KH Neochem Integrated Report2-3-1 Nihonbashi-Muromachi, Chuo-ku, Tokyo 103-0022, Japan
Public Relations Tel: +81-3-3510-3579
URL: www.khneochem.co.jp/en/

Creatinga Sustainable
FutureKH Neochem Report2023

Corporate Policy

INDEX
Corporate Mission

Then and Now

Realizing a brighter tomorrowfor society throughthe power of chemistry.
Our Basic Principles
Corporate Policy

Basic Management Policy

Corporate Mission

Making our dream a reality
through reliable technology
and new inventions.

VISION
2030

Basic Behavior

Safety Guidelines

Protecting ourselves andour colleagues.

A Leading Global Specialty
Chemical Company

4th Medium-TermBusiness Plan

Management
ApproachManagement Approach

Taking the first step toovercoming barriers andissues we face.

VISION 2030

Corporate
MissionRealizing a brighter tomorrowfor society throughthe power of chemistry.

4th Medium-TermBusiness Plan

02

Index, Editorial Policy

Driving Sustainable Management

Principles ofCorporate Behavior

History of KH Neochem

03

Strengths of KH Neochem

05

Overall Image and Features of the Business07

Business

09

Financial (Consolidated) and Non-Financial(Non-Consolidated) Highlights

13

Sustainable Value Creation

Drivers for Value Creation“Cross×Talk” Discussions
Toshihiro Matsuoka × Yukihiro Isogai

38

Special Feature I :Safety and Operations Integrity

41

Special Feature II :Creating New Value to Achieve Sustainable Growth andStrengthening Intellectual Property Capabilities

45

Special Feature III :Human Resource Strategies to Increase Corporate Value

49

Message from the President and CEO

16

Improvement of Business Framework

VISION 2030

20

Roundtable Discussion with Outside Directors

54

Value Creation Story

21

Corporate Governance57

Materiality Identification Process and Progress Report

23

Risk Management

65

Progress in the 4th Medium-Term Business Plan

25

Message from Masaya Hamamoto (CFO)29

Climate-Related Disclosures Based on
TCFD Recommendations

66

Message from Tatsuro Niiya (Board Director)

31

Compliance

67

Contributing to a sustainable society throughour business

33

Security, Safety, and Environmental
Conservation Activities

69

Stakeholder Relations

73

Contributing to global warming mitigation through the
supply of refrigeration lubricant raw materials

35

Compliance Code and Policy

Principles
of Corporate
Behavior

Data Section
Consolidated Financial Statements

76

Financial and Non-Financial Time Series Data

80

Overview

81

Information Disclosure System
Non-Financial

Financial

Basic Behavior Safety Guidelines 5C Credo

Scope of Report
KH Neochem Report 2023

Reporting period:

January 1 to December 31, 2022
Some portions of the report also include
activities for 2023.

5C Credo

Challenge

Curiosity

Communication

Courtesy

Compliance

Our Website(except IR information)

Our Website(IR information)

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

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

01 KH Neochem Report 2023

Environmental report data and otherstatutory information is for the period
from April 1, 2022 to March 31, 2023.
Organization covered: KH Neochem Co., Ltd. (nonconsolidated)(Some portions also include
consolidated information.)
Date of publication:

August 2023

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 at that time.
For this reason, actual business results may differ, depending on
various factors.

KH Neochem Report 2023

02

History of KH Neochem

Since the time of our founding, we have built up reliable
manufacturing DNA while continuing our business.

Our roots are in the manufacture of chemicals through fermentation, the founding business of Kyowa Hakko
Kogyo (now Kyowa Kirin). We supported Japan’s post-war growth and have contributed to people’s daily
lives. We have established a solid footing as a chemical manufacturer by flexibly responding to changes inthe environment and actively adopting new technologies, such as switching from fermentation topetrochemical manufacturing.

1949

1966

Kyowa Hakko Kogyo established

1948

1961

Converted topetrochemical
manufacturing methods

1948

First company in Japanto succeed in mass
production throughfermentation

Took over operations of the
Chiba Plant from Nissan
Petrochemicals

1963

Umaokoshi Plant completed at the
Yokkaichi Plant

In 1988, we took over operations and businessof the Chiba Plant from Nissan Petrochemicals(now Nissan Chemical). The Chiba Plant has
the only high-pressure oxo reaction facility inJapan. We established a two-plant systemwith the Yokkaichi Plant. With this, we became
one of the few oxo manufacturers in the worldthat has both high-pressure and low-pressure
oxo process facilities.

1988

Switch to a plantsystem that has two oxo
process facilities withdifferent features

2004

Name changed to Kyowa Hakko
Chemical from Kyowa Yuka

2012

Changed name to KH
Neochem2016

Listed on the First Section of the Tokyo
Stock Exchange

2018

Set a new industry
record for the longest
accident-free period of
operation

From 2004

Development of
new applications
by improving
technical capabilities
To meet the needs of ourcustomers, we further improved
our oxo-based synthesis
technologies, and also our highpurification technologies andquality control technologies. By
repeatedly improving our technicalcapabilities, we have boosted thequality of our products anddeveloped new applications.

Formulated VISION 2030

From 2011

Independence and listing:creating the foundations for expansion
In order to create an environment inwhich we can independently makebusiness investment decisions, we werespun off as independent from Kyowa
Hakko Kirin Group, changed our name toKH Neochem, and were listed on the First
Section of the Tokyo Stock Exchange.
Amid these developments, we created thefoundations for business investment froma medium- to long-term perspective
while recognizing the importance ofshort-term performance.

In VISION 2030, formulated in2018, we stated our ambition of
becoming a leading global specialty
chemical company.

From 2018
Becoming a leading
global specialty
chemical company
The Yokkaichi Umaokoshi Industrial Complex at the time ofits completion

2022

Moved to the Tokyo Stock
Exchange Prime Market

2019

KH i-Lab establishedWe will continue to provide uniqueproducts such as refrigeration lubricant
raw materials, cosmetic ingredients,and electronics materials based on ourdesire to provide indispensable
products that contribute to the global
environment and richer lives for people.

Contributing tosolutions for social
issues through ourbusiness activities
The ceremony to mark our listing in 2016

Aiming to create
new value
In order to resolve social issues, wewill continue to take on thechallenge of developing new
products in existing businesses andcreating new businesses throughopen innovation at KH i-Lab, basedon partnerships we have cultivatedwith our customers.

Data Section

Converted to petrochemical
manufacturing methods andbecame a “department store
for solvents”

03 KH Neochem Report 2023

Spun off as independent from Kyowa
Hakko Kirin Group2008

From 1961

In a flexible response to changes in the external environment,
we converted to petrochemical manufacturing methods in
1961. We launched our Yokkaichi Plant two years later andconverted our core production method from thehigh-pressure oxo process to the low-pressure oxo process.
Our extensive product lineup led to us being dubbed a“department store for solvents.”

2011

Improvement of Business Framework

We became the first in Japan tosuccessfully mass produce acetone andbutyl alcohol from molasses throughfermentation. This method was later
utilized for solvents and various otherapplications, and contributed to thegrowth of Japanese industries. Thatoriginal business has been handed down
within the company to the present day,while making alterations to manufacturingmethods and products.

1988

After becoming independent from Kyowa Hakko Kirin Group and now being listed on the Prime
Market of the Tokyo Stock Exchange, we have created an environment in which we can flexibly
make business investment decisions. We will use the power of chemistry to realize a brighter
tomorrow for society through sustainable management that balances contributing to solutions
for social issues through our business activities with the sustainable growth of our company.

Drivers for Value Creation

Became the first in Japan tosuccessfully mass produce
acetone and butyl alcohol

Kyowa Yuka
establishedⅡ

Further Evolution as an Independent Company
Sustainable Value CreationⅠ

Our Origins as a Chemical Manufacturer

Then and Now

We were founded in 1948, and ever since then have created new value with the aim of “contributing to society
through our business.” At the root of this is the reliable DNA we have cultivated while facing many major changes inthe business environment. That DNA has been handed down to the present day.

Research at KH i-Lab

KH Neochem Report 2023

04

Strengths of KH Neochem

Utilizing our four strengths, we have continued growing
to become a top global company in niche fields.
Then and Now

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 the global and domestic markets.

Strengths
Strengths

Rich and Unique Technologies

A Wide-ranging
Customer Network

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

High purification(refining)technologies

Quality control
technologies

Products with Top-level Shares of theDomestic Market (In-house Estimates)
Refrigeration lubricant
raw materials
Synthetic
fatty acids
Environment

Improvement of Business Framework

Operations &equipment
management
technology

Leveraging each of our strengths in technologies,
customer network, and manufacturing plants, wehave been able to create numerous products withlarge market shares.
Since we manufacture raw materials that are
essential in each respective industrial field, it iscritically important to supply these products in asafe and stable manner. We will be expanding our
production capacity appropriately while
coordinating with our customers.

Drivers for Value Creation

Oxo synthesis
technologies

Since our founding, we have provided
products to customers representing abroad range of industries and gained
their trust.
We began producing high-purity
solvent and refrigeration lubricant raw
materials based on requests received
from customers we were collaborating
with, and these have grown to become
our core products.
Having a large presence in nichefields, we often receive requests from
customers to work on new trends andconduct joint development, which
continually drives our further evolution.
Going forward, we will continue tofurther expand our sales and create
new business by leveraging ourcustomer network.

Major Products with
Large Market Shares

Sustainable Value Creation

Strengths

Cosmetic ingredients
1,3-butylene
glycolHealthcare

Strengths

What is oxo synthesis?
Also known as hydroformylation, oxo synthesis is a process where oxo gas, which is a
mixture of carbon monoxide and hydrogen, reacts with raw materials, such as olefins,
to synthesize aldehydes. Aldehydes can be reduced to alcohol or oxidized to fatty
acids, and various derivatives can be synthesized. It is also characterized by the use ofcarbon dioxide (CO2) as a raw material in the oxo gas production process.
Water
MethaneOlefins

05 KH Neochem Report 2023

Oxo gasCOOxo synthesis
H2

Aldehydes

Alcohol or
Fatty acidKH Neochem is the only company inJapan that has both high-pressure andlow-pressure oxo process facilities.
Utilizing each of their strengths tomaximum effect allows us to meethighly specific customer needs and tooffer an astonishingly vast selection of
product types.

Electronics materials
High-purity
solvents
Electronics

Data Section

CO2

World’s Leading
Manufacturing Plants

Basic chemicals
Oxo alcohol
for plasticizers
Fundamental
business

KH Neochem Report 2023

06

Overall Image and Features of the Business

Then and Now

Leveraging expertise accumulated as a chemicalmaterial 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, electronics materials, basic chemicals, and more. Our aim is to contributeto: improved value in final products, an environmentally friendly society, and richer lives for people by providing
high-quality, high-performance materials.
Collecting information on needs
and demand trends

Customers

Products

Raw materials

DomainTwo core plants withdifferent features

Propylene

Yokkaichi Plant• 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 oneof only a few in the world

Environment

Strengths

World’s Leading
Manufacturing Plants

Oxo synthesis technologies• Extremely rare technology thatuses CO2 as a raw material

Healthcare

Electronics(including CO2)Sales

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

Electronics
materials

Strengths

Rich and Unique Technologies

Fundamental
businessBasicchemicals

Photoresist
manufacturers, etc.

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

Data Section

OthersCosmetic
ingredients

Sales

Operations & equipment
management technology• Actively implementing advanced
plant control systems
High purification (refining)technologies
Quality control technologies• Quality control building with aworld-class clean room at the
Yokkaichi Plant

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

Technology
Other
olefins

Sales

Refrigeration
lubricantraw materials

Improvement of Business Framework

Maintained andstrengthened competitive
advantage in technology

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

Drivers for Value Creation

Procurement

Refrigeration lubricant
manufacturers, etc.

Performancematerials

Manufacturing Plants

Ethylene

Sales

Sustainable Value Creation

Strengths

A Wide-ranging Customer Network

Strengths

Major Products with Large Market Shares

07 KH Neochem Report 2023

KH Neochem Report 2023

08

Business

Performance materials
Then and Now

We manufacture the raw materials for lubricants used

Proportion of total
operating income

Operating income(consolidated, bn yen)mainly in air conditioners (refrigeration lubricant) and(FY2022)ingredients for cosmetics.
refrigeration lubricants which are highly compatible with49%

thus contributing to global warming prevention. Our
2020

people all over the world.

2021

Diols

• Spread of e-commerce• Growth in the men’s cosmetics market

Synthetic fatty
acids• Increasing interest in high-end andnatural products

Healthcare

cosmetic ingredients, used in high-end skincare
cosmetics, also help to improve quality of life (QOL) for

Main Products• Worldwide growth of the middle class

7.7

5.1

refrigerants having low global warming potential (GWP),

Main Areas of Use

Growth in the skincare market

Sustainable Value Creation

10.0

Our refrigeration lubricant raw materials are used inMarket environment

Cosmetic
ingredients

Skin toners / Face masks
beauty serums

etc.

2022 (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

Market environment

Main Areas of Use

Global expansion in the environmentallyfriendly air conditioner market

Main Products
Synthetic fatty
acids• Population growth in emerging nations• Worldwide growth of the middle classTechnology

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• Tightening international environmental
regulations for refrigerants

Environment

Procuredraw materials

Air conditioners

Drivers for Value Creation

Refrigeration
lubricant raw
materials

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

etc.

Value chain example
Procuredraw materials

Technology

Product• Propylene• Otherolefins• CO2 etc.

Synthesis
technologies
including oxo
Quality control
technologies

Refrigeration
lubricantraw materials

Process toward final productRefrigeration
lubricantmanufacturers

Compressor
manufacturers

Final productCreating
new value

Environmentallyfriendly
air conditioners

Helping tocurb global
warmingGlobal expansion ofenvironmentally friendly
air conditioners

Competitive Advantages

Challenges• Continued growth in demand for air
conditioners worldwide• Regulations on refrigerants to reducegreenhouse gas and protect the ozone layer• Structural changes to air conditioners forcars and transition in refrigerants due to the
spread of EVs• Acceleration of the replacement of
combustion-style heating with heatpump-style heating• The top global market share in refrigeration
lubricant raw materials for environmentallyfriendly air conditioners• Being located in Asia, the region with themost demand• Customer collaboration marketing and
R&D systems• Expanding supply capacity in a timely andappropriate manner according to
demand growth• Developing refrigeration lubricant raw
materials compatible with next-generation
refrigerants

09 KH Neochem Report 2023

Competitive Advantages• Growth of the middle class in emerging
nations, primarily in Asia
• Facilities expansions among domestic
cosmetics manufacturers• Higher demand for quality• Relaxation of the restrictions on behavior
imposed during the COVID-19 pandemic
and recovery of demand related toinbound tourism• Integrated in-house system for production
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?

antibacterial properties, as well as its reduced odor

1,3-butylene glycol (1,3-BG) is a cosmetic ingredientand amount of skin irritation.

that produces a moist texture when using products

In addition to Japan and South Korea wheresuch as skin toners, face masks, or beauty serums.

people have high awareness of beauty and skincare,

It is an indispensable ingredient for skincare

Data Section

Opportunities / Risks

Opportunities / Risks

Improvement of Business Framework

KH Neochem

we are actively selling it in markets such as China,

products that come into direct contact with the skinSoutheast Asia, and India where medium- to

due to its strong moisturizing properties andlong-term demand is forecasted to increase.

KH Neochem Report 2023

10

Business

Electronics materials

Basic chemicals
Then and Now

Fundamental
business

Electronics

We manufacture high-purity solvent, the raw material forphotoresist, which is used in manufacturing(consolidated, bn yen)semiconductors and liquid crystal displays.

(FY2022)

plasticizer raw materials. Our solvents are used in

19%

many products with top-level shares of the domestic

fields. We contribute to an advanced information society
by meeting needs in the field of electronics materials,

2021

of ways.

2022 (fiscal year)

31%

4.9

products more flexible and easier to process. We havemarket, as we contribute to everyday living in a variety

2020(FY2022)

9.4

Plasticizers are essential additives for making plastic

technology. Our group company Kurogane Kasei is also
related to electronics materials, including cutting-edge(consolidated, bn yen)coatings, adhesives, cleaning agents, and more.

(distillation) technology and high quality control
engaged in various contract manufacturing businesses

Proportion of total
operating income

Operating income

construction and automobiles, as well as in smartphone

3.0

1.8

matter and metals) through a fusion of high purification

We manufacture an extensive lineup of solvents and

1.3
2020

2021

Sustainable Value Creation

3.4

Our solvents are recognized by our customers forcontaining extremely low volumes of impurities (foreign

Proportion of total
operating income

Operating income

2022 (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.

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

which grows more sophisticated by the day.

Market environment
Main Areas of Use

Growth in the market for electronics materials as the IT andelectronics industries develop

Main Products
Esters(electronics
materials grade)• Spread and development of AI & IoT• Increased speed & functionality of electronics• Increased demand for cutting-edge semiconductors due to the
spread of 5G technologies

Semiconductors

Displays

Glycol ethers(electronics
materials grade)

Stabilized market in Japan and expanding market in the restof Asia

Oxo alcohols• Stable domestic market

Esters• Economic growth in nearby Asian countries• Population growth in emerging nations
Coatings / inks

Glycol ethers

Electric wire
covering

etc.

etc.

Improvement of Business Framework

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

Creating
new value

Final product

Display andsemiconductor
manufacturers

Electronics

Contributing
to an advanced
informationsociety

Procuredraw materials

Technology

Product

Process toward final product

Final productCreating
new value• Propylene• Other olefins• CO2 etc.

Synthesis
technologies
including oxo
Quality control
technologies

Solvents
Plasticizer
raw materials

Coatings, inks, resin
manufacturers, etc.

Industrial products(automobiles,
housing,
beverage cans, etc.)

Contributing
toeverydaylivingVarious raw materials must
be combined according to
the usage application

Advance higher performance insemiconductors and innovations invarious IoT technologies

Opportunities / Risks

Competitive Advantages• High purification technology built over
the years• Extensive product lineup and supply system• Advanced quality control technologies tomeet customers’ needs• Facilities for next-generation
semiconductor materials belonging toKurogane Kasei, contract manufacturer ofelectronics materials

Challenges• Further strengthen our quality control
system and increase supply capacity fornext-generation semiconductors

Opportunities / Risks

Competitive Advantages

Challenges• Growing demand, primarily in Asia
• Competing manufacturers overseas could
shut down production if they are unable tocomply with environmental regulations• Tightening balance of supply and demandfor oxo alcohol in Asia
• High volatility due to economic fluctuationsin Japan and in emerging nations• Aged, deteriorating manufacturing andshipping equipment• Located close to Asian countries where
population growth and infrastructuredevelopment are expected• Largest oxo alcohol production capacity
in Japan• Extensive range of product lineup
supported by offerings of derivatives• Stable business and established trust with
top manufacturers in each market• Further strengthening our costcompetitiveness• Build stable supply systems through better
safety and preventative maintenance at
production plants

KH Neochem Report 2023

Data Section• Growth of global semiconductor demand
and market expansion• Increasing quality-related needs• Changes in semiconductor supply
networks and advanced productdevelopment trends due to factors such as
U.S.-China trade friction• Superiority of domestic semiconductormaterials manufacturers

11 KH Neochem Report 2023

Main Products

Main Areas of Use

Drivers for Value Creation

Market environment

12

Financial Highlights (Consolidated)
Net sales

Non-Financial Highlights (Non-Consolidated)
Energy consumption and specific consumption

Operating income(bn yen)(bn yen)

160.0

20.0

94.7 101.2 94.2

80.0

11.5

77.3

10.9

10.0

12.5
9.6
5.6

5.0

40.0

0

15.0

2017

2018

2019

2020

2021

0

2022 (fiscal year)

2017

2018

2019

2020

2021

(L/t)

(1,000 t-CO2)

250

500

200

400

150

300

100

100

200

50

50

100

0

0

250

199.6

210.0

207.2

218.8 208.7

150

02022 (fiscal year)

2017

2018

204.6 194.2 214.4

2019

(t)

20.0

250

8.2

6.7

8.1

6.9

6.0

4.0

11.9

12.1

10.9

9.9

10.0

2018

2019

2020

2021

0

2022 (fiscal year)

Severity rate: KH Neochem
Frequency rate: KH Neochem

2017

2018

2019

2020

2021

140

150

124

136

(frequency rate)

133

106

92

50

2022 (fiscal year)

2022 (fiscal year)

2021

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

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

100

5.6
1.5

2017

2020

0.94

0.90

1.00

0.09

0.75

0.81

2017

2018

2019

2020

2021

2022 (fiscal year)

0.25
0.00

1.07

0.93

0.93

0.96

0.06

(severity rate)
0.100
0.075

0.06

0.50

0

6.98
1.16

0.03

0.02

0.050

0.02
0.02

0.00
0.00

0.00
0.00

0.00
0.00

0.00
0.00

2017

2018

2019

2020

Drivers for Value Creation

0

2019

2018

200

5.0

3.0

2017

379.1

Sustainable Value Creation(bn yen)

9.0

2022 (fiscal year)

404.2 422.4

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

15.0

2021

448.9 440.2(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.

Disposed of as landfill

12.0

2020

187.8

473.6

(Note 1) April 1 to March 31, each year
(Note 2) Due to a change in the method of rounding decimals starting in fiscal
year 2021, there are slight differences from the figures shown in theprevious report.

Net interest-bearing debt (except lease obligations)

13.7

204.9

230.4

200

Net income attributable to owners of the parent

15.0

222.3

Then and Now

120.0

117.1 114.9(1,000 kL)

19.7

Greenhouse Gas (GHG) amount released (Scope 1 + 2)

Energy intensity

Energy consumption (crude oil equivalent)

0.025

2022 (fiscal year)

2021

0.000

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

CAPEX

Equity ratio/ROE
Equity ratio

Male

(%)

(bn yen)

50

30

38.2

40.2

29.3

7.0

14.1

9.6
2018

2019

2020

2021

2022 (fiscal year)

2.5

0

2018

600

611

12.2

12.1

200

2019

2020

659

673

649

2021

2022 (fiscal year)

0

73

2017

74

2018

11.8

Mid-career(%)(persons)

15.0

80

14.0

60

New graduates

77

659
13.4

400

1.6
2017

800

13.1

3.6

2.9

(persons)

600

6.0

5.0

18.0
20.1

2017

9.5

10.0

27.9

10
0

45.2

7.5

32.6

20

45.0

Ratio of female employees

Female

12.2

78

82

85

88

2019

2020

2021

2022 (fiscal year)

13.0

40

12.0

20

11.0

50

40

14

0

2017

27

13

2018

30

18

27

22

2019

2020

21

8

40

35

19

22

Improvement of Business Framework

40

45.4

Number of new employees

Number of employees and ratio of female employees

ROE

10

9
2021

2022 (fiscal year)(Note) Only workers who have signed a labor contract with no fixed term

Depreciation (including amortization of goodwill)

R&D expenses(bn yen)(bn yen)Years of service and gender differences

Gender wage gap(fiscal year)
5.0

3.3

3.3

3.9

1.5

1.0

3.0
2.0

0.9

0.8

0.8

0.9

1.0

0.9

0.5

2017

2018

13 KH Neochem Report 2023

2019

2020

2021

2022 (fiscal year)

0

83.4%

Full-time
workers

81.6%

Part-time orfixed-term
workers

1.0
0

All workers

2017

2018

2019

2020

2021

2022 (fiscal year)

67.6%

fiscal year

2017

2018

2019

2020

2021

2022

2023

male

16.5

16.0

14.6

13.5

13.7

14.0

14.2

female

16.9

16.3

14.3

14.3

15.0

15.3

15.1

Difference(female –
male)

0.4

0.3

-0.3

0.8

1.3

1.3

0.9

Data Section

3.4

4.3

Years of service

4.0

4.5

Difference in wages between males and females(Ratio of female wages to male wages)(Note 1) “Number of years difference” is the difference in the number of years ofservice calculated as “female-male”(Note 2) Full-time workers only. All figures as of April 1, each year

KH Neochem Report 2023

14

Message from the President and CEO

Then and Now

We will drive Sustainable Management
to contribute towards solving social issues
and sustainably enhance ourcorporate value.
Michio Takahashi
KH Neochem Co., Ltd.
Representative Director, President & CEO

Sustainable
Sustainable Value
Value Creation
Creation

The strengths and DNA that have supported
our value creation
We have engaged in the manufacture and sales ofchemicals, the founding business of Kyowa Hakko Kogyo(now Kyowa Kirin), since the 1940s. We initially carried out
mass production of chemicals via fermentation utilizing
biotechnology, but later converted to petrochemical
Plant came into operation and we transformed ourselves
into a high-quality, high-tech chemical material
manufacturer utilizing oxo synthesis technologies. In the
1980s, we took over the operations and business of the
Chiba Plant from Nissan Chemical Industries, Ltd. (nowNissan Chemical Corporation), and currently operate a
two-plant system with the Yokkaichi and Chiba Plants

16

Message from the President and CEO

20

VISION 2030

international companies, but we have built up our current

21

Value Creation Story

marketing capabilities. While most of our competitors

23

Materiality Identification Process andProgress Report
Progress in the 4th Medium-TermBusiness Plan

through which we create value via manufacturing.
Our competitors include major domestic andposition through our extensive product line-up andfocus on big products such as alcohols and theirderivatives, we have distinctively expanded our businessto include products such as synthetic fatty acids. As aresult, we have positioned ourselves as the global leader insynthetic fatty acids for refrigeration lubricants. Rather
than simply pursuing scale, we have leveraged ourmaneuverability and focused on launching a variety of
products on the market and providing distinctive products

29

Message from Masaya Hamamoto (CFO)

that are essential to our customers. Many of our

31

Message from Tatsuro Niiya(Board Director)

we have developed close relationships of trust with them

35

Contributing to a Sustainable Society
through Our BusinessContributing to Global Warming
Mitigation through the Supply of
Refrigeration Lubricant Raw Materials

customers are leading companies in their industries, andover the years. I believe that our relationships with thosecustomers are one of our biggest assets.
Our approach of developing unique products andData Section

33

Improvement of Business Framework

25

Drivers for Value Creation

Sustainable
Value Creation

manufacturing methods in the 1960s, when our Yokkaichi

creating product ranges with higher added value has
supported value creation since our founding and can only
be described as our manufacturing DNA that has been
passed down from generation to generation. Goingforward, we will continue to enhance our corporate value
based on the relationships of trust we have with ourcustomers and diverse business partners.

15 KH Neochem Report 2023

KH Neochem Report 2023

16

Message from the President and CEO
control functions, we built a quality control building withVISION 2030 makes our ambitions known
in-house and outside the Company

180.0 billion yen in net sales and over 25.0 billion yen ina world-class clean room at the Yokkaichi Plant in

operating income. We also identified Environment,

2022, and are also strengthening our supply

Healthcare and Electronics as three strategic domains to

infrastructure by adding more product tanks to ensure a

In 2011, with assistance from Japan Industrial Partners

specially focus our energies on, and will steadily grow ourstable supply of high-purity solvents. We aim to(an investment fund), KH Neochem became independent

existing businesses while also taking on the challenge ofcomplete their installation during 2023. In addition, ourfrom what was then known as the Kyowa Hakko Kirin

expanding new businesses.

group company Kurogane Kasei is currently engaged inGroup. In our five years under the umbrella of the

Although a number of unexpected events occurred

Then and Now

chemical industry, and set specific numerical targets of

Phase II of its facilities expansion, with the aim of starting

after it was formulated, including the COVID-19

operations in 2024, following on from its facilities for

management from the perspective of shareholders andpandemic and the situation in Russia and Ukraine, wematerials for next-generation semiconductors, newly

investors, including the importance of efficiently

are moving steadily forward with the aim of realizing

built in 2021. Aiming for new business creation, we

generating profits with an awareness of the cost of

VISION 2030, which describes a path that will beestablished KH i-Lab in 2019 to make active use of open

capital. In 2016, we were listed on the First Section of therealized by building on our three-year medium-term

innovation, and in 2022 we invested in two start-up

Tokyo Stock Exchange (we have now moved to the Tokyo

business plans. In terms of business performance, we

companies. Also, as the shift to carbon neutrality

Stock Exchange Prime Market). Since then, we haveachieved record high profits in FY2021, and were able toaccelerates globally, as well as promoting wider

maintained a strong awareness with regard to not only

secure our second best performance in FY2022 despite

installation of the advanced plant control system using

maximizing profits every fiscal year, but also emphasizing

a significant decrease in profits year on year. Being a

AI, and working to improve specific energy consumption,

a medium- to long-term perspective and conducting

chemical manufacturer that deals in materials, we are

we renewed the in-house power generation equipment

business with a view to sustainable growth.

inevitably affected by the external environment, such asat the Chiba Plant in 2021 to reduce CO2 emissions.

expansion in this field will greatly contribute to our growth

We make on-going investments in the humanand earnings, and will lead to continuous enhancement of

As a consequence of our listing, we set to work on

global economic trends. However, if we look at our
performance in terms of multiple year units, such as theresources that support our business. In addition to

our corporate value. In the electronics domain, we will2030

periods of our three-year medium-term business plans, I

introducing a job-based personnel system for theleverage our technical capabilities to meet the highbelieve we are achieving steady growth and havedevelopment of professional human resources andexpectations of our customers and boost the quality ofdeveloped earning power.

expanding our training and education system, we also

products such as high-purity solvents essential for thepromote the creation of a comfortable working

manufacture of high-definition semiconductors, andmeasures to continuously improve our corporate value. In

environment for employees. We are also actively

materials for next-generation semiconductors. We will also

In VISION 2030, we announced our ambition of becoming

order to steadily capture the growing demand for our

engaged in strengthening our governance structure. In

contribute to an advanced information society bya leading global specialty chemical company, stated ourmainstay refrigeration lubricant raw materials, we are2020, we established the Compliance Code, which

continuing to provide materials in cutting-edge fields.

three policies of (1) Providing specialty chemicals thatmoving forward with the enhancement of facilities at ourserves as the principles of behavior and we have also

Furthermore, in the healthcare domain, products such as

contribute to the reduction of global warming and a

Chiba Plant, aiming for their completion in 2024, inestablished various policies

our cosmetic ingredients and basic chemicals help tobetter quality of life, (2) Expansion of products with theaddition to the enhancement of facilities at our Yokkaichi

content to ensure its implementation.

largest global share and new businesses in strategic

Plant, completed in 2020. In the electronics materials

domains, and (3) Achieving top-class profitability in thebusiness, with the aim of strengthening our quality

P20

in 2018.

Results since the establishment of VISION 2030

Furthermore, we have proactively promoted

Main Initiatives
3rd Medium-Term Business Plan
(2019–2021)• KH i-Lab established (2019)• Yokkaichi Plant expanded refrigeration
lubricant raw materials facilities (2020)• Kurogane Kasei built new next-generation
semiconductor materials facilities (2020)• Introduction and implementation ofadvanced plant control system• Chiba Plant renewed in-house power
generation equipment (2021)• Establishment of Compliance Code andvarious policies (from 2020 onwards)

4th Medium-Term Business Plan
(2022–2024)• Investment in two start-up companies(2022)• Expansion of Chiba Plant refrigeration
lubricant raw materials facilities(scheduled for completion in summer
2024)

41.5bn yen• Introduction of job-based personnel
system for non-managerial position
employees (2023)

What Sustainable Management Emphasizes

Strategy currently plays a central role in accelerating

We are committed to Sustainable Management that

promoting collaborations with the two start-up

combines contributing to a sustainable society through ourcompanies in which we invested in 2022. In addition,business and ensuring ongoing growth in our own

some promising projects are starting to emerge amongst

corporate value. Its current linchpin is refrigeration

those being implemented in-house. We will continue tolubricant raw materials, which are our mainstay products

pursue sustainable growth through the expansion of ourin the environment domain, and I believe it to be of thebusiness by actively collaborating with other companies

utmost importance that we continue to provide a stable

as and when necessary, without being overly concerned

supply of these materials. Approximately one billion tons

about going it alone.

activities for the creation of new businesses, and isresult from refrigerants used in air conditioners. That is
almost the same as Japan’s total annual greenhouse gas
emissions. International regulations to reduce global• High-purity solvent supply infrastructure
strengthened (2023)• Expansion of Kurogane Kasei
next-generation semiconductor materials
facilities (scheduled for completion in
2024)

In VISION 2030, we set a target of generating 5billion yen in profits via new businesses. Innovationof annual global greenhouse gas emissions are said to• New office and quality control building
built at the Kasumigaura Plant in Yokkaichi
Plant (2022)• Wider installation of advanced plant
control system

17 KH Neochem Report 2023

46.5bn yen

improve quality of life and support people’s everyday living.

warming are being strengthened and the shift toward

16.8bn yen
2022 results

2nd Medium-Term 3rd Medium-Term 4th Medium-TermBusiness Plan
Business Plan
Business Plan
2016-20182019-2021
2022-2024

Initiatives to develop and strengthen the humanresources essential for sustainable growthenvironmentally friendly refrigerants is progressing. Our

The development and strengthening of human resources

refrigeration lubricant raw materials are compatible withis vitally important for our sustainable growth. It isenvironmentally friendly refrigerants, and we boast theimperative that not only management but also core

world’s largest market share in this field. That is precisely

human resources in each division and generation within

why I strongly feel it is our social responsibility to provide a

the Company have a positive impact on each other andstable supply of products which contribute to curbing

boost the level of the Company as a whole. Although we

global warming. At the same time, I believe that businesscannot develop and strengthen human resources

KH Neochem Report 2023

Data Section• Introduction of job-based personnel
system for management positions (2020)

Accumulated consolidated EBITDA

that clarify its

Improvement of Business Framework

The main initiatives and accumulated consolidated EBITDA since the establishment of VISION 2030

P67, P68

Drivers for Value Creation

formulating a long-term vision and established VISION

Sustainable
Sustainable Value
Value Creation
Creation

investment fund, we were able to learn realistically about

18

Message from the President and CEO
overnight, we are also focusing on expanding ourgeneral inspection of risks, including for work that has noteducation and training system, including targeted

had a single accident in the past, and to take thetraining, and utilizing diverse human resources by means

necessary measures. To ensure stable operations, we willof mid-career hiring.

put even more effort into preventive maintenance toavert equipment problems. Many petrochemical plants inJapan, including the Company, were established in theinterviewing division heads every year since 2021 so that1960s and are aging. We carry out the necessary

we can select, nurture and pool human resources capable

replacements and repairs whenever they are needed, but

of running operations objectively. We are planning to

it is true to say that the risk of equipment trouble isexpand this initiative to include the next generation ofincreasing. We have therefore revised our maintenancehuman resources in 2023. Since 2020, a committee madestrategy and, instead of repairing equipment after it fails,

up of executive directors has held “personnel meetings”

are working to identify equipment with a high risk of

to discuss in detail succession plans for division heads andfailure and take action before it fails. We are also studying

other core positions. For a company to be sustainable, it

the introduction of a predictive diagnostic system thatmust first ensure it has sustainable human resources. In

utilizes the latest AI technology. We will strive to reduceorder to become a truly sustainable company, we will seekplant downtime by taking measures such as converting

to identify and develop human resources who arepast records into big data and increasing the number ofpotential successors, not only from management but also

sensors where necessary, detecting signs of equipmentfrom the next generation, and we will actively promotetrouble, and ensuring that measures in response are

the further strengthening of our human resources.

implemented swiftly.

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

180.0bn JPY

Over

25.0bn JPY

Corporate growth at 5%
annually on average

Expansion of profits at 7%
annually on average

ROE

Equity ratio

12%

50%

Over

Sustainable
Sustainable Value
Value Creation
Creationfor management, outside directors have been

Our Ambitions
Then and Now

As part of our efforts to establish succession plans

VISION 2030

Construction of a financial
structure that is immune tothe external environment

Maintaining highcapital efficiency

Drivers for Growth

Human Resources
and Corporate Culture

Technology and Information

GovernanceInterruptions to our supply of products
inconvenience our customers, affect our entire supply
chain, and have a significant impact on our earnings. All

There were some unresolved issues regarding safe andrelationships of trust with our stakeholders.

executives and employees therefore recognize that safe
and stable operations are our most important duty; we
intend to continue safe and stable operations and rebuild

stable operations in FY2022: a work-related accident
occurred, the turnaround period was extended, and alarge number of plant problems occurred. We have many
products with a large share of the global market that can
only be manufactured by us, so those issues caused a

To create a steady growth trajectory for
FY2023 and beyond
Going forward, the external environment is expected toaim of thoroughly ensuring safety, we launchedbecome even more uncertain due to economic trends,

Comprehensive Safety Check Initiative 2022 to conduct a

geopolitical factors, trade friction, and other factors. In

Announced in 2018, VISION 2030 lays out ourin strategic domains (environment, healthcare, andaspirations for continued creation of new value andelectronics) where we can fully leverage our strengths.

sustainable growth while taking into account long-term

We will also seek to achieve sustainable growth andchanges in the external environment. We plan to invest a

increase corporate value by expanding overseas andtotal amount of about 100 billion yen from 2019 to 2030,

strengthening our global alliances, both in our

and will promote growth strategies for existing products

fundamental and strategic businesses.

and strategies for the creation of new business, especially
Illustration of Operating Income Growth and Strategy
New businesses

Strategic businesses

Fundamental businessOver25.0bn JPY

Strategies for Creating New Business• R&D, M&A• Promotion of open innovation

response to that, Production Planning and Engineering,
Sales & Marketing, Procurement, and other divisions will
collaborate closely to take the best possible measures ina timely manner, as I believe it is important to generate
stable profits even in a challenging environment. From a

10.8bn JPY

core products will steadily expand. I am confident that we• Capital expenditure• Increase in productivity• Increase quality and added value

Healthcare

reduction of global CO2 emissions by providing a stablesupply of refrigeration lubricant raw materials.
We will continue to achieve sustainable growth bypromoting Sustainable Management even more strongly.
To our valued investors and other stakeholders, thank you

2018

2030

Initiatives in the Environmental Domain
Creation of New Business• Promotion of green chemical materials
Growth of Existing Products• Strategic investment in refrigeration
lubricant raw materials
Increase market share(60% in 2017*→ 75% in 2030)
Response to next-generation refrigerant(fiscal year)
Initiatives in the Healthcare Domain

Initiatives in the Electronics Domain

Creation of New Business• Expansion of our product line for personalcare and detergent markets.
Growth of Existing Products• Strategic investment in cosmetic ingredients

Creation of New Business• New development of materials relating tomobility (for sensors and lenses)
Growth of Existing Products• Strategic investment in materials for displays
and semiconductors

Data Section

materials, we intend to contribute significantly to the• Overseas deployment• Global alliances

Fundamental
business

without fail capturing that growth in demand.

and, as the top supplier of refrigeration lubricant raw

100bn yen

Electronics

will be able to achieve steady growth by firmly andissue for the realization of a sustainable society, we will ofcourse make further efforts to reduce our CO2 emissions

Total investmentof about

Growth Strategies for Existing
Products

Environment

medium- to long-term perspective, the markets for our

In addition, as carbon neutrality becomes a major

Improvement of Business Framework

great deal of inconvenience to our stakeholders. With theInvestment Plan and Strategy

Drivers for Value Creation

Continuing our duty of performing safe andstable operations, and rebuilding relationshipsof trust with our clients* Estimate of the Company

very much for your continued support.

19 KH Neochem Report 2023

KH Neochem Report 2023

20

Value Creation Story

We will drive Sustainable Management and realize a brighter
tomorrow for society through the power of chemistry.
Then and Now

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.

Corporate Mission

Realizing a brighter

tomorrow for society through the power of chemistry.

INPUT*(FY2022)

Management Approach

Sustainable
Sustainable Value
Value Creation
CreationP01

OUTPUT / OUTCOME

Making our dream a reality through reliable
technology and new inventions.

Financial Capital
Common stock

8.8 bn yen

KH Neochem’s Strengths and Features

An environmentallyfriendly society

P05
Human Capital
Number of employees

Worsening climatechangeIncreasing corporate
responsibility forsustainability

A Wide-ranging Customer Network

2%

R&D Hubs (sites/locations):

4
Manufacturing capital

9.5 bn yen
CAPEX (target for 2023)

6.5 bn yen
Social capitalCountries products sold in:

31

Open
innovation

Contributing to resolvingsocial and environmental
issues with ourunique products

P25
Business that contributes to an environmentallyfriendly society and richer lives for people

DomainDeveloping
unique new products
and technologies

Technology andInformation
P41
Human Resources andCorporate Culture
P49
Rapidly expanding
Performing safe
supply capacity in line
and stable operations
with growth inStrengthening
global demand
relationships

VISION 2030

Driving Sustainable Management

Intellectual capital
Ratio of R&D expenses
to net sales(performance chemicals)

CAPEX (results for 2022)

Progress of anadvanced
information society

World’s Leading Manufacturing Plants

Medium-Term Business Plan

Environment

Healthcare

Electronics

Fundamental
business

Current,main
product lines

Refrigeration
lubricant raw
materials, etc.

Cosmetic
ingredients,
etc.

Electronics
Materials

Basic
Chemicals

Creating
value

Contributing to
global warming
prevention

Contributing to
improved QOL

Contributing toan advanced
informationsociety

Contributing toeveryday living

Continuous creation of new businessesof trust with clients

Safe, secure, andtrustworthy

Proposing new value
through partnerships

P20

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 thelargest global share and new
businesses in strategic
domains

Improvement of Business Framework

Increasing interest in
improving QOL

Major Products with Large Market Shares

Drivers for Value Creation

Expected Changes
in Society and theEnvironment

825Rich and Unique Technologies

Richer lives
for people• Top-class profitability in thechemical industry

A lean and efficientcompany that possesses
many unique and highly
competitive products,
rather than pursuing
expansion for its own sakeNatural CapitalUse of CO2 as a raw material

56 kt

Approx.

188,000 kL*Energy consumption is
non-consolidated; otherfigures are consolidated

21 KH Neochem Report 2023

Taking the first step to overcoming barriers and issues we face.

Seven promises to drive Sustainable Management

Materialities
P23

Governance
P57

2050
Toward carbon neutrality
Data Section

Energy consumption(crude oil equivalent)

Basic Behavior

P27
2030
GHG emissions (CO2 equivalent)

30% reduction
relative to FY2017

KH Neochem Report 2023

22

Materiality Identification Process and Progress Report

Then and Now

From 2020, discussions were held among the relevant executives, including full-time directors, to develop ourvalue creation story, and this was approved by the Board of Directors in 2021, together with our materialities
and KPIs during the period of the 4th Medium-Term Business Plan.
We will use these materialities and KPIs as a platform for enhancing constructive dialogue with our stakeholders.
The Identification Process

Developing our Value Creation Storyand Seven Promises

Step2

Step3

Selection of Materiality Candidates

Identifying Our Materiality andDeveloping Corresponding KPIs

Approval by the Board of Directors

During the discussions leading up to the developmentof our value creation story, we identified
discrepancies with the goals set out in VISION 2030 interms of putting our seven promises for driving
Sustainable Management into practice. In addition,
we conducted an analysis of materiality candidates,
including SDGs, international norms, evaluations by
ESG assessment organizations, feedback fromstakeholders, and issues identified by division heads
from the perspective of the value chain.

Seven Promises and Materialities

2

4
5

7

We will practice managementtransparency withhigh ethical standards.

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

We will promote responsible
supply chain management.

We will strengthen our earning power.

23 KH Neochem Report 2023

Expansion of social problem solving businesses centered on strategic domains

2

Promotion of innovation

3

Strengthening of intellectual property strategies to strengthen the foundation for growth4

Improvement of energy efficiency and reduction and management of CO2 andother emissions

5

Proper management of chemical substances

6

Safety and disaster prevention at plants with consideration of the local region

7

Responsible and stable supply to customers

8

Strengthening of corporate governance and risk management

9Compliance

10 Transparent and responsible communication with stakeholders

11 Health and safety of employees

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

Main relevant
pages

17% decrease

P33,35-36

Number of collaborations with external organizations inresearch and development

Over 10 per year13

P27,45-48

4Greenhouse Gas (GHG) emissions (CO2 equivalent)

30% reduction relative to FY2017 20% decrease*(Target for 2030)

P14,27,72

4Energy intensity

1% or more improvement per year 12.4% deterioration*

P14,72

5

Volume of final landfill disposal of industrial waste

1% or less of waste generated

0.2%*

P14,72

6

Systematic introduction of Smart Industrial Safety

Implementation as planned

Introduction of tablets formaintenance patrols

P41-447

Production plan achievement status

Implementation as planned

Not achieved due to a significant
decrease in production

P41-448

Identification of important risks by using risk maps andimplementation of countermeasures

Implementation as planned

Formulation of countermeasureplans for important risks

P65

9

Number of compliance education and training sessions at Over 5 times per year
all sites

5 timesP68

10

Number of dialogues with investors

Over 220 times per year

199 times

P74

11

Number of employee accidents resulting in lost workdays

01

P69-71

12

Ratio of female employees in managerial career track
positionsOver 15%

13.2%

P14,51-52

12

Rate of recruited personnel leaving work (in less than 3 years) Less than 10%

12.6%

P51-5213

Engagement survey score

10% or more improvement

3.11

P52

13

Rate of taking of annual paid leave

Over 80%

88.9%*

P52

14

Coverage ratio of Corporate Social Responsibility (CSR)
questionnaire survey of main raw materials (based onpurchase amount value)Over 70%

Development of sustainableprocurement guidelines

P75

15

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

Over 14.1 bn yen

10.8 bn JPY

P09-11,26

15

ROEOver 15%

14%

P13,2516

Improvement of productivity through introduction ofadvanced control systems

Introduced as planned andproductivity increased

75% instead of the 80%
introduction target for 2024

P43-44

16

Status of progress in DX related installations

Implementation as planned

Introduction of a predictive
diagnosis system studied

P43-442

3

improve productivity

14 Promotion of Corporate Social Responsibility (CSR) procurement

Progress in 2022

Rate of increase in sales volume of refrigeration lubricantsOver 17% increase
raw materials (compared to 2021)

1

12 Human resource development and recruitment to support Sustainable Management
13 Improvement of employee engagement and creation of comfortable workplaces toTargets for 2024

Data Section

6

We will strive to secure trust throughsafe and stable operations.

1

KPIs for each materiality

Improvement of Business Framework3

We will conduct business consciousof reducing our impact
on the environment.

Materialities

Drivers for Value Creation

1

All full-time directors and relevant officers assessed
impacts on stakeholders and the Company from along-term perspective, then identified ourmateriality— that is, key issues that have a particularly
severe impact on both stakeholders and theCompany— in light of the seven promises.
Furthermore, from a medium-term perspective,
specific milestones during the period of the 4th
Medium-Term Business Plan were designated as KPIs.

List of KPIs

Seven Promises

We will develop businesses that
help resolve social issues.

Materialities and the KPIs in the 4th
Medium-Term Business Plan aimed at realizing
VISION 2030 were approved by the Board of
Directors after discussions by theManagement Committee.

Sustainable
Sustainable Value
Value Creation
Creation

About 10 discussions were held among therelevant executives, including all full-time
directors, to develop our value creation story.
Looking ahead to VISION 2030 and beyond, we
visualized our strengths, business model, and thevalue we provide. 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.

Step1

Note 1: 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.
Note 2: Period covered: January 1, 2022 to December 31, 2022. For items marked solely with an asterisk (*), period covered: April 1, 2022 to March 31, 2023

KH Neochem Report 2023

24

Progress in the 4th Medium-Term Business Plan
To realize VISION 2030, the KH Neochem Group designated “Driving Sustainable Management” as the basic
policy of its 4th Medium-Term Business Plan. We have set the following three basic strategies with the aim offurther increasing our corporate value, and are implementing various measures.

Strategy I

Further Growth in the Strategic Domains

Driving Sustainable Management

Steadily capturing expanding demand forrefrigeration lubricant raw materials

Relatedmaterialities

1

7

15

Relatedmaterialities

1

7

15

Relatedmaterialities

1

7

15

Then and Now

Environmental Domain

Basic Policy

In addition to global refrigerant regulations accelerating the shift toenvironmentally friendly air conditioners that use low GWP*

Further Growth in the Strategic Domains

Strategy I

refrigerants with lower environmental impact, demand forrefrigeration lubricant raw materials is rising as air conditioners

In the strategic domains of Environment, Healthcare, and Electronics, we aim to both increase profits and contribute to solvingsocial issues by expanding our facilities and shifting to high-growth, high-earning products to meet growing global demand.

become increasingly popular in emerging nations such as India.
Accordingly, we are strengthening our production system toStrategy II

Medium and Long Term Initiatives to Resolve Social Issues

Sustainable
Sustainable Value
Value Creation
Creationensure that we can capture the growing demand for refrigeration
lubricant raw materials. We are moving forward with a project at our
Chiba Plant to increase production capacity for isononanoic acid, a

We will implement medium-and long-term initiatives aimed at achieving carbon neutrality by 2050, and at creating new

refrigeration lubricant raw material, to more than 1.5 times thebusinesses that will contribute to solving social issues.

current level. Construction work is scheduled for completion in thesummer of 2024.

Strategy III

Improvement of Business Framework*GWP: Global Warming Potential is a numerical value that indicates the greenhouse effect ofrefrigerants, taking carbon dioxide as 1.

We will further consolidate the foundations of our business by steadily implementing various measures regarding the
topics of “Technology and Information,” “Human Resources and Corporate Culture,” and “Governance,” which we haveidentified as the drivers for realizing VISION 2030.

Healthcare Domain

Expanding our lineup through open innovation

In the cosmetic ingredients field, demand became weak due to theWe have set cumulative operating income of 48.6 billion yen, cumulative EBITDA of 63.5 billion yen, and ROE of 15% orterm, the cosmetics market is expected to expand due to population

more over a three-year period as our numerical management targets.

growth and rising income levels in Southeast Asian countries.

Accumulated consolidated

impact of China’s zero COVID-19 policy, but over the medium to long

Accumulated
consolidated

operating income(bn yen)

41.5

34.9

46.5

The 4thMTBPFY2022
results

Over 15%

14%

facilities and other companies, we will also engage proactively inopen innovation to further expand our lineup in the healthcare field,
including the development of new higher alcohols that employ
natural raw materials.

results

results

The 3rdMTBP

The 4th Medium-term
Business Plan
(FY2022 to 2024)

16.8 FY2022

12.5 FY2022
The 2nd
MTBP

forward. In addition, via collaborations with universities, research

The 2nd
MTBP

The 3rdMTBP

The 4thMTBPElectronics Domain

Overview of FY2022

Responding to increasingly sophisticatedcustomer needs

Although repercussions from emergency demand during the

FY2022 was the first year of the 4th Medium-Termtightening in Europe and the United States, and the

COVID-19 pandemic led to a deceleration in FY2022 of demandBusiness Plan. In addition to proceeding as planned with

impact of a reduction in automobile production due to a

related to semiconductors and displays, which are the main areas ofconstruction work to increase production of refrigeration

shortage of semiconductors.

use, the semiconductor market is expected to expand due to the

lubricant raw material, which is a core product, we laid

Under those circumstances, we achieved an

the foundation for medium- to long-term growth via

operating income of 12.5 billion yen and EBITDA of 16.8

growing needs for quality via measures such as the new quality

steps such as deciding to invest in start-up companies forbillion yen.

control building equipped with a world-class clean room established

Radical changes in the business environment arepromotion of 5G, IoT, AI, and DX. We are enhancing our response toin March 2022. We are developing our supply infrastructure toforecast going forward, and we recognize the need for aensure a stable supply of high-purity solvents for semiconductors bysignificantly altered by factors in the businessmore flexible response in our business activities. Whileadding to our product tanks, and we aim for construction to beenvironment such as soaring raw material and fuel prices

adhering to the basic strategies of the 4th Medium-Termcompleted during 2023. In addition, our group company Kurogane

and logistics costs due to the prolonged situation in

Management Plan, we will continue to improve our

Kasei Co., Ltd. is enhancing the capacity of its next-generation

Ukraine, concerns about economic slowdown due tocompetitiveness by revising individual measures as andsemiconductor materials facilities, with construction scheduled forsluggish economic growth in China and monetary

when needed.

completion in the first half of FY2024.

On the other hand, our initial assumptions were

Data Section

the first time.

25 KH Neochem Report 2023

Improvement of Business Framework

31.3

Joint research with a startup we invested in FY2022 is moving

ROE

EBITDA(bn yen)Drivers for Value Creation

Numerical Management Targets

Quality Control Building, Yokkaichi Plant
Photo: Ena Mitsui (Kawasumi ∙ Kobayashi Kenji Photograph Office)KH Neochem Report 2023

26

Progress in the 4th Medium-Term Business Plan

Strategy II

Medium-and Long-Term Initiatives to Resolve Social Issues

In order to improve energy efficiency, in FY2022 we

introducing new production methods, and developing

expanded our introduction of advanced plant control

new energy-saving technologies.

systems and implemented initiatives in collaboration

4

As a milestone toward achieving carbon neutrality

Improvement of Business Framework

Technology andInformation

Improve productivity by utilizing latest andemerging technologies

Relatedmaterialities

3

Promotion of DX

equipment reliability, we will use risk assessment to

In addition to the introduction of tablets at manufacturing

prioritize preventive maintenance for each individual16

by 2050, we aim to reduce GHG emissions by 30% bysites in FY2022, we are promoting smart industrial safety

piece of equipment.

local governments. Going forward, in addition to those2030 relative to FY2017 levels. In FY2022, we reduced

using the latest technologies and have started studying

Strengthening of competitiveness throughinitiatives, we will actively discuss steps such as

GHG emissions by 20% relative to FY2017 levels.

the introduction of a predictive diagnosis system to detect

intellectual property

failures in plant equipment in advance. By stationing

In addition to strategically promoting patent applications

people in charge of DX in all our divisions, we are also

and patent infringement prevention, we will promote

moving forward with initiatives for the company-wide use

innovation and create new businesses through theof digital technologies aimed at higher productivity.

development of a technology platform that makes our

Improvement of equipment reliability

technologies visible and the analysis of patent

In order to prevent process unit trouble and improveinformation on useful technologies outside the company.

State of initiative

Item

Business

New technologies

Innovation
Corporate
collaboration

Actively capturing rapidly increasing demand forenvironmentally friendly air conditioners in emerging
nations such as India• Contribute to reductions in GHG emissions bysupplying refrigeration lubricant raw materials for low
GWP refrigerants, a core productConsuming 70–80 kt of CO2 as a raw material per year

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

Expect to complete introduction at all scheduled plants
in 2023• Promote energy conservation and switch to green raw
materials by switching manufacturing methods

Carrying out various reviews and using bio raw materials forsome products• Collaborate with industrial complex companies

Carrying out studies in collaboration with local governments
and nearby companies
Signed a memorandum of understanding on a carbon
neutrality study in Chiba (the Goi and Soga districts) andaccelerated the study

Also known as hydroformylation, our core technology,
oxo synthesis, is a process where carbon monoxide

CO2and hydrogen react with raw materials, such as
olefins, to synthesize aldehydes. By using CO and H2
as raw materials in the manufacturing process, we

Water
MethaneOxo gasCO

Oxosynthesis

H2
Aldehydes

Alcohol or
Fatty acidOlefins

are contributing to the reduction of CO2 emissions.

Human Resources andCorporate Culture

Creating a corporate culture where diverse humanresources can play active roles and maximize
their performance

implementing company-wide measures to improve

corporate culture

engagement, we will endeavor to improve scores by

We believe it is necessary to improve our expertise,taking into account the characteristics of each division

speed, capacity for innovation, and network capabilities

and reforming their organizational structure.

in order to achieve sustainable growth. We first

Improving the Working Environment

introduced a “job-based” personnel system for

In March 2022, we established the Kasumigaura Plant

managers, and then revised our personnel evaluation

Office at our Yokkaichi Plant. It was designed to reflect thesystem in January 2023 and introduced a “job-based”

needs of the staff who work there, and was deliberately

personnel system for non-managerial position

given a layout that enables them to work flexibly. It also

employees. We will implement fair and credible

incorporates open spaces and a cafeteria space, andevaluations and incentives based on each individual’s

provides a comfortable working environment which

duties, role and performance.

facilitates active communication. Going forward, we will

Quick creation of new businesses through open innovation

2

renovate and reorganize our other workplaces as well.

same as for FY2021. Going forward, in addition to

In our strategic domains, we are actively harnessing open

and carried out joint research with universities on themes

innovation with the stated intent to contribute to solving

such as marine biodegradable polymers. We aim tosocial issues via our businesses. We engaged in 13

create new businesses by promoting the use of natural

collaborations with external organizations in FY2022. We

materials and developing the high-performanceStrengthening of risk management

Active dialogue with shareholders and investors

invested in the startups Ac-Planta, Inc. and GlyTech, Inc.,

materials necessary for the mobility revolution.

We gathered and assessed each division’s risks, added a

As a company listed on the Tokyo Stock Exchange Prime

company-wide perspective, and incorporated them into

Market, and based on our high ethical standards, KH

a risk map to identify material risks. We will improve the

Neochem will actively engage in strengthening corporate

effectiveness of our governance by monitoring the status

governance and expanding disclosure, and will strive forof measures against those material risks and submitting

management transparency. Initiatives in FY2022 included

reports to the Board of Directors.

the establishment of the Sustainability Committee as an

Promotion of CSR procurementadvisory body to the Board of Directors and disclosures in

We formulated sustainable procurement guidelines

accordance with the TCFD. We will continue our efforts todesigned to strengthen our supply chain management.

strengthen our IR and SR activities, and will appropriately

We explained them to our main business partners who

disclose information on our policies and strategies forthen gave their affirmation. Going forward, CSR

medium- to long-term growth, as well as non-financial

questionnaire surveys will be held in due course.

information, and enhance dialogue with our

Direction of new
business creation

27 KH Neochem Report 2023

Healthcare Domain

Electronics Domain• Prevention of global warming• Removal of fossil fuels• Global improvement of quality of life

• Development of advanced
information societyOpen innovation
measures
Environmentallyfriendly materials• Investment in startups• Alliances and M&A• Co-creation of new technologies with external partners at our KH i-Lab andother open labs

Develop marine biodegradable resin

Healthcare materials

Electronics materials

Develop raw materials forpharmaceuticals

Expand new business products for
cutting edge semiconductors

Governance

Strengthening corporate governance to enhance
management transparency

Relatedmaterialities

8

10 14

Data Section

Social issues
to be solved

Environmental Domain

Improvement of Business Framework

Strengthening of human resources and creating a

The engagement score for FY2022 was 3.11, theRelatedmateriality

Related12 13
materialities

Drivers for Value Creation• Consume CO2 as a raw material for products

Sustainable
Sustainable Value
Value Creation
Creationwith partners such as industrial complex companies andswitching from petroleum-derived raw materials,

Then and Now

Relatedmateriality

Enhancing our initiatives for carbon neutrality

Strategy III

shareholders, investors, and other stakeholders.

KH Neochem Report 2023

28

Message from Masaya Hamamoto (CFO)
technologies and developing applications, we will

Masaya Hamamoto

growth and improve profitability by allocating cash

actively take on challenges in new fields via open
innovation. In 2022, we invested in startup companies forthe first time and are moving forward with collaborative

generated from high profitability to growth investments,

Interim dividend

Year-end dividend

100

85

corporate value.
The FY2022 Evaluation of Effectiveness of the Board

50

90

75

75

and that securing a high level of ROE will increase ourCurrent responsibility: In charge of Accounting and Finance,
Investor Relations, Public Relations, General Affairs,
Legal and Compliance, Internal Audit, Risk Management,
and Promotion of ESG

50

54

54

60

60

of Directors identified “strengthening monitoring ofinvestment projects” as a priority issue. Up until now,investment projects above a certain amount have been
provide a stable supply of products had a major impact

implemented after the Investment Council composed ofon many customers; we are working on “safe and stable

full-time directors and corporate officers has madeThe consolidated operating income for FY2022, the first

operations,” one of our priority issues. In addition torigorous decisions on investment profitability based on

fiscal year of the 4th Medium-Term Business Plan, wastackling that, we will strive to improve profitability by

the cost of capital, and the committee has also verified

12.5 billion yen, down 37% year on year. A decline in theappropriately reflecting in product prices the recent

investment performance after the fact, in accordance

capacity utilization rate due to causes such asincreases in energy prices, facility maintenance costs,

with the rules. From now on, however, for particularly

production facility problems was a major factor in theand logistics costs while continuing our efforts toimportant investment projects, we will enhance anddecrease in profits. If such problems could have been

improve productivity and review costs.

establish management to carry out more agile reviews

Net sales and operating income

FY2021, so it was a year that, in operational terms, left

Net Sales(Unit: bn yen)

Operating Income

2502016 2017 2018 2019 2020 2021 2022 2023 (fiscal year)
Forecast*The year-end dividend for 2023 will be proposed to the general meeting ofshareholders in March 2024.

To our stakeholders

along changes in the environment after the investment

I intend to communicate with our shareholders andproject has been implemented.

investors so they can understand our vision and theWith regard to shareholder returns, under the 4thpath to achieving it. I also want to convey, as far as
will enable them to predict “how KH Neochem will

ratio of 30%, with an 85-yen lower limit for dividend per

respond when there are changes in theshare as per the FY2022 performance, and flexibly

environment”because they will understand our way

due to a significant decline in the capacity utilization

increasing shareholder returns as our financial foundationof thinking.

rate from April to September as a result of thestrengthens.” In line with this policy, the FY2023 dividend

During the COVID-19 pandemic, we had not been

per share is forecast to be 90 yen, an increase for the third

able to have sufficient contact with overseas investors

consecutive year. We will first strive to generate highand individual investors in Japan, and I believe that

returns and achieve further growth by steadily investing

there are still many investors who do not know ourin growth businesses such as refrigeration lubricant raw

company. While we continue to expand thematerials. Once we have achieved that, also intend to

information available on our website, I intend to create

increase shareholder returns.

various opportunities for dialogue with as many

2021

2022

2021

2022

117.1

114.9

19.7

12.5

far as the first half of the fiscal year, we inconvenienced
our customers when we were unable to capture demand

earthquake in March, a serious accident at a plant, andproblems at our plants. Production normalized from
October onwards, however demand for electronics
materials and basic chemicals declined due to factors
such as the slowdown in semiconductor-related
demand and adjustments in automobile production. In

Outlook for fiscal year ending in December 2023
Net Sales
118.4
Up 3% YoY

Operating
Income13.0
Up 4% YoY

(Unit: bn yen)

EBITDANet Income
8.9
Up 10% YoY

17.8
Up 6% YoY

stakeholders as possible so that they can learn more

addition, prices for energy such as LNG soared fromaround April, which depressed earnings in the second
half of the fiscal year.
Nonetheless, despite the various troubles that

Investment Policy and Capital Policy
Our products have a high market share in niche fields.

second-highest level ever. I believe this is because, sincelubricant raw materials, cosmetic ingredients andour listing in 2016, we have steadily built up our earning

electronics materials, and sustainable growth is forecast

power based on our strong financial foundation. On theon into the future. In order to meet this expanding

financial front, while continuing to provide stable returns

demand, we will continue to make timely and effective

to shareholders, we have also worked hard to improve

investments to increase our production capacity so that

our financial position, for example by reducing

we can take the lead in the markets. Although the costs ofinterest-bearing debt to take our net D/E ratio from 0.3

maintenance and renewal are increasing as ourto a level of less than 0.1, and having our long-term

equipment ages, we will steadily invest for safe andcredit rating (R&I) upgraded from BBB+ to A-.

stable operations, and allocate funds to improve the

Although the external environment is expected tosuch as the slowdown in global economic growth due tovalue and raise the level of our market capitalization so50

that investors will continue to be interested in us as an
45.4

45

45.0

45.2

investment target.
Around five years have passed since weannounced VISION 2030 in November 2018 so we willsoon reach the halfway point. I believe that we have

40

38.2

35

entered the phase where we accelerate further growth

40.2

by leveraging the business foundation we have built
up. We will continue to value constructive dialogue

32.6

with our stakeholders and strive to continuously
improve our corporate value. We appreciate your30

continued understanding and support for our Group.
28.2

25

Furthermore, we will also invest funds in initiatives

inflation, and economic trends in China where the real

to discover and nurture new core businesses for theestate market is sluggish. We regret that our inability tofuture. In addition to adding more depth to our existing

29 KH Neochem Report 2023(%)

workplace environment so that employees can feelsecure at work.

about us. In addition, we aim to increase our corporate

Equity ratio

Data Section

occurred, operating income for FY2022 was at ourMarkets continue to expand, particularly for refrigeration

improve in FY2023, we will keep a close eye on factors

Improvement of Business Framework

possible, the ideas behind our strategies. Ideally, thiswith our dividend policy “targeting a guideline payout

Although the market environment was favorable as

Drivers for Value Creation

Medium-Term Business Plan, we went one step further

us with regrets.

Sustainable
Sustainable Value
Value Creation
Creation

Review of 2022 and outlook for 2023

been close to the record high level of 19.7 billion yen in

Annual dividend(yen)creation activities. I believe that we can achieve further

Board Director and Senior Corporate Officer

avoided, we estimate that operating income would have

Dividend per share

Then and Now

Based on our strong financial foundation,
we will make effective investments for further
growth and aim to secure a high level of ROE.

0

2016

2017

2018

2019

2020

2021

2022 (fiscal year)

KH Neochem Report 2023

30

Message from Tatsuro Niiya
them of the value of our products, which are indispensablechange their mindset just because they have been told toto society. This is something we have already been doing

do so. It does not happen unless they personally feel

and we will continue with these sincere efforts.

enthusiasm and love their work. I intend to create a work

In addition, with the aim of Driving Sustainable
Management, which is the basic policy of the 4th

Tatsuro Niiya
Board Director and Senior Corporate Officer
Current responsibility: In charge of Corporate Strategy,
Marketing, Sales, Logistics, Procurement

Furthermore, to boost employee motivation with

under the newly-established Sustainability Committee soregard to their work, I intend to increase opportunities forthat we can respond to the demands of society and solve

face-to-face communication since there were fewersocial issues in areas such as respect for human rights andchances to interact in person during the COVID-19

carbon neutrality. To ensure stable supply, we will review

pandemic. For example, there will be opportunities forour equipment maintenance strategy and focus oneach employee to think about our company’s reason forpreventing problems before they occur. We will also

being and gain an objective understanding of theconsider the introduction of a predictive diagnosis system

importance and social value of our products.

by using big data to detect signs of problems and carry out

conditioners. In addition, boiler-type heating systems

appropriate maintenance at an early stage.

The 4th Medium-Term Business Plan started in FY2022,

but environmental policies have meant that heat pump

but there have been significant changes in the external

equipment is starting to become popular. Our refrigeration

environment since the plan was formulated, such as the

lubricant raw material business is expected to see

situation in Ukraine and global price increases.

expanded demand in such new fields as well. I believe it

Furthermore, we had difficulties supplying products due

truly is a business at the heart of sustainable management

We promote business strategies from the perspectives ofto an accident at the Yokkaichi Plant where an employeethat helps to curb global warming and will also

“What are our strengths?” and “How can we expand thosefell during work from a high place, and also to the impact

continuously boost our corporate value.

strengths and diminish any shortcomings?”

Our group company Kurogane Kasei Co., Ltd. decided

Accelerating initiatives to create highvalue-added products under a streamlinedorganizational system

Our strengths are based on the relationships of trust

Implementing new initiatives to further
strengthen our competitive advantage
In order to further boost our competitive advantage andrealize VISION 2030, it is vital that we brush up thestrengths of our existing products, create businesses in
new fields, and expand our business operations.
With the aim of creating new businesses, we havestarted to develop products that utilize biotechnology,
such as glycans and marine biodegradable plastics.

on additional investment to make its facilities for

we have built up over the years through our dealings with

Initiatives that are totally new to us as a petrochemicalsafe and stable operation. We will make a company-wide

next-generation semiconductor material, which came into

our many customers, who include the leading companies

manufacturer have been set in motion, and we continue toeffort to prevent any recurrence, and strive to regain theoperation in 2020, five times bigger. The facilities arein each industry. Furthermore, our products cannot bechallenge ourselves to think outside the box.

trust of our stakeholders.

scheduled for completion in the first half of FY2024.

manufactured without specialized facilities and a wealth of

Kurogane Kasei is engaged in various contract

expertise in how to manage and run them. Whilst theway to expand our business, and we are considering them

the increase in all costs including those of raw materials,

manufacturing businesses related to electronics materials,

market scale may be deemed insufficient for major

not only for the new business creation themes we are

fuel, repair, and logistics. However, our performance wasin fields such as displays and semiconductors. Theirpetrochemical companies, we believe that CAPEX is acurrently working on, but also for existing businesses andlower than expected due to factors such as unexpectedly

technologies contribute to the production of photoresist

heavy burden for small companies and a considerable

peripheral fields where growth is expected.

high prices for LNG and other energy, and a drop inmaterials in cutting-edge fields essential for boosting

barrier to their market entry. In partnerships with our

production due to equipment problems. Meanwhile, we

semiconductor quality. High-purity solvent, a major

customers, we have leveraged our technologies andwere able to move forward steadily with measures in the

product in our electronics materials field, is also

expertise to create many refrigeration lubricant raw

major hurdle for the petrochemical industry. We willcontinue our efforts to reduce CO2 emissions, but since

4th Medium-Term Business Plan targeting mid- toindispensable for semiconductor manufacturing, so it wasmaterial, cosmetic ingredient and electronics material

there are limits to what we can do on our own, we will

long-term growth.

decided to build more dedicated product tanks to establish

products, and have boosted our profitability in niche fields.

implement our initiatives while strengthening cooperation

an even more stable supply system. Construction is

Looking to the future, I believe it is important that we seek

with local governments and companies in nearby

raw material facilities at the Chiba Plant and started ascheduled for completion in 2023, and we will fulfill ourout “seeds” for our next high value-added products andindustrial complexes. We will also contribute to global

construction project with the aim of launching operationssocial responsibility of providing a stable supply of

increase our lineups.

warming mitigation through our refrigeration lubricant raw

in the summer of 2024. There are concerns about theessential products. We will continue to gather the Group’s

impact on global warming of refrigerants used in air

technological capabilities and contribute to further

major organizational change in April 2023, consolidating

conditioning, and environmentally friendly air conditioners,

increasing quality in the semiconductor field.

the business strategy for existing products, sales, and R&D

as a result of decreased demand for fossil fuels due toUnder these circumstances, we implemented a

We see Mergers and Acquisitions (M&As) as anotherWe are also focusing on carbon neutrality, which is amaterials business.
Meanwhile, some oil refineries have been shut down

Our activities with regard to new business creation

functions into Sales & Marketing. We have revised theclimate change issues. We perceive future-oriented raw

more and more popular. KH Neochem boasts the world’s

had been centered around Innovation Strategy and as partsystems that had been in operation in each department upmaterial procurement as an important management

largest market share in the refrigeration lubricant raw

of such activities, we invested in two startup companies in

until now, and have established a system that will enableissue that affects the competitiveness of our products.

materials used in environmentally friendly air conditioners.

2022. Going forward, we will accelerate joint research andus to carry out agile and streamlined marketing,

We will identify risks and formulate countermeasures,

The number of air conditioners sold worldwide is expected

external collaborations with the aim of expanding ourdevelopment, sales, and investment strategy based on

including Business Continuity Plan (BCP).

to have tripled in 2050. We are steadily capturing demandbusiness scope.

sales activities that involve a lot of contact with customers.

Although the business environment for FY2023, theIn order to realize VISION 2030, we will provide a

I believe this will enable us to provide customers withstable supply of products that are indispensable to society

solutions more smoothly.

while responding flexibly to changes in the environment. In

further in the future. Electric vehicles are becoming moresecond year of the 4th Medium-Term Business Plan, isand more popular in recent years. Their air conditioning

uncertain due to the impact of inflation in Europe and theworks in the same way as air conditioners for home use,

United States, the situation in Ukraine, and the slump inwill be involved in a wider range of tasks than before, andusing our distinctive technologies and know-how, we will

unlike the air conditioning in fossil fuel vehicles which

the Chinese economy, we want to build a long-term

we will promote integrated management while encouraging

contribute to achieving a sustainable society and strive toutilizes waste heat from the engine. We believe that our

win-win relationship with our customers by reminding

the adoption of a company-wide perspective. People do notsustainably increase our corporate value.

31 KH Neochem Report 2023

Under the new organizational structure, employees

Data Section

which use refrigerants with less impact, are becoming

for refrigeration lubricant raw materials that will expand

Improvement of Business Framework

We decided to expand the refrigeration lubrication

Drivers for Value Creation

our customers and leaving us with challenges regarding

In FY2022, we reviewed product prices in response to

Sustainable
Sustainable Value
Value Creation
Creationrefrigeration lubricant raw materials will be used in EV airof issues such as equipment problems, inconveniencing

challenges, and I will provide themes accordingly.

Medium-Term Business Plan, we will strengthen our efforts

Steadily promote measures with a view
to medium- to long-term growthutilizing fossil fuels have been used in Europe up until now,environment where employees will want to take up new

Then and Now

We will steadily implement sustainable
management while identifying thetrends of the new era.

addition, by providing solutions to various social issues

KH Neochem Report 2023

32

Contributing to a sustainable society through our business

Environmental domain

Contributing to global warming prevention
The value we provide

Global sales of air conditioners are expected to triple
from the current figure by 2050. International refrigerant
regulations designed to curb global warming are being
advanced, and environmentally friendly air conditioners
that utilize refrigerants with low global warming potential(GWP) must become more widely used. Details P35

As a leading manufacturer of refrigeration lubricant raw
materials, we are increasing our production capacity forrefrigeration lubricant raw materials that are compatible
with low GWP refrigerants in order to meet the growing
demand for environmentally friendly air conditioners. The
expansion work at the Chiba Plant is scheduled to becompleted in the summer of 2024 (the expansion of the
Yokkaichi Plant was completed in 2020). We will strive tocontribute to the prevention of global warming by
providing a stable supply of products made by fully
leveraging our advanced technical capabilities.

Air conditioner market*1

Social issues

The value we provide

While the need for beauty products declined temporarily
due to the COVID-19 pandemic, medium- to long-term
demand is expected to expand further hand-in-handwith the expansion of the middle class resulting fromgrowth in emerging countries, particularly in Asia. We
need to cater to diversifying consumer needs, such as
consumers’ growing preference for high-quality
high-end products and the expansion of the malecosmetics market.

1,3-BG, our mainstay product in cosmetic ingredients, isused in a wide range of applications, mainly in high-end
skincare products, due to its strong moisturizing
properties and antibacterial properties, as well as its
reduced odor and amount of skin irritation. We will also
engage proactively in open innovation to expand our
lineup in the healthcare field, and contribute to global
improvement of quality of life and richer lives for people.

The Asian cosmetics market*(bn USD)

CAGR
+8%

30

20

0

2021

2025

(year)*Research estimates by the Company

Mineral oil (For HCFC)

Drivers for Value Creation

Synthetic oils (For HFC/Low GWP refrigerants)

Contributing to improved QOL

Sustainable
Sustainable Value
Value Creation
Creation

Social issues

Healthcare domain

Then and Now

We will drive Sustainable Management with the aim of contributing to achieving a sustainable society
through our business and further increasing our corporate value.
Based on a wide-ranging customer network that is our strength, we are contributing to the achievementof a sustainable society by accurately identifying needs related to solutions for environmental and social
issues, and mobilizing rich and unique technologies, the world’s leading manufacturing plants, and major
products with large market shares, with a central focus on the three strategic domains of Environment,
Healthcare and Electronics.

(Million units)

Global

China

CAGR
+6%

115

CAGR
+5%

More than
400

71

Contributing to an advanced information society
51

46

200
2030

CAGR
+14%

Electronics domain

162050 (year)

2021

2030

(year)

2030

2021(year)*1 Source: Company estimates based on JARN and International Energy Agency (IEA) (The Future of Cooling). Excl. car air conditioners*2 Excl. JapanThe difference between air conditioning in fossil fuel vehicles and EVs

Air conditioners installed in electricvehicles (EVs), which are becoming
increasingly popular around the world,and heat pump-style hot-water supply
heating systems, for which demand is
rapidly increasing in Europe due to soaring
energy prices and stance on reducing
greenhouse gases, use the same system
as home air conditioners. We willcontribute to global warming mitigation
by supplying refrigeration lubricant raw
materials for these new applications,which are expected to expand significantlyin the future.

Fossil fuel vehicle

33 KH Neochem Report 2023

Operated bya heat pump
Utilizes the engine

EV

The value we provide
We manufacture high-purity solvents containing
extremely low volumes of impurities through a fusion ofhigh purification (distillation) technology and high quality
control technology. We provide them to a wide range ofcustomers in the field of electronics materials as raw
materials for items such as the photoresists that are
essential in semiconductor manufacturing. Also, ourgroup company Kurogane Kasei is engaged in various
contract manufacturing businesses related to electronics
materials, including in the field of cutting-edge
semiconductors. These products and technologies help
to boost photoresist quality and support the evolution ofsemiconductors.
In addition, we are moving forward with thedevelopment of high-tech resin materials utilizing theoxo technology that is our strength, and will contribute toincreasing the sophistication of sensing technology.

The Global photoresist market*
g/i line

CoolingHeating

KrF

ArF

EUV

CAGR
+6%

(1000s gallons)

Cooling and heating both
operated by a heat pump

3,000

Market for
EUVphotoresist

CAGR
+30%

2,000

Data Section

New contributions born fromenvironmental measures

Social issues
In recent years, production of cutting-edge
semiconductors has been increasing both in Japan andoverseas due to the need for cutting-edge
semiconductors and the highly sensitive sensors usedwith them in the expanding fields of IoT technology, AI
technology, self-driving vehicles, and telemedicine. The
manufacture of advanced semiconductors requires
high-quality chemical materials with very few impurities
that can withstand miniaturization and integration, andsensors require high-tech resin materials for use in lenses
and other applications.

Improvement of Business Framework

2021

Other Asian countries*2

1,000

A system that makes it
hard to use ourrefrigeration lubricant
raw materials

The same system as home
air conditioners so ourrefrigeration lubricant raw
materials can be used

0

2021

2025

(year)

Fuji Keizai, “2021 Overview of the Optical Functional Materials and Products Market.”* The values are forecasts

Quality Control Building, Yokkaichi Plant (Completed in March 2022)
Photo: Ena Mitsui (Kawasumi • Kobayashi Kenji Photograph Office)KH Neochem Report 2023

34

Contributing to global warming mitigation through the supply of
refrigeration lubricant raw materials
Functions of refrigeration lubricant

Demand for air conditioning, and refrigerant regulations
Various types of gases are used as refrigerants, andReduction of GHG emissions from refrigerants

has been adopted as an indicator for their phasing out, andair and moving the heat outside. Moving the heat to thethe type of refrigeration lubricant required depends on

It is estimated that global greenhouse gas (GHG)

the average value of production, consumption, etc. fromoutside is performed by a refrigerant, which functions by

the type of refrigerant.

emissions in 2019 amounted to approximately 57 billion

2011 to 2013 will be used as the reference value*1.

being compressed in a compressor inside an air

Currently, the shift toward environmentally friendly

tons of CO2 equivalent, of which approximately 1 billion

For advanced nations, including Japan,*2 a gradualconditioner’s outdoor unit. The compressor needs a

air conditioners is accelerating, and demand fortons were caused by CFC substitutes. Of these, more

reduction in CO2 emissions from the standard values islubricant, specifically refrigeration lubricant raw

refrigeration lubricant raw materials that are compatible

than 90% were produced by HFCs, which are refrigerants

required from 2019 to 2036, with the ultimate target of anmaterials to operate efficiently and smoothly, withoutwith the refrigerants used in these air conditioners is also

used in air conditioners and other products.

85% reduction by 2036. As a result, this regulation isbreaking down over long-term usage.

growing. KH Neochem holds the world’s largest market

A study by the International Energy Agency (IEA)

share in the field of refrigeration lubricant raw material.

estimates that the number of air conditioners owned

expected to further raise demand for air conditioners thatuse low GWP refrigerants, such as R32.

Market position of KH Neochem

number, and if this trend continues, GHG emissions could

equivalent value by 10% of the standard value by 2029.

increase significantly. As such, it is essential that we shift

The regulations become stricter in steps, ultimately

to environmentally friendly refrigerants with lower GWP,

reaching the requirement for an 80% reduction by 2045. In

and international regulations on refrigerants have been

addition to the above, we expect further growth in demand

2-ethylIsononanoic
hexanoic acidacid

gaining momentum in recent years. In specific terms, thefor more environmentally friendly air conditioners as theBase oils

Kigali Amendment to the Montreal Protocol and U.S.

economies of emerging countries strengthen andEnvironmental Protection Agency (EPA) regulations haveregulations against air conditioners with low energy

established a phased reduction schedule for HFCs in

efficiency come into effect in China.

KH Neochem
Raw materials

Refrigerant carrying heat
Indoor unit

Outdoor unit

Discharge heat

Compressor

Coolrefrigerant

Cooled air

Refrigeration lubricant

Hot refrigerant

Outdoors

Compressors/air conditioners

continues, our raw materials are indispensable for the
Global annual GHG emissions of CFC substitutes, etc.
(CO2 Equivalent)
Equivalent to Japan’s annual GHG emissions

Transitions in refrigerants and refrigeration lubricants
In the past, CFCs were used as refrigerants, but due tocurb global warming. This move accelerated the shift totheir contribution to the depletion of the ozone layer, the

new refrigerants such as R32, an alternative CFC with

Montreal Protocol was adopted in 1987. This protocol

low GWP.
refrigerants with even lower global warming impact will

and a shift to non-ozone-depleting CFC substitutes has

be put to practical use, and we are conducting researchbeen making rapid progress around the world sinceon refrigeration lubricants compatible witharound 2000.

next-generation refrigerants and looking into

Since its adoption, the Montreal Protocol has been

appropriate raw materials. We also envision that
refrigeration lubricant made with our products can be

Amendment, it was agreed to phase out refrigerants

applied to the most promising candidates forwith high global warming potential (GWP) in order tonext-generation refrigerants.

From 2000

Current refrigerant:
R410A

Substitute

Global warming impactHigh

GWP:1,810

Refrigeration
lubricantPetroleum-based

35 KH Neochem Report 2023

From 2012(CFC substitute)

Substitute

Global warming impact

High

Substitute

Global warming impact

GWP:2,090

Low

GWP:675

Synthetic

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

Developed Countries
First group of emerging nations
Second group of emerging nations(CO2 equivalent)10%
10%

Using raw materials produced by KH Neochem

Even lower

Synthetic?

30%
30%

CFCs by 2020, while emerging nations are required to

40%

50%

eliminate it by 2030. In addition, 18 CFC substitutes with

(Under consideration
for practicalapplication)

Global warming impact

20%

10%

required to eliminate ozone layer-depleting controlled

From 20XX

Next-generation
refrigerantOzone layer –no depletion

Ozone layer –no depletion*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.

high GWP were added to the list of controlled substances

70%in the Kigali Amendment, which adopted a new proposal to
Use of KH
Neochem
products
envisioned

80%
80%

make non-ozone-depleting CFC substitutes also subject to85%

Data Section

Refrigerants

ensuring a stable supply of our products.

Under the Montreal Protocol, advanced nations were

New refrigerant: R32(CFC substitute)

will continue to contribute to global warming mitigation by

International refrigerant regulations(Kigali Amendment)

Transitions in refrigerants and the refrigeration lubricant raw materials

Ozone layer –causes depletion1

transition, and as the leading company in the industry, we

Kigali amendment HFC phase-down schedule

subject to occasional reviews. Under the 2016 Kigali(controlled CFCs)

1

Japan’s annual
GHG emissions
Approx.
bn tons CO2

In the future, it is expected that next-generation

reduction and eventual elimination of controlled CFCs,

Old refrigerants: R22

Global CFC
substitutes, etc.
Approx.
bn tons CO2

production of refrigeration lubricant that can support this

Improvement of Business Framework

stipulated regulatory measures such as the phased

As the global transition to low-GWP refrigerants

developed and emerging countries.

Drivers for Value Creation

Indoors

Our estimatedglobal share

LubricantSustainable
Sustainable Value
Value Creation
Creation

Emerging nations*3 are obliged to reduce the CO2

worldwide in 2050 will be three times the current
Air conditioner mechanism (for cooling operation)

Then and Now

Air conditioners make rooms cool by taking in hot indoor

85%

regulation under the Protocol, coming into effect inJanuary 2019. A CO2 equivalent value calculated bymultiplying the quantity of CFC substitutes by their GWP

2019

2024

2029 2032 2036
2034

2047
2045

(year)KH Neochem Report 2023

36

“Cross

Talk” Discussions

Then and Now“Cross×Talk” Discussions
Toshihiro Matsuoka × Yukihiro Isogai

41

Special Feature I
Safety and Operations Integrity

45

Special Feature II
Creating New Value to Achieve
Sustainable Growth andStrengthening Intellectual
Property Capabilities

49

Special Feature III
Human Resource Strategies toIncrease Corporate Value

Current responsibility: In charge of HR,
IT Strategy, R&D, and Information Security

Achieving VISION 2030: Challenges and Solutions
The two directors talked about current challenges and future strategies regarding thethree themes being prioritized in order to achieve VISION 2030: “safe and stable
operations,” “new business creation,” and “developing and strengthening humanresources, and reforming our corporate culture.”that it is important to further reinforce the twin pillars ofWhat are our initiatives to maintain andimprove safe and stable operation?

thoroughly ensuring safety and improving equipment
reliability so that we can provide a stable supply of
products to our customers.
IsogaiMatsuokaI think the equipment trouble andWhen I was working in Yokkaichi, I rememberthat the system and rules for stable operation were clearlyoccupational accidents last fiscal year made all our

displayed onsite, and most of the employees were very

employees keenly aware that delivering our products todiligent and serious. As a result, we set a new industry

customers who need them is our raison d’être. Since werecord for the longest accident-free period of operation

have many products with large market shares, our(at that time). However, looking back at last year’s

inability to deliver products meant that we greatly

accident, I realized that although we were able to deal

inconvenienced everyone in the supply chain last year.

methodically with immediate dangers, we were left with a

I’ve been in charge of Production Planning andblind spot as we had overlooked the need to hypothesize

Engineering since 2018, and for the past five years I haveand deal with future crises. And that’s why we must figure

made stable operation a watchword, and focused onout the causes of problems and face up to them.

redesigning our equipment management technologies

Matsuoka

with the aim of dealing with issues before breakdowns

reality that the measures and preparations we had put inoccur. I invited external experts to review our operations

place were inadequate. Thinking long and hard about

and changed my conceptual approach. As a result,what was lacking made me reflect on whether the

however, it was a huge shock that the measures I had

actions and plans that put safety first really wereprepared could not prevent what happened. Looking

becoming habitual, and whether we had used ourback on last year’s events, including the occurrence of aimaginations, and I looked back at the accident again. In

serious work-related accident, I was strongly reminded

November 2022, we launched the Comprehensive Safety

I agree. The accident confronted us with the

KH Neochem Report 2023

Data Section

37 KH Neochem Report 2023

Board Director and Senior Corporate Officer

Current responsibility: In charge of Production
Planning and Engineering, and Environment, Safety,
Quality Assurance, and Intellectual Property

Improvement of Business Framework

38

Yukihiro Isogai

Board Director and Senior Corporate Officer

Drivers
Drivers for Value Creation
Creation

Drivers for
Value Creation

Sustainable Value Creation

Toshihiro Matsuoka

38

“Cross

Talk” Discussions
from a company-wide perspective. From now on, I wantof experience carries weight at a plant, so creating the

aimed at maintaining and improving safe and stable

intellectual property to be put to active use in relation tosame system there as one to develop innovative humanoperations as a company.

marketing strategies and new business concepts, forresources will not work. I intend to create organizations

example, rather than simply to protect existingand systems by thinking about what kind of people would

businesses. This is part of our efforts to create a systembe effective in what kind of environment.

What is necessary for our future growth?

, a company-wide initiative

Intellectual Property is now under myFurthermore, human resources within the company
possess a diversity of skills, so making those more visible isa challenge we must deal with going forward. I intend toaspiration and make it function properly. I think that

establish a system to share information on humancreate new products and businesses from now on:

previously the company had an image of intellectual

resources, such as employees’ areas of expertise and skills.

human capital and intellectual capital. In 2016, at aroundproperty as something managed by some of our

Matsuoka

the time we were listed on the stock exchange, a

specialist staff, but now we are starting to see divisions

easier from the angle of technologies, so it would be goodcross-divisional committee was established to createlooking up patents with Intellectual Property andto start with that and then make more wide-ranging skills

new businesses, and a series of discussions were held.

engaging in market research.

visible. We want to make it possible to create effective

I believe that two things are essential when we

I think such visualization would be relatively

to foster safety awareness in all workplaces and

The committee members of the day and the various

Of the over 25 billion yen we are aiming for underthoroughly ensure safety. On the equipment front, thepeople in charge made a tremendous effort but were

VISION 2030, we have set a target of 5 billion yen for new

according to purpose, don’t we?

inspection system established by RAISE (action tounable to come up with a proposal for a detailed businessbusinesses and new products. I think that sufficiency in

Isogai

improve equipment reliability)

model. At that time, I keenly felt the necessity of human

human capital and intellectual capital is proving

our corporate culture as well as the development andIsogaiP44

is also taking root.

The following applies not only to our company

combinations of people and to allocate human resources
I believe we must accelerate the reformation ofcapital and intellectual capital that were different fromsuccessful in that progress. This time is different fromstrengthening of our human resources. As I mentioned

but to all chemical industrial complexes in Japan; new

the existing versions, and the importance of

before in that we have determined the direction we

earlier, we need to reform our corporate climate so thatstructures and systems need to be created to deal withmanagement commitment, in order to create newshould take and can actually feel that we are making

management aspirations such as expanding our

the steady aging of equipment. As well as which, I thinkbusiness. Accordingly, since the start of the 3rd

steady progress as we operate.

intellectual property and new business creation are spreadit’s important for employees to have a mindset of striving

Medium-Term Business Plan in 2019, we have engaged

Isogaiamongst our non-managerial position employees as well.

for safe and stable operations. A mindset where eachwith measures from a different angle.

situation where there is a strongly-rooted awarenessMatsuoka

within the company that “the creation of new businesses

2022 is based on the same way of thinking. Instead of aFirst of all, we established open innovation hub KH

The Comprehensive Safety Check Initiative

then sifted through and placed in order of priority. We

i-Lab in an industry-academia exchange facility inis the work of Innovation Strategy.” However brilliantly

corporate climate where employees say “That’s for theneed each employee to have a stance of proactively

Shin-Kawasaki. The idea was to aim for new businessdesigned a business model is, it cannot be realizedcompany to think about,” or “The company will do that,thinking about safety.

creation by providing an environment different from our

without the assistance of collaborators within the

won’t it?,” we want to foster a climate where all

Matsuoka I agree that people really are important. One

corporate climate to date, and hopefully create beneficial

company. That is why, from now on, we need to increase

employees have a sense of ownership, want to makeof the aims of the Comprehensive Safety Check Initiativesynergies within the company as well. People with diverse

the momentum for new business creation throughout the

improvements, and are willing to speak out. We want to2022 is to be an opportunity for each employee to take aapproaches, skills and qualifications were gatheredcompany, not just in Innovation Strategy, and to work

be able to say that is our corporate climate, and ourcompletely fresh look at common practices that have been

together at KH i-Lab, and a system that included thetogether laterally across the company, rather than having

value, don’t we?

regarded as good up until now, and to think independently

setting up of open laboratories was put in place to enable

a vertical approach to roles and functions.

Isogaiabout them. We’re aiming to achieve a more advanced

joint research with external entities as and when

Matsuokaimportant to thoroughly promote communication,level of management at facilities by promoting measuresnecessary. We are leveraging this environment that createsof accepting proposals for new technologies andparticularly between management and employees,

such as smart security, so it’s essential to flexibly adopt

new tangible and intangible things that our company has

experimental equipment and then implementing tests

including non-managerial position employees as well.

new ways of thinking. Rethinking safety and stable

not had before, seeking new arenas and scenarios whereand evaluations by incorporating them into plants that

Division heads and managers are in an intermediate

operation in tandem should boost the company’s overall

we can flourish, and moving forward with activities thatare in operation. We will continue to actively accept

position so their actions are also very important. We’restrength. The main focus is on our plants at the moment,

might lead to proposals for detailed business models.

promising technologies and improvement suggestions.

launching various measures such as training programs forbut going forward I intend to spread this kind of mindset

Matsuoka

Our production sites thus also offer opportunities tothem to improve their workplace management skills.

throughout the entire company.

such as a new business or new product development, or

incubate reforms, so I would like R&D staff to have

These measures are intended to deepen communication,

Isogaiwhen we change the status quo, I believe we need toconfidence and submit proposals. I believe that morewhich will boost employee engagement and also lead tothey’re thinking seriously about various things andintroduce new trends, or new people who serve as guides,

in-depth interactions at the onsite level will also

the reformation of our organizational culture.

looking for ways to put their ideas into practice.

from outside the company rather than relying solely on

accelerate company-wide trends.

Matsuokainternal capabilities. This is because interactions with

Our plants are the source of our corporate

value. As a management member, I intend to listen to thepeople from outside can sometimes lead to professional

feedback from the plants and create opportunities togrowth for the people who have been there from thediscuss things properly, face-to-face. We have once

start, and further progress is made with innovations.

again received feedback from sales employees saying

Isogaithat they would like to explain to plant employees how

expanding our intellectual property, in particular, andour customers utilize the products they have made, andstrengthening its management and utilization. Up until

to tell them just how useful those products are to society

now, one of the R&D departments had been in charge of

Isogaiat large, and just how important it is to provide a stable

intellectual property, but as of April 1, 2023 themeasures that take into account the characteristics ofsupply of them. We’re actively preparing opportunities

newly-established separate Intellectual Property will beeach division when it comes to developing andfor each division and function to share their ideas andable to manage and monitor our intellectual property

strengthening human resources. For example, the voice

What are the measures to develop andstrengthen human resources
throughout the company?

Data Section

39 KH Neochem Report 2023

With regard to intellectual capital, we have been

It is a very difficult problem, but I think it’s
Improvement of Business Framework

From talking to people at the plants, I know

When we start working on something new,

Our production divisions have a track record

Drivers
Drivers for Value Creation
Creation

employee shares their ideas and comments, which are

The most important issue now is the current

Sustainable Value Creation

P41

Matsuoka

jurisdiction and I intend to maintain the legacy of that
IsogaiCheck Initiative 2022

for that purpose.

Then and Now

opinions, and are making efforts to boost a sense of unity

I think it is of course necessary to implement

KH Neochem Report 2023

40

Special Feature

Ⅰ Safety and Operations Integrity

In 2022, a serious occupational incident and process unit trouble resulted in shaken confidence in our ability of stableproducts supply through safe and reliable operations. We take this very seriously, and are working together as a company toresolve issues from the standpoint of ensuring safe and stable operations.

• Preventing the recurrence of serious occupational
incidents• Improving reliability of aging plants• Improving schedule control and maintenance work
quality of turnaround• Handing down skills and technology to new
generations of employees

and their implementation

In October 2022, we added “Protecting ourselves andMeasures• Company-wide engagement in the Comprehensive Safety Check Initiative 2022 toensure safety• Reconstructing maintenance work plans to prevent process unit trouble throughtaskforce activity of RAISE (ReliAbility Improvement by Smart Engineering)• Establishment of turnaround planning and execution guidelines, followed by the startof activities by turnaround planning teams at both plants based on these• Promoting Smart Industrial Safety that actively utilizes cutting-edge technology

Then and Now

Challenges

1 Establishment of Safety Guidelines, and revision of the Principles of Corporate Behavior,encouraging open dialogue with plant leadership,

our colleagues” to our Corporate Policy. Along with this,working to ensure the spread and establishment of

we also added new items to our Compliance Code andsafety awareness.

Environmental Safety Policy, and established Action
Goals and Compliance Items to ensure that Safety
Guidelines are put into practice.
We distributed a Safety Guidelines Card to all
employees and executives. The card details Action Goals
and Compliance Items to observe to ensure Safety

1

conduct activities to raise awareness of these, such as

Safety Management
leading to complacency, which is one of the possible

from a height during turnaround at the Yokkaichi Plant. To

causes we looked into in our exhaustive investigation. As

prevent the recurrence of serious incidents, we establisheda result, we decided to promote a change in

As recurrence prevention measures directly related to thethe incident investigation committee to repeatedly

awareness—that all employees should consider safety

recent incident, we have implemented both tangible
measures, such as adoption of protective and fall prevention
equipment, and intangible measures, such as employee

care activities to ensure safety. In 2008, Yokkaichi Plant

of all operations. From November 2022, we have been

education and training, as well as the review and maintenanceset a new record in its industry for incident-freeengaged in the Comprehensive Safety Check Initiativeof rules and procedures. We are particularly focusing on

operation, and there had been no serious incidents since2022 company-wide.

education and training, striving to raise awareness of safety

Drivers
Drivers for Value Creation
Creationfirst, thoroughly implement measures to prevent therecurrence of falling incidents and perform safety checks

We have been taking initiatives such as responsible

Safety Guidelines Card

2 Understanding fall risk and executing measures

In April 2022, an employee fatality occurred, due to fallinginvestigate and discuss the cause and measures.

Sustainable Value Creation

Guidelines are put into practice. We also continue toamong our workers through VR equipment that simulates athen, so it’s possible that we took safety for granted,

fall incident and training about the correct use of fullharnesses and other fall protection equipment.

VR education

Full harness training

Comprehensive Safety Check Initiative 2022
1 Establishment of Safety Guidelines, and revision of the Principles of Corporate Behavior, andtheir implementation

2 Understanding fall risk and executing measures
Employees shall always wear protective and fall prevention equipment, maintain rules and procedures, and participate in educationand training

3 Comprehensive work safety check (identifying and executing measures for other high risks)high risks)

Improvement of Business Framework

Added Safety Guidelines to the Corporate Policy, added safety matters to the Principles of Corporate Behavior andconducted discussions

3 Comprehensive work safety check (identifying and executing measures for otherIn addition to measures to prevent falls, we identify risks inall work that might lead to fatality or serious injury, andimplement comprehensive work safety checks to prioritize
measures. In 2022, we first identified areas risk of falling,
installed fall prevention equipment and made surewarning signs were displayed. Moving forward, we willcontinue to identify serious risks in all dangerous areas for
all types of work, and implement the necessary measures.

Warnings related to fall risk are posted throughout the plant.

Safety Day Assembly
The day of the incident has been designated as Safety

across various positions at our business sites shared theirDay, so one year later, on April 4, 2023, we held ansafety insights.
Data Section

assembly at Yokkaichi Plant that was broadcast
company-wide, complete with a safety patrol
conducted by the President and CEO. At the assembly,
the people in charge at the Yokkaichi Plant and Chiba
Plant reported on Comprehensive Safety Check
Safety patrol

41 KH Neochem Report 2023

Safety Guidelines Logo

Initiative 2022 actions, and executives and employees

KH Neochem Report 2023

42

Special Feature

2

Ⅰ Safety and Operations Integrity

Stable Operations

RAISE (ReliAbility Improvement by Smart Engineering)large-scale turnaround maintenance. As domestic

To ensure high-level operation and reliability at an

failure risks for individual components. We then plan

petrochemical plant complexes get older, there isappropriate cost, we determine the ideal state ofmaintenance work based on the analyzed risk, andconditions. Therefore, we operate a variety of facilities

increasing risk of equipment issues. At our company, we

operation management and facility management andimprove reliability by conducting inspections, repairs

able to withstand such environments both day and night.

promote a variety of initiatives in light of this, including

maintenance to establish and operate new workand replacement at appropriate timing. ThroughOnce every two years, we carry out the necessary checks

reconstructing our maintenance strategy to ensure safe

processes. We call such processes RAISE. In order torepetition of the PDCA cycle, with major turnaroundand maintenance by stopping operations to carry out

and reliable operations.

comprehensively manage equipment reliability, weevery two years as a single cycle, we improve

document equipment maintenance strategy to analyze

maintenance effectivity.

Goals

Measures

Economic and stable operation• Reconstruction of equipment maintenance strategy• RAISE (ReliAbility Improvement by Smart Engineering)• Formulation of turnaround planning and execution guidelines• Promotion of DX via installation of advanced plant control systems, etc.
• Promoting Smart Industrial Safety

Turnaround planning and execution guidelines
In order to maintain plants with safe and stable

execution and plant startup. A turnaround manager isoperations, turnaround is the most important

assigned for each turnaround who manages plan

opportunity to check, inspect, repair, replace, modify

progress, and implements measures to prevent

equipment, or install new facilities. Highly skilled

schedule delays and lead overall action. They also makeproject management, detailed planning and certain

appropriate reports to Turnaround Steering

execution are all key to successfully completing

Committee, which is chaired by plant manager, andturnaround. To ensure success, we establishedrequests the necessary decisions.

turnaround planning and execution guidelines, andReconstruction of equipment maintenance strategy

started implementation. For both the Yokkaichi and
Chiba plants, we formulated and implement basic

the probability of failure for each component ofturnaround plans that stipulate basic policy, planning

down or slow down loss due to sudden and serious

equipment, and the severity of the impact of process unit

and execution organization, work flow and milestones

process unit trouble. To prevent such trouble, we conducttrouble should a component fail. We are also considering

for the activities required, from turnaround planning topreventative maintenance (time-based) based on past

the introduction of predictive maintenance(condition-based), where we would detect signs of failure

Simply investing money to prevent process unit

by using big data to monitor equipment condition, thentrouble is not enough to solve such problems. So, in orderplan and execute appropriate maintenance. Through such

Turnaround Steering Committee

Advanced plant control system projectto achieve more effective and efficient maintenance,

initiatives, we are working to eliminate sudden and serious

In order to produce a wide variety of chemical products,

instead of time-based maintenance, we conduct

process unit trouble.

our plant is configured from multiple units wherecutting-edge technologies. Installing these systems willcomplex operating conditions such as temperature,provide stable conditions adjustments that maximizepressure and flow rate must be constantly adjusted.

profit while also allowing us to reduce CO2 throughThese adjustments require a wealth of experience and aefficient energy utilization. At the end of 2023,

high level of expertise, and even external factors such as

approximately 80% of plant control systems will be

Terminology of corrective, preventative and predictive maintenance
Explanation

skilled operators by harnessing AI and other

weather changes must be taken into account.

equipped with these systems, and as of the end of

Therefore, we are introducing advanced plant control

2022, 70% were already equipped.

Breakdown maintenance

Reactive maintenance conducted after equipment functionally fails

Preventive maintenance (time-based)

Proactive maintenance conducted after a certain number of years, based on equipment life andempirical guidelines

Preventive maintenance (risk-based)

Proactive maintenance conducted based on risk when equipment fails

Smart Industrial Safety

Predictive maintenance(condition-based)

Minimizing impact on production by detecting signs of process unit trouble through sensors andpredictive diagnostic systems to conduct systematic maintenanceWe must implement safety activities while addressing

all manufacturing sections during the 4th Medium-Term

Improvement of Business Frameworkrisk-based maintenance, where risk is analyzed based on

Drivers
Drivers for Value Creation
Creation

The largest threat to stable operations is unplanned shutexperience to determine the maintenance timing.

Sustainable Value Creation

Reduction of unplanned
shut/slow down loss

Terminology

Then and Now

Our distinctive products are produced by chemical
reactions under high temperature and pressure

systems to systematize and reproduce the skills ofBusiness Plan. We are also considering alternative
inspection methods, such as using drones for working

while also achieving stable and efficient operations. In

at height.

Data Section

issues such as shortages of human resources and thehanding down of skills from one generation to anotherorder to do so, we promote Smart Industrial Safety,
where we utilize advanced technology to manage
operations and equipment.
As one measure to pass down skills to the next
generation and improve efficiency, we promote tablet
usage in order to digitize daily checks and operation
management. We are going to expand the tablet use to

43 KH Neochem Report 2023

Daily checks using tablets

Concept image of drone inspection

KH Neochem Report 2023

44

Special Feature

New Value to Achieve Sustainable Growth and
Ⅱ Creating
Strengthening Intellectual Property Capabilities

Our innovation is embodied by our management stance, “Making our dream a reality through reliable technology and new
inventions.” We will continue to focus on environmentally conscious methods, enriching peoples’ lives through our pursuitof technologies where we excel and acquiring new technologies created through external partnerships.

4 Improvement of energy efficiency and reduction and

1 Expansion of social problem solving businesses

management of CO2 and other emissions

centered on strategic domains

3 Strengthening of intellectual property strategies

16 Pursuit of higher productivity and efficiency at plants

to strengthen the foundation for growth

Accelerating business andstrengthening competitiveness

P23

is

petrochemical industry vastly altering the landscape. In

we have set “Pursuit of higher productivity andlight of this, we are actively pushing ourselves to utilize

efficiency at plants” as a materiality. Furthermore,and enhance our manufacturing technology, which is the

pursuit of new technologies is essential in a dramaticallysource of our earning power, and thereby increase ourchanging external environment, with carbon neutrality

technological competitiveness.

Innovation Strategy• Improving the added value of our technologies

We are one of very few manufacturers who possess extensive Wacker and oxo technologies. Our manufacturing technology
enables us to harness these technologies to develop targeted derivatives from characteristic intermediates. We aim to increase
the added value of our technology and strengthen our competitiveness by further exploiting this manufacturing technology inthe development of new products.

Sustainable Value Creation

Technology
Development Center

efforts and the reorganization of the domestic“We will strengthen our earning power”. In line with this,(1) Utilization of distinct manufacturing technology

Intellectual
Property

Creation of new,high value-added technologies

The seventh of our Seven Promises, listed on

Then and Now

Related Materialities

Strengthening competitiveness by utilizing and fully exploiting existing technologies

Exploring new themes

Sales & Marketing

Yokkaichi Plant
Chiba Plant

Promotion ofbusiness strategy

Development ofdistinctive technologies
and products(2) Strengthening evaluation technology for raw materials and catalysts
External partners

Increasing business value
through partnerships• Contributing to stable supply

Our products are used by a broad range of people, but are manufactured by only a few companies across the world. To ensure astable supply for such products, we must create an appropriate procurement strategy for raw materials and catalysts based on
global circumstances and support their procurement with rapid and accurate evaluation technology for them. Such evaluation
technology is also harnessed to improve productivity and efficiency, and to explore the introduction of new technologies.

(3) Full utilization of advanced refining and reaction technologies• Responding to increasingly sophisticated and diversifying quality needs

1

Creating value for the growth of existing businesses
Control Department promote manufacturing projects

our agile provision of high value-added products in forms

coordinated with manufacturing departments withinaligned with customer needs. While aiming to bothplants, acting as the flag bearers of safe and stable

respond to increasingly sophisticated customer needs andmanufacturing. They also work with Corporate Planning,provide a safe and stable supply, we have produced

Sales & Marketing, and Production Planning & Engineering

distinctive products that have few competitors and honed

to expand upon our investment strategy.

our proprietary technologies. In order to leverage thisWe are working to create value from the perspectives

relationship of trust and the proprietary technologies thatof sales and development in order to accelerate theare our strength to promote further growth and valuecommercialization of business ideas. More specifically, we

creation, we changed our organizational structure in Aprilappoint the managers for each product and theme (for2023, clarifying the role of technical functions andthat purpose) from Sales & Marketing and the Technology

strengthening intellectual property functions, and putting

Development Center. The people in charge keep in close

in place a system where they are integrated with Sales &contact throughout their daily operations to ensure theyMarketing as the hub.

are in alignment, and aim for existing business to grow.

Sales & Marketing handles product sales and service

Intellectual Property is responsible for the utilization■Case study: Further quality improvement for electronics materials and cosmetic ingredients
Our development of unprecedented analytical methods and adoption of new analytical equipment
have allowed us to establish technology that identifies minute amounts of quality-diminishing
impurities. Clarifying the formation and decomposition mechanisms of identified impurities enabled
us to develop quality improvement processes such as low metal and low odor. In order to stimulate
new ideas on a daily basis, we value exchanges with experts both inside and outside the company.

Kouji Kuramoto
Technology
Development Center(4) Expanding utilization of simulation and data technologies• Productivity improvement, problem prevention and quick resolution
In addition to utilizing simulator technologies and plant data analysis technologies in order to increase production and quickly
resolve on-site issues, we have started to use them for preventative measures as well. We are expanding our use of AI-based
advanced plant control systems to realize safe and stable operations while also working to achieve carbon neutrality.

Rights acquisition for vital technologies and in-house tradition
Some of our most vital technologies include those that

We hold many patent rights related to refrigerationand protection of intangible assets we have created, as

are open to the public and those that are highly

lubricant among Japanese manufacturers of raw

also conducting comprehensive business strategy

well as for IP management. It is involved in all aspects ofconfidential. We are actively working to obtain patentmaterials for the base oil*. Our deep understanding of ourplanning and promotion, such as marketing, new productbusiness, from implementing the necessary measures torights for applicable technologies that are open to thecustomers’ needs enables us to manufacture the optimal

development and investment planning. Sales & Marketingachieve our overarching designs to making businesspublic. For highly confidential technologies, we work to

raw materials (isononanoic acid, etc.) for them.

plays a central role in delineating the overarching businessproposals that fully utilize the IP landscape. In order toappropriately manage information and carry on in-house*POE: polyolester

designs, based on which the products and technologies

ensure intellectual property strategy planning is balanced

tradition by reliably promoting the development of

we release to society are created within the company. The

with intellectual property enhancement activities in line

technology platforms.

Technology Development Center is responsible forwith our business strategy, Intellectual Property has

establishing and improving upon manufacturingpersonnel stationed at the head office (where Sales &processes in coordinated efforts with the Yokkaichi andMarketing is located), and the Yokkaichi Plant (where the

Chiba Plants. The Yokkaichi Plant Planning & ProjectTechnology Development Center and Yokkaichi Plant

Management Department and the Chiba Plant Production

Planning & Project Management Department are located).

Data Section

provision as the point of contact with customers, while

45 KH Neochem Report 2023

Improvement of Business Framework

We have built a relationship of trust with our customers by

Drivers
Drivers for Value Creation
Creation

We possess precision separation (distillation, extraction) and advanced low-metal management technology, and supply productsthat meet our customers’ diverse needs and expectations of high quality.

KH Neochem Report 2023

46

Special Feature

2

New Value to Achieve Sustainable Growth and
Ⅱ Creating
Strengthening Intellectual Property Capabilities

Creating new businesses and developing new products and technologies

Characteristics of activities exploring new themes

our strengths to provide highly unique and competitive

We changed our organizational structure in April 2023 tomultiply. One venue for such exploration is our hub forthe strategic domains of environment, healthcare andproducts that contribute to solving social issues and leadfurther accelerate the creation of new businesses. This

open innovation, KH i-Lab, which we are further enhancing

electronics, and aim to create new businesses from ato sustainable growth for the company.

involved consolidating searching for new themes withinto accelerate the construction of a network with

Innovation Strategy, then working in partnership with thecompanies in other industries and venture companies.

medium- to long-term perspective. We must leverage

Sales & Marketing is primarily responsible for

newly established Intellectual Property. We target futureMarket needs

Distinct manufacturing
technology

Various raw materials

New Initiatives

Petrochemical technology(Utilization)

Raw petrochemicalmaterials

New derivatives
Green chemicals

WROC strategy

Raw bio materials

Bio productssocial issues in our creation of new businesses, a stancedeveloping new products based on the oxo technology, wethat is characterized by our Wide Range Operation withhave cultivated so far. Here, we create new value by

Curiosity (WROC) strategy, which promotes exploration

identifying social issues and customer needs from market

activities where experience and recognition are deepened

contact points, such as in sales and marketing activities forby allowing individuals’ curiosity to feed off each other andexisting products.
Sustainable Value Creation

Bio technology(New acquisition)

Then and Now

As we work to realize VISION 2030, we have identified

WROC strategy: research activities sparked by individual curiosity to generate new business• External partnership• Startup investment• Open lab utilization• M&A and alliances

KH i-Lab

Improving skills

Cases where development leads to new businesscorporate value. There are many fields where we canderivatives with high added value from raw

employ our petrochemical manufacturing technology

petrochemical materials, and are also working on green

and apply it to our bio-based manufacturing technology,

chemicals from raw bio materials. We are working toand we are focusing on this to create businesses that

manufacture bio products that solve social issues such as

leverage this strength.

3

Future changes that arehighly uncertain

Developing
hypotheses

Proof ofconcept

Scaling up andcommercialization

Strengthening new business creation
through utilization of intangible assets

IP strategy

We believe it is vital to enhance and utilize intellectual capital in order to revitalize innovation. Intellectual Property
manages intellectual capital from a company-wide perspective, and endeavors to further enhance and utilize this capital
to revitalize our business over the medium- to long-term.

IP governance system〈New derivatives〉Electronics materials: Development of highly functional raw resin materials

Cooperation between departments directly tied to our

The Company has established an Intellectual Property

We utilize our strength in oxo reactions and hydrogenation reactions to develop raw materials forhigh-performance resins.

business is vital to revitalizing business. We are actively

Policy and has established and operates the Intellectual

engaged in dialogue between related departments, andProperty Strategy Meeting to promote enhanced

we are working to strengthen proactive activities throughutilization of intellectual capital. The committee

our 4th Medium-Term Business Plan based on the IP

consists of an existing business submeeting and a newskills and technological understanding we have cultivatedbusiness submeeting, each of which meet monthly in

until now. In new business creation, for example, we work

principle and in which the relevant departments

in collaboration with Innovation Strategy to performparticipate. The IP enhancement activities discussed

technical verification, propose contracts and conduct

and promoted by the meeting are reported to the Board

negotiation from the perspective of building a businessof Directors by the board director in charge ofmodel; conduct research and analysis of markets andintellectual property, and the Board of Directors islaws required to refine our business plans; and introduce

responsible for supervision of company-wide IP

new technologies that harness the IP landscape inenhancement activities.

Our proprietary developed alicyclic monomers possess low dielectric properties and low water
absorption while also featuring improved heat resistance. These properties are in line with theincreasing performance requirements for in-vehicle/smartphone cameras and 5G/6G
communications. We expect these to be next-generation materials that solve customer issues, so weare currently verifying their feasibility for market release.

Takanori Sano
Sales & Marketing〈Green chemicals〉Development of natural high alcohols
We harness our high-pressure oxo technology to develop higher alcohols from naturally derived raw materials.
The higher alcohol currently under development has a high degree of biomass, and possesses
functional characteristics such as being a liquid at room temperature and being easy to handle. These
characteristics make it useful in a wide range of applications, such as in raw resin materials,
inks/coating agents and lubricants. Through this development of unique materials, we will contributeto realizing a carbon-neutral society.

Hiroki Takahashi
Sales & Marketing〈Bio products〉Environmentally friendly materials: Development of marine biodegradable resin

KH i-Lab conducted research in partnership with venture companies, harnessing the newtechnique of microbial fermentation to advance development. We continue to disseminate
information at exhibitions and presentations and engage in sample evaluations as we work tostrengthen our relationship with our customers, and have now reached the stage where it is time tobuild a new business.

47 KH Neochem Report 2023

consideration of where to invest, all while utilizing thetechnical know-how cultivated from existing businesses.
Traditional operations (defensive)• Acquisition of rights for inventions• Securing clearance from other companies’ patents• Searching for prior technologies etc.

Operations strengthened by the 4th Medium-TermBusiness Plan (proactive)
Natsumi Koike
Innovation Strategy• Strengthening intellectual property to support business strategy• Building business models and supporting contracts to promotecollaborative creation• Supporting business creation by harnessing the IP landscape etc.

Board of Directors
Supervision

Reporting

Data Section

We are developing resins that can be broken down by marine microorganisms, which helps address theglobal marine litter issue.

Improvement of Business Framework

Enhancing IP

Development personnel working to create value

Drivers
Drivers for Value Creation
Creation

marine pollution from a global scale while also improving

technology we have cultivated so far to create newTeamstrengths

Deepening curiosity andexpanding awarenessBusiness resources

We are harnessing the petrochemical manufacturing

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

Building networks

Open innovation

The board director in charge ofintellectual property
Supervision and instruction

ReportingIntellectual Property
Strategy Meeting• Existing Business Submeeting• New Business Submeeting

KH Neochem Report 2023

48

Special Feature

Ⅲ Human Resource Strategies to Increase Corporate Value
1

Strengthening human resource strategies to increase corporate value

Strengthening the human resources pipeline to support growth

Yukihiro Isogai

In order to realize VISION 2030 and achieve sustainablefacilitate the seamless acquisition of human resources for

growth even after that, we must develop and recruit humanpositions below the department head, and have begun

Board Director and Senior Corporate Officer
Current responsibility: In charge of HR,
IT Strategy, R&D, and Information Security

resources with the ability to systematically manage theconsidering the selection, training, and hiring ofcompany from a long-term perspective.

next-generation leaders and executive candidates. TheseTo this end, since 2020, we have been holding“personnel meetings” to discuss succession plans for

efforts encourage a shift in mindset. Instead of choosing themost suitable person available at the time, we are working

themes that require interdepartmental cooperation anddivision heads and other core positions. Since 2022, we

to cultivate the right person, promoting more capable

coordination, such as rotation plans for developing future

have been performing gap analysis for human resources inhuman resources in line with management strategy.

challenging objectives we are working to achieve, andexecutive candidates, we feel we are fostering a culture thatconsideration of the ideal state for each department todeveloping human resources is a driving force in the

promotes discussion from a company-wide perspective.

achievement of these objectives. From a medium- toMoving forward, we are working to build a stable pipeline ofhuman resources by continuing our efforts to hold personnel

connection between management strategy and humanmeetings while also making our plans more effective.

resource strategy, and driven by the belief that we must

Constructing a personnel system to cultivate professionals

As we work to realize VISION 2030 and achieve
In order to realize the challenging objectives set in VISION

workforce and maximizes results, we are committed toability to take on new challenges, act promptly and further

2030, we will further enhance our ability to take on new

implementing a variety of human resource policies andspecialize our expertise company-wide, while also working tochallenges, act promptly and further specialize ourcorporate culture reforms.

foster a corporate culture where results are maximized. As

expertise company-wide. Every employee must work

mentioned above, it is vital to continuously produce the next

proactively as a professional with a deep understanding of“personnel meetings” to discuss succession plans for division

generation of professionals to take up the mantle of thetheir role who is focused on producing results and is always

heads and other core positions. These meetings play a central

organization in order to achieve these goals. In order to foster

conscious of their own growth.

role in human resource management, and symbolize a culture

professional human resources with a deep understanding ofWith this in mind, we have created a job-typewhere Human Resources and other divisions proactively

their roles who are committed to producing results and act

personnel system for general employees that was
launched in 2023 in order to promote active engagementof employees and foster their aim to become

division leaders have taken the lead in facilitating discussions

taking on challenges and working to achieve them, regardlessprofessionals. Based on a concept of evaluation andto strengthen the organizational functions of their respectiveof age, gender or time with the company.

compensation that rewards those who take on challenges,that is resilient to change, which is essential to sustainable

the growth of our employees as much as possible.

improvement of corporate value.

Improvement of Business Framework

diverse values and experiences. All of these endeavors areintended to ensure a merit-based approach to placing theExpert course❶Aim for a rank of overseer orhigher in the expert course❷Aim to become an even moreskilled employee❸Change to the specialist
course and aim for amanagerial position

Mechanicalengineer

will continue to improve this system in order to support

3

Process
engineer

employees can have confidence in. Moving forward, weare striving to create a strong corporate structure and culture

1

Researcher

diversity and inclusion initiatives and reform work style, andnot already available within the company who possess

1

Salespersonbringing on human resources with knowledge and networks

1

Developer

personnel, we will establish a merit-based system that

Currently under review

Plannervariety of measures to increase engagement, advance2

Clericalwork

and through early selection of outstanding young

work to develop human resources internally while also

(Managers)

Technical
work

As we head toward 2030, we are working to further
develop systems and mechanics hardware, are engaged in a

(Highly skilled
professionals)
Currently underreview

Masters

Skilledwork

we determine compensation based on duties and roles,

departments, while also acquiring and training successors.
For positions where there is a perceived insufficiency, weMSManagement
systemCourse changewith future growth in mind, we launched a new personnel
system in 2023. In this system, employees are rewarded forCareer occupation: Occupation as the pillar of career building
Job occupation: Current occupation Changes each time an employee istransferred to a new occupation

General employees

consider human resource strategies connected to theirrespective department issues. Since last year, executives andCareer Overview

Drivers
Drivers for Value Creation
Creationsustainable growth for the future, we will further enhance ourManagement level

foster a corporate culture that empowers a diverse

Among these, since 2020, we have been holding

Sustainable Value Creation

To rapidly respond to a constantly changing businessenvironment, we created VISION 2030, which contains

long-term perspective, we will further strengthen the

Then and Now

Realizing VISION 2030:
Toward a strong corporate structure
resilient in the face of change

Specialist course
Gain experience in one’s own
career occupation and also gain
experience in other occupations if
needed to broaden one’s area ofexpertise and aim for the
management levelright person in the right position. Furthermore, by focusing on

Human resource development that supports autonomous education and growth

Human Resource Strategy

Realizing VISION 2030
1

2

•D&I promotion•Increased
engagement

Integrated promotion
Cultivating a cultureof three measuresthat respects diverse values

49 KH Neochem Report 2023

•Formulation of succession plans,
recruitment for core positions•Introduction of a new personnel system•Human resource development

Creating workplaces
where it is easy to work

development of human resources who will play a vital roleensure actively engaged development. With thein management.

introduction of our new personnel system in 2023, we
switched from our previous system of training based on
rank to a system that focuses mainly on elective training

3

where each employee can choose their own training path
•Promoting improved
work-life balance•Safe and healthy
work initiatives

next-generation executive candidates to promote thetraining programs to strengthen our human resources andfor growth in order to promote autonomous employee
initiative in developing the skills they need.
We also conduct selective training (graduate school
programs, GLOBIS Management School, etc.) for

Switching from rank and employment
length-based programs to a system that
promotes autonomous education and growth

Data Section

Strengthen humanresource strategies toincrease corporate value

We promote the development of various education and• Elective training that support autonomous career development• Curriculum to facilitate the acquisition of necessary
skills based on job standards• Use of career development support (CDS) to share careerdevelopment issues and plans between supervisors andtheir employees

KH Neochem Report 2023

50

Special Feature

Ⅲ Human Resource Strategies to Increase Corporate Value

Expanding career development support

Initiatives to increase engagement
require experience in, or what skills will be needed to

We prioritize increasing engagement in order toincrease engagement by developing measures thatone’s own career and support employees to take onachieve those goals, helping them take the initiative inpromote energetic employees and a productive

target management, such as interviews to discuss ideal

challenges and grow, we began implementing career

their own career development. Furthermore, this isorganization. In 2022, we conducted our fifth

management capabilities, skills training and evaluator

development support (CDS).

linked to our evaluation system to foster more active

engagement survey. The company-wide score had

workshops.

involvement of supervisors and increase thetrended upwards from 2018 when we first beganskill development, specifically through regulareffectiveness of support. These efforts support career

implementing the survey, but has remained flat for theinterviews with supervisors where they are asked aboutdevelopment in line with the duties and characteristics

past three years. Looking at the breakdown, divisions

their career goals, and discuss the roles and duties theyunique to the individual employee.

that aggressively implement unique measures toThis promotes employees taking a proactive role in

3.09

Setting skill
4 development
goals

Determining
3
discrepancies

Review

Concrete
5 efforts todevelop skills(Evaluation of
6
initiative details
for objectives)

Desired work
experience etc.

1 Self-evaluation

Examples of support from supervisors

Current
statusInterview•Assign a role by adjusting the division of duties to help in acquisition of
new experience•Provide themes and tasks that lead to skill development during work
Supervisor•Respect the motivation of the employee and provide opportunities
for education etc.

Cultivating a culture that respects diverse values

3Year 2(2019)

Year 3(2020)

Year 4(2021)

Year 5(2022)

2024
Objective

Creating workplaces where it is easy to work

Promoting improved work-life balance
We introduced measures that demonstrate our respectthey will not work overtime.

for the work-life balance of all our employees, ensuring

We also regularly notify managers regarding thethat diverse human resources can work autonomously

taking of paid leave and encourage discussion amongand produce results.

members to promote systematic acquisition of leave.

We reviewed our rules in response to the COVID-19
pandemic, and even after COVID was downgraded to acommon infections disease (category 5), we continue toPromotion of diversity and inclusion

Year 1(2018)and their managerial style, so we are working tooffer flextime and telecommuting systems without core
hours that encourage flexible and autonomous work

Rate of taking of annual paid leave (April 1 to March 31, each year)
Objective

Rate of taking of annual paid leave
(%)
90

88.9

84.2
80%

80

styles. At our plants, we have implemented a system thathuman resources to play and active role, regardless of

women managers and candidates in order to encourage

allows employees to work in a more balanced manner

factors such as nationality, age or gender. These initiatives

the participation and advancement of female employees,

through initiatives such as being able to set days where

include the development of a work-life balance support

and as of the end of January 2023, 8.1% of managerial

system that goes above and beyond legal requirements topositions were filled by women, and this ratio has steadily

support employees who are raising children, and haveincreased over recent years. Moving forward, we will

expanded our childcare leave system to male employees

continue to promote flexible work styles for different life

based on the belief that encouraging men’s participation instages and develop systems to support a balance between

childcare will lead to greater participation by womenchildcare and work in order to foster a corporate culture inFirst and foremost, we actively work to create awith industrial physicians to promptly detect warning

throughout society. In FY2022, 19 male employees took

which each and every employee recognizes each other’s

workplace environment where employees can work

signs, and promote meetings between physicians andleave to raise children or childcare leave, with anvaried values, and where everyone can play an active rolesafely and securely. However, we established new Safety

employees to ensure they can continue to work in prime

acquisition rate of 90% for those who sought such leave.

regardless of their gender or lifestyle.

Guidelines and added them to our Corporate Philosophy

physical and mental condition.

Number and ratio of management positions held by women
Number of female managers

Ratio of female managers

8.1

8
6
4
2
0

4.0
4
2020

5.6
5
2021

(Note) As of January

51 KH Neochem Report 2023

9.0

8.0

6.4
6

6.0

7

2023
Actual results

2024 (fiscal year)
Objective

Number of employees

2021

2022

(fiscal year)

Creating a safe and secure working environment

We are proceeding with the 2019 initiative tooccurred in the Yokkaichi Plant in FY2022, and have once

relocate our head office, and renovations for the office of

Fiscal year 2022

again declared our stance on safety both inside andthe Yokkaichi Plant’s Kasumigaura Plant which haveoutside the company. One specific initiative we rolled out

been built in March90%

was the company-wide Comprehensive Safety Check

2022 as efforts toInitiative 2022, where individual employees take theimprove the workplace

initiative in identifying dangerous areas in the workplace,environment.

4.0
2.0

2022

Leave ratio

2020

after reflecting on the serious work-related accident that

Paternity leave ratio

(%)
10.0

78.1

19

0.0
*Paternity leave includes childcare leave, post-natal leave and paidchildcare leave

Data Section(persons)
1070

Improvement of Business Framework

Furthermore, we focus on actively training and recruiting

We implement a variety of initiatives that enable diverse

Drivers
Drivers for Value Creation
Creation

Setting career
occupation•Evaluation ofindividual strengths/
weaknesses etc.

3.11

there are many divisions that scored poorly.
We believe this is greatly influenced by managers

Ideal

3.12

Sustainable Value Creation

End term

Mid term: Annual

2 Construction of acareer vision

3 years
later

3.13

efforts score higher and show better results, though

Initial term

Desired career•Department transfer(change job type)•Desired job grade

More than
3.44

2.99

increase team engagement beyond company-wide

Career Development Support Process2

Engagement Score Trends and Target Values

Then and Now

In order to instill a sense of personal responsibility of

discussing them among their colleagues and promoting
activities for improvement.
We also focus on mental health by collaborating

The office of the Yokkaichi Plant’s Kasumigaura Plant
Photo: Ena Mitsui (Kawasumi•Kobayashi Kenji Photograph Office)KH Neochem Report 2023

52

Roundtable Discussion with Outside Directors

New Innovations from a Long-term Perspective for a Sustainable Future
Then and Now

Appointed in March 2020. Attorney. He has
experience working for the Securities andExchange Surveillance Commission andexpertise in corporate law and corporate
governance.

Appointed in March 2020. He has
management know-how cultivated at
global companies and advanced technicalknowledge in the chemical industry.

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

65
66

69
73

Board of Directors meetings, off-site meetings and social

the Board of Directors, it is important for outside directors

gatherings have been held since FY2022 as places where

to be able to obtain information on the themes to beboard members can converse informally. So far, a theme fordiscussed in advance and, in that respect, information is

discussion has been set each time and, because they takeprovided very smoothly. Furthermore, information onplace separately from Board of Directors meetings, theseimportant matters, and not just on reports to the Board ofoccasions have become an opportunity to learn about the

Directors, is being provided in a timely manner, and I

company from a new perspective, and to discuss our ideas

believe that we are now in a situation where we can makeand aspirations. I think this has resulted in more substantial

appropriate decisions.

discussions at the Board of Directors meetings. I hope thisTsuchiya

initiative will be continued.

I feel that the information provided to us is very

organized. However, sometimes I think it’s too organized.

Kikuchi

The environment is undergoing huge changes, and I think it

of Directors meetings, but the off-site meetings and social

is necessary to discuss a wide range of topics, including thegatherings have fostered an atmosphere where people canfuture, while touching on information that cannot

talk informally, and I think they are a good opportunity to

Corporate Governancebe organized.

encounter unexpected facets of the board members.

KikuchiTsuchiya

Risk Management

Business Plan (hereafter referred to as the “4th MTBP”), thetraining sessions in which officers became lecturers on a

Board of Directors held exhaustive discussions whilerotating basis. I had the opportunity to talk about myconsidering hypothetical business environments. However,business experience at a chemical company, and that

discussion themes that return to management policies

gathering was also attended by employees, not just the

become rather difficult once the plan has come into action.

members of the Board of Directors. We held frankI think it would be good if we could discuss this point in aconversations afterwards at a lunch meeting that included

little more depth.

young employees, and further developments at a later dateMiyairiWith regard to strengthening governance, I feelincluded a meeting to exchange opinions with the people inappropriate measures have been taken to address eachcharge on a theme that went into more depth. This kind ofissue as it arises, based on the results of the evaluation ofthing is not common at other companies.

effectiveness. However, I think it is necessary to discuss inMiyairimore depth whether these measures are really leading to“Creating an organizational environment and safety culture

an improvement in effectiveness and also how to deal withthat leverages diversity.” This initiative leverages external

new challenges.

expertise and experience and reduces it to its components

Roundtable Discussion with Outside Directors

Climate-Related Disclosures Based on
TCFD Recommendations
Compliance
Security, Safety, and Environmental
Conservation Activities
Stakeholder Relations

53 KH Neochem Report 2023

When formulating the 4th Medium-Term

Discussions inevitably tend to be formal at Board

At the social gatherings, we have also started

Data Section

67

FY2021, as a way to further deepen discussions at the

As a prerequisite for discussions at meetings of

Improvement
Improvement ofof BusinessBusiness Framework
Framework

57

On the other hand, interesting initiatives have also
been launched. After the effectiveness evaluation for
Drivers for Value Creation

Please tell us your assessments of
KH Neochem’s governance.

Kikuchi54

Sayoko Miyairi

Independent Outside Director

Q1

Improvement of
Business Framework

Jun Tsuchiya

Independent Outside Director

Sustainable Value Creation

Yuji Kikuchi

Independent Outside Director

I had the opportunity to talk about the theme

KH Neochem Report 2023

54

Roundtable Discussion with Outside Directors
have been a huge wake-up call for them. Mr. Kikuchi is rightmore specifically what they must do to achieve their goals, I

about aging equipment. Up until now, the value of chemical

do not think they will be motivated to work on it.

companies has been assessed in terms of technical aspects,

Miyairisuch as whether they have developed new products orUnder VISION 2030, the company’s policy is tostrengthen the three strategic domains of the Enviroment,

made better products. However, the aging of equipment is

Healthcare and Electronics. However, I think they should

proceeding apace throughout the industry, and I think thatstart discussions on their portfolio now with an eye on thesafe and stable operation may become a value on which

future beyond 2030.

companies are assessed in the future. This is a differentiator

Kikuchithat does not depend on technology. If employees regard“Selection and focus” are words often used

Then and Now“visible sustainability” is necessary. If they do not visualize

safe and stable operation as not an obligation or restriction

position to have that discussion while also estimating the

but a potential value for their company, it will probably

inside the company, and I think it is an excellent

growth of existing businesses. The theory is to increase

motivate them to make efforts to that aim.

that there are no legal violations, and I will definitely

opportunity for outside directors like us. It is true to say that

options, including new businesses and new products, andMiyairi

continue to do this. As for what I expect from thethe company makes good use of outside directors.

then select those expected to generate a profit. I feel thatparadigm shift from manual and visual control methods tocompany, I want it to be an exciting company.

the company has made a start on that.

forms of control that utilize advanced technologies such as

Performance material is one of the businesses that canTsuchiya

AI. I think one way to ensure safe and stable operations is to

be expected to grow in the future, but I think it is

the chemicals industry. In my experience, in the chemicals

evolve inspection methods, such as the smart industrial

necessary to develop even more products and businesses

industry it is “three in a thousand.” In other words,

safety that they are currently promoting.

that people inside the company and outside of it findinnovative products are only put to practical use with a

Kikuchivery interesting. I think my most important role as an

The environment has changed significantly fromprobability of 0.003. In my opinion, it is not “selection andconsidering corporate sustainability. I think this is a theme

outside director is to encourage that.

the assumptions the company had when formulating the

focus” that are needed but “washing and cleaning.”* That

that every company is struggling with. How to recruit andTsuchiya

4th MTBP, and the figures cannot be said to be according

means reviewing existing ways of doing things anddevelop good human resources. I intend to firmly advocateof thinking, but I think it is better to think as simply as

to plan. Nevertheless, I think they are steadily doing what

improving processes until innovation occurs. I believe it is

this as a member of the Board of Directors.

possible. To decide the key points of what is to be

they intended to do. For example, they have identified

important to devotedly “wash and clean” on a daily basis,

Miyairi

I agree. The concept of team innovation is alsoadhered to and what is a priority, and then thoroughly

priority areas where they can leverage their strengths,

and develop a competitive edge that is second to none.

part of innovation. Just as the results of a relay race are

enforce those points. Studying is more effective whensuch as refrigeration lubricant raw materials, and are

Miyairiaffected by how the baton is passed, it is necessary to

students gain a thorough understanding of a problem

steadily working toward future growth. I think that ismeans that, in order to realize that “three in a thousand,”

connect areas that are not connected and think more about

than when they simply plow through the hundred

very praiseworthy.

rather than seeking a sudden breakthrough, it is also

how to win as a team. The activities of compliance leaders

problems in a drill. I believe it is the former approach that

Miyairiimportant to adopt a stance of giving it a try, and persist

Q2

What is your assessment of ourprogress with materialities and in the
4th MTBP?

KikuchiThat’s an interesting way to look at it. I assume it

Human resources are also important whenand initiatives to facilitate the advancement of

P68

The world has a variety of indicators and ways

will improve the company as a whole.

struggling. I think they need to pay close attention towith existing businesses until the seeds that have beenfemale staff

internal factors as well as to whether they have beensown mature.

cooperation between people, such as between

that should be emphasized. In order to protect

sufficiently responsive to changes in the environment and*This comment plays on the Japanese word “sentaku,” a homonym that can mean“selection” or “washing.”

headquarters and plants, will help to prevent problems andemployment, the company must continue to operate

reduce misunderstandings about information, and willsafely without causing any accidents, and they must also

make teams stronger. Sustainability is still an area wheredevelop new products to generate profits. Protecting

issues remain, but if they can do such things, there is aemployment is very beneficial not only for the company

greater possibility of creating a corporate culture that is

and its employees but for society as well, and everything

open to taking on new challenges, one where people areleads on from that. This is just one example, but I think it

circumstances. When you set a new goal and try something
during the implementation process. Particularly after the
4th MTBP came into effect, they were late in responding to

Q3

What are your impressions of
the sustainability initiatives?

are a part of that. Deepening

I think that job protection, for example, is a value

such changes, and there seem to be some areas where they

Kikuchi

did not fully achieve the expected results. It is necessary to

impaired in FY2022 due to the repeated occurrence ofwilling to try a new approach and give something a try.

is necessary to decide on such core values.

also speedily adjust course in response to changes rather

production problems in addition to a serious accident at a

Kikuchi

Miyairithan just thoroughly implementing the original plan, isn’t it?

plant. I think that the root cause of production problems is

specialists, and there are also jobs that can be done bynecessary in order to increase corporate value, and I think

Tsuchiya

Safe and stable operations were significantly

There are jobs that can only be done by

I mentioned earlier that team innovation is also

I agree that how they respond to changes isaging equipment. Although they have begun to work on

teams such as you just mentioned. I think it is important tothe connections between people are very important. If

much more important than sticking meticulously to thestrategic preventive maintenance, I think they have yet toincrease the diversity of the organization by hiring humansomething happens, people can respond more quickly if

original plan. Also, I feel that they should probably narrowsee sufficient results.

resources with various characteristics and strengths.

they have a connection. If the company can constructdown the KPIs even more. The company should identify

Tsuchiya

Tsuchiya

I agree with the idea of creating innovation as astrong networks amongst its people as in-housethe points on which to focus and adhere firmly to them.

team. It is important to foster an organizational culture that

infrastructure and create a positive culture where

Miyairi

The issues related to safe and stable operations

employees are keen to try out initiatives they havecan play an active role.

learned about through such networks, I think the number

information is rapidly becoming a necessity, but unless theyMiyairiof people working with enthusiasm will increase. I think it

consider the context and meaning of that, and reach theserious-minded people in the company, aren’t there?

I agree. (She laughs) There are a lot ofpoint where they make use of it for their own benefit, they

Tsuchiya

That is certainly true. And what is more, they

have to link it up with positive action. Recently,
sustainability is expected of companies but I believe that

55 KH Neochem Report 2023

would be good to go even further and expand suchnetworks outside the company as well, to stay abreast ofwill simply be left feeling that it is something imposed
upon them.

Data Section

respects diversity, where edgy human resources like me

about objectives. For example, disclosure of non-financial

Another important thing is to think carefully

Improvement
Improvement ofof BusinessBusiness Framework
Framework

new, unexpected distortions and problems often arise

P51

Drivers for Value Creation

It is true that, in terms of the figures, they are

However, innovations do not emerge easily in

I believe it is also necessary to invest in a

Sustainable Value Creation

about portfolios, but I do not think the company is in a

Q4

What are your expectations for
KH Neochem going forward, and how doyou see your own role in its future?

Kikuchiwhat is going on. It is important to create an organization
where everyone can play an active role and shine, and I
would like to leverage my experience to that end.

My role as a lawyer is to check from the inside

KH Neochem Report 2023

56

Corporate Governance
Basic Stance on Corporate GovernanceThe company has established a Management

Audit & Supervisory Board Members attend Board ofCommittee to decide on important matters pertaining tochemistry.”, we strive to achieve sustainable growth, improve our corporate value for the mid-to-long term and realize

Directors meetings, Management Committee meetings,

the execution of duties delegated to the company by thesound management with secured transparency and fairness. As such, we have established a corporate governance systemand other important meetings and voice their opinions as

Board of Directors, and to hold meetings at which to holdwhich considers the following points and make ongoing efforts towards its enhancement.

needed in addition to auditing the Directors’ performance

preliminary deliberations on matters for the Board ofof duties through such activities as reviewing important

Directors to discuss. The Committee is composed ofapproval documents. Audit & Supervisory Board

full-time directors, corporate officers, and persons

Members also exchange information and opinions, holdnominated by the CEO, and its meetings are also

• Endeavor to appropriately collaborate with stakeholders other than shareholders.

discussions, and engage in other efforts on a regular basis

attended by Audit & Supervisory Board members. The• Have a management team and Board of Directors whom demonstrate leadership which promotes fostering of a corporate culture that
respects the rights, positions and business activity ethics of a variety of stakeholders.

in pursuit of mutual collaboration with the Internal Audit

Committee normally meets once a month.

In line with the KH Neochem’s Corporate Mission of “Realizing a brighter tomorrow for society through the power of• Endeavor to practically secure the rights and equality of our shareholders and maintain constructive dialogue with our shareholders.
• Disclose accurate and straightforward financial and non-financial information beneficial for constructive dialogue with shareholders, etc.
in a timely manner.

Overview of Corporate Governance Structure
General Meeting of Shareholders
Election/Dismissal

Audit

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

Election/Dismissal
Cooperation

Reporting

Delegation of
Authority

Advisory

Reporting(one-half or more of the committee
members are Outside Directors)

Advisory(one-half or more of the board
members are Outside
Evaluation/
Corporate Auditors)
Dismissal
Audit

Appointment/
Dismissal/
Supervision

Management Committee

Cooperation

Cooperation

Accounting
Audit

The Sustainability Committee is an advisory body role to

Supervisory Board Members) and, in principle, holds

the Board of Directors that discusses, provides advice on,

ordinary Audit & Supervisory Board meetings on aand monitors sustainability-related matters selected atmonthly basis in addition to extraordinary Audit &meetings of the Board of Directors or the Management

Supervisory Board meetings as needed, all in pursuit ofCommittee, or decided on by the CEO, in order to reflectmutual collaboration in formulating auditing plans,

them in business plans and other policies. The

examining the status and results of audits, and the like.

Committee is chaired by the board director in charge ofMain agenda items for the Audit & Supervisory Board in 2022

corporate strategy, and is composed of executive• Preparation of auditing plans• Evaluation of auditors, decision on their reappointment,
approval of their remuneration• Audit of the maintenance and operational status of the Internal
Control System• Audit of main operating facilities and related companies

Direction
ReportingExecutive Directors

Reporting

Reporting• Preparation of audit reports

Environmental Safety Committee

Internal
audit

Nomination and Compensation
Advisory Committee

directors. The Chair may request an expert committee forreports as necessary.
Main agenda items of the 1st Sustainability
Committee meeting• Carbon neutrality (decarbonization trends)• Broadening ESG disclosure• Materialities and KPIs

Expert Committees and Conferences

Expert committees chaired by directors in charge act asmeeting bodies that complement decision-making with
providing advice, analysis, and reports on specialized

related to nomination and remuneration of Directors andmatters. Conferences are also held regarding exclusive

Corporate Officers, the company has established adecisions made by division heads based on approvalvoluntary Nomination and Compensation Advisory

rules and organizational rules. The conferences are held

Committee as an advisory body to the Board of Directors.

to discuss matters necessary for decision-making and

The Chair of the Committee is an Outside Director, andoperational execution, as well as to formulate and

Board of Directors

Outside Directors constitute a majority of the members.

promote company-wide policies, conduct educational

The Nomination and Compensation Advisory

and training programs, and exchange information. The

growth of the company and the improvement of its

Committee is composed of three or more directors

expert committees are the Environmental and Safety(one-half or more of the committee members are

Committee, the Energy Management Committee, andIndependent Outside Officers) nominated by the Board

the Risk Management Committee. The conferences areof Directors. When the Board raises issues to address, thethe Conference toward Compliance Improvement, theCommittee formulates a plan for the year, takes action,

Conference toward Information Security, and theand advises the Board. The Chair is selected by the

Conference toward Quality Assurance.

Reporting

Division Heads

Conference toward Information
Security
Conference toward Quality
Assurance

Advisory

regard to company-wide governance by discussing andand accountability of the Board of Directors functions

Supervision/
Direction

Advisory

With the aim of reinforcing the independence, objectivity

Energy Management Committee
Risk Management Committee

Operating Divisions

The Board of Directors exists to promote the sustained
corporate value over the medium and long term, to strive
for proper structuring and management of a corporate
control system, and to make decisions on matters set out inlaws, regulations, and the company’s Articles ofMain agenda items for Board of Directors meetings in 2022
• Formulate Medium-Term Business Plan andManagement identify materiality
strategy• On the Sustainability Promotion Structure

Incorporation and other critical management matters asaddition to serving as a supervisory body over the Directors’
performance of duties. The Board of Directors comprises
eight Directors (including three Outside Directors) and, inprinciple, holds ordinary Board of Directors meetings on amonthly basis in addition to extraordinary Board of
Directors meetings as needed, forming the company’ssystem for swift decision-making in management.

57 KH Neochem Report 2023

Governance• Fiscal year budget and investment plan
• Establishment of Respect for Human Rights Policy
Business and• TCFD endorsement and disclosure
other• Safety-related initiatives• Report on IR activity

Committee from among the outside directors.

Data Section

the company’s key executive decision-making body in• Evaluation of Effectiveness of the Board of Directors• Activity report of the Nomination andCompensation Advisory Committee• Review of risk management systems andidentification of material risks• Evaluation of cross shareholdings

Improvement
Improvement ofof BusinessBusiness Framework
Framework

Responsibility

Conference toward
Compliance Improvement• Interviews with executive directors and division heads
Audit Department

Sustainability Committee

Board members (including two Outside Audit &• Exchange of views with CEO and outside directors

Sustainability Committee

President & Chief Executive Officer

Corporate Officers

Accounting Auditor

Supervisory Board comprises three Audit & Supervisory

Drivers for Value Creation

Nomination and Compensation
Advisory Committee

Consultation

Audit & Supervisory Board

Election/Dismissal

Division and the Accounting Auditor. The Audit &Sustainable Value Creation• The Board of Directors shall, from an independent position, engage in effective supervision of the management team’s execution of its duties
and endeavor to create an environment which supports the risks taken by the management team and fulfill all associated responsibilities.

Management Committee

Then and Now

Audit & Supervisory Board Members andthe Audit & Supervisory Board

Main agenda items and activities of the Nomination andCompensation Advisory Committee in 2022
• Interviews with division heads for succession planning andnext-generation talent development(group discussions and individual interviews)• Discussion and advice relating to executive staffing• Discussion and advice relating to compensation for executives• Evaluation of Corporate Officers

KH Neochem Report 2023

58

Corporate Governance

History of Strengthening GovernanceEvaluation of Effectiveness of the Board of Directors

Main Strengthening Measures

The effectiveness of the Board of Directors is evaluated once a year. The members of the Board of Directors consider specificIntroduced
Corporate
Officer system

2014

2015

2016

Established a voluntary
Compensation Committee

2017

2019

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

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 the effectiveness evaluation.

Expanded the transfer ofoperational execution
authority

Added one independent
outside director
Appointed an independent
outside audit & supervisoryboard member (female)
Established the Compliance
Code and various policies

2018

those measures.

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

2020

2021

2023

2022

Established the Sustainability
Committee
Made alterations to expert
committees and conferences

Appointed an
independent outside
director (female)

History of executive composition
Full-time directors (male)
Full-time auditors (male)
Independent outside officers (male)
Independent outside officers (female)10(%)

directors

50

auditors

40

6

30

4

20

2

10

2014

2015

2016

2017

2018

2019

2020

2019

(1) Discussions must be enhanced on
subjects such as strengthening thesupervisory function and medium- andlong-term management strategies.

(1) Key initiatives will be monitored and resolutions that are formalities will be
reviewed.

2020(1) Foster deeper discussions of critical issues.
(2) Leverage the strengths of the Board of
Directors.

(1) The agenda will be set on basic management policies and the sustainableimprovement of corporate value.
(2) Roles will be clarified and executive training provided using the skills matrix.

2021(1) Foster deeper discussions of Sustainable
Management and medium-to long-term
growth strategy.
(2) Set effective KPIs and enhancemonitoring to establish and implement
the 4th Medium-Term Business Plan.

(1) Discussion by Board of Directors on topics relating to sustainability. Hold offsite
meetings and free discussion sessions (social gatherings) after Board meetings
to provide further opportunities for dialogue. Also hold mutual training sessions
for directors.
(2) Identify materiality based on value creation story, set KPIs, and conduct
quarterly monitoring.

2021

2022

2023

2022 Evaluation of Effectiveness• Implementation period: Nov 2022 to Feb 2023

• Basic points regarding the functions, composition,and operation of the Board of Directors• Target: 11 persons total (8 directors, 3 Audit &Supervisory Board members)• Status of improvement on issues from previous year

0

(The term “officer and/or officers” as used in this chart refers to board directors and Audit & Supervisory Board members)

Results ofevaluation ofeffectivenessFiscal year 2022 overview
Ratio of independent
outside directors

37.5%Internal

Outside5

3

59 KH Neochem Report 2023

Age composition of theBoard of Directors

18.2%
Male

9

Female2

11 directors and Audit &Supervisory Board members

Composition of thediscretionary Nomination andCompensation Advisory
Committee(Chair: outside director)

Sixty andabove

Fifties44

8 directors

Internal

1• Items on sustainability

The effectiveness of the Board of Directors as a whole was verified.
The main points that improved were “providing opportunities for outside directors tounderstand the company” and “facilitating discussion by promoting mutual understanding among
directors.” The analysis commended the way that opportunities were provided for outside directors
to visit plants and research laboratories that opened behind schedule due to the COVID-19
pandemic, and the way that further opportunities for dialogue were promoted such as offsite
meetings, and Social gatherings after Board meetings. The following items were identified as issues.

Issue 1
Strengthening monitoring withregard to investment projects above
a certain amountTransparency for critical investment projects will be improved bycreating overviews that show their progress with regard to their initialplans, and progress will be verified and reported to the Board of
Directors more frequently.

Issue 2
Fostering deeper discussions ofsustainability

Board meetings, offsite meetings, free discussions (social gatherings)
etc. will be used to promote ongoing sustainability-related debate aswell as discussion of human capital management efforts and theirdisclosure, and human rights efforts.

Issue 3Training and identifying
next-generation leaders, identifying
talent, raising awarenessEngagement and communication between management andnext-generation leaders will be increased as part of the discretionary
Nomination and Compensation Advisory Committee’s activities, byconducting interviews between next-generation leaders and outside
directors, holding opinion exchange meetings, and requiring
next-generation leaders to hold briefings before Board meetings.

Outside3

4 Nomination and Compensation
Advisory Committee members

Issues and Action
Plans

KH Neochem Report 2023

Data Section

8 directors

Ratio of female
officers• Main topics of the survey:• Method of evaluation of effectiveness: survey(named/multiple choice/descriptive)

Improvement
Improvement ofof BusinessBusiness Framework
Framework

2013

Action Plan

Ratio of independent outside officers
Ratio of female officers

80IssuesDrivers for Value Creation(persons)

Ratio of independent outside directors

Initiatives to date

Sustainable Value Creation2013

improvements based on the results, and ongoing efforts are made to improve the functioning of the Board by implementing

Terminated the retirement benefit plan
Introduced performance-linked
share-based remuneration system

Then and Now

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 theTokyo Stock Exchange
Filed a corporate governance report

60Corporate Governance

Officer Training
Every year, we invite experts, lawyers, and other

Officer Compensation, etc.
Performance-linked, Share-based Remuneration

Compensation for directors consists of monetarycompensation made up of fixed compensation and

Performance-linked, share-based remuneration is

Agenda items and important information to be discussed at

performance-linked compensation, as well as

We have conducted officer training by Professor

the Board of Directors meetings are distributed to outside

performance-linked share-based remuneration. Outside

Emeritus Kunio Ito of Hitotsubashi University every year

directors and outside Audit & Supervisory Board members

directors and Audit & Supervisory Board members are

since 2019. In 2022 he gave a lecture on the subject ofin advance, and explanations are provided in advance bycompensated in cash (consisting solely of a fixed“human capital management,” addressing themes suchthe secretariat and the division making the proposal. In

monthly amount).

as “direction of change,” “aligning business strategy andparticular, for newly appointed outside directors and Audit

In determining compensation, a discretionary

human resources,” and “disclosure of human capital& Supervisory Board members, we strive to deepen their

Nomination and Compensation Advisory Committee has

information,” and engaged in a lively exchange of views.

understanding of our Group by providing them with

been established to ensure the appropriateness andIn addition, when our Respect for Human Rights

materials and information and arranging briefing sessions.

transparency of the level of compensation for directors.

Policy was being formulated in 2022, we conducted

We also provide opportunities for tours of our plants

for management.

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

long-term performance and increasing of corporate value.

compensation for directors and Audit & Supervisorydialogue with employees on the front lines. In 2022, outside

Board members, and even confirms the results ofhistorical background, international frameworks, and the

directors were given tours of KH i-Lab to foster deeper

calculations of individual compensation for each director

human rights initiatives and responsibilities currently

understanding and interaction with employees.

and Audit & Supervisory Board member. The basic policy
regarding the compensation for directors (excluding

rights aspects the company should treat with particularoutside directors) is as follows:

Rights Policy, and held opinion exchange meetings about

As part of our plan to train next-generation leaders, wefuture efforts to respect human rights.

provide opportunities for all division heads to have

The evaluation index used for performance-linked
compensation (both monetary compensation andshare-based remuneration) is consolidated EBITDA,*
taking into account the characteristics of the company’sbusiness and other factors. Because the company owns a• Provides sufficient incentive to improve performance and increase
corporate value over the medium to long term
• Has a competitive edge in attracting diverse and superior talent• Shares interests with shareholders and other stakeholders

large number of facilities, it considers EBITDA, which
includes depreciation and amortization in its calculations,
to be a useful indicator.

interviews with outside directors on the Nomination and
In June 2022, division heads were organized into
small groups, and opinion exchange meetings wereconducted with outside directors on the topic of“important challenges in driving sustainable
management.” In October 2022, interviews were held

*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).

Monetary compensation
Around 30% of all monetary compensation is
performance linked, and it is calculated using the rate atConception of Director Compensation

which planned earnings are achieved and the average

FixedCompensationachievement rate over the past five years.

directors to develop future growth strategies.

Since 2022, to improve the effectiveness of the Board of
Directors, KH Neochem has facilitated informal
discussion outside the Board with opportunities foropen-minded opinion exchange, and mutual
director-led training sessions.

61 KH Neochem Report 2023

remuneration

Total amount ofcompensation(million yen)

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

Share-based
remuneration

Number of officers
subject tocompensation

Fixed

Performance-linked

Performance-linked

222

116

69

37

5

21

21

-

-

1

Outside Director

25

25

-

-

3

Outside Audit & Supervisory Board
members

14

14

-

-

2

Directors (excluding outside directors)
Audit & Supervisory Board members(excluding outside members)

Cross Shareholdings
To improve corporate value, KH Neochem owns shares inmanagement companies for joint industrial complexes.

companies considered important for maintaining medium-Thus, these holdings truly are business investments.

and long-term business connections and synergies that

Data Section

A discussion between directors

In light of KH Neochem’s governance situation andchallenges, a roughly half-day offsite meeting was heldwith the theme “What is required of directors?”
With regard to mutual director-led training sessions,in December 2022, director Jun Tsuchiya delivered a
training session on historical shifts in the businessenvironment and future trends relating to the company;
and in April 2022,
director Sayoko Miyairi
delivered a lecture on“Building an Inclusive
Organizational Ethos
and a Culture of Safety,”and facilitated a frankexchange of opinions.
Director Jun Tsuchiya delivers a lecture

15% Sharebased

Total Amount of Compensation by Officer Classification, Total Amount of Compensation by Category, and Number of Officers Subject toCompensation (Fiscal Year 2022)

Officer classification

Fostering Dialogue and Discussion Among
Directors

Monetary
Compensation

Improvement
Improvement ofof BusinessBusiness Framework
Framework

Officer training by Professor Emeritus Kunio Ito of Hitotsubashi University

Performance-linked
Compensation*The above diagram indicates a target for director compensation, which varies
with each fiscal year. The proportion of performance-linked compensation
increases with executive rank.

opportunities to debate, among other things, newactive effort to increase communication with outside

25%

60% Monetary Compensation

between division heads and outside directors to provide
policies to raise corporate value. This was part of an

Drivers for Value Creation

Compensation Advisory Committee.

Sustainable Value Creation

Performance-linked Compensation Indicatorsand subsidiaries, and opportunities for interaction anddeepened the company’s understanding of human rights’

Training Next-Generation Leadersin the stock price with shareholders, thereby increasingawareness of contributing to improvement of medium- to

training sessions on human rights. The sessions

respect, reflected the results in the Respect for Humanfrom increases in the stock price and the risk of decreases

The Committee deliberates on policies and levels of

required of companies. We also surveyed which human

Then and Now

professionals to provide ongoing training opportunities

Support System for Outside Directors
and Outside Audit & Supervisory
Board Members

For shares in listed companies, the Board of Directors

are based on an understanding of the importance of eachannually reviews the rationale for each shareholding,other’s management policies, business lines, and businessincluding appraisal losses and gains, compliance status,

dealings. Approximately 50% of investment shares on theand business dealings with the company. In 2022, webalance sheet are unlisted shares, of these approximately

invested in two startup companies as part of a business

90% are shares in affiliated companies acquired throughcreation effort, and moved forward with selling a segment

joint investments in key materials manufacturers and inof our publicly listed and privately held shares.

KH Neochem Report 2023

62

Corporate GovernanceMembers of the Board
Directors

Masaya Hamamoto

Representative Director
President & Chief Executive Officer
Apr. 1987 Joined Kyowa Hakko Kogyo Co., Ltd.
July 2011 General Manager of Basic Chemical,
Kyowa Hakko Chemical Co., Ltd. (now the company)
Mar. 2013 Director and Executive Officer of theCompany
Mar. 2016 Managing Director and Executive Officer of
the Company
Mar. 2017 Executive Vice President & Executive Officerof the Company
Mar. 2019 Representative Director, President andExecutive Officer of the Company
Mar. 2020 Representative Director, President and Chief
Executive Officer of the Company (to present)

Audit & Supervisory Board Members

Jun Tsuchiya

Board Director
Senior Corporate Officer

Independent Outside Director
Apr. 1981 Joined Argonne National Laboratory, U.S.A.
May 1983 Joined Lawrence Berkeley National Laboratory, U.S.A.
Feb. 1984 Joined Mitsubishi Chemical Industries Limited(now Mitsubishi Chemical Corporation)
Jan. 1999 Seconded as President to Verbatim Corporation, U.S.A.
subsidiary of Mitsubishi Chemical Limited
Apr. 2001 General Manager of Corporate Planning Office of Mitsubishi
Chemical Industries Limited (retired in January 2002)
Feb. 2002 Director of Rohm & Haas Japan K.K (now Dow Chemical
Japan Limited)
Jan. 2007 Representative Director and President of Heraeus K.K.
Oct. 2018 CEO of Tsuchiya International Consulting Corp. (to present)
June 2019 Outside Director of Soken Chemical & Engineering Co., Ltd.
(to present)
Mar. 2020 Outside Director of the Company (to present)

Yukihiro Isogai

Yuji Kikuchi

Apr. 1987 Joined Kyowa Hakko Kogyo Co., Ltd.
Apr. 2008 General Manager of Production
Administration
Division of Kyowa Hakko Chemical Co., Ltd. (now thecompany)
June 2011 General Manager of Yokkaichi Plant of theCompany
Apr. 2013 Executive Officer of the Company
Mar. 2014 Director and Executive Officer of theCompany
Mar. 2018 Managing Director and Executive Officer of
the Company
Mar. 2020 Board Director & Senior Corporate Officer of
the Company (to present)

Apr. 1987 Joined Toaboshoku Co., Ltd.
Aug. 2000 Joined YIC Co., Ltd.
Oct. 2001 Joined Kyowa Hakko Kogyo Co., Ltd.
Jan. 2016 General Manager of Yokkaichi Research Laboratories,
R&D Office of the Company
Dec. 2017 General Manager of R&D Office and General Manager of
Yokkaichi ResearchLaboratories, R&D Office of the Company
Jan. 2018 Executive Officer of the Company
Mar. 2019 Director & Executive Officer of the Company
Mar. 2022 Board Director and Senior Corporate Officer of
the Company (to present)

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
Mar. 2003 Joined the Securities and Exchange SurveillanceCommission (Coordination and Inspection Division, Executive Bureau)
Mar. 2005 Returned to being a partner at Tokyo Hatchobori Law Office(to present)
June 2010 Outside Audit & Supervisory Board Member of Inui
Warehouse Co., Ltd.
(now Inui Global Logistics Co., Ltd.)
June 2014 Outside Audit & Supervisory Board Member of NEC
Networks & System Integration Corporation
Mar. 2020 Outside Director of the Company (to present)

Tatsuro Niiya

Sayoko Miyairi

Board Director
Senior Corporate Officer

Board Director
Senior Corporate Officer

Independent Outside Director

Michio Takahashi

President & Chief Executive
Officer

Toshihiro Matsuoka Director
Tatsuro Niiya

Director

Masaya Hamamoto Director
Director

Sayoko Miyairi

Outside Director

Jun Tsuchiya

Outside Director

Yuji Kikuchi

Outside Director

Tokuo Odo

Audit & Supervisory Board
MemberOutside Audit & Supervisory
Board members
Outside Audit & Supervisory
Board members

Kazuhiro Kawai
Keiko Tamura

63 KH Neochem Report 2023

10
Years
9
Years
6
Years
3
Years
4
Years
4
Years
3
Years
3
Years
6
Years
3
Years
3
Years

Board ofDirectors

Atsushi Tokumitsu

Corporate Officer
President of Kurogane Kasei Co., Ltd.

Katsunori Sato

Corporate Officer
Head of Sales & Marketing

Hideo Kurokawa

Corporate Officers
General Manager, Yokkaichi Plant

Takatoshi Fujii

Corporate Officer
Head of Human Resources

account diversity issues such as gender, the voluntary

and risk management; HR development and diversity. The

Nomination and Compensation Advisory Committee

company has created a skill matrix, and care is taken to

responds to inquiries from the Board of Directors by

ensure that each item is covered by the Board of Directors as

conducting a comprehensive consideration, and the Boarda whole, and that the composition of the Board maintains aof Directors decides the nomination.

balance in its diversity of experience and specialization.

Sustainability
Committee

Corporate
management

Industry insight

○

●

●
●

●

●

○

16 of 16○●○

16 of 16○●○

16 of 16

○

●

○

○

16 of 16

○

●

○

○

16 of 16

Manufacturing/R & D/innovation

Finance/accounting

Sales/marketing

Governance/compliance/risk management

●

●

●

●
●

●

Human resource
development/diversity

●

●

●

●
●

●

●

●
●

○ Chairperson○

Corporate Officer
Head of Accounting, FP&A, Finance and IR

accounting; sales and marketing; governance, compliance,●

16 of 16

Akira Kamimura

insight; manufacturing, R&D and innovation; finance and○Chairperson○

Corporate Officer
Head of Procurement

the skills, etc. required of a Director. After also taking into○○

Hideki Shimizu

contribute to management: corporate management; industry

16 of 16○

Corporate Officer
Head of Environment, Safety and Quality
Assurance

contribute to precise and rapid decision-making based on

16 of 16

16 of 16

Yoshiaki Kondo

and of finding an individual who is competent and can○○Corporate Officer
General Manager, Chiba Plant

The company has selected seven items as the skills○○○
Chairperson

Akio Nakahashi

Skill matrix

Nomination and
Audit &
Number ofCompensation
board meetings Supervisory
Advisory Committee
Board
attended

16 of 16

Senior Corporate Officer
Head of Corporate Administration, Public
Relations, Legal and Compliancerequired of a Director of the Company, and that it expects will

16 of 16○

Isao Takahashi

perspective of putting the right person in the right place,○
Chairperson○

Senior Corporate Officer
Head of Production Planning and Engineering

Data Section

Yukihiro Isogai

Numberof years Independency Female
in officeCorporate Officers

Toshiaki Ogata

The company nominates candidates for Director from theBoard of Director Members (Board Director/Audit & Supervisory Board Member)
Titles

Outside Audit & Supervisory Board
Member (Independent Auditor)

Improvement
Improvement ofof BusinessBusiness Framework
Framework

Apr. 1979 Joined Hitachi, Ltd.
July 1982 Joined Bank of America, N.A., Asia Headquarters
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
Jan. 2005 Director of Scholar Consult Co., ltd.
Apr. 2008 Professor of Nihonbashi Gakkan University(now Kaichi International University)
Mar. 2019 Outside Director of the Company (to present)
Aug. 2020 Outside Director of Toyo Engineering Corporation (topresent)
Apr. 2022 Emerita and Guest Professor of Kaichi International
University (to present)
Jun. 2022 Outside Director of NIHON SEIKAN K.K. (to present)

Apr. 1988 Joined Kyowa Hakko Kogyo Co., Ltd.
July 2013 General Manager of Chemical Sales &Marketing, Business Headquarters Office of theCompany
Jan. 2016 Executive Officer of the Company
Mar. 2017 Director & Executive Officer of the Company
Mar. 2019 Managing Director & Executive Officer of theCompany
Mar. 2020 Board Director & Senior Corporate Officer of
the Company (to present)

Keiko Tamura

Director Nomination Policy and Required Skills

Independent Outside Director

Board Director
Senior Corporate Officer

Outside Audit & Supervisory Board
Member (Independent Auditor)

Drivers for Value Creation

Toshihiro Matsuoka

Audit & Supervisory Board Member

Kazuhiro Kawai

Sustainable Value Creation

Apr. 1985 Joined The Industrial Bank of Japan, Limited.
(now Mizuho Bank, Ltd.)
Apr. 2011 General Manager of Osaka Corporate Banking Division No. 1
of Mizuho Corporate Bank, Ltd. (now Mizuho Bank, Ltd.)
Apr. 2014 Executive Officer and General Manager ofCorporate Banking Division No. 5 of Mizuho Bank, Ltd. (retired in March 2015)
Apr. 2015 Executive Officer of IBJ Leasing Company, Limited.
(now Mizuho Leasing Company, Limited)
June 2015 Director, Executive Officer and General Manager of Corporate
Planning Department of IBJ Leasing Company, Limited.
Apr. 2016 Managing Director, Managing Executive Officer
and General Manager of Corporate Planning Department of IBJ Leasing
Company, Limited. (retired in May 2019)
June 2019 Joined the company
Sept. 2019 Senior Executive Officer of the Company
Mar. 2020 Board Director & Senior Corporate Officer & Chief Financial Officerof the Company (to present)

Tokuo Odo

Then and Now

Michio Takahashi

●

●

●

●

●
●

KH Neochem Report 2023

64

Risk Management

Climate-Related Disclosures Based on TCFD Recommendations

Risk Management Activities and System

Committee meets twice a year, and its deliberations are

The business environment surrounding KH Neochem isreported to the Board of Directors.

growing increasingly uncertain as cases of heat stroke

Strategy
We identify risks and opportunities related to climate

Risk Evaluation Process andMaterial Risk Selection

voices calling for decarbonization and carbon neutralitychange and analyzes scenarios based on warming of 4°C

grow louder and more numerous. In January 2022, weand 1.5°C, respectively, to assess the impact of future

declared our endorsement of the Task Force onrisks and opportunities heading toward 2030. By

risks with organizational, strategic, and continuous controls.

We identify both internal and external risks in light of social

Climate-Related Financial Disclosures (TCFD)

engaging in the Seven Promises and driving Sustainable

We established a Risk Management Committee

and environmental circumstances, and produce a risk map

Recommendations and have been proceeding withManagement, we seek to expand the climate

composed of all division heads and chaired by the director

that evaluates their impact and probability of occurrence.

climate-related disclosures ever since.

change-related opportunities while mitigating the risks,in charge of risk management in order to improve risk

Based on this, we designate the risks that have a very highmanagement system. The Committee identifies andpotential impact on our business activities and requireevaluates risks critical to operation, formulates andcompany-wide countermeasures as material risks, specify

considers countermeasures, and conducts the analysis andrisk owners and divisions in charge, and prepare andWe identify material risks according to the risk evaluation

monitoring required for decision-making. As a rule, theimplement countermeasures.

process as shown previously. The risks arising frommanagement and business activities. To achieve sustainablegrowth, we identify risks to the greatest extent possible,
prevent latent risks from materializing, and manage active

thereby increasing our corporate value.

Governance and Risk Management

Plan

Do

Act

Check

• Implement risk
countermeasureplan• Discuss
high-impact
risks• Identify & analyze risks• Evaluate risks• Designate material risks• Prepare countermeasure
plan

Risk Map (figures indicate number of risks)• Monitor risk
countermeasure
implementation
status (RiskManagement
Committee /Board ofDirectors)

High• Review
countermeasureplan• Board of
Directors & riskowners issue
instructions for
improvement

impact

9

9

4

1

12

8

12

14

9

3

5

8

9

4

2

1

Low

our business due to the significant impact they are
expected to have on KH Neochem in the future. In

1addition, we are taking measures to prevent risks frommaterializing and reduce their impact by continuously
2

conducting risk assessments based on our risk

1

management system and monitoring them at board

probability of occurrence Highmeetings when necessary.

Material risks are designated from among
the risks with a very high impact on businessactivities and require company-wide
countermeasures.

Mitigate
risks

Drivers for Value Creation

Risks/Opportunities

Law violations, legal restraints(2) Production activities

Damage/malfunction offacilities/machinery, accidents

Development of maintenance plans according to equipment importanceTraining to ensure security, safety, and environmental conservation(3) HR

Personnel shortages, delayed training ofcore human resources

Reinforcement of hiring activities and systems, holding personnel meetings
Formulation of skill enhancement programs and training systems for corehuman resources(4) Business continuity

Major earthquakes and natural disasters
Problems procuring certain supplies andraw materials

Formulation of a business continuity plan (BCP) and conduction of regularexercises
Identification of supply risks for critical raw and auxiliary materials, facilities,
and supplies; and formulation of risk countermeasures(5) Information security

Cyberattacks

Implementation of countermeasures based on the results of external
security assessments
Training for all executives based on the Information Security Policy, etc.

(6) Climate change

Abnormal weather, imposition of carbon tax (See page on the right.)

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

• Conducting drills to increase understanding
and improve 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 2022
(approx. 379 kt) and a carbon tax of 130 USD/1t-CO2
in 2030 (1 USD = 130 yen), the financial burden could
increase by 6.41 bn yen per year.

• Promoting energy-saving and the introductionof new technologies to achieve carbon
neutrality by 2050
• Achieving the target of reducing greenhousegas 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)

Opportunities(4°C warming
scenario)

Increased needfor adaptive
products

There is a possibility that the increasingly negative
effects of climate change will cause rising demandfor products that can mitigate those effects (such asheat stroke) and help people adapt to climatechange.

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

Opportunities(1.5°C warming
scenario)

Increased
need fordecarbonizing
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

Transition risks(1.5°C warming
scenario)business continuity plan (BCP) at each of our workplaces.

essential for both the social lives of its citizens andTo verify the effectiveness of our BCP, we held drills in a

production in a wide range of industries. For that reason,

workshop format for the first time in 2021, and continue

we believe that we have an extremely importantto hold further drills while making refinements every year.
To increase the effectiveness of our BCPs going

activities and achieve an early recovery in the event of aforward, we will continue to hold improved drills andlarge-scale disaster. To this end, we have established awork on our BCM.

KH Neochem Report 2023

Data Section

Impact on
operations due
to abnormal
weather

Physical risks(4°C warming
scenario)Business Continuity Management (BCM)
We supply many customers with products that are

Key Countermeasures

Improvement
Improvement ofof BusinessBusiness Framework
Framework(1) Compliance

Establishment of a compliance code & education of all executives and employees
Legal compliance status checks and other verifications of relevant
regulations

65 KH Neochem Report 2023

to create
opportunities
and implementrisk
countermeasures

Expandopportunities*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).

Category
Countermeasures

Examples

responsibility to maintain and continue our business

1.5°C warming scenario(decarbonization scenario)*2• A society that prioritizes
decarbonization• Improved environmental regulation,such as carbon pricing• Renewable energies spread• Increased use of CO2 andbiomaterials as raw materials inchemical manufacturing

Honoring theSeven Promises
and driving
Sustainable
Management

KH Neochem’s Climate Change-Related Risks and Opportunities Risks and opportunities with an extremely high potential impact on KH Neochem

Material Risks and their Countermeasures
Category

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 the progression of climate change

Sustainable Value Creation

climate change have been identified as material risks to
Risk Evaluation Process

Then and Now

and natural disasters rise due to climate change, andKH Neochem defines risk as the uncertainties that affect66

Compliance
Compliance Improvement Activities

Our Code of Conduct: The Compliance Code

Selection of Compliance Leaders

The KH Neochem Group believes that compliance not

Corporate Behavior common across the KH Neochem

We hold Conference toward Compliance Improvement

only involves complying with the law, but also upholding

Group. Each and every member of the Group is expected

to plan compliance measures, check the status of thesehigh ethical standards as a member of society, andto faithfully put the Compliance Code into practice bymeasures, and discuss issues. In FY2022, thethe number of members who understand compliance

meeting the demands and expectations of allcontinuously asking themselves, “is my conduct

conference held a discussion on the topic “What are thebetter, are capable of resolving compliance issues, have a

stakeholders. In order to clarify this stance, we havecorrect?” and “can I speak about this with pride tocommon issues at workplaces where compliancesense of personal involvement, and nip potential

formulated our Compliance Code, the Principles ofothers?” as they act.

violations occur?” and identified “cultivating a sense ofproblems in the bud. Every two months, a Compliance

personal involvement” as a common issue to address. To

Leaders’ Meeting is held to build their knowledge, which

resolve this issue, various countermeasures wereis then deployed at their respective workplaces.

implemented such as selecting compliance leaders andOpportunities are also provided to facilitate discussion

conducting workshops.

among compliance leaders to foster inter-division

Toward our shareholders and investors• High ethical standards• Maintain and improve safe and stable
operation• Respect for human rights• Contribute to Local Community• Contribute to society andenvironmental conservation • No relationship with anti-social forces• Prohibition of insider trading• Constructive dialogue and appropriate
information disclosure

Toward our customers• High quality• Prohibition of bribery

As a member of the KH Neochem Group• Fair trade• Appropriate management ofintellectual property• Maintenance and improvement • Maintenance and improvementof labor safetyof a comfortable workplaceenvironment• Suitable management of
information assets

In FY2023, in addition to conducting a compliancecommunication and build bonds that enable reciprocal

awareness survey of all executives and employees, andconsultation. In FY2022, these meetings were conductedverifying the effectiveness of activities, we are working

at the company headquarters and the Technology

to identify new issues.

Development Center, but from July 2023 onward, they

Sustainable Value Creation

As a member of society

Then and Now

Compliance CodeWe are selecting compliance leaders in order to increase

will be held at each factory.

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. In
FY2022, we established our Respect for Human Rights

KH Neochem Hotline

Compliance officers work under the direction of the

our website.

(Internal Whistleblowing/Advice Hotline)
Policies

We have established the “KH Neochem Hotline” as ainvestigate compliance issues and prepare appropriate

whistleblowing channel for people to report corruption,

countermeasures. Each division head is responsible forbribery, and other legal violations, improper or illegal

promoting compliance and compliance measures within

conduct, and other breaches or suspected breaches of

his or her division. We hold Conference toward

compliance. We provide the Compliance Hotline,

Compliance Improvement to check the progress andCompliance Officer Hotline, and Full-time Corporate

results of compliance measures, identify current issues,

Auditor Hotline inside the company, and the Attorney

and decide on plans for implementing further measures.
At these meetings, participants serve as proponents that

A compliance leaders’ meeting in progress

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

Corruption/Bribery Prevention Efforts

Workshops

Compliance workshops, centered around the complianceleaders, were held at each of our workshops with thethemes of “prohibiting harassment” and “ensuring

Our Bribery Prevention Policy mandates adherence to all

workplace safety and health.” In a follow-up survey, many

Hotline outside the company. All Hotlines provide services

laws relating to the prevention of corruption, bribery, andrespondents reported that the workshops would “helpappropriately, maintaining strict confidentiality, andso forth. All gifts and hospitality, whether offered or

prevent harassment and ensure psychological safety”

advance discussions on their proposals. These efforts arepreserving the anonymity and privacy of whistleblowers

received, are subject to a process that requires priorand that they “promoted mutual understanding at theimplemented as a cycle to continuously strengthen ourand callers. The Attorney Hotline is available for ourapplication and approval by the Compliance Bureau. In

workplace.” We plan to continue holding such workshops

compliance structure.

customers and business partners and has been publicized

FY2022, there were no actions suspected of being

in the future.

on our website. In FY2022, the KH Neochem Hotline

corruption, bribery, etc.

Compliance Promotion Meetings also serve as aforum for discussing the progress of compliancereceived 9 calls, none of which concerned any matter

initiatives at Group companies.

serious enough to require public disclosure.

Chief Compliance Officer
President
Supervision andinstruction

Reporting

Convocation andManagement

Implementationof and reportingon measures
promotingcompliance

Compliance Promotion Meeting

67 KH Neochem Report 2023

Board ofDirectors
Supervision

General compliance

Compliance Promotion Meetings
Legal Compliance Week
Compliance workshops to discuss the Compliance Code at each workplace
Compliance awareness surveys

Education and training(Compliance training 5x/year at all operating facilities)• Training related to personal information• Training related to industrial safety and health• Training related to subcontracting agreements• Training related to the Whistleblower Protection Act• Training related to harassment
Other training programs for new entrants

Other

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

Relationship with abusiness partner

Cooperation
Audit &
Supervisory
Board
Members

Formalities/rules
Harassment*Includes consultations other than on the KH Neochem Hotline. All calls wereresolved appropriately.

Data Section

Compliance Officer

Main Compliance Improvement Activities

Patterns in Consultation Topics (FY2022)*

Reporting

Improvement
Improvement ofof BusinessBusiness Framework
Framework

President, who is the Chief Compliance Officer, to swiftly

Drivers for Value Creation

Compliance Structure

Policy. The policies we have established can be viewed on

KH Neochem Report 2023

68

Security, Safety, and Environmental Conservation Activities
for managing and overseeing such matters is placed on

accreditation as high-pressure gas inspection executors

In addition, they also undergo external audits based

the director in charge of environmental safety, under(completion inspection and safety inspection) based onon ISO 9001 and ISO 14001 (maintenance and renewal

KH Neochem believes that the thorough implementation

whom the executive officer in charge of environmental

safety management systems.

audits), through which they maintain their certifications.

of security, safety, and environmental conservation – insafety manages the inspection of business operations andour business activities and based on our Complianceassociated locations. The director in charge ofCode – is critical not only for the sustainable

environmental safety investigates and discusses

improvement of our corporate value but also for us to

specialized aspects of priority measures, establishes thefulfill our social responsibilities. We have therefore

Environmental and Safety Committee as a specialized

established our Environmental Safety Policy to ensurecommittee to provide necessary analysis and reporting for

security, safety, and environmental conservation.

decision-making purposes, and convenes and manages

Furthermore, to prevent there ever being repeat of

the Committee. Key matters amongst the items discussed

FY2022 Priority Measures (Numerical Targets) and Results,
Together with FY2023 Priority Measures (Numerical Targets)○:Achieved ×:Unachieved
RC codeFY2022
Objective

FY2023

Actual results

Evaluation• Environmental accidents: 0• Environmental accidents: 0○

we revised the Policy on October 1, 2022 to add a section

by the Management Committee. The fiscal year’s priority• Safety-related accidents: 0• Safety-related accidents: 10

×on maintaining and improving a safe workplace.

measures are implemented by the various divisions.

Safety and Disaster
Prevention

Progress is confirmed through environment safety

Responsible Care (RC)inspections conducted periodically by the executive officer
in charge of environmental safety.

We engage in the following responsible care (RC) in
good faith to comply with Environmental Security Policy.
❶Maintaining and improving a safe workplace
We will endeavor to maintain and improve a safe

workplace by ensuring the attainment of behavior goals
and compliance matters that we have established in ordercolleagues” into practice.

❷Maintaining 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 to ensure thesafety, comfort and health of the local community and all
executives and employees.*

We strive to realize a sustainable society and environment
through corporate activities, gather updated safety
information regarding the chemical substances andproducts to be handled, and provide customers,
distribution-related parties and all executives andemployees with appropriate information, thereby striving
to reduce the security, safety and environmental burdens
in the entire process from product development through tothe disposal thereof.

❹Contributing to the local community

Through dialogue and communication activities with thelocal community regarding security, safety, environmental
conservation and health, we cooperate with the local*KH Neochem executives and employees

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.
Plant
Yokkaichi
Plant
Chiba
Plant

Certification acquired

ISO 9001

January

ISO 14001 July
ISO 9001

Current certification body

1999
2000

December 1998

Japan Chemical Quality
Assurance Ltd.

ISO 14001 November 2000

*100% of manufacturing sites have acquired certifications

7 or fewer(Yokkaichi Plant and Chiba Plant)(Yokkaichi Plant)• Accidents at cooperating companies not resulting in lost workdays: 8(Yokkaichi Plant and Chiba Plant)

workdays: 0

×• Work-related accidents:

9 or fewer(At or below the average ofthe latest five years)

Scope of aggregation: Yokkaichi Plant, Chiba Plant*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
Safety and Disaster Prevention Initiatives

Emergency training

Regulations, the Yokkaichi Plant and Chiba Plant have

prevention drill for emergency scenarios, as well as

formulated their safety management policies. They aretraining in initial firefighting response and emergency

actively engaged in efforts to ensure that all employees

reporting. We prepare so that we can respond promptly

are aware of the policies and carrying out safety andand appropriately in the event of an emergency.

In accordance with the Environmental Safety

KH Neochem conducts periodic comprehensive disasterprevention activities based on the policies.

Safety Environmental Assessment (SEA)

At KH Neochem, we conduct an safety environmental

Inspections and Audits

security, safety, environmental conservation, and health

Environment safety inspections andquality audits

new facilities, new machinery, and new chemical

impact when introducing new technology, new processes,
substances, or changing a manufacturing method, etc. By

Under the direction of the executive officer in charge ofusing the SEA results for feedback, we make every effort toenvironmental safety, KH Neochem conducts

heighten the safety of processes and equipment.

environment safety inspections to check the progress ofproper implementation of environmental management

Accreditation as high pressure gas inspection
executors (for both completion inspection
and safety inspection)

activities at each relevant operating facility.

This system, instituted by the High Pressure Gas Safety

the fiscal year’s priority measures in RC activities, thesuitability of safety management activities, and the

Likewise, under the direction of the executive officer

standards for safety management, operations

assurance audits of the divisions working on quality

management, and equipment management, to conduct

control in order to check the progress of the fiscal year’s

their own completion inspections and safety inspections inpriority measures in quality control and to confirm

accordance with the High Pressure Gas Safety Act.

Plant audits

Scene from the comprehensive disaster prevention drill at the
Yokkaichi Plant’s Kasumigaura Plant.

Act, enables companies that are recognized to have highin charge of quality assurance, we also carry out quality

KH Neochem has granted ultimate responsibility on

69 KH Neochem Report 2023

• Accidents at cooperating companies resulting in lost workdays: 1

workdays: 0

assessment (SEA) in advance to assess the impact onManagement Systemconservation to the company president. The responsibility• Work-related accidents:• Accidents resulting in lost

The Yokkaichi Plant and the Chiba Plant have acquired

whether quality control is being properly carried out.

matters regarding security, safety, and environmental• Employee accidents not resulting in lost workdays: 5

Data Section

community and thereby contribute to its development.

(Yokkaichi Plant)• Accidents resulting in lost

Improvement
Improvement ofof BusinessBusiness Framework
Framework❸Contributing to society andenvironmental conservation

Occupationalsafetyand health• Safety-related accidents: 0

Drivers for Value Creation

to put “Safety Guidelines: Protecting ourselves and our

Status of Certification Acquisition• Employee accidents resulting in lost workdays: 1

Objective

Sustainable Value Creationby the Environmental and Safety Committee are decided

Environmental
Conservation

the fatal fall of a KH Neochem employee on April 4, 2022,

Then and Now

Environmental Safety Policy

The Yokkaichi Plant has acquired this accreditation forsix manufacturing facilities and the Chiba Plant has acquired

The Yokkaichi Plant and the Chiba Plant conduct internal

it for one manufacturing facility. Both plants take steps for

Scene from the same comprehensive disaster prevention drill

continuing improvement by implementing the PDCA cycle.

audits for ISO 9001 and ISO 14001 as well as for

KH Neochem Report 2023

70

Security, Safety, and Environmental Conservation Activities

Occupational Safety and Health

KH Neochem conducts education based on the
Industrial Safety and Health Act in order to assure thesafety 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) andkigakari memo (notes on matters of concern),

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)
8
7
6
5
4
3
2
1
0

improvement suggestion programs, and other everyday
health and safety activities.
accordance with the Industrial Safety and Health Act.
For projects defined under the regulations as highrisk, if any of these assessments reveal a risk, measures tomanage the risk are decided through discussions

2018

2019

2020

2021

KH Neochem
Cooperating companies
Chemical industry average (Ministry of Health, Labor and Welfare statistics)(frequency rate)
3.00
2.25

1.17

1.21

Committee meetings.

0.75

0.90
0.00

0.00
0.00

0.93
0.00

0.96

1.16
0.94
0.93

2018

2019

2020

2021

2022 (fiscal year)

lost workdays. One of these was a fatal fall that occurredon April 4 at the Yokkaichi Plant. To prevent such a tragic
accident from ever occurring again, employees andmanagement are implementing a company-wide effort
Safety Check Initiative 2022. Along with direct
countermeasures against falls, a comprehensive worksafety check is being conducted of all operations that
could be implicated in serious work-related accidents.
Efforts are also being made to foster habits and a culturethat pays constant attention to safety. On October 1,
2022, we established our “Protecting ourselves and ourcolleagues” Safety Guidelines.

Water

Yokkaichi Plant

City water·······························25kt
Ground water·························35kt
Industrial water·················7,111kt

CO2·································378,974t
SOx·········································0.4t
NOx····································286.4t
Dust········································5.2t

Released into the water
Total amount released······6,423kt
COD······································21.7t
T-N··········································9.5t
T-P··········································1.9t

0.94

1.07

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

Raw materials(Principal raw materials)

Waste material

453,187t

Chiba Plant

Scope of aggregation: Yokkaichi Plant and Chiba Plant
Period covered: April 1, 2022 to March 31, 2023

Amount discharged*··········7,504t
Amount as final landfill·············92t*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.

Severity rate
KH Neochem
Cooperating companies
Chemical industry average(Ministry of Health, Labor and Welfare statistics) 0.44

6.98

0.10

0.06
0.04

0.02
0.00

0.06
0.03

0.06
0.02

0.03

0.00

0.00
0.00

0.02
0.00

2018

2019

2020

0.02

0.04

0.02
2021

Air pollution prevention

Rational Use of Energy*1, KH Neochem makes every effort

dust discharged from boilers, liquid waste incinerators,

to promote rational uses of energy. As a specified emitter

sludge incinerators, and other such equipment, KH

under the Act on Promotion of Global Warming

Neochem of course complies with emissions standards

Countermeasures*2, we are also working diligently tobased on the Air Pollution Control Act, and we

reduce greenhouse gas (GHG) emissions. Energy

additionally comply with levels that have been agreed

As a designated business operator under the Act on the(severity rate)
0.08

Global warming prevention

consumption and GHG emissions*

3,4

in FY2022 decreased

For the sulfur oxides (SOx), nitrogen oxides (NOx), andupon with local communities.

to 87.6% and 89.7% YoY respectively, and this was due to2022 (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 and Chiba Plant*As the employee of a cooperating company involved in an occupational accident
in 2021 did not return to work before December 31, 2022, the lost work days
were included in the 2022 data, and the severity data (cooperating company)
for fiscal year 2021 has been updated to reflect this.

a reduction in operating days resulting from biennial
long-term scheduled maintenance, coupled with aManaging chemicals with safety data sheets

Water pollution prevention

KH Neochem complies with emissions levels based on

decrease in production volume from the previous year due

the Water Pollution Prevention Act as well as with levels

to equipment troubles that occurred during the period.

agreed upon with local communities for chemical oxygen

Energy intensity deteriorated, rising to 112.4% YoY.

demand (COD), total nitrogen (T-N), and total

In addition to adopting renewable energy at KH

phosphorus (T-P) in wastewater.

i-Lab, Corporate Headquarters has already effectively
switched to 100% renewable energy as of April 2023. We*Including one accident resulting in lost workdays that involved an employee of acooperating company

will continue further with energy conservation

Waste reduction

KH Neochem implements thoroughgoing separation ofwaste materials and engages in the 3Rs of waste

new technologies as we aim to reduce GHG emissions bymanagement: reduce, reuse, and recycle. We are moving

In an effort to ensure that all of our products are used

30% by 2030 (compared to fiscal 2017 levels) andforward to reuse acid waste and alkaline waste in our

We prepare legal checklists for each relevant law to ensure

safely, we prepare and update safety data sheets (SDSs)

achieve carbon neutrality by 2050.

plants as well as to reduce their volume, to contract

there are no compliance violations concerning security,in accordance with JIS standards and relevant law

recycling treatment of waste catalysts, and to reusesafety, and environmental conservation, and each operating

amendments, and provide them to customers. We also

facility uses these checklists to perform self-assessments.

prepare, update, and provide SDSs in customers’ native

The results of the self-assessments are used by thelanguages in line with our business activities in order tocompany headquarters in environment safety inspections

accommodate the international GHS guidelines.**1 Act on the Rational Use of Energy: the law covering the rational usage of energy*2 Act on Promotion of Global Warming Countermeasures: the law covering thepromotion of initiatives taken the measure against global warming*3 Figures reported based on the Act on the Rational Use of Energy*4 Starting in FY2021, we have been deducting the amount of CO2 that was
generated in our production processes, captured, and used as raw materials
from our GHG emissions. We have confirmed this with the government’s office
for reporting GHG emissions.

to make our legal assessments more comprehensive.

*GHS stands for the Globally Harmonized System of Classification and Labellingof Chemicals.

71 KH Neochem Report 2023

Data Section

promotion, CAPEX, and considering the introduction of

Promoting compliance using legal checklists

Improvement
Improvement ofof BusinessBusiness Framework
Framework

centered on both plants under the Comprehensive

Released into the atmosphere

Drivers for Value Creation

In FY2022, there were two accidents* that resulted in

Product

2.51

1.50

Status of work-related accidents

OUTPUT
404,815t

Fuel·······························161,198kL
Purchased steam··············8,761kL
Purchased electric power········································17,760kL

2022 (fiscal year)

Frequency rate (accidents resulting in lost workdays)

0.00

KH Neochem

Energy (crude oil equivalent)between workers and management at Health and Safety*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.

INPUT

Sustainable Value Creation

Chemical risk assessments*2 are conducted in

Flow of Environmental Impact Results
Then and Now

Occupational safety andhealth-related initiatives

Environmental Conservation

incinerator 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 p.14 and on our website. (https://www.khneochem.co.jp/en/csr/rc/).

KH Neochem Report 2023

72

Stakeholder Relations
Major Stakeholder Engagement

Dialogue with Shareholders and Investors

KH Neochem has pledged to practice transparent management with a high ethical standard. We strive to communicate

Major IR Activities (FY2022)

corporate activities.
*Information on our relationships with our stakeholders is posted on our website.

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

Results briefings

4

Overseas institutional investors conference

1

Small meeting with institutional investors

1

Dialogues with institutional investors

Contribution to the Local Community
KH Neochem is working to contribute to society for the sustainable development of society. We are strengthening our

Communication with Shareholders
and Investors

In 2022, due to the continued effects of the COVID-19
pandemic, results briefings and most of the investor

Ichihara City, Chiba Prefecture in particular, where our plants are located.

ESG
3%

Other
2%
Business
performanceand financials
27%
Refrigeration
lubricant raw
materials
24%

Sustainable Value Creation

approach to community service by emphasizing activities with deep local roots in Yokkaichi City, Mie Prefecture and

199

Capex
3%
Production
activities
8%
Basic
chemicals
15%
Electronics
materials
11%
Cosmetic
ingredients
7%

Then and Now

with our stakeholders through various opportunities and are committed to embodying their valuable opinions in our

Breakdown of viewpoints and questions from shareholders, investors, andsecurities analysts (2022)

dialogues were conducted online, which restricted IR

Installed and painted benches at a sitenear our manufacturing plant (Ichihara City,
Chiba Prefecture)used to hold soccer and rugby games and as a camping

activities for institutional and individual investors. We ofground for professional sports teams. We would becourse shared the valuable opinions of shareholders andgreatly honored if the benches we donated could be ofinvestors with the Board of Directors and top

We donate wooden benches and paint existing benches

use to the people of the city.

management, and exchanged opinions even morealternately in Yokkaichi City, Mie Prefecture andWe hope to continue to contribute to the lives ofactively with our IR department and among our otherIchihara City, Chiba Prefecture, where our factories are

all of our stakeholders, starting with the members of

departments. Sharing ideas in this way, we worked tolocated. We make use of paint as it is closely related to

our local communities.

prepare materials to further deepen shareholders’ andour business operations as a chemical manufacturer

Activities at operating facilities

focused on providing well-balanced explanations about

Children are the future, and we are actively sponsoring

our business from both short- and mid-to-long-term

Spolek Park in Ichihara City, Chiba Prefecture. To

children’s sports tournaments in order for the children

perspectives, touching on our significant market share inprevent the spread of COVID-19 at the event, onlyin the communities around our manufacturing plants tothe mid-to-long-term growth markets, which is one ofpeople working at the head office or the Chiba Plant

flourish. We are also continuing our work with local

our key strengths, and our responses to short-term

and their families were allowed to participate. A total ofcleanup drives, plant tours for local educational

business results.

50 executives and employees joined in the event.

institutions, and cooperation with NPOs.

In FY2022, this event was conducted at Ichihara

Shoji Koide, the mayor of Ichihara City, attended
the event to express his gratitude and give the team aboth natural and artificial grass playing fields, and is

13%

11%

2

1.4

1.2

EV

As countries around the world take measures against
global warming and air pollution in urban areas,
there is a growing shift from gasoline and diesel vehicles
to electric vehicles

Other Asia 16%

China 34%

2023

Expansion and creation of markets
other than air conditioners

In response to issues of energies and carbon neutrality,
the shift from combustion type heating such as gas andthe like to heat pump type heating is accelerating, mainlyin Europe

38%

42%

2020

India 10%5%

3%

Expansion of
the market

Heat pump

2030
Refrigeration
lubricants
raw materials

Source: estimates of the Company based on JARN and IEA “The Future of Cooling”

Contribute to a sustainable society by continuing to provide
value to growing markets

CAGR 6%

 Steady progress in increasing production capacity at Chiba Plant(scheduled for completion in 2024)
 Consider next phase production capacity increase at Yokkaichi Plant
following on from 2020
 Contributing to the reduction of GHG emissions together with the spreadof environment-friendly refrigerants
2023
2023年

2030
2030年

12

Extract from the financial results presentation material for the fiscal year ending
on December 31, 2022

countermeasures, we would like to resume face-to-face• Yokkaichi City U-10 Soccer Tournament

IR activities with investors and analysts.
The General Meeting of Shareholders in March 2023

• Ichihara City Friendly Baseball Tournament

was held while taking appropriate measures to prevent(KH Neochem Cup)the spread of COVID-19, continuing from the previous

Improvement
Improvement ofof BusinessBusiness Framework
Framework

Ichihara Spolek Park is a large sports facility with

Demand in emerging countries
markets drives market growth

In light of 2023’s more relaxed COVID-19

Main activities(KH Neochem Cup)letter of appreciation.

Market growth of
air conditioner（100 Million units）

Drivers for Value Creationthat supports manufacturing around the world.

investors’ understanding. In dialogues with investors, we

Towards
expansion of the Refrigeration lubricant raw materials
マスターmarket
タイトルの書式設定

year. We consider the General Meeting of Shareholders to
be a valuable opportunity for direct dialogue with ourshareholders. As COVID-19 countermeasures continue
to be eased, we will step up our efforts to actively
communicate with shareholders.

General Meeting of Shareholders

Selected as Constituent of Various Indexes
KH Neochem is a constituent of the JPX-Nikkei Index
Bench painting in progress

Yokkaichi City U-10 Soccer Tournament(KH Neochem Cup)

At Ichihara Spolek Park
Ichihara City Friendly Baseball Tournament(KH Neochem Cup)

400, the JPX-Nikkei Mid and Small Cap Index, the FTSE
Blossom Japan Sector Relative Index, and the Sompo
Sustainability Index. We are determined to further
Data Section

enhance our corporate value in order to meet the
expectations of our shareholders and investors.

*The FTSE Blossom Japan Sector Relative Index, formulated by the global index provider FTSE Russell, is designed to reflect the performance of Japanese companies
demonstrating strong environmental, social, and governance (ESG) alignment with their respective sectors, while maintaining sector neutrality. To facilitate the transition toa low-carbon economy, particularly for companies with high greenhouse gas emissions, it only incorporates companies committed to improving as assessed by their TPI
Management Quality Score.

73 KH Neochem Report 2023

KH Neochem Report 2023

74

Stakeholder Relations

Consolidated Financial Statements

Discussion and Cooperation with Business Partners

Consolidated Balance Sheetour guidelines, as well as explaining our guidelines in

In recent years, it has become essential to practiceperson to our major business partners. Furthermore, tosustainable procurement in response to increasing

improve understanding of the guidelines within thesocial demand. We formulated our Sustainable

company, we held training sessions for Procurement in

Procurement Guidelines in March 2023. In them, weMarch 2023.

outline our basic policy for procurement, and list various
aspects that we wish to collaborate with our business
partners on to achieve sustainable procurement.
In FY2023, we

To assess the progress of business partners’ sustainableprocurement efforts, we will conduct surveys of oursent and collectedmajor business partners based on Global Compact

confirmation

Network Japan’s CSR/Sustainable Procurement

documents to and

Self-assessment Questionnaire (common SAQ) startingfrom our ongoingin July 2023, and verify and analyze the results.

(Millions of yen)
Fiscal year ended Fiscal year ended
December 31,
December 31,
2021
2022

AssetsLiabilities

Current Assets

Current Liabilities

Cash and deposits

16,934

10,926

Notes and accounts receivable - trade33,186–

Notes and accounts receivable – trade,and contract assets

9,870

3,250

–

–

5,999

91

111

413

599

Raw materials and supplies

2,909

3,931

Accounts payable - other

4,716

7,982

Other

2,288

4,040

Income taxes payable

6,214

1,210

Provision for repairs

2,302

637

850

587

53,27656,758Work in process

and understanding ofNon-current Assets

(4)

(7)

70,291

74,239Commercial paper
Current portion of long-termlease obligations

Other
Total current liabilities

Long-term Liabilities

Property, plant and equipment
Buildings and structures

31,70434,244

Corporate bonds

5,000

5,000

Accumulated depreciationand impairment(25,823)(26,256)

Long-term lease obligations

1,606

1,544

Buildings and structures, net

5,881

7,987

Deferred tax liabilities

1,922

2,537

Machinery, equipment and vehicles

97,79099,740Liability for retirement benefits

2,526

2,388

Accumulated depreciationand impairment(87,267)(89,184)50

122

Provision for stock-based remuneration
plan for directors (and other officers)

responsibility, we have established our Respect for

deeper understanding of our Respect for Human

Human Rights Policy, which we disseminate inside

Rights Policy. Out of our Six Human Rights Priorities,

Machinery, equipment and vehicles, net

10,523

10,555and outside the company. In addition to respecting

we focused on “Prohibition of Behavior to UndermineLand

17,54917,549international principles on human rights, we are

Dignity (Harassment)” and “Ensuring a Safe andLeased assets

resolved to address six human rights issues that we

Hygienic Workplace,” conducting discussions at each

1,573

1,689

prioritize. The Respect for Human Rights Policy

workplace. By the first half of 2023, there had been

Accumulated depreciation

(89)

(254)

stipulates that the Board of Directors monitors thenearly 200 participants, accounting for about 30% of

Leased assets, net

1,484

1,434

progress of initiatives, and also that continuous

our entire workforce

Construction in progress

1,960

5,661

education and awareness be provided to all officers

held in all company divisions.

Other

6,442

7,275

Accumulated depreciationand impairment(4,670)(4,769)Retained earnings

Other, net

1,772

2,506

Treasury stock

39,17045,693

P68 . The workshops will beidentified and assessed through human rights due
diligence, and that grievance mechanisms related tohuman rights be put in place. By fulfilling ourIdentification and assessment of humanrights-related risks

The aforementioned questionnaire to check the status

responsibilities through these initiatives to respectof sustainable procurement includes items to identify

human rights, we will strive to secure the trust of ourhuman rights-related risks in business operations,stakeholders and maintain and improve our

including those with business partners. If risks arecorporate value.

identified, we proceed to evaluate their impact.

*The Respect for Human Rights Policy is posted on our website.
https://www.khneochem.co.jp/en/company/philosophy/principles/
human_rights_policy.html

75 KH Neochem Report 2023

Goodwill
Other
Total intangible assets

1,243

1,109

581

533

1,825

1,642

Investments and other assets

Human rights remediation and grievanceresolution mechanisms

KH Neochem provides a hotline for reporting humanrights-related concerns

P67. The hotline isavailable for Company employees, former
employees who retired within the past year,
customers, business partners, and others.

Total long-term liabilities

Total Liabilities

Common stock
Capital surplus

Deferred gains or losses on hedges

(0)

(25)

Foreign currency translation adjustments

42

90

102

229

1,166

864

2,587

2,718

185

197

Other

493

1,027

(1)

(1)

131,247

6,186
43,663

570

Deferred tax assets

122,069

6,186
38,841

1,022

Unrealized gain on
available-for-sale securities

Total accumulated othercomprehensive income

Total Assets

8,855

Accumulated Other
Comprehensive Income

Defined retirement benefit plans

9,671

8,855

(222)

2,051

57,007

69,18058,483

6,396

51,77812,42264,564

(132)

1,929

10,782

11,28853,751

Total shareholders’ equity

8,176

Total investments and other assets

169

Shareholders’ equity

Assets for retirement benefits

Total non-current assets

660

Net Assets

Investment securities

Allowance for doubtful accounts–
181

Non-controlling Interests
Total Net Assets
Total Liabilities and Net Assets

57,50562,066122,069

131,247

KH Neochem Report 2023

Data
Data Section
SectionKH Neochem’s Six Human Rights Priorities
1. Prohibition of Discrimination
2. Prohibition of Behavior to Undermine Dignity(Harassment)
3. Prohibition of Forced Labor and Child Labor
4. Respect for Basic Labor Rights
5. Respect for Diversity
6. Ensuring a Safe and Hygienic Workplace

Net property, plant and equipment
Intangible assets

Other

Improvement of Business Frameworkand employees, that human rights-related risks be

Provision for repairs

Drivers for Value Creation

We hold workshops at each workplace to foster a

10,210Current portion of long-term debt

17,447

promote awarenessConsidering respect for human rights to be a social

Short-term bank loans

14,562Merchandise and finished products

Total current assets

Education on respecting human rights

30,35937,301

Allowance for doubtful accounts

Respect for Human Rights Policy

25,640–business partners to

Respect for Human Rights

Notes and accounts payable - trade

Sustainable Value Creation

The Sustainable Procurement Guidelines

Promoting sustainable procurement(Millions of yen)
Fiscal year ended Fiscal year ended
December 31,
December 31,
2021
2022

Then and Now

Sustainable Procurement Guidelines

76Consolidated Financial Statements
Consolidated Statement of Income

Consolidated Statement ofComprehensive Income

Consolidated Statement of Changes in Equity
Fiscal year ended December 31, 2021

(Millions of yen)
Fiscal year ended
December 31,
2021

117,110

114,880

Net Income

Cost of Sales

84,87690,434

Other Comprehensive Income

Gross Profit

32,23324,445

Selling, General and
Administrative Expenses

4,469

4,294

Container packaging

1,420

1,071
1,275

Other

5,427

5,347

12,547

11,98919,685

12,456

Interest and dividend income

136

289

Equity in earnings of associated company

258

450

77

–

Other

213

213

Total non-operating income

686

953

102

86

–

181

385

386

74

46

Operating Income
Non-operating Income

Subsidy income

Non-operating Expenses
Interest expenses
Contribution expenses
Loss on disposal of non-current assets
Other

562

700

19,80912,709Total non-operating expenses

Ordinary Income(24)

Foreign currency translation
adjustments

(27)

47

Defined retirement benefit plans

260

127

Total other comprehensive income

91

(301)

13,955

7,950

Extraordinary income

Comprehensive Income

Balance, Jan. 1, 2021

Non-controlling interests

13,782

7,771

173

179

Retained earnings

42,305(69)

27,379

6,140

8,855

Total shareholders’equityTreasury stock

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

13,691

13,691(62)(62)

Purchase of treasury stock
Change in the parent’s ownership interest due totransactions with non-controlling interests

46

46

Net changes in items other than shareholders’ equity–

46

11,462(62)

11,445

8,855

6,186

38,841(132)

53,751

Total changes during period
Balance, Dec. 31, 2021

Accumulated Other Comprehensive Income

Comprehensive Income
Attributable to:
Owners of the parent

Capital surplus

Balance, Jan. 1, 2021

Unrealized gain Deferred gains(loss) onor losses
available-foron hedges
sale securities

Foreigncurrencytranslation
adjustments

0

70

1,162

Definedretirement
benefit
plans

Total
accumulated
othercomprehensive
incomeNoncontrolling
Interests

1,074

2,504

(158)

Total Net
Assets

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 totransactions with non-controlling interests

46
(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

57,505

Net changes in items other than shareholders’ equity

Fiscal year ended December 31, 2022

(Millions of yen)
Shareholders’ equity
Common stock

Balance, Jan. 1, 2022

Capital surplus

Retained earnings

38,841

6,186

8,855

Total shareholders’equityTreasury stock

53,751(132)

Changes during period

89

Gain on sale of investment securities–

237

Gain on liquidation of subsidiaries

–

95

89

333

Total extraordinary income–

Extraordinary losses

Cash dividends of surplus(3,250)Net income attributable to owners of the parent

8,073(3,250)8,073

Purchase of treasury stock

(89)

(89)

Change in the parent’s ownership interest due totransactions with non-controlling interests–

Net changes in items other than shareholders’ equity

Total changes during period
Balance, Dec. 31, 2022

–

–

4,822

(89)

4,732

8,855

6,186

43,663(222)

58,483111–

Loss on valuation of investment securities–

992

Accident related loss

–

414

111

1,407

19,788

11,634

Income taxes - current

6,523

2,628

Balance, Jan. 1, 2022

Income taxes - deferred

(599)

753

Changes during period

Total income taxes

5,924

3,382

Cash dividends of surplus(3,250)13,8648,252

Net income attributable to owners of the parent

8,073

Net Income Attributable toNon-controlling Interests

173

179

Net Income Attributable to
Owners of the Parent

13,691

8,073

Impairment losses

Income before Income Taxes

77 KH Neochem Report 2023

Accumulated Other Comprehensive Income
Unrealized gain Deferred gains(loss) onor losses
available-foron hedges
sale securities

1,022

(0)

Foreigncurrencytranslation
adjustments

Definedretirement
benefit
plans

Total
accumulated
othercomprehensive
incomeNoncontrolling
Interests

42

102

1,166

2,587

Total Net
Assets57,505(89)

Purchase of treasury stock
Change in the parent’s ownership interest due totransactions with non-controlling interests

–
(451)

(24)

47

127

(301)

130

(171)

Total changes during period

(451)

(24)

47

127

(301)

130

4,561

Balance, Dec. 31, 2022

570

(25)

90

229

864

2,718

62,066

Net changes in items other than shareholders’ equity

Data
Data Section
SectionNet Income

Improvement of Business Framework

Gain on reversal of foreign currencytranslation adjustments resulting fromliquidation of a foreign subsidiary

Total extraordinary losses

Drivers for Value Creation

1,230

(451)

Common stock

Sustainable Value Creation

Salary

(139)

8,252

(1)

Deferred gains or losses on hedges

Freight

Total selling, general andadministrative expenses

Unrealized gain (loss) on
available-for-sale securities

13,864

Fiscal year ended
December 31,
2022

Shareholders’ equity

Then and Now

Fiscal year ended Fiscal year ended
December 31,
December 31,
2021
2022

Net Sales(Millions of yen)

(Millions of yen)

KH Neochem Report 2023

78

Consolidated Financial Statements

Financial and Non-Financial Time Series Data

Consolidated Statement of Cash Flows

Financial Data (consolidated)(Millions of yen)
Fiscal year ended
December 31,
2022

Operating Activities(Unit)FY2016FY2017FY2018FY2019FY2020

FY2021

FY2022Net Sales(Millions of yen)

80,163

94,661

101,199

94,20977,332

117,110

114,880

Operating Income(Millions of yen)

8,982

11,495

10,858

9,559

5,642

19,685

12,456

Ordinary Income(Millions of yen)

8,950

11,906

11,197

9,896

5,627

19,80912,709Net income attributable to ownersof the parent(Millions of yen)

6,013

8,167

6,737

6,917

4,046

13,691

8,073

Operating Results

11,634

4,369

4,159

Impairment losses

111–

Amortization of goodwill

134

134

Financial Position

17

100

Cash and deposits(Millions of yen)

12,335

12,866

10,126

17,867

9,066

16,934

10,926

Total assets(Millions of yen)

87,674

95,247

94,035102,261

95,508122,069

131,247

Interest-bearing debt

(Millions of yen)

31,30024,73021,04023,49021,20018,46020,869Equity capital(Millions of yen)

24,71331,03235,90341,084

43,38054,91759,348Net Assets(Millions of yen)

28,112

34,51238,304

43,52245,88457,50562,066

Depreciation

Increase (decrease) in liability for retirement benefits

(92)

(177)

Increase (decrease) in provision for repairs

1,114(1,004)

Interest and dividend income

(136)

(289)

Interest expenses

102

86

Equity in (earnings) of associated company

(258)

(450)

(89)

–

Decrease (increase) in assets for retirement benefits

Gain on reversal of foreign currency translation adjustments resulting from liquidation of a foreign subsidiary(4,057)(7,076)(3,943)

Increase (decrease) in notes and accounts payable

11,256

4,542

Loss (gain) on sale of investment securities

–

(237)

Loss (gain) on valuation of investment securities–

992

Loss (gain) on liquidation of subsidiaries

–

(95)

Decrease (increase) in other current assets(132)(1,711)

Increase (decrease) in other current liabilities

(248)

Other

Cash Flows
Operating Activities(Millions of yen)

2,681

12,971

7,707

10,962

6,931

17,402

5,131

Investing Activities(Millions of yen)

(3,791)(3,281)(4,009)(3,512)(11,182)(4,395)(10,082)

Financing Activities(Millions of yen)

(1,373)(9,338)(6,224)294(4,530)(5,168)(1,076)

CAPEX(Millions of yen)

2,350

1,637

2,943

6,995

6,003

3,639

9,470

Depreciation(Millions of yen)

3,361

3,248

3,120

3,196

3,737

4,369

4,159

R&D expenses(Millions of yen)

898

939

822

847

919

1,005

871
217.73

OthersPer Share
Basic net income(yen)

173.56222.12

182.77187.09109.12368.95

3,291

Diluted net income(yen)

172.23220.44181.62

186.44109.02

–

–

602

(909)

Net Assets(yen)

672.48842.15971.92

1,109.88

1,168.62

1,480.27

1,601.26

18,37012,066

Cash Dividends

(yen)

50.0

54.0

54.0

60.0

60.0

75.0

85.0

286

618

Key Indicators

(98)

(85)

Income taxes paid

(1,155)(7,467)

Net cash provided by (used in) operating activities

17,402

5,131

SubtotalInterest and dividends received
Interest paid

Investing Activities
Purchase of intangible assets
Purchase of investment securities
Proceeds from sale of investment securities(4,044)(10,402)

(360)

(92)

(11)

(141)

–

547
5
(10,082)

(340)

(340)

(0)

5,999

Repayments of bank loans(2,400)(3,250)Purchase of treasury stock

(62)

(89)

(2,229)(3,250)

Dividends paid to non-controlling interests

(28)

(48)

Payment from purchase of investment in subsidiaries that do not result in change in scope of consolidation

(15)

–

Other

(92)

(96)

(5,168)(1,076)29

18

Net Increase (Decrease) in Cash and Cash Equivalents

7,868(6,008)Cash and Cash Equivalents, Beginning of Year

9,066

16,934

16,934

10,926

Net cash provided by (used in) investing activities

Financing Activities
Increase (decrease) in short-term bank loans & borrowings-net
Increase (decrease) in commercial paper - net

Dividends paid

Net cash provided by (used in) financing activities

Foreign Currency Translation Adjustments on Cash and Cash Equivalents

Cash and Cash Equivalents, End of Year

79 KH Neochem Report 2023

12.5

14.9

14.1

12.9

9.5

24.2

16.7

(%)

28.43

29.30

20.13

17.97

9.58

27.86

14.13

(%)

28.19

32.58

38.18

40.18

45.42

44.99

45.22

(times)

0.77

0.38

0.30

0.14

0.28

0.03

0.17

Ratio of operating income to net sales

(%)

11.2

12.1

10.7

10.1

7.3

16.8

10.8

Dividend payout ratio

(%)

28.8

24.3

29.5

32.1

55.0

20.3

39.0

Equity ratio
Net Debt Equity ratio

Non-Financial Data (Non-Consolidated)(Unit)FY2016FY2017FY2018FY2019FY2020

FY2021

FY2022(1,000 kL)

206.5

218.8

208.7

204.6

194.2

214.4

187.8

(L/t)

202.3

199.6

210.0

207.2

222.3

204.9

230.4

Greenhouse Gas (GHG) emissions(CO2 equivalent, Scope 1+2)

(1,000t -CO2)

448.2

473.6

448.9

440.2

404.2

422.4

379.1

Greenhouse Gas (GHG) emissions(CO2 equivalent, Scope 3)(1,000t -CO2)

–

–

–

–

–

1,331

1,054

Energy consumption
Energy intensity

Disposed of as landfill

(t)

84

140

124

136

133

106

92

Number of employees(persons)

599

600

611

659

673

649

659

Total number of new employees(persons)

23

22

40

77

35

27

40

Number of new female employees(persons)

2

3

4

10

4

5

6

(%)

8.7

13.6

10.0

13.0

11.4

18.5

15

Difference in years of service between genders (year)

-0.2

0.4

0.3

-0.3

0.8

1.3

1.3

Number of accidents resulting in lost workdays (cases)

0

0

0

0

0

1

1

Paternity leave ratio*

–

–

–

–

–

–

90

Ratio of new female employees

(%)

Data
Data Section
Section21(4,395)

Other

ROE

(bn yen)

Improvement of Business Framework

Purchase of property, plant and equipment

EBITDA

Drivers for Value Creation(11,089)

Decrease (increase) in inventories

Decrease (increase) in notes and accounts receivable

Sustainable Value Creation

19,788

Income before income taxes

Then and Now

Fiscal year ended
December 31,
2021* Results from FY2022 are disclosed based on an amendment to the law

KH Neochem Report 2023

80

Corporate Overview
Corporate Overview (as of June 30, 2023)
Establishment

December 2010

Capital

8.8 bn JPY

Head office2-3-1, Nihonbashi-Muromachi, Chuo-ku,
Tokyo 103-0022, JapanGroup
companies andaffiliatedcompanies

Total number of sharesauthorized to be issued

136,200,000
37,149,400

Total number of issued shares

6,846

Number of shareholders*Joint venture with Mitsubishi Chemical Corporation

Japanese individuals,
other 9.87%
Other Japanese
corporations
13.05%
Financial
instruments
business operators
34.47%

Financial
institutions
2.19%

Distribution of
Shares by Typeof Shareholder

Major Shareholder Information

Foreigncorporations,etc.
40.44%

Osaka Branch

Head Office（Tokyo）

Sakai
Logistics Center

J-Plus Co., Ltd. (Tokyo)

Yokkaichi Plant,
Technology
Development Center

KH i-Lab (Kawasaki)

Chiba Plant, Technology
Development 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(as of June 30, 2023)

The Master Trust Bank of Japan, Ltd. (Trust account)5,911,400

15.91

Custody Bank of Japan, Ltd. (Trust account)

3,949,300

10.63

Tosoh Corporation

1,852,000

4.99

TAIYO FUND, L.P.

1,572,300

4.23

NORTHERN TRUST CO. (AVFC) RE USL NON-TREATY CLIENTS ACCOUNT

1,554,100

4.18

NORTHERN TRUST CO. (AVFC) RE UKUC UCITS CLIENTSNON LENDING 10PCT TREATY ACCOUNT

1,039,000

2.80

STATE STREET BANK AND TRUST COMPANY 505227

934,417

2.52

TAIYO HANEI FUND, L.P.

838,700

2.26

Sponsorship of Speed Skaters

Mizuho Bank, Ltd.

733,300

1.97

The company has sponsored short track speed

GOVERNMENT OF NORWAY

723,603

1.95

Yokkaichi Plant

Moemi Kikuchi

Short track speed skaterskater Moemi Kikuchi since 2018, and speed skater
Rin Kosaka since 2022.
As “a leading global specialty chemical* Calculation based on the total number of issued shares less treasury stock, and rounded to the nearest unit.

Chiba Plant

Photo:Aflo Sport

company” that shares the enthusiasm of these2021: 500m and 300m SF champion at
the All Japan Short Track Speed SkatingChampionships
2022: Results include placing second in
the 500m at the All Japan Short Track
Speed Skating Single DistancesChampionships

Rin Kosaka

athletes to pursue their dreams, we will do our

Speed Skater

utmost to support both athletes so that they canExternal Evaluation Index Adopted

Improvement of Business Framework

Ratio ofshares held* (%)

Drivers for Value Creation

Number of shares held

Shareholder nameKH Neochem
Americas, Inc.

Sustainable Value Creation

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

Global Network*

Stock Overview (as of June 30, 2023)

2021: Beijing Olympics Japan National
Team (Mass Start)
2022: Placed third in the 1,500m at the
All Japan Speed Skating Championships

shine on the world stage.
Photo:Aflo SportFTSE Russell confirms that KH Neochem co., Ltd. has been
independently assessed according to the index criteria, and has
satisfied the requirements to become a constituent of the FTSE
Blossom Japan Sector Relative Index. The FTSE Blossom Japan Sector
Relative Index is used by a wide variety of market participants tocreate and assess responsible investment funds and other products.

81 KH Neochem Report 2023

Data
Data Section
Section“In 2023, KH Neochem
Co., Ltd. received a ratingof BBB in the MSCI ESG
Ratings assessment.”

They gave an activity report at the Chiba Plant

KH Neochem Report 2023

82