The 4 th Medium-term
Business Plan
(2022-2024)

Driving Sustainable Management
February 7, 2022
KH Neochem Co., Ltd.

Contents
1

VISION2030

2

Review of the 3rd Medium-term Business Plan

3

The 4th Medium-term Business Plan
Recognition of the Business Environment
Basic Policy and Basic Strategy
StrategyⅠ

Further Growth in the Strategic Domains

StrategyⅡ

Medium and Long Term Initiatives to Resolve Social Issues

StrategyⅢ

Improvement of business framework

Investment Plan

Financial and Capital Strategy
Numerical Management Targets
2

VISION 2030

A Leading Global Specialty Chemical Company
Ambitions

1 Providing specialty chemicals that contribute to the reduction of
global warming and to a better quality of life

2030 CYNet Sales 180 bn yen
Operating Income over
25 bn yen

2 Expansion of products with the largest global share and new
businesses in three strategic domains

3 Top-class profitability in the chemical industry(Operating income margin of 15%)2018 CYNet Sales 101.2 bn yen
Operating Income 10.9 bn yen

Taking on
New Challenges
The 3rd medium-termbusiness plan

2019

The 4th medium-termbusiness plan2022

The 5 th medium-termbusiness plan

The 6thmedium-termbusiness plan

2030

3

Review of the 3rd Medium-term Business Plan
The Group achieved the management targets for the final year of the 3rd MTBP
with the highest earnings in the past even under the COVID-19 crisis.

Net Sales

FY2021

Operating Income（bn yen）（Plan）Net Sales（bn yen）（Actual）

110.0

117.1

bn yenbn yen

101.9

12.0

94.2

9.6
5.6

Operatingincome

11.8

105.8

77.3

28%

110.0

117.1

13.5

45%

Plan

Actual

Plan

13.5

19.7

bn yenbn yenReturn on
Equity18%

Equity ratio

47%

2019

2020

2021

19.7

Actual4

Review of the 3rd Medium-term Business Plan

Medium-termplan strategy

Despite drastic changes of the business environment, we successfully
executed our Basic Strategy for the growth in the medium and long term
Strategy Ⅰ

Strategy Ⅱ

Strategy Ⅲ

Profit Increase
by New Facilities

Active Investment for the
Expansion of Performance
Chemical Business

Improvement ofbusiness framework

 Further increase in production capacity

 Further introduce facility control system

 Start up new facilities for refrigeration

lubricant raw materials and marketing of
new products
 Operate new facilities for the next

generation semiconductor materials

Majorachievements

 Started operating new facilities forrefrigeration lubricants raw materials andmanufacturing new products Started operating equipment for next-

generation semiconductor materials

for performance chemicals
 Create new business through the newresearch hub Decided to increase the production

capacity of the entire Chiba Plant, mainly
for refrigeration lubricants raw materials

with latest technologies (AI and IoT)
 Improve work environment and encourage

diverse work styles

 Introduced advanced plant control

systems as planned Introduced new personnel system for Started up new research hub (KH i-Lab)

managers (specified employment)

and accelerated activities to create new
business through open innovation

 Formulated and implemented theBusiness Continuity Plan (BCP) andissued an integrated report5The 4th Medium-term Business Plan
Driving Sustainable Management

6

Recognition of the Business Environment
GlobalAs the recovery from the COVID-19 crisis,
economic growth expands but volatility and uncertainty still increase Demand remained firm as the global economy recovering from the COVID-19 crisis
 Impacts of prolonged inflation of the US economy and slowdown risks of the Chinese economy

Recognition of the business environment for our company
Basic Chemicals
Solvents & plasticizer
raw materials：Domestic demand is maturing, but demand is steadily expanding mainly in Asia

Performance Chemicals
Refrigeration lubricant
raw materials: Demand is increasing as the air conditioner market expands after the COVID19 crisis and as refrigerants are amended in the Kigali Amendment and the
U.S. EPA regulations.

Electronics materials： Demand continuously increases for semiconductors with the global expansionof 5G, IoT and AI

Cosmetic ingredients: Demand is expanding in China, South Korea and the Southeast Asia as the
COVID-19 crisis calming down
7

Positioning of the 4th Medium-Term Business PlanA Leading Global Specialty Chemical Company
Basic Policy
Driving Sustainable
Management

2030 CYNet Sales 180 bn yen
Operating Income over
25 bn yenContribute to achieving a sustainable society
and increase our corporate value

Taking on
New Challenges

Driving
Sustainable
Management

The 3rd MTBTThe 4th MTBT

2019

2022

The 5th MTBTThe 6th MTBT

2030

8

Seven Promises to drive sustainable management
We declared Seven Promises to our stakeholders
to drive sustainable management
Seven Promises

An
environmentallyfriendly society

１

We will develop businesses that help resolve social issues

２

We will conduct businesses with awareness of reducing ourenvironmental impact

３

We will strive to secure trust through safe and stable
operations

４

We will practice management transparency with highethical standards

５

We will provide a lively work environment that motivatesand rewards diverse human resources

６

We will promote responsible supply chain management

７

We will strengthen our earning power

Richer lives
for people

Sustainable Management
Business that contributes to an environmentallyfriendly society and richer lives for people

Environment

Healthcare

Electronics

Fundamental
business

Deliveredvalue

Contributing to
global warming
prevention

Contributing to
improved QoLContributing toan advanced
informationsociety

Contributing toeveryday living

Current
main
product
lines

Refrigeration
lubricant raw
materials, etc.

Cosmetic
ingredients, etc.

Electronicmaterials

Basic chemicals

DomainContinuous creation of new businesses

Safe, secure,andtrustworthy

9Materiality
Seven Promises

Materiality

１

We will develop businesses
that help resolve social issues

1. Expansion of social problem-solving businesses centered on strategic domains
2. Promotion of innovation
3. Strengthening of intellectual property strategies to strengthen the foundation
for growth２

We will conduct business
conscious of reducing our
impact on the environment

4. Improvement of energy efficiency and reduction and management of CO2 andother emissions
5. Proper management of chemical substances３

We will strive to secure trust
through safe and stable
operations

6. Safety and disaster prevention at plants with consideration of the local region
7. Responsible and stable supply to customers

４

We will practice managementtransparency with highethical standards

8. Strengthening of corporate governance and risk management
9. Compliance
10. Transparent and responsible communication with stakeholders

５

We will provide a lively work
environment that motivatesand rewards diverse humanresources

11. Health and safety of employees
12. Human Resource Development and Recruitment to support sustainable
management
13. Improvement of employee engagement and creation of comfortable workplaces
to improve productivity

６

We will promote responsible
supply chain management

14. Promotion of Corporate Social Responsibility (CSR) procurement

７

We will strengthen our earning
power

15. Optimization of business portfolio for stable profit generation
16. Pursuit of higher productivity and efficiency at plants

10Basic Strategy

Basic Policy

Driving Sustainable Management
 Strategy I. Further Growth in the Strategic Domains
Capturing steadily demand for refrigeration lubricants raw materials through the large-scale
expansion and reinforcement of facilities

Basic
StrategyResponding to increasingly sophisticated customer needs in the electronics domainExpanding the lineup in the healthcare domain Strategy II. Medium and Long Term Initiatives to Resolve Social Issues
Accelerating efforts toward carbon neutrality

Creating early a new business through open innovation and M&A, etc.

 Strategy III. Improvement of Business FrameworkImproving productivity by utilizing the latest technologies, etc., as a driving force

Creating a corporate culture in which diverse human resources play an active role andmaximize resultsStrengthening of governance to enhance management transparency
11Strategy I. Further Growth in the Strategic Domains
Increase profits through the large-scale expansion
and reinforcement of facilities as a leading supplier〈Market Environment 〉〈Our Company Initiatives 〉

 Market expands mainly in Asia
 Shift to environmentally friendly refrigerants,
low GWP refrigerants Increase Isononanoic acid production capacity
by more than 50% through the large-scale
expansion and reinforcement of facilities

 Expanding demand for synthetic oil miscible withlow GWP refrigerants

 Expand, reinforce and optimize the production
capacity of the entire plant

Air conditioner market＊
Mineral oil (For HCFC)（Million units）

Synthetic oils
(For HFC/Low GWP refrigerants)

China

Global46

400
CAGR 200
115 +6%
2021

2030

over

CAGR
+5%

2021

2030

Other Asia

2050

Source: estimates of the Company based on JARN andInternational Energy Agency(IEA), The Future of Cooling＊excl. car air conditioner

16
2021

71

CAGR
+14%

※excl. Japan

51
2030
12

Source: estimates of the Company based on IEA, The Global EV
Outlook 2021

Aim to increase added value
mainly in the growing semiconductor market

Source: Fuji Keizai Co. Ltd.
Figures show predictions for 2021 and beyond.

Demand is expanding mainly in emerging economies
as the COVID-19 crisis calming down Expand our sales of 1,3-BG for cosmetic applications
 Expand our lineup in the Healthcare domain throughopen innovation

Development of new products using natural raw
materials

Source: Euromonitor International, Beauty and Personal Care,
Market Sizes

Strategy I. Further Growth in the Strategic Domains
Further increase profits from performance chemicals
by implementing various measures
Accumulated consolidated
operating income

Performance Chemicals

59.2

Refrigeration lubricant raw materials,（bn yen）

Electronics materials,
Cosmetic ingredients, etc.

Increase
Operating income of
performance chemicals

43.3
４１.1
Performance
Chemicals

30.1

Basic
Chemicals

13.2
The 3rd MTBP

by 37%

１８.１
The 4th MTBP

Note: Operating profits in results by business field and administrative expenses common to the Groupare not allocated upon calculation.

16

Strategy Ⅱ. Medium and Long Term Initiatives to Resolve Social Issues
Aim for carbon neutrality by 2050 and 30% reduction by 2030
(compared to 2017 levels)
Our company Greenhouse Gas(GHG) emissions (CO2 equivalent)+24

1,000 ton

-96
-70

1
Increased
production

Reduction

2
Energy conservation

474*

3

Capital investment
Introduction of newtechnologies, etc.

30%

Consume CO2
as a raw material
production

Toward Carbon
Neutrality332• Procurement of renewable energy power and otherresources• Innovation and corporate collaboration• Contribution in the supply chain

2017（Criteria）

2030

2050

*reported quantity based on Act on the Rational Use of Energy

1

Increase our production of refrigeration lubricants raw materials to contribute to achieving anenvironmentally friendly society

2

Promote energy conservation by introducing and extending advanced plant control systems
Consider capital investment for new technologies to reduce GHG emissions

3

Consume CO2 as a raw material for production

17Strategy Ⅱ. Medium and Long Term Initiatives to Resolve Social Issues

The 4th
MTBP(2022～2024)

Business

～2030

～2050

Consume CO2 as a raw material for products
Contribute to CO2 emissions reduction
Contribute to an environmentally friendly society throughthe supply of refrigeration lubricants raw materials

EnergyconservationNew
technologies

Introduce advanced plant
control systems

Methane + Steam+ CO２

OxogasChiba Plant private power
generation facility(Updated 2021)

Shifts in manufacturing methods andraw materials
Innovation
Corporate
collaboration

Oxogas uses
CO2 as a raw material

Approx. 70,000 tonsof CO2 consumed
per year

Collaborate with industrial complex companies

18Strategy Ⅱ. Medium and Long Term Initiatives to Resolve Social Issues
Contribute to global warming prevention throughthe supply of refrigeration lubricants raw materials
Global Greenhouse
Gas Emissions（CO2equivalent）

Kigali Amendment HFCphase-down schedule

Expanded demand for air conditioners
increases GHG emissions fromrefrigerants

F-gases
approx.

1GｔCO2 eq

2032
2029

Approx.

▲10%

▲10%

▲30%

▲40%

▲50%

Group 1▲70%
Developed ▲80%
Countries
2019

Source: estimates based on PBL Netherlands
Environmental Assessment Agency, Trends inglobal CO2 and total greenhouse gas emissions:2020 Report
Note: hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur
hexafluoride (SF6),and nitrogen trifluoride (NF3)

Switch to environmentally friendly
refrigerants is essential

▲10%
▲20%

▲30%

57
GtCO2 eq（２０１９）

Group 2

2029

▲85%
▲80%

Our refrigeration lubricants raw materials
are compatible with environmentallyfriendly refrigerants

▲85%

2036

2045 2047

Contribute to global warming
prevention
19

Strategy Ⅱ. Medium and Long Term Initiatives to Resolve Social Issues
Sustainable enhancement of our corporate value through social issues
Social Issues in Our Strategic Domain
Prevention of global
warming
Removal of fossil fuels

Global improvement ofquality of life

Miniaturization ofsemiconductors

Medium- to Long-Term
Acceleration of new business creation through open innovation
 Co-creation of new technologies with external partners at our KH i-

Lab and other open labs
 Investment in startups

Sustainableenhancement ofcorporate value Alliances and M&A

Environmentallyfriendly materials
 Develop marine

biodegradable resin

Electronicmaterial
 Expand new business products

for cutting-edge semiconductors

Healthcarematerials
 Develop raw materials forpharmaceuticals
20Strategy Ⅲ. Improvement of business framework
Strengthen the business foundations
to drive sustainable management through various measures
Promotion of DX

Technology /Information

Improvement ofequipment reliability
Strengthening ofcompetitiveness throughintellectual property

Human
Resources /Corporate
CultureGovernance

Strengthening of
human resources

Improvement ofwork environment
Promotion ofa corporate culture where
diverse human resources
can play active roles

Strengthening ofrisk management
Promotion of
CSR procurement

Active dialogue withshareholders and investors

21

Technology /Information

Improve productivity by utilizing
latest and emerging technologies as driving forces

Improvement of safety and productivity through Smart Industrial
SafetyImprovement of equipment reliability
Restructuring of preventive maintenance process based on risk assessment

Strategy Ⅲ. Improvement of business framework
Human Resources /Corporate Culture

Create a corporate culture where diverse human resources canplay active roles and maximize their performanceStrengthening of human resources
Introduction of a new personnel system (specified employment)
for non-managerial position employees
Securing of diverse human resources and promotion of
employees
Improvement of employee engagement

Improvement of work environment
Establishment of new Quality Control Building (Yokkaichi Plant:
completion scheduled in March 2022)
Improvement of workplace safety and productivity, promotion ofwork style reform through systematic renewal of plant officebuildings

23

Strategy Ⅲ. Improvement of business framework

Governance

Strengthen corporate governanceto enhance management transparency

Strengthening of risk management
Identification of important risks by using risk maps andimplementation of countermeasures

Active dialogue with shareholders and investors
Proper disclosure of information requested by the Prime
Market of the Tokyo Stock Exchange
Promotion of IR and SR activities with expanded coverage of
non-financial information such as ESG, in addition to businessperformance and strategies
24Investment Plan
Expand for sustainable growthboth infrastructure investments and strategic investments
The 4th medium-term plan

The 3rd medium-term plan
Strategic
investments

Infrastructure
investmentｓ

10.2

7.1
bn yenbn yen17.3
bn yenStrategic
investments

Infrastructure
investments

22.0
bn yen13.7
bn yen35.7
bn yen25

Financial & Capital Strategies
Basic PolicyFurther shift to strategic investments thanks to the improvementof financial soundnessStably implement shareholder returns based on growth in themedium and long term

Investments

Strategic
investments

Generate operating cash flow
 Competitive advantages of performancematerials and electronic materials
 Stable business foundations for basic

chemicals Financial cash flow

Infrastructure
investments
Business infrastructure
investments
Workplace environment
improvements(Gradual improvement based on
the medium-term plan)(Focus on cost of capital, use of debt)
Shareholder returns(Payout ratio of 30% as a guide, lower limit for dividend per share is2022 forecast. Flexibly strengthen shareholder returns as ourfinancial foundation strengthens.)

26

Financial & Capital Strategies
Capital Allocation
Operating cash flow increased by 12.4 billion yen from the 3rd medium-term plan
More aggressively allocate capital to strategic investments (the 3rd medium-term
plan: 29%, the 4th medium-term plan: 46%)
The 4th MTBPThe 3rd MTBP

Generated cash

Operating cashflows

47.7 bn yen

35.3 bn yen

46%

Strategic investments

22.0 bn yen

10.2 bn yen

Business infrastructure
investments

10.0 bn yen

6.4 bn yen

Workplace environment
improvements

3.7 bn yen

0.7 bn yen

Shareholder returns

10.0 bn yen

6.6 bn yen

Repayments and others

2.0 bn yen

11.4 bn yen

29%

27

Numerical Management Targets

Accumulated
consolidated
operating income

48.6

Accumulated consolidated
operating income

bn yenAccumulated consolidated
EBITDA（bn yen）（bn yen）

63.5
48.6
Accumulated
consolidated
EBITDA

Return on
EquityAssumption：

63.5
bn yen

46.5
31.3

41.5

34.9

Over 15%

Domestic naphtha ：60,000 yen/KL
Exchange rate：113yen/USD

Note: EBITDA = Operating income + Depreciation + Amortization of goodwill

The 2nd
MTBP

The 3rdMTBP

The 4thMTBPThe 2nd
MTBP

The 3rdMTBP

The 4thMTBP

28

VISION 2030 achievement and further growth
Aim for further growth through new products and new business creationin addition to achieve steady growth in existing business(bn yen)

Trend in average operating income
New products

25.0

New businesses

aim for further growth through new products and new
business creation

16.2
10.4

The 2nd
MTBP（2016～2018）

11.6

The 3rd
MTBP（2019～2021）

Existing business

The 4th
MTBP（2022～2024）

2027

2030

2033
29

Targets for 2024
Materiality Issue No.

Key Performance Indicator

1

Rate of increase in sales volume of refrigeration lubricants raw materials(compared to 2021)
Number of collaborations with external organizations in research anddevelopment

2, 3Targets for 2024
over 17% increaseover 10 per year

4
4
5
6
7

Greenhouse Gas(GHG) emissions (CO2 equivalent)

Production plan achievement status

Implementation as planned

8

Identification of important risks by using risk maps and implementation ofcountermeasures

Implementation as planned

9
10
11
12
13
13
13

Number of compliance education and training sessions at all sites

over 5 times per year

Number of dialogues with investor

over 220 times per year

14
15

Coverage ratio of Corporate Social Responsibility (CSR) questionnaire
survey of main raw materials (based on purchase amount value)
Operating income of core products (performance materials + electronicmaterials)

15

ROE

16

Improvement of productivity through introduction of advanced control
systems

16

Status of progress in DX-related installations

Energy intensity

30% reduction from FY2017 level (2030 target)
1% or more improvement per year

Volume of final landfill disposal of industrial waste

1% or less of waste generated

Systematic introduction of Smart Industrial Safety

Production achieved as planned

Number of employee accidents resulting in lost workdays

0

Ratio of female employees in managerial career track positions

over 15%

Rate of recruited personnel leaving work (in less than 3 years)

less than 10%

Engagement survey score

10% or more improvement

Rate of taking of annual paid leave

over 80%over 70%
over 14.1 billion yen
over 15%
Introduced as planned and productivity
increased
Implementation as planned

Note: Materiality Issue No. 15 is consolidated, while No. 1-14 and 16 are not consolidated.
Operating profits in results by business field and administrative expenses common to the Group are not allocated upon calculation.

30

NoticeThis material is intended for information purposes only, and does not constituteinvestment advice, a recommendation or an offer or solicitation to purchase or sell
any securities, funds or strategies to any person in any jurisdiction in which an offer,solicitation, purchase or sale would be unlawful under the securities laws of suchjurisdiction. The opinions expressed are as of February 25, 2022 and are subject tochange without notice. Reliance upon information in this material is at the sole
discretion of the reader. Investing involves risks.

Contact:
KH Neochem Co., Ltd.
https://www.khneochem.co.jp/contact

31