A

P

N
LA

CT

Enter

DO

K
EC

Continual
improvement

Annual Report 2016
For the year ended March 31, 2016

CH

The Kurita 21st Century Vision

CONTENTS

We sketched out Kurita’s future vision.
Within this 21st Century Vision, we have

02 Kurita’s

encapsulated the dream of how we want
Kurita to be, the principles we continue

Business Modelto cherish, and our determination to

04 Management

realize this vision.

Indicators

Corporate Philosophy

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

Becoming an advanced water andenvironmental management company

05 To All Our

77 Investor

06 Interview

76 Corporate Data

Information

Stakeholders

		 with the President

10 Medium-to-Long-Term
Strategy: Issues andObjectives

1 We will implement our Corporate Philosophy and contribute to society

by striving to add new value and functions to water and by meeting
global challenges such as the conservation of the natural environment
and effective use of resources.

2 We will further progress our “water management” achieved through

12 Review and Strategies

3 We will further advance our service business in the water field to help

16 Technology-Driven Kurita

our state-of-the-art products, technologies and services, thereby
achieving “advanced management” to ensure that water of appropriate quality and quantity is available whenever and wherever it isneeded.
customers meet their challenges, such as more safety, higher productivity and lower environmental impact, thereby retaining the continued trust of our customers and realizing our own growth.

Management Guidelines
1 World’s Top-Class Water and Environment Business 2 Creation of New Business3 Technology-Driven Company 4 Full Use of the Group’s Comprehensive Strength
5 Enhanced Development of Human Resources
6 Accomplishment of Social Responsibility

Code of Ethical Conduct
All directors and employees of the Kurita Group are required to conduct their businessactivities based on our shared five values (fairness, transparency, integrity, safety andcompatibility) to ensure that the Group is able to realize sustainable growth
and to maintain and enhance its good reputation to deepen the trust of society.

74 Kurita History: Path of aTechnology-Driven Company

by Segment

33 Financial Section

Group Underpinned by Strong R&D

17 Accomplishment of Social Responsibility
18 Corporate Governance

25 Management that Respects Shareholders

22 Risk Management

26 Building New Relationships with
Employees

22 Internal Control Systems
23 Compliance
24 Directors and Members of the Audit &Supervisory Board

28 Emphasis on Safety and Quality
29 Sound Relationship with Suppliers
30 Activities as a Good Corporate Citizen

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 Water Industries Ltd. Annual Report 2016

01

Kurita’s Business
Model

CONTENTSManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Kurita’s Business Model

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Kurita’s Business

Kurita’s key resources are: its unique business mix for a company in the water and environmental management field;
a technology-driven company with advanced research and development capabilities; and its business network
spanning all of Japan and across the globe. By providing customers from a broad range of industries with all-roundwater management solutions while focusing on such issues as enhancing productivity, reducing environmental
burden and energy saving, Kurita endeavors to create value.

From Factory Entrance to Exit
Industrial, well and river water

Water Treatment Chemicals

Water Treatment Facilities

Manufacturing line
Manufacturing process

Our Strengths

Water
treatment
facilities

A unique Business Mix among Companies Worldwide

A Business Network Spanning Japan and the World

Process treatment
chemicals•Process treatment•Pre-treatment•Soft waterproduction•Pure waterproduction

Power generation
systems

Air conditioning
systems

Wastewater
treatmentchemicals

BoilerWastewater
treatment
systems

Wastewater reclamation

Boiler water
treatment chemicals

Wastewater
reclamation systems•Boiler body, vaporizer andcondenser treatment

Maintenance
Services

Wastewater
treatment•Cooling water treatment•Ultrapure water production

Water
Treatment
Facilities

Cooling tower
Cooling water
treatment chemicals

Ultrapure waterproduction systems

Water
Treatment
Chemicals

Refrigeration systems

Utilities

Industrial Waterway andwaste sewage discharge

Kurita’s Water Treatment Solutions
All-Round Water Management
Research and Development Capabilities (Technology-Driven Company)

Membraneseparationand filtration

Surfacetreatment

tio n

nc

Business Model Underpinned by the Company’s Management

Management that
Respects Shareholders

P.25

Building New Relationships
with Employees

P.26 –27

Emphasis on Safety
and Quality

P.28
Sound Relationshipwith Suppliers

Activities
as a Good Corporate
Citizen

P.29

P.30 –32

re
sp
ons
e

Food

Pharmaceuticals Electronics

Petroleumrefining andpetrochemicals

Pulp and
paper

Automobiles

fs

olu

rge

y

Respect for Relationship with StakeholdersPs

Adsorption
anddeionization

Daytoday

Sterilization
andbacteriostasis

Eme

Biologicalengineering

Coagulationandflocculation

lo
sa
o
p
Pro

Steel

ental burden redu
cti
onm
on
vir
En

Analysis

Corrosion
prevention
anddispersion

Ident
ific
at
io

sues
f is
no

is
nos
ag
i
d

Core technology focus areas

Industry-leading intellectual
property portfolio

hancement
ty en
i
v
i
ct
du
ro
Customers

Electrical power
generationEne
rg y sav i n g

Stable Earnings
Water treatment chemicals
Water treatment facilities(hardware)

Service
operations
account for85%of consolidated sales(For the fiscal year ended March 31, 2016)15%

Accumulated know-how

39%

46%

Maintenance
Maintenance services,
services, operation
operation
Maintenance
Maintenance services,
services, operation
operation
Maintenance
Maintenance services,
services, operation
operation

ChemicalChemical cleaningcleaning services
services

Strong, long-term relationships
with customers froma broad array of industries,
and in-depth knowledgeof customer facilities

BoilerBoiler water
water treatment
treatment chemicals
chemicals

ChemicalChemical cleaningcleaning services
services

Wastewater reclamation systems

Packaged
Packaged contracts
contracts

Process treatment chemicals

Cooling
Cooling water
water treatment
treatment chemicals
chemicals

Wastewater treatment chemicals

BoilerBoiler water
water treatment
treatment chemicals
chemicals

Water treatment facilities (services)

Know-How

ChemicalChemical injection
injection andand dosing
dosing equipment,
equipment, etc.
etc.

Pure water production systems

Pure
Pure water
water production
production systems
systems Wastewater reclamation systems
Cooling
Cooling water
water treatment
treatment chemicals
chemicals
ChemicalChemicalcleaningcleaningservices
services Chemical
Chemical cleaningcleaning services
services
Soil
Soil remediation
remediation services
services

Wastewater treatment systems

02 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 2016

03

Kurita’s Business
Model

CONTENTSManagement
Indicators

To All Our
Stakeholders

Medium-to-Long-Term
Strategy: Issues andObjectives

Interview with the
President

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Management Indicators
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31

Financial
2007

2008

2009

2010

2011

2012

2013

2014

2015

Millions ofyen

Thousands of
U.S. dollars1

2016

2016

Orders¥192,529 ¥208,689 ¥195,065 ¥175,162 ¥181,951 ¥197,256 ¥186,741 ¥173,463 ¥181,282¥ 221,273$ 1,958,168

Net sales

197,146

204,875

199,706

178,520

181,234

193,792

180,143

178,137

189,398

214,372

1,897,097

Cost of sales

137,819

138,549

135,874

117,221

118,573

127,905

121,047

122,870

130,509

143,964

1,274,017

Selling, general andadministrative expenses

35,05035,85735,89634,941

35,52836,503

38,10640,38039,45450,574

447,557

Operating income

24,27630,46827,93526,35827,131

29,382

20,98914,886

19,435

19,833

175,513

Operating income margin (%)
Net income attributable toowners of parent2
Return on sales (%)3

12.3

14.9

14.0

14.8

15.0

15.2

11.7

8.4

10.3

9.3

14,207

18,297

16,29917,28817,13816,548

11,476

9,352

10,434

12,577

7.2

8.9

8.2

9.7

9.5

8.5

6.4

5.2

5.5

5.9

Total assets

235,137

231,498

245,406

251,620

253,298

271,141

263,580

274,925

294,492

298,107

0.88

0.88

0.84

0.72

0.72

0.74

0.67

0.66

0.67

0.72

156,772

169,402177,291

192,588

198,042

208,891

207,871

217,691

222,330

227,896

Total assets turnover(Times)4
Equity5
Equity ratio (%)

111,300

2,638,115

2,016,778

66.7

73.2

72.2

76.5

78.2

77.0

78.9

79.2

75.5

76.4

7

6.3

7.8

6.8

7.0

6.8

6.3

4.3

3.5

3.7

4.2

Return on equity (ROE) (%)

9.4

11.2

9.4

9.3

8.8

8.1

5.5

4.4

4.7

5.6

Capital expenditures

19,56324,09756,322

8,083

5,965

8,105

6,688

5,709

12,864

19,623

173,654

Depreciation and amortization

6,512

9,425

11,716

15,523

16,066

16,035

15,054

14,774

14,863

15,749139,371

R&D expenses

4,421

4,551

4,363

3,990

4,225

4,232

4,362

4,534

4,397

5,269

46,628

6

Return on assets (ROA) (%)

8

Yen

U.S. dollars 1

108.2

$

Net income per share9¥ 110.4 ¥ 142.2 ¥ 126.7 ¥ 134.4 ¥ 134.0 ¥ 130.7 ¥Equity per share10

1,218.4

1,316.7

1,378.0

1,497.0

1,563.6

1,649.2

1,744.4

1,826.8

1,907.8

1,961.3

17.35

Dividends per share

28.0

32.0

34.0

36.0

38.0

40.0

42.0

44.0

46.0

48.0

0.42

Dividend payout ratio (%)

25.4

22.5

26.8

26.8

28.4

30.6

45.4

56.1

52.4

44.3

92.4 ¥

78.5 ¥

87.8

¥

0.95

Notes: 1. The U.S. dollar amounts are given solely for convenience at the rate of ¥113 to US$1, the prevailing rate on the Tokyo Foreign Exchange Market on March 31, 2016.
2. 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.
3. Return on sales=Net income attributable to owners of parent÷Net sales
4. Total assets turnover=Net sales÷Total assets (Average)
5. “Equity” represents Net assets less non-controlling interests (hereinafter, the same)
6. Equity ratio=Equity÷Total assets×100
7. Return on assets= Net income attributable to owners of parent÷Total assets (Average)×100
8. Return on equity= Net income attributable to owners of parent÷Equity (Average)×100
9. Calculation of net income per share is based on average number of shares outstanding (excluding treasury stock)
10. Calculation of equity per share is based on the number of shares at year-end (excluding treasury stock)

Non-Financial

To All Our Stakeholders
I was appointed as president and representative director on
April 1, 2016, as part of a major reorganization of the Company’s management, which was carried out with a view to ensurethat the Kurita Group can successfully compete amid the major
economic and social transformations of today. Having taken thehelm from former President Toshiyuki Nakai, I intend to do everything I can to completely fulfill my obligations as president.
My most basic objective is to help realize the Kurita Group’s
corporate philosophy: “Study the properties of water, masterthem, and we will create an environment in which nature andman are in harmony.” With the growth of the global populationand ongoing economic development, water and the environment have become vital issues that must be continually dealt
with in order to make societies around the world sustainable.
As a group of companies possessing the technologies andexpertise needed for providing optimal solutions to water- andenvironment-related problems, the Kurita Group’s mission is tohelp make societies more sustainable by solving problems that
faced by communities and industries worldwide. That is theessence of our corporate philosophy, and by having management work to realize it, we hope to contribute to communities
around the world and earn the trust of all stakeholders.
As we pursue these endeavors, I look forward to the understanding and support of the Company’s shareholders and otherstakeholders.
July 2016

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Total CO2 emissions (t-CO2)*

22,39822,50522,541

23,56323,941

158,121

162,748

181,149

188,543

188,709

Total waste output (t)*25,95426,895

27,133

26,186

24,73947,181

41,56147,85954,67933,756

Number of employees

3,992

4,249

4,404

4,445

4,490

4,555

4,640

4,635

5,222

5,481

President and Representative Director
Michiya Kadota* Kurita Water Industries Ltd.'s domestic offices and domestic consolidated subsidiaries

04 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201605

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Interview with the President

Q In the fiscal year ended March 31, 2016, consolidated
sales and income increased for the second consecutive
year. Could you provide some context for these results?

The Kurita Group achieved those results amid a mixed operating environment in the fiscal year under review. In Japan, capital expenditures
picked up in some industries, but production stagnated in the manufacturing sector. At the same time, demand for water treatment grewin East and Southeast Asia. Against that backdrop, the Kurita Grouplaunched a new three-year medium-term management plan, Competitive Kurita 2017, or CK-17 for short, and focused on expanding
business internationally, boosting sales and improving profitability. Our

Please refer to pages 10–11 for more
information about the measures andgoals of the medium-term management
plan.

goal is to become a formidable corporate group capable of successfullycompeting in the international arena.
In the fiscal year ended March 31, 2016, consolidated orders amounted
treatment chemicals to add more value to these products, broadened theto ¥221.3 billion, an increase of 22.1%, and net sales reached ¥214.4 billion, up 13.2% year on year. These increases were mainly due to robust
orders for water treatment facilities from electronics manufacturers in China, South Korea, and Taiwan. The Company’s acquisition of a business inInformation about Unique Multifunctional Polymer is available in the press release dated May 23, 2014, in the “Press
Releases” section of the Company’s
website.

range of applications of our Unique Multifunctional Polymer lineup, andaggressively launched new products to the market. We also developed
and began selling a dry methane fermentation system based on the dry

Europe and its inclusion into the scope of consolidation was another con-anaerobic composting (DRANCO) process. The system applies methane

tributing factor. Meanwhile, consolidated operating income totaled ¥19.8

fermentation to waste matter and collects the resultant biogas for use as

billion, increasing just 2.0% year on year due to certain expenses, including

an energy source.

a one-time increase in expenses associated with a revision of costs initially

To cultivate new markets, the Group expanded its business scale inallocated for the acquisition in Europe, and an increase in retirement ben-Europe, and tapped into new markets there and also in China by acquir-

efit expenses resulting from a change in the discount rate used for calculating retirement benefit obligations. On the other hand, ordinary income
rose 7.9%, to ¥20.4 billion, mainly owing to a decrease in non-operating
expenses. Net income attributable to owners of parent jumped 20.5%, to¥12.6 billion, while net income per share was ¥108.2, up 23.3% comparedto the previous fiscal year.

Q What were the main results and measures taken during
the first year of the Competitive Kurita 2017 plan?

Under the plan, we pursued three priority measures: to create competitive products and services, cultivate new markets, and optimize produc-

Ultrapure water supply business
Kurita’s business model involves installing
its own water treatment facilities inside its
customers’ factories, managing the operations and maintenance of the facilities,
and charging fees to the customers according to the volume of ultrapure watersupplied.

ing businesses. In South Korea, we commenced ultrapure water supply
projects, which had been primarily carried out in Japan in the past.
We also worked to optimize production systems while leveraging theGroup’s network. The Company established the business acquired in Europe as Kurita Europe APW GmbH, and consolidated it as a new memberof the Kurita Group. With other subsidiaries in the Group, we began areciprocal supply of highly competitive products, with coordinated actions in China producing solid results in the market for cooling tower
blowdown water reclamation systems.

Q What measures are being implemented in the secondtion systems while leveraging the Group’s network. Our priority mea-

year of the Competitive Kurita 2017 plan?

sures were designed to overcome the main challenges currently faced

In the second year, we are continuing to implement the three priority

by the Group, namely to maximize its collective capabilities, expand its

measures of the plan in order to overcome the challenges remaining

businesses internationally, and improve profitability. These challenges

after the first year, during which we successfully expanded the Group’s

must be overcome if the Kurita Group is to achieve sustainable growth.

water treatment chemicals business in Europe and improved the profit-

We carried out numerous initiatives in the fiscal year under review, theability of the water treatment facilities business.

first year of the three-year plan. Starting with the creation of competitive

As part of our measures to create competitive products and services,

products and services, we improved the functionality of Kurita’s water

we intend to capitalize on the productivity of the business acquired in

06 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201607

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Europe, which has excellent R&D capabilities and low-cost operations, andTo develop global human resources, during the fiscal year under review

to improve the functions of our water treatment chemicals so that we canwe organized skills training and employee exchange programs involving

continuously raise competitiveness. We are integrating sensing technolo-

our Head Office in Japan and subsidiaries around the world, and launchedgies and IT with water treatment chemicals and facilities, as well as apply-a development program for key personnel of Group companies world-

ing advanced analysis methods so that we can offer customers optimal

wide. Looking ahead, we intend to accelerate our global human resources

solutions for improving productivity and lowering environmental burden.

development in an effort to enhance the Group’s ability to compete inter-In these ways, we are working to differentiate the Kurita Group from its

nationally.

competitors.

Q Please explain the Company’s policy for paying dividends

To make inroads in new markets, we are seeking opportunities for business growth—including mergers and acquisitions (M&As) to expand ourand improving capital efficiency.

water treatment chemicals business in North America. That is part of ourgoal of extending this business beyond Japan to three regions of theworld: Asia, Europe, and the Americas. Meanwhile, in our ultrapure watersupply business we are looking to gain a foothold in markets in East Asia.

The Company’s policy is to continuously increase dividends to the maximum extent possible, while aiming for a dividend payout ratio between

Please refer to pages 12–13 for information about management strategies
related to the water treatment chemicals
business.

30% to 50% calculated on a five-year basis. Accordingly, even if the payout
ratio exceeds 50% because the level of net income has fallen temporarily,

Finally, we have been taking a number of steps toward optimizing pro-as long as it does not surpass 50% on average over the previous five years,

duction systems while leveraging the Group’s network. In Europe, Kurita

we intend to continue increasing dividends. For the fiscal year under re-Europe APW GmbH (KEAG) and Kurita Europe GmbH (KEG) merged, creat-view, the Company paid an annual dividend of ¥48 per share, comprised

ing the new KEG in April 2016, and in China, we are reorganizing the salesof an interim and year-end dividend of ¥24, respectively. That amount was

and marketing organizations of Group companies and centralizing man-Twelve consecutive years of increased
dividends per share since the fiscal year
ended March 31, 2005

agement. Leveraging the strengthened Group’s network, we are drawing
on the synergies generated through the acquisition in Europe and extending them globally. In our water treatment facilities business, we areworking to increase the efficiency of production systems by optimallyassigning management resources, and, at the same time, applying strict¥48

Please refer to pages 14–15 for information about management strategies
related to the water treatment facilities
business.

an increase of ¥2 per share over the previous fiscal year, and marked the12th consecutive year of increased dividend payments since the fiscal
year ended March 31, 2005.
With regard to capital efficiency, obviously we are working to keep thereturn on equity (ROE) above the cost of shareholders’ equity. We aim to¥18

use internal reserves entrusted by shareholders for investing in promis-

cost management in an effort to improve profitability.

ing businesses and conducting M&As. Our policy is to keep the growth
2005

Q What do you believe needs to be done in the future to

2016of shareholders’ equity in check, and flexibly acquire the Company’s own
shares when there is surplus of cash on hand.

respond to intensifying global competition?

Together with the expansion of our businesses internationally, we must enhance corporate governance so that our organization can compete globally, and develop global human resources among our management ranks.
During the fiscal year under review, the Company established a corporate governance policy and carried out sweeping reforms of its governance practices. These included a review of the roles and authority of
the Board of Directors and various management committees, the adoption of a performance-linked stock compensation plan for directors, andInformation about policies related tocorporate governance is available on the
Company’s website in the “Corporate
Governance Policies” section, under“About Us, Corporate Governance.

Please refer to pages 18–21 for information about the broad reforms of governance practices.

improvements to the transparency of the executive nomination process.
The purpose of these reforms was to increase the speed and efficacy ofmanagement decision-making, and to raise corporate value over the medium and long terms. In the fiscal year under way, we are continuing toreview our corporate governance with the goal of further enhancing ourmanagement systems.

08 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201609

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Medium-to-Long-Term Strategy: Issues and Objectives
In April 2015, the Kurita Group launched its Competitive Kurita 2017 (CK-17) medium-term management plan. CK17 focuses on competitiveness, and specifically two types of growth—organic growth underpinned by Kurita’s
traditional business spheres, and strategic growth driven by new business fields. Under the plan’s scenario, membersof the Kurita Group are encouraged to use their individual initiative to take on challenges in the operations in which
they are engaged, thereby becoming “competitive people.” By creating “competitive systems” and “competitive
products,” the Kurita Group will evolve into a strong, globally competitive company.

Current Medium-Term
Management Plan
To provide customers withhigh value added, the Kurita Group is
conducting a radical review of allits operations and systems
from the ground up

Competitive
Kurita 2017

Previous Medium-Term
Management Plansroduct
P
e
v
i
t
ti
Compe
s
System
e
v
i
t
i
t
Compe
le
e Peop
v
i
t
i
t
e
Comp

(TA-14)

1 Create competitive products and services
FY2016/3 Review (Actual)

FY2017/3 Action (Measures)

In the water treatment chemicals business, theGroup focused efforts on enhancing the level ofadded value through improvements to the functionality of its water treatment chemical products—most notably by expanding the application of Kurita’s multifunctional polymer material
for boiler water treatment.
To strengthen Kurita’s capabilities for making
tailor-made proposals to customers based ondata analysis and sophisticated use of customer
information, we began providing full-scale information services for the water treatment chemicalbusiness at the Kurita Customer Relationship Center (KCR Center). This extends the operational coverage of the KCR Center, which has to date provided information and call center services mainlycatering to the water treatment facilities business.

Utilizing the R&D strengths and low-cost
polymer production capabilities of thebusiness acquired in Europe, the Groupwill continue working to bolster its competitiveness through enhancements to thefunctionality of its chemical products.
In addition, by integrating water treatment chemicals and facilities with sensing
and IT, the Group will strive to achievedifferentiation from other companies by
providing proposals that help customers
to improve their productivity and reduceburden on the environment.

on the global stage

Performance target(CK -17)

Take Action 2014

Contributing
to society and industry
by demonstrating
A strong corporate Groupthe Group’sthat competes successfully collective capabilities(Billions of yen / %)FY2015/3 (Actual)

FY2018/3 (Plan)

Net sales

189.4

235.0

+7.5%

Operating income

19.4

24.5

+ 8.0%

Operating income margin

10.3%

10.4%

Overseas sales

39.1

81.3

Overseas sales ratio

20.6%

34.6%

FY2016/3 Review (Actual)

FY2017/3 Action (Measures)

The Group launched cross-selling activities
for Kurita Water Industries Ltd. and Kurita Europe APW GmbH (KEAG) products,
through which it is leveraging the marketing networks of both companies. In addition, through intra-Group collaboration, in
China the Group implemented measures
to meet demand for blowdown water reclamation.

In April 2016, KEAG and Kurita Europe GmbH
(KEG) merged, creating the new KEG. On boththe production and marketing fronts, the Groupwill strive to expand synergies globally with KEG.

2 Cultivate new markets
Through business acquisitions, the Group engaged in the development of new markets in
Europe and China. The Group was able to expand its core business areas to include Europe.
In the ultrapure water supply business,
which the Group has developed centering on
Japan, the Group began supplying ultrapure
water to a customer in South Korea—a first forthis business.

In the water treatment chemicals businessin North America, the Group is exploring
opportunities, including M&As to expand
its operations. Furthermore, in Japan andabroad, the Group will aim to cultivate newmarkets in the ultrapure water supply business.

10 Kurita Water Industries Ltd. Annual Report 2016

+ 27.6%–In the water treatment facilities business,through optimal allocation of management
resources, the Group will aim to overhaul its
revenue and cost structure, thereby improving
the profitability of its facilities business.

The Group focused on optimizing production systems

4 Improve capital efficiency
FY2017/3 Action (Measures)–

3 Optimize production systems and leverage the Group’s network

Leveraging R&D capabilities in Europe

FY2016/3 Review (Actual)

Average annual growth rate

Exploring business opportunities in North America

FY2016/3 Review (Actual)

FY2017/3 Action (Measures)

The Group implemented capital investments totaling ¥18.8 billion, including ¥15.8
billion in assets for the ultrapure water supply business. The dividend payout ratio in
FY03/16 was 44.3%

Cash generated by the Group’s businesses
is being prioritized for use in the ultrapure
water supply business and other businesses with superior potential. Furthermore,while considering M&A opportunities andshare buybacks, the Company will work tolimit increases in surplus cash and net assets. Based on such efforts, the Company
will aim to achieve return on equity (ROE)that exceeds the cost of shareholders’ equity on an ongoing basis.

Dividends

Targeted dividend payout ratio
between 30% to 50% calculated
on a five-year basis

Sharebuybacks

Prioritize investment inbusinesses, and consider
share buybacks

M&A
Capitalexpenditures

Explore M&A and allianceopportunities in North America
Investment in the ultrapure
water supply business, etc.

Use of cash

Kurita Water Industries Ltd. Annual Report 201611

Kurita’s Business
Model

CONTENTSManagement
Indicators

To All Our
Stakeholders

Medium-to-Long-Term
Strategy: Issues andObjectives

Interview with the
President

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Review and Strategies by Segment
Water Treatment Chemicals
Growth Strategy

Building a Footholdto Becoming a WorldLeading GroupBy expanding Kurita’s European business through a strategicacquisition, the Kurita Group has taken a significant step forward on the path to establishing a global platform built onfour pivotal regions—Japan, Asia, Europe and the Americas.
From technology development to marketing strategy,
the Group is pursuing synergies across a broad array offunctions.
Executive Senior Managing Director and Representative Director
General Manager of Chemicals Division

Koichi Iioka
Situation in the Fiscal Year Ended March 31, 2016
Sales by the Water Treatment Chemicals segment rose to ¥83.7
billion in the fiscal year ended March 31, 2016, compared with¥60.0 billion recorded in the previous fiscal year. The main reasons for this large increase of ¥23.7 billion were progress in developing new markets in China and Southeast Asia as well as
the new inclusion of Kurita Europe APW GmbH (KEAG)* and its
subsidiaries in the scope of consolidation.
Operating income generated by the Water Treatment
Chemicals segment amounted to approximately ¥6.5 billion in
the fiscal year ended March 31, 2016, a decrease of 17.9% compared with the previous fiscal year. The main reasons for thisdecrease were an increase in one-off expenses accompanying
a review of the initial allocation amount of the acquisition pricefor the acquired business and the amortization of goodwill andtechnology-related assets accompanying the new inclusion of
KEAG and its subsidiaries in the scope of consolidation.
Another notable achievement in the results for the fiscal

year ended March 31, 2016, was the emergence of signs of arecovery in the Water Treatment Chemicals segment’s domestic
business. Progress in winning orders from new customers is
helping to drive this recovery. By pursuing a continuation of thistrend, we aim to reach the targets set under the CK-17 mediumterm management plan.

Proposing solutions that utilize IT
The outlook for Kurita’s operating environment is opaque, bothin Japan and in overseas markets. As we face a myriad of factorsthat may affect operating performance—including trends in
the Chinese economy, foreign exchange rates and petroleum
prices—to demonstrate our competitiveness and maintaingrowth, it is important that we adhere thoroughly to Kurita’s
stated philosophy of being a technology-driven company. To
reinforce Kurita’s foundations as a technology-driven company,
we are working to strengthen our performance across a broad
range of quality measures. Product quality is, of course, a priority area, but we are also focusing on the quality of our marketing activities, technical services and other areas. Leveraging thequality advances we achieve to build the Kurita brand, we arealso pursuing the use of IT as one of the keys to bolster our profile in the global marketplace. In Japan, not only are we alreadyusing network technology to monitor such data and parameters as water quality and the volume of chemicals fed into acustomer’s system, but we are also analyzing the effectivenessof water treatment to automatically control the dosage. This isan example of our proprietary sensing technology, which realizes optimal water treatment. In the fiscal year ending March 31,
2017, we intend to expand the use of such technology globally, and focus on providing high-quality solution proposals thatutilize IT.

* In April 2016, Kurita Europe APW GmbH (KEAG) and Kurita Europe GmbH (KEG) merged to form the new Kurita Europa GmbH (KEG).

Pursuing synergies with KEG
The strength of the Kurita Group’s product lineup has been significantly bolstered by the birth of the new KEG Group basedon Kurita’s recent business acquisition. KEG possesses productsthat meet Europe’s very demanding environmental regulations, as well as process chemicals for the pulp and paper industry, which Kurita has not handled much in the past. Thereis good potential for the Kurita Group to expand the marketing of such products not only in Europe but also in Japan andother Asian markets. From a cost competitiveness perspective
too, we expect the KEG product portfolio to have substantial
impact. Although Kurita has traditionally developed its own
polymers in-house—polymers are a key base material for many
products—manufacturing has been carried out by partner

Orders (Millions of yen)

Sales (Millions of yen)

Operating Income (Millions of yen)

For the years ended March 31

For the years ended March 31

For the years ended March 31

Market Environment
Production activity among domestic manufacturers—the Water
Treatment Chemicals segment’s core customer base—appears
to be generally flat. We anticipate that this will lead to a further
intensification of competition among market participants in
the Japanese domestic market. In overseas markets, we expect
China and other emerging economies in Asia to see a slackeningof economic growth. Faced with these expectations of a difficult
operating environment, we are determined to achieve growthby steadily leveraging the Group’s capabilities, which have beenbolstered by M&A.

83,44056,714 56,748 56,040

59,413 59,353

2011

2014

2012

2013

12 Kurita Water Industries Ltd. Annual Report 20162015

83,68010,099

9,268

8,334

56,735 56,443 56,091 58,844 59,999

2016

2011

2012

2013

2014

2015

7,954

7,877
6,467

2016

2011

2012

2013

2014

2015

2016

companies. KEG has its own reactors for polymerization, andmaintains a polymer-manufacturing system. This means that
the Kurita Group is now able to pursue a business model basedon in-house design and in-house manufacture. The Group can
now choose base materials that correspond to customer costrequirements. We see the maximization of these kinds of synergies as a key task.
Developing promising products
In the fiscal year ended March 31, 2016, the Kurita Group launchedthree promising new products. The first of these products is a
proprietary, polymer-based water treatment chemical for use
in boilers. This product has been well-received due to its dual
functions of dispersing and removing scale, which inhibits heatexchange in boilers. In the fiscal year ended March 31, 2016, wewere able to expand sales of this product to approximately 600
customers. The second promising product launched is a revolutionary one that is effective in removing Legionella bacteria
and preventing the bacteria from breeding. The third product isa chemical used in wastewater treatment. By combining it with
Kurita’s sensing technology, environmental burden may be
reduced on a facility-wide basis. The product is provided as achemical treatment program that contributes to overall cost reduction. Furthermore, Kurita has launched a portal website forcustomers, through which we are able to share analysis information with customers on water treatment. From July 2016, thiswebsite will also be available to overseas customers. For eachof the abovementioned products, Kurita has already received
key patents. The proprietary polymer used in boilers is proving
particularly competitive since it boasts effects and results thatare highly differentiated from competing products.
Promoting a global structure based on four key regions
Until now, Kurita has concentrated its R&D facilities—the sourceof the Group’s products—in Japan. However, since the fiscal
year ended March 31, 2016, Kurita has had an R&D facility inEurope through KEAG (currently KEG). The Kurita Group also
has engineers stationed in Singapore. In the future, rather thanworking from the Japan market only as our R&D starting point
we are aiming build a structure that draws on the global market. We believe that it will become increasingly important towork closely with overseas customers when working on R&D. If
we look at the global market as four key regions—comprising
Japan, Asia, Europe and the Americas—at present the North
American market is a relatively undeveloped region for Kurita.
As we pursue the Group’s CK-17 medium-term management
plan, we are aiming to acquire and develop a business basein North America through M&As, including business alliances,
stock acquisitions and business acquisitions.
As we work to become a leading global Group in the water treatment chemicals field, we are strengthening humanresource training and development functions in each countryof operation, particularly for our marketing and technical workforces. This will be a particularly important part of our efforts to
expand globally.
Kurita Water Industries Ltd. Annual Report 201613

Kurita’s Business
Model

CONTENTSManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Review and Strategies by Segment
Water Treatment Facilities

Competing Successfully
through Comprehensive
Customer Proposals
Overseas, the Kurita Group won major project orders by leveraging its track record. Meanwhile, in Japan the Group focused
efforts on projects with multiple components, which generatehigher profit margins. Kurita is committed to pursuing a customer-centric service structure, and raising the level of value
added by its business.

with the objective of enhancing efficiency. Such projects often
involve multiple plants in a single project.
In overseas markets, in the fiscal year ending March 31, 2017,
we anticipate a continuation of the favorable conditions seen
during the previous fiscal year in the semiconductor and electronics industries in China, South Korea and Taiwan. However,the performance of these markets is expected to be somewhat
less robust than the fiscal year ended March 31, 2016. In China,
we anticipate an increase in capital investment in priority industries designated under national policies.

Growth Strategy

As of May 2016, in the domestic market, the electronics industry—which was robust during the fiscal year ended March
2016—is seeing a leveling out of demand for smartphones. Consequently, electronic component factories that supply smartphone-related parts are seeing a slight fall in capacity utilization.
In other industries, orders from industries whose demand is domestic-driven—such as food processing and pharmaceuticals—
are generally steady. In the industrial complex market, comprising such industries as steelmaking and petrochemicals—there
is emerging demand for facility renewals, upgrades and repairs,

Pursuing four key policies
As we strive to generate future growth, the CK-17 medium-term
management plan specifies four key policies. The first policy focuses on capabilities in the field—at the customer’s site—andstrengthening the competitiveness of Kurita’s facilities services.
Specifically, we will work closely with customers at their factories and production sites to gain a thorough understanding of
their operations, and then provide integrated proposals thatleverage IT. We will aim to meet a broad scope of customer
needs, not limited to Kurita’s traditional areas of feed-in water
and wastewater treatment, but extending to such needs as energy savings reduction of environmental burden and cost reduction. We will work to provide high-value-added proposals
that leverage Kurita’s unique strengths, including such aspects
as optimizing the overall water balance of a plant, and reducing
total cost.
The second policy focuses on creating new businesses. As
illustrated by our dry methane fermentation technology, we are
striving to create new businesses by placing the spotlight on
next-generation markets and converting these themes into tangible opportunities. The third policy focuses on the prevention of
additional costs arising from quality defects. For the Kurita Group,
as a provider of facilities, our ability to build and deliver something that performs to a superior quality standard after completion is a core issue. It has a major impact on both reliability andcost. The fourth policy focuses on developing a Group-wide production structure. We are aggressively promoting the autonomy
and role expansion of our overseas operating companies, as weseek a form that will enhance the Group’s cost competitiveness.

Orders (Millions of yen)

Sales (Millions of yen)

Operating Income (Millions of yen)

For the years ended March 31

For the years ended March 31

For the years ended March 31

Managing Director
General Manager of Facilities Division

Toshitaka Kodama
Situation in the Fiscal Year Ended March 31, 2016
Overseas, large-scale orders in China, South Korea and Taiwan
from liquid crystal display (LCD) and semiconductor manufacturers increased. In China particularly, the Group’s advanced
water treatment technology, which has a track record spanningmany years in the market—and is backed by an extensive maintenance structure—is highly regarded. In projects for largescale LCD factories, Kurita has gained a high market share. In
the domestic market, there were increased orders for facilities
that use dry methane fermentation technology—which recovers resources from waste—and increased orders from the foodprocessing and electric power sectors. Sales of water treatment
facilities, maintenance and services rose. This was particularly
driven by sales to electronic component factories that produce smartphone-related products—a market segment thatremained robust. With regard to operating income, the cost-ofsales ratio improved. Factors underpinning this trend included
an increase in proposal-based projects—which have relatively
high profit margins—efforts to reduce the cost of sales ratio

140,507125,237

130,700
114,049

121,928

137,832

through cooperation between sales, design and engineeringfunctions, and the conclusion of certain unprofitable overseas
projects. As a result, in the fiscal year ended March 31, 2016, orders in the Water Treatment Facilities segment amounted to¥137.8 billion, up 13.0% compared with the previous fiscal year.
Sales by the segment increased 1.0%, to ¥130.7 billion, and segment operating income rose 15.6%, to ¥13.4 billion.

Market Environment

124,499

137,348

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

20,127
17,032
12,641

11,56013,366

6,934

2011

2012

2013

2014

14 Kurita Water Industries Ltd. Annual Report 2016

2015

2016

2011

2012

2013

2014

2015

2016

2011

2012

2013

2014

2015

Agile service structure
Kurita’s services are provided by teams comprising not only
sales, design, maintenance service and engineering specialists
but also members responsible for such areas as quality management and the formulation of design guidelines.
At present, we are bundling into one package a range ofservices spanning from sales to engineering and maintenanceservice, as we develop a one-stop system to meet customer
needs. By consistently sharing customer information among
functions, we aim to create a system that provides a soundguarantee of service quality. From an organizational management perspective, it could be argued that separating eachfunction into its own discrete unit—for example, design or engineering—would raise production efficiency. However, such astructure is only suitable to periods of stability. For the Group’s
present situation—a period in which we are transforming ourselves into a truly global company—I believe that it is imperative that we strive to solve customer problems while working inhighly responsive small teams.
For example, in the case of a food processing factory, products change on a relatively short time span. If the productchanges, the base ingredients also change—along with theconstituents of the wastewater. However, water treatment facilities cannot be easily replaced. We want to effectively demonstrate Kurita’s know-how in responding precisely and flexibly tosuch changes through a one-stop service structure.
A partner with our customers
The domestic market is facing the onset of a shrinking population along with a trend toward decreasing capital investment
by customers related to our business. If economic conditions in
our main overseas markets—China, South Korea and Taiwan—
were to deteriorate, there is the likelihood that the Kurita Groupwould suffer adverse effects. In this environment, I believe that
we must work constantly to maintain the competitive advantages of our technology and proposals. To achieve this, we haveadopted “changing our selling methods” as a key theme of theWater Treatment Facilities business. For example, if a customer
is considering the introduction of water treatment facilities atseveral domestic plants, rather than delivering made-to-orderfacilities built from scratch on an individual basis to each plant,
we would be oriented toward providing all the plants withmodular, standardized facilities. This would contribute to a reduction in total cost to the customer. Alternatively, rather thansimply delivering facilities, we may win an order by providing
a comprehensive proposal. This may typically involve installing
water quality measurement equipment at a customer’s factory,
and then using the data obtained to formulate a proposal thatwould reduce losses in water quality across the entire factory.
We aim to raise our contributions to the businesses of ourcustomers, and enhance our capabilities as a trusted business
partner.

2016
Kurita Water Industries Ltd. Annual Report 201615

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Technology-Driven Kurita Group Underpinned by Strong R&D
The Kurita Group strives to be a technology-driven company. In the water and environmental management field,
the Group responds to a wide range of needs within industry and society as a whole. These include needs related
to reducing environmental burden, resource recycling, and enhancing productivity. Kurita is working to develop
products, technologies and new businesses, which will contribute to the realization of a sustainable society.

Measures under the Competitive Kurita 2017 (CK-17) Medium-Term
Management Plan
Under the CK-17 medium-term management plan, the Kurita Group aims to develop
world-leading technology in such core business fields as ultrapure water production,
boiler and cooling water treatment, and wastewater reclamation. In eight core technology
fields that form the foundations of the Group’s products, Kurita will carry out research insuch areas as new analysis technologies as well as new materials and novel mechanisms,
which will underpin innovative products. Hence, the Group is working to further cultivate
its core technologies and generate innovation in those fields. Furthermore, by expanding
development synergies with the Group’s recently acquired business in Europe, Kurita is
working to strengthen its product lineup in overseas markets.

Core Technology Focus Areas
Analysis

Corrosion prevention anddispersion

Coagulation andflocculation

Sterilization andbacteriostasis

Biologicalengineering

Adsorption anddeionization

Membrane separationand filtration

Surface treatment

The Kurita Global Technology Center carries out
a comprehensive range of activities, from research aimed at further cultivating the Group’s
core technologies to new product development
and technical support.

Results during the fiscal year ended March 31, 2016
In the fiscal year ended March 31, 2016, one of the Group’s key product development cases
was the integration of polymer synthesis technology held by the business Kurita acquiredin Europe. This led to the development of a corrosion prevention and scale prevention
agent, which boasts high cost competitiveness matching the cooling-water quality needsof the industrial-complex market in the Asia region. The Group also developed a dry
methane fermentation system, which separates material suitable for fermentation fromgeneral waste, ferments this material, and recovers methane gas as an energy resource.
Furthermore, the Group developed an integrated water treatment management system,
which combines chemicals and facilities related to water treatment with IT and sensing
technology. The Group also developed a water treatment improvement tool, whichmakes it easy to carry out simulations of the water and energy savings achieved throughthe introduction of water treatment chemicals and facilities, and enables the Group topresent the results to customers.

Utilization of intellectual property

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

1,804

1,800

The Group is working to strengthen its productlineup by leveraging the development capabilities of Kurita Europe GmbH.

The Kurita Group 21st Century Vision, which is based on our
corporate philosophy and comprises the Corporate Vision,
Management Guidelines, and Code of Ethical Conduct, encapsulates the dream of how we want the Kurita Group to be. We
set the “accomplishment of social responsibility” as one of thesix Management Guidelines in the 21st Century Vision. The Kurita Group will comply with laws and regulations in accordancewith social ethics, and in all our business activities, and we willcontinue to build transparent and fair relationships with shareholders and investors, employees, customers, suppliers andlocal communities.
Furthermore, the Corporate Governance Policies adopted
in October 2015 declare the importance of the rights and positions of various stakeholders. The policies are based on anawareness that collaboration with diverse stakeholders is essential when striving to carry out the corporate philosophy andseeking sustainable growth as the Kurita Group resolves issues
relating to the sustainability of society and industry.

400
200
0

476
322
173
62

2014

16 Kurita Water Industries Ltd. Annual Report 2016

362
153
59

698

Patentregistrations

2015

Overseas

63

2016Management
Guidelines
Code of EthicalConduct

Shareholders and Investors

Employees P.26–27

P.25

We strive to provide timely disclosure of necessary and sufficient information from the perspective of shareholders andinvestors.

We treat employees mainly according to their duties, capabilities and achievements, with the aim of promoting employees’ enthusiasm for work in the era of globalization.

We aim to maintain shareholder support through realizationof capital efficiency-focused management and appropriate
shareholder returns.

We strive to provide a diverse range of employment styles for
employees to choose from. We aim to create an enthusiastic
work environment that allows employees to select a working
style that enables them to draw upon their abilities and suits
their qualifications and stage in life.

Customers

Patentapplications

143

Corporate
VisionBuilding New Relationships with Employees

P.28

We strive to provide our customers with excellent products,
technologies and services that can meet their safety andquality expectations.

Domestic

322

Corporate
Philosophy

Management that Respects Shareholders

Emphasis on Safety and Quality

1,783

529

600

Investor Information

Accomplishment of Social Responsibility

Number of Patent Applications and Patents Held For the years ended March 31
1,860

Corporate Data

Building Transparent and Fair Relationships with Stakeholders

The Kurita Group aims to strengthen the competitiveness of its core products andtechnologies by utilizing its portfolio of intellectual property in Japan and abroad.
Accompanying expansion of the Group’s overseas business, Kurita is striving to build apatent strategy that has a close fit with the Group’s overseas business strategy. This process
is being underpinned by measures to strengthen the Group’s technology information
management system, including at overseas Group companies. The Group is also working
to reduce the risk of technology leaks. In the fiscal year ended March 31, 2016, the numberof patents held by the Group increased substantially due to the transfer of registeredpatents held by the business Kurita acquired in Europe.
2,000

Kurita History

Sound Relationship with Suppliers
Business Partners

P.29

We strive to maintain transparent and fair business transactions based on free competition. In our dealings with our
suppliers, we aim to strengthen relationships of mutual trustwith an emphasis on the autonomy, profits, and the assets ofboth companies.

Activities as a Good Corporate Citizen
Natural Environment and P.30–32
Local Communities
We develop products, technologies and services that contribute to meeting global challenges such as the conservation of the natural environment and the effective use ofresources; we propose and provide customers with solutions
that improve the environment; and we implement initiatives
and disclose outcomes for reducing the environmental impact within Kurita. We aim to achieve acknowledgement andrecognition for these initiatives from involved parties and toearn enduring social trust.

Patentapplications

In addition to contributing to society through business, we aim
to be highly valued by society by actively using the insight andexpertise built up through business to give back to society.

Patentregistrations

Kurita conducts business in a manner that respects biodiversity and sustainability.

Patents held
Kurita Water Industries Ltd. Annual Report 201617

Kurita’s Business
Model

CONTENTSManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Corporate GovernanceInitiatives of Enhancing Corporate Governance and Improvements
Composition of the Board of Directors

Based on its corporate philosophy, the Kurita Group
works to establish corporate governance with the aims
of carrying out transparent, fair, prompt, and decisive decision-making and highly effective management supervision in order to achieve sustainable growth and raise
corporate value. In the fiscal year ended March 31, 2016,
we announced establishment of the Corporate Governance Policies and implemented a variety of governancereforms.

The Board of Directors comprises three or more members, ofwhich two or more are external directors, ensuring the independence and objectivity of the Board. The Board currently
has 11 directors, of which two are external directors. To carryout highly effective oversight functions regarding the execution of business, the Board has members from each businesssegment as well as specialized personnel from corporate
planning, finance and accounting, legal affairs, technology, and other fields, creating a structure that augments theknowledge and experience needed by the Board as a whole
to make decisions.
Directors hold office for one year. This is intended to makethe Company more responsive to changes in the market
environment, foster a greater sense of managerial urgency
among directors, and facilitate flexible and timely changes tothe management structure as needed. Also, full-time directors
are not permitted to serve as directors or members of theReinforcing Oversight Functions of the Board of
Directors
Kurita Water Industries Ltd. positions the Board of Directors as
the body that determines the Kurita Group’s strategic direction
for sustainable growth, makes decisions on important mattersrelating to operational execution in light of that direction, andoversees operational execution. In the fiscal year ended March
31, 2016, the Board reviewed the scope of determinations anddecision making as well as the scope of delegation to executives so that the Board can focus its deliberations on importantmatters and more effectively performs its functions. As a result, the Board will determine matters relating to management
measures and policies, strategies, targets, and priority measures
for management plans major financing and business transfers,
and other important matters relating to the execution of business, while decisions concerning operational execution otherthan those important matters will be delegated to an Executive Committee made up of executives. This review has led toadjustment of matters to be discussed by the Board and more
active deliberations, but this measure is still under way, and additional delegation of authority from the Board to personnel
who carry out business operations is planned to reinforce thefunctioning of the Board even further.

Matters Relating to Directors and the Board of Directors (June 29, 2016)

Number of directors specified
under the Articles of Incorporation

3 or more
No maximum number
specified

Term of appointment of directors
under the Articles of Incorporation

1 yearChair of the Board of Directors

11

Number of external directors(within the total above)2

Number of independent officers
specified within external directors

2

Number of Board of Directors’
meetings held(fiscal year ended March 31, 2016)

11

Corporate Governance Structure

General Meetings of Shareholders

Nomination &Remuneration Advisory Council
Advisory

Board of Directors

Discussion &Consultation
ReportBusiness
Operations

Resolution
Election &Supervision

President

Audit

Election & Dismissal

Election &Dismissal

Audit &
Supervisory Board Cooperation
Accounting Auditor
Members of the Audit &Supervisory Board
Cooperation
Audit Report

Cooperation

Internal Auditing
Department

Executive Committee

ReportCompliance Committee &Various Committees

Audit

Discussion &ReportInstruction

Operating Divisions

18 Kurita Water Industries Ltd. Annual Report 2016

Adoption of Audit & Supervisory Board System
Kurita Water Industries Ltd. employs the Audit & Supervisory
Board system. The Audit & Supervisory Board currently comprises three members, of which two are external members.
Members of the Audit & Supervisory Board hold office forfour years, and the restrictions on concurrent service as thesame as those for directors. Number of members of the Audit& Supervisory Board specified is three or more. At least one
member of the Audit & Supervisory Board shall have sufficient insights and knowledge about finance and accounting.
Members of the Audit & Supervisory Board monitor the
status of execution of duties by directors and the status of
performance of oversight duties by the Board of Directors.
They also conduct asset status surveys of the entire Kurita
Group including subsidiaries and audit the development andoperation of internal control systems implemented by the
directors. Members of the Audit & Supervisory Board attend
important meetings including Board of Directors’ and Executive Committee meetings and express opinions from independent perspectives.

President

Number of directors

Election & Dismissal

Audit & Supervisory Board of other listed companies. Part-timeexternal directors are not permitted to serve as directors or
members of the Audit & Supervisory Board of more than threelisted companies including Kurita.

Internal Audit
Accounting Audit & Internal Control Audit

Appropriate Cooperation among the Internal
Auditing Department, Audit & Supervisory Board,and Accounting Auditor
Kurita Water Industries Ltd. has an Internal Auditing Departmentthat is independent from operational execution functions andreports directly to the president. The Internal Auditing Department conducts internal audits of Group companies, identifies
issues and problems in operational execution, and provides recommendations to the president on improvement measures.
The Company has appointed Grant Thornton Taiyo LLC
as its accounting auditor. The Audit & Supervisory Board
Matters Relating to Members of the Audit & Supervisory Board andthe Audit & Supervisory Board (June 29, 2016)

Number of members of the Audit &Supervisory Board specified under the
Articles of Incorporation
Number of members of the Audit &Supervisory Board
Number of external members of the
Audit & Supervisory Board(within the total above)
Number of independent officers
specified within external members of the
Audit & Supervisory Board
Number of Audit & Supervisory Board
meetings held(fiscal year ended March 31, 2016)

3 or more
No maximum
number specified
3
2
2

11

nominates candidate accounting auditors, makes decisions
on proposed resolutions regarding appointment, dismissal,
and refusal of reappointment of the accounting auditor, andthe Board of Directors submits those proposed resolutions to
the General Meeting of Shareholders based on the decisionsof the Audit & Supervisory Board.
The Company creates opportunities for discussions by thepresident, General Managers of Business Divisions, General
Manager of the Administrative Division, General Manager of
the Corporate Planning Division, and external directors withthe accounting auditor and facilitates appropriate cooperation.
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 andwork to engage in even closer collaboration.

Increase in the Number of External Directors
Kurita Water Industries Ltd. increased the number of external directors from one to two at the General Meeting of
Shareholders held in June 2015. The Board of Directors valued the increased dynamism of its deliberations following
the appointment of Seiji Nakamura in June 2013 and decided
to increase the number of external directors further in orderto ensure the independence and objectivity of the Board.
Criteria for Determining the Independence of Independent
External Directors

Criteria for judging the independence of independent
external directors The criteria for judging the independence ofindependent external directors in selecting candidates shall bethat the candidates for independent external directors and theirclose relatives1 must not fall under any of the following items.
1. A person who currently executes the operations of theCompany or its subsidiary or has executed such operationsin the past 10 years
2. A person whose major business partner is currently theCompany2 or was the Company at some time during the past
year, or an individual who executes the operations of this party
3. A current major business partner of the Company3 or a major
business partner at some time during the past year, or a person
who executes the operations of the major business partner
4. A consultant, an accountant, or a legal professional who
currently receives or has received at some point during thepast year a lot of money or property other than remunerationfor officers from the Company
5. A current major shareholder of the Company4 or a person
who executes the operations of a major shareholder
6. A person who executes the operations of an organization inwhich an external officer also currently assumes office (theperson only)
7. A person who executes the operations of an organization towhich the Company currently makes a donation (the person only)
Notes
1. The term "close relatives" means relatives within the second degree of kinship.
2. The term "person whose major business partner is the Company" means a person whose
sales in transactions with the Company make up 10% or more of that person’s net sales.
3. The term "major business partner of the Company" means a business partner with whom
the Company’s sales in transactions make up 2% or more of the consolidated net sales of
the Company, or a business partner from which borrowings make up 1% or more of theconsolidated total assets of the Company.
4. The term "major shareholder of the Company" means a shareholder who has voting rightsthat account for 10% or more of the voting rights of the Company.

Kurita Water Industries Ltd. Annual Report 201619

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Board Evaluation
Consequently, Tsuguto Moriwaki was also appointed as anexternal director.
The roles that the Company expects its external directors
to perform are to utilize their reliable knowledge and management sensibilities developed through managerial experienceand express opinions from a long-term perspective. At thesame time, we also expect external directors to express theircandid opinions from independent perspectives regarding
nomination of director candidates, director remuneration, andother important decisions made by the Board of Directors.
The Company will continue looking into increasing thenumber of external directors with the aim of further reinforcing the functioning of the Board of Directors.

Creation of Nomination and Remuneration Advisory
Council
Kurita Water Industries Ltd. established a Nomination and Remuneration Advisory Council in October 2015. The Council
comprises the president, the two external directors, and theone full-time external Member of the Audit & Supervisory
Board. When the president presents candidates for director,
representative director, or executive director to the Board of
Directors, the president consults in advance with the Council
and obtains advice concerning the appropriateness of thecandidates.
With regard to the procedures for determining the remuneration of directors and members of the Audit & Supervisory Board, when the president makes proposals to the Boardof Directors concerning the remuneration systems and levels
for directors and members of the Audit & Supervisory Board
as well as performance evaluations of directors, the president
consults in advance with the Council and obtains advice concerning the appropriateness of those proposals.
The establishment of these new procedures is an attempt
to review the scope of matters entrusted to the president
and enhance the transparency of the decision-making process. Going forward, we will investigate further changes tosystems as necessary while focusing on the effectiveness ofimprovements to transparency through the application ofthese procedures.

Review of the Officer Remuneration System
In the fiscal year ended March 31, 2016, the officer remuneration system of Kurita Water Industries Ltd. consisted of baseremuneration in the form of a standard annual salary as wellas performance-linked remuneration. A certain proportion of
the standard annual salary is paid to the Directors’ and Members’ of Audit & Supervisory Board Shareholding Scheme andallocated for purchasing the Company’s shares, but the proportion of performance-linked remuneration is low.
With regard to the officer remuneration system, when

20 Kurita Water Industries Ltd. Annual Report 2016

the Company adopted the Corporate Governance Policies in October 2015, the need to lower the proportion of
fixed remuneration and increase incentives through performance-linked remuneration was confirmed, and the system
was modified at the February 2016 Board of Directors’ meeting
to increase the proportion of remuneration accounted for by
performance-linked remuneration for directors with executivefunctions. At the time of this change, performance-linked remuneration for external directors and members of the Audit& Supervisory Board, who perform oversight functions, waseliminated and other changes were made to make the officer
remuneration system more appropriate. In addition, detailed
provisions were established regarding the structure of officer
remuneration, evaluation criteria, and calculation methods andtransparency was enhanced in the determination of officer remuneration. Furthermore, the Board of Directors decided in
April 2016 to introduce a performance-linked stock compensation program that grants stock to officers at the time of theirretirement as a long-term incentive.
These programs were launched following approval by
the General Meeting of Shareholders in June 2016.

Clarification of Policies regarding Capital Efficiency
The Kurita Group has engaged in discussions regarding capital efficiency and shareholder returns within its dialogues
with shareholders and investors over many years. In light ofthis background, the Kurita Group Corporate Governance
Policies established in October 2015 clarify the Group’s policies regarding capital measures.
Those measures provide for striving to maintain returnon equity (ROE) at levels above the cost of shareholders’ equity and continuing to increase dividends while keeping thedividend payout ratio for the most recent five years within
the 30% to 50% range. We view maintaining ROE above thecost of shareholders’ equity as our minimum duty as a stockcompany and will make efforts to raise ROE even further byutilizing internal reserves for promising business investments
while providing appropriate returns to shareholders.

Strategic Cross Holdings of Stock
Kurita Water Industries Ltd. holds stock of listed companies as
strategic cross holdings in order to strengthen business relationships. To minimize the risks of holding listed stock, we verify relationships with the companies whose stock the Company
holds as well as the risks of holding those stocks periodicallyand at other times as necessary, and the Board of Directors
continuously reviews the appropriateness of holdings.
When exercising voting rights of such stock, we make determinations whether to vote in favor of or against each resolution from the perspective of whether it will contribute toincreasing the stockholder value of the Company.

All Kurita directors and members of the Audit & Supervisory Board performed analysis and evaluation of the effectiveness of the Board of Directors, and the Board of Directors adopted a resolution on the assessment results. The
assessment results from the Board meeting held on March
30, 2016 are as set forth below.

Analysis and Evaluation Method
The evaluation was performed by conducting a written survey (with respondents identified), and following tabulation,
the results were discussed by the Board of Directors. Throughthe survey and deliberations, the Board identified problems
and set issues and measures for the future.
The assessment items are in six areas: (i) roles and responsibilities of the Board of Directors, (ii) collaboration withexternal directors and external members of the Audit & Supervisory Board, (iii) composition of the Board of Directors,(iv) operation of the Board of Directors, (v) contributions ofindividual directors and members of the Audit & Supervisory
Board, and (vi) dialogue with shareholders. The period covered by the evaluation is in principle the one year from January to December of the preceding year, but this time, the period was the three months from October to December 2015,
the period following adoption of the Corporate Governance
Policies.
This was a first attempt at analysis and evaluation of theBoard of Directors, and going forward the Board will review
the implementation methods and investigate more effective
methods.

Issues and Measures
Among the mechanisms that are still under development, aNomination and Remuneration Advisory Council was established in October 2015. The Council comprises the president,
the two external directors, and the one full-time external
Member of the Audit & Supervisory Board. It was established
as a mechanism for reporting on the suitability of candidates
for director, representative director, and executive director.
With regard to officer remuneration, when the Corporate
Governance Policies were adopted in October 2015, there
was an awareness that it is necessary to decrease the percentage of fixed remuneration and increase incentives created by performance-linked remuneration. In response, reforms to remuneration systems were launched in June 2016.
Issues to be addressed in the future include improvement
regarding “setting longer-term goals and deliberation on
strategic proposals” and “deliberations for more specifically
carrying out policies,” and we believe that it will be necessary
to implement further reinforcement so that the Board of Directors can focus deliberations on priority issues. To achievethis, we plan to reinforce operations execution systems andtransfer authority from the Board of Directors to personnel
who carry out business operations.

Evaluation Results
The average self-evaluation of the directors and membersof the Audit & Supervisory Board was generally good in all
six areas, and a determination was made that the Board of
Directors is functioning effectively. With regard to the “strategic deliberations within the Board” and “constructive deliberations that seek to carry out business plans” evaluation
items, however, there were substantial disparities among theself-evaluations of individual directors and members of the
Audit & Supervisory Board. The external directors also indicated that “setting longer-term goals and deliberation on
strategic proposals” and “deliberations for more specifically
carrying out policies” are inadequate.
This evaluation of the effectiveness of the Board of Directors was conducted for the first time after adoption of theKurita Group Corporate Governance Policies in October 2015.
The oversight program concerning the plan for a successor
to the president and the mechanisms regarding the director
remuneration program are still being developed, and verification and confirmation of the results is still inadequate, so as
a result, evaluations of these items were relatively low.
Kurita Water Industries Ltd. Annual Report 201621

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Risk Management
The Kurita Group defines a risk as any event that makes
uncertain the sustainable growth and increase in corporate value of the Group. We identify risks that need to beaddressed and take measures to avoid and mitigate risks
in order to minimize losses and damage caused by risks.
The General Manager of the Corporate Planning Division is
the responsible officer with regard to monitoring risks andimplementing risk management within the Kurita Group. The
General Manager regularly conducts risk analysis and evaluation, conducts ongoing monitoring, and takes steps to prevent risks from occurring. If a risk that could have a serious
impact on management occurs, the General Manager formulates systems with the officials responsible for responding
to the risk, obtains approval from the president, and immediately issues orders. The officials responsible for responding
to the risk promptly take action and report to the president
and the General Manager of the Corporate Planning Division
regarding the status of the effects of the risk, remediationand measures to prevent reoccurrence.
Among serious risks, those related to compliance are theTechnology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Complianceresponsibility of the representative director as Compliance
Committee head, while those related to health, safety and disasters are the responsibility of the Headquarters Health and
Safety Committee head, with this committee. The General
Manager of the Corporate Planning Division reports periodically to the Board of Directors on the status of risk management implementation and reports as necessary to the Boardof 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 conducted by the Internal Auditing Department.
The general manager of each business division is responsible for responding to risks directly associated with day-to-day
business operations. Also, responding to risks relating to quality, the environment, information security, export controls, andso on are handled by the respective responsible divisions.
In conjunction with the increase in risks resulting from the
expansion of overseas business, the Kurita Group is currently
working to reinforce its risk management, including at overseas
companies added to the Group through acquisitions.

The Kurita Group treats compliance activities as more thanjust abiding by laws. In an effort to achieve the five valuesof fairness, transparency, integrity, safety and compatibility described in our Code of Ethical Conduct established in
2000, we have established the Basic Principles and Compliance Guidelines to Practice Ethical Conduct to fully enforce the observation of compliance with laws, regulations
and social ethics in our daily business activities.

Framework for Promotion
The Company has established the Compliance Committee,
which is chaired by the representative director, and the Group
Compliance Committee, which is also chaired by abovementioned representative director and whose members are therepresentatives of domestic Group companies. In these committees, the Group sets out policies and important measuresfor compliance activities, and conveys them to all employees
through subcommittees at each headquarters division, business division, and Group company.

Compliance Surveys

Internal Control Systems
In May 2006, the Board of Directors of the Kurita Group adopted a resolution on and formulated the Fundamental Policy Regarding the Establishment of Internal Control Systems
in accordance with the requirements of Japan’s Companies
Act. Since then, the Board has continuously developed andoperated such internal control systems. The Fundamental
Policy Regarding the Establishment of Internal Control Systems is revised as necessary by Board of Directors’ resolution.
The Kurita Group Internal Control Systems are broadly divided
into systems for ensuring the appropriateness of operations andsystems for ensuring the effective implementation of audits by
the Audit & Supervisory Board, and these systems are established and appropriately operated. With regard to the former,
Kurita has established systems to: (i) ensure that the execution ofduties by directors and employees complies with laws, regulations, and the Articles of Incorporation, (ii) preserve and manage
information relating to the execution of duties by directors, (iii)establish rules and systems relating to management of the risk ofloss, (iv) ensure the efficient execution of duties by directors, and(v) ensure the appropriate performance of business by the corporate group comprising the Company and Group companies.
Concerning the latter, Kurita has established systems concerning (i) matters relating to employees who support the executionof duties by members of the Audit & Supervisory Board, andReview and Strategies
by Segment(ii) reporting by directors and employees of the Company andGroup companies to the Audit & Supervisory Board.
To ensure that financial reporting is carried out appropriately, the Kurita Group established divisions at each company thathave responsibility for creating, operating and improving theinternal controls relating to financial reporting. The Company’s
Finance and Accounting Department in the Administrative
Division oversees these divisions. Furthermore, the Company
created an Internal Control Reporting System in accordancewith the Japanese Financial Instruments and Exchange Act.
This system is monitored by the Internal Auditing Department
under the oversight of the president, and the department
provides recommendations and support for improvements.
In addition, the Finance and Accounting Department in the
Administrative Division shares responsibility for monitoring, as
well as recommendations and support for improvements fromthe perspective of effective and efficient evaluation of the “financial reporting process control of consolidated subsidiaries
from a company-wide perspective.” As of March 31, 2016, theKurita Group’s internal controls in relation to financial reporting
have been determined to be effective, and after auditing by
the accounting auditor, an internal control report to that effecthas been submitted to the Kanto Local Finance Bureau of the
Ministry of Finance Japan.

Compliance Behavior Surveys are conducted once a year on
the employees of the Company and the domestic Group
companies. Additionally, in 2015 Compliance Awareness Surveys were also being conducted on the employees of theoverseas Group companies. The Company, through thesesurveys, monitors the level of compliance awareness and theimplementation of compliance behavior among employees.
Issues that become apparent through analysis of survey results are reflected in compliance activity plans, and utilized ininitiatives to solve compliance issues.

Initiatives to Ensure Observance of the Subcontract Act
Since 2008, the Company has been conducting Surveys on
Transactions with Kurita Water Industries Ltd. once a yearon suppliers who fall under the category of subcontractors
as provided in the Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors (Subcontract Act). The
Company is promoting fairer transactions and building a relationship of mutual trust and cooperation by continuously
improving its transactions and its methods of transactions
based on the opinions and suggestions voiced by its suppliers.

Whistle-Blower Protection Rules
The Group and its domestic Group companies have established the Public Interest Whistle-Blower Protection Rules
and maintain consultation desks both within the Group andat outside organizations, in an effort to protect persons who
consult or make reports and to achieve early detection of dishonest practices. Starting from April 2016, the Kurita Global
Helpline, which allows employees of overseas Group companies to make reports to the consultation desk, has also commenced operation.

Prohibition of the Provision and Acquisition of Profits
The Kurita Group, in accordance with the Code of Ethical Conduct and the Compliance Guidelines, prohibits illegal gifts or
payment, and giving and receiving unjust profits either in amonetary or non-monetary form.

Initiatives to Prevent Bid-Rigging and Cartels
In 2006, the Kurita Group withdrew, in principle, from all construction projects ordered by the national government andlocal public entities to ensure no recurrence of violations of
the Antimonopoly Act (cartels). Exceptions to this principle
are limited to projects involving facilities delivered by theCompany subject to ongoing maintenance and management work by Group companies, which are executed byobtaining the approval of the Board of Directors on a caseby-case basis. We also forbid participation and membershipof trade associations in order to exclude all dealings with associates.

Scene from the Compliance Committee

Information about the Fundamental Policy Regarding the Establishment of Internal Control Systems for the Kurita Group is available on the Company's website in the “Basic Policies for Constructing an Internal Control System” under “About Us, Corporate Governance.”

22 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201623

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Directors and Members of the Audit & Supervisory Board

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Management that Respects Shareholders

As of June 29, 2016

Directors

Chairman and
Director

President andRepresentative
Director

Executive Senior
Managing Director
and Representative
Director

Toshiyuki Nakai

Michiya Kadota

Koichi Iioka

2016 Chairman and Director (to present)
2011 President
Representative Director
2009 President and Representative
Director, Kurita Engineering Co., Ltd.
2005 Director
1979 Joined Kurita Water Industries Ltd.

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

Managing Director

Kiyoshi Itou

2016 Executive Senior Managing Director andRepresentative Director (to present)2013 Managing Director
General Manager of Chemicals
Division (to present)
2011 President and Representative
Director, Kuritec Service Co. Ltd.
2007 Director
2005 Executive Officer
1975 Joined Kurita Water Industries Ltd.

2016 General Manager of Administrative
Division (to present)2013 Managing Director (to present)
2009 Director
2007 Executive Officer
1979 Joined Kurita Water Industries Ltd.

Managing Director

Managing Director

Director

Takahito Namura

Toshitaka Kodama

Yoshio Yamada

Ikuo Ishimaru

2016 General Manager of Sales Group I,
Chemicals Division (to present)2014 Director (to present)
2011 Executive Officer
1982 Joined Kurita Water Industries Ltd.

2016 Director (to present)
General Manager of Global Quality
Group, Facilities Division (topresent)
2013 Executive Officer
1984 Joined Kurita Water Industries Ltd.

2016 Managing Director (to present)2014 General Manager of Research andDevelopment Division (to present)
2011 Director
2009 Executive Officer
1977 Joined Kurita Water Industries Ltd.

2016 Managing Director (to present)
General Manager of Facilities
Division (to present)2014 Director
2011 Executive Officer
1977 Joined Kurita Water Industries Ltd.

The Kurita Group Management Guidelines specify management that respects shareholders. Based on this, theKurita Group proactively listens to the opinions of shareholders and continuously establishes structures and takes
measures to promote constructive dialogue with shareholders so that we can contribute to sustainable growth
and raising corporate value over the medium to long term.

Director

System for Promoting Dialogue with Shareholders
and Investors
The General Manager of the Corporate Planning Division has
overall responsibility for constructive dialogue with shareholders and investors. A specialized investor and shareholder
relations section was established within the Corporate Planning Division and full-time investor and shareholder relations
staff have been assigned to that organization to support theGeneral Manager.
The General Manager of the Corporate Planning Division
created an IR and SR liaison group made up of personnel
from the Corporate Planning Division, General Affairs Department, and Finance and Accounting Department to ascertain
and collect important internal information and appropriately
manage that information. The group shares and manages information and provides information necessary for dialogue.
The General Manager also provides feedback to the Boardof Directors concerning the opinions and concerns of shareholders learned through such dialogue periodically and atother times as necessary.

Director*

Director*

Hirohiko Ejiri

Seiji Nakamura

Tsuguto Moriwaki

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

2013 External Director of Kurita Water
Industries Ltd. (part-time)(to present)
2007 Member of the Policy Board of the
Bank of Japan (to 2012)2003 President and Representative
Director of MOL Ferry Co., Ltd.
2000 Executive Vice President andRepresentative Director of Mitsui
O.S.K. Lines, Ltd.
1965 Joined Mitsui O.S.K. Lines, Ltd.

Kurita holds financial results briefings for securities analysts
and institutional investors at the time of second quarter andfull-year financial results where the president and relevant
directors explain the results and answer questions. Teleconferences are also held at the time of the first and third quarter
financial results to explain the results and answer questions.

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

* External Director

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.

Kenjiro Kobayashi
2016 External Member of the Audit &Supervisory Board (to present)2010 Representative Director andExecutive Vice President of Japan
Industrial Solutions Co., Ltd.
1977 Joined Japan Development Bank
(currently Development Bank ofJapan Inc.)

24 Kurita Water Industries Ltd. Annual Report 2016

IR Activities for Individual Investors
For individual investors, a shareholder briefing is held after
the General Meeting of Shareholders and a briefing is conducted. To ensure that no disparities occur in the information
available to institutional investors and individual investors,
full-time IR and SR staff respond to telephone and email inquiries from individual investors.

IR Activities for Institutional Investors

Director

Member of the
Audit & Supervisory
Board

The materials used at these briefings as well as summariesof the questions and answers are posted on an investor relations website to ensure the timely and fair disclosure of
information. In addition, IR and SR staff conduct individual
meetings with securities analysts and institutional investors
on a regular basis except during quiet periods.
For foreign shareholders and investors, the president andGeneral Manager of the Corporate Planning Division conduct
roadshows in Europe, Noth America, and Asia, and the General Manager of the Corporate Planning Division participatesin domestic conferences.

Member of the
Audit & Supervisory
Board**

Tamio Uda

Briefing session for individual investors

Activities Relating to Shareholder Relations
Kurita full-time IR and SR staff visit major shareholders in Japan and create opportunities to discuss management policies and corporate governance. Kurita explains the direction of management and reports on the implementationand status of improvement of corporate governance, while
shareholders express their opinions and requests regarding
management and discuss policies on the exercise of voting
rights, and opinions are exchanged. Feedback regarding theopinions and requests expressed is provided to the president
and other directors, and those opinions and requests are reflected in various management policies.

2009 External Member of the Audit & Supervisory
Board (part-time) (to present)
1977 Established Harada Uda Law Office(currently Uda Law Office)1974 Admitted to the Japan Bar
Association** External Member of the Audit & Supervisory Board

Kurita is striving to ensure the fairness of information access by leveraging its IR site.

Kurita Water Industries Ltd. Annual Report 201625

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Building New Relationships with Employees
The Kurita Group believes that enabling employees tochoose employment styles that support self-realizationaccording to their stage in life and the ability to work with
passion are requirements for sustainable growth, and consequently, we conduct human resource development andcreate systems to achieve these objectives.

Developing Human Resources
The Kurita Group has traditionally recommended that employees tackle the challenges of extending their own capabilities at all stages of their careers. We strive to enable
employees to grow into professionals so that they cancreate and develop Kurita’s proprietary products, technologies and services as they find solutions to the issues
facing customers and society.
Self-Reporting System
Kurita Water Industries Ltd. has established a system where
employees can report their preferred working style andcareer formation to the Company. Once a year, employees
discuss the suitability of their current duties, their preferredpath for the future, their family situation and more with theirsuperiors so that the Company can understand the thinkingof each individual, which is utilized in training.
Opportunities for Personal Development
In business areas where the Company has a need, Kurita Water Industries Ltd. has a paid study sabbatical system that provides employees with opportunities to study at educational
institutions and research institutions in Japan and overseas
as well as a scholarship program that provides educational
expenses to students who meet the requirements. We also
conduct global training that includes language instruction
with the aim of developing human resources who can function anywhere in the world as well as internal training such as
specialized skills courses taught by internal instructors whoare experts in various technical fields. Additionally, we offer
more than 200 distance learning and classroom-based courses to enable employees to acquire a wide range of knowledge and skills.
Measures to Enhance Group Human Resource
Capabilities
As the Kurita Group expands into a global business, it is necessary to enhance human resource capabilities under unified
Group policies. Starting in the fiscal year ending March 31, 2017,a variety of educational opportunities are being provided to thehuman resources that will serve at the center of business operations at overseas Group companies in the future. At domestic
Group companies, measures are taken to enhance human resource capabilities such as Group-wide new employee training.

26 Kurita Water Industries Ltd. Annual Report 2016

Employment of Diverse Personnel
The Kurita Group seeks to employ diverse personnel with theright person in the right job so that each employee can fully
exhibit their capabilities.
Measures to Promote Active Female Participation
Kurita Water Industries Ltd. has traditionally had a low percentage of female employees because of the nature of its
business, and the percentages of women hired as recent
graduates and women in management positions are lower
than the average of other companies. Despite this, the promotion of active female participation is essential for the sustainable growth of the Kurita Group. In the fiscal year ended
March 31, 2016, the Company reinforced its measures intended to increase the number of women in management positions. These measures are wide-ranging and include careerdevelopment support, education and training, hiring, encouraging the taking of paid vacation time, and support for
maintaining a balance between work and child raising.
Employment of Personnel with Disabilities
In Japan, the Kurita Group provides a wide range of employment opportunities for people with disabilities.
In April 2013, With Kurita Ltd. was established with thegoal of securing employment opportunities for people withdisabilities. As of May of the same year, With Kurita has been
approved as a special subsidiary company under the Act on
Employment Promotion etc. of Persons with Disabilities.
The Company also established an internal consultation
desk for persons with disabilities and is working to eliminate
all barriers arising from disabilities in the workplace.
As of April 1, 2016, the disabled person employment
rate is 2.1%, which surpasses the statutory employment rate
(2.0%).
Second Career Support System
Kurita Water Industries Ltd. has a second career support system that offers preferential treatment to support employees
who wish to try to work in a different field from their present
one. The employees must satisfy certain conditions to qualify
for this system.

Securing Employment Opportunities for Senior Personnel
In conjunction with the enforcement of the amended Act
on Stabilization of Employment of Elderly Persons from2006, Kurita Water Industries Ltd. has established a system
to secure employment opportunities for people who haveretired having reached the mandatory retirement age. These
employment opportunities are offered for up to a maximum
or five years from the time of mandatory retirement (60 years
old) in accordance with the 2013 amendment to the Act on
Stabilization of Employment of Elderly Persons.
Between 2006 and April 1, 2016, a total of 298 retirementage personnel secured employment opportunities. As of
April 1, 2016, there are 69 retirement-age employees who
have secured employment opportunities at the Company.

Creating a Corporate Culture that Facilitates Work
The Kurita Group is taking measures to enhance systems andstructures intended to support a proper work-life balance by
employees and create pleasant workplaces.
Supporting a Balance between Work and Child Raising
Kurita Water Industries Ltd. has established an environmentthat makes it easier for employees to balance work with raisingchildren in accordance with the Act to Promote Measures to
Support Fostering the Next Generation. In principle, employees can take childcare leave until the child reaches one year
and six months of age, but the period can be extended in certain specified conditions. The program for shortened working
hours for childcare was reviewed in April 2016 and changes
were implemented to make it even easier for employees withmultiple children to balance work with raising children. As of
April 2016, during the past three years a total of 26 employees
made use of the childcare leave program and 34 employees(including one male employee) made a total of 656 requests
for shortened working hours to perform childcare.
Nursing Care Leave and Shortened Working Hours for
Nursing CareAt Kurita Water Industries Ltd., employees with a family member who needs nursing care and who wishes to continue towork after taking nursing care leave, may take nursing careleave for a cumulative total of up to one year (365 days) in
principle. Also, employees may use the shortened working
hours system for a cumulative total within 12 months perfamily member depending on the condition of the family
member requiring care.

Work Health and Safety
In accordance with laws such as the Industrial Safety and
Health Act, Kurita Group companies in Japan have established health and safety rules in order to prevent employees
from being harmed by occupational disasters, as well as tomaintain and improve the health of employees and to promote comfortable workplace environments. We have organized a health and safety management system comprising
Health and Safety committees and Health and Safety Managers. Under this system, the domestic Group works alongside
partnering companies to provide health and safety education to employees and to conduct health and safety drills.
We also develop work standards and provide instruction onthem, and maintain and inspect employees’ safety gear andother facilities to prevent accidents. The Group also examines
ways to deal with disasters, discovers their causes and drafts
countermeasures.
In conjunction with amendment of the Industrial Safety
and Health Act in December 2015, creation of a stress checkprogram has become mandatory by subject companies.
The Company is complying with the stress check program
guidelines established by the Ministry of Health, Labour andWelfare. We will provide support for implementation even byGroup companies with less than 50 employees, which are notrequired by the statute to implement such a system.

Relationship with Labor Union
In addition to securing the Company’s sound growthand continuation, Kurita Water Industries Ltd. and the labor union maintain a sound and fair relationship. Laborand management each do their utmost to improve theeconomic and social standing of union members and tomaintain and improve working conditions.

Respect for Human Rights
Kurita Group companies in Japan adopted guidelines andcreated a consultation desk in order to prevent various
types of discrimination and harassment within the Kurita
Group in Japan and strives to raise awareness of humanrights issues through measures such as periodic humanrights training programs.

Volunteer Leave System
At Kurita Water Industries Ltd., all employees are eligible totake leave for volunteer activities. Employees can take paid
leave for up to two days each fiscal year for such activities.
Kurita Water Industries Ltd. Annual Report 201627

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Emphasis on Safety and Quality
The Kurita Group believes that gaining the confidence ofcustomers by providing products and services with thesafety and exceptional quality that customers expect
leads to the development of solid management foundations.

Health and Safety Initiatives
The Kurita Group believes that safety is an essential basis ofvalue creation when providing customers with products,
technologies and services. Kurita Water Industries Ltd. established the Headquarters Health and Safety Committee under
the direct authority of the president and gave the General
Manager of the Administrative Division, who is a director,
overall responsibility for the Committee. Workplace safety management measures include, in the water treatment
chemicals business, legal responses in outsourced construction and services, and safety management initiatives such as
risk assessments in day-to-day operations and on-site tests. In
the water treatment facilities business, we also work to reinforce risk prevention in accordance with the workplace safetycycle, conduct training, and perform plant worksite safety
patrols. Outside experts are called in to conduct some safety
patrols, and we are expanding safety initiatives to overseas
worksites.

Initiatives to Improve Quality
As the Kurita Group expands its overseas business, improving
quality is becoming even more important. The Kurita Group
Quality Policy states that we will “speedily provide our customers with products, technologies and services that canmeet their quality expectations, thereby winning their unshakable trust.” We seek to enhance the quality of solutions
provided to customers by working to improve both the quality provided by products and the quality provided by people
from the perspective of the customer.

Quality Assurance Systems
With regard to product quality control, Kurita Water Industries Ltd. has established a Quality Assurance Department in
Chemicals Division and Facilities Division. These departments
work on quality control from production to actual use of the
product. In Japan, there are quality assurance systems basedon the ISO 9001 international standard for quality management systems in place, and being worked on, in certain departments of Kurita Water Industries Ltd. related to electric
power plant and in the domestic Group companies of Kurita
Chemical Manufacturing Ltd., Kurita Engineering Co., Ltd., Kuritaz Co., Ltd., and Kuritec Service Co. Ltd.

Initiatives to Improve Technical Skills
Safety Education Activities
Kurita Water Industries Ltd. conducts lectures on occupational health and safety taught by outside experts as wellas courses for acquiring unique in-house qualifications.
More than 100 educational opportunities are created annually and some 3,000 personnel attend courses. In the Facilities Division, departments involved in manufacturing,
construction, and maintenance hold Safety Conferences inwhich cooperating companies also participate. These initiatives have been started at overseas worksites, leading to
the development of a shared awareness regarding issues
and countermeasures among the parties involved.

Kurita Water Industries Ltd. opened its T&C (Technical &Career) Support Center in April 2014 to perform technicaltraining and human resource development relating to water
treatment plants. The Center oversees technical and safety
education and conducts training for the Group as a whole
including not just employees of the domestic Group but also
overseas employees. In addition to lectures held at the Head
Office, the Center conducts practical skills training using actual systems and plays a role in the global expansion of theKurita Group’s safety and quality.

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Sound Relationship with Suppliers
The Kurita Group’s business is supported by business partners in numerous fields including product manufacturing
and sales. Because of this, we place particular importanceon building sound relationships with business partners
based on fairness, integrity, and transparency. We strive
to reinforce trusting relationships that emphasize our respective independence, profits, and assets.

Basic Policies for Purchasing
In connection to purchasing within the Kurita Group in Japan,
we have a basic policy of open purchases and coexistence
and prosperity. We choose suppliers based on a comprehensive set of criteria, including product quality, price competitiveness, certainty of on-time delivery, management stability
and green purchasing (RoHS, JGPSSI Guidelines) compliance.

Compliance with Laws, Regulations, andSocial Norms
Kurita Water Industries Ltd. requires total compliance withlaws and regulations by its business partners. Laws and regulations include the Antimonopoly Act, Act against Delayin Payment of Subcontract Proceeds, Etc. to Subcontractors(Subcontract Act), Companies Act, Construction Business Act,
Foreign Exchange and Foreign Trade Act, Personal Information Protection Act, Labor Standards Act, Waste Disposal Act,and others.
We require business partners to understand our compliance measures with regard to the Subcontract Act andother laws and regulations, and we confirm the suitability oftransactions by conducting questionnaire surveys. We also
adopted the Public Interest Whistle-Blower Protection Rules
and take measures for the early detection of improper conduct. We contracted with an outside organization to provide
consultation services and receive reports regarding improper
conduct and so on, and these services can be used by business partners as well. In addition, we created a supplier helpline for suppliers to consult with concerning any concerns or
issues.
The fundamental policy of the internal controls system of
the Kurita Group in Japan states that all officers and employees take a resolute stance against and reject all connections
to antisocial elements and organizations. In terms of specificpolicies, we have taken steps by, for example, adding a clauseto our contracts about the elimination of crime syndicates.

Consideration for Environmental Preservation
The Company’s Chemicals Division checks for the presence of
hazardous substances in purchased raw materials and othermaterials in accordance with Japanese laws and regulations.
The Company’s Facilities Division established Procurement Guidelines and requires suppliers to take environmental preservation into consideration and minimize adverse
impacts on society, the environment, resources, and humansafety and health. Specifically, we create clear requirements
to encourage the procurement of parts and raw materials
with the smallest environmental impact through means suchas reducing hazardous substances, manage industrial waste,comply with anti-pollution laws and regulations, and encourage improvements and innovations based on an awarenessof reducing environmental impact in manufacturing andprocessing. We make requests to suppliers in accordancewith these Guidelines pursuant to requests from customers.

Consideration for Human Rights and Occupational
Health and Safety
The Company’s Facilities Division requires in the Procurement
Guidelines that suppliers pay appropriate wages to workers,
properly manage working hours, and ensure welfare andfringe benefits. The Guidelines also require that suppliers respect fundamental human rights, eliminate harassment anddiscrimination based on gender, nationality, religion, race,
disability, and so on, and not engage in forced labor. Suppliers are also required to evaluate workplace safety risks, prevent harmful incidents and workplace accidents, and create
and maintain safe work environments.

Respect for Intellectual Property Rights
The Kurita Group respects the intellectual property rights ofothers, and conducts its business activities while avoiding
infringing on them. We acquire licenses when using intellectual property owned by other parties, and we request that
other parties respect the intellectual property rights of theKurita Group. Businesses that infringe on the Kurita Group’s
intellectual property rights are required to cease the infringement, and are urged to acquire a license. In order to promoterespect for intellectual property rights, we are implementing
courses such as hierarchical intellectual property training ande-learning within the Group. This is not only a domestic activity but has also been expanding to overseas Group companies since the fiscal year ended March 31, 2015, and willcontinue in the future.

Training held at T&C Support Center for overseas employees
Safety Conference conducted abroad

28 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201629

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Activities as a Good Corporate Citizen
Preservation of the Global Environment
We believe that solving global-scale problems such as preservation of the natural environment and effectively using
resources is in agreement with the Kurita Group corporate philosophy, deepens the significance of the Group’s
existence, and has a positive impact on corporate value.

Fundamental Approach to Environmental Improvement Initiatives
The Kurita Group’s basic policy for its environmental im-

broadly contribute to society. In accordance with thisprovement initiatives is to operate in keeping with its

policy, we carry out environmental improvement initia-

corporate philosophy and to endeavor to resolve water

tives in three aspects in accordance with the three activ-

and environmental issues so that the Kurita Group can

ity guidelines described below.

Initiatives for Meeting Customers’ Needs

Energy Consumption* (crude oil equivalent)

In the fiscal year ended March 31, 2016, we continued our efforts to contribute to the reduction of customer environmental impact by optimizing theselection of water treatment chemicals, reducing waste water volumes by
increasing water reclamation volumes, and cutting carbon dioxide emissions
by replacing boilers. Refer to Kurita Group Environmental Report 2016 fordetailed results.

For the years ended March 31(Kiloliters )1 We will contribute to the realization of a sustainable soci-ety by developing new products and technologies thatare conducive to environmental improvement.
2 We will work with customers to improve the environment

by providing products, technologies, and services that
boost productivity, reduce environmental impact and offer innovative energy solutions.
3 In conducting daily business activities, we will reduce en-

vironmental impact through operational improvement
and innovation.

Three Aspects of Our Environmental Improvement
Initiatives
Technological Innovation Aspect
Initiatives that contribute to the development of a sustainable society by developing new products and technologies
that support environmental improvement.
Customers’ Needs Aspect
Initiatives that contribute to the environmental improvements wanted by customers through products, technologies, and services.
Internal Change Aspect
Initiatives that continuously reduce environmental impact
through improvement of and innovation in our business operations.

Results of Environmental Activities in the Fiscal Year Ended March 31, 2016
Technological Innovation Initiatives
New key products and technologies that the Company believes to contribute to the development of a sustainable society for thisfiscal year were as follows.
Environmental Improvement Items
New Products and Technologies
Water supply unit and water treatment control system for low pressure boiler

CO2

Waste

○

RO membrane cleaning chemicals for electronics plant○

Highly concentrated sludge membrane system, scale dispersion agent and
COD Digester for wastewater

○

○

○

Coagulation-sedimentation unit capable of treating a large volume of waterand highly suspended matters

30

○

○

Software and multicomponent living substance treatment simulation model
to support the study of utility costs○○

Dry methane fermentation system for private industrial waste disposebusiness

○

○

○
○

○

92,35592,232

2015

2016

90,00080,000Items

Targets

Energy consumption

Reduce per-unit energy consumption by an averageof 1% annually starting in FY03/2012

Waste volume

Reduce waste to below the previous year’s level

Recycling rate

Increase the recycling rate to above the previous
year’s level

Reducing Energy Consumption
With regard to energy consumption, to comply with Japan’s Act on the
Rational Use of Energy (Energy Conservation Act), we established targets
for per-unit energy consumption and take measures to reduce energy consumption with a target of achieving absolute energy consumption below
the previous fiscal year’s level. In the fiscal year ended March 31, 2016, we
cut electric power consumption by switching to pumps with inverters in
the ultrapure water supply business, reduced electric power consumption
by aeration equipment by reinforcing pH control monitoring of biologicaltreatment waste water facilities, and took other measures, As a result, both
per-unit energy and absolute energy consumption achieved the targets.
Reduction of Waste
In the fiscal year ended March 31, 2016, we cut waste volumes by improving
operation of waste water treatment control at ultrapure water supply sites
and reduced sludge by decreasing waste water load and as a result, targets
were achieved. The recycling rate target was also achieved as a result of thorough separation and collection of waste at a R&D site and offices.

70,0000

Kurita Water Industries Ltd. uses an internal intranet to issue an eco-newsletter that informs personnel about environmental improvement initiatives andthe progress of activities with the aim of raising awareness and understanding. Additionally, one month is designated Kurita Environment Month andexperiences, photos, drawings, and slogans relating to environmental improvement are collected from officers, employees, and their family members
in order to promote broad environmental awareness within the Group andencourage environmental improvement activities. This event, which waslaunched in the fiscal year ended March 31, 2015, resulted in the submissionof numerous eco-ideas for environmental improvement in day-to-day life.

Note: Scope of environment-related descriptions and data reporting is Kurita Water Industries Ltd. and its offices andconsolidated subsidiaries.

2014* Kurita Group companies which are specified business operatorsand designated energy management factories of Kurita Water
Industries

Reference: CO2 Emissions
For the years ended March 31(Tons)

200,000
180,000

181,149

188,543 188,709

160,000
140,000
0

2014

2016

2015

Waste Output and Recycling Rate
For the years ended March 31

Waste Output

Recycling Rate

(Tons)(%)

60,000100

54,67947,859Environmental Communications○

Tower wastewater treatment unit using the aerobic granule technology

Kurita Water Industries Ltd. Annual Report 2016

Water
pollutants○○

Automatic system to control the injection of chemicals for incinerator fly ash

Environmentally
harmful substances

90,994

Internal Change Initiatives
Targets for the Fiscal Year Ended March 31, 2016

Environmental Improvement Initiative Guidelines

100,000

90.5

40,00033,75620,000

90

80

80.0
76.7

0

2014

Waste output

2015

2016

0

Recycling rate**Recycling rate = (Valuables + Recycled materials) /(Valuables + Waste output)

Kurita Water Industries Ltd. Annual Report 201631

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Activities as a Good Corporate Citizen

Contribution to Local Communities
The Kurita Group strives not just to contribute to society
through its business activities but also to actively return
to society the insight and expertise that it gains throughbusiness and establish a favorable reputation within society.

Promotion of Science and Technology Relating to
Water and the Environment
Kurita Water Industries Ltd. established the Kurita Water andEnvironment Foundation in 1997 with the aim of contributing
to the promotion of science and technology relating to water and the environment. The Foundation is a public interest
incorporated foundation, and domestic Group companies
make contributions to the Foundation each year to provide
operating funds. The Foundation uses these contributions for
its operating expenses. Each year, the Foundation provides
subsidies and other support for surveys and research on water and the environment.
The Foundation launched a research subsidy project inThailand in the fiscal year ended March 31, 2014 and initiatedresearch subsidy programs in Thailand, Vietnam, and Indonesia in collaboration with the Asian Institute of Technology(AIT) in the fiscal year ended March 31, 2016. By actively providing research subsidies in Japan and overseas, the Foundation seeks the development of an environment in which
nature and man are in harmony.
The Foundation has subsidized a total of 1,158 projects,
amounting to roughly ¥569 million, since its establishment
through to the end of March 2016. Of those, 75 subsidies were
provided overseas in the amount of about ¥26 million.

the Group to respond immediately even to sudden requests.
In response to the Kumamoto Earthquake on April 14, 2016,
the Kurita Group donated ¥10 million through the Japanese
Red Cross Society and supplied 12,096 liters of mineral water
made by our subsidiary to local governments in the disasterarea as relief aid to assist those affected by the earthquakeand support recovery in
the affected region. We
also determined the status of damage to water
treatment facilities in customer plants that weredamaged and worked to
repair and restore thosefacilities as quickly as
possible so that businessRescue,” an emergency water purioperations could be re- “Kurita
fication system used during water supply
support activities
sumed.

Regional and Community Activities
The Kurita Group strives to be accepted as a member of thecommunity and to develop along with the local communities in regions where the Group has business sites. Regionaland community activities consist of (i) activities relating tolocal 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 disasterand crime prevention within the community.
In the fiscal year ended March 31, 2016, the Company held
sports events on its fields, conducted local cleanup activities
in the area surrounding the Kurita Global Technology Center,and engaged in various other activities with strong local ties.

Financial Section
34 Management’s Discussion and Analysis
44 Consolidated Balance Sheets
46 Consolidated Statements of Income and Consolidated
Statements of Comprehensive Income
47 Consolidated Statements of Changes in Net Assets
48 Consolidated Statements of Cash Flows
49 Notes to Consolidated Financial Statements
73 Report of Independent Certified Public Accountants

A subsidy presentation ceremony held in 2015

Support in Disaster Areas
The Kurita Group has a policy of providing support todisaster-stricken areas when a major natural disaster occurs ina country in which the Group has a business site. When a serious drought hits or water supplies fail due to an earthquake
in Japan, the Group conducts water supply support activities
using emergency water purification equipment and maintains necessary equipment and supplies at all times, enabling

32 Kurita Water Industries Ltd. Annual Report 2016

Local cleanup activities in the area surrounding the Kurita Global Technology Center

Kurita Water Industries Ltd. Annual Report 201633

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

MANAGEMENT’S DISCUSSION AND ANALYSIS
Business Overview

Operating Results

Orders by Segment

During the fiscal year ended March 31, 2016, there was uncertaintya) Ordersover the outlook for the global economy, given a slowdown in growth

In the Water Treatment Chemicals segment, orders in Japan were flat,Years ended March 31(Millions of yen)in China and other emerging economies in Asia and a fall in crude oil

but overall orders experienced major growth due to efforts to cultivate

prices. However, the U.S. and European economies continued to recover,business overseas, notably in China and Southeast Asian countries,

mainly thanks to improvements in employment and domestic demand,and to the new consolidation of KEAG and its subsidiaries. In the Waterand the global economy overall grew moderately.

Treatment Facilities segment, the Group recorded favorable orders for

Although corporate profits were stable in Japan, economic recovery

Water Treatment Facilities

221,273
197,256

186,741

173,463

181,282

water treatment facilities in the electronics industry in China, Southwas slow, given weak consumer spending, sluggish growth in exports

Korea and Taiwan. In general industries, orders in the water treatment

associated with slowing overseas economies and a stronger yen in thefacilities business rose, reflecting orders for dry methane fermentation

second half of the fiscal year.

facilities for recycling waste materials and wastewater treatment facilities

Looking at the market environment surrounding Kurita Group, in

Water Treatment Chemicals

140,507 130,700 114,049 121,928 137,832

in the food industry.

Japan production in the manufacturing industry remained roughly flat,

As a result, total consolidated orders for the Kurita Group in the fiscal

but there were signs of recovery in capital expenditure on the back ofyear ended March 31, 2016, were ¥221,273 million, an increase of 22.1%

strong corporate earnings. Overseas, demand for water treatment grewcompared with the previous year.

56,74856,04059,41359,35383,440

2012

2013

2014

2015

2016

in East Asia and Southeast Asia.
In this environment, the Group started to implement the three-yearb) Net Sales

medium-term management plan CK-17 (Competitive Kurita 2017). In the

In the Water Treatment Chemicals segment, sales were flat in Japan, but

medium-term management plan, the Group aims to evolve into a strong

overseas sales rose significantly, due to the cultivation of new business,

corporate group capable of competing successfully in the international

particularly in China and Southeast Asian countries, as well as the newmarket. In the first year of the plan, the fiscal year ended March 31, 2016,

consolidation of KEAG and its subsidiaries. In the Water Treatment

the Group focused on improving profitability by expanding overseas

Facilities segment, sales to the electronics industry in Japan were down

operations and thoroughly controlling costs.

slightly. Sales of water treatment facilities to general industries also

To expand overseas operations, the Group sought to integrate

slipped, but sales of maintenance services, water treatment facilities for

Kurita Europe APW GmbH (KEAG), which has become part of the Groupelectric power generation, and soil remediation increased. Overseas sales

following the acquisition of a business in Europe, and took steps tofell, however, due to the completion of the posting of sales.

create synergies early, supplying competitive products to each other. In
Asia, we started the first ultrapure water supply business in South Korea.

As a result, total net sales were up ¥24,974 million, or 13.2% year on

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

214,372
193,792

180,143 178,137

189,398

137,348 124,052 119,292

129,399 130,692

56,44356,091

58,84459,99983,680

2012

2013

2014

2015

2016

year, to ¥214,372million.

As a result, both consolidated sales and orders increased.
The Group improved profitability to some degree by facilitatingc) Cost of Sales and Gross Profit

cooperation between the sales and production divisions and carefully

Cost of sales increased 10.3%, to ¥143,964 million, compared with

controlling costs in each project. To create competitive products and ser-¥130,509 million in the previous fiscal year. However, as a percentage

vices, the Group launched new services, combining its expertise in threeof sales, cost of sales decreased from 68.9% to 67.2%. This was mainly

businesses: the water treatment chemicals business, water treatment

attributable to enhanced collaboration between the sales and produc-

facilities business and maintenance services. The Group focused ontion departments, and to a thorough effort to control costs for each

proposing solutions to customers’ challenges, including environmental

construction project.

impact reduction, energy saving and productivity improvement.
The Group experienced a temporary rise in expenses associated withd) Selling, General and Administrative (SG&A) Expenses

a review of the initial allocation of the cost of the business acquisition,

SG&A expenses were ¥50,574 million, up 28.2% from the previous year’s

retirement benefit expenses increased due to a change in the discount¥39,454 million. This increase of ¥11,120 million was mainly due to therate stemming from the impact of negative interest rates, and the Group

consolidation of KEAG and its subsidiaries. A decline in interest rates inrecorded amortization expenses on goodwill and technology-related

the second half of the fiscal year resulted in a change in the discountassets associated with the new consolidation of the KEAG Group. Nev-

rate used in the calculation of retirement benefit obligations. Thisertheless, an improvement in the cost of sales ratio prompted a slightcaused retirement benefit expenses, a component of SG&A expenses,

uptick in operating income, and net income attributable to owners of

to rise. In addition, the Group recorded a temporary rise in expenses

parent increased substantially.

associated with a review of the initial allocation of the cost of theGross Profit
Years ended March 31(Millions of yen)

70,40765,88659,09655,26758,889business acquisition, including amortization expenses on goodwill andtechnology-related assets associated with the new consolidation of the
KEAG Group.
2012

34 Kurita Water Industries Ltd. Annual Report 2016

2013

2014

2015

2016

Kurita Water Industries Ltd. Annual Report 201635

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
Presidente) Operating Income

SG&A Expenses

Owing to the factors mentioned above, operating income was ¥19,833

Years ended March 31(Millions of yen)million, up 2.0% compared with ¥19,435 million in the previous fiscal

Medium-to-Long-Term
Strategy: Issues andObjectives

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

As a result, segment orders increased 13.0%, to ¥137,832 million, andsales grew 1.0%, to ¥130,692 million.
Operating Income

year. However, the operating margin fell to 9.3% from 10.3% in the

50,57436,503

38,10640,380

unprofitable projects; and an improvement in the cost of sales ratio.

39,454

Corporate Data

Investor Information

Operating Margin by Segment
Years ended March 31(%)

Operating income grew 15.6%, to ¥13,366 million, due to enhanced collaboration among the sales, design and construction divisions; a reduction inprevious fiscal year.
f ) Results by Business Segment

Review and Strategies
by Segment

16.4
15.2

14.9
13.1

14.7

11.7

13.5

g) Overseas Sales

Water Treatment Chemicals

10.3
8.4

Orders and Sales

Sales by Region

In Japan, the Group took steps to gain new customers, and both orders

Overseas sales rose 63.3%, to ¥63,877 million. The overseas sales ratio

and sales rose for wastewater treatment chemicals and process treat-

within consolidated net sales increased to 29.8% from 20.6% in thement chemicals for petroleum refining. However, overall orders and sales

previous fiscal year.

Water Treatment Chemicals

in Japan remained flat, chiefly reflecting a moderate recovery in capacity

Regional Breakdown

Total

Asia: Up 17.8% to ¥37,778 million; 59.1% of total overseas sales

utilization at customers’ plants.
Overseas, orders and sales increased significantly due to the addition

2012

2013

2014

2015

2016

North America: Up 19.9% to ¥2,431 million; 3.8% of total overseas salesof new customers, especially in China and Southeast Asia, and the

EMEA: Up 1,329% to ¥20,698 million; 32.4% of total overseas sales

consolidation of KEAG and its subsidiaries.

Other regions: Down 14.2% to ¥2,970 million; 4.6% of total overseas sales

Segment orders consequently expanded 40.6%, to ¥83,440 million,

Note: The regional categories have changed, beginning in the fiscal year ended March 31,

and sales rose 39.5%, to ¥83,680 million.

2016. Figures for the fiscal year ended March 31, 2015, have been retroactively adjusted

Operating Income

to match the new classification. For fiscal years ended on or before March 31, 2014,

Operating Income by Segmenta review of the initial allocation of the cost of the business acquisition.

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

Other income and expenses–net was income of ¥578 million, compared

Water Treatment Facilities

with expenses of ¥968 million in the previous fiscal year.

29,382maintenance services for the electronics industry rose, reflecting highEurope.

20,98920,127
12,641declined slightly due to a fall resulting from the termination of some

19,435

19,833i) Income before Income Taxes

14,886
11,56013,366

6,934

contract periods, which was partially offset by revenue from new

business rose, reflecting orders for dry methane fermentation facilities
for recycling waste materials and wastewater treatment facilities in

Income before income taxes increased 10.5%, to ¥20,411 million,
compared with ¥18,467 million in the previous fiscal year.

contracts, leading to a slight decline overall.
In general industries, orders in the water treatment facilities

8,334

7,954

7,877

6,467

year.

2012

2013

2014

2015

2016

j) Net Income Attributable to Owners of Parent
After deducting income taxes and profit attributable to non-controllingin project construction. Orders and sales in maintenance services

interests, Kurita recorded consolidated net income attributable to owners

were affected by a reactionary fall following renewal and modificationof parent of ¥12,577 million for the fiscal year ended March 31, 2016, anprojects in the previous fiscal year, but nonetheless increased thanks toincrease of 20.5%, compared with ¥10,434 million in the previous fiscal year.

orders through proposals of solutions to customers’ challenges. Orders

Net income per share increased to ¥108.24 from ¥87.81 in thefor soil remediation services declined, but sales rose due to the postingof sales from projects for which orders were received in the previous

2015

2016

Overseas Sales by Region
Fiscal year ended March 31, 2016

4.6%

Overseas Sales

32.4%

¥

63,87759.1%

million

3.8%
Asia .....................................................................¥37,778 million
North America................................................¥2,431 million
EMEA .................................................................¥20,698 million
Other regions..................................................¥2,970 million

The pretax profit margin fell to 9.5% from 9.8% in the previous fiscal
9,268

the food industry, but sales declined chiefly due to delays in progressfor and sales of water treatment facilities for electric power rose. Orders

2014

The main reason was a decrease from ¥1,626 million to ¥221 million
in the posting of expenses related to the acquisition of business insmartphones. Orders and sales in the ultrapure water supply business

2013h) Other Income and Expenses

In Japan, orders and sales in the water treatment facilities business andcapacity utilization at plants manufacturing electronic components for2012

Europe, the Middle East and Africa.

business acquisition in Europe and temporary expenses associated with

Orders and Sales

7.7

Water Treatment Facilities

March 31, 2015, “other regions” includes South America and Oceania. EMEA includes

zation of the goodwill and technology-related assets associated with

9.3
8.9

5.8

“other regions” includes South America, Oceania and Africa. From the fiscal year ended

Operating income was down 17.9%, to ¥6,467 million, due to amorti-

Water Treatment Facilities

10.2

10.2

Net Income per ShareYears ended March 31(Yen)

130.65108.24
92.43

previous fiscal year, and the net margin rose to 5.9% from 5.5%.

78.48

Return on equity (ROE) increased to 5.6% from 4.7% in the preceding

87.81

fiscal year.

fiscal year.
Overseas, orders rose significantly, chiefly reflecting large-scale
projects in the electronics industry in China, Taiwan and South Korea, but
sales fell due to the completion of the posting of sales from large-scale
projects.

36 Kurita Water Industries Ltd. Annual Report 2016

2012

2013

2014

2015

2016

Kurita Water Industries Ltd. Annual Report 201637

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Medium-to-Long-Term
Strategy: Issues andObjectives

Interview with the
President

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita Historyk) Policies on Shareholder Returns

Return on Equity

needs of industry and society from the perspectives of environmental

Kurita’s basic policy is to pay stable dividends on an ongoing basis.

Years ended March 31(%)

impact reduction, resource recycling and productivity improvement. We

Setting a payout ratio of 30% to 50% as our target, we will continuously

lead to new business developments.
8.1

Kurita’s R&D activities are performed mainly by the Research andDevelopment Division. R&D staff number approximately 200, accounting forin business performance each year. With regard to the use of excessinternal reserves, we prioritize business investment, and then take

5.6

into account precautionary funds to prepare for rapid fluctuations in

4.7

5.5

performance and the operating environment. If excess funds remain,

3.6% of overall Group employees. In the fiscal year ended March 31, 2016,
Kurita’s R&D expenses totaled ¥5,269 million, equivalent to 2.5% of net sales.

4.4

we will take steps to improve capital efficiency and return profits to

In the Water Treatment Chemicals segment, Kurita is engaged in theshareholders, including through the acquisition of treasury stock, taking

development of chemicals for water treatment, environmental improve-the share price into consideration.

ment and production processes, which contribute to customers’ energy

During the year, the Company paid dividends of ¥48 per share,including an interim dividend of ¥24. This amount corresponds to a ¥2
increase from ¥46 per share in the previous fiscal year.

Investor Information

will also aggressively pursue R&D involving new water functions that will

work to increase dividends, making decisions based on the payout
ratios for the most recent five years to respond flexibly to fluctuations

Corporate Data

2012

2013

2014

2015

2016

Note: Return on equity = Net income attributable to owners of parent ÷Equity (Average) × 100
Equity is defined as net assets less minority interestssavings, environmental impact reduction and productivity enhancements. Other development activities include diagnostic technology forchemical effectiveness.
The segment’s main achievements during the year were as follows.
• In combination with our boiler chemicals, we developed boiler supply

Capital Expenditures
The Kurita Group is committed to making investments necessary fortechnological innovation and production capacity expansion, and toenhance competitiveness in response to intensified sales competition.

water equipment for low-pressure boilers using a reverse osmosis

Dividends per Sharemembrane that prevents scale failure and reduces fuel consumption

Years ended March 31(Yen)for diverse qualities of supplied water in Japan and overseas. Also,

In the fiscal year ended March 31, 2016, capital expenditures totaled¥19,623 million, an increase of ¥6,759 million compared with theprevious fiscal year (including leased assets and lease obligations for

40.00

42.00

44.00

46.00

48.00

through combination with the Company’s boiler sensors, wedeveloped a comprehensive water treatment management systemthat displays the status of water treatment and fuel efficiency improve-finance lease transactions that do not transfer ownership), mainly due toments on a computer.

the acquisition of business facilities.

• Large-scale tunnel construction is expected to increase as Linear Chuo
Shinkansen construction commences. We developed safe, low-cost

The Water Treatment Chemicals segment undertook capital expen-

chemicals that can be used to prevent walls from collapsing during thisditures totaling ¥2,434 million, mainly for upgrading water treatment
chemicals production facilities. This represented a decrease of ¥2,944

excavation.

million compared with the previous fiscal year.

• By combining the polymer synthesis technology Kurita Europe APWGmbH obtained in its acquisition of BK Guilini GmbH with the water

The Water Treatment Facilities segment carried out capital expendi-

treatment chemical technology we have accumulated, we developed atures totaling ¥17,188 million, mainly for the installation and expansionof facilities for the ultrapure water supply business. This represented a

2012

2013

2014

2015

2016

¥9,702 million increase compared with the preceding fiscal year.

highly cost-competitive anti-corrosion and anti-scale chemical for use
in cooling water in Asian industrial complexes.
The R&D expenses for the Water Treatment Chemicals segment for

Depreciation and amortization increased 6.0%, to ¥15,749 million.

the fiscal year ended March 31, 2016, totaled ¥2,129 million.
Research and Development
The Kurita Group engages in technological development to reinforce its

Capital Expenditures andDepreciation and Amortizationcore businesses. These include technologies related to boiler and cool-Years ended March 31(Millions of yen)challenge of realizing further advances in the quality of ultrapure

Capital expenditures

treatment, water reclamation, and soil and groundwater remediation.

Depreciation and amortizationmaterials development and other basic technologies. Furthermore,

19,623
15,054

we are actively engaged in developments in new fields, such as water
processing involving space and the oceans.
Going forward, we will continue to hone the water-related

14,774 14,863
12,864

15,749environmental regulations. Another focus area is the development

4,232

4,362

2012

2013

4,534

4,397

2014

2015

of technologies to meet the needs of a recycling-oriented society.
These include wastewater recovery and reuse technology, and sludge

6,688

The segment’s main achievements during the year were as follows.
5,709• Based on our biological treatment technology for reducing sludge
generation by using animalcules to predate on the microorganism-

strive to realize our corporate vision of being an advanced water andderived sludge grown during wastewater purification, we developed

environmental management company, we will proactively engage in

38 Kurita Water Industries Ltd. Annual Report 2016

wastewater treatment technologies that stay ahead of the curve vis-à-vis

reduction technology.
8,105

technologies we have cultivated over the many years to date. As we

product and technology development that meets the broad-ranging

5,269

industries as electronics. The Group is also pursuing the development of

We also strive to deepen our understanding of the assay and analysis
16,035

R&D Expenses
Years ended March 31(Millions of yen)water that will contribute to productivity improvements in suching water treatment, ultrapure water production, water and wastewatertechnologies that underpin our other technologies, as well as new

In the Water Treatment Facilities segment, Kurita is taking up the

2012

2013

2014

2015

2016

space-saving, low-cost biological treatment equipment that granulates

2016

Kurita Water Industries Ltd. Annual Report 201639

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Medium-to-Long-Term
Strategy: Issues andObjectives

Interview with the
President

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

animalcules to enhance sedimentation properties and renders solid–

amortization of goodwill associated with business acquisition in Europe.

liquid separation equipment in later processes unnecessary.

b) Liabilities• We developed a dry methane fermentation system that separates from

As of March 31, 2016, liabilities totaled ¥69,142 million, a decrease of

the mixed garbage emitted as general industrial waste those items¥1,872 million, compared with ¥71,014 million as of March 31, 2016.

Corporate Data

Investor Informationthat are suitable for fermentation, applies methane fermentation andcollects methane gas as an energy source.

Current Liabilities• Based on our knowledge in water treatment chemicals, equipment andCurrent liabilities totaled ¥44,407 million at the end of the fiscal year,

operations management, we developed a support tool that performs

a fall of ¥3,568 million from ¥47,975 million at the end of the previous

simple simulations using mobile PCs to demonstrate to customers

fiscal year. The decline was mainly attributable to decreases of ¥2,961

the benefits of water and energy conservation and the advantages

million in accounts payable–other, ¥890 million in income taxes payableof proposing water supply agreements using standardized waterand ¥1,018 million in “other” in current liabilities, which outweighed

treatment facilities.

a ¥1,891 million increase in accounts payable–trade. The decreasein accounts payable–other was mainly due to the settlement of the

The R&D expenses for the Water Treatment Facilities segment for theremaining cost of the acquisition of a business in Europe. The decreasefiscal year ended March 31, 2016, totaled ¥3,139 million.

in “other” in current liabilities was chiefly attributable to a reduction inadvances received in association with the posting of sales.

Financial Positiona) AssetsLong-Term Liabilities

As of March 31, 2016, Kurita had total assets of ¥298,107 million, an increaseof ¥3,615 million, compared with ¥294,492 million as of March 31, 2015.

Total Assets and Return on Assets

Noncurrent liabilities totaled ¥24,735 million at the end of the fiscal

Years ended March 31(Millions of yen) (%)

year, an increase of ¥1,696 million from ¥23,039 million at the endof the previous fiscal year. This was mainly due to an increase in net

Breakdown of Assets

Total Assets

Current Assets

Return on Assets

Current assets as of March 31, 2016, totaled ¥150,546 million, an increase

271,141

263,580

274,925

294,492 298,107

6.3

accounts receivable–trade, which outweighed an increase of ¥1,556

4.3

million in cash reserves—cash and deposits and marketable securities.

4.2

3.7

Years ended March 31(Millions of yen)shareholders’ equity and a decrease of ¥551 million in accumulated

fiscal year, compared with the previous fiscal year. The decrease in cash

the acquisition of a business in Europe.

EquityNet assets totaled ¥228,964 million at the end of the fiscal year, anprevious fiscal year, primarily due to an increase of ¥6,117 million insales in the Water Treatment Facilities segment in the second half of theultrapure water supply vehicles and payment of the remaining cost ofc) Net Assets
increase of ¥5,486 million from ¥223,478 million at the end of the

3.5

The expansion in accounts receivable–trade was mainly due to higher

reserves was principally the result of the purchase of equipment forchange in the discount rate used in the calculation of retirement benefit
obligations.

of ¥1,579 million, compared with ¥148,967 million as of March 31, 2015.
This rise was primarily attributable to an increase of ¥3,742 million in

defined benefit liability of ¥1,717 million, which resulted chiefly from a

2012

2013

2014

2015

2016

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

208,891 207,871

217,691

222,330 227,896

2014

2015

other comprehensive income. The main factors for the increase inshareholders’ equity were a ¥7,095 million increase in retained earnings,
mainly due to net income attributable to owners of parent of ¥12,577
million for the fiscal year under review, which exceeded dividend payments of ¥5,469 million—the sum of year-end dividends for the previous

Investments and Long-Term Receivables, Property, Plant andEquipment, and Intangible Assets
As of March 31, 2016, investments and long-term receivables came to¥44,970 million, up ¥1,656 million from ¥43,314 million as of March 31,

fiscal year and interim dividends for the fiscal year under review—and

Property, Plant and Equipment, Neta ¥990 million rise in treasury stock mainly through acquisitions in theYears ended March 31(Millions of yen)market. Accumulated other comprehensive income declined, chiefly
reflecting a ¥2,128 million fall in foreign currency translation adjustments

2015.
Property, plant and equipment, net, totaled ¥78,388 million, an

due to the stronger yen, which outweighed an increase of ¥1,293

98,368increase of ¥3,355 million compared with ¥75,033 million as of March 31,

77,855Intangible assets as of March 31, 2016, were ¥24,202 million, down

75,03378,388with the above-mentioned increase in unrealized gains from investment
As a result, total assets were ¥298,107 million as of March 31, 2016,

The increase in investments and other assets was mainly due toan increase of ¥3,615 million, compared with ¥294,492 million at thehigher unrealized gains on investment securities due to rises in theprevious fiscal year-end. As of March 31, 2016, Kurita had an equity

market prices of the shares held by the Group.

ratio of 76.4%, up 0.9 percentage point from 75.5% a year earlier. Net
assets per share at March 31, 2016, were ¥1,961.30, an increase of ¥53.50

The increase in property, plant and equipment was attributablecompared with ¥1,907.80 a year earlier.

chiefly to new projects in the ultrapure water supply business.

40 Kurita Water Industries Ltd. Annual Report 20162016

securities.

¥2,975 million compared with ¥27,177 million a year earlier.

The decrease in intangible fixed assets chiefly reflected the posting of2013

million in unrealized gains on available-for-sale securities associated86,820

2015.

2012

2012

2013

2014

2015

2016

Note: Equity is defined as total net assets less minority interests.

Kurita Water Industries Ltd. Annual Report 201641

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Medium-to-Long-Term
Strategy: Issues andObjectives

Interview with the
President

Cash Flows

Cash Flows from Operating Activities

Cash Flows from Operating Activities

Years ended March 31(Millions of yen)

Net cash provided by operating activities during the fiscal year ended

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

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.

March 31, 2016, totaled ¥26,582 million, an increase of ¥3,268 million
from the previous fiscal year. Inflows from income before income taxes

28,282of ¥20,411 million, depreciation and amortization of ¥15,749 million and27,276

29,666
26,582
23,314an increase in notes and accounts payable–trade of ¥2,293 million were

2. Materials and Parts Procurement
The Group procures raw materials and parts from outside the Groupfor the manufacture of products and fabrication of facilities. The prices

partially offset by an increase in notes and accounts receivable–trade ofof raw materials and parts fluctuate based on changes in market¥4,473 million and income taxes paid of ¥8,264 million.

conditions, and this may affect the Group’s financial results.

Cash Flows from Investing Activities

3. Overseas Business Development

Net cash used in investing activities totaled ¥33,172 million, a decline

The Group is striving to expand its business outside Japan. In contrastof ¥37,918 million from the previous fiscal year. Net cash decreased

to the Japanese market, doing business in overseas markets involves anumber of inherent risks, including the risk of changes to local laws andmainly due to payments into time deposits, net of withdrawals from time
deposits, of ¥10,138 million; payments for purchases of property, plant

2012

2013

2014

2015

2016

regulations, the risk of political and economic instability, and the risk ofand equipment totaling ¥17,693 million, including capital expenditures forforeign exchange rate fluctuations. If such risks materialized, the Group’s

the ultrapure water supply business; and payments for the acquisition offinancial results could be affected.

businesses in Europe of ¥3,857 million.
4. New Product Development
Cash Flows from Financing Activities

The Group continuously endeavors to develop new technology andNet cash used in financing activities totaled ¥5,707 million, a decrease of

appealing new products.

¥8,222 million from the previous fiscal year. The main cash outflows were

The success of new technology and product development efforts

cash dividends paid of ¥5,474 million and the purchase of treasury stockcannot be guaranteed. The Group may not be able to offer new technol-of ¥990 million, which were partially offset by proceeds from long-termogies and products that meet the needs of its customers or launch newloans payable of ¥1,256 million.

products in a timely fashion. The Group may also fail to keep pace with rapid
technological innovation and changing customer needs. If the Group wereCash and Cash Equivalents at End of Yearto fail to develop outstanding new products, this could hamper its future

At March 31, 2016, Kurita had cash and cash equivalents totaling ¥43,591

growth and profitability or otherwise affect its financial results.

million, a decrease of ¥12,084 million compared with March 31, 2015.
5. Intellectual Property
Business Risks

The Group recognizes the importance of intellectual property and

The following are summaries of major foreseeable risks present incontinually seeks to register its own intellectual property while avoiding

the business environments in which the Kurita Group operates.

infringing the intellectual property rights held by third parties, both

Forward-looking statements herein are based on judgments made by

in Japan and overseas. Given the wide scope of the Group’s business,management as of March 31, 2016.

however, there is potential for the Group’s intellectual property rights to
be infringed and potential for the Group to infringe the rights held by

1. Economic and Market Conditions

third parties. Such occurrences may affect the Group’s financial results.

The Group’s Water Treatment Chemicals and Water Treatment
Facilities businesses are affected by economic conditions in Japan

6. Dependence on Information Systems

and countries and regions outside Japan where the Group operates.

The Group’s use of information systems is increasing, as is the impor-

Demand in the Water Treatment Chemicals business fluctuatestance of information systems to the Group’s business. If a computerin response to factory capacity utilization rates in industries such

virus or some other factor were to obstruct the functions of the Group’s

as steel, petroleum refining and petrochemicals, and pulp andinformation systems, the Group’s business activities, financial results, andpaper—the main areas of demand for the business. Such demandfinancial condition could be negatively affected.

fluctuations may affect the Group’s financial results. Demand in the
Water Treatment Facilities business fluctuates in response to trends in

7. Large-Scale Natural Disasters

capital expenditure in electronics—the main area of demand for the

If an earthquake, typhoon, or other kind of natural disaster were tobusiness—and other industries. Such demand fluctuations may affectdirectly or indirectly upset the Group’s business execution, the Group’s

the Group’s financial results.

business activities, financial results, and financial condition could be
negatively affected.

42 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201643

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

CONSOLIDATED BALANCE SHEETS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
As of March 31, 2016 and 2015

Thousands of
U.S. dollars

Millions of yen

Assets2016

2016

Current assets:¥ 58,374¥ 52,497$ 516,584

71,016

67,324628,460

Allowance for doubtful accounts

(185)

(233)

(1,637)

Marketable securities (Notes 4 and 5)

7,566

14,99966,955Inventories (Note 7)

9,254

9,480

81,893

Deferred tax assets (Note 9)

1,652

1,728

14,619Other current assets

2,866

3,169

25,362

150,546

148,967

1,332,265

Cash and time deposits (Notes 3, 4 and 6)
Notes and accounts receivable, trade (Note 4)		Total current assets

Investments and long-term receivables:
Investment securities (Notes 4 and 5)

34,32432,424

303,752

Investments in unconsolidated subsidiaries and affiliates (Note 4)

2,739

3,253

24,238Deferred tax assets (Note 9)

4,232

4,595

37,451Other investments

3,879

3,342

34,327

Allowance for doubtful accounts

(204)

(302)

(1,805)44,97043,314397,964

Land (Note 12)13,941

13,972

123,371

Buildings and structures

61,27862,403542,283

Machinery and equipment

109,735

102,923

971,106

Construction in progress

8,586

4,160

75,982Other facilities

13,105

13,362

115,973

Leased assets

8,315

8,199

73,584

214,964

205,022

1,902,336(136,575)(129,988)(1,208,628)

78,38875,033

693,699

Goodwill

15,114

17,475

133,752

Other intangible assets

9,088

9,701

80,42424,202

27,177214,177¥298,107¥294,492$2,638,115

		Total investments and long-term receivables

Property, plant and equipment, at cost (Note 15):

		TotalAccumulated depreciation		Property, plant and equipment, net

Intangible assets:

		

Total intangible assets

		Total assets

Millions of yen(Note 1)

2015

Thousands of
U.S. dollars

Liabilities and Net Assets
Current liabilities:
Short-term borrowings and current portion of long-term debt (Note 8)
Notes and accounts payable, trade (Note 4)
Accounts payable, other
Income taxes payable
Advances received
Accrued employees' bonuses
Provision for product warranties
Provision for loss on construction contracts
Other current liabilities
		 Total current liabilities
Long-term liabilities:
Long-term debt (Note 8)
Net defined benefit liability (Note 10)
Accrued retirement benefits for directors and corporate auditors
Deferred tax liabilities on revaluation of land (Note 12)
Other long-term liabilities (Note 8)
		 Total long-term liabilities
		Total liabilities
Net assets:
Shareholders' equity (Note 11):
Common stock, 2016 and 2015
		 Authorized: 531,000,000 shares
		 Issued: 119,164,594 shares
Capital surplus
Retained earnings
Treasury stock, at cost		2016—2,967,674 shares		2015—2,626,561 shares
		 Total shareholders' equity
Accumulated other comprehensive income:Unrealized gains on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land (Note 12)
Foreign currency translation adjustments
Remeasurements of defined benefit plans (Note 10)
		 Total accumulated other comprehensive income
Non-controlling interests
		 Total net assets
		 Total liabilities and net assets(Note 1)

2016

2015

2,300
22,780
6,897
3,705
1,496
2,365
768
284
3,809
44,407¥ 1,794
20,819
9,858
4,595
3,021
2,255
784
1,037
3,809
47,975

4,763
15,467
57
1,119
3,327
24,735
69,142

5,159
13,750
75
1,181
2,872
23,02971,01442,150136,876
504
9,902
29,442
218,893
611,876

13,45010,993
196,788

13,45010,980189,693

119,026
97,283
1,741,486(8,695)
212,536(7,705)
206,419(76,946)
1,880,849

16,061
398
(380)
(618)
(101)
15,3601,067
228,964¥298,107

14,768
66
(442)
1,510
8
15,911
1,147
223,478¥294,492

142,132
3,522(3,362)(5,469)(893)
135,929
9,442
2,026,230$2,638,115

¥

2016
$

20,353
201,592
61,03532,787
13,23820,9296,796
2,513
33,707392,982

The accompanying notes are an integral part of these statements.

44 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201645

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

CONSOLIDATED STATEMENTS OF INCOME ANDCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2016 and 2015

Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2016 and 2015

CONSOLIDATED STATEMENTS OF INCOME
Thousands of
U.S. dollars

Millions of yen

Net sales (Note 18)
Cost of sales (Note 13)
Gross profit
Selling, general and administrative expenses (Note 14)
Operating income (Note 18)
Other income (expenses):
Interest and dividend income
Foreign exchange losses
Interest expense
Equity in earnings of unconsolidated subsidiaries and affiliates
Gain on sales of properties (Note 15)
Loss on disposal of properties (Note 15)
Acquisition-related costs
Impairment loss
Loss on liquidation of business
Other, net
		 Other income (expense), net
Income before income taxes
Income taxes (Note 9):
Current
Deferred		 Total income taxes
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of parent(Note 1)

2016
¥214,372
143,964
70,40750,574
19,8332015¥189,398
130,50958,88939,454
19,4352016$1,897,097
1,274,017
623,070
447,557
175,513

710
(102)
(276)
145
148
—
(221)
—
(176)
348
578
20,411

636
(86)
(84)
286
—
(241)
(1,626)
(226)
—
374
(968)
18,467

6,283(902)(2,442)
1,283
1,309
—
(1,955)—(1,557)
3,079
5,115
180,628

7,027
626
7,654
12,757180¥ 12,577

7,718
242
7,961
10,50671¥ 10,434

62,185
5,539
67,734
112,893
1,592$ 111,300

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Thousands of
U.S. dollars

Millions of yen

Net income
Other comprehensive income (Note 16):
Unrealized gains 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(Note 1)

2016
¥12,757

2015¥10,5062016$112,893

1,293
332
62
(2,113)
(109)
(86)
(621)
¥12,136

6,916
66
121
1,049
33
115
8,303
¥18,809

11,442
2,938
548(18,699)
(964)
(761)
(5,495)$107,398¥11,997
138¥18,688121$106,168
1,221
U.S. dollars

Yen

Per share of common stock (Note 20):
Net income
Cash dividends applicable to the year

(Note 1)

2016

2015

¥108.2448.00¥87.81
46.00

2016
$0.96
0.42

Millions of yen
Accumulated other comprehensive income
Unrealized Deferred
Foreign Remeasure- Total accumugains on
gains or Revaluation currency ments of lated other
Total
Common Capital Retained Treasury shareholders’ available-for- losses on reserve for translation defined comprehensive
sale securities hedges land (Note 12) adjustments benefit plans income
equitystock
surplus earnings stock
Shareholders’ equity (Note 11)

Balance as of March 31, 2014 ¥13,450
Cumulative effects of changes
in accounting policies
Restated balance as of¥13,450
March 31, 2014
Changes during the year
Cash dividends paid
Net income attributable toowners of parent
Acquisition of treasury stock
Changes in equity interestin consolidated subsidiaries
Other
Net changes of net assets otherthan shareholders’ equity
Total changes during the year—
Balance as of March 31, 2015 ¥13,450
Cumulative effects of changes
in accounting policies
Restated balance as of¥13,450
March 31, 2015
Changes during the year
Cash dividends paid
Net income attributableto owners of parent
Acquisition of treasury stock
Changes in equity interest inconsolidated subsidiaries
Other
Net changes of net assets otherthan shareholders’ equity
Total changes during the year—
Balance as of March 31, 2016 ¥13,450¥11,426 ¥185,159¥(2) ¥210,034(501)¥11,426 ¥184,657¥ 7,862¥ —¥(564)¥ 384¥ (25) ¥ 7,657

Noncontrollinginterests¥1,461 ¥219,153

(501)
¥

(2) ¥209,532(5,362)

Total net
assets(501)¥ 7,862¥ —¥(564)¥ 384¥ (25) ¥ 7,657¥1,461 ¥218,652(5,362)(5,362)

10,434

10,434(7,703)(7,703)

(445)

(445)

(36)

(36)

(36)

(445)
(5,035)¥10,980 ¥189,693(7,703)(3,113)¥(7,705) ¥206,419

10,434(7,703)
(445)

6,905

66

121

1,126

33

8,253

6,905
¥14,768

66
¥ 66

121
¥(442)

1,126¥1,510

33
¥ 8

8,253
¥15,911

(314)

7,939

(314)
4,826
¥1,147 ¥223,478—¥10,980 ¥189,693¥(7,705) ¥206,419(5,469)(5,469)(5,469)12,577

12,577

(990)

(990)

12,577(990)
12¥14,768¥ 66¥(442)¥1,510¥8¥15,911¥1,147 ¥223,478

12

12

(13)

(13)

(13)

12
7,094
¥10,993 ¥196,788

(990)
6,117
¥(8,695) ¥212,536

1,293

332

62

(2,129)

(109)

1,293
¥16,061

332
¥398

62
¥(380)(2,129)¥ (618)

(109)
(551)
¥(101) ¥15,360(551)

Thousands of U.S. dollars (Note 1)
Accumulated other comprehensive income
Unrealized Deferred
Foreign Remeasure- Total accumugains on
gains or Revaluation currency ments of lated otherTotal
defind comprehensive
Common Capital Retained Treasury shareholders’ available-for- losses on reserve for translation
sale securities hedges land (Note 12) adjustments benefit plans income
equitystock
surplus earnings stock

(79)

(630)

(79)
5,486
¥1,067 ¥228,964

Shareholders’ equity (Note 11)

Balance as of March 31, 2015 $119,026
Cumulative effects of changes
in accounting policies
Restated balance$119,026
Changes during the year
Cash dividends paid
Net income attributable toowners of parent
Acquisition of treasury stock
Changes in equity interest inconsolidated subsidiaries
Other
Net changes of net assets otherthan shareholders’ equity
Total changes during the year—
Balance as of March 31, 2016 $119,026

Noncontrollinginterests

Total net
assets$97,168 $1,678,699$(68,185) $1,826,716$130,690$ 584$(3,911)$13,362$ 70$140,805$10,150 $1,977,681$97,168 $1,678,699$(68,185) $1,826,716$130,690$ 584$(3,911)$13,362$ 70$140,805$10,150 $1,977,681—(48,398)(48,398)(48,398)

111,300

111,300

111,300(8,761)(8,761)(8,761)
106

106

106

(115)

(115)

(115)

106
62,778$97,283 $1,741,486(8,761)
54,132$(76,946) $1,880,849

11,442

2,938

548(18,840)(964)(4,876)

11,442$142,132

2,938$3,522548$(3,362)(18,840)$ (5,469)(964)$(893)(4,876)$135,929(699)(5,575)(699)
48,548$ 9,442 $2,026,230

The accompanying notes are an integral part of these statements.

The accompanying notes are an integral part of these statements.

46 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201647

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate DataCONSOLIDATED STATEMENTS OF CASH FLOWSNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2016 and 2015

Kurita Water Industries Ltd. and Consolidated Subsidiaries

Thousands of
U.S. dollars

Millions of yen(Note 1)

2016

2015

2016

¥20,41115,749
1,587
(842)
(145)
(710)
276
(74)
—
(23)
20

¥18,467
14,863
781
(547)
(286)
(636)
84
231
226
(39)
17

$180,628
139,371
14,044(7,451)(1,283)(6,283)
2,442
(654)
—
(203)
176

Interest and dividends received
Interest paid
Income taxes paid
Others, net
		 Net cash provided by operating activities(4,473)
(249)
282
2,293
(274)
360
34,189710(276)(8,264)223
26,582(7,674)
(504)
177
1,868
1,515
1,290
29,835783(84)(5,934)(1,285)23,314(39,584)(2,203)
2,495
20,292(2,424)
3,185
302,557
6,283(2,442)(73,132)
1,973
235,238

II. Cash flows from investing activities
Decrease in time deposits, net
Payments for purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for purchase of intangible assets
Payments for purchase of marketable securities and investment securities
Proceeds from sale and redemption of marketable securities and investment securities
Payments for acquisition of business (Note 3)
Others, net
		 Net cash provided by (used in) investing activities(10,138)(17,693)
156(772)(9,585)
9,027(3,857)(309)(33,172)(1,330)(8,148)38(4,375)(45,008)
88,072(24,383)
(117)
4,746

(89,716)(156,575)
1,380(6,831)(84,823)
79,884(34,132)(2,734)(293,557)

339
1,256
(15)
(5,474)
(77)
(626)
(990)
—

605
—
—
(5,362)(118)(588)(7,703)54

3,000
11,115(132)(48,442)(681)(5,539)(8,761)—

I. Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Increase in net defined benefit liability
Decrease in other allowances
Equity in earnings of unconsolidated subsidiaries and affiliates
Interest and dividend income
Interest expense
Loss (gain) on sales and disposal of properties
Impairment loss
Gain on sales of investment securities
Loss on valuation of investment securities
Changes in assets and liabilities:
		 Increase in trade receivables
		 Increase in inventories
		 Decrease in other assets
		 Increase in trade payables
		 Increase (decrease) in other liabilities
Others, net

III. Cash flows from financing activities
Increase 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
Proceeds from share issuance to non-controlling shareholders
Payments from changes in ownership interests in subsidiaries that do not
result in change in scope of consolidation
		 Net cash used in financing activities

(119)

(815)

(1,053)(5,707)(13,929)(50,504)

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.Increase in cash and cash equivalents from newly consolidated subsidiary
VIII.Cash and cash equivalents at end of year (Note 3)

154(12,143)
55,67559¥43,591

515
14,64741,028—¥55,675

1,362(107,460)
492,699522$385,761

The accompanying notes are an integral part of these statements.

48 Kurita Water Industries Ltd. Annual Report 2016

Investor Information

1. Basis of presentation of consolidated financial statements ����������������������������������������������������������������������������������
Kurita Water Industries Ltd. (the “Company”) and its domestic subsidiaries maintain their booksof account and prepare their financial statements in accordance with accounting principles
and practices generally accepted in Japan, while its foreign subsidiaries maintain their books ofaccount and 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
Finance and 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 2015 financial statements to conform to theclassification used in 2016.
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, 2016 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 ¥113 to US$1, the prevailing rate on the Tokyo Foreign Exchange
Market on March 31, 2016. 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, 2016 and 2015, 45 and 43
subsidiaries were consolidated, respectively.
Under the control concept, those companies in which the Company, directly or indirectly, isable to exercise control over operations are fully consolidated.
All significant inter-company transactions and balances have been eliminated in consolidation.
Names of principal consolidated subsidiaries:
		 Kurita Europe APW 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.
Fiscal years of consolidated subsidiaries
The fiscal years of all of the foreign consolidated subsidiaries (Kurita (Singapore) Pte. Ltd. and others)
end on December 31. For these consolidated subsidiaries, the financial statements as of December

Kurita Water Industries Ltd. Annual Report 201649

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

31 were used for consolidation purposes. However, material transactions that have occurred during
the three-month period from January 1 to March 31 of the following year have been adjusted asnecessary 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 theoperating and financial policies of the investees are accounted for by the equity method. For
the years ended March 31, 2016 and 2015, 5 and 6 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 includedin 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 componentof net assets. Available-for-sale securities with no available fair values are stated at cost computedby the moving-average method. The cost of sold securities is computed by the moving-averagemethod.
(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 specificidentification method, or net selling value.

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

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) Provision for loss on construction contracts
Provision for loss on construction contracts is provided in an amount sufficient to cover probablelosses on construction contracts on hand when substantial losses in the future are anticipated andcan be reasonably estimated.
(12) 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:
Hedged items:

Forward foreign exchange contracts
Forecasted transactions denominated in foreign currencies(6) Derivative transactions
Derivative transactions are measured at fair value in principle.

(13) 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.

(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, and ultrapure water supply facilities located at clients' sites,(14) 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.

50 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 2016

51

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President(15) Consumption taxes
Consumption taxes are accounted for separately from transaction prices and are not reflected in
the consolidated statements of income.
(16) 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 isapplied. The percentage of completion is determined using the cost incurred to the estimated total
cost.
(17) 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
rate during the year. The translation differences are recorded in “Foreign currency translation
adjustments” and “Non-controlling interests” in net assets.
(18) 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.
(19) 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.
(20) Accounting standard issued but not yet adopted
Implementation Guidance on Recoverability of Deferred Tax Assets(ASBJ Guidance No. 26, March 28, 2016; “Guidance No. 26”)
(1) Outline of changes
Guidance No. 26 basically continues to follow the framework of Auditing Committee Report No.
66 “Audit Treatment regarding Judgement of Recoverability of Deferred Tax Assets,” wherebycompanies are classified into five categories and deferred tax assets are assessed based on each ofthese categories. Necessary revisions were made on the following accounting treatments:
1)	Treatment for companies that do not satisfy any of the category requirements for Category 1 toCategory 52)	Category requirements for Category 2 and Category 33)	Treatment of unscheduled deductible temporary differences for the companies in Category 24)	Treatment for the period in which a reasonable estimate is possible for the future taxable
income before considering taxable or deductible temporary differences for the companies in
Category 35)	Treatment for the companies which satisfy Category 4 requirements but also satisfy Category 2
or Category 3(2) Date of adoption
Guidance No. 26 will be adopted from the beginning of the year ending March 31, 2017.

52 Kurita Water Industries Ltd. Annual Report 2016

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information(3) Effect of adoption of Guidance No. 26
The effect of adoption of Guidance No. 26 on the consolidated financial statements is underassessment.
(21) Change in presentation
Change due to adoption of Accounting Standard for Business Combinations, etc.
The Group adopted the treatment stipulated in article 39 of “Accounting Standard for Consolidated
Financial Statements” (ASBJ Statement No. 22, September 13, 2013). Accordingly, the Groupchanged the presentation of net income, etc., and the presentation of minority interests to noncontrolling interests. The Group has reclassified the 2015 consolidated financial statements toconform to the change in presentation.
(22) Reclassifications
Certain reclassifications have been made in the 2015 consolidated financial statements to conformto the 2016 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

Millions of yen

Cash and time deposits
Time deposits with original maturity of morethan three months
Certificates of deposits included in marketable securities,
excluding deposits maturing over three months
Commercial paper included in marketable securities,
excluding paper maturing over three months
Cash and cash equivalents(Note 1)

2016

2015

2016

¥58,374¥52,497$516,584(21,783)(11,821)(192,769)

7,000

14,00061,946—

999—¥43,591¥55,675$385,761(2)	The details of assets and liabilities in relation to acquisition of business for cash and cash
equivalents consideration
	For the year ended March 31, 2015
	The details of assets in relation to acquisition of the water treatment chemicals business,
paper process chemicals business, and alumina chemical compounds business from BK GiuliniGmbH and its affiliates for cash and cash equivalents consideration and reconciliation between
acquisition costs of the businesses and net payment for the acquisition are as follows:
Millions of yen

Current assets¥ 5,124

Non-current assets

7,045

Goodwill

18,825Current liabilities(1,191)

Non-current liabilities(1,196)

Total acquisition costs

28,606

Accounts payable – other in relation to the acquisition of businesses(3,387)

Cash and cash equivalents(835)

Net payment for the acquisition of businesses¥24,383
Kurita Water Industries Ltd. Annual Report 201653

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

4. Financial instruments and related disclosures�������������������������������������������������������������������������������������������������
(1) Policy for financial instruments
The Group invests its funds in low-risk financial assets (deposits, etc.) in principle. The Groupfinances its working fund and capital investment fund internally and does not need external funds,
but may raise necessary funds from external resources in case of special demand for significant
capital investment, if any. In such cases, financing from external resources would be possible
without any problem thanks to our sound financial position. With respect to derivatives, only
forward foreign currency contracts are used if necessary to avoid foreign exchange risk, 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 pricefluctuations 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 13 years (14 in 2015) later at maximum.
(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
to hedge the market risk of fluctuations in foreign exchange rates involved in trade receivables
and payables 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
and hold 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

54 Kurita Water Industries Ltd. Annual Report 2016

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

31, 2016 and 2015 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, 2016

Carrying
amountFair value

Difference

Cash and time deposits¥ 58,374¥ 58,374¥—

71,01671,016——

Notes and accounts receivable, tradeMarketable securities and investment securities
Available-for-sale securities
Total assets

41,80041,800¥ 171,190¥ 171,190¥—

Notes and accounts payable, trade¥ 22,780¥ 22,780¥—¥ 22,780

¥—

¥

¥—

Total liabilities¥ 22,780

Derivatives¥

At March 31, 2016

Thousands of U.S. dollars (Note 1)
Carrying
amountFair value
Difference

757

757

$ 516,584$ 516,584$—

628,460

628,460—

369,911

369,911—$ 1,514,955$ 1,514,955$—$ 201,592$ 201,592$—

Total liabilities
Derivatives$ 201,592$
6,699$ 201,592
$
6,699

$—
$—

At March 31, 2015

Carrying
amountFair value

Difference

Cash and time deposits¥ 52,497¥ 52,497¥—

67,324

67,324—47,33447,334—

Cash and time deposits
Notes and accounts receivable, tradeMarketable securities and investment securities
Available-for-sale securities
Total assets
Notes and accounts payable, trade

Millions of yen

Notes and accounts receivable, tradeMarketable securities and investment securities
Available-for-sale securities
Total assets¥ 167,156¥ 167,156¥—

Notes and accounts payable, trade¥ 20,820¥ 20,820¥—

Total liabilities¥ 20,820¥ 20,820¥—

Derivatives

¥

¥

¥—

(11)

(11)

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 certificates of deposits, commercial paper, and money trusts. Fair values of investment securities
are determined based on the quoted 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 6.
b. Financial instruments whose fair values cannot be reliably determined are as follows:

Kurita Water Industries Ltd. Annual Report 2016

55

Kurita’s Business
Model

CONTENTSManagement
Indicators

To All Our
Stakeholders

Interview with the
President¥

Unlisted equity securities (Unlisted shares)¥

410

Investments in capital

90
241

2,739

Shares of unconsolidated subsidiaries and affiliates

3,253

Carrying amount exceeding acquisition cost:

796$302,106$105,292$196,814

24,238———71,016

—

—

—

7,000

—

—

—

566

—

—

—

¥136,921

¥—

¥—

¥—

Thousands of U.S. dollars (Note 1)
Due after one Due after five
year through years through Due after ten
five years
ten years
years

Due in one
year or less

Deposits$ 516,265

$—

$—

$—

628,460———

61,946———$1,211,690

$—

$—

—
$—

5. Marketable securities and investment securities��������������������������������������������������������������������������������������������
(1) Available-for-sale securities with fair value at March 31, 2016 and 2015 are summarized asfollows:
Millions of yen
At March 31, 2016

Carrying
amountAcquisition cost

Difference

Carrying amount exceeding acquisition cost:
Stocks¥34,138¥11,898¥22,240

Bonds

—

—

—

Other

—

—

—

34,138

11,89822,240Stocks

95

140

(44)

Bonds

—

—

—

Other

—

—

—

			

Subtotal

Carrying amount not exceeding acquisition cost:			

Subtotal

Total

56 Kurita Water Industries Ltd. Annual Report 2016

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

Stocks¥——Investor Information

Bonds

¥—

—

Corporate Data

3,628

¥—

5,008

Kurita History$

At March 31, 2016

Notes and accounts receivable, tradeMarketable securities and investment securities
Available-for-sale securities with maturities(Certificates of deposits)
Marketable securities and investment securities
Available-for-sale securities with maturities(Commercial paper)
Total

Financial Section

At March 31, 2016

¥ 58,338

Notes and accounts receivable, tradeMarketable securities and investment securities
Available-for-sale securities with maturities(Certificates of deposits)
Marketable securities and investment securities
Available-for-sale securities with maturities(Commercial paper)
Total

Accomplishment ofSocial Responsibility

2016

These securities are not included in above “Marketable securities and investment securities” since their fair values
cannot be reliably determined.
c. Maturities of monetary receivables and securities after the balance sheet dateMillions of yen
Due after one Due after fiveDue in one
year through years through Due after ten
At March 31, 2016
year or lessfive years
ten years
years

Deposits

Technology-Driven Kurita
Group Underpinned byStrong R&D(Note 1)

2015
90

Review and Strategies
by Segment

Thousands of
U.S. dollars

Millions of yen

2016

Medium-to-Long-Term
Strategy: Issues andObjectives

95

140

(44)

¥34,233¥12,038¥22,195———

302,106

105,292

196,814Stocks

840

1,238

(389)

Bonds

—

—

—

Other
			

Subtotal

Carrying amount not exceeding acquisition cost:

—

—

—

840

1,238

(389)

$302,946$106,530$196,415

Other
			

Subtotal

Total

Notes:
The above table does not include negotiable deposits that have not been assigned a market value (value on
consolidated balance sheets: ¥7,000 million), unlisted shares (value on consolidated balance sheets: ¥90 million),
investments in unaffiliated companies (value on consolidated balance sheets: ¥410 million), and money trusts(value on consolidated balance sheets: ¥566 million).
Millions of yen
Carrying
amountAcquisition cost
Difference
At March 31, 2015

Carrying amount exceeding acquisition cost:
Stocks¥32,284¥11,990¥20,293

Bonds

—

—

—

Other
			

Subtotal———

32,284

11,99020,293Carrying amount not exceeding acquisition cost:
Stocks

49

63

(13)

Bonds

—

—

—

Other

—

—

—

49

63

(13)

¥32,334¥12,054¥20,280			

Subtotal

Total

Notes:
The above table does not include negotiable deposits that have not been assigned a market value (value on
consolidated balance sheets: ¥14,000 million), commercial paper (value on consolidated balance sheets: ¥999
million), unlisted shares (value on consolidated balance sheets: ¥90 million), and investments in capital (value on
consolidated balance sheets: ¥241 million).

(2) 
Available-for-sale securities sold during the years ended March 31, 2016 and 2015 aresummarized as follows:
Thousands of
U.S. dollars

Millions of yen

2016(Note 1)

2016

2015

Sales amount

¥27

¥72

$238

Total gains on sales
Total losses on sales

23

39

203

—

—

—

Kurita Water Industries Ltd. Annual Report 201657

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

6. Derivatives���������������������������������������������������������������������������������������������������������������������������������������������������������������
Derivatives for which hedge accounting was not applied at March 31, 2016 and 2015 are as follows:

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

At March 31, 2016

Hedging instrument

Currency swaps:
Receive Yen, Pay Korean Won

At March 31, 2016

Hedging instrument

Currency swaps:
Receive Yen, Pay Korean Won

At March 31, 2015

Hedging instrument

Currency swaps:
Receive Yen, Pay Korean Won

Contract
amount¥3,566¥2,913¥220

Inventories at March 31, 2016 and 2015 consist of the following:$31,557

Contract
amount¥3,081Thousands of U.S. dollars (Note 1)
Due after one
year
Fair value$25,778$1,946

Millions of yen
Due after one
year
Fair value¥3,081¥(109)

Thousands of
U.S. dollars

Millions of yen
Unrealized
gains (losses)

¥220

2015

2016

Finished products¥3,130¥3,840$27,699

Raw materials

2,433

2,561

21,530

Total
Unrealized
gains (losses)$1,946

Unrealized
gains (losses)¥(109)(Note 1)

2016

Work in process
Contract
amountInvestor Information

7. Inventories���������������������������������������������������������������������������������������������������������������������������������������������������������������

Currency related
Millions of yen
Due after one
year
Fair value

Corporate Data

3,690

3,078

32,654¥9,254¥9,480$81,893

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.

8. 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, 2016 and 2015
consist of the following:Thousands of
U.S. dollars

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

2016

Derivatives for which hedge accounting was applied at March 31, 2016 and 2015 are as follows:
Short-term borrowings
Currency related
At March 31, 2016

Hedging instrument

Hedged item

Contract
amountCurrent portion of lease obligations
Fair value

Receive Yen, Pay EuroAt March 31, 2016

Hedging instrument

Hedged item

¥12,388¥11,011¥537$14,30916

539

Receive Yen, Pay Euro

Hedging instrument

Hedged item

$109,628$97,442$4,752

Receive Yen, Pay Euro

5,495
$20,353

Contract
amountMillions of yen
Due after one
year¥13,764¥12,388(Note 1)

2016

2015

¥1,081¥(61)

Long-term borrowings (Excluding current portion)¥1,019¥Lease obligations
Lease obligations (Excluding current portion)

Fair value

Thousands of
U.S. dollars

Less current portion of long-term borrowings

Less current portion of lease obligations

Currency swap contracts:
Forecasted
transactions
denominatedin foreign
currencies

595¥1,794

Millions of yen

Long-term borrowings
Forecasted
transactions
denominated inforeign currencies

621¥2,300(2) Long-term debt
Long-term debt at March 31, 2016 and 2015 is summarized as follows:

Thousands of U.S. dollars (Note 1)
Contract
Due after one
amountyear
Fair value

Currency swap contracts:

At March 31, 2015

¥1,182

61

The weighted-average annual interest rate of short-term borrowings for the years ended March
31, 2016 and 2015 were 4.51% and 5.04%, respectively.

Currency swap contracts:
Forecasted
transactions
denominated inforeign currencies

Total

2016

¥1,617

Current position of long-term borrowings
Millions of yen
Due after one
year(Note 1)

2015

2016
54

$ 9,566

(16)

(539)

38

$ 9,017¥5,384¥5,754$47,646

(621)

(595)

(5,495)¥4,763¥5,159$42,150

The weighted-average annual interest rate of long-term borrowings for the years ended March
31, 2016 and 2015 were 1.04% and 2.98%, respectively.

¥97

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

58 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201659

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Millions of yen

Thousands of
U.S. dollars(Note 1)

2017

¥ 61

$ 539

2018

253

2,238

2019

243

2,150

2020

243

2,150

2021

243

2,150

Annual maturities of lease obligations at March 31, 2016 are as follows:
Years ending March 31

Millions of yen

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

9. Income taxes�����������������������������������������������������������������������������������������������������������������������������������������������������������

Annual maturities of long-term borrowings at March 31, 2016 are as follows:
Years ending March 31

Medium-to-Long-Term
Strategy: Issues andObjectives

Thousands of
U.S. dollars(Note 1)

2017

¥621

$5,495

2018

546

4,831

2019

511

4,522

2020

472

4,176

2021

398

3,522

(3) Other long-term liabilities
Other than the short-term borrowings, long-term borrowings and lease obligations describedabove, ¥682 million (US$6,035 thousand) and ¥663 million of interest-bearing long-term deposits
received were included in other long-term liabilities as of March 31, 2016 and 2015, respectively.
The weighted-average annual interest rates for such deposits received for the years ended
March 31, 2016 and 2015 were 0.36%.

Significant components of the deferred tax assets and liabilities as of March 31, 2016 and 2015 are
as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Excess depreciation of property, plant and equipment
Net defined benefit liability
Loss on revaluation of investment securities
Excess provision for accrued bonuses to employees
Tax loss carry-forward of consolidated subsidiaries
Accrued enterprise taxes not deductible
Impairment loss
Unrealized gains on sale of property, plant and equipment
Excess provision of allowance for product warranty
Other		Subtotal		Valuation allowance
		 Total deferred tax assets
Deferred tax liabilities:
Unrealized losses on available-for-sale securities
Tangible and intangible assets identified due
to business combinations
Estimated income taxes pertaining to retained
earnings of foreign consolidated subsidiaries
Capital gains on properties deferred for tax purposes
Other
		 Total deferred tax liabilities
		 Deferred tax assets, net(Note 1)

2016

2015

2016

¥ 5,778
4,431
1,008
693
316
286
233
264
211
1,836
15,060(1,244)
13,816¥ 6,205
4,000
1,063
737
75
355
325
264
234
1,269
14,530(1,452)
13,077$ 51,132
39,212
8,920
6,132
2,796
2,530
2,061
2,336
1,867
16,247133,274(11,008)
122,265(6,113)(5,502)(54,097)(1,096)(937)(9,699)

(712)

(741)

(6,300)

(539)
(166)
(8,628)¥ 5,187

(576)
(105)
(7,862)¥ 5,215(4,769)(1,469)(76,353)$ 45,902

Provision for loss on construction contracts which was separately presented as a componentof deferred tax assets for the year ended March 31, 2015 is included in Other in deferred tax assets
from the year ended March 31, 2016 because of decreased materiality. The 2015 note on significant
components of the deferred tax assets and liabilities has been reclassified to conform to the change
in presentation.
As a result, provision of loss on construction contracts of ¥106 million which was separately
presented in deferred tax assets as of March 31, 2015 has been reclassified to Other in deferred tax
assets.
Tax loss carry-forward of consolidated subsidiaries which was included in Other as acomponent of deferred tax assets for the year ended Mach 31, 2015 is separately presented fromthe year ended March 31, 2016 because of increased materiality. The 2015 note on significant
components of the deferred tax assets and liabilities has been reclassified to conform to the change
in presentation.
As a result, ¥1,344 million which was presented as Other in deferred tax assets as of March 31,
2015 has been reclassified to ¥75 million of tax loss carry-forward of consolidated subsidiaries and¥1,269 million of Other.

60 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 2016

61

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

A reconciliation between the normal effective statutory tax rate and the effective income tax
rate as a percentage of income before income taxes for the years ended March 31, 2016 and 2015
was as follows:
Normal effective statutory tax rate
Non-deductible loss on valuation of marketable securities
Expenses not deductible for income tax purposes
Withholding tax withheld from foreign subsidiaries’ dividends
Reversal of deferred tax liabilities on retained earnings offoreign consolidated subsidiaries
Dividend income not taxable for income tax purposes
R&D expense tax credit
Difference in statutory tax rates of foreign subsidiaries
Reduction of deferred tax assets due to tax rate change
Per capita inhabitant taxes
Other
Actual effective tax rate

2016

2015

33.1%
(0.7)
0.3
0.4

35.6%
—
0.4
0.5

0.1

(0.4)

0.1
(1.5)
(0.7)
3.5
0.5
2.4
37.5%

(0.3)
(1.4)
(0.1)
6.8
0.5
1.5
43.1%

Kurita History

Corporate Data

Investor Information(2) Movement in net defined benefit liability for plans applying simplified method
Thousands of
U.S. dollars

Millions of yen(Note 1)

2016

2015

2016

¥1,385¥1,387$12,256

Net periodic benefit costs

214

95

1,893

Benefits paid

(161)

(97)

(1,424)

98

—

867

¥1,536¥1,385$13,592

Thousands of
U.S. dollars

Millions of yen(Note 1)

2016

2015

2016

Retirement benefit obligations¥15,467¥13,750$136,876

Net liability on the consolidated balance sheet¥15,467¥13,750$136,876

Net defined benefit liability¥15,467¥13,750$136,876

Net liability on the consolidated balance sheet¥15,467¥13,750$136,876(4) Net periodic benefit costs
Thousands of
U.S. dollars

Millions of yen(Note 1)

2016

2015

2016

Service cost

¥ 695

¥ 629

$ 6,150

Interest cost

132

106

1,168

Amortization of actuarial differences

966

144

8,548

Net periodic benefit costs computed by simplified method

214

95

1,893

17

27

150

¥2,026¥1,002$17,929

Other
Net periodic benefit costs(5) Remeasurements of defined benefit plans, before income tax effect in other comprehensive
incomeThousands of
U.S. dollars

Millions of yen

2015

2016

¥12,364¥ 9,975$109,415

—

779

—

¥12,364¥10,754$109,415

Service cost

695

629

6,150

Interest cost

132

106

1,168

Actuarial differences incurred

1,125

92

9,955

Benefits paid

2016

(365)

(370)

(3,230)

Increase due to acquisition of business

—

1,093

—

Other

(20)

58

176

¥13,931¥12,364$123,283

Thousands of
U.S. dollars

Millions of yen(Note 1)

2016

62 Kurita Water Industries Ltd. Annual Report 2016

Financial Section(3) Reconciliation between retirement benefit obligations and net defined benefit liability(1) Movement in retirement benefit obligations, except plans applying simplified method

Balance at end of year

Accomplishment ofSocial Responsibility

Balance at end of year

Defined benefit plans
The Company and certain consolidated subsidiaries provide lump-sum retirement benefit plansfor defined 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.

Restated balance at beginning of year

Technology-Driven Kurita
Group Underpinned byStrong R&D

Increase due to newly consolidated subsidiaries

10. Retirement benefits and pension plans����������������������������������������������������������������������������������������������������������

Cumulative effects of changes in accounting policies

Review and Strategies
by Segment

Balance at beginning of year

On March 29, 2016, “Act on Partial Revision of the Income Tax Act” (Act No. 15 of 2016) and “Acton Partial Revision of the Local Tax Act” (Act No. 13 of 2016) were enacted in the Diet session. As
a result, the normal effective statutory tax rate will be changed from 32.3% to 30.9% for the year
beginning on April 1, 2016 and the year beginning on April 1, 2017, and to 30.6% for the year
beginning on April 1, 2018.
As a result of this change, compared with when using the previous normal effective statutory
tax rate, deferred tax assets, net of deferred tax liabilities as of March 31, 2016 decreased by ¥381
million (US$3,371 thousand) and income taxes – deferred increased by ¥722 million ($6,389
thousand), which resulted in increase in income tax expenses, for the year ended March 31, 2016.

Balance at beginning of year

Medium-to-Long-Term
Strategy: Issues andObjectives(Note 1)

2015

2016

Actuarial differences¥(158)¥12$(1,398)

Total¥(158)¥12$(1,398)(6) Remeasurements of defined benefit plans, before income tax effect in accumulated othercomprehensive income
Thousands of
U.S. dollars

Millions of yen

2016(Note 1)

2015

2016

Unrecognized actuarial differences¥(146)¥12$(1,292)

Total¥(146)¥12$(1,292)

Kurita Water Industries Ltd. Annual Report 2016

63

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information(7) Assumptions for actuarial calculation
The Company uses multiple weighted-average discount rates determined by reflecting theestimated periods of retirement benefit payments.
The Company and its consolidated subsidiaries not using the simplified method for computing
retirement benefit obligations have changed the discount rate, as a result of a review made atMarch 31, 2016, based on the judgment that the discount rate applied at April 1, 2015 will affectthe computation of retirement benefit obligations. As a result of this change, retirement benefit
obligations as of March 31, 2016 increased by ¥1,269 million (US$11,230 thousand) and net periodic
benefit costs for the year ended March 31, 2016 increased by ¥1,153 million (US$10,203 thousand).
Negative discount rates were adjusted to 0% in computing retirement benefit obligations.

12. Revaluation reserve for land������������������������������������������������������������������������������������������������������������������������������

Defined contribution pension plans
The amount to be contributed to the defined contribution pension plans by the Company andits consolidated subsidiaries was ¥852 million (US$7,539 thousand) and ¥880 million for the years
ended March 31, 2016 and 2015, respectively.

13. Cost of sales�����������������������������������������������������������������������������������������������������������������������������������������������������������

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 assets or 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

Provision for loss on construction contracts included in cost of sales were ¥(728) million (US$(6,442)
thousand) and ¥(273) million for the years ended March 31, 2016 and 2015, respectively.

14. Selling, general and administrative expenses������������������������������������������������������������������������������������������������
11. Shareholders’ equity��������������������������������������������������������������������������������������������������������������������������������������������
Japanese companies are subject to the Companies Act. A summary of the sections of theCompanies Act that affect financial statements and accounting matters is as follows:

Selling, general and administrative expenses for the years ended March 31, 2016 and 2015
consisted of the following:Thousands of
U.S. dollars

Millions of yen(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 andadditional 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’ meetings. The amount of treasury stock purchased cannot
exceed the amount available for distribution to the shareholders which is determined by a specificformula.

64 Kurita Water Industries Ltd. Annual Report 2016

Salaries and allowances
Provision for employees’ bonuses(Note 1)

2016

2015

2016

¥19,021¥16,064$168,327

1,318

1,216

11,663Retirement benefit expenses

2,001

1,117

17,707

Travel expenses

3,023

2,767

26,752

Research and development expenses

5,269

4,397

46,628Other

19,93913,889176,451

Total¥50,574¥39,454$447,557

15. Other income (expenses)������������������������������������������������������������������������������������������������������������������������������������
Gain on sales of properties for the years ended March 31, 2016 and 2015 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2016

2016

2015

Buildings and structures

¥ 29

¥—

$ 256

Machinery and equipment

108

—

955

6

—

53

Leased assets

3

—

26

¥148

¥—

$1,309Other (Tools, furniture and fixtures, etc.)
Total(Note 1)

Loss on disposal of properties for the years ended March 31, 2016 and 2015 consisted of thefollowing:Thousands of
U.S. dollars

Millions of yen

2016
Buildings and structures(Note 1)

2015

¥—

¥ 57

2016
$—

Other (Leasehold, etc.)

—

184

—

Total

¥—

¥241

$—

Kurita Water Industries Ltd. Annual Report 2016

65

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

16. Comprehensive income��������������������������������������������������������������������������������������������������������������������������������������

17. Business combinations���������������������������������������������������������������������������������������������������������������������������������������

The components of other comprehensive income for the years ended March 31, 2016 and 2015 are
as follows:Business combinations carried out with Kurita Europe APW GmbH, Kurita Water Industries (Jiangyin)Co., Ltd. and seven other companies on January 31, 2015 for which a provisional accounting
treatment was applied in the year ended March 31, 2015 were completed in the year ended March
31, 2016.
Due to the completion of the provisional accounting treatment, significant changes tothe initial allocation of acquisition costs were reflected in the 2015 information included in the
consolidated financial statements.
As a result, the provisional amount of goodwill of ¥19,391 million decreased by ¥1,916 million,to ¥17,475 million. This decrease is primarily due to increases in inventories, property, plantand equipment, and other intangible assets of ¥626 million, ¥987 million, and ¥1,760 million,
respectively.

Thousands of
U.S. dollars

Millions of yen(Note 1)

2016

2015

2016

¥1,852¥9,520$16,389

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

38

(15)

336

1,891

9,505

16,734

Income tax effect(597)(2,588)(5,283)

Subtotal

1,293

6,916

11,442

Reclassification adjustments to profit or loss
Amount before income tax effect

18. Segment information������������������������������������������������������������������������������������������������������������������������������������������
Deferred gains on hedges:
Amount arising during the year

465

97

4,115

Reclassification adjustments to profit or loss

—

—

—

Amount before income tax effect

465

97

4,115

Income tax effect

(132)

(31)

(1,168)Subtotal

332

66

2,938

62

121

548

(2,113)

1,049(18,699)

(146)

12

(1,292)

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

(12)

39

(106)

Amount before income tax effect

(158)

52

(1,398)

48

(18)

424

(109)

33

(964)

(86)

125

(761)

Income tax effectSubtotal
Share of other comprehensive income ofentities accounted for using equity method:Amount arising during the year

0

(9)

0

Subtotal

(86)

115

(761)

		Total¥ (621)¥8,303$ (5,495)

Reclassification adjustments to profit or loss

66 Kurita Water Industries Ltd. Annual Report 2016

(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,
chemical cleaning, tool cleaning, soil and groundwater remediation services, and provides
maintenance services that encompass operation, maintenance, and management of water
treatment facilities.
(2) Methods for calculating sales, income and loss, assets and liabilities, and other amounts byreportable segment
Accounting methods applied in the reportable segments are consistent with the methods appliedin preparation of the accompanied consolidated financial statements. Segment income represents
operating income. Intersegment sales and transfers between the Group reflect values based onmarket price. Intersegment sales and transfers between the Company’s divisions are based primarily
on book values.

Kurita Water Industries Ltd. Annual Report 2016

67

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

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

Millions of yen

Millions of yen
Year ended March 31, 2016

Sales
1) Sales to outside customers
2) Intersegment sales
Total
Segment income
Segment assets
Segment liabilities
Other items
Depreciation andamortization
Impairment loss
Increase in property,
plant and equipment andintangible assets

Year ended March 31, 2016

Sales
1) Sales to outside customers
2) Intersegment sales
Total
Segment income
Segment assets
Segment liabilities
Other items
Depreciation andamortization
Impairment loss
Increase in property,
plant and equipment andintangible assets

Water
Treatment
Chemicals

Water
Treatment
Facilities

Total¥83,680
235¥83,916¥ 6,467
79,36524,142¥130,692
158¥130,850¥ 13,366
142,564
45,060¥214,372
394¥214,767¥ 19,834
221,930
69,202—(394)¥ (394)¥(0)76,176(59)¥214,372—¥214,372¥ 19,833
298,107
69,142

2,613

12,068

14,682—

14,682

—

—

—

—

—

2,434

17,188

19,623—

19,623Water
Treatment
ChemicalsYear ended March 31, 2015
Adjustments Consolidated¥

Thousands of U.S. dollars (Note 1)
Water
Treatment
Facilities
Total
Adjustments Consolidated$740,530 $1,156,566 $1,897,097
2,079
1,398
3,486
$742,619 $1,157,964 $1,900,592$ 57,230 $ 118,283 $ 175,522
702,345 1,261,628 1,963,982
213,646
398,761
612,407

Investor Information$— $1,897,097(3,486)—$ (3,486) $1,897,097$(0) $ 175,513
674,123 2,638,115(522)
611,876

106,796

129,929—

129,929

—

—

—

—

—

21,539152,106

173,654—

173,654

Water
Treatment
Facilities

Total¥59,999377¥60,376¥ 7,877
79,79026,653¥129,399
231¥129,631¥ 11,560
136,391
44,581¥189,398
608¥190,007¥ 19,437
216,182
71,235

1,406

13,457

—
5,378

Sales
1) Sales to outside customers
2) Intersegment sales
Total
Segment income
Segment assets
Segment liabilities
Other items
Depreciation andamortization
Impairment loss
Increase in property,
plant and equipment andintangible assets

Adjustments Consolidated

¥

—
(608)
¥ (608)¥(2)
78,310(220)¥189,398—¥189,398¥ 19,435
294,492
71,014

14,863—

14,863

226

226

—

226

7,486

12,864—

12,864

Note:“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 ¥76,237 million (US$674,663 thousand) and ¥78,533 million as ofMarch 31, 2016 and 2015, respectively, unallocated to reportable segment assets (cash deposits, securities
in trust, and long-term investments)
4. Segment liabilities: Amount resulting from eliminations of intersegment claims and liabilities

Related Information(Information by geographic region)(1) Net sales
Year ended March 31, 2016

23,123Water
Treatment
Chemicals

Sales

Year ended March 31, 2016

Sales

Year ended March 31, 2015

Sales

Japan

Asia

¥150,495¥37,778

Japan

Asia

$1,331,814 $334,318

Japan

Asia

¥150,291¥32,061

Millions of yen
North
America
EMEA

Other

Total

¥2,431¥2,970¥214,372

Other

Total

$26,283$1,897,097¥20,698

Thousands of U.S. dollars (Note 1)
North
America
EMEA$21,513$183,168

Millions of yen
North
America
EMEA

Other

Total

¥2,028¥3,460¥189,398¥1,557

Note:
Sales 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.

68 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 2016

69

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President(Change in presentation)
Because of increased materiality of the EMEA region due to acquisition of businesses operating
mainly in Europe, the Middle East, and Africa, certain amounts previously presented as Europe,Asia, and Other are presented as EMEA for the year ended March 31, 2016. The 2015 net sales bygeographic region have been reclassified to conform to the change in presentation.
As a result, a total amount of ¥1,557 million, out of which ¥1,514 million, ¥31 million and ¥10 million
were previously presented as Europe, Asia and Other, has been reclassified to the EMEA for the year
ended March 31, 2015.
(2) Property, plant and equipment
Year ended March 31, 2016

Japan

Asia

Sales

¥68,993¥6,790Year ended March 31, 2016

Sales

Japan

Asia

$610,557$60,088¥2,038

Thousands of U.S. dollars (Note 1)
North
America
EMEA$185$18,035

Other

Total

¥544

¥78,388

Other

Total

$4,814$693,699

Accomplishment ofSocial Responsibility

Financial Section

Thousands of
U.S. dollars(Note 1)

Kurita History

Year ended March 31, 2015

Investor Information(Information about amortization and unamortized balance of goodwill)
Millions of yen
Year ended March 31, 2016
Amortization

Water
Treatment
Chemicals

Water
Treatment
Facilities

Corporate/
Elimination

Total

Total

¥ 1,066¥—¥ 1,066¥—¥ 1,066

15,114—

15,114—

15,114

Unamortized balance

Water
Treatment
Chemicals

Thousands of U.S. dollars (Note 1)
Water
Treatment
Corporate/
Facilities
Total
Elimination

Total

Amortization$ 9,433$—$ 9,433$—$ 9,433

Unamortized balance

133,752—

133,752—

133,752

Year ended March 31, 2015
Amortization
Unamortized balance

Water
Treatment
Chemicals¥

Water
Treatment
Facilities—¥—

17,475—

Corporate/
Elimination

Total
¥

—

¥—

17,475

—

Total
¥

—
17,475

19. Subsequent events����������������������������������������������������������������������������������������������������������������������������������������������

Reportable segment

Sales to:Sharp Corporation

Corporate Data

Appropriation of retained earnings
The following appropriation of retained earnings for the year ended March 31, 2016 was approvedat the ordinary general meeting of shareholders of the Company held on June 29, 2016.

(Information by major customer)
Millions of yen

Technology-Driven Kurita
Group Underpinned byStrong R&D

Millions of yen

For the year ended March 31, 2015, the Company has omitted disclosure here because property,
plant and equipment holdings in Japan account for more than 90% of the amount of property,
plant and equipment reported on the consolidated balance sheet.

Year ended March 31, 2016

Review and Strategies
by Segment

Year ended March 31, 2016

Millions of yen
North
America
EMEA¥21

Medium-to-Long-Term
Strategy: Issues andObjectives

Millions of yen¥23,097

Water Treatment$204,398
Facilities

Millions of yen

Reportable segment¥26,298

Water Treatment
Facilities

Cash dividends (year-end dividends)¥2,788

Thousands of
U.S. dollars(Note 1)

$24,672

Sales to:Sharp Corporation

70 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201671

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Report of Independent Certified Public Accountants

20. Per share information������������������������������������������������������������������������������������������������������������������������������������������
U.S. dollars

Yen

Net assets per share
Net income per share (EPS)(Note 1)

2016

2015

2016

¥1,961.30¥1,907.80$17.35108.24

87.81

0.95

The basis of calculation for net assets per share is as follows:
Thousands of
U.S. dollars

Millions of yen

2016
Net assets¥

228,964(Note 1)

2015¥

223,4782016$2,026,230

Amounts excluded from net assets

1,067

1,147

9,442

(Non-controlling interests on the above)
Net assets attributable to common shareholdersof parent
Number of common stock at the year-end used
for the calculation of net assets per share(1,067)(1,147)(9,442)

227,896

222,330

2,016,778

116,196,920

116,538,033

The basis of calculation for EPS is as follows:
Thousands of
U.S. dollars

Millions of yen

2016
Net income attributable to owners of parent
Net income attributable to commonshareholders of parent
Average number of shares outstanding¥

12,577(Note 1)

2015

2016

10,434$111,300

12,577

10,434111,300

116,197,479

118,825,349¥(The Company has no dilutive shares.)

72 Kurita Water Industries Ltd. Annual Report 2016

Kurita Water Industries Ltd. Annual Report 201673

CONTENTS

Kurita’s Business
ModelManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Review and Strategies
by Segment

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Corporate Data

Investor Information

Kurita History: Path of a Technology-Driven Company

1951

1972

2002

2003

2012

2013

2014

2015

Boiler Water Supply Laboratory EstablishedOne of the World’s Largest
Reverse Osmosis Desalination
Devices Completed
The Company delivered a reverse osmosis desalination device with an unprecedented water treatment capacity of 3,000
m3/day (at the time, one of theworld’s largest) to an industrial
complex customer.

Launch of Ultrapure Water
Supply Business
Launch of outsourcing business
in which the Company owns,
operates and manages facilities for customers, and supplies
them with ultrapure water. A
business model is developedthat represents a fusion of products, technologies and services
developed to date across thechemicals, facilities and maintenance arms of the business.

100% Wastewater Recovery
and Recycling Achieved
In 2003, the Company created a
wastewater recovery and reusesystem that uses membrane filtration and biological treatment
at one of Japan’s largest liquid
crystal panel plants.
Today, leveraging this technology the Company increases
adoptions of wastewater recovery and recycling system not
only in Japan, but also at overseas sites with high water reusedemand.

Phosphoric Acid Recovery
System Wins METI Industrial
Technology Environmental
Agency Director General's
Award
The system selectively recovers
phosphoric acid, which is usedin large volumes in electronic
device manufacturing processes, from wastewater and concentrates it to about 50%, a levelat which reuse as a valuable resource is possible.

S.sensing™ New Water Treatment Management Service
Launched
S.sensing, a service that optimizes water treatment in real timeusing the Company’s proprietary sensing technology, waslaunched in the water treatment
chemicals business.

Biosaver TK™, a Carrier-Type
Anaerobic Water Treatment
System, Wins METI Award at
the 40th Excellent Environmental Equipment Awards
By using a resin carrier developedby the Company, it is possible totreat low-concentration organic
wastewater and wastewater consisting of a single composition,
which is difficult to treat withconventional anaerobic biological treatment systems, reducing
environmental impact in a wider
range of fields.

Chromatography Devices
for Biopharmaceuticals
Developed
The Company became the firstJapanese manufacturer to create
chromatography devices thatcan be used to separate and purify the active constituents (active pharmaceutical ingredients)of biopharmaceuticals during
the manufacturing process. The
Company used proprietary analysis technology, and optimized
the structure of the containers,
making it possible to consistently separate and purify constituents at a high level.

Shortly after the Company’s
foundation, its first research facility was established. The laboratory started with analysis ofboiler water and later began developing boiler compounds andboiler cleaning methods.

The photo shows the laboratory
after the name was changed to theCentral Research Laboratory

History & Achievements
1949–1950s

1949 Founded upon water treatment chemicals business (boiler

1951

1951
1953
1958

1959

water treatment chemicals)
The founder of the Company starts selling boiler water
treatment chemicals based on boiler technology for large
ships.
Entry into the water treatment facilities business
Capitalizing on sales of deionizers for the pretreatment ofboiler water supplies, the Company moves into the water
treatment facilities business. Start of comprehensive serviceof water treatment chemicals and water treatment facilities.
Boiler Water Supply Laboratory established.
Start-up of chemical cleaning services
New expansion into the chemical cleaning services, whereboiler interiors are cleaned using chemical technology.
Expansion of maintenance services
An organization specializing in maintenance services isestablished with a view to expanding after-sales services andmaintenance operations for water treatment facilities.
KK Suzuki Shokai established as a chemical cleaning company(currently Kurita Engineering Co., Ltd.).

1965 Expansion into process treatment chemicals

Development of chemicals that increase productivity in thepulp and paper, petrochemical and steel industries, wherelarge volumes of water are used, as the Company broadens
the scope of its business from water treatment chemicals to
production process treatment chemicals.

1970s1973 Entry into the electronics industry

1974
1975

1975
1978

1960s

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

1961 Kansai Kurita Seibi KK. established as a maintenance company
1962

for water treatment facilities (predecessor of Kurita Technical
Service Co., Ltd.).
Listed stock on the First Section of the Tokyo Stock Exchange
and the Osaka Securities Exchange.

74 Kurita Water Industries Ltd. Annual Report 2016

Ultrapure water production technology is developed tomeet the demand for water of a higher degree of purity thatcomes with increasing miniaturization in semiconductor
manufacturing processes.
Completion of Tokyo Head Office building in Shinjuku,
Tokyo
Establishment of an overseas company for water treatment
chemicals business
Kurita do Brasil LTDA. established to manufacture and sellwater treatment chemicals in Brazil.
Kurita Operation and Maintenance Services, Ltd. established
as a water treatment facilities operation and maintenancecompany (currently Kuritaz Co., Ltd.).
Kurita (Singapore) Pte. Ltd. established as Kurita’s water
treatment chemicals and water treatment facilities businessbase in Southeast Asia.

1986 P.T. Kurita Indonesia established to carry out the production
1987
1989
1989

1990s

1991 Launch of soil remediation services

1995
1996
1997
1998

1980s

1986 Deployment of tool cleaning services

Sales channels established for the electronics business andchemical cleaning technology developed to date are used for
the Company’s entry into the cleaning services for tools andjigs used in semiconductor production equipment.

and sales of water treatment chemicals in Indonesia.
Kurita (Taiwan) Co., Ltd. established to conduct water
treatment chemical manufacturing and sales in Taiwan.
Kurita Europe GmbH established in Germany as Kurita’s base inEurope for water treatment chemical production and sales.
Goshu Chemical Co., Ltd. established to conduct water
treatment chemical manufacturing and sales in Thailand(currently Kurita-GK Chemical Co., Ltd.).

Soil pollution was increasingly becoming a major social
problem, and, as a result, the Company commenced soil
remediation business operations based on water treatment
technology developed to date.
Kurita Water Industries (Dalian) Co., Ltd. established as Kurita’sbase in China for water treatment chemical production andsales.
Kurita America, Inc. established in the United States to conduct
water treatment facilities sales and maintenance services.
Kurita Water Industries Ltd. merges with maintenancecompany Kurita Technical Service Co., Ltd.
Acquires an equity stake in Hansu Technical Service Ltd., whichis involved in the production, sales and maintenance of water
treatment facilities in South Korea.

2000s

2001 Land Solution Inc. established as a consulting company
dealing in soil remediation.

2001 Start of consulting services for hedging soil pollution risks

2001
2002
2003
2003
2004
2005
2009

Start of business involving the hedging of pollution risks andschemes to facilitate the smooth liquidation of land that has
been restored to a safe condition based on soil remediation
successes to date.
Kuritec (Shanghai) Co., Ltd. established as Kurita’s base in China
for sales and maintenance services of water treatment facilities
sales and maintenance services.
Launch of ultrapure water supply business
Integration of tool cleaning business units from Group
companies and establishment of Kuritec Service Co. Ltd.
Analysis division split off to establish Kurita Analysis Service Co.
Ltd.
Kurita Water Industries (Suzhou) Ltd. established as a water
treatment facilities production and sales base in China.
Kurita Global Technology Center established through the
integration of research and development facilities.
Kurita Chemical Manufacturing Ltd. established as a new
subsidiary to manufacture water treatment chemicals.

2010s2012 Head office relocation to Nakano, Tokyo
2015 Acquisition of water treatment-related businesses in Europe

2016

Acquires water treatment chemicals, paper process chemicals
and alumina compound businesses of BK Giulini GmbH from
Israel Chemicals Ltd.; Kurita Europe APW GmbH established.
Launch of ultrapure water supply business in South Korea
Kurita Europe GmbH and Kurita Europe APW GmbH merge(the new company name is Kurita Europe GmbH).

Kurita Water Industries Ltd. Annual Report 2016

75

Kurita’s Business
Model

CONTENTSManagement
Indicators

To All Our
Stakeholders

Interview with the
President

Medium-to-Long-Term
Strategy: Issues andObjectives

Corporate Data
Company Name
Address
Paid-in Capital
Date of Establishment
Number of Employees

Technology-Driven Kurita
Group Underpinned byStrong R&D

Accomplishment ofSocial Responsibility

Financial Section

Kurita History

Osaka Office:2-22, Kitahama 2-chome, Chuo-ku,
Osaka-shi, Osaka 541-0041, Japan
Tel: 81 (6) 6228-4800
Other Offices:
Shizuoka, Tohoku, Nagoya,
Hiroshima and Kyushu(As of March 31, 2016)

Overseas Office
Major Domestic Offices Head Office:10-1, Nakano 4-chome,
Nakano-ku, Tokyo 164-0001, Japan
Tel: 81 (3) 6743-5000
Kurita Global Technology Center:
1-1, Kawada, Nogi-machi,
Shimotsuga-gun, Tochigi
329-0105, Japan
Tel: 81 (280) 54-1511

Taiwan Branch:
5F-3, No. 295, Section 2,
Kuang-Fu Rd.,
Empire Commercial Bldg.,
Shinchu, Taiwan, R.O.C.
Tel: 886 (3) 575-1157

Stock Exchange Listing
Common Stock

Investor Information

Number of Shareholders
Independent Auditor
Transfer AgentFirst Section of the Tokyo Stock Exchange
Authorized: 531,000,000 shares
Issued: 119,164,594 shares(Stock trading unit: 100 shares) (As of March 31, 2016)
27,039 (As of March 31, 2016)
Grant Thornton Taiyo LLC
Akasaka Oji Bldg. 5F, 8-1-22, Akasaka, Minato-ku, Tokyo 107-0052, Japan
Sumitomo Mitsui Trust Bank, Ltd.
1-4-1, Marunouchi, Chiyoda-ku, Tokyo 100-8233, Japan

Major Shareholders

Major Consolidated Subsidiaries and Affiliated Companies
Paid-in capital
Equity(Millions)ownership (%)

Main businessb AsiaDistribution of Shares
Shareholdings(Number of shares)

Percentage
of totalshares issued(%)

Japan Trustee Services Bank, Ltd.
(Trust Account)

6,151,200

5.16

Nippon Life Insurance Company

5,979,883

5.01

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

3,382,900

2.83

¥550

90.1

Manufacture & sale of water treatment chemicals

Kurita Water Industries Ltd.

2,967,674

2.49

Kuritec (Shanghai) Co., Ltd.

¥30

100.0

Sale & maintenance of water treatment facilities

Kurita Water Industries (Suzhou) Ltd.

¥530

100.0

Sale & manufacture & construction of water treatment facilities

Japan Trustee Services Bank, Ltd.
(Trust Account 9)2,877,500

2.41

US$16.043

100.0

Manufacture & sale of water treatment chemicals and paper process chemicals

Tokio Marine & Nichido Fire Insurance Co., Ltd.

2,155,826

1.80

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

2,056,131

1.72

NORTHERN TRUST CO. (AVFC) RE-HSD00

1,785,300

1.49

BNYML-Non Treaty Account1,784,200

1.49

Northern Trust Co. (AVFC) Re U.S. Tax Exempted
Pension Funds

1,737,500

1.45

Kurita Water Industries (Jiangyin) Co., Ltd.

Corporate Data

Investor Information

Kurita Water Industries Ltd.
10-1, Nakano 4-chome,
Nakano-ku, Tokyo 164-0001, Japan
¥13,450,751,434
July 13, 1949
5,481 (on a consolidated basis);
1,528 (parent company)

Kurita Water Industries (Dalian) Co., Ltd.

Review and Strategies
by Segment

Angang BK Giulini Water Treatment Co., Ltd.

RMB55

50.0

Manufacture & sale of water treatment chemicals

Hansu Co., Ltd.

W2,50033.2

Hansu Technical Service Ltd.

W15,400

100.0

Kurita (Taiwan) Co., Ltd.

NT$20

100.0

Manufacture & sale of water treatment chemicals
Sale & manufacture & maintenance of water treatment facilities andoperation & maintenance of water treatment facilities
Manufacture & sale of water treatment chemicals

Kurita (Singapore) Pte. Ltd.

S$4

100.0

Manufacture & sale of water treatment chemicals and water treatment facilities

Kurita-GK Chemical Co., Ltd.

BAHT204

85.0

Manufacture & sale of water treatment chemicals

P.T. Kurita Indonesia

US$2.00

92.5

Manufacture & sale of water treatment chemicals and water treatment facilities

Kurita Water (Malaysia) Sdn. Bhd.

RM$0.6

100.0

Sale of water treatment chemicals

Treasury Stock
Individuals

Financial Institutions

Securities
Firms
Foreigners

Other Domestic Firms
Shareholdings(Number of shares)(%)

Financial Institutions b

36,205,480

30.4

Securities Firms b

1,681,421

1.4

Other Domestic Firms b

9,904,506

8.3

Foreigners b

55,077,264

46.2

Individuals b

13,328,249

11.2

Treasury Stock b

2,967,674

2.5

Total

119,164,594

100.0(As of March 31, 2016)(As of March 31, 2016)b Europe

EUR20

100.0

Manufacture & sale of water treatment chemicals

Kurita France S.A.S.

Kurita Europe GmbH

EUR15.0936

100.0

Sale of water treatment chemicals

Kurita Iberica SL

EUR0.00301

100.0

Sale of water treatment chemicals

Kurita Turkey Kimya A.S.

TRY5.78445

100.0

Manufacture & sale of water treatment chemicals

SEK0.1

100.0

Sale of water treatment chemicals

Kurita America, Inc.

US$3.0100.0

Kurita do Brasil LTDA.

R$6.986

100.0

Manufacture & sale of water treatment chemicals and operation andmaintenance of water treatment facilities
Manufacture & sale of water treatment chemicals

Kurita Sverige AB

Stock Price Range and Trading Volume (Tokyo Stock Exchange)
Stock price (Yen)b North America & South Americab JapanKurita Chemical Manufacturing Ltd.

¥50

100.0

Kuritec Creation Co. Ltd.

¥160

100.0

Kuritaz Co., Ltd.

¥220

100.0

Manufacture of water treatment chemicals
Manufacture & sales of water treatment equipment and products forgeneral households
Operation & maintenance of water treatment facilities

Kurita Engineering Co., Ltd.

¥160

100.0

Chemical cleaning

Land Solution Inc.

¥450

69.0

Soil remediation

Kuritec Service Co. Ltd.

¥50

100.0

Tool cleaning

76 Kurita Water Industries Ltd. Annual Report 2016

40,0003,000

30,0002,000

20,0001,000

10,0000(As of April 1, 2016)

Trading volume (Thousands of shares)

4,000

Jan. ’14

Stock priceJan. ’15

Jan. ’160

Trading volume
Kurita Water Industries Ltd. Annual Report 201677

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

URL: http://www.kurita.co.jp/english/

This report was printed on FSC-approved paper using vegetable oil ink.
Printed in Japan