A Creator of
Unique Value
KURITA WATER INDUSTRIES LTD.

Annual Report 2018
For the year ended March 31, 2018

CONTENTS
Kurita Group Philosophy System

1

Value Creation of the Kurita Group2

Financial and Non-Financial Highlights

4

A Message to Our Stakeholders

6Interview with the President

7

R&D and Intellectual Property

14

6

A Message to Our
Stakeholders

Review of Operations and Strategies by Segment 16
Water Treatment Chemicals

16

Water Treatment Facilities

18

Corporate Governance20

Directors, Members of the Audit &Supervisory Board, and Executive Officers

26

Risk Management

28

Compliance29

Human Resource Management

30

Initiatives on Safety

32

Initiatives on Quality

33

Environmental Improvement Activities

34

Contribution to Local Communities

36

Dialogue with Shareholders and Investors

37

Management Indicators

38

Segment Information

39

Management’s Discussion and Analysis

40

Consolidated Balance Sheets

50

Consolidated Statements of Income and Consolidated Statements of Comprehensive Income

14

R&D andIntellectual Property

18

Water Treatment
Facilities

16

Water Treatment
Chemicals

52

Consolidated Statements of Changes in
Net Assets

53

Consolidated Statements of Cash Flows

54

Notes to Consolidated Financial Statements

55

Report of Independent Certified
Public Accountants

84

Investor Information

85

Corporate Data

86

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.

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.

Core Values

Kurita Group Philosophy System http://www.kurita.co.jp/english/philosophy_vision/index.html

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 humansociety 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, bymaking 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.

The Kurita Group Philosophy System clearly states that all of the Group’s activities are aimed at achieving the Corporate Philosophy.

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 thenatural environment, 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 chemicals, facilities and maintenance.

Basic Policy
The basic policy encompasses the management direction and aims of the Group and 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 Policy(Business Continuity Management)

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.

Kurita Water Industries Ltd. Annual Report 2018

1

Value Creation of the Kurita Group
Business Model of the Kurita Group

Foundation of the Kurita Group

Financial Capital (The fiscal year ended March 31, 2018)
Equity¥238.8Water Treatment Chemicals

Equity Ratio

73.9

billionBusiness fields
Water Treatment Facilities

Industrial water%<Production lines>
Production process

Human Capital
Number of
Employees

Pre-treatment
Pure water production
Ultrapure waterproduction

Corporate

186

6,011

Water Treatment
Chemicals

2,986

Water Treatment
Facilities

Power generators

Wastewater chemicals

Air conditioning
systems

RO membrane
treatment chemicals
Water treatment system

2,839

Ultrapure waterproduction system

Boilers

Intellectual Capital
Cooling water treatment chemicals

R&D Expenses¥5.3

billion¥22.1

R&D Personnel
Approx.

 oiler, vaporizer and condenserB
treatment

Capital Expenditures

R&D Bases

180

Number of Patents Heldin Japan

1,644billion3<Utilities>

sites

Number of Patents Held
Overseas

Strength791

Business Structure

Social and Relationship Capital
Cooperating companies andsuppliers worldwide

Water
Treatment
Chemicals

Water
Treatment
Facilities

Maintenance
Services

Analysis

Water Intake

680,044

Energym3

3,919,781

GJ

Materials (Materials for chemicals)

20,977

R&D Capabilities

Natural Capital

Kurita Water Industries Ltd. Annual Report 2018

Corrosion
prevention anddispersion

Purification andCoagulation andmodification Strong Intellectual flocculation

Property Portfolio

Biologicalengineering

Sterilization andbacteriostasis

Deionization and Membrane
separation
adsorption

tons

Fundamentals

2

Fluid andprocess analysis

Corporate governanceRisk management

CompliancePerformance of the Kurita Group

Financial Capital (The fiscal year ended March 31, 2018)
Orders¥251.4

Net Sales¥236.8billionOperating
Profit Attributable to
Income Margin
Owners of Parent

9.5

Process treatment chemicals
Process treatment

%

¥17.9

billionbillionReturn on
Equity7.7%

Refrigeration
systems

Cooling towers
Cooling water treatment
chemicals

Wastewater
treatment

Cooling water treatment

Wastewater
treatment chemicals
Wastewater
reclamation
Wastewater reclamation
systemWastewater
treatment system

Human Capital
Average Years ofService*

Average Years ofService among
Female Employees*

Average Use of
Annual Paid Leave*

years

years

days

17.1

16.9

11.1

* Average Years of Service, Average Years of Service among Female
Employees, and Average Use of Annual Paid Leave are actual resultsfor Kurita Water Industries Ltd.

RO membrane
treatment chemicals

Intellectual Capital (The fiscal year ended March 31, 2018)
Industrial
waste

Waterway andsewagedischarge

Water Treatment Facilities(Hardware)38%¥46.0 billion
Net sales

42%
Water Treatment
Facilities (Services)¥236.8billion¥100.5 billion

Water Treatment
Chemicals¥90.4 billion
Ratio of Service
Businesses

81%

High Ratio of Service Businesses

19%

Number of Patent
Applications in Japan

Number of Patent
Applications Overseas

193

75

Social and Relationship Capital
Dividend
Increases

14

consecutive years

Dividend
Payout Ratio

32.6

Number ofCustomers in Japan
More than

30,000%(Fiscal year ended March 31, 2018)

Natural CapitalBusiness Network

58 Kurita Group companies in
18 countries and regions
Human resourcesmanagement

Occupational
health and safety

Product
quality

Environment

Local
communities

Wastewater

568,334

CO2 Emissions

m3

191,479

tons

Industrial Waste

29,453tons

Shareholders
and investors

Kurita Water Industries Ltd. Annual Report 20183

Financial and Non-Financial Highlights
Financial Data
For the years ended March 31

Orders and Net Sales (Millions of Yen)
OrdersOverseas Sales by Region (Millions of Yen)

Net Sales

Asia

North America

Europe/EMEA

218,730
214,3722016

236,815214,187

2018

2017

Operating Income Margin
Operating Income (Millions of Yen)

251,447
221,273

Operating Income andOthersOperating Income Margin (%)

78,582
3,142
63,8772,970

64,1992,641

21,35020,698

19,774

5,178

2,431

1,885

37,77839,8992016

22,475
19,833

9.3

19,452

9.5

9.1

48,911

2018

2017

2016

2018

2017

Net Income per Share, Dividends per ShareTotal Assets and Total Assets Turnover*and Dividend Payout Ratio
Net Income per Share (Yen)1

Dividends per Share (Yen)Dividend Payout Ratio (%)

Total Assets (Millions of Yen)

2

Equity (Millions of Yen)

323,04639.9

299,249

227,89676.4

32.6

108.24

0.72

2017

76.1

73.9

0.76

0.72

2018

2016

2017

2018

Return on Assets* andCapital Expenditures (Excluding Intangibles)

Return on Equity (%)*

and Depreciation (Millions of Yen)

3

4

Return on Assets

238,803

52.0

50.0

48.0

227,623

159.37125.232016

Equity Ratio (%)

Total Assets Turnover (Times)

298,10744.3

Equity and Equity Ratio*

Return on Equity

2016

2017

2018

R&D Expenses (Millions of Yen)

Capital Expenditures (Excluding Intangibles)

Water Treatment Chemicals

Depreciation

Water Treatment Facilities

22,070

5,269

5,038

5,258

18,818
7.7
6.4
5.6

4.9

13,4095.8

13,24813,507

3,139

2,914

3,192

2,129

2,123

2,066

9,289

4.2

2016

4

2017

2018

2016

Kurita Water Industries Ltd. Annual Report 2018

2017

2018

2016

2017

2018

Non-Financial Data
For the years ended March 31

Number of Employees

Ratio of Employees in Each Region (%)

Average Overtime Work per
Employee (Hours)*

5

5,654

5,481

6,011

EMEA

28.2

Others

8.6%

3.8%

27.1

26.6

2017

2018

Asia

16.4%

China

Japan

8.6%
2016

2017

62.7%

2018

Average Annual Paid Leave Taken per

2016

Wastewater (m )*CO2 Emissions (t)*

3

6

6

Employee (Days) *

5

10.9

11.1

185,584

187,126

191,479

703,310568,3349.9

2016

514,405

2017

2018

2016

2017

2018

2016

2017

2018

Industrial Waste (t)*633,47327,261

29,453*1 Total assets turnover = Net sales ÷ Total assets (Average)*2 Equity ratio = Equity ÷ Total assets × 100*3 Return on assets = Profit attributable to owners of parent ÷ Total assets (Average) × 100*4 Return on equity = Profit attributable to owners of parent ÷ Equity (Average) × 100*5 Average Overtime Work per Employee and Average Annual Paid Leave Taken per Employee are
actual results for Kurita Water Industries Ltd.
*6 CO 2 Emissions, Wastewater, and Industrial Waste are totals of actual values for Kurita Water

2016

2017

2018

Industries Ltd. and its Group companies in Japan.

Kurita Water Industries Ltd. Annual Report 2018

5

A Message to Our Stakeholders
The fiscal year ended March 31, 2018 was the final year
in our medium-term management plan, Competitive
Kurita 2017 (CK-17). For the Kurita Group, it was a year
for reconfirming the direction of our reforms and recognizing the tasks that we must undertake.
While business conditions recovered around theworld, supporting a firm overall economy, the Kurita
Group harvested the fruits of several years’ initiatives,
mainly in the overseas business, achieving a steady improvement in performance.
Finally, however, we did not achieve our earnings targets set out in the CK-17 plan. We have yet to establish arock-solid earnings base, and it is clear that several
issues will need to be addressed if we are to move up toa new growth stage. In particular, we must reform ourbusiness model and the awareness of our employees.
To resolve these issues, we have reconfirmed the
Kurita Group’s purpose as a company within society
prior to starting our new medium-term management
plan, Maximize Value Proposition 2022 (MVP-22). We
have formulated a new corporate vision and a CSR
policy that clarifies the Group’s ideal form of growing
through its relationship with society. Themes of the plan
include focusing on the CSV* business as a growth opportunity, and we have made this the core of a five-year
medium-term management plan. The newly formulated
MVP-22 plan presents the concept of “Seeing” from threeperspectives that represent mindsets and skillsets thatall Group employees should acquire. Guided by theplan, we will accelerate our efforts towards reform.
As we work to reform Kurita towards realizing theMVP-22 plan, we look forward to the continued understanding and support of the Company’s shareholders
and other stakeholders.
* CSV: Creating Shared Value; achieving both financially beneficial activities and solutions to social problems

President and Representative Director

6

Kurita Water Industries Ltd. Annual Report 2018

Interview with the President
Start of the New Medium-Term Management Plan Maximize Value Proposition 2022 (MVP-22)
Review of the Previous Medium-Term
Management Plan, CK-17

with the potential to form the core of a new businessmodel, such as DReeM PolymerTM and the Reclaimed

In the fiscal year ended March 31, 2018, the Kurita Group

Water System. However, we have yet to create a businessachieved year-on-year growth in sales and profits. Ordersmodel that realizes customer-oriented solutions. In terms

grew significantly due to new consolidations in the Waterof “Improve capital efficiency,” we have raised capital effi-

Treatment Chemicals business and orders for large proj-

ciency by directing funds into growth investments andects in the Water Treatment Facilities business. Net sales

shareholder returns; however our ROE is lower than thealso increased sharply due to growth in sales in the Water

average for Japanese companies.

Treatment Chemicals business and steady progress in

Although, the previous medium-term management

construction and growth in maintenance services in theplan has left us with many challenges to address, we also

Water Treatment Facilities business. Operating income in-made some noteworthy achievements. The first is that thecreased with higher sales and an improved cost of sales

Kurita Group achieved a full-scale shift towards globalization.

ratio in the Water Treatment Facilities business, despite an

Looking back over these past three years, the Group’s

increase in selling, general, and administrative expenses.

overseas business base has been balanced out, correcting

Our financial results for the fiscal year ended March 31,

a previous disposition towards Southeast Asia and East

2018 may be strong compared with the previous fiscal

Asia by increasing its operations in Europe and North

year, but the result was not entirely satisfactory for theAmerica through M&A. In addition, we have accumulated

final fiscal year of the previous medium-term manage-

expertise on global expansion by experiencing the PMI*1

ment plan, CK-17. Looking at the four priority measuresprocess for acquired companies.

set out in the CK-17 plan, first regarding “Cultivate new

A second point of achievement is our business expan-

markets,” we managed to expand our overseas businesssion in China and South Korea. Although we have had

and to invest in startup companies, but these efforts did

bases in these countries for some time, our EPC*2 projects

not expand our profits. We have identified improving prof-

in the Water Treatment Facilities business were led byitability as a challenge going forward. With regard to “Opti-

Japan. Now we have set up a foundation for conducting

mize production systems and utilize the Group’s network,”

the Water Treatment Facility business whereby the local

we began to utilize production bases obtained throughGroup company establishes the supply chain, including

M&A overseas and newly constructed development bases,

engineering capabilities, procurement capabilities, andand we saw profitability improve with increasing produc-

plant construction capabilities. I believe this represents

tivity in China and South Korea. In our efforts to “Create

significant progress.

competitive products and services,” we marketed products*1 PMI: Post Merger Integration*2 EPC: Engineering, Procurement and Construction

Achievements and Challenges
Priority Measures

Achievements

Challenges

1

Cultivate new markets

Expanding the business in Europe, North
America and the Middle East
Investments in start-ups

Growth accompanied by improved profitability
Accelerating the commercialization of new
businesses

2

Optimize production systems
and utilize the Group’s network

Obtaining and utilizing new production bases
through M&A
Improving productivity in China and South Korea

Further global optimization of production bases

3

Create competitive products
and services

Created DReeM PolymerTM, S.sensingTM GW,
KWSSTM, Reclaimed Water System

New business model and development ofcustomer-oriented solutions still a work inprogress

4

Improve capital efficiency

Raise capital efficiency by directing funds toinvesting in growth and shareholder returns

Have not reached the average level for
Japanese companies

Kurita Water Industries Ltd. Annual Report 20187

New Medium-Term Management Plan, MVP-22
Being a creator of unique value to the solution of water and the environment

corporate vision: “’A Creator of unique value to the

In formulating the MVP-22 plan, we considered it neces-solution of water and environment,’ contributing to thesary to clarify our ideal form for the medium to long term

realization of a sustainable society.” We will deepen ourwith a view to dealing with the issues that we need tounderstanding of customers’ manufacturing processes

resolve and firmly establishing the Kurita Group’s growthand utilities and create value that customers haven’t been

going forward.

aware of— value that only the Kurita Group can provide.

Kurita will reform its business model under the new

Since my appointment as president in April 2016,

In doing so, we aim to be more than a solution provider by

I have been concerned that our business model has

creating value on a higher level, an irreplaceable “Creator

hardly changed since it was founded as a water treatmentof unique value” for our customers.

specialist 70 years ago. Up to now, the Kurita Group’sbusiness model has mainly consisted of deals where thecustomer purchases water treatment chemicals at a certain

Basic Policy and Priority Measures
Basic Policy

price per kilogram and the water treatment facility itself.
We have built up long-term relationships with customers
through maintenance and other services; however, when
one examines the pricing for these services, it is clearthat the compensation Kurita receives is not commensu-

Maximize close relationships with customers byredefining preconceived ideas and dramaticallyraising the quality and speed of our work.

rate with the value it provides. Meanwhile, I feel that ourstable growth as a company has left Kurita’s employees
mentally unprepared to cope with a rapidly changing
business environment.
I believe that reforms in this regard are essential if weare to evolve into a truly global company with even higher
earning capability. That is why we have started by redefin-

Priority Measures
Development of CSV Business
Rebuilding of plant production system
Strengthening the foundation andpromotion of research anddevelopment

Enhancement of total solutions
Creation of new business andthe promotion of innovation
Establishment of the Group
governance system

ing our corporate vision in order to clarify our ideal form
over the medium to long term for all Kurita employees.

Management Targets

Place emphasis on profitability and capital efficiency

Net sales
Organic growth rate

Operating income
margin3% or more

15%

Return on equity(ROE)

10% or more

8

Kurita Water Industries Ltd. Annual Report 2018

Adoption of management using
return on invested capital (ROIC)
Aim for improved
capital efficiency in eachbusiness segment

CSR as the Foundation of the Medium-Term
Management Plan

ment: “solving water resource issues,” “realizing sustainable

Prior to formulating our new corporate vision, in February

production technologies.”

energy use,” “reducing waste,” and “advancing industrial

2018 we announced our CSR policy. Up to now, the Kurita

In line with these growth opportunity themes, I wouldGroup has contributed to society by providing solutions

like to arrange the relevant produces and services as thefor its customers as a B2B enterprise. However, to continue“CSV Business” and decide on the direction of its develop-

playing an essential role in society as a company going

ment, while also making visible the value that we provide to

forward, I believe we need to keep thinking about whatcustomers. The Kurita Group’s CSV Business has a strong

kind of social value we will create. In our CSR policy, weaffinity with the sustainable development goals (SDGs),

have identified “safety,” “fairness,” and “respect for humanand we will aim to make the growth of this business syn-rights” as three basic themes for fulfilling our responsibility

onymous with the creation of shared value with society.

for the future. In addition to these, we have established

We plan to continue reporting on the progress of the CSV

four growth opportunity themes focused on the social

Business to detail our achievements under this initiative

purpose of the Kurita Group’s business of water treat-going forward.

CSR Policy

Definition of CSR
The Kurita Group’s responsibility for its impacts on society

Objectives
1. Creating and maximizing shared value for the Kurita Group and society
2. Identifying, preventing and mitigating possible adverse impacts by the Kurita GroupCSR policy
Provide solutions to issues related to water and the environment, and fulfill responsibility for the future
Basic themes

Initiatives toward 2030

1

Provide highly safe services
and products

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

2

Conduct fair business activities

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

3

Respect human rights

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

Growth opportunity themes

The sustainable development goals (SDGs)

Initiatives toward 2030

The sustainable development goals (SDGs)

4

Solve issues related towater resources

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

5

Realize sustainable energy use

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

6

Reduce waste

Introduce technologies for using waste as resources and technologies
for controlling the amount of waste and aim to achieve zero waste.

7

Advance industrial production
technologies

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

Kurita Water Industries Ltd. Annual Report 20189

“Seeing” from Three Perspectives to Realize
the MVP-22 plan
For our targets under the MVP-22 plan, rather than aiming
to extend our current status and build numbers in eachdepartment, we have presented an ideal form for the
Kurita Group five years from now. The plan period has
been changed from the traditional three-year to a fiveyear horizon to allow time for properly engaging withstrategies to achieve ambitious targets and realize the
new corporate vision. If we can reform our global business processes and realize value creation, we believe wecan build a rock-solid earnings base.
Our numerical targets for the MVP-22 plan place emphasis on profitability and capital efficiency. In the final fiscal

same time. Moreover, to improve capital efficiency by re-year of the MVP-22 plan, we aim to achieve an average net

ducing our asset holdings, we will adopt management

sales growth rate of 3% or more per annum, an operating

using return on invested capital (ROIC) in each businessincome margin of 15%, and a return on equity (ROE) of 10%

segment and meet our ROE targets.

or more. Assuming progress on business portfolio revisions

We believe the key to the achievement of the MVP-22

with the intended shift to the service contract businessplan lies with “Seeing” from three perspectives: “Seeing

model, net sales growth excluding M&A should level out

from the customer’s perspective,” “Seeing from the value

and the operating income margin should improve at theperspective,” and “Seeing from the outside perspective”.

The Ideal Form, Five Years from Now

Global value creator with a rock-solid earnings baseInnovation through “Seeing” from three perspectives“Seeing fromthe customer”
Business processes fromthe customer’s perspective“Seeing fromthe value”
Value pricing

10

Kurita Water Industries Ltd. Annual Report 2018

“Seeing fromthe outside”
Open innovation

“Seeing from the customer’s perspective”

always strive to procure better products from suppliers at“Seeing from the customer’s perspective” means always

a lower price. By comparison, when “seeing from the value

thinking from the customer’s perspective first in order toperspective” we will make proposals that focus on the ef-

construct optimal business processes for the customer.

fects in terms of reducing energy and water use, as well as

1

Up to now, the Kurita Group has been fortunate with

waste emissions, and proposals that are aligned to theits business and customers, and has achieved steadyaims of the customer’s management, taking into accountgrowth by conducting water treatment in line with cus-

the company’s overall efficiency and social value. My goal

tomer needs. Our style of business has been to provide

is to incorporate value provision over and above the value

products and services demanded by customers.

of individual products and services into the transforma-

My goal now is to change our approach to business bytion of Kurita’s business model.

gaining a deep knowledge of our customers’ production

Realizing compensation commensurate with the highprocesses and utility facilities as a water treatment pro-value provided to customers will require that we change

fessional so that we can anticipate issues and give ourthe form of our transactions. Going forward, the Kurita

customers proposals that exceed their expectations.

Group aims to transition to a service contract-type busi-

Since it will be difficult to respond to customers like thisness model, rather than one-off sales of products andwith our conventional vertical organization structure withservices. For example, in one form of the service contract

separate businesses, in April 2017 we shifted to a busi-

model, the Company provides comprehensive services

ness organization based on target markets. Specifically,

including direct operation of the customer’s facilities,

in Japan we integrated our water treatment chemicals

enabling the customer to receive even greater profit thanand maintenance sales organizations, while overseas we

before, which it shares with the Company.

eliminated the separation between the water treatment

Provision of value through service contracts can bechemicals and water treatment facilities sales organiza-

applied to various industrial customers who are alreadytions. This laterally integrated organization structure has

using the Kurita Group’s high-added-value products andcreated a single sales contact point for customers andservices. The Group has many years of experience andcentralized our information, while enabling us to bringexpertise in both chemical and physical treatment. Our

together the strengths of each business. Rather thanoriginal strength lies in our ability to provide comprehen-selling products and services piecemeal, we will expand

sive solutions that incorporate maintenance services inthe value that we provide by realizing comprehensive

addition to water treatment chemicals and water treat-solutions based on close relationships with customers

ment facilities. The service contact business model will

and accurate profiling.

highlight these strengths, and we will proceed to develop

2“Seeing from the value perspective”

and expand this model under the MVP-22 plan.

“Seeing from the outside perspective”“Seeing from the value perspective” refers to reforming

3

our business model to provide high value in terms of“Seeing from the outside perspective” means breakingsocial as well as financial aspects and receiving commen-out of the closed approach and actively utilizing external

surate compensation.

management resources in fields where the company

This will require Kurita not only to consider customers

cannot succeed with its own resources alone in response

individual front-line needs, but also to hold the perspec-

to a rapidly changing external environment. Germany’s

tive of customers’ management. For example, customers

Industry 4.0 movement is a prominent example of a

Kurita Water Industries Ltd. Annual Report 201811

global manufacturing trend towards automating produc-

we will create and expand a new digital business utilizingtion using advanced technologies such as AI, the IoT, andthe IoT and AI in the fields of water and the environment.

robotics. No company is able to respond to this situation
with its own resources alone.

Investments and Use of Capital Going Forward

As a water professional, the Kurita Group has always

To build a rock-solid earnings base, our task going forward

kept its development of water treatment technologies

is extremely simple. We will focus on aggressively investing

in-house as much as possible. However, amid rapid

in growth fields and improving the profitability of our exist-

changes in technology and the business environment, we

ing businesses.

need to make use of open innovation for expertise that

Over the next five years we plan to invest in our growth

we don’t have internally if we are to provide high-quality

fields with unprecedented speed and scale. For our invest-

products and services efficiently.

ment destinations for the five years under the MVP-22

In our most recent developments, in May 2018 weplan we envisage making investments in the ultrapure

acquired the shares of Fracta, Inc., a venture company inwater supply business, in M&As for building our new busi-

the United States that provides a software service forness foundations, and for creating CSV Businesses.

predicting deterioration of water mains by applying artificial

Regarding the funds for these investments, while ourintelligence (AI) and machine learning (ML). Through thisinvestments and shareholder returns exceeded operating

investment, we have acquired advanced AI and ML tech-

cash flow in the three years of the CK-17 plan, we will now

nologies and expertise. By applying these to the Kurita

strive to create cash flow in addition to operating cash flow

Group’s water treatment technologies and services,

through the streamlining of our balance sheet by reducing

Allocation of Funds
Results of Allocation of Funds

Acceleration of Investment and Utilization of Capital*(Fiscal years ended March 31, 2016 - 2018)(Fiscal years ended March 31, 2019 - 2023)¥88.3
billion¥81.9
billionShareholder
returns

Share buybacks
Dividends
14 consecutive years of dividend
increases

Utilization of
liabilities

Share buybacks

Compressionof assets

From the fiscal year ended March
31, 2017, through the fiscal year
ended March 31, 2018

Consider implementing after
taking into account demand forfunds and share price

Shareholder
returns

Generation of cash

Capital expenditures
Investments in ultrapure watersupply business for domestic
and overseas semiconductors
and LCD, etc.

Uses of cash

Capital expenditures
Operatingcash flow

Investment
in growth

Sources of funds

Accelerate investments in ultrapure water supply business, newbusiness models

Uses of funds* This graph presents our envisaged sources and uses of funds under the MVP-22 plan.

12

Kurita Water Industries Ltd. Annual Report 2018

increases

Utilize for obtaining businessbasis, irrespective of whether
they are existing or new

Acquired water treatment business in the United States, madeequity-method affiliate in South
Korea a subsidiary

Investment
in growth

Continue dividend
whenever possible

M&A

M&A
Operatingcash flow

Dividends

our holdings of investment securities and sales receivables.
We will also look at funding at investments using debt.
For shareholder returns, we will strive to continue
increasing our dividends as far as possible, aiming for adividend payout ratio of between 30% and 50%. We will
also look at purchasing our own stock after considering
our funding requirements and stock price.

Enhancing Corporate Governance as theFoundation of Management
The Kurita Group’s overseas sales ratio has passed 30%
after recent M&As in Europe and North America and theestablishment of a global network. As we change rapidly
from our formerly Japan-focused business structure, establishing corporate governance as the foundation of

In Closing

global management is becoming an urgent priority. Under

This is the third year of my appointment as president.

the MVP-22 plan, we have included establishment of the

I will work even faster this year than in the past two

Group governance system as a priority measure, and weyears to strengthen the Group’s earning base andwill continue to build a system with a global standard byincrease its growth potential. And I plan to return the

promoting our corporate vision and the Code of Conduct

fruits of these efforts to our stakeholders. I invite ourinternally and establishing an internal control framework.

stakeholders to continue to expect great things of theIn efforts to reform corporate governance in the fiscal

Kurita Group as it continues its reforms, and ask foryear ended March 31, 2018, we addressed issues indi-

your continued guidance.

cated in the Board of Directors evaluation, for example byreviewing our corporate vision for long-term improvementof corporate value over the long-term, setting specifictargets regarding involvement with the environment

July 2018
President and Representative Director

Michiya Kadota

and society, enhancing our system to review investment
projects, and clarifying themes and messages to becommunicated to shareholders. We addressed these byformulating a new corporate vision and CSR policy,
establishing the Investment Committee, and selling ourshareholdings in other listed companies. For the fiscal
year ending March 31, 2019, the issue of selecting successors for management roles such as directors has
been raised. We will respond by establishing a training
system and personnel evaluation measures for management personnel, and related initiatives, and focusing on
development of human resources who will form thecore of the Kurita Group’s management.

Kurita Water Industries Ltd. Annual Report 201813

R&D and Intellectual Property

Activities in the Fiscal Year Ended
March 31, 2018
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, 2018, the Kurita
Group worked to increase the added value of its products
and services by developing water treatment technologies
that help to save water, save energy, reduce environmental impact, and increase productivity at customers’ plants.
Other activities included developing wastewater reclamation
and reuse technologies the designed for a recyclingoriented society and improving quality of our ultrapure
water for application in the electronics industry. In ourdevelopments that anticipate future needs, we promoted
joint research on next-generation semiconductor process

technologies with overseas research institutions. In addition to these product and technology developments, we
also cultivated core technologies such as analysis andevaluation technology and elucidation of water treatment
mechanisms, as well as taking on development of advanced
technologies including new materials.
We also strengthened our global research and development system with a view to expanding the Group’s overseas
business base. In April 2017, we established Kurita R&D Asia
Pte. Ltd. as a base for research and development related towastewater reclamation and sea water desalination in Singapore, which has a concentration of universities, research
institutions, and corporate research and development facilities that are involved in researching technologies related towater and the environment. Here, we have started development of products and technologies for desalination plants
and sewage recycling facilities that will address global
demand for securing water resources.

Achievements in the Fiscal Year Ended March 31, 2018
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

Fiscal year ended March 31, 2018 result: Approx. ¥5.3 billion (2.2% of net sales)
Water Treatment
Chemicals evelopment of technology to prevent clogging of reverse osmosis (RO) membranes for seawater desalinaDtion facilities and wastewater reclamation facilities
Development of low phosphorous and non-zinc chemicals for cooling water to comply with environmental
regulations
Development of chemicals for paper pulp process to prevent bleeding of ink

Water Treatment
FacilitiesD evelopment of transportable high-speed coagulation and sedimentation system
  Development of microbial selenium removal system for coal-fired power plants
  Development of material cleaning and surface modification technology for next-generation semiconductors
Development of optimal control and operation support technologies for water supply facilities utilizing IoT
and AI

Main Results

Initiatives under the New Medium-Term
Management Plan, MVP-22
Under the MVP-22 plan, the Kurita Group is focusing on
three priority themes for developments: “developmentof solutions,” “development of advanced technologies,”and “cultivation of core technologies,” aiming to provide
original products and services that will help to increase
our customers’ corporate value and competitive capabilities, and contribute to solving social issues.
In “development of solutions,” we aim to develop totalsolutions technologies that provide greater added value

14

Kurita Water Industries Ltd. Annual Report 2018

by applying our diverse products and technologies to optimizing customers’ plants and production processes.
Working with the marketing department within the Solution Business Division, we will strengthen our marketing
activities so that we can identify customers’ latent issues
as well as their emergent ones, using this information in
our development work. We will also make full use of ourdevelopment bases in Japan and overseas, pooling theGroup’s human resources, technologies, and expertise toenable speedy development of products and technologies
in response to global needs.

In “development of advanced technologies,” we areworking to realize production process optimization andautomated control of water treatment systems using IoT
and AI, as well as advancing development of strongly
original high-function, high-performance materials andwater treatment units. In these initiatives we are actively
engaging in open innovation with research institutes andventure companies that have advanced technologies inorder to achieve rapid and efficient development.

In “cultivation of core technologies,” as a water treatment technology specialist we will continue to focus on
researching core technologies such as water-related analysis and assessment technologies and elucidation of water
treatment mechanisms. At the same time, we will add newthemes aimed at improving the efficiency and completeness of our product development, such as “fluid and process
analysis,” in a bid to strengthen our analysis capabilities
based on engineering theory.

Links between the Research and Development Division and the
Next Generation Business Division and Solutions Business Division

Cultivation of Core Technologies

Research and Development Division

Analysis

Cultivate Core technologies

Fluid andprocess
analysis

Develop advanced water
treatment materials and units

Purification
andmodification

Solutions Business Division

Next Generation Business Division

Strengthen marketing capabilities

Develop technologies using AI/IoT

Develop comprehensive solutions

Promote open innovation

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, 2018, the number ofpatent applications made by the Group in Japan increased by
38 from the previous fiscal year to 193, mainly as a result ofefforts to secure rights for a new business model and strategic patent activities. We applied for patents on new businessmodels for biomass power generation and “KWSS” (Kurita
Water Supply Service), a service for supplying pure water tothe small and medium-sized pure water treatment equipment market. In strategic patent activities, we formulated apatent strategy for our core water treatment chemicals products based on our product development strategy and trends
among our competitors. The number of patents held by theGroup in Japan was reduced by 60 from the previous fiscal
year to 1,644 after paring back our portfolio to focus on profitable patents.
The number of patent applications outside Japan increased by 23 from the previous fiscal year to 75, due toapplications for patents overseas on a Reclaimed Water
System and treatment chemicals for cooling water. As
of March 31, 2018, the Group held 791 patents outsideof Japan.

Corrosion
prevention anddispersion
Coagulation andflocculation

Focused CoreTechnology Field

Biologicalengineering

Deionization
andadsorption

Sterilization
andbacteriostasis

Membraneseparation

Furthermore, the Group continued the efforts madein the fiscal year ended March 31, 2017 to establish acentralized global intellectual property system andstrengthened its centralized management of intellectual
property activities to cope with global business expansion,
such as establishing a policy on the handling of employee
inventions at Group companies, including those overseas,
and development of a system for dealing with patent litigation risk outside Japan. Going forward, we will aggressively
pursue overseas patent applications while considering
their commercial viability in each country.
Number of Patent Applications and Patent Registrations
For the years ended March 31
Japan

Patent registrations

Patent applications

Overseas

Patent registrations

Patent applications

2,000

1,804

1,783

1,800

698

800
600

1,704

756

0

791

529

400
200

1,644

153

193

155

59

143
63

52

75

2015

2016

2017

2018

Kurita Water Industries Ltd. Annual Report 201815

Review of Operations and Strategies by Segment

Water Treatment Facilities
Chemicals
We aim to increase profitability bytransforming our business model andstrengthening our overseas business base
Yoshio Yamada
Managing Director
General Manager of Sales Division I
and in charge of the chemicals business

OrdersYears ended March 31(Millions of Yen)

56,04059,41359,353

2013

2014

2015

83,44082,1182016

2017

83,68081,8832016

2017

90,3582018

Sales
Years ended March 31(Millions of Yen)

56,091

58,84459,999

2013

2014

2015

90,361

2018

Years ended March 31(Millions of Yen)

7,954

7,877
6,467

2013

16

2014

Orders and sales in Japan both increased year on year, as
capacity utilization recovered at manufacturing customers’
plants. By product, orders and sales increased for ourcore products, namely boiler water treatment chemicals,cooling water treatment chemicals, process treatment
chemicals for paper and pulp, and process treatment
chemicals for iron and steel. Overseas, we saw a significant
increase in both orders and sales as sales increased in
Asia, Europe, North America, and other areas while newconsolidations in the form of an acquisition in the UnitedStates and the conversion of a South Korean equitymethod affiliate into a subsidiary also contributed.
Operating income decreased slightly year on year,
reflecting an increase in selling, general and administrative expenses caused by increases in personnel expenses
due to the active development of overseas businesses
and IT-related expenses, despite the effect of the increasein sales.

Initiatives under the New Medium-Term
Management Plan, MVP-22

Operating Income

8,334

Overview of the Fiscal Year Ended
March 31, 2018

2015

2016

7,231

7,180

2017

2018

Kurita Water Industries Ltd. Annual Report 2018

From Water Treatment Chemicals to Comprehensive Solution Proposals
In Japan, the Kurita Group has contributed to stable operation of customers’ utility facilities and improved productivity
in their production processes through water treatment.
Now customers’ needs are becoming more sophisticatedfor energy saving and environmental impact reduction.
Moreover, looking at the medium- to long-term horizon,
in Japan we expect to see advances in production efficiency

in our customers’ manufacturing lines, and the Japanesewater treatment chemicals market seems unlikely to
expand. Amid this situation, it is becoming difficult todemonstrate the Group’s strengths through the simple
application of various water treatment chemicals to customers as we have in the past.
The Kurita Group will therefore serve as a business
partner for its customers, comprehending their problems
from various water-treatment perspectives and to develop
comprehensive solutions that integrate the Group’s
strengths and functions to provide optimal overall water
treatment for customers’ plants. In April 2017 in Japan, weaggregated the organizations that were previously separated under the Water Treatment Chemicals and Water
Treatment Facilities businesses and integrated the operations of both businesses along with the water treatment
chemicals and maintenance functions. Then, in July 2017
we unified our sales contact point for customers to create
an organization that could meet all customers’ needs
through a single point. This has enabled us to provide
solutions aligned to the needs of our large-scale customers.
We are starting to see several results from this, for example in one instance we realized overall water savings for acustomers’ plant by collaborating with the maintenancedepartment to install a system for reclaiming wastewaterand reusing it to supply a cooling tower; while in anotherinstance we helped the customer to reduce their steam
usage by applying a treatment chemical that improved theefficiency of their heat usage in the drying process of apaper manufacturing line. We will now look to acceleratethese initiatives and develop comprehensive solutions as
a service contract business.

We are also working to develop services that use
state-of-the-art technology to realize stable operation
and reduced running costs at customers’ facilities, such as
using IT to perform constant, remote measurement of theeffect of water treatment chemicals and equipment, thenautomatically injecting water treatment chemicals andmanaging their concentrations correctly.

Accelerating Expansion in the Overseas Business
The Kurita Group has been using M&A in regions where it
would be difficult to achieve autonomous growth in ashort time-frame, having first identified promising areas
for business expansion with the application of the Group’s
technologies. In January 2017, we made a subsidiary ofFremont Industries, LLC, a water treatment chemical manufacturer and seller, headquartered in the Midwestern
U.S. state of Minnesota. Then, in November, we made asubsidiary of South Korean former equity-method affiliate
Hansu Co., Ltd., which manufactures and sells water treatment chemicals in South Korea. We will continue to seek
M&A opportunities in the United States and Asia with aview to acquiring business bases in areas where the Kurita
Group’s business has potential to grow and acquiring
attractive technologies and products that the Group candevelop. Furthermore, we will increase profitability in ouroverseas business by sharing technologies and knowledge
from each region throughout the Group, enabling us toprovide high-value-added services using Kurita’s uniqueproducts and technologies and efficient maintenanceservices using sensing technologies.

Topic
TOPICS“S.sensing Opti” for Real-Time Analysis of Water
Quality Status
Kurita is focused on developing services that use IT andsensing technologies to help customers realize stable operation of facilities, improved productivity inside plants, andreduced environmental impact. As part of these efforts,
since 2013 we have been developing the “S.sensing”
sensor technology-based water treatment management
services, and we have recently developed “S.sensing Opti”
as a new service for coolingwater facilities.
The service performs automatic real-time analysis of
the water quality status ofcooling water, including treatment chemical concentration,
S.sensing Opti's online display

based on data such as the volume and quality of the waterused in the cooling water facility and the facility’s operational
status. This enables more appropriate water quality control
and treatment chemical dosing than before, realizing stable
operation of the cooling water facility and visualization of
the water treatment effect.
Moreover, “S.sensing Opti” includes the “S.sensing WEB”
service for centralized management of treatment chemical
SDSs* and water quality reports. This reduces the workload
for facility managers by enabling them to confirm the facility’s operation status, remaining amount of treatment
chemicals, analysis results, and other information on theInternet in real time.
* SDS: Safety Data Sheet; A document detailing the components and amounts of a treatment chemical and their hazard and toxicity information to enable safe handling of thetreatment chemical.

Kurita Water Industries Ltd. Annual Report 201817

Review of Operations and Strategies by Segment

Water Treatment Facilities
We will create new service proposals using
our knowledge and technology fromthe ultrapure water supply businessToshitaka Kodama
Managing Director
General Manager of Sales Division II
and in charge of the facilities business

OrdersYears ended March 31

161,088(Millions of Yen)

130,700

2013

114,049

2014

121,928

2015

137,832 136,611

2016

2017

2018

Sales
Years ended March 31(Millions of Yen)

132,304
124,052 119,292 129,399 130,692

2013

2014

2015

2016

2017

146,453

2018

Operating Income
Years ended March 31(Millions of Yen)

12,641

11,56013,36615,312
12,220

6,934

2013

18

2014

2015

2016

2017

2018

Kurita Water Industries Ltd. Annual Report 2018

Overview of the Fiscal Year Ended
March 31, 2018
With regard to orders, in the electronics industry in Japan
the Kurita Group received orders for large water treatment
facility projects for semiconductors and electronic components. In maintenance services, we received increasedorders associated with expansion and remodeling projects
as customers’ plants increased their capacity utilization. For
general industry in Japan, maintenance service orders increased for response to customers’ aging plants anddemand for modification and reinforcement. Moreover,while orders for water treatment facilities for general industry and electric power generation decreased, orders for soil
remediation remained unchanged at a high level. Overseas,
we saw dramatic growth in orders for large-scale water
treatment facility projects for LCD and semiconductor
manufacturers in China and South Korea. As a result of
these trends, orders for the segment overall increased significantly year on year.
Turning to net sales, sales for the electronics industry
in Japan increased dramatically. This mainly reflected
progress in construction of large water treatment facility
projects and growth in maintenance services, despite adecline due to the impact of contract changes with a certain customer in the ultrapure water supply business.
Sales for general industry in Japan increased as sales ofwater treatment facilities mainly for the electric power
sector rose, despite a fallback from posting sales of large
soil remediation projects in the previous fiscal year. Overseas, sales increased with progress on construction ofwater treatment facilities for LCD and semiconductor manufacturers in China and South Korea. As a result, segment
net sales increased significantly year on year.

Operating income increased despite a decline in sales
in the ultrapure water supply business, due to the effectsof sales growth in other businesses and an improved costof sales ratio.

Initiatives under the New Medium-Term
Management Plan, MVP-22
From the Ultrapure Water Supply Business to Comprehensive Solution Proposals
Recently, companies are being asked to take action onsocial problems with a global scale, such as resolving
water resource issues, reducing waste, realizing use ofsustainable energy, and advancing production technology.
As an environmental company, the Kurita Group promotes initiatives such as energy saving, waste reduction,
production technology advancement, and wastewater
recycling, through the overall development of water
treatment chemicals, maintenance services, water treatment facilities and ultrapure water supply business.
In particular, in the ultrapure water supply business,
which involves operating water treatment facilities insidecustomers’ plants, we have worked closely each day withour customers for over 15 years to accumulate knowledge
and skills regarding safe, secure, efficient operations basedon their manufacturing processes. Now, in addition to thisexperience, we will make use of the IoT and AI to optimize
our operations through predictive detection and develop
comprehensive solutions over an even wider range, including automated control.

Global Business Expansion
For many years, the Kurita Group has been deliveringlarge-scale water treatment facilities for LCD and semiconductor manufacturing plants in East Asia, such as
China, South Korea, and Taiwan. Over this time, we haveworked to build an efficient production system throughout
our supply chain, including suppliers and subcontractors,
and recently we are seeing benefits in the form of improved profitability.
The electronics industry in East Asia is a market that uses
large quantities of high-added-value water, which is the
Kurita Group’s specialty, and it is expected to expand overthe medium to long term. We have developed close relationships with customers in this market, not only by constructing
plants for them, but also by proposing comprehensive
solutions to lower their plant operating costs. We will use
these to drive the Group’s medium- to long-term growth.

Opening Up New Markets
Through its business, the Kurita Group helps to realize
renewable energy use and solve social issues such as remediation of contaminated soil and groundwater. In particular,
we have focused on biomass power generation using
biomass as fuel, aiming to commercialize it. With regard
to soil and groundwater remediation, we are addressing
the issue of “brownfields” through internal efforts and incollaboration with partner companies to establish a total
support system from analysis of the contamination statusthrough to remediation, and a land revival plan. These
efforts contribute to reducing the burden on our customers
and resolving a social issue.

Topic
TOPICS

Using Waste as a Resource and Realizing Effective
Energy Use with the KURITA DRANCO PROCESSTM
Kurita has been pursuing various initiatives related to biomassenergy, including dry methane fermentation technology.
The KURITA DRANCO PROCESSTM technology for dry methane fermentation enables stable recovery of biogas using
diverse waste products as raw material, including household
food waste, general waste such as paper, animal and vegetable waste, and industrial waste such as livestock manure. The
system has adopted a vertical arrangement for the fermentation reactor to save space and does not emit wastewater
since the residue from fermentation has low water content.
In June 2018, a dry methane fermentation facility using
KURITA DRANCO PROCESSTM was completed as part of theDemonstration of Self-Sustaining Regional Biomass Energy

Systems sponsored by the New Energy and Industrial Technology Development Organization (NEDO) and carried out by
Fuji Clean Co., Ltd. The project produces biogas in Japan’slargest single dry methane fermentation reactor at 3,000 m3
and makes effective use of energy by supplying both heatand electricity for Fuji Clean Co., Ltd. Currently, the project
has started test
operations towards a trial
operation from
October 2018.

Exterior view of Fuji Clean Co., Ltd.'s methane fermentation facility

Kurita Water Industries Ltd. Annual Report 201819

Corporate Governance

Basic Concept
The Kurita Group will make efforts to promote sustainable growthand enhance its corporate value in the medium and long term, deferring to the rights and position of various stakeholders such as
customers, business partners, employees, shareholders, and local
communities while striving to meet their expectations. To this end,
the Kurita Group will establish corporate governance, with the aimof realizing transparent, fair, prompt, and decisive decision-making
measures and highly effective management supervision.

Corporate Governance Structure
As of June 28, 2018, the Board of Directors comprises 12 directors (including 2 external directors), 2 more than before thelast election of directors. The reason for this increase is that
the Company intends to strengthen the management of overseas business operations, which have expanded following theacquisitions in recent years of Water Treatment Chemicals
businesses in Europe and North America and strengthening themanagement foundation for expanding the service contract
businesses that will contribute to the improved profitability ofdomestic business operations. The Board of Directors determines the orientation of corporate strategies that will enable theGroup to achieve continued growth and makes decisions on important operational execution in line with this orientation. To
fulfill the supervisory function over the directors and management in general, the Board of Directors consists of personnel
with a high degree of expertise in various business fields, corporate planning, finance and accounting, legal affairs, andtechnologies, and others, and is organized in a way that complements the necessary knowledge and experience for overall
decision making. The term of office of directors is set at one
year to enable flexible revision of the management structure in
response to changes in the management environment.
As a framework to supplement the Board of Directors’ decision-making, the Company has established and operates anapproval system based on the Executive Committee and theInternal Decision Approval and Review Rules. The Executive
Committee consists of the president, directors with a rank ofmanaging director or above, the general manager of the Corporate Planning Division, and the directors and executive officers
appointed by the president. The committee makes decisions
and conducts a review of matters resolved at the Board of Directors meetings to facilitate the decision making process at theBoard of Directors meetings when necessary. The Internal Decision Approval and Review Rules can be modified or abolishedonly by resolution of the Board of Directors. The Company has
also employed the executive officer system since June 2005 forthe purpose of strengthening business execution capabilities
and has appointed eight executive officers as of June 28, 2018.
The Company has adopted the Audit & Supervisory Board
system. In addition, the Internal Auditing Department has

20

Kurita Water Industries Ltd. Annual Report 2018

been established as an organization that reports directly tothe president for the purpose of enhancing internal audit
functions. The Company has appointed Grant Thornton Taiyo
LLC as its accounting auditor in accordance with the laws andregulations to ensure the implementation and improvementof accounting audits.
Overview of Corporate Governance Structure (As of June 28, 2018)
Organization form

Company with an audit &supervisory board

Number of directors

12 umber of external directors
N(within the total above)2

Term of office of directors

1 yearIncentive payments to directors

Remuneration andbonuses linked tobusiness results

Disclosure of individual
remuneration of directors

Disclosure is restricted topersons with ¥100 million
or more.

Voluntary Advisory Committees

Nomination &Remuneration Advisory
CouncilNumber of membersof the Audit & Supervisory Board3

 umber of external membersNof the Audit & Supervisory Board(within the total above)2

Number of independent officers

4

Accounting auditor

Grant Thornton Taiyo LLC

Adoption of executive officer system Yes

Continuous Reform of the Board of Directors
Each of Kurita’s directors and members of the Audit & Supervisory
Board completed an analysis and evaluation of the effectivenessof the Board of Directors and discussed measures for further
strengthening corporate governance.
In the effectiveness evaluation of the Board of Directors forthe period from January to December 2016, the following threeissues were identified.
a. In relation to business strategies for a long-term improvementof corporate value as well as involvement with the environmentand society that would lead to long-term growth, it is necessary
to discuss these issues more deeply throughout the entire
Kurita Group.

Corporate Governance Structure (As of June 28, 2018)

General Meeting of Shareholders
Election &Dismissal

Election &Dismissal

Nomination & Remuneration
Advisory Council

Consultation

Board of Directors
Advisory
Discussion &ReportBusiness
Operations

Resolution
Election &Supervision

President
Executive Committee

Audit

Election &Dismissal

Audit & Supervisory
Board

Cooperation

Members of the Audit &Supervisory Board

Cooperation

Audit

Audit Report

Accounting Auditor

Cooperation

Internal Auditing
Department

ReportDiscussion &ReportE&S Committee, Investment
Committee
Various Committees

Instruction

Operating Divisions

b. In order to increase the level of discussions at Board meetings,
it is necessary to enhance a prior examination on matters to be
discussed at the meetings so as to further improve the accuracyof considerations.
c. It is necessary for the Board of Directors to share a consistenttheme and message with regard to dialogue with shareholders.
The Company responded to these issues by taking the following measures during the fiscal year ended March 31, 2018.
a. The Company clarified the direction for the Group’s mediumto long-term growth going forward based on changes in the
management environment. For example, the Company defined the corporate vision and reviewed the significance ofthe corporate philosophy. It also renewed the Kurita Group
Philosophy System starting with the corporate philosophy.
In addition, the Company formulated the CSR policy, which is
positioned at the core of the management strategy and sets key
domains for CSR with targets for the year 2030. Furthermore,
the period covered by the next medium-term management
plan was changed from three years as before to five years,
and the Company worked to formulate challenging targets
based on its medium- to long-term vision and a plan comprisingambitious measures to achieve them.

Internal Audit

Accounting Audit & Internal Control Audit

b. The Investment Committee was established as a pre-screening
body made up of in-house experts to review investment projects ahead of resolutions by the Board of Directors and the
Executive Committee. This strengthening of the screening
system enabled the Board of Directors and the Executive
Committee to concentrate their discussion on the strategic
significance of the projects.
c. The activity policy for IR and SR activities was determined by
the Board of Directors and direct dialogue with shareholders
and investors and information disclosure to shareholders
and investors were conducted in line with the activity policy.
In addition, the Company strengthened the operation of systems enabling members of the Board of Directors to confirm thespecific results of dialogues undertaken in IR and SR activities.
In other initiatives, the Company appointed a female external director in June 2017, aiming to ensure diversity in the
Board of Directors. Furthermore, study sessions were held asmanagement training on themes such as CSV management andcrisis management and compliance. External directors were also
provided with site visits and study sessions to help them todeepen their understanding of the Company’s businesses.
Furthermore, in an effort to enhance dialogue with shareholders, the section on corporate governance initiatives in the convocation notice was enhanced.

Kurita Water Industries Ltd. Annual Report 201821

Corporate GovernanceEvaluation of the Board of Directors(January to December 2017)

According to the evaluation results for January to December
2017, the average self-evaluation of all Directors and members of
the Audit & Supervisory Board was generally good in all six areas,
and it was determined that the effectiveness of the Board of Directors is ensured. In particular, the areas of “contributions ofindividual directors and members of the Audit & Supervisory
Board” and “operation of the Board of Directors” were highly
evaluated with less variance of evaluation among inside directors,
external directors and members of the Audit & Supervisory
Board. On the other hand, certain items related to the “roles andresponsibilities of the Board of Directors” were evaluated relatively
lower than other items, and especially given a low evaluation by
the external directors. Based on this result, the following issues
and measures were decided.

Evaluation
methodThis evaluation was conducted via a written survey,
with each of the respondents identified. The aggregate results were discussed at Board meetings andhelped members to better identify problems as well
as decide future measures.

Evaluation
items

The following six themes were evaluatedSix areas: (1) Roles and responsibilities of the Boardof Directors, (2) Collaboration with external directors
and external members of the Audit & Supervisory
Board, (3) Composition of the Board of Directors,(4) Operation of the Board of Directors, (5) Contributions of individual directors and members of the
Audit & Supervisory Board and (6) Dialogue withshareholders.

Evaluation
periodFrom January to December 2017

Issue
More in-depth discussion regarding the selection of successors
to directors is necessary.

Measuresa. Various measures relevant to the development and evaluationof successors to directors will be established in a systematicmanner.
b. Information regarding the election, retirement, and evaluationof successors to directors will be provided to the Nomination
and Remuneration Advisory Council in advance, and the contents of deliberation at the Board of Directors meetings basedon the report by the Council will be improved.

Remuneration System for Directors and Members of the Audit & Supervisory Board
The Company’s remuneration system for directors excluding
external directors is composed of fixed remuneration as baseremuneration, and incentive remuneration reflecting businessresults. The fixed remuneration system is adopted for external
directors and members of the Audit & Supervisory Board, who
perform oversight functions. An amount of the fixed remuneration is decided for each job title in case of directors and for eachworking style in case of members of the Audit & Supervisory
Board. Part of the remuneration is paid to the directors’ andmembers of Audit & Supervisory Board Shareholding Scheme
and allocated for purchasing the Company’s shares. The incentive remuneration consists of short-term incentive remuneration according to a degree of achievement in an annual businessplan and evaluation of duties for which a person is responsible,
and long-term incentive remuneration according to businessperformance and job title during the term of office. From June
2016, the Company increased the proportion of remunerationaccounted for by performance-linked remuneration for directors,
excluding external directors, and introduced a performance-linked
stock compensation program that grants stock at the time of theirretirement as a long-term incentive. The purpose of this system
is to increase motivation to contribute to a continuous growth of
the Kurita Group and an improvement in corporate value, by
sharing profits and risks caused by stock price fluctuation withthe shareholders.

The Remuneration System for Officers
Stock granted at the timeof directors’ retirement

1 Directors (excluding external directors)
Fixed remuneration

Payment toShareholding
SchemePerformancelinked
remuneration

Fiscal year ended March 31, 2018 performance evaluation indicators

Performance-linked stockcompensation plan

Evaluation indicator- Net income attributableto owners of parent- Common Consolidated operating income- President, general manager of Corporate Planning Division, general manager of the Group Administrative Division ROE- General manager of Research and Development Division Gross profit from developed products- General managers of Business Divisions, general managers of Sales Divisions, general manager of Engineering Division Year-on-year growth rate of
consolidated net sales of own divisions- Individual directors Other contributions based on carrying out major investments such as M&As and noteworthy performance in acquiring orders

2     External
directors and members of the Audit & Supervisory Board
Fixed remuneration

22

Kurita Water Industries Ltd. Annual Report 2018

Payment toShareholding
SchemeRemuneration for Officers
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, 2018)

Total amount of remuneration by type (millions of yen)
Total amount of
remuneration, etc.,
Base
Short-term incentive Long-term incentive
Retirement(millions of yen) remuneration
remuneration
remuneration
benefits

Officer classification

Number of eligible
payees for baseremuneration

Directors(excluding external directors)

695

262

230

202

―

9

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

34

34

―

―

―

1

External officers

75

75

―

―

―

6

Note: From the fiscal year ended March 31, 2018, the Company will record the estimates of money to be paid for short-term incentive remuneration and long-term incentive remuneration as provisions as of March 31, 2018. The amounts of remuneration paid to directors stated above include ¥84 million of provision for short-term incentive remuneration for
the fiscal year ended March 31, 2017 and ¥97 million of provision for long-term incentive remuneration for the fiscal year ended March 31, 2017.

Total Amounts of Consolidated Remuneration, Etc., for Each Officer of the Company (Fiscal year ended March 31, 2018)

Name

Total Amount ofConsolidated
Remuneration(Millions of yen)Amounts of remuneration, etc. by type (Millions of yen)
Officerclassification

Base
remuneration

Short-term incentive
remuneration

Long-term incentive
remuneration

Retirement
benefits

Michiya Kadota

172

Director

64

48

59

―

Koichi Iioka

102

Director

46

31

24

―

Note: Information on total amounts of consolidated remuneration, etc., is provided only for persons receiving a total amount of ¥100 million or more. The total amount of remuneration
for the above directors are the planned payment amounts of short-term incentive remuneration and long-term incentive remuneration, recorded as a provision at the end of the
fiscal year ended March 31, 2018.

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 andnomination of directors and members of the Audit & Supervisory
Board. The Council, which mainly comprises external directors andexternal members of the Audit & Supervisory Board, is consulted

about candidates for officers and their remuneration, andsubmits a report on appropriateness thereof to the Board of
Directors. In the fiscal year ended March 31, 2018, the Council
advised the Board of Directors to abolish the honorary advisor.
Through the application of such processes, the effectiveness ofimprovements in transparency will be verified.

Profile of Nomination & Remuneration Advisory Council (Fiscal year ended March 31, 2018)

Nomination

Remuneration

Constituent members

Results

Candidates for directors
Candidates forrepresentative directors
Candidates for executive
directors

Two external directors
President
One full-time external member of the Audit & Supervisory Board etermining the appropriateness ofD
all candidates for director
Abolishing honorary advisor

Candidates for membersof the Audit &Supervisory Board

One full-time external member of the Audit & Supervisory Board
One full-time internal member of the Audit & Supervisory Board
President
General manager of the Corporate Planning Division
General manager of the Group Administrative Division

 etermining the appropriateness ofDcandidates for members of the
Audit & Supervisory Board

Two external directors
President
One full-time external member of the Audit & Supervisory Board

Performance evaluation of directors

Activities of External Directors, Reasons for
Appointment, and Change in Criteria for Judging Independence
The roles that the Company expects its external directors to
perform are to increase rationality and transparency in decision-making by the Board of Directors by checking managementfrom viewpoints which internal people do not have, with insightcultivated through managerial experiences and knowledge in
special fields.

The Company appointed Mr. Tsuguto Moriwaki as external
director in June 2015, followed by Ms. Ryoko Sugiyama, an expert
on the environment and waste, in June 2017. Since assuming
office, both of them have provided a wide range of recommendations on reinforcing functions of the Board of Directors. In drafting
the medium-term management plan, they proposed the establishment of a junior board, in which young employees make proposals
for the Kurita Group’s future strategies; and the Board of Directors’
has adopted this idea.

Kurita Water Industries Ltd. Annual Report 201823

Corporate GovernanceFurthermore, in the fiscal year ended March 31, 2018, thecriteria for judging independence were made stricter. The criteriathat stipulated “A current major business partner of the Company
or a major business partner at some time during the past year,
or a person who executes the operations of the major business
partner.” Previously, the term “major business partner” was defined
as a partner for whom sales from the Company made up “10% ormore” of the partner’s net sales, but this has been revised to “2%or more of consolidated net sales.” With regard to the judgment
criteria, “A consultant, an accountant, or a legal professional who
currently receives or has received at some point during the past
year a lot of money or property other than remuneration for officers from the Company,” since the expression “a lot of money orproperty” was unclear, the Company has now defined this as ¥10
million or more per year.

Status of External Directors and External Members of the Audit & Supervisory Board (As of June 28, 2018)

Post

Name

Number of meetings of the Board of
Directors and the Audit & Supervisory
Board attended

Reasons for electing him /her as a director or a member of the Audit & Supervisory Board(Fiscal year ended March 31, 2018)

TsugutoMoriwaki

Board of Directors’ meetings: 12/12

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

Ryoko
Sugiyama

Board of Directors’ meetings: 8/9

Ms. Ryoko Sugiyama is an expert on the environment and waste and has held important positions suchas an external director of listed companies. The Company judged that she was capable of checking theCompany’s management from an outside perspective, different from those within the Company, andincreasing its rationality and transparency.

KenjiroKobayashi

Board of Directors’ meetings:12/12
Audit & Supervisory Board meetings: 12/12

Mr. Kenjiro Kobayashi is an individual who has played an active role in different areas of the Kurita
Group’s businesses and has high expertise and a wealth of international experience in the areas offinance, corporate planning, new business development, and M&As, etc. As he is capable of reflecting
his expertise and experience on the audit of the Company.

Shigekazu
Torikai

Board of Directors’ meetings: 9/9
Audit & Supervisory Board meetings: 9/9

Mr. Shigekazu Torikai has special knowledge as well as considerable experience and deep insight into
corporate legal affairs as an attorney. The Company judged that he can be expected to utilize his
specialist knowledge, experience, and insight in conducting high-quality audits of the Company froman outside perspective.

Directors

Members of
the Audit &Supervisory
Board

Adoption of the Audit & Supervisory Board System
The Company is a company with an Audit & Supervisory Board.
As of June 28, 2018, the Audit & Supervisory Board comprises
three members, of which two are external members. Individual
members of the Audit & Supervisory Board monitor the status ofexecution of duties by directors and the status of performance ofoversight duties by the Board of Directors. They also conduct
asset status surveys of the entire Kurita Group including subsidiaries and audit the development and operation of internal control
systems implemented by the directors, as well as confirming theindependence of the accounting auditor and the status of execution of its duties. The individual members of the Audit & Supervisory
Board attend important meetings including meetings of the Boardof Directors, the Executive Committee, and the E&S Committee, andaudit execution of duties by directors.

Appropriate Cooperation among the Internal
Auditing Department, the Audit & Supervisory
Board, and the Accounting Auditor
The Company has an Internal Auditing Department that is independent from operational execution functions and reports directly tothe president. The Internal Auditing Department conducts internal
audits of Kurita Water Industries Ltd. and its Group companies,
identifies issues and problems in operational execution, and reports to the president on improvement measures.

24

Kurita Water Industries Ltd. Annual Report 2018

The Audit & Supervisory Board nominates candidate accounting auditors proposed to the General Meeting of Shareholders,and makes decisions on proposed resolutions regarding appointment, dismissal, and refusal of reappointment of the accounting
auditor. In addition, members of the Audit & Supervisory Board,
the Internal Auditing Department, and the accounting auditor
share information with one another on audit plans and concerns
and work to engage in close collaboration.

Establishment of the Investment Committee
The Investment Committee was established in April 2017. In thefiscal year ended March 31, 2018, it was chaired by the Assistantgeneral manager of the Group Administrative Division, who is thechief officer responsible for financial management and composedof people responsible for the main departments within the Administrative Division. The role of the Investment Committee is topre-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 directors
and members of the Audit & Supervisory Board. The Committee
was engaged in pre-screening of 21 projects in the fiscal year
ended March 31, 2018. Organizing the major discussion points
through the pre-screening by the Investment Committee helped
to enhance the quality of discussion by the Board of Directors
and Executive Committee.

Roles and Results of the Investment Committee (The fiscal year ended March 31, 2018)Roles re-screening of investment and loan projects to be discussed by the Board of Directors or the Executive CommitteePReport the pre-screening result and major discussion points to the directors and members of the Audit & Supervisory Board

Constituent members

Chairperson: Assistant general manager of Group Administrative Division (chief officer responsible for financial management)
General manager of the Corporate Planning Department, general manager of the Accounting Department,
Members:
general manager of the General Affairs Department, and general manager of Group Project Integration Department(Finance, Taxation, Preparation for IFRS Adoption)

Results in
Number of
the fiscal
projects
year ended pre-screened
March 31,2018
Results

Equity investment and M&A projects:
Capital investment projects:
Financing and fund procurement projects:
Company establishments:

8
8
4
1

Total:

21

Improved quality of discussion at Board of Directors and Executive Committee meetings

Disciplinary Rules for Investment

Comments from External Directors

When making an investment, the Kurita Group evaluates profitability of the investment and makes a decision on the investment,setting a hurdle rate in consideration of individual risks for each
investment project in addition to the cost of shareholders’ equity,in accordance with the policy of striving to maintain return on
equity (ROE) at levels above the cost of shareholders’ equity.

Director Moriwaki
The Company’s Board of Directors has
been working to enhance its discussionof medium- and long-term strategies bydelegating authority for certain discussion items to the Executive Committee.
To make the discussion at the Board of
Directors meetings more substantive
and vigorous, I would like to see the Company continue making
further reforms, such as revising the composition and roles of theInvestment Committee and other committees and councils.
The Company also needs to sort out the system for training
and assessment with regard to nurturing and selecting the successor for the president. The same applies to the selection ofcandidates for future directors. The Company is a Company with
an Audit & Supervisory Board, and through this it has alreadyestablished the Nomination & Remuneration Advisory Council.
I would like the Company to continue to enhance the role of thecouncil, making reference to other cases where such councils
have been set up.

Shareholdings in Other Listed Companies
The Company holds shares of other listed companies for strengthening business relationships. We verify the economic rationality for
respective stocks we have held and the risks of holding thoseshares, as well as relationships with companies whose shares theCompany holds, periodically and at other times as necessary andreview the appropriateness of holdings. In the fiscal year ended
March 31, 2018, we sold the shares of nine companies throughresolutions at Board meetings.

Investment Shares Held for Purposes Other than Pure Investment
Fiscal years ended on March 31
Total value on the balance sheet (millions of yen)
Number of stocks

34,22173

32,05834,334

71
62

2016

2017

2018

Director Sugiyama
The Company currently has two external directors and I believe it would be
preferable to add one more in order tostrengthen our function.
During the fiscal year ended March
31, 2018, I attended the Nomination &Remuneration Advisory Council for the
first time and I felt that it was difficult to clarify the criteria forcandidate selection. I felt it necessary to establish a fair and transparent program for nurturing and selecting the successor for thepresident.
Furthermore, now that the CSR policy has been placed centrally within the new medium-term management plan, I would
like to see the Company widen its horizons in allocation of management resources, looking beyond ultrapure water and otheradvanced water treatment businesses to include fields related
to social infrastructure and daily living.

Kurita Water Industries Ltd. Annual Report 201825

Directors, Members of the Audit & Supervisory Board, and Executive Officers
Directors

Chairman and Director

President and Representative Director

Koichi Iioka

Michiya Kadota

2018 Chairman and Director (to present)
In charge of the global business(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.

Managing Director

Managing Director

Director

Director

Toshitaka Kodama

Yoshio Yamada

Hirohiko Ejiri

Toshimi Kobayashi

2017 General Manager of Sales Division II
and in charge of the facilities business(to present)2016 Managing Director (to present)2014 Director
2011 Executive Officer
1977 Joined Kurita Water Industries Ltd.

2018 General Manager of Sales Division I
and in charge of the chemicals
business (to present)2018 Managing Director (to present)2014 Director
2011 Executive Officer
1982 Joined Kurita Water Industries Ltd.

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

2018 General Manager of East japan Sales
Group, Sales Division I (to present)
Director (to present)
2011 Executive Officer
1982 Joined Kurita Seibi KK (Note)

Director

Director

External Director

External Director

Yasuo Suzuki

Yukihiko Mutou

Tsuguto Moriwaki

Ryoko Sugiyama

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

2018 General Manager of Group
Administrative Division (to present)
Director (to present)2016 Executive Officer
1991 Joined Kurita Water Industries Ltd.

2015 External Director of Kurita Water
Industries Ltd. (to present)
2004 President and Representative Directorof Shinsho Corporation
2002 Executive Vice President andRepresentative Director of Kobe
Steel, Ltd.
1999 President and Representative Directorof Kobelco Construction MachineryCo., 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 of Fuji Tokoha
University (current Tokoha University)
2007 Director of Sugiyama & Kurihara
Environmental Consultants, Inc. (to present)
1996 Established Sugiyama & Kurihara
Environmental Consultants, Inc.,
Representative Director

26

Kurita Water Industries Ltd. Annual Report 2018

Executive Senior Managing Director andRepresentative Director

Kiyoshi Itou2018 Executive Senior Managing Director
and Representative Director(to present)
General Manager of Corporate
Planning Division (to present)2013 Managing Director
2009 Director
2007 Executive Officer
1979 Joined Kurita Water Industries Ltd.

Managing Director

Takahito Namura2018 General manager of Solution Business
Division (to present)2016 Managing Director (to present)
2011 Director
2009 Executive Officer
1977 Joined Kurita Water Industries Ltd.

(Note) Kurita Seibi KK was merged to Kurita
Water Industries Ltd. in 1997.

Members of the Audit & Supervisory Board

Member of the Audit & Supervisory Board

Shiro Hayashi
2012 Member of the Audit & Supervisory
Board (to present)
2009 General Manager of Personnel andLabor Relations Department,
Administrative Division1977 Joined Kurita Water Industries Ltd.

External Member of the Audit &Supervisory Board

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

Kenjiro Kobayashi

Shigekazu Torikai

2016 External Member of the Audit &Supervisory Board (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.)

2017 External Member of the Audit &Supervisory Board (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

Assistant General Manager of Corporate

General Manager of Research andGeneral Manager of Next Generation

Planning Division

Development Division and President of

Business Division

Kurita R&D Asia Pte. Ltd.

Kunihiro Kuse

Matsuhiro Omaki

Akira Iwami

General Manager of Engineering Group,

General Manager of Operation Group,

General Manager of BusinessEngineering Division

Global Business Division

Management Group, Sales Division I

Tatsuhiro Oosuga

Hirohisa Kamata

General Manager of West Japan Sales

General Manager of Energy & InfrastructureGroup, Sales Division I

Industries Group, Sales Division II

Kurita Water Industries Ltd. Annual Report 201827

Risk Management

Risk Management System
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 caused by risks by taking measures toavoid and mitigate risks, so that we can continue securing business opportunities for further growth.
The General Manager of the Corporate Planning Division is
the officer responsible for monitoring risks and implementing risk
management within the Kurita Group. The General Manager regularly conducts risk analysis and evaluation to relevant Group
companies, conducts ongoing monitoring, and takes steps toprevent 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 thepresident, and immediately issues orders. Those responsible forresponding to the risk promptly take action and report to thepresident and the General Manager of the Corporate Planning
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 head of the E&S (Environmental & Social)Committee, while those related to hygiene, safety, and disasters
are the responsibility of the head of the Safety and Hygiene
Committee of the Headquarters. The general manager of eachdivision is responsible for responding to risks directly associatedwith day-to-day business operations. Also, responding to commonly seen risks relating to quality, the environment, information
security, export controls, and so on are handled by the respective
divisions responsible.
The General Manager of the Corporate Planning Division, thehead of each committee, and the general managers of divisions
report periodically to the Board of Directors on the status of risk
management implementation, and report as necessary to theBoard of Directors and the Audit & Supervisory Board on the occurrence and effects of serious risks. Monitoring of the execution
status and improvement status of risk management is conductedby the Internal Auditing Department.

28

Kurita Water Industries Ltd. Annual Report 2018

Establishment of Business Continuity Management (BCM) Policy
In February 2018, Kurita formulated the Business Continuity Management (BCM) Policy to set out the Kurita Group’s principles forhandling emergencies that pose a risk to the continuity of theGroup’s businesses, such as major disasters or pandemics, andbegan implementing the policy from April 2018. The policy wasformulated to provide a business continuity plan (BCP) for responding to emergencies as well as to settle principles of BCM
activities to maintain ordinary business activities, thereby enabling Kurita Group officers and employees to make judgements
and act appropriately. The policy clarifies our basic approach in
the following three points.
1 Highest priority on ensuring the safety of humans

The Kurita Group will place highest priority on ensuring thepeace of mind and safety and security of the officers and employees, and their family members.
2 Early restoration of business operations

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 make efforts
to supply products and services in a stable manner and to support its customers’ recovery efforts.
3 Community support

While making efforts to prevent secondary disasters at its own
sites, the Kurita Group will support reconstruction of the local
community.
In the fiscal year ending March 31, 2019, the Group Administrative Division of Kurita Water Industries Ltd. will serve as thedepartment responsible for BCM and carry out a series of initiatives, formulating, maintaining, and updating BCPs, securingresources, and providing education and training. The Group
Administrative Division will also conduct regular inspectionsof the implementation status of BCM through the Safety andHygiene Committee of the Headquarters and the Group Healthand Safety Committee and report the results to the Executive
Committee.
This policy is to be applied across all companies in the Kurita
Group. However, for now we will focus on implementing it mainly
at Kurita Water Industries Ltd. and its domestic Group companies, which face a high risk of experiencing a major earthquake.

Compliance

Framework for Promotion
All Kurita Group officers and employees share fairness, transparency, integrity, safety, and compatibility as five core values,and how all Kurita Group officers and employees should conduct themselves and what conduct is prohibited have been
compiled into the Kurita Group Code of Conduct. The Kurita
Group’s basic approach toward compliance is to implement thiscode of conduct.
As an organization for overseeing Kurita Group’s complianceactivities, the Company has established the E&S (Environmental &Social) Committee, which is chaired by the executive senior
managing director and representative director, and the Group
E&S Committee, which is also chaired by the abovementioned
director and whose members are representative directors ofGroup companies. In these committees, the Group sets out
policies and important measures for compliance activities andconveys them to all employees through subcommittees at eachheadquarters division and Group company. The committees
manage the activity targets and the Company’s Board of Directors
evaluates the activity results.

Establishment of the Kurita Group Code of
Conduct
On October 1, 2016, the Kurita Group Code of Conduct wasestablished as a model for compliance with laws and for taking
appropriate actions according to social ethics. With Kurita’s business continuing to expand globally, the Code defines actions to
be taken by all Group officers and employees beyond any gapsthat may exist due to language, custom, or culture. As thoroughunderstanding of the Code is a priority, it has currently beentranslated into 17 different languages.

Kurita Group Anti-Bribery Policy
The Kurita Group reinforced its Anti-Bribery Policy on March 1,
2017, in order to promote fair business activities within theGroup. This policy defines basic items related to the Group’s bribery prevention systems. Under this policy, the Company and eachGroup company defines items to be complied with as rules andworks on the reduction of the risk of the occurrence of bribery.

Initiatives to Establish Healthy Relationships
with Suppliers
Since 2008, the Company has been conducting Surveys on Transactions with Kurita Water Industries Ltd. once a year with suppliers
who fall under the category of subcontractors as provided in the
Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (the Subcontract Act). The Company is promoting fairer
transactions and building relationships of mutual trust and cooperation by continuously improving its transactions and its methods oftransactions based on the opinions and suggestions voiced by its
suppliers. We also request subcontractors to thoroughly comply
with laws and regulations, while the procurement guideline
requests them to respect basic human rights, have consideration
for preserving the environment, and achieve and maintain safe
working environments.
As well, we also have the Supplier Helpline, which suppliers
can call for consultation and reporting. This helpline is operated
by an external organization.

Overview of the Kurita Group’s Whistle-Blowing System
The Company and its domestic Group companies maintainconsultation desks within each company as well as at outsideorganizations in an effort to protect persons who consult or makereports and to achieve early detection of dishonest practices.
Starting in April 2016, we commenced operation of the Kurita
Global Helpline, which allows the employees of overseas Group
companies to make reports to a consultation desk.
Updates on operation of the Group’s whistle-blowing system
are reported to the Board of Directors on a regular basis.

Response to Anti-Social Forces
The Kurita Group takes a firm stance against anti-social forcesthat threaten the order and safety of society, and we are vigilant
that we never accept illegal requests from such forces. Uponreaching a basic agreement for business with our suppliers, we
obtain a written statement from each supplier stating that they
have no relationships with such anti-social forces.

Kurita Group Antitrust Policy
The Kurita Group has established the Kurita Group Antitrust
Policy to ensure that the Group conducts fair and proper transactions and to prevent its officers and employees from violating
antitrust laws in countries around the world. The policy sets out
basic items regarding observing local antitrust laws and antimonopoly laws, and associated regulations and so forth in different
countries and regions.
In 2006, the Kurita Group in Japan withdrew, in principle, fromall construction projects ordered by the national government andlocal public entities. We also forbid participation and membershipof trade associations in order to exclude all dealings with associates that can easily connect to bid-rigging and cartels.

Kurita Water Industries Ltd. Annual Report 201829

Human Resource Management

High-Level Expertise and a Culture to Support It

Enhancement of Human Resource Development

Under the new corporate vision, the Kurita Group is aiming to be“a creator of unique value.” This vision is founded on our historyof meeting customer’s challenges with results that exceed their
expectations and winning their trust, which we have done since
our foundation. To ensure that we can continue to add to ourpast achievements, each Kurita employee must develop a highlevel of expertise and give their full effort to resolving customer’s
issues. Developing human resources like this takes a long time,
and the culture of enhancing team cohesion that we have fosteredalso plays an important part.
The Kurita Group is currently working to reform its businessmodel and the awareness of its employees. Among the many necessary measures to achieve this is accelerating human resource
development. However, as we attempt to create value for ourcustomers that they haven’t been aware of, the Kurita Group’s
corporate culture of tackling customers’ issues head on willremain the basis of our human resource management.

For many years, on-the-job training (OJT) has played a central rolein the Company’s usual approach to developing core human resources. The OJT-based method of training is effective for building
the foundation of personnel who implement solutions; however,since this method requires time to develop the personnel, in
preparation for a management environment that requires speed
and the growth of the Company going forward, we are taking
steps to enhance off-the-job training as well, such as revising thehuman resources development program to a system in which thefirst three years after recruitment constitute a training period.
The Company has established a training system for each skill
level and position and works to widen the scope of human resource development. In response to the global expansion of ourbusiness, we implement training programs for selected participants including the “Greater Adaptability to Globalization Course,”
which is designed to nurture human resources that are capableof working at a global level. We are also working to develop humanresources that will play central roles in our overseas Group companies by conducting training for future executives among local
employees and managers.

Approach to Career Formation
Water treatment technologies have a strong experience engineering aspect, and the experience and expertise accumulated in
the process of solving issues at customers’ water treatment sites
is an important asset. Moreover, solving issues requires a decent
understanding of customers’ production processes. Given thenature of this business, it is important to have core personnel
with wide-ranging, high-level expertise gain experience in multiple
departments. Since their development requires a long time,stable employment is a basic principle of Kurita’s approach tohuman resources.
Under our system for developing human resources by giving
them experience in multiple departments, it is important that employees themselves have a desire to try new roles. We believe thatpeople acquire motivation from being involved in interesting
work, and we have a system that lets employees inform us of thework they want to do and of their wishes to transfer. This allows
people to develop their careers themselves.

Number of Trainees (Persons)(results for the fiscal year ended March 31, 2018; including employees of theCompany and some domestic and overseas Group companies)

Training for those in each position

376*

Training for executives and managers

230*

Training for female employees

20Greater adaptability to globalization course

18

Training for staff of overseas Group Companies

31* Cumulative total number of persons in the fiscal year ended March 31, 2018

Promoting Active Female Participation
Promoting active female participation in the workplace has been
an issue for Japan as a country. The average number of years ofservice among female employees of Kurita Water Industries is
16.9, indicating a working environment that 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 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 ashrinking population, the ability to successfully promote active
female participation in the workplace has become an urgent issue
for the Company in terms of securing management resources.
In our five-year action plan for the period from April 2018 toMarch 2023, we have set the following two targets.

30

Kurita Water Industries Ltd. Annual Report 2018

- Have 15 or more women in management positions by April 1,
2023- Achieve a ratio of 30% or more for women among new graduate recruits for career track positions
We will take initiatives using the following four approaches:
support career formation, increase the ratio of female recruits,
expand the roles of women, and support career development
through the Self-Reporting System.
Details of Initiatives
Initiative

Measures taken

Career formation
support

Provide opportunities to motivate careertrack female employees to actively build
their careers, such as career developmenttraining.

Increase female
recruitment ratio

Provide female applicants with opportunities
to talk with female employees at various
junctures in the recruitment process in our
graduate recruiting activities for career track
employees.

Expand the roles
for female
employees

Assign female employees to departmentsthat have few female workers and systematically appoint them to management positions.

Support careerdevelopment
through the selfreporting system

Make consultations with supervisors mandatory in the self-reporting system anduse these opportunities to support careerdevelopment.

Preventing Long Working Hours
A central theme in the Japanese government’s drive to reform
work styles is preventing long working hours. This issue is deeply
rooted in Japan’s traditional view of work. The corporate cultureof the Company and its domestic Group companies is one thatplaces priority on solving customers’ issues, even if this means
making personal sacrifices, and this has resulted in a tendency tospending as much time as possible to achieve the solutions. However, we recognize the need to review our traditional approach towork and increase productivity in the true sense in order toensure the physical and mental health of employees and enable
participation by diverse human resources.
The Company and its subsidiaries in Japan are promoting
initiatives to reduce overtime work in order to resolve this issue.
We will encourage every employee to learn to perform their work
efficiently and improve our work processes. At the same time, wewill establish work rules that set out a balance between working
and breaks and create an environment that supports flexible
work styles.

Issue to Be Addressed Going Forward
The human resource management methods and culture that theCompany has cultivated since its foundation have been a strength
in terms of providing comprehensive solutions to customers
issues. However, they are also affected by issues that are common
in Japan, and one of our major challenges is to determine how toadapt our practices for overseas cultures and systems as the
Kurita Group continues to expand globally. Furthermore, we alsoneed to examine the sustainability of our current system in a society with a shrinking population and its adaptability to the rapidlychanging management environment. The Kurita Group is determined to take appropriate measures to address these issues.

Incorporation in the MSCI Japan Empowering Women Select Index
In November 2017, the Company was selected for inclusion in
the MSCI Japan Empowering Women (WIN) Select Index, which isan SRI* index. This index is operated by MSCI Inc. and selects
companies from every industry that are recognized for promoting
active roles for women by calculating a multidimensional gender
diversity score based on female employment data disclosed
under the Act on Promotion of Women’s Participation and Advancement in the Workplace and other corporate disclosures.

* SRI Index: Socially Responsible Investment indexes consider social and environmental aspects as important investment criteria of companies in addition totheir financial aspects.

Kurita Water Industries Ltd. Annual Report 201831

Initiatives on Safety

Basic Approach
The Kurita Group recognizes that due to the nature of its business, employees are faced with safety risks on operation sites 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 operating business.” We are working to ensure thesafety 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.

Structures and Policies for Occupational Healthand Safety
The Company and its domestic Group companies have established an occupational health and safety structure based on labor
safety laws and regulations such as the Industrial Safety and
Health Act.
Specifically, each office and division of the Company and its
domestic Group companies establishes a Health and Safety
Committee which promotes worksite health and safety. These
committees are directed and controlled by the Headquarters
Health and Safety Committee, which is chaired by the generalmanager of the Group Administrative Division, allowing us todevelop and enhance safe and healthy work environments.
A department has been established to promote safety within
the worksite, and it supports 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 Healthand Safety Committee.
In the fiscal year ended March 31, 2018, the Health and Safety
Committee stated the direction for its initiatives as, “every one ofus must have a sense of danger and establish the behavior of
thinking for ourselves to remove any potential risks.” As such,
we have endeavored to prevent work-related accidents and topromote health management and so forth.

Initiative to Prevent Work-Related Accidents
Taking into consideration previous work injuries, the Kurita Groupset preventing chemical-related injuries and falls as priority issues,outside experts and the Company’s responsible departments
conducted safety patrols, and efforts were made to discover andeliminate risks at worksites and raise the safety awareness of employees and subcontractors. In safety patrols, worksite safetymeasures and other aspects were evaluated by points, then the
results were reported back to employees and subcontractors andimprovements and remedies of the indicated items were carriedout. In the fiscal year ended March 31, 2018, 515 safety patrols
were conducted in total, including 6 patrols by outside experts
and 8 patrols at overseas sites for the first time.

32

Kurita Water Industries Ltd. Annual Report 2018

The Group also provided various education opportunities toenable individual people involved in on-site construction work,
including subcontractors, to try to prevent workplace accidents.
We also held study sessions for acquiring the Company’s inhouse
qualifications. These included the introduction of an experiential
safety education program for new employees in an effort to increase their sensitivity to risks. In addition, in the Company’s water
treatment facilities business, divisions involved with manufacture,
construction and maintenance held “safety conferences” withparticipation from subcontractors as well. At the safety events,
outside lecturers provide safety lectures and we take steps to increase safety awareness using case studies of accidents. We
shared the issues with relevant parties through the safety events,
including similar initiatives at overseas work sites, which helped tofoster a shared awareness.
Safety Education Results (Numbers of Participants and Number of
Qualified Personnel after Training)
Training on
handling fires
42

Others303

2018
Total 593
Safety training
for overseas
employees
32

Training on
handling
chemicals
74
Safety training
for new
employees
142

Health Management
At Kurita Water Industries, we ensure that all employees receive
regular health exams, and all employees who handle items suchas organic solvents and designated chemicals receive special
health exams. The participation rate in regular health exams in
the fiscal year ended March 31, 2018 was 100%. The main efforts
related to reducing long work hours include a “no overtime day”
and the maximum hours that the Company’s facilities can be usedwere set in 2016. In our efforts to prevent mental health issues,
we held lectures on mental health and events related to health 57
times in the fiscal year ended March 31, 2018. In addition, we
conduct a Stress Check, which is a survey given to all employees
for promoting self-awareness, carried out under the guidance ofthe stress check systems designed by the Ministry of Health,Labour and Welfare according to the Industrial Safety and HealthAct. In the fiscal year ended March 31, 2018, 99.2% of employees
took the Stress Check.

Initiatives on Quality

Quality Management
The Kurita Group has established the “Kurita Group ProductQuality Policy” and continuously promotes quality improvement
activities in an effort to raise the quality of the products and services it provides to customers. The basis of this policy is the “Kurita
Group will speedily provide our customers with products and services that can meet their quality expectations, thereby winning
unshakable trust.” To provide products and services that are
trusted by customers and to fulfill our social responsibilities in
conducting our business, we have established goals for conducting
quality activities that take into account observance of laws andregulations, safety and quality, and environmental impact.
To improve quality, each Group company has built and operates a quality management system. In addition, we constantly
monitor the current quality level through self-inspections, surveys
by the person in charge of promoting quality improvement activities or their designated person, and feedback of opinions andrequirements from customers. Improvements are to be madeeach time an issue is recognized.

2. Providing Training to Improve Knowledge and Skills
In order to raise the quality of services provided to customers,
Kurita Water Industries offers employees training to improvetheir knowledge and skills. For the water treatment chemicals
business, the Company provides training to employees of not
only Kurita Water Industries but also its domestic Group companies and agents that conduct the same operations. For thewater treatment facilities business, the Company provides
training internally and for its domestic Group companies andoverseas local staff, including technical training, such as courses
on water treatment and waste water treatment, as well as
safety and legal training.
3. Sharing Problem Information Database
Problems that arise prior to delivery to customers and complaints from customers are entered in the in-house “problem
information” database and that information is shared throughout the Company in an effort to prevent the occurrence ofsimilar problems.
Control Structure of Quality Management System

Please see the following website for our product quality policy.

Board of Directors

Kurita Group Product Quality Policy
http://www.kurita.co.jp/english/csr/group/materiality/customer/
index.html

Outline and Structure of Our Quality Management System
The Company has built systems for quality management covering
all stages from development to manufacture and supply of products, and is working to improve quality. For quality management
related to development, the Solutions Business Committee
screens the development themes of products, technologies, andbusiness models and the specific details of the decided themes
are set by the Research and Development Division and the
Solution Business Division. For quality management for thestages from manufacture to provision of products, the Quality
Management Committee is established within the Engineering
Division to oversee the quality improvement activities of eachorganization. The Company has also created systems for autonomously carrying out continuous quality improvements andmaintains quality management systems.
Initiatives in the Fiscal Year Ended March 31, 2018
1. Conducting CS Survey
The Kurita Water Industries’ Engineering Group continued to
conduct CS surveys of customers who have purchased large
water treatment plants, and in the survey, customers evaluatedthe plant in terms of 8 items, including specification, quality
management, and construction. The Group continually works
to revise and improve various items, including its operations
procedure manual and specification sheets, that are based on
the results of the survey.

President and Representative Director
Executive
Committee

Development of products,
technologies, and services

Solutions Business Committee

Quality management
for products
and services
Engineering Division

Research andDevelopment
Division

Quality Management Committee

Solution
Business
Division

Quality Management Committee
for each segment

ISO 9001 Certification
To encourage continuous quality improvements, the Kurita Groupis promoting acquisition of ISO 9001 certification at companies
that have production processes involving procurement, manufacture, and processing to provide products and services.
Acquisition of ISO 9001 Certification(As of March 31, 2018)

Kurita Water Industries Ltd.

Kurita Europe GmbH (Ludwigshafen)

Kurita Chemical Manufacturing Ltd.

Kurita Europe GmbH (Viersen)

Kuritec Service Co. Ltd.

Kurita Iberica SL

Kuritaz Co., Ltd.

Kurita Turkey Kimya A.S.

Kurita Engineering Co., Ltd.

Fremont Industries, LLC

Kurita-GK Chemical Co., Ltd.

Kurita do Brasil LTDA.

Kurita (Taiwan) Co., Ltd.

Kurita Water Industries (Suzhou) Ltd.

Kurita Water Industries (Dalian) Co., Ltd.

Hansu Technical Service Ltd.

Kurita Water Industries (Jiangyin) Co., Ltd.

Kurita (Singapore) Pte. Ltd.

Hansu Co., Ltd.

P.T. Kurita Indonesia

Kurita Water Industries Ltd. Annual Report 201833

Environmental Improvements Activities

Establishment of the Kurita Group Environmental Policy
The Kurita Group’s environmental improvement activities include
initiatives to reduce internal water and energy use and waste
emissions. They also include activities to reduce the environmental
impact of customers’ plants and business sites using the technologies, products, and services related to water and the environmentthat the Kurita Group has developed over many years.
In the fiscal year ended March 31, 2018, the Kurita Group defined its Environmental Improvement Activities as 1) activities thatadhere to environment-related laws and regulations in eachcountry and region where the Group conducts business, 2) initiatives to resolve global issues related to water and environmental
sustainability through business activities, and 3) disclosure of
information related to 1) and 2), and dialogue with customers,
suppliers, employees, shareholders, investors, and local communities regarding the activities. Based on this definition, we also
revised our Basic Environmental Improvement Policy and formulated the Kurita Group Environmental Policy.

Promotion Structure
The Kurita Group has established the E&S Committee, which ischaired 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 activities in the Kurita Group.
The committees formulate unified medium-term goals for the
Kurita Group’s environmental improvement activities and actionplans for each fiscal year. Personnel responsible for promotion
are designated by the committee chair to promote initiatives forachieving the targets of the environmental improvement activities
at their assigned company or organization. They report the status
and results of the activities to the E&S Committee.
The E&S Committee confirms stakeholder expectations andconcerns, and reports these to the Company’s Board of Directors
along with the activity results for the overall Kurita Group.
Environmental Improvement Activity Promotion Structure

Customers’ Environmental Improvement Activities
In our customers’ environmental improvement activities, we work
to reduce the environmental impact at customers’ plants andbusiness sites using the Kurita Group’s technologies, products,
and services. Based on the social issues outlined in the SDGs, theKurita Group aims to contribute in its business field – “water andthe environment” – and provides customers with solutions on thethemes of “saving water,” “saving energy,” and “reducing waste.”
To ensure that our activities are effective, we collect data on thequantitative reduction in environmental impact from the customers’ adoption of our solutions under an index of our own called“environmental benefits for customers.”
Furthermore, the Kurita Group has defined products, services, and contract businesses that promote creation of sharedvalue with society as “CSV businesses,” and is working to develop
them. CSV businesses have been identified in each Kurita Group
company based on the following selection criteria.
CSV Business Selection Standard
1) Business that contributes greatly to themes defined in
the CSR Policy
2) Business with a high level of competitive advantage andnovelty3) Business that serves the public interest to a high degree(contributes greatly to SDGs)

Internal Environmental Improvement Activities
The Company’s internal environmental improvement activities aim
to reduce environmental impact while adhering to the environmental laws and ordinances of each country and region that apply
to the Kurita Group’s business activities. In the fiscal year ending
March 31, 2019, the companies of the Kurita Group establishedtarget values for the following items and are taking steps to reducethem. The denominators used for per-unit results are selected as
the most relevant indicator for environmental impact at each company and business site, such as production volume or floor area.
Improvement Targets

Board of Directors
President and Representative Director
Executive
Committee

E&S Committee

Group E&S Committee

Persons responsible forpromotion

Persons responsible forpromotion

Initiative

TargetWater intake

Per-unit water intake – less than theprevious fiscal year

CO2 emissions

Per-unit CO2 emissions – down 1% year
on yearIndustrial waste
emission

Per-unit industrial waste emission – lessthan the previous fiscal year

Please see the following website for the Kurita Group’s environmental activities.

CSR Activity Environmental activities
http://www.kurita.co.jp/english/csr/csr_activity/environment/
index.html

34

Kurita Water Industries Ltd. Annual Report 2018

Example of Initiatives:

Saving water at Kurita Chemical Manufacturing Ltd.’s Ako plant
Kurita Chemical Manufacturing Ltd. is a manufacturingbase for water treatment chemicals in the Kurita Group.
The company’s Ako plant manufactures water treatment
chemicals mainly for customers in West Japan. The Ako
plant uses a large quantity of pure water as a raw material
for water treatment chemicals in liquid form and for washingwater treatment chemical containers. It therefore has awater treatment facility for manufacturing pure water.
Kurita Chemical Manufacturing Ltd. conducted a review
of its facilities for important utilities for its business activities,
such as water and electricity, in the fiscal year ended

March 31, 2018. As part of this review, it introduced Kurita
Water Industries’ pure water supply service “KWSS.”“KWSS” collects remote monitoring and operation data
online and conducts water treatment facility operation
management and maintenance based on real-time trend
management and alarm analysis. By introducing “KWSS,”
Kurita Chemical Manufacturing Ltd. was able to achieve
proper facility maintenance and reclaim and reuse wastewater that was previously discarded from the pure waterproduction facility, which led to a reduction in water
intake volume.

Water input volume at Ako plant*(m3)

27,60725,054

Reduction amount

2,553㎥
Reduction rate

9.2%

2017

Pure water production facility managed by KWSS

2018

* Fiscal years ended on March 31

Certification Acquisition Status

The Kurita Group acquires ISO 14001 certification, mainly at business sites that have a heavy environmental impact, and thenoperates in line with that management system.
Acquisition of ISO 14001 Certification
As of March 31, 2018

Company

Kurita Water Industries Ltd.

Kurita Chemical
Manufacturing Ltd.

OfficeCompany

Shizuoka, Yamaguchi,
Toyoura, Tsuruga plants

Kurita Water Industries (Jiangyin) Co., Ltd.
Hansu Co., Ltd.

Kameyama Sub-branch
Sakai Sub-branch

Kurita Europe GmbH

Head Office, Ako plant

Kurita Turkey Kimya A.S.

Kurita Buil-Tech Co., Ltd.
Kuritaz Co., Ltd.
Kuritec Service Co. Ltd.
Kurita-GK Chemical Co., Ltd.

OfficeLudwigshafen
Viersen

Kurita do Brasil LTDA.
Hansu Technical Service Ltd.
Kurita (Singapore) Pte. Ltd.
P.T. Kurita Indonesia

Kurita Water Industries (Dalian) Co., Ltd.

Kurita Water Industries Ltd. Annual Report 201835

Contribution to Local Communities

Basic Approach
The Kurita Group strives not just to contribute to society throughits business activities but also to actively return to society theinsight and expertise that Group companies have gained
through business in order to establish a favorable reputation
within society.

Contributing to Development of Science and Technology Relating to Water and the Environment
Kurita Water Industries established the Kurita Water and Environment Foundation in 1997 (converted into a public interest
incorporated foundation in 2009) with the aim of contributing to
the promotion of science and technology relating to water andthe environment. The Company and domestic Group companies
make contributions to the Foundation each year to provide operating funds, and the Foundation uses these contributions as its
operating expenses for research and studies relating to waterand the environment as well as international exchange support.
The Foundation’s main activities include publicly soliciting
research applications each year and then providing grants toresearchers in Japan and other countries in Asia. In the fiscal
year ended March 31, 2018, grants were given to 123 projects,

Subsidy presentation ceremony in Vietnam

which were selected through examination. Furthermore, as acommemorative project for the Foundation’s 20th anniversary,
the Foundation started a research project, “Sustainable Water
Use in Development of Southeast Asian Countries,” and started
a grant for master’s course students in water- or environmentrelated courses at the Asian Institute of Technology. The Foundation
has provided grants for a total of 1,406 projects, amounting toroughly ¥729 million, since its establishment through to the endof March 2018.

Regional and Community Activities
The Kurita Group strives to be accepted as a member of thecommunity and to develop along with the local communities inregions where the Group has business sites. Regional and community activities consist of (i) activities relating to local cleanup
and preservation of the natural environment, (ii) activities relating
to the promotion of health and welfare within the community,and (iii) activities relating to disaster and crime prevention within
the community.
In the fiscal year ended March 31, 2018, office workers took
part as volunteers in clean-up activities in communities where theoffices are located.

Kurita Global Technology Center employees participate involunteer clean-up activities

Main Regional Community Activities
Type

Clean-up activities inareas around offices

Clean-up activities inareas around offices
in collaboration
with customers

36

Company

OfficeActivity

Head Office

Clean-up around the head office

Kurita Water Industries Ltd.

Kurita Global
Technology Center

Nogi volunteer clean-up

Kuritaz Co., Ltd.

Tokai Branch

Kuritaz Hokuriku Ltd.

Head Office

Kurita Meiki Ltd.

Head Office

Beach clean-up
Clean-up campaign

Nippon Fine Co., Ltd.

“Symbiotic Forest” tree planting and weeding

Kurita Water Industries (Suzhou) Ltd.

Park clean-up

Hansu Technical Service Ltd.

Namhansanseong clean-up activities

Kurita Water Industries Ltd.

Sakai Sub-branch

Green Front Sakai

Kurita Water Industries Ltd.

Ishikawa Sub-branch2017 Hokubu Industrial Park spring clean-up
activities

Kurita Water Industries Ltd. Annual Report 2018

Dialogue with Shareholders and Investors

What’s Important to Us
The Kurita Group seeks to use dialogue with its shareholders andinvestors to increase corporate value. To this end, we strive toprovide high-quality information to the capital markets and topromptly report the evaluation and demands of the capital markets back to management. In providing information, we take care
to be fair and transparent. The materials and QA summaries that
we use in various presentations are posted on the Company’s
investor relations (IR) website as far as possible in an effort toeliminate information gaps between investors. Furthermore, theopinions and concerns expressed by our shareholders and investors during dialogues with them are reported back to the Board of
Directors appropriately, and we quickly write up the minutes ofindividual meetings to make sure they are always available formanagement to view.
Looking ahead, we will examine and review our current disclosure policy and establish an internal disclosure manual in aneffort to enhance the fairness of our disclosure practices.

of response to requests for interviews, investor visits, andteleconferences. In the fiscal year ended March 31, 2018, theCompany held over 200 dialogues.
Aside from these regular IR activities, the Company’s management provide opportunities for face-to-face communication withoverseas shareholders and investors through roadshows. The
president and the general manager of the Corporate Planning
Division visit cities in Europe, North America, and Asia to exchange
opinions with major shareholders and reach out to potential
shareholders. For shareholders who cannot be reached by these
activities, we also participate in conferences held by securities
companies in Japan.
For individual shareholders and investors, we created dialogue
opportunities by holding a shareholder briefing after the General
Meeting of Shareholders as well as through company briefings atregional branches of securities companies and participation inseminars for individual investors.

System for Information Disclosure and Dialogue
Under the disclosure system for important information about the
Kurita Group, the information is ascertained, collected and centrally controlled by the general manager of the Corporate Planning
Division, who makes decisions about timely disclosures. The general manager of the Corporate Planning Division is also responsiblefor dialogue with shareholders and investors. As an organization toassist the general manager, specialized Investor and Shareholder
Relations Section with specialist staff have been established within
the Corporate Planning Division.

IR Results
The Kurita Group secures opportunities for dialogue with institutional investors in and outside of Japan through various briefings,
conferences, and individual meetings. In the fiscal year ended
March 31, 2018, the Group held financial results briefings at
the time of its second-quarter and full-year financial results,
and teleconferences at the time of its first- and third-quarter
financial results. The president was the main speaker at the financial results briefings, while the general manager overseeing
the CSR and Investor Relations Department performed this role
for the teleconferences.
In terms of regular activities, outside of quiet periods the
person responsible for IR and shareholder relations (SR), andthe person responsible for CSR conduct dialogues with sell- andbuy-side analysts and fund managers in Japan and overseas
on a wide range of topics including performance trends aswell as ESG in general. These dialogues mainly take the form

Individual investor briefing session held in February 2018

Communication with Shareholders
The Company is working to increase opportunities to communicate with those who are in charge of exercising voting rights atinstitutional investors, aiming to use shareholders’ opinions toimprove management. The general manager of the CSR and
Investor Relations Department and the staff of the Investor andShareholder Relations Section visit major domestic shareholders
and the offices of major overseas shareholders in Japan to give
briefings on the direction of the Group and status of improvement of corporate governance. In return, we hear from our
major shareholders about their policies on the exercise of voting
rights and their opinions and requests regarding the Group’s
governance. In addition to these, we are increasing other opportunities for discussion with domestic and overseas institutional
investors about the exercise of voting rights and reporting theiropinions and requests back to management.

Kurita Water Industries Ltd. Annual Report 201837

Management Indicators
For the year ended March 31(Millions of Yen)

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Orders195,065

175,162

181,951

197,256

186,741

173,463

181,282

221,273

218,730

251,447

Net Sales

199,706

178,520

181,234

193,792

180,143

178,137

189,398

214,372

214,187

236,815

Operating Income

27,93526,35827,131

29,382

20,98914,886

19,435

19,833

19,452

22,475

14.0

14.8

15.0

15.2

11.7

8.4

10.3

9.3

9.1

9.5

16,29917,28817,13816,548

11,476

9,352

10,434

12,577

14,506

17,897

8.2

9.7

9.5

8.5

6.4

5.2

5.5

5.9

6.8

7.6

245,406

251,620

253,298

271,141

263,580

274,925

294,492

298,107299,249

323,046

0.84

0.72

0.72

0.74

0.67

0.66

0.67

0.72

0.72

0.76

177,291

192,588

198,042

208,891

207,871

217,691

222,330

227,896

227,623

238,803

Equity Ratio (%) Note 5

72.2

76.5

78.2

77.0

78.9

79.2

75.5

76.4

76.1

73.9

Return on Assets (%) Note 6

6.8

7.0

6.8

6.3

4.3

3.5

3.7

4.2

4.9

5.8

Return on Equity (%) Note 7

9.4

9.3

8.8

8.1

5.5

4.4

4.7

5.6

6.4

7.7

Capital Expenditures(Excluding Intangibles)

55,734

7,525

5,469

7,721

6,108

5,268

8,489

18,8189,289

22,070Depreciation

10,916

14,84015,375

15,41014,493

14,25014,37813,40913,24813,507

R&D Expenses

4,363

3,990

4,225

4,232

4,362

4,534

4,397

5,269

5,038

5,258

Operating Income Margin (%)
Net Income Attributable to Ownersof Parent Note 1
Net Income Margin (%) 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 8
Net Assets per Share Note 9125.23

159.37

1,378.04 1,496.98 1,563.57 1,649.24 1,744.41 1,826.84 1,907.80 1,961.30 1,991.91

2,126.96

126.69134.38134.02130.65

92.43

78.48

87.81

108.24

Dividends per Share

34.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

50.0

52.0

Dividend Payout Ratio (%)

26.8

26.8

28.4

30.6

45.4

56.1

52.4

44.3

39.9

32.6

Number of Employees

4,404

4,445

4,490

4,555

4,640

4,635

5,222

5,481

5,654

6,011

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. Net income margin = Net Income 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 Net assets per share is based on the number of shares at year-end (excluding treasury stock).

38

Kurita Water Industries Ltd. Annual Report 2018

Segment Information
For the year ended March 31(Millions of Yen)

OrdersNet Sales

Operating
Income

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Water treatment
chemicals

58,47053,37056,71456,74856,04059,41359,35383,44082,11890,358Water treatment
facilities

136,595

121,791

125,237

140,507

130,700

114,049

121,928

137,832

136,611161,088

Total

195,065

175,162

181,951

197,256

186,741

173,463

181,282

221,273

218,730

251,447

Water treatment
chemicals

58,331

53,74356,73556,44356,091

58,84459,99983,68081,88390,361

Water treatment
facilities

141,374

124,777

124,499

137,348

124,052

119,292

129,399

130,692

132,304

146,453

Total

199,706

178,520

181,234

193,792

180,143

178,137

189,398

214,372

214,187

236,815

Water treatment
chemicals

8,417

8,177

10,099

9,268

8,334

7,954

7,877

6,467

7,231

7,180

Water treatment
facilities

19,51718,181

17,032

20,127

12,641

6,934

11,56013,366

12,22015,312

0

—

0

(13)

13

(2)

(2)

(0)

0

(18)

Total

27,93526,35827,131

29,382

20,98914,886

19,435

19,833

19,452

22,475

Water treatment
chemicals

34,47635,19436,44436,58034,64737,31079,79079,36580,12095,589Water treatment
facilities

180,626

168,119

158,414

161,750

143,772

133,620

136,391

142,564

134,623

158,631

Total

Adjustment
Segment
Assets215,102203,314

194,859

198,330

178,419

170,931

216,182

221,930

214,744

254,220

Capital
Water treatment
Expenditures chemicals

1,432

1,151

1,183

1,463

1,458

1,792

5,378

2,434

2,175

3,162

Water treatment
facilities

54,889

6,932

4,781

6,641

5,230

3,917

7,486

17,188

7,911

19,805

Depreciation
andAmortization

R&D
Expenses

Total

56,322

8,083

5,965

8,105

6,688

5,709

12,864

19,623

10,08722,967

Water treatment
chemicals

1,745

1,662

1,539

1,485

1,369

1,386

1,406

2,613

2,926

3,593

Water treatment
facilities

9,970

13,86014,527

14,55013,684

13,387

13,457

12,068

11,95012,083

Total

11,716

15,523

16,066

16,035

15,054

14,774

14,863

14,682

14,877

15,677

Water treatment
chemicals

1,233

1,114

1,285

1,335

1,367

1,556

1,485

2,129

2,123

2,066

Water treatment
facilities

3,130

2,875

2,940

2,897

2,994

2,978

2,911

3,139

2,914

3,192

Total

4,363

3,990

4,225

4,232

4,362

4,534

4,397

5,269

5,038

5,258

Kurita Water Industries Ltd. Annual Report 2018

39

MANAGEMENT’S DISCUSSION AND ANALYSIS

Business Overview
During the fiscal year ended March 31, 2018, the global economy
remained firm overall, reflecting the steady recovery of the U.S.
and European economies and the picking up of the Chinese economy and other emerging economies in Asia. The Japanese economy continued to enjoy a recovery trend, with consumer spending
picking up and corporate earnings improving with the strengthening of overseas economies. Looking at the market environment
surrounding the Kurita Group, in Japan, upward momentum continued in the production activities of the manufacturing industry
due to a recovery in exports and strengthening of demand, andcapital expenditure also remained solid. Overseas, capital expenditure picked up, mainly in the electronics industry in East Asia.
In this environment, the Group focused on enhancing thefoundation of overseas operations and developing the service
business to improve profitability under the basic policy of “improve customer intimacy by providing customers with the bestsolutions.”
To enhance the foundation of overseas operations, in the
United States, Fremont Industries, LLC, which recently became amember of the Kurita Group, and Kurita America, Inc., an existing
U.S. subsidiary, cooperated to proceed with initiatives to exercise
synergies. In Europe, to increase the production capacity of process treatment chemicals for paper and pulp of Kurita Europe
GmbH, the Group acquired a production base from Akzo Nobel inFrance. In Asia, the Group converted Hansu Co., Ltd., an equity
method affiliate, into a consolidated subsidiary by acquiring additional shares to strengthen the power to provide solutions inSouth Korea.
To develop the service business, the Group sought to develop
a business model using the Reclaimed Water System with a
combination of the fundamental technologies of water treatment facilities and water treatment chemicals of the Company.
The Group also continued to work on competitive products andservices that utilize IT and sensing technology, while developinga market for these products and services. In addition, the Groupfocused on proposal sales that will contribute to the solution ofcustomer issues, such as the reduction of the environmental
impact, energy saving and productivity improvement.

40

Kurita Water Industries Ltd. Annual Report 2018

Operating Resultsa) Orders
In the Water Treatment Chemicals segment, as capacity utilization
at customers’ plants in Japan recovered, orders increased foralmost all industries. Orders increased overseas, as well, mainlyreflecting the impact of new consolidations.
In the Water Treatment Facilities segment, for the electronics
industry in Japan, overall order volume increased due to the receipt of orders for large-scale facility projects for semiconductors,
electronic components, and wafers, although orders decreasedin the ultrapure water supply business due to changes in certain
contracts. For general industry in Japan, overall order volume decreased due to a decrease in orders for facilities for the electric
power industry and a drop in orders following efforts to narrow
down orders for facilities for general industries, although orders
for soil remediation remained strong and orders for maintenanceservices increased due to demand for response to aging customer facilities and reinforcement. Overseas, flat panel displays andsemiconductors in China and orders for semiconductors in South
Korea all experienced surging demand, and the Group acquired
far more orders than initially envisaged. At the same time, as aresult of steadily expanding the maintenance and ultra-purewater supply business, the overall amount of orders received increased significantly overseas.
As a result, total consolidated orders were ¥251,447 million,
an increase of 15.0% compared with the previous fiscal year.

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

173,463c) Cost of Sales and Gross Profit
Cost of sales increased 10.3%, from ¥145,455 million in the previous fiscal year, to ¥160,476 million. Cost of sales as a percentage
of sales came to 67.7%, compared with 67.9% in the previous
fiscal year.
d) Selling, General and Administrative (SG&A) Expenses
SG&A expenses were ¥53,863 million, up 9.3% from the previous
fiscal year’s ¥49,280 million. As salaries and bonuses increased,
retirement benefit expenses decreased.

218,730

181,282

114,049

121,928

137,832

136,611161,088

59,41359,35383,44082,11890,358

2014

2015

2016

2017

214,372

214,187

2018

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

178,137b) Net Sales
Sales of water treatment chemicals grew in Japan and overseas,
while sales of water treatment facilities increased significantly
atop steady construction progress on water treatment facilities
and growth in maintenance services. The impact on net sales of
new consolidations of North American and South Korean subsidiaries in the water treatment chemicals business was around¥4.4 billion.
As a result, total net sales amounted to ¥236,815 million, an
increase of 10.6% compared with the previous fiscal year.

251,447
221,273

236,815

189,398

119,292

129,399

130,692

132,304

146,453

58,84459,99983,68081,88390,361

2014

2015

2016

2017

70,407

68,732

2016

2017

2018

Gross Profit
Years ended March 31(Millions of yen)

76,33855,267

2014

58,8892015

2018

Kurita Water Industries Ltd. Annual Report 201841e) Operating Income
Owing to the factors mentioned above, consolidated operating
income totaled ¥22,475 million, up 15.5% compared with ¥19,452
million in the previous fiscal year. The operating income marginrose to 9.5% from 9.1% in the previous fiscal year.
f) Results by Business Segment
Water Treatment Chemicals
Orders and Sales
In Japan, in addition to customer plants’ capacity utilization recovering, through problem-solving proposals that make use of new
products and services, sales of our core products, namely boiler
water treatment chemicals and cooling water treatment chemicals, increased. Process treatment chemicals for paper and pulp
and for iron and steel also grew. As a result, both orders and sales
increased in Japan.
Overseas, both orders and sales increased, reflecting the consolidation of results at the acquired subsidiary based in the UnitedStates from the first quarter of this fiscal year and the conversionof an equity method affiliate in South Korea into a consolidated
subsidiary in the fourth quarter, in addition to higher sales in eachgeographical area. Overseas sales growth excluding these factors
was around 8% in yen terms, 4% in local-currency terms.
As a result, segment orders increased to ¥90,358 million, a
10.0% increase over the previous fiscal year, and segment sales
increased to ¥90,361 million, a 10.4% increase over the previous
fiscal year.
Operating Income
Segment operating income was down 0.7% year on year, to¥7,180 million, reflecting an increase in selling, general and administrative expenses caused by increases in personnel expenses
due to the active development of overseas businesses and IT-related expenses, despite the effect of the increase in sales.
Water Treatment Facilities
Orders and Sales
Regarding orders and sales in Japan, in the electronics industry,both orders and sales in the water treatment facilities increased
significantly due to orders for large-scale projects and progressin construction work. In maintenance services, both orders andsales also increased due to orders associated with expansion
and remodeling projects against a backdrop of a rise in capacity
utilization at customers’ plants. In general industries, orders forwater treatment facilities declined, but sales increased. Orders inmaintenance services increased, mainly due to demand for the
renewal and expansion of facilities at customers’ plants, but sales
declined slightly. Orders for water treatment facilities for electric
power declined, but sales increased. Orders in soil remediation
remained at about the same high level, but sales declined in a
fallback from the posting of sales of large projects in the previous
fiscal year. Overseas, orders rose significantly on orders forlarge-scale projects in China and South Korea. Sales also increased, reflecting progress in construction work for projects
whose orders were received in the fiscal year under review. Sales
in the ultrapure water supply business declined, partly due to afall in sales attributable to changes in contracts with a customer

42

Kurita Water Industries Ltd. Annual Report 2018

SG&A Expenses
Years ended March 31(Millions of yen)

40,38039,4542014

2015

53,86350,57449,280

2016

2017

2018

Operating Income by Segment
Years ended March 31(Millions of yen)
Water Treatment Chemicals
Water Treatment Facilities

22,475

19,435

19,833

19,452

14,886
6,934

11,56013,366

12,22015,312

7,954

7,877

6,467

7,231

7,180

2014

2015

2016

2017

2018

in the previous fiscal year, although revenues were posted for
projects for the expansion of facilities.
As a result, segment orders were ¥161,088 million, a 17.9%
increase over the previous fiscal year, and segment sales expanded to ¥146,453 million, a 10.7% increase over the previous
fiscal year.
Operating Income
Segment operating income was up 25.3% year on year, to ¥15,312
million, because of the increase in sales and improved profitability
due to rigorous process and cost management on construction
projects.
g) Overseas Sales
Sales by Region
Overseas sales for the fiscal year under review were ¥78,582
million (an increase of 22.4% over the previous fiscal year).
The overseas sales ratio within consolidated net sales increased to 33.1%, from 30.0% in the previous fiscal year.
Regional Breakdown
Asia: Up 22.6%, to ¥48,911 million; 62.2% of total overseas sales
North America: U p 174.7%, to ¥5,178 million; 6.6% of total
overseas sales
EMEA*: Up 8.0%, to ¥21,350 million; 27.2% of total overseas sales
Other regions: U
 p 18.9%, to ¥3,142 million; 4.0% of total overseas sales

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

13.5

13.1
10.3

9.2

8.4

i) Income Before Income Taxes
Income before income taxes increased 24.8%, to ¥25,535 million,
compared with ¥20,465 million in the previous fiscal year.
The pretax profit margin increased to10.8%, from 9.6% in theprevious fiscal year.
j) Net Income Attributable to Owners of Parent
After deducting income taxes and net income attributable tonon-controlling interests from pretax profits, Kurita recorded consolidated net income attributable to owners of parent of ¥17,897
million for the fiscal year ended March 31, 2018, an increase of
23.4% compared with ¥14,506 million in the previous fiscal year.
Net income per share increased to ¥159.37, from ¥125.23 in
the previous fiscal year. The net income margin rose to 7.6%,
from 6.8%.
Return on equity (ROE) increased to 7.7%, from 6.4%.
k) Policies on Shareholder Returns
Kurita’s basic policy is to pay stable dividends on an ongoing basis.
Setting a payout ratio of 30–50% as our target, Kurita will continuously work to increase dividends, making decisions based on the

9.3

8.9

8.8

9.1

9.5
7.9

7.7
5.8
Water Treatment Chemicals
Total
Water Treatment Facilities

2014

2015

2016

2017

2018

Overseas Sales by Region
Fiscal year ended March 31, 2018

4.0%

27.2%

* EMEA comprises Europe, the Middle East, and Africa.

h) Other Income and Expenses
Other income and expenses–net came to income of ¥3,060 million, compared with ¥1,013 million in the previous fiscal year.
The main reasons were an increase in gain on sales of investment securities and the recording of a gain on step acquisitions
that was absent in the previous fiscal year.

10.5

10.2

Overseas Sales¥78,582

62.2%

million

6.6%

Asia........................................................................¥48,911 million
North America....................................................... ¥5,178 million
EMEA.....................................................................¥21,350 million
Other regions........................................................ ¥3,142 million

Net Income per ShareYears ended March 31(Yen)

159.37125.23108.24
78.48

2014

87.81

2015

2016

2017

2018

Kurita Water Industries Ltd. Annual Report 201843

payout ratios for the most recent five years to respond flexibly tofluctuations in business performance each year. With regard to
the use of internal reserves, the Company prioritizes business
investment for growth, after securing precautionary funds toprepare for working capital. If excess funds remain, the Company
will consider buying back its own stock, taking the share priceinto consideration, and take steps to improve capital efficiency
and return profits to shareholders.
During the fiscal year under review, the Company paid dividends of ¥52 per share, including an interim dividend of ¥26 for adividend payout ratio of 45.6%. The dividend takes the Company’splans for future business development into consideration, as wellas the support that it has received from shareholders.

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, 2018, capital
expenditures totaled ¥22,967 million, an increase of ¥12,880
million compared with the previous fiscal year, mainly due to theacquisition of business facilities. The capital expenditure includes the amount of lease assets related to finance leases that
do not transfer ownership.
The Water Treatment Chemicals segment undertook capital
expenditures totaling ¥3,162 million, mainly for expanding andupgrading water treatment chemicals production facilities. This
represented an increase of ¥987 million compared with the previous fiscal year.
The Water Treatment Facilities segment carried out capital
expenditures totaling ¥19,805 million, mainly for the installationand expansion of facilities for the ultrapure water supply business. This represented an ¥11,894 million increase comparedwith the previous fiscal year.
There were no disposals or sales of important facilities during
the fiscal year under review.
Depreciation and amortization increased 6.3%, to ¥16,861 million.

Return on Equity
Years ended March 31
(%)

7.7
6.4
5.6
4.7

4.4

2014

2015

2016

2017

2018

Note: Return on equity = N
 et income attributable to owners of parent ÷Equity (Average) × 100
Equity is defined as net assets less non-controlling interests.

Dividends per ShareYears ended March 31
(Yen)

46.00

44.00

2014

2015

50.00

48.00

2016

2017

52.00

2018

Capital Expenditures andDepreciation and Amortization
Years ended March 31

Research and Development
The Kurita Group engages in technological development to reinforce its core businesses. These include technologies related toboiler and cooling water treatment, ultrapure water production,water and wastewater treatment, water reclamation, and soil andgroundwater remediation. The Group also strives to deepen its
understanding of the assay and analysis technologies that underpin our technologies, as well as new materials development andother basic technologies. Furthermore, the Group is engaged indevelopment to promote new businesses.
Going forward, the Group’s development centers in Japan,
German and Singapore will work together, proactively engaging in
product and technology development that meets the broad-ranging needs of industry and society.
The Kurita Group’s R&D activities are performed mainly by the
Research and Development Division of Kurita Water Industries

44

Kurita Water Industries Ltd. Annual Report 2018

(Millions of yen)
Capital expenditures
Depreciation and amortization

22,967
19,623

14,774

14,863

15,74915,857

16,861

12,864
10,087
5,709

2014

2015

2016

2017

2018

Ltd. R&D staff number approximately 180, accounting for 3.0% of
overall Group employees. In the fiscal year ended March 31,
2018, Kurita’s R&D expenses totaled ¥5,258 million, equivalent to2.2% of net sales.
In the Water Treatment Chemicals segment, the Kurita Group is
engaged in the development of chemicals for water treatment,
environmental improvement, and production processes, which
contribute to customers’ energy savings, environmental burden
reduction, and productivity enhancements. Other development
activities include diagnostic technology for chemical treatment
effectiveness. R&D expenses for the segment for the fiscal year
ended March 31, 2018 totaled ¥2,066 million.
The segment’s main achievements during the fiscal year wereas follows.
Kurita used Singapore-based Kurita R&D Asia Pte. Ltd. to promote development of seawater desalination and wastewater
reclamation technologies targeting overseas markets and developed technologies capable of preventing the clogging of
the reverse osmosis (RO) membranes used at these facilities
at low cost.
To comply with tightening of environmental regulations in Japanand overseas, Kurita’s Japanese and German R&D centers jointly
examined and developed low phosphorous, non-zinc chemicals
for cooling water.
Kurita Europe GmbH’s process treatment chemicals for paper
and pulp were matched with needs in the Asia region and developed to produce treatment chemicals that contribute to better
product quality, for example by preventing the bleeding of ink in
the printing process. These were added to enhance the Group’s
global lineup of paper and pulp process treatment chemicals.
In the Water Treatment Facilities segment, Kurita is taking up thechallenge of realizing further advances in the quality of ultrapure
water that will contribute to productivity improvements in theelectronics industry. The Group is also pursuing developmentin wastewater treatment to stay ahead of the curve regarding
environmental regulations. Another focus area is the development of technologies to meet the needs of a recycling-oriented
society. These include wastewater reclamation and reuse technology and sludge reduction technology. R&D expenses for thesegment for the fiscal year ended March 31, 2018 amounted to¥3,192 million.
The segment’s main achievements during the fiscal year
were as follows:
Kurita developed mobile high-speed coagulation and sedimentation system with a view to proposing a temporary facility rental
business in response to temporary treatment needs associatedwith concentrated heavy rainfall and repair and renewal demand
for aging facilities among steel works, electric power plants, andso forth.
In the energy field, Kurita developed technologies to contributeto the realization of a society with distributed energy sources in
the future. Examples include a selenium removal system thatuses microbial treatment to improve stable operation and costcompetitiveness for coal-fired power plants and a compact water

R&D Expenses
Years ended March 31(Millions of yen)

5,269
4,534

4,397

2014

2015

2016

5,038

2017

5,258

2018

Kurita Water Industries Ltd. Annual Report 201845

treatment system that uses membrane-type processing for Gas
Turbine Combined Cycle power generation using LNG fuel.
With strong demand expected in the semiconductor market forrealization of an ICT society, Kurita worked with a global semiconductor research organization to develop a cleaning and surface
modification technology for materials used in next-generation
semiconductors.
Kurita developed operation support technologies utilizing IoT
and AI for optimal control mainly of facilities in the ultrapure
water supply business.

Financial Positiona) Assets
As of March 31, 2018, Kurita had total assets of ¥323,046 million,
an increase of ¥23,797 million compared with ¥299,249 million asof March 31, 2017.

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

Breakdown of Assets
Current Assets
Current assets as of March 31, 2018 totaled ¥162,004 million, an
increase of ¥6,074 million compared with March 31, 2017. This
rise was primarily attributable to an increase of ¥18,583 million innotes and accounts receivable associated with the increase inrevenue in the Water Treatment Facilities business during thesecond half of the fiscal year, which outweighed a decrease of¥12,264 million in cash reserves—cash and time deposits andmarketable securities.
Investments and Long-Term Receivables, Property, Plant
and Equipment, and Intangible Assets
As of March 31, 2018, investments and long-term receivables
came to ¥44,010 million, an increase of ¥38 million from ¥43,972
million as of March 31, 2017.
Property, plant and equipment, net as of March 31, 2018
amounted to ¥86,028 million, an increase of ¥11,992 million compared with ¥74,036 million as of March 31, 2017.
Intangible assets as of March 31, 2018 were ¥31,003 million,up ¥5,695 million compared with ¥25,308 million as of March 31,
2017.
The increase in investments and long-term receivables was
mainly due to higher unrealized gains on investment securities
due to a rise in the market prices of the shares held by the Group.
The increase in property, plant and equipment was mainly
caused by capital investments in the ultrapure water supply
business (Water Treatment Facilities business), which significantly outweighed depreciation expense for existing facilities.
The increase in intangible assets was mainly caused by recording goodwill of ¥5,155 million and customer-related assets of¥733 million associated with the additional purchase of shares of
the South Korean former equity-method-affiliate Hansu Co., Ltd.
(Water Treatment Chemicals business).

Total assets
Return on assets

274,925

Kurita Water Industries Ltd. Annual Report 2018298,107299,249

4.9

5.8

4.2
3.5

2014

3.7

2015

2016

2017

2018

Note: Return on assets = N
 et income attributable to owners of parent ÷
Total assets (Average) × 100

Property, Plant and Equipment, Net
Years ended March 31(Millions of yen)

86,02877,855

2014

46

323,046

294,492

75,033

2015

78,388

2016

74,03620172018b) Liabilities
As of March 31, 2018, liabilities totaled ¥82,193 million, an increase of ¥11,703 million compared with ¥70,490 million as ofMarch 31, 2017.
Current Liabilities
Current liabilities as of March 31, 2018 amounted to ¥56,149 million, an increase of ¥11,739 million from March 31, 2017. This
mainly reflects increases in notes and accounts payable, trade of¥5,499 million and accounts payable, other of ¥2,976 million.
Long-Term Liabilities
Long-term liabilities were ¥26,044 million as of March 31, 2018, aslight decrease of ¥36 million from March 31, 2017.
c) Net Assets
Net assets totaled ¥240,853 million as of March 31, 2018, an increase of ¥12,095 million from ¥228,758 million as of March 31,
2017.
This was primarily due to an increase of ¥6,477 million inshareholders’ equity and an increase of ¥4,703 million in accumulated other comprehensive income. The main factors behind
the increase in shareholders’ equity were an increase of ¥3,563
million in retained earnings and a decrease of ¥2,948 million intreasury stock (net assets increase). As part of a flexible policy inresponse to the management environment, the Company conducted a purchase and cancellation of treasury stock during the
fiscal year under review. Accumulated other comprehensive
income increased, chiefly reflecting an increase of ¥3,599 million
in foreign currency translation adjustments due to the weaker
yen, and an increase of ¥1,766 million in unrealized gains onavailable-for-sale securities associated with an increase in unrealized capital gains for investment securities.
As a result, total liabilities and net assets amounted to¥323,046 million as of March 31, 2018, an increase of ¥23,797
million compared with ¥299,249 million as of March 31, 2017. Kurita’s equity ratio was 73.9%, down 2.2 percentage points from
76.1% a year earlier. Net assets per share as of March 31, 2018
were ¥2,126.96, an increase of ¥135.05 compared with ¥1,991.91
as of March 31, 2017.
Note: Equity is defined as net assets less non-controlling interests.

EquityYears ended March 31(Millions of yen)

Cash Flows
Cash Flows from Operating Activities
Net cash provided by operating activities during the fiscal year
ended March 31, 2018 totaled ¥21,408 million, a decrease of¥12,533 million from the previous fiscal year. Inflows from income
before income taxes of ¥25,535 million and depreciation andamortization of ¥16,861 million including goodwill amortization
were partially offset by an increase of ¥16,332 million in trade receivables and income taxes paid of ¥6,170 million.
Cash Flows from Investing Activities
Net cash used in investing activities amounted to ¥15,928 million,
an increase of ¥14,809 million from the previous fiscal year. Net
cash increased mainly because of a decrease in time deposits,

217,691

222,330

227,896

227,623

2014

2015

2016

2017

238,8022018

Kurita Water Industries Ltd. Annual Report 201847

net of ¥5,787 million. This was offset by payments for purchase ofproperty, plant and equipment totaling ¥17,924 million, including
capital expenditures for the ultrapure water supply business, andpayments for investments in unconsolidated subsidiaries and affiliates of ¥4,012 million associated with the additional purchaseof shares of the South Korean former equity-method-affiliate
Hansu Co., Ltd.

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

33,941
29,666
26,582
23,314

Cash Flows from Financing Activities
Net cash used in financing activities came to ¥12,419 million, an
increase of ¥2,265 million from the previous fiscal year. The main
cash outflows were cash dividends paid of ¥5,753 million and payments for purchase of treasury stock, net of ¥5,592 million.
Cash and Cash Equivalents at End of YearAs of March 31, 2018, Kurita had cash and cash equivalents totaling ¥58,917 million, a decrease of ¥6,521 million from March
31, 2017.

Commitment LineThe Kurita Group’s basic policy is to secure a stable source of liquidity and funds required for managing its business. The Groupbasically uses its own funds to meet short-term operating requirements, and also envisages basically using its own funds forcapital investments and other investments in growth fields, while
procuring bank loans as required. As of the end of the fiscal year
under review, the Group has concluded commitment line agreements with four transacting financial institutions, with executedborrowings of ¥- million 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, 2018.
1. Economic and Market Conditions
The Group’s Water Treatment Chemicals and Water Treatment
Facilities businesses are affected by economic conditions inJapan and countries and regions outside Japan where theGroup operates. Demand in the Water Treatment Chemicals
business fluctuates in response to factory capacity utilization
rates in industries such as steel, petroleum refining and petrochemicals, and pulp and paper—the main areas of demand forthe business. Such demand fluctuations may affect the Group’s
financial results. Demand in the Water Treatment Facilities business fluctuates in response to trends in capital expenditures inelectronics—the main area of demand for the business—andother industries. Such demand fluctuations may affect theGroup’s financial results.
More intense competition with rivals in the Group’s businessdomains could lead to declines in prices of products and services,which could lower the Group’s profitability.

48

Kurita Water Industries Ltd. Annual Report 2018

2014

2015

21,408

2016

2017

2018

2. Materials and Parts Procurement
The Group procures raw materials and parts from outside theGroup for the manufacture of products and fabrication of facilities. The prices of raw materials and parts fluctuate based onchanges 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 ofchanges to local laws and regulations, the risk of political andeconomic instability, and the risk of foreign exchange 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 to offer
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 andchanging customer needs. If the Group were to fail to develop
outstanding new products, this could hamper its future growthand profitability or otherwise affect its financial results.
5. Intellectual Property
The Group recognizes the importance of intellectual property andcontinually 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 theGroup’s business, however, there is potential for the Group’s intellectual property rights to be infringed and potential for theGroup 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’s businessactivities, financial results, and financial condition could be negatively affected.
7. Large-Scale Natural Disasters
If an earthquake, typhoon, or other kind of natural disaster wereto directly or indirectly upset the Group’s business execution, theGroup’s business activities, financial results, and financial condition could be negatively affected.

Kurita Water Industries Ltd. Annual Report 2018

49

CONSOLIDATED BALANCE SHEETS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
As of March 31, 2018 and 2017

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

Assets

2018

2017

2018

¥ 61,086¥ 72,750

86,86568,282

819,481

(464)

(246)

(4,377)

Current assets:
Cash and time deposits (Notes 3 and 5)
Notes and accounts receivable, trade (Notes 4 and 5)
Allowance for doubtful accounts
Marketable securities (Notes 5 and 6)$

576,283

3

603

28

Inventories (Note 8)

10,3909,525

98,018Deferred tax assets (Note 10)

1,595

1,568

15,047

Other current assets

2,528

3,447

23,849162,004

155,930

1,528,339

Investment securities (Notes 5 and 6)

34,53532,157

325,801

Investments in unconsolidated subsidiaries and affiliates (Note 5)

1,147

2,687

10,820

Deferred tax assets (Note 10)

3,265

4,275

30,801Other investments

5,238

5,042

49,415

Allowance for doubtful accounts

(176)

(189)

(1,660)44,01043,972415,188

Land (Note 13)

15,596

13,881

147,132

Buildings and structures

63,19162,093596,141

Machinery and equipment

137,176

121,311

1,294,113

Construction in progress

7,880

2,852

74,339Other facilities

15,292

13,755144,264

Leased assets

8,256

8,352

77,886247,393

222,247

2,333,896(161,365)(148,210)(1,522,311)

86,02874,036

811,584

Goodwill

20,362

15,049

192,094

Other intangible assets

10,641

10,259100,386

Total current assets

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.

50

Kurita Water Industries Ltd. Annual Report 2018

31,00325,308292,481¥ 323,046¥ 299,249$ 3,047,603

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

Liabilities and Net Assets

2018

2018

2017

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

¥

1,973

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

28,875

Accounts payable, other
Income taxes payable

¥

1,646

$

18,61323,426272,405

10,995

8,019

103,726

4,806

2,875

45,339Advances received

2,065

1,934

19,481

Accrued employees’ bonuses

2,420

2,361

22,830Accrued bonuses for directors and corporate auditors

145

—

1,367

Provision for product warranties

455

801

4,292

Provision for loss on construction contracts
Other current liabilities
Total current liabilities

94

81

886

4,317

3,263

40,72656,14944,410529,707

Long-term liabilities:
Lease obligations (Note 9)

4,038

4,339

38,094

Net defined benefit liability (Note 11)

16,61016,054

156,698

Accrued retirement benefits for directors and corporate auditors
Provision for directors’ stock benefits
Deferred tax liabilities on revaluation of land (Note 13)
Other long-term liabilities (Note 9)

7

25

66

183

—

1,726

1,119

1,119

10,556

4,084

4,540

38,528

Total long-term liabilities

26,04426,080245,698

Total liabilities

82,19370,490775,405

126,886

Net assets:
Shareholders’ equity (Note 12):
Common stock, 2018 and 2017
Authorized: 531,000,000 shares
Issued: 116,200,694 shares in 2018 and 119,164,594 shares in 201713,45013,450Capital surplus

10,95910,993103,386

Retained earnings

209,149

205,586

1,973,103

Treasury stock, at cost
2018—3,926,398 shares
2017—4,890,513 shares(10,943)(13,891)(103,235)

Total shareholders’ equity

222,615

216,138

2,100,141

Accumulated other comprehensive income:Unrealized gains on available-for-sale securities

16,558

14,792

156,207

Deferred gains or losses on hedges

(1)

670

(9)

Revaluation reserve for land (Note 13)

(380)

(380)

(3,584)Foreign currency translation adjustments

6(3,593)56

Remeasurements of defined benefit plans

3

(3)

28
152,707

Total accumulated other comprehensive income

16,187

11,484Non-controlling interests

2,049

1,135

19,330Total net assets

240,853

228,758

2,272,198

Total liabilities and net assets¥323,046¥299,249$3,047,603

Kurita Water Industries Ltd. Annual Report 2018

51

CONSOLIDATED STATEMENTS OF INCOME ANDCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2018 and 2017

CONSOLIDATED STATEMENTS OF INCOME

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

Net sales (Note 20)
Cost of sales (Note 14)
Gross profit
Selling, general and administrative expenses (Note 15)
Operating income (Note 20)
Other income (expenses):
Interest and dividend income
Foreign exchange losses
Interest expense
Equity in earnings of unconsolidated subsidiaries and affiliates
Commitment fee
Acquisition-related costs
Gain on sales of investment securities
Gain on step acquisitions
Impairment loss (Note 16)
Provision for building demolition expenses (Note 17)
Other, net
Other income, net
Income before income taxes
Income taxes (Note 10):
Current
Deferred
Total income taxes
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of parent

2018

2017

2018

¥236,815
160,476
76,338¥214,187
145,455
68,732$2,234,103
1,513,924
720,169

53,86322,47549,28019,452

508,141
212,028

737
(192)
(352)
73
(250)
(732)
1,720
2,443
(413)
(320)
345
3,060
25,535

671
(39)
(187)
175
—
(259)
391
—
—
—
260
1,013
20,465

6,952(1,811)(3,320)688(2,358)(6,905)
16,22623,047(3,896)(3,018)3,254
28,867
240,896

7,906
(408)
7,498
18,037139¥ 17,897

5,996
(193)
5,803
14,661155¥ 14,506

74,584(3,849)70,735
170,160
1,311$ 168,839

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

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
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive income of entities accounted
for using equity method
Total other comprehensive income
Comprehensive income
Comprehensive income attributable to:Comprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

2018

2017

2018

¥18,037¥14,661$170,160

1,739
(671)
0
3,219
7

(1,263)271—(2,897)97

16,405(6,330)030,36766

93
4,389¥22,426(83)(3,876)¥10,784877
41,405$211,566¥22,255
170¥10,649
134$209,952
1,603
U.S. dollars(Note 1)Yen

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.

52

Kurita Water Industries Ltd. Annual Report 2018

2018

2017

¥159.37
52.00¥125.23
50.00

2018
$1.50
0.49

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2018 and 2017

Millions of yen
Shareholders’ equity

Balance as of March 31, 2016

Accumulated other comprehensive income

Commonstock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equity¥13,450¥10,993¥196,788¥ (8,695)¥212,536

Foreign Remeasure- Total accumuUnrealized Deferredgains ongains or Revaluation currency
ments oflated otherNonavailable-for- losses on reserve for translation
defined comprehensive controlling
adjustments benefit plans
landsale securities hedges
incomeinterests¥16,061¥398¥(380)¥ (618)¥(101)¥15,360¥1,067

Total net
assets¥228,964

Changes during the year
Cash dividends paid

(5,693)

Net income attributable toowners of parent

14,506

Acquisition of treasury stock(5,195)

Other

(15)

Net changes of net assets
other than shareholders’equity(5,693)(5,693)

14,506

14,506(5,195)(5,195)

(15)

(15)

—

(1,269)271—(2,975)97(3,875)67

Total changes during the year

—

—

8,797

(5,195)

3,602(1,269)271—(2,975)97(3,875)67(205)

Balance as of March 31, 2017¥13,450¥10,993¥205,586¥(13,891)¥216,138¥14,792¥670¥(380)¥(3,593)(3)¥11,484¥1,135¥228,758¥(3,807)

Changes during the year
Cash dividends paid

(5,793)

Net income attributable toowners of parent

17,897(5,793)(5,793)

17,897

17,897

Acquisition of treasury stock(5,592)(5,592)(5,592)

Disposal of treasury stock

14

14

14

8,525

—

—

(0)

(0)

(0)

(33)

(33)

(15)

(15)

(15)

(8,525)Retirement of treasury stockReversal of revaluation
reserve for land
Changes in equity interest inconsolidated subsidiaries

(33)

Other
Net changes of net assets
other than shareholders’equity

—

1,766

(671)

0

3,600

7

4,703

914

5,617

Total changes during the year

—

(33)

3,563

2,947

6,476

1,766

(671)

0

3,600

7

4,703

914

12,094

Balance as of March 31, 2018¥13,450¥10,959¥209,149¥(10,943)¥222,615¥16,558¥ (1)¥(380)

3¥16,187¥2,049¥240,853¥

6¥

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

Commonstock

Balance as of March 31, 2017

CapitalsurplusRetainedearnings

Accumulated other comprehensive income

Treasury
stock

Total
shareholders’equity$126,886 $103,707 $1,939,490 $(131,047) $2,039,037

Foreign Remeasure- Total accumuUnrealized Deferredgains ongains or Revaluation currency
ments oflated otherNonavailable-for- losses on reserve for translation
defined comprehensive controlling
adjustments benefit plans
landsale securities hedges
incomeinterests$139,547 $ 6,320 $(3,584) $(33,896)$(28) $108,339

Total net
assets$10,707 $2,158,094

Changes during the year
Cash dividends paid

(54,650)

Net income attributable toowners of parent

168,839(54,650)(54,650)

168,839

168,839

Acquisition of treasury stock(52,754)(52,754)(52,754)

Disposal of treasury stock

132

132

132

80,424

—

—

(0)

(0)

(0)

(311)

(311)

(141)

(141)

(141)

(80,424)

Retirement of treasury stockReversal of revaluation
reserve for land
Changes in equity interest inconsolidated subsidiaries

(311)

Other
Net changes of net assets
other than shareholders’equityTotal changes during the year
Balance as of March 31, 2018

—

(311)

33,61327,801—

16,660(6,330)033,962

66

44,367

8,622

52,99061,094

16,660(6,330)033,962

66

44,367

8,622

114,094$126,886 $103,386 $1,973,103 $(103,235) $2,100,141$156,207 $(9) $(3,584) $56$ 28 $152,707$19,330 $2,272,198

The accompanying notes are an integral part of these statements.

Kurita Water Industries Ltd. Annual Report 2018

53

CONSOLIDATED STATEMENTS OF CASH FLOWS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2018 and 2017

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 (decrease) 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
Impairment loss
Gain on sales of investment securities
Changes in assets and liabilities:
Decrease (increase) in trade receivables
Increase in inventories
Decrease (increase) in other assets
Increase in trade payables
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
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
Purchase of shares of subsidiaries resulting in change in scope of consolidation (Note 3)
Other, net
Net cash used in investing activities

2018

2017

2018

¥ 25,535
16,861
387
6
(73)
(737)
352
(2,443)320
54
413(1,720)¥ 20,465
15,857
646
(143)
(175)
(671)
187
—
—
26
—
(391)

$ 240,896
159,066
3,650
56
(688)
(6,952)
3,320(23,047)
3,018
509
3,896
(16,226)(16,332)
(29)
1,073
3,699
298
431
28,095897(514)(6,170)(899)
21,408

2,030
(144)
(866)
1,525
1,890
60
40,297835(325)(6,893)27
33,941(154,075)(273)
10,122
34,896
2,811
4,066
265,0478,462(4,849)(58,207)(8,481)201,962

5,787(17,924)
15
(972)
(6)

13,959(10,156)
30
(791)
(240)

54,594(169,094)
141(9,169)
(56)

2,115
(136)
(4,012)(794)(15,928)

1,380(4,506)—(795)(1,119)19,952(1,283)(37,849)(7,490)(150,264)

177
—
(400)
(5,753)

(665)
2,329
(223)
(5,694)

1,669—(3,773)(54,273)

III. Cash flows from financing activities
Increase (decrease) in short-term borrowings, net
Proceeds from long-term loans payable
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

(66)
(610)
(5,592)(67)(637)(5,195)(622)(5,754)(52,754)(173)(12,419)—(10,154)(1,632)(117,160)

IV. Effect of exchange rate changes on cash and cash equivalents
V. Net increase (decrease) in cash and cash equivalents
VI. Cash and cash equivalents at beginning of year
VII. Cash and cash equivalents at end of year (Note 3)417(6,521)65,438¥ 58,917(821)
21,846
43,591¥ 65,438

3,933(61,518)
617,339$ 555,820

The accompanying notes are an integral part of these statements.

54

Kurita Water Industries Ltd. Annual Report 2018

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 2017 financial statements to conform to the classification used in 2018.
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, 2018 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 ¥106 to US$1, the prevailing rate on the Tokyo Foreign Exchange
Market on March 31, 2018. 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, 2018 and 2017, 52 and 49
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.
		 Kuritaz Co., Ltd.
		 Kurita Engineering Co., Ltd.
		 Kuritec Service Co. Ltd.
		 Kurita Chemical Manufacturing Ltd.
		 Hansu Co., Ltd.
From the year ended March 31, 2018, Kurita Middle East FZE, Kurita R&D Asia Pte. Ltd., Kurita
Korea Co., Ltd. and Kurita Water Technology (Taiwan) Co., Ltd. were newly included in the scope of
consolidation due to incorporation, and Hansu Co., Ltd., formerly accounted for by the equity
method, was also included due to additional acquisition.

Kurita Water Industries Ltd. Annual Report 201855

Kurita Chemicals Oita Ltd. and Kurita Chemicals Kumamoto Ltd. were excluded from the scopeof consolidation due to absorption by Kurita Chemicals West Japan Ltd., a consolidated subsidiary.
Fiscal years of consolidated subsidiaries
The fiscal years of all of the foreign consolidated subsidiaries (Kurita (Singapore) Pte. Ltd. andothers) end on December 31. For these consolidated subsidiaries, the financial statements as ofDecember 31 were used for consolidation purposes. However, material transactions that haveoccurred during the three-month period from January 1 to March 31 of the following year have beenadjusted as necessary for consolidation.
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, 2018 and 2017, 4 and 5 companies were accounted for by the equity method, respectively.
Name of principal company applying the equity method:
		 Matsuyama Safety Water
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.
(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-identification­method, or net selling value.

56

Kurita Water Industries Ltd. Annual Report 2018

(6) Derivative transactions
Derivative transactions are measured at fair value in principle.
(7) Depreciation of property, plant and equipment
Property, plant and equipment is depreciated by the declining-balance method for the Company
and its domestic consolidated subsidiaries, except for buildings (other than building equipment)
acquired on and after April 1, 1998, building equipment and structures acquired on and after April
1, 2016 and ultrapure water supply equipment located at clients’ sites, for which the straight-line
method is applied. The straight-line method is applied by foreign consolidated subsidiaries.
The estimated useful lives of these assets are as follows:		 Buildings and structures:

2–65 years

		 Machinery and equipment: 4–10 years(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.
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.

Kurita Water Industries Ltd. Annual Report 201857

(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.
(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.
(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.
58

Kurita Water Industries Ltd. Annual Report 2018

2) Date of adoption
The new accounting standard and guidance will be adopted from the beginning of the year ending
March 31, 2022.
3) Effect of adoption
The effect of adoption of the new accounting standard and guidance is under assessment.
Partial Amendments to Accounting Standard for Tax Effect Accounting, etc.
• Implementation Guidance on Tax Effect Accounting (ASBJ Guidance No. 28, February 16, 2018).
• Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26,
February 16, 2018).
1) Overview
The treatment of future taxable temporary differences related to subsidiaries’ shares in the nonconsolidated financial statements has been revised, and treatment related to the recoverability ofdeferred tax assets of companies that meet Category 1 criteria has been clarified.
2) Date of adoption
The revised accounting standard and guidance will be adopted from the beginning of the year
ending March 31, 2019.
3) Effect of adoption
The effect of adoption of the revised accounting standard and guidance is under assessment.
(20) Additional information
Performance-linked Stock Compensation Plan for Directors
The shareholders’ meeting of the Company held on June 29, 2016 resolved to introduce a­performance-linked stock compensation plan for directors (excluding outside directors; the same
shall apply hereinafter) to increase motivation to work toward the Group’s continued medium- tolong-term growth as well as to contribute to increasing the value of the Company. The plan was
implemented as proposed.
1) Outline of the plan
The plan is a performance-linked compensation plan whereby the Company will grant points todirectors according to their position and performance and, at the time of their retirement, will
distribute to them such number of shares of the Company’s stock as would be equivalent to the
cumulative number of points granted to them.
In introducing the plan, the Company adopted a structure of a Stock Distribution Trust for
Officers (the “Trust”) that is created with money the Company contributes.
The Company has adopted “Practical Solution on Transactions of Delivering the Company’s Own
Stock to Employees etc. through Trusts” (PITF No.30, March 26, 2015).
2) The Company’s stock remaining in the Trust
The Company’s stock remaining in the Trust is presented as treasury stock in net assets on the
consolidated balance sheets. The carrying value of shares of the Company’s stock held by the Trustare ¥765 million ($7,216 thousand) and 779 million at March 31, 2018 and 2017, respectively.
For the calculation of per share information, these numbers of shares are deducted from thenumber of shares outstanding at fiscal year-end and the average number of shares during theperiod.

Kurita Water Industries Ltd. Annual Report 2018

59

The numbers of shares of the Company’s stock held by the Trust at March 31, 2018 and 2017
are 333 thousand and 339 thousand, respectively.
The average numbers of shares of the Company’s stock held by the Trust for the year ended
March 31, 2018 and 2017 are 335 thousand and 226 thousand, respectively.
(21) Reclassifications
Certain reclassifications have been made in the 2017 consolidated financial statements to conformto the 2018 presentation. These reclassifications had no impact on previously reported results ofoperations.
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

Cash and time deposits
Time deposits with original maturity of more than
three months

2018

2017

2018

¥61,086¥72,750$576,283(2,168)(7,915)(20,452)

—

603

—

¥58,917¥65,438$555,820

Certificates of deposits included in marketable ­securities,
excluding deposits maturing over three months
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, 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:
Millions of yen

Thousands of
U.S. dollars(Note 1)

Current assets¥4,225$39,858

Non-current assets

4,092

38,603

Goodwill

5,155

48,632Current liabilities(1,523)(14,367)(460)(4,339)(306)(2,886)(950)(8,962)

Subtotal

10,232

96,528Equity-method valuation up to the point of acquisition of control(1,547)(14,594)

Gain on step acquisition(2,443)(23,047)

Acquisition cost of additional shares

6,241

58,877

Cash and cash equivalents(2,229)(21,028)

Net payment for investments in subsidiaries and affiliates¥4,012$37,849

Year ended March 31, 2018

Non-current liabilities
Deferred tax liabilities on retained earnings recognized at the pointof acquisition of control
Non-controlling interests

60

Kurita Water Industries Ltd. Annual Report 2018

For the year ended March 31, 2017
The details of assets and liabilities in relation to acquisition of Fremont Industries, LLC, a manufacturer and distributor of water treatment chemicals, and reconciliation between acquisition costs of
Fremont Industries, LLC and net payment for the acquisition are as follows:Year ended March 31, 2017

Millions of yen

Current assets¥ 880

Non-current assets

2,133

Goodwill

2,096

Current liabilities(350)

Non-current liabilities—

Total acquisition costs

4,760

Accounts payable, other in relation to the acquisition of business(136)

Cash and cash equivalents(171)

Net payment for the acquisition of business¥4,451

4. Trade notes with maturity on the balance sheet date
The following amount of trade notes had March 31, 2018 as their maturity date, which fell on aholiday of financial institutions. These trade notes were accounted for as if they had been clearedon their maturity date.
Millions of yen

Thousands of
U.S. dollars(Note 1)

Notes receivable¥796$7,509Notes payable

192

1,811

At March 31, 2018

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 11 years (12 in 2017) later at maximum.

Kurita Water Industries Ltd. Annual Report 201861

(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 31,2018 and 2017 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, 2018

Carrying
amountFair value

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

86,86586,865—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

¥

¥

¥—

Notes and accounts receivable, trade

DifferenceMarketable securities and investment securities
Available-for-sale securities

62

Kurita Water Industries Ltd. Annual Report 2018

93

93  

Thousands of U.S. dollars (Note 1)
Carrying
amountFair value$ 576,283$ 576,283$—

819,481819,481—

323,000

323,000—

Total assets$1,718,773$1,718,773$—

Notes and accounts payable, trade$ 272,405$ 272,405$—

Total liabilities$ 272,405$ 272,405$—

Derivatives

$

$

$—

At March 31, 2018

Cash and time deposits
Notes and accounts receivable, trade

DifferenceMarketable securities and investment securities
Available-for-sale securities

877

877

Millions of yen
At March 31, 2017

Carrying
amountFair value

Cash and time deposits¥ 72,750¥ 72,750¥—

68,282

68,282—32,44832,448—

Total assets¥173,481¥173,481¥—

Notes and accounts payable, trade¥ 23,426¥ 23,426¥—

Total liabilities¥ 23,426¥ 23,426¥—

Derivatives

¥

¥

¥—

Notes and accounts receivable, trade

DifferenceMarketable securities and investment securities
Available-for-sale securities

1,042

1,042

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

2018

2017

2018

¥ 300

¥ 312

$ 2,830

786

585

7,415

1,147

2,687

10,820

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

Kurita Water Industries Ltd. Annual Report 201863

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, 2018

Due in one
year or less

Deposits¥ 61,068

¥—

¥—

¥—

86,865

—

—

—

3

7

—

—

¥147,936

¥ 7

¥—

¥—

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, 2018

Deposits
Notes and accounts receivable, trade

Due after one
year throughfive years

Due after five
years throughten years$ 576,113

$—

$—

$—

819,481

—

—

—

28

66

—

—

$1,395,622

$66

$—

$—

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, 2018 and 2017 are summarized as follows:
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

—

Other

—

—

—

		Subtotal

81

101

(20)

¥34,238¥11,140¥23,098

		Subtotal
Carrying amount not exceeding acquisition cost:

Total

64

Kurita Water Industries Ltd. Annual Report 2018

Thousands of U.S. dollars (Note 1)
Carrying
amountAcquisition cost

Difference

Stocks$322,235$104,132$218,094

Bonds

—

—

—

Other

—

—

—

322,235

104,132

218,094

Stocks

660

849

(188)

Bonds

94

94

—

Other

—

—

—

		Subtotal

764

952

(188)

$323,000$105,094$217,905

At March 31, 2018

Carrying amount exceeding acquisition cost:		Subtotal
Carrying amount not exceeding acquisition cost:

Total

Note: T he above table does not include unlisted shares whose fair values cannot be reliably determined (value on
consolidated balance sheets: ¥300 million (US$2,830 thousand)) and investments in unaffiliated companies(value on consolidated balance sheets: ¥786 million (US$7,415 thousand)).
Millions of yen
Carrying
amount

At March 31, 2017

Acquisition cost

Difference

Carrying amount exceeding acquisition cost:
Stocks¥31,844¥11,574¥20,270

Bonds

—

—

—

Other

—

—

—

31,844

11,574

20,270Stocks

—

—

—

Bonds

—

—

—

Other

—

—

—

		Subtotal

—

—

—

¥31,844¥11,574¥20,270

		Subtotal
Carrying amount not exceeding acquisition cost:

Total

Note: T he above table does not include unlisted shares (value on consolidated balance sheets: ¥312 million),
investments in unaffiliated companies (value on consolidated balance sheets: ¥585 million) and money
trusts (value on consolidated balance sheets: ¥603 million).

(2) Available-for-sale securities sold during the years ended March 31, 2018 and 2017 are­summarized as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2018

2017

Sales amount¥2,115¥863$19,952

Total gains on sales

1,720

391

16,226

Total losses on sales

—

—

—

Kurita Water Industries Ltd. Annual Report 201865

7. Derivatives
Derivatives for which hedge accounting was not applied at March 31, 2018 and 2017 are as follows:
Currency related
Millions of yen
At March 31, 2018

Contract
amountHedging instrument

Currency swaps:¥2,099Receive Yen, Pay Korean Won

Due after
one year

Fair value¥1,339Unrealized
gains (losses)

¥94

¥94

Thousands of U.S. dollars (Note 1)
At March 31, 2018

Hedging instrument

Currency swaps:
Receive Yen, Pay Korean Won

Contract
amountDue after
one year$19,801$12,632

Contract
amountDue after
one year

Fair value

Unrealized
gains (losses)

$886

$886

Millions of yen
At March 31, 2017

Hedging instrument

Currency swaps:
Receive Yen, Pay Korean Won¥2,913

Fair value¥2,099Unrealized
gains (losses)

¥111

¥111

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

Derivatives for which hedge accounting was applied at March 31, 2018 and 2017 are as follows:
Currency related
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
Receive Yen,
Pay Korean Won

Forecasted transac­
tions denominated in¥ 9,635¥8,258

¥ 141

2,574

1,741

(130)

¥12,209¥9,999¥ 11

foreign currencies
Forecasted transac­
tions denominated inforeign currencies

Total

Thousands of U.S. dollars (Note 1)
At March 31, 2018

Hedging instrument

Hedged item

Contract
amountDue after
one year$ 90,896$77,905$1,33024,283

16,424(1,226)$115,179$94,330$ 103

Fair value

Currency swap contracts:
Receive Yen,
Pay Euro
Receive Yen,
Pay Korean Won
Total

66

Kurita Water Industries Ltd. Annual Report 2018

Forecasted transac­
tions denominated inforeign currencies
Forecasted transac­
tions denominated inforeign currencies

Millions of yen
At March 31, 2017

Hedging instrument

Hedged item

Contract
amountDue after
one year¥11,011¥ 9,635¥1,111

2,799

2,574

(180)

¥13,810¥12,209¥ 931

Fair value

Currency swap contracts:
Receive Yen,
Pay Euro
Receive Yen,
Pay Korean Won

Forecasted transac­
tions denominated inforeign currencies
Forecasted transac­
tions denominated inforeign currencies

Total

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

8. Inventories
Inventories at March 31, 2018 and 2017 consist of the following:Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2017

2018

¥ 3,968¥3,114$37,433

Raw materials

2,800

2,229

26,415Work in process

3,621

4,181

34,160¥10,390¥9,525$98,018

Finished products

Total

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.
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, 2018 and 2017consist of the following:Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2017

2018

¥ 868

¥ 650

$ 8,188

Current portion of long-term borrowings

469

403

4,424

Current portion of lease obligations

635

592

5,990

¥1,973¥1,646$18,613

Short-term borrowings

Total

The weighted-average annual interest rate of short-term borrowings for the years ended March
31, 2018 and 2017 were 3.73% and 3.92%, respectively.

Kurita Water Industries Ltd. Annual Report 201867

(2) Long-term debt
Long-term debt at March 31, 2018 and 2017 is summarized as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2017

2018

¥2,857¥3,279$26,952

(469)

(403)

(4,424)Long-term borrowings (Excluding current portion)¥2,388¥2,876$22,528

Lease obligations¥4,674¥4,931$44,094

(635)

(592)

(5,990)¥4,038¥4,339$38,094

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

Less current portion of lease obligations
Lease obligations (Excluding current portion)

The weighted-average annual interest rate of long-term borrowings for the years ended March
31, 2018 and 2017 were 3.27% and 3.24%, respectively.
Annual maturities of long-term borrowings at March 31, 2018 are as follows:
Millions of yen

Thousands of
U.S. dollars(Note 1)

2019

¥469

$4,424

2020

469

4,424

2021

469

4,424

2022

263

2,481

2023

226

2,132

Years ending March 31

Annual maturities of lease obligations at March 31, 2018 are as follows:
Millions of yen

Thousands of
U.S. dollars(Note 1)

2019

¥635

$5,990

2020

529

4,990

2021

464

4,377

2022

418

3,943

2023

379

3,575

Years ending March 31(3) Other long-term liabilities
Other than the short-term borrowings, long-term borrowings and lease obligations described above,¥725 million (US$6,839 thousand) and ¥701 million of interest-bearing long-term deposits received
were included in other long-term liabilities as of March 31, 2018 and 2017, respectively.
The weighted-average annual interest rates for such deposits received for the years ended
March 31, 2018 and 2017 were 0.36%.

68

Kurita Water Industries Ltd. Annual Report 2018

(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

2018

Contract amounts¥—$666,037———¥70,600¥—$666,037

Outstanding borrowing
Unused balance

2018

2017

¥70,600

10. Income taxes
Significant components of the deferred tax assets and liabilities as of March 31, 2018 and 2017 are
as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2017

2018

¥ 6,251¥ 5,914$ 58,971

4,811

4,697

45,386

Excess provision for accrued bonuses to employees

728

724

6,867

Loss on revaluation of investment securities

645

834

6,084

Accrued enterprise taxes not deductible

403

191

3,801

Impairment loss

424

247

4,000

239

250

2,254

Tax loss carry-forward of consolidated subsidiaries

167

145

1,575

Excess provision of allowance for product warranty

114

230

1,075

Other

1,489

1,647

14,047

		Subtotal

15,275

14,885

144,103

		Valuation allowance(1,052)(1,218)(9,924)

		

14,223

13,667

134,179(6,474)(5,471)(61,075)(1,314)(777)(12,396)

(965)

(631)

(9,103)

Capital gains on properties deferred for tax purposes

(537)

(538)

(5,066)

Other

(76)

(433)

(716)

(9,367)(7,851)(88,367)¥ 4,855¥ 5,816$ 45,801

Deferred tax assets:
Excess depreciation of property, plant and equipment
Net defined benefit liability

Unrealized gains on sales of property,
plant and equipment

Total deferred tax assets

Deferred tax liabilities:
Unrealized losses on available-for-sale securities
Estimated income taxes pertaining to retained
earnings of foreign consolidated subsidiaries
Tangible and intangible assets identified due
to business combinations

		

Total deferred tax liabilities		

Deferred tax assets, net

Kurita Water Industries Ltd. Annual Report 201869

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, 2018 and 2017 was asfollows:
2018

2017

30.9%

30.9%

Non-deductible loss on valuation of marketable securities

(0.8)

(0.2)

Expenses not deductible for income tax purposes

0.6

0.3

Withholding tax withheld from foreign subsidiaries’ dividends

0.2

0.2

R&D expense tax credit

(1.3)

(1.5)

Dividend income and other not taxable for income tax purposes

0.0

(0.1)

(0.9)

(0.3)

Difference in statutory tax rates of foreign subsidiaries

(1.1)

(0.8)

Per capita inhabitant taxes

0.4

0.5

Other

1.4

(0.6)

29.4%

28.4%

Normal effective statutory tax rate

Reversal of deferred tax liabilities on retained earnings of foreign
consolidated subsidiaries

Effective tax rate
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

2018

2017

2018

¥14,503¥13,931$136,820

Service cost

829

798

7,820

Interest cost

66

65

622

Actuarial differences incurred

152

283

1,433

Benefits paid

(678)

(501)

(6,396)

Other

585

(72)

5,518

¥15,459¥14,503$145,839

Balance at beginning of year

Balance at end of year

70

Kurita Water Industries Ltd. Annual Report 2018

(2) Movement in plan assets, except plans applying the simplified method
Thousands of
U.S. dollars(Note 1)Millions of yen

2018

Balance at beginning of year

2018

2017

¥ —

¥—

Expected return on plan assets

1

—

9

Actuarial differences incurred

0

—

0

Contribution from the employer

29

—

273

Benefits paid

0

—

0

Increase due to newly consolidated subsidiaries

328

—

3,094

Other

78

—

735

¥436

¥—

$4,113

Balance at end of year$—

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

2018

2017

2018

¥1,550¥1,536$14,622

Net periodic benefit costs

207

200

1,952

Benefits paid

(170)

(186)

(1,603)¥1,587¥1,550$14,971

Balance at beginning of year

Balance at end of year

(4) Reconciliation between retirement benefit obligations and net defined benefit liability
Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2017

2018

¥17,047¥16,054$160,820(436)—(4,113)Net liability on the consolidated balance sheet¥16,610¥16,054$156,698

Net defined benefit liability¥16,610¥16,054$156,698

Net liability on the consolidated balance sheet¥16,610¥16,054$156,698

Retirement benefit obligations
Plan assets(5) Net periodic benefit costs
Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2017

2018

Service cost

¥ 829

¥ 798

$ 7,820

Interest cost

66

65

622

Expected return on plan assets

(1)

—

(9)

Amortization of actuarial differences

164

424

1,547

Net periodic benefit costs computed by simplified method

207

200

1,952

7

18

66

¥1,274¥1,507$12,018

Other
Net periodic benefit costs

Kurita Water Industries Ltd. Annual Report 201871

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

2018

2017

2018

Actuarial differences

¥11

¥140

$103

Total

¥11

¥140

$103

(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

2018

2017

2018

Unrecognized actuarial differences

¥5

¥(5)

$47

Total

¥5

¥(5)

$47

(8) Plan assets
1) Percentage by major category of plan assets
2018

2017

Debt securities

2.2%

—

Equity securities

1.2—

Cash and time deposits

89.1

—

Other

7.5

—

Total

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 ¥1,078 million (US$10,169 thousand) and ¥851 million for the years
ended March 31, 2018 and 2017, respectively.

72

Kurita Water Industries Ltd. Annual Report 2018

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.
(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 333 thousand shares and 339
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, 2018 and 2017, 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 ¥13 million (US$122
thousand) and ¥(202) million for the years ended March 31, 2018 and 2017, respectively.

Kurita Water Industries Ltd. Annual Report 201873

15. Selling, general and administrative expenses
Selling, general and administrative expenses for the years ended March 31, 2018 and 2017consisted of the following:Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2017

2018

¥20,610¥19,160$194,433

Provision for employees’ bonuses

1,411

1,334

13,311Retirement benefit expenses

1,343

1,440

12,669Travel expenses

2,906

2,767

27,415

Research and development expenses

5,258

5,038

49,603

Other

22,333

19,537

210,688

Total¥53,863¥49,280$508,141

Salaries and allowances

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, 2018
For the year ended March 31, 2018, the Group recognized impairment losses of ¥413 million(US$3,896 thousand) on the following 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

Thousands of
U.S. dollars(Note 1)

Idle assets:
Buildings and structures, etc.

Atsugi-shi, Kanagawa¥214$2,018Land

Yamaguchi-shi, Yamaguchi

113

1,066

Machinery and equipment

Ludwigshafen, Germany

85

801

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.

74

Kurita Water Industries Ltd. Annual Report 2018

17. Other income (expenses)
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 (US$3,018 thousand) in other income (expenses).
18. Comprehensive income
The components of other comprehensive income for the years ended March 31, 2018 and 2017 are
as follows:
Thousands of
U.S. dollars(Note 1)Millions of yen

2018

2017

2018

Amount arising during the year

¥ 4,322¥ (1,512)$40,773

Reclassification adjustments to profit or loss

(1,565)(391)(14,764)

Amount before income tax effect2,756(1,903)26,000

Income tax effect(1,018)639(9,603)

Subtotal

1,739(1,263)

16,405(956)

390(9,018)———Amount before income tax effect

(956)

390

(9,018)

Income tax effect

285

(119)

2,688

Subtotal

(671)

271

(6,330)

0

—

0

3,332

(2,897)31,433

Unrealized gains or losses on available-for-sale securities:

Deferred gains or losses on hedges:
Amount arising during the year
Reclassification adjustments to profit or loss

Revaluation reserve for land:
Income tax effectForeign currency translation adjustments:
Amount arising during the year
Reclassification adjustments to profit or loss

(113)

—

(1,066)

Subtotal

3,219(2,897)30,3675(5)47

Reclassification adjustments to profit or loss

5

146

47

Amount before income tax effect

11

140

103

Income tax effect

(3)

(42)

(28)

Subtotal

7

97

66

Amount arising during the year

93

(83)

877

Reclassification adjustments to profit or loss

0

0

0

Subtotal

93

(83)

877

¥ 4,389¥(3,876)$41,405

Remeasurments of defined benefit plans:
Amount arising during the year

Share of other comprehensive income of entities
accounted for using equity method:

Total

Kurita Water Industries Ltd. Annual Report 201875

19. Business combinations
Business combination through acquisition(1) Overview of business combination
1) Name and description of the business of the acquired companies
Name:

Hansu Co. Ltd.

Description of the business:	Business related to the manufacturing and sales of water
treatment chemicals
2) Main reasons for the business combination
Hansu Co. Ltd. was established in 1974 as a joint venture company of the Company and has beendeveloping the water treatment chemicals business in South Korea for more than 40 years. It has
built community-based sales and service networks and customer base and has a number of staff
with knowledge about water treatment in the electronics and other manufacturing industries.
This time, the Group have acquired its shares for the purpose of strengthening its business baseand promoting the unification of business strategies.
3) Date of the business combination
November 30, 20174) 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
Percentage of voting rights owned immediately before business combination

33.2%

Percentage of voting rights additionally acquired on the date of business combination

51.8%

Percentage of voting rights after acquisition

85.0%

Percentage of voting rights at March 31, 2018 was 87.1% because of acquiring additional
shares from non-controlling shareholders after business combination.
7) Main grounds to determine the acquirer
The Group acquired the shares with cash as consideration
 he period of business results of the acquired companies included in the consolidated(2) T
financial statements
From December 1, 2017 to December 31, 2017
Results from January 1, 2017 to November 30, 2017 are posted as equity in earnings of unconsolidated subsidiaries and affiliates.
(3) Acquisition cost of the business acquiredMarket value of equity of Hansu Co. Ltd. owned immediately before
business combination on the date of business combination
Cash spent for the acquisition of additional shares
Acquisition cost

76

Kurita Water Industries Ltd. Annual Report 2018

Millions of yen

Thousands of
U.S. dollars(Note 1)

¥ 3,991$37,650

6,241

58,877¥10,232$96,528

(4) Major acquisition-related cost
Millions of yen

Thousands of
U.S. dollars(Note 1)¥413

$3,896Advisory fees, etc.

(5) D ifference between the acquisition cost of acquired business and the sum of acquisition
costs for each transaction to arrive at the acquisition
Millions of yen

Thousands of
U.S. dollars(Note 1)

¥2,443$23,047

Gain on step acquisitions(6) Amount, cause, amortization method and amortization period of goodwill recognized
1) Amount¥5,155 million (US$48,632 thousand)In the third quarter of the fiscal year, we conducted provisional accounting for the allocation of
the acquisition cost of Hansu Co. Ltd. based on reasonable information, etc. available at the timeof preparing the consolidated financial statements for the quarter. However, the accounting was
fixed in the fourth quarter of the fiscal year under review.
2) Cause
Due to an excess earnings capability expected in the future3) Amortization method and amortization period
Straight-line method over 15 years
 ajor components of assets acquired and liabilities assumed on the business combination
(7) M
date
Millions of yen

Thousands of
U.S. dollars(Note 1)

Current assets¥4,225$39,858

Non-current assets

4,092

38,603

Total assets¥8,317$78,462

Current liabilities¥1,523$14,367

460

4,339

¥1,984$18,716

Non-current liabilities
Total liabilities(8) A mount allocated to intangible assets other than goodwill and its major breakdown by
type and weighted average amortization period
1) Amount allocated to intangible assets: ¥733 million (US$6,915 thousand)2) Major breakdown and amortization period
Customer-related assets:¥733 million (US$6,915 thousand)Amortization period:

7 years(9) 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, 2018 on theassumption that the business combination had been completed on April 1, 2017
Not stated as it is difficult to calculate the estimated amount.

Kurita Water Industries Ltd. Annual Report 201877

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

Water
Treatment
Facilities

Total¥90,361¥146,453¥236,815

431

298

729

¥90,792¥146,751¥237,544¥

Segment income¥ 7,180¥ 15,312

Segment assets

95,589Segment liabilities

Year ended March 31, 2018

Adjustments

Consolidated

Sales1) Sales to outside customers
2) Intersegment sales
Total

¥

—

¥236,815

(729)

—

(729)

¥236,815¥ 22,493¥     (18)

¥ 22,475

158,631254,220

68,826

323,046

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

78

Kurita Water Industries Ltd. Annual Report 2018

Thousands of U.S. dollars (Note 1)

Year ended March 31, 2018

Water
Treatment
Facilities

Water
Treatment
Chemicals

Total

Adjustments

Consolidated

Sales1) Sales to outside customers
2) Intersegment sales$852,462 $1,381,632 $2,234,103
4,066

2,811

$

— $2,234,103

6,877(6,877)—$856,528 $1,384,443 $2,240,981$ (6,877) $2,234,103

Segment income$ 67,735 $ 144,452 $ 212,198$

Segment assets

901,783

1,496,518

2,398,301

649,301

3,047,603

Segment liabilities

275,452

501,575

777,037(1,622)775,405

33,896113,990

147,896—

147,896

801

—

801

3,084

3,896

29,830186,839

216,669—

216,669

Adjustments

Consolidated

Total(169) $ 212,028

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

Millions of yen
Water
Treatment
Chemicals

Water
Treatment
Facilities

Total¥81,883¥132,304¥214,187

242

191

434

¥82,126¥132,495¥214,621

Segment income¥ 7,231¥ 12,220

Segment assets

80,120

Segment liabilities

Year ended March 31, 2017

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

¥

—

¥214,187

(434)

—

¥

(434)

¥214,187¥ 19,451¥

0¥ 19,452

134,623

214,744

84,504299,249

24,75945,78670,545(54)

70,4902,926

11,95014,877—

14,877

—

—

—

—

—

2,175

7,911

10,087—

10,087

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

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 ¥68,890 million (US$649,905 thousand) and ¥84,550 million as ofMarch 31, 2018 and 2017, 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, 2018 are discussed in Note 16.

Kurita Water Industries Ltd. Annual Report 2018

79

Related Information(Information by geographic region)(1) Net sales
Millions of yen
Year ended March 31, 2018

Japan

Asia

¥158,232¥48,911

Japan

Asia

North America

EMEA$1,492,754$461,424$48,849$201,415

Japan

Asia

North America¥149,988¥39,899

Sales

North America¥5,178

EMEA

Other

¥21,350¥3,142

Total¥236,815

Thousands of U.S. dollars (Note 1)
Year ended March 31, 2018

Sales

Other

Total

$29,641 $2,234,103

Millions of yen
Year ended March 31, 2017

Sales

¥1,885

EMEA

Other

¥19,774¥2,641

Total¥214,187

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, 2018

Japan

Asia

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

Year ended March 31, 2018

Japan

Asia

$647,839$134,669

Year ended March 31, 2017

Japan

Asia

Property, plant and equipment¥62,387¥8,881

North America

¥182

EMEA

¥2,212

Other

¥686

Total

¥86,028

Thousands of U.S. dollars (Note 1)

Property, plant and equipment

North America$1,716

EMEA

Other

$20,867$6,471

Total$811,584

Millions of yen
North America

¥147

EMEA

¥1,939

Other

¥682

Total

¥74,036(Information by major customer)
For the year ended March 31, 2018 and 2017, 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.

80

Kurita Water Industries Ltd. Annual Report 2018

Information about amortization and unamortized balance of goodwill
Millions of yen
Water
Treatment
Facilities

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

Total

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

Year ended March 31, 2018

Water
Treatment
Chemicals

Amortization$ 11,169$—$ 11,169$—$ 11,169

Unamortized balance

192,094—

192,094—

192,094

Year ended March 31, 2017

Water
Treatment
Chemicals

Amortization¥

Corporate/
Elimination

Total

Total

Millions of yen

Unamortized balance

Water
Treatment
Facilities

980

¥—

15,049—Corporate/
Elimination

Total

¥

980

¥—

15,049

—

Total

¥

980
15,04921. Subsequent events
Appropriation of retained earnings
The following appropriation of retained earnings for the year ended March 31, 2018 was approvedat the ordinary general meeting of shareholders of the Company held on June 28, 2018.

Cash dividends (year-end dividends)

Millions of yen

Thousands of
U.S. dollars(Note 1)

¥2,927$27,613

Note: T he total amount of dividend approved at the ordinary general meeting of shareholders of the Company
held on June 28, 2018 includes dividends of ¥8 million ($75 thousand) to treasury stock of 333 thousand
shares (for performance-linked stock compensation trust for directors) held by the trust account of Japan
Trustee Services Bank, Ltd.

Business combination
On May 29, 2018 the Company concluded an agreement to acquire 50.1% of the outstanding sharesof Fracta, Inc. (hereinafter “Fracta”), U.S. software service company, completing the acquisition on
May 31, 2018.
(1) Overview of the acquired companies
Name:		

Fracta, Inc.

Location :1870 Broadway, 2nd Floor Redwood City, California, U.S.A.

Name of representative:

Takeshi Kato, CEO

Capital stock:

US$7,402 thousand

Description of the business:	Business related to software services predicting water main degradations by applying Artificial Intelligence (AI) and Machine Learning (ML)

Kurita Water Industries Ltd. Annual Report 201881

(2) Main reasons for the business combination
Fracta is a software service company headquartered in California, U.S.A. It provides a software
service in the field of predicting the deterioration of underground water mains, which is viewed as apotential growth market. Through its investment in Fracta, the Group will achieve Fracta’s leadingedge technologies and expertise in AI and ML and apply them to its water treatment technologies
and services, thereby creating and expanding a new digital business that applies IoT/AI, in the fieldof water and the environment.
(3) Equity acquisition date
May 31, 2018(4) Number of shares acquired, acquisition cost and ratio of shareholding after acquisition
Number of shares acquired:

7,676,117 shares

Acquisition cost:¥3,968 million (US$37,433 thousand)Ratio of shareholding after acquisition: 50.1%(5) Procurement method and payment method of funds to be paid
Provided from own funds
22. Per share information
U.S. dollars(Note 1)Yen

Net assets per share

2018

2018

2017

¥2,126.96¥1,991.91$20.07159.37125.23

1.50

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

2018

2017

2018

¥240,853¥228,758$2,272,198

Amounts excluded from net assets

2,049

1,135

19,330(Non-controlling interests on the above)(2,049)(1,135)(19,330)

228,803

227,623

2,158,518

112,274,296

114,274,081

Net assets

Net assets attributable to common shareholders ofparentNumber of common stock at the year-end used forthe calculation of net assets per share

Note: T he number of treasury stock, which is deducted from the number of common stock at the year-end used
for the calculation of net assets per share, includes common stock of 333 thousand shares and 339
thousand shares held by the Trust at March 31, 2018 and 2017, respectively.

82

Kurita Water Industries Ltd. Annual Report 2018

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

Net income attributable to owners of parent
Net income attributable to common shareholdersof parent
Average number of shares outstanding

2018

2017

2018

¥17,897¥14,506$168,839

17,897

14,506

168,839

112,303,666

115,837,837

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 335 thousand shares and 226 thousand shares held by
the Trust for the year ended March 31, 2018 and 2017, respectively.

Kurita Water Industries Ltd. Annual Report 201883

Report of Independent Certified Public Accountants

84

Kurita Water Industries Ltd. Annual Report 2018

Investor Information (As of March 31, 2018)
Stock Exchange ListingFirst Section of the Tokyo Stock Exchange

Common Stock Authorized

531,000,000 shares

Total Number of Shares Outstanding

116,200,694 shares

Number of Shares in One Traded Unit

100 shares

Number of Shareholders

22,467

Independent 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
Shareholdings Percentage of(Number of
total sharesshares)issued (%)

Japan Trustee Services Bank, Ltd. (Trust Account)

7,518,966

6.47

Nippon Life Insurance Company

5,979,883

5.14

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

4,634,900

3.98

Kurita Water Industries Ltd.

3,592,832

3.09

Japan Trustee Services Bank, Ltd. (Trust Account 9)3,170,800

2.72

BNYMSANV AS AGENT / CLIENTS LUX UCITSNON TREATY 1

2,482,600

2.13

Tokio Marine & Nichido Fire Insurance Co., Ltd.

2,155,826

Treasury Stock

Financial Institutions

Individuals

Securities Firms
Foreigners

Other Domestic Firms

Shareholdings(Number of shares)(%)

Financial Institutions

37,469,346

32.2

Securities Firms

1,225,558

1.1

1.85

Other Domestic Firms

8,264,571

7.1

Foreigners

54,303,430

46.7

Individuals

11,344,957

9.8

Japan Trustee Services Bank, Ltd. (Trust Account 5)

2,068,000

1.77

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

2,056,131

1.76

State Street Bank West Client Treaty 505234

1,841,545

1.58

Treasury Stock
Total

3,592,832

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. ’16

Stock priceJan. ’17

Jan. ’18

Trading volume

Kurita Water Industries Ltd. Annual Report 201885

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

6,011 (on a consolidated basis);1,516 (parent company)(As of March 31, 2018)

Major Domestic Offices

Head Office:

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.

10-1, Nakano 4-chome, Nakano-ku,
Tokyo 164-0001, Japan
Tel: 81 (3) 6743-5000
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 March 31, 2018)
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.
Kurita Chemicals Kantou Co., Ltd.
Kurita Chemicals Tokai Ltd.
Kurita Chemicals Hokuriku Ltd.
Kurita Chemicals Kansai Ltd.

Land Solution Inc.
Chemical cleaning services
Kurita Engineering Co., Ltd.
Miyoshi Industries Co., Ltd.

Kurita Chemicals Sanyo Ltd.

Tool cleaning services

Kurita Chemicals West Japan Ltd.

Kuritec Service Co. Ltd.

Manufacture of water treatment chemicals

San-ei Industries Co., Ltd.

Kurita Chemical Manufacturing Ltd.
Other
Kurita Analysis Service Co. Ltd.

Nippon Fine Co., Ltd.
Sun Kako Co., Ltd.
Aoi Industries Co., Ltd.
Other
Kurita Meiki Ltd.
Kurita Creation Co., Ltd.
Kurita Analysis Service Co. Ltd.

86

Kurita Water Industries Ltd. Annual Report 2018

Main Overseas Group Companies (As of March 31, 2018)
Overseas Consolidated Subsidiaries and Affiliated Companies

Year of Establishment Paid-in Capital (Millions)

Equity Ownership (%)

Water Treatment Chemicals
1 Kurita Water Industries (Dalian) Co., Ltd.

1995

¥550

90.1

4 Kurita Water Industries (Jiangyin) Co., Ltd.

2015

US$16

100.0

5 Angang Kurita Water Treatment Co., Ltd.

2015

RMB55

50.0

6 Hansu Co., Ltd.

1974

W2,50087.1

8 Kurita (Taiwan) Co., Ltd.

1987

NT$20

100.0

9 Kurita (Singapore) Pte. Ltd.

1978

S$11

100.0

10 Kurita-GK Chemical Co., Ltd.

1989

BAHT204

85.0

11 Kurita-GK Vietnam Co., Ltd.

2016

US$0.585.0

12 P.T. Kurita Indonesia

1986

US$2

92.5

13 Kurita Water (Malaysia) Sdn. Bhd.

1994

RM$0.6100.0

14 Kurita Europe GmbH

2014

EUR20

100.0

15 Kurita France S.A.S.

2015

EUR5

100.0

16 Kurita Iberica SL2015

EUR0.003

100.0

17 Kurita Turkey Kimya A.S.

2015

TRY5.7100.0

18 Kurita Sverige AB

2015

SEK0.1

100.0

19 Kurita Polska SP.z.o.o.

2016

PLN14

100.0

20 Kurita Middle East FZE

2016

AED2

100.0

21 Kurita America, Inc.

1996

US$3

100.0

22 Fremont Industries, LLC

2017

US$0.01

100.0

23 Kurita do Brasil LTDA.

1975

R$6.9

100.0

2 Kuritec (Shanghai) Co., Ltd.

2001

¥30

100.0

3 Kurita Water Industries (Suzhou) Ltd.

2004

¥530

100.0

7 Hansu Technical Service Ltd.

1988

W26,400

100.0

8 Kurita Water Technology Taiwan Ltd.

2017

NT$134100.0

9 Kurita (Singapore) Pte. Ltd.

1978

S$11

100.0

12 P.T. Kurita Indonesia

1986

US$2

92.5

13 Kurita Water (Malaysia) Sdn. Bhd.

1994

RM$0.6100.0

21 Kurita America, Inc.

1996

US$3

100.0

2017

S$3

100.0

Water Treatment Facilities

Others9 Kurita R&D Asia Pte. Ltd.

Water Treatment Chemicals
Water Treatment Facilities
14
15
16

Others

18
19

5
1 7
6
4
3
2
11
8
10

17
20

13

22
21

9
12
23

Kurita Water Industries Ltd. Annual Report 201887

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