KH Neochem Integrated ReportCreating a Sustainable Future2-3-1 Nihonbashi-Muromachi, Chuo-ku, Tokyo 103-0022, Japan
Public Relations Tel: +81-3-3510-3579
URL: www.khneochem.co.jp/en/

KH Neochem Report 2022

INDEX

Corporate Policy

Corporate Mission

2

Realizing a brighter tomorrowfor society throughthe power of chemistry.

Corporate Policy
Corporate Mission

Corporate
MissionManagement Approach

Basic Behavior

4th Medium-TermBusiness Plan

Basic Behavior

5C Credo

Challenge

Curiosity

5

History and Strengths of KH Neochem

7

Business Overview
Our Value Creation

11

Message from the President and CEO

15

Value Creation Story

17

Materiality and the Identification Process

20

Review of the 3rd Medium-Term Business Plan

Basic Management
Policy21

The 4th Medium-Term Business Plan

VISION 2030

31

4th Medium-TermBusiness Plan

33

Message from the Board Director in
Charge of Production Planningand Engineering

34

Technology and Information(Production and Engineering)35

Message from the Board Director in
Charge of R&D and Human Resources

37

Technology and Information (R&D)

39

Human Resources and Corporate Culture

Driving Sustainable
Management

Principles
of Corporate
Behavior

Compliance Code and Policy

Courtesy

Message from the Board Director in
Charge of Corporate Strategy
Message from the CFO

Compliance

Financial
KH Neochem Report 2022

Our Website(except IR information)

Our Website(IR information)

https://www.khneochem.co.jp/en/

https://www.khneochem.co.jp/en/ir/• Message• Corporate Policy• Overview• Business• R&D Structure• New Solutions• Responsible Care
• Social Actions• Corporate Governance• Management• IR News• Financial Highlights• IR Library(Financial Results,
Presentation Material)• IR Calendar• Stock Information• FAQ• Contact

Scope of Report
Reporting period:
January 1, to December 31, 2021**However, environmental report
data and other statutory
information is for the period from
April 1, 2021 to March 31, 2022.
Some portions of the report also
include activities for 2022.

Note on Forecasts
Among the information
contained in this report,
information aside from
historical facts includes
forecasts that are based on
certain assumptions and rely
on judgments made by KH
Neochem’s management using
the information available atthat time.
For this reason, actual
business results may differ,depending on various factors.

Drivers for Value Creation

The Foundation of Our Value Creation

5C Credo

Communication

Non-Financial

Overall Image and Features of the Business

VISION 2030

Principles ofCorporate Behavior

VISION
2030

Taking the first step toovercoming barriers
and issues we face.

Then and Now
3

19

A Leading Global Specialty
Chemical Company

Management
Approach

Making our dream a reality
through reliable technology andnew inventions.

Information Disclosure System

Growth Strategy

Our Basic Principles

Realizing a brighter tomorrowfor society throughthe power of chemistry.

Index, Editorial Policy

41

Roundtable Discussion with Outside Directors

45

Corporate Governance

51

Risk Management

52

Climate-Related Disclosures Based on
TCFD Recommendations

53

Compliance

55

Security, Safety, and Environmental
Conservation Activities

59

Stakeholder Relations

Organization covered:
KH Neochem Co., Ltd.
(nonconsolidated) (Some portions
also include consolidated
information.)
Date of publication:
August 2022

Data Section

1 KH Neochem Report 2022

61

Financial Highlights (Consolidated)

62

Non-Financial Highlights (Non-Consolidated)

63

Management’s Discussion and Analysis(Fiscal Year 2021)

66

Consolidated Financial Statements

70

Corporate Overview

KH Neochem Report 2022

2

Then and Now

Overall Image and Features of the Business

Leveraging expertise accumulated as a chemical material
manufacturer to offer high-quality products in a variety of fields
We support various industrial fields by supplying an extensive catalog of various materials such as refrigeration
lubricant raw materials, cosmetic ingredients, electronic materials, basic chemicals, and more.
Our aim is to contribute to improved value in final products, an environmentally friendly society, and richer lives forpeople by providing high-performance, high-quality materials.

Strengths

A Wide-ranging
Customer Network
Collecting information
on needs and demand trends

Major Products

Strengths with Large

Sales

Market Shares

Customers

Refrigeration lubricant
manufacturers, etc.

Raw materials

Manufacturing
plants

Propylene
Procurement

Performancematerials

Two core plants withdifferent features• Among the largest in Japan inproduction scale and lineup of
oxo-related products
Chiba Plant• The only high-pressure oxo reaction
facility in Japan and one of only a few
in the world

Other
olefins

Others(including CO2)

Sales

Domains

Yokkaichi Plant

Ethylene

Environment

Refrigeration
lubricantraw materials

Maintained and strengthened
competitive advantage in technology

Healthcare

Cosmetic
ingredients

Sales

Electronics

Electronicmaterials

Operations & equipment
management technology

Sales• Actively implementing advanced plant
control systems
High purification (refining)technologies
Quality control technologies• Built a new quality control building
with the highest-level clean room at
the Yokkaichi Plant

Strengths

Rich and Unique
Technologies
Fundamental
businessBasicchemicals

Photoresist
manufacturers, etc.
• We manufacture raw materials for photoresists,
which are utilized in manufacturing processes forsemiconductors and flat panel displays.

Technology
Oxo synthesis technologies

Cosmetics
manufacturers, etc.
• Usage as cosmetic ingredients, which are used to
add moisture retention and anti-bacterial
properties to skin toners and face masks, and more.

World’s Leading
Strengths Manufacturing
Plants• Extremely rare technology that uses
CO2 as a raw material

3 KH Neochem Report 2022

• Usage as raw materials for the refrigeration
lubricants used in air conditioner compressors.

Product lines

Coatings, inks, resin
manufacturers,
etc.
• Usage as solvents that are added to coatings, inks,
and the raw materials for plasticizer which makes
resin flexible and elastic.
These are utilized widely in auto parts, housingmaterials, food packaging, household products,
and more.

KH Neochem Report 2022

4

Then and Now

History and Strengths of KH Neochem

Utilizing strengths cultivated since our founding, we havecontinued growing to become a top global company inniche fields.
History of KH Neochem
1948

Established, began producing basic chemicals
Began offering products that are part of daily
life, including in automotive, residential, andfood packaging

1949
1961

Kyowa Hakko Kogyo established1963

Umaokoshi Plant completed at the Yokkaichi
Plant

1966

Kyowa Yuka established(chemical manufacturing subsidiary)

1988

Took over operations of the Chiba Plant from
Nissan Petrochemicals, establishing a
two-plant system with the Yokkaichi and
Chiba Plants

Converted to petrochemical manufacturingmethods–

1990s Began selling refrigeration lubricant
2000s

raw materials

Launched raw materials for environmentallyfriendly air conditioners

Began selling cosmetic ingredients
Offering high-quality raw materials forskincareKH Neochem Strengths
In dealing with the dizzying pace of changes in the market,
we have accumulated our own unique set of strengths.
Harnessing synergies between our technological strengths,
manufacturing plants, and customer network, we now
have multiple products with top-level shares of thedomestic market.

Strengths

We have updated our production methods bycontinuously incorporating the latest technologiesof the times. In addition to oxo reaction and othersynthesis technologies we have also accumulated
technologies for high purification, quality control,
operations and equipment management, and more.
Through combinations of various technologies, wehave been able to manufacture high-quality
products that gain a strong following both in Japanand around the world.

2004

Kyowa Yuka merged with thechemical division of Kyowa Hakko
Kogyo, name changed to Kyowa
Hakko Chemical

2008

Yokkaichi Plant set a new record in its industry
for the longest accident-free period of
operation

A Wide-ranging
Customer Network

Since our founding, we have provided products
to customers representing a broad range ofindustries and gained their trust.
We began producing high-purity solvent
and refrigeration lubricant raw materials basedon requests received from customers we werecollaborating with, and these have grown tobecome our core products.
Having a large presence in niche fields, we
often receive requests from customers to workon new trends and conduct joint development,
which continually drives our further evolution.
Going forward, we will continue to further
expand our sales and create new business byleveraging our customer network.

Oxo synthesis
technologies
Quality control
technologies

Operations/equipment
management
technologies

High purification(refining)technologies

History of Technological Advancement
1948

Became the first in Japan to successfully
mass produce acetone and butyl alcoholfrom molasses through fermentation

Strengths

World’s Leading
Manufacturing Plants

KH Neochem is the only company in Japan thathas both high-pressure and low-pressure oxo
process facilities. The high-pressure facilities
can synthesize a variety of raw materials, andthe low-pressure facilities are superior in termsof both cost competitiveness and versatility.
Utilizing each of their strengths to maximum
effect allows us to meet highly specific customer
needs and to offer an astonishingly vast
selection of product types.

Spun off as independent from Kyowa
Hakko Kirin Group

2012

Changed name to KH Neochem

1961

Converted to petrochemical manufacturingmethods (Wacker process)2016

Listed on the First Section of the Tokyo
Stock Exchange*

1970

Introduced the high-pressure oxo process

1982

Introduced the low-pressure oxo process

Formulated VISION 2030

2018

Began implementing advanced plant
control system

1988

2022

Established a new quality control building
at the Kasumigaura Plant in Yokkaichi Plant

Moved to a two-plant system in
Yokkaichi and Chiba

2012

Made Kurogane Kasei into a subsidiary

Established open innovation hub KH i-Lab
Formulated the 4th Medium-Term Business
Plan “Driving Sustainable Management”

Major Productswith Large Market Shares

Leveraging each of our strengths in technologies,
customer network, and manufacturing plants,
we have been able to create numerous productswith large market shares.
Since we manufacture raw materials thatare essential in each respective industrial field, it
is critically important to supply these products ina safe and stable manner. We will be expanding
our production capacity appropriately while
coordinating with our customers.
Products with Top-level Shares of theDomestic Market (In-house Estimates)

Refrigeration
lubricantraw materials

2011

2018
2019
2022

Strengths

Synthetic
fatty acids

Environment

Began selling electronic materials
Entered the field of cutting-edge
electronics, where high purification issoughtRich and Unique Technologies

Strengths

Cosmetic
ingredients

1,3-butylene
glycolHealthcare

Electronicmaterials

High-purity
solvent

Electronics

History of Expanding
Our Manufacturing Plants
1970

Kasumigaura Plant completed at the
Yokkaichi Plant, first oxo plant goes
into operationBasicchemicals

Oxo alcohol
for plasticizers

Fundamental
business*We moved to the Prime Market in April 2022 following the restructuring of theTokyo Stock Exchange’s market segments.

5 KH Neochem Report 2022

KH Neochem Report 2022

6

Then and Now

Business Overview

Performance Materials
We manufacture the raw materials for lubricants usedmainly in air conditioners (refrigeration lubricant) andingredients for cosmetics. Our refrigeration lubricant raw
materials are used in refrigeration lubricants which arehighly compatible with refrigerants having low global
warming potential (GWP), thus contributing to global
warming prevention.
Our cosmetic ingredients, used in high-end skincare
cosmetics, also help to improve quality of life (QOL) for
people all over the world.

Operating income

Proportion of total
operating income(consolidated, bn yen)

(FY2021)

10.0

8.1

44%

5.1

2019

2020

Cosmetic
ingredients

Healthcare

External Environment
Growth in the skincare market• Worldwide growth of the middle class• Spread of e-commerce• Growth in the men’s cosmetics market• Increasing interest in high-end andnatural products

Main Areas of Use

Main Products
Diols
Synthetic fatty acids

Skin toners /beauty serums

Face
masks

etc.

2021 (fiscal year)

Note: When calculating “operating income” in results by business field,
administrative expenses, etc., which are common to the entire
company, are not allocated.

Value chain example
KH Neochem

Refrigeration
lubricantraw materials

Environment

External Environment
Global expansion in the environmentally friendly
air conditioner market• Population growth in emerging nations• Worldwide growth of the middle class• Tightening international environmental
regulations for refrigerants

Main Areas of Use

Main Products
Synthetic fatty acids

Procuredraw materials

Technology

Product

Process toward final product

Final productCreating
new value

Ethylene
etc.

Synthesis
technologies
Quality control
technologies

Cosmetic
ingredients

Cosmetics manufacturers

High-quality
cosmetics products(skincare products)

Helping
to improve
quality of life

Base oils
Air conditioners

To cater to consumers’
increasingly high-end
tastes and meet
diversifying
consumer needs

etc.

Value chain example
KH Neochem
Procuredraw materials

Technology• Propylene• Otherolefins• CO2 etc.

Synthesis
technologies
including oxo
Quality control
technologies

Product

Process toward final productRefrigeration
lubricantraw materials

Refrigeration
lubricantmanufacturers

Compressor
manufacturers

Final productEnvironmentallyfriendly
air conditioners

Creating
new value
Helping tocurb global
warmingGlobal expansion ofenvironmentally friendly
air conditioners

Opportunities / Risks

Competitive Advantages

Challenges• Continued growth in demand for air
conditioners worldwide• Regulations on refrigerants to
reduce greenhouse gas and protect
the ozone layer• Structural changes to air
conditioners for cars and transition in
refrigerants due to the spread of EVs• The top global market share in
refrigeration lubricant raw materials
for environmentally friendly air
conditioners• Being located in Asia, the region withthe most demand• Customer collaboration marketing
and R&D systems• Expanding supply capacity in atimely and appropriate manneraccording to demand growth• Developing refrigeration lubricant
raw materials compatible with
next-generation refrigerants

7 KH Neochem Report 2022

Opportunities / Risks

Competitive Advantages• Growth of the middle class inemerging nations, primarily in Asia
• Facilities expansions among
domestic cosmetics manufacturers• Higher demand for quality• Restrictions on movement and lessappetite for spending due to the
COVID-19 pandemic• Integrated in-house system forproduction starting from raw
materials• Located close to other growing
Asian countries• Near-odorless product technology

Challenges• Expanding our product portfolio

Product info
What is 1,3-butylene glycol?
1,3-butylene glycol (1,3-BG) is a cosmetic ingredientthat produces a moist texture when using products
such as skin toners, face masks, or beauty serums. It is
an indispensable ingredient for skincare products thatcome into direct contact with the skin due to its
strong moisturizing properties and antibacterial

properties, as well as its reduced odor and amount ofskin irritation.
In addition to Japan and South Korea where
people have high awareness of beauty and skincare,
we are actively selling it in markets such as China,
Southeast Asia, and India where medium- tolong-term demand is forecasted to increase.

KH Neochem Report 2022

8

Then and Now

Business Overview

Electronic Materials

Basic Chemicals

Electronics

We manufacture high-purity solvent, the raw material forphotoresist which is used in manufacturing
semiconductors and liquid crystal displays.
Our solvents are recognized for containing extremely
low volumes of impurities (foreign matter and metals)
through a fusion of high purification (distillation)technology and high quality control technology.
Also our group company Kurogane Kasei is engaged
in various contract manufacturing businesses related toelectronic materials, including in cutting-edge fields.
We contribute to an advanced information society
by meeting needs in the field of electronic materials,
which grows more sophisticated by the day.

Operating income(consolidated, bn yen)

3.4

Proportion of total
operating income(FY2021)

15%

1.8

1.6

2019

2020

We manufacture an extensive lineup of solvents andplasticizer raw materials. Our solvents are used inconstruction and automobiles, as well as in smartphonecoatings, adhesives, cleaning agents, and more.
Plasticizers are essential additives for making plastic
products more flexible and easier to process. We have
many products with top-level shares of the domestic
market, as we contribute to everyday living in a variety
of ways.

2021 (fiscal year)

Operating income(consolidated, bn yen)

2.5
2019

Note: When calculating “operating income” in results by business field,
administrative expenses, etc., which are common to the entire
company, are not allocated.

Proportion of total
operating income

9.4(FY2021)

41%

1.3
2020

2021 (fiscal year)

Note: When calculating “operating income” in results by business field,
administrative expenses, etc., which are common to the entire
company, are not allocated.

External Environment

External Environment
Growth in the market for electronic materials as the IT
and electronics industries develop• Spread and development of AI & IoT• Increased speed & functionality of electronics• Increased demand for cutting-edge semiconductors dueto the spread of 5G technologies

Main Areas of Use

Main Products
Esters(electronic materials grade)
Glycol ethers(electronic materials grade)

Semiconductors

Displays

Stabilized market in Japan and expanding market in therest of Asia
• Stable domestic market• Economic growth in nearby Asian countries• Population growth in emerging nations

Main Areas of Use

Main Products
Oxo alcohols
EstersCoatings / inks

Glycol ethers

Electric
wire covering

etc.

etc.

Value chain example

Value chain example

KH Neochem
KH Neochem

Procuredraw materials

Technology

Glycolethersetc.

High purification
technologies
Synthesis technologies
Quality control
technologies

Product
High-purity
solvents

Process toward final productPhotoresist
manufacturers

Display andsemiconductor
manufacturers

Final productCreating
new value

Electronics

Contributing
to an advanced
informationsociety

Procuredraw materials

Technology

Product

Process toward final product

Final product• Propylene• Other olefins• CO2 etc.

Synthesis
technologies
including Oxo
Quality control
technologies

Solvents
Plasticizer
raw materials

Coatings, inks, resin
manufacturers, etc.

(automobiles, housing,
beverage cans, etc.)

Opportunities / Risks

Competitive Advantages

Challenges• Growth of global semiconductor
demand and market expansion• Increasing quality-related needs• New cutting-edge semiconductor
plants built in China• Superiority of domestic
semiconductor materials
manufacturers• High purification technology built
over the years• Extensive product lineup andsupply system• Advanced quality control
technologies to meet customers’
needs• Facilities for next-generation
semiconductor materials belonging
to Kurogane Kasei, contract
manufacturer of electronic materials• Further strengthen our quality
control system and increase supply
capacity for next-generation
semiconductors

Industrial products

Creating
new value
Contributing toeveryday living

Various raw materials
must be combined
according to the usage
application

Advance higher performance insemiconductors and innovations invarious IoT technologies

9 KH Neochem Report 2022

Fundamental
business

Opportunities / Risks

Competitive Advantages

Challenges• Growing demand, primarily in Asia
• Competing manufacturers overseas
could shut down production if they
are unable to comply withenvironmental regulations• Tightening balance of supply anddemand for oxo alcohol in Asia
• High volatility due to economic
fluctuations in Japan and in
emerging nations• Aged, deteriorating manufacturing
and shipping equipment• Located close to Asian countries
where population growth andinfrastructure development are
expected• Largest oxo alcohol production
capacity in Japan• Extensive range of product lineup
supported by offerings ofderivatives• Stable business and establishedtrust with top manufacturers ineach market• Further strengthening our costcompetitiveness• Build stable supply systems throughbetter safety and preventative
maintenance at production plants

KH Neochem Report 2022

10

Our Value Creation

Message from the President
and CEO
expect organic growth from. Making timely necessary
capital investments will be key to steadily capturing
expanding markets and growing sustainably. In addition, it
is also crucial for us to further deepen the trust from ourcustomers and business partners through safe and stable
operations. To that end, we will aggressively invest inenhancing our capacity while maintaining those facilities
using digital technologies to the fullest.
We will also expand our business operations bycreating new products and businesses that enable us toprovide new value that contributes toward resolving social
issues. To do that, we must first build up the humanresources who will make innovations. We will also need topursue close collaborations with attractive partners thatshare our beliefs, and continuously create synergy
between our partners and our technological capabilities.
Through this value creation, we will contribute to an
environmentally friendly society and richer lives forpeople. That, in my opinion, is the true meaning of KH
Neochem’s Corporate Mission of “Realizing a brighter
tomorrow for society through the power of chemistry.”

Driving Sustainable
Management and striving
to create new value in orderto look ahead to mediumto long-term growthMichio Takahashi
KH Neochem Co., Ltd.
Representative Director, President & CEO

Contributing to society by creating new value
KH Neochem’s Corporate Mission is “Realizing a brighter
tomorrow for society through the power of chemistry.” We
have created new value with the power of chemistry andcontributed to society, from providing our products suchas refrigeration lubricant raw materials that contribute to
the reduction of global warming, cosmetic ingredientsused in skincare and electronic materials that are essential
to improving the product quality of semiconductors.
Looking back, I believe we were able to develop thesebusinesses because we gathered our technologicalcapabilities in the belief that we were contributing to an
environmentally friendly society and rich lives for people.
And we were only able to open up business opportunities
this way because of the strong partnerships we had builtwith our customers, business partners and otherstakeholders. We will continue to strengthen the customer
networks we have built and utilize oxo and other unique
technologies to expand existing businesses while creating
new value and achieving sustainable growth.

KH Neochem’s Sustainable Management andvalue creation
We published our very first integrated report last year. We
had discussed anew actively with the executives for half ayear about what we could provide and how we could

11 KH Neochem Report 2022

increase corporate value by 2030 and even beyond. As aresult, we concluded that contributing to achieving asustainable society by providing solutions through ourbusiness for global environmental and social issues, suchas those outlined in the UN’s SDGs, and sustainably
improving our corporate value by providing value tosociety and our stakeholders, namely, driving “Sustainable
Management,” are important for us. By driving
Sustainable Management, we concluded that the value
we provide supports the development of anenvironmentally friendly society and richer lives for people
based on the foundations of “safe, secure, andtrustworthy.” To provide that value, and to determine what
was important in that process, we established Seven
Promises to serve as detailed policies directing our
initiatives (see p. 18 for details).
This year we held even deeper discussions andselected 16 materialities (key issues) linked to the Seven
Promises. We identified these materialities by picturing
what our aspirations for the Company would be in 2030
and working back towards to the present. We alsoestablished KPIs for those issues over the course of the 4th
Medium-Term Business Plan. Naturally there wasmanagement discussion of these issues, and we also held
workshops involving external experts on ESG and SDGs,
and I believe this whole process helped us not only todetermine the Company’s vectors but also to foster asense of unity.
Although we are already engaged in businesses that
contribute to resolve social issues by providing uniqueproducts, we still have several other products that we can

VISION 2030
Ambitions and targets
In 2011, KH Neochem became independent from what
was then known as the Kyowa Hakko Kirin Group and was
acquired by an investment fund. In 2016, we were listed in
the First Section* of the Tokyo Stock Exchange.
I was appointed as a board director in 2013, theperiod from our independence to listing and even up until
today which has been one of ceaseless upheaval, and I
have been involved in many management
decision-making processes. In the course of this, I havelearned the importance of considering our shareholders,
employees and all other stakeholders while taking a calm,
top-down look at the Company as a whole when making
decisions. I have also realized afresh that, due to thenature of our business as a company in the equipment
industry, although short-term business results areimportant, it is even more vital to make capital
investments with an eye on sustained growth in themedium- to long-term.
In VISION 2030, announced in November 2018, westated our ambition of becoming a leading global specialty
chemical company by 2030. We set specific numericaltargets of 180.0 billion yen in net sales and over 25.0
billion yen in operating income. We identified
Environment, Healthcare and Electronics as threestrategic domains to specially focus our energies on, andwe have positioned developing existing businesses,
creating new ones from a medium- to long-term
perspective and achieving sustainable growth as ouraspiration for 2030. When we announced VISION 2030, I

sent a message to our employees in which I stated thefollowing: “I do not believe in pursuing expansion for its
own sake. Instead, I want us to develop many unique andhighly competitive products and to manage the Company
effectively by leveraging our strengths. That is what willlead us to sustainable growth while also contributing
toward resolving social issues.” And in the end, thatmindset became the core concept of the Sustainable
Management the Company is determined to practice.
*We moved to the Prime Market in April 2022 following the restructuring of theTokyo Stock Exchange’s market segments.

Results of the 3rd Medium-TermBusiness Plan
“Taking on New Challenges,” the three-year 3rd
Medium-Term Business Plan which started in 2019, wasthe first step towards the realization of VISION 2030. Overthe course of the plan we were able to lay a solid
foundation for medium- to long-term growth, and I will
explain the strategic investments we made in detail.
In the environment domain, we completed a new
production facility in early 2020 for refrigeration lubricant
raw materials at the Yokkaichi Plant. We also made thedecision in December 2021 to invest in a new facility toincrease the production capacity at our Chiba Plant, whichshould be completed in mid-2024. With this, thegroundwork has been laid for us to firmly meet risingdemand as the top supplier of refrigeration lubricant raw
materials. In the electronics domain, a new facility formaterials for next-generation semiconductors started
operations in fall 2020 at Kurogane Kasei, a consolidated
subsidiary. We also completed the construction of aquality control building equipped with the world’s
highest-standard clean room at our Yokkaichi Plant inMarch 2022, boosting our quality control systems. Thanks
to these initiatives, we are now well-positioned to serve
the increasingly strict needs of our customers in the fieldof electronic materials. In addition to these measures, we
also launched a serious effort to create new businesses inour strategic domains. For example, we actively
participated in joint research with venture companies anduniversities at KH i-Lab, the open innovation hub
established in 2019.
We also made progress on efforts to reduce our GHG
emissions. In March 2021, we renewed the in-house
power generation equipment at our Chiba Plant, reducing
GHG emissions there by approximately 15%. Moreover,
we are continually installing more and more advanced
AI-driven plant control systems to help increase energy
efficiency. Furthermore, we made steady progress in
preparing business frameworks for the future throughmeasures such as introducing a new personnel system(specified employment) for managers and improving theKH Neochem Report 2022

12

Our Value Creation

Message from the President and CEO

Policies and strategies of the 4th
Medium-Term Business Planworking environment by relocating the headquarters andconstructing a new office building for the Yokkaichi Plant.
During the 3rd Medium-Term Business Plan, there
was a rapid change in the business environment due to the
spread of COVID-19, which heavily affected our
performance in fiscal year 2020. However in fiscal year
2021, the final year of the plan, the economy recoveredfrom the coronavirus crisis and demand for refrigeration
lubricant raw materials rose sharply. We implemented
appropriate pricing policies after reassessing the market
environment. These and other factors led to record highprofits that significantly exceeded our previous high a
consolidated operating income of 19.7 billion yen, and far
outstripping the target of 13.5 billion yen we had set for
the final year of the plan.

Driving Sustainable Management is the basic policy of our
4th Medium-Term Business Plan which began in 2022.
Under this policy we will seek to contribute to achieving asustainable society while further increasing corporate
value through our business activities. For business inparticular, successfully completing new facilities forrefrigeration lubricant raw materials at our Chiba Plant
that are currently under construction will be one of thebiggest tasks of the 4th Medium-Term Business Plan.
Refrigeration lubricant raw materials are one of KH
Neochem’s major products. They are featured inenvironmentally friendly air conditioners and help toreduce global warming. Many air conditioner refrigerants
have high global warming potential (GWP), and switching
to those with lower GWP is a worldwide challenge on theway to fighting ever-worsening global warming.
Refrigerants are said to contribute to over one billion tons
in greenhouse gas emissions worldwide every year,
equivalent to the yearly greenhouse gas emissions forJapan as a whole. The number of air conditioners in theworld is expected to triple from the current figure by 2050,
which makes it clear that greenhouse gas emissions will
increase even further at this rate. Movements to restrict
refrigerants are therefore gaining speed around the world.
Refrigeration lubricant raw materials that are compatible
with low GWP refrigerants performance-wise are
extremely limited, and KH Neochem has the number one
share in the world in that field. As demand is expected torise, particularly in emerging nations, we will strengthen

Positioning the 4th Medium-Term Business PlanA Leading Global Specialty Chemical Company
2030
Environment

Basic Policy

Driving Sustainable Management
Contribute to achieving a sustainable society
and increase our corporate value

Taking on new
challenges
3rd Medium-Term Business Plan

2019

13 KH Neochem Report 2022

Driving Sustainable
Management
4th Medium-Term Business Plan

Refrigeration lubricant
raw materials

Net sales

Operating income

180.0 bn JPY Over 25.0 bn JPY

Field to capture changes
in global warming andenvironmental
regulations

Healthcare

Electronics

Cosmetic ingredients

High-purity solvents

Skin care/home carefield to contribute toimproved QOLHigh performancematerials field to
support IoT and AI

5th Medium-Term Business Plan

6th Medium-Term Business Plan

2030

the supply structure for those refrigeration lubricant raw
materials so that we can contribute to preventing global
warming while securing the Company’s growth. The
growth in the market for electronic vehicles (EVs) as theworld moves towards carbon neutrality is anotherfavorable development for KH Neochem as a supplier ofrefrigeration lubricant raw materials. Unlike air
conditioners in gasoline vehicles, those fitted in EVs havea similar structure to air conditioners for home use, andwe are determined to capture this new source of demand
for refrigeration lubricant raw materials used in these air
conditioners.
We will also engage in activities to create new
businesses. In April this year, we invested in Ac-Planta Inc.,an agri-bio business company. Through the synergy
generated from their business and our chemical materials,
we hope to create new value, trigger a shift to organic raw
materials and ultimately help reduce the burden on theenvironment. By harnessing the power of open innovation,
we hope to pursue potential solutions to a variety ofsocietal ills, contribute to achieving a sustainable society
and seek the sustainable growth of the Company.

The driving force to realize VISION 2030
Initiatives to develop human resources
The ability to respond quickly to changing businesscircumstances and constantly transform ourselves will beessential to navigating the road to VISION 2030 andmaintaining sustainable growth beyond that. To makethat possible, I believe that developing human resources,
one of the key drivers for realizing VISION 2030, will
become extremely important.
It is no exaggeration to say that the future of KH
Neochem depends on our human resources, so we needto survey the various divisions and age groups across theGroup from above and continuously produce
professionals who can take up the mantle as the next andfollowing generations in this organization. To that end, we
will actively invest in developing and strengthening
human resources and in hiring personnel with highly
specialized skills as mid-career recruits. We have trained
personnel in various ways in the past, including providing
training tailored to the employee’s age group and usingbusiness schools to train management candidates. Goingforward, however, we plan to upgrade our training
systems even further and develop our human resources
through even more practical training methods.
Diversity in human resources is important as well. 11
years have passed since KH Neochem became
independent in 2011. Many new graduates have joined
us and we have hired many mid-career employees, sothat approximately half of our present employees haveno personal experience of our days as Kyowa Hakko

Chemical. We are slowly but surely developing a corporate
culture where people with different kinds of knowledge
and experiences gather and consider matters fromcompletely new viewpoints. If we can foster an corporate
culture in the future which has more opportunities for
success for human resources with diverse backgrounds, I
believe that will become one of KH Neochem’s strengths.

To our stakeholders
KH Neochem has created a tremendous amount of newvalue throughout its history. However, as I mentioned at
the beginning of this message, none of this would havebeen possible without the strong partnerships we havebuilt with our customers, business partners and all otherstakeholders. These partnerships will be supremely
valuable assets that will strengthen the Company as weseek to continuously increase corporate value in the future.
As a chemical manufacturer, we have the ability tocontribute to sustainability throughout society in various
areas through raw materials. In the coming years, as wedrive Sustainable Management that both contributes toachieving a sustainable society and sustainably increases
corporate value, we will maintain that sense of pride andresponsibility as a company that provides things society
cannot live without and that is helping to make this world abetter place.
With COVID-19 and other threats still in the picture, it
is hard to predict how the business environment willchange in the future. Nevertheless, I remain persuadedthat driving Sustainable Management is the key toachieving the lofty goals we have set in VISION 2030. To
our valued investors and other stakeholders, thank youvery much for your continued support over the mediumto long-term as we pursue sustainable growth.

The directors in charge will provide the specificdetails of each policy.
Overview of 4th Medium-Term Business Plan:
p. 21
Tatsuro Niiya
Financial strategy:
Masaya Hamamoto

p. 31

Technology and information, the drivers of value
creation: Toshihiro Matsuoka
p. 33
Human resources and corporate culture:
Yukihiro Isogai
p. 35

KH Neochem Report 2022

14

Our Value Creation

Value Creation Story

We will drive Sustainable Management and realize abrighter tomorrow for society through the power of chemistry.
Through our business, we will contribute to a sustainable world by providing value, on the basis of “safe, secure, andtrustworthy,” for realizing an environmentally friendly society and richer lives for people, while also ensuringongoing growth in our own corporate value.

Realizing a brighter

Corporate Mission

tomorrow for society through the power of chemistry.

p. 1

INPUT *
(FY2021)

Financial CapitalManagement Approach

OUTPUT / OUTCOME

Making our dream a reality throughreliable technology and new inventions

Common stock

8.8 bn yen
Human Capital
Expected Changes
in Society andthe Environment

KH Neochem’s Strengths and Features

An environmentallyfriendly society

p. 5

Number of employees

Rich and Unique Technologies

Major Products with Large Market Shares

809

World’s Leading Manufacturing Plants

A Wide-ranging Customer Network

Driving Sustainable Managementp. 21
Business that contributes to an environmentallyfriendly society and richer lives for peopleIntellectual capital
Worsening climatechangeRatio of R&D expenses
to net sales(performance chemicals)2%

Increasing interest in
improving QOL*
*Quality of LifeOpen
innovation

4

Contributing to resolvingsocial and environmental
issues with ourunique products

Manufacturing
capitalTechnology andInformation

R&D Hubs (sites/locations):

CAPEX (results for 2021)

3.6 bn yen

Progress of anadvanced
information society

CAPEX (target for 2022)

Increasing corporate
responsibility forsustainability

Countries products
sold in:

6.5 bn yen
Social capital

31

Richer lives
for people

Medium-Term Business Plan

DomainDeveloping
unique new products
and technologies

p. 34
Human Resources andCorporate Culture
Performing safe
and stable operations
Strengthening
relationshipsof trust with clients

p. 39

Environment

Healthcare

Electronics

Fundamental
business

Current, main
product lines

Refrigeration
lubricant raw
materials, etc.

Cosmetic
ingredients,
etc.

Electronicmaterials

Basicchemicals

Creating
value

Contributing to
global warming
prevention

Contributing to
improved QOL

Contributing toan advanced
informationsociety

Contributing toeveryday living

Continuous creation of new businesses

Natural Capital

Basic Behavior

Energy consumption(crude oil equivalent)

Taking the first step to overcoming
barriers and issues we face

*Energy consumption is
non-consolidated; otherfigures are consolidated

15 KH Neochem Report 2022

Governance

A Leading Global
Specialty Chemical
Company• Providing specialty chemicals
that contribute to the reductionof global warming and a better
quality of life
• Expansion of products with thelargest global share and new
businesses in strategic domains

Seven promises to drive Sustainable Management

Approx. 77 kL

Approx. 214,000 kL

VISION 2030

A muscular and efficientcompany that possesses
many unique and highly
competitive products,
rather than pursuing
expansion for its own sake

Safe, secure, andtrustworthy

Use of CO2 as araw materialp. 19• Top-class profitability in thechemical industry

Rapidly expanding
supply capacity in linewith growth inglobal demand

Proposing new value
through partnerships

Our Ambitions

p. 45

Materiality (Key issues)

2050
Toward carbon neutrality
p. 25
p. 18

2030
GHG emissions (CO2 equivalent)30%

reduction relative to FY2017

KH Neochem Report 2022

16

Our Value Creation

Materiality and the Identification Process

Identifying Materiality to Achieve our Goals
We have summarized our management approach as“Sustainable Management” and drawn up Seven
Promises to our stakeholders to put it into practice. In
order to realize these seven promises, we have identified
the discrepancies between our current position and thegoals set forth in VISION 2030 from a long-term
perspective, and have identified materiality (key issues)that will have a particularly large impact on our
stakeholders and on the Company itself. Specificinitiatives and milestones for this materiality during theperiod of the 4th Medium-Term Business Plan are
designated as KPIs.

Seven Promises and Materialities

We will put our seven promises for driving
Sustainable Management into practice by establishing
KPIs for our materiality and working on them diligently.
Progress on KPIs is regularly monitored by the Board of
Directors, and measures will be taken if any are not met.
We will disclose the progress of achievement of these
KPIs on an ongoing basis and use this as a platform forenhancing constructive dialogue with our stakeholders.

The Identification Process

Developing our Value Creation Story and Seven Promises

Seven Promises

will develop businesses that
1 We
help resolve social issues

Expansion of social problem solving businesses centered on
strategic domains
Promotion of innovation
Strengthening of intellectual property strategies to strengthen thefoundation for growth2

We will conduct business consciousof reducing our impact on
the environment

Improvement of energy efficiency and reduction and management of
CO2 and other emissions
Proper management of chemical substances3

We will strive to secure trust
through safe and stable operations

Safety and disaster prevention at plants with consideration of thelocal region
Responsible and stable supply to customers

4

We will practice managementtransparency with high ethicalstandards

Strengthening of corporate governance and risk management
ComplianceTransparent and responsible communication with stakeholders

5

We will provide a lively work
environment that motivates andrewards diverse human resources

Health and safety of employees
Human Resource Development and Recruitment to support
Sustainable Management
Improvement of employee engagement and creation of comfortableworkplaces to improve productivity(December 2020–July 2021)

About 10 discussions were held among the relevant executives, including all full-time directors, to develop ourvalue creation story. Looking ahead to VISION 2030 and beyond, we visualized our strengths, business model,
and the value we provide, taking into account anticipated changes in the social environment. Next, we defined“Sustainable Management” and the Seven Promises. These were brought together as our value creation story,
and approved by the Board of Directors.

Materialities

will promote responsible
6 We
supply chain management
will strengthen our
7 We
earning power

Promotion of Corporate Social Responsibility (CSR) procurement
Optimization of business portfolio for stable profit generation
Pursuit of higher productivity and efficiency at plants

Selection of Materiality Candidates (April–July 2021)
Step1

During the discussions leading up to the development of our value creation story, we identified thediscrepancies between our current position and the goals set out in VISION 2030 as issues in terms of
putting our seven promises for driving Sustainable Management into practice. In addition, we
conducted a comprehensive analysis of materiality candidates, including SDGs, international norms,
evaluations by ESG assessment organizations, opinions obtained through dialogue with stakeholders,and issues identified by division heads from the perspective of the value chain.

Step2

All full-time directors and relevant officers assessed impacts on
stakeholders and the Company from a long-term perspective, then heldinternal discussions to identify our materiality — that is, key issues whichhave a particularly severe impact on both stakeholders and the Company —in light of the seven promises. Furthermore, from a medium-term
perspective, specific milestones for materiality during the period of the
4th Medium-Term Business Plan were designated as KPIs.

Level of impact on stakeholders

Identifying Our Materiality andDeveloping Corresponding KPIs (July–December 2021)

Level of impact on the Company

Approval by the Board of Directors (December 2021)
Step3

The 4th Medium-Term Business Plan, “Driving Sustainable Management,” which covers the three-year
period from 2022 aimed at realizing VISION 2030, was approved by the Board of Directors after
discussions by the Management Committee, along with the associated materiality and KPIs.

17 KH Neochem Report 2022

List of KPIs
KPIs for each materiality

Main relevant
pages

Targets for 2024

Rate of increase in sales volume of refrigeration lubricants raw materials(compared to 2021)

over 17% increasep. 23,27-28

Number of collaborations with external organizations in researchand development

over 10 per year

p. 35-38

Greenhouse Gas (GHG) emissions (CO2 equivalent)

30% reduction from FY2017 level (2030 target)

p. 25-26,58

Energy intensity

1% or more improvement per year

p. 34,58

Volume of final landfill disposal of industrial waste

1% or less of waste generated

p. 58

Systematic introduction of Smart Industrial Safety

Production achieved as planned

p. 33-34

Production plan achievement status

Implementation as planned

p. 33-34

Identification of important risks by using risk maps and implementationof countermeasures

Implementation as planned

p. 51-52

Number of compliance education and training sessions at all sites

over 5 times per year

p. 54

Number of dialogues with investors

over 220 times per year

p. 60

Number of employee accidents resulting in lost workdays

0p. 55-57

Ratio of female employees in managerial career track positions

over 15%

p. 40

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

less than 10%

p. 39-40

Engagement survey score

10% or more improvementp. 39

Rate of taking of annual paid leave

over 80%

p. 40

Coverage ratio of Corporate Social Responsibility (CSR) questionnaire
survey of main raw materials (based on purchase amount value)

over 70%

p. 30

Operating income of core products(performance materials + electronic materials)

over 14.1 bn yen

p. 7-9ROE

over 15%

p. 32

Improvement of productivity through introduction of advanced
control systems

Introduced as planned and productivity
increased

p. 33-34

Status of progress in DX related installations

Implementation as planned

p. 33-34

Note: Materiality 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.

KH Neochem Report 202218

Growth Strategy

VISION 2030

Review of the 3rd Medium-Term Business Plan
Our Ambitions

A Leading Global Specialty Chemical Company• Providing specialty chemicals that contribute to the reduction of global warming and a better quality of life
• Expansion of products with the largest global share and new businesses in three strategic domains• Top-class profitability in the chemical industry

Financial Targets
Net sales

Operating income

180.0 bn JPY

Over

Corporate growth at 5%
annually on average

Expansion of profits at 7%
annually on average

ROE

25.0 bn JPY

Over

Equity ratio

12%

50%

Construction of a financial
structure that is immune tothe external environment

Maintaining highcapital efficiency

Drivers for Growth

Human Resources andCorporate Culture

Technology and Information

Governance

Investment Plan and Strategy
Announced in 2018, VISION 2030 lays out our aspirations
for continued creation of new value and sustainablegrowth while taking into account long-term changes in theexternal environment. We plan to invest a total amount of
about 100 billion yen from 2019 to 2030, and will promote
growth strategies for existing products and strategies forthe creation of new business, especially in strategic
domains (environment, healthcare, and electronics) where
we can fully leverage our strengths. We will also seek toachieve sustainable growth and increase corporate value
by expanding overseas and strengthening our global
alliances, both in our fundamental and strategic businesses.

Illustration of Operating Income Growth and Strategy
New businesses

Strategic businesses

Fundamental business

Strategies for Creating New Business

Operating income up
over 13 bn yen• R&D, M&A• Promotion of open innovation

Environment

Growth Strategies for Existing Products

Healthcare• Capital expenditure• Increase in productivity• Increase quality and added value

Electronics

Fundamental
business

2018

2030

Initiatives in the Environmental Domain(fiscal year)

Total
investmentof about
100 bn yen

Initiatives in the Healthcare Domain

Strategy I: Profit Increase by
New Facilities

Initiatives in the Electronics Domain
Creation of New Business• Promotion of green chemical materials• Expansion of our product line for personalcare and detergent markets.

• New development of materials relating tomobility (for sensors and lenses).

Growth of Existing Products

Growth of Existing Products• Strategic investment in cosmetic ingredients• Strategic investment in materials fordisplays and semiconductors

in December 2021 to invest a total of 9.5 billion yen toenhance the facilities at our Chiba Plant. Furthermore, in
October 2019, we launched the KH i-Lab as a newresearch base for new business creation, and in April 2021,
we opened the Open Lab to step up technologicalcollaboration with external institutions. With these andother initiatives, we hope to create new businesses via
open innovation with companies and universities that holdpromising technologies.
With regard to Strategy III, “Improvement of Business
Frameworks,” we have successively introduced advanced
plant control systems based on AI and IoT as planned.
These systems are aimed at conserving energy andreducing manufacturing costs, and are steadily showing
positive effects. We have also made steady progress withmeasures such as the introduction of a job-based
personnel system for managers to foster a spirit ofchallenge and professionalism, the establishment of a risk
management system based on the development of aBusiness Continuity Plan (BCP) to strengthen corporate
governance, and the publication of Integrated Reports.
FY2021 Single-year Results
Plan

Actual results

Net sales

110.0 bn yen

117.1 bn yen

Operating income

13.5 bn yen

19.7 bn yen

ROE

18%

28%

Equity ratio

47%

45%

Main Results of the 3rd Medium-Term Management Plan

Mediumterm plan
strategy

Creation of New Business• Strategic investment in refrigeration
lubricant raw materials
Increase market share (60% in 2017*→ 75%
in 2030)
Response to next-generation refrigerant

The 3rd Medium-Term Business Plan, which was
positioned as the new challenge of stepping onto a
different growth stage to realize VISION 2030, was
impacted significantly by the global economic downturncaused by the COVID-19 pandemic. However, fiscal year
2021, the final year of the plan, saw not only an economic
recovery from the pandemic but also soaring overseas
market prices, a revision of sales prices in Japan, and a
sharp recovery in demand for refrigeration lubricant. This
resulted in a significant increase in profits, setting a newrecord for a single year. In accordance with our basic
strategy, we made proactive investments in both strategic
investments and strengthening our foundations, steadily
implementing measures that will lead to growth over the
medium- to long-term.
With regard to Strategy I, “Profit Increase by New
Facilities,” demand for our refrigeration lubricant raw
materials has been growing against the backdrop of global
demand for air conditioners and the shift toenvironmentally friendly refrigerants. To meet this demand,
construction of new facilities for refrigeration lubricant raw
materials at the Yokkaichi Plant was completed onschedule in the first quarter of 2020, after which
production began. In addition, in order to tap proactively
into demand in the field of advanced electronics, we havelaid the groundwork for future growth by putting materials
facilities for next-generation semiconductors into
operation in the 4th quarter of 2020.
With regard to Strategy II, “Active Investment for the
Future Expansion of the Performance Chemical Business,”in response to growing demand for refrigeration lubricant
raw material, our mainstay product, we made the decision• Overseas deployment• Global alliances

Creation of New Business
Growth of Existing Products

New challenges for realizing VISION 2030
Steadily implement strategies that lead to medium- tolong-term growth in a rapidly changing business environment

Major
achievements• Start up new facilities for refrigeration
lubricant raw materials andmarketing of new products• Operate new facilities for the next
generation semiconductor materials• Started operating new facilities forrefrigeration lubricants raw materials
and manufacturing new products• Started operating equipment for next
generation semiconductor materials

Strategy II: Active Investment for the
Expansion of Performance
Chemical Business• Further increase in production
capacity for performance chemicals• Create new business through the newresearch hub

Strategy III: Improvement ofbusiness framework• Further introduce facility control
system with latest technologies(AI and IoT)
• Improve work environment andencourage diverse work styles• Decided to increase the production
capacity of the entire Chiba Plant,
mainly for refrigeration lubricants
raw materials• Introduced advanced plant control
systems as planned• Started up new research hub (KH i-Lab)and accelerated activities to create new
business through open innovation• Formulated and implemented theBusiness Continuity Plan (BCP) andissued an integrated report• Introduced new personnel system for
managers (specified employment)* Estimate of the Company

19 KH Neochem Report 2022

KH Neochem Report 2022

20

Growth Strategy

The 4th Medium-Term Business Plan
We will drive Sustainable Managementwith the aim of both contributing toachieving a sustainable society andincreasing our corporate value.
Tatsuro Niiya
Board Director, Senior Corporate Officer
Current responsibility: In charge of Corporate Strategy,
Marketing, Sales, Logistics

In the 4th Medium-Term Business Plan, under the basic
policy of “Driving Sustainable Management,” we will
deploy three basic strategies to contribute to achievinga sustainable society and further increase ourcorporate value.
For Strategy I, “Further Growth in the Strategic
Domains,” in the Environmental Domain, we will
implement a major CAPEX in the Chiba Plant which wasapproved at the end of 2021. This will allow us steadily
capture the growing demand for our main product,isononanoic acid, a refrigeration lubricant raw material
for refrigeration lubricant. In the healthcare domain, in
addition to expanding sales of 1,3-butylene glycol(1,3-BG), a cosmetic ingredient we will promote thedevelopment of new products that have the potential to
become new major sources of revenue and expand our
lineup. In the electronics domain, we will make CAPEX inorder to meet the increasingly sophisticated needs of ourcustomers arising from the progress of an advanced
information society. By steadily implementing thesemeasures, we will achieve sustainable growth.
For Strategy II, “Medium- and Long-term Initiatives
to Solve Social Issues,” we will focus on contributing tosolving social issues from a medium- to long-term
perspective by undertaking a variety of initiatives. We
have committed ourselves to achieving carbon neutrality
by 2050. As a milestone on that journey, we will reducegreenhouse gas (GHG) emissions by 30% by 2030
relative to FY2017 levels. To achieve this goal, we will
work to reduce GHG emissions in our manufacturing
processes. In addition, our core technology, oxo
synthesis, consumes CO2 as a raw material. In addition,
we will further reduce GHG emissions by capturing andusing CO2 emitted as part of the production process. In
the long term, we will expedite our efforts to reduce GHG
emissions by using a variety of methods, such as
switching to more environmentally friendly
manufacturing methods and biological raw materials, aswell as collaborating with neighboring companies inindustrial complexes.
We will also harness open innovation to create new
businesses that contribute to solving social issues in our
strategic domains. In April 2022, we made our firstinvestment in a start-up company, and we will continue
to pursue M&A and business alliances to further speed up
the creation of new businesses.

21 KH Neochem Report 2022

For Strategy III, “Improvement of Business
Framework,” we will further consolidate the foundationsof our business by steadily implementing various
measures regarding the topics of “Technology andInformation,” “Human Resources and Corporate Culture,”and “Governance,” which we have identified as the basis
and drivers of value creation for realizing VISION 2030. In
the area of Technology and Information, we will pursue
digital transformation to ensure safe and stable
operations and to improve productivity. In the area of
Human Resources and Corporate Culture, following thereview of the evaluation and compensation system for
managers, which has already been implemented under
the slogan of “reward those who take on challenges andperform,” we will be expanding the system to regular
employees as well. In addition, we will continuously work
to improve employee engagement through measures
such as improving the workplace environment. In thearea of Governance, we will strengthen risk
management, pursue CSR procurement to improvesustainability throughout the supply chain, and further
expand the provision of non-financial information in our
IR and SR activities.
Since our business is affected by changes in theexternal environment and the implementation of major
periodic maintenance every other year, we believe it ismore important to achieve steady growth not only for any
one year, but also over a three-year cumulative period. To
this end, in the 4th Medium-Term Business Plan, we haveset cumulative operating income of 48.6 billion yen andcumulative EBITDA of 63.5 billion yen over a three-year
period as our key performance indicators.
Through the steady implementation of the basic
strategies outlined here, we will strive to both contributeto achieving a sustainable society and increase ourcorporate value.

Basic Policy and Basic Strategy

Basic Policy: Driving Sustainable Management
Strategy III: Improvement ofStrategy I: Further Growth

Strategy II: Medium and Long Termin the Strategic Domains

Initiatives to Resolve Social Issues

Business Framework• Capturing steadily demand forrefrigeration lubricants raw materials
through the large-scale expansion andreinforcement of facilities• Responding to increasingly sophisticatedcustomer needs in the electronics domain• Expanding the lineup in thehealthcare domain• Accelerating efforts toward carbon
neutrality• Creating early a new business throughopen innovation and M&A, etc.

• Improving productivity by utilizing thelatest technologies, etc., as a driving
force• Creating a corporate culture in which
diverse human resources play an activerole and maximize results• Strengthening of governance to enhance
management transparency

Accumulated consolidated
operating income

Numerical Management Targets
The 4th Medium-term
Business Plan
(Fiscal year 2022 to 2024)
Accumulated consolidated
operating income

48.6 bn yen

Accumulated consolidated
EBITDA

63.5 bn yen

Return on Equity

Over 15%

Strategy I

48.6(bn yen)31.3(bn yen)

41.5

34.9

The 2nd The 3rd
MTBP
MTBP

Accumulated consolidated
EBITDA
63.5

The 4th
MTBP

46.5

The 2nd The 3rd
MTBP
MTBP

The 4thMTBP

Further Growth in the Strategic Domains

In the strategic domains of Environment, Healthcare, andElectronics, the 4th Medium-Term Business Plan will aim
to both increase profits and contribute to solving social
issues by expanding our facilities and shifting tohigh-growth, high-earning products to meet growing
global demand.
In the Environmental domain, as demand for air
conditioners grows worldwide, we will aim to increase
earnings in the air conditioner market through measures
such as large-scale expansion of our facilities for refrigeration
lubricant raw materials (for details, see p.27–28).
In the Healthcare domain, with the cosmetics market
expected to see expansion over the medium to long term,

particularly in Southeast Asian countries, we will work to
expand sales of 1,3-BG, our mainstay product in cosmetic
ingredients. In addition, by harnessing open innovationand similar initiatives to develop new products, we will
work to expand our product lineup.
Meanwhile, in the Electronics domain, thesemiconductor market is expanding due to the spread of
5G, IoT, and AI. As such, we will capture demand in
cutting-edge fields by accurately responding toincreasingly sophisticated customer needs and investing
proactively to anticipate next-generation demands.

Environment

Healthcare

Electronics

Field

Performance materials

Performance materials

Electronics materials

Main Products(Existing Products)

Refrigeration lubricant
raw materials

Cosmetic ingredients

High-purity solvents

Priority measures in
the 4th Medium-TermBusiness Plan

Increase profits through the largescale expansion and reinforcementof facilities as a leading supplier

Capture growing demand,
especially in emerging economies

Aim to increase added value
mainly in the growing
semiconductor market

Strategic Domains

KH Neochem Report 2022

22

Growth Strategy

The 4th Medium-Term Business Plan
Steadily capturing demand for refrigeration lubricant raw materials

Environmental Domain

Expanding our lineup through open innovation

Healthcare Domain

Market Environment

MeasuresMarket Environment

Measures

Global demand for air conditioners is expected to expand,especially in Asia, which continues to experience
economic growth. Accordingly, sales volume is projected
to reach 200 million units in 2030 (1.7 times the 2021
level). In addition, global refrigerant regulations will
accelerate the shift to environmentally friendly air
conditioners that use low GWP* refrigerants with lower
environmental impact. Demand for the refrigeration
lubricant raw materials we produce is expected to growdue to its compatibility with these refrigerants.

As a leading manufacturer of refrigeration lubricant raw
materials, we will work to steadily capture demandthrough increased production capacity and othermeasures, thereby further enhancing our competitive
advantage and increasing earnings.
Specifically, we decided to make major CAPEX at our
Chiba Plant at the end of 2021, and plan to increase
production capacity for isononanoic acid, a raw material
for refrigeration lubricant, to more than 1.5 times thecurrent level by 2024. We will also utilize the facilities at
our Yokkaichi Plant, which expanded its production
capacity in 2020, to steadily capture growing demand.

The overall cosmetics market was sluggish due torestrictions on movement caused by the COVID-19
pandemic and the resulting decline in demand fromoverseas tourists, while competitors expanded theirfacilities. This led to a somewhat difficult businessclimate for our cosmetic ingredient 1,3-BG, a mainstay of
our lineup. In the medium- to long-term, however,demand is expected to increase as the cosmetics market
expands due to the subsiding of the pandemic,
population growth and rising income levels in Southeast
Asian countries, among other factors.

We will pursue increased sales of 1,3-BG by capitalizingon the customer network that we have cultivated up to
now. We will also engage proactively in open innovation
to expand our lineup in the healthcare field, including thedevelopment of new high-grade alcohols that employ
natural raw materials.

*GWP: Global Warming Potential is a numerical value that indicates the greenhouseeffect of refrigerants, taking carbon dioxide as 1.

Asian Cosmetics market*(bn USD)Air conditioner market*1
Synthetic oils (For HFC/Low GWP refrigerants)

CAGR
+9%

Mineral oil (For HCFC)(Million units)

Global

China

20

CAGR
+5%

CAGR
+6%

115
2021

More than
400

CAGR
+14%

71

0

51

2021

2020

2022

2023

2050

2021

(year)

2030(year)

2021

2030

Capturing demand for car air conditioners amid the shift to EVs
In line with worldwide movements toward
decarbonization, there is a rapid shift to electricvehicles (EVs) underway worldwide, and the global EV
fleet is expected to expand to 230 million units in 2030,
more than 20 times the number in 2021.
Unlike gasoline-powered cars, the air conditioners
installed in EVs use a heat pump air conditioning(year)

system with an electric compressor, similar to thatused in home air conditioners, and our refrigeration
lubricant raw materials are beginning to be used inthese vehicles. In addition to our existing markets, we
aim to achieve further growth by steadily capturing
this new demand for our materials.

Market Environment

Measures

With the increase in demand for semiconductors due tothe spread of 5G, IoT, and AI combined with the drivefor digital transformation, the photoresist market, inwhich our products are used, is also expected to growsteadily. In addition, although the absolute volume ofExtreme Ultraviolet (EUV) resist, a material for
cutting-edge semiconductors, is still small, the market
for it is expected to expand rapidly in the future.

In March 2022, in order to respond to increasingly
sophisticated customer needs, a new quality control
building equipped with a state-of-the-art clean room
was built at the Yokkaichi Plant, enhancing our quality
control system. In addition, we will increase sales by
expanding the supply infrastructure for high-purity
solvents. Furthermore, Kurogane Kasei has madeadditional investments in its facilities for materials fornext-generation semiconductors, newly built in 2020.
By capturing demand in cutting-edge fields, we aim tofurther increase added value.

The Global Photoresist Market*
KrF(1000s gallons)(million units)

Responding to increasingly sophisticated customer needs

Electronics Domain

g/i line

Global EV fleet

ArF

EUV

CAGR
+6%

3,000

More than
1,000
230

(year)
2021
2030
2050
Source: Produced by KH Neochem based on the IEA Global EV Outlook 2021
Sustainable Development Scenario

23 KH Neochem Report 2022

(year)

16*1 Source: estimates of the Company based on JARN and International Energy Agency (IEA), The Future of Cooling, excl. car air conditioner*2 excl. Japan

10

2024

*Research estimates by the Company

46

200
2030

25

Other Asia*2

Market for EUV
photoresist
CAGR
+38%

2,000
1,000
0 2020 2021 2022 2023 2024 2025 2026
Source: Fuji Keizai, “2021 Overview of the Optical Functional Materials andProducts Market.”*Values for 2021 and beyond are forecasts(year)
Yokkaichi Plant Quality Control Building
Photo: Ena Mitsui (Kawasumi-Kobayashi Kenji Photograph Office)KH Neochem Report 202224

Growth Strategy

The 4th Medium-Term Business Plan
Our GHG emissions (CO2 equivalent)

Strategy II

Medium and Long Term Initiatives to Resolve Social Issues(kilotons-CO2)

Reduction
relative to 201730%

KH Neochem is pursuing medium- and long-term
initiatives aimed at using our business to help solve
various social issues.
First, through further expansion of the supply of
refrigeration lubricant raw materials, we will support thegrowth in demand for environmentally friendly air
conditioners that use refrigerants with lower global
warming impact and contribute to the reduction of GHG
emissions in the supply chain (for details, see p. 27).
Moreover, in terms of reducing our own GHG
emissions, we will further enhance energy conservation
during production, which we have been working on inorder to achieve carbon neutrality by 2050, and we will
also present the use of CO2 as a raw material for our

products as part of our efforts to become carbon neutral.
In the long term, we will switch from petroleum-derived
raw materials, develop new manufacturing methods andnew energy-saving technologies, and build partnerships
with other companies in the industrial complexes where
our facilities are located.
In addition, by proactively engaging in open
innovation, we will speed up the creation of new
businesses that contribute to solving social issues, suchas environmentally friendly materials, healthcarematerials that help improve quality of life, and electronicmaterials that support the development of an advanced
information society, thereby achieving sustainableenhancement of corporate value.

Enhancing our initiatives for carbon neutrality
As a milestone toward achieving carbon neutrality by
2050, we aim to reduce GHG emissions by 30% by 2030
relative to FY2017 levels. We have been improving
energy efficiency through the introduction of advanced
plant control systems, and have reduced CO2 emissions
by about 15% by starting operation of in-house power
generation facilities at the Chiba Plant. As we movetoward 2030, we aim to reduce GHG emissions by further
expanding the introduction of advanced control systems,
as well as pursuing CAPEX and new technologies that willlead to energy savings. As a long-term initiative,
meanwhile, we will work to achieve carbon neutrality,
which is considered a major technological and financial
hurdle in the materials industry, by shifting production
methods and raw materials, developing newenergy-saving technologies, and collaborating with othercompanies in the industrial complexes where ourfacilities are located.

• Contribute to an environmentally friendly society through the supply of
refrigeration lubricants raw materials (p. 27)

TowardCarbon Neutrality

474
332
2030

2017 Criteria*

2050*Reporting figures based on the Act on Rationalizing Energy Use (reporting period of April 1 to March 31)

CO2 as a raw material for products
Also known as hydroformylation, our coretechnology, oxo synthesis, is a process wherecarbon monoxide and hydrogen react with raw
materials, such as olefins, to synthesize
aldehydes. This extremely rare technology uses
carbon dioxide (CO2) as a raw material toproduce carbon monoxide and hydrogen. By
using CO and H2 as raw materials in the
manufacturing process, we are contributing to
the reduction of CO2 emissions.

Raw materials

Technology

Methane +Water +CO2

Oxo synthesis

Consumes approx.
70–80kt of CO2
per year

Products• Refrigeration lubricant
raw materials(contributes toreducing global
warming)• Basic chemicals, etc.

Quick creation of new businesses through open innovation
In our strategic domains, we are actively harnessing open
innovation to create new businesses that contribute tosolving social issues.
In 2019, we launched a new research center, KH
i-Lab, followed by an Open Lab in 2021. Under the 4th

Medium-Term Business Plan, starting with the KH i-Lab,
we will speed up the creation of new businesses by using
open innovation to collaborate with external parties intechnology creation, with a view to investment instartups, M&A, and alliances.

Business• Consume CO2 as a raw material for products

Energy conservation
New technologies• Promote energy conservation by expanding the introduction of advanced plant
control systems

Social issues
to be solved

Environment domain

Healthcare domain

Electronics domain• Prevention of global warming• Removal of fossil fuels• Global improvement ofquality of life

• Development of advanced
information society• Investment in startups

Open innovation measures • Alliances and M&A• Co creation of new technologies with external partners at our KH i-Lab andother open labs

• Shifts in manufacturing methods and raw materials
Innovation
Corporate collaboration

25 KH Neochem Report 2022

• Collaborate with industrial complex companies

Direction of
new business creation

Environmentallyfriendly materials
Develop marine
biodegradable resin

Healthcare materials

Electronic materials

Develop raw materials
for pharmaceuticals

Expand new business products
for cutting edge semiconductors

KH Neochem Report 2022

26

Growth Strategy

The 4th Medium-Term Business Plan
Strategy II: Medium and Long Term Initiatives to Resolve Social Issues

Contributing to global warming mitigation through the supplyof refrigeration lubricant raw materials
Functions of refrigeration lubricant
the type of refrigeration lubricant required depends on
the type of refrigerant.
Currently, the shift toward environmentally friendly
air conditioners is accelerating, and demand forrefrigeration lubricant raw materials that are compatible
with the refrigerants used in these air conditioners is also
growing. KH Neochem holds the world’s largest market
share in the field of refrigeration lubricant raw material.

Air conditioners make rooms cool by taking in hot indoor
air and moving the heat outside. Moving the heat to theoutside is performed by a refrigerant, which functions by
being compressed in a compressor inside an air
conditioner’s outdoor unit. The compressor needs alubricant, specifically refrigeration lubricant raw
materials to operate efficiently and smoothly, without
breaking down over long-term usage.
Various types of gases are used as refrigerants, and
Air Conditioner Mechanism (For Cooling Operation)

Market Position of KH Neochem
KH Neochem

Discharge heatLubricantOutdoor unit

Our estimatedglobal share2-ethylIsononanoic
hexanoic acid
acid, etc.

Base oils

Indoors

required from 2019 to 2036, with the ultimate target ofan 85% reduction by 2036. As a result, this regulation is
expected to further raise demand for air conditioners
that use low GWP refrigerants, such as R32.
Emerging nations*3 are obliged to reduce the CO2
equivalent value by 10% of the standard value by 2029.
The regulations become stricter in steps, ultimately
reaching the requirement for an 80% reduction by 2045.
In addition to the above, we expect further growth indemand for more environmentally friendly air
conditioners as the economies of developing nations
strengthen and regulations against air conditioners withlow energy efficiency come into effect in China.
As the global transition to low-GWP refrigerants
continues, our raw materials are indispensable for the
production of refrigeration lubricant that can support
this transition, and as the leading company in theindustry, we will continue to contribute to global
warming mitigation by ensuring a stable supply of our
products.

Global Annual GHG Emissions of CFC Substitutes, etc.
(CO2 Equivalent)*1 For more details, please refer to the Montreal Protocol on Substances that
Deplete the Ozone Layer on the website of the Ministry of Economy, Tradeand Industry. (Japanese documents only)
https://www.meti.go.jp/policy/chemical_management/ozone/law_ozone_laws.html*2 Regulatory measures differ in some advanced nations, such as Belarus andRussia.
*3 Refers to the first group of emerging countries.The standard value iscalculated based on the average values for production and consumption of
CFC substitutes from 2020 to 2022, among other data. The schedule is more
gradual in the second group of emerging countries. (India, Pakistan, Iran, Iraq,
and the Gulf States.) For more detail, please see *1.

Equivalent to Japan’s annual GHG emissions

Compressor

Coolrefrigerant

Cooled air

Reduction of GHG emissions from refrigerants
It is estimated that global greenhouse gas (GHG)
emissions in 2019 amounted to approximately 57 billion
tons of CO2 equivalent, of which approximately 1 billion
tons were caused by CFC substitutes. Of these, morethan 90% were produced by HFCs, which are
refrigerants used in air conditioners and other products.
A study by the International Energy Agency (IEA)
estimates that the number of air conditioners owned
worldwide in 2050 will be three times the current
number, and if this trend continues, GHG emissions
could increase significantly. As such, it is essential that
we shift to environmentally friendly refrigerants withlower GWP, and international regulations on refrigerants
have been gaining momentum in recent years. In specificterms, the Kigali Amendment to the Montreal Protocol
and U.S. Environmental Protection Agency (EPA)
regulations have established a phased reduction
schedule for HFCs in developed and emerging countries.

Raw materials

Refrigerant carrying heat
Indoor unit

Demand for air conditioning and refrigerant regulations

Refrigeration lubricant

Outdoors

Compressors/air conditioners

Hot refrigerant

Global CFC
substitutes, etc.
Approx.
bn tons CO2

1

Japan’s annual
GHG emissions
Approx.
bn tons CO2

1

Transition in refrigerants and refrigeration lubricants
In the past, CFCs were used as refrigerants, but due totheir contribution to the depletion of the ozone layer, theMontreal Protocol was adopted in 1987. This protocol
stipulated regulatory measures such as the phased
reduction and eventual elimination of controlled CFCs,
and a shift to non-ozone-depleting CFC substitutes has
been making rapid progress around the world sincearound 2000.
Since its adoption, the Montreal Protocol has been
subject to occasional reviews. Under the 2016 Kigali
Amendment, it was agreed to phase out refrigerants
with high global warming potential (GWP) in order tocurb global warming. This move accelerated the shift to
new refrigerants such as R32, an alternative CFC withlow GWP.
In the future, it is expected that next-generation
refrigerants with even lower global warming impact will
be put to practical use, and we are conducting researchon refrigeration lubricants compatible with
next-generation refrigerants and looking into
appropriate raw materials. We also envision that
refrigeration lubricant made with our products can beapplied to the most promising candidates fornext-generation refrigerants.

Transition in Refrigerants and the Refrigeration Lubricant Raw Materials
Around 2000

Old refrigerants:
R22

Current refrigerant:
R410A

New refrigerant:
R32

Ozone layer –causes depletion

Ozone layer –no depletion

Ozone layer –no depletion(CFC substitute)(controlled CFCs)

Refrigerants

Global warming impact

SubstituteHigh

GWP:1,810

Refrigeration
lubricant raw

From 2012

Petroleum-based

27 KH Neochem Report 2022

Global warming impact

High

Substitute

20XX

Next-generation
refrigerant(CFC substitute)

Global warming impact

GWP:2,090

Low

GWP:675

Synthetic

Using raw materials produced by KH Neochem(Under consideration
for practical application)
Substitute

Global Warming Impact

Even lower

Synthetic?

Use ofKH Neochem
products
envisioned

Kigali Amendment HFC Phase-down Schedule
Developed Countries

First group

Second group(CO2 equivalent)

10%
10%

20%

10%

30%

Source: Produced by KH Neochem based on “Trends in Global CO2 and Total
Greenhouse Gas Emissions,” 2020 Report PBL Netherlands
Environmental Assessment Agency

30%
40%

International refrigerant regulations (Kigali
Amendment)
Under the Montreal Protocol, advanced nations are
required to eliminate ozone layer-depleting controlled
CFCs by 2020, while emerging nations are required toeliminate it by 2030. In addition, 18 CFC substitutes withhigh GWP were added to the list of controlled
substances in the Kigali Amendment, which adopted a
new proposal to make non-ozone-depleting CFC
substitutes also subject to regulation under the Protocol,
coming into effect in January 2019. A CO2 equivalentvalue calculated by multiplying the quantity of CFC
substitutes by their GWP has been adopted as anindicator for their phasing out, and the average value of
production, consumption, etc. from 2011 to 2013 will be
used as the reference value*1.
For advanced nations, including Japan,*2 a gradualreduction in CO2 emissions from the standard values is

50%

85%

70%
80%

2019

2024

2029

2034

80%

85%

2036

2045 2047(year)KH Neochem Report 2022

28

Growth Strategy

The 4th Medium-Term Business Plan

Strategy III

Improvement of Business Framework

In order to realize VISION 2030, we have been working
to build a business foundation for creating new value.
This involves strengthening our capabilities in“technology and information,” and “human resources
and corporate culture,” which are the drivers behindvalue creation, and “governance,” which forms
its foundation.
Under the 4th Medium-Term Business Plan, we willfurther solidify our business foundation by steadily
implementing various measures in these three areas.

Main Initiatives for Strengthening our Business Foundation

Drivers for value
creationFoundation of
Value Creation

Technology / Information

Human Resources / Corporate Culture• Promotion of DX• Improvement of equipment reliability• Strengthening of competitiveness throughintellectual property• Strengthening of human resources• Improvement of work environment• Promotion of a corporate culture where
diverse human resources can play active roles

Governance• Strengthening of risk management• Active dialogue with shareholders and investors• Promotion of CSR procurement

Human Resources /Corporate Culture

Create a corporate culture where diverse human resources can play
active roles and maximize their performance

In the 3rd Medium-Term Business Plan, we introduced a
job-based personnel system for management positions,and in the 4th Medium-Term Business Plan, we will
expand the system to non-managerial position
employees as well. In addition, through enhanced
employee training and proactive mid-career hiring, we
will develop professional human resources, selectoutstanding young talent, and facilitate the advancementof female staff to create a corporate culture in which

employees enjoy a sense of responsibility and fulfillment,
and where a diverse range of human resources can play
an active role to maximize results.
We will also work to improve the workplaceenvironment for our employees, improve occupational
health and safety, enhance productivity, and implement
work style reforms, thereby ensuring that we can attract
the most talented personnel.

Main Initiatives

Strengthening of human resources and creatinga corporate culture

1 Introduction of a new personnel system (specified

employment) for non-managerial position employees

2 Securing of diverse human resources
and promotion of employees

Improvement of work environment

4 Establishment of new Quality Control Building
5 Improvement of workplace safety and productivity,

promotion of work style reform through systematic
renewal of plant office buildings

3 Improvement of employee engagement

Technology / Information

Improve productivity by utilizing latest and emerging technologies

As a company with many products that have large market
shares, safe and stable production and improved
productivity are among our top priorities, and we aretaking a variety of measures to achieve these goals.
Specifically, we will further expand the roll-out ofadvanced plant control systems and implement smart
security, including the introduction of tablets and similar
IT tools at manufacturing sites to computerize
maintenance patrols and operation management.
We also plan to introduce a new predictive
diagnostic system to effectively repair and renew
facilities as they deteriorate over time. In order to prevent

equipment problems and improve equipment reliability,
we will use risk assessment to prioritize preventive
maintenance for each individual piece of equipment.
In addition, we will develop “technology platforms”
of intellectual property to promote the visualization of
intangible assets, which will lead to the creation of new
businesses through initiatives including internalinnovation and open innovation. Intellectual property
rights necessary to maintain and enhance our corporate
competitiveness will be identified and rights will be
strategically secured.

Main Initiatives

Improvement of equipment reliability

1 Improvement of safety and productivity through4 Restructuring of preventive maintenance process

2 Introduction of a predictive diagnosis system toStrengthening of competitiveness throughintellectual property

detect faults due to plant apparatus aging before
they occur

3 Introduction of a shipping system

Strengthen corporate governance to enhance management transparency

In order to enhance risk management, we will implementa PDCA (Plan, Do, Check, and Action) cycle using a risk
map based on newly formulated risk evaluation criteria,
position risk management as one of our key
management strategies, and build a system in which
management is more committed than ever to mitigating
material risks.
In addition, in order to achieve social responsibility inthe supply chain alongside our suppliers, we haveestablished CSR Procurement Guidelines and are
conducting initiatives such as CSR surveys of our suppliers.

As a company listed on the Tokyo Stock Exchange
Prime Market, KH Neochem will work to further
strengthen governance and ensure diversity, as well aspracticing transparent management with high ethicalstandards. In our IR/SR activities, in addition to businessperformance and strategies, we will improve disclosure ofclimate change risks and other ESG-related non-financial
information, as well as engaging in active dialogue withshareholders and investors.

Main Initiatives

Promotion of DX
Smart Industrial Safety

Governancebased on risk assessment

5 Promotion of innovation through thedevelopment of “technology platforms”

6 Maintenance and strengthening of corporate

Strengthening of risk management

Active dialogue with shareholders and investors

1 Identification of important risks by using risk

3 Proper disclosure of information requested

Promotion of CSR procurement

4 Promotion of IR and SR activities with expanded

maps and implementation of countermeasures

2 Enhancing supply chain

by the Prime Market of the Tokyo Stock Exchange
coverage of non-financial information such as ESG,
in addition to business performance and strategies

management through CSR surveys

competitiveness through strategic patent filings

29 KH Neochem Report 2022

KH Neochem Report 202230

Growth Strategy

Message from the CFO
Policy for the 4th Medium-Term Business Plan

We will aim to achievesustainable increases incorporate value by enhancing
our ability to generate cash flow,
further strengthening ourfinancial foundation, andproactively investing in growth.

Under the 4th Medium-Term Business Plan, 46% ofgenerated cash will be allocated to strategic
investments in domains such as Environment,
Healthcare, and Electronics.
In the refrigeration lubricant raw material sector,
which contributes to solving global environmental issues
and is expected to enjoy a growing market, we areworking to increase production capacity at our Chiba
Plant toward 2024, following the construction of a new
facility at our Yokkaichi Plant in 2020. We will also makesystematic investments in electronic materials toreinforce our dominant market position and develop
more value-added, cutting-edge products.
In April 2022, we made our first capital participation
in a start-up company. Going forward, we will not limit
our investment to existing businesses, but also actively
accelerate open innovation and make use of M&A.
For investments above a certain amount, acommittee composed of full-time directors andcorporate officers make rigorous decisions on investment
profitability based on the cost of capital, and also verify
investment performance after the fact, striving
constantly to improve investment efficiency.

Masaya Hamamoto
KH Neochem Co., Ltd.
Board Director, Senior Corporate Officer
Current responsibility: In charge of Accounting and
Finance, Investor Relations, Public Relations, General
Affairs, Legal and Compliance, Internal Audit, Risk
Management, and Promotion of ESG

Equity ratio

3rdMedium-TermBusiness Plan

4th
Medium-TermBusiness Plan

Operating cashflow

35.3 bn yen

47.7 bn yen

Strategic
investments

10.2 bn yen

22 bn yen

Business infrastructure
investments

6.4 bn yen

10 bn yen

Allocate capital
more aggressively
to strategic
investments

Workplace environment
improvements

0.7 bn yen

3.7 bn yen

3rd Medium-TermBusiness Plan 29%

Shareholder returns

6.6 bn yen

10 bn yen

4th Medium-TermBusiness Plan 46%

Repayments and others

11.4 bn yen

2 bn yen

Operatingcashflowincreased by 12.4
bn yen from the
3rd Medium-TermBusiness Plan

Financial Strategy and Capital Policy

(%)
60

51.0
45.4

50

38.2

40

45.0

40.2

32.6

30

0

2017

2018

2nd Medium-TermBusiness Plan

2019

2020

2021

3rd Medium-TermBusiness Plan

2022 (fiscal year)(Forecast)

Net D/E ratio(times)
0.4

0.38
0.30

0.28

0.3
0.2

0.14

0.1

0

31 KH Neochem Report 2022

Generated cash

Made capital participation in AC-Planta, a developer of biostimulant materials
that increase plant tolerance to high temperatures and drought
Photo for illustrative purposes only

Review of the 3rd Medium-Term Business Plan
In order to realize our VISION 2030, we aim to build awell-balanced financial structure that is less susceptible
to changes in the external environment while
maintaining a high level of capital efficiency.
Looking back on the 3rd Medium-Term Business
Plan (FY2019–FY2021), despite a challenging businessenvironment resulting from the COVID-19 pandemic
and trade friction between the U.S. and China, we wereable to expand our growth businesses, such as
performance materials, while maintaining soundfinancial discipline. Meanwhile, our equity ratio stood at
38.2% in 2018, before we started the 3rd Medium-TermBusiness Plan, and improved to 45.0% by 2021. The
Company’s financial position also improved substantiallyin terms of net interest-bearing debt, which stood at
10.9 billion yen in 2018 and 1.5 billion yen in 2021, a fallin net debt-to-equity ratio from 0.3 to 0.03.
In light of this situation, we launched the 4th
Medium-Term Business Plan (FY2022–FY2024) in orderto further shift capital allocation to growth investments
aimed at achieving VISION 2030 while keeping in mind
the need to maintain and reinforce a stable financial
foundation.

Capital allocation

2017

2018

2019

0.03
2020

2021

Under the 4th Medium-Term Business Plan, we will
aggressively allocate capital to growth investments. In
that case, our policy for the funds needed is to give priority
to cash flow generated from operations and cash on hand,
and to use debt financing for any excess over this amount.
In April 2022, our long-term credit rating (R&I) was
upgraded from BBB+ to A- and our short-term credit
rating was upgraded from a-2 to a-1. We will continue toaim for a high level of ROE through a financing strategy
that places an emphasis on the cost of capital, whilefurther improving profitability and financial soundness.
We also recognize that shareholder return is one of
the most important management issues, and our basic
policy is to pay stable dividends and commensuratewith growth in profits. Under the 4th Medium-TermBusiness Plan, we are targeting a guideline payout ratioof 30%, with an 85-yen lower limit for dividend pershare as in the 2022 forecast. As such, we plan toflexibly increase shareholder returns as our financial
foundation strengthens.
We appreciate your continued support for our Group.

ROE
(%)
50
40

28.4

29.3

27.9

30

20.1

20

18.0

19.0

10
0

9.6
2016

2017

2018

2019

2020

2021

2022 (fiscal year)(Forecast)

Dividend per share
Annual dividendInterim dividend

Year-end dividend

(yen)
100

75

80
60

50

54

54

60

60

85
42.5

(Forecast)

40

42.5

0.08

20

2022 (fiscal year)*The year-end dividend for 2022 will be proposed to the general meeting ofshareholders in March 2023.

0(Forecast)

2016

2017

2018

2019

2020

2021

2022 (fiscal year)

KH Neochem Report 2022

32

Drivers for Value Creation

Message from the Board Director in Charge of Production Planningand Engineering

Pursuing Digital Transformation in Production

Drawing on newtechnologies and insights tofurther enhance our
production system
Toshihiro Matsuoka
Board Director and Senior Corporate Officer
Current responsibility: In charge of Procurement, Production
Planning and Engineering, and Environment, Safety, andQuality Assurance

Enhancing the value of production sites throughimprovements in technology and information
We have identified technology and information as key
drivers for achieving the goals set out in VISION 2030. As
such, it is essential that we further enhance our capabilities
in these areas. By taking the personnel development thatenables this as a foundation, we will establish a corporate
culture that recognizes a diverse range of skills and values
while working to deliver the best results.
As a materials manufacturer that supports
manufacturing around the world with many highmarket-share products, safe and stable operations are
extremely important to us. Many of our products undergo
extensive processing, and our operators acquire
high-level skills through daily experience. As such, theiraccumulated expertise serves as a source of support forsafe and stable operations.
However, for sustainable growth, it is important not tobe satisfied with the status quo, but to aim for
improvement. When I was a plant manager, I introduced
improvement initiatives aimed at increasing the value ofthe production sites, but in today’s rapidly changing world,
I believe that radical reforms are necessary. As such, I will
work to introduce new technologies and systems while
taking care not to be constrained by precedent.

Systematizing technology through theapplication of AI and IoT, and improving
equipment reliability and safety awarenessOur current focus is on measures to use digital technology
to systematize the intangible assets represented by theskills of individual operators. Our advanced plant control
system, which uses AI and IoT to automatically adjust
operating conditions, has already been installed inapproximately 60% of our plants, and we are aiming tofurther increase uptake. By doing this, we aim to ensurethat all operators can perform their duties at a high level,
thereby increasing productivity and enhancing a site’s
intangible assets.
Appropriate updating and maintenance of equipment

33 KH Neochem Report 2022

Technology and Information (Production and Engineering)is also essential for safe and efficient operation. Factors
such as aging facilities have led to the occurrence of someproblems in production. To improve this situation, we are
restructuring our business processes in equipment
management and other areas, and will also introduce a
predictive diagnostic system to detect problems before
they occur. In addition, we will enhance safety
management and technical training, as well as using
tablets and similar devices to computerize security patrols
and operational management.
We are pursuing these initiatives not only by drawing
on our own expertise, but also by recruiting highly
specialized personnel with production site experience atother companies to verify our equipment in terms ofsafety and efficiency. I believe that incorporating theperspectives of outside personnel has prompted areevaluation of conventional ways of doing things,
leading to progress in digital transformation and moreadvanced facilities.
What must not be forgotten is the need to raiseawareness of safety among employees. To this end, it isvital that each employee involved in a task works toprevent occupational accidents and helps correct others’
mistakes, and that efforts are made to foster a culture ofmutual support. Going forward, we will conduct further
activities to promote a “safety first” mindset by reviewing
our safety code of conduct and holding ongoing dialog andmeetings on safety between plant managers, section anddivision heads, and employees.

Enhancing production sites to generate
growth for the Company as a whole
The majority of our employees are involved in production,and they form the basis of how we create value. As such,technical capabilities on the frontlines constituteintangible assets directly linked to the growth of theCompany as a whole.
By enhancing our production facilities and systems,
and by recruiting and training a diverse range of humanresources to support them in an integrated manner, we
aim to further improve the functionality of our plants andmake VISION 2030 a reality.

Wider installation of the Advanced Plant
Control System

Improving safety and productivity throughsmart security

A chemical plant is a maze of pipework, and during
operation, continual, precise adjustments are made to
the flow rates of raw materials and products. It takes agreat deal of experience and advanced expertise tomaster plant operations, and the losses that occur as aresult of manually adjusting flow rates presented asignificant problem.
In response, we are introducing advanced plant
control systems to systematize and reproduce the skillsof skilled operators by harnessing AI and othercutting-edge technologies. This state-of-the-art system
uses AI to control the plant by automatically estimating
the appropriate settings in response to temperature,pressure, and other conditions. Installing this system will
minimize production losses due to flow rate adjustments,
as well as allowing for more efficient use of energy. Also,
by reducing operators’ workload and stabilizing quality, it
can also help resolve manufacturing issues.
As of the end of 2021, about 60% of our plants havealready introduced the advanced control system, and weplan to have it installed in about 80% of all plants by 2023.

In order to maintain safe and stable production, wemust continue security activities while addressing
issues such as shortages of human resources and thehanding down of skills from one generation to another.
As a company with many products that have large
market shares, one of our most important tasks is toensure problem-free production.
As a solution to this issue, we are also planning to
introduce a predictive diagnostic system to minimize
missed manufacturing opportunities and streamline
maintenance costs by constantly monitoring operating
conditions and detecting signs of problems such as
equipment failures.
In addition, in order to strengthen autonomous
safety capabilities and improve productivity at
manufacturing sites, we will promote smart security
through AI and IoT by distributing tablets andcomputerizing maintenance patrols, inspection results,
and operational management tasks. Our goal is thatthese measures will be introduced to all manufacturingsections during the period of the 4th Medium-TermBusiness Plan.

Improving Equipment Reliability
Redesigning preventive maintenance andestablishing a framework for equipment
management education
The Equipment Management Division supports stable
operations by effectively repairing and updating aging
plants and equipment. In order to prevent potential
drops in the quality of equipment management work as
veteran employees retire and other generational changes
take place, we have been working since the term of theprevious medium-term business plan to review ourbusiness processes relating to equipment management.
One of the measures we are implementing toaddress this is preventive maintenance, which involves
anticipating the frequency and impact of breakdowns inadvance based on the results of risk assessments andworking out the necessary countermeasures before an
event that could affect stable production occurs. Having
completed regular maintenance in 2022, we are now
implementing redesigned operational processes. These
processes include developing maintenance and testingplans, making repairs and updates, and evaluating
maintenance results.
We are also working to create an education systemthat will enable younger employees to do the same workas veterans by improving their technical skills andstandardizing operations. Consultant services, including
those from outside experts, will be provided to support

young engineers who have no experience of major
incidents, so that they too can make appropriate
decisions in response to day-to-day problems. Throughthese activities, we aim to effectively direct our limited
management resources (human and financial), helping toensure stable supply and reduce missed manufacturing
opportunities as much as possible.

KH Neochem Report 2022

34

Drivers for Value Creation

Message from the Board Director in Charge of R&D and Human Resources
Achieving the “ideal type of person for 2030”
set out in VISION 2030

Fostering a corporate culturethat empowers a diverse
range of human resources
and maximizes results
Yukihiro Isogai
Board Director and Senior Corporate Officer
Current responsibility: In charge of HR, IT Strategy, R&D,
Intellectual Property, and Information Security

The human resources and corporate culturethat will drive the realization of VISION 2030
We have grown by accurately identifying the growing
markets for products such as refrigeration lubricant raw
materials, cosmetic ingredients, and electronic materials.
In addition to capitalizing on these strengths, the tangible
and intangible assets that have supported our growth thus
far, we will create value by developing new businesses andexpanding the scope of our existing businesses throughcollaborative creation activities based on open innovation.
In order to achieve sustainable growth in corporate value,
it is essential to energize (speed up) this value creation
process, and we are focusing on strengthening our R&D
capabilities in this area.
We will also work to increase the diversity of ourhuman resources, who form the foundation of ourcorporate activities, not only in R&D, but throughout theCompany. By fostering a corporate culture in which humanresources with various specialties and values can flourish,
we have set the strengthening of our business foundation
as a basic strategy of the 4th Medium-Term Business Plan
and are working toward this goal accordingly. In terms ofenhancing our human resources, it is also important foreach employee to approach social issues with a sense of
personal involvement, and I believe that we must have thesystems, structures, and culture in place to support this. In
addition to building a human resource system and putting
efforts into human resource development, we must fostera corporate culture that supports the success of a diverse
range of personnel. In response to a constantly changing
business environment, we will strive to develop humanresources and a corporate culture that will serve as
powerful drivers for making VISION 2030 a reality.

35 KH Neochem Report 2022

Enhancing R&D capabilities and energizing
the innovation cycle
I believe that our three missions in R&D are (1) to create
new businesses and develop new products andtechnologies, (2) to pursue productivity and efficiency inthe manufacturing process for existing products, and (3)to broaden our intellectual property portfolio as afoundation for growth. In order to create new businesses
and develop new products and technologies, it isimportant to identify the seeds of ideas from various
perspectives, and to repeat the innovation cycle ofhypothesis testing and commercialization in an effective
and efficient manner. We will speed up this innovation
cycle by promoting a culture of taking on as many
challenges as possible — without being afraid to makemistakes — then sharing and drawing on the experienceand expertise produced.
In addition, to enhance the competitiveness of ourexisting products, we are constantly working to improve
our manufacturing processes, and by combining
improvements in productivity and efficiency with stable
and safe operations, we will help create richer lives forpeople and strengthen our earning power.
The new techniques and expertise we gain from thesevalue creation initiatives will be stored in our “Technology
Platform” as important intellectual property assets, thenused as a foundation for the Company’s growth.
We are confident that by fulfilling these three
missions and energizing the innovation cycle, we will
enhance our R&D capabilities to create new businesses
and achieve sustainable growth for existing businesses. In
addition, in the 4th Medium-Term Business Plan, we haveestablished a KPI for the number of collaborative andcooperative creations aimed at acquiring newtechnologies and markets, including the use of the “OpenLab” at KH i-Lab, which was established for collaborative
creation with third parties, as well as joint research withexternal research institutions such as universities. This is
to be used as a KPI for the level of activity in the value
creation process, and we are aiming for 10 or more suchprojects in each fiscal year.

To achieve the challenging goals set out in VISION 2030,
we must dramatically improve productivity, and thefoundation for doing that is our human resources. Driven
by the belief that we must foster a corporate culture thatempowers a diverse workforce and maximizes results, weare committed to implementing a variety of humanresource policies and corporate culture reforms.
Furthermore, we expect our employees to be
professionals with a deep understanding of their own roles,
focused on producing results, and always conscious of
their own growth.
Throughout the course of business activities based onsafe and stable operations, we have cultivated thestrengths of our human resources: high analytical ability, astrong sense of responsibility, and high spirit ofcooperation. On the other hand, in times of rapid change,
it is necessary to further improve aspects such as taking
on new challenges, speed, and specialization, with eachand every employee taking an active role as a professional.
This is what the “ideal type of person for 2030” set forth in
VISION 2030 represents. In order to facilitate the active
involvement of these professional human resources, weare introducing frameworks that allow each employee toproactively think about his or her career and develop his or
her abilities, as well as merit-based allocation of humanresources and a personnel system that places the rightpeople in the right positions.
The ideal type of person for 2030:• “Speed” in outperforming competitors• “Innovations” responding to changes in the environment• “Professionalism” to gain competitive advantage• “Networking” to further develop strengths

Creating an organization where adiverse range of human resources canflourish and enhancing corporate value
Having spun off as an independent operating company
from the then Kyowa Hakko Kirin Group in 2011, we were
faced with the urgent task of strengthening thefunctionality of our administrative divisions. As we took
steps to become independent and go public, we began
hiring mid-career personnel with a wealth of experience inadministrative divisions, and today there are manyorganizations where these personnel are in core positions,such as division managers. The Company as a whole has
made considerable progress in diversifying its humanresources, and we are now in the process of creating anorganizational culture in which a diverse range of
personnel can play an active role.
In addition, making use of team members with a wide
range of backgrounds, skills, and experience will not only

compensate for labor shortages, but will also inject new
perspectives not present in the company into theknowledge and experience we have cultivated so far,thereby facilitating the transition to an organizational
culture that is responsive to change and maximizes
results. For example, the contributions of these teammembers form the basis of efforts to use AI and IoT tosystematize skills and expertise in production technology,
which previously relied on individual craftsmanship, as
well of efforts to take on more advanced research. I believethat an organizational climate in which all kinds of people
can flourish is an indispensable driver for increasing
corporate value.

Toward a strong corporate structure
resilient in the face of change
In the past, KH Neochem’s various personnel systems andpolicies have been developed mainly by the Human
Resources Division. However, in order to respond flexibly
to new developments in this era of volatility and create anorganization that is resilient in the face of change, it isimportant for personnel policies to be considered not justby Human Resources, but for the heads of each division tothink independently about human resource strategies
that relate to issues in their own division and to
implement them in cooperation with HR. To this end,
since 2020, the Company has been holding “personnel
meetings” to discuss succession plans for division heads
and other core positions. Until last year, discussions were
led by full-time directors, but from this year, division
heads will take the lead in discussing management
development and issues to strengthen the organizational
functions of their own divisions, and for positions where
there are perceived deficiencies, they will formulate andimplement training and hiring plans. By discussing various
issues related to human resources, such as thedevelopment of future executive candidates, we hope tomake the challenges faced by each division clearer, and by
sharing these challenges, we hope to encourage division
heads to think more broadly and deeply, elevating theminto issues not only for their own divisions but also for theCompany as a whole.
I also believe that by having our employees think andact on their own initiative, fully demonstrate their strengths,
and play an active role in the Company, we can become astrong organization able to cope with any environment.

KH Neochem Report 2022

36

Drivers for Value Creation

Technology and Information (R&D)
Continuous innovation in
manufacturing technology

Energizing the Innovation Cycle
In order to achieve VISION 2030, we aim to energize theinnovation cycle by undertaking the following three
missions: (1) to create new businesses and develop new
products and technologies, (2) to pursue productivity
and efficiency in the manufacturing process for existingproducts, and (3) to broaden our intellectual property
portfolio as a foundation for growth.
Our R&D Division employs a system to create newvalue by setting R&D goals based on issues identified at
manufacturing sites and the research stage, customer

requests received during sales activities, and social issues
identified through engagement with stakeholders. The
R&D Center, which draws on external input to link the oxo
technologies, refining technologies, and high-quality
manufacturing expertise we have amassed over the years
to new value, and the Innovation Strategy Division, which
addresses social issues through technologicalcollaboration with outside organizations based on open
innovation, make use of this system in their research anddevelopment activities.

VISION 2030

Strategic Domains

Environment

Healthcare

Electronics

Missions(1) To create new businesses and develop new products and technologies(2) To pursue productivity and efficiency in the manufacturing processes for existing products(3) To broaden our intellectual property portfolio as a foundation for growth

New value creation activities

Goals in manufacturing technology• Support for stable operation of
manufacturing facilities• Development of technologies
aimed at cost savings andcarbon neutrality• Conduct multi-faceted exploration ofbusiness models using thestage-gate system and the WROC
(Wide Range Operation with
Curiosity) strategies

Value Creation using the Stage-Gate System

The Stage-Gate System is a framework for managing
ideas from creation to commercialization. It begins with
exploratory activities based on business issues andemployee interest, divides the R&D process into multiple
phases, establishes gates to evaluate ideas, andproceeds with commercialization of ideas that passthrough the gates.
Taking the strengths of our existing businesses as abasis, the R&D Center works closely with individual
divisions and collaborates extensively with external
ventures, universities, and other organizations to researchand develop new products and technologies. For example,
we are actively promoting the development of new
products in strategic domains by combining production
technologies for existing products with a variety ofevaluation techniques. We are also working to create newvalue from the so-called “seeds” represented by our
proprietary technologies, intermediate materials, andIntellectual property strategies• Visualization of intangible assets
accumulated over many years• Application of intangible assets• Strategic acquisition of patent rights• Reliable transfers of technology

products, engaging in commissioned and joint researchwith other companies and universities to that end.
At our Innovation Strategy Division, we are pursuing a
research program named the Wide Range Operation with
Curiosity (WROC) strategy. This program categorizes andtargets social issues that could arise in the future, fromglobal-scale issues (megatrends) to niche issues faced bycustomers and consumers. Conducting in-depth
investigations of phenomena that combine the interestsof every team member, the strategy is intended to inspire
free thinking not bound by rigid assumptions and a senseof ownership on the part of each individual.
In order to broaden our exploratory horizons, we arealso actively engaged in activities outside the Company,
such as taking advantage of the geographical location of
the KH i-Lab to participate in the Kawasaki Deep Tech
Accelerator, a support initiative for R&D startups in
Kawasaki City, as well as interacting with startups indifferent fields.

In addition to supporting the stable operation of
manufacturing facilities at the Yokkaichi and Chiba plants,
the R&D Center also verifies technologies for new capital
investment and develops technologies aimed at costsavings and carbon neutrality. In particular, it conducts
ongoing efforts to strengthen the competitiveness of ourexisting products by improving productivity, upgrading
production processes, and researching new
manufacturing methods, as well as developing
technologies for producing higher quality products. In
increasing production capacity for our mainstay product,refrigeration lubricant raw materials, it has developed
technology to improve its productivity. Moreover, in orderto acquire new technologies and develop new productsthat take advantage of our existing technologies andfacilities, it is working to improve our technicalcapabilities by expanding joint research and technicalverification efforts with external parties. For example, it isdeveloping new technologies that can handle a variety of
raw materials, including those of natural origin.

Initiatives for New Business Creation

We are stepping up our activities by increasing thenumber of projects and collaborations withbusiness and venture companies in different
industries, with our KH i-Lab open lab taking thelead in these efforts.
In April 2022, we invested in an agri-biotech
venture, Ac-Planta, Inc. Biostimulant materials, oneof the products developed by Ac-Planta, are effective
in increasing plants’ tolerance to high temperaturesand drought, and they are finding an increasing
number of users in the agricultural sector. We expectthat our work with Ac-Planta will contribute to the
expansion of our business in the development ofchemicals made from raw biomass materials.
Meanwhile, in the marine biodegradable resinmarket, we are working with a venture company on
R&D aimed at developing bio-derived products andhave begun sample evaluation aimed at attracting
potential customers.

KH i-Lab

Improving skills

Teamstrengths

Deepening curiosity andexpanding awarenessBusiness resources

37 KH Neochem Report 2022

Use the PDCA cycle in a short time frame
employing KPI management for all steps, fromgenerating ideas to building hypotheses

Future changes that arehighly certain

Future changes that arehighly uncertain

Developing
hypotheses

Proof ofconcept

Over the years, KH Neochem has amassed technologies
in synthesis, high purification, plant operation, andequipment management, and our research anddevelopment has yielded new insights. We are now
working to make these intangible assets visible, and oneof the ways we are doing this is through our Technology
Platform, a database systematizing our manufacturing
technologies, accumulated expertise, and other intellectual
property. In addition, by using information technology tofacilitate access to past technical reports and otherinformation, we will work to establish an environment thatallows intellectual property to be readily used, and toharness these visualized intangible assets throughinternal innovation, open innovation, and other means.
In order to ensure freedom while maintaining andenhancing our competitiveness in the strategic
domains of the environment, healthcare, electronics
and new businesses, we are strategically securing
intellectual property rights to some of our accumulated
intangible assets.

TOPICS

WROC strategy: research activities sparked by individual curiosity to generate new business
Building networks

An intellectual property strategy tostrengthen our foundation for growth

Scaling up andcommercialization
Left: Jong- Myong Kim, CEO, Ac-Planta
Right: Kohei Ito, Innovation Strategy Division, KH Neochem

Training through personnel exchanges withother companies

In order to foster innovators and facilitate collaborative
projects, in 2020 we began an exchange ofmanager-level personnel for learning innovation
mechanisms in different industries with NGK Spark PlugCo., Ltd. From fiscal year 2022, in order to develop the
program into collaborative innovation aimed at solving
more specific social issues, we are expanding the scopeof the personnel exchange to include young researchers.
As part of our efforts to create synergies within thegroup, we are developing personnel throughsecondments, mainly from back offices, to Kurogane
Kasei, which is engaged in the contracted developmentof electronic materials and other products.

Establishing an intellectual property
governance structure and conducting activities

The Company has established an Intellectual
Property Policy and a framework for conducting
intellectual property activities aimed at sustainablegrowth, consisting of two meeting bodies. The first is
the Intellectual Property Promotion Council, which
determines and monitors activity policies at thecompany-wide level. The second is the Invention
Advisory Committee, where the planning, sales, R&D,
and production divisions work together to takedecisions on intellectual property strategies.
Under these bodies, related divisions work
together on intellectual property activities,
discovering inventions and filing patent applications
in line with business strategies and R&D, as well as
responding to intellectual property risks.

Knowledge management of
exploratory activities using IT

KH Neochem Report 2022

38

Drivers for Value Creation

Human Resources and Corporate Culture
Promoting diversity

Enhancing Our Human Resources
Personnel evaluation system/
Human resource development system
KH Neochem has introduced various personnel systems
and measures aimed at “fostering a corporate culturethat empowers a diverse range of human resources andthat maximizes results.”
In terms of personnel evaluation, we identified issues
such as seniority-based promotion and advancement,
ambiguous evaluation standards, and lack of all-roundbalance in evaluations. To resolve these issues andachieve fair and credible evaluations and incentives
based on employees’ duties and performance, in 2020
we introduced a “job-based” personnel system for
managers under the slogan of “an evaluation andincentive system that rewards employees who take onchallenges and perform.” In January 2023, we plan toexpand the system to include general employment
positions. By determining compensation based on duties
and roles, and through early selection of outstanding
young personnel, we will establish a merit-based systemthat employees can have confidence in.

In recent years, we have also focused on expanding ourtraining programs, including targeted training fornext-generation management candidates (graduate school
program and GLOBIS Management School), management
skills development training for managers (understanding
the basics and roles of management), worker-manager
training to promote self-awareness and growth among
management candidates (assessment-method) , andspecialty-specific training to further increase theexpertise required for different job categories.
In conjunction with the introduction of the new
personnel system, we will continue to foster a sense ofcareer ownership among employees and support them intheir individual efforts and growth. This will be achieved
through career development support (in which
employees set medium-term career goals in consultation
with their supervisors and act proactively in their daily
work to achieve them) and the widespread adoption of
1-on-1 meetings between supervisors and subordinates.
We aim to achieve sustainable growth by creating anenvironment in which a diverse range of employees canfully demonstrate their abilities and flourish.

Education System
Position

Position-specificManagement skills

Human skills

Specialized skills training

Solution skills

On-the-job training
and career development

Languagetraining

Executive candidate fostering

Since 2018, we have conducted an engagement surveyof all employees and implemented measures to improveengagement in order to increase productivity in theworkplace. These include training and meetings for
managers to improve team engagement and the “OneWord Makes a Difference” campaign to invigorate
day-to-day communication.
The fourth annual engagement survey in fiscal year
2021 showed an improvement in company-wide
engagement levels compared to the first year, but it
remained almost unchanged compared to the previous
year. Some departments have seen a decline in

39 KH Neochem Report 2022

Language training and learning
support for instructor dispatch

Reforming our Corporate Culture andImproving Engagement

Self-development support system

New employee

New employees’
trainer system

Logical writing
Objective thinking

Workshop for new
employees’ trainers

Required training
Basic

Logical thinking
Presentations (basic)

Skills development
meeting

Mentoring

Planning and management

Required training
Fundamental

Presentations (advanced)
Problem-solving knowledge

Sales

Leadership

Production technologies, engineering

Required training
Advanced

R&D

Young
employees

Management candidate fostering (via assessments)

Human development
meeting

New managers

Mid-level
employees

Plan of Action for General
Employers – Targets
At least 9% of management positions held
by women
At least 15% of career-track positions held
by women
100% of female employees to takematernity leave, and at least 20% of male
employees to take paternity leave
Establish systems to ensure long-term,
stable employment
At least 80% of annual paid leave taken(Plan period: April 2022 – December 2024)

Improving the Working Environment

Management skills

Managers

Leaders

In accordance with our belief that the success of humanresources with a diverse range of values is essential forthe sustainable growth of a company, we have been
actively recruiting mid-career professionals over the past
several years. We feel that recently, the participation andcollaboration of many people with various different
backgrounds, experiences, and skills has generated awide range of ideas and options within the company, andthat we are now creating ways to speed up innovationand growth. In 2021, mid-career hires made up 67% of
the total number of those joining the company. We arealso taking measures in relation to the Act on
Advancement of Measures to Support Raising
Next-Generation Children and the Act on the Promotionof Female Participation and Career Advancement in the
Workplace. In addition to making efforts to actively
identify and recruit women managers and candidates inorder to encourage the participation and advancement offemale employees, we have also set out five goals in ourPlan of Action for General Employers.
In order to achieve these goals, we hold Diversity &Inclusion Lectures for directors and division heads toraise awareness that diversity is an issue that affects us
all. We will continue to develop new systems and othermeasures to support flexible work styles for different life
stages and to help employees balance work withchildcare, nursing care, and medical treatment.
Furthermore, we will undertake a wide range ofactivities aimed at fostering a corporate culture in which
each and every employee recognizes each other’s varied
values, and where everyone can play an active role
regardless of their gender or lifestyle.

engagement scores from the previous year, and we will
investigate the cause and implement countermeasures
for improvement. Interviews were conducted with
employees in departments with low scores to clarify
issues and to develop measures to address each of them.
Engagement survey results

3.09

3.13

3.12

Year 3

Year 4

2.99

Year 1(2018)

Year 2(2019)(2020)(2021)Creating workplaces where it is easy to work
KH Neochem is committed to creating comfortableworkplaces that respect each individual’s work-life balance.
We have various systems in place to allow
employees to work flexibly to suit their life stages,
including regular leave days, a flextime system, a paid
leave system that allows employees to take paid leave in
half-day increments, and a work-from-home system for
employees who need to look after children or care forfamily members.
In addition, in terms of countermeasures against
COVID-19, the Company has implemented andmaintained looser restrictions on working from home,
temporary elimination of core hours, effective use of web
conferencing, as well as encouraging staggered work
schedules. We will continue to give maximum
consideration to preventing the spread of disease and act
flexibly in light of social conditions.
In order to establish appropriate and positive
labor-management relations, a Management Council
consisting of management and labor union
representatives has been established at each workplace,meeting regularly to discuss management conditions,company policies, and other issues.
Other initiatives include mental health care,including stress checks and interviews with occupational
physicians, and safety activities, such as the thoroughimplementation of pointing and calling in plants andhazard prediction activities, and through these, we hopeto create an environment where all employees can workin good health and peace of mind.

Improving the working environment by upgrading
office buildings
In March 2022, we completed an addition to theKasumigaura Manufacturing Office at our Yokkaichi
Plant. In addition to creating a comfortable working
environment for employees, we have taken effective
countermeasures against natural disasters such as
earthquakes and tsunamis. We are also working tostrengthen our quality system by installing a clean roomof the highest standard at our facility. (see p.24 )Our Head Office moved to its current building in2019 to improve the work environment, and we areworking on various measures to provide a better working
environment at our other locations as well.

Yokkaichi Kasumigaura Manufacturing Office
Photo: Ena Mitsui (Kawasumi · Kobayashi Kenji Photograph Office)KH Neochem Report 2022

40

The Foundation of Our Value Creation

Roundtable Discussion with Outside Directors

The Role of Corporate Governance in
Sustainable Management
In 2021, we continued to enhance our corporate governance through measures such as clarifying the rolesof execution and supervision. We invited our independent outside directors for a discussion on thecorporate governance needed to drive Sustainable Management, one of the goals of our 4th Medium-TermBusiness Plan.

thoughts and hold repeated discussions while sharing
ideas. If we give up on doing that, we will not grow, but I
think we are having some very meaningful discussions onthat issue. The strength of this Company’s Board of
Directors that I really appreciate is that they still ask for
opinions from outside the Company for topics that havealready been thoroughly debated by Company executives,
and they respond to those opinions with sincerity.
Miyairi It is an opportunity for the Board of Directors toreconsider issues from scratch even if they have been
fully discussed internally. On such occasions, theCompany does not hesitate to explain matters afresh,and there have been cases where President Takahashi
himself re-explained an issue we were having a hard time
grasping. This attitude really shows the Company’s
seriousness.

Apart from the Board of Directors,
have there been any new
governance-related initiatives?

Yuji Kikuchi

Sayoko Miyairi

Jun Tsuchiya

Independent Outside Director

Independent Outside Director

Independent Outside Director

Appointed in March 2020. Attorney. He
has experience working for the
Securities and Exchange SurveillanceCommission and expertise in corporate
law and corporate governance.

Appointed in March 2019. Based on her
work experience as an executive at aconsulting firm and her extensive
experience and insight as a university
professor, she provides opinions andrecommendations, especially for humanresource development and ways to improveorganizational culture and engagement.

Did the separation of execution andsupervision in April 2021 change theBoard of Directors in any way?
Miyairi Over a year has passed since we clearly
separated the execution and supervision functions, and I
can feel things starting to come together. The directors
see things from a higher viewpoint now and at the Boardof Directors’ meetings we are able to discuss issues thatconcern the whole Company from a broad, medium- tolong-term perspective. The executive officers have also
begun providing explanations that show an awareness of
their executive responsibilities.
Tsuchiya My impression of discussions at Board of
Directors’ meetings is that they are comprehensive andwell organized. I also think we hold enough discussions
on finances and other quantitative matters. The nextchallenge is to objectively discuss non-financial issues

41 KH Neochem Report 2022

Appointed in March 2020. He has
management know-how cultivated at
global companies and advanced
technical knowledge in the chemicalindustry.

that are difficult to quantify. When it comes to that, we
outside directors have a vital role to play in suggestingalternative ways of thinking to President Takahashi.
Furthermore, in this age when the chemical industry isfacing major upheavals, companies on the scale of KH
Neochem must also change in order to stand firm andmaintain or increase share value and continue theirbusiness. I hope we can discuss how to evolve thebusiness model and similar matters at the Board of
Directors’ meeting and other fora. I would honestly
welcome it if KH Neochem was determined to squeeze
every last drop of value out of us outside directors.
Kikuchi Increasing the effectiveness of the Board of
Directors is directly linked to making KH Neochem a goodcompany, or in other words, to increase corporate value,and I think the current Board of Directors is devoting aconsiderable amount of brainpower to that issue. For thesake of the Company’s medium and long-term strategy, it
is essential for us to slowly but surely organize our

Miyairi We three outside directors interviewed division
heads in the last fiscal year. The catalyst for this was theNomination and Compensation Advisory Committee that
Mr. Kikuchi chairs. When officers are nominated, it is
impossible for us to determine whether they are capableof addressing the issues they are faced with just byhaving a list of candidates thrust on us and hearing an
explanation. That is why we held remote interviews withall the division heads, who will be the candidates for the
next generation of management. We invited the division
heads to tell us about themselves, and we also asked
them their thoughts and attitudes towards the 4th
Medium-Term Business Plan, which was almost fully
written at the point, as well as any problems they sensed
with it. This gave us the chance to know everyone’s faces
and personalities, so it was a very effective initiative.
Tsuchiya Doing it remotely was a great move. If it had
been in person, they may have been intimidated by being
surrounded by three outside directors. Ms. Miyairi had acalming effect on the meetings, so we were able to haverelaxed discussions with everyone.

Kikuchi It takes a lot of time and effort to interview
division heads so this initiative hardly ever takes place atother companies, but we really treasure theseopportunities to get to know the people in the next
generation. Furthermore, the Nomination andCompensation Advisory Committee at KH Neochem
meets more frequently than those at other companies.
One of the things we considered last year was a revision
to executive compensation, and we discussed the matter
until the committee as a whole was in agreement. I think
our discussions are very effective.

How do you evaluate the materiality
and KPIs that were newly formulated
in line with the Seven Promises?
Tsuchiya First of all, I think expressing our promises tostakeholders in writing last year through the Seven
Promises was an excellent idea. All seven promises are
qualitative, and the Company has expressed how it
intends to approach Sustainable Management in clear,simple language instead of with numbers. I am sure it iseasy for employees to understand as well. At the sametime, KH Neochem has also set the materiality and KPIs
for the duration of its 4th Medium-Term Business Plan as
quantitative targets. Setting KPIs allows the executives tomanage the numerical values, so it will be critical for the
Board of Directors to focus on and supervise the essential
aspects of the Seven Promises going forward.
Kikuchi That is true. Setting KPIs makes it easy foreveryone to evaluate progress on targets, but in myopinion, we must focus on the circumstances andpurposes hidden behind the KPI numbers. In other words,
we should always be thinking beyond KPIs. In line with
the introduction of the Corporate Governance Code, I
think it is good that the Company’s governance can bevisualized thanks to KPIs, but the crucial thing is whatlies beyond.

Miyairi In the interviews, we got to hear their frankthoughts and feelings about their daily duties anddiscussed how to make improvements. We learned about
the circumstances executives are in and were able tocommunicate with each other, and we are putting thesethings to good use in monitoring. The Nomination andCompensation Advisory Committee was also able to haveseveral discussions based on the information gained fromthe division head interviews, which will help us evaluate
officers properly. We are in a position of accountability,
and I am confident that management is being carried out
satisfactorily in that regard.

KH Neochem Report 2022

42

The Foundation of Our Value Creation

Roundtable Discussion with Outside Directors
Miyairi In the first place, things like standards are ameans to measure your target object. It is not enough tomeet your KPI target values: you must ensure that you
have actually achieved your real objective. When it
comes to actual work, if we become obsessed withmaking the KPI targets progress the way we want to, we
may end up with the very opposite result from ouroriginal aim, so we need to be careful.
Tsuchiya Yes, it is true that the executives can manage
the quantitative aspects of the KPIs. They can manage
progress, analyze the reasons behind the results andformulate countermeasures, but judging quality is muchharder. This is particularly important from the perspectiveof whether they are linked to Sustainable Management or
not. I have three standards for determining whether
management is sustainable. First, is it constantly creatingjobs? Second, is it ceaselessly striving to create new
businesses? That is, does it put in the work necessary tochange? Third, is there ultimately satisfaction with theresults? When it comes to change, it is not enough toboldly declare all the wonderful things you plan to do. It
must be accompanied by leadership and thestakeholders must be satisfied and in agreement, or no
one will follow you. A company that can meet all threestandards is a good one. I hope we can ensure that we aredoing these things as we progress.
Kikuchi That would certainly be the focus point thateveryone can agree on. You might call it the viewpointfrom behind the KPIs, or even from the undercurrent
beneath them.
Tsuchiya Along with that, I have been recommending
the creation of a system that supports risk-taking sincelast year. An example would be a management exercise
involving a simulation of an M&A or investment. If there’s
a missing piece in terms of management, they canconsider an imaginary company that could fill that gap
and calculate it from the point of view of an M&A. Thatwould be an opportunity to think about management andmay even lead to changes.

Miyairi Right now the Company is seriously engaged increating new businesses, but when it comes torisk-taking, it is not enough to merely promote the idea oftrying new things. We also need a company culture thatnaturally accepts risk-taking and thanks people for theattempt even if they do not succeed. It is essential forthat culture and value system to be clear from the words
and attitude of management so that the Company as awhole can take risks without fear.

What are your thoughts on employee
awareness of risk management
and compliance?
Kikuchi Due to the nature of my work, I am often
involved in preparing for all kinds of problems and setting
various rules. However making rules stricter and checking
thoroughly to ensure there are no mistakes does notnecessarily mean there will be no slips or errors.
I believe that shipping out high-quality goods
continuously and making customers happy is amanufacturer’s reason for being. It may be paradoxicalfrom my standpoint as an attorney, but I think thatinstead of setting detailed and specific rules, it is moremeaningful for every employee to regard themselves as aprofessional, to think proactively and to act
independently. It is one of management’s responsibilities
to ensure that this mindset and behavior thoroughly
permeates the Company. It would be best if the president
and the rest of the management team went to offices andfactories and spoke with employees directly, but
depending on the situation, it might be good if we outside
directors had the chance to discuss matters with frontline
staff as well.
Tsuchiya I have been involved in the chemical industry
for many years, and I have realized that the state of
employee awareness changes as the times do. Whenthey are taught things, not only must they understandthem logically and emotionally, but they must also be
convinced of them. For example, the philosopher
Aristotle is known for proposing the concept of the logos(logic), pathos (passion) and ethos (trust). Out of those
three, I think ethos is the most essential. Logos isbasically logic and does not change much with the times.
On the other hand, in the 70s and 80s, you would havesupervisors frequently inviting their subordinates out for
drinks and cautioning them about mistakes to avoid asthey drank. That is pathos. Employees saying things inunison at morning gatherings, such as “No workplace
accidents for XX days!” is also pathos, and it is also
important. In the world today, however, logos and pathos
are not enough for effective management. You must haveethos. That is conviction, and trust. In the 2020s, we must
be able to discuss calmly matters like “What would bestin this situation?” without drinking anything.
Miyairi I must say I’m impressed by Mr. Tsuchiya’s fervor(haha). Based on my past consulting experience, I can say

43 KH Neochem Report 2022

that problems and misconduct can still occur even if you
prepare lists and meticulously check items off. Moreover,
not everything can be converted to rules or written in amanual. Not just that, but as soon as you set a boundaryof “assumptions” through rules and manuals, thecategory of “outside assumptions” appears as well, andyou create an escape route that allows people to claimthat they were simply following orders or obeying therules. What really matters is the sensitivity to realize on
one’s own that events you have never experienced andthat are not written in checklists and manuals may occur.
We need to create an organization with human resourcesthat can always detect both small daily changes and thepossibility of once-a-century events no one has everexperienced, and it must be an organization withmanagement that can draw out and apply the opinions ofsuch people. The way we communicate will be crucial toachieving that.
Tsuchiya It is vital to evaluate employees positively forbeing able to do what is expected of them. In the past,
just seeing the smile on your scary boss’s face when you
did what was expected might have been enough to let a
subordinate know that he or she was doing well. Right
now, however, you will need a clearer and more specificevaluation method to convey the message.
Miyairi Instead of evaluating people by deducting
points, it is better to add points for things they achieved.
Instead of enumerating the things they could not do,
thinking about why they succeeded will help themunderstand why they are doing what they are doing andwhy it matters.
Tsuchiya It all boils down to conviction in the end.
Ethos. In this day and age, athletes like Shohei Ohtani
approach their sports with ethos (conviction) as well as
pathos (passion), and in my opinion, that is why they
perform so outstandingly. The same applies toeveryday work.

What are the challenges to raising
corporate value in the medium tolong term?
Kikuchi There is no doubt that KH Neochem’s products
are highly beneficial and useful to society. I think theCompany has promoted that fact sufficiently until now,
but the fact is that the specifics they are promoting willlose appeal over time. Figuring out how to keep andincrease interest in the medium and long term will be achallenge.

and before and after it was listed on the stock exchange,
but the number of employees who personallyexperienced those periods will gradually reduce, so weneed to consider how to respond to changes that may
occur in the future.
Miyairi My biggest concern is people. Human resources.
The Company has set improving employee engagement
as a KPI, and since KH Neochem is in the manufacturingindustry, it needs to improve practical work skills in orderfor its business to grow. This is directly connected to theawareness and ambition of the employees working in thefactories. Although the Company is recruiting more
mid-career workers and increasing diversity, I believethat by actively accepting diverse personnel in thefactories and other places, they will be able to foster amindset of taking a personal interest in external changes
and encouraging transformation.
Additionally, investing in equipment is just as vital as
human resources. Trying to start new businesses isdefinitely important, but making the capital investments
needed to increase the productivity of the main
businesses is of chief importance. We will work hard to
help investors understand that such investments will leadto a stable supply of products with market value in themedium to long term. For the issue of increasing thepractical abilities of the workforce, which cannot
necessarily be measured quantitatively with KPIs, weoutside directors will provide enthusiastic support forfinding a solution and approach the matter from a
medium- to long-term viewpoint with the Seven
Promises ever in mind.

Tsuchiya What I think will be a challenge is how
management and the Company will respond to drasticchanges in a world where the external environmentchanges with dizzying speed. That is something only
experience can teach. Certainly the Company has
weathered many changes since it became independent

KH Neochem Report 2022

44

The Foundation of Our Value Creation

Corporate Governance
Overview of Corporate Governance Structure

Basic Conceptual Approach
Guided by the Corporate Mission “Realizing a brighter tomorrow for society through the power of chemistry,” the KH
Neochem Group is committed to realizing sustained growth; medium- to long-term increases in corporate value; andsound management that assures transparency and fairness. To achieve these goals, we are building and improving a
corporate governance structure that reflects the points outlined below.
• To strive for substantive assurance of the rights and equality of our shareholders and engage in constructive dialogue with them.
• To disclose accurate financial information and non-financial information that is useful in constructive dialogues with ourshareholders and other similar purposes, with appropriate timing and in a readily understandable format.
• To strive toward appropriate cooperation with stakeholders other than our shareholders.
• For corporate executives and the Board of Directors to provide leadership for building a corporate culture of respect for
the rights and perspectives of our various stakeholders and for ethics in business activities.
• For the Board of Directors to fulfill its responsibility to exercise effective supervision from an independent perspective
over the execution of duties by corporate executives, to make every effort to develop an environment that supports
corporate management risk-taking, and so on.

General Meeting of Shareholders
Election/
Dismissal

Board of Directors

Consultation

Advisory

Nomination and Compensation
Advisory Committee

President & Chief Executive Officer
Management
Committee

Supervision/
Direction

Reporting

Audit &
Supervisory
Board member

2014

2016

Established the Corporate Policy
Established an optional Nomination &Compensation Advisory Committee
Appointed one independent outside director
Appointed two independent outside audit &supervisory board members
Listed on the First Section of the Tokyo Stock Exchange
Published a corporate governance report

2017

Started the evaluation of effectiveness of the Boardof Directors
Added one independent outside director

2018

Terminated the retirement benefit plan for board
members
Introduced performance-linked stockcompensation system

2019

Appointed one independent outside director(female)2020

Added one independent outside director
Appointed one independent outside audit &supervisory board member (female)
Established the Compliance Code2021

Expanded the transfer of operational execution
authority
Operation of performance-linked stockcompensation system
Established various policies (refer to page 54)

2022

Revised the Basic Policy for the Internal Control
SystemMoved to the Tokyo Stock Exchange Prime Market

Sixty and above

4

Fifties845 KH Neochem Report 2022

4

Ratio ofindependent
outside officers

Sixty and above

2

Fifties3

1

Ratio offemale officers

0%

0%

0%

14.3%

30.0%

0%

22.2%

33.3%

0%

28.6%

40.0%

10.0%

37.5%

Age composition of the Audit &Supervisory Board

Age composition of theBoard of Directors

Ratio ofindependent
outside directors

45.5%

18.2%

Composition of the discretionary
Nomination and Compensation Committee(Chair: outside director)
Internal

1

Accounting Auditor
Evaluation/
Dismissal

Accounting
audit

Cooperation

Audit Division

Executive Directors

Environmental Safety
Committee

Supervision Reporting

Responsibility

Quality Assurance Committee

Internal
audit

Advisory

Operating Divisions(Currently reviewing the organization including committees and meetings toward driving an effective sustainable management.)

Board of Directors
The Board of Directors of KH Neochem promotes
sustainable growth and improvement of medium- tolong-term corporate value and works to build and operate
an appropriate corporate governance structure while
functioning as an operational decision-making body on
items in laws, regulations, and the Articles of Incorporation,
as well as important management matters. It also functions
as a supervisory body over the execution of duties by the
executive directors. It consists of eight directors, including
three outside directors. As a rule, the Board of Directors
meets regularly (once a month). Extraordinary meetings ofthe Board of Directors can be convened as necessary todeal with urgent management issues.
Audit & Supervisory Board and Audit & Supervisory
Board Members
Audit & Supervisory Board members meet with the Boardof Directors, Management Committee, and other
Main agenda items for Board of Directors meetings in 2021
Management
strategy• The 4th Medium-Term Business Plan
• Value creation story

Governance• Evaluation of the effectiveness of the Board of
Directors (Discussion of open issues and action plan)• Activity report of the Nomination andCompensation Advisory Committee• Compliance with the revised Corporate Governance
Code• Response to the reorganization of the Tokyo Stock
Exchange Markets• Establishment, revision, or termination of various
policies, rules, and regulations

Outside4

Election/
Dismissal

Direction
Reporting

Division Heads

Independent outside officer (female)

Cooperation

Cooperation

Monthly Performance
Report Meeting

Directors

Established an optional
Compensation Committee

Audit(one-half or more of the committee
members are Outside Directors)(The term “officer” as used in this chart refers to board directors and corporate auditors)

Introduced Corporate Officer system

Audit & Supervisory Board(one-half or more of the board members
are Outside Corporate Auditors)

Appointment/ Reporting
Dismissal/
SupervisionCorporate Officers

Independent outside officer (male)

2013

Audit

(more than one-third of the board members are Outside Directors)

History of Strengthening GovernanceFull-time director and outside officer (male)Election/
Dismissal

Reporting3

Business andother• Fiscal year budget and investment plan
• Capital investment projects for performance materials• Response to COVID-19

important committees, where they audit the execution ofduties by executive directors with the performance,
including, but not limited to, stating their views asrequired, examining important documents underconsideration for approval. They also take steps formutual coordination with the Audit Division andaccounting auditors by regularly exchanging views andinformation, holding discussions with them, and so on.
The KH Neochem Audit & Supervisory Board has threemembers, including two outside members. As a rule, theAudit & Supervisory Board holds regular meetings once amonth and also holds extraordinary meetings asnecessary. Audit & Supervisory Board members
coordinate with each other, formulating auditing plans,
examining audit implementation status and audit results,
and engaging in related activities.
Nomination and Compensation Advisory Committee
KH Neochem has established a discretionary Nomination
and Compensation Advisory Committee with an outside
director as the chair and more than half of the members areoutside directors. This committee acts as an advisory bodyto the Board of Directors to reinforce the independence,
objectivity, and transparency of directors’ actions anddeliberations on the nomination and compensation of
executive directors and executive officers.
Main agenda items for the Nomination and Compensation
Advisory Committee in 2021
• Conducting interviews with division heads for succession
planning and next-generation talent development• Reviewing the budget for compensation for Directors• Evaluation of Corporate Officers

KH Neochem Report 2022

46

The Foundation of Our Value Creation

Corporate GovernanceEvaluation of Effectiveness of the Board of Directors

Executive Compensation, etc.

The effectiveness of the Board of Directors is evaluated once a year with advice from an external agency. The members of
the Board of Directors consider specific improvements based on the results, and ongoing efforts are made to improve thefunctioning of the Board by implementing those measures.
To date, the effectiveness of the Board of Directors as a whole has been recognized as being secured,as the role, composition, and operation, etc. of the Board of Directors have all received positive evaluations in theeffectiveness evaluation.

Compensation for directors consists of monetarycompensation made up of fixed compensation andperformance-linked compensation, as well as
performance-linked stock compensation. Outside directors
and Audit & Supervisory Board members are compensatedin cash (consisting solely of a fixed monthly amount).
In determining compensation, a discretionary Nomination
and Compensation Advisory Committee has been establishedto ensure the appropriateness and transparency of the level ofcompensation for directors. The Committee deliberates onpolicies and levels of compensation for directors and Audit &Supervisory Board members, and even confirms the resultsof calculations of individual compensation for each directorand Audit & Supervisory Board member.
The basic policy regarding the compensation for
directors (excluding outside directors) is as follows:

Performance-linked, Share-based Compensation
Performance-linked, share-based compensation is
calculated using the rate at which planned earnings areachieved on the condition that consolidated operating
income is in the black. While putting more priority on
performance, this compensation system clarifies the linkwith the stock price, providing directors with both benefit
from increases in the stock price and the risk ofdecreases in the stock price with shareholders, thereby
increasing awareness of contributing to improvement of
medium- to long-term performance and increasing ofcorporate value.

Monetary Compensation
Around 30% of all monetary compensation is
performance linked, and it is calculated using the rate at
which planned earnings are achieved and the averageachievement rate over the past five years.

*EBITDA is calculated using the following formula: EBITDA = Operating income +depreciation and amortization + amortization of goodwill (the amount from theconsolidated statement of income is used for operating income, while theamounts from the consolidated statement of cash flows are used for
depreciation and amortization and amortization of goodwill).

Initiatives to date
2018
2019
2020

From the viewpoint of separation of management and execution, matters to be reported and matters to be resolved shall belimited to important matters related to management decisions.
Discussions that do not require a resolution are held to further enhance discussions at Board of Directors meetings.
In order to enhance discussions on subjects such as strengthening the supervisory function and medium- and long-term
management strategies, key initiatives will be monitored and resolutions that are formalities will be reviewed.
The agenda will be set to enhance discussions on important issues such as basic management policies and sustainableimprovement of corporate value.
Roles will be clarified and executive training provided using the skills matrix to further leverage the strengths of the Boardof Directors.

2021 Evaluation of Effectiveness• Implementation period: Sep to Nov 2021
• Method of evaluation of effectiveness: survey by outside party(multiple choice/descriptive)(third party used to ensure anonymity)• Target: 11 persons total (8 directors, 3 Audit & Supervisory Board members)• Main topics of the survey:• basic points regarding the functions, composition,and operation of the Board of Directors• Status of improvement on issues from previous year
• Items on sustainability

Results ofevaluation ofeffectivenessThe effectiveness of the Board of Directors as a whole was deemed to have been ensured. There was also some
improvement in the survey item that received a low evaluation last year (enhanced discussion on basic management
policies and important issues). The analysis also noted as strengths the fact that there is free and constructive exchangeof opinions in the Board meetings, and that the Board of Directors has a sufficient balance, diversity, and size in terms of
the knowledge, experience, and abilities necessary to formulate management policies and supervise the Company.

IssuesVarious discussions from a medium- to long-term perspective are even more necessary for “Sustainable Management.”
Effective KPIs and appropriate monitoring are necessary to achieve the 4th Medium-Term Business Plan.

Improvement
initiatives for2022

Set agendas for Sustainable Management and medium- to long-term growth strategy
Conduct free discussion outside of Board meetings
Enhance executive training and conduct KPI monitoring

State ofinitiatives in
2022

Set agendas for key themes (Medium-Term Business Plan, climate change, etc.) and conducted discussions.
Conduct free discussions (get-togethers) after Board meetings, and plan to hold offsite meetings to further
deepen discussions.
Hold mutual training sessions for directors, set the materiality and KPIs for the Medium-Term Business Plan, andmonitor them on a quarterly basis.

Support System for Outside Directors andOutside Audit & Supervisory Board Members
Agenda items and important information to be discussed
at the Board of Directors meetings are distributed tooutside directors and outside Audit & Supervisory Board
members in advance, and explanations are provided inadvance by the secretariat and the division making the
proposal. For newly appointed outside directors andAudit & Supervisory Board members, we strive to deepen
their understanding of our Group by providing them withmaterials and information and arranging briefing
sessions. We also provide opportunities for tours of ourplants and subsidiaries, and opportunities for interaction
and dialogue with employees on the front lines.

47 KH Neochem Report 2022

Performance-linked Compensation Indicators
The evaluation index used for performance-linked
compensation (both monetary compensation andshare-based compensation) is EBITDA* (consolidated),taking into account the characteristics of the Company's
business and other factors. Because the Company owns alarge number of facilities, it considers EBITDA, which
includes depreciation and amortization in its calculations,
to be a useful indicator.

• Provides sufficient incentive to improve performance andincrease corporate value over the medium to long term
• Has a competitive edge in attracting diverse andsuperior talent• Shares interests with shareholders and other stakeholders

Total Amount of Compensation by Officer Classification, Total Amount of Compensation by Category,and Number of Officers Subject to Compensation (2021)

Officer classification

Total amount ofcompensation(million yen)

Total amount of compensation by category (million yen)
Monetary compensation
Fixed

Share-based
compensation

Performance-linked Performance-linked

Number of
officers subject
to compensation

Directors (excluding outside directors)

168

104

29

34

5

Audit & Supervisory Board members(excluding outside members)

21

21

–

–

1

Outside directors

25

25

–

–

3

Outside Audit & Supervisory
Board members

14

14

–

–

2

Executive Training

Cross Shareholdings

We have invited experts, lawyers, and other professionals
to provide ongoing training opportunities for management.
In 2021, various study sessions were held under the main
themes of “corporate value,” “sustainability,” and “internal
control and risk management.” In addition, we have been
conducting executive training by Professor Emeritus Kunio
Ito of Hitotsubashi University since2019. In 2021 he gave a lecture on
the theme of “corporate value
management” and on “humancapital management” in 2022, andExecutive training by
engaged in a lively exchange
Professor Emeritus Kunio Ito
of Hitotsubashi Universityof views.

To improve corporate value, KH Neochem owns shares incompanies considered important for maintaining
medium- and long-term business connections andsynergies that are based on an understanding of theimportance of each other’s management policies,
business lines, and business dealings.
Approximately 50% of investment shares on thebalance sheet are unlisted shares, of theseapproximately 90% are shares in affiliated companies
acquired through joint investments in key materials
manufacturers and in management companies for joint
industrial complexes. Thus, these holdings truly arebusiness investments.

For shares in listed companies, KH Neochem reviews
the rationale for each shareholding, including appraisal
losses and gains, compliance status, and businessdealings with the Company. Decisions are made based onan effective balance between the cost of capital andcontributions to KH Neochem earnings, or fromcomprehensive and medium- or long-term perspectives,
including access to market information or R&D initiatives.
Verification is conducted annually by the Board of
Directors, and during 2022, we plan to reduce theamount of listed stocks held as of the end of the previous
fiscal year by approximately 10% of the amount recordedon the balance sheet.

KH Neochem Report 2022

48

The Foundation of Our Value Creation

Corporate GovernanceMembers of the Board
Directors

Audit & Supervisory Board Members

Michio Takahashi

Masaya Hamamoto

Sayoko Miyairi

Representative Director President & CEO
Chief Executive Officer

Board Director
Senior Corporate Officer

Independent Outside Director

Apr. 1987 Joined Kyowa Hakko Kogyo Co., Ltd.

Apr. 1985 Joined The Industrial Bank of Japan, Limited.
(now Mizuho Bank, Ltd.)

July 1982 Joined Bank of America, N.A., Asia Headquarters

July 2011 General Manager of Basic Chemicals Division of
Kyowa Hakko Chemical Co., Ltd. (now the Company)
Mar. 2016 Managing Director and Executive Officer of theCompany

Mar. 1986 Joined Pasona Inc. and seconded and then transferred to Edu Consult Co., Ltd.
(now Scholar Consult Co., Ltd.)
Apr. 2000 Partner of Scholar Consult Co., ltd. (to present)
Apr. 2000 Assistant Professor of Nihonbashi Gakkan University

Apr. 2014 Executive Officer and General Manager ofCorporate Banking Division No. 5 of Mizuho Bank, Ltd.
(retired in March 2015)

Mar. 2017 Executive Vice President & Executive Officer of
the Company
Mar. 2019 Representative Director, President and Executive
Officer of the Company
Mar. 2020 Representative Director, President and Chief
Executive Officer of the Company (to present)

Audit & Supervisory Board Member

Apr. 1979 Joined Hitachi, Ltd.

Apr. 2011 General Manager of Osaka Corporate Banking
Division No. 1 of Mizuho Corporate Bank, Ltd. (now Mizuho
Bank, Ltd.)Mar. 2013 Director and Executive Officer of the Company

Tokuo Odo

Jan. 2005 Director of Scholar Consult Co., ltd.
Apr. 2008 Professor of Nihonbashi Gakkan University (now Kaichi International University)

Apr. 2015 Executive Officer of IBJ Leasing Company,
Limited. (now Mizuho Leasing Company, Limited)

Mar. 2019 Outside Director of the Company (to present)

June 2015 Director, Executive Officer and General Manager
of Corporate Planning Department of IBJ Leasing Company,
Limited.

Apr. 2022 Emerita and Guest Professor of Kaichi International University (to present)

Aug. 2020 Outside Director of Toyo Engineering Corporation (to present)
Jun. 2022 Outside Director of NIHON SEIKAN K.K. (to present)

Jun Tsuchiya

Mar. 2020 Board Director & Senior Corporate Officer & Chief
Financial Officer of the Company (to present)

Toshiaki Ogata

Independent Outside Director

President of Kurogane Kasei Co., Ltd.

Apr. 1981 Joined Argonne National Laboratory, U.S.A.

Apr. 1987 Joined Kyowa Hakko Kogyo Co., Ltd.

May 1983 Joined Lawrence Berkeley National Laboratory, U.S.A.

Apr. 2008 General Manager of Production Administration
Division of Kyowa Hakko Chemical Co., Ltd. (now the
Company)

Feb. 1984 Joined Mitsubishi Chemical Industries Limited (now Mitsubishi Chemical
Corporation)

Yukihiro Isogai

Jan. 1999 Seconded as President to Verbatim Corporation, U.S.A. subsidiary of Mitsubishi
Chemical Limited

Board Director
Senior Corporate Officer

Apr. 2013 Executive Officer of the Company

Apr. 2001 General Manager of Corporate Planning Office of Mitsubishi Chemical Industries
Limited (retired in January 2002)

Apr. 1987 Joined Toaboshoku Co., Ltd.

Mar. 2014 Director and Executive Officer of the Company

Feb. 2002 Director of Rohm & Haas Japan K.K. (now Dow Chemical Japan Limited)

Aug. 2000 Joined YIC Co., Ltd.

Mar. 2018 Managing Director and Executive Officer of theCompany

Jan. 2007 Representative Director and President of Heraeus K.K.

Oct. 2001 Joined Kyowa Hakko Kogyo Co., Ltd.

Oct. 2018 CEO of Tsuchiya International Consulting Corp. (to present)

Jan. 2016 General Manager of Yokkaichi ResearchLaboratories, R&D Office of the Company

Mar. 2020 Board Director & Senior Corporate Officer of theCompany (to present)

June 2019 Outside Director of Soken Chemical & Engineering Co., Ltd. (to present)
Mar. 2020 Outside Director of the Company (to present)

Dec. 2017 General Manager of R&D Office and General
Manager of Yokkaichi Research Laboratories,
R&D Office of the Company
Mar. 2019 Director & Executive Officer of the Company

Apr. 1992 Registered as an attorney at law, Entered Sakano, Seo & Hashimoto Law Office(now Tokyo Hatchobori Law Office)Apr. 2002 Partner of Tokyo Hatchobori Law Office

July 2013 General Manager of Chemical Sales & Marketing
Division, Business Headquarters Office of the Company

Mar. 2003 Joined the Securities and Exchange Surveillance Commission (Coordination andInspection Division, Executive Bureau)

Jan. 2016 Executive Officer of the Company
Mar. 2017 Director & Executive Officer of the Company

Mar. 2005 Returned to being a partner at Tokyo Hatchobori Law Office (to present)

Mar. 2019 Managing Director & Executive Officer of theCompany

June 2010 Outside Audit & Supervisory Board Member of Inui Warehouse Co., Ltd.
(now Inui Global Logistics Co., Ltd.)Mar. 2020 Board Director & Senior Corporate Officer of theCompany (to present)

June 2014 Outside Audit & Supervisory Board Member of NEC Networks & System
Integration Corporation
Mar. 2020 Outside Director of the Company (to present)

Board of Director Members (Board Director/Audit & Supervisory Board Member)
TitlesNumber ofyears in Independency
officeFemaleBoard ofDirectors

Number ofboard meetings
attended

Chairperson

16 of 16

Michio Takahashi

Representative Director
President & CEO

9 Years

Toshihiro Matsuoka

Director

8 Years

16 of 16

Tatsuro Niiya

Director

5 Years

16 of 16

Masaya Hamamoto

Director

2 Years

16 of 16

Yukihiro Isogai

Director

3 Years

16 of 16

Sayoko Miyairi

Outside Director

3 Years

16 of 16

Jun Tsuchiya

Outside Director

2 Years

16 of 16

Yuji Kikuchi

Outside Director

2 Years

16 of 16

Tokuo Odo

Audit & Supervisory Board
MemberOutside Audit &Supervisory Board Member
Outside Audit &Supervisory Board Member

5 Years

16 of 16

2 Years

16 of 16

2 Years

16 of 16

Kazuhiro Kawai
Keiko Tamura

49 KH Neochem Report 2022

Yoshiaki Kondo

Head of Environment, Safety and Quality
Assurance

Hideki Shimizu

Head of Corporate Planning

Akira Kamimura

Independent Outside Director

Apr. 1988 Joined Kyowa Hakko Kogyo Co., Ltd.

General Manager, Chiba Plant

Head of Corporate Administration, Public
Relations, Legal and Compliance

Yuji Kikuchi

Mar. 2022 Board Director and Senior Corporate Officer of
the Company (to present)

Board Director
Senior Corporate Officer

Akio Nakahashi

Isao TakahashiJan. 2018 Executive Officer of the Company

Tatsuro Niiya

Outside Audit & Supervisory Board Member(Independent Auditor)

General Manager, Yokkaichi Plant

Sept. 2019 Senior Executive Officer of the Company

June 2011 General Manager of Yokkaichi Plant of theCompany

Keiko Tamura

Seiji Saito

June 2019 Joined the Company

Board Director
Senior Corporate Officer

Outside Audit & Supervisory Board Member(Independent Auditor)

Corporate Officers

Apr. 2016 Managing Director, Managing Executive Officer
and General Manager of Corporate Planning Department of
IBJ Leasing Company, Limited. (retired in May 2019)

Toshihiro Matsuoka

Kazuhiro Kawai

Head of Accounting, FP&A, Finance and IR

Atsushi Tokumitsu
Head of Procurement

Katsunori Sato

Head of Sales & Marketing

Hideo Kurokawa

Head of Production Planning and Engineering

Skill matrix

Nomination and
Audit &
Compensation
Supervisory
Advisory Committee
Board

Corporate
management

Knowledge ofthe industry

Production
Research & Development
Innovation

Finance andaccounting

Sales and marketing

Governance andcompliance
Risk management

Human resource
development
Diversity

Chairperson
Chairperson

KH Neochem Report 2022

50

The Foundation of Our Value Creation

Risk Management

Climate-Related Disclosures Based on TCFD Recommendations

Risk Management System
In order to achieve sustainable growth, we haveestablished a Risk Management Committee to identify
risks that have the potential to disrupt our businessactivities, as well as implement preventive
countermeasures. In addition, we are bolstering our risk
management to enable us to take appropriate measures
to minimize damage and prevent recurrence in the eventthat risks do materialize. More specifically, each division
identifies individual risks, quantifies and evaluates theirimpact, and implements countermeasures in response to
the evaluation, thereby preventing risks frommaterializing. Furthermore, we are continually carryingout risk assessments, such as by preparing responses forwhen these risks do emerge.
With regard to company-wide, material risks, theBoard of Directors supervises whether these risks areadequately and continuously controlled in a systematicway by monitoring the risk evaluations, the proposed
countermeasures, and the implementation status of
the countermeasures.

Material Risk Identification Flow
We define risks that have the potential to significantly
impact our management or business activities as“material risks.” Material risk levels are calculated by
combining the division-level risks into risk scenarios forthe whole Company, and then evaluating both the impact
and probability that these risks will materialize. Theselevels are mapped, candidates are selected based onrelative evaluations, and the appropriate risks are
identified as material risks, with the confirmation of theBoard of Directors.

The business environment surrounding KH Neochem is
growing increasingly uncertain as cases of heat strokeand natural disasters rise due to climate change, andvoices calling for decarbonization and carbon neutrality
grow louder and more numerous.
In January 2022, we declared our endorsement of
the Task Force on Climate-Related Financial Disclosures(TCFD) Recommendations and have been proceedingwith climate-related disclosures ever since.
Governance and Risk Management
We identify material risks according to the material risk
identification flow as shown previously. The risks arisingfrom climate change have been identified as material
risks to our business due to the significant impact they
are expected to have on KH Neochem in the future. In
addition, we are taking measures to prevent climatechange-related risks from materializing and reduce theirimpact by continuously conducting risk assessments
based on our risk management system and monitoringthem at board meetings when necessary.

Major Material Risks and Their Countermeasures

Equipment andproduction risks

Prolonged shutdowns due to equipment damage
Shutdowns due to mistakes in operation

Training, development and implementationof maintenance plans according toequipment importance, etc.

Compliance risks

Loss of public trust due to legal or contractual violations
Compensation paid to employees for harassment or overwork,
loss of public trust

Enhancement of the compliance system,
education, etc.

HR risks

Personnel shortages, delayed training
Degradation of management

Enhanced training and education, measures
to boost engagement, improvement of theworkplace environment, etc.

Business continuity risks

Accidents and explosions / natural disasters / infectious
diseases / long-term shutdowns due to difficulties procuring
raw materials
Delayed deliveries due to logistical issues

Promotion of business continuity
management (BCM), thorough infection
control measures, etc.

Information security risks

Suspension of business due to computer viruses or cyberattacks
Reduced competitiveness and loss of public trust due toinformation leaks

Ongoing implementation ofcountermeasures utilizing external security
assessments

See the table “KH Neochem’s Climate Change-Related Risks
and Opportunities”

See the table “KH Neochem’s Climate
Change-Related Risks and Opportunities”

Climate change risks

51 KH Neochem Report 2022

1.5°C warming scenario(decarbonization scenario)*2- A society that prioritizes decarbonization- Improved environmental regulation, suchas carbon pricing- Renewable energies spread- Increased use of CO2 and biomaterials as
raw materials in chemical manufacturing

ExpandHonoring theopportunities
Seven Promises
and driving
Sustainable
Management
to create
Mitigate risks
opportunities
andimplement risk
countermeasures

KH Neochem’s Climate Change-Related Risks and Opportunities
Risks and opportunities with an extremely high potential impact on KH Neochem
Category
Physical risks(4°C warming
scenario)

Transition risks(1.5°C warming
scenario)Business Continuity Management (BCM)
We supply many customers with products that are
essential for both the social lives of its citizens andproduction in a wide range of industries. For that reason,
we believe that we have an extremely important
responsibility to maintain and continue our businessactivities and achieve an early recovery in the event of alarge-scale disaster. To this end, we have established abusiness continuity plan (BCP) at each of our workplaces.
In 2021, we held drills in a workshop format to verify theeffectiveness of our BCPs for the first time.

4°C warming scenario(business as usual scenario)*1- A society that prioritizes economic activity- No major changes to environmental
regulations- Fossil fuels-based economy- Increasingly abnormal weather due to theprogression of climate change*1 See the RCP 8.5 scenario of the Intergovernmental Panel on
Climate Change (IPCC).
*2 See the NZE 2050 scenario of the International Energy Agency (IEA).

Countermeasures

ExamplesStrategy
We identify risks and opportunities related to climatechange and analyzes scenarios based on warming of 4°C
and 1.5°C, respectively, to assess the impact of futurerisks and opportunities heading toward 2030. By
engaging in the Seven Promises and driving Sustainable
Management, we seek to expand the climatechange-related opportunities while mitigating the risks,
thereby increasing our corporate value.

The drills simulated the initial response period on the
day of a disaster to verify whether the executives anddivision heads who are members of the response
headquarters can smoothly implement the initial
response based on their roles. Several issues and points
requiring correction were identified as a result, leading toreviews of the BCPs to improve their effectiveness.
In order that the BCPs will function in the event of an
emergency, we will continue to measure theireffectiveness in drills, verify them, and review them, as
part of our continual efforts in BCM.

Opportunities(4°C warming
scenario)

Opportunities(1.5°C warming
scenario)

Risks/Opportunities

Key Countermeasures

Impact on
operations due toabnormalweather

There is a risk of an increasing impact on operations
from increasingly frequent abnormal weather
events resulting from climate change, such as hightides, heavy rain, floods, and typhoons.

• Conducting drills to increase understanding andimprove effectiveness of BCM/BCPs

Introduction ofcarbon pricing

There is a risk of an increasing financial burden fromthe introduction of carbon taxes and other carbon
pricing.
Assuming CO2 emissions on the same level as 2021
(approx. 422 kt) and a carbon tax of 130 USD/ton in
2030 (1 USD = 130 yen), the financial burden could
increase by 7.13 bn yen per year.

• Promoting energy-saving and the introductionof new technologies to achieve carbon neutrality
by 2050• Achieving the target of reducing greenhouse gas
emissions by 30% by 2030 (compared to 2017)• Using CO2 as a raw material for products

Problems
procuring certain
raw materials

There is a risk to the procurement of raw materials
from oil refineries as oil refiners reduce the numberof refineries in response to decarbonization trends.

• Promoting purchasing from multiple suppliers

Impact ofswitching to raw
materials
obtained frombiomass

There is a risk of quality problems and increased
procurement costs due to switching from oil-based
to biomass-based raw materials.

• Maintaining and improving quality assurance

Delayedresponse to ESG
investment

There is a risk of divestments and falling share prices
due to increasing criticism received for using large
quantities of fossil fuels.

• Promoting energy-saving and the introductionof new technologies to achieve carbon neutrality
by 2050• Achieving the target of reducing greenhouse gas
emissions by 30% by 2030 (compared to 2017)

Increased needfor adaptive
products

There is a possibility that the increasingly negative
effects of climate change will cause rising demand for
products that can mitigate those effects (such as heatstroke) and help people adapt to climate change.

• Supplying more refrigeration lubricant raw
materials, which are indispensable for heatstroke-preventing air conditioners

Increased needfor decarbonizing
products

As people become increasingly environmentallyconscious, there is a possibility of rising demand for
products with a smaller carbon footprint.

• As the transition toward environmentallyfriendly air conditioners accelerates across theworld, expanding the provision of refrigeration
lubricant raw materials compatible with therefrigerants used in such air conditioners• Using CO2 as a raw material for products

KH Neochem Report 2022

52

The Foundation of Our Value Creation

Compliance
Our Code of Conduct: The Compliance CodeThe KH Neochem Group believes that in order to “realizea brighter tomorrow for society through the power ofchemistry” and achieve sustainable growth, it isnecessary to uphold high ethical standards, meet thedemands and expectations of all stakeholders, andproactively contribute to society. In order to clarify thisstance even more, we have formulated our Compliance

Compliance Promotion Activities
Code, a code of conduct to be held in common acrossthe KH Neochem Group. Each and every member of theGroup is expected to faithfully put the Compliance Codeinto practice by continuously asking themselves, “is my
conduct correct?” and “can I speak about this with pride
to others?” as they act.

Compliance CodeAs a member of society• High ethical standards• Respect for human rights• Contribute to society andenvironmental conservation

Toward our shareholders and investors• Maintain and improve safe
and stable operation• Contribute to local community• No relationship with
anti-social forces

Policy Formulation
In order to ensure the implementation of the Compliance
Code, we have formulated policies to clarify in concreteterms what kind of conduct is expected in each field.
We had previously established policies on privacy
and information security, and in 2021 we formulated a
new policy on bribery prevention. The policies we haveestablished can be viewed on our website.

• Fair trade• Appropriate management ofintellectual property• Suitable management of information assets• Maintenance and improvement of a comfortableworkplace environment

Compliance Code
Policies*...

Implementation of and reportingon measures promoting compliance

Compliance Promotion Meeting

53 KH Neochem Report 2022

Audit &
Supervisory
Board Members...

Convocation andManagement

Cooperation

Quality Assurance

Compliance Officer

Supervision

Environmental Security

ReportBoard ofDirectors

Intellectual Property

Supervision andinstruction

ReportBribery Prevention

We have established the “KH Neochem Hotline” as awhistleblowing channel for people to reportcorruption, bribery, and other legal violations,improper or illegal conduct, and other breaches orsuspected breaches of compliance.
The KH Neochem Hotline consists of three internal
points of contact, namely the Compliance Hotline,
Compliance Officer Hotline, and the Full-time Corporate
Auditor Hotline, as well as the Attorney Hotline
consisting of lawyers not involved in the execution of thebusiness. People who work for KH Neochem (including
those who have left the Company within the last year)
can use any of these hotlines, while the Attorney Hotline
is also available for our customers and business partners
and has been publicized on our website. Throughregulations and training, we have maintained
confidentiality for all callers to these hotlines. In responseto the Amended Whistleblower Protection Act, comeinto force in June 2022, we take further measures toensure the anonymity of callers.
We will analyze the trends in whistleblowing reports
and consultation calls made to the KH Neochem Hotline
and apply our findings to the compliance measures of thenext fiscal year. In fiscal year 2021, the KH Neochem
Hotline received three calls, none of which concerned
any matter serious enough to require public disclosure.

Procurement

In order to put our Compliance Code into practice andfurther promote compliance, compliance officers work
under the direction of the President, who is the Chief
Compliance Officer, to swiftly investigate complianceissues and prepare appropriate countermeasures. Eachdivision head (including heads of operating facilities) is
responsible for promoting compliance and compliancemeasures within his or her division. We hold compliancepromotion meetings as part of our efforts to continuously
strengthen our compliance structure, developing a cycle
in which we check the progress and results of compliancemeasures, identify current issues, and decide on plans for
implementing further measures.

PrivacyCompliance Hotlines

Information Security

Compliance Structure

Chief Compliance Officer
President

Workshops
We held compliance workshops at each of ourworkplaces to discuss the Compliance Code’s theme of
the “maintenance and improvement of a comfortableworkplace environment.” In the compliance awarenesssurvey conducted after the workshops, improvements
were seen in the result of questions related to
psychological safety, which is a priority issue, comparedto the figures up to fiscal year 2020. We therefore plan tocontinue holding such workshops in the future.

As a member of the KH Neochem Group

Toward our customers• High quality• Prohibition of bribery• Prohibition of insider trading• Constructive dialogue and appropriate
information disclosure

We hold compliance promotion meetings to plancompliance measures, check the status of thesemeasures, and discuss issues. In fiscal year 2021, we
emphasized putting the Compliance Code into practice,focusing on the proper handling of personal informationand ensuring psychological safety in each workplace. We
implemented the following activities.

*Policies will be developed in due course.

Policies

https://www.khneochem.co.jp/en/company/
philosophy/principles/

Education and Training
The proper handling of personal information was a key
topic for fiscal year 2021, and we held e-learning
sessions to re-learn and confirm basic knowledge on
privacy. In addition, we established a “Privacy Manual” toprovide simple explanations on the key points related tohandling personal information and implemented“Personal Information Checks” based on this manual toconfirm whether personal information is being handledappropriately in each division. If we find, based on thesechecks, that a division requires further review, we holddetailed interviews, propose corrective measures, andfollow up to ensure implementation. Furthermore, whenthese checks identify certain points as areas for
improvement, we take up those points as training themes
for the following fiscal year.

Main Compliance Promotion Activities

General compliance

Compliance promotion meetings
Legal Compliance Week
Compliance workshops to discuss the Compliance Code at each workplace
Compliance awareness surveys

Education and training(Training 3x/year at all operating facilities)• e-learning on personal information• Training on the Industrial Safety and Health Act• Training on basic knowledge related to contracts
Other training programs for new employees

Other

Posting of information on the KH Neochem Hotline on the intranet and posters toensure awareness

KH Neochem Report 2022

54

The Foundation of Our Value Creation

Security, Safety, and Environmental Conservation Activities
Environmental Safety Policy
KH Neochem believes that the thorough implementationof security, safety, and environmental conservation – inour business activities and based on our Compliance
Code – is critical not only for the sustainableimprovement of our corporate value but also for us to
fulfill our social responsibilities. We have therefore
established our Environmental Safety Policy to ensure
security, safety, and environmental conservation.

Responsible Care (RC)We engage in the following responsible care (“RC”) ingood faith to comply with Environmental Security Policy.
1 Maintaining and improving safe and stable operations

We are constantly aware of sources of danger,
eliminate any risk, maintain safe and stable operations,as well as striving for further improvement and aiming
for no accidents and no incidents, to thereby strive toensure the safety, comfort and health of the local
community and All Executives and Employees*.
2 Contributing to society and environmental
conservation
We strive to realize a sustainable society andenvironment through corporate activities, gather
updated safety information regarding the chemical
substances and products to be handled, and provide
customers, distribution-related parties and All
Executives and Employees with appropriate
information, thereby striving to reduce the security,
safety and environmental burdens in the entire
process from product development through to thedisposal thereof.
3 Contributing to the local community
Through dialogue and communication activities withthe local community regarding security, safety,
environmental conservation and health, we cooperatewith the local community and thereby contribute toits development.
*“All executives and employees” collectively refers to KH Neochem’s directors,
officers, regular employees, contract employees, and dispatch employees.

Management System
KH Neochem has granted ultimate responsibility on
matters concerning security, safety, and environmental
conservation to the Company President. In accordancePresident(Ultimate Responsibility)
Appointment
ReportingInstruction

Consultation Proposal
Director in Charge ofEnvironmental Safety

Corporate Officer in Chargeof Environmental Safety
Instruction Reporting

Environmental
Safety Committee

AdviceSupervision
Reporting
Reporting
Guidance
Guidance

Operating Divisions

55 KH Neochem Report 2022with our Environmental Safety Policy, the president hasestablished the Environmental and Safety Committee toact as an advisory body on priority measures to ensure
security, safety, and environmental conservation, with thedirector in charge of environmental safety as its chair. The
president makes the decisions on the matters discussed
and reported by the committee.The priority measures ofthe fiscal year, as decided by the president, arecommunicated to every division. Progress on the fiscal
year’s priority measures is confirmed throughenvironment safety inspections conducted periodicallyby the head office.

Fiscal Year 2021 Priority Measures (Numerical Targets) and Results, Together with Fiscal
Year 2022 Priority Measures (Numerical Targets):Achieved
Fiscal year 2021

Plant

Yokkaichi
Plant

Chiba
Plant

Certification acquired

Current certification
body

Objective

ISO 9001 December 1998

Actual results

Evaluation

Objective

Environmental
conservation• Environmental
accidents: 0• Environmental accidents: 0• Environmental accidents: 0

Safety and disasterprevention• Safety-related
accidents: 0• Safety-related accidents: 7• Safety-related accidents: 0• Employee accidents resulting in lost workdays: 1(Chiba Plant)• Employee accidents not resulting in lost workdays: 4(Yokkaichi Plant and Chiba Plant)• Accidents at cooperating companies resulting in lost
workdays: 2 (Yokkaichi Plant)• Accidents at cooperating companies not resulting inlost workdays: 1 (Yokkaichi Plant)• Accidents resulting in lost
workdays: 0• Work-related accidents: 7 or fewer(At or below the average of thelatest five years)• Work-related
accidents: 0
Occupational safety
and health*Action plans related to industrial safety and data related to Responsible Care at our plants can be seen from our website(https://www.khneochem.co.jp/en/csr/rc/).

Safety and Disaster Prevention

ISO 9001 January 1999
ISO 14001 July 2000

Fiscal year 2022

RC codeStatus of Certification Acquisition
The Yokkaichi Plant and the Chiba Plant have acquired
certifications for quality management systems (ISO9001) and environmental management systems (ISO
14001). These plants are maintaining their certificationand promoting RC activities in line with those systems.

:Unachieved

Japan Chemical Quality
Assurance Ltd.

ISO 14001 November 2000

*100% of production sites have acquired certifications

Inspections and Audits
Environment safety inspections and quality audits
Under the direction of the executive officer in charge ofenvironmental safety, KH Neochem conducts
environment safety inspections to check the progress ofthe fiscal year’s priority measures in RC activities, thesuitability of safety management activities, and theproper implementation of environmental management
activities in each division.
Likewise, under the direction of the executive officer
in charge of quality assurance, we also carry out quality
assurance audits of the divisions working on quality
control in order to check the progress of the fiscal year’s
priority measures in quality control and to confirm
whether quality control is being properly carried out.
Plant audits
The Yokkaichi Plant and the Chiba Plant conduct internal
audits for ISO 9001 and ISO 14001 as well as foraccreditation as high-pressure gas inspection executors(completion inspection and safety inspection) based onsafety management systems.
In addition, they also undergo external audits basedon ISO 9001 and ISO 14001 (maintenance and renewal
audits), through which they maintain their certifications.

Safety and disaster prevention measures
In accordance with the Environmental Safety Policy (seep. 55), the Yokkaichi Plant and Chiba Plant haveformulated their safety management policies. They are
actively engaged in efforts to ensure that all employees
are aware of the policies and carrying out safety andprevention activities based on the policies.
Safety Environmental Assessment (SEA)
At KH Neochem, we conduct an SEA (Safety
Environmental Assessment) in advance to assess theimpact on security, safety, environmental safety, andhealth impact when introducing new technology, newprocesses, new facilities, new machinery, and new
chemical substances. By using the SEA results for
feedback, we make every effort to heighten the safety ofprocesses and equipment.

1. Scene from the comprehensive disaster prevention drill at Umaokoshi Plant,
Yokkaichi Plant

Emergency training
KH Neochem conducts periodic comprehensive disasterprevention drill for emergency scenarios, as well as training
in initial firefighting response and emergency reporting.
We prepare so that we can respond promptly andappropriately in the event of an emergency.
Accreditation as high pressure gas inspection
executors (for both completion inspection andsafety inspection)
This system, instituted by the High Pressure Gas Safety
Act, enables companies that are recognized to have highstandards for safety management, operations
management, and equipment management, to conduct
their own completion inspections and safety inspectionsin accordance with the High Pressure Gas Safety Act.
The Yokkaichi Plant has acquired this accreditation
for six manufacturing facilities and the Chiba Plant has
acquired it for one manufacturing facility. Both plants
take steps for continuing improvement by implementing
the plan-do-check-action (PDCA) cycle.

2. Scene from the same comprehensive disaster prevention drill

KH Neochem Report 2022

56

The Foundation of Our Value Creation

Security, Safety, and Environmental Conservation Activities
Occupational Safety and HealthOccupational safety and health-related initiatives
KH Neochem conducts education based on the Industrial
Safety and Health Act in order to assure the safety of
employees and others working at our plants. In addition,
we also take preventive actions against disasters, such as
risk assessments*1, risk prediction activities using hiyari
hatto (close call recognition) and kigakari memo (notes
on matters of concern), improvement suggestion
programs, and other everyday health and safety activities.
A revision of the Industrial Safety and Health Act has
also made it mandatory to conduct risk assessments*2 ofchemical substances. We began administration of theseassessments when the amended law went into effect onJune 1, 2016.
For projects defined under the regulations as highrisk, if any of these assessments reveal a risk, measures tomanage the risk are decided through discussions
between workers and management at Health and Safety
Committee meetings.
*1 Risk assessment: This refers to a series of techniques for identifying the risks
and hazards in work, determining the seriousness and likelihood ofwork-related accidents arising from them, combining that information toestimate the risks, deciding on a priority for countermeasures based on themagnitude of those risks, studying measures to eliminate or reduce the risks,and keeping a record of the results.
*2 Chemical risk assessment: This refers to the identification of the risks andhazards of chemical substances and products, estimation of the likelihood ofrisk to workers or damage to their health, and studying measures to reduce
the risks.

Status of work-related accidents
In fiscal year 2021, there was one accident resulting inlost employee workdays on May 12 at the Chiba Plant.
The number of accidents not resulting in lost workdays
increased from one in fiscal year 2020 to four in fiscal
year 2021. In order to prevent similar occupational
accidents from happening again, we promptly carried out
investigations to ascertain the causes of the accidents,
formulated measures to prevent their recurrence, andensured that personnel were informed, not only at theoperating facilities involved but at other operating
facilities as well.

Number of work-related accidents
Accidents not resulting in lost workdays (KH Neochem)
Accidents resulting in lost workdays (KH Neochem)
Accidents not resulting in lost workdays (cooperating companies)
Accidents resulting in lost workdays (cooperating companies)(cases)
7
6
5
4
3
2

Environmental Conservation
Flow of Environmental Impact Results
INPUT

OUTPUTKH Neochem

Energy (crude oil equivalent)

0

2017

2018

2019

2020

2021 (fiscal year)

Frequency rate (accidents resulting in lost workdays)
KH Neochem
Cooperating companies
Chemical industry average (Ministry of Health, Labor and Welfare statistics)(frequency rate)
3.00

2.51

500,239t

Fuel …………………… 183,429kL
Purchased steam …… 12,733kL
Purchased electric power……………………… 18,140kL

1

Water

City water ……………………17kt
Ground water ………………33kt
Industrial water ……… 7,629kt

Product

Released into the atmosphere

Yokkaichi Plant

CO2 …………………… 422,291t
SOx …………………………… 0.5t
NOx ……………………… 338.7t
Dust ………………………… 9.2t

Released into the water

Total amount released… 6,374kt
COD ……………………… 25.9t
T-N ………………………… 11.3t
T-P …………………………… 1.8t

2.25
1.50
0.75
0.00

0.81

1.21

0.94

1.17

1.07

0.00
0.00

0.90
0.00

0.00
0.00

0.93
0.00

0.96

2017

2018

2019

2020

2021 (fiscal year)

Frequency rate: Indicator of the frequency of accident occurrence(Number of fatalities and injuries) ÷(Cumulative number of actual work hours) × 1,000,000

Severity rate

Raw materials(Principal raw materials)

Waste material

567,505t

Amount discharged* …… 7,554t
Amount as final landfill …… 106t

Chiba Plant*In the past, the amount of waste generated at production plants was listed as “amount generated.”
However, starting from this fiscal year and in order to conform to the main purpose of the Flow ofEnvironmental Impact Results, the amount of waste discharged by production plants will be shown
under “amount discharged,” and will reflect the amount after internal reduction.

Scope of aggregation:Yokkaichi Plant and Chiba Plant
Period covered:April 1, 2021 to March 31, 2022

KH Neochem
Cooperating companies
Chemical industry average (Ministry of Health, Labor and Welfare statistics)(severity rate)
0.10

0.09

0.08

0.07

0.06

0.06

0.03

0.04
0.02
0.00

0.00
0.00
2017

0.02

0.03

0.00

0.00
0.00

0.02
0.00

2018

2019

2020

0.02
0.02
2021 (fiscal year)

Severity rate: Indicator of the seriousness of an accident(Cumulative number of lost work days) ÷(Cumulative number of actual work hours) × 1,000* Graphs of the frequency rate (accidents resulting in lost workdays) and theseverity rate are shown below.
Scope of aggregation: Yokkaichi Plant, Chiba Plant
Period covered: January 1 to December 31

Special Note: Fatal Accident Involving a Fall at Yokkaichi Plant and Initiatives to Prevent Its Recurrence
its recurrence. We also established an accident
On April 4, 2022 at around 9:00 AM, a fatal accident
investigation committee at the Company
occurred in which a KH Neochem employee fell fromheadquarters, chaired by the director in charge ofa height at Yokkaichi Plant. We sincerely pray for theenvironment and safety to consider fundamental
repose of the soul of the employee who passed
countermeasures.
away and extend our deepest condolences to theGoing forward, we will continue to takebereaved family.
company-wide measures to prevent such serious
We established an accident investigation
accidents from ever occurring again, and endeavorcommittee chaired by the Yokkaichi Plant manager
to reform our plants to further improve their safety.
to investigate the background and causes of theaccident, as well as to consider measures to prevent

Global warming prevention
As a designated business operator under the Act on the
Rational Use of Energy*1, KH Neochem makes every
effort to promote rational uses of energy. As a specified
emitter under the Act on Promotion of Global WarmingCountermeasures*2, we are also working diligently to
reduce greenhouse gas (GHG) emissions. Energy
consumption and GHG emissions*3 *4 in fiscal year 2021
increased to 110.4% and 104.5% YoY, but this was due tothe recovery in production following the impact of the
COVID-19 pandemic in fiscal year 2020. Energy intensity,
meanwhile, improved to 92.1% YoY. We will continue
with energy conservation promotion, CAPEX, andconsidering the introduction of new technologies as we
aim to reduce GHG emissions by 30% by 2030
(compared to fiscal 2017 levels) and achieve carbon
neutrality by 2050.
*1 Act on the Rational Use of Energy: the law covering the rational usage ofenergy*2 Act on Promotion of Global Warming Countermeasures: the law covering
the promotion of initiatives taken the measure against global warming*3 Figures reported based on the Act on the Rational Use of Energy*4 Starting in fiscal year 2021, we have been deducting the amount of CO2 thatwas generated in our production processes, captured, and used as raw
materials from our GHG emissions. We have confirmed this with thegovernment’s office for reporting GHG emissions.

Air pollution prevention
For the sulfur oxides (SOx), nitrogen oxides (NOx), anddust discharged from boilers, liquid waste incinerators,
sludge incinerators, and other such equipment, KH
Neochem of course complies with emissions standards
based on the Air Pollution Control Act, and we
additionally comply with levels that have been agreed
upon with local communities.
Water pollution prevention
KH Neochem complies with emissions levels based on
the Water Pollution Prevention Act as well as with levels
agreed upon with local communities for chemical oxygen
demand (COD), total nitrogen (T-N), and total
phosphorus (T-P) in wastewater.
Waste reduction
KH Neochem implements thoroughgoing separation ofwaste materials and engages in the 3Rs of waste
management: reduce, reuse, and recycle. We are moving
forward to reuse acid waste and alkaline waste in ourplants as well as to reduce their volume, to contract
recycling treatment of waste catalysts, and to reuseincinerator waste as aggregate. We are working to reducethe “amount as final landfill” to keep it at 1% or less of theamount of waste generated, as is the target for 2024 in
the 4th Medium-Term Business Plan.

*All environmental performance data can be seen on P62 and on our website. (https://www.khneochem.co.jp/en/csr/rc/).

57 KH Neochem Report 2022

KH Neochem Report 2022

58

The Foundation of Our Value Creation

Stakeholder Relations
Dialogue with Shareholders and Investors

Major Stakeholder Engagement
KH Neochem has pledged to practice transparent management with a high ethical standard. We strive to communicate
with our stakeholders through various opportunities and are committed to embodying their valuable opinions in our
corporate activities.
*Information on our relationships with our stakeholders is posted on our website.

IR Activities in 2021
Month

Februaryhttps://www.khneochem.co.jp/en/csr/
Activities

2020
results briefing

March

May

AugustSeptember

NovemberOverseas
institutional
investors
conference

2021 1Q
results briefing(conference call)2021 1H
results briefing(conference call)

Overseas
institutional
investors
conference

2021 3Q
results briefing(conference call)Contribute to Local Community
KH Neochem is working to contribute to society for the sustainable development of society. We are strengthening ourapproach to community service by emphasizing activities with deep local roots in Yokkaichi City, Mie Prefecture andIchihara City, Chiba Prefecture in particular, where our plants are located.
Five Guidelines for Social
Contribution Activities

Strengthening Social Contributions• Activities that will be welcomedin local communities• Activities that employees canactively participate in• Activities that can continue• Activities that will provide
opportunities to learn about
KH Neochem• Activities that relate to ourbusiness operations

Fiscal year 2017 • Conducted in-house questionnaire for all employees regarding social contribution activities*573 responded, approximately 90% of employees (non-consolidated)• Decided on substance of social activities after reviews and discussions that included
management based on the results of the employee survey• Touched up paint at a sports field in Yokkaichi City, Mie Prefecture
Fiscal year 2018 • Touched up paint at a sports field in Ichihara City, Chiba Prefecture
Fiscal year 2019 • Touched up paint at a General Athletic Playground in Yokkaichi City, Mie Prefecture
Fiscal year 2020 • Donated and painted benches at a sports field in Ichihara City, Chiba Prefecture• Touched up paint on benches at the multipurpose sports fields in Yokkaichi City, Mie
PICKPrefecture
UP!
Fiscal year 2021 • Installed and painted benches at a site near our manufacturing plant (Yokkaichi City,
Mie Prefecture)• Activities at operating facilities

Installed and painted benches at a site near our
manufacturing plant (Yokkaichi City, Mie Prefecture)
As a chemical material manufacturer that supports
manufacturing around the world, we once again usedpaint, as it closely related to our business operations. We
donated wooden benches to Kasumigaura Ryokuchi Parkin Yokkaichi City, Mie Prefecture, where our Yokkaichi
Plant is located, and also painted existing benches in
the park.
To prevent the spread of COVID-19 at the event, only
people working at the head office or the Yokkaichi Plant
were allowed to participate. A total of 50 employees andexecutives joined in the event.
As we were painting, we received advice on thecolors from children who were playing in the park,
making for a friendly environment in which we could
work while interacting with local citizens. Tomohiro Mori,
the mayor of Yokkaichi City, stopped by to express his
gratitude and give the team a letter of appreciation.
Kasumigaura Ryokuchi Park has several sports
facilities attached to it and is beloved by the people of
Yokkaichi. We would be greatly honored if the benches
we donated could be of use to the many people who
frequent this place.

59 KH Neochem Report 2022

We plan to repeat thisactivity next year andbeyond, and we hope tocontinue to contribute to
the lives of all of our
stakeholders, starting withthe members of our local
communities.

Visit from Mayor Tomohiro Mori of
Yokkaichi City

Activities at operating facilities
Children are the future, andwe are actively sponsoringchildren’s sports
tournaments in order forthe children in thecommunities around ourmanufacturing plants to
Ichihara City Friendly Baseballflourish. We are also
Tournamentcontinuing our work withlocal cleanup drives, plant tours for local educational
institutions, and cooperation with NPOs.
Yokkaichi Plant• Yokkaichi City U-10 Soccer Tournament(KH Neochem Cup)
Chiba Plant• Ichihara City Friendly Baseball Tournament(KH Neochem Cup)

Communication with Shareholders and Investors
In addition to disclosing financial results and the status of businessactivities to our shareholders and investors in a timely and appropriatemanner, the KH Neochem Group is committed to proactive andconstructive communication led by top management. Not only do we
provide information on the latest business results and current
business environment, we also proactively disclose information that is
important to our business, such as our strategy and progress on our
long-term vision “VISION 2030” and our Medium-Term Business Plan,as well as regulatory trends such as those surrounding refrigerants for
air conditioners. By doing so, we endeavor to share the direction,
shape, and path that the Group is aiming for in the medium- tolong-term with our shareholders and investors.
In 2021 we had approximately 170 direct dialogues withshareholders and investors. The valuable insights, requests, andother information form shareholders and investors have been sharedwith the Board of Directors and top management, and we have
utilized them to discuss what is expected of the Group and on what
we should focus.
As in previous years, the General
Meeting of Shareholders in 2022 washeld while taking appropriate
measures to prevent the spread of
COVID-19. Going forward, we willcontinue to cherish suchopportunities for direct dialogue with
our shareholders and strive toactively communicate with them.
General Meeting of Shareholders

Extract from the 2021 first half-year financial resultspresentation material

Breakdown of viewpoints and questions from shareholders,investors, and securities analysts (2021)

Capex
3%
Production
activities
4%
Cosmetic
ingredients
8%
Electronicmaterials
12%
Basic chemicals
18%

ESG
2%
Other
4%
Refrigeration
lubricant raw
materials
26%
Business
performanceand financials
23%

Selected as Constituent of Various Indexes / Winner of an Eco
Vadis Gold Medal for the Second Year Running
The KH Neochem Group has been selected as a constituent of
JPX-Nikkei Index 400, the MSCI Japan Empowering Women Index(WIN), and the Sompo Sustainability Index. In addition, for the second
year running, we received a gold medal (5th percentile) in thesustainability survey run by EcoVadis, the French ESG evaluatingorganization. We are determined to further enhance our corporate
value in order to meet the expectations of our investors andshareholders.

* The inclusion of KH Neochem Co., Ltd. in any MSCI index, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship,endorsement or promotion of KH Neochem Co., Ltd. by MSCI or any of its affiliates. The MSCI indexes are the exclusive property of MSCI. MSCI and the MSCI index
names and logos are trademarks or service marks of MSCI or its affiliates.

KH Neochem Report 2022

60

Data Section

Financial Highlights (Consolidated)
Net sales

Non-Financial Highlights (Non-Consolidated)
Operating income

Energy consumption and specific consumption
Energy consumption (crude oil equivalent)(bn yen)(bn yen)

19.7

20.0

160.0

120.0

80.2

94.7 101.2 94.2

80.0

117.1
77.3

10.0

11.5
9.0

10.9

9.6
5.6

0

2016

2017

2018

2019

2020

2021 (fiscal year)0(1,000 t-CO2)

250

500

200

400

150

300

100

100

200

50

50

100

250

202.3

2016

2017

2018

2019

206.5

150

5.0

40.0

(L/t)

(1,000 kL)

200

15.0

2020

2021 (fiscal year)

0

199.6

2016

2017

(bn yen)

(t)

12.0

8.2

9.0

6.0

6.0

15.0

6.7

6.9

11.9

2016

2017

2018

2019

10.0

2020

2021 (fiscal year)

02021 (fiscal year) 0

2020

2017

2018

2019

2016

2017

(frequency rate)

140

1.5

50

2021 (fiscal year)

0

136

124

1.00

133

106

84

100

2020

0

473.6

448.9 440.2

2018

Severity rate: KH Neochem
Frequency rate: KH Neochem

150

5.6

2016

2019

200

12.1

10.9

5.0

0

2018

250

4.0

3.0

204.6 194.2 214.4

448.2

422.4

404.2

2019

2020

2021 (fiscal year)

Frequency rate (accidents resulting in lost workdays)/Severity rate(bn yen)

19.0

204.9

(Note 1) April 1 to March 31, each year. Figures reported based on the Act on the
Rational Use of Energy.
(Note 2) Starting in fiscal year 2021, we have been deducting the amount of CO2that was generated in our production processes, captured, and used as
raw materials from our GHG emissions. We have confirmed this withthe government’s office for reporting GHG emissions.

Disposed of as landfill

20.0

207.2

222.3

(Note 1) April 1 to March 31, each year
(Note 2) Due to a change in the method of rounding decimals starting in thecurrent fiscal year, there are slight differences from the figures shown in
the previous report.

Net interest-bearing debt (except lease obligations)

13.7

210.0

218.8 208.7

Profit attributable to owners of parent

15.0

Greenhouse Gas (GHG) amount released

Specific energy consumption

2017

2018

2019

2020

2021 (fiscal year)(Note) April 1 to March 31, each year

0.94

0.90

0.00

1.07 (severity rate)

0.075

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

2016

2017

2018

2019

2020

Equity ratio

50
40

28.2
28.4

32.6

38.2

40.2

45.4

45.0
27.9

29.3

20

Number of new employees(bn yen)(persons)(persons)

10.0

800

20.1
2.5

9.6
2016

2017

2018

2019

7.0

7.5

2020

2021 (fiscal year)

0

2.4

2021

2016

1.6
2017

60

400

2019

2020

2021 (fiscal year)

5
20

0

2016

2017

2018

2019

2020

2021 (fiscal year)(Note) As of December 31, each year

Depreciation

5.0
4.0

3.5

3.4

3.3

3.3

3.9

4.5

(bn yen)(persons)

1.5

20

1.0

3.0

0.9

0.9

0.8

0.8

0.9

1.0

10
2.0

0.5

1.0
0

2016

2017

2018

2019

2020

2021 (fiscal year)

0

2016

2017

2018

2019

2020

2021 (fiscal year)

Ratio

18.5
13.6

15

5

2

0

2016

13.0
10.0

8.7

3
2017

2016

8
2017

21

27

22

2018

2019

2020

18

9
2021 (fiscal year)

Years of service and gender differences

Numbers(bn yen)

0

18

14

(Note) Only workers who have signed a labor contract with no fixed term

New female employees

R&D expenses

13

40

200

2018

0.000
(fiscal year)

50

80

649

0.025

New graduates

19
3.6

2.9

673

659

611

600

599

600

6.0

5.0

18.0

10
0

Number of employees

Mid-career

(%)

30

CAPEX

ROE

0.050

0.02
0.02

0.03

0.02

(Note) Scope of aggregation: Yokkaichi Plant and Chiba Plant

Equity ratio/ROE

0.100

0.96

0.03

0.25

0.93

0.06

0.81

0.75
0.50

2016

0.09

0.88

Severity rate: Chemical industry average(Ministry of Health, Labor and Welfare statistics)
Frequency rate: Chemical industry average(Ministry of Health, Labor and Welfare statistics)

10

2018

11.4

2019

2020

10

5

(fiscal year)

2016

2017

2018

2019

2020

2021

2022

Years ofservice(male)

17.1

16.5

16.0

14.6

13.5

13.7

14.0

Years ofservice(female)

16.9

16.9

16.3

14.3

14.3

15.0

15.3

Difference(female –
male)

-0.2

0.4

0.3

-0.3

0.8

1.3

1.3

20
15

4

4

(%)

5

2021 (fiscal year) 0(Note) Only full-time workers, As of April 1, each year

*Only full-time workers

61 KH Neochem Report 2022

KH Neochem Report 2022

62

Data Section

Management’s Discussion and Analysis (Fiscal Year 2021)
Operating Results* The current fiscal year means the current consolidated fiscal year (fiscal year 2021), while
the previous fiscal year means the previous consolidated fiscal year (fiscal year 2020).

During the fiscal year, the Japanese economy wascharacterized by the prolongation of constraints on
economic activity in response to the continued spreadof COVID-19, such as people refraining from going out
and reductions in opening times for restaurants andother establishments, which resulted in weak personal
spending. On the other hand, following progress madein vaccination, restrictions on behavior were graduallylifted and economic activity began to normalize, while
new demand was generated by advances intechnology and quality in cutting-edge areas making
use of 5G, AI and so on, as well as by the emergence of
products and services to address changes anddiversification in both work styles and lifestyles.
In the manufacturing industry, demand recovery
centered on automobiles, semiconductors, andelectronic components had been observable since thestart of the year, but mainly due to the impact ofsemiconductor shortages, soaring commodity prices,and supply chain tightness, supply remained
insufficient to meet strong demand.
Under these circumstances, the Group has stably
managed to sustain its business activities at its plants
and other operations, while also implementing
exhaustive infection control measures. The Group has
been taking further steps to secure earnings, such as
ensuring that production and inventory levels areappropriate and aligned with demand by reinforcing
cooperation with suppliers regarding raw material
procurement. It has also involved revising prices inaccordance with volatility in crude oil and naphtha prices
and the balance of supply and demand for products.

In terms of initiatives pursued under the
strategies of its 3rd Medium-Term Business Plan, theGroup has made steady progress in capturing growthin demand, such as by opening new facilities forrefrigeration lubricant raw materials and next
generation semiconductor materials, and worked to
expand earnings. The Group also made the decision of
approximately ¥9.5 billion capital investments toincrease production capacity for refrigeration
lubricant raw materials and other products at the
Chiba Plant. In addition, we established an “Open Lab”
at the KH i-Lab open innovation hub, and areaccelerating initiatives for creating new businesses
through such measures as promoting joint testing inother fields. Moreover, as well as taking steps toreduce environmental impacts, including installing
new in-house power generation equipment that is
expected to reduce CO2 emissions at our Chiba Plant,
we have been steadily promoting measures aimed at
improving the business framework, such as byenhancing disclosure of non-financial information
through the publication of our integrated report.
Accordingly, the Group’s results for the fiscal year
under review included increases in both revenue andincome, with net sales of ¥117,110 million (up 51.4%
year on year). Operating income was ¥19,685 million(up 248.9%), ordinary income was ¥19,809 million(up 252.0%), and net income attributable to owners ofparent was ¥13,691 million (up 238.3%), all of which
represented new records.

Results by Business Field
Performance Materials
Sales of the Company’s refrigeration lubricant raw
materials were strong throughout the fiscal year,
driven by increases in production and sales ofenvironmentally friendly air conditioners in China andelsewhere. In cosmetic ingredients, domestic demand
was weak due to demand related to inbound tourism
did not recover, but certain overseas markets saw arecovery in demand. As a result, net sales was ¥44,248
million (up 45.3% year on year) and operating income
was ¥9,976 million (up 94.5%).
Electronic Materials
Strong demand from the previous fiscal year, primarily
related to semiconductors, continued during the fiscal
year. Rising prices caused by the tightening of supply

63 KH Neochem Report 2022

OthersIn the Others segment, net sales was ¥669 million(down 32.5% year on year) and operating income was¥108 million (down 50.1%).
Note: “Operating income” shown above in each business segment, does not include allocation of administrative expenses, etc., which are common to the entire company.

Financial Position
AssetsCurrent assets at the end of the current fiscal year
were ¥70,291 million, an increase of ¥26,352 million
from the end of the previous fiscal year. This was
mainly due to increases in cash and deposits by¥7,868 million, notes and accounts receivable – tradeby ¥11,128 million, and inventories by ¥7,164
million, respectively.
Non-current assets totaled ¥51,778 million, up¥207 million from the end of the previous fiscal year.
This was mainly due to a decrease of ¥458 million inbuildings and structures and ¥1,801 million inmachinery, equipment and vehicles, but an increase of¥1,268 million in leased assets and ¥1,112 million inconstruction in progress, respectively.
As a result, total assets amounted to ¥122,069
million, up ¥26,560 million from the end of theprevious fiscal year.
Liabilities
Current liabilities at the end of the current fiscal year
were ¥53,276 million, an increase of ¥18,070 million
from the end of the previous fiscal year. This was
mainly due to increases in notes and accounts payable– trade by ¥11,377 million, current portion of
long-term debt by ¥850 million, income taxes payableby ¥5,564 million, and provision for repairs by ¥1,773
million, despite decreases in short-term bank loans by¥340 million and accounts payable-other by¥1,499 million.
Long-term liabilities amounted to ¥11,288
million, down ¥3,129 million from the end of theprevious fiscal year. This was mainly due to decreasesof ¥3,250 million in long-term debt, ¥499 million indeferred tax liabilities, and ¥659 million in provision
for repairs, despite an increase of ¥1,346 million in
long-term lease obligations.
As a result, total liabilities amounted to ¥64,564
million, up ¥14,940 million from the end of theprevious fiscal year.
Net Assets
Total net assets at the end of the current fiscal year
were ¥57,505 million, an increase of ¥11,620 million
from the end of the previous fiscal year. This was
mainly due to net income attributable to owners of theparent of ¥13,691 million and Cash dividends ofsurplus of ¥2,228 million.

Cash Flows
relative to demand, soaring raw material prices andgrowing needs for high quality, resulted in net sales of¥14,390 million (up 25.1% year on year), andoperating income of ¥3,418 million (up 91.7%).
Basic Chemicals
Strong demand for both solvents and plasticizer raw
materials continued throughout the fiscal year underreview. The tightening of supply relative to demand led
to soaring prices in the overseas market and asignificant improvement in the profitability of exports,
in addition to which there was a contribution fromprice revisions in the domestic market. As a result, net
sales came to ¥57,801 million (up 68.1% year on year),and operating income of ¥9,355 million (up 597.1%).

Cash and cash equivalents (hereinafter referred to as“cash”) at the end of the current fiscal year increased¥7,868 million from the end of the previous fiscal yearto ¥16,934 million.
The details of cash flows and their factors during
the current fiscal year are as follows.

Operating Activities
Cash provided by operating activities amounted to¥17,402 million (¥6,931 million provided in theprevious fiscal year). This was mainly due to anincrease in cash due to income before income taxes of
19,788 million yen, depreciation of ¥4,369 million, an
increase in provision for repairs of ¥1,114 million, andan increase in notes and accounts payable of ¥11,256
million, despite a decrease in cash due to an increasein notes and accounts receivable of ¥11,089 million,
an increase in inventories of ¥7,076 million, andincome taxes paid of ¥1,155 million.

KH Neochem Report 2022

64

Data Section

Management’s Discussion and Analysis (Fiscal Year 2021)

Consolidated Financial Statements

Investing Activities
Cash used in investing activities totaled ¥4,395 million(¥11,182 million used in the previous fiscal year). Thiswas mainly due to the purchase of property, plant andequipment of ¥4,044 million.

Consolidated Balance Sheet

Financing Activities
Cash used in financing activities totaled ¥5,168 million(compared to ¥4,530 million used in the previous
fiscal year). This was mainly due to repayment oflong-term bank loans of ¥2,400 million and dividends
paid of ¥2,229 million.

Business Risks
Below is a list of the main risks that the management
team recognizes as having the potential tosignificantly impact our financial position, businessresult, and cash flows. However, the listed items below

As of December
31, 2020

As of December
31, 2021

AssetsCurrent Liabilities
9,066

16,934

Notes and accounts
receivable - trade

Notes and accounts
payable - trade

14,26325,64022,05833,186

Short-term bank loans

10,55010,210Current portion of long-term debt

2,400

3,250

8,278

14,562309

413

Raw materials and supplies

2,133

2,909

Accounts payable - other

Other

2,098

2,288

Work in process

Allowance for doubtful accounts
Total current assets

(6)

(4)

43,93870,291

Buildings and structures

2. Changes in raw material prices
3. Foreign exchange fluctuations

10. Product quality assurance
and Product liability

4. Climate change

11. Legal regulations and compliance

5. Raw materials procurement

12. Intellectual property

6. Overseas businesses

13. Information security

7. Accidents or disasters

14. Losses on valuation of securities

9. Human resources(25,823)

Buildings and structures, net

6,339

5,881

(87,267)
10,523

Land

17,54917,549

221

1,573

(6)

(89)

215

1,484

Leased assets

848

1,960

Other

6,402

6,442

Accumulated depreciationand impairment(4,642)(4,670)

Other, net

1,760

1,772

Net property, plantand equipment

39,037

39,170

1,378

1,243

535

581

1,913

1,825

Construction in progress

https://www.khneochem.co.jp/ir/securities/(85,328)

97,79012,324

Leased assets, net

WEB

97,653

Machinery, equipment
and vehicles, net

Accumulated depreciation

Please refer to the Annual Securities Report for more details (in Japanese only).

31,704(25,254)

Accumulated depreciationand impairment

Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Investment securities

8,292

8,176

Assets for retirement benefits

1,523

1,929

Deferred tax assets

109

185

Other

696

493

(1)

(1)

Total investments andother assets

10,62010,782

Total non-current assets

51,57051,778

Total Assets

95,508122,069

Allowance for doubtful accounts

65 KH Neochem Report 2022

4

91

6,215

4,716

Income taxes payable

650

6,214

Provision for repairs

528

2,302

Other

594

850

35,20653,276

Corporate bonds

5,000

5,000

Long-term debt

3,250

–

259

1,606

Deferred tax liabilities

2,422

1,922

Liability for retirement benefits

2,568

2,526

Long-term Liabilities
31,594

Accumulated depreciationand impairment
Machinery, equipment
and vehicles

Current portion of long-termlease obligations

Total current liabilities

Property, plant and equipment

8. Infectious diseases

As of December
31, 2021

Cash and deposits

Non-current Assets

1. Changes in the economic environment
and market circumstances

As of December
31, 2020

Liabilities

Current Assets

Merchandise and finishedproducts

notes only some of the main risks of the KH Neochem
Group. These do not represent a comprehensive list of
all the risks to the Group and there could be
unforeseeable risks besides these.

(Millions of yen)

(Millions of yen)

Long-term lease obligations

Provision for repairs

659

–

Other

258

232

Total long-term liabilities

14,418

11,288

Total Liabilities

49,62464,564

Common stock

8,855

8,855

Capital surplus

6,140

6,186

Retained earnings

27,37938,841Net Assets
Shareholders’ equity

Treasury stock
Total shareholders’ equity

(69)

(132)

42,30553,751

Accumulated Other
Comprehensive Income
Unrealized gain on
available-for-sale securities

1,162

1,022

Deferred gains orlosses on hedges

0(0)Foreign currency translation
adjustments

70

42

Defined retirement benefit plans

(158)

102

Total accumulated othercomprehensive income

1,074

1,166

Non-controlling Interests

2,504

2,587

Total Net Assets

45,88457,505

Total Liabilities and Net Assets

95,508122,069

KH Neochem Report 2022

66

Data Section

Consolidated Financial Statements
Consolidated Statement of Income(Millions of yen)

Consolidated Statement ofComprehensive Income

Fiscal year ended Fiscal year ended
December 31, 2020 December 31, 2021

77,332

117,110Net Income

Cost of Sales

61,18784,876

Other Comprehensive Income

Gross Profit

16,14432,233

Unrealized gain (loss) on
available-for-sale securities
Deferred gains or losses on hedges

Freight

3,416

4,469

Container packaging

1,095

1,420

Salary

1,241

1,230

Other

4,748

5,427

Total selling, general andadministrative expenses

10,501

12,547

Operating Income

5,642

19,685Non-operating Income
Interest and dividend income

168

136

Equity in earnings ofassociated company

132

258

(Millions of yen)

(Millions of yen)

Shareholders’ equity

Fiscal year ended Fiscal year ended
December 31, 2020 December 31, 2021

Net Sales

Selling, General and
Administrative Expenses

Consolidated Statement of Changes in Equity

Foreign currency translation
adjustments

4,145

13,864

Balance, Jan. 1, 2020

(139)

0

(1)

Defined retirement benefit plans

(88)

260

Total other comprehensive income

440

91

6,107

33

33

Retained earnings

Total shareholders’equityTreasury stock

25,557(36)

40,450

4,586

13,95566

Cash dividends of surplus(2,224)

Net income attributable to owners of the parent

4,046(2,224)
4,046

Purchase of treasury stock

(38)

(38)

Disposal of treasury stock

5

5

Net changes in items other thanshareholders’ equity
Total changes during period
Balance, Dec. 31, 2020

Comprehensive Income
Attributable toNon-controlling interests

8,822

Issuance of stock (Exercise of share option)

571

(27)

Owners of the parent

Capital surplus

Changes during period(43)

Comprehensive Income

Common stock

33

33

1,821

(32)

1,855

8,855

6,140

27,379(69)

42,305

Accumulated other comprehensive income

4,487

13,782

99

173
Balance, Jan. 1, 2020

Unrealized gain
(loss) on
available-forsale securities

Deferred
gains or losses
on hedges

Foreigncurrencytranslation
adjustments

590

0

113

Total
NonRemeasurements accumulated controlling Total net
assetsof defined
otherinterests
benefit planscomprehensive
income

(69)

634

2,438

43,522

Changes during period–

77

Compensation income

143–

Cash dividends of surplus(2,224)

Reversal of provision forenvironmental measures

Net income attributable to owners of the parent

4,046

94

–

Purchase of treasury stock

(38)

Other

257

213

Disposal of treasury stock5

Total non-operating income

795

686

Subsidy income

Interest expenses

80

102

Loss on disposal of non-current
assets534

385

Extra retirement payments

106

–

Other

90

74

Total non-operating expenses

811

562

5,627

19,809Extraordinary income
Gain on reversal of foreign
currency translation adjustments
resulting from liquidation of aforeign subsidiary–89

Total extraordinary income

–

89

–

111

–

111

5,627

19,788

Income taxes - current

1,074

6,523

406

(599)

Total income taxes

1,481

5,924

Net Income

4,145

13,86499

173

Income taxes - deferred

Net Income Attributable toNon-controlling Interests
Net Income Attributable to
Owners of the Parent

0

(43)

(88)

440

65

506

571

0

(43)

(88)

440

65

2,361

1,162

0

70

(158)

1,074

2,504

45,884(Millions of yen)
Shareholders’ equity
Common stock

Balance, Jan. 1, 2021

Capital surplus

8,855

Retained earnings

6,140

Treasury stock

27,3794,046

13,691

Total shareholders’equity(69)

42,305

Changes during period
Cash dividends of surplus(2,228)Net income attributable to owners of
the parent

13,691(2,228)
13,691(62)

Change in the parent’s ownership interest due
to transactions with non-controlling interests

(62)

46

46

Net changes in items other thanshareholders’ equity
Balance, Dec. 31, 2021–

46

11,462(62)

11,445

8,855

6,186

38,841(132)

53,751

Accumulated other comprehensive income

Balance, Jan. 1, 2021

Unrealized gain
(loss) on
available-forsale securities

Deferred
gains or losses
on hedges

Foreigncurrencytranslation
adjustments

1,162

0

70

Total
NonRemeasurements accumulated controlling Total net
assetsof defined
otherinterests
benefit planscomprehensive
income

(158)

1,074

2,504

45,884

Changes during period
Cash dividends of surplus(2,228)Net income attributable to owners of
the parent

13,691

Purchase of treasury stock(62)

Change in the parent’s ownership interest due
to transactions with non-controlling interests

46

Net changes in items other thanshareholders’ equity

67 KH Neochem Report 2022

571

Total changes during period

Income before Income Taxes

Total extraordinary losses

Balance, Dec. 31, 2020

66

Purchase of treasury stock

Extraordinary losses
Impairment losses

Net changes in items other thanshareholders’ equity
Total changes during period

Non-operating Expenses

Ordinary Income

Issuance of stock (Exercise of share option)

(139)

(1)

(27)

260

91

83

174

Total changes during period

(139)

(1)

(27)

260

91

83

11,620

Balance, Dec. 31, 2021

1,022

(0)

42

102

1,166

2,587

57,505KH Neochem Report 2022

68

Data Section

Corporate Overview

Consolidated Financial Statements
Consolidated Statement of Cash Flows

Corporate Overview (as of June 30, 2022)(Millions of yen)
Fiscal year ended
December 31, 2020

Fiscal year ended
December 31, 2021

Operating Activities
Income before income taxes

5,627

19,788Depreciation

3,737

4,369

–

111

Amortization of goodwill

134

134

Increase (decrease) in liability for retirement benefits

128

17

Decrease (increase) in assets for retirement benefits

(114)

(92)

(1,058)

1,114

(168)

(136)

80

102

(132)

(258)

Impairment losses

Increase (decrease) in provision for repairs
Interest and dividend income
Interest expenses
Equity in (earnings) of associated company
Gain on reversal of foreign currency translation
adjustments resulting from liquidation of aforeign subsidiary

–

(89)

556

(11,089)

Decrease (increase) in inventories

1,931(7,076)

Increase (decrease) in notes and accounts payable

Decrease (increase) in notes and accounts receivable(3,197)

11,256

Decrease (increase) in other current assets

(262)

(132)

Increase (decrease) in other current liabilities

1,577

(248)

92

602

8,933

18,370Interest and dividends received

382

286

Interest paid

(82)

(98)

Income taxes paid

(2,302)(1,155)

Net cash provided by operating activities

6,931

17,402(10,885)(4,044)Purchase of intangible assets

(247)

(360)

Purchase of investment securities

(11)

(11)

Other

(38)

21

(11,182)(4,395)

Other
Subtotal

Investing Activities
Purchase of property, plant and equipment

Net cash (used in) investing activities

Establishment

December 2010

Capital

8.8 bn JPY

Corporate
Headquarters
Head Office2-3-1, Nihonbashi-Muromachi, Chuo-ku,
Tokyo 103-0022, JapanGroup
companies andaffiliatedcompanies

Kurogane Kasei Co., Ltd.
Kurogane Fines Inc.
KH Neochem Americas, Inc.
Shanghai Seika Trading Co., Ltd.
J-Plus Co., Ltd.*(Our predecessor Kyowa Yuka, was established in
November 1966)

Stock Overview (as of June 30, 2022)
Total number of sharesauthorized to be issued

136,200,000

Total number of issued shares

37,149,400
5,445

Number of shareholders*Joint venture with Mitsubishi Chemical Corporation

Japanese
individuals, other
8.23%
Other Japanese
corporations
13.27%
Financial
institutions
33.21%

Financial
instruments
business
operators
4.09%

Distribution of
Shares by Typeof Shareholder

Overseas
corporations,etc.
41.19%

Global Network*

Osaka BranchTokyo Head Office

Sakai Logistics
CenterJ-Plus Co., Ltd. (Tokyo)

Yokkaichi Plant
R&D Center

KH i-Lab (Kawasaki)

KH Neochem
Americas, Inc.

Chiba Plant
R&D Center

Shanghai Seika
Trading Co., Ltd.

Kurogane Kasei Co., Ltd. and
KUROGANE FINES INC. (Nagoya)*Only headquarter locations are provided for Group companies and affiliates

Financing Activities
Increase (decrease) in short-term bank loans &borrowings-net
Repayments of bank loans
Proceeds from stock issuance(exercise of share option)
Purchase of treasury stock
Dividends paid
Dividends paid to non-controlling interests
Payment from purchase of investment in subsidiaries
that do not result in change in scope of consolidation
Other
Net cash (used in) financing activities
Foreign Currency Translation Adjustments on
Cash and Cash Equivalents

109

(340)

(2,400)(2,400)

66

–

(38)

(62)

(2,230)(2,229)

(33)

(28)

–

(15)

(4)

(92)

(4,530)(5,168)(19)

29

Net Increase (Decrease) in Cash andCash Equivalents(8,801)

7,868

Cash and Cash Equivalents, Beginning of Year

17,867

9,066

Cash and Cash Equivalents, End of Year

9,066

16,934

Sponsorship of Speed Skaters

Rin Kosaka Profile

The Company has sponsored short track speed
skater Moemi Kikuchi since 2018. And in April
2022, the Company also signed a sponsorshipagreement with speed skater Rin Kosaka. As “aleading global specialty chemical company”
that shares the enthusiasm ofthese athletes to pursue
their dreams, we will doour utmost to support
both athletes so thatthey can shine on theworld stage.

BirthdayDecember 19, 2001 (Age 20)
Birthplace
Koshimizu-cho, Shari-gun, Hokkaido
History
Yamagata Chuo High School – Mie
Amateur Sports Association – KH Neochem

photo: Aflo Sport

Moemi Kikuchi

69 KH Neochem Report 2022

photo: Aflo SportRin Kosaka

2017/2018
National High School Skating Championships 1000m, 1500m champion
2018/2019
ISU Junior World Cup (Italy), 1500m, 3000m champion
World Junior Championships, team pursuit champion
2019/2020
Junior World Cup (Norway), 3000m Second place
2020/2021
All Japan Junior Championships 1000m, Overall Champion (new Japan Junior record)
2021/2022
All Japan Distance Championships, Mass start Champion
Beijing Olympics Japan National Team (Mass Start)

KH Neochem Report 202270