A Creator of
Unique Value
KURITA WATER INDUSTRIES LTD.

Integrated Report2019
For the year ended March 31, 2019

Contents

External
Environment

The Kurita Group

Damage to Social
Infrastructure
Caused by
Climate Change

P.4

Corporate Philosophy

P.16

Study the properties of water, master them, and we will create
an environment in which nature and man are in harmony
Corporate Vision/Basic Policy

Changes inWork Styles
and Lifestyles

Value chain

The Advance of
Globalization andIncreasing WealthInequality

Financial CapitalStrengths

Maintenance

Manufacture andconstruction

Global Network
Technology
development capability

Natural Capital

Changing Energy
Policies

Industrializationand Urbanizationof Developing
CountriesIntellectual Capital

Advances in
Digital Technology
and Innovation
Acceleration

A Message to Our Stakeholders
The Kurita Group’s Value Creation

Procurement andquality control

Realizing sustainableenergy use

Waste reduction

CultureSales and orders
Manufactured Capital

Solving water
resource issues

Total Solutions

Research anddevelopment
Human Capital

Accumulate

Design andtechnology

The Basis for Management Activities (Corporate Governance, Etc.)

1
2

P.7

Impacts

Business fields

MarketingSocial and
Relationship CapitalFresh Water
Shortages andUneven Water
Distribution

P.6

Business Model

Challenges and Measures in
the MVP-22 Plan

20

Medium-Term Management Plan “MVP-22”

Management P.5
Resources

P.34

Review of Operations by Segment

26

Water Treatment Chemicals

26

2

Enhancement of Total Solutions

20

Water Treatment Facilities

28

Kurita Group Philosophy System

4

21

R&D and Intellectual Property

30

Management Resources

5Integrating and Transforming
Our Business in Japan

6

22

Performance8

 ebuilding the Group’s
R
Manufacturing System

23

Directors, Members of the Audit& Supervisory Board, andExecutive Officers

32

Business ModelA New Stage in Global Development

The Basis for Management Activities

34

History of Value Creation

Interview with the President

10Medium-Term Management
Plan “MVP-22”

16

 echnology Development forT
the Creation of Customer Value24

CSR Initiatives

18

 riving the Creation ofD
New Businesses

25

Disclaimer
This report contains forward-looking statements from Kurita Water Industries Ltd. and its consolidated
subsidiaries pertaining to plans, forecasts, strategies, and results. These forward-looking statements are
based on currently available information, and actual results may vary significantly from the forward-looking
statements contained in this report due to a range of variable factors.
*Trademarks (products, services, logos) used in this report belong to the Company or to owners who haveapproved the Company’s use of the trademarks.

Corporate Governance

34

Risk Management

43

Compliance

44Environmental Improvement Activities

45

Human Resources Management

48

Initiatives on Quality

50

Initiatives on Safety

51

Corporate Citizenship Initiatives

52

Financial Section

53

Corporate Information

105

A Message to Our Stakeholders

In 1989, marking its 40th anniversary, Kurita Water
Industries Ltd. set out its corporate philosophy, “Study
the properties of water, master them, and we will
create an environment in which nature and man are
in harmony.” This philosophy expresses the Kurita
Group’s intention to create shared value with society
and customers through its business. Several years
after I joined Kurita Water Industries, I was involved in
the project for formulating this corporate philosophy.
In the process, we held discussions with employees
a total of 36 times. We also conducted a questionnaire of all employees, asking them what aspects of
the Company they take pride in, as well as its strengths
and weaknesses. We also conducted a questionnaire
for customers, which illuminated a gap between
their awareness and that of our employees. Our corporate philosophy was created by pinpointing thenecessary concepts and keywords for closing thatgap so that we could share our values with society
and our customers. It expresses the purpose of theKurita Group as a company.
This year, as Kurita Water Industries marks its 70th
founding anniversary, we have issued our first integrated report for the Group. At this point, integrated
thinking has yet to fully penetrate the Group, but wehave called it “Integrated Report” given the importanceof reporting on the Group’s efforts to realize the corporate philosophy at this time. This report presents theGroup’s current status and our vision for the Group in
the future. By assisting the understanding of people
outside the Group, and providing an opportunity for
self-reflection to people inside the Group, my hope isthat the report will serve as a starting point for discussion with our stakeholders in and outside the Group.

July 2019

Michiya Kadota
President and Representative Director

1

The Kurita Group’s Value Creation

History of Value Creation
Since its establishment, the Kurita Group has provided value to its customers bysolving water-related issues in various industries.
In 2018, the Kurita Group adopted as its corporate vision “A Creator of unique value
to the solution of water and the environment,” for contributing to the realization of asustainable society and started the medium-term management plan Maximize Value
Proposition 2022 (MVP-22), which positions CSR at the core. The Kurita Group willcontinue working to provide its stakeholders with new value, aiming to realize its
corporate philosophy, “Study the properties of water, master them, and we will create
an environment in which nature and man are in harmony.”

1986
Deployed tool cleaning
services

1962
Listed stock on the First
Section of the Tokyo Stock
Exchange and the Osaka
Securities Exchange

1949
Founded as a company in
the Water Treatment Chemicals
business (boiler water
treatment chemicals) in Kobe

Established thecorporatephilosophy

1965
Expanded into process
treatment chemicals

1975
Established an overseas
company for the Water
Treatment Chemicals
business

1961
Listed stock on the Second
Section of the Tokyo Stock
Exchange and the Osaka
Securities Exchange

1989

1973
Entered theelectronics industry

1958
1991

Expanded into
maintenance services

Launched soil
remediation services

1951
1974

Net sales

Entered the Water
Treatment Facilities
business

Head office built inShinjuku, Tokyo
1960

1970

Post-war recovery period (1949–1954) /High economic growth period (1954–1973)

Kurita Establishes the Spirit and Business that Form its Foundation
Kurita’s founder developed an innovative business model that combined optimaltreatment and effect verification based on data with the experience-based treatment that was the mainstream approach to boiler water treatment in Japan at thetime. The principle of “Providing the unique value that only Kurita can create” became
the driving force for realizing the model, and it lives on today in the Kurita Group’s
DNA. As Japan’s industry advanced, the Company developed the three functions ofwater treatment chemicals, water treatment facilities, and maintenance. By supporting the steel, pulp and paper, and petrochemical industries with water treatment
solutions, the Company achieved steady growth.

2

Kurita Water Industries Ltd. Integrated Report 2019

1980

1990

Stable growth period (1973–1991) /Information society development period (1991–1999)

Development as an Environmental Company and Establishing a Positionin the Field of Water Treatment for Electronics Industry
As areas all over Japan experienced worsening pollution issues accompanying
economic growth, Kurita made its mark as an environmental company by working
to solve pollution due to industrial and household wastewater. In the 1980s, Kurita
established a firm position as a provider of water treatment solutions for the electronics industry by meeting the industry’s growing demand for advanced water
treatment with ultrapure water technology. In 1989, marking its 40th anniversary,
Kurita formulated the current corporate philosophy. It shared its mission of creating
shared value with society in the fields of water and environment, and expanded its
business to include soil remediation.

2018

2019

Rebuilt the Kurita Group
Philosophy System

Medium-Term Management Plan
“Maximize Value Proposition 2022 (MVP-22)”

Formulated a
New Corporate Vision(April 1, 2018 – March 31, 2023)

Basic Policy:

Maximize customer intimacy by dismantling preconceived ideas
and dramatically raising the quality and speed of our work.
Management Targets:
Net sales
Organic growth rate

2012

Operating income margin

15%

3% or more

Relocated head
office to Nakano,
Tokyo

Return on equity (ROE)

10% or more

Adoption of management using returnon invested capital (ROIC)
Aim for improved capital efficiency
in each business segment

Priority Measures:

2015
Commenced the ultrapure
water supply businessin South Korea

Development of CSV business

Enhancement of total solutions

Rebuilding of manufacturing system forwater treatment facilities

Creation of new business andthe promotion of innovation

Strengthening the foundation andpromotion of research and development

Establishment of
the Group governance system

Acquired a water treatment
chemicals business in Europe

Medium-Term Management Plan
“Competitive Kurita 2017 (CK-17)”

2003
Achieved 100%
wastewater reclamation(April 1, 2015 – March 31, 2018)

Basic Policy:

We will conduct a radical review of every operation to provide
high-added-value for our customers
Priority Measures:
2002
Launched
ultrapure watersupply business2017 and 2019
Acquired water treatment-related companies
in the United States

Cultivate New Markets

Optimize production systems andutilize the Group’s network

Achievements
Expanded the business in Europe,
North America and the Middle East
Invested in start-ups

Challenges
Growth accompanied by improved
profitability
Accelerating the commercialization of new
businesses

2000

2010

2019

Period of IoT advancement (1999–)

New Business Model Deployment and Globalization
In 2002, as the electronics industry continued to develop even further with the advance of IT, Kurita developed a new service
contract-type business model in the form of the ultrapure watersupply business. Subsequently, the Company continued to transform its business model, creating various new services that
identified customers’ issues from the perspectives of saving water,saving energy, and reducing waste, and provided solutions forthem. From 2015, the Company began full-fledged expansion into
overseas business through M&A, and is promoting global development of total solutions.

Achievements
Obtained and utilized new production
bases through M&A
Improved productivity in China and South
Korea

Challenges
Further global optimization of production
bases

Create competitive products andservices

Improve capital efficiency

Achievements

Raised capital efficiency by directing
funds to investing in growth andshareholder returns

Created DReeM PolymerTM, S.sensingTM GW,
KWSSTM, CORRTM system

Challenges

Achievements

Challenges

New business model and developmentof customer-oriented solutions still a workin progress

Have not reached the average level
for Japanese companies

Kurita Water Industries Ltd. Integrated Report 20193

Value Creation of the Kurita Group

Kurita Group Philosophy System
The missions that the Kurita Group will fulfill in society into the future, its medium- and long-term
visions, and its ways of thinking and values as the foothold for achieving them are stipulated
as the Kurita Group Philosophy System.
Corporate Philosophy

Study the properties of water, master them, and we will create
an environment in which nature and man are in harmony
1. Kurita Group will contribute to facilitate the coexistence and shared prosperity of the natural environment and human society
by creating shared value with society through water.
2. Kurita Group will generate new functions and value for water, through further exploration and exploitation of the fundamental
properties of water.
3. Each individual of Kurita Group will adopt its customers’ point of view and solve their water and environmental issues, by making
full use of its unique technologies, products and services.
* The corporate philosophy was set out in 1989 to mark the 40th founding anniversary of the Company.

Corporate Vision“A Creator of unique value to the solution of water and environment,”
contributing to the realization of a sustainable society.
1. Kurita Group will seek to create shared value with society such as environmental preservation and the effective use of resources,
and will realize its corporate philosophy, by continuing to innovate and through businesses contributing to the naturalenvironment, industry and people’s lives.
2. Kurita Group will, as an indispensable partner, create value for customers such as “pursuit of safety,” “productivity enhancement”
and “reduction of environmental impact.”
3. Kurita Group will evolve its “service business” and will provide customers, at speed, with comprehensive solutions making fulluse of Kurita’s technologies, products and services in water treatment chemicals, water treatment facilities andmaintenance services.

Basic Policy

The basic policy encompasses the management direction and aims of the Groupand forms the foundation of the Kurita Group Philosophy System.

1. Kurita Group Code of Conduct

4. CSR Policy

2. Corporate Governance Policies

5. Kurita Group BCM(Business Continuity Management) Policy

3. Basic Policies for Constructing
an Internal Control System

6. Kurita Group Business Policy** The Kurita Group Business Policy is made up of the Kurita Group Human Rights Policy, the Kurita Group Environmental Policy, and others.

Core values
Fairness

Transparency

Integrity

SafetyKurita Group Philosophy System
https://www.kurita.co.jp/english/philosophy_vision/index.html

4

Kurita Water Industries Ltd. Integrated Report 2019

Compatibility

Management Resources (Fiscal year ended March 31, 2019)
Financial CapitalSocial and Relationship Capital

Shareholders’ equity

Globally expanding sales network,
customer base covering a wide
range of industries, supply chains,
and alliances
Certifications/Qualifications¥233,417 million+4.9% year on year

Human Capital

Number of employees
Consolidated:

6,613

Parent:1,549

Manufactured Capital

Natural Capital

Water intake

4 million m

Training opportunities

Energy3

4.55 million GJ

Materials and parts

Property, plant and equipment (Net)¥109,669 million

Global network of manufacturing bases

Intellectual Capital

R&D expenses¥5,490 million

R&D personnel

R&D bases

180 3 sites

Approx.

+4.4% year on year

Number of patents held

2,326Japan, Germany,and Singapore

Operation management data

Kurita Water Industries Ltd. Integrated Report 20195

Value Creation of the Kurita Group

Business Model

Value chain

Business fields

Maintenance
CO2 (Greenhouse gas)

Collaboration with partners who
possess technology and expertise

Manufacture and construction

Plants and offices, etc.

Realize quality and safety improvement
and efficiency gains

Production process

Collaboration with cooperating partners
who possess technology and expertise
Industrial water
Tap water andsea water

MarketingUtilities

Yield
increase

Raw water
treatment

Coordination with sales, design,technology, and development

WatersavingGroundwater

Research and development

WatersavingLaborsavingEnergysavingFacilitypreservation

Wastewater
reclamation

Groundwater depletion,
ground subsidence

Sales and orders
Coordination with design and technology
Coordination with agencies who possess
technology and expertiseStrengths

Grasp customer needs

Procurement and quality control

Coordinate with development
to evaluate the function of raw
materials and parts

Coordination with sales anddevelopment
Optimize application tocustomers’ operations

6

Asia

EuropeNorth andSouth America

CultureDesign and technology

Corporate Philosophy

Japan

Corporate
Philosophy

Stableemployment

Sense of unity

Determination toachieve goals

Study the properties of water, master them, andwe will create an environment in which nature andman are in harmony

Kurita Water Industries Ltd. Integrated Report 2019

Total Solutions

Procurement by Head Office and by
production bases

Global Network
Water
Treatment
Chemicals
Water
Treatment Maintenance
Facilities

Corporate VisionImpacts
Issues for customers and society
Solutions
CO2 emission reduction
Climate change (extreme weather and natural disasters)

Solving water resource issues
Purification
By purifying polluted water, we will ensure the required
quality for ecosystems, including human living, and industry.
By purifying polluted soil and groundwater, we will secureusable land.
Water saving
By controlling the quality of recirculating water in industry,
we will optimize the volume of water used.
Reclamation and reuse

Waste reduction

By reclaiming and recycling wastewater from industry intoa reusable condition, we will contribute to reducing thevolume of water intake.

Tight capacity of landfill sites

Wastewater
treatment

Desalination
By efficiently desalinizing sea water, we will secure water
resources.

Soil and groundwater
remediation

Stable water
treatment

Rivers, lakes, andsea areas

Soil and groundwaterpollution

Water pollution

Realizing sustainable energy use
Energy saving
By increasing heat exchange efficiency in systems that use
water as a medium, we will optimize energy use andreduce CO2 emissions.
Energy creation

Technology
development capability
Modification

SupplyReclamation

Human
resources

TechnologicalinfrastructureIntellectual
property

Financialcapability

Accumulate
Data

Expertise

Human
resources

Experience

By using waste to generate biogas that can be used for
power and heat, we will create renewable energy.

Waste reduction
Reducing waste
By reducing industrial waste, we will optimize the land used
for final disposal sites.
Recycling
We will use waste as a resource to contribute to theformation of a recycling-oriented society.

Corporate Governance“A Creator of unique value to the solutionof water and environment,” contributing
to the realization of a sustainable society.

Basic Policy

1. Kurita Group Code of Conduct
2. Corporate Governance Policies
3. Basic Policies for Constructing
an Internal Control System

4. CSR Policy
5. Kurita Group BCM (BusinessContinuity Management) Policy
6. Kurita Group Business Policy

Kurita Water Industries Ltd. Integrated Report 20197

Value Creation of the Kurita Group

Performance (Fiscal year ended March 31, 2019)
Financial Capital
Orders (Millions of Yen)

Sales by Region (Millions of Yen)Japan

251,447
221,273

189,398

2016

2017

2018

2019

Orders declined for water treatment facilities in the flat-panel display and semiconductor sectors in China and South Korea, while orders for water treatment chemicals
increased due to the consolidation of Hansu Co., Ltd. in South Korea in the fourth
quarter of the previous fiscal year.

Operating Income Margin (%)

2015

9.3

214,372

214,187

2016

2017

Other regions

236,8152018

259,4092019

Return on Assets (ROA) and Return on Equity (ROE) (%)

9.5

9.1

EMEA

Sales rose strongly in Asia, reflecting solid growth in demand for water treatment chemicals and the consolidation of Hansu in South Korea, as well as steady progress on
construction of large water treatment facility projects for the electronics industry.

ROA

10.3

North America

258,439

218,730

181,282

2015

Asia

ROE

7.7

9.4

7.3

6.4
5.6
4.7

3.7

2015

2016

2017

2018

2019

The operating income margin remained at about the same level as an increase in operating income due to the effect of higher sales was offset by an increase in goodwill
amortization due to acquisitions in the Water Treatment Chemicals business and temporary additional costs due to tight production capacity in the Water Treatment
Facilities business.

Dividends per Share and Dividend Payout Ratio
Dividends per share (Yen)

52.4

48.0

2015

5.8
4.2

2016

4.9

2017

2018

5.1

2019

ROE and ROA declined due to a decrease in net income, reflecting the impact of losses
associated with the reorganization of unprofitable businesses, despite efforts to makeeffective use of capital by selling shares of other listed companies and allocating cashon hand to capital investment and M&As.
ROA = Net income attributable to owners of parent ÷ Total assets (Average) × 100
ROE = Net income attributable to owners of parent ÷ Equity (Average) × 100

Total Assets Turnover (Times)

Dividend payout ratio (%)

50.0

52.0

54.0

0.67

0.72

0.72

2016

2017

0.76

0.77

2018

2019

46.0
44.3

2015

2016

39.9

2017

35.0
32.6

2018

2019

Under a policy of striving to increase dividends, dividends increased for the 15th consecutive year. The dividend payout ratio increased slightly, partly reflecting the decreasein net income.

2015

Total assets turnover improved due to aggressive allocation of our own funds into corporate acquisitions and growth in net sales against a backdrop of steady progress on
construction of large water treatment facility projects.
Total assets turnover = Net sales ÷ Total assets (Average)

8

Kurita Water Industries Ltd. Integrated Report 2019

Human Capital

Ratio of Female Directors and Members of the
Audit & Supervisory Board and Employees (%)

Number of Employees by Region
Japan

Asia

5,222

North America

5,481

5,654

EMEA

Ratio of female directors and members of the Audit & Supervisory Board
Ratio of female employees
Ratio of women in management positions

Other regions

6,011

6,613

23.2

23.1

8.6

7.7

8.5

7.6

6.7

2018

2019

7.1

2015

2016

2017

2019

2018

Intellectual Capital

0.0

0.0

2016

2017

Social and Relationship Capital

Number of Patents Pending (Japan)

Certification Acquired
Number of Companies

Acquisition rate among Group employees (%)

ISO 9001
193
153

143

24.1

22.6

19

181

155

ISO 14001
20

18

18
53.9

51.6

49.2

2015

2016

2017

2018

2019

2018

2019

43.7

2019

2018

Natural Capital
The Kurita Group aims to see environmental impact reduction* in the operations of
its customers offset and even exceed theenvironmental impacts of its own business.
To this end, we have set numerical targets
for the “amount of the reduction in environmental impact of customers - theamount of the Kurita Group’s own environmental impact,” with regard to water, CO2,
and waste.
* The Kurita Group has defined products, technologies,
and business models that contribute significantly towater-saving, CO2 emissions reduction, and waste
reduction compared to previous levels as the “CSV
business.” The reduction of environmental impact
from customers’ operations is calculated based on
results of applying the CSV business. Further information about the CSV business can be found in“Environmental Improvement Activities” on page 45.

Water (million m )3

CO2 (1,000 t)

Japan
Overseas

Impact fromour businessactivities

119

187

54.12

Reduction atcustomers

Waste (1,000 t)

44.66
116

29.02

136

79
26

0.59

0.68

Japan
Overseas

187
4.00
2017

2018

2019

2017

192
2018

27

29

30

2017

2018

2019

223
2019

Kurita Water Industries Ltd. Integrated Report 20199

Interview with the President

Q. How do you view the management environment and results for the first year of
the Maximize Value Proposition 2022 (MVP-22) plan?

The management environment in the fiscal year ended
March 31, 2019 saw firm production activity overall in
the Japanese manufacturing industry, but from the third
quarter onward a slowdown in the Chinese economy anda stall in smartphone sales weighed on production activity
in related industries. In the electronics industry, which is
the Kurita Group’s main market, we saw brisk capital
investment in the fields of semiconductors, electronic
components, and wafers, along with firm demand forrenewal of aging facilities in the steel and petrochemicals
industries. At the same time, it was also a year withfrequent natural disasters that seem to be caused byclimate change, such as droughts, torrential rains, andtyphoons, which drove an increase in demand for water
treatment for business continuity plans (BCPs).
Overseas, as in Japan, the manufacturing industry
generally saw firm production activity. On the other hand,the electronics industry in East Asia, such as China, South
Korea, and Taiwan, capital investment slowed fromthe middle of the year onward. Moreover, with the impactof the trade dispute between the United States and China,
the outlook for capital investment in flat-panel displays(FPDs) and semiconductors in China became unclear.
In this environment, we were able to maintain firm
10

Kurita Water Industries Ltd. Integrated Report 2019

operating results. With regard to orders, there was anincrease in orders in the Water Treatment Chemicals business due to consolidating 11 months of results of Hansu
Co., Ltd., which became a consolidated subsidiary during
the fourth quarter of the fiscal year ended March 31, 2018.
However, orders for Water Treatment Facilities businessdecreased due to a drop in orders received for facilities
overseas. Net sales grew atop the increase in orders for
the Water Treatment Chemicals business, while the Water
Treatment Facilities business also recorded higher sales
due to progress on construction work for large projects.
Operating income increased due to the effect of higher
sales, which absorbed a deterioration in the cost of sales
ratio and an increase in selling, general and administrative
expenses. After recording other income and expenses
associated with streamlining of our businesses and assets,
income before income taxes was higher year on year, but
net income attributable to owners of parent decreasedslightly due to a temporary increase in tax expenses
resulting from recording other expenses.
Looking back on our performance in the first year of
the MVP-22 plan, we made steady progress on our priority
measures, 1) Development of CSV business, 2) Enhancement of total solutions, 3) Rebuilding of manufacturingsystem for water treatment facilities, and 4) Streamliningof low-margin businesses and assets. I think we havereally made headway on our target of establishing anearnings base.
First, with regard to development of the CSV businessand enhancement of total solutions, we developed a prototype for the solution model that will form the core.
Specifically, it is a service contract-type business modelthat shares benefits with customers based on contracts,
such as recycled water supply contracts or steam-use
reduction contracts. For example, with recycled watersupply contracts, we own the wastewater reclamation
system that reclaims and recycles wastewater from thecustomer’s plant, then supplies the recycled water toutilities, air conditioning, and manufacturing processes.
By dramatically improving the water reclamation rate
for the entire plant and realizing stable water treatment,
the model solves water resource issues and resolves
customers’ labor shortages, thereby realizing value creation
for society and customers.
Next, with regard to rebuilding our plant production
system, amid vigorous capital investment by customers

Service contract-type business that shares benefits with customers

Remotemonitoring

Customer’s plant

Development of new
applications for reclaimed water
IoT
Supply ofreclaimedwater

Utility facilities
Air conditioning
Manufacturing process

Wastewaterfrom plant

Wastewater reclamation system(Assets owned by Kurita)

Maintenance

Development of new applications for reclaimed water and realization of stable water treatment

in Japan, issues have emerged in our Water Treatment
Facilities business with tight production capacity and additional costs, and we have accelerated progress on our
measures. We strengthened the manufacturing system
for water treatment facilities through measures toenhance the accuracy of design and production, such as
introducing a work allocation system for the design process,databasing case examples where faults occurred, andintroducing ICT tools.
Furthermore, in streamlining low-margin businesses
and assets, we sold the aluminum compound business of
Kurita Europe GmbH, which was a non-core business,and proceeded with the sale of shares in other listedcompanies. By reducing our balance sheet and investing
management resources in growth businesses, we
increased capital efficiency.

Providing total solutions from a network expanding across the United States

Invested Dec. 2016
Acquired Mar. 2019

Water Saving Services
Invested Apr. 2019

Tool Cleaning

Water Treatment Chemicals andWater Treatment Facilities
Invested May 2018

Software Services

Acquired Jan. 2017

Water Treatment Chemicals

Acquired May 2019

Consolidated Subsidiaries
Equity-Method Affiliates

Kurita America
RO Chemicals

Water Treatment Chemicals andWater Treatment Facilities

Kurita Water Industries Ltd. Integrated Report 201911

Interview with the President

We also actively pursued M&As. First, in May 2018 withthe aim of creating a new digital business in using artificial
intelligence (AI) and machine learning (ML) in the fields ofwater and the environment, we acquired shares of Fracta,
Inc. (currently Kurita Fracta Holdings, Inc.), a U.S.-based
provider of software services to predict the deteriorationof water mains, making it a subsidiary. In March 2019, we
acquired U.S. Water Services, Inc. in the United States,
which manufactures and sells water treatment chemicals
and water treatment facilities. We also acquired 25% of
the shares of Pentagon Technologies Group, Inc., which
operates a tool cleaning business for semiconductor production equipment. With these M&As, we proceeded toprepare a business foundation for deploying total solutions in the United States.
The acquisition of U.S. Water Services is expected to lift
our overseas sales ratio to 40% for the fiscal year ending
March 31, 2020. We started a series of M&As in 2015 withthe acquisition of a water treatment chemicals business
in Europe aiming to dominate the competition globally.
We believe it has now resulted in the creation of a balanced
business base across Japan, Asia, Europe, and North andSouth America.
We also worked to strengthen corporate governanceas a framework supporting Group management. Based on
the results of the evaluation of the effectiveness of theBoard of Directors for the fiscal year ended March 31,
2018, we took steps to enhance objectivity of selections
for the Company’s directors, and the transparency of theselection process. Specifically, we built a system fordeveloping and evaluating management-level personnel,
which has been slower to develop than systems for auditing and remuneration. We brought in expertise fromexternal institutions and structured the systems for development and selection of successors for president anddirectors, while establishing a new Successor Planning
Committee comprised mainly of external directors andmembers of the Audit & Supervisory Board.
In this way, the first year of the MVP-22 plan has beena very fruitful one. However, we have also recognized various issues. In development of the CSV business andenhancement of total solutions, we are not entirely satisfied with the speed of our progress in terms of the timelinefrom establishing a prototype solution model to developing
it in detail for commercial application and expanding sales.
As for the organization for developing total solutions, wehave made steady changes in the form of the organization,
but we do not see sufficient change in the conduct andawareness of individual employees. What we need most of
all right now is not to secure short-term earnings, but tocreate the business model and human resource base forrealizing sustainable growth over the medium to long term.

Q. What policies and measures have you adopted for the fiscal year ending March 31, 2020?
The top priority for the fiscal year ending March 31, 2020,
the second year of MVP-22 plan, is to accelerate thedeployment of total solutions. In the first year of the plan,
we worked on development of new solution models, andcreated dozens of prototypes. Moreover, in the second
half of the first year, we started creating and integrating
the details of technologies, products, services and sales
methods for developing individual contracts from these
prototypes. In the second year, we will continue creationand integration of details, start the delayed horizontal
deployment of the total solution models, and aim todeliver results with between five to ten models that havethe potential to become core earnings drivers.
The essence of total solutions is the development of
new applications for technologies, products, and services
from the customer’s perspective. It must begin with a deep
understanding of the customer. The basic policy of the
MVP-22 plan is to “Maximize customer intimacy by

Transformation of sales system aimed at provision of total solutions

Fiscal year ended March 31, 2019

Water Treatment
Chemicals Business
Maintenance Service
Ultrapure Water
Supply Business
EPC

Kurita Water Industries Ltd. Integrated Report 2019

Overseas sales
Ensuring fusion
betweensegments

Coordination
between sales,
marketing andproduction

Domestic sales

Thorough deploymentof total solutions bymarket and by region

Engineering Division

Domestic sales

Fiscal year ending March 31, 2020
Solution Business Division

Overseas sales
Engineering Division

Solution Business Division

12

Reorganizationof business sites

dismantling preconceived ideas and dramatically raising
the quality and speed of our work. ” To produce new ideas
from the customer’s perspective, we must break down our
traditional thinking based on a vertical business structure
and preconceived notions based on success experienced
in the past. Each individual in the Kurita Group must transform their mindset.
Moreover, to provide total solutions, it is vital to coordinate sales, marketing, production, and development.
To strengthen this coordination, in April 2019 we changed
the domestic sales system from a two-division to asingle sales division system. We also developed the systemfurther by market and region from the customer’s perspective. We expect these organizational changes toinspire changes in the mindset of our personnel.
At the same time, we have made further progress on
integrating our production and sales sites overseas as well,and will change to a structure that combines water treatment chemicals and water treatment facilities to offer totalsolutions. In particular, the fiscal year ending March 31,
2020 will be an important year for setting up our businessstructure in the United States. In our post-merger integration (PMI) of U.S. Water Services, we will integrate theproduction, purchasing, and sales functions of Kurita
America, Inc. and Fremont Industries, LLC and develop
the technologies and business model for the reverse
osmosis (RO) chemicals of Avista Technologies, Inc., which
we acquired in May 2019. Our goal in this is to build asystem that can efficiently supply total solutions throughout the United States. By providing new services based ona deep understanding of local customers’ challenges

and needs, we aim to see a contribution to earnings fromthe fiscal year ending March 31, 2021 and onward.
The acquisition of Avista Technologies demonstrates
one of our directions for M&As going forward. Although
the scale of this company is small in terms of sales, at a few
billion yen, it has distinctive technologies and business modelin the RO chemicals field, and has achieved high profitability
with businesses established in both the United States andthe United Kingdom. The Kurita Group will expand thesetechnologies and business model throughout Europe,
the Middle East, Asia, and the United States with a view tocapturing the top global share of the RO chemicals
market, which is expected to grow going forward. As in
this example, our policy for M&As going forward is totarget companies that have distinctive technologies andproducts that we do not have.
In the fiscal year ending March 31, 2020, we will takesteps to reorganize non-core businesses and downsize
low-margin businesses. Naturally, with businesses that are
not profitable right now, our preference is to help them
become profitable through improvement measures, suchas shifting to service contract-type businesses. However,where there is no prospect for improvement, we need todecide on reorganization or downsizing. An effective
method for evaluating the profitability of a business anddetermining to reorganize or downsize it is ROIC management, which we introduced in the fiscal year ended March
31, 2019. Establishing ROIC targets and creating ROIC
trees makes it an even more effective tool that we hope to
use for improving capital efficiency in each business.

Kurita Water Industries Ltd. Integrated Report 201913

Interview with the President

Q. What kind of management aims do you have for the medium to long term?
The increasing inequalities caused by the globalization of
the economy and technological innovation are giving rise
to social division and political instability. The rise of bloc
economies and increasing trade dispute have made theoutlook for business uncertain, creating a risk that invested
management resources may not be recoverable.
Looking at the water treatment market, the digitalization of society and industry is driving market expansion in
the electronics industry, such as FPDs, semiconductors,
wafers, and electronic components, while new water treatment markets using the IoT and AI to realize smart factories
are presenting major business opportunities. At the sametime, however, those who are too late to catch the wave ofinnovation face the risk that existing business models will
stultify. The Kurita Group has achieved stable growth in
the fortuitous field of water and the environment over the
70 years since its founding by creating a business modelthat uses knowledge and technological capabilities tosecure a competitive advantage. However, there is a riskthat this business model will become ineffective, and we
could find ourselves driven out of the market.
In these uncertain times, we must overcome the challenge of a dramatically changing management environmentand seize the opportunity for the Group to make a dynamic
leap forward. This can only be achieved by fully executing the transformation that we have now set in motion.

14

Kurita Water Industries Ltd. Integrated Report 2019

We feel that total solutions through water treatment havethe potential to create significant social value towards therealization of a sustainable society, and that this realization is what society expects of the Kurita Group.
Providing solutions to issues related to water and theenvironment and contributing to the development of society and industry are the real purpose of the Kurita Group.
Now, as we reflect on our founding spirit, we will strive
through water treatment to contribute to solutions forsocial issues such as lack of fresh water, climate change,and depletion of natural resources, which are expressedby the Sustainable Development Goals (SDGs), aiming torealize our corporate philosophy by creating shared value
with society.
Furthermore, to enable the Kurita Group to leap forward as a corporate group providing services globally, we
believe it is necessary for management to emphasize
diversity and localization. We aim to break away from aclosed, self-contained approach and move toward hiring
and appointing human resources who can drive open innovation. At the same time, we must optimize our value
creation process and method for achieving profits tailoredfor each region as we develop our solutions in various
countries around the world. We will promote diversity andlocalization to create a corporate group that can respondto the rapidly changing environment and grow.

Q. What is your policy on use of funds and shareholder returns?
We will use the funds that we have received from shareholders to invest aggressively in growth businesses forestablishing a solid earnings base. In the fiscal year
ended March 31, 2019, we invested in the ultrapure
water supply business and the tool cleaning business,
which have high earning potential. We also proactively
allocated funds to M&As for acquiring business bases
and new technologies. We sourced these funds not only
from operating cash flow, but also the sale of shares inother listed companies, as well as using cash on hand.
Looking ahead, we plan to continue investing actively
in growth businesses. As we make these investments,
we will take a disciplined approach and remain mindful of capital efficiency. We will source investment
funds in the same way as before, through operating
cash flow and continued sales of shares in other listedcompanies. We will also work towards diversifying
sources of funds, including the option of debt to financefurther funding requirements.
Turning to shareholder returns, we will strive tocontinue increasing dividends as much as possible,
aiming for a dividend payout ratio of 30–50%. Our dividend paid from capital surplus for the fiscal year ended
March 31, 2019 represented a dividend increase for the
15th consecutive year. Being mindful of capital efficiency
in management, we will also consider repurchases ofshares if capital surplus accumulates, while taking theshare price status into account.
We will strive to establish a firm earnings base forthe Kurita Group and to return the fruit of these efforts
to our shareholders. I thank you all for your continued
support for Kurita’s ongoing reform initiatives.

Active Investment in Growth Businesses and Diversificationof Sources of Funds (Fiscal Year Ended March 31, 2019)74.1 billion yen

74.1 billion yen
Dividends

Cash on hand
M&A
Sale of shares of otherlisted companies

Operatingcash flow
and other

Capitalexpenditures

Other

Generation of cash

Uses of cash

July 2019

Michiya Kadota
President and Representative Director

Kurita Water Industries Ltd. Integrated Report 201915

Medium-Term Management Plan “MVP-22”(April 1, 2018 – March 31, 2023)

Basic Policy

Maximize customer intimacy by dismantling preconceived ideas
and dramatically raising the quality and speed of our work.

Priority Measures

Management Targets and First-year Results

Place emphasis on
profitability andcapital efficiency

Development of CSV Business1

Net sales organic growth rate
Target3%

or moreFiscal year ended
March 31, 2019 result:

5.7%

Enhancement of total solutions
2

Operating income margin
Target15%

Fiscal year ended
March 31, 2019 result:

3

9.4%

Return on equity (ROE)
Target10%

Fiscal year ended
March 31, 2019 result:or moreTarget4

7.3%

Adoption of business segment
management using return on
invested capital (ROIC)

5

Fiscal year ended March 31, 2019 result:

16

Kurita Water Industries Ltd. Integrated Report 2019

Rapidly develop total solutions for customers that makefull use of Kurita’s technologies, products, and services inwater treatment chemicals, water treatment facilities,
and maintenances.

Rebuilding of manufacturing system
for water treatment facilities
Rebuild the manufacturing system and processes todramatically increase quality and speed.

Creation of new business and thepromotion of innovation
Expand and enhance existing business fields while
creating new business fields that will become major
sources of new earnings.

Strengthening the foundationand promotion of researchand development
Build a strong foundation as a technology-oriented company
and promote advanced research and development.

I mproved capital efficiency
in each business segment

Set KPIs that enable
understanding and improvementof status of each segment

Expand earnings with highly unique technologies,
products, and services that contribute to the naturalenvironment, industry, and people’s lives.

6

Establishment of the Group
governance system
Increase the effectiveness of internal controls inGroup companies.

Initiatives by Priority Measure

Initiatives for the fiscal year ended March 31, 2019

Groupwide realization of water saving, energy saving andwaste reduction through business operations
Quantification of value provided to society
Selection of CSV business through total solutions

Initiatives to package technologies, products, services andselling methods that create customer value

Results of the fiscal year ended March 31, 2019
Achievement of order targets and value provision targets
Preparation completed for system to promote integration ofenvironmental improvement activities
Promotion of creation and deployment of CSV business in areas
around the world

Creation of new total solution model

Expansion of solution area

Conclusion of comprehensive contracts for procurement,
maintenance and management of cooling and heatingwater facilities

Proposal of total solutions based on customers’ needs
and issues

Conclusion of service contracts for steam supply, KWSSTM andrecycled water supply

Visualization of marginal production volume andthorough selection of projects

Stabilization of quality

Seeking alliance partners
Standardization of water treatment facility manufacture

Restructuring of sales system by market

Development of new business partners
Start of use of ICT and new system for designing

Acquisition of Fracta, Inc.
Introduction of APANA, Inc.’s water saving solutionsin Japan

Strengthening of new business model creation using IoT and
AI in the water and environmental fields

Promotion in commercialization of ballast water treatment system

Establishment of a global sales system through collaboration withoverseas ship equipment manufacturers

Worked to encourage battery manufacturers to
adopt ABSORBENT

Promotion of global development through links with
R&D bases in Japan and overseas
Development of advanced technologies using
open innovation
Strengthening of development capabilities bybuilding up our technological foundation

Expansion of the Kurita Group’s Basic Policy
Building of Management Monitoring System and sharing ofobjectives with Group companies
Identification of issues with internal controls caused byorganizational characteristics using theme audits

Development of high-performance polymer and technology formore efficient water reclamation through Group cooperation
Development of cleaning technology for manufacturing processesof next-generation semiconductors and promotion of IoT
introduction in water treatment
Improvement of fluid and process analysis technology throughacquisition of new computer simulation technology

Strengthening of foundation for improving effectiveness ofinternal controls of Group companies
Integration of internal control systems at newly acquiredGroup companies
Follow-ups for solving issues arising from organizational
characteristics

Kurita Water Industries Ltd. Integrated Report 201917

CSR Initiatives

The Kurita Group has positioned CSR at the core of its management strategy in order to continue
growing towards the realization of its corporate philosophy, and is strengthening its CSR initiatives.

CSR Policy
The Kurita Group has established the CSR Policy as
a common policy for the Group. This policy comprises
two themes: “basic themes,” which prevent damage to
the Group’s value and “themes for growth opportunities”
which promote creation of shared value with society.
We have set out our “ideal form for Kurita in 2030” and“initiatives” for each theme.
This policy was formulated after a discussion aboutmateriality in the E&S (Environmental & Social) Committee,

Priority themes

which oversees CSR initiatives, and subsequent confirmation by the Board of Directors. Materiality was identified by
specifying a total of 30 sustainability-related themes,
making reference to the GRI Standard, the OECD Guidelines for Multinational Enterprises, the UNGC, and theSDGs, among others, based on two aspects: 1) stakeholders’expectations of the Kurita Group and 2) the Kurita Group’s
impact on society.

Initiatives toward 2030

Targets for the fiscal year ending
March 31, 2023

Basic themes
Themes for growth opportunities

1. Provide highly safe services and products

Maintain social trust by developing
and providing services and products
reflecting considerations for safety,
health, and the environment.

1) Proportion of themes falling into “Safety improvement” and “Response to legal changes” to productdevelopment themes: 15%
2) Rate of participation in regular safety training
related to “Products and services” among employees: 100%

2. C onduct fair business activities

Maintain fair and transparent trade
based on free competition. Maintainsound relationships with politics andadministration.

Rate of participation in compliance-related training
among officers and employees: 100%

3. Respect human rights

Support and respect international
norms related to human rights andpromote human rights initiatives byfollowing the Guiding Principles on
Business and Human Rights established by the United Nations.

1) Rate of participation in training related to humanrights among officers and employees*1: 100%2) Severity rate*2: 0.005

4. Solve issues related to water resources

Supply water at the optimum quality
and quantity by securing as muchwater as necessary for the life of all
people and the development of industry by applying technologies for saving,
purifying, and reusing water.

Water savings at customers*3 57 million m3– Amount of tap water used inour business activities
7 million m3

5. Realize sustainable energy use

Optimize energy use in living and inindustries, and introduce technologies
for creating energy throughout society.

Difference

CO2 emissions reduction at customers*3– CO2 emissions fromour business activities
Difference

6. Reduce waste

7. Advance industrial production technologies

Introduce technologies for using waste
as resources and technologies forcontrolling the amount of waste andaim to achieve zero waste.

Make full use of big data on water tocontribute to innovations in production efficiency and product quality
in industries.

Waste reduction at customers*3– Waste generated fromour business activities
Difference

50 million m3 *4

253,000 t
253,000 t
0 t *4136,000 t
36,000 t
100,000 t *4

Proportion of themes falling into “Contribution to
improvement of production process” to productdevelopment themes: 35%*1 One employee receives the training every three years.
*2	The subjects are divisions involved in site work and their business partners, and the rate was calculated by applying the formula, “Number of work days lost ÷ Total number of hours
worked x 1,000.”*3 Amount of environmental impact that was reduced at customers’ plants and offices by using products, technologies, or services from the Kurita Group*4	We set values for “Reduction of environmental impact at customers - Environmental impact we generate” as our targets, aiming to have the reduction of environmental impact
through our businesses offset and surpass the environmental impact of our business activities.

18

Kurita Water Industries Ltd. Integrated Report 2019

E&S Committee
The E&S Committee oversees the Kurita Group’s CSR initiatives and works to increase the Group’s competitive
advantage by further enhancing business competition
capabilities and risk response capabilities. Specifically,
the committee sets the activity targets and key performance indicators for each of the themes in the CSR Policy
as the CSR medium-term plan, then confirms progresson the targets while identifying issues and making
improvements. At the same time, the committee confirms
stakeholders’ expectations of the Kurita Group and theirissues, and verifies the Group’s CSR initiatives.
In the fiscal year ended March 31, 2019, the first yearof the CSR medium-term plan, we confirmed the effectiveness of the Group’s current targets from the status ofindividual activities. As a result, we reviewed some of ourtargets, and conducted discussions towards revising themfrom the fiscal year ending March 31, 2020. Furthermore,
we engaged in improvements based on responses to surveys about our CSR initiatives received from customers,
investors, and external institutions, linking this with expansion in our information disclosure. We conducted aCompliance Behavior Survey among employees, the resultsof which were reflected in our Compliance Activity Plan for
the fiscal year ending March 31, 2020. Our internal organizations responsible for compliance also conducted Surveys
on Transactions with Kurita Water Industries Ltd. at theCompany’s suppliers to check directly the appropriatenessof our transactions with them. We undertook individual
measures based on the feedback received. In addition, we
integrated the CSV business with our environmental
improvement initiatives to expand the value we provide tosociety. This enabled us to increase understanding within
the Group and to expand and develop the CSV business.

An E&S Committee meeting

External Evaluation
1. Inclusion in ESG Indexes (As of June 2019)

2. Evaluation by
CSR Rating Organization

MSCI ACWI ESG Leaders Index
FTSE4Good Index Series

FTSE Blossom Japan Index

MSCI World ESG Leaders Index
ISS-oekom

The MSCI Japan Empowering Women Index (WIN)

SNAM Sustainability Index* The inclusion of Kurita Water Industries Ltd. in any MSCI index, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship,endorsement or promotion of Kurita Water Industries Ltd. by MSCI or any of its affiliates.
The MSCI indexes are the exclusive property of MSCI. MSCI and the MSCI index names and logos are trademarks or service marks of MSCI or its affiliates.

CSV Business
To promote the themes for growth opportunities in the
CSR Policy, the Kurita Group has designated products,
technologies, and business models that contribute significantly to increased water-saving, CO 2 emissions
reduction, and waste reduction compared to previous
levels as the “CSV business.*” Through their creation andprovision to customers, we will promote the creation ofshared value with society. Furthermore, “development of
the CSV business” is one of the priority measures in themedium-term management plan, MVP-22, and we haveestablished key performance indicators for this, taking
initiatives linked with the management plan.
* Please see page 45, “Environmental Improvement activities” for informationon the CSV business.

Kurita Water Industries Ltd. Integrated Report 201919

Challenges and Measures in the MVP-22 Plan

Enhancement of Total Solutions
We will promote development and horizontal deployment of
a new business model.
The water treatment market where the Kurita Group has
been operating its business for many years is maturing.
Technologies and products that once held unique status
are now becoming commoditized and subject to severe
cost competition. The Group is currently feeling a sense ofcrisis: if we are to continue delivering earnings, we must
transition from a business model of selling individual
products in water treatment chemicals and water treatment facilities to a business model that generates recurring
earnings. I believe the Solution Business Division must
lead our efforts to break free from established ideas basedon past successes and reform our business model.
The primary function of this division is to create a business model based on marketing and propose this model
to sales divisions in order to provide new solutions tocustomers. This is our first attempt of this kind as a Groupat the organization level. Another function of the division is
to grasp the deeper needs driving customer’s issues,
needs that customers do not notice, from a technical perspective and carry out operations from drafting contracts
to horizontal development. A further function is to propose the use of IoT and AI, which will be vital for leveraging
our comprehensive capabilities. Ideally, I would like toToshitaka
KodamaExecutive General
Manager of Solution
Business Division

20

Transitioning to a business model that provides recurring earnings by providing solutions for customers on site

leave our manufacturing functions in place and develop
total solutions and the service contract-type businessmodel on top of these. Ultimately, we aim to be the driverof a shift from selling products to selling services.
One of the benefits for customers of using the Group’s
services has been the opportunity to receive technicalproposals and support offered jointly by the sales andtechnology departments. To ensure that the Group’s
intended services stay attuned to customers’ needs, links
need to be maintained between various divisions, including
sales and engineering. To this end, we have divided theJapanese markets into nine, and for each one, we will
undertake joint initiatives with sales, marketing, engineering, and development working together. We will also
promote coordination based on IT and AI, as well as initiatives coordinated with overseas Group companies.
The transition from individual products to a service
contract-type business offers benefits for expanding ourbusiness activities and enabling recurring transactions,but will also require a more rigorous approach to risk
management. Expanding the scope and time frame ofcontracts will certainly increase capital and cost burdens.
In our contracts, we need to discern how much cost to
bear from the perspective of returns, as well as how tohedge the risks. I believe it is the duty of the Solution Business Division to foster the conceptual, planning, andexecution capabilities of the employees who are working
on the Group’s reforms, including their awareness of
returns commensurate with risk.

Integrating and Transforming Our Business in Japan
We will aim to expand recurring earnings in Japan,
our main market.
Japan is the Kurita Group’s main market, accounting forthe majority of its sales. It has continued to be a primarysource of earnings. In the Water Treatment Chemicals
business, we provide solutions to issues related to waterand the environment on approximately 20,000 customer
sites covering many market segments. In the Water
Treatment Facilities business, we provide services fromdelivery to maintenance of water and wastewater treatment facilities used on production sites for customers in
the electronics industry, general industry, and energy
industries, among others.
Since the global financial crisis in 2008, however, thewater treatment market in Japan has been graduallyshrinking as customers consolidate their production sites
and relocate them offshore. In addition to increasing pricecompetition, a decline in Japan’s working population ismaking it difficult to maintain earnings using our traditional sales methods.
To continue growing our earnings in this situation, weare currently engaged in a major transformation of ourbusiness model in Japan. Our priority measures here are“enhancement of total solutions,” “development of CSV
business,” and “strengthening cost management.”
In enhancing total solutions, we are creating a new service contract-type business that combines water treatment
chemicals, water treatment facilities, and maintenanceservices. In April 2019, we consolidated all domestic sales
functions in the Japan Sales Business Division, thenstrengthened our systems for each market and region tocreate a foundation for deploying total solutions. Now weneed to accelerate this deployment and deliver results.
Moreover, in the CSV business, we will develop products
and services to resolve water and environmental issues inline with our four growth opportunity themes*. The key
point here is to build a new business model in which we
first get a solid grasp of the real issues that our customers
are facing, propose optimal solutions that package together
product, technology, and services, and then share consideration for the value received by the customer. I am surethat the important role for this division in achieving this is
to coordinate with other divisions such as the Solutions
Business Division and ensure that they accurately reflect
the customers’ perspective and needs.
In strengthening cost management, we will work alongside the Engineering Division to reform the manufacturingsystem of water treatment facilities, which tends to generate additional costs. In addition, we are making progresson streamlining operation management and maintenance

Priority Measure 1

Priority Measure 2

Priority Measure 3

Enhancement of
total solutions

Development of
CSV Business

Strengthening of
cost management

Organizational changes in line with priority measures
Transformation of the Sales System in Japan

with the use of AI, IoT, and sensing technologies. We alsoneed to discern the profitability of businesses and projects rapidly and at an early stage. As the sales network inJapan is one of the Kurita Group’s major strengths, we arealso aligning this with the new structure by merging operations and relocating and consolidating sales offices.
For personnel, who are at the heart of our reforms,
the integration of operations in the division has enabled
us to assign people where their individual strengths canbe of most benefit. Looking ahead, we will increase personnel exchanges with the Global Business Division andwith Group companies as we strive to develop humanresources equipped with a high degree of specializationand proposal capabilities.
* For further details on the Company’s four growth opportunity themes, pleasesee page 18 “CSR Initiatives.”

YoshioYamadaExecutive General
Manager of Japan Sales
Business Division21

Challenges and Measures in the MVP-22 Plan

A New Stage in Global Development
We will expand earnings by upgrading newly acquired
business bases.
The Group has been shifting its global strategy into a fourarea structure comprising Japan, Asia, EMEA (Europe,
Middle East, Africa), and North and South America. We have
had a structure based on Japan, where we alreadyhave a strong base, and overseas, where there is growthpotential due to our low market share. One of the priorities for the Global Business Division is to build a structurethat enables business expansion in every region overseas.
Since 2015, we have strengthened our business bases in
Europe and South Korea through M&As. With the acquisition of U.S. Water Services, Inc. in March 2019, followed by
the acquisition of Fremont Industries, LLC in January 2017,
we are expecting to quadruple our sales in North America.
These measures have established our four-area structure.
Under this structure, we plan to achieve organic growthand improvement in profits in each area. Moreover, we will
work toward the global expansion of RO chemical services
provided by Avista Technologies, Inc. and Avista Technologies (UK) Ltd., which we acquired in May 2019. In this way,
we will increase our overseas sales ratio to around 40% for
the fiscal year ending March 31, 2020. However, we still
intend to examine M&A opportunities for acquiring competitive products and technologies and strengthening ourbusiness in certain regions.
The Group has identified geopolitical risks and local
economic trends as important risk factors in developing
globally. In the near term, we face the impact of trade

Yasuo
Suzuki
Executive General
Manager of Global
Business Division

Expanding regionally balanced overseas sales
through M&As
20.9

1.3
5.1
Fiscal year ended
March 31, 2014¥33.6 billion 27.2
Asia

North and South America

33.1

58.9

¥112.9 billion

EMEA

disputes between the United States and China and a senseof uncertainty over the future of the electronics industry.
Moreover, business conditions in China and South Korea
are becoming increasingly severe after the last few yearsof brisk activity. However, as the business outside ofJapan in Asia, EMEA, and North and South America is
about the same in scale, I believe that we have managed
to diversify our business risk.
I see the fiscal year ending March 31, 2020 as a year
for business development and the creation of synergies in
the United States in particular. We will promote collaboration and integration (PMI*) of Kurita America Inc., Fremont
Industries, and U.S. Water Services, while also expanding
sales of Avista Technologies products, thereby promoting
the proposal of total solutions incorporating water treatment chemicals, water treatment facilities, and maintenanceservices. To aid this development, in addition to our initiatives in each region, we will utilize the Tokyo head officemarketing function to communicate our new achievementsfrom North America.
Another important mission for the division is to promote linkages within the Group between business,
technology development, and human resource development from a global perspective. In managing overseas
offices, we recognize the importance of fostering a senseof unity. To achieve this, the division has to actively involve
itself in making arrangements between regions and sharing
the important principles of the Group, while leaving
the local operations to the highly skilled personnel ineach company. Furthermore, we seek to contribute to
the growth of the entire Kurita Group by enhancing oursense of purpose as a global business and cooperating withthe sales division in Japan to make mutual use of ourstrengths and expertise.
* PMI: Post-Merger Integration

22

Fiscal year ending
March 31, 2020
(plan)

Rebuilding the Group’s Manufacturing System
We will achieve higher quality and better production efficiency
as an evolving engineering group.
With a recent rapid expansion of our global businessthrough M&As and promotion of total solutions, the Kurita
Group’s business is entering a period of dramatic change.
Moreover, the social and economic risks surrounding
the Group include a decline in the production and delivery
labor force in Japan, a worldwide increase in personnel
costs and prices, and geopolitical risks.
In this situation, the Engineering Division’s role is toachieve improvements in quality, including safety, andefficiency, reinforcing the business base that supports
the Group’s transformation. One of our urgent priorities
is to completely reform the manufacturing system forwater treatment facilities. In the fiscal year ended March
31, 2019, due to active capital investment among customers in Japan our production of water treatment
facilities became excessively busy, and many jobs
required reworking with the additional costs weighing on
our profits. With this, structural issues have emerged
within the Group. To remedy this, we are improving ourwork processes and flows, standardizing our water treatment facilities to reduce design work each time, andpromoting the use of ICT and alliances to make more
efficient use of limited human resources.
To match the expansion of our global business, wewill establish global supply chains and optimize our procurement and manufacturing sites, while promoting useof the production functions we have gained throughacquisitions. Furthermore, we will reinforce our information network and promote compliance with revisions tolaws and tightening of regulations related to safety andthe environment. In promoting total solutions, we also
recognize that the division has an important role to play
in investigating the feasibility of business models fromthe perspectives of quality, safety, and cost.
Furthermore, the most important management
resource for supporting our business base in terms of
production is technologies, manufacturing know-how, andhuman resources including partner companies. In addition to developing engineers who are cost aware andversed in the principles of manufacturing, as a method of
human resource management, we are introducing HR
tech*. This involves adding reductionism and systemthinking to the traditional approaches of evaluating experience and technical level. We believe this approach will
help us to utilize human resources strategically.
Risks for the Engineering Division also present significant opportunities for transformation through increasing
the efficiency of the production system and strengthening the cost management system. By breaking free ofoutmoded thinking, we will contribute to increasing thecapital efficiency and reducing the costs of the entire
Group, aiming to be an engineering group that is sustainably evolving ahead of our competitors.
* The application of big data analysis, artificial intelligence (AI), cloud computing andother advanced IT-related technologies for a wide range of human resource operations, including hiring, development, and assignment.

Hirohiko
Ejiri
Executive General
Manager ofEngineering Division

From shorter construction lead times through standardization and ICT and on to thenext stage

23

Challenges and Measures in the MVP-22 Plan

Technology Development for the Creation ofCustomer Value
We will accelerate development by changing ourperspectives and reforming our awareness.
Throughout its 70-year history, the Kurita Group’s technological capabilities have always been a source ofcompetitive advantage. The Research and Development
Division is playing a major role in creating the key products
and technologies that will underpin our efforts to promote“development of CSV business” and “enhancement of totalsolutions” under the MVP-22 plan. In step with the transformation of our business model, we need to pivot awayfrom the traditional concept of development.
Over the past few years, as customers face management
rationalization and a decrease in experienced engineers
they are increasingly seeking to outsource water treatment
and utility management to reliable experts. In addition,a general increase in awareness of CSR in wider society
and the globalization of environmental issues present new
business opportunities for the Company. On the other
hand, water treatment itself is a maturing technology, and
it is becoming difficult to differentiate through the costand performance of individual products. Developmentthat simply pursues excessive product specification andcost reductions could not only widen the gap with customers’ needs, but also lead to a decline in earnings. Moreover,in a rapidly changing management environment, a loss ofpace in development will lead directly to a loss of business
opportunities.
Given our recognition of the current situation, in orderto speedily create the necessary products and technologies

Tatsushi
Kuramae
Executive General
Manager of Research andDevelopment Division

24

Links between development bases in Japan, Germany, and Singapore

for the CSV business and total solutions, we need tochange our perspective from our previous focus on
increasing the competitive edge of the products themselves, to development that emphasizes “optimizing
customers’ overall production process to create greater
customer value.” To achieve this, we will coordinate withthe marketing department and the operating divisions to
map out the customer value to be created and the business model we need as we proceed with development.
In terms of transforming the development process, ourpriority measure is “strengthen fluid and process analysis.”
We will use engineering analysis to create numericalmodels from the abundant experience and expertise wehave accumulated in water treatment to date, and combine these with rapidly advancing computer simulations of
fluid phenomena. This will speed up development bymaking testing and performance verification more efficient,
as well as enabling us to create technologies for optimizing
water treatment management and production processes
using the power of AI and IoT. In addition, we will strengthenties with our overseas development bases in Germany
and Singapore, and promote open innovation withresearch institutions in Japan and abroad to enable more
efficient development in line with global needs.
The keys to achieving transformation are developmentof human resources who can create total solutions basedon a broad knowledge of water treatment coupled withhigh level expertise and a change of awareness amongdevelopers. To break away from fixed ideas based on pastexperience, we will increase opportunities for developers
to encounter the change in needs of society and our customers and to meet and exchange ideas with top engineers
in and outside Japan. We will work actively to broaden theirperspectives and reform their awareness.

Driving the Creation of New Businesses
We will explore potential new businesses
and create core businesses.
To accelerate growth with high profitability for the Kurita
Group, the Next Generation Business Division has beenworking to create new core businesses. We have identified
ships, batteries, and water-saving as our main fields.
In the ships field, we are focusing mainly on commercialization of ballast water treatment systems to cope withtighter international regulations for preserving marine
ecosystems. We are now working quickly to put sales andproduction systems in place with a view to acquisition ofUnited States Coast Guard certification and rapid market
entry in 2020. In the field of batteries, we are collaboratingwith our Group companies in China and South Korea andaiming to deliver ABSORBENT*1 to companies manufacturing lithium-ion batteries for automobiles. In the water-saving
field, we are using the data analysis and communication
technologies of U.S. company APANA Inc., which became
an equity-method affiliate in April 2019, to fully develop
the water-saving solutions business in Japan by optimizing
water use through a completely new approach.
In addition to these specific initiatives for commercialization, the division is also exploring candidates for new
businesses. We narrow down promising new businesses
from information acquired using venture capital and also
apply the PoC*2 method aiming to achieve early commercialization. Speed is the most important factor in
exploring new businesses. Rather than working out
detailed business plans as for an existing business,
it requires the ability to solve immediate issues on
the move and the decision-making speed to change direction quickly if mistakes are made. This approach to businessis the same as that of the U.S. start-up Fracta, Inc.

(currently Kurita Fracta Holdings, Inc.), which became asubsidiary in May 2018. Fracta develops software services
using artificial intelligence and machine learning (AI/ML).
Its business approach is the polar opposite of the values
and methods of the Kurita Group, which has maintained
and refined the same business over many years. Our
intention is to move beyond the established norms that
Kurita has followed to date and to consider M&As andalliances flexibly.
I think the most important management resource
when starting a new business is human resources. I expect
individual human resources to think beyond conventionalframeworks and to act accordingly. Rather than becoming
fixated on the methods that have produced results inexisting businesses or ways of doing things that we areparticularly strong at, I want us to learn about the latest
technologies and business trends, and to actively incorporate them. In the Next Generation Business Division, we
will keep our eyes on the outside world and remain open
to absorbing new things as we continue working to generate new businesses.
*1	A proprietary material of Kurita that increases the safety of lithium-ion batteries byutilizing adsorption and desorption properties of chemical substances developed in
the water treatment field.
*2	Abbreviation for Proof of Concept. A simple test to demonstrate that a new concept
or theory is feasible.

HiroakiMori
Executive General
Manager of Next Generation
Business Division

Promote commercialization with a focus on the importance of ballast water treatment

25

Review of Operations by Segment

Water Treatment Chemicals
Results in the Fiscal Year Ended March 31, 2019

Orders* (Millions of Yen)
Orders¥102,939

Year-on-year
Changemillion102,939
83,44059,41390,35882,118Net Sales¥102,088

59,353Operating
Income¥8,327+ 13.9%Year-on-year
Changemillion+ 13.0%Year-on-year
Changemillion+ 16.0%Overview of the Fiscal Year Ended March 31, 2019
2014

2015

2016

2017

2018

2019

Net Sales* (Millions of Yen)
102,088

58,84459,9992014

2015

90,361

83,68081,883

2016

2017

2018

2019

Operating Income* (Millions of Yen)

7,954

Main Initiatives
8,327

7,877
7,231

Orders and net sales in Japan both increased year on year
atop increases in cooling water treatment chemicals andprocess treatment chemicals for iron and steel driven bygenerally firm production activity in the manufacturingindustry and efforts to cultivate new customers throughsolution proposals. The increase was partially offset by
the absence of spot projects in equipment and services thatwere posted in the previous fiscal year.
Overseas, both orders and sales rose significantly,
reflecting an increase in demand for water treatment, particularly in Asia, and an increase in the consolidation periodby 11 months for operating results of Hansu Co., Ltd. inSouth Korea, which became a consolidated subsidiary in
the fourth quarter of the previous fiscal year, despite theimpact from the sale of the aluminum compound business
in Europe.
Operating income increased as the effect of increased
sales outweighed a rise in the cost of sales ratio and anincrease in selling, general and administrative expenses.

7,180

6,467

Unified the customer contact point for domestic water treatment chemicals, maintenance and water treatment facilities
business, and promoted proposal of total solutions to realize optimal overall water treatment for customers’ plants.
Developed products formulated with CETAMINETM andDReeM PolymerTM to help save energy use in boilers.
Promoted the use of IT and sensing technology S.sensingTM.
Promoted a service contract-type business to reduce steam
usage in the drying process in paper manufacturing.
Sold the low-margin aluminum compound business in
Europe.

2014

2015

2016

2017

2018

2019

* Years ended March 31

26

Kurita Water Industries Ltd. Integrated Report 2019

Established a new plant in Malaysia to keep pace withexpanding demand for water treatment chemicals inSoutheast Asia.
Acquired a business base expanding across the entire
United States with the acquisition of U.S. Water Services, Inc.

Principal Products and Services

Boiler water treatment chemicals

Cooling Water Treatment Chemicals

Wastewater Treatment Chemicals

Boilers are widely used for production processes in plants and air conditioning in officebuildings. Boiler water treatment chemicals
are used to prevent faults that may arise inboilers and ensure stable, efficient operation.
They also contribute to energy saving by preventing loss of heat efficiency in the boiler.

Cooling water treatment chemicals are used
to treat cooling water used in plants andoffice buildings. By preventing problems inpipes and heat exchanges, and prevent thegrowth of harmful Legionella bacteria in cooling towers, these chemicals contribute toresource and energy saving, as well as thecreation of safe workplaces.

Wastewater treatment chemicals are used
to treat the many forms of industrial wastewater discharged by plants and domestic
sewage to ensure that they do not negatively impact the local environment. Proper
treatment of wastewater contributes to the
reduction of environmental impact.

Process Treatment Chemicals

Reverse Osmosis (RO) Membrane
Treatment Chemicals

Treatment Chemicals for
Automobile Painting Booths

Process treatment chemicals are used in the
manufacturing processes of the oil refining,
petrochemical, steel, and pulp and paperindustries, where they contribute to maintaining and improving production efficiency
and product quality.

RO membrane treatment chemicals remove
suspended substances that can reduce thefiltering performance of RO membranes usedin wastewater reclamation and seawater
desalination facilities. By preventing clogging
of the membranes, the chemicals contributeto stable, efficient operation of the facilities.

Water treatment chemicals that separate
residual paint contained in water in automobile painting booths ensure that circulatingwater is of appropriate quality, contributing
to improvement of productivity and reduction of environmental impact.

Treatment Chemicals for
Incinerators

Treatment Chemicals for
Civil Engineering

Chemical Dosing and Injection
Equipment

Treatment chemicals for incinerators provide
consistent treatment of hazardous substances,such as heavy metals contained in the fly ash,and control the emissions of dioxins, thereby
contributing to the reduction of environmental impact.

Various treatment chemicals are used in civilengineering to promote greenspace development, treat construction sludge appropriately,
and reduce sprayed concrete dust, among
other applications.

The Kurita Group provides water treatmentrelated equipment for a wide range of applications, such as automatic water quality
management systems that use chemical
dosing and injection equipment and sensing
technologies. By enabling stable operation ofcustomers’ facilities, this equipment contributes to labor saving and reduction ofenvironmental impact.

Kurita Water Industries Ltd. Integrated Report 201927

Review of Operations by Segment

Water Treatment Facilities
Results in the Fiscal Year Ended March 31, 2019

Orders* (Millions of Yen)
Orders161,088
137,832
114,049

155,500

136,611Net Sales

121,928¥155,500¥157,321

Operating
Income¥15,932

Year-on-year
Changemillion- 3.5%
Year-on-year
Changemillion+ 7.4%
Year-on-year
Changemillion+ 4.0%

Overview of the Fiscal Year Ended March 31, 2019
2014

2015

2016

2017

2018

2019

Net Sales* (Millions of Yen)

146,453
119,2922014

129,399

130,692

132,304

2015

2016

2017

2018

157,3212019

Operating Income* (Millions of Yen)

15,312

15,932

Orders and net sales both increased for the domestic
electronics industry. The Group received orders for largescale projects in facilities related to semiconductors,
electronic components, and wafers, while demand formaintenance grew due to facility expansion and upgrades
against a backdrop of high capacity utilization at customers’
plants. Sales in the ultrapure water supply business also
increased due to the impact of expansion projects.
For domestic general industries, orders increased as
the Group received orders for large projects in facilities forthe electric power industry and soil remediation as well as
facilities for biogas power generation, with orders for maintenance services also growing atop an increase in projects
to renew and expand facilities at customers’ plants. On theother hand, sales decreased, mainly due to narrowing down
acceptance of orders in facilities for general industries.
Overseas, there was a slowdown in capital investment
demand for flat-panel displays (FPDs) and semiconductors
in the second half of the year, particularly in China andSouth Korea, leading to a decline in orders. Sales increased
due to progress in construction work for large projects forthe electronics industry in China and South Korea.
Operating income increased as growth in sales and efforts
to reduce costs absorbed the impact of unprofitable projects.

13,366
12,22011,560Main Initiatives
Promoted the proposal of total solutions in Japan forcontributing to energy saving, waste reduction andwater saving.

6,934

Revised production system of water treatment facilities
using ICT and alliances.
Actively invested in the ultrapure water supply business.
2014

2015

2016

2017

2018

2019

* Years ended March 31

28

Kurita Water Industries Ltd. Integrated Report 2019

Acquired 25% of the shares of Pentagon Technologies
Group, Inc., expanding the tool cleaning business.
Promoted CSV business, such as reclaimed water supply
services and dry methane fermentation technology.

Principal Products and Services

Ultrapure Water
Production Systems

Water Treatment Systems for
General Industrial Use

Wastewater Treatment Systems

Ultrapure water production systems remove
ions, microscopic particles and bacteria fromwater to produce water that is as close as
possible to theoretically pure H 2 O—anessential ingredient in the production ofsemiconductors and FPDs.

Kurita provides water treatment systems tocover a wide range of industrial uses, including the water for pharmaceuticals such as
injectable drugs and eye medicines, water forbeverages such as alcoholic and soft drinks,
and boiler water for use in the electric powerand steel industries.

Wastewater treatment systems act to detoxify
the many forms of wastewater discharged byplants to ensure that it does not negatively
impact the surrounding environment.

Wastewater Reclamation Systems

Maintenance Services

Ultrapure Water Supply Business

Kurita provides systems for reclaiming
and recycling wastewater. Moreover, byreclaiming marketable substances includedin the wastewater, the systems contribute to
the conservation of resources and cost
reductions.

Kurita provides maintenance services toprevent performance degrading and problems arising in water treatment facilities.
Kurita also proposes modifications to meetclients’ needs for reducing environmental
impact and improving productivity.

Kurita installs water treatment systems
within clients’ plants, handles the operationand maintenance of those systems, andcharges clients for the supply of ultrapure
water. This service reduces the level ofinvestment required and the burden ofsystem operation management.

Tool Cleaning

Soil and Groundwater Remediation

Chemical Cleaning

At our own plant, we can clean and remove
any deposits that adhere to tools and jigs
used by customers in the manufacture ofsemiconductors and FPDs. The provision oftool cleaning services helps customers tomaintain and improve their productivity.

Kurita conducts pollution assessments andremediation of soil and groundwater pollutedby harmful substances. Using various decontamination methods, Kurita helps customers
to hedge against the risk of soil pollution.
Other services include support for the effective use or sale of restored land.

Kurita also provides chemical cleaning services
using chemicals and high-pressure water toclean accumulated deposits from boilers,
heat exchangers and pipes, ensuring thatlarge-scale plants such as industrial complexes and electric power plants continue tooperate safely and efficiently.

Kurita Water Industries Ltd. Integrated Report 201929

R&D and Intellectual Property

Activities in the Fiscal Year Ended March 31, 2019
The Kurita Group has contributed to solving various problems facing society and customers through its products
and services. These have been developed by leveraging
the high technological capabilities that Kurita has accumulated in the water and environment fields over many years.
In the fiscal year ended March 31, 2019, the Kurita
Group worked to develop water treatment chemicals that
help to save energy, reduce environmental impact, andincrease productivity at customers’ plants, and to develop
diagnostic technologies for chemical treatment effects.
Other activities included improving quality of our ultrapure

water for application in the electronics industry, as well as
making efforts to develop technologies for a recycling-oriented society, such as wastewater reclamation and reusetechnology and biogas power generation technology.
On the systems front, we promoted our global researchand development systems, achieving links between our
three development bases in Japan, Germany, and Singapore, and making full use of technology assets and humanresources to promote human resource exchanges andjoint development.

Achievements in the Fiscal Year Ended March 31, 2019
Research andDevelopment Bases

Kurita Global Technology Center (Japan), Kurita Europe GmbH (Germany),
Kurita R&D Asia Pte. Ltd. (Singapore)

R&D staff

Approx. 180

R&D expenses

Approx. ¥5.5 billion (2.1% of net sales)

Water
Treatment
Chemicals

Developed systems for optimizing control of chemical dosage for suppressing clogging of membrane inreverse osmosis (RO) membrane equipment used for wastewater reclamation and seawater
desalination
Developed a sludge treatment system combining water treatment chemicals, a sludge granulation
concentrator, and a dehydrator
Developed water treatment chemicals for plants that use open circulation cooling water systems tocomply with Chinese environmental and safety regulations

Water
Treatment
Facilities

Improved the function of each component unit in the ultrapure water production system anddeveloped automatic control function that responds to required water quality
Developed a space-saving pure water production system with enhanced boron-removal function
Developed pre-treatment facility capable of stably processing water of high turbidity and enhanced thefunctions of the remote monitoring system to expand application of pure water supply service insmall- to medium-sized pure water equipment

Main Results

Initiatives under the Medium-Term Management Plan, MVP-22
Under the MVP-22 plan, R&D plays a role in creating coreproducts and technologies for the CSV business and totalsolutions, as well as strengthening the Company’s technological foundation. To realize these objectives, we haveclassified our R&D themes into three areas: developmentof products and solutions, development of advanced
technologies and digital solutions, and deep cultivation ofa technological foundation. We manage development
according to the characteristics of the development themes.
With regard to development of products and solutions,
our activities are oriented towards realizing a service
contract-type business that corresponds to social needs
and customer issues from the perspectives of water
resources, energy, waste, and production technology.
In development, the Research and Development Divisionand the Solution Business Division work together to maximize the value provided to customers while also achieving
high profitability.
In development of advanced technologies and digitalsolutions, our efforts are concentrated in the fields of polymer materials, next-generation semiconductor process
technologies, and water treatment technologies for saving
and creating energy. In deploying total solutions and the30

Kurita Water Industries Ltd. Integrated Report 2019

CSV business, proprietary materials and technologies willplay a vital part in increasing our competitive advantage
and profitability. We will utilize the technological expertisethat we have accumulated over many years in addition to
open innovation to strengthen our development andmake it more efficient. In addition, we will leverage IoT and
R&D System Under the MVP-22 PlanThree priority themes
Development of
products andsolutions

Development ofadvanced technologies
and digital solutions

Solutions
Business
Division

Collaboration

Deep cultivation oftechnologicalfoundation

Research andDevelopment
DivisionAI technologies to promote development of digital solutions that will advance water treatment control andoperation management.
In addition, the Kurita Group has a technologicalfoundation that includes technologies for membrane
separation, corrosion prevention and dispersion, andanalysis, which have been accumulated through 70 yearsof experience on the front lines of water treatment.
These technologies are the source of the Kurita Group’s
competitive advantage and its solutions. In our efforts
on deep cultivation of technological foundation, we areworking on the theme of strengthening fluid and process
analysis through new combinations of water treatment
knowledge and expertise with computer technology.
In addition, we are working to improve the level of completion of developed products and to accelerate development.

Cultivation of Technological Foundation

Analysis

Corrosion
prevention anddispersion

Fluid andprocess
analysis

Coagulationandflocculation

Kurita Group’s
technologicalfoundation

Purification
andmodification

Biologicalengineering Deionization
andadsorption

Sterilization
andbacteriostasis

Membraneseparation

Utilization of Intellectual Property
The Kurita Group strives to secure and properly manage
intellectual property with the aim of increasing the competitiveness of its core products and technologies in Japanand overseas.
In the fiscal year ended March 31, 2019, we strove tobuild a system to support our management initiatives ofpromoting total solutions and building a global businesssystem from an intellectual property perspective. In promoting total solutions, it is important to build solution
models that incorporate products and sales methods andcan be deployed horizontally. However, to leverage this asa strength of the Company, each model must be protected
as intellectual property. During the fiscal year under review,
we focused on creation and integration of solution model
details and cooperated with relevant divisions in the Groupand affiliated companies to apply for relevant patents.
In particular, for our technology for increasing thermal conductivity using chemicals with water repellent characteristics
and our recycled water supply service, we worked to build a
web of patents combining the business model and component technologies. Furthermore, as we develop our global
business system, we have further developed relevant rules
for overseas affiliated companies aimed at strengthening
intellectual property management for the entire Group.
As a result, the number of patent applications in Japanfor the fiscal year ended March 31, 2019 was slightly lower
than the previous fiscal year at 181. However, the numberof patent applications related to the solutions businessincreased. Moreover, overseas patent applications

recorded a new record high at 82 following overseas
business expansion.
Looking ahead, we will advance our initiatives evenfurther, accelerating patent applications that support theCSV business and the total solutions business and developing an internal reward system. We will also build andutilize a web of patents for protecting products deployedoverseas, while implementing centralized management
and efficient utilization of intellectual property across theentire Group.
Number of Patents and Patent Applications
For the years ended March 31

Japan

Patents

Patent applications

Overseas

Patents

Patent applications

2,000

1,804

1,783

1,800

1,704

1,644
1,505

698

800
600

756

0

821

529

400
200

791

153

193

181

52

75

82

2017

2018

2019

155

59

143
63

2015

2016

Kurita Water Industries Ltd. Integrated Report 201931

Directors, Members of the Audit & Supervisory Board,and Executive Officers(As of July 1, 2019)

Directors

President and Representative Director

Koichi Iioka

Michiya Kadota

2018 Chairman and Director (to present)
Chief Business Officer for Global
Operation (to present)2016 Executive Senior Managing Director
and Representative Director
2013 Managing Director
2011 President and Representative Director,
Kuritec Service Co. Ltd.
2007 Director
2005 Executive Officer
1975 Joined Kurita Water Industries Ltd.

2016 President and Representative Director(to present)2014 Director
2013 Executive Officer
1983 Joined Kurita Water Industries Ltd.

2019 Executive General Manager of Solution
Business Division and2019 Executive General Manager ofChief Business Officer for Facility
Corporate Planning andOperation (to present)
Control Division (to present)2018 Executive Senior Managing Director and 2016 Managing Director (to present)
2014
Director
Representative Director
2011 Executive Officer(to present)
1977 Joined Kurita Water Industries Ltd.
2013 Managing Director
2009 Director
2007 Executive Officer
1979 Joined Kurita Water Industries Ltd.

Managing Director

Managing Director

Director

Director

Yoshio Yamada

Hirohiko Ejiri

Toshimi Kobayashi

Yasuo Suzuki

2019 Executive General Manager ofJapan Sales Business Division andChief Business Officer for Chemical
Operation (to present)2018 Managing Director (to present)2014 Director
2011 Executive Officer
1982 Joined Kurita Water Industries Ltd.

2019 Managing Director (to present)2018 Executive General Manager ofEngineering Division (to present)2016 Director
2014 Executive Officer
1985 Joined Kurita Water Industries Ltd.

2019 Senior General Manager of
Administration Group, Japan Sales
Business Division (to present)2018 Director (to present)
2011 Executive Officer
1982 Joined Kurita Seibi KK** Kurita Seibi KK was merged to Kurita Water
Industries Ltd. in 1997.

2018 Executive General Manager of
Global Business Division (to present)
Director (to present)2014 Executive Officer
1997 Joined Kurita Water Industries Ltd.

32

Kurita Water Industries Ltd. Integrated Report 2019

Executive Senior Managing Director andRepresentative Director

Managing Director

Chairman and Director

Kiyoshi Itou

Toshitaka Kodama

External Directors

External Director

External Director

External Director

Tsuguto Moriwaki

Ryoko Sugiyama

Keiko Tanaka

2015 External Director of Kurita Water
Industries Ltd. (to present)
2004 President and Representative
Director of Shinsho Corporation
2002 Executive Vice President andRepresentative Director of
Kobe Steel, Ltd.
1999 President and Representative
Director of Kobelco Construction
Machinery Co., Ltd.
1967 Joined Kobe Steel, Ltd.

2017 External Director of Kurita Water
Industries Ltd. (to present)2015 External Director of UACJ Corporation(to present)2010 External Director and Audit andSupervisory Committee Member of
LECIP Holdings Corporation(to present)2010 Professor at the Faculty of Social andEnvironmental Studies ofFuji Tokoha University(current Tokoha University)
2007 Director of Sugiyama & Kurihara
Environmental Consultants, Inc.
(to present)
1996 Established Sugiyama & Kurihara
Environmental Consultants, Inc.,
Representative Director

2019 External Director of Kurita Water
Industries Ltd. (to present)2018 Vice President of Nissan Financial
Services Co., Ltd. (to present)2014 Ambassador Extraordinary andPlenipotentiary of Japan to Uruguay
2013 Acted as Vice President of JATCO Ltd.
1984 Joined NISSAN MOTOR CO., LTD.

Members of the Audit & Supervisory Board

External Member of the Audit &Supervisory Board

Member of the Audit &Supervisory Board

External Member of the Audit &Supervisory Board (Part time)

Kenjiro Kobayashi

Yukihiko Mutou

Shigekazu Torikai

2016 External Member of the Audit &Supervisory Board of Kurita Water
Industries Ltd. (to present)2010 Representative Director and Executive
Vice President of Japan Industrial
Solutions Co., Ltd.
1977 Joined Japan Development Bank
(current Development Bank ofJapan Inc.)

2019 Member of the Audit & Supervisory
Board (to present)2018 Director
2016 Executive Officer
1991 Joined Kurita Water Industries Ltd.

2018 Outside Director of RISO KAGAKUCORPORATION (to present)2017 External Member of the Audit & Supervisory
Board of Kurita Water Industries Ltd.
(part time) (to present)2015 External Director of United Super Markets
Holdings Inc. (to present)
1994 Established Torikai Management Law Office(current Torikai Law Office)1990 Registered as an attorney

Executive Officers
Shuji Shirode

Tatsushi Kuramae

Hiroaki Mori

Kunihiro Kuse

Deputy Executive General Manager ofCorporate Planning andControl Division

Executive General Manager ofResearch and Development Division andPresident of Kurita R&D Asia Pte. Ltd.

Executive General Manager of
Next Generation Business Division

Senior General Manager ofEngineering Group,Engineering DivisionMatsuhiro Omaki

Masaya Kawai

Tatsuhiro Oosuga

Hirohisa Kamata

Global Business Division

Senior General Manager of East Japan Group,Japan Sales Business Division

Senior General Manager of West Japan
Group, Japan Sales Business Division

Senior General Manager of Energy &Infrastructure Industries Group,Japan Sales Business Division

Kurita Water Industries Ltd. Integrated Report 201933

The Basis for Management Activities

Corporate Governance
Basic Concept
The Kurita Group aims to contribute broadly to society
through corporate activities in the fields of water and environment in accordance with the Kurita corporate philosophy,“Study the properties of water, master them, and we will
create an environment in which nature and man are in harmony.” The Kurita Group will make efforts to promotesustainable growth and enhance its corporate value in themedium and long term, deferring to the rights and position ofvarious stakeholders such as customers, business partners,
employees, shareholders, and local communities while striving to meet their expectations. To this end, the Kurita Group
is striving to establish corporate governance, with the aim ofrealizing transparent, fair, prompt, and decisive decision-making
measures and highly effective management supervision.

Corporate Governance Structure
As a company with an Audit & Supervisory Board, the Company’s Board of Directors has the two functions ofdecision-making and supervision over business execution.
The Board sets the strategic direction for the Kurita Groupand supervises management in general, as well as deciding
on the execution of business for important investment andfinancing projects, the transfer of business, and so forth. For
matters other than important matters, business execution isdecided by the Executive Committee, which is composed ofmanagement executives, or by management executives
who have been given deciding authority under the Internal
Decision Approval and Review Rules.

Overview of Corporate Governance Structure(As of June 27, 2019)

Organization form

Company with an Audit &Supervisory Board

Number of directors

11

Of which, external directors

3

Term of office of directors

1 yearIncentive policies
for directors

Performance-linked
remuneration

Disclosure of individual
director’s remuneration

Disclosure is restricted topersons with ¥100 million or
more.

Voluntary Establishmentof Committees

Nomination & Remuneration
Advisory Council, Successor
Planning Committee

Number of members of the
Audit & Supervisory Board3

Of which, external members

2

Number of
independent officers

5

Accounting auditor

Grant Thornton Taiyo LLC

Adoption of executive
officer system

Yes

Corporate Governance Structure (As of June 27, 2019)
General Meeting of Shareholders
Election &Dismissal

Nomination & Remuneration
Advisory Council

Election &Dismissal

Audit & Supervisory
Board

Consultation

Successor Planning
Committee

Business
Execution

Board of Directors
Advisory

ReportDiscussion& Report

Resolution
Election &Supervision

President

Audit

Election &Dismissal

Cooperation

Members of the Audit& Supervisory Board

Cooperation

Audit

Audit Report

Cooperation

Internal Auditing
Department

Executive
Committee
ReportDiscussion& Report

E&S Committee
Investment Committee
Various Committees

34

Instruction

Operating Divisions

Kurita Water Industries Ltd. Integrated Report 2019

Accounting Auditor

Internal Audit

Accounting Audit & Internal Control Audit

Composition of the Board of Directors
The Board of Directors shall be organized in a way that complements the necessary knowledge, experience and diversity
over the entire Board for appropriate management decision
making and supervision of business execution. The Company will ensure that the Board will consist of personnel witha high degree of expertise in various business fields, management planning, finance and accounting, legal affairs, andtechnologies, etc., taking into consideration gender, international experience, etc.

Distribution of Knowledge and Experience in the Board of Directors
Sales
Name

Management
planning

Finance andaccounting
Legal affairs

Technology

Knowledge and experience expected ofexternal directors
Corporate
management

Environment

International

Koichi Iioka

―

―

―

Michiya Kadota

―

―

―

Kiyoshi Itou

―

―

―

Toshitaka Kodama

―

―

―

Yoshio Yamada

―

―

―

Hirohiko Ejiri

―

―

―

Toshimi Kobayashi

―

―

―

Yasuo Suzuki

―

―

―

Japan

Overseas

Human
resources

Tsuguto Moriwaki(external director)

―

―

―

―

―

Ryoko Sugiyama(external director)

―

―

―

―

―

Keiko Tanaka(external director)

―

―

―

―

―

Notes: 1. T his table is created based on the brief personal histories, positions and assignments in the Company, and reasons for deciding to make the person a candidate for director
provided in Proposal No. 3 of the Notice of Convocation of the 83rd Ordinary General Meeting of Shareholders.
2. “ Technology” includes both R&D and production.

Business Execution Structure
Executive Committee

The Executive Committee is established to conduct reviewsof matters resolved at the Board of Directors meetings whennecessary to expedite and facilitate the decision-making
process at the Board of Directors meetings. The Executive
Committee consists of the president and representative
director, directors at the level of managing director andabove, the executive general manager of the Corporate
Planning and Control Division, and directors and executive
officers designated by the president.

Executive Officers

The Company has in place the executive officer system sinceJune 2005 for the purpose of strengthening business execution capabilities and has appointed eight executive officers
as of June 27, 2019. In the fiscal year ended March 31, 2019,
the executive officer system was revised. Executive officers
who were previously employed under an employment contract as employees were changed to a one-year appointment
contract. The Company will continuously strengthen thebusiness execution functions of executive officers.

Investment Committee

To enhance and strengthen the screening of investments
and financing of the Kurita Group, the Company establishedthe Investment Committee in April 2017. The Committee ischaired by the deputy executive general manager of the
Corporate Planning and Control Division, who is the chief
officer responsible for financial management, and composedof people responsible for the main departments within the
Administrative Division. The role of the Investment Committee is to pre-screen investment and financing projects to be
discussed by the Board of Directors or the Executive Committee and report the pre-screening result and major
discussion points to the Board of Directors and the Executive Committee. Organizing the major discussion points
through the pre-screening by the Investment Committee
helped to enhance the quality of discussion and the speedof investment decision-making by the Board of Directors andthe Executive Committee.
In accordance with the policy of striving to maintain returnon equity (ROE) at levels above the cost of shareholders’equity, when making an investment decision, the Kurita
Group sets a hurdle rate in consideration of risks for each
investment project against the cost of shareholders’ equity.
Kurita Water Industries Ltd. Integrated Report 201935

The Basis for Management Activities

Corporate Governance
Roles and Results of the Investment Committee (The fiscal year ended March 31, 2019)Roles• Pre-screening of investment and loan projects to be discussed by the Board of Directors or 
the Executive Committee• Report the pre-screening result and major discussion points to the Board of Directors or 
the Executive Committee

Constituent members

Chairperson: Deputy executive general manager of Corporate Planning Division
Members: Executive general manager of Group Administrative Division, general manager of the Corporate
Planning Department, general manager of the Accounting Department, general manager of the Finance
Department, general manager of the Group General Affairs Department, manager of the Group Legal
Department, and general managers of business management departments

Results inthe fiscal year
ended March 31,
2019

Number ofmeetings held

14

Number of
projects
pre-screened

Equity investment and M&A projects:
12
Capital investment projects:
6
Financing and fund procurement projects:
4
Company establishments, relocations, reorganizations: 5
Business facility sales:
2

Total: 29

Improved quality of discussion at the Board of Directors and the Executive Committee meetings.
Enabled earlier filing of requests by requesting departments and increased request activity as a result

Results(Reference) Investment Standard

Hurdle rate calculated as “cost of capital (estimated at slightly under 8%) + risk premium for each project”

Fulfilling the Function of the Audit & Supervisory Board Members
The Company’s Audit & Supervisory Board members attend
important meetings including meetings of the Board of
Directors, the Executive Committee, and the E&S Committee, and audit execution of duties by directors. They also
audit the status of performance of oversight duties by the
Board of Directors. Furthermore, they also conduct asset
status surveys of the entire Kurita Group and audit thedevelopment and operation of internal control systems
implemented by the directors.

Cooperation with the Accounting Auditor andthe Internal Auditing Department

The members of the Audit & Supervisory Board confirm the
Accounting Auditor’s independence and the status of theirperformance of duties and hold discussions and exchangesof opinions with the Accounting Auditors about accounting
audits on a periodic basis and as required. Furthermore, themembers of the Audit & Supervisory Board discuss internal
audit plans with the Internal Auditing Department in charge ofinternal audits of the Company and exchange opinions withthem about audit results and evaluations of internal controls,
risk management, etc., relating to financial reporting.

Experience, Capability, and Knowledge of the Audit & Supervisory Board Members

Name

KenjiroKobayashi

External member ofthe Audit &Supervisory Board
Independent officer

36

Mr. Kenjiro Kobayashi has been active in different fields to thoseof the Kurita Group’s businesses and has high expertise in theareas of finance, corporate planning, new business development,
M&As, etc., along with a wealth of international experience.
Mr. Yukihiko Mutou has held important positions in the Administrative Division. He possesses a wealth of knowledge andexperience in the areas of finance, accounting, and management.

Yukihiko
Mutou

Shigekazu
Torikai

Experience, Capability, and Knowledge

External member ofthe Audit &Supervisory Board
Independent officer

Mr. Shigekazu Torikai has special knowledge as well as a wealthof experience and deep insight into corporate legal affairs as
an attorney.

Kurita Water Industries Ltd. Integrated Report 2019

Attendance(Fiscal year ended March 31, 2019)
Board of Directors’ Audit & Supervisory
meetings
Board meetings

15

11
15

―

13

11

―

10
15

11

Evaluation of the Effectiveness of the Board of Directors
The Board of Directors analyzes and evaluates its effectiveness every year in order to fulfill its expected roles andfunctions more effectively.

Evaluation Method

The evaluation is carried out via a written survey with each of
the respondents identified. Following a discussion on theaggregate results, the Board of Directors, evaluates its effectiveness, identifies problems, designates issues to be addressedand establishes measures. These matters are then adopted bya resolution of the Board. In the fiscal year ended March 31,
2019, the survey was partially revised to make it more specificbased on the results of the previous year’s survey.

Evaluation
methodEvaluation
items

Evaluation
periodSelf-Evaluation
This evaluation was conducted via a written survey,
with each of the respondents identified. Following
a discussion on the aggregate results, the Board of
Directors, evaluated its effectiveness, clarified
issues and adopted measures for the future.
The following six themes were evaluated1) R oles and responsibilities of the Board of Directors2) Collaboration with members of the Audit &Supervisory Board and external directors3) Composition of the Board of Directors4) Operation of the Board of Directors5) Contributions of individual directors and members of the Audit & Supervisory Board
6) Dialogue with shareholders
From January to December 2018

Evaluation Results

According to the evaluation results for January to December
2018, the average self-evaluation of all Directors and members of the Audit & Supervisory Board was generally good in
all six areas, indicating that the effectiveness of the Board of

Directors is ensured. The area of “collaboration with members of the Audit & Supervisory Board and external directors”
was highly evaluated with less variance of evaluation among
inside directors, external directors and members of the
Audit & Supervisory Board. On the other hand, while evaluation scores generally showed increasing trends, certain
items related to the establishment of structures that support risk-taking of the Kurita Group and the organization of
the Kurita Group’s risk management systems were evaluatedrelatively lower than other items. The issue and measures tobe addressed in the fiscal year ending March 2020 wereresolved to improve such evaluation.

Issue

Further improvement of governance standards for the Kurita
Group as a whole, including group companies in Japan andoverseas, is necessary.

Measures

In order to strengthen governance at Group companies inJapan and overseas, we will further improve the systems andstructures provided by the Company, and the Board of
Directors will accurately evaluate operational status and aim
to improve effectiveness.

Status of Initiative on Issues Based on Evaluation
Result for the Fiscal Year Ended March 31, 2018
The evaluation result for the fiscal year ended March 31,
2018, identified the issue that “More in-depth discussion
regarding the selection of successors is necessary.” Basedon this, in the fiscal year ended March 31, 2019, the Company built a system for selecting and developing successor
candidates for the president, the directors, and the executive officers. A structure was established for systematic
selection based on objective evaluation of successor candidates, for the president, directors, and the executive officers,
and for the development of successors. This served toenhance the content of discussions by the Board of Directors on selection of directors and executive officers.

Advisory Councils for the Board of Directors
Nomination & Remuneration Advisory Council

The Company has in place a Nomination & Remuneration Advisory Council, a voluntary committee to increase transparency
in the decision-making process regarding remuneration for
directors and nomination of directors and members of the
Audit & Supervisory Board. The frequency of meetings in thefiscal year ended March 31, 2019 was twice for nomination(directors and members of the Audit & Supervisory Board) andonce for remuneration. The Council was chaired by an external
director, with the main members being the external directors
and the external members of the Audit & Supervisory Board.

The chairperson of the Board of Directors consults with
the Nomination & Remuneration Advisory Council beforehand when proposals are made to the Board of Directors
regarding candidates for director or member of the Audit &Supervisory Board or remuneration for directors. Having
received the request, the Council reports on the suitability
or unsuitability of the candidates to the Board of Directors.

Kurita Water Industries Ltd. Integrated Report 201937

The Basis for Management Activities

Corporate Governance
Profile of Nomination & Remuneration Advisory Council (Fiscal year ended March 31, 2019)
Results in the fiscal year ended
March 31, 2019

Constituent members

Nomination

Candidates for directors
Candidates for• Two external directors • President
representative directors• One full-time external member of the Audit & Supervisory Board
Candidates for executive
directors• Determining the appropriateness of all
candidates for director• One full-time external member of the Audit & Supervisory Board
Candidates for• President
members of the Audit &•O ne full-time internal member of the Audit & Supervisory Board
Supervisory Board• Executive general manager of the Corporate Planning Division• D etermining the appropriateness ofcandidates for members of the Audit &Supervisory Board• Two external directors• President• One full-time external member of the Audit & Supervisory Board

Remuneration

Successor Planning Committee

Based on the decision on issues to be addressed and measures for them in the evaluation of the effectiveness of theBoard of Directors for the fiscal year ended March 31, 2018,
in May 2018 the Company established the Successor Planning Committee, mainly comprising external officers, as anorganization for selecting successor candidates for thepresident, directors, and executive officers and deciding on• Performance evaluation of directors• D iscussion of the appropriateness of
incentive remuneration• D iscussion of the appropriateness of
fixed remuneration

measures for their development. The committee refers to
objective information such as external organization assessment results for the successor candidates and selects
successor candidates for the president, directors, and theexecutive officers, as well as setting the development measures for the successor candidate for president, and reports
these to the Board of Directors.
(Fiscal year ended March 31, 2019)

Selection of successor candidate

Assessment

Candidaterecommendation

Selection

Successor candidate development

Confirmation

Interview
assessment

Interview

Review result
and selectpoints forstrengthening

Set measures

Confirmation

Successor
Planning
Committee

Board ofDirectors

Successor for president
President

President
Successor
Planning
Committee

Externalorganization

Board ofDirectors

President

Externalorganization
Executive senior
managing director
or above

Directors

Directors

Director successors

Feedback to candidate, assignment,
appointment, etc.
Successor Planning Committee members

38

Matter for discussion

Members

Selection of president’s successor candidate

Two external directors
One full-time external member ofthe Audit & Supervisory Board

Selection of directors’ successor candidates
Selection of Executive officers’ successor candidates
Setting of development measures for
successor candidates

In addition to the above three, the president,
chairman, and executive senior managing directors

Kurita Water Industries Ltd. Integrated Report 2019

Remuneration for Directors and Members of the Audit & Supervisory Board
The Company’s remuneration system for directors excluding
external directors is composed of fixed remuneration asbase remuneration, and incentive remuneration reflecting
business results. For external directors and members of the
Audit & Supervisory Board, who perform oversight functions,only the fixed remuneration system is adopted. An amountof the fixed remuneration is decided for each job title in thecase of directors and for each working style in the case of
members of the Audit & Supervisory Board. Part of the
remuneration is appropriated for the directors’ and Audit &Supervisory Board members’ Shareholding Scheme for purchasing the Company’s shares in order that directors andmembers of the Audit & Supervisory Board share the risk ofstock price fluctuation with shareholders.
To provide an incentive to directors excluding external
directors to continuously increase corporate value, the Company provides short-term and long-term incentive
remuneration. The short-term incentive remuneration is variable depending on the degree to which consolidated operating

income achieves an annual business plan and the performance of duties for which each person is responsible. For the
long-term incentive remuneration, the Company has introduced a performance-linked stock compensation program
under which points are awarded according to business performance and job title during the term of office, and shares of theCompany are granted at the time of retirement in an amountcorresponding to the number of accumulated points.
The remuneration system and level and performance
evaluation of directors are adopted by resolution of theBoard of Directors after consulting in advance with the Nomination & Remuneration Advisory Council. Based on thereport given by the Nomination & Remuneration Advisory
Council, the Board of Directors will decide the allocation of
remuneration of the directors within the total amountdetermined by a General Meeting of Shareholders. The
allocation of remuneration for each member of the Audit &Supervisory Board is adopted by resolution of the Audit &Supervisory Board.

The Remuneration System for Directors and Members of the Audit & Supervisory Board
Payment Ratio of Base Remuneration and Incentive Remuneration (Average)
Base remuneration

Performance-linked remuneration

Of which, payment toshareholding scheme

Short-term incentive
remuneration

Long-term incentive
remuneration

10%—20%0%—30%

10%—20%50%—90%

Total

100%

Remuneration for Directors and Members of the Audit & Supervisory Board
Total amount of remuneration, etc., for each officer classification, total amount by type of remuneration, etc.,
and number of eligible officers (Fiscal year ended March 31, 2019)

Officer classification

Total amount of
remuneration, etc.
(millions of yen)

Total amount of remuneration by type(millions of yen)Baseremuneration

Performance-linked
remuneration

Retirement
benefits

Number of eligible
payees for baseremuneration

Directors(excluding external directors)

543

310

233

―

10

Members of the Audit &Supervisory Board(excluding external members)

34

34

―

―

1

External officers

75

75

―

―

4

Kurita Water Industries Ltd. Integrated Report 201939

The Basis for Management Activities

Corporate GovernanceTotal Amounts of Consolidated Remuneration, etc., for Each Officer of the Company (Fiscal year ended March 31, 2019)
Amounts of consolidated remuneration, etc., by type(Millions of yen)

Total Amount ofConsolidated
Remuneration(Millions of yen)

Name

Michiya Kadota

Officer classification

President and112

Representative DirectorBaseremuneration

Performance-linked
remuneration

Retirement
benefits

64

47

―

Note: O nly directors whose total consolidated remuneration, etc., is ¥100 million or more are listed.

Independent External Directors
The Company’s external directors are appointed for a termof one year and may concurrently hold positions at up to
three listed companies including the Company. The independent external directors use their knowledge andspecialist insight accumulated through experience in management to evaluate management and express opinionsfrom the perspectives of the Kurita Group’s sustainablegrowth and medium- to long-term increase in corporate
value, helping to enhance the rationality and transparency ofdecision-making by the Board of Directors.
The activities of the independent external directors include
making active statements and proposals in the Board of
Directors’ meetings, the Nomination & Remuneration

Advisory Council, and the Successor Planning Committee, as
well as attending as observers in internal committees suchas the E&S Committee, the Solutions Business Committee,
and the Health and Safety Committee. They also make onsite
visits to gain a deeper understanding of operations for evaluating management.
In June 2019, we welcomed Ms. Keiko Tanaka as an external director, bringing the number of external directors to
three. Ms. Tanaka has experience in business fields thatdiffer from those of the Group and a great deal of knowledge
about public relations and marketing, as well as international
experience. The Company expects her to use these in
expressing opinions from an external perspective.

Status of External Directors (As of June 27, 2019)

Post

Name

Number of meetingsof the Board of
Directors attended

Reasons for election as a director(Fiscal year ended
March 31, 2019)

Directors

TsugutoMoriwaki

Board of Directors’
meetings: 14/15

Mr. Tsuguto Moriwaki is an individual who possesses a great deal of knowledge about manufacturing and corporate reform. The Company judged that he could take advantage of his
knowledge and experience, having held important positions such as representative director inother companies, to deliver opinions from an outside perspective and increase the rationality
and transparency of the Company’s management.

Ryoko
Sugiyama

Board of Directors’
meetings: 14/15

Ms. Ryoko Sugiyama is an expert on the environment and waste and has held important
positions such as an external director of listed companies. The Company judged that she wascapable of providing opinions from an outside perspective, different from those within the
Company, and increasing its rationality and transparency.

―

Ms. Keiko Tanaka has experience in business fields that differ from those of the Kurita Groupand a great deal of knowledge about public relations and marketing, as well as international
experience. The Company judged that she was capable of using these to express opinionsfrom an outside perspective to increase the rationality and transparency of the Company’s
management.

Keiko
Tanaka40

Kurita Water Industries Ltd. Integrated Report 2019

Shareholdings of Other Listed Companies
The Company holds shares of other listed companies forstrengthening business relationships. We verify the economic rationality for respective shareholdings by comparing
the expected earnings based on capital cost and the earnings from holding the shares. We also examine therelationships with companies whose shares the Company
holds by carefully examining our transaction histories withthem. Based on the results of this examination, the Board of
Directors reviews the appropriateness of holdings periodically and at other times as necessary, and reduces thenumber of shares held. In the fiscal year ended March 31,
2019, we sold the shares of 13 companies, including partial
sales, and allocated the funds acquired from the sales tocapital investments and M&As.

Policy regarding shareholding of other listed companies
Increasing capital efficiency by selling shareholdings in line with the policy of the medium-term management plan
• In some cases, the Company holds shares of other listed companies to strengthen business relationships,etc.
• When holding such shares, the Company makes efforts to minimize the risk of holding the shares. The
propriety of holding each individual stock is reviewed on a regular or timely basis at the Board of Directors.
Based on the results of the examination, the Company aims to reduce the holding of shares of other listedcompanies.
• The Company exercises decision-making authority for each proposal giving consideration to whether it willcontribute to increase shareholder value.
• If a shareholder indicates its intention to sell the Company’s shares, the Company will not prevent theshareholder from making such sale, etc.

PolicyFrequency

Once a year or as necessaryStandard• Total of operating profit and dividends received is less than expected return for five consecutive years• An improper incident occurs, etc.

Review ofshareholdings

Record ofsales

Fiscal year
ended March
31, 2018• 9 of 46 stocks

Fiscal year
ended March
31, 2019• 13 of 37 stocks (includes partial sales)

Dialogue with Shareholders and Investors
The Kurita Group aims to respect its shareholders in management and strives to listen to its shareholders andinvestors and promote constructive dialogue with them inorder to contribute to increasing medium- to long-term corporate value. In communicating information, the Company
emphasizes fairness and transparency. The materials andsummary of the Q&A sessions of the Company’s presentation meetings is posted on its IR website as much as possible
in an effort to prevent information gaps.

IR Activities

The Group strives to secure opportunities for dialogue withinstitutional investors in Japan and overseas and individual
investors in Japan through various presentations, conferences,and individual meetings. The president is the main speaker at
the financial results presentations. For routine dialogues, thepersonnel in charge of investor and shareholder relations andthe personnel in charge of CSR serve as the main speakers,
except for silent periods.

IR Activities in the Fiscal Year Ended March 31, 2019
Dialogue events

Number of events

Financial results presentations (including teleconferences)

Institutional investors(including shareholders)

Individual investors(including shareholders)

4 times

Small group meetings

4 times

Individual meetings

Total approx. 200 times

Overseas roadshows

2 times

Shareholders presentation after Annual General Meeting of Shareholders

1 timePresentations for individual investors

2 timesIssue of letter to shareholders

1 timeKurita Water Industries Ltd. Integrated Report 201941

The Basis for Management Activities

Corporate GovernanceCommunication with People Responsible for Exercising Voting Rights
The Company is working to increase opportunities for dialogue with members of institutional investors responsible
for exercising voting rights in an effort to listen to their opinions and reflect them in improvement of management. In
the fiscal year ended March 31, 2019, personnel responsiblefor investor and shareholder relations visited the offices ofmajor investors and voting advisory institutions in Japan 14
times to hear the voting policies of institutional investors
and their opinions and expectations for the Group’s management, as well as improvement on corporate governance.
The opinions and expectations are being swiftly relayed backto management.

Initiatives to Continuously Improve Conveniencefor Exercising Voting Rights
Initiative

Starting time

Adoption of full-color convocation notices

June 2018

Increase in English translation scope of the convocation notice

June 2018

Preparation of English version of the corporate
governance report

October 2016

Early disclosure prior to convocation notice dispatch

June 2016

Preparation of English-language convocation notice(reference documents)

June 2013

Shareholder relations visits

November 2011

Revision of Disclosure Policy
With the introduction of the so-called “fair disclosure rule”
with the revision of the Financial Instruments and Exchange
Act in April 2018, the Company has revised its disclosure
policy. In the revision, the Company has clearly documented
the purpose of disclosure, handling of important information, systems for ensuring fairness of disclosures, and soforth. At the same time, the Company has prepared a practical internal manual for disclosures. Making use of this, wewill strive to ensure fair and timely disclosures to investors,
while making sure that our disclosures do not become constrained by an over-emphasis on ensuring fairness.

Review by External Directors

42

Tsuguto Moriwaki, Director

Ryoko Sugiyama, Director

The Company’s corporate governance has made significant advances
compared with one year ago. Last
year, I indicated the need to establish
a system for selecting and developing successors to the president anddirectors, and we have now seen theestablishment of the Successor Planning Committee. Schemes provided
by external organizations may not necessarily be suitable for
the Company, but the Company can revise them in instanceswhere reforms have gone too far. Moreover, by including myself
in the discussion, I believe the process will be more transparent.
I also think that the current method and system for deciding on
director remuneration is appropriate.
On the other hand, I believe there is some room for
improvement of the Investment Committee. Rather thanhaving the discussion in the Investment Committee passthrough the Executive Committee as it does now, if it werereported directly to the Board of Directors, the Board would
be able to have deeper discussion.
In terms of enhancing the discussion regarding medium- tolong-term strategy, by making the medium-term management plan cover five years, the Board of Directors’ perspective
has changed by being able to observe events over a longer
span. They have also been able to cultivate a medium- tolong-term perspective on the SDGs, which is in keeping withthe spirit of the Company. I would like to see all Group
employees incorporate this into their actual working activities
and build on them.

In terms of corporate governance inthe fiscal year ended March 31, 2019,
the Company appears to have madebold reforms in the selection anddevelopment of successors to thepresident. I consider this approach to
be consistent with the trend of governance reform generally. A few years
on from this reform, I think thatpoints for revision will emerge, and I hope that the Company will
make revisions at that time. I believe that involving external
directors in the personnel selection process will bring transparency and acceptability to the discussion.
Now the number of external directors has been increased
from two to three, which is a step in the right direction forstrengthening their function. The discussion in the Board of
Directors is very lively, and I feel that it has changed compared
to one year ago when I was appointed.
From the fiscal year ended March 31, 2019, I have attended
several committees multiple times, which has afforded mea deeper understanding of the Company. In particular, in
the E&S Committee, which deals with environmental andsocial issues, there is an overlap with my own field of expertise so learning about the discussion and consideration
process in this committee really helped me to understandthe Company. Looking ahead, I plan not only to listen, butalso to participate in the discussion. I also find that observing
Group companies and customers’ sites helps me to know
the Company.

Kurita Water Industries Ltd. Integrated Report 2019

The Basis for Management Activities

Risk Management
The Kurita Group defines risk as any event that makes its sustainable growth and enhancement of the Group’s
corporate value uncertain. We identify risks that need to be addressed while minimizing losses and damage causedby risks by taking measures to avoid and mitigate risks, so that we can continue securing business opportunities forfurther growth.

Risk Management System
The executive general manager of the Corporate Planningand Control Division is the officer responsible for monitoringrisks and implementing risk management in the Kurita Group.
The executive general manager regularly conducts analysis
and evaluation of the Group’s risks, conducts ongoing monitoring based on the Company-wide risk map, and takes steps
to prevent risks from occurring.
If a risk that could have a serious impact on management
occurs, the general manager formulates systems with those
responsible for responding to the risk, obtains approval
from the president and the representative director, andimmediately issues orders. Those responsible for responding to the risk promptly take action and report to thepresident and the representative director and the executive
general manager of the Corporate Planning and Control
Division regarding the status of the effects of the risk, remediation, and measures to prevent reoccurrence.
Among serious risks, those related to compliance are theresponsibility of the chairperson of the E&S (Environmental &Social) Committee, while those related to health, safety, anddisasters are the responsibility of the chairperson of the Headquarters Health and Safety Committee. The executive generalmanager of each division is responsible for responding to risks
directly associated with day-to-day business operations. Also,
responding to commonly seen risks relating to quality, environment, information security, export controls, and so on are
handled by the respective divisions responsible.
The executive general manager of the Corporate Planningand Control Division, the chairperson of each committee, andthe executive general manager of each division report periodically to the Board of Directors on the status of risk management
implementation, and report as necessary to the Board of
Directors and the Audit & Supervisory Board on the occurrence and effects of serious risks. Furthermore, monitoring of
the execution status and improvement status of risk management is conducted by the Internal Auditing Department.

Risk Management System
President and Representative Director
Proposes person
responsible and system

Board of Directors

Audit & Supervisory Board

ReportApproval

ReportExecutive general manager of the Corporate
Planning and Control Division(officer in charge of risk management)
Issue orders

Report

The chairperson of
the E&S Committee

The chairperson of the Headquarters Health and Safety Committee

General managers ofdivisions

Compliance

Health, safety,
and disasters

Risks directly related todaily business activities

Departments in charge
Routine risks such as quality,
environment, information security,and export regulations

Monitoring implementation status and improvement status
Internal Auditing Department

Business Continuity Management (BCM) Policy
The Kurita Group formulated the Business Continuity Management (BCM) Policy to set out the Kurita Group’s principles
for handling emergencies that pose a risk to the continuity of
the Group’s businesses, such as severe earthquakes,
typhoons, or pandemics. The policy enables Kurita Group
officers and employees to make judgements and act appropriately by clarifying our basic approach as follows.

2. Early restoration of business operations

1. Highest priority on ensuring the preservation of human life

While making efforts to prevent secondary disasters at its
own sites, the Kurita Group will support reconstruction of
the local community.

The Kurita Group will place highest priority on ensuring thepeace of mind and safety and security of the officers andemployees, and their family members.

The Kurita Group will endeavor to quickly restore the operations at its own facilities, completed properties, properties
under construction, and so forth. In this way, it will makeefforts to supply products and services in a stable mannerand to support its customers’ recovery efforts.

3. Community support

Kurita Water Industries Ltd. Integrated Report 201943

The Basis for Management Activities

Compliance
All Kurita Group officers and employees share fairness, transparency, integrity, safety, and compatibility as five corevalues, and the Kurita Group Code of Conduct has been created to set out basic guidelines for judgment and conduct
for how all Kurita Group officers and employees should conduct themselves and what conduct is prohibited.
Please see the following website for our Code of Conduct.
Kurita Group Code of Conduct https://www.kurita.co.jp/english/philosophy_vision/pdf/philosophy_vision_01.pdf

Promotion System
The Kurita Group has established the E&S (Environmental &Social) Committee, and the Group E&S Committee as organizations for overseeing compliance activities. Both committees
are chaired by the Company’s director, and the Group Committee’s members are representatives of Group companies
or members designated by these representatives. In thesecommittees, the Group sets out policies and importantmeasures for compliance activities and conveys them to all
employees through subcommittees at each headquarters
division and Group company.

Promotion System
Board of Directors
President
Executive Committee
E&S Committee

Group E&S Committee

Subcommittees

Subcommittees

Main Initiatives
Anti-Bribery Initiatives

The Kurita Group has formulated the Kurita Group Anti-Bribery Policy and the Kurita Group Antitrust Policy to ensure thepromotion of fair business practices throughout the entire
Group. These policies have been translated into 16 languages so that all Kurita Group officers and employees
throughout the world can understand them.
In the fiscal year ended March 31, 2019, the Company andits domestic affiliates provided anti-bribery e-learning training for all their officers and employees.

Compliance Training for Management

The Company conducts ongoing compliance training for its
management team and those of its domestic Group companies. In the fiscal year ended March 31, 2019, a training
program about plea bargaining was held and attended by 59
people from the Company.

Compliance Behavior Survey

The Kurita Group conducts the Compliance Behavior Survey
for employees and dispatch staff each year in order to clarify
the impact of compliance activities and any problems, and to
identify latent legal and regulatory infringement risks to help
reduce risks going forward. In the fiscal year ended March
31, 2019, the survey was conducted for 6,944 employees
and dispatch staff with a 98.9% response rate.

44

Kurita Water Industries Ltd. Integrated Report 2019

Consultation and Whistle-Blowing Desk

The Kurita Group has established consultation desks withineach company and outside organizations where people
can report or consult if they observe behavior that violatesor potentially violates the Kurita Group Code of Conduct,
policies related to compliance, or internal company rules.
These consultation desks are provided not only for Kurita
Group employees, but also for dispatch staff sent to work in
the Kurita Group and personnel at our business partners
and so forth. They are designed in an effort to protect persons who consult or make reports and to achieve early
detection of dishonest practices. Moreover, the Company
also operates the Kurita Global Helpline, which allows theemployees of overseas Group companies to make reports toa consultation desk.

Requests to Business Partners
for Compliance Initiatives

In accordance with the Kurita Group Procurement Policy, theCompany absolutely refrains from any transactions thatwould benefit antisocial forces or terrorist groups. Furthermore, we have formulated the Kurita Group CSR Procurement
Guidelines, which require our business partners to observelaws, regulations, and social norms, while refusing relationships with antisocial forces. In the fiscal year ended March 31,
2019, we asked our business partners who receive particularly large orders from us to conduct a self-evaluation basedon the Guidelines, and to carry out improvement measures.

The Basis for Management Activities

Environmental Improvement Activities
The Kurita Group defines its environmental improvement activities as follows: 1) activities to comply with the environment-related laws and regulations of each country and region that are applicable in conducting businessactivities; 2) initiatives to solve international issues related to the sustainability of water and the environment
through business activities; and 3) disclosure of information related to 1) and 2), and engagement with customers,
business partners, employees, shareholders and investors, and local communities related to such activities. Moreover, we strive to make environmental improvements not only within the Company, but also in the operations ofcustomers using our products and services. These efforts are conducted under the Kurita Group Environmental
Policy, and the entire Group is promoting activities based on the policy.
Please see the following website for our environmental policy.
Kurita Group Environmental Policy https://www.kurita.co.jp/english/csr/management/policy/environment/index.html

Promotion System
Promotion System

The Kurita Group has established the E&S Committee, which
is chaired by a director of the Company, and the Group E&S
Committee, chaired by the same director and composed ofrepresentatives of domestic Group companies. These committees oversee environmental improvement initiatives in
the Kurita Group. The committees formulate unified medium-term goals for the Kurita Group’s environmental
improvement initiatives and action plans for each fiscal year.
Personnel responsible for promotion are designated by thecommittee chair to promote activities for achieving the targets of the environmental improvement initiatives at theirassigned company or organization. They report the status
and results of the activities to the E&S Committee.

Board of Directors
President
Executive Committee
E&S Committee

Group E&S Committee

Persons responsible
for promotion

Persons responsible
for promotion

Environmental Improvement of Customers’ Operations (Promotion of CSV Business)
From the fiscal year ended March 31, 2019, the Kurita Grouphas defined products, technologies, and business models
that contribute significantly to water-saving, CO2 emissions
reduction and waste reduction compared to previous levels
as the “CSV business,” and has expressed these advantages
as respective coefficients. The reduction of environmental
impact from customers’ operations is calculated based onthese CSV business coefficients and application results. The
CSV business is also constantly reviewed in light of the development status of more competitive products, technologies,
and business models.

CSV Business Selection Standard
CSV businesses demonstrate the following standards
with regard to water-saving, CO2 emissions reduction,
and waste reduction:1)	A re significantly more effective than previous orcompeting technologies.
2)	A re new technologies or applications of existing
technologies in new markets.
3)	Contribute to the action plans presented in the SDGs.

* Please see “Performance” on p. 9 for results for the fiscal year ended March
31, 2019.

Environmental Improvement of Customers’ Operations*1
Water intake reduction (million m3)
Japan
Overseas*2

CO2 emission reduction (1,000 t)
Japan
Overseas*2

54.12
44.66

Waste reduction (1,000 t)
Japan
Overseas*2

187

3.51

136

3

79

116

29.02

119

41

116

145

41.14

26

2017

2018

2019

2017

2018

2019

2017

2018

2019

*1 Years ended March 31*2 The reduction of impacts at overseas Group companies have been ascertained since the fiscal year ended March 31, 2019.

Kurita Water Industries Ltd. Integrated Report 201945

The Basis for Management Activities

Environmental Improvement Activities
Example of Initiatives

With Kurita’s Recycled Water Supply Service to Reduce Water Usage at the Sendai Plant of Kanazawa
Murata Manufacturing —Expected Reductions of 40% in Tap Water Usage and 30% in Sewage
At the electronic components manufacturer Kanazawa Murata
Manufacturing Co., Ltd., an environmental initiative based on the
Murata Manufacturing group’s environmental action plan isunder way. The Group has set a target for reducing water usage
per production volume, and has set about reducing the volume
of water used at its Sendai plant.
Kurita Water Industries proposed a recycled water supply
service that reclaims and recycles wastewater to help this customer achieve its goals. The service is a contract with thecustomer to supply recycled water, including operation andmanagement of the CORRTM wastewater reclamation system. In

applying this service, we cooperated with the customer to investigate the volume and quality of the reclaimable wastewater at
each outlet, and to select areas for use of the recycled water
depending on its quality. In this case, since the recycled water isused as make-up water for a cooling water system, we also provided cooling water quality management using the S.sensingTM
Opti remote monitoring system.
Using the service has enabled the customer to use water inthe plant more efficiently, and the customer expects to achieve
reductions of 40% for tap water and 30% for sewage comparedto the fiscal year ended March 31, 2018.

Conceptual Diagram of Recycled Water Supply Service
Sendai plant
Wastewater
treatment facility

Production process

Industrial
water

Pure water facility

Tap water
Reclaimed water
Recycled water

Air conditioning
unit

Scrubber

Cooling
tower

SewageS.sensingTM
Opti

CORRTM system
Remotemonitoring

Internal Environmental Improvement Activities
Evaluation of Water Risk at Internal Facilities

The Kurita Group works to reduce water usage, energy
usage, and waste, while adhering to the environmental laws
and ordinances of each country and region that apply to theGroup’s business activities. Based on the characteristics ofeach company and business site, we select the items thatare strongly correlated with environmental impact, such as
production volume, net sales, or site area, as the denominators for a per-unit measurement of environmental impact,
then set about reducing this.

Kurita Water Industries assesses and confirms the water riskof the areas where Group production bases are locatedonce a year using the Aqueduct Water Risk Atlas provided
by the World Resources Institute. In the fiscal year ended
March 31, 2019, we surveyed all of the Group’s production
sites and found that there were four sites located in areasranked “High risk” or above. The total amount of water intake
for these sites was confirmed to be 0.2% of the intake
volume for all production sites.

Internal Promotion of Environmental Improvements*1
Water intake andreclaimed amount (million m3)
Water intake (Japan)
Water intake (Overseas)*2

Reclaimed amount (Japan)
Reclaimed amount (Overseas)*2

CO2 emissions (1,000 t)

Waste amount (1,000 t)

CO2 emissions (Japan)
CO2 emissions (Overseas)*2

Waste amount (Japan)
Waste amount (Overseas)*2

223

4.00
187

192

14

27

29

30

3.35

0.59
2017

0.68

0.61

0.16

0.65
2018

46

28

209
0.57 0.01
0.56
2019

2017

2018

2019

*1 Years ended March 31*2 The reduction of impacts at overseas Group companies have been ascertained since the fiscal year ended March 31, 2019.

Kurita Water Industries Ltd. Integrated Report 2019

2

2017

2018

2019

Participation in the Ministry of the Environment’s
Water Projectenvironment among employees. The event calls for all Kurita
Group officers, employees, temporary workers, and their families to submit experiences and ideas relating to environmental
improvement. In the fiscal year ended March 31, 2019, 833
people participated, with 641 submissions. The submissions
were collated into a collection and published on the intranet
to be shared and utilized throughout the Group.

Participation in the Japan Society of Industrial
Machinery Manufacturers’ Basic Environmental
Action Plan

Requesting Business Partners to Make Environmental Improvements

Kurita Water Industries is participating in the Water Projectof the Ministry of the Environment, which provides an opportunity to disseminate information about its technologies andbusiness activities related to efficient use of water resources
and preservation of the water environment.

Kurita Water Industries participates in the basic environmental action plan of the Japan Society of Industrial
Machinery Manufacturers, which is working on countermeasures for global warming. We report regularly on the statusof our response to climate change.

Increasing Environmental Awareness of Employees

The Kurita Group holds an employee-participation event
called Kurita Environment Month to foster awareness of the

The Kurita Group considers it vital to reduce environmental
impacts across the entire supply chain with the cooperationof suppliers. To this end, we have established the Kurita
Group CSR Procurement Guidelines, and we have asked suppliers to comply with environmental laws and regulations,take steps to reduce their environmental impact by setting
voluntary standards to reduce water and energy usage, andto provide appropriate information. In particular, we ask
major suppliers to conduct a self-evaluation based on theguidelines and to implement improvement measures.

Example of Initiatives

Reducing Waste at Kurita Chemical Manufacturing–Improvements through Collaboration with Kuritaz
Kurita Chemical Manufacturing Ltd. is a manufacturing base forwater treatment chemicals in the Kurita Group. The company’s
Egawa Plant manufactures over 3,000 types of water treatment
chemicals. In the past few years, fluctuations in the raw wastewater
quality arising from day-to-day changes in the products being
manufactured and aging of the water treatment facility itself
caused the sedimentation process to become unstable. This led
to lower concentrations of sludge in the sedimentation tanks,
which caused an issue that the sludge could not undergo dehydration when it was removed and had to be discarded untreated.
Kurita Chemical Manufacturing utilized the onsite inspection
service of Kuritaz Co., Ltd., which conducts water treatment
facility operation, maintenance, and management services, andtook measures to improve the operation management approachaccording to changes in the raw wastewater quality. This enabled
the amount of waste to be reduced. In May 2019, the company
upgraded its wastewater treatment facility based on the resultof Kuritaz’s investigations. The initiative realized a reduction inwork hours spent on operation management for stabilizing thequality of treated wastewater.

Waste Amount at the head
office of Kurita Chemical
Manufacturing* (t)Newly installed dissolved
air floatation tank(front view)

319

324

2017

2018

300

2019

* Years ended March 31

ISO 14001 Certified Bases
Company

OfficeCompany

Kurita Water Industries Ltd.

Shizuoka, Yamaguchi,
Toyoura, Tsuruga plants

Kurita Water Industries (Jiangyin) Co., Ltd.

Kurita Chemical Manufacturing Ltd.

Head Office, Ako plantHansu Co., Ltd.

Kurita Buil-Tech Co., Ltd.

Kurita Europe GmbH

Kuritaz Co., Ltd.

Kurita Turkey Kimya A.S.

Kuritec Service Co. Ltd.

Kurita do Brasil LTDA.

Kurita-GK Chemical Co., Ltd.

Hansu Technical Service Ltd.

Kurita (Taiwan) Co., Ltd.

Kurita (Singapore) Pte. Ltd.

Kurita Water Industries (Dalian) Co., Ltd.

P.T. Kurita Indonesia

OfficeLudwigshafen, Viersen

Kurita Water Industries Ltd. Integrated Report 201947

The Basis for Management Activities

Human Resources Management
The Kurita Group sees human resources as the bedrock for its sustainable growth. To enhance customer intimacy,each Kurita employee must develop a high level of expertise and give their full effort to resolving customers’ issues.
The Kurita Group will work to secure and develop human resources while passing on water-related technologies
that it has accumulated over many years. At the same time, we will create a work environment where individual
employees can fully utilize their own abilities and aptitudes and an organizational culture that allows diverse
human resources to play a role.

Human Resource Development
The Company works to develop human resources by having
departments responsible for human resource development
conduct training for employees in each rank and position,and the “Greater Adaptability to Globalization Course,” which
is designed to nurture human resources that are capable ofworking at a global level. We also provide employees in
Kurita Water Industries and its Group companies in Japanand overseas with specialist knowledge training on Kurita
Group products, technologies, and services, training on
safety and legal matters, and training for acquisition of communication and problem-solving skills. We are also working
to develop human resources that will play central roles inour overseas Group companies by conducting training for
future executives among national staff and managers.

Promoting Women’s Participation and Advancement in the Workplace
Promoting women’s participation and advancement in theworkplace has been an issue for Japan as a country. The
average number of years of service among female employees of the Company is 17.1, indicating a working environmentthat encourages women to continue working for a relatively
long period. On the other hand, due to the longstanding
system of developing core business personnel mainly
though on-the-job training (OJT) at customers’ worksites,
traditionally considered unsuitable for female workers, little
progress was made in appointing women to management
positions. However, as Japan faces the prospect of a society
with a shrinking population, the ability to successfully promotewomen’s participation and advancement in the workplace has
become an urgent issue for the Company in terms of securing
management resources. In response, we are working to
improve this situation under an action plan based on the Act
on Promotion of Women’s Participation and Advancement in
the Workplace and the Act on Advancement of Measures to

Support Raising Next-Generation Children. Furthermore,since 2017 Kurita Water Industries has been selected for the
MSCI Japan Empowering Women (WIN) Index*.
* Please see page 19 “CSR Initiatives.”

Action Plan Based on the Act on Promotion of Women’s Participation and Advancement in the Workplace
In the five-year plan for the period from April 2018 to March
2023, Kurita Water Industries has set the following targets.
• Have 15 or more women in management positions byApril 1, 2023
• Achieve a ratio of 30% or more for women among new
graduate recruits for career track positions
We will continue taking the following initiatives in order toachieve these targets.

Initiative

Measures taken

Career planning support for women in career
track positions

Provide opportunities that motivate women in career track positions to actively build their careers, such as careerdevelopment training.

Increase the ratio of female recruits

Provide opportunities to talk with female employees in responsible positions at various junctures in the recruitment process as part of our graduate recruiting activities for career track employees.

Expand the roles of female employees

Assign female employees to departments that have few female workers. Systematically appoint women to management positions.

Support career development through theself-reporting system

Use consultations with supervisors in the self-reporting system as an opportunity to support career development.

Action Plan Based on the Act on Advancement of Measures to Support Raising Next-Generation Children
Initiative

Measures taken

Ease workplace regulations

Increase the options for work styles by promoting use of satellite offices (rental offices outside the Company) andrecognizing working at home for employees who have restrictions on their work.

Promote use of annual paid leave

Formulate and implement measures to promote use of annual paid leave.

Promote male participation in childcare

Remind employees that childcare leave can be taken in small increments, and aim to increase the number of men
taking this leave.

Ensure time for spending on childcare

Subsidize costs of childcare services and ensure that employees have time for childcare.

48

Kurita Water Industries Ltd. Integrated Report 2019

Work Style Reforms
The Company is promoting work stylereforms centered on reducing long
working hours with a view to maintaining employees’ physical and mental
health and increasing theirproductivity.

Initiatives to Reduce Long Working Hours
Issue

Measures

Restrict working hours- Established no overtime day (Wednesday)- Set the hours that the Company’s facilities can be used (until 8:00 p.m.)

Promote use of paid
annual leave- Encourage employees to take at least seven days leave, including at least
five days of continuous leave in the summer holiday period (June-October)

Changing employee
awareness- Provide Work Style Reform Seminars for engineers- Run e-learning programs for acquisition of time-management skills and efficient meeting operation

Reform and introductionof systems and schemes- Introduction of satellite offices- Trial of interval system to break up work hours

We will develop human resources who can build
ongoing relationships with customers.
Human resources are a limited management resource,
especially in Japan, where the working population is projected to decline. Enabling human resources to generate
added value is therefore an important theme for management. The Kurita Group approaches management byrecognizing that added value is always created by people.
Human resources who create added value have two attributes: they aspire to achieve something for others, and they
have a strong desire to continue working together as part oftheir team within the organization.
People’s mindset has a huge impact on the Group’s businesses. Therefore, it is important that every employee
shares a sense of fulfillment in participating to ensure thecontinuity of the Group. Owing to several M&As in recent
years, it has become more important to share our values
within the Group. By reaffirming the purpose of the Group
based on the corporate philosophy and aligning the awareness of all Group employees, including those that havejoined the Group recently, I believe we will create an evengreater driving force to propel our business forward.
In addition, as we work to pivot our Group businesses
towards services, it will be more important than ever to build
ongoing relationships of trust with our customers. Individual
human resources need to have a high level of knowledge
and skill as professionals in their business fields, but it is also
important for them to have the sensitivity to connect andcommunicate with customers on the human level. Acquisition of this kind of depth of character requires people tomature as individuals through the accumulated experienceof dedicating themselves to their work. It takes a relatively
long time to develop these kinds of human resources, so
stable employment is an essential condition for this.
On the other hand, in order to respond to technologicalinnovation and secure human resources in the businessfields that seem likely to become more important going forward, there are some situations where we may not have thenecessary time to develop these kinds of human resources
thoroughly. In these cases, rather than taking on all of thedevelopment ourselves, we need to explore the potential of
mid-career hiring and wide-ranging business alliances.
As the changes in the business environment becoming
more extreme, development of human resources who cantake on the role of management in the future is an urgent
task. In the fiscal year ended March 31, 2019, we set aboutdeveloping management human resources, a task that wehave been slow to address. Bringing in expertise from external organizations, we systemized the requirements andevaluation methods for management human resources andapplied the evaluation results to skills development. We will
also use this system for nominating future management
team members. This system is already in operation, and byaccumulating results we will use it to develop high-performing management human resources.

Kiyoshi Itou
Executive General
Manager ofCorporate Planningand Control Division

Kurita Water Industries Ltd. Integrated Report 201949

The Basis for Management Activities

Initiatives on Quality
The Kurita Group recognizes that continuing its business and growing as a company depends on maintaining its
status as a trusted supplier for its customers. We therefore strive to manage quality at every stage, from the development of our products and services to their manufacture and delivery. We have established the “Kurita Group
Product Quality Policy” as a groupwide policy for promoting these initiatives.
Please see the following website for our product quality policy.
Kurita Group Product Quality Policy http://www.kurita.co.jp/english/csr/group/materiality/customer/index.html

Promotion System
In developing products and services, we consider safety, health,and environmental impact throughout the product lifecycle.
Specifically, we screen the development themes of highperformance materials, units, and solution technologies in the
Solutions Business Committee, narrowing them down to thethemes that are expected to be most effective. The themes areused to develop products and services by the Research andDevelopment Division and the Solution Business Division.
For quality management for the stages from manufacture
to provision of products, the Quality Management Committee has been established within the Engineering Division to
oversee the quality improvement activities of each organization. The Company has also created systems forautonomously carrying out continuous quality improvements and maintains quality management systems.

Promotion System
Board of Directors
President
Executive Committee

Development of products and services

E&S Committee

Solutions Business Committee

Management of CSR Initiatives

Engineering Division

Research andDevelopment Division

Quality Management
Committee
Quality Management
Committee for each segment

Solution Business
Division

Quality management
for products and services

Main Initiatives
Product Safety Evaluation

The Company has a rule that, when it uses a new chemical
substance, it assesses the risk the chemical substance poses
to the environment and health at the product development
stage based on internal rules. In addition, when we manufacture a product, we submit mandatory notifications andreports following laws and regulations, including the Industrial Safety and Health Act, the Act on the Evaluation ofChemical Substances and Regulation of Their Manufacture,etc., and the Fire Service Act.

knowledge and skills of its own employees, as well as those ofGroup companies in Japan and local overseas staff.

Conducting CS Survey

The Company’s engineering departments continuously conducts customer satisfaction (CS) surveys of all customers
who have purchased large water treatment plants. Based on
the results of the survey, the Company continually works torevise and improve various items, including its operations
procedure manual and specification sheets.
Number ofSurveys Conducted

Product Safety Training

The Company runs a product safety e-learning course for all
employees and dispatch staff except for those in its Administrative Division. The course is designed to deepen
employees’ understanding around product safety and was
taken by around 2,000 people in the fiscal year ended March
31, 2019. We will continue to run the course in the future.

Providing Training to Improve Knowledge and Skills

In order to raise the quality of services provided to customers,
the Company offers training to improve the water treatment

Fiscal year ended March 31, 201827

Fiscal year ended March 31, 201914

Question items
8 items, including specification, quality management, and construction

Response to Problems

Problems that arise prior to delivery to customers and complaints received from customers are entered in the in-house“problem information” database and that information isshared throughout the Company to ensure that all departments take necessary measures. In the fiscal year ended
March 31, 2019, there were no serious product accidents orservice accidents in the overall Kurita Group.

Number of Participants inTraining (Total)

Water Treatment Chemicals(Basic knowledge of water treatment chemicals,
communication skills, etc.)

Water Treatment Facilities and Maintenance(Technical training about raw water and wastewater,
as well as safety and legal education)

Total

Fiscal year ended
March 31, 2017

274

477

751

Fiscal year ended
March 31, 2018

431

409

840

Fiscal year ended
March 31, 2019

593

520

1,113

50

Kurita Water Industries Ltd. Integrated Report 2019

The Basis for Management Activities

Initiatives on Safety
The Kurita Group recognizes that due to the nature of its business, its employees and those of subcontractors areoften faced with various safety risks for manufacture and delivery of water treatment chemicals or assembly,
delivery, and installation of water treatment facilities. We have therefore positioned “occupational health and safety
as the top priority in business operations.” We are working to ensure the safety and support the health of Kurita
Group officers and employees, as well as employees of subcontractors, to create working environments where they
can work with confidence. We formulated the Kurita Group Occupational Health and Safety Policy, and we continuously promote initiatives based on shared policies across the Group.
Please see the following website for our Occupational Health and Safety Policy.
Kurita Group Occupational Health and Safety Policy https://www.kurita.co.jp/english/csr/management/policy/health_and_safety/index.html

Promotion System
The Company and its domestic Group companies have established a health and safety management system based on labor
safety laws and regulations such as the Industrial Safety and
Health Act. Under the Headquarters Health and Safety Committee, a joint labor-management committee that is chaired by
the general manager of the Corporate Planning and Control
Division, each office and division of the Company has established a Health and Safety Committee. These work to maintainand enhance the workplace environment. Furthermore, a specialist department has been established to promote safety
within worksites, supporting on-site safety initiatives as well asplanning and taking measures to prevent work-related accidents. The department also follows up on the activities of the
Headquarters Health and Safety Committee.

Promotion System
Board of Directors
President
Executive Committee

Direction and management of Healthand Safety Committees

E&S Committee

Headquarters Health and
Safety Committee

Management of CSR
initiatives

Specialist department
supports safety
activities at worksites

Divisions
Engineering Division
Departments controlling
quality and production

Health and Safety
Committees at each siteand division
Promote health and safety activities
at their sites and divisions

Main Initiatives
In the fiscal year ended March 31, 2019, the Headquarters
Health and Safety Committees stated the direction for its initiatives as “every one of us must have a sense of danger andestablish the behavior of thinking for ourselves to remove any
potential risks.” The main themes for our priority measures
have been 1) disaster response, 2) preventing work-related
accidents, 3) preventing traffic accidents, and 4) health management. Our main initiatives in the fiscal year ended March
31, 2019 were as follows.

Number of Participants in Safety Education

Disaster Response

The Company and its Group companies in Japan follow the Kurita
Group BCM (Business Continuity Management) Policy to carryout countermeasures for earthquake risks, safety inspections
and disaster preparations, and confirm the status of drills at all
153 business sites in Japan, and implement improvements.

Initiatives to Prevent Work-Related Accidents

The Company takes measures to prevent work-related accidents for employees on construction sites and for
subcontractors by conducting safety education before starting construction and safety patrols on construction sites.

Number of Safety Patrols
Fiscal year ended March 31, 2018 Fiscal year ended March 31, 2019
Japan
Overseas
Total

507

449

8

22

515

471

Fiscal year ended
March 31, 2018

Fiscal year ended
March 31, 2019

Training on handling fires

42

95

Training on handling chemicals

74

86

Safety training for new employees

142

209

Safety training for national staff overseas

32

32

Special training on full-harness-type fall
prevention devices—

288

Others

303

263

Total

593

973

Training name

Health Management

The Company ensures that all employees receive regular
health examinations, and all employees who handle items
such as organic solvents and designated chemicals receive
special health examinations. The participation rates in both
regular and special health examinations in the fiscal year
ended March 31, 2019 were 100%. To improve the health of
employees, we held 50 health-related events such as lectures
on dietary improvement and body age assessments. In ourefforts to prevent mental health issues, we held lectures onmental health 16 times in the fiscal year ended March 31,
2019. In addition, we conduct a Stress Check, which is a survey
given to all employees for promoting self-awareness, carriedout under the guidance of the stress check systems designedby the Ministry of Health, Labour and Welfare according to
the Industrial Safety and Health Act. In the fiscal year ended
March 31, 2019, 98.4% of employees took the Stress Check.

Kurita Water Industries Ltd. Integrated Report 201951

The Basis for Management Activities

Corporate Citizenship Initiatives
The Kurita Group’s corporate citizenship initiatives are centered on four fields: promotion of science and technology, development of human resources, humanitarian support, and regional and community activities. We cooperate
in many areas across society, making effective use of our resources to help solve social issues.

Promotion of Science and Technology
Kurita Water Industries, Ltd. established the Kurita Water andEnvironment Foundation in 1997 (converting it into a public
interest incorporated foundation in 2009) with the aim ofcontributing to the promotion of science and technology
relating to water and the environment. The Foundation’s main
activities include making a public call for research applications
for grant projects relating to water and the environment eachyear and then providing grants to young researchers in Japanand other countries in Asia. In the fiscal year ended March 31,
2019, grants were given to 102 projects. As international
exchange support projects, the Foundation supports the
Nepalese NPO, Center of Research for Environment, Energy
and Water (CREEW), and offers support for master’s course
students at the Asian Institute of Technology through payment of scholarship grants and so forth.

Development of Human Resources
The Kurita Group utilizes its specialist knowledge, skills, andnetworks related to water and the environment to develop
human resources who can assist the realization of a society
in which people are in greater harmony with nature. In
November 2018, we ran workshops at P.T. YAKULT INDONESIA PERSADA’s Plant in Mojokerto to students of Surabaya

Japanese Elementary School. The lectures were on thetheme of “Water is the Treasure of the Earth,” and covered
filtration and coagulation and sedimentation experiments,
the ratio of fresh to saltwater on earth, and virtual water,
aiming to communicate the importance of water and therole of water treatment technology.

Humanitarian Support
Supporting Access to Water

The Kurita Group works with NPOs and NGOs to support disadvantaged members of society who find it difficult to obtain
access to safe water due to conflict, poverty, or poor supply ofusable fresh water. As part of these activities, in March 2019,
we made monetary donations to assist the Japan Center for
Conflict Prevention (JCCP) and WaterAid Japan. These donations are being used to support initiatives for people living inparts of Africa where it is difficult to gain access to clean waterto create a hygienic living environment.

Support for Areas Affected by Disasters

The Kurita Group provides assistance to areas affected bysevere natural disasters in countries where it has businesssites. We help to supply water using emergency clean water
facilities and so forth when water is polluted or supplies are cut
due to an earthquake, drought, or other disaster. In the fiscal
year ended March 31, 2019, we donated financial aid to areasin Japan affected by torrential rain in July 2018 and to the islandof Sulawesi in Indonesia, which was struck by an earthquake.
We also supplied drinking water to local governments and ourcustomers in disaster affected areas in Japan.

Regional and Community Activities
The Kurita Group strives to be accepted as a valuable memberof the community and to develop along with the local communities in regions where the Group has business sites. Regionaland community activities consist of 1) activities relating to

Research grant presentation ceremony held in the fiscal
year ended March 31, 201952

Kurita Water Industries Ltd. Integrated Report 2019local cleanup and preservation of the natural environment, 2)
activities relating to the promotion of health and welfare
within the community, and 3) activities relating to disasterand crime prevention within the community.

Guest workshops at a Japanese elementary school in Indonesia

Financial Section
Management Indicators

54

Segment Information

55

Management’s Discussion
and Analysis

56

Consolidated Balance Sheets

66

Consolidated Statements of Income

68

Consolidated Statements ofComprehensive Income

69

Consolidated Statements of
Changes in Net Assets

70

Consolidated Statements ofCash Flows71

Notes to Consolidated
Financial Statements

72

Report of Independent Certified
Public Accountants

104

Corporate Information
Stock Information

105

Corporate Data

106

Kurita Water Industries Ltd. Integrated Report 201953

Management Indicators
For the years ended March 31(Millions of yen)

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Orders

175,162

181,951

197,256

186,741

173,463

181,282

221,273

218,730

251,447

258,439Net Sales

178,520

181,234

193,792

180,143

178,137

189,398

214,372

214,187

236,815

259,409

Operating Income

26,35827,131

29,382

20,98914,886

19,435

19,833

19,452

22,47524,326

Operating Income Margin (%)

14.8

15.0

15.2

11.7

8.4

10.3

9.3

9.1

9.5

9.4

Profit Attributable to Ownersof Parent Note 1

17,28817,13816,548

11,476

9,352

10,434

12,577

14,506

17,897

17,323

9.7

9.5

8.5

6.4

5.2

5.5

5.9

6.8

7.6

6.7

251,620

253,298

271,141

263,580

274,925

294,492

298,107299,249

323,046

349,885

0.72

0.72

0.74

0.67

0.66

0.67

0.72

0.72

0.76

0.77

192,588

198,042

208,891

207,871

217,691

222,330

227,896

227,623

238,803

237,604

Equity Ratio (%) Note 5

76.5

78.2

77.0

78.9

79.2

75.5

76.4

76.1

73.9

67.9

Return on Assets (%) Note 6

7.0

6.8

6.3

4.3

3.5

3.7

4.2

4.9

5.8

5.1

Return on Equity (%) Note 7

9.3

8.8

8.1

5.5

4.4

4.7

5.6

6.4

7.7

7.3

Capital Expenditures(Excluding Intangibles)

7,525

5,469

7,721

6,108

5,268

8,489

18,8189,289

22,07036,920Depreciation

14,84015,375

15,41014,493

14,25014,37813,40913,24813,507

13,883

R&D Expenses

3,990

4,225

4,232

4,362

4,534

4,397

5,269

5,038

5,258

5,490

Return on Sales (%) Note 2
Total Assets (At Fiscal Year-End)Total Assets Turnover (Times) Note 3
Equity (At Fiscal Year-End) Note 4( yen)Net Income per Share Note 8Equity per Share Note 9159.37154.291,496.98 1,563.57 1,649.24 1,744.41 1,826.84 1,907.80 1,961.30 1,991.91 2,126.96

2,116.19

134.38134.02130.65

92.43

78.48

87.81

108.24125.23

Dividends per Share

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

52.0

54.0

Dividend Payout Ratio (%)

26.8

28.4

30.6

45.4

56.1

52.4

44.3

39.9

32.6

35.0

Number of Employees

4,445

4,490

4,555

4,640

4,635

5,222

5,481

5,654

6,011

6,613

Notes: 1. Accompanying the revision of Accounting Standards for Business Combinations, etc., the names of items presented have been changed.
		 The revised standards have been applied from the fiscal year ended March 31, 2016.
2. Return on sales = Profit attributable to owners of parent ÷ Net sales
3. Total assets turnover = Net sales ÷ Total assets (Average)
4. “Equity” represents Net assets less non-controlling interests (hereinafter, the same).
5. Equity ratio = Equity ÷ Total assets × 100
6. Return on assets = Profit attributable to owners of parent ÷ Total assets (Average) × 100
7. Return on equity = Profit attributable to owners of parent ÷ Equity (Average) × 100
8. Calculation of Net income per share is based on average number of shares outstanding (excluding treasury stock).
9. Calculation of Equity per share is based on the number of shares at year-end (excluding treasury stock).

54

Kurita Water Industries Ltd. Integrated Report 2019

Segment Information
For the years ended March 31(Millions of yen)OrdersNet Sales

Operating
Income

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

Water treatment
chemicals

53,37056,71456,74856,04059,41359,35383,44082,11890,358102,939

Water treatment
facilities

121,791

125,237

140,507

130,700

114,049

121,928

137,832

136,611161,088

155,500

Total

175,162

181,951

197,256

186,741

173,463

181,282

221,273

218,730

251,447

258,439

Water treatment
chemicals

53,74356,73556,44356,091

58,84459,99983,68081,88390,361102,088

Water treatment
facilities

124,777

124,499

137,348

124,052

119,292

129,399

130,692

132,304

146,453

157,321

Total

178,520

181,234

193,792

180,143

178,137

189,398

214,372

214,187

236,815

259,409

Water treatment
chemicals

8,177

10,099

9,268

8,334

7,954

7,877

6,467

7,231

7,180

8,327

Water treatment
facilities

18,181

17,032

20,127

12,641

6,934

11,56013,366

12,22015,312

15,932

—

0

(13)

13

(2)

(2)

(0)

1

(18)

65

Total

26,35827,131

29,382

20,98914,886

19,435

19,833

19,452

22,47524,326

Water treatment
chemicals

35,19436,44436,58034,64737,31079,79079,36580,12095,589111,580

Adjustment
Assets Employed

Capital Expenditures

Depreciation
and Amortization

R&D Expenses

Water treatment
facilities

168,119

158,414

161,750

143,772

133,620

136,391

142,564

134,623

158,631

196,152

Total

203,314

194,859

198,330

178,419

170,931

216,182

221,930

214,744

254,220

307,733

Water treatment
chemicals

1,151

1,183

1,463

1,458

1,792

5,378

2,434

2,175

3,162

3,502

Water treatment
facilities

6,932

4,781

6,641

5,230

3,917

7,486

17,188

7,911

19,80534,668

Total

8,083

5,965

8,105

6,688

5,709

12,864

19,623

10,08722,967

38,170

1,662

1,539

1,485

1,369

1,386

1,406

2,613

2,926

3,593

4,117

Water treatment
chemicals
Water treatment
facilities

13,86014,527

14,55013,684

13,387

13,457

12,068

11,95012,083

12,001

Total

15,523

16,066

16,035

15,054

14,774

14,863

14,682

14,877

15,677

16,118Water treatment
chemicals

1,114

1,285

1,335

1,367

1,556

1,485

2,129

2,123

2,066

1,899

Water treatment
facilities

2,875

2,940

2,897

2,994

2,978

2,911

3,139

2,914

3,192

3,590

Total

3,990

4,225

4,232

4,362

4,534

4,397

5,269

5,038

5,258

5,490

Kurita Water Industries Ltd. Integrated Report 201955

Management’s Discussion and Analysis

Business Overview
During the fiscal year ended March 31, 2019, the global
economy grew at a moderate pace overall, supported bya solid U.S. economy and continued economic growth inemerging countries in Asia excluding China. However China
and Europe lost momentum in the second half of the fiscal
year amid an increasingly uncertain economic outlook causedby trade friction between the United States and China.
The Japanese economy, while not vigorous, continued to
expand at a modest pace.
The Kurita Group’s market environment was firm in Japan,
despite a temporary slowdown in production activity inthe manufacturing sector due to a string of natural disasters
in the summer. Capital expenditure increased on the backof strong corporate earnings. Overseas, capital expenditure
remained at a high level, particularly in the electronics industry in East Asia.
In this environment, the Group started its five-year
medium-term management plan, Maximize Value Proposition 2022 (MVP-22). In the fiscal year under review, in linewith the plan’s basic policy – “Maximize customer intimacy bydismantling preconceived ideas and dramatically raising thequality and speed of our work,” the Group focused on providing value to customers with total solutions that leverage its
technologies, products and services in water treatment chemicals, water treatment facilities and maintenance services.
In particular, the Group positioned technologies, products and services that excel in water saving, CO2 reduction
and waste reduction for customers and that create sharedvalue for society as Creating Shared Value (CSV) business.
Specifically, the Group used wastewater reclamation systems
to provide recycled water services that contribute to solving
water resource issues faced by customers, developed water
treatment chemicals that contribute to the energy-efficient
operation of boilers by preventing the formation of scale(substances with poor solubility), and implemented major
projects for resource recycling facilities using methane
fermentation technology to reduce waste and realize sustainable energy use at waste incineration plants.
The Kurita Group also continued to develop competitive
products and services that utilize IT and sensing technology,
as well as related markets, in order to strengthen its lineupof total solutions. Overseas, the Group strengthened its
business platform to support the provision of total solutionsin the United States. Specifically, the Group acquired U.S.
Water Services, Inc., which manufactures and sells water
treatment chemicals and water treatment facilities, andentered into an agreement to acquire 25% of the total numberof shares outstanding of Pentagon Technologies Group, Inc.,
which operates a tool cleaning business in the semiconductor
sector. The Group also acquired a majority of shares of U.S.
software services company Fracta, Inc., making it a subsidiary.
Fracta, Inc. develops software to predict deterioration inunderground water mains, which the Group will use to create
and expand a new digital business that applies IoT and AI in
the fields of water and the environment.

Operating Resultsa) Orders
In the Water Treatment Chemicals segment, orders increased
year on year, supported by order growth mainly in Asia, as
well as a full-year contribution to consolidated earnings
from Hansu Co., Ltd., a South Korean company that becamea subsidiary in the fourth quarter of the previous fiscal year.
However, despite firm orders in Japan, orders in the Water
Treatment Facilities segment declined year on year amida drop in overseas demand.
As a result, total consolidated orders were ¥258,439
million, an increase of 2.8% compared with the previous
fiscal year.

Orders by Segment
Years ended March 31(Millions of yen)
Water Treatment Chemicals

251,447

Kurita Water Industries Ltd. Integrated Report 2019258,439

221,273 218,730
181,282

121,928

137,832

136,611161,088

155,500

59,35383,44082,11890,358102,939

2015

56

Water Treatment Facilities

2016

2017

2018

2019

b) Net Sales
Sales increased in the Water Treatment Chemicals segmenton the back of order growth, while sales also rose in the Water
Treatment Facilities segment, supported by steady progresswith major projects in Japan and overseas, and reflecting
an expansion of the scope of application of the percentageof-completion method to construction work.
As a result, total consolidated net sales amounted to¥259,409 million, an increase of 9.5% compared with theprevious fiscal year.

d) Selling, General and Administrative (SG&A) Expenses
SG&A expenses totaled ¥58,420 million, up 8.5% from¥53,863 million in the previous fiscal year. The increasereflected a rise in salaries and bonuses, as well as amortization expenses for intangible assets and an increase inresearch and development expenses.

Net Sales by Segment

SG&A Expenses

Years ended March 31

Years ended March 31(Millions of yen)

(Millions of yen)

Water Treatment Chemicals

Water Treatment Facilities

58,420259,409236,815214,372 214,187
189,398

50,57449,2802016

2017

39,454

129,399

130,692

132,304

146,453

157,32159,99983,68081,88390,361102,088

2015

53,863

2016

2017

2018

2019

2015

2019

2018

c) Cost of Sales and Gross Profit
Cost of sales increased 10.0%, from ¥160,476 million in
the previous fiscal year to ¥176,663 million, reflecting
higher sales. The cost of sales ratio was 68.1%, slightly
increased from 67.8% in the previous fiscal year, reflectingchanges in the sales mix and unprofitable projects in the
Water Treatment Facilities segment.

e) Operating Income
Consolidated operating income rose 8.2%, from ¥22,475
million in the previous fiscal year to ¥24,326 million, withsales growth outweighing increases in the cost of sales ratio
and SG&A expenses. The operating income margin fell to
9.4% from 9.5% in the previous fiscal year.

Gross Profit

Operating Income by Segment

Years ended March 31

Years ended March 31(Millions of yen)

(Millions of yen)
Water Treatment Chemicals

Water Treatment Facilities

82,74670,407

24,32622,47576,33868,732

19,435

19,833

19,452

58,889

2015

2016

2017

2018

2019

11,56013,366

12,22015,312

15,932

7,877

6,467

7,231

7,180

8,327

2015

2016

2017

2018

2019

Kurita Water Industries Ltd. Integrated Report 201957

Operating Income Margin by Segment
Years ended March 31(%)
Water Treatment Chemicals

Total

Water Treatment Facilities

13.1

10.3

10.5

10.2
9.2

8.9

9.3

2015

2016

9.4

9.1
8.8
7.9

7.7

2017

10.0

9.5

2018

8.1

2019

f) Results by Business Segment
Water Treatment Chemicals
Despite a pullback in sales from one-off projects for equipment and services posted in the previous fiscal year, orders
and sales in Japan increased year on year, reflecting efforts
by the Group to attract new customers by offering solutions
based on new products and services, which supported
growth in business for cooling water treatment chemicals
and process treatment chemicals for iron and steel.
Overseas, orders and sales rose year on year, reflecting
higher demand for water treatment services, particularly in
Asia, and an eleven-month increase in the consolidation
period for operating results of Hansu Co., Ltd. in South
Korea, which became a consolidated subsidiary in the fourth
quarter of the previous fiscal year. Segment profits increased
year on year, mainly driven by higher sales overseas.
As a result, orders in the Group’s Water Treatment
Chemicals segment increased to ¥102,939 million, up 13.9%
from the previous fiscal year, and segment sales increasedto ¥102,088 million, up 13.0% from the previous fiscal year.
Segment operating income rose 16.0% year on year, to¥8,327 million.
Water Treatment Facilities
In Japan, orders and sales for water treatment facilities
increased, supported by large-scale orders and progresswith construction work in the electronics industry. In maintenance services, orders and sales also increased, driven by
growth in facility upgrade and expansion projects amid rising
capacity utilization at customers’ plants. In general industries,
orders for water treatment facilities increased on the back oforders for large-scale projects for resource recycling facilities,
although sales declined. Orders and sales rose in maintenance services for general industries, reflecting growth infacility expansion projects to upgrade equipment or expand

58

Kurita Water Industries Ltd. Integrated Report 2019

capacity at customers’ plants. Orders for maintenance services in the public sector increased, but sales declined due
to construction delays for a number of projects. Orders forwater treatment facilities for the electric power industry andsoil remediation increased due to orders for large-scale
projects, while work progress of major orders received in
the previous fiscal year led to higher sales year on year.
Overseas, orders for water treatment facilities declined
following large-scale projects in the previous fiscal year, but
sales increased due to progress with construction work forlarge-scale projects for the electronics industry in China andSouth Korea.
Sales in the ultrapure water supply business increased,
mainly reflecting facility expansion projects in Japan.
Overall, profits in the Water Treatment Facilities segment
increased, reflecting sales growth and cost-saving efforts tooffset the impact of unprofitable projects.
As a result, orders in the Group’s Water Treatment Facilities segment totaled ¥155,500 million, down 3.5% from theprevious fiscal year, and segment sales were ¥157,321 million,
up 7.4% from the previous fiscal year, reflecting the expansionof the scope of application of the percentage-of-completion
method to construction work. Segment operating income
increased 4.0% year on year, to ¥15,932 million.
g) Overseas Sales
Sales by Region
In the fiscal year under review, overseas sales increased
22.3% year on year to ¥96,112 million, supported by growthin the Water Treatment Chemicals segment and the Water
Treatment Facilities segment. Overseas sales accounted for
37.1% of consolidated net sales, up from 33.2% in the previous fiscal year.
Overseas Sales by Region
Fiscal year ended March 31, 2019

2.8%
22.2%

Overseas Sales¥96,112

5.8%

million

69.2%

Asia: Up 36.0%, to ¥66,513 million; 69.2% of total overseas sales
North America: Up 7.9%, to ¥5,589 million; 5.8% of total overseas sales
EMEA*: Down 0.2%, to ¥21,297 million; 22.2% of total overseas sales
Other regions: Down 13.7%, to ¥2,711 million; 2.8% of total overseas sales* EMEA comprises Europe, the Middle East, and Africa.

Regional Breakdown
Sales rose strongly in Asia, reflecting a full-year contribution
from Hansu Co., Ltd. in the Water Treatment Chemicals segment
and growth in facilities for the electronics industry in China
and South Korea in the Water Treatment Facilities segment.

Return on Equity
Years ended March 31
(%)

7.7
7.3

h) Other Income and Expenses
Other income, net totaled ¥3,206 million, compared with
¥3,060 million in the previous fiscal year.
The main reasons were an increase in gain on sales ofinvestment securities related to the sales of shareholdings inother listed companies, which outweighed loss on transferof the aluminum compounds business, impairment losses
on goodwill for a subsidiary in China and losses related tothe streamlining of other assets.
i) Income Before Income Taxes
Income before income taxes increased 7.8% to ¥27,532
million, compared with ¥25,535 million in the previous fiscal
year, reflecting an increase in operating income and otherincome, net.
The pretax profit margin decreased to 10.6%, from
10.8% in the previous fiscal year.
j) Net Income Attributable to Owners of Parent
Despite an increase in pretax profit, the Company reported
consolidated net income attributable to owners of parent of¥17,323 million for the fiscal year ended March 31, 2019,
down 3.2% from ¥17,897 million from the previous fiscal
year, reflecting a temporary increase in tax expenses due tolosses related to business and asset streamlining.
Net income per share decreased to ¥154.29 from
¥159.37 in the previous fiscal year. The net income margin
fell to 6.7% from 7.6%.
Return on equity (ROE) decreased to 7.3%, from 7.7%.

6.4
5.6
4.7

2015

2016

2017

2018

2019

k) Policies on Shareholder Returns
Setting a payout ratio of 30–50% as our target, Kurita will work
to continue dividend increases, making decisions based on
the payout ratios for the most recent five years to respondflexibly to fluctuations in business performance each year.
With regard to the use of internal reserves, the Company
prioritizes business investment for growth, after securing
precautionary funds to prepare for working capital. If excess
funds remain, the Company will consider buying back its own
stock, taking the share price into consideration, in order toimprove capital efficiency and return profits to shareholders.
During the fiscal year under review, the Company paid
dividends of ¥54 per share, including an interim dividend of¥27, for a dividend payout ratio of 35.0%. The dividend takes
the Company’s plans for future business development into
consideration, as well as the support that it has received
from shareholders.

Net Income per ShareDividends per Share and Dividend Payout Ratio

Years ended March 31

Years ended March 31(Yen)
Dividends per Share (Yen)

159.37

Dividend Payout Ratio (%)

154.2946.0

125.23108.24

48.0

50.0

52.0

54.0

52.4

87.81

44.3
39.9
32.6

2015

2016

2017

2018

2019

2015

2016

2017

2018

35.0

2019

Kurita Water Industries Ltd. Integrated Report 201959

Capital Expenditures
The Kurita Group is committed to making investments necessary for technological innovation and production capacity
expansion, and to enhancing competitiveness in response
to intensified sales competition. In the fiscal year ended
March 31, 2019, capital expenditures totaled ¥38,170 million,
an increase of ¥15,203 million compared with the previous
fiscal year, mainly due to the acquisition of business facilities.
The capital expenditures include the amount of lease assets
related to finance leases that do not transfer ownership.
The Water Treatment Chemicals segment undertook
capital expenditures totaling ¥3,502 million, mainly for
expanding and upgrading water treatment chemicals production facilities. This represented an increase of ¥340 million
compared with the previous fiscal year.
The Water Treatment Facilities segment carried out
capital expenditures totaling ¥34,668 million, mainly forthe installation and expansion of facilities for the ultrapure
water supply business. This represented a ¥14,863 million
increase compared with the previous fiscal year.
There were no disposals or sales of key facilities during

the fiscal year under review.
Depreciation and amortization increased 5.3%, to¥17,762 million.
Capital Expenditures/Depreciation and Amortization
Years ended March 31(Millions of yen)
Capital Expenditures

Depreciation and Amortization

38,17022,967
19,623
12,864

14,86315,857

15,74916,861

17,762

10,087

2015

2016

2017

2018

2019

Research and Development
The Kurita Group develops technologies to reinforce its corebusinesses, such as technologies related to boiler and coolingwater treatment, ultrapure water production, water treatment
and wastewater treatment, water reclamation, and soil andgroundwater remediation. The Group also strives to deepen
its technological foundation, such as the assay and analysis technologies that underpin its technologies, as well as
development of new materials. In addition, the Group is
actively working to develop new products and technologies
essential to provide innovative solutions that increase thecorporate value and competitiveness of customers and that
help to address social issues.
Going forward, the Group’s development centers in Japan,
Germany and Singapore will work together, proactively engaging in product and technology development that meets thebroad-ranging needs of industry and society.
The Kurita Group’s R&D activities are performed mainlyby the Research and Development Division of Kurita Water
Industries Ltd. R&D staff number approximately 180,
accounting for 2.7% of overall Group employees. In the fiscal
year ended March 31, 2019, Kurita’s R&D expenses totaled¥5,490 million, equivalent to 2.1% of net sales.
In the Water Treatment Chemicals segment, theKurita Group is engaged in the development of chemicals for water treatment, environmental improvement,

60

Kurita Water Industries Ltd. Integrated Report 2019and production processes, which contribute to customers’
energy savings, environmental burden reduction, andproductivity enhancements. Other development activities
include diagnostic technology for chemical treatment
effectiveness. R&D expenses for the segment for the fiscal
year ended March 31, 2019 totaled ¥1,899 million.
The segment’s main achievements during the fiscal year
were as follows:
In reverse osmosis (RO) membrane facilities, which
are used in wastewater reclamation and seawater
desalination, the segment developed a new systemthat optimally controls chemical dosage for suppressing clogging of RO membranes, reducing water
treatment costs and ensuring stable operation.
In the wastewater sludge treatment market, the segment developed an integrated sludge treatment systemthat combines water treatment chemicals, a sludge
granulation concentrator, and a dehydrator to reduce
sludge waste volume and total operating costs.
Amid recent moves by China to strengthen environmental and safety regulations, the segment developed
new technology utilizing safer, more eco-friendly treatment chemicals for plants that use open circulation
cooling water systems.

In the Water Treatment Facilities segment, Kurita is working
to deliver further advances in the quality of ultrapure water tosupport productivity improvements in the electronics industry.
The Group is also pursuing development in wastewater
treatment to stay ahead of environmental regulations.
Another focus of R&D is the development of technologies tomeet the needs of recycling-oriented societies, such as wastewater reclamation and reuse technology and sludge reduction
technology. R&D expenses for the segment for the fiscal year
ended March 31, 2019 amounted to ¥3,590 million.
The segment’s main achievements during the fiscal year
were as follows:
In the growing electronics industry market, thesegment worked to increase the competitiveness of
its ultrapure water production system by improving
the function of each component unit in the systemand by using an automatic control function that
responds to water quality to reduce the utility cost of
the whole system.
To address rising demand for high-purity water inthe semiconductor industry, the segment developed
a compact pure water production system that removes
boron to the maximum possible extent, somethingthat is difficult to achieve with ion-exchange resin.

In the small and medium-sized pure water treatment
equipment market, the segment expanded the application of its pure water supply services by developing
pre-treatment equipment capable of stably processing
water of high turbidity and by enhancing the functionsof its remote monitoring system.
R&D Expenses
Years ended March 31(Millions of yen)

5,269

5,038

5,258

5,490

4,397

2015

2016

2017

2018

2019

Financial Positiona) Assets
As of March 31, 2019, Kurita had total assets of ¥349,885
million, an increase of ¥26,839 million compared with
¥323,046 million as of March 31, 2018.

Total Assets and Return on Assets
Years ended March 31
Total Assets (Millions of yen)

Return on Assets (%)

349,885
294,492 298,107 299,249

323,046
5.8

4.9

5.1

4.2
3.7

2015

2016

2017

2018

2019

Kurita Water Industries Ltd. Integrated Report 201961

Breakdown of Assets
Current Assets
Current assets as of March 31, 2019 totaled ¥149,550 million,a decrease of ¥10,859 million compared with March 31, 2018.
That primarily reflected an increase of ¥12,383 million innotes and accounts receivable, which was outweighed bya decrease of ¥2,386 million for work in process, reflecting
the expansion of the scope of application of the percentageof-completion method to construction work, and a decreaseof ¥24,503 million for cash on hand (total for cash and time
deposits and marketable securities), mainly due to acquisitions in North America (Water Treatment Chemicals segment
and Water Treatment Facilities segment) and capital investment in the ultrapure water supply business (Water Treatment
Facilities segment).
Investments and Long-Term Receivables, Property, Plant
and Equipment, and Intangible Assets
As of March 31, 2019, investments and long-term receivables
totaled ¥36,708 million, a decrease of ¥8,897 million from¥45,605 million as of March 31, 2018.
Property, plant and equipment, net as of March 31, 2019
amounted to ¥109,669 million, an increase of ¥23,641 million
compared with ¥86,028 million as of March 31, 2018.
Intangible assets as of March 31, 2019 were ¥53,958
million, up ¥22,955 million compared with ¥31,003 million asof March 31, 2018.
The decrease in investments and long-term receivables
was mainly due to a decline in investment securities of¥13,480 in line with the sales of shareholdings in otherlisted companies.
The respective increases in property, plant and equipment and in intangible assets were mainly caused by capital
expenditures in the ultrapure water supply business andthe aforementioned acquisitions.
Property, Plant and Equipment, Net
As of March 31(Millions of yen)

109,669

75,033

2015

62

78,3882016

86,02874,036

2017

2018

2019

Kurita Water Industries Ltd. Integrated Report 2019

Intangible Assets
As of March 31(Millions of yen)

53,95827,1772015

31,00324,20225,308

2016

2017

2018

2019

b) Liabilities
As of March 31, 2019, liabilities totaled ¥110,412 million,
an increase of ¥28,219 million compared with ¥82,193
million as of March 31, 2018.
Current Assets
Current liabilities as of March 31, 2019 totaled ¥68,072
million, an increase of ¥11,923 million from March 31, 2018.
That mainly reflected an increase in accounts payable,
other of ¥8,742 million, reflecting the purchase of facilities
in the ultrapure water supply business, and an increase inother current liabilities of ¥1,766 million, largely due to a risein advances received.
Long-Term Liabilities
Long-term liabilities as of March 31, 2019 were ¥42,339
million, an increase of ¥16,295 million from March 31, 2018,
mainly reflecting an increase of ¥14,877 million in other longterm liabilities due to a rise in long-term advances received.
c) Net Assets
Net assets as of March 31, 2019 totaled ¥239,473 million,a decrease of ¥1,380 million compared with March 31, 2018.
That was primarily due to an increase of ¥10,801 million inshareholders’ equity, outweighed by a decrease of ¥12,000
million of accumulated other comprehensive income.
The main factor behind the increase in shareholders’equity was a rise in retained earnings of ¥11,084 million,
reflecting net income attributable to owners of parent thatexceeded year-end and interim dividends paid. The decreasein accumulated other comprehensive income mainly reflected
a drop of ¥4,584 million for foreign currency translation
adjustments due to the stronger yen and a decline inunrealized gains on investment securities due to the salesof shareholdings in other listed companies, resulting ina decrease of ¥7,907 million for unrealized gains on availablefor-sale securities.
As a result, total liabilities and net assets amounted to¥349,885 million as of March 31, 2019, a decrease of¥26,839 million compared with ¥323,046 million as ofMarch 31, 2018.
Kurita’s equity ratio was 67.9%, down 6.0 percentage
points from 73.9% a year earlier. Net assets per share as ofMarch 31, 2019 were ¥2,116.19, a decrease of ¥10.77 compared with ¥2,126.96 as of March 31, 2018.
Note: Equity is defined as net assets less non-controlling interests.

Equity and Equity Ratio
Years ended March 31
Equity (Millions of yen)

Equity Ratio (%)

222,330 227,896 227,623

75.5

76.4

238,803 237,604

76.1
73.9

67.9

2015

2016

2017

2018

2019

Cash Flows
Cash Flows from Operating Activities
Net cash provided by operating activities during the fiscal
year ended March 31, 2019 totaled ¥38,478 million, an
increase of ¥17,070 million from the previous fiscal year.
That mainly reflected cash provided from income before
income taxes of ¥27,532 million, depreciation and amortization of ¥17,762 million, including goodwill amortization, andan increase in advances received of ¥15,920 million, partially
offset by cash used from increase in trade receivables of¥10,907 million and income taxes paid of ¥8,915 million.

Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥51,559 million,
an increase of ¥35,631 million from the previous fiscal year.
That mainly reflected proceeds from sales and redemptionof marketable securities and investment securities of ¥13,335
million, against cash used for payments for acquisition ofbusiness of ¥33,374 million and payments for purchase ofproperty, plant and equipment of ¥28,600 million.
Cash Flows from Financing Activities
Net cash used in financing activities totaled ¥11,280 million,a decrease of ¥1,139 million from the previous fiscal year.
That mainly reflected cash used for cash dividends paid of¥6,009 million and decrease in short-term borrowings, netof ¥2,417 million.

Cash Flows from Operating Activities
Years ended March 31(Millions of yen)

38,478Cash and Cash Equivalents at End of YearAs of March 31, 2019, Kurita had cash and cash equivalents
totaling ¥35,548 million, a decrease of ¥23,369 million fromMarch 31, 2018.

33,941
26,582
23,3142015

21,408

2016

2017

2018

2019

Kurita Water Industries Ltd. Integrated Report 201963

Commitment LineThe Kurita Group’s basic policy is to secure stable liquidity
and a source of funds required for managing its business.
The Group basically uses its own funds to meet short-termworking capital, and also basically uses its own funds forcapital investments and other investments in growth fields,

while envisaging procurement through bank loans as required.
As of the end of the fiscal year under review, the Group has
concluded commitment line agreements with four financial
institutions, with no executed borrowings and an unused
available balance of ¥70,600 million.

Business Risks
The following are summaries of major foreseeable risks present in the business environments in which the Kurita Group
operates. Forward-looking statements herein are based on
judgments made by management as of March 31, 2019.
1. Economic and Market Conditions
The Group’s Water Treatment Chemicals and Water Treatment Facilities businesses are affected by economic
conditions in Japan and countries and regions outside
Japan where the Group operates. Demand in the Water
Treatment Chemicals business fluctuates in response tofactory capacity utilization rates in industries such as
steel, petroleum refining and petrochemicals, and pulp
and paper—the main areas of demand for the business.
Such demand fluctuations may affect the Group’s financial
results. Demand in the Water Treatment Facilities businessfluctuates in response to trends in capital expenditures inelectronics—the main area of demand for the business—and other industries. Such demand fluctuations may affect
the Group’s financial results.
More intense competition with rivals in the Group’s business domains could lead to declines in prices of products
and services, which could lower the Group’s profitability.

64

Kurita Water Industries Ltd. Integrated Report 2019

2. Materials and Parts Procurement
The Group procures raw materials and parts from outside
the Group for the manufacture of products and fabricationof facilities. The prices of raw materials and parts fluctuate
based on changes in market conditions, and this may affect
the Group’s financial results.
3. Overseas Business Development
The Group is striving to expand its business outside Japan.
In contrast to the Japanese market, doing business in overseas markets involves a number of inherent risks, including
the risk of changes to local laws and regulations, the risk ofpolitical and economic instability, and the risk of foreignexchange rate fluctuations. If such risks materialized,
the Group’s financial results could be affected.
4. New Product Development
The Group continuously endeavors to develop new technology and appealing new products.
The success of new technology and product development
efforts cannot be guaranteed. The Group may not be able tooffer new technologies and products that meet the needs of
its customers or launch new products in a timely fashion.
The Group may also fail to keep pace with rapid technological innovation and changing customer needs. If the Group
were to fail to develop outstanding new products, this could
hamper its future growth and profitability or otherwise affectits financial results.

5. Intellectual Property
The Group recognizes the importance of intellectual property and continually seeks to register its own intellectual
property while avoiding infringing the intellectual property
rights held by third parties, both in Japan and overseas.
Given the wide scope of the Group’s business, however,there is potential for the Group’s intellectual property
rights to be infringed and potential for the Group to infringe
the rights held by third parties. Such occurrences may affect
the Group’s financial results.
6. Dependence on Information Systems
The Group’s use of information systems is increasing, as is theimportance of information systems to the Group’s business.
If a computer virus or some other factor were to obstruct
the functions of the Group’s information systems, the Group’sbusiness activities, financial results, and financial condition
could be negatively affected.
7. Large-Scale Natural Disasters
If an earthquake, typhoon, or other kind of natural disasterwere to directly or indirectly disrupt the Group’s businessexecution, the Group’s business activities, financial results,
and financial condition could be negatively affected.

Kurita Water Industries Ltd. Integrated Report 201965

Consolidated Balance Sheets
Kurita Water Industries Ltd. and Consolidated Subsidiaries
As of March 31, 2019 and 2018

Thousands of
U.S. dollars(Note 1)Millions of yen

Assets

2019

2018

2019

¥ 35,351¥ 61,086

99,247

86,865894,117

Allowance for doubtful accounts

(659)

(464)

(5,936)

Marketable securities (Notes 5 and 6)

1,235

3

11,126Inventories (Note 8)

9,474

10,39085,351Other current assets

4,900

2,528

44,144

149,550

160,409

1,347,297

Investment securities (Notes 5 and 6)

21,10434,535

190,126

Investments in unconsolidated subsidiaries and affiliates (Note 5)

1,099

1,147

9,900

Deferred tax assets (Note 10)

7,929

4,860

71,432Other investments

6,724

5,238

60,576

Allowance for doubtful accounts

(149)

(176)

(1,342)36,70845,605

330,702

Land (Note 13)

14,51015,596

130,720

Buildings and structures

65,74363,191

592,279

Machinery and equipment

145,560

137,176

1,311,351

Construction in progress

28,0887,880

253,045

Other facilities

16,85915,292

151,882

Leased assets

11,8788,256

107,009282,640

247,3932,546,306(172,971)(161,365)(1,558,297)

109,669

86,028988,009

Goodwill

36,301

20,362

327,036

Other intangible assets

17,656

10,641

159,063

53,95831,003

486,108¥ 349,885¥ 323,046$ 3,152,117

Current assets:
Cash and time deposits (Notes 3 and 5)
Notes and accounts receivable, trade (Notes 4 and 5)

Total current assets$

318,477

Investments and long-term receivables:

Total investments and long-term receivables

Property, plant and equipment, at cost (Note 16):

Total
Accumulated depreciation
Property, plant and equipment, net

Intangible assets:

Total intangible assets
Total assets
The accompanying notes are an integral part of these statements.

66

Kurita Water Industries Ltd. Integrated Report 2019

Thousands of
U.S. dollars(Note 1)Millions of yen

Liabilities and Net Assets

2019

2019

2018

Current liabilities:
Short-term borrowings and current portion of long-term debt (Note 9)

¥

1,562

¥

1,973

$

14,072

Notes and accounts payable, trade (Notes 4 and 5)

26,362

28,875

237,495

Accounts payable, other

19,737

10,995

177,810

Income taxes payable

5,890

4,806

53,063

Advances received

4,757

2,065

42,855

Accrued employees’ bonuses

2,520

2,420

22,702

Accrued bonuses for directors and corporate auditors

133

145

1,198

Provision for product warranties

785

455

7,072

Provision for loss on construction contracts (Note 8)
Other current liabilities
Total current liabilities

238

94

2,144

6,083

4,317

54,801

68,07256,149613,261Long-term liabilities:
Lease obligations (Note 9)

5,250

4,038

47,297

Net defined benefit liability (Note 11)

16,648

16,610149,981

Accrued retirement benefits for directors and corporate auditors

6

7

54

352

183

3,171

Deferred tax liabilities on revaluation of land (Note 13)

1,119

1,119

10,081Other long-term liabilities (Note 9)

Provision for directors' stock benefits

18,961

4,084

170,819

Total long-term liabilities

42,33926,044381,432

Total liabilities

110,412

82,193994,702

121,171

Net assets:
Shareholders’ equity (Note 12):
Common stock, 2019 and 2018
Authorized: 531,000,000 shares
Issued:116,200,694 shares in 2019 and 201813,45013,450Capital surplus

10,665

10,95996,081Retained earnings

220,234

209,149

1,984,090

Treasury stock, at cost
2019—3,921,075 shares
2018—3,926,398 shares
Total shareholders’ equity(10,932)(10,943)(98,486)

233,417

222,615

2,102,855

8,651

16,55877,936

314

(1)

2,828

Accumulated other comprehensive income:Unrealized gains on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land (Note 13)

(200)

(380)

(1,801)

Foreign currency translation adjustments(4,578)6(41,243)

Remeasurements of defined benefit plans03037,720Total accumulated other comprehensive income

4,187

16,187

Non-controlling interests

1,868

2,049

16,828

Total net assets

239,473

240,853

2,157,414

Total liabilities and net assets¥349,885¥323,046$3,152,117

Kurita Water Industries Ltd. Integrated Report 201967

Consolidated Statements of Income
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2019 and 2018

Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

Net sales (Note 20)¥259,409¥236,815$2,337,018

Cost of sales (Note 14)

176,663

160,476

1,591,558

82,74676,338745,459

58,42053,863526,306

24,32622,475219,153

Interest and dividend income

733

737

6,603

Gross profit
Selling, general and administrative expenses (Note 15)
Operating income (Note 20)
Other income (expenses):Rent income

269

107

2,423

Equity in earnings of unconsolidated subsidiaries and affiliates

136

73

1,225

Interest expense

(317)

(352)

(2,855)

—

(192)

—

(320)

(250)

(2,882)Foreign exchange losses
Commitment fee
Acquisition-related costs(1,284)(732)(11,567)

Loss on valuation of investment in capital

(262)

—

(2,360)Gain on sales of investment securities

8,676

1,720

78,162

—

2,443

—

(579)

—

(5,216)

Gain on step acquisitions
Loss on sales of properties (Note 17)
Impairment loss (Note 16)(1,097)(413)(9,882)

Loss on liquidation of business (Note 17)

(519)

—

(4,675)

Loss on transfer of business (Note 17)(2,867)—(25,828)

—

(320)

—

638

237

5,747

Provision for building demolition expenses (Note 17)
Other, net
Other income, net

3,206

3,060

28,882

Income before income taxes

27,532

25,535

248,036

Current

9,715

7,906

87,522

Deferred

491

(408)

4,423

10,207

7,498

91,954

17,32518,037156,0811

139

9¥ 17,323¥ 17,897$ 156,063

Income taxes (Note 10):

Total income taxes
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of parent

U.S. dollars(Note 1)

Yen

2019

2018

2019

¥154.29¥159.37

$1.39

54.00

52.00

0.49

Per share of common stock (Note 22):
Net income
Cash dividends applicable to the year
The accompanying notes are an integral part of these statements.

68

Kurita Water Industries Ltd. Integrated Report 2019

Consolidated Statements of Comprehensive Income
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2019 and 2018

Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

¥17,325¥18,037$156,081(7,904)

1,739(71,207)

315

(671)

2,837

—

0

—

Foreign currency translation adjustments(2,208)

3,219(19,891)

Remeasurements of defined benefit plans

(3)

7

(27)

Net income
Other comprehensive income (Note 18):
Unrealized gains or losses on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land

Share of other comprehensive income of entities accounted
for using equity method
Total other comprehensive income
Comprehensive income

(46)

93

(414)

(9,848)

4,389(88,720)¥ 7,476¥22,426$ 67,351¥ 7,535¥22,255$ 67,882

(58)

170

(522)

Comprehensive income attributable to:Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests
The accompanying notes are an integral part of these statements.

Kurita Water Industries Ltd. Integrated Report 201969

Consolidated Statements of Changes in Net Assets
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2019 and 2018

Millions of yen
Shareholders’ equity

Commonstock

Balance as of March 31, 2017
Changes during the year
Cash dividends paid
Net income attributable toowners of parent
Acquisition of treasury stock
Disposal of treasury stock
Retirement of treasury stockReversal of revaluation
reserve for land
Changes in equity interest inconsolidated subsidiaries
Other
Net changes of net assets
other than shareholders’equityTotal changes during the year
Balance as of March 31, 2018
Changes during the year
Cash dividends paid
Net income attributable toowners of parent
Acquisition of treasury stock
Disposal of treasury stockReversal of revaluation
reserve for land
Adjustments due to changeof fiscal year-end of
consolidated subsidiaries
Changes in equity interest inconsolidated subsidiaries
Other
Net changes of net assets
other than shareholders’equityTotal changes during the year
Balance as of March 31, 2019

Capitalsurplus¥13,450 ¥10,993

Accumulated other comprehensive income

Retainedearnings

Treasury
stock

Total
shareholders’equity¥205,586¥(13,891)¥216,138(5,793)¥ 670¥(380)¥(3,593)¥(3)¥ 11,484

Total net
assets¥1,135¥228,758(5,793)

17,897(5,592)
14—

17,897(5,592)
14
—

(0)

(0)

(0)

(15)

(33)
(15)

(33)
(15)

(5,592)
14
8,525(8,525)

(33)

3,563
¥209,149

2,947¥(10,943)(5,968)—6,476¥222,615

1,766
1,766
¥16,558

(671)
(671)
¥ (1)

0
0
¥(380)

3,600
3,600
¥
6

7
7
¥3

4,703
4,703
¥ 16,187

914
914¥2,0495,617
12,094¥240,853(5,968)(5,968)17,323(2)
14

17,323
(2)
14

(180)

(180)

(180)

(123)

(123)

(123)

32

(294)
32

(294)
32

17,323
(2)
14

(294)

—
(294)
¥13,450 ¥10,665¥14,792

Noncontrollinginterests(5,793)

17,897—(33)¥13,450 ¥10,959

Foreign Remeasure- Total accumuUnrealized Deferredgains ongains or Revaluation currency
ments oflated otheravailable-for- losses on reserve for translation
defined comprehensive
adjustments benefit plans
landsale securities hedges
income11,08411¥220,234 ¥(10,932)—
10,801¥233,417(7,907)(7,907)¥ 8,651

315
315
¥ 314

180
180
¥(200)(4,584)(4,584)¥(4,578)

(3)
(3)
¥0

(12,000)(12,000)¥ 4,187

(181)
(181)
¥1,868(12,181)(1,379)¥239,473

Foreign Remeasure- Total accumuUnrealized Deferredgains ongains or Revaluation currency
ments oflated otheravailable-for- losses on reserve for translation
defined comprehensive
adjustments benefit plans
landsale securities hedges
incomeNoncontrollinginterests

Total net
assets$18,459$2,169,846

Thousands of U.S. dollars (Note 1)
Shareholders’ equity

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

Accumulated other comprehensive income
Total
shareholders’equityBalance as of March 31, 2018
$121,171 $98,729 $1,884,225 $(98,585) $2,005,540 $149,171 $(9) $ (3,423) $54
Changes during the year
Cash dividends paid
(53,765)(53,765)
Net income attributable toowners of parent
156,063
156,063
Acquisition of treasury stock
(18)
(18)
Disposal of treasury stock126
126
Reversal of revaluation
reserve for land
(1,621)(1,621)
Adjustments due to changeof fiscal year-end of
consolidated subsidiaries(1,108)(1,108)Changes in equity interest inconsolidated subsidiaries(2,648)(2,648)
Other
288
288
Net changes of net assets
other than shareholders’equity—(71,234) 2,837
1,621 (41,297)
Total changes during the year—
(2,648)99,85599
97,306(71,234) 2,837
1,621 (41,297)
Balance as of March 31, 2019
$121,171 $96,081 $1,984,090 $(98,486) $2,102,855 $ 77,936 $2,828 $(1,801) $(41,243)

The accompanying notes are an integral part of these statements.

70

Kurita Water Industries Ltd. Integrated Report 2019$ 27 $ 145,828(53,765)
156,063(18)
126(1,621)(1,108)(2,648)288(27) (108,108)(1,630)(27) (108,108)(1,630)$ 0 $ 37,720 $16,828(109,738)(12,423)$2,157,414

Consolidated Statements of Cash Flows
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2019 and 2018

Thousands of
U.S. dollars(Note 1)Millions of yen

I.

Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Increase in net defined benefit liability
Increase in other allowances
Equity in earnings of unconsolidated subsidiaries and affiliates
Interest and dividend income
Interest expense
Gain on step acquisitions
Provision for building demolition expenses
Loss on sales and disposal of properties
Loss on liquidation of business
Loss on transfer of businessImpairment loss
Gain on sales of investment securities
Changes in assets and liabilities:
Increase in trade receivables
Decrease (increase) in inventories
Decrease (increase) in other assets
Increase (decrease) in trade payables
Increase in advances received
Increase in other liabilities
Other, net
Interest and dividends received
Interest paid
Income taxes paid
Other, net
Net cash provided by operating activities

II.

Cash flows from investing activities
Decrease in time deposits, net
Payments for purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchase of intangible assets
Proceeds from sales of intangible assets
Payments for purchase of marketable securities and investment securities
Proceeds from sales and redemption of marketable securities and investment
securities
Payments for acquisition of business (Note 3)
Payments for investments in unconsolidated subsidiaries and affiliates (Note 3)
Other, net
Net cash used in investing activities

III. Cash flows from financing activities
Increase (decrease) in short-term borrowings, net
Repayment of long-term loans payable
Cash dividends paid
Cash dividends paid to non-controlling shareholders of consolidated subsidiaries
Payments for lease obligations
Payments for purchase of treasury stock, net
Payments from changes in ownership interests in subsidiaries that do not
result in change in scope of consolidation
Net cash used in financing activities
IV. Effect of exchange rate changes on cash and cash equivalents
V. Net decrease in cash and cash equivalents
VI. Cash and cash equivalents at beginning of year
VII. Increase in cash and cash equivalents due to change of fiscal year-end of
consolidated subsidiaries
VIII. Cash and cash equivalents at end of year (Note 3)

2019

2018

2019

¥ 27,532
17,762
206
666
(136)
(733)
317
—
—
666
519
2,867
1,097
(8,676)¥ 25,535
16,861
387
6
(73)
(737)
352
(2,443)
320
54
—
—
413
(1,720)$ 248,036
160,018
1,855
6,000(1,225)(6,603)
2,855
—
—
6,000
4,675
25,828
9,882(78,162)(10,907)
1,463
(692)
(1,088)15,920971
200
47,956950(448)(8,915)(1,063)38,478(16,332)
(29)
1,073
3,699
74
223
431
28,095897(514)(6,170)(899)
21,408(98,261)
13,180(6,234)(9,801)
143,4238,747
1,801
432,036
8,558(4,036)(80,315)(9,576)346,648933(28,600)
479(1,235)18(2,144)

5,787(17,924)
15
(972)
—
(6)

8,405
(257,657)
4,315(11,126)
162(19,315)

13,335(33,374)—(970)¥(51,559)

2,115
(136)
(4,012)(794)¥(15,928)

120,135(300,666)—(8,738)$(464,495)¥ (2,417)(594)(5,966)(43)(1,165)
(2)

¥

177
(400)
(5,753)(66)(610)(5,592)$ (21,774)(5,351)(53,747)(387)(10,495)(18)(1,094)(11,280)(173)(12,419)(9,855)(101,621)(104)(24,465)
58,917417(6,521)65,438(936)(220,405)
530,783

1,097¥ 35,548—¥ 58,917

9,882$ 320,252

The accompanying notes are an integral part of these statements.
Kurita Water Industries Ltd. Integrated Report 201971

Notes to Consolidated Financial Statements
Kurita Water Industries Ltd. and Consolidated Subsidiaries

1. Basis of presentation of consolidated financial statements
Kurita Water Industries Ltd. (the “Company”) and its domestic subsidiaries maintain their books ofaccount and prepare their financial statements in accordance with accounting principles andpractices generally accepted in Japan, while its foreign subsidiaries maintain their books of accountand prepare their financial statements in conformity with those of the countries of their domicile.
Certain accounting principles and practices generally accepted in Japan are different fromInternational Financial Reporting Standards and standards in other countries in certain respects as
to application and disclosure requirements. Accordingly, the accompanying consolidated financial
statements are intended for use by those who are informed about Japanese accounting principles
and practices.
The Company’s consolidated financial statements, prepared in accordance with accounting
principles and practices generally accepted in Japan, were filed with the Japanese Ministry of Financeand the Tokyo Stock Exchange as required by the Financial Instruments and Exchange Law of Japan.
Certain reclassifications of accounts and modifications have been made in the accompanying
consolidated financial statements to facilitate understanding by readers outside Japan. In addition,certain reclassifications have been made in the 2018 financial statements to conform to the classification used in 2019.
All figures in the consolidated financial statements and notes are stated in millions of Japanese
yen by discarding fractional amounts of less than ¥1 million. As a result, the totals shown in the
consolidated financial statements and notes in yen do not necessarily agree with the sum of theindividual amounts.
The translation of yen amounts as of or for the year ended March 31, 2019 into U.S. dollars is
included solely for the convenience of readers and has been made, as a matter of arithmeticalcomputation only, at the rate of ¥111 to US$1, the prevailing rate on the Tokyo Foreign Exchange
Market on March 29, 2019. The translation should not be construed as a representation that yen
amounts have been, could have been or could in the future be converted into U.S. dollars at theabove or any other rate.
2. Significant accounting policies(1) Consolidation
Scope of consolidation
The consolidated financial statements included the accounts of the Company and its significant
subsidiaries (together, the “Group”). For the years ended March 31, 2019 and 2018, 60 and 52
subsidiaries were consolidated, respectively.
Under the control concept, those companies in which the Company, directly or indirectly, is able
to exercise control over operations are fully consolidated.
All significant intercompany transactions and balances have been eliminated in consolidation.
Names of principal consolidated subsidiaries:
		 Kurita Europe GmbH		 Kurita Water Industries (Jiangyin) Co., Ltd.
		 Hansu Technical Service Ltd.
		 Hansu Co., Ltd.
		 Kurita Water Industries (Suzhou) Ltd.
		 Kuritaz Co., Ltd.
		 Kurita Engineering Co., Ltd.
		 Kuritec Service Co. Ltd.
		 Kurita Chemical Manufacturing Ltd.
From the year ended March 31, 2019, Fracta, Inc., Fracta, Global Water Services Holding
Company, Inc., U.S. Water Services, Inc., U.S. Water Services Canada, Inc. and U.S. Water Services
Dominica, S.R.L. were newly included in the scope of consolidation due to acquisition of shares.
Also, Kurita Water Industries (Taixing) Co., Ltd. and Kurita Capital (Singapore) Pte. Ltd. were included
due to incorporation.

72

Kurita Water Industries Ltd. Integrated Report 2019

Fiscal years of consolidated subsidiaries
Previously, the fiscal years of all of the foreign consolidated subsidiaries ended on December 31,
and for these consolidated subsidiaries, the financial statements as of December 31 were used forconsolidation purposes, with material transactions that occurred during the three-month period
from January 1 to March 31 of the following year adjusted as necessary for consolidation. However,for better understanding of management information and presentation of consolidated financial
statements, the fiscal year ends of all foreign subsidiaries have been changed to March 31, except
for Kurita Water Industries (Dalian) Co., Ltd., Kurita Water Industries (Jiangyin) Co., Ltd., Kurita Water
Industries (Suzhou) Ltd., Kuritec (Shanghai) Co., Ltd., and Kurita do Brasil LTDA. These fivecompanies have conducted a provisional financial closing in accordance with the actual closing on
the consolidated fiscal year-end date. In line with this change, for the fiscal year under review, profit
and loss for the three months from January 1, 2018 to March 31, 2018 has been adjusted inretained earnings for consolidation.
The new consolidated subsidiaries Fracta, Inc., Fracta and Kurita Water Industries (Taixing) Co.,
Ltd. have fiscal years ending on December 31, and the Company conducts a provisional accounting
closing for them in accordance with the actual closing on the consolidated fiscal year-end date.
Moreover, for Global Water Services Holding Company, Inc., U.S. Water Services, Inc., U.S. Water
Services - Canada, Inc., and U.S. Water Services Dominica, S.R.L., only the opening balances of thebalance sheets as of March 26, 2019 have been consolidated for the fiscal year under review.
Amortization of goodwill
Goodwill is amortized using the straight-line method over a reasonable number of years, notexceeding 20 years, on a case-by-case basis, except for minor amounts that are charged to incomein the period of acquisition.
(2) Equity method
Scope of equity method application
Under the influence concept, significant investments in unconsolidated subsidiaries and affiliates
over which the Company has the ability to exercise significant influence with regard to the operating
and financial policies of the investees are accounted for by the equity method. For the years ended
March 31, 2019 and 2018, 4 companies were accounted for by the equity method.
Name of principal company applying the equity method:
		 Angang Kurita Water Treatment Co., Ltd.
Investments in the remaining unconsolidated subsidiaries and affiliates were stated at cost. If
the equity method of accounting had been applied to the investments in these companies, theeffect on the accompanying consolidated financial statements would not be material.
Fiscal years of companies accounted for by the equity method
The companies accounted for by the equity method that have different closing dates are included in
the consolidated financial statements based on their respective fiscal year-end.
(3) Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on
hand, readily available bank deposits and short-term investments with an original maturity of threemonths or less and subject to a minor risk of fluctuations in value.
(4) Available-for-sale securities
Available-for-sale securities that have available fair values are stated at fair value at the balance
sheet date, with resulting unrealized holding gains and losses reported as a separate component of
net assets. Available-for-sale securities with no available fair values are stated at cost computed by
the moving-average method. The cost of sold securities is computed by the moving-average method.

Kurita Water Industries Ltd. Integrated Report 201973

(5) Inventories
Inventories held for sale in the ordinary course of business are stated at the lower of cost determined by the moving-average method, except for work in process determined by the specific-identification method, or net selling value.
(6) Derivative transactions
Derivative transactions are measured at fair value in principle.
(7) Depreciation of property, plant and equipment
Property, plant and equipment are mainly depreciated by the straight-line method.
(Changes to accounting policies that are difficult differentiating from changes to accounting
estimates)(Changes in depreciation method of property, plant and equipment)
In the past, property, plant and equipment (excluding leased assets) were depreciated by the declining-balance method for the Company and its domestic consolidates subsidiaries, except forbuildings (other than building equipment) acquired on or after April 1, 1998, building equipment
and structures acquired on or after April 1, 2016 and ultrapure water supply equipment located atclients’ sites, for which the straight-line method was applied. However, the Group has changed thedepreciation method for them to the straight-line method since April 1, 2018.
The Group has made this change because the pattern of consumption of the economic benefitsof property, plant and equipment has changed as the expansion of the global business and a transition to the optimum production system have become clear. Given that actual production on aconsolidated basis generally stays at a certain level and that the operation of facilities is also stable,
the Group has determined that the straight-line method is more suitable for the consumption
pattern of the economic benefits of property, plant and equipment.
The effect of this change on profits and loss for the year ended March 31. 2019 was immaterial.
(8) Intangible assets
Intangible assets are amortized by the straight-line method.
(9) Impairment of long-lived assets
The Company reviews its long-lived assets for impairment in accordance with the accounting
standards for impairment of fixed assets whenever events or changes in circumstances indicate thecarrying amount of an asset or asset group may not be recoverable. An impairment loss would berecognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted
future cash flows expected to result from the continued use and eventual disposition of the asset or
asset group. The impairment loss would be measured as the amount by which the carrying amountof the asset exceeds its recoverable amount, which is the higher of the discounted cash flows fromthe continued use and eventual disposition of the asset or the net selling price at disposition.
(10) Accrued employees’ bonuses
The Company and its domestic consolidated subsidiaries accrue the amount of employees’ bonuses
based on the anticipated bonus payments to employees.
(11) Hedges
Gain or loss on derivatives designated as hedging instruments is deferred until the gain or loss on
the underlying hedged items is recognized.
The Company uses forward foreign exchange contracts only in order to manage certain risks
arising from fluctuations in foreign exchange rates and do not use derivative transactions for speculative purposes.

74

Kurita Water Industries Ltd. Integrated Report 2019

The Company evaluates the effectiveness of its hedging activities by comparing cumulativechanges in cash flows on the hedging instruments with those of the related hedged items.
Hedging instruments: Forward foreign exchange contracts
Hedged items:
Forecasted transactions denominated in foreign currencies(12) Accounting method for employees’ retirement benefits
The straight-line method is used as a method of attributing expected benefits to be paid to thecurrent period in calculating retirement benefit obligations.
Actuarial differences are subject to amortization over a period of 1–2 years from the year when
they are incurred.
(13) Leases
Finance leases which do not transfer ownership are capitalized to recognize leased assets and leaseobligations in the consolidated balance sheets. Leased assets are depreciated using the straight-line
method over the respective lease periods without residual value.
(14) Consumption taxes
Consumption taxes are accounted for separately from transaction prices and are not reflected in
the consolidated statements of income.
(15) Construction contracts
The percentage-of-completion method has been applied to the contracts if the outcome of theconstruction activity is deemed certain for the percentage of performance of the contractor’s obligation at the end of the balance sheet date, otherwise the completed-contract method is applied. The
percentage of completion is determined using the cost incurred to the estimated total cost.
(Expansion of the scope of application of the percentage-of-completion method)
In the past, the Group applied the percentage-of-completion method to construction work forprogress of which the certainty of outcome can be recognized and applied the completed-contract
method to other construction work. However, the Group has applied the percentage-of-completion
method to other construction work from the fiscal year under review because a reliable estimate
has become possible for most of them due to the development and strengthening of the costmanagement system.
As a result, net sales have increased ¥7,355 million (US$66,261 thousand), and operating
income and income before income taxes have increased ¥1,421 million (US$12,801 thousand),
respectively.
(16) Foreign currency translation
Monetary receivables and payables denominated in foreign currency are translated using the spot
exchange rate prevailing at the balance sheet date, and the differences are charged to income as
foreign exchange gains or losses.
Foreign subsidiaries’ assets and liabilities are translated using the spot exchange rate at theirbalance sheet dates, and their income and expenses are translated using the average exchange rateduring the year. The translation differences are recorded in “Foreign currency translation adjustments” and “Non-controlling interests” in net assets.
(17) Appropriation of retained earnings
The accompanying consolidated statements of changes in net assets reflect the appropriations ofretained earnings of the Company in the fiscal year in which the appropriations are approved at thegeneral shareholders’ meeting.

Kurita Water Industries Ltd. Integrated Report 201975

(18) Earnings per share
Earnings per share are computed by dividing net income attributable to common shareholders ofparent by the weighted-average number of common shares outstanding.
(19) New accounting standards not yet applied
Accounting Standard for Revenue Recognition, etc.
• Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 30, 2018)• Implementation Guidance on Accounting Standard for Revenue (ASBJ Guidance No. 30, March 30,
2018)1) Overview
The International Accounting Standards Board (IASB) and the Federal Accounting Standards Board(FASB) jointly developed a comprehensive accounting standard for revenue recognition and in May
2014 announced “Revenue from Contract with Customers” (IFRS 15 of the IASB, Topic 606 of the
FASB). IFRS 15 is applied to for fiscal years starting on or after January 1, 2018, and Topic 606 to
fiscal years starting on or after December 15, 2017. In response, the Accounting Standards Board ofJapan (ASBJ) developed a comprehensive accounting standard for revenue recognition, which it hasannounced together with implementation guidance. The basic policy for development of the ASBJ’s
accounting standard for revenue recognition was to start by incorporating the basic principle of IFRS
15 and determine the accounting standard from a perspective of comparability between financial
statements, which is one of the advantages of compatibility with IFRS 15. Moreover, in cases where
there are items to consider regarding the accounting practice that has conducted in Japan so far,alternative approaches have been added to the extent possible without compromising
comparability.
2) Effect of adoption
The effect of adoption of the new accounting standard and guidance is not evaluated since theKurita Group has decided to voluntarily apply IFRS from the first quarter of the fiscal year ending
March 31, 2020 for its consolidated financial statements.
(20) Change in Presentation Method
Partial Amendments to Accounting Standard for Tax Effect Accounting, etc.
Effective April 1,2018, the Group retrospectively adopted the “Partial Amendments to AccountingStandard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018), which requires
deferred tax assets are presented in investments and long-term receivables, and deferred tax liabilities are presented in long-term liabilities, respectively.
As a result, “Deferred tax assets” of ¥1,595 million which was previously classified as current
assets has been presented by being included in “Deferred tax assets” of ¥4,860 million in investments and long-term receivables in the consolidated balance sheet for the previous fiscal year.

76

Kurita Water Industries Ltd. Integrated Report 2019

3. Reconciliation between cash and cash equivalents(1)	The reconciliation between the fiscal year-end cash and cash equivalents (See Note 2 (3)) in the
consolidated statements of cash flows and cash and time deposits in the consolidated balance
sheet items is as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

¥35,351¥61,086$318,477

Time deposits with original maturity of more than
three months(1,030)(2,168)(9,279)Certificates of deposits and money trust included inmarketable securities, excluding deposits maturing
over three months

1,228

—

11,063¥35,548¥58,917$320,252

Cash and time deposits

Cash and cash equivalents(2)	The details of assets and liabilities of a newly consolidated subsidiary due to acquisition ofsharesFor the year ended March 31, 2019
The details of assets and liabilities in relation to acquisition of Fracta, Inc. and Fracta, which was
acquired through an investment in Fracta, Inc., and reconciliation between acquisition costs ofFracta, Inc. and net payment for the acquisition are as follows:Year ended March 31, 2019

Current assets
Non-current assets

Millions of yen

Thousands of
U.S. dollars(Note 1)

¥ 1,793$ 16,153

43

387

Goodwill

2,941

26,495Current liabilities(142)(1,279)Non-controlling interests(667)(6,009)Total acquisition costs

3,968

35,747

Cash and cash equivalents(1,778)(16,018)

Net payment for the acquisition of business¥ 2,190$ 19,729

The details of assets and liabilities in relation to acquisition of U.S. Water Services, Inc. and twoother companies, which were acquired through an investment in Global Water Services Holding
Company, Inc., and reconciliation between acquisition costs of Global Water Services Holding
Company, Inc. and net payment for the acquisition are as follows:
Millions of yen

Thousands of
U.S. dollars(Note 1)

Current assets¥ 4,899$ 44,135

Non-current assets

26,337237,270

Goodwill

1,148

10,342Current liabilities

Year ended March 31, 2019

(1,737)(15,648)

Non-current liabilities(279)(2,513)

Total acquisition costs

30,369273,594(428)(3,855)¥29,941$269,738

Cash and cash equivalents
Net payment for the acquisition of business

Kurita Water Industries Ltd. Integrated Report 201977

For the year ended March 31, 2018
The details of assets and liabilities in relation to acquisition of Hansu Co., Ltd., a manufacturer anddistributor of water treatment chemicals, and reconciliation between acquisition costs of Hansu Co.,
Ltd. and net payment for the acquisition are as follows:Year ended March 31, 2018

Millions of yen

Current assets¥ 4,225

Non-current assets

4,092

Goodwill

5,155

Current liabilities(1,523)

Non-current liabilities(460)

Deferred tax liabilities on retained earnings recognized at the point of acquisitionof control(306)

Non-controlling interests(950)

Subtotal

10,232Equity-method valuation up to the point of acquisition of control(1,547)

Gain on step acquisition(2,443)Acquisition cost of additional shares

6,241

Cash and cash equivalents(2,229)Net payment for investments in subsidiaries and affiliates¥ 4,012

4. Trade notes with maturity on the balance sheet date
The following amount of trade notes had March 31, 2019 and 2018 as their maturity date, which fell
on a holiday of financial institutions. These trade notes were accounted for as if they had beencleared on their maturity date.
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

Notes receivable

¥801

¥796

$7,216

Notes payable

259

192

2,333

5. Financial instruments and related disclosures(1) Policy for financial instruments
The Group invests its funds in low-risk financial assets (deposits, etc.) in principle. With respect tocustomers’ credit risk of notes and accounts receivable, trade, the Company is making efforts toprevent them from damages and to improve the soundness of the transactions by monitoring of thelevel of transaction within the predetermined transaction limit and regular collection of credit information based on the Credit Control Policy and Manual. Investment securities are primarily
comprised of stocks and the fair value of listed stocks are reviewed on a quarterly basis. With
respect to derivatives, forward foreign currency contracts are used only for actual demand, and not
for speculative purposes.
(2) Nature of financial instruments and their related risks
Trade receivables such as notes and accounts are exposed to customer credit risk. Certain tradereceivables denominated in foreign currencies arising from overseas operations are exposed to themarket risk of fluctuation in foreign currency exchange rates.
Marketable securities and investment securities are exposed to the risk of market price fluctuations and business risk of the investees.
Payment terms of trade payables such as notes and accounts are mostly less than one year.
Lease obligations under finance lease transactions are mainly related to the ultrapure water supply
business and its payment term is 10 years (11 in 2018) later at maximum.

78

Kurita Water Industries Ltd. Integrated Report 2019

(3) Risk management system for financial instruments
Credit risk management (customers’ default risk):
The Company manages its credit risk involved in trade receivables based on the Credit Control
Policy and Manual. The Control Division of each business unit and the Legal Department collectcredit information on a regular basis and control the payment terms and outstanding balances bycustomer, and the Company is making efforts to prevent them from damages and to improve thesoundness of the transactions by monitoring the default risk of customers due to the deteriorationof their financial position at an early stage. The consolidated subsidiaries are also making efforts to
reduce credit risk by controlling payment terms and outstanding balances of customers.
Counterparties of forward foreign currency contracts to be used to avoid foreign exchange risk
when necessary are limited to high-credit-rating financial institutions and, accordingly, we believe
there is very little credit risk.
Market risk management (foreign exchange risk and interest rate risk):
The Company and certain consolidated subsidiaries utilize forward foreign currency contracts tohedge the market risk of fluctuations in foreign exchange rates involved in trade receivables andpayables by currency and by month. Forward foreign currency contracts are executed andcontrolled by the Finance & Accounting Department after the individual contract is approved inaccordance with the predetermined rule.
The fair value of marketable securities and investment securities and the financial position of
the issuers are regularly reviewed. The Finance & Accounting Department of the Company executesand monitors each of the forward foreign currency contracts individually, followed by appropriate
authorization procedures prescribed in the internal rules.
Liquidity risk management (risk that the Company may not be able to settle on the payment
due date):
The Finance & Accounting Department of the Company and its consolidated subsidiaries prepare
and update the fund management plan every month based on reports from each business unit andhold a sufficient amount of liquidity in hand and manage the liquidity risk.
Carrying amounts, fair values and unrealized gain (loss) of financial instruments at March 31,
2019 and 2018 were as follows (financial instruments whose fair values cannot be reliably determined are not included in the following tables):Millions of yen
At March 31, 2019

Carrying
amountFair value

Cash and time deposits¥ 35,351¥ 35,351¥—

99,247

99,247—22,02422,024—

Total assets¥156,623¥156,623¥—

Notes and accounts payable, trade¥ 26,362¥ 26,362¥—

Total liabilities¥ 26,362¥ 26,362¥—

Derivatives

¥

¥

¥—

Notes and accounts receivable, trade

DifferenceMarketable securities and investment securities
Available-for-sale securities

535

535

Kurita Water Industries Ltd. Integrated Report 201979

Thousands of U.S. dollars (Note 1)
Carrying
amountFair value$ 318,477$ 318,477$—

894,117894,117—At March 31, 2019

Cash and time deposits
Notes and accounts receivable, trade

DifferenceMarketable securities and investment securities
Available-for-sale securities

198,414

198,414—

Total assets$1,411,018$1,411,018$—

Notes and accounts payable, trade$ 237,495$ 237,495$—

Total liabilities$ 237,495$ 237,495$—

Derivatives

$

$

$—

4,819

4,819

Millions of yen
At March 31, 2018

Carrying
amountFair value

Cash and time deposits¥ 61,086¥ 61,086¥—

86,86586,865—

Notes and accounts receivable, trade

DifferenceMarketable securities and investment securities
Available-for-sale securities

34,23834,238—

Total assets¥182,190¥182,190¥—

Notes and accounts payable, trade¥ 28,875¥ 28,875¥—

Total liabilities¥ 28,875¥ 28,875¥—

Derivatives

¥

¥

¥—

93

93

Notes:
a. Computation method of fair values
Cash and time deposits and notes and accounts receivable, trade:
Fair values approximate carrying amounts because of their short maturities.
Marketable securities and investment securities:
	Fair values approximate carrying amounts because of their short maturities since marketable securities
consist of national bonds and others. Fair values of investment securities are determined based on thequoted market price of the stock exchange.
Notes and accounts payable, trade:
Fair values approximate carrying amounts because of short maturities.
Derivatives:
Details and information are discussed in Note 7.
b. Financial instruments whose fair values cannot be reliably determined are as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

Unlisted equity securities (Unlisted shares)
Investments in capital
Shares of unconsolidated subsidiaries and affiliates

2019

2018

2019

¥ 315

¥ 300

$2,837

727

786

6,549

1,099

1,147

9,900

These securities are not included in “Marketable securities and investment securities” above since their fair values
cannot be reliably determined.

80

Kurita Water Industries Ltd. Integrated Report 2019c. Maturities of monetary receivables and securities after the balance sheet dateMillions of yen
Due after one
year throughfive years

Due after five
years throughten years

Due after
ten years

At March 31, 2019

Due in one
year or less

Deposits¥ 35,333

¥—

¥—

¥—

99,247

—

—

—

7

3

—

—

¥134,588

¥ 3

¥—

¥—

Notes and accounts receivable, tradeMarketable securities and investment securities
Available-for-sale securities with maturities
		(National bonds, etc.)

Total

Thousands of U.S. dollars (Note 1)

At March 31, 2019

Deposits
Notes and accounts receivable, trade

Due after one
year throughfive years

Due after five
years throughten years$ 318,315

$—

$—

$—

894,117

—

—

—

63

27

—

—

$1,212,504

$27

$—

$—

Due in one
year or lessDue after
ten years

Marketable securities and investment securities
Available-for-sale securities with maturities
		(National bonds, etc.)

Total

6. Marketable securities and investment securities(1) Available-for-sale securities with fair value at March 31, 2019 and 2018 are summarized as follows:
Millions of yen
At March 31, 2019

Carrying
amountAcquisition cost

Difference

Carrying amount exceeding acquisition cost:
Stocks¥20,763¥8,497¥12,265

Bonds

—

—

—

Other

—

—

—

20,763

8,497

12,265

Stocks

21

21

(0)

Bonds

1,239

1,431

(192)

Other

—

—

—

1,260

1,453

(192)

¥22,024¥9,950¥12,073		Subtotal
Carrying amount not exceeding acquisition cost:		Subtotal
Total

Kurita Water Industries Ltd. Integrated Report 201981

Thousands of U.S. dollars (Note 1)
At March 31, 2019

Carrying
amountAcquisition cost

Difference

Carrying amount exceeding acquisition cost:
Stocks$187,054$76,549$110,495

Bonds

—

—

—

Other

—

—

—

187,054

76,549110,495

Stocks

189

189

(0)

Bonds

11,162

12,891(1,729)

		Subtotal
Carrying amount not exceeding acquisition cost:

Other		Subtotal
Total

—

—

—

11,351

13,090(1,729)$198,414$89,639$108,765

Note: T he above table does not include unlisted shares (value on consolidated balance sheets: ¥315 million(US$2,837 thousand)) and investments in unaffiliated companies (value on consolidated balance sheets:¥727 million (US$6,549 thousand)).
Millions of yen
At March 31, 2018

Carrying
amountAcquisition cost

Difference

Carrying amount exceeding acquisition cost:
Stocks¥34,157¥11,038¥23,118

Bonds

—

—

—

Other

—

—

—

34,157

11,038

23,118Stocks

70

90

(20)

Bonds

10

10

—

		Subtotal
Carrying amount not exceeding acquisition cost:

Other

—

—

—

		Subtotal

81

101

(20)

¥34,238¥11,140¥23,098

Total

Note: T he above table does not include unlisted shares (value on consolidated balance sheets: ¥300 million) andinvestments in unaffiliated companies (value on consolidated balance sheets: ¥786 million).

(2) Available-for-sale securities sold during the years ended March 31, 2019 and 2018 are­summarized as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

¥13,334¥2,115$120,126

Total gains on sales

8,676

1,720

78,162

Total losses on sales

—

—

—

Sales amount

82

Kurita Water Industries Ltd. Integrated Report 2019

7. Derivatives
Derivatives for which hedge accounting was not applied at March 31, 2019 and 2018 are as follows:
Currency related
Millions of yen
At March 31, 2019

Contract
amountHedging instrument

Currency swaps:
Receive Yen, Pay Korean Won
Foreign exchange forward contracts:
Buying		U.S.$
Total

Due after
one year

Unrealized
gains (losses)

Fair value¥1,339

¥632

¥83

¥83

144

0

0

0

¥1,483

¥632

¥83

¥83

Thousands of U.S. dollars (Note 1)
At March 31, 2019

Contract
amountHedging instrument

Currency swaps:
Receive Yen, Pay Korean Won

Unrealized
gains (losses)

Fair value$12,063$5,693

$747

$747

1,297

0

0

0

$13,360$5,693$747$747

Foreign exchange forward contracts:
Buying		U.S.$
Total

Due after
one year

Millions of yen
At March 31, 2018

Contract
amountHedging instrument

Currency swaps:
Receive Yen, Pay Korean Won

Due after
one year¥2,099Fair value¥1,339Unrealized
gains (losses)

¥94

¥94

Note: Fair value is based on the prices provided by the counterparty financial institutions.

Derivatives for which hedge accounting was applied at March 31, 2019 and 2018 are as follows:
Currency related
Millions of yen
At March 31, 2019

Hedging instrument

Contract
amountHedged item

Due after
one year

Fair value

Currency swap contracts:
Receive Yen,
Pay Euro

Forecasted transac­
tions denominatedin foreign currencies¥ 8,258¥6,882¥488

Receive Yen,
Pay Korean Won

Forecasted transac­
tions denominatedin foreign currencies

1,741

908

(35)

309

0

0

¥10,308¥7,790¥453

Foreign exchange forward contracts:
Buying		U.S.$
Total

Forecasted transac­
tions denominatedin foreign currencies

Kurita Water Industries Ltd. Integrated Report 201983

Thousands of U.S. dollars (Note 1)
At March 31, 2019

Hedging instrument

Hedged item

Contract
amountDue after
one year

Fair value

Currency swap contracts:
Receive Yen,
Pay Euro

Forecasted transac­
tions denominatedin foreign currencies$74,396$62,000$4,396

Receive Yen,
Pay Korean Won

Forecasted transac­
tions denominatedin foreign currencies

15,684

8,180

(315)

2,783

0

0

$92,864$70,180$4,081

Foreign exchange forward contracts:
Buying		U.S.$

Forecasted transac­
tions denominatedin foreign currencies

Total

Millions of yen
At March 31, 2018

Hedging instrument

Hedged item

Contract
amountDue after
one year

Fair value

Currency swap contracts:
Receive Yen,
Pay Euro

Forecasted transac­
tions denominatedin foreign currencies¥ 9,635¥8,258¥ 141

Receive Yen,
Pay Korean Won

Forecasted transac­
tions denominatedin foreign currencies

2,574

1,741

(130)

¥12,209¥9,999

¥ 11

Total

Notes: 1. Fair value is based on the prices provided by the counterparty financial institutions.
2.	For year ended Mach 31, 2019, designation (furiate-shori) is applied to monetary receivables andpayables denominated in foreign currencies with foreign exchange forward contacts qualifying for suchdesignation. Such hedged monetary receivables and payables are translated at the contracted rates.

8. Inventories
Inventories at March 31, 2019 and 2018 consist of the following:Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

Finished products¥5,106¥ 3,968$46,000

Raw materials

3,133

2,800

28,225Work in process

1,235

3,621

11,126

Total¥9,474¥10,390$85,351

Inventories and provision for loss on construction contracts related to construction contracts
that are likely to incur losses are presented as is and are not offset. The amount of inventories (workin process) corresponding to the provision for loss on construction contracts is immaterial.

84

Kurita Water Industries Ltd. Integrated Report 2019

9. Short-term borrowings and long-term debt
(1) Short-term borrowings and current portion of long-term debt
The short-term borrowings and current portion of long-term debt at March 31, 2019 and 2018consist of the following:Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2019

—

¥ 868

$

385

469

2019

Short-term borrowings
Current portion of long-term borrowings

¥

—
3,468

Current portion of lease obligations

1,176

635

10,594

Total¥1,562¥1,973$14,072

The weighted-average annual interest rate of short-term borrowings for the years ended March
31, 2018 was 3.73%.
(2) Long-term debt
Long-term debt at March 31, 2019 and 2018 are summarized as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

Long-term borrowings
Less current portion of long-term borrowings

2019

2018

2019

¥ 2,103¥2,857$ 18,945

(385)

(469)

(3,468)Long-term borrowings (Excluding current portion)¥ 1,717¥2,388$ 15,468

Lease obligations¥ 6,427¥4,674$ 57,900

Less current portion of lease obligations(1,176)(635)(10,594)

Lease obligations (Excluding current portion)¥ 5,250¥4,038$ 47,297

The weighted-average annual interest rate of long-term borrowings for the years ended March
31, 2019 and 2018 were 3.36% and 3.27%, respectively.
Annual maturities of long-term borrowings at March 31, 2019 are as follows:
Millions of yen

Thousands of
U.S. dollars(Note 1)

2020

¥385

$3,468

2021

385

3,468

2022

221

1,990

2023

221

1,990

2024

221

1,990

Millions of yen

Thousands of
U.S. dollars(Note 1)2020

¥1,176$10,594

2021

1,022

9,207

2022

669

6,027

2023

686

6,180

2024

523

4,711

Years ending March 31

Annual maturities of lease obligations at March 31, 2019 are as follows:
Years ending March 31

Kurita Water Industries Ltd. Integrated Report 201985

(3) Other long-term liabilities
Other than the short-term borrowings, long-term borrowings and lease obligations described above,¥744 million (US$6,702 thousand) and ¥725 million of interest-bearing long-term deposits received
were included in other long-term liabilities as of March 31, 2019 and 2018, respectively.
The weighted-average annual interest rates for such deposits received for the years ended
March 31, 2019 and 2018 were 0.36%.
(4) Commitment line
The Company has concluded the commitment line agreements with four counterparty financial institutions to efficiently fund. Information of the commitment line agreements was as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

Contract amounts

2019

2018

2019

¥70,600¥70,600$636,036

Borrowing outstanding
Unused balance

—

—

—

¥70,600¥70,600$636,036

10. Income taxes
Significant components of the deferred tax assets and liabilities as of March 31, 2019 and 2018 are
as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

¥ 6,357¥ 6,251$ 57,270

Net defined benefit liability

4,933

4,811

44,441

Tax loss carry-forward of consolidated subsidiaries

2,410

167

21,711

Excess provision for accrued bonuses to employees

722

728

6,504

Accrued enterprise taxes not deductible

278

403

2,504

Unrealized gains on sales of property,
plant and equipment

225

239

2,027

Excess provision of allowance for product warranty

176

114

1,585

Impairment loss

175

424

1,576

Deferred tax assets:
Excess depreciation of property, plant and equipment

Loss on revaluation of investment securities

—

645

—

Other

1,166

1,489

10,504

		Subtotal

16,446

15,275

148,162(1,783)—(16,063)

Less valuation allowance for tax loss carryforward
Less valuation allowance for temporally differences

(783)

—

(7,054)

		Total valuation allowance(2,567)(1,052)(23,126)

		Total deferred tax assets

13,87914,223125,036

Unrealized losses on available-for-sale securities(3,771)(6,474)(33,972)

Estimated income taxes pertaining to retained
earnings of foreign consolidated subsidiaries(1,591)(1,314)(14,333)

Tangible and intangible assets identified due
to business combinations

(865)

(965)

(7,792)

Capital gains on properties deferred for tax purposes

(341)

(537)

(3,072)

Deferred tax liabilities:

Other

86

		

Total deferred tax liabilities		

Deferred tax assets, net

Kurita Water Industries Ltd. Integrated Report 2019

(139)

(76)

(1,252)(6,708)(9,367)(60,432)¥ 7,170¥ 4,855$ 64,594

The valuation allowance increased by ¥1,515 million (US$13,648 thousand). The main
component of the increase was the additional recognition of valuation allowance for tax loss carryforward of ¥1,783 million (US$16,063 thousand) in a consolidated subsidiary.
The expiration of tax carryforwards, the related valuation allowances and the resulting net
deferred tax assets as of March 31, 2019 is as follows:
Millions of yen
After four
After three
After twoyears through years through years throughfive years
four years
three years

one yearor less

After oneyear throughtwo years

Deferred tax assets
relating to tax loss
carryforwards

¥—

¥—

¥—

¥—

Less valuation
allowances for tax
loss carryforwards

—

—

—

Net deferred tax assets
relating to tax loss
carryforwards

—

—

—

one yearor less

After oneyear throughtwo years

Deferred tax assets
relating to tax loss
carryforwards

$—

$—

$—

$—

Less valuation
allowances for tax
loss carryforwards

—

—

—

Net deferred tax assets
relating to tax loss
carryforwards

—

—

—

Year ended March 31, 2019

After
five years

Total

¥—

¥ 2,410¥ 2,410——(1,783)(1,783)

—

—

626

626

After four
After three
After twoyears through years through years throughfive years
four years
three years

Afterfive years

Total

$—

$ 21,711$ 21,711——(16,063)(16,063)

—

—

5,639

5,639

Thousands of U.S. dollars (Note 1)

Year ended March 31, 2019

The amount of tax loss carryforward is the amount obtained by multiplying by the effective statutory tax rate.

Deferred tax assets of ¥626 million (US$5,639 thousand) were recorded for tax loss carryforwards of ¥2,410 million (US$21,711 thousand) (the amount obtained by multiplying by the effective
statutory tax rate). The deferred tax asset of ¥626 million (US$5,639 thousand) was recognized forpart of the balance of tax loss carryforward of ¥2,410 million (US$21,711 thousand) (the amountobtained by multiplying by the effective statutory tax rate) at a consolidated subsidiary. The tax loss
carryforward for which the deferred tax asset was recorded is deemed to be recoverable due to theforecast for future taxable income, and an allowance was not recognized for it.

Kurita Water Industries Ltd. Integrated Report 201987

A reconciliation between the normal effective statutory tax rate and the effective tax rate as apercentage of income before income taxes for the years ended March 31, 2019 was as follows:
2019

Normal effective statutory tax rate

30.6%

Expenses not deductible for income tax purposes

0.7

Withholding tax withheld from foreign subsidiaries’ dividends

0.3

R&D expense tax credit(1.2)

Dividend income and other not taxable for income tax purposes(0.1)

Deferred tax liabilities on retained earnings of foreign consolidated subsidiaries(0.9)

Difference in statutory tax rates of foreign subsidiaries(1.8)

Per capita inhabitant taxes

0.4

Valuation allowance for tax loss carryforward

5.6

Other

3.5

Effective tax rate

37.1%

A reconciliation between the normal effective statutory tax rate and the effective tax rate for the
March 31, 2018 were not presented because the differences were not material (less than 5%).
11. Retirement benefits and pension plans
Defined benefit plans
The Company and certain consolidated subsidiaries provide lump-sum retirement benefit plans fordefined benefit plans. Also, the Company and certain consolidated subsidiaries provide defined
contribution pension plans. Certain consolidated subsidiaries use the simplified method forcomputing retirement benefit obligations.
(1) Movement in retirement benefit obligations, except plans applying the simplified method
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

¥15,459¥14,503$139,270

Service cost

917

829

8,261

Interest cost

66

66

594

Balance at beginning of year

Actuarial differences incurred

(26)

152

(234)

Benefits paid

(753)

(678)

(6,783)

Other
Balance at end of year

(167)

585

(1,504)¥15,495¥15,459$139,594(2) Movement in plan assets, except plans applying the simplified method
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

Balance at beginning of year
Expected return on plan assets

¥436

¥ —

$3,92712

1

108Actuarial differences incurred

3

0

27

Contribution from the employer

96

29

864

Benefits paid

(19)

0

(171)

Increase due to newly consolidated subsidiaries

—

328

—

Other
Balance at end of year

88

2019

2018

Kurita Water Industries Ltd. Integrated Report 2019

(19)

78

(171)

¥508

¥436

$4,576

(3) Movement in net defined benefit liability for plans applying the simplified method
Thousands of
U.S. dollars(Note 1)Millions of yen

Balance at beginning of year
Net periodic benefit costs
Benefits paid
Balance at end of year

2019

2018

2019

¥1,587¥1,550$14,297

225

207

2,027

(150)

(170)

(1,351)¥1,662¥1,587$14,972(4) Reconciliation between retirement benefit obligations and net defined benefit liability
Thousands of
U.S. dollars(Note 1)Millions of yen

Retirement benefit obligations
Plan assets

2019

2018

2019

¥17,157¥17,047$154,567

(508)

(436)

(4,576)Net liability on the consolidated balance sheet¥16,648¥16,610$149,981

Net defined benefit liability¥16,648¥16,610$149,981

Net liability on the consolidated balance sheet¥16,648¥16,610$149,981(5) Net periodic benefit costs
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

Service cost

¥ 917

¥ 829

$ 8,261Interest cost

66

66

594

Expected return on plan assets

(12)

(1)

(108)

Amortization of actuarial differences

(30)

164

(270)

Net periodic benefit costs computed by simplified method

225

207

2,027

Other
Net periodic benefit costs

231

7

2,081

¥1,397¥1,274$12,585(6) R emeasurements of defined benefit plans, before income tax effect in othercomprehensive income
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2019

2018

Actuarial differences

¥(5)

¥11

$(45)

Total

¥(5)

¥11

$(45)

(7) R
 emeasurements of defined benefit plans, before income tax effect in accumulated othercomprehensive income
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2019

2018

Unrecognized actuarial differences

¥0

¥5

$0

Total

¥0

¥5

$0

Kurita Water Industries Ltd. Integrated Report 201989

(8) Plan assets
1) Percentage by major category of plan assets
2019

Debt securities
Equity securities
Cash and time deposits

—%

2018
2.2%

—

1.2

100.0

89.1

Other

—

7.5

Total

100.0%

100.0%

2) Determination procedure of long-term expected rate of plan assets
In determining long-term expected rate of plan assets, the Company considers the current andprojected asset allocations, as well as current and future long-term rate of returns for various categories of the plan assets.
(9) Assumptions for actuarial calculation
The Company uses multiple weighted-average discount rates determined by reflecting the estimatedperiods of retirement benefit payments.
Defined contribution pension plans
The amount to be contributed to the defined contribution pension plans by the Company and its
consolidated subsidiaries was ¥971 million (US$8,747 thousand) and ¥1,078 million for the years
ended March 31, 2019 and 2018, respectively.
12. Shareholders’ equity
Japanese companies are subject to the Companies Act. A summary of the sections of the Companies
Act that affect financial statements and accounting matters is as follows:(1) Distribution of dividends to shareholders
Under the Companies Act, if companies meet certain criteria, dividends can be paid at any time
during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’meeting. Semiannual interim dividends may also be paid once a year upon resolution by the Boardof Directors’ meeting if the articles of incorporation of the company so stipulate.
The Companies Act provides certain limitations on the amounts available for dividends and/or
the purchase of treasury stock. The limitation is defined as the amount available for distribution to
the shareholders, and it is calculated mainly based on capital surplus other than paid-in capital,
retained earnings and treasury stock, but the amount of net assets after dividends must be maintained at no less than ¥3 million.
(2) Increases/decreases; transfer of common stock, reserve and surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as alegal reserve (a component of retained earnings) or as additional paid-in capital (a component of
capital surplus) depending on the equity account charged upon the payment of such dividends.
However, such appropriation may not be made if the aggregate amount of legal reserve and additional paid-in capital exceeds 25% of the common stock. Under the Companies Act, this legal
reserve and additional paid-in capital may be reversed without limitation.
The Companies Act also provides that common stock, legal reserve, additional paid-in capital,
other capital surplus and retained earnings can be transferred among the accounts under certain
conditions upon resolution of the shareholders.

90

Kurita Water Industries Ltd. Integrated Report 2019

(3) Treasury stock
The Companies Act provides that companies may purchase, hold or dispose of such treasury stockby resolution of the Board of Directors’ meeting. The amount of treasury stock purchased cannot
exceed the amount available for distribution to the shareholders which is determined by a specificformula.
The number of treasury stock includes treasury stock of 327 thousand shares and 333
thousand shares (entrusted for the performance-linked stock compensation for directors) held by
the trust account of Japan Trustee Services Bank, Ltd. at March 31, 2019 and 2018, respectively.
13. Revaluation reserve for land
The Company implemented a revaluation of land for business use in accordance with the Land
Revaluation Law (enacted on March 31, 1998). The revaluation difference, net of taxes is stated as“Revaluation reserve for land” in accumulated other comprehensive income in net assets. The tax
equivalent is stated as deferred tax liabilities in long-term liabilities.
When any revaluated land is sold, the related unrealized gain or loss on revaluation of land istransferred to retained earnings.
Revaluation method:	The revaluation of land was computed in accordance with Article Two,
Item One of the Land Revaluation Law Enforcement Order.
Revaluation date:
March 31, 2002
14. Cost of sales
Provision for loss on construction contracts included in cost of sales were ¥119 million (US$1,072
thousand) and ¥13 million for the years ended March 31, 2019 and 2018, respectively.
15. Selling, general and administrative expenses
Selling, general and administrative expenses for the years ended March 31, 2019 and 2018consisted of the following:Thousands of
U.S. dollars(Note 1)Millions of yen

Salaries and allowances

2019

2018

2019

¥22,245¥20,610$200,405

Provision for employees’ bonuses

1,587

1,411

14,297Retirement benefit expenses

1,231

1,343

11,090Travel expenses

2,845

2,906

25,630Research and development expenses

5,490

5,258

49,459Other

25,01922,333

225,396

Total¥58,420¥53,863$526,306

16. Impairment losses
For the purpose of impairment testing, assets of the Group are generally grouped based on
business, however, idle assets and investment properties are grouped by individual property.
For the year ended March 31, 2019
For the year ended March 31, 2019, the Group recognized impairment losses of ¥1,097 million(US$9,882 thousand) on the following assets.
To reduce constraints on production associated with tighter regulations on companies that
produces hazardous chemicals in densely populated districts in China, the Group has decided totransfer the production function of water treatment chemicals of Kurita Water Industries (Jiangyin)Co., Ltd. to the plant (due to begin operating in the second half of fiscal year ending March 31, 2020)of the newly established Kurita Water Industries (Taixing) Co., Ltd. and recognized an impairment
loss because recoverability is no longer recognized.

Kurita Water Industries Ltd. Integrated Report 201991

The details of impairment losses recognized for the year ended March 31, 2019 are as follows:Year ended March 31, 2019

Goodwill

Millions of yen

Thousands of
U.S. dollars(Note 1)

¥1,097$9,882

Jiangyin, China

For the goodwill for which an impairment loss has come to be recognized, the Group recorded
the full amount of the unamortized balance as an extraordinary loss because the Group has
decided to transfer the production function of water treatment chemicals of Kurita Water Industries(Jiangyin) Co., Ltd. to the plant of the newly established Kurita Water Industries (Taixing) Co., Ltd. andrecoverability is no longer recognized.
For the year ended March 31, 2018
For the year ended March 31, 2018, the Group recognized impairment losses of ¥413 million on thefollowing assets.
The Group has decided to begin demolishing the buildings and structures of the former aging
Corporate Research & Development Center (Atsugi-shi, Kanagawa) starting in June 2018, and therecoverability is now no longer recognized. Therefore, the Group has recognized an impairment
loss.
Part of the land of Yamaguchi Plant (Yamaguchi-shi, Yamaguchi) is not expected to be used forbusiness, and the Group has made it land to be sold. Therefore, the Group has recognized an
impairment loss up to the recoverable amount.
Manufacturing facilities for a certain customer in Ludwigshafen, Germany became idle, and therecoverability is now no longer recognized because the commissioned manufacturing contract withthe customer was terminated at the end of January 2018. Therefore, the Group have recognized an
impairment loss.
The details of impairment losses recognized for the year ended March 31, 2018 are as follows:Year ended March 31, 2018

Millions of yen

Idle assets:
Buildings and structures, etc.

Atsugi-shi, Kanagawa

¥214

Land

Yamaguchi-shi, Yamaguchi

113

Machinery and equipment

Ludwigshafen, Germany

85

The carrying value of these assets is written down to their fair value less costs to sell, of whichbuildings and structures, etc. and machine and equipment is estimated memorandum value of ¥1
because the carrying value of these assets may not be recoverable, and of which land is based on
the public land prices.
17. Other income (expenses)
Gain on sales of properties
Gain on sales of properties for years ended March 31, 2019 and 2018 consisted of the following:Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2019

2018

Land

¥456

¥―

$4,108Other (Buildings and structures, etc.)

123

―

1,108

Loss on liquidation of business
For the year ended March 31, 2019, loss on liquidation of business of ¥519 million (US$4,675
thousand) consists mainly of special retirement benefits that were generated associated with therestructuring of manufacturing, sales and research and development bases of Kurita Europe GmbH.

92

Kurita Water Industries Ltd. Integrated Report 2019

Loss on transfer of business
For the year ended March 31, 2019, loss on transfer of business of ¥2,867 million (US$25,828
thousand) comprises mainly of a loss on transfer pertaining to the sale of the aluminum compoundbusiness of Kurita Europe GmbH, its non-core business, and compensation money for the business
continuation.
Provision for building demolition expenses
For the year ended March 31, 2018, the Company decided to demolish the buildings and structuresof the former Corporate Research & Development Center (Atsugi-shi, Kanagawa) and posted areasonably estimated amount for expenses to be incurred in the future as provision of allowancefor building demolition expenses of ¥320 million in other income (expenses).
18. Comprehensive income
The components of other comprehensive income for the years ended March 31, 2019 and 2018 are
as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

Unrealized gains or losses on available-for-sale securities:
Amount arising during the year

¥ (1,924)¥ 4,322$(17,333)

Reclassification adjustments to profit or loss

(8,676)(1,565)(78,162)

Amount before income tax effect(10,601)

2,756(95,504)

Income tax effect

2,697(1,018)24,297

Subtotal(7,904)

1,739(71,207)

453

(956)

4,081

Amount before income tax effect

453

(956)

4,081

Income tax effect

(138)

285

(1,243)

Subtotal

315

(671)

2,837

—

0

—

(2,208)

3,332(19,891)

—

(113)

—

(2,208)

3,219(19,891)

Deferred gains or losses on hedges:
Amount arising during the year

Revaluation reserve for land:
Income tax effectForeign currency translation adjustments:
Amount arising during the year
Reclassification adjustments to profit or loss
Subtotal
Remeasurements of defined benefit plans:
Amount arising during the year

0

5

0

Reclassification adjustments to profit or loss

(5)

5

(45)

Amount before income tax effect

(5)

11

(45)

Income tax effect

1

(3)

9

Subtotal

(3)

7

(27)

(46)

93

(414)

Share of other comprehensive income of entities
accounted for using equity method:Amount arising during the year
Reclassification adjustments to profit or loss

—

0

—

Subtotal

(46)

93

(414)

¥ (9,848)¥ 4,389$(88,720)

Total

Kurita Water Industries Ltd. Integrated Report 201993

19. Business combinations
Acquisition of equity interests by consolidated subsidiaries(1) Overview of business combination
1) Name and description of the business of the acquired companies
Name:
Global Water Services Holding Company, Inc.
Description of the business:
Company holding equity interests in U.S. Water Services, Inc.
		The Company also acquired U.S. Water Services, Inc., a wholly
owned subsidiary of Global Water Services Holding Company, Inc.,
through an investment in Global Water Services Holding Company,
Inc.
Name:
U.S. Water Services, Inc. and two other companies
Description of the business:	Manufacture and sale of water treatment chemicals and water
treatment facilities
2) Main reasons for the business combination
The Group aims to significantly expand its overseas businesses by establishing platforms in four
regions around the world – Japan, Asia, Europe and the Americas. This investment is made as apart of its strategy of strengthening business in the United States, a strategic market. The Groupwill also accelerate business development in the United States by establishing even closer relationships with customers through the development of the service contract business model
making full use of IT and sensing by combining the Group’s products, with their competitive
advantage and highly unique services such as pure water supply and wastewater reclamation,
into the solid customer base and sales channels of U.S. Water Services, Inc.
3) Date of the business combination
March 25, 20194) Legal form of the business combination
Acquisition of shares with cash as consideration
5) Company name after the business combination
The name will not change.
6) Ratio of voting rights acquired
100%7) Main grounds to determine the acquirer
Because Kurita America Holdings Inc., a subsidiary of the Company, acquired shares using cash
as consideration.
(2) T he period of business results of the acquired companies included in the consolidated
financial statements
Only the opening balance sheets as of March 26, 2019 were consolidated for the year ended March
31, 2019.
(3) Acquisition cost of the business acquired

94

Millions of yen

Thousands of
U.S. dollars(Note 1)

Cash and deposits¥30,369$273,594

Acquisition cost

¥30,369$273,594

Kurita Water Industries Ltd. Integrated Report 2019

(4) Major acquisition-related cost

Advisory fees, etc.

Millions of yen

Thousands of
U.S. dollars(Note 1)¥717

$6,459(5) Amount, cause, amortization method and amortization period of goodwill recognized
1) Amount¥1,148 million (US$10,342 thousand)
The amount of goodwill is an amount provisionally reported because the allocation of the acquisition cost has yet to be completed.
2) Cause
Due to an excess earnings capability expected in the future3) Amortization method and amortization period
Goodwill will be amortized over the effective period by the straight-line method. The amortization
period will be fixed based on the result of the allocation of the acquisition cost.
(6) M ajor components of assets acquired and liabilities assumed on the business combination
date

Current assets

Millions of yen

Thousands of
U.S. dollars(Note 1)

¥ 4,899$ 44,135

Non-current assets

26,337237,270

Total assets¥31,237$281,414

Current liabilities¥ 1,737$ 15,648

279

2,513

¥ 2,016$ 18,162

Non-current liabilities
Total liabilities(7) A llocation of the acquisition cost
As of March 31, 2019, the allocation of the acquisition cost has yet to be completed because theidentification of recognizable assets and liabilities on the date of business combination and thecalculation of market values are incomplete.
(8) E stimated amount and method of calculation of the impact of the business combinationon the consolidated statement of income for the year ended March 31, 2019 on theassumption that the business combination had been completed on April 1, 2018
Not stated as it is difficult to calculate the estimated amount.
Business combination through acquisition(1) Overview of business combination
1) Name and description of the business of the acquired companies
Name:
Fracta, Inc.
Description of the business:
Company holding equity interests in Fracta
		The Company also acquired Fracta, a wholly owned subsidiary of
Fracta, Inc., through an investment in Fracta, Inc.
Name:
FractaDescription of the business:	Software services to predict the deterioration of water pipes
utilizing artificial intelligence (AI) and machine learning (ML)

Kurita Water Industries Ltd. Integrated Report 201995

2) Main reasons for the business combination
Fracta, Inc. develops software services to predict the deterioration of water pipes utilizing AI and
ML at Fracta, a wholly owned subsidiary. The Group will create and expand new digital businesses
utilizing IoT and AI in the fields of water and the environment by acquiring the advanced technologies and know-how in AI and ML of Fracta, Inc. and applying them to the water treatment
technologies and services of the Company.
3) Date of the business combination
May 31, 20184) Legal form of the business combination
Acquisition of shares with cash as consideration
5) Company name after the business combination
The name will not change.
6) Ratio of voting rights acquired
60.63% (fully diluted basis: 50.1%)
7) Main grounds to determine the acquirer
Because the Company acquired shares with cash as consideration.
 he period of business results of the acquired companies included in the consolidated(2) T
financial statements
From June 1, 2018 to March 31, 2019(3) Acquisition cost of the business acquired
Millions of yen

Thousands of
U.S. dollars(Note 1)

Cash and deposits¥3,968$35,747

Acquisition cost

¥3,968$35,747

Millions of yen

Thousands of
U.S. dollars(Note 1)¥177

$1,594(4) Major acquisition-related cost

Advisory fees, etc.

(5) Amount, cause, amortization method and amortization period of goodwill recognized
1) Amount¥2,941 million (US$26,495 thousand)
The amount above is provisionally reported because the allocation of the acquisition cost has yet
to be completed, given that the identification of recognizable assets and liabilities and the estimation of the market values are incomplete as of the business combination because the period
from the business combination to the fiscal year-end is short.
2) Cause
Due to an excess earnings capability expected in the future3) Amortization method and amortization period
Straight-line method over 15 years

96

Kurita Water Industries Ltd. Integrated Report 2019(6) Put options granted to non-controlling shareholders and call options held by the Company
The Company plans to make Fracta, Inc. a wholly owned subsidiary within four years from 2020. In
order to make Fracta, Inc. a wholly owned subsidiary in the future, the Company has granted written
put options over the shares of Fracta, Inc. to its non-controlling shareholders and holds purchased
call options over the shares of Fracta, Inc.
(7) M ajor components of assets acquired and liabilities assumed on the business combination
date

Current assets
Non-current assets

Millions of yen

Thousands of
U.S. dollars(Note 1)

¥1,793$16,15343

387

Total assets¥1,836$16,540

Current liabilities¥ 142$ 1,279

Total liabilities¥ 142$ 1,279

 stimated amount and method of calculation of the impact of the business combination(8) E
on the consolidated statement of income for the year ended March 31, 2019 on theassumption that the business combination had been completed on April 1, 2018
Not stated as it is difficult to calculate the estimated amount.
20. Segment information(1) Overview of reportable segments
The Company’s reportable segments are components of the Group about which separate financial
information is available. These segments are subject to periodic examinations to enable theCompany’s Board of Directors to decide how to allocate resources and assess performance.
The Company’s business divisions are based on product and service categories. Each of thedivisions conducts business based on comprehensive strategies formulated for the products andservices that they handle in Japan and overseas. The Company’s consolidated subsidiaries conductbusiness under the supervision of the relevant business divisions.
The Group’s operations are therefore classified into two reportable segments, the Water
Treatment Chemicals segment and the Water Treatment Facilities segment, based on the products
and services handled by each of the divisions.
The Water Treatment Chemicals segment manufactures and sells water treatment chemicals
and equipment and provides maintenance services. The Water Treatment Facilities segment manufactures and sells water treatment equipment and facilities, provides ultrapure water, chemicalcleaning, tool cleaning, soil and groundwater remediation services, and provides maintenanceservices that encompass operation, maintenance and management of water treatment facilities.
(2) M ethods for calculating sales, income and loss, assets and liabilities, and other amounts
by reportable segment
Accounting methods applied in the reportable segments are consistent with the methods applied in
preparation of the accompanied consolidated financial statements. Segment income represents
operating income. Intersegment sales and transfers between the Group reflect values based onmarket price. Intersegment sales and transfers between the Company’s divisions are based primarily
on book values.

Kurita Water Industries Ltd. Integrated Report 201997

(3) Sales, income and loss, assets and liabilities, and other amounts by reportable segment
Millions of yen

Year ended March 31, 2019

Water
Treatment
Chemicals

Water
Treatment
Facilities

Total¥102,088¥157,321¥259,409

Adjustments

Consolidated

Sales1) Sales to outside customers
2) Intersegment sales¥—¥259,409

779

1,532

2,311

(2,311)—¥102,867¥158,854¥261,721¥ (2,311)¥259,409

Segment income

¥

8,327

¥ 15,932¥ 24,260¥65¥ 24,326

Segment assets

111,580

196,152

307,733

42,152349,885

Segment liabilities

34,10576,660110,765(353)

110,412

Depreciation and amortization

4,117

12,001

16,118—

16,118

Impairment loss

1,097

—

1,097

—

1,097

Increase in property, plant andequipment and intangible assets

3,502

34,66838,170—38,170Adjustments

Consolidated$—$2,337,018(20,819)—

Total

Other items

Thousands of U.S. dollars (Note 1)
Water
Treatment
Chemicals

Water
Treatment
Facilities

Total$ 919,711$1,417,306$2,337,018

7,018

13,801

20,819Year ended March 31, 2019

Sales
1) Sales to outside customers
2) Intersegment sales$ 926,729$1,431,117$2,357,846$ (20,819) $2,337,018

Segment income$

75,018$ 143,531$ 218,558$

585$ 219,153

Segment assets

1,005,225

1,767,135

2,772,369

379,747

3,152,117

Segment liabilities

307,252

690,630

997,882(3,180)994,702

Depreciation and amortization

37,090108,117

145,207—145,207

Impairment loss

9,882

—

9,882

—

9,882

Increase in property, plant andequipment and intangible assets

31,549312,324

343,873—

343,873

Adjustments

Consolidated

Total

Other items

Millions of yen

Year ended March 31, 2018

Water
Treatment
Chemicals

Water
Treatment
Facilities

Total¥90,361¥146,453¥236,815

431

298

729

Sales
1) Sales to outside customers
2) Intersegment sales
Total

¥

—

¥236,815(729)—¥90,792¥146,751¥237,544¥(729)¥236,815

Segment income¥ 7,180¥ 15,312¥ 22,493¥(18)¥ 22,475

Segment assets

95,589158,631254,220

68,826

323,046

Segment liabilities

29,19853,16782,366(172)

82,193

3,593

12,083

15,677—

15,677

85

—

85

327

413

3,162

19,80522,967—22,967

Other items
Depreciation and amortization
Impairment loss
Increase in property, plant andequipment and intangible assets

98

Kurita Water Industries Ltd. Integrated Report 2019

Notes:“Adjustments” represents the following:
1. Sales: Elimination of intersegment transactions
2. Segment income: Amount resulting from eliminations of intersegment transactions
3.	Segment assets: Mainly corporate assets of ¥42,205 million (US$380,225 thousand) and ¥68,890 million as ofMarch 31, 2019 and 2018, respectively, unallocated to reportable segment assets (cash deposits, securities intrust and long-term investments)
4. Segment liabilities: Amount resulting from eliminations of intersegment claims and liabilities
5.	Details and information of impairment losses for the year ended March 31, 2019 and 2018 are discussed in
Note 16.

Related Information(Information by geographic region)(1) Net sales
Millions of yen
Year ended March 31, 2019

Sales

Japan

Asia

¥163,297¥66,513

Japan

Asia

$1,471,144$599,216

Japan

Asia

¥158,232¥48,911

North America¥5,589

EMEA

Other

Total

¥21,297¥2,711¥259,409

Thousands of U.S. dollars (Note 1)
Year ended March 31, 2019

Sales

North America$50,351

EMEA$191,864

Other

Total

$24,423$2,337,018

Millions of yen
Year ended March 31, 2018

Sales

North America¥5,178

EMEA

Other

Total

¥21,350¥3,142¥236,815

Note: S ales are allocated to regions based on the location of the customer to which the products or services aredelivered or provided. EMEA includes Europe, the Middle East and Africa.

(2) Property, plant and equipment
Millions of yen
Year ended March 31, 2019

Japan

Asia

North America

Property, plant and equipment¥91,321¥12,786

Year ended March 31, 2019

Japan

Asia

North America

EMEA

Other

$822,711$115,189$20,972$24,063$5,054

Year ended March 31, 2018

Japan

Asia

North America

Property, plant and equipment¥68,671¥14,275¥2,328

EMEA¥2,671

Other

Total

¥561

¥109,669

Thousands of U.S. dollars (Note 1)

Property, plant and equipment

Total$988,009

Millions of yen

¥182

EMEA

¥2,212

Other

Total

¥686

¥86,028(Information by major customer)
For the year ended March 31, 2019 and 2018, information by major customer is omitted because
there are no outside customers individually accounting for 10% or more of net sales reported on
the consolidated statements of income.
Information about amortization and unamortized balance of goodwill
Millions of yen
Water
Treatment
Facilities

Year ended March 31, 2019

Water
Treatment
Chemicals

Amortization¥ 1,530¥ 113¥ 1,643¥—¥ 1,643

Unamortized balance

28,886

7,415

36,301—36,301

Total

Corporate/
Elimination

Total

Kurita Water Industries Ltd. Integrated Report 201999

Thousands of U.S. dollars (Note 1)

Year ended March 31, 2019

Water
Treatment
Chemicals

Water
Treatment
Facilities

Total

Amortization$ 13,783$ 1,018$ 14,801$—$ 14,801

Unamortized balance

260,234

66,801

327,036—

327,036

Year ended March 31, 2018

Water
Treatment
Chemicals

Amortization¥ 1,184¥—¥ 1,184¥—¥ 1,184

Unamortized balance

20,362—

20,362—

20,362

Corporate/
Elimination

Total

Millions of yen
Water
Treatment
Facilities

Corporate/
Elimination

Total

Total

21. Subsequent events
Appropriation of retained earnings
The following appropriation of retained earnings for the year ended March 31, 2019 was approvedat the ordinary general meeting of shareholders of the Company held on June 27, 2019.

Cash dividends (year-end dividends)

Millions of yen

Thousands of
U.S. dollars(Note 1)

¥3,040$27,387

Note: T he total amount of dividend approved at the ordinary general meeting of shareholders of the Company
held on June 27, 2019 includes dividends of ¥8 million (US$72 thousand) to treasury stock of 327 thousand
shares (for performance-linked stock compensation trust for directors) held by the trust account of Japan
Trustee Services Bank, Ltd.

Equity-method affiliates through the acquisition of shares(Pentagon Technologies Group, Inc.)On October 5, 2018, the Company entered into an agreement to acquire 25.0% of shares ofPentagon Technologies Group, Inc. (hereinafter “Pentagon Technologies”), a tool cleaning company
in the United States, through Kurita America Holdings, Inc., a wholly owned subsidiary of theCompany. Based on the agreement, the acquisition of shares was completed on April 1, 2019, andthe Company made Pentagon Technologies an affiliate applying the equity method.
(1) Overview of the acquired companies
Name:		Pentagon Technologies Group, Inc.
Location :21031 Alexander Ct. Hayward, California, U.S.A.
Name of representative:
Irwin H. Pfister, Chairman
Capital stock:
US$2,000
Description of the business:	Tool cleaning business, the development of surface particle detectorsof semiconductor manufacturing equipment and the provision ofclean room-related services(2) Main reasons for the acquisition of shares
The Group aims to significantly expand its overseas businesses by establishing platforms in four
regions around the world – Japan, Asia, Europe and the Americas. This investment is made as a partof its strategy of strengthening business in the United States, a strategic market. The Group also
aims to further strengthen its market competitiveness in the electronics industry, which the Grouppositions as one of its priority business domains, by acquiring a base for the service businessoverseas and further accelerating business growth and the provision of new value by acquiring theadvanced technologies and know-how of Pentagon Technologies and creating synergies with thetool cleaning services in Japan developed by the Group.

100

Kurita Water Industries Ltd. Integrated Report 2019

(3) Equity acquisition date
April 1, 2019(4) Number of shares acquired, acquisition cost and ratio of shareholding after acquisition
Number of shares acquired:
728,724 shares
Acquisition cost:
US$50,000 thousand
Ratio of shareholding after acquisition: 25.0%(5) Procurement method and payment method of funds to be paid
Provided from own funds(APANA, Inc.)On March 29, 2019, the Company entered into an agreement to underwrite a private placement of
new shares with APANA, Inc. (hereinafter “APANA”), a venture company in the United States thatdevelops the IoT water saving solution business. Based on the agreement, the payment wascompleted on April 5, 2019. On the same day, the Company also exercised the share acquisitionrights it held with respect to APANA, and the payment of the exercise price was completed. As aresult, the Company made APANA an affiliate applying the equity method.
(1) Overview of the acquired companies
Name:		APANA, Inc.
Location:
4290 Pacific Highway, Suite A, Bellingham, Washington 98229, U.S.A.
Name of representative:
Matt Rose, CEO
Capital stock:
US$4,424,805
Description of the business:	Development of technologies related to the real-time monitoring ofwater consumption and big data analysis, utilizing IoT and wirelesscommunication technology, and service business that contributes towater saving in commercial and industrial facilities(2) M ain reasons for underwriting a private placement of new shares and exercising the shareacquisition rights
The Company will accelerate its efforts to introduce and utilize advanced technologies and servicesof APANA by further strengthening the collaborative structure with APANA through this investment.
The Company aims to create new value in the fields of water and the environment by creating innovations through the provision of the highly unique digital service business of APANA to morecustomers.
(3) Date of payment and exercise of share acquisition rights
April 5, 2019(4) Acquisition price and the percentage of voting rights acquired
Acquisition price: US$10,005,301 (¥1,116 million)
Percentage of voting rights held immediately before the underwriting of private
placement of new shares and the exercise of share acquisition rights:

19.88%

Percentage of voting rights acquired by the underwriting of private placement of
new shares and the exercise of share acquisition rights:

22.85%

Percentage of voting rights held after the underwriting of private placement of
new shares and the exercise of share acquisition rights:

42.73%(fully diluted basis: 36.64%)(5) Procurement method and payment method of funds to be paid
Provided from own funds

Kurita Water Industries Ltd. Integrated Report 2019101

Acquisition of equity interests by consolidated subsidiaries
On May 13, 2019, the Company entered into an agreement to acquire all shares outstanding ofAvista Technologies, Inc. (hereinafter “Avista Technologies”), a manufacturing and sales company ofwater treatment chemicals in the United States, through Kurita America Holdings Inc., a wholly
owned subsidiary of the Company. On the same day, the Company also entered into an agreement
to acquire all shares outstanding of Avista Technologies (UK) Ltd. (hereinafter “Avista Technologies(UK)”), a manufacturing and sales company of water treatment chemicals in the United Kingdom,
through Kurita Europe GmbH, a wholly owned subsidiary of the Company.
Based on the agreement, the acquisition of shares of both companies was completed on May
15, 2019, and the Company made Avista Technologies, Inc. and Avista Technologies (UK) Ltd. consolidated subsidiaries of the Company.
(1) Overview of the acquired companies
Avista Technologies, Inc.
Name:		Location:
140 Bosstick Blvd. San Marcos, California 92069, U.S.A.
Name of representative:
Dave Walker, CEO
Capital stock:
US$3,719
Description of the business:	Manufacture and sale of reverse osmosis (RO) chemicals and theprovision of RO membrane-related services
Name:		Avista Technologies (UK) Ltd.
Location:	13 Nasmyth Square, Houstoun Industrial Estate Livingston, EH54 5GG,
U.K.
Name of representative:
Michael Jefferies, Managing Director
Capital stock:
65 British pounds
Description of the business:	Manufacture and sale of reverse osmosis (RO) chemicals and theprovision of RO membrane-related services(2) Main reasons for the business combination
Avista Technologies specializes in RO chemicals that are applied to RO membrane, one of thecomponents of water treatment facilities, among water treatment chemicals. It manufactures andsells a wide variety of RO chemicals. Avista Technologies also develops services including RO
membrane cleaning and has many customers in a broad range of industrial fields including mining,chemical, oil, marine oilfields, food, beverages and local governments, mainly in the United States.
Avista Technologies (UK) develops similar businesses in EMEA (Europe, the Middle East and Africa)
through licensing from Avista Technologies. The Group will bolster the product lineup of RO
chemicals by combining RO chemicals of Avista Technologies and distinctive RO chemicals of theCompany and will seek to expand sales of RO chemicals by proposing a wider range of products toall customers. The Group will also strengthen its RO membrane-related services by sharing the technologies and know-how of the both companies.
(3) Equity acquisition date
May 15, 2019(4) Number of shares acquired, acquisition cost and ratio of shareholding after acquisition
1) Number of shares acquired:
Avista Technologies, Inc.:
800,000 shares
Avista Technologies (UK) Ltd.:
65 shares

102

Kurita Water Industries Ltd. Integrated Report 2019

2) Acquisition cost of Avista Technologies, Inc. and Avista Technologies (UK) Ltd.
US$81,800 thousand	The final acquisition cost will reflect the adjustment of any excess and deficiency in working
capital and net interest-bearing debt of Avista Technologies, Inc. and Avista Technologies (UK)Ltd. on the date of acquisition of equity interests.
3) Ownership ratio after acquisition
Avista Technologies, Inc.:
100.0%
Avista Technologies (UK) Ltd.: 100.0%(5) Procurement method and payment method of funds to be paid
Provided from loans
22. Per share information
U.S. dollars(Note 1)Yen

Net assets per share

2019

2019

2018

¥2,116.19¥2,126.96$19.06154.29159.37

1.39

Net income per share (EPS)The basis of calculation for net assets per share is as follows:

Thousands of
U.S. dollars(Note 1)Millions of yen

Net assets

2019

2018

2019

¥239,473¥240,853$2,157,414

Amounts excluded from net assets

1,868

2,049

16,828(Non-controlling interests on the above)(1,868)(2,049)(16,828)

Net assets attributable to common shareholders ofparent237,604

228,8032,140,576

Number of common stock at the year-end used forthe calculation of net assets per share

112,279,619

112,274,296

The basis of calculation for EPS is as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2019

2018

2019

Net income attributable to owners of parent¥17,323¥17,897$156,063

Net income attributable to common shareholdersof parent

17,323

17,897156,063

112,278,133

112,303,666

Average number of shares outstanding

Note: T he average number of treasury stock, which is deducted from the average number of shares outstandingfor calculation for EPS, includes common stock of 329 thousand shares and 335 thousand shares held by
the Trust for the year ended March 31, 2019 and 2018, respectively.

Kurita Water Industries Ltd. Integrated Report 2019103

Report of Independent Certified Public Accountants

104

Kurita Water Industries Ltd. Integrated Report 2019

Corporate Information

Stock Information(As of March 31, 2019)

Stock Exchange Listing:Tokyo Stock Exchange, First Section

Number of Authorized Shares:

531,000,000

Number of Shares Outstanding:

116,200,694 (Including 3,593,706 shares of treasury stock)

Number of Shares Per Lot:

100

Number of Shareholders:

23,476

Independent Accounting Auditor:

Grant Thornton Taiyo LLC
Akasaka K-tower 22F, 1-2-7, Motoakasaka, Minato-ku, Tokyo 107-0051, Japan

Transfer Agent:

Sumitomo Mitsui Trust Bank, Ltd.
1-4-1, Marunouchi, Chiyoda-ku, Tokyo 100-8233, Japan

Major Shareholders

Distribution of Shares by Shareholder Type
Shareholdings(Number ofshares)Percentage
of totalsharesissued (%)

Japan Trustee Services Bank, Ltd. (Trust Account)

7,748,069

6.66

The Master Trust Bank of Japan, Ltd. (Trust Account)

6,422,400

5.52

Nippon Life Insurance Company

5,979,883

5.14

Kurita Water Industries Ltd.

3,593,706

3.09

Japan Trustee Services Bank, Ltd. (Trust Account 9)2,323,600

1.99

BNYMSANV AS AGENT/CLIENTS LUX UCITS NON TREATY 1

2,182,700

1.87

Tokio Marine & Nichido Fire Insurance Co., Ltd.

2,155,826

1.85Japan Trustee Services Bank, Ltd. (Trust Account 5)2,121,900

1.82

MUFG Bank, Ltd.

2,056,131

1.76

JP Morgan Chase Bank 385151

1,733,688

1.49

Treasury Stock

Financial Institutions

Individuals

Securities Firms
Foreigners

Other Domestic Firms

Shareholdings(Number of shares)(%)

Financial Institutions

38,640,749

33.3

Securities Firms

2,517,510

2.2

Other Domestic Firms

6,383,287

5.5

Foreigners

53,369,855

45.9

Individuals

11,695,587

10.1

Treasury Stock
Total

3,593,706

3.1

116,200,694

100.0

Stock Price Range and Trading Volume
Stock price (Yen)

Trading volume (Thousands of shares)

4,000

40,0003,000

30,0002,000

20,0001,000

10,0000

0Jan. ’17

Stock priceJan. ’18

Jan. ’19

Trading volume

Kurita Water Industries Ltd. Integrated Report 2019105

Corporate Information

Corporate Data
Company Name

Kurita Water Industries Ltd.

Address

10-1, Nakano 4-chome,
Nakano-ku, Tokyo 164-0001, Japan

Date of Establishment

July 13, 1949

Paid-in Capital¥13,450,751,434

Number of Employees

6,613 (on a consolidated basis);
1,549 (parent company)(As of March 31, 2019)

Major Domestic Offices

Head Office:10-1, Nakano 4-chome, Nakano-ku,
Tokyo 164-0001, Japan
Tel: 81 (3) 6743-5000

Kurita Global Technology Center:
1-1, Kawada, Nogi-machi, Shimotsuga-gun,Tochigi 329-0105, Japan
Tel: 81 (280) 54-1511
Engineering Center:
MCC Mitaka Building, 8-7-2, Shimorenjaku,
Mitaka-shi, Tokyo 181-0013, Japan
Tel: 81 (422) 29-6200
Other Offices:
Shizuoka Plant, Tohoku Office, Nagoya Office,Hiroshima Office, Kyushu Office, etc.

Osaka Office:2-22, Kitahama 2-chome,
Chuo-ku, Osaka-shi,
Osaka 541-0041, Japan
Tel: 81 (6) 6228-4800

Main Domestic Consolidated Group Companies (As of July 1, 2019)
Water Treatment Chemicals

Water Treatment Facilities

Sale of water treatment chemicals

Operation & maintenance of systems and facilities

Kurita Buil-Tech Co., Ltd.

Kuritaz Co., Ltd.

Kurita BMS Co., Ltd.

Soil remediation services

Kurita Chemicals Hokkaido Ltd.

Land Solution Inc.

Kurita Chemicals Kantou Co., Ltd.

Chemical cleaning services

Kurita Chemicals Tokai Ltd.

Kurita Engineering Co., Ltd.

Kurita Chemicals Hokuriku Ltd.

Miyoshi Industries Co., Ltd.

Kurita Chemicals Kansai Ltd.

Tool cleaning services

Kurita Chemicals Sanyo Ltd.

Kuritec Service Co. Ltd.

Kurita Chemicals West Japan Ltd.

San-ei Industries Co., Ltd.

Manufacture of water treatment chemicals

Nippon Fine Co., Ltd.

Kurita Chemical Manufacturing Ltd.

Aoi Industries Co., Ltd.

Other

Other

Kurita Analysis Service Co. Ltd.

Kurita Meiki Ltd.
Kurita Creation Co., Ltd.
Kurita Analysis Service Co. Ltd.

106

Kurita Water Industries Ltd. Integrated Report 2019

Main Overseas Group Companies (As of July 31, 2019)
Overseas Consolidated Subsidiaries and Affiliated Companies

Year of
Establishment

Paid-in Capital(Millions)

Equity Ownership
(%)

1995
2015
1974
1987
1978
1989
2016
1986
1994
2014
2015
2015
2015
2015
2016
2016
2001
1996
2017
1975
1997
1999

¥550
US$16
W2,500
NT$20
S$11
BAHT204
US$0.5
US$2
RM$0.6
EUR20
EUR5
EUR0.003
TRY5.7
SEK0.1
PLN14
AED2
GBP0.00007
US$3
US$0.01
R$6.9
US$193
US$0.004

90.1
100.0
100.0
100.0
100.0
85.0
85.0
92.5
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0

2001
2004
1988
2017
1978
1986
1994
1996
1997
1998

¥30
¥530
W26,400
NT$134
S$11
US$2
RM$0.6
US$3
US$193
US$0.002

100.0
100.0
100.0
100.0
100.0
92.5
100.0
100.0
100.0
25.0

2017
2017

S$3
US$22

100.0
50.1

Water Treatment Chemicals
1 Kurita Water Industries (Dalian) Co., Ltd.
4 Kurita Water Industries (Jiangyin) Co., Ltd.
5 Hansu Co., Ltd.
7 Kurita (Taiwan) Co., Ltd.
9 Kurita (Singapore) Pte. Ltd.
11 Kurita-GK Chemical Co., Ltd.
12 Kurita-GK Vietnam Co., Ltd.
13 P.T. Kurita Indonesia
14 Kurita Water (Malaysia) Sdn. Bhd.
15 Kurita Europe GmbH
16 Kurita France S.A.S.
17 Kurita Iberica SL
18 Kurita Turkey Kimya A.S.
19 Kurita Sverige AB
20 Kurita Polska SP.z.o.o.
21 Kurita Middle East FZE
22 Avista Technologies (UK) Ltd.
23 Kurita America, Inc.
24 Fremont Industries, LLC
25 Kurita do Brasil LTDA.
27 U.S. Water Services, Inc.
29 Avista Technologies, Inc.

Water Treatment Facilities
2 Kuritec (Shanghai) Co., Ltd.
3 Kurita Water Industries (Suzhou) Ltd.
6 Hansu Technical Service Ltd.
8 Kurita Water Technology (Taiwan) Ltd.
9 Kurita (Singapore) Pte. Ltd.
13 P.T. Kurita Indonesia
14 Kurita Water (Malaysia) Sdn. Bhd.
23 Kurita America, Inc.
27 U.S. Water Services, Inc.
28 Pentagon Technologies Group, Inc.

Others
10 Kurita R&D Asia Pte. Ltd.
26 Kurita Fracta Holdings, Inc.

22

15

16
17

19
20

27

1 6
5
4
3
2
12 7 8
11

18
21

14
9

10
13

28

26

24

23

29

Water Treatment Chemicals
Water Treatment Facilities
Others25

Kurita Water Industries Ltd. Integrated Report 2019107

Nakano Central Park East, 4-10-1 Nakano
Nakano-ku, Tokyo 164-0001, Japan
Tel: +81-3-6743-5000
https://www.kurita.co.jp/english/