Carbon Fiber Composite Materials Business

0

Toray IR DayMedium-term Management Program “AP-G 2022”

June 5, 2020

Carbon Fiber Composite Materials Business

Minoru YoshinagaDeputy General Manager, Torayca & Advanced Composites DivisionToray Industries, Inc.

1Copyright © 2020 Toray Industries, Inc.

Ⅰ. Overview of Carbon Fiber Composite Materials Business

Ⅱ. Review on the previous medium-term management program“AP-G 2019”

Ⅲ. New medium-term business program “AP-G 2022”1. Business environment, Demand outlook2. Our Strengths3. Basic Policies4. Business Strategies,

Major Tasks5. Growth Drivers6. Direction of R&D on

Composite Materials 7. Performance Goal

【Glossary of terms】■Regular Tow ：Carbon fiber with 1,000 to 24,000 filaments■Large Tow ：Carbon fiber with 40,000 filaments or more■AN ：Acrylonitrile (the main raw material of carbon fiber)■CFRP . ：Carbon Fiber Reinforced Plastic■Subsidiary abbreviation

CMA ：Toray Composite Materials America, Inc. (US)CFE ：Toray Carbon Fibers Europe S.A. (France)TAK ：Toray Advanced Materials Korea Inc. (South Korea)ZOLTEK ：Zoltek Companies, Inc. (US)CIT ：Composite Materials (Italy) s.r.l. DELTA ：Delta Tech S.p.A. (Italy）TAC ：Toray Advanced Composites GroupEACC ：Euro Advanced Carbon Fiber Composites Gmbh (Germany)TCM ：Toray Carbon Magic (Japan)TARC ：Toray Advanced Materials Research Laboratories (China)

Co., Ltd. (China)

Contents

2

I. Overview of Carbon Fiber Composite Materials Business


Main Production Sites / Capacities

Sales Breakdown Market Share

GeneralStart of commercialProduction : 1971

Employees : 6,740 (as of Mar 31, 2020)Toray HQ 1,269 (19%)Subsidiaries 5,471 (81%)

Subsidiaries : 9 Companies(Japan 1, Overseas 8)

Products Brand : Torayca®

Regular Tow Carbon Fiber

Large Tow Carbon Fiber

Toray 9,300 -CMA 9,900 -CFE 5,200 -TAK 4,700 -

ZOLTEK - 25,400Others - -Total 29,100 25,400

Unit：ton/year

0

50

100

150

200

250

By Application By Region

Aerospace46%

Industrial47%

Sports 7%

Europe32%

Americas26%

Japan21%Asia21%

Unit： B JPY

Toray Group51%

Others49%

Toray Group48%

Others52%

Whole Market of Carbon Fiber

Regular Tow (RT)Carbon Fiber

Large Tow (LT)Carbon Fiber

FY2019 Sales amount (As of 2018)

Toray GroupRT 29%

LT 20%

Others51%


(Consolidated)


Business Results

7.7 7.3

16.9

26.2

36.1

24.0 20.8

11.5

21.0 11.0%

9.4%

14.9%16.6%

19.4%

14.8%

11.7%

5.3%

8.9%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2011 2012 2013 2014 2015 2016 2017 2018 2019

Operating Profit

Operating Profit Ratio

“AP-G 2013” “AP-G 2016” “AP-G 2019”

Operating Profitratio

Operating Profit(B JPY)

Operating Profit of Carbon Fiber Composite Materials Business


5

II. Review on the previous medium-term management program “AP G-2019”


The basic policy of “AP-G 2019”Further business expansion as the world's

number one carbon fiber manufacturer

Results

Aerospace applications- Strengthen existing partnerships- Promote acquisition of new programsIndustrial applications- Maintain and expand our top market share - Further expand the supply chain and promote

technical development for automobiles

Operating profit fell below the target significantly due to the delay in recovery of demand for industrial applications, sales price decrease and the rise in raw material prices

45.0

21.0

-13.0

-10.5-1.1

+0.6

Target Actual

Diff. in quantity

Net change in price

Expenseetc.

Difference from foreign currency

translation of overseas

subsidiaries’ results

FY2019 OP Variance Analysis(B JPY)Sales Price

Raw Material Price

Factor1

(B JPY)FY2019 Results

Target Actual

Sales

OP

260.0

45.0

II-1. Basic Policy and Business Results

236.4

21.0

Factor2 Factor3

(Explained from the next page onward)


Quantity (Sales / Production)Factor 1Slowdown of demand growth of RT

- Production rate decrease of Airbus (A380, A350)- Slowing down of market growth of automobiles

and pressure vesselsSlowdown of demand growth of LT

- Downturn of market growth of automobilesChinese and Korean manufacturers’ quality improvement and supply increase

16.1 15.4

6.5 4.2

21.4 25.7

5.0 3.1

9.5 4.4

49.3 45.5 38.2 34.9

Projection Actual Projection Actual

Others

Automotive

Windmil

PressureVesselAero

Regular Tow Large Tow

Demand of Carbon Fiber（2019）

(K ton)

・Automobiles:Focus of development shifted from weight saving to CASE

・Pressure vessels:Growth slowed due to less price difference between diesel oil and natural gas

(Toray’s Estimate)

・ Automobiles: Same as the left (CASE development priority increased)

・Wind turbines:Faster growth than expectation due to improvement in power generation cost efficiency from longer blades

Price (Products/ Raw material)Price competition (with Chinese and Korean manufacturers)

- Price drop in the applications Toray finds difficulty in appealing its non-price competitiveness, such as general use carbon fibers

Profit decline at an overseas subsidiary for composites

Increase in start-up costs for new projects

II-2. Downside Factors

Factor 2

Factor 3

8

III. Medium-term Management Program “AP G-2022”


Chinese market growth

Markets

Opportunities

Technologies

Risks

Recycling

Utilization of non-petrified resources

Reduction of CO2emissions

Labor shortage in developed countries

Rise of Chinese competitors

Mobility revolution

Expansion of new energy

Economic utilization of space and sky

High Performance

Quality Reliability

Toray’s value proposition

Flying car / High efficiencyaircraft

Hydrogen tank

FC substrateWind turbine

blades

Rocket, Satellite

Circular Economy

Climate change control

Growth business fields(Growth Driver)

Cost Competition

Digital Transformation

Changes in the macro environment over the next 10 years

III-1. Business Environment (1)

(Toray’s assumption)


63 69 80

106

130

183

0

20

40

60

80

100

120

140

160

180

200

'17 '18 '19 '22 '25 '30

IndustrialSportsAerospace

(Toray’s Estimate)CAGR

（’19 –’30)8%

5%3%

9%

Aerospace

Sports

Industrial

Overall

III-1. Business Environment (2)

Carbon fiber demand outlook

Overall demand is expected to grow at a CAGR of 8% until 2030

（K tons）

In addition to commercial aircrafts, demand will be created by the new market for “Flying Cars”, such as air taxis and large drones, and demand for rockets, satellites, etc. will grow mainly in North America.

In addition to increased adoption of carbon fibers for wind turbine blade applications due to its size increase, hydrogen tanks and FC substrates have grown into major applications with the spread of FCVs

Bicycle will lead the growth while golf shafts and fishing rod applications will mature in developed countries


Strengths Expected Market / Business

Larger wind power generation / reduction of electricity cost due to reinforcement of CFRP blade

Fuel / cost efficient aircraft

Realization of “Flying car”

Fuel cell substrate

CHG tank(Extra-high pressure tank)

Global quick service(JPN, USA, Europe, CHN, etc.)

Business structure capable of globally proposing and supplying both best-performance regular tow and cost-competitive large tow

Technical development capabilities that can propose both time-proven thermosetting matrix and high formative new-generation thermoplastic matrix

50 years of data accumulation

Global human resources, R&D and business location

III-2. Our Strengths (Current)


Pursuing high performance that is expected for Performance MaterialsPursuing quality reliability that is required for Structural Materials

Solutions and properties exceptionally unique compared with other materials or competitors’ products

Establish a clear technology portfolioLink business strategies by applications with the technology portfolio Based on the portfolio, prioritize allocation of business resources to differentiated products and technologies where we can leverage our strengths

“Ease of use” as structural materials

Continuously create “de facto” materials Thoroughly strengthen cost competitivenessExpand and strengthen global business platform

Customers’ needs Requirements for Toray

III-3. Basic Policies (1)

Vision of the Carbon Fiber Composite Materials Business


1 Thoroughly implement and recover past investmentsFurther enhance Toray’s global presence as a comprehensive manufacturer of carbon fiber composite materials

2

3

Strengthen design and proposal capabilities including material systems aiming to be “Best in Class Solution Provider”

4

Clarify applications and products that will serve as growth drivers and allocate resources to these areas

5

Pursue highly efficient R&D that continuously creates differentiated products and technologies

6 Respond to social demands such as SDGs

7 Strengthen global management capabilities (HR development and Digital transformation)

Strengthen technical services

New pricing policy

Strengthen cost competitiveness

Major Issues

Commercial Aircraft

※Major issues in red will be covered in this presentation

Synergy with TAC

Seven basic policies of Carbon Fiber Composite Materials Business

III-3. Basic Policies (2)

Recycle, Reuse

Autonomy & Cohesion

Growth driver strategy


III-4. Basic Strategy, Major Issues (1)

Production Rates Announced by BoeingExpect to resume 737 MAX production in 2020, gradually increasing to 31 planes per month during 2021Postpone 777X deliveries from late 2020 to 2021Plan to reduce the 787 production rate to 10 per month in 2020 and to 7 per month by 2022

Impact of 737 MAX is smallImpact of delay in 777X deliveries has already appeared from the 2nd half of FY2019, but the impact to FY2022 is forecasted to be smallImpact of 787 production rate reduction is inevitable, and we expect impact to the profit and loss to appear from FY2020 onwards

Impact to Our Business

Main Tasks for Commercial Aircraft Applications in the new medium-term planEnhance the relationship with Boeing through the new collaborative development, and capture new aircraft programs in the future Minimize future capital expenditures by diverting existing production lines for Boeing 787 to other growth driver applications (satellites, CHG tanks, etc.)Accelerate material development for aircraft interior (interior material, seat, etc.) and promote development of high-performance carbon fiber

Impact by Boing 787 production rate reduction is inevitable during the mid-term, but plan to minimize capex by diverting existing production lines to other applications

Commercial Aircraft


III-4. Basic Strategy, Major Issues (1) (Continued)

Commercial Aircraft New collaborative development with Boeing

1980’s

PrepregComposite materialsRelated

technology

DesignMolding process

Material approval

777787

2000’s

Combined strengths

777X

Aircraft technologyManufacturing technologyMaterial evaluation technology,

etc.

New Stage (2014 - )

Next-G Aircraft

BOEING BOEING

TORAY TORAY

BOEING

TORAY

Strengthen collaboration

Material approval

BOEING

TORAY

PrepregComposite materialsRelated

technology

DesignMolding process

Design

Molding process

Material approval

Prepreg

Composite materialsRelated

technology

Material scienceNanotech, fibers, film, engineering, etc.


III-4. Basic Strategy / Major Issues (2) Promote business development of new large-scale applications such as UAM through TAC’s initiativeSynergy with TAC

Synergies in Sales Synergies in Production TechnologyEnhancement of product proposal capability, taking advantage of both thermosetting and thermoplastic matrix resinsGlobal supply system in the three main markets (Japan, North America and Europe)Strengthen the overall brand power of TAC’s materials leading in thermoplastic materials and high-performance Torayca®

Make full use of Toray’s high-performance carbon fiber to thermoplastic materialsEnhance production technology and promote cost reduction of TAC’s thermoset prepregEstablish a mass production system for next-generation thermoplastic materialsImprove database and enhance technical service and ability to make an effective proposal to customers by alignment

TORAY (RT) TAC

Strengths

TP Technology / ProductsFlexible quick response

Establishment of technology for mass productionCost reduction of thermosetting materials

Issues

High-performance carbon fiberProduction technology for TP (*)

Technical proposal capabilities of next generation thermoplastic materialsFlexible quick response

Sharedopportu-nities

Mass production of cost competitive thermoplastic materialsThe key for the success in “Flying Car” business is the speed of development mainly by venture companies * Thermoplastic Prepreg


III-4. Basic Strategy / Major Issues (3)

A “Supply-demand linked system” reflecting the balance of supply and demand

A multi-year cycled “Cyclical price”setting

Previous Pricing PolicyDifficult to adopt with confidence as a structural material for long-term use

For customers

Difficult to reinvest for expansionOne factor preventing the demand increase

For carbon fiber industry

For the customers to procure our materials in the long term with confidenceNew Pricing Policy

Reflect carbon fiber’s functionality and economic value as a structural materialAn AN price and exchange rate linked pricing methodOffer a stable price system for each customer under the globally unified pricing policy

New Pricing Policy in the medium-term management program “AP-G 2022”


III-4. Basic Strategy / Major Issues (4)

Further cost reduction by pursuing optimization of existing facilities

Thorough reduction of variable and fixed costs

Stabilization of production processes

Further improvement of productivity by making full use of digital technologies

Continuous development of world’s highest performance carbon fiberEstablish production technology and start pre-marketing of new products in applications requiring higher strength and higher elastic modulus (such as CNG tanks) by applying innovative process technologyPlan for a timely large-scale capex for CHG tanks, etc. expecting the demand growth after 2023.

Develop high value-added products (improved strength & elastic modulus) at a cost equal to or lower than existing products by applying a newly developed fundamental technology to existing production linesRevision of business strategy including supply chains in low profitable industrial applications and improvement of servicesExpansion of applications of ZOLTEK’s highly cost competitive large tow carbon fiber

Providing materials with the highest cost competitiveness

Strengthen cost competitiveness

Cost reduction of existing products

Development of high performance fiber

Shift to high value-added products


III-4. Basic Strategy / Major Issues (5) Establish a material proposal system utilizing the entire group resources and locally-based quick response system by the end of 2020

◆ Expansion of material database and fastest proposal of best materials / molding technology by utilizing AI / data mining

◆Locally-led suitable development by the global technical service team (carbon fiber / intermediate materials) and Global Production Team (PT) (composites)

Our ideal technical services

Customers in Europe

Customers in the Americas

Customers in China

Customers in Korea

EUTC

USTC TARC TAK

TC

TorayTechnology・Research

Customers in Japan

Customers in OceaniaFundamental technology

development

Toray

Carbon FiberPrepreg

TorayCarbon Fiber

Resin design

PTParts molding

Assembly

PTFabric

Resin mixingToray

Toray

AircraftTier 1

PCManufa-

cturer

【Example: Commercial Aircraft】

【Example: PC Casing】

Global Production TeamGlobal Technical Center

Strengthen technical services


III-5. Growth Driver Strategy (1)

Wind Turbine Blades Accelerate expansion of large tow carbon fiber production

Industrial

13%

Main Tasks

25,700 36,800

2019 2022

CAGR（2019-2022）

Demand Forecast (t)

Business Environment

Basic Strategy

Global wind power generation capacity is projected to grow at a CAGR of 8% until 2028Wind turbine blades are becoming longer to improve power generation efficiency, and switch to CFRP blades is accelerating to reduce weight and increase rigidity. ZOLTEK has about 60% market share globally in the large tow carbon fiber for wind turbine blade applications.China is the world's largest market for wind turbine blades. Chinese carbon fiber manufacturer plans aggressive expansion of capacity targeting this application.

Maintain and expand our share for Vestas, the world’s largest manufacturerJoint development with wind turbine manufacturers considering CFRP bladesMaximize profits by optimizing sales policies for yarn and intermediate material salesRespond to the Chinese market by supplying materials for re-export operations that are not affected by tariffs

Expansion of large tow carbon fiber production capacity (ZOLTEK Mexico, Hungary)

Timely material development with new customers, spec-in, supply chain development

Further cost reduction of carbon fiber and base material (pultrusion plate)



CHG Tanks

32%

Major Issues

CAGR（2019-2022）

Demand Forecast (t)


Basic Strategy

Develop innovative processed carbon fibers and aim to capture business

Industrial

4,280

9,900

2019 2022

CHGTanks

OtherTanks

CHG tank(Cross section)

Mass production of FCVs will begin 2021 and onward, and the demand for CHG tanks will gradually increase

Production of FCVs is expected to exceed 50,000 in 2022 due to government support in China and the Republic of Korea, and dissemination plans by the public and private sectors in Europe and the US

CHG tanks for passenger cars require extremely high reliability. Our material is in use for about 20 years in the pressure vessel application

Set CHG tanks as the highest priority strategic application and preferentially allocate resources for developmentAdd high-performance and reduce costs of carbon fibers, and add high-function to matrix resins and develop hydrogen permeation control linerStrengthen partnership with global leading manufacturers including supply chains

New products development of both carbon fibers and intermediate materials with excellent cost-performance, and build mass production system Capture 2026 model of FCVsDevelop a material database for CHG tanks in collaboration with leading customers in Japan and the US



Fuel Cell Substrates

23%

Main issues

CAGR（2019-2022）

Demand Forecast (t)


Basic Strategy

Industrial

水素タンク

他タンク

The key to growth is to make our material incorporated into a specification as “de facto” material

100190

2019 2022

Fuel cell is expected to grow in not only automotive applications but also in applications such as commercial cars, forklifts, aerospace, “Flying cars”, etc.

Fuel cell substrates require a high functional / high reliability carbon base material that is suitable for gas diffusion

We are the world’s largest manufacturer of FC substrates (carbon paper) with 40 years of experience

Joint developments with leading automotive manufactures are underway

Make our material incorporated into customers’ specification as “de facto” material

Further improve performance and reliability

Develop mass production technology

Establish a partnership with globally leading fuel cell manufacturers including supply chains

Establish a mass production system for carbon paper for stationary fuel cells at TAKStart-up of leading-edge carbon paper and GDL (Gas Diffusion Layer) production lines at Ehime plant Further improve the performance and reduce costs



Commercial Aircraft

5%

Major Issues

CAGR（2019-2022）

Demand Forecast (t)


Basic Strategy

Aerospace

水素タンク

他タンク

Continuous R&D for materials for next-generation aircraft and “Dream Aircraft” in 2025 and beyond

Maintain profitability of the existing aircraft application by cost reductionSelect and concentrate on aircraft R&D themesEstablish a global partnership looking ahead to the medium-to-long term growthPromote joint development with start-ups developing small aircrafts

Development of high-performance materials for next-generation single aisle aircraftsThorough cost reduction of existing materialsStandardization of materials, molding methods and testing methods as well as development of a quality assurance system Provide total solution including design proposals and enhance database

13,700 13,500 22,700

2019 2022 2030

Demand for aircrafts are expected to double in the next 20 years, especially demand for single aisle aircrafts will growThe Boeing Company and Airbus SE will continue a development on next-generation aircrafts for demand increase in 2025 and beyondIncreased expectations on carbon fiber composite materials for reduction of CO2 / weight saving, also for contribution to realize a larger jet engine and an electric aircraftAs a leading manufacturer of high-performance lightweight materials and fuel cell substrates, we have a big opportunity to realize the “Dream aircraft”

©Airbus


III-6. Direction of R&D on Composite Materials

High strength / modulus carbon fiber

Molecular design of resin

Ultra weight saving for compositesPursuit of the

ultimate limits of CFRP Improved shapeability

Hybrid, ET40

Cost reduction

Pursuit of high-performance

(cm3/g)

Water

1 10 1000Elasticity (Gpa)

Spec

ific v

olum

e

Water Surface

CFRP Sample

Floating on waterMaterial standardizationDesign shapeability DB

CFRP

CFRF

Resin

Forming resin

2

3

1

Pursuit of workability


III-7. Performance Targets (IFRS basis)

2019IFRS Estimation

2022Target

275.0

24.0

Revenue

Core Operating .Income

8.7%

235.0

9.8%

23.0 +1.0Decrease in aircraft demand Growth

expansion

Expansion of growth drivers

Variable cost reductionFixed cost reduction

Others

Performance targets of Carbon Fiber Composite Materials Exchange rate ：105 JPY/USD（FY2022）

（B JPY）

787 production rate reductionTermination of A380 production

Aim to increase profits by 1.0 billion yen in FY2022 compared to FY2019 by covering the decrease in demand for commercial aircraft through expanding the growth driver businesses, strengthening cost competitiveness and increasing sales for other applications, etc.

Strengthening cost competitiveness


Descriptions of predicted business results, projections, and business plans contained in this material are based on predictive forecasts of the future business environment made at the present time.

The material in this presentation is not a guarantee of the Company’s future business performance.

Carbon Fiber Composite Materials Business

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