Daio Paper Group Integrated Report Shaping an Abundant and Affable Future for the World

Transcription

1 Daio Paper Group Integrated Report 2017 Shaping an Abundant and Affable Future for the World

2 Philosophy Philosophy of the Daio Paper Group (As of September 30, 2017) Established May 5, 1943 Capital 39,707,327,353 Number of Shares Issued 149,348,785 shares Bonds with local communities 17 GOALS TO TRANSFORM OUR WORLD Offices Tokyo Headquarters: Mills Mishima Mill (Ehime Prefecture) Kani Mill (Gifu Prefecture) Branches Osaka Branch, Nagoya Branch, Kyushu Branch (Fukuoka City) Website Main Products Newsprint, coated paper, woodfree paper, printing paper for publication, PPC paper, carbonless paper, adhesive printing paper, wrapping paper, functional specialty paper, kraft linerboard16(linerboard and corrugating medium), various types of pulp, household paper products (facial tissue, toilet tissue, paper towels, sanitary napkins, disposable diapers, etc.) 17 GOALS TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for 10-2, Fujimi 2-chome, Chiyoda Ward, Tokyo Tel: Shikoku Headquarters: 2-60, Mishimakamiya-cho, Shikokuchuo City, Ehime Prefecture Tel: Production Bases of Daio Paper Corporation SDGs are global goals set in the United Nations The 2030 Agenda for 1 Daio Paper Corp. Mishima Mill Shikokuchuo City, Ehime Prefecture SDGs are global goals set SDGs are globalnations goals set in the United in The the United Nations 2030 Agenda for The 2030 Agenda for Sustainable Development Corporate Motto Corrugated Container SDGs are global goals set in the United Nations The 2030 Agenda for 2 Daiwa Shiko Co., Ltd. 17 GOALS TO TRANSFORM OUR WORLD Chuo Ward, Tokyo 17GOALS GOALSTO TOTRANSFORM TRANSFORMOUR OURWORLD WORLD 17 GOALS TO TRANSFORM OUR WORLD GOALS GOALSTO TOTRANSFORM TRANSFORMOUR OURWORLD WORLD 1 Daio Package Corporation Chiyoda Ward, Tokyo Shaping an Abundant and Affable Future for the World Passion with Sincerity 17 GOALS TO TRANSFORM OUR WORLD I ntegrated SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for O Corporate culture providing safety and motivation to work rganic Contribution to the global environment 14 Elleair Texel Corporation Distribution Kani City, Gifu Prefecture 24 Tokyo Pulp & Paper Corporation 25 Tokyo Pulp & Paper International Co., Ltd. 16 Akabira Paper Corporation 26 Daio Pulp & Paper Co., Ltd. 5 Daio Postal Chemical Corporation 17 Elleair Product Co., Ltd. 27 Elleair Business Support 3 5Co., Ltd. 6 Miura Printing Corporation 18 Elleair Packaging Print Corporation Paper Manufacturing 19 Elleair Paper Co., Ltd. Chuo Ward, Tokyo SDGs are global goals set in the United Nations The 2030 Agenda for Sumida Ward, Tokyo 7 Iwaki Daio Paper Corporation Iwaki City, Fukushima Prefecture 8 Dainichi Paper Corporation Fuji City, Shizuoka Prefecture 9 Otsu Paper Board Co., Ltd. Otsu City, Shiga Prefecture 10 Harima Paper Tech. Corporation Kakogawa City, Hyogo Prefecture Chuo Ward, Tokyo Chuo Ward, Tokyo Akabira City, Hokkaido Shikokuchuo City, Ehime Prefecture 11 7 Chuo Ward, Tokyo Fujinomiya City, Shizuoka Prefecture Shinjuku 18 Ward, Tokyo Other Businesses Kawabe Town, Kamo County, Gifu Prefecture 27 Corporation 28 Elleair Paper Chemical26 1 Shikokuchuo City, Ehime Prefecture Shikokuchuo29 City, Ehime Prefecture Elleair Resorts Golf Club Co., Ltd. 20 Daio Paper Product Corporation Matsuyama City, Ehime Prefecture Chiyoda Ward, Tokyo Fuji City, Shizuoka Prefecture Engineering Shikokuchuo City, Ehime Prefecture Daio Engineering Co., Ltd. 11 Taisei Paper Corporation Shikokuchuo City, Ehime Prefecture See p. 23 for the details of SDGs. Overseas Business Bases The Daio Paper Group is promoting initiatives toward achieving the goals set out in 31 adopted at the United Nations Sustainable Development Summit in September 2015, through its business activities Forestal Anchile LTDA. (Chile) Elleair International Korea Co., Ltd. 32 Elleair International (Thailand) Co., Ltd. 33 Elleair International China (Nantong) Co., Ltd. 34 PT. Elleair International Trading Indonesia 35 PT. Elleair International Manufacturing Indonesia 36 Oregon Chip Terminal INC. (U.S.A.) Marubishi Paper Tec. Corporation To continue to be a proud corporate citizen that is trusted globally 7 21 Tokai Seishi Kogyo Co., Ltd. Tsuyama City, Okayama Prefecture Transforming our world: the 2030 Agenda for Sustainable Development Goals (SDGs), 16 Shikokuchuo City, Ehime Prefecture Shikokuchuo City, Ehime Prefecture H&PC Manufacturing 4 Elleair Printing Co., Ltd. SDGs are global goals set SDGs are globalnations goals set in the United in The the United Nations 2030 Agenda for The 2030 Agenda for Sustainable Development 13 Daio Mill Support Co., Ltd. 15 Ohmiya Paper Corporation Shikokuchuo City, Ehime Prefecture SDGs are global goals set in the United Nations The 2030 Agenda for Transportation 23 Daio Logistics Co., Ltd. Printing Toshima Ward, Tokyo SDGs are global goals set in the United Nations The 2030 Agenda for Paper Processing 3 Daio Printing Corporation 17 GOALS TO TRANSFORM 17 GOALS TO OUR TRANSFORM WORLD OUR WORLD SDGs SDGsare areglobal globalgoals goalsset set ininthe theunited UnitedNations Nations The The Agenda Agendafor for Sustainable SustainableDevelopment Development Kani City, Gifu Prefecture Business Bases of the Group Companies (Headquarters Location) Management Philosophy SDGs are global goals set in the United Nations The 2030 Agenda for 2 Daio Paper Corp. Kani Mill VALUE CREATION MODEL OF Dedication to manufacturing ttentive 2,609 (Unconsolidated), 11,022 (Consolidated) ABOUT A 17 GOALS TO TRANSFORM OUR WORLD OUR WORLD 17 GOALS TO TRANSFORM Number of Employees FINANCIAL AND CORPORATE DATA D 17 GOALS TO TRANSFORM OUR WORLD edicated 17GOALS GOALSTO TOTRANSFORM TRANSFORMOUR OURWORLD WORLD 17 Corporate Information PHILOSOPHY OF Passion with sincerity leads to greatness. This founding principle of Daio represents the basis for all our decisions, leading us to enrich lives around the world by taking on new challenges daily with sincerity and passion. Corporate Data / Network In tegrated Re port 2017 Integrated Report

3 Business of the Daio Paper Group Paper and Paperboard Business Home and Personal Care Business PHILOSOPHY OF Strengths of the Daio Paper Group See p. 17 for details From newsprint to disposable diapers Full-range Paper Manufacturer A thorough Customer First principle Market-oriented Business Strategy Recovered paper utilization rate of 64% Environmentally Conscious Company See p. 15 for details Desired Future Society Envisioned by the Daio Paper Group Comfortable living Equal society Abundant life Continuation of sustainable innovation Conservation of the global environment for future generations ABOUT VALUE CREATION MODEL OF The Second Medium-term Business Plan (FY2015 to FY2017) Principal Strategies: Structural shift of the Paper Business Strengthening of the Containerboard and Corrugated Container Business Further growth and acceleration of the Home and Personal Care Business Thorough cost reduction Pursuing efficiency and diversity in human resource utilization Further improvement of financial position FINANCIAL AND CORPORATE DATA Integrated Report

4 Four Pillars of the Daio Paper Group Management Philosophy D A I O To sell the products we have manufactured with our own efforts Mishima Mill, Daio Paper Corporation Dedicated Dedication to manufacturing See p. 25 for details Our dedication to society and local communities drives us to innovate and deliver new value born from attention to regions, resources, and realizations. The Daio Paper Group s Dedication to Manufacturing Manufacturing paper and paperboard products as a full-range paper manufacturer High usage of recovered paper: Achieved industry s first newsprint made from 100% recovered paper Approximately 90% of the 1,065 patent applications filed for baby disposable diapers are in force, the highest ratio in Japan Production facility for coated paper (for pamphlets and magazines, etc.) 03 Integrated Report 2017

5 Four Pillars of the Daio Paper Group Management Philosophy D A I O PHILOSOPHY OF ABOUT Advancing sustainability and coexistence with local communities Attentive Bonds with local communities See p. 31 for details Conducting mill tours for local elementary and junior high school students Our attention to individual cultures and regions drives us to contribute and work in harmony with local communities, demonstrating our standing as good corporate citizens. The Daio Paper Group s Initiatives to Contribute to Local Communities Coexistence with local communities and zero forest destruction in overseas plantations Job creation and development of local communities through overseas business expansion Social contribution through sports events and provision of support to disaster-stricken areas VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Explanatory tour of mill for local residents Integrated Report

6 Four Pillars of the Daio Paper Group Management Philosophy D I A O Corporate governance Diversity management Human resource development Integrated Corporate culture providing safety and motivation to work See p. 35 for details We will strive to maintain a diverse and friendly corporate culture that offers new challenges and a sense of security and trust to employees. The Daio Paper Group s Initiatives for Corporate Governance and Diversity Management Corporate governance framework Risk management framework Diversity management 05 Integrated Report 2017

7 Four Pillars of the Daio Paper Group Management Philosophy D A I O PHILOSOPHY OF Ratio of biomass energy use: 50% ABOUT CO₂ emissions reduction (compared to 1990): Organic Contribution to the global environment See p. 43 for details Examples of environment-friendly products 89,000t Forestry business of Forestal Anchile Ltda. (Republic of Chile), Daio Paper Group We will actively work to grow organically, solving environmental problems and realizing a sustainable society for the world over. The Daio Paper Group s Initiatives for Environmental Protection Switched approximately 50% of all energy used in the Group to biomass energy which uses fuels derived from waste materials Reduced CO2 emissions by 89,000t from the 1990 level by switching from fossil fuels (coal, heavy oil, etc.) to biomass fuels (woodchips, wastepaper, refuse paper & plastic fuel (RPF), waste tires, etc.) VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Toilet tissue made with high quality recovered paper Industrial paper wipes made with unbleached pulp Integrated Report

8 Contents Philosophy of the Daio Paper Group 01 Corporate Motto, Management Philosophy About the Daio Paper Group 09 President s Commitment Four Pillars of the Daio Paper Group Management Philosophy: 03 Dedication to manufacturing 04 Bonds with local communities 05 Corporate culture providing safety and motivation to work 06 Contribution to the global environment 13 Daio Paper Group s History of Value Creation 15 Daio Paper Group s Strengths 17 Business Overview of the Daio Paper Group Year Consolidated Financial Summary Editorial Policy This report was created to communicate the results of Daio Paper Group s environmental initiatives during FY2016, and initiatives and plans for fulfilling its corporate social responsibilities. In preparing the report, we bore in mind to make it an information disclosure tool that clearly communicates the Daio Paper Group s initiatives to our stakeholders. Reporting Period April 1, 2016 March 31, 2017 (Some information outside the reporting period is also included.) Scope of Report This report covers 37 companies in the Daio Paper Group. However, environment-related data cover production bases of Daio Paper Corporation and the following 19 consolidated subsidiaries. Daio Package Corporation, Elleair Printing Co., Ltd., Elleair Packaging Print Corporation, Daio Printing Corporation, Iwaki Daio Paper Corporation, Dainichi Paper 07 Integrated Report 2017 Corporation, Otsu Paper Board Co., Ltd., Harima Paper Tech. Corporation, Taisei Paper Corporation, Marubishi Paper Tec. Corporation, Daio Mill Support Co., Ltd., Elleair Texel Corporation, Ohmiya Paper Corporation, Akabira Paper Corporation, Elleair Product Co., Ltd., Forestal Anchile Ltda., Elleair International China (Nantong) Co., Ltd., PT. Elleair International Manufacturing Indonesia, Elleair International (Thailand) Co., Ltd. Guidelines Used as Reference Environmental Reporting Guidelines: Fiscal Year 2012 of the Ministry of the Environment ISO26000

9 Value Creation Model of the Daio Paper Group 23 CSR at the Daio Paper Group Four Pillars of the Daio Paper Group Management Philosophy: 25 Dedicated: Dedication to manufacturing SDGs6 Clean water and sanitation SDGs12 Responsible consumption and production SDGs13 Climate action SDGs17 Partnerships for the goals 31 Attentive: Bonds with local communities SDGs3 Good health and well-being SDGs15 Life on land SDGs17 Partnerships for the goals 35 Integrated: Corporate culture providing safety and motivation to work SDGs3 Good health and well-being SDGs5 Gender equality SDGs8 Decent work and economic growth SDGs16 Peace, justice and strong institutions SDGs17 Partnerships for the goals 43 Organic: Contribution to the global environment SDGs7 Affordable and clean energy SDGs12 Responsible consumption and production SDGs13 Climate action SDGs17 Partnerships for the goals 52 Board of Directors and Audit & Supervisory Board Members Financial and Corporate Data 53 Business Environment and Issues to Be Addressed 56 Consolidated Balance Sheet 58 Consolidated Statement of Income Consolidated Statement of Comprehensive Income 59 Consolidated Statement of Changes in Net Assets 60 Consolidated Statement of Cash Flows 61 Notes to Consolidated Financial Statements 90 Annexed Consolidated Detailed Schedules 92 Independent Auditor s Report 93 Investor Information 94 Corporate Data / Network PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Publication Period November 2017 (this report) October 2018 (next issue) Inquiries: CSR Department Daio Paper Corporation Iidabashi Grand Bloom, 10-2, Fujimi 2-chome, Chiyoda Ward, Tokyo TEL: FAX: Period Covered by Fiscal Year FY2016 and FY2017/3 in this Integrated Report refer to the consolidated fiscal period from April 1, 2016 to March 31, 2017, and the same applies to other fiscal years. Descriptions of Future Outlook Forward-looking statements included in this report are based on various assumptions and do not assure or guarantee the achievement of future financial figures or the attainment of measures. Integrated Report

10 Commitment President s Commitment Theme: Future Vision of the Daio Paper Group Inheriting its founding spirit, the Daio Paper Group will work toward expanding our business sustainably to shape an abundant and affable future. For Further Expansion under the Third Medium-term Business Plan In FY2015, the Daio Paper Group embarked on initiatives aimed at achieving the Second Mediumterm Business Plan spanning three years under the theme of Step-up Leap and Expand, and FY2017 marks the final year of the plan. Up until FY2016, we managed to achieve a steady growth in sales and profit. However, the environment surrounding the Paper and Paperboard Business has become very tough due to the steep rise in the prices of raw materials and fuels, such as recovered paper and coal, since the beginning of this year. Even under such tough business environment, the Daio Paper Group will continue to strive toward further development. We will continue to work toward increasing profitability though the structural reform of each business segment, advancement of growth strategies, improvement of financial position, and thorough cost reduction. In addition, we will endeavor to generate synergistic effects with the paper product business of Nisshinbo Holdings Inc. and Miura Printing Corporation, which were absorbed into the Group this year, and strengthen our business structure for a greater leap forward under the Third Medium-term Business Plan. Initiatives under the Second Medium-term Business Plan The Paper Business sees declining demand for newsprint and printing paper used for leaflets and catalogues year over year due to population decline and advancement in IT technologies. Under such situation, we worked to increase profitability by changing our customer base composition through collaborative efforts with our regional distributors via DAIO Partner Ship Sakura Terrace and other initiatives, as well as by increasing the production and sales ratio of value-added products, such as wrapping paper, communication paper, and uncoated paper. Going forward, we will continue to implement flexible manufacturing and sales frameworks to adapt to changes in the market environment and pursue a structural shift in the business through measures such as a shift in product mix to high value-added products. In the Containerboard and Corrugated Container Business, backed by growth in e-commerce, we The Second Medium-term Business Plan (Billions of Yen) FY2015 Results FY2016 Results FY2017 Goal Net sales Ordinary profit Net interest-bearing debts Equity ratio (%) Net debt to equity ratio (times) Integrated Report 2017

11 expect demand to remain firm. We strengthened our supply structure to supply all types of containerboard (exterior linerboard, white-top linerboard, and corrugating medium) from each mill - the Mishima Mill in East Japan, and Iwaki Daio Paper in West Japan. In addition, we made strategic capital expenditures in the Group s subsidiary Daio Package to enhance quality and increase sales ratio of high value-added products. We will continue to promote integrated operations of the Containerboard and Corrugated Container Business to further strengthen the business. In the Home and Personal Care Business, the growth engine of the Company, we are implementing the following measures to develop it into the core business of the Daio Paper Group in the future. For the domestic business, in order to further shift the product mix of household paper, such as facial tissue and toilet tissue, to high value-added products, we are constructing a household paper production facility at the Kawanoe Mill, and operations are scheduled to start in October By effectively utilizing the superior infrastructure of the Mishima Mill and its advantageous coastal location, and by making the most of Kawanoe Mill s highly efficient, cutting-edge machines, we will further advance the multi-category business expansion (product diversification) of the absorbent product business in Japan and overseas, including China. PHILOSOPHY OF FINANCIAL AND CORPORATE DATA ABOUT VALUE CREATION MODEL OF Masayoshi Sako President and CEO Integrated Report

12 Commitment President s Commitment For the overseas business, following the start-up of our factories in Thailand (in 2011) and China (in 2012), the baby disposable diaper factory in Indonesia commenced operation in December 2015, and sales grew steadily in each region. In Thailand, we successively installed production facilities for wet wipes and feminine care products and are expanding sales through product diversification. In addition, we have expanded our sales reach of baby disposable diapers to 29 countries. Going forward, we will further advance multi-category sales expansion by using the same sales channels of our baby disposable diapers to sell adult disposable diapers, feminine care products, household paper and others overseas. In other businesses, we will reinforce our biomass power generation plant (slated to operate in 2020), which uses pulp waste liquor (black liquor) generated during pulp production as fuel. With that, we plan to expand the electric power selling business by utilizing the Feed-in Tariff Scheme (FIT) for renewable energy, and secure stable profit. Also, we are working toward the commercialization of the new functional material cellulose nanofiber (CNF), by cooperating with various fields through an industry-government-academia collaborative research and development project. We plan to complete the construction of our CNF drying facility pilot plant at the end of 2017, and we strive to realize the commercialization of CNF speedily. To Realize the Daio Paper Group Management Philosophy Shaping an Abundant and Affable Future for the World The Daio Paper Group Management Philosophy Shaping an abundant and affable future for the world expresses our wish to deliver an affable future to everyone in the world. We seek to go beyond tangible affluence to pursue the greater wellbeing and comfortable living for all that we engage. Based on the following four pillars, the Daio Paper Group will take action in concert to realize its management philosophy. Through that, we hope to make progress toward achieving the Sustainable Development Goals (SDGs) set out by the United Nations, which has 2030 as the target date. Four Pillars of the Daio Paper Group Management Philosophy I. Dedication to manufacturing II. Bonds with local communities Daio Paper is the only company in the paper industry The Daio Paper Group strives to coexist with local to have sales personnel stationed throughout Japan to communities through business activities and achieve meet with its users directly. This allows us to respond harmonious growth with local communities by flexibly to changes in the business environment and contributing to their development through the reflect the needs of users in product development, etc. following initiatives: sponsor sports events, such as We will continue to have our sales and production Daio Paper Elleair Ladies Open, an LPGA official divisions work together to watch the business tournament; engage in child-rearing support initiatives environment from a market-oriented perspective, and (distributing purchase coupons for baby disposable strengthen our unique sales approach where we sell diapers, etc.) in collaboration with local governments in the products we have manufactured with our own Ehime Prefecture and Shikokuchuo City; conduct mill efforts to keep creating and delivering new value. tours for local residents and students, etc. 11 Integrated Report 2017

13 Overseas, we strive to create jobs in local communities and develop our business through locally rooted initiatives by advancing our production and sales policy of local production for local consumption. III. Corporate culture that offers new challenges and a sense of security and trust The Daio Paper Group s corporate governance framework allows us to continuously maintain and strengthen governance by activating the Board of Directors through effectiveness evaluation and making decisions on risk management and countermeasures via the Compliance Committee. We also issued the Daio Paper Group Declaration of Health in As a corporate group trusted by society through its business activities, the Daio Paper Group endeavors to ensure the health and well-being of all employees and their families, in order to contribute to the development of local communities and cultures. IV. Contribution to the global environment The Paris Agreement, which set out global warming mitigation measures that will take effect from 2020, entered into force in November Japan has set out the target of reducing greenhouse gas emissions by 26% from 2013 levels by The Daio Paper Group continuously work on reducing environmental impact by promoting the high usage of recovered paper, effective use of biomass energy, energy saving, and CO2 absorption and fixation through forestation at Forestal Anchile Ltda. (Republic of Chile) in its plantations. We will continue to contribute to the formation of a sustainable, recycling-based society through business development in harmony with the global environment. PHILOSOPHY OF ABOUT Moving Forward with Our Stakeholders The Daio Paper Group will continue to proactively support for Daio Paper and the Daio Paper Group tackle environmental, social, and governance (ESG) companies as the Group strives to increase its issues through constructive dialogue and appropriate corporate value by further strengthening its business cooperative efforts with its stakeholders. structure through an integrated operation. Finally, I would like to ask for your continued FINANCIAL AND CORPORATE DATA VALUE CREATION MODEL OF Integrated Report

14 Daio Paper Group s History of Value Creation Positive Cycle of Value Creation Culminated in Record-high Operating Results Daio Paper Corporation was established in Ehime Prefecture in 1943 as a manufacturer of newsprint and industrial paper (containerboard and wrapping paper). The Company subsequently expanded into the paper business, transforming into a full-range paper manufacturer. It then further branched out into the household paper market with consumer goods such as facial tissue and toilet tissue. Thereafter, by leveraging the sales channels developed by its household paper business, Daio Paper entered the absorbent products business. From 2011, the Company embarked on a full-scale expansion into overseas markets with its baby disposable diapers, leading to the formation of a unique business portfolio. () 500, , , , ,000 Net Sales from FY1950 to FY2016 Paper and Paperboard Business Home and Personal Care Business (H&PC) (Overseas sales) Others 1978 Full-scale entry into the paper business (printing and publication paper, communication paper), growing into a full-range paper manufacturer 1979 Entry into the household paper business (facial tissue, toilet tissue) under the brand name elleair 1941 First paper machine of Shikoku Paper Established Business Foundation Making a Leap Forward as a Full-range Paper Manufacturer Entry into Tissue Products/Absorbent Products Founded in 1928 in Shikokuchuo City (formerly, Iyo Mishima City), Ehime Prefecture as Shikoku Paper Corporation. In 1943, through a merger of 14 paper companies, Daio Paper was established. Starting from its main product, newsprint, Daio Paper implemented productivity improvements in a variety of products and streamlining measures to achieve stable supply, establishing a solid base as a full-range paper manufacturer. Based on the managerial philosophy that all changes occur at the side of end consumers, Daio Paper entered the consumer goods market with household paper products. Through product development and sales strategies that flexibly respond to diversifying lifestyles and capture the latent needs of consumers, we achieved top market share in the household paper market Started operation of mill-wide system (Rolled out first-ever comprehensive production management system in the pulp and paper industry sequentially) Achieved No. 1 market share in facial tissue 1986 Achieved No. 1 market share in toilet tissue 1989 Established forestry company Forestal Anchile Ltda. in Chile, South America 1947 Converted from the manufacturing of washi (traditional Japanese paper) to yoshi (paper made in the Western way) 1977 Trial operation of N4 machine (newsprint paper making machine) 1990 First in Japan to offer full range of Kraft paper products made from recovered paper 1993 Enacted Daio Global Environmental Charter 1998 Iwaki Daio Paper Corporation received the Nikkei Superior Trend-setting Factories and Offices Award First in the industry to begin production and sale of newsprint made from 100% recovered paper 1999 Received Environment Agency Director-General Award at the 8th Global Environment Awards 13 Integrated Report 2017

15 Advertisement for household paper Full-scale entry into overseas markets with the establishment of EIT in Thailand 2007 Acquired the Attento adult disposable 2002 diaper business from P&G (U.S.) Rebranded its baby disposable diaper business to GOO.N 1986 Acquired No. 1 market share in facial tissue 2016 Recorded highestever sales Strengths cultivated over the years Full-range Paper Manufacturer Marketoriented Business Strategy PHILOSOPHY OF Environmentally Conscious Company ABOUT (FY) Bringing Our Business Fields to the Global Stage As the paper industry reached maturity in Japan, Daio Paper is accelerating the overseas expansion of its Home and Personal Care business in pursuit of new growth markets. In line with this strategy, Daio Paper has been implementing measures such as strengthening its production facilities in China and Thailand, building a local production plant in Indonesia, and tapping into new markets, e.g. the Middle East Mishima Mill and Kawanoe Mill acquired ISO14001 certification Iwaki Daio Paper received MITI Minister s Prize in the Recycle Promotion Merit Awards Program 2002 Acquired Forest Stewardship Council (FSC ) Certification (Chain of Custody Certification) Forestal Anchile Ltda. acquired FSC Certification (Forest Management and Chain of Custody) 2004 Launched FSC-certified paper Completed and began operation of biomass boiler 2005 First in Japan to sell paper made from 100% recycled resources such as recycled papermaking sludge Installed and began operation of integrated coated paper production facility (N10 machine) at Mishima Mill 2011 Established Elleair International Thailand Co., Ltd. (EIT); began operation of baby disposable diaper production factory in Thailand, the first overseas Daio factory VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA 2007 Mishima-Kawanoe Port recognized as a recycling port Acquired P&G s Attento brand adult disposable diaper business Installed and began operation of integrated coated paper production facility (N10 machine) at Mishima Mill 2008 Began operation of recycled filler production facility Initiative adopted as a promotion project of the Green Logistics Partnership Conference 2009 Launched PPC paper Kininarukami ( paper that becomes a tree ) made from a combination of recycled pulp and thinned wood pulp 2012 Established Elleair International China (Nantong) Co., Ltd. (EICN) in Nantong City, China; began operation of baby disposable diaper production factory 2015 Established PT. Elleair International Manufacturing Indonesia (EIMI) in Cikarang, Indonesia; began operation of baby disposable diaper production factory Integrated Report

16 Daio Paper Group s Strengths Maximizing the Usefulness of Paper as a Material by Leveraging Our Strengths as a Full-range Paper Manufacturer Daio Paper seeks to develop its business by realizing the potential of paper as a material through leveraging its competitiveness in a wide range of fields from materials, such as newsprint, publication paper, and containerboards, to personal care products that support the daily lives of people, from babies to seniors. Strength1Full-range Paper Manufacturer Strengths of a Full-range Paper Manufacturer There are only three full-range paper manufacturers in Japan, including us (Daio Paper, Oji Holdings, and Nippon Paper Industries). Since a full-range paper manufacturer produces and sells a wide variety of paper, it has the advantage of always being able to respond flexibly to the changing needs of the market. Mishima Mill Produces about 10% of the Annual Paper Production Volume in Japan The Mishima Mill, our core mill, is one of the world s largest coastal mills with a site area of 1.67 million m 2. Industry-leading cost competitiveness in Japan Produces all kinds of pulps Annual production volume amounts to approximately 2.10 million tons One of the World s Largest Strength3 Environmentally Conscious Company A Full-range Paper Manufacturer Daio Paper is the No. 3 full-range paper manufacturer in Japan and engages in the integrated manufacture of paper, such as newsprint, printing and publication paper, communication paper, wrapping paper, corrugated container products, household paper products and others, starting from the manufacture of pulp. Recycling Hard-to-recycle Recovered Paper and Confidential Paper The Daio Paper Group has developed a technology enabling automated removal of foreign material from hard-to-recycle recovered paper that used to be disposed of as industrial waste, and is working to expand its use of unused recovered paper, including confidential documents. Recovered paper utilization rate 64% Approx. 2 million tons per year 15 Integrated Report 2017

17 To Sell the Products We Have Manufactured with Our Own Efforts With the basic principle of to sell the products we have manufactured with our own efforts, each and every sales personnel of Daio Paper positions themselves closest to our customers to grasp market trends through their daily sales activities. The deployment of our unique market-andcustomer-oriented sales strategy facilitates our product development and sales proposal activities, enabling us to respond to our users needs speedily. Market-oriented Business Strategy Strength2 A Multi-dimensional Business Model In our overseas H&PC business, we are working to expand our business multi-dimensionally by increasing brand recognition, expanding our sales reach and advancing product diversification. PHILOSOPHY OF Competitors (General Paper Manufacturers) Daio Paper Daio Sales Personnel Sale Sale Distributors Proposal/Sale Grasp needs of customers directly and provide value-added proposals Receive feedback from customers and reflect in product development Customers Baby disposable diapers Adult disposable diapers Feminine care products Household paper Wet tissue and wipes FY countries 4 countries 1 country 5 countries 8 countries FY countries 9 countries 8 countries 13 countries 18 countries Achieve sustainable expansion in fast-growing Asian countries through product diversification ABOUT Sustainable Forest Management in Chile in South America Daio Paper manages 59,000 ha of forest areas in Chile. This corresponds in area to the 23 wards of Tokyo. We practice sustainable forest management, and approximately one-half of the area we own is left untouched as natural forest to maintain biodiversity. Chile, South America Area of forest owned by Daio Paper 59,000ha Area of Tokyo s 23 wards Reducing CO2 Emissions The Daio Paper Group promotes the installation of biomass boilers fueled by woodchips, wastepaper, refuse paper & plastic fuel (RPF), and waste tires to reduce CO2 emissions. Brand Power Corporate brand power as a full-range paper manufacturer Strong brand assets and brand-building capabilities in various product categories Cost Competitiveness Sharing of advanced technologies and knowhow within the Group High efficiency in all aspects from procurement of materials to production and sales Intellectual property supported by large numbers of patent applications filed and patents in force Human Resource Capabilities Human resources and management structure that support company growth Diversity management Integrated operations from procurement of materials to production and sales VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Problem Solving Capabilities Biomass boiler at Taisei Paper Initiatives aimed at achieving coexistence of society and businesses Value creation capabilities made possible by building favorable relationships with stakeholders Integrated Report

18 Business Overview of the Daio Paper Group Paper and Paperboard Business In the Paper and Paperboard Business, to adapt flexibly to changes in market trends, Daio Paper leverages the strength of its Mishima Mill (Ehime Prefecture), one of the largest coastal paper mills in the world and capable of producing a wide range of pulps as well as paper and paperboard products, to promote a shift of production and sales mix. Through the integrated operations of the Group s companies with Mishima Mill at the core, we share technologies and information on improving productivity and reducing energy costs and work to provide high value-added products and reduce environmental impact. Wrapping paper and functional material 11% Sales composition by product category Pulp 1% FY2012 2,726,000 tons Containerboard 22% Wrapping paper and functional material 13% Pulp 1% FY2016 3,011,000 tons Containerboard 23% Printing/Communication paper 46% Newsprint 20% Printing/Communication paper 45% Newsprint 18% Net Sales (Billions of Yen) Operating Profit (Billions of Yen) /3 2014/3 2015/ /3 2017/3 (FY) (%) /3 2014/3 2015/3 2016/3 2017/3 (FY) Operating profit Operating margin Description of Business Production and sale of newsprint, printing and communication paper, wrapping paper and functional materials, containerboard, corrugated container, pulp, etc. Business Overview For the Paper Business of the fiscal year ended March 31, 2017, despite a 2% decline in domestic demand for paper products year over year, Daio Paper achieved a sales volume on the same level as the previous year due to improvements in sales mix and user composition. However, sales amount was lower year-on-year due to falling domestic market prices. As for newsprint, we were able to maintain the same levels of sales volume and amount as in the previous year despite decreasing newspaper circulation volume. For the Containerboard and Corrugated Container Business, despite a decrease in demand for fruit and vegetable due to bad weather, sales volume was higher year-on-year due to the growth in e-commerce and processed foods sectors. However, sales amount was lower year-on-year due to changes in user composition and sales mix. As regards segment profit, despite a decrease in raw materials and fuels costs due to the appreciation of the yen, production increase of Kraft pulp through remodeling of production facilities, and cost reductions for energy and chemicals, etc., segment profit was lower year-on-year due to falls in market prices. 17 Integrated Report 2017

19 Strategy of the Daio Paper Group Risks and Opportunities Measures to Mitigate Risks Decrease in domestic demand for rotary printing paper (mainly for newspaper and insert flyers in newspaper) and coated paper for publications and catalogues Tight demand and supply and rise in prices of recovered paper due to increasing global demand Increase in demand for corrugated container with e-commerce growth Sales composition ratio of paper by category (domestic) (tons/month) 80,000 60,000 40,000 20,000 5% /3 34% Action 2017/3 (FY) Uncoated woodfree paper 12% Lightweight coated paper A3 grade coated paper A2 grade coated paper 41% (%) 100 Sales composition ratio by industry (domestic) Accelerating Structural Shift to High Value-added Products through Business Acquisitions, etc. The Daio Paper Group acquired the paper product business of Nisshinbo Holdings Inc. in April This adds fine paper and synthetic paper to our product lineup, and further promotes our business strategy of shifting product mix to high value-added products. We shall create more added value and further expand our sales operations by increasing sales to paperboard carton users through integrated operations with Daiwa Shiko Co., Ltd. (acquired from Nisshinbo Holdings), and integrating operations of Miura Printing Corporation, which we acquired in April 2017, with Daio Printing. While demand for newsprint and publication paper, etc. has been declining year over year with the spread of % 2013/3 32.3% End users Printing companies Publishing companies Regional distributors 2017/3 (FY) Increase the sales ratio of communication paper and sheet products, for which demand is solid Make greater use of recovered paper by utilizing hard-to-recycle recycled paper, etc. Sales volume growth of sheet products Up 38% FY2012: 157,000 tons FY2017: 217,000 tons web-based media, the sales ratio of high value-added products, such as communication paper and sheet products, is increasing. Accordingly, we strengthened our supply capability in FY2017 by installing an additional paper sheeting facility. Daio Paper made capital expenditures aimed at improving the quality of corrugated containers in FY2016. This has allowed us to supply to industries with strict quality requirements, including medical and cosmetics, and to make sales proposals that will live up to our end users need for reliability and their trust in Daio Paper. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Paperboard carton Daiwa Shiko Co., Ltd. Daio Paper Products/Fine paper Die-cut box Integrated Report

20 Home and Personal Care Business In the Home and Personal Care (H&PC) Business, we have been expanding our business activities in the domestic market by enhancing our product lines in all categories, and by developing and launching high value-added products to meet diversifying consumer needs and usage scenarios. In overseas markets, we have been expanding our business by exporting and selling baby disposable diapers from Japan to mainly Asian countries, where demand is growing rapidly, as well as through local production and sales activities in China, Thailand, and Indonesia. Going forward, we seek to expand our global sales reach and accelerate multi-category overseas business expansion through the addition of household paper and others to the lineup, and continue to support the hygiene and healthy living of people around the world from Japan. Net Sales (Billions of Yen) Operating Profit /3 2014/3 2015/3 2016/3 2017/3 (FY) (Billions of Yen) /3 2014/3 2015/3 2016/3 2017/3 (FY) Operating profit Operating margin 6.0 (%) Description of Business Production and sale of household paper (e.g. facial tissue), baby and adult disposable diapers, feminine care products, wet wipes, etc. Business Overview For domestic H&PC Business in the fiscal year ended March 31, 2017, we steadily expanded sales and profit despite a decline in inbound demand for baby disposable diapers. We achieved this by promoting the shift of product mix to value-added products in household paper, launching Attento Sports Pants that is differentiated from competing products, and expanding the product line of feminine care products. For overseas H&PC Business, sales of the mainstay product baby disposable diapers grew steadily, and both its sales volume and amount increased significantly year-on-year. In the largest market, China, on the back of the success of our super premium zone tape type GOO.N Angel series diapers and remarkable growth in demand for pants type diapers, we extended the line-up of GOO.N Angel series to include pants type diapers and observed steady sales expansion. In Indonesia, where demand is growing rapidly, we started local production of baby disposable diapers in December Following Vietnam and the Philippines, we started exporting products to other ASEAN countries, such as Laos and Cambodia, from Thailand. In addition to baby disposable diapers, sales of feminine care products and adult disposable diapers in South Korea and Taiwan, as well as sales of wet tissue and wipes in Thailand commenced, thus further advancing product diversification. Elleair facial tissues, and high value-added products acquired from Nisshinbo Holdings Attento Sports Pants GOO.N Yawaraka Pants 19 Integrated Report 2017

21 Strategy of the Daio Paper Group Risks and Opportunities Domestic market Decrease in demand due to aging population and declining birthrate Change in the buying habits due to globalization Overseas market Increase in demand due to rapid population growth Change in the living environment due to rapid market expansion Need for measures to cope with increasing global environmental impact Measures to Mitigate Risks Establish a global research and development structure to strengthen product appeal, speed up quality improvement, and enhance productivity in Japan and overseas Increase brand power through successive product initiatives Create new product categories aimed at active seniors Launch multi-language packaging and websites and connect with end users (women, mothers, caregivers) Proactive implementation of latest production technologies and thorough improvement of the productivity of existing production facilities Reinforce compliance framework to prepare for changes in global regulations PHILOSOPHY OF Action Sales Expansion Strategy for High Value-added Products and Acceleration of Global Expansion The Daio Paper Group is advancing its strategy to expand sales of high value-added products which improve the quality of lives of its customers. In April 2017, Daio Paper acquired the paper product business of Nisshinbo Holdings Inc. and added Nisshinbo Holdings products, such as Cotton Feel and Double-absorbency Toilet Paper Made for Shower Toilet, to its product line. We strive to further expand sales of high value-added products. In July 2017, Daio Paper established the Global Research and Development Headquarters as a division independent from H&PC s domestic and overseas business headquarters. This enables the H&PC R&D team to grasp changes in the global market speedily, thus facilitating product improvement and production in Japan and overseas. Net Sales of Overseas H&PC Business (Billions of Yen) Russia, Taiwan, etc. Thailand, Indonesia, others (Southeast Asia) South Korea China 31.7 Household paper production capacity after Kawanoe Mill tons per begins operation in 390,000 year October 2018: Elleair International China Nantong (EICN) Elleair International Thailand (EIT) Architectural rendering of Elleair Paper Corporation Kawanoe Mill Elleair International Korea (EIK) Daio Paper Production bases Sales bases Representative offices ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Elleair International Manufacturing Indonesia (EIMI) /3 2014/3 2015/3 2016/3 2017/3 (FY) Integrated Report

22 11-Year Consolidated Financial Summary Daio Paper Corporation and its Consolidated Subsidiaries As of and for the years ended March 31 Fiscal year 2007/3 2008/3 2009/3 2010/3 For the Year: Net sales 414, , , ,105 Cost of sales 313, , , ,108 Gross profit 100,340 98,087 94,636 92,997 Selling, general and administrative expenses 74,352 75,746 76,027 69,831 Operating profit 25,987 22,341 18,608 23,165 Ordinary profit 19,750 15,042 11,199 14,248 Profit (loss) before income taxes 15,844 13,361 4,471 13,112 Profit (loss) attributable to owners of parents 11,300 5, ,381 Comprehensive income (loss) EBITDA 52,182 53,269 53,561 56,965 Capital expenditures 19,931 74,746 37,738 18,678 Depreciation and amortization 23,243 28,739 32,348 32,993 Research and development cost 2,600 2,269 2,534 2,217 Net cash provided by operating activities 34,525 61,286 49,482 73,995 Net cash used in investing activities (36,556) (70,792) (37,899) (21,531) Net cash provided by (used in) investing activities 3,093 8,099 8,058 (17,987) Free cash flow (2,031) (9,506) 11,583 52,464 At Year-End: Total assets 683, , , ,549 Net assets 136, , , ,689 Current assets 293, , , ,910 Interest-bearing debts 432, , , ,570 Net interest-bearing debts 353, , , ,500 Cash and cash equivalents 77,301 75,898 95, ,497 Number of shares issued (shares) 128,990, ,018, ,018, ,018,785 Per Share Data (Yen): Basic earnings per share Net assets per share Cash dividends per share Financial Ratios: ROE (%) ROA (%) Equity ratio (%) Debt to equity ratio (times) Net debt to equity ratio (times) Notes: 1. Amounts are rounded down to the nearest million yen through the fiscal year ended March 31, 2011, and rounded off to the nearest million yen from the fiscal year ended March 31, EBITDA = Ordinary profit + interest expenses + depreciation and amortization + amortization of goodwill + equity in earnings of affiliates. 3. Effective from the fiscal year ended March 31, 2011, the Accounting Standard for Presentation of Comprehensive Income has been adopted. Employees (Consolidated) (Persons) Foreign Employees (Persons) CO2 Emissions (Daio Paper Group) (1000 t) 7,348 7,759 8,174 8,497 9,594 1,202 1,330 1,547 3,690 3,847 3,809 3,755 3, /3 2014/3 2015/3 2016/3 2017/ /3 2014/3 2015/3 2016/3 2017/3 2013/3 2014/3 2015/3 2016/3 2017/3 21 Integrated Report 2017

23 () 2011/3 2012/3 2013/3 2014/3 2015/3 2016/3 2017/3 410, , , , , , , , , , , , , ,005 82,783 74,745 82,023 95, , , ,135 69,406 64,261 70,445 79,892 84,206 89,821 95,600 13,377 10,483 11,577 16,049 21,796 24,323 23,535 5,665 4,748 6,637 11,257 21,784 21,259 21,347 (5,297) (5,689) 20,682 6,608 17,373 21,997 18,118 (18,234) (5,321) 15,109 6,293 13,209 14,594 12,136 (16,506) (3,247) 22,075 11,826 27,943 9,599 14,905 47,548 42,622 43,637 47,180 59,139 57,726 58,251 22,057 18,200 21,726 24,948 31,587 37,310 32,453 32,850 29,584 26,409 26,403 27,203 26,988 29,017 2,079 1,399 2,149 2,836 2,683 2,791 2,902 41,153 23,775 50,805 58,091 44,740 47,011 62,932 (25,496) (32,171) (41,455) (26,826) (28,581) (26,073) (31,394) (20,747) (7,379) (13,441) (37,242) (29,429) (17,475) (22,037) 15,657 (8,395) 9,350 31,265 16,160 20,938 31, , , , , , , , ,191 97, , , , , , , , , , , , , , , , , , , , , , , , , , , ,251 86,332 82,457 79,046 69,073 72,169 82, ,018, ,018, ,018, ,018, ,348, ,348, ,348,785 (147.27) (43.13) , , , PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF (19.0) (6.3) (2.7) (0.9) FINANCIAL AND CORPORATE DATA CO2 Emissions per Unit (Daio Paper Group) (t/t product) Hard-to-recycle Recovered Paper Usage (Daio Paper) (1000 t) Final Disposal Amount of Industrial Waste (Daio Paper Group) (1000 t) /3 2014/3 2015/3 2016/3 2017/3 2013/3 2014/3 2015/3 2016/3 2017/3 2013/3 2014/3 2015/3 2016/3 2017/3 Integrated Report

24 CSR at the Daio Paper Group The Daio Paper Group aims to build relationships of trust with all stakeholders, in order to provide high value-added products, grow with society, and conserve the global environment for future generations. Guided by the founding spirit of the Company, Passion with Sincerity, as its Corporate Motto, the Daio Paper Group works in unity on its everyday business activities to achieve the future vision of the Group set out in the Management Philosophy: Shaping an abundant and affable future for the world. 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for 17 GOALS TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for Dedicated Dedication to manufacturing Trusted Manufacturing Safe Workplaces D SDGs are global goals set in the United Nations The 2030 Agenda for A SDGs are global goals set in the United Nations The 2030 Agenda for Regional Awareness Management Philosophy Shaping an Abundant and Affable Future for the World Attentive Bonds with local communities Sustainable Growth Diverse Management 17 GOALS TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for 17 GOALS TO TRANSFORM OUR 17 GOALS TO TRANSFORM OUR WORLD Integrated Corporate culture providing safety and motivation to work 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for Environmental Awareness Integrity and Compliance 17 GOALS TO TRANSFORM OUR WORLD I O 17 GOALS TO TRANSFORM OUR WORLD Contribution to the Global Society Organic Contribution to the global environment SDGs are global goals set in the United Nations The 2030 Agenda for 17 GOALS TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for To Continue to be a Proud Corporate Citizen Trusted by the Global Society Transforming our world: the 2030 Agenda for Sustainable Development Goals (SDGs) was adopted at the United Nations Sustainable Development Summit held at the UN Headquarters in September 2015 with more than 150 world leaders in attendance. SDGs, the successors to the Millennium Development Goals (MDGs), comprise 17 goals and 169 targets. All Member States of the United Nations are required to work toward the achievement of the various goals by 2030 to realize a sustainable society. The Daio Paper Group too will promote initiatives toward achieving the goals set out by SDGs through its business operations. 17 GOALS TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for 23 Integrated Report 2017

25 Principal Collaborative Value Creation Initiatives of the Daio Paper Group Management Philosophy s Four Pillars D Dedicated (Dedication to manufacturing) A Attentive (Bonds with local communities) I Integrated (Corporate culture that offers new challenges and a sense of security and trust) Daio Paper s Principal Collaborative Value Creation Initiatives Highly cost competitive Mishima Mill Multiple-base production structure Highly transparent procurement process Reduction in the amount of incinerated sewage sludge ash Supporting environmental recycling Quality assurance of products Sources of competitiveness Research and development Coexistence with local communities overseas Zero forest destruction Overseas business development Social contribution activities Support for overseas disaster-stricken areas Disaster-prevention activities Corporate governance Compliance Message from Outside Director Responsibilities to shareholders and investors Workplace that motivates employees Supporting stress-free nursing care Communication with customers Sustainable Growth Regional Awareness Regional Awareness Integrity and Compliance Code of Conduct Environmental Awareness Sustainable Growth 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD Diverse Management Safe Workplaces Trusted Manufacturing Contribution to the Global Society Contribution to the Global Society Integrity and Compliance Environmental Awareness Trusted Manufacturing SDGs are global goals set in the United Nations The 2030 Agenda for SDGs 17 GOALS TO TRANSFORM 17 GOALS TO OUR TRANSFORM WORLD OUR WORLD GOALS TO TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for 17 GOALS TO TRANSFORM 17 GOALS TO OUR TRANSFORM WORLD OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD 17 GOALS TO TRANSFORM OUR WORLD SDGs SDGs are are global global goals goals set set in the in the United United Nations The The Agenda for for SDGs are global goals set in the United Nations The 2030 Agenda for SDGs are global goals set in the United Nations The 2030 Agenda for 17 GOALS TO TRANSFORM OUR WORLD SDGs are global goals set in the United Nations The 2030 Agenda for 17 GOALS TO TRANSFORM OUR WORLD PHILOSOPHY OF ABOUT 17 GOALS TO TRANSFOR O Organic (Contribution to the global environment) The Daio Global Environment Charter Environmental Action Plan Initiatives in product transportation Biomass fuels Use of renewable energy Reducing final disposal amount of industrial waste The Daio Paper Group s Code of Conduct Trusted Manufacturing Supply high-quality and value-added products and services. As a manufacturer, we are most familiar with our customers needs around the world. So, what is made by Daio is sold only by Daio sales representatives, continuing in our founder s spirit and giving us a direct connection to our customers to serve their needs and build trust. Sustainable Growth Respond to all our stakeholders needs, including customers, partners, shareholders, society and the global community. We will be agile and flexible to respond to sudden changes in the management environment, and we will work to grow our business in a way that is sustainable while strengthening our management foundations. Regional Awareness Be good corporate citizens and earn the trust of the world where we work. We will take part in activities that contribute to society, including volunteer work, sporting events, and cultural activities, to grow together with the countries and regions and contribute to growth and development. Safe Workplaces Work safely and energetically. We will continue to maintain safe and vibrant workplace environments that offer employees challenges and growth potential. Sustainable Growth Integrity and Compliance Environmental Awareness Contribution to the Global Society SDGs are global goals set SDGs in the are United global Nations goals set in The the United 2030 Agenda Nations for The Sustainable 2030 Agenda Development for SDGs are global goals set in the United Nations The 2030 Agenda for Integrity and Compliance Act with integrity and comply with social norms and regulations along with laws and ordinances. We will strive to be a company trusted by society, and we consider ethical matters among our top priorities, always following our Employee Code of Ethics. Diverse Management Respect diversity and personalities of employees and coworkers. We will strive to foster an environment that allows every employee to achieve their highest potential. We nurture employees who reflect our roots as a small company and understand the value of taking on responsibilities outside their sphere of work: The employees who act with consideration, good judgment, and proactivity. Contribution to the Global Society Respect the laws of each country and region as well as international standards. We will conduct all corporate activities with consideration for cultures and customs while championing the advancement of lifestyles, industries, and cultures around the world. SDGs are global goals set in the United Nations The 2030 Agenda for Environmental Awareness Conserve biodiversity and contribute to the global environment. We will aim to reduce CO2 emissions and promote energy savings and recycling as per the DAIO Global Environment Charter. Integrated Report VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA SDGs are gl in the Unite The 2030 A Sustainable

26 Four Pillars of the Daio Paper Group Management Philosophy Dedicated: Dedication to Manufacturing The Daio Paper Group serves the needs of society in a wide range of fields through the manufacture and sale of paper and paperboard products while conveying the superiority of paper for communication and other purposes. The Company also conducts research and development activities for its paper and paperboard products with the goal of improving the quality of people s lives. D I A O The Mishima Mill Boasts the Highest Level of Cost Competitiveness in Japan The Mishima Mill, the Group s most significant mill, undertakes the integrated production of paper and paperboard, starting from in-house production of pulp. Its total production volume is about 2.10 million tons annually, which accounts for about 10% of the total paper and paperboard production in Japan. Daio Paper has made capital investments in the Mishima Mill to improve profitability and achieved the following: (1) adapted to changes in market demand structure and raw materials supply and demand balance, (2) shifted product mix to high value-added products, and (3) converted energy sources from fossil fuels to biomass fuels. As a result, the coastal Mishima Mill boasts the highest level of cost competitiveness in Japan. N10 Paper Machine with On-machine Coater (Monthly production capacity: 24,000 tons; Production speed: 1,800m/min.) Establishing a Production Framework of Multiple Bases in Japan In the H&PC Business, Daio Paper Products Corporation and Tokai Seishi Kogyo Co., Ltd. (both former Nisshinbo Group companies) became a part of the Daio Paper Group in April As a result, high-functionality facial tissue and toilet tissue products, such as Cotton Feel and Double-absorbency Toilet Paper Made for Shower Toilet, were added to the product line of the Daio Paper Group. The Daio Paper Group is increasing its sales composition of high value-added products by leveraging the strong market recognition of its Elleair brand. In addition, we will establish a framework that allows us to meet the increasingly diverse needs of the market and customers through the launch of the new household paper production facility in the Kawanoe Mill in October Elleair Paper Facial tissue Toilet tissue Kitchen paper Elleair Product Ehime Factory Baby disposable diapers Adult disposable diapers Wet wipes Taisei Paper Facial tissue Toilet tissue Kitchen paper Elleair Product Tochigi Factory Adult disposable diapers Feminine care products Baby disposable diapers Akabira Paper Facial tissue Toilet tissue Kitchen paper Elleair Product Fukushima Factory Baby disposable diapers Adult disposable diapers Feminine care products Ohmiya Paper Facial tissue Toilet tissue Kitchen paper October 2018 Elleair Paper Kawanoe Mill Scheduled start-up of new household paper production facility Daio Paper Kani Mill Facial tissue Toilet tissue Kitchen paper Daio Paper Products Shimada Factory Facial tissue Toilet tissue Kitchen paper Tokai Seishi Kogyo Toilet tissue Elleair Product Shizuoka Factory Adult disposable diapers Feminine hygiene products 25 Integrated Report 2017

27 Transparent Procurement of Raw Materials We promote sustainable forest management in harmony with the environment by ensuring the effective and efficient use of forest resources in the procurement of wood-based raw materials, the main raw materials for papermaking. Basic Principles and Policy for Procurements of Wood-based Raw Materials ❶ We only procure wood-based raw materials produced from plantation timber, or reused or unused materials. ❷ We only procure wood that are traceable from logging to distribution, that do not fall in the following five categories of unacceptable material, and that are proved to have been harvested legally from sustainably managed forests. Acquisition of Forest Certification and Trading with Suppliers (Use of Legal Wood) Forest certification is a certification by a third party that ensures that only wood from tree plantations and wood that are harvested legally while considering the environment are used. Use of forest certification is a means to ensure that we procure raw materials in accordance with the Basic Policy. Our Chilean subsidiary, Forestal Anchile Ltda., has acquired forest certification. We also encourage the woodchip suppliers of our business partners to acquire forest certification. Using Domestic Wood (Promoting the Use of Thinned Wood) Thinning increases the amount of sunlight penetrating through the canopy of the forest. This leads to the growth of thicker tree trunks and roots, the growth of miscellaneous small trees on the forest floor, and the forest s increased resistance to wind and flood damage. Thinned wood left behind in mountain forests would be swept away by heavy rain, causing damage and impeding vegetation growth on the forest floor. Therefore, Daio Paper is increasing the purchase volume of thinned wood to prevent thinned wood from being left untended Wood Banned from Purchase Purchase Volume of Thinned Wood (t) 8,000 7,422 6,000 4,000 2,000 Flow of Delivery of Woodchips with Thinned Wood Certification 0 Wood harvested illegally (or without permission) Wood harvested in violation of traditional rights and civil rights Wood harvested in forests in which High Conservation Values are threatened by management activities (HCVs refer to areas particularly worthy of protection) Wood harvested in forests which are being converted to plantations or non-forest use Wood harvested in forests where genetically modified trees are planted Under the Green Procurement Act in Japan (enforced in April 2009), suppliers for government procurement are required to submit certification for each production process to verify the following: 1 Illegally harvested wood is not used as a raw material of virgin pulp. 2 Wood is harvested from sustainable forests. In accordance with guidelines issued by the Forestry Agency, the Daio Paper Group checks that it purchases certified wood whose legality is audited by a third party. For wood that are not certified wood, it carries out traceability investigations on the source of the wood and the distribution channels of all suppliers, etc., in order to confirm that they are legally cut wood. 2, /3 3,551 3, /3 2015/3 2016/3 5, /3 (FY) Harvesting starts upon approval of the tree harvesting notice. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Forestry union (General) material producer Submission of tree harvesting notice Submission of tree harvesting notice Notices are submitted to the agriculture and forestry department of the municipal government at least one month prior to harvesting to obtain mayor s seal of approval. Notices must be submitted to obtain approval for both clear-cutting and forest thinning. Approval by the prefectural government is required for cutting trees in forest reserves. Approval from the mayor of each municipality Tree harvesting notice Approval Forestry union (General) material producer Raw wood market Timber mill Woodchip factory [Accompanying document] Certification that indicates the number of trees harvested and the timber volume by mountain, based on weight inspections and the tree harvesting notice Daio Paper [Accompanying document] Thinned wood certification from woodchip factory based on the certification from forestry cooperative and material producer Integrated Report

28 Reducing the Amount of Incinerated Sewage Sludge Ash by Recycling Deinking Sludge into Filler Deinking sludge, a byproduct from recovered paper pulp production, used to end up as sewage sludge after treatment. However, at Elleair Paper Chemical Corporation, we are reusing deinking sludge by recycling it into filler (chemicals mixed into paper to achieve higher opacity). In order to reduce the amount of sewage sludge generated, we are working to improve the quality of recycled filler and expand the variety of paper we use recycled filler in. (Reduction of about 24,000 tons in FY2016) Recycled filler production facilities Amount of incinerated sewage sludge ash reduced: about 24,000 tons Supporting Environmental Recycling by Converting Industrial Waste into Recovered Fuel Waste plastics, waste home appliances, and discarded automobiles are disposed of as industrial waste. However, the Daio Paper Group is promoting the recycling of these materials through the following measures. First, Daio Engineering would propose plant-improvement plans to recycling businesses. Then, it would design and construct facilities to reduce the volume of waste and convert waste into recovered resources and fuels, improving the recycling rate and reducing the final disposal cost of recycling companies. Ultimately, Daio Engineering would accept the recovered fuels, such as refuse plastic fuels and heatinsulating materials (polyurethane) of refrigerators, for use at the biomass boilers of the six production bases of the Daio Paper Group. The Daio Paper Group strives to achieve a sustainable society through the effective utilization of wastes across the Group. Environment Recycling Business Supported by Daio Engineering Co., Ltd. Support 1 Recovered materials/ Raw materials for fuels Support through provision of materials Production waste from the Daio Paper Group s production plants is provided to various recycling companies as recyclable materials. Industrial waste ensures stable quality Support provided by the entire Daio Paper Group The Daio Paper Group is made up of 37 companies, comprising 30 domestic companies and 7 overseas ones. At these enterprises, 41 production plants of 17 domestic companies are engaged in producing newsprint, printing and publication paper, communication paper, corrugated containers, wrapping paper, functional materials, and household paper. Support 2 Recovery of various resources at recycling plant Support to improve profit of recycling companies Daio Engineering s proposals improve recovery rate and reduce final disposal costs through the introduction of a sorter developed by Daio Engineering, and the improvement and reform of existing recycling plants. Thermal recycling Various RPF and RDF fuels Material recycling Single-stream sorting of plastic pellet, polystyrene ingot and hard plastic Recovering copper wires from mixed waste Final disposal Support through designing and construction of various recycling plants Daio Engineering develops various sorters, essential for recycling plants. This enables it to customize facilities according to the needs of customers. Sorter series Residues Crushing machine Increase in recycled amount Increase in recycled amount Reduction in disposal amount Polyurethane solidification and fuelization facilities Support 3 Recycled fuels Support through provision of production scheme for recycled fuel Recovered fuels can be used in various types of boilers. With a growing number of biomass boilers being constructed, recovered fuels have become increasingly appreciated. Support by accepting recycled fuels The Daio Paper Group accepts recycled fuels at its six production bases. In addition, the Group can provide technological support on the utilization of recycled fuels based on its expertise gained through the years. + Support through designing and construction of boiler plants Daio Engineering proposes the optimal boiler plant plan based on its long experience in operating and maintaining boilers at the Daio Paper Group. Construction Coordination Maintenance support (equipment management, repair plan) Operational support (operation management, operational support) 27 Integrated Report 2017

29 Quality Assurance of Products The Daio Paper Group has established a quality assurance framework that covers activities from the purchase of raw materials to the delivery of products in accordance with ISO9001 standards, and administers the framework based on the following quality policy. Quality Policy Policy 1 Trusted Manufacturing 2 Sustainable Growth 3 Supply high-quality and value-added products and services. As a manufacturer, we are most familiar with our customers needs around the world. So, what is made by Daio is sold only by Daio sales representatives, continuing in our founder s spirit and giving us a direct connection to our customers to serve their needs and build trust. Measures to Assure Customers of the Quality of Our Products The Daio Paper Group has established a quality management system (QMS) that covers activities from the purchase of raw materials to the delivery of products in accordance with ISO9001 standards, and uses the system to implement exhaustive quality management as a tool to achieve quality assurance. Quality Assurance of Products Daio Paper Corporation and Iwaki Daio Paper Corporation have incorporated the content ratio of recovered paper pulp, etc. and use of regulated chemicals into their ISO9001-based quality assurance framework. Forest certification and the content ratio of recovered paper pulp are also indicated on the products. In the Home and Personal Care division, we have established a quality assurance structure in which inspections are performed on each sheet and all packages and inspections of processes and products are conducted by quality inspection staff. Examples of Environmentally Friendly Products We deliver environmentally friendly products in a wide range of fields. Office supplies Respond to all our stakeholders needs, including customers, partners, shareholders, society and the global community. We will be agile and flexible to respond to sudden changes in the management environment, and we will work to grow our business in a way that is sustainable while strengthening our management foundations. Audit by external review organization Quality management of products Regulations for assurance of recovered paper pulp content ratio Product safety assurance Forest certification management regulations Elleforet Toilet Tissue Integrity and Compliance Act with integrity and comply with social norms and regulations along with laws and ordinances. We will strive to be a company trusted by society, and we consider ethical matters among our top priorities, always following our Employee Code of Ethics. ISO9001 Design and development of new product, changes in product quality Chemical safety Chemical content certificate Safety data sheet Process Evaluation Council Managing recovered pulp content ratio Adoption of new chemicals after evaluation by the Chemical Evaluation Council Delivery of certified wood and wood from well-managed forests Household products Production Sales Elleair Unbleached Ultra Absorbent Kitchen Paper PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Kininarukami (Eco-friendly Paper Produced from Thinned Wood) A portion of the sales revenue from the product is returned to forest owners who contributed the thinned wood, which helps to promote good forest management practices such as forest thinning. * Kininarukami was produced jointly with the Committee for the Advancement of the campaign Forest Management with People s Support, and is a product with carbon credits (for carbon offsetting). Achieved reduced energy consumption and environmental impact from chemicals Achieved both softness and environmental-friendliness with use of high-grade recovered paper pulp Integrated Report

30 Our Source of Competitiveness: The Mishima Mill 1.67 million m 2 Total site area is 1,670,000 m 2 (approx. 36 times the size of Tokyo Dome). Integrated production 2.1 million tons/ year Engaged in the integrated production of all kinds of pulps, paper, and paperboard products (newsprint, printing and publication paper, communication paper, wrapping paper, containerboards, and household paper, etc.) With a total production volume of paper and paperboard of about 2.1 million tons annually, the Mishima Mill is the world s largest-class coastal mill and the key production plant of the Daio Paper Group. (The total production volume of the Daio Paper Group is about 3 million tons, which is approximately 10% of the total annual domestic paper and paperboard production volume.) Capable of receiving raw materials and fuels (woodchips, coals) directly from the dock facilities that allow four 100,000-ton class ships to berth simultaneously. Layout of the Mishima Mill 1 Efficient and streamlined production framework Step 1 Raw materials and fuels are brought in directly to the yard located on the west dock. Pulp production facilities Papermaking machines/ Coater machines Pulp transportation pipes Step 2 Efficient arrangement of production line enables streamlined production. Step 3 Products are shipped directly to the areas of demand from the east dock. Papermaking machines: 17 units Coaters: 4 units 2 Pulp-making facilities and 17 papermaking machines are connected with pulp transportation pipes running across the plant, supplying the necessary type and amount of pulps to each papermaking machine according to the grade of paper and paperboard being produced. This allows us to switch production flexibly to meet changing market needs. Supply Chain Management/ Calculation of Scope 1, 2, and 3 The Daio Paper Group aims to expand its scope of reductions in greenhouse gas emissions to include its supply chain, and determine and manage its greenhouse gas emissions at every stage of the entire lifecycle, from procurement of raw materials to the use and disposal of products. We believe this will lead to increased opportunities for reducing greenhouse gas emissions, and also greater potential for companies to identify cost reduction opportunities. Through our products and services, we will contribute to the reduction of greenhouse gas emissions of other companies. We shall declare the amount of emissions we wish to reduce, and work together with our stakeholders to achieve it, contributing to the realization of a sustainable society. Greenhouse Gas Emissions in the Supply Chain Others 0.1% Category % End-of-life treatment of sold products Scope % Indirect emissions from fuel and energy related activities in the supply chain, not included in Scope 1 and 2 Category % Transportation and delivery (upstream) The Daio Paper Group (FY2016 Results) Scope % Scope1: Direct emissions from emission sources within a company Scope2: Indirect emissions from the use of purchased electricity, steam, and heat Category 1 7.1% Purchased goods and services 29 Integrated Report 2017

31 Research and Development Activities The Daio Paper Group s research and development activities focus on responding to the changing needs of its users through improving existing products and developing new products. We are working on the commercialization of new high valueadded products, development of new fields such as integrated products, and research and development of chemicals and new materials. Total R&D costs for the Group for FY2016 amounted to 2,902 million. Paper and Paperboard Business Daio Paper Group has been promoting a shift in sales mix to uncoated paper, communication paper, and wrapping paper in the face of a decrease in demand for newsprint, published materials, and catalogues, etc. Hence, the Production Division of the Paper and Paperboard Business is working to establish the optimal production-sales balance across the group, improve quality, and reduce manufacturing costs. In addition, the division is working to reinforce development of new products, expand the range of FSC products, and strengthen basic technology research. In the functional materials business, using information gathered on market trends and needs, we are advancing the product development of high value-added products through the addition of functionalities such as oil-repelling, oil-absorbing, heat-sealing, and conduction, etc. In April 2017, Daio Paper Products Corporation (former Nisshinbo Paper Products Inc.) joined the Daio Paper Group. Since then, joint development meetings and sectional meetings with relevant divisions have been held, and such efforts are beginning to yield synergistic effects in the development of synthetic paper and paper for inkjet printing, etc. Water- and oil-repellent paper Heat-seal oil-repellent paper PHILOSOPHY OF ABOUT Home and Personal Care Business In the Home and Personal Care Business, the top priority of our research and development activities is to deliver safe and reliable products to our customers. We manage our research and development activities based on the requirements of ISO9001 quality management, such as by always starting with the confirmation of the safety of the raw materials we use. Based on the concept of providing people with the maximum softness and tenderness, and a process that focuses on regions, resources, and realizations, we at the Daio Paper Group are constantly seeking to enhance our product development capabilities by grasping the needs of Development of Cellulose Nanofiber (CNF) Daio Paper is advancing the development of cellulose nanofiber (CNF), a nano-material made from cellulose. In April 2016, the Company launched a CNF slurry manufacturing pilot plant, which is a NEDO research and development project. We will continue to conduct research and development activities to achieve a cost-competitive CNF production process. In August 2017, the Company started to supply customers and advancing the development of new technologies. For the overseas markets, building on our brand power and technological Elleair Zeitaku Hoshitsu (Lotion tissue) Elleair Shoushuu+ (Deodorizing toilet tissue) capabilities that we accumulated over the years, we further seek to localize our products to respond to the needs and actual usage of local customers. samples of a high-cnf-containing mold that loses little strength under high temperatures. We are also advancing the research and development of CNF powder that is suitable for compounding into resin and rubber. Daio Paper launched the Elleair Kirekira! toilet cleaning wipes with CNF content in April We will accelerate our research and development efforts as well as product development on CNF for various applications, including use in structural materials, thickening agent/dispersing agent, packaging materials, and separation materials. VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Development of high-cnf-containing mold Elleair Kirekira! toilet cleaning wipes Integrated Report

32 Four Pillars of the Daio Paper Group Management Philosophy Attentive: Bonds with Local Communities The Daio Paper Group strives to coexist with the local communities through its business activities, and also proactively supports local initiatives, contributing to the development of local communities. We work to facilitate understanding of its businesses by holding plant tours for local residents and students and participating in local community events to achieve growth in harmony with the local communities. D I A O Forestal Anchile Ltda. has one of the world s largest growth volumes of planted trees, which is enabled by its capability to choose excellent tree species and its cuttingedge tree planting technologies. Location of operations: Republic of Chile (IX Region, X Region, and XIV Region) Date established: June 1989 Area of operations: 59,000 ha (cf. the area of Tokyo s 23 wards: 62,145 ha) Area of plantation: 28,700 ha (as of the end of FY2016) Forest certification: FSC Certification (in 2002) PEFC Certification (in 2008) Forestal Anchile Ltda. (Republic of Chile) Coexistence with Local Communities Overseas In response to requests from residents near the forestry property of Forestal Anchile (Alerce area), we constructed a bridge to allow large vehicles and emergency vehicles to pass over and improved the convenience of the lives of local residents. In another area near our forestry property, there were no roads for vehicles to travel on and residents faced serious problems with shopping for everyday goods and responding to emergencies such as fires and the transport of emergency patients. The Company constructed a public road and contributed to better and safer lives of residents living nearby. Forestal Anchile, in a government-private joint project with other forestry companies, Purranque City, and Osorno Province, is supporting the construction of facilities that supply water from the river running through the forestry area owned by Forestal Anchile to the local residents in Los Riscos area of Purranque City. By providing stable water supply for domestic use and irrigation to these areas which have been suffering from shortage of water during dry season, local residents could continue with their economic activities, such as agriculture and dairy farming, thus contributing to the building of a town which is resilient and sustainable. Zero Forest Destruction Since 2008, we have been working with Austral University on the regeneration of native forests at Los Riscos (Purranque City, X Region, the Republic of Chile). There, we have been regenerating 41.5ha of native forest in the area adjacent to the district designated as an area with high conservation value to preserve natural vegetation and landscapes. Our initiatives and the results of the project have been highly rated by forest certification organizations. Since 2013, with the cooperation of Corral City (XIV Region, the Republic of Chile) and residents associations in the Futa area, three forestry companies have been engaged in native forest regeneration of deforested areas in Los Joaquines (Corral City) to preserve the landscape along Futa River. As part of that initiative, Forestal Anchile is regenerating 6ha of native forest along the same river. In recognition of these activities, we received a letter of appreciation from Corral City and the residents associations in the Futa area for protecting the natural environment. Bridge and road constructed by the Company Los Riscos forested area in Purranque City, X Region in Chile (The red-bordered area indicates the area for native forest regeneration) 31 Integrated Report 2017

33 Overseas Business Development Business practices overseas are different from those in Japan. There are regions where nearly 50% of daily necessities are purchased at minimarts and traditional small neighborhood shops. By having its sales representatives conduct sales activities at each local region, the Daio Paper Group is expanding sales channels to include these community-based stores. There are also countries where these community-based stores are mainly run by women. By expanding our business in these regions, we contribute to the popularization of disposable diapers and feminine hygiene products, raising hygiene levels and preventing the spread of infectious diseases, and also contribute to increased living standards for women. Employment Creation at Local Production Plant PT. Elleair International Manufacturing Indonesia (EIMI), our new and third overseas production base following those in Thailand and China, started production in December EIMI, established as a joint venture between Daio Paper and Mitsubishi Corporation, leverages the strengths of both companies. With globally competitive disposable diaper manufacturing technology and development capabilities, prior experience from its business expansion in Thailand and China, as well as two years experience of sales activities in Indonesia, the Daio Paper Group seeks to grow its presence in Indonesia as well. First Disposable Diapers to Receive Halal Certification PT. Elleair International Manufacturing Indonesia (EIMI) is the first organization to obtain Halal Certification, given to products that are permissible in Islamic law, for disposable diapers. These Halal Certified baby disposable diapers provide assurance to Muslim mothers in Indonesia, a country where the majority of the population are Muslim. CSR and Sales Support Activities at EIMI in Cikarang Area We are creating opportunities to meet local communities and consumers from various social classes in the area to facilitate deeper understanding of our business activities. This thereby creates more opportunities for the Company to expand its business further (sales increase from an increase in Elleair supporters, heightened name recognition, and an edge in securing human resources, etc.). Field work Reaching out directly to consumers (mothers and children) Reaching out to future mothers Visiting local communities, such as schools Taking part in local events Conducting plant tours Collection of information and data Information on products of other companies Information on market and everyday life Information on Warung User feedback on disposable diapers Application of insights gained from data gathered Establishment of development process that utilizes information on the needs of consumers and their dissatisfaction levels, which are gathered from users feedback on both our competitors and our products, through securing sufficient number of quality verification personnel Understanding market trends, competitors moves, and lifestyle habits Sales increase through re-examination of sales strategy Sales increase by starting distribution to stores which do not carry our products Efficient personnel recruitment Establishment of favorable relationships with local schools Exterior view of factory of PT. Elleair International Manufacturing Indonesia Halal Logo can be used on Halal Certified products (which meet the requirements of Islamic law) Halal Logo What we envision beyond our activities The achievement of Daio Paper s corporate philosophy to bring happiness to the babies and mothers of Indonesia by manufacturing highquality disposable diapers and selling many such products. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Integrated Report

34 Social Contribution Activities The Daio Paper Group seeks to create an environment for children around the world to play their favorite sports and support people who chase after their dreams, by sponsoring tournaments for women s professional golf and girls baseball, etc. Also, to revitalize local communities, Daio Paper participates in various support projects organized by local governments and conducts charity activities. We aim to strengthen bonds with local communities and contribute to their prosperous development. Daio Paper Elleair Ladies Open Daio Paper Elleair Ladies Open has been hosted in Shikoku, the place where Daio Paper Corporation was founded. As the final event of the annual Japan LPGA tour, it draws a lot of attention because it is a critical game for players competing to top the money list or get into the list of seeded players on the next LPGA tour. Daio Paper also organizes amateur golf championships across Japan, creating opportunities for young golfers aspiring to become professional golf players and also to promote golf. Through its sponsorship of golf tournaments, Daio Paper hopes to revitalize the local community by utilizing local volunteer staff to run the tournament and also through charity donations from the gallery to local organizations, etc. Charity donation to eight institutions in Ehime Prefecture (presented by professional golfer Ai Suzuki) Sponsoring Child-rearing Support Projects of Ehime Prefecture and Shikokuchuo City Since 2011, the Daio Paper Group has been a sponsor of the Child-rearing Support Project in the City of Paper, organized by Shikokuchuo City, in which vouchers for one year s supply of baby disposable diapers are distributed to households with babies less than one year old. In 2015, we started to sponsor the Smiling Child-rearing Support Project, organized by Ehime Prefecture to mitigate the declining birthrate, in which vouchers for baby disposable diapers are distributed to families raising a second or subsequent child. We will continue to proactively contribute to initiatives addressing falling birthrate. Ceremony for the Smiling Child-rearing Support Project (Commemorative photo with Ehime Prefecture s mascot characters Mikyan and Dark Mikyan, and Ehime Prefecture Governor Nakamura) Support for Overseas Disaster-stricken Areas Elleair International Thailand (EIT) has been engaged in activities such as visiting orphanages and children s hospitals and delivering relief supplies to disaster-hit areas. When a flood disaster caused by heavy rain struck northern Thailand in July 2017, EIT delivered relief supplies of disposable diapers and sanitary products to the area. Out of a desire to provide support with their own hands, EIT employees personally visited the affected areas to deliver the supplies. Support activities for a national children s hospital in Thailand 33 Integrated Report 2017

35 Overseas Social Contribution Activities Elleair International China (Nantong) Co., Ltd. (EICN) holds plant tours for local consumers (20 times a year; total of about 400 people). In the plant tours for local elementary school students, we show them, in easy-to-understand presentations and demonstrations, how disposable diapers are made and what kind of technologies are used to produce them to stimulate their interest in manufacturing. Elleair International Manufacturing Indonesia (EIMI) helps alleviate new mothers worries on child rearing and provide childcare support through plant tours that serve as an occasion for mothers to come together to talk, as well as through visits to local communities. PHILOSOPHY OF Plant tours for local elementary school students (China) Disaster-prevention Activities Measures to Prepare for Disasters The Daio Paper Group designates September 11 and March 11 every year as Disaster Preparedness Days, and conducts joint disaster drills at the Mishima Mill, the Kani Mill, and the Tokyo Headquarters twice a year. In the joint disaster drills, we mainly conduct reporting drills by using wide-area radio systems and teleconferences to gather information on the extent of damage at each production base and the safety of employees and report to the Tokyo Headquarters. Disaster drills at the Mishima Mill Visit to the local community (Indonesia) In the event of a large-scale disaster, such as a Nankai-Tonankai earthquake, the Daio Paper Group will place human life as the top priority and set up a disaster headquarters to confirm the safety of its employees and their family members and identify the extent of damage swiftly. We have designed our business continuity plan (BCP) clearly to ensure there is no discontinuation of important operations concerning stakeholders such as business partners, and to restore normal operations as early as possible even if an operational disruption occurs. We also conduct disaster drills twice a year to enable our employees to respond appropriately and readily. Basic Policy for Business Continuity Activities The Daio Paper Group places the highest priority on human life. We will work to fulfill our corporate social responsibility to customers and local communities by recovering the livelihoods of employees and resume business operations at an early date, while preventing secondary disasters, providing support to and cooperating with local communities Assign the highest priority to securing the safety of human life: Cooperate to secure safety in local communities: Continue important operations: Action Guidelines for Business Continuity Activities We place top priority on securing the safety of employees and their family members, guests, and visitors above all else. We provide the utmost cooperation to secure safety in local communities and make efforts to minimize environmental impacts that may arise due to our production plants taking damage from the disaster. We designate operations that minimize the impacts of disasters on our customers and local communities as important operations, and prioritize the necessary actions to continue the important operations. Disaster Simulation Drills At these drills, we mainly conduct initial firefighting training in accordance with the disaster-prevention manual, to prevent the occurrence of a secondary disaster in the wake of an earthquake. We also use this opportunity to practice how to use AED and give artificial respiration so that our employees can put the knowledge into practice anytime. AED training Integrated Report ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA

36 Four Pillars of the Daio Paper Group Management Philosophy Integrated: Corporate Culture That Offers New Challenges and a Sense of Security and Trust With the aim of becoming a company that is trusted by all stakeholders, Daio Paper Corporation works to strengthen its corporate governance by following the Daio Paper Corporate Governance Guidelines. We encourage all officers and employees of the Group to follow the founding principle, Passion with sincerity leads to greatness, as unchanging values in all their judgment and actions, respect diversity and the individuality of employees and coworkers, and to act with consideration, good judgment, and proactively. Key measures implemented to strengthen corporate governance and pursue diversity management 2012 Appointment of Outside Directors 2014 Announcement of the Daio Paper Group Declaration of Health 2015 Selected as Nadeshiko Brand* for FY2014 Established the Daio Paper Corporate Governance Guidelines 2016 Started to evaluate the effectiveness of the Board of Directors Revised the Daio Paper Group Management Philosophy and the Code of Conduct Obtained the highest rating in the DBJ Health Management Rating provided by the Development Bank of Japan (DBJ) Announced the Daio Paper Group Declaration of Work Style Reform 2017 Selected as the Nadeshiko Brand for FY2016 (second time) Obtained the highest rating in the DBJ Health Management Rating provided by DBJ (second consecutive year) *Nadeshiko Brand: Nadeshiko Brand designation is granted to companies listed on the First Section of the Tokyo Stock Exchange (TSE) that are outstanding in encouraging women s success in the workplace, selected jointly by the Ministry of Economy, Trade and Industry (METI) and the TSE. D I A O Corporate Governance Daio Paper Corporation works toward strengthening its corporate governance based on the Corporate Governance Guidelines established in October 2015, with the aim of becoming a company that is trusted by our shareholders and other stakeholders. Basic Policy on Corporate Governance Daio Paper strives to improve its corporate governance in order to contribute to the development of a lively lifestyle, culture, and industry for the society as a full-range papermaking company group that is trusted by all stakeholders including shareholders, business partners, employees, and residents of local communities. We will ensure that the Group sustain steady growth, increase corporate value over the medium to long term, and conduct business activities in harmony with the global environment. Corporate Governance Structure Election/Dismissal General Meeting of Shareholders Election/Dismissal Election/Dismissal The Board of Directors Audit & Supervisory Board (Members) Audit Collaboration Assistance Auditor s Office Reporting Reporting Internal Control & Audit Department Collaboration Audit Reporting Oversight Instructions and commands Executive Directors/ Executive Officers Instructions and commands Reporting Operating departments/ Group companies Reporting Reporting Collaboration CEO Reporting Appointment/Dismissal Reporting Management Meeting Compliance Committee Reporting Accounting audit Remuneration and Treatment Committee Accounting Auditor Decisions on election, dismissal, and non-reappointment, judgment on the rationality of the accounting auditor 35 Integrated Report 2017

37 Roles of the Board of Directors The roles of the Board of Directors are to oversee the performance of duties by the management and the formulation of management strategy, etc. to ensure the fairness and transparency of management, and to make decisions on the execution of important business matters in accordance with laws and regulations of the Articles of Incorporation. In addition, the Board of Directors delegates authority to lower-level meetings, such as management meetings, and to Directors in charge of related business operations. Accordingly, the Board of Directors also oversees the status of such meetings and the performance of duties by Directors, etc. Outside Directors, employing their various experiences and knowledge, oversee business execution by the Board of Directors and each Director, and monitor conflicts of interest between the Company and each Director from the viewpoint of stakeholders, in order to ensure the sustainable growth of the Group and increase its corporate value over the medium to long term. Evaluation of the Effectiveness of the Board of Directors Since 2016, Daio Paper Corporation has been evaluating the effectiveness of the Board of Directors annually, using the results of a self-evaluation questionnaire collected and tallied up by an external organization. The questionnaire, targeted at all Directors and Audit & Supervisory Board Members, incorporates a third-party opinion on the composition and operation of the Board of Directors from an external organization. An overview of the results of the evaluation for this fiscal year is as follows. 1. Overview of the evaluation results The Company has confirmed that its Board of Directors is largely functioning properly in terms of its composition and operation, strategy and execution, risk management, corporate ethics, and monitoring of business performance, etc., and its effectiveness is adequately ensured. 2. Efforts to address issues identified in the effectiveness evaluation of the Board of Directors for the previous year The effectiveness evaluation of the Board of Directors for FY2016 identified that a review of agenda items for Board meetings should be conducted. In October 2016, the Company reviewed the type of matters to be included in the agenda for the Board meetings and management meetings. We found that this has led to an improvement in the scores of the self-evaluation questionnaire, and more focused and effective deliberation of agenda items at Board meetings. 3. Points evaluated as requiring further improvement The Company considers that the Board of Directors needs to constantly obtain information, etc. to respond promptly to changes in laws and regulations, including the Companies Act, and the environment surrounding the Company, in order to fulfill the roles and responsibilities as officers and conduct adequate deliberations at the Board of Directors. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF The Company will continuously work to enhance the effectiveness of the Board of Directors by examining and implementing improvement measures for issues identified in the effectiveness evaluation of the Board of Directors. Roles of the Audit & Supervisory Board (Members) The Audit & Supervisory Board comprises five members, including three Outside Audit & Supervisory Board Members. It investigates the condition of the internal control system through business audits and accounting audits, in close cooperation with the internal audit division and Accounting Auditor, based on an audit plan determined by the Audit & Supervisory Board, in order to strengthen and enhance its management check function. FINANCIAL AND CORPORATE DATA Audit Framework 1. Audit by Audit & Supervisory Board Members Audit & Supervisory Board Members attend Board of Directors meetings and other major meetings, and investigate the status of the Company s operations and financial standing, in order to audit the legality and appropriateness of the performance of duties by Directors. Outside Audit & Supervisory Board Members are appointed from among certified public accountants and lawyers who have expertise in corporate accounting and corporate laws as well as high-level insights and experience of corporate management, and they audit decision-making by the Board of Directors and the performance of duties by Directors from an objective and fair position. 2. Internal Audit To ensure that the corporate governance framework of the entire Group is in order, the Internal Control and Audit Department conducts on-site field audits and paper audits, etc. for each of the Company s operating departments, as well as domestic and overseas Group companies. These are conducted from the viewpoint of operational execution process, compliance, and risk management, etc., based on the annual audit plan approved by the Board of Directors. Integrated Report

38 Compliance The Compliance Committee leads the initiatives for identifying risks and implementing concrete risk control measures that are appropriate for different types of risk, and ensuring operations comply with laws and regulations, etc. by conducting compliance training for all employees across the Group. Initiatives for Compliance Daio Paper has established a compliance framework whereby the Compliance Committee implements unified management of risk control measures and deliberates and makes decisions on risk control measures that are appropriate for different levels of risk, with the objectives of strengthening and maintaining risk management and compliance. The Compliance Committee, which deliberates on the risk management framework of the Daio Paper Group, is chaired by the Director in charge of Compliance, Internal Control and the Audit Department, and comprises nine officers and employees of the Company, including all three Outside Directors. The Compliance Committee has eight subordinate organizations. These subcommittees discuss, make decisions on and promote the implementation of concrete risk control measures that are appropriate for different types of risk, thus establishing a highly effective risk management structure. Organization Chart of the Compliance Framework Compliance Committee Accounting and Finance Subcommittee Labor and Human Rights Subcommittee General Affairs and Public Relations Subcommittee Paper and Paperboard Quality Subcommittee H&PC Quality Subcommittee Safety & Health Subcommittee Environment Subcommittee Overseas Risk Subcommittee Implementation of a Whistle-blowing System (Corporate Ethics Hotline) The Daio Paper Group has established the Corporate Ethics Hotline, a point of contact for whistle-blowing. In addition, to promote the use of the whistle-blowing system, we established enforcement rules that obligate whistle-blowing when employees become aware of unlawful acts and situations, ensure the confidentiality of whistle-blowers, and protect whistle-blowers from disadvantageous treatment, and informed all employees across the Group of these rules. The point of contact for whistle-blowing is the Auditors Office (internal contact), whose staff assist Audit & Supervisory Board Members, and an outside lawyer (outside contact). This framework eases reluctance and makes it easier on the employee to report illegal and other misconduct concerning top-level executives and administrative departments. Schematic Diagram of Corporate Ethics Hotline Officers and Employees of the Daio Paper Group (including contract employees and part-time employees, etc.) Feeding back survey results Reporting Outside contact (Outside lawyer) Discussion Reporting Reporting Internal contact (Auditors Office of the Company) Reporting Audit & Supervisory Board Members (all Audit & Supervisory Board Members including Outside Audit & Supervisory Board Members) Discussion Compliance Committee Reporting and discussion Outside specialists Note: Investigations on reported matters are led by Audit & Supervisory Board Members, and relevant departments are required to implement the necessary corrective measures. 37 Integrated Report 2017

39 Message from Outside Director PHILOSOPHY OF Nobuhiko Yoshida Outside Director Chairman of the Remuneration and Treatment Committee; Member of the Compliance Committee ABOUT I believe corporate governance is a framework that allows a company to reinforce its strengths and complement its weaknesses, enabling it to straighten itself out and earn the trust of society, leading to enhanced total vitality of the company. At the monthly meeting of the Compliance Committee, we deliberate on various issues regarding risk management and compliance of the entire Group, and decide and implement countermeasures to cultivate a sound corporate culture and to ultimately achieve the future vision of the Company. At the meeting of the Remuneration and Treatment Committee, we consider and decide the officers remuneration structure and actual amount of remuneration of individual officers. The Board of Directors is the core of the corporate governance framework. To enable a thorough examination of, as well as high-quality and lively discussions on each matter proposed, the Outside Directors and Outside Audit & Supervisory Board Members hold a preliminary briefing and review meeting prior to each Board of Directors meeting. The purpose of the briefing and review meeting is to identify the true nature and key idea behind each matter proposed in order to give advice on it, raising the level of discussion and improving the productivity of the Board of Directors. Daio Paper has continued to tackle challenges through the course of implementing the First Medium-term Business Plan Restart Solid Reform and Further Growth and the Second Medium-term Business Plan Step-up Leap and Expand, enabling the Company to achieve robust growth and evolve itself. I believe that this was the result of the proper manifestation and embodiment of the underlying Corporate Motto of the Company Passion with Sincerity, made possible through the improvement of corporate governance. I think that in order to strengthen corporate governance, it is essential to deploy various measures based on attention to regions, resources, and realization. Going forward, we will stay true to our Corporate Motto, and continue to commit to work toward enhancing and improving the Company s corporate governance further. VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Integrated Report

40 Responsibilities to Shareholders and Investors Policy and Framework of IR Activities Guided by the Corporate Motto Passion with Sincerity, the Daio Paper Group is committed to make timely, appropriate and fair information disclosure, as well as promote sincere and proactive communication with shareholders and investors through its IR activities. The Company established the IR team in July 2016 to promote engagement (constructive dialogue) with shareholders and investors. Daio Paper will continue to make an effort to explain its management policy and business conditions clearly, and to reflect feedback from shareholders and investors in its corporate activities appropriately. Principal IR Activities Conducted in FY2016 (from April 2016 to March 2017) Activities One-on-one meetings with institutional investors Earnings and management strategy briefing for analysts and institutional investors Overseas IR meetings Conferences organized by securities companies Number of events 94 times Twice Once Twice Details IR interviews and teleconferences with domestic and overseas analysts and institutional investors Briefings with the President and Director-in-charge as the main speakers held after the second and fourth quarters Meetings with overseas investors (Hong Kong, Singapore) by persons in charge of IR and Corporate Planning Small meetings and one-on-one meetings with domestic and overseas analysts and institutional investors at investment conferences IR Calendar First quarter Second quarter Third quarter Fourth quarter April May June July August September October November December January February March Quiet period* Quiet period* Quiet period* Quiet period* Full-year earnings announcement/analysts briefing Annual general meeting of shareholders First quarter earnings announcement Second quarter earnings announcement/analysts briefing (Publication of the Daio Paper Group Corporate Report) Third quarter earnings announcement *Quiet period: In order to prevent leakage of earnings information and ensure fairness, the Company, in principle, will observe a quiet period, beginning the day following the end of each quarterly accounting period and ending on the date of announcement of financial results for the said quarterly accounting period. During this period, we will not comment or answer questions regarding financial results and earnings outlook. Information Disclosure Policy The Company proactively utilizes various information disclosure tools, such as press releases and information posting on our corporate website, to ensure that financial information such as earnings, and non-financial information such as corporate strategy, risks and corporate governance, are disclosed timely and fairly to all stakeholders. For details, please visit the IR Information page on the website of the Daio Paper Group Integrated Report 2017

41 Creating a Workplace That Motivates Employees Based on the idea that motivated employees would contribute to the sustainable growth of the Company, the Daio Paper Group is promoting diversity management, health management, and human resource development. Organization Diverse/ Global human resources Sustainable growth of the Group Innovation Growth spiral Individuals Work motivation/ Eagerness to contribute/capacity development PHILOSOPHY OF Health management Creation of a workplace that motivates employees Diversity management Human resource development ABOUT Diversity Management Daio Paper is promoting diversity to encourage each employee, with their diverse abilities, to take initiative to hone their unique abilities and sensibilities, and act with consideration, good judgment, and proactivity. We aim to create a corporate culture in which employees embrace and make full use of their diverse values, points of view, and abilities and turn those into strengths that increase corporate value. Of various initiatives to promote diversity, we have been focusing particularly on promoting women s active involvement in the workplace, with numerical targets, such as the ratio of female managerial employees, in place since The key initiatives are: (1) cultivating career awareness and promoting self-directed career development among female employees in career-track positions, (2) cultivating female employees into managerial positions, and (3) supporting good balance between work and childcare. For FY2016, Daio Paper was selected as the Nadeshiko Brand for the second time following FY2014. Daio Paper was recognized for our proactive efforts to promote women s active involvement in the workplace, in particular the announcement of the Declaration of Work Style Reform and the President s message. We also implemented Reforms to Ways of Working, Career Training and Interview for Female Employees in Career-track Positions, and Mentor Program (one-on-one coaching by Officers). Supporting Good Balance between Work and Childcare Daio Paper is aiming to create a corporate culture in which it is common practice for female employees who are raising children to play leading roles in the workplace. We provide female employees returning to work after childcare leave opportunities to consider their career path. We organize consultations with female employees before they return to work from childcare leave to facilitate a smooth return to work, as well as consultations after returning to work to facilitate their active participation in the workplace. VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Numerical Targets for Promoting Women s Active Involvement in the Workplace (through FY2020) Target 1 Women in managerial positions: 3.5% Current situation: 1.2% (as of October 2017) Target 2 Women in career-track positions: 12.5% Current situation: 10.2% (as of October 2017) Note: The Company has announced that its long-term target is to increase the ratio of women in managerial positions to 30% and the ratio of women in career-track positions to 40%. Daio Paper Group s Diversity Develop and make full use of the abilities and strengths of each of our diverse employees to increase our corporate competitiveness and value Creating Innovations Target 2: Fostering acceptance of and respect for diversity Target 1: Establishing an ethos of promoting women s active involvement in the workplace Integrated Report

42 We have also introduced the following measures to develop an environment that allows female employees to exercise their full potential with peace of mind, even during their child-rearing years. Subsidy program for baby-sitting service Extended short working hour system for child caring purposes to until the child finishes third grade of elementary school Expanded the scope of valid reasons for using extended Health and Productivity Management Ensuring that employees maintain good health and work with vitality is essential for a company to achieve healthy organizational operations and sustainable growth. The Daio Paper Group announced the Daio Paper Group Declaration of Health in Daio Paper endeavors to contribute to the development of people s lives, culture, and industry and continue to be a Group trusted by society, underpinned by the well-being of its employees and their families. We are implementing the following initiatives to encourage employees to maintain and improve their health: (1) create a comfortable workplace environment, (2) promote healthier lifestyle habits, (3) promote mental healthcare, and (4) promote efforts to stop smoking. annual paid leave to include getting vaccinations for children and regular health check-ups, etc. In October 2017, we established GOO.N SukuSuku Leave, which is paid leave for childcare designed to further support employees taking time off for childcare and promote male employees participation in childcare. Certification mark, dubbed Kurumin, awarded to companies that support raising next-generation children Obtained the Highest Rank in the DBJ Health Management Rating Daio Paper obtained the highest rank in the DBJ Health Management Rating for FY2016, provided by Development Bank of Japan Inc. The Company was highly rated for its initiatives that care for the health of its employees, for example, initiatives to reduce work hours and promote the use of paid leave, implementation of stress level tests, and initiatives to encourage employees to adopt healthier lifestyle habits. Concrete Numerical Targets for Health and Productivity Management Creating a comfortable workplace environment Reduce overtime work 2016 (result) 2018 (target) 23 hours/month 20 hours/month or less Improvement of lifestyle habits Achieve 100% take-up rate for medical checkups 2016 (result) 2018 (target) 99.6% 100% Promoting mental healthcare Improve participation rate in stress level tests 2016 (result) 2018 (target) 93.9% 95% or more Promotion of efforts to stop smoking Reduce smoking rate 2016 (result) 2018 (target) 33.8% 30% or less Human Resource Development To develop next-generation leaders who will shape the future of the Company, the Daio Paper Group conducts job rotations to let employees experience different operations. They will gain both a comprehensive ability to look at things with a broad perspective and the expertise to delve into the essence of problems and solve them. Level Training by level Selective training Senior managerial/ managerial Planning and advising General Training for newly appointed general managers Training for newly appointed managers Training for leaders of practical operations Follow-up training for third-year employees Follow-up training for first-year employees Training for new employees Training for nextgeneration leaders On-the-job training (OJT) Openapplication education grant program (MBA program, etc.) Training for mentors Mentor program (one-on-one coaching) Overseas personnel training Incentives to take the TOEIC test Short-term language study abroad Training before overseas assignment Self-nominated job-posting system for overseas assignment Others Personal development Correspondence education programs Language Management Leadership Finance/accounting PC skills Compliance Others Support for acquisition of public qualification Bookkeeping Certified mechanical maintenance engineer Others Professional training Training for sales personnel Technical knowledge education Safety education Lecture on laws and regulations Others 41 Integrated Report 2017

43 Supporting Stress-free Nursing Care What is Stress-free Nursing Care? The Daio Paper Group is supporting the activities of Panel for Study of Stress-free Nursing Care with Dr. Minoru Kamata and member experts. Through the activities, we hope to make nursing care easier on the caregivers by making full use of various information and social services to lower caregiving stress. The activities are not only conducted in Japan, but overseas as well, extending the touch of tenderness provided by our Attento-brand products to people around the world. Communication with Customers Activities of DAIO Partner Ship Sakura Terrace Distributors Partnership DAIO Partner Ship Sakura Terrace, our regional distributors partnership, was established in November 2015 to facilitate collaboration with our distributors in the face of declining demand. We seek to grow together, thrive together, and open up a new era together. Through Sakura Terrace, we have been implementing market-oriented initiatives in collaboration with member distributors, such as seminars by job position level, ranging from new employees to senior executives, and informationsharing through the Internet. Dr. Minoru Kamata Graduated from Tokyo Medical and Dental University, Faculty of Medicine; Currently, Director Emeritus of Suwa Central Hospital in Nagano Prefecture Exchange-of-opinion Meetings with Local Residents At Daio Paper s Mishima Mill, we create opportunities to exchange opinions with local residents once or twice a year. At this event, we explain our environmental protection activities (status of improving facilities, noise and vibration measurement data, etc.) and give a tour of the production facilities. PHILOSOPHY OF FINANCIAL AND CORPORATE DATA ABOUT VALUE CREATION MODEL OF Tour of production facilities for local residents Plenary meeting of Sakura Terrace Communication with Customers We established Elleair Customer Service Center as the point of communication with customers. We listen to and handle customers inquiries with sincerity from their perspective, and strive to fulfill their needs. We reflect our customers feedbacks in product development, updating products to improve satisfaction, and modifying labels and advertisements to improve ease of understanding. Customers Opinions, inquiries, suggestions Prompt and sincere response Product improvement, modification of labels and advertisements to improve ease of understanding Elleair Customer Service Center Integrated Report

44 Four Pillars of the Daio Paper Group Management Philosophy Organic: Contribution to the Global Environment The Daio Paper Group aims to reduce CO2 emissions, promote overseas afforestation and high usage of recovered paper, facilitate energy savings, conserve biodiversity, and work toward establishing a sustainable society. D I A O DAIO Global Environment Charter We conduct business activities in harmony with the environment, setting CO2 emission reduction as our action goal to mitigate global warming, and carry out activities to advance effective use of recovered paper, forest conservation, energy saving, and waste reduction. Basic Policy 1 Create an environmentally conscious corporate culture 2 Adopt and develop environmental load reduction technologies and products 3 Promote the effective use of resources Environmental Management Promotion Framework Daio Paper Corporation and its 19 Group companies, which are classified into four divisions by industry, conduct activities to develop and implement measures to prevent the recurrence of environmental accidents and complaints, to respond to revisions to environmental laws and regulations, and to improve the environment. The Environment Subcommittee mutually evaluates the activities of each division. Problems would be shared among the four divisions, and the direction of the activities would then be set or changed accordingly. The Environment Subcommittee reports its status of operations to the Compliance Committee, which then approves it. Environment-related Compliance Framework Under the Daio Paper Group s environmental management framework, the Paper Manufacture Division (seven companies and eight mills), the Corrugated Container Division (one company and 13 factories), the Printing Division (five companies and nine factories), and the Household Paper Division (six companies and 12 factories) work together to share environmental risks and problems of each Division and address problems before they emerge. Based on the environmental self-inspection list, which is common to all Group companies, employees of each company perform self-checks on the compliance status for each law and regulation once a year, and the Environment Subcommittee assures the accuracy of the results of environmental self-inspections conducted by each company. These activities allow the Daio Paper Group to ensure legal compliance as well as maintain compliance awareness. Paper Manufacture Division Seven companies, eight mills Compliance Committee Environment Subcommittee Corrugated Container Division One company, 13 factories Printing Division Five companies, nine factories Household Paper Division Six companies, 12 factories 43 Integrated Report 2017

45 Environmental Monitoring System Daio Paper Corporation and the 10 paper manufacturers in the Group constantly monitor environmental factors, such as air and water quality, with continuous measuring instruments. At the Mishima Mill and the Kani Mill, an environmental monitoring system runs constantly. (The 10 paper manufacturers are Iwaki Daio Paper Corporation, Dainichi Paper Corporation, Otsu Paper Board Co., Ltd., Harima Paper Tech. Corporation, Taisei Paper Corporation, Marubishi Paper Tec. Corporation, Omiya Paper Corporation, Akabira Paper Corporation, Daio Paper Products Corporation, and Tokai Seishi Kogyo Co., Ltd.) Environmental Self-inspection Checklist We update the Environmental Self-inspection Checklist annually, incorporating revisions to environmental laws and regulations (air, water quality, noise/vibration, odor, and waste) and measures to address similar internal and external environmental problems. Using the checklist, Daio Paper Corporation and 19 Group companies carry out selfinspections once a year according to an annual schedule. The status and progress of corrections of faults detected through environmental self-inspections are managed by the Environment Subcommittee of each company. Promoting the Acquisition of ISO14001 The Daio Paper Group encourages our group companies to acquire the ISO14001 Certification. 17 companies and 33 offices have obtained certification. Environmental Action Plan Structural Diagram of Environmental Monitoring System (Daio Paper s Mishima Mill and Kani Mill) An alarm is sent to the administrator if measured data exceed the voluntary control value Manufacturing site A Environmental monitoring server (Safety Environment Office) Manufacturing site B Operation data at each manufacturing site are monitored in real-time using the intra-company network Manufacturing site C Education on Laws and Regulations for Each Position Level The environmental conservation department provides education to Directors and general managers once a year based on an annual schedule. The contents of the education are mainly on revisions to environmental laws and regulations and their impacts on company operations. All employees who are managers or below receive education on compliance, including environmental laws and regulations, based on the annual compliance education schedule of each section during the monthly compliance week, enabling them to consider the legal violation risks of their own departments and take measures in advance. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF CO2 Emission Intensity (t/t product) Usage of Hard-to-recycle Recovered Paper (1000 t) Final Disposal Volume of Industrial Waste (1000 t) FINANCIAL AND CORPORATE DATA /3 2014/3 2015/3 2016/3 2017/3 (FY) /3 2014/3 2015/3 2016/3 2017/3 (FY) /3 2014/3 2015/3 2016/3 2017/3 (FY) Reduce emission intensity to 0.78 tons/tons product by the end of FY2030 (Reduce 26% compared to FY2013) Increase use of hard-to-recycle recovered paper to 140,000 tons by the end of FY2030 Reduce final disposal volume of industrial waste to 5,000 tons Integrated Report

46 Initiatives in Product Transportation The Daio Paper Group has been implementing a modal shift, switching from road transport by truck to marine transportation and rail transportation, for long-distance transport of products to destinations more than 500 km from the production plants. We will work to reduce CO2 emissions further by expanding the modal shift s target area. We also go beyond the boundaries of companies to work toward reducing total CO2 emissions, by collaborating with other companies in the industry to conduct reciprocal transportation and joint transportation, increasing transportation efficiency and reducing the number of trucks on the road. Initiatives for a Modal Shift in Product Transportation Modal shift refers to switching from road transport by truck, which emits large amounts of CO2, to less carbon intensive transport such as ship or rail. Daio Paper has been promoting a modal shift for the long-distance transport of products from the Mishima Mill (500 km or more). We achieved a modal shift rate of 86.1% in FY2016. By promoting a modal shift to JR Freight s container transportation, which emits less CO2 than trucks, we are reducing the CO2 emissions of the Daio Paper Group as a whole. Eco-ships Daio Paper Corporation operates nine carriers for transporting woodchips, which are raw materials for papermaking. Of these, the Company will replace three woodchip carriers that have been in operation since the late 1980s under a charter contract with Daio Kaiun Co., Ltd. with eco-friendly ships with a higher fuel-economy performance (deadweight tonnage: about 50,000 tons) in FY2017. The first such initiative by a domestic papermaking company, the introduction of eco-ships, with their state-ofthe-art engines and improved engine control technology, will achieve a 25% improvement in fuel efficiency compared with conventional woodchip carriers. It is estimated that switching to eco-ships will lead to a reduction in heavy oil consumption of 2,390 tons/year per Modal Shift Rate for Transportation over Distances of 500 Km or More (%) By ship By rail / /3 2015/ / /3 ship and a fall in CO2 emissions of 7,531 tons/year per ship. The eco-ships will significantly heighten the competitiveness of the Company s products, and become a means of transport that will increase our contribution to the global environment (Organic), as set out in the Daio Paper Group Management Philosophy. Introducing Fuel-efficient ships (Eco-ships) Increased propulsion efficiency by smoothing propeller wash Reduced CO2 emissions through electronic control of engine system (FY) Reduced wind and water resistance by modifying shape of ship PRINCESS HARU (Launched in July 2017) PRINCESS SUIHA (Launched in October 2017) PRINCESS PACIFIC (Launched in August 2017) 45 Integrated Report 2017

47 Biomass Fuels The Daio Paper Group has promoted the conversion from boilers fired by fossil fuels such as coal and heavy oil to boilers fired by non-fossil fuels (biomass fuels). As a result, the biomass energy ratio of the Daio Paper Group increased from 37% in FY1990 to 50% in FY2016. The Mishima Mill is constructing a biomass power generation plant that will utilize pulp waste liquor from the Energy Composition Ratio of Fossil-derived Energy and Biomass Energy (%) Biomass energy Fossil-derived energy / / /3 2015/3 2016/3 Biomass energy ratio: 50% /3 (FY) Scope of data collection: Daio Paper Corporation and production bases of 19 Group companies (cf. p. 7) kraft pulping process, with operations slated to launch in We plan to sell the electricity generated to electric utilities under the Feed-in Tariff (FIT; fixed-price purchase scheme for renewable energy) scheme. The biomass power generation plant will improve the energy efficiency by about 5% compared with before, which will lead to a CO2 emission reduction of 25,000 tons/year. Conceptual drawing of the biomass boiler in the Mishima Mill PHILOSOPHY OF ABOUT Use of Renewable Energy Otsu Paper Board Co., Ltd. has installed solar power generation facilities on the roof of its product warehouse as part of its environmental response measures. As a result, the company generates 298 MWh of electricity per year, reducing 148 tons of CO2 emissions annually. Iwaki Daio Paper Corporation has been introducing renewable energy with a low environmental load. The company started up solar power generation facilities at the end of November 2014 along with the reinforcement of its containerboard production facilities, which they relocated and remodeled in August The solar power generation facilities generate 252 MWh annually and reduce CO2 emissions by 141 tons per year. Fukushima Factory of Elleair Product Co., Ltd. received support from the Subsidy for Business Location for Reconstruction of Industry in Fukushima, and established solar power generation facilities on the roof of its product warehouse, which started operations in January The solar power generation facilities generate 29.1 MWh of electricity per year, and are expected to reduce 16.3 tons of CO2 emissions annually. Solar power generation facilities at Fukushima Factory of Elleair Product Co., Ltd. started operation in January 2017 VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Initiatives for CO2 Fixation through Forestation The Daio Paper Group has been engaged in activities to plant trees, which absorb and fix CO2, overseas through Forestal Anchile Ltda. (Chile) since In FY2016, the forestation project achieved the absorption and fixation of 2,272,000 tons of CO2, which was 60.4% of the total amount of CO2 emitted through the business activities of the entire Group. Percentage of CO2 Emissions Absorbed and Fixed through Overseas Forestation (%) /3 2013/3 2014/3 2015/ / /3 (FY) Integrated Report

48 Initiatives to Reduce Final Disposal Amount of Industrial Waste The Daio Paper Group is promoting the reduction of final disposal amount of solid waste, by switching to intermediate waste treatment companies that recycle waste for the disposal of industrial waste produced in the Group. The total final disposal amount of industrial waste produced by the Group amounted to 4,000 tons (1.3% of the total industrial waste) in FY2016. The amount of industrial waste produced by the Mishima Mill accounted for 75% (258,000 tons) of the total of that produced by the Group, but through the promotion of recycling waste into recycled crushed stone and cement raw materials, we achieved a recycling rate of 99.8% at Mishima mill. Amount of Industrial Waste Produced (Daio Paper Group) (1000 t) Final Disposal Amount of Industrial Waste (Daio Paper Group) (1000 t) Breakdown of Recycled Waste (Mishima Mill) Others 0.1% Landfill Land reclamation disposal 5.1% 0.2% Recycling rate: 99.8% /3 2014/3 2015/3 2016/3 2017/3 (FY) /3 2014/3 2015/3 2016/3 2017/3 (FY) Cement raw materials 43.4% Recycled crushed stone 51.2% Initiatives for Recycling Waste Materials Industrial waste such as incinerated sewage sludge ash, incinerated ash generated by biomass boilers, and sludge generated in the chemical manufacturing process have been recycled mainly into cement raw materials and base course materials. In addition, we have started to recycle industrial waste into concrete blocks, recycled soil, and sub-materials for steelmaking. As a result, excluding the final disposal (landfill disposal) amount of solid waste, we achieved an industrial waste recycling rate of 98.7%. Concrete blocks, which are formed by mixing incineration ash and cement and then shaped into cubes, are used as soil retainer blocks to prevent landslides and other disasters. Recycled soil is a certified recycled product, and is made by mixing quicklime and a fixation agent. It is used as an embankment material such as to raise the ground level of low-lying land or the surrounding ground level when constructing roads. Concrete blocks used to retain soil Recycling rate of industrial waste: 98.7% (group-wide) Recycled soil used as embankment material Forestal Anchile Ltda. (Chile) Monitoring the Ecology of Animals and Plants Showing consideration to biodiversity Forestal Anchile designates natural forests and potential habitats of endangered species within its forestry property as reserves, and regularly monitors these designated areas to check if the ecology of such animals and plants is maintained. Cocoi heron (scientific name: Ardea cocoi ) A bird that can be found in the Carlos Anwandter Nature Sanctuary, a Ramsar wetland, in XIV Region in Chile Black-necked swan (scientific name: Cygnus melancoryphus) A symbolic bird of the Carlos Anwandter Nature Sanctuary, a Ramsar wetland, in XIV Region in Chile Monitoring of wildlife 47 Integrated Report 2017

49 Environmental Accounting Initiatives for Reducing the Amount of PRTR Substances The Daio Paper Group gives maximum consideration to product safety by appropriately managing the use of chemicals. We adopt new paper chemicals not just based on their effect on product quality, but also perform in-house evaluations to measure their possible impacts on people and the environment. We also check the safety of chemicals already adopted by requiring the submission of chemical content certificates every year. Emission Volume of PRTR-listed Chemical Substances (t) / /3 2014/5 2016/ /3 (FY) PHILOSOPHY OF Substance No. Name of Chemical Substance Unit Volume Handled Emission Volume Volume Transferred 1 Water-soluble zinc compounds t Acrylamide t 20 2-aminoethanol t EPN t Xylene t ABOUT 127 Chloroform t Vinyl acetate t Dioxins mg-teq ,1,1-trichloroethane t ,2,4-trimethylbenzen t Toluene t Hydrazine t Hydrogen fluoride and its water-soluble salt t Water-soluble salts of peroxodisulfuric acid t 4.4 VALUE CREATION MODEL OF 405 Boron compounds t Manganese and its compounds t Methylnaphthalene t Total t Notes: 1. Scope of data collection: Daio Paper Corporation and the production bases of the 15 domestic Group companies (cf. P7) 2. Only chemical substances with 1 t or more of volume handled are listed. 3. Dioxins are excluded from output data aggregation due to differences in units of measure used. FINANCIAL AND CORPORATE DATA Soil and Groundwater Impact Study The Mishima Mill and the Kani Mill of Daio Paper Corporation and Iwaki Daio Paper Corporation conducted the following study on the impacts of chemicals on soil and groundwater, and confirmed that there were no problems. (1) Study on land-use history We verified the history of land use and confirmed, among others, that the sites were farmland before the production plants were constructed. (2) Water quality test of groundwater (spring water) at plant sites and surrounding areas We conducted analyses of 26 items on the groundwater at each production plant in accordance with the Soil Contamination Countermeasures Act, and confirmed that there were no problems. Integrated Report

50 Environmental Accounting [Environmental Accounting: Calculation Standards] ❶ Scope of calculations: In addition to the Mishima Mill and the Kani Mill of Daio Paper Corporation, and Iwaki Daio Paper Corporation, forestry-related operations of Forestal Anchile Ltda., our Group company in Chile, were included within the scope of calculations for Environmental Conservation Costs and Benefits. ❷ Target period: FY2016 (from April 1, 2016 to March 31, 2017) ❸ Calculations were performed using Environmental Accounting Guidelines 2005 released by the Ministry of the Environment. Environmental Conservation Cost () Category Details of major activities Investment Cost (1) Business area cost 2,777 30,759 Breakdown 1 Pollution prevention cost Effluent treatment facilities, deodorizing/exhaust gas desulfurization facilities, ECF, etc. 1,349 5,409 2 Global environmental conservation cost Overseas forestation, maintenance and management of company-owned forests, energy-saving 81 1,527 3 Resource circulation cost Waste disposal/recycling waste as materials, effective use of recovered paper and other resources 1,347 23,823 (2) Upstream/downstream cost Recycling cost, low-sulfur fuel purchase cost (difference), etc. 926 (3) Administration cost Management cost of ISO14001, cost of employee education, environmental impact measurement, etc. 112 (4) R&D cost Development of products, such as environmentally friendly brands, for environmental conservation, etc. 33 (5) Social activity cost Various volunteer activities, organization support, environmental report, etc. 62 (6) Environmental remediation cost Pollution load charges (SOx) 159 Total 2,777 32,051 Environmental Conservation Benefit Categories of environmental conservation benefit (1) Benefit corresponding to business area cost (2) Benefit corresponding to upstream/downstream cost Environmental load items Unit FY2015 FY2016 Change from the previous year 1Reduction of greenhouse Increased by CO2 emission volume 1000 t 3,903 4,075 gas (CO2) 172,000 t Sulfur oxide emission t 1,235 1,109 Decreased by 126 t volume 2Reduction of air-pollution Nitrogen oxide emission substances t 6,116 6,161 Increased by 45 t volume Dust emission volume t Decreased by 2 t Volume of waste water 1000 m 3 126, ,945 Increased by 642,000 m³ COD emission volume t 7,147 7,217 Increased by 70 t 3Reduction of waterpollution substances SS emission volume t 1,904 1,997 Increased by 93 t Nitrogen emission t Increased by 651 t volume Phosphorus emission volume t Increased by 3 t 4Promotion of overseas forestation 5Reduction of industrial waste 1Promotion of recovered paper usage Overseas forested area ha 34,200 28,700 Volume of industrial waste generation Volume of recovered paper usage Decreased by 5,500 ha 1000 t Decreased by 3,000 t 1000 t 1,808 1,784 Decreased by 24,000 t Economic Benefits of Environmental Conservation Measures () Details of benefits Amount Cost reduction from energy saving 2 Cost reduction from decrease in fossil fuel usage Reduction of disposal cost due to effective use of waste 34 Cost reduction from dissolution treatment of and replacement of materials with hard-to-defiberize recovered paper 47 Total Integrated Report 2017

51 Material Flow INPUT Group s Production Bases Item Raw materials (total input of materials) Aggregate total of FY2016 Woodchip (1000 t) 2,428 OUTPUT Group s Production Bases Item Production volume Aggregate total of FY2016 Paper (1000 t) 2,239 PHILOSOPHY OF Recovered paper (1000 t) 2,231 Containerboard (1000 t) 1,342 Purchased pulp (1000 t) 182 Fuels (total input of energy) Fossil energy (1000 GJ) 43,454 Renewable energy (1000 GJ) 35,672 Waste-derived energy (1000 GJ) 7,367 Water requirement (Input of water resources) (1000 m3 ) 168,308 Group s Non-production Bases Item Fuel (total inputs of energy) Volume of Recycled Waste Item Fuels (Total input of energy) Aggregate total of FY2016 Fossil energy (1000 GJ) 858 Water (inputs of water resources) (1000 m 3 ) 24 Aggregate total of FY2016 1Cement raw material (t) 126,934 2 Recovered crushed stone material (t) 165,308 3Land reclamation, etc. (t) 41,921 4Others (t) 6,027 Total (t) 340,190 Production Volume of waste generated: 345,000 tons Recycling of waste Others (1000 t) 3,812 Total (1000 t) 7,392 Atmosphere Sulfur oxide (SOx) (t) 1,170 Nitrogen oxide (NOx) (t) 6,438 Dust (t) 282 CO2 (1000 t-co2) 3,760 Water quality Emission volume (1000 m 3 ) 154,521 COD (t) 7,960 SS (t) 2,415 Nitrogen (t) 430 Phosphorus (t) 52 Emission volume of PRTR substances (t) 44 Waste Volume of waste generated (t) 344,570 Final disposal volume of waste (t) 4,432 Group s Non-production Bases Atmosphere Item Aggregate total of FY2016 CO2 (1000 t-co2) 57 Waste Volume of waste generated (t) 12 Final disposal volume of waste (t) 12 ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA CO2 emission volume: Reduced by 60.4% Absorption/fixation of CO2 through forestation: 2,272,000 t-co2 Total volume of CO2 emissions of the Group: 3,760,000 t-co2 Integrated Report

52 Atmosphere Quality Data While the volume of production increased, we increased the use of biomass energy and reduced the use of fossil fuels (heavy oil and crude oil). As a result, we reduced the volume of SOx emissions in FY2016 to 1,183 tons/year, which is a 14.8% decrease compared to FY2015. SOx 排出量 Emission Volume NOx Emission 排出量 Volume ばいじん排出量 Dust Emission Volume (t) 2,500 Mishima Kani Iwaki Other (t) 8,000 Mishima Kani Iwaki Other (t) 500 Mishima Kani Iwaki Other 2,000 1,500 1, , , ,355 1, , /3 2014/3 2015/3 2016/3 2017/3 (FY) 6,173 6,393 6,434 6,437 6,438 6, ,000 2, ,620 4,966 5,056 5,077 5, /3 2014/3 2015/3 2016/3 2017/3 (FY) /3 2014/3 2015/3 2016/3 2017/3 (FY) Water Quality Dat Daio Paper Corporation s Mishima Mill, located on the coast of Seto Inland Sea, and other Daio Paper Group companies such as Otsu Paper Board Co., Ltd., which is located near Lake Biwa, comply with regulations on total allowable emission volumes of COD, nitrogen, and phosphorus. COD Emission Volume (t) 10,000 8,035 8,348 8,359 8,000 7,783 7, ,000 1,888 1, ,813 1,724 1,708 4,000 2,000 0 Mishima Kani Iwaki Other 5,270 5,525 5,496 5,135 5, /3 2014/3 2015/3 2016/3 2017/3 (FY) SS Emission Volume (t) 3,500 3,000 2,500 2,000 1,500 1, ,838 Mishima Kani Iwaki Other , , , ,431 1,098 2, , /3 2014/3 2015/3 2016/3 2017/3 (FY) Nitrogen Emission Volume (t) Mishima Kani Iwaki Other /3 2014/3 2015/3 2016/3 2017/3 (FY) りん排出量 Phosphorus Emission Volume (t) Mishima Kani Iwaki Other /3 2014/3 2015/3 2016/3 2017/3 (FY) 排水量 Volume of Drainage Water Produced (Million m 3 ) Mishima Kani Iwaki Other /3 2014/3 2015/3 2016/3 2017/3 (FY) 用水量 Water Requirement (Million m 3 ) Mishima Kani Iwaki Other /3 2014/3 2015/3 2016/3 2017/3 (FY) 51 Integrated Report 2017

53 Board of Directors and Audit & Supervisory Board Members President, CEO and Representative Director Masayoshi Sako Representative Director and Senior Managing Executive Officer Toshihiro Adachi Chief General Manager of Business Administration Div.; Responsible for General Affairs and Personnel Div., Compliance, Internal Control & Audit Dept. Representative Director and Senior Managing Executive Officer Kunihiro Okazaki Chief General Manager of Paper and Paperboard Business; Responsible for Home and Personal Care Business and Logistics Div. PHILOSOPHY OF ABOUT Director and Managing Executive Officer Takashi Ono Chief General Manager of Production Div. Director and Executive Officer Hiroshi Yamasaki Deputy Chief General Manager of Production Div.; Chief General Manager of Mishima Mill Director and Executive Officer Yoshiyuki Shinohara Chief General Manager of Kani Mill Director and Executive Officer Toshiki Yamagami Chief General Manager of Home and Personal Care Products International Business Director and Executive Officer Tetsuya Watanabe Chief General Manager of General Affairs and Personnel Div. VALUE CREATION MODEL OF Director and Executive Officer Yukihiro Tanaka Chief General Manager of Corporate Planning Div. Director and Executive Officer Yorifusa Wakabayashi Chief General Manager of Home and Personal Care Products Domestic Business Director (Outside) Nobuhiko Yoshida Director (Outside) Yukimasa Yoneda Director (Outside) Mizue Unno FINANCIAL AND CORPORATE DATA Audit & Supervisory Board Member Yasushi Nishikawa Audit & Supervisory Board Member Susumu Ishimaru Audit & Supervisory Board Member (Outside) Yoichiro Yamakawa Audit & Supervisory Board Member (Outside) Yoshinobu Shimizu Audit & Supervisory Board Member (Outside) Takemi Nagasaka Integrated Report

54 Business Environment and Issues to Be Addressed Forward-looking statements included in the following are based on the judgment of the Company as of the submission date of the Annual Securities Report. 1. Overview Taking an overview of the global economy during the fiscal year under review (hereinafter referred to as the Fiscal Year Ended March 31, 2017 ), we see that the economy recovered moderately, underpinned by factors such as an improvement in employment conditions in the United States and robust personal consumption in China due to the effects of the government s policy to encourage consumption. On the other hand, the economic outlook remained uncertain due to uncertainties about political and economic situations, including the policy management of the new United States administration and national elections scheduled in major countries in Europe. In Japan, the economy continued to recover at a modest pace, backed by robust corporate earnings and personal consumption, as well as solid employment conditions. In the pulp and paper industry, domestic demand for containerboard remained robust, but that for paper including newsprint and printing paper continued to decline. In addition, prices of recovered paper increased. As a result, companies in the industry continued to face a tough business environment. In the Paper Business, we promoted a shift in sales mix to uncoated paper, communication paper and wrapping paper in response to decreased demand for coated paper, such as published materials and catalogues. In addition, we expanded sales to distributors, mainly to member distributors of DAIO Partner Ship Sakura Terrace, our regional distributors partnership, which led to growth in sales of sheet products, etc. In the Containerboard and Corrugated Container Business, our production and sales volumes increased with the continued growth in demand in the e-commerce and processed foods sectors. We aim to further improve quality and reduce costs, and work toward strengthening production and sales frameworks in the Corrugated Container Business through strategic capital expenditures. Looking at our activities in the Domestic Business for Home and Personal Care, in household paper products, we installed an additional production facility for kitchen paper products at the Kani Mill in May As a result, we achieved a steady expansion in production and sales of kitchen paper products and higher sales of value-added products, such as Shoushuu+ Deodorant Toilet Tissue and i:na Double Length Toilet Tissue". In absorbent products, sales were strong for adult disposable diaper and light incontinence care products, for which the markets are growing. In addition, sales of GOO.N Baby Wipes grew following the construction of a new production facility at Elleair Product Co., Ltd. in April 2016, and sales of toilet cleaning wipes and antibacterial wet wipes also increased according to plan. Sales of sanitary napkins also rose in line with product update. In the Overseas Business, we constructed additional production lines for pants-type baby disposable diapers in China, which sees rapid growth in pants-type segment, and started production and sales. In addition, we steadily diversified our product range. We started selling feminine hygiene products in South Korea and wet wipe products in Thailand in the current fiscal year, in line with our strategy for multi-category expansion in the Overseas Business. 2. Analysis of Operating Results The Daio Paper Group embarked on initiatives aimed at achieving the Second Medium-term Business Plan under the theme of Step- Up Leap and Expand, with three principal strategies: (1) structural shift of the Paper Business, (2) strengthening of the Containerboard and Corrugated Container Business, and (3) further growth and acceleration of the Home and Personal Care Business. For the fiscal year ended March 31, 2017, consolidated net sales totaled 477,140 million, up 0.6% year-on-year. Operating profit decreased 3.2%, to 23,535 million, ordinary profit increased 0.4%, to 21,347 million, and profit attributable to owners of parent declined 16.8%, to 12,136 million. Accordingly, basic earnings per share fell 16.87, to For a discussion of sales by segment, see Business of the Daio Paper Group on pages 17 to Analysis of Financial Condition Total assets at the fiscal year-end increased 1,437 million from the previous fiscal year-end, to 657,747 million. This primarily reflected increases of 8,286 million in cash and deposits, 3,047 million in investment securities, and 2,851 million in construction work in process, despite decreases of 4,984 million in merchandise and finished goods, 4,598 million in goodwill, and 2,985 million in trade receivables. Total liabilities fell 14,822 million, to 466,668 million. The major components of this decline were 14,706 million in longterm loans payable (including the current portion) and 7,200 million in short-term loans payable. These factors were partly offset by an increase of 4,980 million in bonds payable (including the current portion). Net Sales () Paper and Paperboard Home & Personal Care Other Operating Profit () Operating Margin (%) Composition of Net Sales and Operating Profit (%) 474, , , ,054 15,211 16, ,362 13,368 11,641 8, , , , , , , , , , ,953 16,049 21,796 1,089 2,071 11, ,687 9,206 5, ,926 11,372 10,068 24,323 3,153 10, ,473 23,535 3,113 10, , % 3.4% 13.4% 43.5% 43.1% Composition Outside: Net sales Inside: Operating profit 61.2% 2013/3 2014/3 2015/3 2016/3 2017/3 53 Integrated Report /3 2014/3 2015/3 2016/3 2017/3 Paper and Paperboard Home & Personal Care Other Paper and Paperboard Home & Personal Care Other

55 Total net assets climbed 16,259 million, to 191,079 million. The increase was mainly due to factors such as rises of 10,295 million in retained earnings, 4,565 million in the valuation difference on available-for-sale securities, and 2,842 million in non-controlling interests. Accordingly, the equity ratio at March 31, 2017 rose 1.9 percentage points year-on-year, to 26.8%. 4. Analysis of Cash Flows Cash and cash equivalents at the end of the fiscal year under review amounted to 82,733 million, up 10,564 million from the previous fiscal year. Net cash provided by operating activities totaled 62,932 million, climbing 15,921 million year-on-year, due mainly to 18,118 million in profit before income taxes and 29,017 million in depreciation and amortization. Net cash used in investing activities amounted to 31,394 million, increasing 5,321 million year-on-year, due mainly to cash outflows of 34,694 million in payments for purchase of property, plant and equipment. Net cash used in financing activities totaled 22,037 million, rising 4,562 million year-on-year, due mainly to 80,006 million in repayments of long-term loans payable, a 7,200 million decrease in short-term loans payable, and 10,320 million in redemption of bonds payable. Cash outflows were partly offset by increases of 65,300 million in proceeds from long-term loans payable and 15,300 million in proceeds from issuance of bonds. 5. Dividend Policy The Company places top priority on the returns of profit to shareholders and sets a basic policy to continue to pay stable dividends, while taking into consideration factors such as the status of business and the sufficiency of retained earnings. The Company s basic policy is to pay dividends twice a year, an interim dividend and a year-end dividend. The decision-making bodies for distribution of retained earnings are the General Meeting of Shareholders for the year-end dividend and the Board of Directors for the interim dividend. For the fiscal year ended March 31, 2017, we paid an annual dividend of per share, which includes an interim dividend of 5.00, in line with the policy described above. Retained earnings shall be used effectively for upfront investments in growth areas, capital expenditures to enhance future corporate competitiveness and improvement of our financial position, in order to further strengthen our corporate foundation. The Company stipulates that the Company may, by a resolution of the Board of Directors, pay interim dividends to the shareholders or registered share pledgees whose names appear or are recorded as such on the register of shareholders as at the closing thereof on the 30th day of September each year in its articles of incorporation. 6. Outlook for the Fiscal Year Ending March 31, 2018 It is anticipated that the domestic pulp and paper industry will remain in a severe business condition, reflecting concerns over a decline in paper demand and uncertainties over trends in raw materials prices and foreign exchange. Against this background, based on the Second Medium-term Business Plan covering the three-year period from April 2015 to March 2018, we have continued to work to restructure our production and sales product mix, and review composition of customer base in the Paper and Paperboard Business. In the Home and Personal Care Business, we have worked to expand and grow our overseas business base as well as develop and expand sales of high value-added products. For the fiscal year ending March 31, 2018, which is the final year of the plan, we have been facilitating the structural shift of the Paper and Paperboard Business, and accelerating the growth of the Home and Personal Care Business. In addition, the paper products business acquired from Nisshinbo Holdings Co., Ltd. and Miura Printing Co., Ltd. joined the Group in April For the Paper business, the acquisitions will complement and expand our product lineup and strengthen our marketing capabilities in the printing division. In the Home and Personal Care Business, the acquisition will enhance our competitiveness by expanding our lineup of high value-added products. Through these initiatives to generate synergies with these two businesses at an early stage, we will work to increase sales, improve our profitability and financial position, and establish a more robust management base and corporate structure. 7. Risks Associated with Business, Etc. Among matters relating to the status of business and the status of accounting, etc. described in the financial statements, etc., the following matters may have significant impacts on the decisionmaking of investors. Please note that forward-looking statements included in the following are based on the judgment of the Company as of the end of the Fiscal Year Ended March 31, PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Profit Attributable to Owners of Parent () Total Assets Net Assets () () Capital Expenditures () Depreciation and amortization () 659, , , , ,747 37,310 15,109 13,209 14,594 12,136 21,726 24,948 31,587 26,409 26,403 27,203 26,988 32,453 29,017 6, , , , , , /3 2014/3 2015/3 2016/3 2017/3 2013/3 2014/3 2015/3 2016/3 2017/3 2013/3 2014/3 2015/3 2016/3 2017/3 Integrated Report

56 (1) Impacts of Changes in Demand and Market Conditions The Daio Paper Group is engaged in the Paper and Paperboard Business, Home & Personal Care Business, and other businesses. A significant decline in demand for our mainstay products (paper and containerboard products, and household paper products), or a downturn in market conditions for such products may affect the Group s financial position and operating results. (2) Impacts of Changes in Raw Material and Fuel Prices and Fluctuations in Foreign Exchange Rates The Daio Paper Group purchases raw materials and fuels, such as woodchips, recovered paper, chemicals, heavy oil, and coal, both domestically and from overseas. Therefore, changes in the prices of raw materials and fuels, as well as fluctuations in foreign exchange rates for procurements of raw materials and fuels paid for in foreign currencies may affect the Group s financial position and operating results. Fluctuations in foreign exchange rates may also affect the Group s overseas sales activities. (3) Impacts of Overseas Businesses The Daio Paper Group is making efforts, led by the Home and Personal Care Division, to develop business mainly in China, South Korea, Russia, and Southeast Asia as one of its growth strategies. Overseas business expansion activities may be exposed to risks from fluctuations in foreign exchange rates, and changes in the economic environment due to regulations implemented by local governments or political instability, etc., which may affect the Group s financial position and operating results. (4) Impact of Interest Rate Changes The Daio Paper Group has been working on reducing interest-bearing debts. However, if there is a significant increase in interest rates, it may affect the Group s financial position and operating results. (5) Impacts of Price Changes of Investment Securities Available-for-sale securities with market value are stated by the market value method based on the market price on the closing date, etc. Depending on the share prices of investment securities on the closing date, their price changes may affect the Group s financial position and operating results. (6) Impacts of Disaster In the event of a disaster in areas where the Group s production and logistics bases are located, the Group s financial position and operating results may be affected due to damage to production facilities, disruption and delay of operations, incurrence of restoration costs, suspension of logistics functions, and loss of products and merchandise, etc. (7) Impacts of Lawsuits The Daio Paper Group is making efforts to strengthen its compliance framework by complying with various laws and regulations, environmental regulations, and social norms, etc. However, the Company is exposed to the risk of lawsuits, etc. regarding such laws and regulations in our domestic and overseas business activities. Depending on the results, such lawsuits, etc. may affect the Group s financial position and operating results. (8) Impacts of Loan Agreements with Financial Covenants Daio Paper has signed syndicated term loan agreements, and those agreements contain financial covenants that set financial standards we are required to maintain, such as the amount of net assets reported in the consolidated balance sheet at the end of each fiscal year and ordinary income/loss reported in the consolidated statement of income of each fiscal year. If Daio Paper fails to comply with the financial covenants, the Company will be required to repay borrowings, which may affect the Company s financial position and operating results. (9) Impacts of Impairment Accounting on Non-current Assets Daio Paper owns non-current assets such as property, plant and equipment and goodwill. We apply impairment accounting to those non-current assets and verify if the residual value of assets can be collected through future cash flows generated from the assets, and we apply the appropriate accounting treatment for assets that require the recognition of an impairment loss. If there is a decrease in estimated future cash flows due to changes in the future business environment, we will be required to recognize an additional impairment loss, which may affect the Group s financial position and operating results. Debt to Equity Ratio Net Debt to Equity Ratio (Times) (Times) Interest-bearing Debts () Net Interest-bearing Debts () Free Cash Flow () 31, , , , , , , , , , ,077 9,350 31,265 16,160 20, /3 2014/3 2015/3 2016/3 2017/3 2013/3 2014/3 2015/3 2016/3 2017/3 2013/3 2014/3 2015/3 2016/3 2017/3 55 Integrated Report 2017

57 Consolidated Balance Sheet Daio Paper Corporation and its Consolidated Subsidiaries March 31, 2016 and 2017 Assets: Thousands of U.S. Dollars (Note 1) Current assets: Cash and deposits 80,915 89,201 $ 795,091 Notes and accounts receivable trade 95,683 92, ,260 Merchandise and finished goods 42,488 37, ,293 Work in process 4,893 4,594 40,947 Raw materials and supplies 21,788 21, ,546 Deferred tax assets 4,106 4,503 40,134 Other 7,283 7,060 62,927 Allowance for doubtful accounts (2) (1) (13) Total current assets 257, ,048 2,291,185 Non-current assets: Property, plant and equipment: Buildings and structures 193, ,762 1,753,829 Accumulated depreciation (125,138) (127,769) (1,138,859) Buildings and structures, net Note 5 (1) 68,824 68, ,970 Machinery, equipment and vehicles Note 5 (2) 805, ,254 7,266,725 Accumulated depreciation (671,120) (680,991) (6,069,980) Machinery, equipment and vehicles, net Note 5 (1) 134, ,263 1,196,745 Land Notes 5 (1) (2) 74,645 74, ,968 Construction in progress 9,199 12, ,404 Other Note 5 (2) 19,031 19, ,559 Accumulated depreciation (9,376) (9,636) (85,889) Other, net Note 5 (1) 9,655 9,836 87,670 Totalal property, plant and equipment 296, ,184 2,666,757 Intangible assets: Goodwill 53,463 48, ,553 Other 3,651 4,213 37,556 Total intangible assets 57,114 53, ,109 Investments and other assets: Investment securities Note 5 (3) 32,765 35, ,213 Long-term loans receivable 3,855 3,850 34,317 Deferred tax assets ,732 Other Note 5 (3) 9,048 9,055 80,708 Allowance for doubtful accounts (1,091) (980) (8,732) Total investments and other assets 45,498 48, ,238 Total non-current assets 398, ,530 3,570,104 PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Deferred assets ,508 Total assets 656, ,747 $ 5,862,797 Integrated Report

58 Liabilities: Current liabilities Thousands of U.S. Dollars (Note 1) Accounts payable trade 49,123 48,446 $ 431,817 Short-term loans payable Note 5 (1) 33,560 26, ,959 Current portion of long-term loans payable Note 5 (1) 79,941 72, ,062 Current portion of bonds 10,320 Accounts payable other 23,970 25, ,199 Current portion of long-term accounts payable facilities Note 5 (1) 2,526 2,621 23,363 Income taxes payable 5,190 5,210 46,440 Provision for bonuses 4,553 4,687 41,774 Provision for directors' bonuses ,079 Other 9,959 10,872 96,910 Total current liabilities 219, ,288 1,749,603 Non-current liabilities: Bonds payable 15, ,376 Convertible bond-type bonds with subscription rights to shares 30,135 30, ,339 Long-term loans payable Note 5 (1) 199, ,521 1,716,023 Long-term accounts payable facilities Note 5 (1) 4,022 2,385 21,258 Net defined benefit liability 18,874 20, ,405 Provision for directors' retirement benefits ,557 Provision for environmental measures Provision for loss on business of subsidiaries and associates ,555 Other 8,698 9,479 84,488 Total non-current liabilities 262, ,380 2,410,018 Total liabilities 481, ,668 4,159,621 Net assets: Shareholders equity Capital stock 39,707 39, ,929 Capital surplus 39,922 39, ,907 Retained earnings 83,772 94, ,459 Treasury shares (2,907) (2,909) (25,927) Total shareholders equity 160, ,682 1,521,368 Accumulated other comprehensive income: Valuation difference on available-for-sale securities 6,250 10,815 96,400 Foreign currency translation adjustment (2,822) (4,432) (39,501) Remeasurements of defined benefit plans (814) (540) (4,813) Total accumulated other comprehensive income 2,614 5,843 52,086 Non-controlling interests 11,712 14, ,722 Total net assets 174, ,079 1,703,176 Total liabilities and net assets 656, ,747 $5,862,797 The accompanying notes are an integral part of these financial statements. 57 Integrated Report 2017

59 Consolidated Statement of Income Daio Paper Corporation and its Consolidated Subsidiaries Years ended March 31, 2016 and 2017 Thousands of U.S. Dollars (Note 1) Net sales 474, ,140 $4,252,960 Cost of sales Notes 6 (2) (6) 359, ,005 3,191,058 Gross profit 114, ,135 1,061,902 Selling, general and administrative expenses Notes 6 (1) (2) 89,821 95, ,128 Operating profit 24,323 23, ,774 Non-operating income: Interest income ,297 Dividend income ,177 Purchase discounts ,709 Insurance income ,475 Subsidy income 608 1,183 10,545 Other 1,905 1,300 11,577 Total non-operating income 4,378 4,239 37,780 Non-operating expenses: Interest expenses 4,697 3,730 33,243 Foreign exchange losses 799 1,205 10,737 Other 1,946 1,492 13,302 Total non-operating expenses 7,442 6,427 57,282 Ordinary profit 21,259 21, ,272 Extraordinary income: Gain on sales of non-current assets Note 6 (3) ,238 Gain on sales of investment securities 3, Insurance income ,715 Other 0 2 Total extraordinary income 4, ,236 Extraordinary losses: Loss on sales and retirement of non-current assets Note 6 (4) 894 1,421 12,669 Loss on sales of investment securities Loss on valuation of investment securities ,453 Loss on disaster ,042 Impairment loss Note 6 (5) 1, ,710 Retirement benefit expenses Note 6 (7) ,659 Amortization of goodwill 346 Other ,479 Total extraordinary losses 3,400 3,816 34,012 Profit before income taxes 21,997 18, ,496 Income taxes Income taxes current 5,594 7,607 67,803 Income taxes deferred 1,510 (1,405) (12,520) Total income taxes 7,104 6,202 55,283 Profit 14,893 11, ,213 Profit (loss) attributable to non-controlling interests 299 (220) (1,961) Profit attributable to owners of parent 14,594 12,136 $ 108,174 The accompanying notes are an integral part of these financial statements. Consolidated Statement of Comprehensive Income PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Daio Paper Corporation and its Consolidated Subsidiaries Years ended March 31, 2016 and 2017 Thousands of U.S. Dollars (Note 1) Profit 14,893 11,916 $106,213 Other comprehensive income: Valuation difference on available-for-sale securities (4,451) 4,637 41,333 Foreign currency translation adjustment (1,122) (1,922) (17,137) Remeasurements of defined benefit plans, net of tax ,443 Total other comprehensive income Note 7 (5,294) 2,989 26,639 Comprehensive income 9,599 14,905 $132,852 Comprehensive income attributable to: Owners of parent 9,306 15,366 $136,961 Non-controlling interests 293 (461) (4,109) The accompanying notes are an integral part of these financial statements. Integrated Report

60 Consolidated Statement of Changes in Net Assets Daio Paper Corporation and its Consolidated Subsidiaries Years ended March 31, 2016 and 2017 Capital stock Capital surplus Shareholders equity Retained earnings Treasury shares Total shareholders equity Valuation difference on availablefor-sale securities Accumulated other comprehensive income Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Noncontrolling interests Balance, April 1, ,707 39,586 70,412 (2,896) 146,809 10,603 (1,867) (1,093) 7,643 10, ,495 Changes of items during period: Dividends (1,234) (1,234) (1,234) Profit attributable to owners of parent 14,594 14,594 14,594 Purchase of treasury shares (11) (11) (11) Change in scope of consolidation Capital increase of consolidated subsidiaries Sales of shares of consolidated subsidiaries Net changes of items other than (4,353) (955) 279 (5,029) 1,669 (3,360) shareholders equity Total changes of items during period ,360 (11) 13,685 (4,353) (955) 279 (5,029) 1,669 10,325 Balance, April 1, ,707 39,922 83,772 (2,907) 160,494 6,250 (2,822) (814) 2,614 11, ,820 Changes of items during period: Dividends (1,669) (1,669) Profit attributable to owners of parent 12,136 12,136 (1,669) Purchase of treasury shares (2) (2) 12,136 Change in scope of consolidation (105) (172) (277) (2) Capital increase of consolidated subsidiaries (277) Sales of shares of consolidated subsidiaries Net changes of items other than shareholders equity 4,565 (1,610) 274 3,229 2,842 6,071 Total changes of items during period (105) 10,295 (2) 10,188 4,565 (1,610) 274 3,229 2,842 16,259 Balance, March 31, ,707 39,817 94,067 (2,909) 170,682 10,815 (4,432) (540) 5,843 14, ,079 Total net assets Capital stock Capital surplus Shareholders equity Retained earnings Treasury shares Thousands of U.S. Dollars (Note 1) Total shareholders equity Valuation difference on availablefor-sale securities Accumulated other comprehensive income Foreign currency translation adjustment Remeasurements of defined benefit plans Total accumulated other comprehensive income Noncontrolling interests Balance, April 1, 2016 $353,929 $355,845 $746,698 $(25,919) $1,430,553 $55,707 $(25,152) $(7,256) $23,299 $104,395 $1,558,247 Changes of items during period: Dividends Profit attributable to owners of parent (14,879) (14,879) (14,879) Purchase of treasury shares 108, , ,174 Change in scope of consolidation (8) (8) (8) Capital increase of consolidated subsidiaries (938) (1,534) (2,472) (2,472) Sales of shares of consolidated subsidiaries Net changes of items other than shareholders equity 40,693 (14,349) 2,443 28,787 25,327 54,114 Total changes of items during period (938) 91,761 (8) 90,815 40,693 (14,349) 2,443 28,787 25, ,929 Balance, March 31, 2017 $353,929 $354,907 $838,459 $(25,927) $1,521,368 $96,400 $(39,501) $(4,813) $52,086 $129,722 $1,703,176 The accompanying notes are an integral part of these financial statements. Total net assets 59 Integrated Report 2017

61 Consolidated Statement of Cash Flows Daio Paper Corporation and its Consolidated Subsidiaries Years ended March 31, 2016 and 2017 Thousands of U.S. Dollars (Note 1) Cash flows from operating activities: Profit before income taxes 21,997 18,118 $ 161,496 Depreciation and amortization 26,988 29, ,641 Impairment loss 1, ,710 Amortization of goodwill 4,782 4,158 37,059 Increase (decrease) in allowance for doubtful accounts (137) (112) (997) Increase (decrease) in provision for loss on business of subsidiaries and associates (18) (51) (451) (Gain) loss on sales of investment securities (3,611) (32) (281) (Gain) loss on valuation of investment securities ,453 Increase (decrease) in net defined benefit liability 1,095 1,557 13,875 Interest and dividend income (1,129) (838) (7,474) Interest expenses 4,697 3,730 33,243 Foreign exchange (gains) losses 799 1,205 10,737 Subsidy income (608) (1,183) (10,545) Insurance income (197) (807) (7,190) (Gain) loss on sales of property, plant and equipment (44) (222) (1,982) Loss on retirement of property, plant and equipment 725 1,280 11,412 (Increase) decrease in notes and accounts receivable trade (4,795) 2,882 25,692 (Increase) decrease in inventories (3,376) 5,393 48,073 Increase (decrease) in accounts payable trade 1,237 (555) (4,950) Increase/decrease in other assets/liabilities (969) 3,149 28,069 Increase (decrease) in accrued consumption taxes (2,238) 1,422 12,676 Other, net (617) Subtotal 46,147 69, ,210 Income taxes paid (2,006) (7,912) (70,524) Income taxes refund 1, Proceeds from subsidy income ,760 Proceeds from insurance income ,385 Net cash provided by (used in) operating activities 47,011 62, ,939 Cash flows from investing activities: (Increase) decrease in time deposits 4,616 2,024 18,045 Payments for purchase of property, plant and equipment (33,958) (34,694) (309,241) Proceeds from sales of property, plant and equipment 385 1,269 11,313 Payments for purchase of investment securities (76) (172) (1,533) Proceeds from sales of investment securities 5, Payments for purchase of shares of subsidiaries and associates (2,565) Proceeds from sales of shares of subsidiaries and associates 853 Collection of investments in capital of subsidiaries and associates 849 7,566 Payments of loans receivable (6) (7) (59) Collection of loans receivable Interest and dividend income received 1,475 1,137 10,138 Other, net (1,959) (1,867) (16,654) Net cash provided by (used in) investing activities (26,073) (31,394) $ (279,825) Cash flows from financing activities: Net increase (decrease) in short-term loans payable (3,800) (7,200) $ (64,177) Proceeds from long-term loans payable 73,137 65, ,048 Repayments of long-term loans payable (97,118) (80,006) (713,133) Proceeds from issuance of convertible bond-type bonds with subscription rights to shares 30,150 Redemption of bonds (15,020) (10,320) (91,987) Proceeds from issuance of bonds 15, ,376 Proceeds from issuance of common shares assigned to non-controlling interests 809 1,320 11,769 Proceeds from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation 1,328 Interest expenses paid (5,200) (4,189) (37,341) Cash dividends paid (1,234) (1,669) (14,879) Other, net (527) (573) (5,105) Net cash provided by (used in) financing activities (17,475) (22,037) (196,429) Effect of exchange rate change on cash and cash equivalents (367) (468) (4,179) Net increase (decrease) in cash and cash equivalents 3,096 9,033 80,506 Cash and cash equivalents at beginning of period 69,073 72, ,279 Increase in cash and cash equivalents from newly consolidated subsidiary 1,531 13,651 Cash and cash equivalents at end of period Note 9 72,169 82,733 $ 737,436 The accompanying notes are an integral part of these financial statements. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Integrated Report

62 Notes to Consolidated Financial Statements Daio Paper Corporation and its Consolidated Subsidiaries March 31, 2016 and Basis of Presenting Consolidated Financial Statements The accompanying consolidated financial statements of Daio Paper Corporation (hereinafter referred to as the Company ) have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Act of Japan and its related accounting regulations and in conformity with accounting principles generally accepted in Japan (hereinafter referred to as Japanese GAAP ), which are different in certain aspects as to application and disclosure requirements from International Financial Reporting Standards. In preparing the consolidated financial statements, certain reclassification and rearrangements have been made to the financial statements issued in Japan in order to present these statements in a form which is more familiar to readers of these statements outside Japan. In preparing the accompanying consolidated financial statements, Japanese yen figures including the subtotal and total amounts less than one million yen have been rounded up or down to the nearest million yen. The translation of the Japanese yen amounts into U.S. dollars is included solely for the convenience of readers outside Japan, using the prevailing exchange rate as of March 31, 2017, which was to $1.00. U.S. dollar figures including the subtotal and total amounts less than one thousand dollars have been rounded up or down to the nearest thousand dollars. The convenience translations should not be construed as representations that the Japanese yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange. 2. Summary of Significant Accounting and Reporting Policies (1) Scope of consolidation (a) Number of consolidated subsidiaries As of March 31, 2016: 29; as of March 31, 2017: 30 Names of the main consolidated subsidiaries: Iwaki Daio Paper Corporation, Tokyo Pulp & Paper Corporation, Elleair Product Co., Ltd., Forestal Anchile Limitada, Elleair International China (Nantong) Co., Ltd., PT. Elleair International Trading Indonesia, PT. Elleair International Manufacturing Indonesia (Changes in the scope of consolidation or the scope of application of the equity method) The Company s scope of consolidation has been changed due to an increase in materiality of PT. Elleair International Manufacturing Indonesia, and the number of consolidated subsidiaries is 30 as of March 31, (b) Names of the main unconsolidated subsidiaries Main unconsolidated subsidiaries: Nagoya Paper Tec Corporation (Reasons for excluding from the scope of consolidation) Subsidiaries, which are small in terms of their total assets, net sales, profit or loss (amount corresponding to equity), retained earnings (amount corresponding to equity) and other indicators, and do not have a significant effect on the consolidated financial statements, are excluded from the scope of consolidation. (2) Application of the equity method (a) Number of associates accounted for using the equity method There is no associate accounted for using the equity method as of March 31, (b) Unconsolidated subsidiaries and associates (such as Nagoya Paper Tec Corporation), which are small in terms of their profit or loss (amount corresponding to equity), retained earnings (amount corresponding to equity) and other indicators, and do not have a significant effect on the consolidated financial statements and are immaterial as a whole, are excluded from the scope of application of the equity method. (3) Fiscal years of consolidated subsidiaries Consolidated subsidiaries whose closing date differs from the consolidated closing date are as follows: Company name Forestal Anchile Limitada Elleair International (Thailand) Co., Ltd. Elleair International China (Nantong) Co., Ltd. PT. Elleair International Trading Indonesia PT. Elleair International Manufacturing Indonesia Closing date December 31 December 31 December 31 December 31 December 31 For the purpose of preparing the consolidated financial statements, the Company used the financial statements of the subsidiaries above whose closing date differs from that of the Company. Adjustments to account for material transactions occurring between the actual closing dates and the consolidated closing date are recorded as necessary. (4) Accounting standards of foreign subsidiaries The Company made adjustments for certain items as necessary in the consolidation of its foreign subsidiaries based on Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements (ASBJ Practical Issues Task Force, No. 18 issued on March 26, 2015) (5) Accounting policies (a) Valuation standard and methods for significant assets (i) Securities Available-for-sale securities 1) Available-for-sale securities with quoted market price Investments in available-for-sale securities are stated at fair value based on the quoted market price as of the end of the fiscal year. The valuation differences are accounted for as a separate component of net assets and the cost of securities sold is calculated by using the moving-average method. 2) Available-for-sale securities without quoted market price Investments in securities without quoted market price are stated at cost using the moving-average method. (ii) Derivatives Derivative financial instruments are stated at fair value. (iii) Inventories Inventories are stated at cost, determined primarily by the moving-average method after recording any write-downs appropriate as a result of the decline in profitability. (b) Depreciation and amortization methods for significant depreciable assets (i) Property, plant and equipment (excluding leased assets) All the items of property, plant and equipment are depreciated using the straight-line method. (ii) Intangible assets (excluding leased assets) Intangible assets are amortized using the straight-line method. (iii) Leased assets Leased assets arising from finance lease transactions in which ownership of the leased assets is not transferred to the lessee are depreciated or amortized using the straight-line method over the lease term with no residual value. Of those finance lease transactions in which ownership of the leased assets is not transferred to the lessee, lease 61 Integrated Report 2017

63 transactions that commenced on or before March 31, 2008 are accounted for using the method applicable to ordinary rental transactions. (c) Accounting standard for significant provisions (i) Allowance for doubtful accounts For receivables from insolvent debtors who are undergoing bankruptcy or other collection proceedings or who are in the similar financial condition, an allowance for doubtful accounts is provided based on an evaluation of collectability of each debtor. For other receivables, an allowance is provided based on the Company s historical rate of uncollectible receivable amount. (ii) Provision for bonuses To provide for payment of bonuses to employees, a provision for bonuses is recorded in the amounts that are estimated to be paid as at the end of each fiscal year. (iii) Provision for directors bonuses To provide for payment of bonuses to directors and audit & supervisory board members, a provision for directors bonuses is recorded in the amounts that are estimated to be paid as at the end of each fiscal year. (iv) Provision for directors retirement benefits To provide for payment of retirement benefits to directors and audit & supervisory board members, a provision for directors retirement benefits is recorded in the amounts that are required by the internal rule to be paid at the end of each fiscal year. (v) Provision for environmental measures To provide for payments related to treatment of the polychlorinated biphenyl (PCB) waste, a provision for environmental measures is recorded in the amounts that are estimated to be incurred for the treatment in the future. (vi) Provision for loss on business of subsidiaries and associates To provide for operating losses expected to be suffered by subsidiaries and associates in the future, a provision for loss on business of subsidiaries and associates is recorded in the amounts that the Company is expected to incur in view of the financial position and other conditions of the subsidiaries and associates. (d) Accounting methods for retirement benefits (i) Method of allocating projected retirement benefit obligation In calculating retirement benefit obligation, the benefit formula basis is applied to attribute the projected retirement benefits to the periods until the end of the current fiscal year. (ii) Method for amortizing actuarial gain or loss and prior service cost Actuarial gain or loss is amortized from the following fiscal year of the fiscal year in which it is incurred using the straightline method over a period (five years) which is within the employees average remaining years of service at the time of incurrence. Prior service cost is amortized using the straight-line method over a period (five years) which is within the employees average remaining years of service at the time of incurrence. (e) Standard of translating significant assets or liabilities in foreign currencies into Japanese yen Receivables and payables denominated in foreign currencies are translated into yen at the spot exchange rates in effect at the balance sheet date, and differences arising from the translation are recognized in profit or loss. Assets, liabilities, revenues and expenses of the consolidated foreign subsidiaries are translated into yen at the spot exchange rates in effect at the balance sheet date. Differences arising from the translation are included in foreign currency translation adjustment and non-controlling interests in the net assets section. (f) Significant hedge accounting method (i) Hedge accounting method When hedges against foreign exchange rate fluctuation risk meet certain conditions to qualify for the deferral hedge accounting treatment ( furiate shori ), the Company adopts such treatment, by which foreign currency transactions hedged by forward exchange contracts are reported at the forward rate and the resulting differences between the spot rate and the forward rate are amortized over the life of each contract. When an interest rate swap contract and an interest rate cap contract meet certain conditions to qualify for the exceptional hedge accounting treatment ( tokurei shori ), the Company adopts such treatment, by which the net amount to be paid or received under the contract is added to or deducted from the interest on the hedged items. (ii) Hedging instruments and hedged items 1) Hedging instruments: Forward exchange contracts Hedged items: Foreign currency receivables resulting from export of finished goods and foreign currency payables resulting from import of raw materials 2) Hedging instruments: Interest rate swap and interest rate cap contracts Hedged items: Loans payable (iii) Hedging policy Based primarily on the Derivatives Transaction Control Regulations, which is the Group s internal rule, the Group is party to the derivative transactions in order to hedge against foreign exchange rate fluctuation risk and interest rate fluctuation risk. (iv) Method for evaluation of hedge effectiveness The evaluation of hedge effectiveness is not performed for the interest rate swap and interest rate cap transactions subject to the exceptional hedge accounting treatment ( tokurei shori ) and for the hedging transactions subject to the deferral hedge accounting treatment ( furiate shori ). (g) Amortization method and period for goodwill Goodwill is amortized using the straight-line method over a period not exceeding 20 years, which is determined on a deal-bydeal basis. (h) Scope of cash and cash equivalents in consolidated statements of cash flows For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash on hand, demand deposits, and short-term investments with a maturity of three months or less from the date of acquisition that are readily convertible into cash and are exposed to immaterial risk of changes in value. (i) Other (i) Accounting for consumption taxes Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes. (ii) Adoption of consolidated tax return The Company and its certain consolidated subsidiaries have adopted the consolidated tax return system, with the Company being a parent for the purpose of the system. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Integrated Report

64 3. Changes in the Method of Presentation Consolidated Statement of Income Insurance income, which was included in Other under Non-operating income, and Loss on valuation of investment securities and Retirement benefit expenses, which were included in Other under Extraordinary losses, for the fiscal year ended March 31, 2016 have been presented separately from the fiscal year ended March 31, 2017 due to an increase in monetary materiality. To reflect these changes in presentation, the reclassification of accounts has been made to the consolidated financial statements for the fiscal year ended March 31, As a result, the 2,296 million presented as Other under Non-operating income in the Consolidated Statement of Income for the fiscal year ended March 31, 2016 has been reclassified as 391 million of Insurance income and 1,905 million of Other, and the 328 million presented as Other under Extraordinary losses has been reclassified as 2 million of Loss on valuation of valuation of investment securities, 289 million of Retirement benefit expenses and 37 million of Other. Consolidated Statements of Cash Flows Proceeds from short-term loans payable and Repayments of short-term loans payable, which were presented in gross amounts under cash flows from financing activities for the fiscal year ended March 31, 2016, have been presented in the net amounts as Net increase (decrease) in short-term loans payable from the fiscal year ended March 31, 2017, in light of their short periods and turnover. To reflect these changes in presentation, the reclassification of accounts has been made to the consolidated financial statements for the fiscal year ended March 31, As a result, the 12,200 million presented as Proceeds from short-term loans payable and the (16,000) million presented as Repayments of short-term loans payable under cash flows from financing activities in the Consolidated Statement of Cash Flows for the fiscal year ended March 31, 2016 have been reclassified as (3,800) million of Net increase (decrease) in short-term loans payable. 4. Additional Information Application of Revised Implementation Guidance on Recoverability of Deferred Tax Assets Effective from the fiscal year ended March 31, 2017, the Group has applied the Revised Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26, March 28, 2016). 5. Notes to Consolidated Balance Sheets (1) Assets pledged as collateral are as follows: Thousands of U.S. Dollars Buildings and structures 32,934 [ 30,978] 30,062 [ 28,274] $ 267,955 [$ 252,022] Machinery, equipment and vehicles 44,706 [40,339] 57,996 [54,163] 516,942 [482,783] Land 46,787 [39,546] 43,443 [36,306] 387,229 [323,609] Other items of property, plant and equipment 88 [88] 73 [73] 651 [650] Total 124,515 [ 110,951] 131,574 [ 118,816] $1,172,777 [$1,059,064] Associated secured debt obligations are as follows: Thousands of U.S. Dollars Short-term loans payable 100 [ 100] 100 [ 100] 891 [$ 891] Long-term loans payable (including current portion) 49,744 [48,727] 27,374 [27,051] 243,994 [241,114] Long-term accounts payable facilities (including current portion) 2,742 [ ] 1,473 [ ] 13,128 [ ] Total 52,586 [ 48,827] 28,947 [ 27,151] 258,013 [$242,005] The figures in parentheses above indicate the amounts of factory foundation mortgage and the debt secured by the factory foundation mortgage. 63 Integrated Report 2017

65 (2) The following are the amounts of the reduction entry associated with acquisition of property, plant and equipment using government subsidies. Thousands of U.S. Dollars Machinery, equipment and vehicles [ 4,702] [ 4,681] $ [$41,725] Land [463] [463] [4,127] Other items of property, plant and equipment [119] [119] [1,065] Notes: 1. The figures in parentheses above indicate the accumulated amounts of the reduction entry associated with acquisition of property, plant and equipment using the government subsidies. 2. The amounts of land indicate those of the government subsidies deducted from the cost, which was received in compensation for expropriation. (3) Investments in unconsolidated subsidiaries and associates are as follows: Thousands of U.S. Dollars Investment securities (equity securities) 4,878 1,644 $14,653 Investments and other assets (investments in capital) 1, ,493 (4) Guarantee liabilities The Company has committed to provide the following debt guarantees for loans taken out by companies other than the consolidated subsidiaries and associates from financial institutions. Thousands of U.S. Dollars Otsu Kami Unyu Co., Ltd $131 Other 54 Total $131 (5) Notes receivable transferred by endorsement Thousands of U.S. Dollars Notes receivable transferred by endorsement $4,326 FINANCIAL AND CORPORATE DATA PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF Integrated Report

66 6. Notes to Consolidated Statements of Income (1) Selling, general and administrative expenses mainly consist of the following: Thousands of U.S. Dollars Logistics and warehousing expenses 42,501 43,663 $389,189 Salaries, allowances and bonuses 13,021 13, ,381 Provision for bonuses 1,668 1,768 15,758 Retirement benefit expenses 1, ,667 (2) Research and development costs included in selling, general and administrative expenses and manufacturing costs are as follows: Thousands of U.S. Dollars Research and development costs 2,791 2,902 $25,863 (3) The details of gain on sales of non-current assets are as follows: Thousands of U.S. Dollars Buildings and structures $1,519 Machinery, equipment and vehicles Land 164 1,464 Other Total $3,238 (4) The details of loss on sales and retirement of non-current assets are as follows: Thousands of U.S. Dollars Buildings and structures $ 1,069 Machinery, equipment and vehicles ,876 Land Other 59 1,049 9,346 Total 894 1,421 $12,669 (5) Impairment loss The Company recognized impairment losses for the following asset groups. For the fiscal year ended March 31, 2016 Use Type Location Company housing Buildings and land Saitama City, Saitama Prefecture and other 596 Idle assets Machinery and equipment, structures, land and other Shikoku-Chuo City, Ehime Prefecture and other 71 Other Goodwill, machinery and equipment and other Integrated Report 2017

67 The Group recognizes impairment loss by grouping assets by business unit whose cash inflows and outflows are captured consistently for managerial accounting purposes. Assets that are not directly in use for business operations (consisting of idle assets, assets for rent and other assets) are grouped on an individual basis. During the fiscal year ended March 31, 2016, the Company made a decision to sell its own company housings and as a result of this decision the book values of buildings and land of the company housings were written down to their recoverable amounts. The book values of idle assets that were not in use for business operations (including machinery and equipment, structures, land and other) were written down to their recoverable amounts. In addition, the Company reviewed the business plan for a certain consolidated subsidiary, which the Company formulated at the time of the acquisition. As a result, the entire book value of goodwill was written off and those of machinery, equipment, etc. were written down to their recoverable amounts. The recoverable amount is measured at net selling price by valuing the assets at their estimated selling price. PHILOSOPHY OF For the fiscal year ended March 31, 2017 Idle assets Other Use Type Location Buildings, structures, machinery and equipment, land and other Goodwill, machinery and equipment and other The Group recognizes impairment loss by grouping assets by business unit whose cash inflows and outflows are captured consistently for managerial accounting purposes. Assets that are not directly in use for business operations (consisting of idle assets, assets for rent and other assets) are grouped on an individual basis. The book values of idle assets that were not in use for business operations (including buildings, structures, machinery and equipment, land and other) were written down to their recoverable amounts. Shikoku-Chuo City, Ehime Prefecture and other Thousands of U.S. Dollars 398 $3, ,159 In addition, the Company reviewed the business plan for a certain consolidated subsidiary, which the Company formulated at the time of the acquisition. As a result, the entire book value of goodwill was written off and those of machinery, equipment, etc. were written down to their recoverable amounts. The recoverable amount is measured at net selling price by valuing the assets at their estimated selling price. (6) The amounts of inventories at the end of the fiscal years are calculated by writing down the value based on any decreased profitability. Losses on valuation of inventories included in cost of sales are shown as follows: Thousands of Millions of yen U.S. dollars Losses on valuation of inventories included in cost of sales $5,608 ABOUT VALUE CREATION MODEL OF (7) Retirement benefit expenses This is due to a change in the method of calculating retirement benefit obligations from the simplified method to the standard method at certain domestic consolidated subsidiaries. FINANCIAL AND CORPORATE DATA Integrated Report

68 7. Notes to Consolidated Statements of Comprehensive Income The reclassification and tax effects allocated to each component of other comprehensive income are as follows: Valuation difference on available-for-sale securities: Thousands of U.S. Dollars Amount arising during the year (3,157) 6,331 $ 56,434 Reclassification adjustments (3,728) (31) (277) Before tax effect adjustment (6,885) 6,300 56,157 Tax effect 2,434 (1,663) (14,824) Valuation difference on available-for-sale securities (4,451) 4,637 41,333 Foreign currency translation adjustment: Amount arising during the year (1,122) (1,922) (17,137) Reclassification adjustments Before tax effect adjustment (1,122) (1,922) (17,137) Tax effect Foreign currency translation adjustment (1,122) (1,922) (17,137) Remeasurements of defined benefit plans, net of tax: Amount arising during the year (282) (53) (474) Reclassification adjustments ,193 Before tax effect adjustment ,719 Tax effect (67) (31) (276) Remeasurements of defined benefit plans, net of tax: ,443 Total other comprehensive income (5,294) 2,989 $ 26, Notes to Consolidated Statements of Changes in Net Assets (1) Type and number of shares issued and type and number of treasury shares are summarized as follows: For the fiscal year ended March 31, 2016 Number of shares April 1, 2015 (in thousands) Shares issued: Increase (in thousands) Decrease (in thousands) Number of shares March 31, 2016 (in thousands) Common stock 149, ,349 Total 149, ,349 Treasury shares: Common stock (Note) 3, ,619 Total 3, ,619 Note: The increase in common stock as treasury shares of 10 thousand shares is due to purchase of shares in less than standard units. For the fiscal year ended March 31, 2017 Number of shares April 1, 2016 (in thousands) Increase (in thousands) Decrease (in thousands) Number of shares March 31, 2017 (in thousands) Shares issued: Common stock 149, ,349 Total 149, ,349 Treasury shares: Common stock (Note) 3, ,619 Total 3, ,619 Note: The increase in common stock as treasury shares of 0 thousand shares is due to purchase of shares in less than standard units. 67 Integrated Report 2017

69 (2) Stock acquisition rights and treasury stock acquisition rights For the fiscal year ended March 31, 2016 Company name Filing company Details Zero Coupon Convertible Bonds due 2020 (issued on September 17, 2015) Type of stock subject to stock acquisition rights Common stock Number of shares subject to stock acquisition rights (in thousands) (Note 2) April 1, 2015 Increase Decrease March 31, ,790 20,790 March 31, 2016 (in million yen/ thousand U.S. dollar) (Note 1) (Note 3) PHILOSOPHY OF Notes: 1. Convertible bonds are accounted for using the lump-sum method, by which a bond portion and a stock acquisition right portion are treated as non-separable. 2. The number of shares subject to stock acquisition rights shown above is the number of shares based on the assumption that the stock acquisition rights were fully exercised. 3. An increase in the number of shares subject to stock acquisition rights is due to the issuance of convertible bonds. For the fiscal year ended March 31, 2017 Company name Filing company Details Zero Coupon Convertible Bonds due 2020 (issued on September 17, 2015) Type of stock subject to stock acquisition rights Common stock Number of shares subject to stock acquisition rights (in thousands) (Note 2) April 1, 2016 Increase Decrease March 31, , ,816 March 31, 2017 (in million yen/ thousand U.S. dollar) (Note 1) (Note 3) Notes: 1. Convertible bonds are accounted for using the lump-sum method, by which a bond portion and a stock acquisition right portion are treated as non-separable. 2. The number of shares subject to stock acquisition rights shown above is the number of shares based on the assumption that the stock acquisition rights were fully exercised. 3. An increase in the number of shares subject to stock acquisition rights is due to the adjustment of the conversion price. (3) Dividends (a) Amount of cash dividends distributed For the fiscal year ended March 31, 2016 ABOUT VALUE CREATION MODEL OF Resolution General Shareholders Meeting held on June 26, 2015 Board of Directors Meeting held on November 11, 2015 Type of shares Common stock Common stock Total amount of dividends Dividends per share Yen Record date March 31, 2015 September 30, 2015 Effective date June 29, 2015 December 4, 2015 FINANCIAL AND CORPORATE DATA For the fiscal year ended March 31, 2017 Resolution Type of shares Total amount of dividends Millions of Thousands of Yen U.S. Dollars Dividends per share U.S. Yen Dollars Record date Effective date General Shareholders Meeting held on June 29, 2016 Common stock 952 $8, $0.06 March 31, 2016 June 30, 2016 Board of Directors Meeting held on November 11, 2016 Common stock 732 $6, $0.04 September 30, 2016 December 5, 2016 Integrated Report

70 (b) Dividends with record date in the current fiscal year, and effective date in the following fiscal year For the fiscal year ended March 31, 2016 Resolution Type of shares Total amount of dividends Source of dividends Dividend per share Yen Record date Effective date General Shareholders Meeting held on June 29, 2016 Common stock 952 Retained earnings 6.50 March 31, 2016 June 30, 2016 For the fiscal year ended March 31, 2017 Resolution Type of shares Total amount of dividends Millions of Thousands of Yen U.S. Dollars Source of dividends Dividend per share U.S. Yen Dollars Record date Effective date General Shareholders Meeting held on June 29, 2017 Common stock 805 $7,179 Retained earnings 5.50 $0.05 March 31, 2017 June 30, Notes to Consolidated Statements of Cash Flows Cash and cash equivalents in the consolidated statements of cash flows for the fiscal years ended March 31, 2016 and 2017 are reconciled to the accounts reported in the consolidated balance sheets as of March 31, 2016 and 2017 as follows: Thousands of U.S. Dollars Cash and deposits 80,915 89,201 $795,091 Time deposits with maturities of more than three months (8,746) (6,468) (57,655) Cash and cash equivalents 72,169 82,733 $737, Integrated Report 2017

71 10. Lease Transactions (1) Finance lease transactions Leased assets arising from finance lease transactions in which ownership of the leased assets is not transferred to the lessee are property, plant and equipment, which consists mainly of production facilities such as machinery, equipment and vehicles for the fiscal years ended March 31, 2016 and As described in (b) Depreciation and amortization methods for significant depreciable assets, (5) Accounting policies of Section 2. Summary of Significant Accounting and Reporting Policies, leased assets are depreciated or amortized using the straight-line method over the lease term with no residual value. Of those finance lease transactions in which ownership of the leased assets is not transferred to the lessee, lease transactions that commenced on or before March 31, 2008 are accounted for using the method applicable to ordinary rental transactions. The following are the details of such transactions on an as if capitalized basis for the fiscal years ended March 31, 2015 and PHILOSOPHY OF (a) Equivalents of acquisition cost, accumulated depreciation and ending balance of leased assets For the fiscal year ended March 31, 2016 Acquisition cost Accumulated depreciation Ending balance Machinery, equipment and vehicles Total For the fiscal year ended March 31, 2017 Thousands of U.S. Dollars Acquisition cost Accumulated depreciation Ending balance Acquisition cost Accumulated depreciation Ending balance Machinery, equipment and vehicles $292 $246 $46 Total $292 $246 $46 Note: The acquisition cost equivalents above are calculated using the imputed interest method since the amount of future minimum lease payments at the end of the fiscal year are not material compared with the book values of property, plant and equipment at the end of the fiscal year. (b) Future minimum lease payments equivalent at the end of the fiscal year Thousands of U.S. Dollars Future minimum lease payments equivalent Due within one year 18 3 $26 Due after one year Total 23 5 $46 Note: The future minimum lease payments equivalent above are calculated using the imputed interest method since the amount of future minimum lease payments at the end of the fiscal year are not material compared with the book values of property, plant and equipment at the end of the fiscal year. (c) Lease expenses and depreciation expense equivalent Thousands of U.S. Dollars Lease expenses $157 Depreciation expense equivalent ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA (2) Operating lease transactions (Lessee) Future minimum lease payments relating to non-cancellable operating leases Thousands of U.S. Dollars Due within one year 160 $1,423 Due after one year 800 7,137 Total 960 $8,560 Integrated Report

72 11. Financial Instruments (1) Overview (a) Group policy for financial instruments The Group raises funds required to implement the capital investment plan through bank borrowings and bond issues. Also, the Group raises short-term working capital through bank borrowings. Derivative financial instruments are utilized to reduce risks and the Group does not hold or issue derivative financial instruments for speculative trading purposes. (b) Details of financial instruments and risks Trade receivables, presented as notes and accounts receivable trade, are exposed to credit risk of customers. Investment securities are mostly stocks that are held by the Group in conjunction with the business or capital alliance with our business partners and are exposed to the risk of market price fluctuation. The Company is also a lender who delivers long-term loans to its subsidiaries and business partners. Trade payables, presented as accounts payable trade, are mostly due within one year. Loans and bonds payable are taken out primarily for the purpose of financing the Group s capital expenditures. While the floating-rate loans payable are exposed to interest rate fluctuation risk, part of the risks are hedged by using derivative financial instruments, i.e. interest rate swap and interest rate cap transactions. As for derivative transactions, interest rate swap and interest rate cap transactions are utilized to reduce the risk of interest rate fluctuations on interest expenses from borrowings, and forward exchange contracts are utilized to reduce the risk of exchange rate fluctuations on foreign currency trade receivables and payables. Regarding hedging instruments and hedged items, the hedging policy and method for evaluation of hedge effectiveness of hedging activities, please refer to (f) Significant hedge accounting method, (5) Accounting policies of Section 2. Summary of Significant Accounting and Reporting Policies. (c) Risk management for financial instruments (i) Management of credit risk (the risk of non-performance by business counterparts) The Company protects and manages trade receivables by first establishing a credit limit of each customer based on the financial situation and creditworthiness, and then monitoring the due dates and the outstanding balance on a customer-bycustomer basis primarily in accordance with the Credit Control Regulations, which is the Company s internal rule. Creditworthiness of each customer is measured by using credit information that is obtained through the credit-reporting agencies and is collected by the Company on its own behalf. Furthermore, long-term loans receivable are controlled by regularly updating the borrowers financial situation on top of monitoring the due dates and the outstanding balances so as to quickly detect and reduce concerns about collection. The consolidated subsidiaries also follow the same procedures in accordance with the Company s Credit Control Regulations. (ii) Management of market risk (the risk of foreign exchange and interest rate fluctuations) The Company and certain consolidated subsidiaries use interest rate swap and interest rate cap transactions to reduce the risk of interest rate fluctuations on interest expense payable on borrowings. Investment securities are subject to review on a regular basis to allow for appropriate portfolio decisions by monitoring their fair values and the financial situation of business partners whose shares are owned by the Company, and evaluating the relationship with them. Regarding derivative transactions, the basic policy is determined by the Board of Directors and transactions are entered into by the Treasury Department in accordance with the Derivatives Transaction Control Regulations, which is the Company s internal rule. (iii) Management of liquidity risk related to financing activities (the risk of non-performance on a due date) The Company manages liquidity risk, or the risk of non-performance by the Company on due dates, associated with trade payables and loans payable primarily through monthly preparation of a cash budget by the Treasury Department based on the reported forecasts received from each department. The consolidated subsidiaries also manage liquidity risk by preparing a cash budget in the same manner on a monthly basis. (d) Supplementary explanation regarding fair value of financial instruments Fair value of financial instruments is measured based on quoted market prices, if available, or reasonably assessed value if a quoted market price is not available. Fair value of financial instruments for which a quoted market price is not available is calculated based on certain assumptions, and the fair value might differ if different assumptions are used. 71 Integrated Report 2017

73 (2) Matters related to fair values of financial instruments Book value, fair value and their difference are summarized as follows. Financial instruments whose fair values are extremely difficult to determine are excluded from the following table (See Note 2 for details.) For the fiscal year ended March 31, Book value Fair value Difference (1) Cash and deposits 80,915 80,915 (2) Notes and accounts receivable trade 95,683 95,683 (3) Investment securities 25,533 25,533 (4) Long-term loans receivable 3,855 Allowance for doubtful accounts* (852) Net amount 3,003 3, Total of assets 205, , (1) Accounts payable trade 49,123 49,123 (2) Short-term loans payable 33,560 33,560 (3) Accounts payable other 23,970 23,970 (4) Income taxes payable 5,190 5,190 (5) Bonds payable 10,320 10,320 0 (6) Convertible bond-type bonds with subscription rights to shares 30,135 29,211 (924) (7) Long-term loans payable 279, ,194 (739) (8) Long-term accounts payable facilities 6,548 6,485 (63) Total of liabilities 438, ,053 (1,726) * Allowance for doubtful accounts separately accounted for on long-term loans receivable is deducted. For the fiscal year ended March 31, 2017 Thousands of U.S. Dollars Book value Fair value Difference Book value Fair value Difference (1) Cash and deposits 89,201 89,201 $ 795,091 $ 795,091 $ (2) Notes and accounts receivable trade 92,698 92, , ,260 (3) Investment securities 31,982 31, , ,070 (4) Long-term loans receivable 3,851 34,324 Allowance for doubtful accounts* (849) (7,570) Net amount 3,002 3, ,754 28,134 1,380 Total of assets 216, , $ 1,933,175 $1,934,555 $ 1,380 (1) Accounts payable trade 48,446 48,446 $ 431,817 $ 431,817 $ (2) Short-term loans payable 26,360 26, , ,959 (3) Accounts payable other 25,265 25, , ,199 (4) Income taxes payable 5,210 5,210 46,440 46,440 (5) Bonds payable 15,300 15,295 (5) 136, ,335 (41) (6) Convertible bond-type bonds with subscription rights to shares 30,105 32,175 2, , ,790 18,451 (7) Long-term loans payable 265, ,841 (2,386) 2,364,085 2,342,819 (21,266) (8) Long-term accounts payable facilities 5,006 4,968 (38) 44,621 44,284 (337) Total liabilities 420, ,560 (359) $3,751,836 $3,748,643 $ (3,193) * Allowance for doubtful accounts separately accounted for on long-term loans receivable is deducted. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Note 1. The method for measuring fair values of financial instruments and matters relating to securities Assets: (1) Cash and deposits, (2) Notes and accounts receivable trade As these instruments are settled within a short term and their fair values approximate book values, their fair values are equal to their book values. (3) Investment securities Fair value of investment securities equals the price quoted in the stock exchange. Please refer to Section 6. Securities regarding matters concerning the securities classified by holding purpose. (4) Long-term loans receivable Fair value of long-term loans receivable (including the current portion) is determined by discounting the total of principal and Integrated Report

74 interest at the rate that consists of an appropriate rate such as the government bond yield plus an adjustment factor reflecting the credit risk. Liabilities: (1) Accounts payable trade, (2) Short-term loans payable, (3) Accounts payable other, (4) Income taxes payable As these instruments are settled within a short term and their fair values approximate book values, their fair values are equal to their book values. (5) Bonds payable, (6) Convertible bond-type bonds with subscription rights to shares Fair values of corporate bonds (including the current portion) and convertible bond-type bonds with subscription rights to shares are determined based on a quoted market price if any. In cases where quoted market prices are not available, it is determined by discounting the total of principal and interest at the rate that reflects the remaining life of the bond and its credit risk. (7) Long-term loans payable, (8) Long-term accounts payable facilities Fair values of long-term loans payable (including the current portion) and long-term accounts payable facilities (including the current portion) are determined by discounting the total amount of principal and interest with an interest rate to be applied if similar new loans were entered into or similar new equipment were purchased. Note 2. Financial instruments whose fair values are deemed to be extremely difficult to determine Thousands of U.S. Dollars Category Non-marketable equity securities 2,354 2,186 $19,489 Shares of subsidiaries and associates 4,878 1,644 14,653 As these financial instruments do not have quoted market prices and their fair values are deemed to be extremely difficult to determine, they are not included in (3) Investment securities. Note 3. Redemption schedule for financial receivables and securities with maturity dates after the consolidated balance sheet date Due after five As of March 31, 2016 Due within one year Due after one year through five years years through ten years Due after ten years Deposits 80,811 Notes and accounts receivable trade 95,683 Investment securities Available-for-sale securities with maturity dates (1) Bonds (corporate bonds) (2) Other Long-term loans receivable 1 2 3, Total 176, , Due after five As of March 31, 2017 Due within one year Due after one year through five years years through ten years Due after ten years Deposits 89,095 Notes and accounts receivable trade 92,698 Investment securities Available-for-sale securities with maturity dates (1) Bonds (corporate bonds) (2) Other Long-term loans receivable 1 3, Total 181,794 3, Integrated Report 2017

75 Due within one year Thousands of U.S. Dollars Due after one year through five years Due after five years through ten years Due after ten years As of March 31, 2017 Deposits $ 794,142 $ $ $ Notes and accounts receivable trade 826,260 Investment securities Available-for-sale securities with maturity dates (1) Bonds (corporate bonds) (2) Other Long-term loans receivable 6 26,748 7,570 Total $1,620,408 $26,748 $ $7,570 PHILOSOPHY OF Note 4. Repayment schedule for bonds payable, long-term loans payable, lease obligations and other interest-bearing debt after the consolidated balance sheet date Between one to two years Between two to three years Between three to four years Between four to five years As of March 31, 2016 Due within one year Over five years Short-term loans payable 33,560 Bonds payable 10,320 Convertible bond-type bonds with subscription rights to shares 30,000 Long-term loans payable 79,941 72,512 47,818 32,731 26,042 20,889 Long-term accounts payable facilities 2,526 2,408 1, Lease obligations Total 126,824 75,346 49,179 33,394 56,338 21,154 Between one to two years Between two to three years Between three to four years Between four to five years As of March 31, 2017 Due within one year Over five years Short-term loans payable 26,360 Bonds payable 15,300 Convertible bond-type bonds with subscription rights to shares 30,000 Long-term loans payable 72,706 50,112 44,809 33,796 29,360 34,444 Long-term accounts payable facilities 2,621 1, Lease obligations Total 102,280 51,841 45,831 64,439 45,013 34,769 Between one to two years Thousands of U.S. Dollars Between two to three years Between three to four years Between four to five years As of March 31, 2017 Due within one year Over five years Short-term loans payable $234,959 $ $ $ $ $ Bonds payable 136,376 Convertible bond-type bonds with subscription rights to shares 267,404 Long-term loans payable 648, , , , , ,016 Long-term accounts payable facilities 23,363 10,857 5,605 3,142 1,654 Lease obligations 5,286 4,553 3,507 2,584 1,494 2,900 Total $911,670 $462,077 $408,513 $574,367 $401,226 $309,916 ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Integrated Report

76 12. Securities (1) Available-for-sale securities As of March 31, 2016 Classification Type of securities Book value Cost Difference Securities for which book value exceeds cost Equity securities 23,798 14,714 9,084 Securities for which book value does not exceed cost Equity securities 1,735 1,888 (153) Total 25,533 16,602 8,931 Note: Non-marketable equity securities (with book value of 2,354 million) are not included in available-for-sale securities in the above table because they have no quoted market price and thus it is extremely difficult to determine their fair value. As of March 31, 2017 Classification Type of securities Book value Cost Difference Securities for which book value exceeds cost Equity securities 31,637 16,284 15,353 Securities for which book value does not exceed cost Equity securities (120) Total 31,982 16,749 15,233 Thousands of U.S. Dollars Classification Type of securities Book value Cost Difference Securities for which book value exceeds cost Equity securities 281, , ,848 Securities for which book value does not exceed cost Equity securities 3,074 4,147 (1,073) Total 285, , ,775 Note: Non-marketable equity securities (with book value of 2,186 million ($19,489 thousand)) are not included in available-for-sale securities in the above table because they have no quoted market price and thus it is extremely difficult to determine their fair value. (2) Available-for-sale securities sold For the fiscal year ended March 31, 2016 Type of securities Proceeds from sale Gain on sale Loss on sale Equity securities 5,155 3,729 0 For the fiscal year ended March 31, 2017 Type of securities Proceeds from sale Gain on sale Loss on sale Equity securities Thousands of U.S. Dollars Type of securities Proceeds from sale Gain on sale Loss on sale Equity securities $533 $281 $ 0 (3) Impairment of investment in securities For the fiscal year ended March 31, 2016, the Company recorded impairment losses of 2 million on securities (all of which was on available-for-sale securities). For securities whose fair values at the end of the fiscal year have declined by 50% or more compared with their cost, loss on impairment is recorded without exception. For securities whose fair value at the end of the fiscal year have declined by 30% or more but less than 50% compared with cost, loss on impairment is recorded if it is deemed necessary in consideration of the possibility of the fair values being restored. For the fiscal year ended March 31, 2017, the Company recorded impairment losses of 163 million ($1,453 thousand) on securities (all of which was on available-for-sale securities). For securities whose fair values at the end of the fiscal year have declined by 50% or more compared with their cost, loss on impairment is recorded without exception. For securities whose fair value at the end of the fiscal year have declined by 30% or more but less than 50% compared with cost, loss on impairment is recorded if it is deemed necessary in consideration of the possibility of the fair values being restored. 75 Integrated Report 2017

77 13. Derivative Transactions (1) Derivative contracts outstanding to which the hedge accounting was not applied There were no relevant transactions. (2) Derivative contracts outstanding to which the hedge accounting was applied (a) Currency-related derivatives As of March 31, 2016 Hedge accounting method Deferral hedge accounting treatment (furiate shori) applicable to forward exchange contracts Contract amount of which Type of derivative due after transactions Major hedged item Total one year Fair value Forward exchange contract Sell USD Accounts receivable trade Buy USD Accounts payable trade 232 (Note 2) EUR Accounts payable trade 0 (Note 2) Total 232 Notes: 1. Fair values are determined based on the prices quoted by counterparty financial institutions. 2. The fair values of forward exchange contracts are included in those of accounts receivable and payable trade because when forward exchange contracts qualify for deferral hedge accounting treatment (furiate shori), they are accounted for together with foreign currency denominated financial receivables and payables (the hedged items) as one set of transactions. PHILOSOPHY OF ABOUT As of March 31, 2017 Hedge accounting method Deferral hedge accounting treatment (furiate shori) applicable to forward exchange contracts Contract amount of which Type of derivative due after transactions Major hedged item Total one year Fair value Forward exchange contract Sell USD Accounts receivable trade 5 (Note 2) Buy USD Accounts payable trade 361 (Note 2) EUR Accounts payable trade 6 (Note 2) GBP Accounts payable trade 0 (Note 2) Total 372 VALUE CREATION MODEL OF Hedge accounting method Deferral hedge accounting treatment (furiate shori) applicable to forward exchange contracts Thousands of U.S. Dollars Contract amount of which Type of derivative due after transactions Major hedged item Total one year Fair value Forward exchange contract Sell USD Accounts receivable trade $ 40 $ (Note 2) Buy USD Accounts payable trade 3,221 (Note 2) EUR Accounts payable trade 52 (Note 2) GBP Accounts payable trade 0 (Note 2) Total $3,313 $ $ FINANCIAL AND CORPORATE DATA Notes: 1. Fair values are determined based on the prices quoted by counterparty financial institutions. 2. The fair values of forward exchange contracts are included in those of accounts receivable and payable trade because when forward exchange contracts qualify for deferral hedge accounting treatment (furiate shori), they are accounted for together with foreign currency denominated financial receivables and payables (the hedged items) as one set of transactions. Integrated Report

78 (b) Interest rate-related derivatives As of March 31, 2016 Hedge accounting method Exceptional hedge accounting treatment (tokurei shori) applicable to interest rate swap contracts Exceptional hedge accounting treatment (tokurei shori) applicable to interest rate cap contracts Type of derivative transactions Interest rate swap contract Floating rate receipt/ fixed rate payment Interest rate cap contract Buy Major hedged item Contract amount of which due after Total one year Fair value Long-term loans payable 78,394 76,454 (Note 2) Long-term loans payable (Note 2) Total 78,499 76,514 Notes: 1. Fair values are determined based on the prices quoted by counterparty financial institutions. 2. The fair values of interest rate swap and interest rate cap contracts are included in those of long-term loans payable because when interest rate swap and interest rate cap contracts qualify for exceptional hedge accounting treatment (tokurei shori), they are accounted for together with long-term loans payable (the hedged items) as one set of transactions. As of March 31, 2017 Hedge accounting method Exceptional hedge accounting treatment (tokurei shori) applicable to interest rate swap contracts Exceptional hedge accounting treatment (tokurei shori) applicable to interest rate cap contracts Type of derivative transactions Interest rate swap contract Floating rate receipt/ fixed rate payment Interest rate cap contract Buy Major hedged item Contract amount of which due after Total one year Fair value Long-term loans payable 56,831 41,779 (Note 2) Long-term loans payable 20 (Note 2) Total 56,851 41,779 Hedge accounting method Exceptional hedge accounting treatment (tokurei shori) applicable to interest rate swap contracts Exceptional hedge accounting treatment (tokurei shori) applicable to interest rate cap contracts Type of derivative transactions Interest rate swap contract Floating rate receipt/ fixed rate payment Interest rate cap contract Buy Major hedged item Thousands of U.S. Dollars Contract amount of which due after Total one year Fair value Long-term loans payable $506,558 $372,391 (Note 2) Long-term loans payable 178 (Note 2) Total $506,736 $372,391 $ Notes: 1. Fair values are determined based on the prices quoted by counterparty financial institutions. 2. The fair values of interest rate swap and interest rate cap contracts are included in those of long-term loans payable because when interest rate swap and interest rate cap contracts qualify for exceptional hedge accounting treatment (tokurei shori), they are accounted for together with long-term loans payable (the hedged items) as one set of transactions. 77 Integrated Report 2017

79 14. Retirement Benefits (1) Overview of retirement benefit plans The Company and its consolidated subsidiaries provide the following defined benefit plans: a contract-type corporate pension plan and a lump-sum retirement benefit plan. Some of the consolidated subsidiaries participate in the Small and Medium Enterprises Retirement Allowance Mutual Aid System. The simplified method is applied by some of the consolidated subsidiaries to calculate the net defined benefit liability and retirement benefit expenses. (2) Defined benefit plans (a) Reconciliation of beginning and ending balances of retirement benefit obligations Thousands of U.S. Dollars Beginning balance of retirement benefit obligation 20,266 21,477 $191,435 Service cost 1,088 1,109 9,886 Interest cost ,760 Actuarial (gain) loss Benefits paid (1,206) (929) (8,277) Past service cost 49 Increase due to a change from the simplified method to the standard method 934 2,311 20,596 Other 2 15 Ending balance of retirement benefit obligation 21,477 24,268 $216,312 Note: Retirement benefit obligations under the plans for which the simplified method is applied are not included in the table above. (b) Reconciliation of beginning and ending balances of plan assets Thousands of U.S. Dollars Beginning balance of plan assets 5,421 5,470 $48,759 Expected return on plan assets Actuarial gain (loss) (84) Employer contributions ,953 Benefits paid (246) (182) (1,618) Ending balance of plan assets 5,470 5,722 $51,004 Note: Plan assets of 733 million ($6,529 thousand) for the fiscal year ended March 31, 2017 ( 639 million for the fiscal year ended March 31, 2016) under the plans for which the simplified method is applied are not included in the table above. (c) Reconciliation of beginning and ending balances of net defined benefit liability for plans for which the simplified method is applied Thousands of U.S. Dollars Beginning balance of net defined benefit liability 3,933 3,507 $ 31,255 Retirement benefit expenses ,731 Benefits paid (193) (273) (2,423) Decrease due to a change from the simplified method to the standard method (645) (1,339) (11,937) Ending balance of net defined benefit liability 3,507 2,314 $ 20,626 (d) Reconciliation of ending balances of retirement benefit obligations and plan assets, net defined benefit liability and net defined benefit asset reported on the consolidated balance sheets Thousands of U.S. Dollars Funded retirement benefit obligation 6,960 7,059 $ 62,921 Plan assets (6,109) (6,455) (57,533) Subtotal ,388 Unfunded retirement benefit obligation 18,023 19, ,017 Net asset or liability reported on the consolidated balance sheet 18,874 20, ,405 Net defined benefit liability 18,874 20, ,405 Net asset or liability reported on the consolidated balance sheet 18,874 20,127 $179,405 Note: Retirement benefit obligation and plan assets under the plans for which the simplified method is applied are included in the reconciliation above. (e) Components of retirement benefit expenses Thousands of U.S. Dollars Service cost 1,088 1,109 $ 9,886 Interest cost ,760 Expected return on plan assets (54) (55) (488) Amortization of actuarial (gain) loss ,148 Amortization of past service cost Retirement benefit expenses calculated by the simplified method ,731 Expenses incurred due to a change from the simplified method to the standard method ,659 Other 0 1 Retirement benefit expenses related to defined benefit plans 2,558 3,000 $26,743 PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Integrated Report

80 (f) Remeasurements of defined benefit plans in other comprehensive income (before tax effect) Thousands of U.S. Dollars Actuarial (gain) loss $2,672 Past service cost (40) 5 46 Other (0) (0) Total $2,718 (3) Defined contribution plan The amounts required to contribute to defined contribution plans of the consolidated subsidiaries are as follows: Thousands of U.S. Dollars Amount required to contribute to defined contribution plan $176 (g) Remeasurements of defined benefit plans in accumulated other comprehensive income (before tax effect) Thousands of U.S. Dollars Unrecognized actuarial (gain) loss 1, $6,830 Unrecognized past service cost Total 1, $6,986 (h) Plan assets (i) Allocation of plan assets General account 57% 39% Debt securities Equity securities Other 5 4 Total 100% 100% Note: Plan assets under the plans for which the simplified method is applied are not included in the table above. (ii) Determination procedure of long-term expected rate of return on plan assets In determining the long-term expected rate of return on plan assets, the Company considers the current and projected asset allocations as well as current and future expected long-term rate of returns from various assets that constitute the plan assets. (i) Assumptions used in actuarial calculations Major assumptions used in actuarial calculations Discount rate 0.53% 1.06% 0.47% 1.06% Long-term expected rate of return on plan assets 1.00% 1.00% 79 Integrated Report 2017

81 15. Income Taxes (1) Significant components of deferred tax assets and deferred tax liabilities Deferred tax assets: Thousands of U.S. Dollars Provision for bonuses 1,459 1,499 $ 13,358 Accrued enterprise tax ,001 Net operating loss carryforwards 2,246 2,202 19,623 Loss on valuation of inventories ,970 Net defined benefit liability 5,559 6,045 53,882 Unrealized gains and losses on non-current assets and investment securities ,524 Adjustments on non-current assets ,719 Loss on valuation of investment securities 1,263 1,245 11,096 Impairment loss 1, ,010 Adjustment of book value of investments 2,337 20,827 Other 2,130 2,297 20,477 Subtotal 15,835 18, ,487 Less valuation allowance (4,416) (5,807) (51,756) Total deferred tax assets 11,419 12, ,731 PHILOSOPHY OF ABOUT Deferred tax liabilities: Valuation difference on available-for-sale securities (2,482) (4,135) (36,858) Retained earnings of subsidiaries and associates (3,181) (2,978) (26,540) Valuation difference on non-current assets for consolidated tax return (862) (829) (7,386) Other (1,353) (1,417) (12,635) Total deferred tax liabilities (7,878) (9,359) (83,419) Net deferred tax assets 3,541 3,288 $ 29,312 Note: Net deferred tax assets as of March 31, 2016 and 2017 are included in the following accounts in the consolidated balance sheets. Thousands of U.S. Dollars Current assets deferred tax assets 4,106 4,503 $ 40,134 Non-current assets deferred tax assets ,732 Current liabilities other (deferred tax liabilities) (35) (33) (296) Non-current liabilities other (deferred tax liabilities) (1,451) (1,713) (15,258) (Changes in the Method of Presentation) Valuation difference on non-current assets for consolidated tax return, which was presented separately under deferred tax assets for the fiscal year ended March 31, 2016, has been included in Other from the fiscal year ended March 31, 2017 due to a decrease in monetary materiality. As a result, the 38 million presented as Valuation difference on non-current assets for consolidated tax return and 2,092 million presented as Other under deferred tax assets for the fiscal year ended March 31, 2016 have been reclassified as 2,130 million of Other. (2) Difference between the effective statutory tax rate and the Company s effective income tax rate The note disclosure for the fiscal years ended March 31, 2016 and 2017 is omitted because the difference between the effective statutory tax rate and the effective income tax rate after applying the tax effect accounting is not more than 5% of the effective statutory tax rate. VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Integrated Report

82 16. Segment Information (1) Overview of reportable segments The Company is organized into business units or sales divisions by product line. Each business unit or sales division is responsible for the formulation of a comprehensive strategy for the products it carries and the relevant business activities. The Company consists of two reportable segments, namely the Paper and Paperboard business segment and the Home and Personal Care business segment, each of which comprises businesses of product lines that are similar in terms of the manufacture and distribution system and types of market or customers. Each reportable segment of the Company is a unit for which operating results are evaluated regularly at the budget meeting, where decisions regarding the Company s financial performance are made, and for which separate financial information is available. The products manufactured and distributed by the Paper and Paperboard business segment include newsprints, printing papers, packaging papers, paperboards, corrugated containers and pulps, and the customers include newspaper companies, printing companies, processing companies and corrugated container companies. The products manufactured and distributed by the Home and Personal Care business segment include sanitary goods, disposable diapers, napkins and wet wipes, which are ultimately sold to consumers. (2) Calculation method of net sales, income, assets and other items by reportable segment The accounting method for the reportable segments is the same as those described in Section 2. Summary of Significant Accounting and Reporting Policies. Segment income is based on operating income. Intersegment sales or transfers are based on the price determined upon consultation between the parties involved. (3) Net sales, income, assets and other items by reportable segment For the fiscal year ended March 31, 2016 Reportable segment Home and Paper and Personal Paperboard Care Other (Note 1) Adjustments (Note 2) Consolidated (Note 3) Total Total Net Sales Sales to external customers 299, , ,866 15, , ,077 Intersegment sales and transfers 18,450 2,207 20,657 56,288 76,945 (76,945) Total sales 318, , ,523 71, ,022 (76,945) 474,077 Segment income 10,473 10,365 20,838 3,153 23, ,323 Segment assets 409, , ,011 48, ,266 16, ,310 Other items: Depreciation and amortization 20,787 5,701 26, ,988 26,988 Increase in property, plant and equipment and intangible assets 16,711 19,649 36, ,310 37,310 Notes: 1. The Other category consists of the business segments that are not included in the reportable segments, and includes woodchip, forestry, machinery, logistics, electric power selling and golf club businesses. 2. Adjustments are as follows: i) The amount of adjustments for segment income is the adjustment for elimination of intersegment transactions. ii) The amount of adjustments for segment assets is the adjustment for elimination of intersegment transactions of (14,854) million and corporate assets, consisting primarily of investment securities, not attributable to any reportable segment of 30,898 million. 3. Segment income is calculated by adjusting operating income presented in the consolidated statement of income. 81 Integrated Report 2017

83 For the fiscal year ended March 31, 2017 Reportable segment Home and Paper and Personal Paperboard Care Other (Note 1) Adjustments (Note 2) Consolidated (Note 3) Total Total Net Sales Sales to external customers 291, , ,773 16, , ,140 Intersegment sales and transfers 17,471 2,489 19,960 56,470 76,430 (76,430) Total sales 309, , ,733 72, ,570 (76,430) 477,140 Segment income 10,027 10,110 20,137 3,113 23, ,535 Segment assets 395, , ,680 48, ,511 22, ,747 Other items: Depreciation and amortization 21,320 7,113 28, ,017 29,017 Increase in property, plant and equipment and intangible assets 15,696 12,230 27,926 4,527 32,453 32,453 Reportable segment Home and Paper and Personal Paperboard Care Thousands of U.S. Dollars Other (Note 1) Adjustments (Note 2) Consolidated (Note 3) Total Total Net Sales Sales to external customers $2,602,311 $1,504,768 $4,107,079 $145,881 $4,252,960 $ $4,252,960 Intersegment sales and transfers 155,727 22, , , ,259 (681,259) Total sales $2,758,038 $1,526,957 $4,284,995 $649,224 $4,934,219 $(681,259) $4,252,960 Segment income $ 89,379 $ 90,113 $ 179,492 $ 27,742 $ 207,234 $ 2,540 $ 209,774 Segment assets 3,528,542 1,700,801 5,229, ,255 5,664, ,199 5,862,797 Other items: Depreciation and amortization 190,039 63, ,440 5, , ,641 Increase in property, plant and equipment and intangible assets 139, , ,917 40, , ,269 Notes: 1. The Other category consists of the business segments that are not included in the reportable segments, and includes woodchip, forestry, machinery, logistics, electric power selling and golf club businesses. 2. Adjustments are as follows: i) The amount of adjustments for segment income is the adjustment for elimination of intersegment transactions. ii) The amount of adjustments for segment assets is the adjustment for elimination of intersegment transactions of (13,676) million ($(121,903) thousand) and corporate assets, consisting primarily of investment securities, not attributable to any reportable segment of 35,912 million ($320,102 thousand). 3. Segment income is calculated by adjusting operating income presented in the consolidated statement of income. (4) Related information (a) Information by product and service For the fiscal years ended March 31, 2016 and 2017 This information is omitted because a similar description has been disclosed in segment information. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA (b) Information by geographical area (i) Net sales For the fiscal years ended March 31, 2016 and 2017 This information is omitted because the Group s domestic sales exceed 90% of net sales presented in the consolidated statements of income. (ii) Property, plant and equipment For the fiscal years ended March 31, 2016 Japan Asia South America Other Total Property, plant and equipment 269,114 13,485 13, ,373 Integrated Report

84 For the fiscal years ended March 31, 2017 Japan Asia South America Other Total Property, plant and equipment 268,665 16,631 13, ,184 Japan Asia South America Other Total Property, plant and equipment $2,394,730 $148,242 $122,526 $1,259 $2,666,757 Note: From the fiscal year ended March 31, 2017, as the amounts of the items of property, plant and equipment that are located outside of Japan exceeded 10% of the amount of property, plant and equipment presented in the consolidated balance sheet, the above items are presented. While the amounts of the items of property, plant and equipment that were located in Japan exceeded 90% of the amount of property, plant and equipment presented in the consolidated balance sheet in the fiscal year ended March 31, 2016, and thus were not presented, starting from the fiscal year ended March 31, 2017 the items have been presented through aggregation using the same regional categories as the current fiscal year. (c) Information by major customer This information is omitted because none of the external customers singularly account for 10% or more of net sales presented in the consolidated statements of income. (5) Impairment loss of non-current assets by reportable segment For the fiscal year ended March 31, 2016 Paper and Paperboard Home and Personal Care Other (Note) Corporate & elimination Total Impairment loss 1, ,564 Note: The amount of Other is impairment loss associated with the machinery businesses. For the fiscal year ended March 31, 2017 Paper and Paperboard Home and Personal Care Other Corporate & elimination Total Impairment loss Thousands of U.S. Dollars Paper and Paperboard Home and Personal Care Other Corporate & elimination Total Impairment loss $6,571 $1,139 $ $ $7,710 (6) Amortization and unamortized balance of goodwill by reportable segment For the fiscal year ended March 31, 2016 Paper and Paperboard Home and Personal Care Other (Note) Corporate & elimination Amortization of goodwill 2,273 2, ,855 Unamortized balance 22,018 23,449 8,793 54,260 Note: The amount of Other includes amortization and unamortized balance associated with the woodchip, forestry, machinery and logistics businesses. Total The following are amortization and unamortized balances of negative goodwill that arose in the business combinations that occurred before April 1, Paper and Paperboard Home and Personal Care Other (Note) Corporate & elimination Amortization of negative goodwill Unamortized balance Note: The amount of Other includes amortization and unamortized balance associated with the woodchip and forestry businesses. Total 83 Integrated Report 2017

85 For the fiscal year ended March 31, 2017 Paper and Paperboard Home and Personal Care Other (Note) Corporate & elimination Amortization of goodwill 2,011 1, ,231 Unamortized balance 19,566 21,770 8,252 49,588 Paper and Paperboard Thousands of U.S. Dollars Home and Other Personal Care (Note) Corporate & elimination Amortization of goodwill $ 17,921 $ 14,970 $ 4,821 $ $ 37,712 Unamortized balance 174, ,042 73, ,004 Note: The amount of Other includes amortization and unamortized balance associated with the woodchip, forestry, machinery and logistics businesses. The following are amortization and unamortized balances of negative goodwill that arose in the business combinations that occurred before April 1, Paper and Paperboard Home and Personal Care Other (Note) Corporate & elimination Amortization of negative goodwill Unamortized balance Total Total Total PHILOSOPHY OF ABOUT Paper and Paperboard Thousands of U.S. Dollars Home and Other Personal Care (Note) Corporate & elimination Amortization of negative goodwill $ 97 $1 $ 555 $ $ 653 Unamortized balance ,552 6,451 Note: The amount of Other includes amortization and unamortized balance associated with the woodchip and forestry businesses. (7) Negative Goodwill (Gain on Bargain Purchase) by Reportable Segment For the fiscal year ended March 31, 2016 The Company did not recognize any gain on bargain purchase. For the fiscal year ended March 31, 2017 The Company did not recognize any gain on bargain purchase. Total FINANCIAL AND CORPORATE DATA VALUE CREATION MODEL OF Integrated Report

86 17. Related Party Transactions (1) Transactions between the company filing consolidated financial statements and related parties (a) Transactions with parent company and major corporate shareholders, etc. For the fiscal year ended March 31, 2016 None For the fiscal year ended March 31, 2017 None (b) Transactions with associates, etc. For the fiscal year ended March 31, 2016 None For the fiscal year ended March 31, 2017 None (c) Transactions with directors, etc. of the company filing consolidated financial statements For the fiscal year ended March 31, 2016 Category Companies (including their subsidiaries) the majority of whose voting shares are owned by those equivalent to directors and close members of their family Name of company or individual Shikoku Paper Sales Corporation Location Shikoku- Chuo City, Ehime Prefecture Capital stock or investments in capital Millions of Yen 50 Business details or occupation Purchase and sale of papers, paperboards and raw materials for papermaking Voting rights owned by the Company (Voting rights of the Company owned by related party) Direct 5.05% Direct (1.07%) Relation with related party Transaction details Sale of products and merchandise (Note 1) Purchase of raw materials (Note 2) Sale of raw materials (Note 2) Payment of warehousing charge (Note 3) Payment of subcontractor processing fee (Note 4) Transaction amount Millions of Yen 14, Account title Accounts receivable trade Accounts payable trade Accounts receivable other Accounts payable other Accounts payable other Year-end balance Millions of Yen Notes: 1. The selling prices of the products and merchandise are determined upon consultation between the parties involved. 2. The purchase and selling prices of raw materials are determined upon consultation between the parties involved. 3. The warehousing charge is determined upon consultation between the parties involved. 4. The product processing fee is determined upon consultation between both parties based on the total costs incurred by Shikoku Paper Sales Corporation. 5. The transaction amounts do not include consumption taxes. 4, For the fiscal year ended March 31, 2017 None 85 Integrated Report 2017

87 (2) Transactions between the consolidated subsidiaries of the company filing consolidated financial statements and related parties (a) Transactions with parent company and major corporate shareholders, etc. For the fiscal year ended March 31, 2016 None For the fiscal year ended March 31, 2017 None (b) Transactions with directors and major individual shareholders, etc. For the fiscal year ended March 31, 2016 Category Companies (including their subsidiaries) the majority of whose voting shares are owned by those equivalent to directors and close members of their family Name of company or individual Shikoku Paper Sales Corporation Location Shikoku- Chuo City, Ehime Prefecture Capital stock or investments in capital (Thousands of U.S. Dollars) 50 Business details or occupation Purchase and sale of papers, paperboards and raw materials for papermaking Voting rights owned by the Company (Voting rights of the Company owned by related party) Direct 5.05% Direct (1.07%) Relation with related party Transaction details Sale of products and merchandise (Note 1) Purchase of raw materials (Note 2) Payment of subcontractor processing fee (Note 3) Transaction amount Millions of Yen (Thousands of U.S. Dollars) Account title Accounts receivable trade Accounts payable trade Accounts payable other Year-end balance Millions of Yen (Thousands of U.S. Dollars) Notes: 1. The selling prices of the products and merchandise are determined upon consultation between the parties involved. 2. The purchase prices of raw materials are determined upon consultation between the parties involved. 3. The product processing costs are determined upon consultation between both parties based on the total costs incurred by Shikoku Paper Sales Corporation. 4. The transaction amounts do not include consumption taxes. For the fiscal year ended March 31, 2017 None FINANCIAL AND CORPORATE DATA PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF Integrated Report

88 18. Per Share Information Amounts per share as of March 31, 2016 and 2017 and for the fiscal years then ended are summarized as follows: Yen U.S. Dollars Net assets per share 1, , $10.80 Basic earnings per share Diluted earnings per share Note: Basic and diluted earnings per share are calculated based on the following: Yen U.S. Dollars Basic earnings per share Profit attributable to owners of parent (millions of yen/thousands of U.S. Dollars) 14,594 12,136 $108,174 Amount not attributable to common shareholders of parent (millions of yen/thousands of U.S. Dollars) Profit attributable to common shareholders of parent (millions of yen/thousands of U.S. Dollars) 14,594 12, ,174 Average number of common shares outstanding during the period (thousands of shares) 145, , ,730 Diluted earnings per share Adjustment to profit attributable to owners of parent (millions of yen/thousands of U.S. Dollars) (10) (21) $ (185) [Amortization of bond premium (after deducting the amount equivalent to taxes)(millions of yen/thousands of U.S. Dollars)] [(10)] [(21)] [(185)] Increase in the number of common shares (thousands of shares) 11,190 20,816 20,816 [Convertible bond-type bonds with subscription rights to shares (thousands of shares)] [11,190] [20,816] [20,816] Summary of potentially dilutive shares that were not included in the calculation of diluted earnings per share since there was no dilutive effect 87 Integrated Report 2017

89 19. Subsequent Events Business Combination through Acquisition The Company, in accordance with the share transfer agreement concluded with Nisshinbo Holdings Inc. (hereinafter, Nisshinbo HD ) effective February 10, 2017, has acquired all outstanding shares of Nisshinbo Paper Products Inc. (hereinafter, Nisshinbo PP ) from Nisshinbo HD effective April 3, (1) Overview of the business combination (a) Company name and business details of the acquired company Company name Location Business details Nisshinbo Paper Products Inc , Ningyo-cho, Nihonbashi, Chuo-ku, Tokyo Manufacture and sale of household paper, specialty paper, processed paper products, etc. (b) Main reasons for the business combination The Company, collectively as a group, has a presence in every field of the Paper Products Business (hereinafter, the Business ), namely household paper, specialty paper, processed paper products and label-related products, which it acquired from Nisshinbo HD. Therefore, the Company will be able to make full use of all of the management resources (human talents, facilities and equipment, and brands) of the Business, and will be able to raise the value of all products, including household paper, specialty paper, processed paper products and label-related products, and further develop each business. (c) Date of the business combination April 3, 2017 (d) Legal form of the business combination Acquisition of shares through a share transfer (i) Details of the transferred business The shares of Nisshinbo HD s domestic subsidiaries (Nisshinbo PP, which holds Daiwa Shiko Co., Ltd. and Tokai Seishi Kogyo Co., Ltd. as its subsidiaries) and Nisshinbo Postal Chemical Co., Ltd. (hereinafter, Nisshinbo PC ), and Nisshinbo HD s equity in its Chinese subsidiary, Shanghai Sun-Rich Arts & Crafts Co., Ltd. (hereinafter, Shanghai Sun-Rich Arts & Craft ), all of which are involved in the Business, as well as the real estate, facilities, intellectual property rights and other assets pertaining to the Business that Nisshinbo HD holds. (ii) Method of the transfer Nisshinbo HD, by absorption-type company split, had Nisshinbo PP succeed its shares in Nisshinbo PC, its equity in Shanghai Sun-Rich Arts & Craft, and its real estate, facilities, intellectual property rights and other assets pertaining to the Business, after which the Company acquired all shares in Nisshinbo PP from Nisshinbo HD. (e) Company name after the business combination Effective the same date as the acquisition of all shares (April 3, 2017), the trade names of Nisshinbo PP and Nisshinbo PC were changed to Daio Paper Products Corporation and Daio Postal Chemical Corporation, respectively. (f) 3.881Ratio of voting rights acquired 100% (g) Major reasons for the decision on acquiring the company Due to the Company acquiring the shares in exchange for cash (2) Acquisition cost and breakdown by type of consideration Thousands of U.S. Dollars Consideration for acquisition Cash 24,600 $219,271 Acquisition cost 24, ,271 Note: The above amount represents the estimated amount at the time of acquisition, and the actual amount may change due to price adjustments and other factors going forward. (3) Major components and amounts of acquisition related costs Thousands of U.S. Dollars Advisory fees, etc. 24,600 $2,139 The above is a provisional amount, as certain amounts are yet to be determined. (4) Amount of goodwill, reason for the goodwill and method and period of amortization Not determined at the present time. (5) Amounts of assets received and liabilities assumed on the date of the business combination and their breakdown Not determined at the present time. Business Combination through Acquisition At the Board of Directors meeting held on February 27, 2017, the Company resolved to acquire all share certificates of common stock (excluding the treasury shares held by Miura Printing Corporation) of Miura Printing Corporation (hereinafter, Miura Printing ) and all stock acquisition rights of Miura Printing issued pursuant to a resolution passed at Miura Printing s Board of Directors meeting held on September 30, 2015, and to conduct a tender offer for shares, etc. of Miura Printing (hereinafter, the Tender Offer ) as part of a transaction with the aim of making Miura Printing a wholly-owned subsidiary of the Company (hereinafter, the Transaction ). As a result of the Tender Offer, Miura Printing became a subsidiary of the Company effective April 18, The Company made a demand for all shareholders of Miura Printing (excluding the Company and Miura Printing) to sell all shares they hold with the aim of acquiring all shares of Miura Printing as of April 20, 2017, and completed the acquisition of all shares as of June 1, (1) Overview of the business combination (a) Company name and business details of the acquired company Company name Location Business details Miura Printing Corporation 2-3-9, Chitose, Sumida-ku, Tokyo Printing business, parking lot business and real estate leasing business PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF FINANCIAL AND CORPORATE DATA Integrated Report

90 (b) Main reasons for the business combination The Company, by welcoming Miura Printing to the Group through the Transaction, intends to make maximum use of Miura Printing s strong branding capabilities, sales capabilities based on its numerous transactions with blue-chip customers and various know-how including its technical capabilities with the aim of expanding the Company s printing business as well as strengthening the specialty paper business, the Company s core business, both from the paper manufacturing and printing segments, which are inseparable in the Group s specialty paper business, with a view to further expanding the scale of the printing business in the future. (c) Date of the business combination Acquisition through tender offer: April 18, 2017 Acquisition through demand for sales of shares: June 1, 2017 (d) Legal form of the business combination Acquisition of shares in exchange for cash (e) Company name after the business combination There will be no change to the trade name. (f) Ratio of voting rights acquired 100% (g) Major reasons for the decision on acquiring the company Due to the Company acquiring the shares in exchange for cash (4) Amount of goodwill, reason for the goodwill and method and period of amortization Not determined at the present time. (5) Amounts of assets received and liabilities assumed on the date of the business combination and their breakdown Not determined at the present time. (2) Acquisition cost and breakdown by type of consideration Thousands of U.S. Dollars Consideration for acquisition Cash 8,062 $71,860 Accounts payable other 296 2,642 Acquisition cost 8,358 74,502 (3) Major components and amounts of acquisition related costs Thousands of U.S. Dollars Advisory fees, etc. 183 $1,633 The above is a provisional amount, as certain amounts are yet to be determined. 89 Integrated Report 2017

91 Annexed Consolidated Detailed Schedules Daio Paper Corporation and its Consolidated Subsidiaries March 31, 2016 and Detailed Schedule of Bonds Company Name Date of issue Daio Paper Corporation Daio Paper Corporation Daio Paper Corporation Consolidated subsidiaries Unsecured Straight Bond No. 17 Zero Coupon Convertible Bonds due 2020 (Note 2) Unsecured Straight Bond No. 18 Subsidiary Straight Bonds September 20, 2011 September 17, 2015 March 22, 2017 From March 30, 2007 to March 27, 2017 Total Beginning balance Ending balance Interest rate Millions of yen Thousands of U.S. Dollars Millions of yen Thousands of U.S. Dollars (%) 10,000 [20,000] 89,135 [89,135] Collateral $ 1.00% None 30, ,607 30, ,339 None 15, , None 320 [320] 40,455 [10,320] 2,852 [2,852] 360,594 [91,987] Notes: 1. The amounts in parentheses above indicate redemption amounts due within one year. 2. Details of the convertible bonds are presented as follows: 300 2, None Maturity September 20, 2016 September 17, 2020 March 22, 2022 From March 27, 2017 to March 27, ,405 $404,715 Name of bonds: Zero Coupon Convertible Bonds due 2020 Stock to be issued: Common stock Issue price of stock acquisition rights: Free of charge (gratis issue) Issue price of stock: 1,441.2 ($12.85) Total issue amount: 30,150 million ($268,741 thousand) Total issue amount of stock issued upon exercise of stock acquisition rights: million ($ thousand) Percentage of stock acquisition rights granted: 100.0% Exercise period of stock acquisition rights: From October 1, 2015 to September 3, 2020 (Local time of the place for accepting the exercise request) Note: Upon the exercise of stock acquisition rights, the bonds associated with the stock acquisition rights shall be subject to capital contribution, with the price for the bonds being the same as their face value. PHILOSOPHY OF ABOUT VALUE CREATION MODEL OF 3. The redemption schedule of bonds payable for five years subsequent to March 31, 2017 is as follows: Due within one year Between one to two years Millions of yen Between two to three years Between three to four years Between four to five years Due within one year Between one to two years Thousands of U.S. dollars Between two to three years Between three to four years Between four to five years 30,000 15,300 $ $ $ $267,404 $136,376 FINANCIAL AND CORPORATE DATA Integrated Report

92 2. Detailed Schedule of Loans Category Beginning balance Millions of yen Thousands of U.S. Dollars Millions of yen Ending balance Thousands of U.S. Dollars Average interest rate (%) Short-term loans payable 33,560 $ 299,135 26,360 $ 234, % Current portion of long-term loans payable 79, ,553 72, ,062 Current portion of lease obligations 477 4, ,286 Long-term loans payable (excluding current portion) 199,992 1,782, ,521 1,716, Lease obligations (excluding current portion) 1,397 12,451 1,687 15,038 Other interest-bearing debt: Current portion of long-term accounts payable facilities Long-term accounts payable facilities (excluding current portion) 1.46 Maturity Due 2018 through 2025 Due 2018 through ,526 22,518 2,621 23, ,022 35,853 2,385 21, Due 2018 through 2022 Total 321,915 $2,869, ,873 $2,663,989 Notes: 1. The average interest rate above represents the weighted-average interest rate for the ending balance of loans payable. 2. The average interest rate of the lease obligations is not presented because the lease obligations are stated in the consolidated balance sheet at the amount before deducting the amount equivalent to interest expenses that are included in the total lease payments. 3. The redemption schedule of long-term loans payable, lease obligations and other interest-bearing debt (excluding current portions) for five years subsequent to March 31, 2017 is as follows: Millions of yen Between one to two years Between two to three years Between three to four years Between four to five years Long-term loans payable 50,112 44,809 33,796 29,360 Lease obligations Other interest-bearing debt 1, Between one to two years Between two to three years Thousands of U.S. dollars Between three to four years Between four to five years Long-term loans payable $446,667 $399,401 $301,237 $261,702 Lease obligations 4,553 3,507 2,584 1,494 Other interest-bearing debt 10,857 5,605 3,142 1, Schedule of Asset Retirement Obligations The Schedule of Asset Retirement Obligations is not presented, pursuant to Article 92-2 of the Ordinance on Consolidated Financial Statements, as the beginning and ending balances of asset retirement obligations for the fiscal year ended March 31, 2017 were one percent or less of the total beginning and ending balances of liabilities and net assets of the fiscal year. 91 Integrated Report 2017

93 Independent Auditor s Report FINANCIAL AND CORPORATE DATA VALUE CREATION MODEL OF ABOUT PHILOSOPHY OF Integrated Report