Toppan : A3-size Financial Report 2023

© TOPPAN 2023.8 K l

Consolidated Eleven-Year Financial Summary	2
Management Discussion and Analysis of
Operating Results and Financial Position	4
Consolidated Balance Sheets	10
Consolidated Statements of Income	12
Consolidated Statements of Comprehensive Income	13
Consolidated Statements of Changes in Net Assets	13
Consolidated Statements of Cash Flows	16
Notes to the Consolidated Financial Statements	17
Independent Auditor's Report	42

TOPPAN Financial Report 2023

1

Consolidated Eleven-Year Financial Summary

Toppan Inc. and Subsidiaries

Years ended March 31											Millions of yen	Thousands of
											U.S. dollars* except
											except per share data	per share data
	2013	2014	2015	2016	2017	2018	2019	2020	2021	2022	2023	2023
FOR THE YEAR
Net sales	¥ 1,502,308	¥ 1,532,043	¥ 1,526,915	¥ 1,474,682	¥ 1,431,595	¥ 1,452,752	¥1,464,756	¥1,486,008	¥1,466,935	¥1,547,533	¥1,638,833	$12,273,144
Cost of sales	1,253,965	1,280,004	1,272,460	1,209,281	1,162,202	1,178,447	1,189,828	1,185,871	1,165,533	1,212,769	1,276,671	9,560,930
% of net sales	83.5%	83.5%	83.3%	82.0%	81.2%	81.1%	81.2%	79.8%	79.5%	78.4%	77.9%
Selling, general and administrative	216,251	216,317	213,578	216,869	217,792	222,015	229,201	233,723	242,612	261,258	285,525	2,138,283
expenses
% of net sales	14.4%	14.1%	14.0%	14.7%	15.2%	15.3%	15.6%	15.7%	16.5%	16.9%	17.4%
Operating profit	32,092	35,722	40,877	48,532	51,601	52,290	45,727	66,414	58,790	73,505	76,636	573,923
% of net sales	2.1%	2.3%	2.7%	3.3%	3.6%	3.6%	3.1%	4.5%	4.0%	4.7%	4.7%
Profit before income taxes	38,849	40,735	46,405	52,968	60,229	65,484	65,187	134,855	130,020	180,943	109,558	820,474
Profit (loss) attributable to owners of parent	18,562	20,621	22,868	35,245	32,536	42,268	41,049	87,048	81,998	123,182	60,866	455,822
% of net sales	1.2%	1.3%	1.5%	2.4%	2.3%	2.9%	2.8%	5.9%	5.6%	8.0%	3.7%
% of assets	1.2%	1.2%	1.2%	1.8%	1.7%	2.0%	1.9%	4.0%	3.6%	5.3%	2.7%
% of equity	2.5%	2.7%	2.7%	3.8%	3.3%	3.9%	3.6%	7.4%	6.5%	9.2%	4.5%
Per share of common stock (yen and dollars)
Earnings (losses) per share (basic)	¥        28.90	¥        32.12	¥        35.67	¥        55.04	¥        50.75	¥      131.32	¥      127.55	¥      261.06	¥     237.16	¥     365.21	¥     185.07	$           1.38
Earnings (losses) per share (diluted)	-	31.10	31.96	49.34	48.01	124.26	120.67	-	-	-	-	-
Cash dividends per share	18.00	18.00	18.00	18.00	20.00	40.00	40.00	60.00	40.00	44.00	46.00	0.34
Research and development expenses	¥      20,689	¥      19,821	¥      19,084	¥      17,975	¥      19,368	¥      19,426	¥      17,838	¥      19,268	¥     22,348	¥     26,081	¥     26,591	$     199,138
Capital expenditures	76,827	72,177	76,138	63,203	64,990	72,015	68,581	86,419	60,855	58,202	92,106	689,777
Depreciations	67,965	62,473	61,176	59,692	58,536	60,219	60,285	55,953	63,002	64,195	70,800	530,217
AT YEAR-END
Current assets	¥    800,645	¥    836,681	¥    924,728	¥    852,207	¥    884,928	¥    843,084	¥    863,768	¥    902,759	¥1,066,995	¥1,050,734	¥1,106,082	$  8,283,396
Current liabilities	453,121	420,152	515,536	462,106	431,713	409,021	467,837	489,985	436,492	496,094	467,394	3,500,292
Working capital	347,524	416,529	409,192	390,101	453,215	434,063	395,931	412,774	630,503	554,640	638,688	4,783,104
Cash and cash equivalents	256,058	287,690	335,911	292,676	295,126	273,334	272,990	296,873	497,238	414,265	447,607	3,352,108
Property, plant and equipment, net of	552,511	553,291	566,125	537,977	526,581	555,649	553,732	600,528	571,779	580,255
depreciation	597,301	4,473,159
Long-term indebtedness	224,041	299,588	254,345	208,340	226,130	243,451	198,397	183,135	283,582	188,309	184,243	1,379,787
Total assets	1,633,066	1,712,351	1,994,642	1,876,575	1,997,909	2,147,932	2,194,216	2,143,455	2,363,504	2,288,188	2,238,817	16,766,397
Net assets	888,422	913,108	1,082,844	1,066,852	1,171,959	1,303,674	1,328,875	1,310,233	1,453,165	1,437,207	1,452,169	10,875,226
Equity ratio	46.3%	45.7%	46.8%	49.8%	51.0%	52.9%	53.2%	55.2%	56.0%	59.7%	59.2%
Debt-equity ratio	38.9%	42.1%	38.3%	30.1%	24.7%	22.6%	23.5%	22.1%	25.2%	19.2%	18.0%
OTHER STATISTICS
Number of employees	48,878	48,751	48,999	46,705	50,705	51,210	51,712	52,599	52,401	54,336	53,946
Number of common shares issued	699,412	699,412	699,412	699,412	699,412	349,706	349,706	349,706	349,706	349,706
(thousands of shares)	349,706
Number of consolidated subsidiaries	167	154	151	146	150	155	162	194	195	207	219

* U.S. dollar amounts are translated from yen at the rate of ¥133.53=US$1.00, as of March 31, 2023.

Note 1: The Company implemented a share consolidation, effective October 1, 2018, on the basis of consolidating two shares of common stock into one. As a result, the "Earnings (losses) per share (basic)" and the "Earnings (losses) per share (diluted)" as well as the "Cash dividends per share" have been recalculated assuming that the consolidation was carried out at the beginning of the year ended March 31, 2018.

Note 2: The Company has adopted the Partial Amendments to Accounting Standard for Tax Effect Accounting (ASBJ Statement No. 28, February 16, 2018) from the year ended March 31, 2019. The figures for the year ended March 31, 2018 have been reclassified to conform with the presentation for the year ended March 31, 2019.

Note 3: In the year ended March 31, 2020, the provisional accounting treatment related to business combinations was finalized. Accordingly, the figures for the year ended March 31, 2019 have been adjusted retroactively to reflect the finalization of the provisional accounting treatment.

Note 4: The Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020) and others have been applied from the beginning of the year ended March 31, 2022, and the key consolidated management indices, etc., for the year ended March 31, 2022 onward are those after the application of such accounting standards and others.

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Management Discussion and

Analysis of Operating Results and Financial Position

Toppan Inc. and Subsidiaries

Years ended March 31

Profit Attributable to Owners of Parent

(¥ billion)					(¥)
200					400
				365.21
150					300
		261.06		123.2
100			237.16		200
		87.0	82.0		185.07
	127.55			60.8
50			100
41.0
0					0
	19	20	21	22	23

Profit attributable to owners of parent

Earnings per share (Basic)

Return on Sales

(%)

10.0

8.0

8.0

6.0	5.9
	4.5	5.6	4.7	4.7
4.0	4.0

3.1

3.7

2.0 2.8

19 20 21 22 23

Operating profit as % of net sales Net profit as % of net sales

ROE & ROA

(%)

10.0

9.2

8.0

7.4

6.5

6.0

5.3

4.0

4.0

4.5

3.6

3.6

2.0	2.7
	1.9

0

19

20

21

22

23

ROE

ROA

Net Cash Provided by Operating Activities

(¥ billion)
120
					106.0
		92.1
80	76.8		76.9
				64.7
40
0
	19	20	21	22	23

Net cash provided by operating activities

The financial information in this section is based on the consolidated financial statements in this integrated report. The consolidated financial statements are based on generally accepted accounting principles in Japan. The Toppan Group (herein- after, "the Group") consists of Toppan Inc. (hereinafter, "the Company"), 219 consolidated subsidiaries, 2 equity method non-consolidated subsidiaries, and 30 equity method associates. The Group conducts a wide range of business activities under three business segments, namely Information & Communication, Living & Industry, and Electronics. In the fiscal year ended March 31, 2023, the following changes have taken place in relation to the Group's subsidiaries and equity method associates:

Consolidated subsidiaries:

21 added and 9 removed

Equity method non-consolidated subsidiaries: 2 added

Equity method associates:

3 added and 2 removed

Overview

In the fiscal year ended March 31, 2023, the Japanese economy showed signs of a recovery due to the easing of restrictions on movement related to COVID-19. However, the outlook remained uncertain because of supply chain disruptions and surging resource prices attributable to the prolonged invasion of Ukraine, and rapid changes in exchange rates, among other factors.

The Group's operating environment remained challenging due to factors such as declining demand for paper media associated with the impact of the shift to digital information media, constraints on supplies of raw materials, and rising prices. However, there are expectations that lifestyle changes will create new demand, including growing digital demand and rising consciousness of global environmental issues.

In this environment, under the key concept of "Digital & Sustainable Transformation," the Group is working to help resolve social issues worldwide, mainly through digital transformation (DX), which uses digital technologies as a starting point to transform society and the business of customers and the Group, and sustainable transformation (SX), which

aims to address social issues through business and realize management focused on sustainability.

As a result, in the fiscal year ended March 31, 2023, net sales were up 5.9% year-on-year, to ¥1,638.8 billion, and operating profit increased 4.3% year-on- year, to ¥76.6 billion. However, due to factors such as a decline in gain on sales of investment securities and an increase in impairment loss, profit attributable to owners of parent declined 50.6% year-on- year, to ¥60.8 billion.

Net sales

In the fiscal year ended March 31, 2023, net sales rose 5.9% year-on-year, to ¥1,638.8 billion. Net sales by business segment were as stated below.

Information & Communication

The Information & Communication segment recorded a 1.8% year-on-year decrease in net sales, to ¥887.5 billion, and operating profit was down 16.3% year-on-year, to ¥42.8 billion.

In the security business, results improved year-on-year, mainly due to growth in smart cards, despite a decline in business forms accompanying the digitization of forms. In the content and marketing business, results improved year-on-year.

Declines in paper media and sales promotion materials were offset by growth in game/trading cards, e-book related services provided by BookLive Co., Ltd., and online advertising and other digital marketing solutions. In the business process outsourcing (BPO) business, the Group sought to expand sales of a hybrid-BPO service combining digital technologies with operations. Nonetheless, sales declined after the Group posted sales from large projects in the previous fiscal year.

As part of the Erhoeht-XTM DX initiative, with a view to strengthening the operational structure for digital marketing, the Group established the Sapporo Engagement Center and formed a capital and business alliance with FUSION Co., Ltd., which has extensive know-how in the CRM domain. Moreover, the Group helps businesses and other organizations improve their operational efficiency through initiatives such as enhancing the functions of EngagePlus, a message delivery service provided by Toppan Forms Co., Ltd. (now TOPPAN Edge Inc.).

Living & Industry

The Living & Industry segment posted a 17.2% year-on-year increase in net sales, to ¥520.6 billion. Operating profit decreased 17.6% year-on-year, to ¥23.5 billion.

In the packaging business in Japan, results rose year-on-year due to an increase in demand, particularly for food packaging, and the expansion of sustainable packaging materials. Overseas sales increased, particularly in Indonesia, and, contributions to sales were made by InterFlex, a US-based flexible packaging producer which the Company acquired in the previous fiscal year, and by Majend Makcs, a flexible packaging producer in Thailand which the Company acquired in May. Both in Japan and overseas, price revisions were made in response to rising raw materials and energy prices.

In the décor materials business, sales in Japan rose year-on-year due to growth in sales of decorative surface materials with high-quality design and advanced function- ality. Overseas, demand was weak due to rapid inflation in Europe and rising mortgage rates in North America. Nonetheless, sales were up year-on-year due to growth in sales of decorative surface materials for furniture and other interior applications, price revisions, and foreign exchange effects.

Sales of functional products increased with the contribution of Toppan Speciality Films (formerly Max Speciality Films), a leading Indian film manufacturer which the Company made into a consolidated subsidiary in the previous fiscal year.

In its SX initiatives, the Company used GL BARRIER transparent films with world- class barrier performance in order to advance the development of environmentally friendly packaging materials, such as recyclable mono-material packaging materials and retortable pouches made of paper that contribute to reducing plastic consumption and CO2 emissions.

Electronics

The Electronics segment recorded a year-on-year increase of 15.3% in net sales, to ¥255.3 billion, and a year-on-year increase of 60.6% in operating profit, to ¥48.2 billion.

In the semiconductor business, sales of photomasks rose due to firm demand for semiconductors used for 5G, AI, and automobiles. In the business for FC-BGA substrates, which are high-density semiconductor package substrates, high- value-added large and multilayer products sold well, particularly for data centers and servers, due to their industry-leading quality and technology.

Sales of display-related products declined year-on-year, reflecting a fall in sales of anti-reflection films due to a decline in film demand for televisions and a decrease in sales of color filters due to the implementation of structural reforms.

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Management Discussion and Analysis of Operating Results and Financial Position

Toppan Inc. and Subsidiaries

Years ended March 31

Capital Investment

Depreciation and Amortization

Debt-Equity Ratio

Net Assets

(¥ billion)
100
86.4	92.1
75
68.6
60.9	58.2
50
25
0

(¥ billion)
100
75		70.8
60.3	63.0	64.2
56.0
50
25
0

(%)

50

40

30

23.5 22.1

20

10

0

25.2

19.2	18.0

(¥ billion)					(%)
1,500		1,453.2 1,437.2 1,452.1	100
1,328.9 1,310.2
1,200					80
900	55.2	56.0	59.7	59.2	60
53.2
600					40
300					20
0					0

19

20

21

22

23

Capital investment

19

20

21

22

23

Depreciation and amortization

19

20

21

22

23

Debt-equity ratio

19

20

21

22

23

Net assets

Equity ratio

With a view to creating new business, the Company implemented initiatives in preparation for the widespread adoption of IoT devices. These included developing e-PlatchTM, a system which takes advantage of the next-generationlow-powerwide-area (LPWA) ZETA protocol to improve the efficiency of the remote monitoring of environmental data and equipment maintenance operations at manufacturing plants and facilities, and achieving internationally recognized ISO/ IEC 27017 cloud security certification. In addition, the Company was also the first in the world to develop a next-generationtime-of-flight sensor capable of measuring distances of up to 30 meters, in anticipation of the widespread use of autonomous mobile robots in the industry.

Cost of sales

In the fiscal year ended March 31, 2023, cost of sales increased 5.3% year-on-year, to ¥1,276.6 billion, and cost of sales as a percentage of net sales decreased 0.5 percentage point year-on-year, to 77.9%. As a result, gross profit increased 8.2%, to ¥362.1 billion. Comprehensive cost reduction measures have been successful, meaning that after reducing the cost of sales as a percentage of net sales to less than 80% in the fiscal year ended March

31, 2020, we have continued to lower it for a further three consecutive fiscal years. The Group will continue working to implement measures such as streamlining its organization, improving production effi- ciency, and reviewing material procurement.

Selling, general and administrative expenses

Selling, general and administrative expenses increased 9.3% year-on-year, to ¥285.5 billion. Selling, general and administrative expenses as a percentage of net sales increased 0.5 percentage point year-on-year, from 16.9% to 17.4%.

The Group intends to continue advancing the structural reform of its business to enhance profitability. As part of these efforts, the Group is optimizing personnel deployment to lower outsourcing costs and overall labor costs.

Research and development expenses

Research and development expenses increased 2.0% year-on-year, to ¥26.5 billion. Research and development expenses as a percentage of net sales decreased 0.1 percentage point year-on- year, from 1.7% to 1.6%. The Group continues to pursue efficient research and

development to secure technological advantages in markets, enhance the performance of its existing products, and develop the next generation of high-value- added products. Going forward, the Group intends to continue undertaking well-planned investment in research and development.

Operating profit

Operating profit increased 4.3%, to ¥76.6 billion, and the operating profit margin was unchanged year-on-year, at 4.7%. The Group considers operating profit to be an important indicator of the profitability of its core operations. Accordingly, the Group will continue to take proactive measures to grow operating profit.

Non-operating income (expenses) and extraordinary income (losses)

Non-operating income (expenses) and extraordinary income (losses) was down 69.4% year-on-year, to ¥32.9 billion. This was attributable to factors such as the following. In measures being advanced by the Group to re-evaluate owned assets, a decline in share prices had an effect, and gain on sale of investment securities decreased. Factors such as global inflation and sluggish consumption also had an

influence, and the Group recorded impairment losses at flexible packaging converting operations in North America and folding carton operations in Japan.

As a result, profit before income taxes was down 39.5% year-on-year, to ¥109.5 billion.

Income taxes

Total income taxes decreased from the previous fiscal year's ¥51.7 billion to ¥33.5 billion. The tax rate after the application of tax effect accounting increased from 28.6% to 30.6%.

Profit attributable to owners of parent

As a result of the aforementioned, profit attributable to owners of parent, net of profit attributable to non-controlling inter- ests, decreased 50.6%, to ¥60.8 billion. Earnings per share decreased from the previous fiscal year's ¥365.21 to ¥185.07.

Return on assets (ROA) decreased from the previous fiscal year's 5.3% to 2.7%, and return on equity (ROE) decreased from the previous fiscal year's 9.2% to 4.5%.

Cash flows

The Group maintains a sound financial position and generates cash flows in order

to facilitate business management and enable appropriate investments for future strategic growth.

Net cash provided by operating activities increased 63.8% year-on-year, to ¥106.0 billion, reflecting adjustments to the ¥109.5 billion in profit before income taxes for non-cash items, such as depreci- ation, and for credits and debits associated with operating activities.

Proceeds from sales and redemption of investment securities were recorded. However, as a result of capital investment and other factors, net cash used in investing activities was ¥31.4 billion, compared with net cash provided by investing activities of ¥32.8 billion in the previous fiscal year.

Net cash used in financing activities was ¥50.1 billion due to outflows such as the redemption of bonds, the purchase of treasury shares, and dividends paid, which outweighed inflows such as the sale of shares of subsidiaries not resulting in change in scope of consolidation.

Consequently, cash and cash equivalents at the end of the fiscal year ended March 31, 2023, amounted to ¥447.6 billion, up 8.0% from the previous fiscal year end.

Financial position

Total current assets at the end of the fiscal year ended March 31, 2023, stood at ¥1,106.0 billion, up 5.3% from the previous fiscal year end. This mainly reflected increases of ¥46.4 billion in securities and ¥8.9 billion in merchandise and finished goods. Total current liabilities were down 5.8% from the previous fiscal year end, to ¥467.3 billion. This mainly reflected decreases of ¥40.0 billion in the current portion of bonds payable and ¥16.6 billion in income taxes payable, which outweighed increases of ¥16.0 billion in contract liabilities (categorized as "other" under current liabilities), and ¥11.8 billion in short-term borrowings.

Total property, plant and equipment increased 2.9% from the previous fiscal year end, to ¥597.3 billion. This was mainly due to increases of ¥10.4 billion in construction in progress and ¥5.2 billion in land. Furthermore, total investments and other assets decreased 21.5%, to ¥450.0 billion. This was mainly due to a decrease of ¥131.9 billion in investment securities.

Total long-term liabilities decreased 10.0% from the previous fiscal year end, to ¥319.2 billion. This was primarily due to a decrease of ¥41.1 billion in deferred tax liabilities.

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