & Coatings Related Business,” “Printing & Information Related Business”, and “Packaging Materials Related Business”.
The “Printing & Information Related Business” mainly deals with planographic inks that are used for printing on papers (offset inks, etc.). The “Packaging Materials Related Business” deals with gravure inks and flexographic inks that are used for printing on films of food packages. The “Colorants & Functional Materials Related Business” deals with products related to pigments that are also the raw materials of printing inks as core materials. The “Polymers & Coatings Related Business” began with resins that are the main raw materials of inks and their design technologies.

☆Colorants and Functional Materials Related Business

*Unit: ¥mn

Based on the organic pigments that are the main raw materials for printing inks, and by integrating their color material technologies, organic chemical synthetic technologies and high-level dispersion technologies, the Company offers materials that are used in various fields. Especially, it created higher functional LCD color filter materials using their nano-level dispersion technologies through integration of technologies that have been accumulated from their ink and painting materials production experiences. Furthermore, the Company’s dispersion processing technologies are used not only for organic pigments but also for inorganic materials such as carbon nanotube (CNT), which leads to expansion of its business in the new energy field such as secondary battery materials. They constitute about 40% of the Company’s operating income.

☆Polymers & Coatings Related Business

*Unit: ¥mn

For this segment, the Company develops functional resins as the core materials with different functional features. Using unique technologies that have been developed for many years, the Company creates new functions to cultivate new demand and open new markets in electronics, energy, health care and other fields.

☆Packaging Materials Related Business

*Unit: ¥mn

For this segment, the Company deals with printing inks and equipment used in packages such as gravure printing, flexographic graphic printing and screen-printing. In the field of food packaging, etc., the Company is dedicated to developing environmentally friendly products using water-based ink to assure their safety to the consumers.

☆Printing & Information Related Business

*Unit: ¥mn

This segment is the core segment of the Company since its establishment. For this segment, the Company deals mainly with printing inks used for printing on paper.
The Company offers not only printing inks but also sales of machinery/equipment, support for streamlining customers’ printing process, and support and tools for color management and color universal design.

1-4-3 Overseas expansion
While the Company is improving profitability by offering high-value-added products in the Japanese market, where a rapid growth is not expected, it is aggressively expanding its business from both production and sales perspectives in the overseas market where future growth is expected.
Development of its overseas manufacturing structures was almost completed during the previous Midterm Business Plan, and the Company is carrying out both raw material procurement and production at local sites.
As of the end of Decembewr 2017, the Company has about 50 overseas consolidated subsidiaries and 50 production sites in a wide range of countries around the world.

*Unit: ¥100mn
<Segment trend by region: FY December 2018>

1-5 ROE Analysis

*The 12-months conversion value for the term ended December 2017 is 6.8%.

In general, it is desirable to boost profitability and efficiency to achieve an ROE of 8%, which is said to be the value that should be pursued by Japanese companies.

1-6 Characteristics and Strengths

1-6-1 Strong technological edge
As described above, the Company has been manufacturing in-house pigments and resins, which are the raw materials of printing inks. Its technological capacities form the basis of high quality printing ink production and lead to expansion of business areas and product range such as, LCD color filter materials, adhesive bonds and adhesive compounds.

1-6-2 Excellent problem solving skills
One of the reasons for the Company to be at the top of the Japanese printing inks industry is its excellent problem solving capability in all aspects of printing.
The Company not only produces and supplies printing inks but also studies elements related to “printing” as a whole including plate making and images. Such efforts enable the Company to make technological proposals, demonstrate advanced service skills, and obtain high customer satisfaction.

1-6-3 Environmental concerns
The Company is a forerunner in CO2 emission reduction as well as production of eco-friendly inks such as non-VOC inks, water-base inks, and UV inks. In the newly developed countries, too, the environmental regulations are becoming tighter, and the needs for environmentally friendly products are increasing. The Company is also working on assuring safety such as chemical substances control and manufacturing a line of products that meet the Swiss Ordinance, ahead of other companies.

1-6-4 Uniqueness of management strategies
The Company considers M&A as one of the options for exploring new markets with its technological edge, if M&A is expected to bring synergy effects to the Company. However, it is not intending to implement M&A just to increase the size of businesses. It is also taking an initiative in the printing ink industry to establish “local production for local consumption” policy in the overseas market for enhancing efficiency (e.g. reduction in transport mileage) and social contribution (e.g. utilization of local products) purposes.

2. Fiscal Year December 2018 Earnings Results

2-1 Business results overview

* The results for FY 12/17 are actual and adjusted based on 12-months settlement from January to December.
* Units: ¥mn

Sales grew, but profit declined.
Sales were 290.2 billion yen, up 3.6% year on year. The “Colorants & Functional Materials Related Business,” “Polymers & Coatings Related Business,” and “Packaging Materials Related Business” were healthy. Overseas sales expanded mainly in Asia, and shipment volume increased. However, in the latter half of the year, the business was affected by the slowdown in the Chinese market and the smartphone market.
Operating income was 15.3 billion yen, down 25.3% year on year. Although there were positive factors such as the increase in sales volume (+1.7 billion yen) and the revision of prices (+1.2 billion yen), the skyrocketing material prices, including the prices of solvents due to the increase in naphtha price (-5.5 billion yen), and the decline in selling prices (-1.4 billion yen) negatively affected the profit.

2-2 Trend by Segment

*The results for FY 12/17 are actual and adjusted based on 12-months settlement from January to December. The YoY value may contain an error due to calculation in the unit of 100 million yen.
*Unit: ¥100mn

☆Colorants and Functional Materials Related Business
Sales grew but profit declined. New adoption of display materials progressed in China, but media materials, which are one of the focuses of the company, did not reach the sales target.

(Chemicals)
Both sales and profit declined. Pigment materials remained weak due to the downturn in the printing field and rising raw materials prices. Some new high-dispersion pigments for inkjet and coating were successful. They are expected to generate profit in 2019 targeting the battery manufacturers in China.

(Display materials)
Both sales and profit grew. Sales progressed well, with new sales obtained from a Chinese panel manufacturer. For the sensor materials, a technical development system was established.

(Colorants)
Sales grew but profit declined. Profit decreased due to the impact of rising material prices. In the medical-related fields, the company focused on developing specific wavelength blocking materials, and the assessment of the material by customers began. The liquid colorants were recognized by large customers and will be adopted by them. Supply of functional colorants began in the field related to Carbon Nano-Tube (CNT).

☆Polymers & Coatings Related Business
Sales grew but profit declined. Sales showed significant growth mainly for electronic products. Electronic and optical products, which are the company’s key products, considerably exceeded the sales targets.

(Coating materials)
Both sales and profit grew. Sales of conductive adhesive films for smartphones and display applications grew for the domestic as well as overseas markets. Marking films performed well for large-scale properties in Japan.

(Adhesives)
Sales grew but profit declined. Adhesives for electronic products and laminate adhesives for lithium-ion batteries were strong, but the business was affected by soaring raw material prices.

(Coatings and resins)
Both sales and profit declined. Can coatings were healthy for environmentally friendly products in the U.S. market. In Japan, sales remained weak due to stagnant demand for canned coffee. Sales of high-value-added resins were strong in the first half but slowed in the second half.

☆Packaging Materials Related Business
Sales grew but profit declined. Sales volume increased due to expansion of demand and sales expansion of packaging materials. Overseas liquid ink, which is a key product, did not achieve the target.

(Soft packaging materials)
Sales grew but profit declined. The demand for gravure inks remained healthy in Japan. The company promoted sales of environmentally friendly products such as biomass ink, but it was affected by soaring raw material prices. Overseas, sales of middle-grade inks continued to grow in Southeast Asia and China.

(Building materials)
Sales grew but profit declined. Sales promotion continued for topcoats for construction materials.

(Cardboard)
Both sales and profit declined. Although expansion of new sales channels and cost reduction progressed, the drop in sales volume due to reduction of color printing heavily affected the sales.

☆Printing & Information Related Business
Both sales and profit declined. While demand continued to decrease, shipment volume of functional inks such as UV inks increased. It could not reach the target for functional inks, which are priority products.

(Offset inks)
Both sales and profit declined. In Japan, the company worked on consolidation of production bases and establishment of external alliances. Establishment of alliance for logistics is also under consideration. Despite sales expansion of new products, soaring raw material prices put pressure on profits.
Outside Japan, the market stagnated, and environmental regulations became tighter in China. Under these circumstances, the company promoted SCM optimization for expanding sales of Indian and Brazilian products and improving profits, but soaring raw material prices put pressure on the profit.

(Functional inks)
Sales grew but profit declined. For the functional ink group, the company expanded sales through cooperation with printing machine manufacturers. The company promoted sales of UV inks for paper containers in Japan, Central and South America and China. As for inkjet inks, it promoted sales expansion for commercial printing and development of inkjet inks for packaging. Soaring raw material prices gave a significant negative impact.

2-3 Financial Situation and Cash Flow

2-3-1 Main BS

*Unit: ¥mn

Current assets grew 9.4 billion yen from the end of the previous term, due to the increase in cash and deposits, etc. Noncurrent assets dropped 14.6 billion yen from the end of the previous term, due to the decline in investment securities caused by the decrease in share prices, etc. Total assets decreased 5.1 billion yen to 374.5 billion yen from the end of the previous term. Total liabilities were 150.7 billion yen, up 2.1 billion yen from the end of the previous term, due to the increase in trade payables, etc. Net assets declined 7.2 billion yen to 223.8 billion yen from the end of the previous term, as retained earnings rose, but foreign currency translation adjustment turned negative due to the yen appreciation.
As a result, capital adequacy ratio decreased 1.1 points from 59.0% at the end of the previous term to 57.9%.

2-3-2 Cash Flow

*Unit: ¥mn

Because the results for FY 12/17 are based on a nine-month settlement, it is not possible to simply compare year on year. However, free CF continued to be positive and the cash position improved.

2-4 Topics

Strengthening environmental product line
Under the 10-year long-term scheme “Scientific Innovation Chain 2027 (SIC 27),” where the company aims to achieve sustainable growth toward 2027, it adopted the following concept as a goal for 2027: “a world where all living beings and the environment can coexist harmoniously and with vitality.” As a chemical manufacturer, it is working on “strengthening environmental products line” as a social contribution activity.

Based on the idea of contributing to the realization of a sustainable society through the development of technologies, products and services that can harmonize with the environment for the long term, in addition to low environmental loads, the company is promoting the following specific initiatives.

In addition, with regard to SDGs (sustainable development goals), the company will work on the 12 goals that are particularly relevant to its business activities in relation to the important issues of CSR

（Source: the company）

3. Fiscal Year December 2019 Earnings Forecast

3-1 Business forecasts

*Forecasts are the figures announced by the Company.
*Unit: ¥mn

Both sales and profit will grow.
Sales are expected to be 300 billion yen, up 3.4% year on year. The sales from the “Colorants & Functional Materials Related Business,” “Polymers & Coatings Related Business,” and “Packaging Materials Related Business” are expected to continue to grow.
Operating income is expected to increase 14.1% year on year to 17.5 billion yen. Although there is a continuing impact of rising raw material prices (1.6 billion yen), it will be offset by increasing sales volume (3.7 billion yen), widespread acceptance of revised prices (1.4 billion yen), and cost reduction (1.0 billion yen), and profits are expected to increase in all segments.
The dividend is to be 90.00 yen/share, up 5 yen/share from the previous term. The estimated payout ratio is 43.8%.

The exchange rates are assumed to be as follows: 1 US dollar = 110 yen (110.4 yen on average in the previous term), 1 euro = 130 yen (130.0 yen on average in the previous term), and 1 yuan = 17.0 yen (16.5 yen on average in the previous term).
Raw material prices are expected to be 45,000 yen/kl for naphtha (51,075 yen/kl on average in the previous term) and $1,800/ton for rosin ($ 1,838/ton on average in the previous term).

3-2 Trends by Segment

*From the term ending December 2018, the segment of coating materials is partially moved from the Printing & Information Related Business to Polymers & Coatings Related Business.
*Unit: ¥100mn

3-2-1 Key measures in each segment for the term ending December 2019

3-3 Investment for creating new businesses

There was a significant change in the external environment in the second half of the year, and the expansion of bases through capital investment in Turkey and Mexico was postponed. As for strategic investment, various strategic alliances and M&A projects were also postponed or canceled. As a result, as shown in the table below, the amount of investment in 2018 was far below the initial plan.

*Unit: ¥100mn

In the current term, the company plans to develop laminate adhesives and healthcare related products in Japan, develop functional ink related products for the European market, build a new plant in Mexico for the Central and South American market, and relocate Jiangmen Plant in China.
With regard to strategic investment, it plans to consider making investments with a target of 13 billion yen by 2020, including the ones that were not implemented in the previous fiscal year.
It will actively promote investments in businesses, human resources, and technologies that will lead to the creation of new businesses.

4. Mid-Term Business Plan “SIC-I” in 2019

The company is planning to create the foundation for sustainable growth of the Toyo Ink Group during the Mid-Term Business Plan SIC-I. The company considers 2019, the second year, as a year to promote transformation of existing businesses and expansion of new business areas.

4-1 Reform of the existing businesses

4-2 Expansion of the new business areas

To create new businesses in new fields by utilizing the Group’s unique technologies including synthesis, dispersion, and film formation using materials such as pigments and resins.

(Examples of products）
Next-generation display materials, materials for image sensors, electromagnetic wave shields for high-speed communication, adhesive patches for medical use, IJ inks compatible with digital printing, flexographic inks for soft packaging, electron beam inks, etc.

While expanding the business fields in the growing markets such as IoT, mobility, energy and environment for the entire business segments, it will make a Group-wide effort to make a leap as a science company, including a review of production and management system using data science.

5. Conclusions

According to the forecast of operating income fluctuation factors in the beginning of the term ended December 2018, the impact of soaring raw material prices was expected to be negative 2 billion yen. However, in reality, it was negative 5.5 billion yen, which became the largest factor of profit decline in the previous term.
As efforts such as increasing sales volume and penetrating price revisions are steadily making progress, in the short term, we would like to watch how the company will absorb the soaring raw material prices which are expected to be negative 1.6 billion yen during this term.
Meanwhile, in the medium term, how actively it can promote various investments that were not implemented sufficiently in the previous fiscal year and how quickly it can launch products related to growth keywords such as IoT, 5G, and the environment are the points of focus.

＜Reference1：Mid-Term Business Plan “SIC-I” (FY 2018 to FY 2020) ＞

Under the long-term 10-year vision “Scientific Innovation Chain 2027 (SIC 27)” to realize sustainable growth for 2027, the company will develop a three-stage medium-term management plan every 3 years, clarify the challenges and roles, and act steadily for the future. It launched the first stage “Medium-Term Management Plan SIC-I (FY2018 - 2020)” this fiscal year.

Basic policies

The theme is “Frequent challenges”
By positioning the next medium-term management plan SIC-I (FY2018 - FY2020) as a period for building a
foundation for sustainable growth in the next 100-year range, we will take successive measures for
innovative change.

1) Transformation of existing businesses and development of new businesses for growth
2) Promotion of manufacturing innovation to increase sustainability
3) Overhaul of management foundation

Numerical Goal

◎Whole Company

* Unit: 0.1 billion yen. The year on year rates are calculated by Investment Bridge based on the information provided by the company. The year on year rates of sales and operating income are average annual growth rates.

◎Segments

*Unit: 0.1 billion yen. The change is calculated by Investment Bridge based on the information provided by the company. The year on year rates of sales and operating income are average annual growth rates.
*From the term ending Dec. 2018, the segment of coating materials is partially moved from the Printing & Information Related Business to Polymers & Coatings Related Business.

(Major challenges by segment)

＊From the term ending Dec. 2018, the segment of coating materials is partially moved from the Printing & Information Related Business to Polymers & Coatings Related Business.

◎Investment plans
The company will set up a strategic investment frame separately from the traditional capital investment frame to expand priority domains and create new businesses, and it will make aggressive investment to achieve the plan.

The strategic investment frame is an investment frame for transformation to expand priority domains and create new businesses, which will be described later. The company will take various actions, such as human resources and technology investment, to achieve the plan within this frame.

<Major measures>

【1-1 Transformation of Existing Businesses】
■ Global development
To raise the growth capacity in overseas markets, it will promote the integration of global bases that have been established so far and the expansion of product lineups and will develop diverse businesses.
For pigment dispersions for inkjet inks and inks, in addition to manufacturing environmentally friendly products in China (Zhuhai), it will increase items in Japan, the US and France.
For laminate adhesives, it will try to increase sales in the food packaging market in cooperation with global bases that operate liquid ink business.

The company aims for increased sales of 53 billion yen compared with the term ended Dec. 2017.

■ Expansion of new products
The company will promote the development of new materials with a focus on pigments and resins and create new values by combining synthesis, dispersion and film formation technologies, which are its core technologies, to enter new markets and new areas.
Particularly, it will focus on electronics-related materials and medical/healthcare products in the Polymers & Coatings Related Business.
It aims for increased sales of 16 billion yen compared with the term ended Dec. 2017.

【1-2 Development of New Businesses】
The company set 6 priority domains in the SIC-I. To achieve sustainable growth, it will challenge the development of new business models centered on solution proposals that go beyond merely providing products and will link them to the activities in the “SIC-II” and “SIC-III” phases.

It will focus on the following 4 businesses.

[Sensor-related business]
The domains are mobility, medical/healthcare and IoT.
The company will focus on rapidly increasing “sensors” in the fast growing IoT market. In addition to “manufacturing” centered on chemicals, it will also try to develop sensor-related businesses that incorporate new technologies and provide “information and systems.”
(Major products/services)
The major products/services are image sensor materials and sensor devices. In the “SIC –II” and “SIC –III” phases, development of data business based on sensing data will also be considered.

[Waste-heat from living related business]
The domains are mobility, IoT and energy.
Focusing on “waste-heat from living” which is unused in the surroundings of the living, the company will develop technologies to efficiently recycle the heat and work on a business that provides recycling energy solutions.
(Major products/services)
Heat resistant adhesive film, super heat resistant insulation/heat conductive film, high heat management parts, etc.

[Healthcare related business]
The domain is medical/healthcare.
Based on the adhesive patch business platform, the company will steadily expand its pharmaceutical business base and strengthen development and sales of peripheral healthcare-related materials.
(Major products/services)
Tapes for blood glucose test strips, medical adhesives, biocompatible polymers, next-generation adhesive patches, etc.

[Natural materials related business]
The domain is natural materials.
The company aims to further develop businesses of new functional natural materials making full use of edible pigments and bamboo-related products business platforms and advance the expansion of biomass products to further contribute to the low-carbon society.
(Major products/services)
Edible pigment products, Kuma bamboo grass related products, biomass inks, functional food materials, etc.

Until now, the company has been working on building a manufacturing network by proactively expanding overseas bases, building safe and secure manufacturing with consideration for the environment, and developing a global chemical substance management and trade management systems.
During the SIC-I phase, to contribute to the improvement of sustainability of ordinary citizens, life, and the global environment, it will tackle innovation in manufacturing for sustainable growth including the company itself and aim to achieve both contributing to sustainability and securing profitability.
(Example of actions)
☆　Building the global supply chain based on co-existence and co-prosperity with our partners
☆　Production process innovation integrated with digital technologies
☆　Promotion of manufacturing to live with the global environment (energy savings, reduction of CO2 emissions, etc.)

It will drive forward global integration of business systems to reform existing business, create new businesses and reform manufacturing. It will also work on strengthening the management foundation including recruitment of personnel for reform and institutional reform (i.e. complete transition to defined contribution pension system, commencement of retirement age of 65). In addition, it will implement CSR activities integrated with management and contribute to the

improvement of the sustainability of ordinary citizens, life and the global environment.
It will strengthen the foundation to continuously create innovations.
(Example of actions)
☆　Promotion of ERP integration globally and promotion of greater business efficiency using AI
☆　Active recruitment of human resources necessary for innovative changes and the renovation of the personnel system to encourage innovations
☆　Promotion of active CSR activities to achieve important issues (materiality) of TIG

<Reference2: Regarding Corporate Governance>

◎ Organization type, and the composition of directors and auditors

◎ Corporate Governance Report
The latest update: December 26, 2018.

<Basic policy>
Our corporate group shifted to the holding company structure on April 1, 2011. Under the holding company structure, our company aims to improve the value of the entire corporate group by strengthening its strategic function, promoting speedy business administration, and achieve a good balance between the optimization of the entire group and the optimization of each business.
Our group’s framework for business administration is constituted by the “ethos of the Toyo Ink Group,” which is composed of management philosophy and ethos, which summarize the basic policies for group management, and the course of action, and the “CSR value system,” which is composed of the CSR charter and course of action, which clearly describe the stance toward social responsibility.
Our group aims to contribute to the improvement of sustainability of residents, life, and the earth environment and become “an enterprise that can create lifestyles and cultures that would spread around the world” as set in the management ethos, through science-based manufacturing, by putting the “ethos of the Toyo Ink Group” and the “CSR value system” into practice.
In order to create tangible and intangible values as an enterprise and fulfill social responsibility, it is indispensable to self-evaluate corporate activities from the viewpoint of stakeholders and carry out well-balanced business administration for economic, social, personnel, and environmental affairs.
To do so, our company will:

*transfer the business execution function to each business company, and appropriately enforce the regulations for internal memos and affiliate management, which are adapted to each group company, in order to fortify corporate governance, develop its internal control system,
*improve the instruction and monitoring functions by enhancing the legal functions and systems, such as general meetings of shareholders, the board of directors, the board of auditors, comptrollers, etc.,
*improve the transparency of business administration by disclosing information swiftly, accurately, and broadly,
*strengthen and enrich its compliance system,
*promote environmental conservation on a global scale, and so on,

and foster good relationships with stakeholders, including shareholders, business partners, local communities, and employees, and enhance corporate governance.

<Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)>
Our company implements all the principles of the corporate governance code.
<Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)>

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