Summary of Q&A Session at the Financial Results Briefing
for the Fiscal Year Ended March 31, 2014
Date and time: Friday, May 2, 2014, from 3:00 p.m. to 4:00 p.m.
Place: Belle Salle Yaesu
Notice: This summary is a reference designed for the convenience of those who could not attend thefinancial results briefing stated above. Please note that this is not a word-for-word transcript of all
remarks made at that session, but is a summary prepared by Kurita Water Industries Ltd.
Q. Could you tell us the amount of and background to cancellations of orders? Were any expenses
caused by cancellations of orders?
A. There were 12.5 billion yen’s worth of cancellations of orders in the Water Treatment Facilities
segment in the fiscal year ended March 31, 2014. Cancellations overseas amounted to 9.8
billion yen, and cancellations in Japan, 2.8 billion yen. Of the 2.8 billion yen of cancellations,
2.5 billion yen was in general industries, and 0.3 billion yen was in the electronics industry.
There were different reasons for the cancellations. For example, a customer in the electronics
industry overseas changed its manufacturing from a memory to system LSI and cancelled itsorder. In another case, we proposed a wastewater treatment project that will reduce waste safely,using water treatment facilities and water treatment chemicals. However, the customer changed
its specifications for treating wastewater, using large amounts of industrial chemicals, and we
failed to receive the order. Certain projects in general industries did not start because of thecustomers’ management decisions.
The cancellations took place in the early design stage, and we had not started sourcing. Thus noexpenses were incurred except for personnel costs and design costs.
Q.

Will there be no cancellations of orders after the fiscal year ended March 31, 2014, or does therisk of cancellations remain?
A. Almost all the cancellations in the previous fiscal year were cancellations of orders that wereceived in or before the fiscal year ended March 2013. Given that, there may be a possibility ofcancellations in future. However, we believe that there will be no further cancellations of orders
involving large amounts.
Q. Did the cancellations of orders reflect economic conditions?
A. Many of the orders cancelled were orders in the electronics industry overseas. They wereaffected by semiconductors and LCD panel supply and demand conditions and changes incustomers’ production plans.
Q. Could you describe the reasons for the occurrence of loss-making projects?
A. In an intensified competitive environment, we accepted certain orders, underestimating costs.
That is a temporary factor.
Q. The ratio of overseas sales is expected to be 20.6% in the fiscal year ending March 31, 2015. Is
that the highest ever? Is there any target?
A. Although the ratio of overseas sales was the highest ever, this was achieved partly due to a1/4

decline in domestic sales, and so we are not satisfied. We have been striving to expand overseas
operations over years and aim to achieve over 30% at the earliest possible time.
Q. You said that you are seeking M&A, especially in North America and Europe. Why are you
seeking M&A in North America and Europe? Could you tell us your progress?
A. We have only a weak presence and have a small market share in North America and Europe.
However, North America is a large potential market, particularly in the Water Treatment
Chemicals business. We have a base in Germany, which covers a wide area including Eastern
Europe and the Middle East. We have a number of large markets to cultivate. In Europe and theUnited States, we seek to expand our results efficiently through M&A rather than trying toexpand organically. We are always considering more than one M&A project, but there are notmany companies that have a technological or sales network of the requisite size and that will
generate synergies with us. Thus we may not be a position to conclude an M&A arrangement
soon, but we are always considering more than one project. Another way to expand operations
efficiently in each area is a marketing alliance including complementary supply; that is,complementing each other’s product lines.
Q. Could you tell us about the development of the electrolyzed sulfuric acid generator business?
A. We received an order for an electrolyzed sulfuric acid generator in the fiscal year ended March
31, 2014 and plan to receive orders for three generators in the fiscal year ending March 31,
2015. We sold no electrolyzed sulfuric acid generators in the fiscal year ended March 31, 2014
and plan to sell one generator in the fiscal year ending March 31, 2015. We had a constraint: We
had to use the customer’s production equipment to assess the generator’s effects on wafers.
However, we have been concluding agreements with an incorporated administrative agency inJapan and the world’s largest research institute overseas to assess the generator’s effects. We
will expand uses and develop operations.
Q. Your ROE has been falling from 11% six years ago. Don’t you need to review your businessportfolio? For example, shouldn’t you consider withdrawing from the soil remediation
business?
A. It is true that our results in our water treatment facilities business for general industries are
weak, and you may think that we should withdraw from the facilities business. However, ourstrength lies in our ability to make proposals by striking a balance among threebusinesses—water treatment chemicals, water treatment facilities, and maintenanceservices—and combining them. We need the facilities business to provide optimum solutions tocustomers. Although our soil remediation business struggled in the past few years, orders rosein the fiscal year ended March 31, 2014, reflecting an increase in land transactions. We expectthat the performance of the soil remediation business will improve partly due to the effect of the2020 Tokyo Olympics.
Q. Could you tell us about changes in the domestic business environment for the water treatment
chemicals business and maintenance services?
A. Domestic demand for water treatment chemicals is related to operating rates, capacity
utilization, and production at our customers’ plants. Domestic sales of water treatment
chemicals started to recover around September last year and have been exceeding the year-ago
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level. We expect that operating rates and production volumes at domestic plants, as indicated by
the industrial production index, will rise steadily and thus think that the business environment isbetter than it was last year. Although we do not expect large capital expenditure in the domestic
electronics industry, investment is continuing in the ultrapure water supply business.
Maintenance services were put off, reflecting constraints in customers’ budgets. However,favorable signs have been emerging since February or March. We guess that businesses havestarted to spend money as corporate earnings are improving. For example, although sales ofmaintenance services during the consecutive holidays in May were down from a year ago, when
there was a flurry of replacements of high-end consumables, including ion exchange resin,reverse osmosis membranes, and ultrafiltration membranes, there were a number of small tasks,
such as repairs of pumps and valves, and more plants and personnel were involved than lastyear, which was a favorable sign.
Q. Could you describe the operating rate of domestic plants in comparison with the rate before theLehman crisis?
A. The industrial production index, using a base value of 100 in 2010, finally exceeded 100 thisyear. The operating rate is rising, especially in the steel and oil industries. Export quantities,
which saw sluggish growth, are trending higher. We can say that the volume of production inJapan is increasing.
Q. Could you tell us about changes in the prices of water treatment chemicals and the competitiveenvironment of the business?
A. There have been no significant changes in the domestic competitive environment. We submitted
the largest number of patent applications among our competitors in the past year. We have somenew products, including reverse osmosis treatment chemicals, cooling water treatment
chemicals using a newly developed polymer, and boiler water treatment chemicals made only
from food and food additives. We thus have an advantage.
Q. Could you describe your outlook for orders and sales of facilities in the electronics industry thisfiscal year?
A. We expect that maintenance services for large facilities overseas, which have been emerging in
the past few years, will continue to expand this fiscal year. Our sales forecast for facilities in theelectronics industry is conservative, assuming very few sales other than those from the backlogof orders.
Q.

A.

Q.

Could you break orders for facilities in the electronics industry down into orders forsemiconductors, orders for LCDs, and other orders and give a breakdown of your plannedorders?
In the fiscal year ended March 31, 2014, orders for semiconductors, orders for LCDs, and otherorders accounted for 32%, 36%, and 32%, respectively (excluding orders cancelled). In the planfor the fiscal year ending March 31, 2015, orders for semiconductors, orders for LCDs, andother orders account for 50%, 40%, and 10%, respectively.
Is there any change in the profitability of the ultrapure water supply business? Is there any
possibility of profitability declining if maintenance costs for facilities increase?
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A. There were no significant changes in profitability in the fiscal year ended March 31, 2014.
Maintenance costs will be incurred over years, but we have factored these costs into our plan.
Because high-cost consumables will be replaced in the fiscal year ending March 31, 2015, weestimate that costs will be slightly higher for the ultrapure water supply business.
Q. Are there any changes in the number of contracts in the ultrapure water supply business?
A. There has been no new construction on vacant sites, but expansion of facilities for NAND-type
flash memories and small and medium-sized LCDs is increasing.
Q. Your profit margin has been declining for the past few years even if loss-making projects in thefacilities business are excluded. Could you describe the reasons?
A. The profit margin has declined especially in general industries. One of the main reasons is a fallin overall sales. Since there have been no large capital outlays, we have been implementing alarge number of small and medium-sized projects. However, we focused in the past few years
on design for large-scale projects and construction management and did not execute small andmedium-sized projects in a rational way. Since the previous fiscal year, we have beenrearranging our personnel and enhancing our product lineup of standard products. We expect
these initiatives to take effect from this fiscal year. As for maintenance services, the quantity ofhigh value-added maintenance services was small in general industries. We aim to improve theprofit margin by proposing high value-added projects, including the replacement ofconsumables.
Q. Could you describe the advantage of having three functions: water treatment chemicals, water
treatment facilities, and maintenance services? Does anyone in the company think this way: Ifthe Water Treatment Facilities business does not make a profit, there will be no problem as longas the Water Treatment Chemicals business is profitable?
A. A company that has only a water treatment chemicals business can address customers’ problems
with proposals related only to water treatment chemicals. In contrast, we can propose effective
uses of water treatment chemicals in association with water treatment facilities. Ourmaintenance service staff can provide the best solutions to customers’ problems by modifying
facilities. We do not develop operations based on the idea that there is no problem if the Water
Treatment Chemicals business is profitable. We manage our businesses so that each businesswill post an adequate profit.
Q.

Is there any possibility that you can improve your competitiveness by forming an alliance witha domestic competitor in the water treatment facilities business?
A. We don’t believe that there are any products or technologies of other companies in the water
treatment facilities business that would generate significant synergies. We are not considering
an alliance at present.
Results forecasts presented and other statements relating to the future made in this document are
based on information currently available and certain assumptions the Company considers reasonable.
A variety of factors may cause actual financial results and other forward-looking statements to differ
materially from the forecasts.

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