HOKUETSU : Integrated Report2021

HOKUETSU GROUP Integrated Report

2021

Vision 2030

ENVIRONMENT

INNOVATION

HOPE

) 2021 Report Integrated GROUP HOKUETSU(

Group Corporate Philosophy

As a people focused business group, we work to improve society globally,

by providing socially and environmentally responsible products through innovative manufacturing on a global scale.

Established April 2018

• "People-focusedbusiness group" is the expression of our vision for the future, what we want to become, our goal.
• • A business group that values its connection to its stakeholders and the relationship of trust with them.
  • A business group that pursues the happiness of its employees.
  • A business group that respects diversity and empowers its people.
• "Socially and environmentally responsible" means to create a sustainable society in harmonious coexistence with nature, guided by the concept of "minimum impact" to keep all impact on the natural environment to the minimum at each stage from the procurement of raw materials to the manufacture of end products.
• "Products through innovative manufacturing on a global scale" means to pursue innovation, to aim at delivering the greatest satisfaction to our customers by enhancing our technological capabilities.

"Socially and environmentally responsible", "products through innovative manufacturing on a global scale": these are the values, the philosophy, that we uphold. It is the mission of our corporate group, the foundation of our existence, to "work to improve society globally" through these values.

Contents

Value Creation Strategy
Message from the President	3
Value Creation Model	5
Medium-Term Management Plan Progress Highlights	7
Feature: Toward Creating New Value	9
A History of Value Creation	11
Business Strategy
At a glance Business Overview	13
01 Investment Business	15
02 Paper and White Paperboard Business	17
03 Performance Materials Business	21
Growth Strategy and Foundation for Creating Value
Initiatives in CSR Activities	25
1. Environmental Preservation Initiatives	28
2. Raw Material Procurement	33
3. Consumer Issues	34
4. Work Environment	35
5. Organizational Governance	37
6. Fair Business Practices	41
7. Relationship with Society	42
Financial & Non-Financial Section/Corporate Information
Consolidated and Non-consolidated Financial Highlights	43
Business Locations	45
Corporate Information	47

Editorial Policy	Scope of reporting
This report focuses on Hokuetsu Corporation's	• Companies covered by this report:
value creation strategy and its progress, in	Hokuetsu Group (Hokuetsu Corporation and main
addition to themes that we recognize as	affiliated subsidiaries, etc.)
particularly important matters in non-financial	• Period covered by the report:
activity reports.	April 1, 2020-March 31, 2021
Please also refer to our website for more	(Some activities after this period are also reported)
detailed information.	Contact:
Please see the financial statements in the	General Affairs Department
securities report.	Hokuetsu Corporation
	Telephone [phone]
	FAX [phone]
	Website: www.hokuetsucorp.com

) 2021 Report Integrated GROUP HOKUETSU(

1

2

Value Creation Strategy

Message from the President

Aiming to sustainably improve corporate value by steadily executing the Medium-Term Management Plan.

Accelerating our business portfolio shift and aggressively expanding new businesses in Japan and abroad

In light of the recent circumstances, we believe that it is necessary to further advance our efforts to "(2) shift business portfolio and expand business worldwide."

Overseas, we are moving forward with various measures to secure stable profits over the long term, such as strengthening the electricity sales business and distribution network in our pulp business in Canada. Our white paperboard business in China set record-breaking profits due to rising product prices, and the start of the development and sales of containerboard at Jiangmen Xinghui Paper Mill. Furthermore, the performance materials business in China and France continues to set record-breaking profits at a pace that exceeds our Medium-Term Management Plan due to the progress of digitization worldwide. These efforts have resulted in a current overseas sales ratio of 31%.

accurately, the entire Group is working to "(3) strengthen business in Japan."

As one measure, in April 2021, we reorganized into two business divisions, the Paper & White Paperboard Business Division and the Performance Materials Division. Moving forward, the Paper & White Paperboard Business Division will aim to improve business efficiency and stabilize profits as an existing business, while the Performance Materials Division will focus on expanding the business domain of functional paper and earning revenue as a new material. With this new organization, we will maximize synergistic effects for the growth of the Group.

Promoting risk management activities with the aim of further strengthening corporate governance

Finally, regarding the objective to "(4) strengthen corporate governance," we are working to solidify our corporate governance with the goal of realizing the Group Corporate Philosophy and the Group Code of Conduct. In the current fiscal

) 2021 Report Integrated GROUP HOKUETSU(

Impact of the COVID-19 pandemic

The Japanese economy during the current fiscal year languished due to the impact of the COVID-19 pandemic on the global economy. In addition to the stagnation in the global economy, the Japanese paper and pulp industry finds itself in a prolonged

Sekio Kishimoto

President and CEO

This plan focuses on advancing four objectives: "(1) strengthen environmental competitiveness,""(2) shift business portfolio and expand business worldwide,""(3) strengthen business in Japan" to meet new demand for paper, and "(4) strengthen corporate governance" as the foundation for the above with an eye on balancing environmental measures and corporate growth potential based on the SDGs.

In Japan, we will enter the household paper business and start producing and selling household paper products such as toilet paper, tissue paper, and paper towels, which are the only paper products with increasing demand. Our containerboard, which has already been in production since April 2020, is broadly accepted across the country and sales volumes are increasing.

Building a new organization to meet new demand for paper in Japan

The paper and pulp market is entering a new phase due to dramatic changes in society. In order to respond to this situation

year, we established the "Group Risk Management Basic Regulations" to identify management risks and clarify matters to be addressed. In addition, we also established the position of Chief Risk Management Officer to conduct risk management activities for risks related to occupational safety.

By promoting these efforts, we will improve the corporate value of the Group and aim to achieve transformation and growth with an eye on the next generation as a corporate group that is even more trusted by stakeholders.

) 2021 Report Integrated GROUP HOKUETSU(

harsh environment with shrinking demand for printing and communication paper because of the digitization of information and media. Demand began recovering with the step-by-step resumption of social and economic activities in the second half of the fiscal year, but the Hokuetsu Group finished the fiscal year

Advanced environmental responsiveness is the source of our strength zero CO emissions by 2050

The objective to "(1) strengthen environmental

				n
Hokuetsu Corporation's decisions	❷		t busi es	s p		tfoli
hif		or
	S				o

and concentration strategies	New business

ended March 2021 with consolidated net sales of ¥222.5 billion (down 15.9% year on year), operating income of ¥1.7 billion (down 84.8% year on year), and ordinary income of ¥9.7 billion (down 37.7% year on year), resulting in a decline in income and profits. Net income attributable to owners of the parent company was ¥14.17 billion (up 75.6% year on year) due to posting a gain on sale from the transfer of all shares of Japan Brazil Paper and Pulp Resources Development Co., Ltd.

Advancing the Medium-Term Management Plan to achieve our long-term vision

competitiveness" is the Group's top management issue. From early on, we have worked to produce paper and paperboard that is environmentally-friendly, and made capital investments of around ¥50 billion to reduce CO over the last 25 years, such as by installing recovery boilers, wood biomass boilers, and mega solar power generation facilities at each of our mills. We are also working to reduce CO emissions throughout the paper product life cycle. As a result, our paper products are made with 70% "CO zero energy." This is the source of the Group's competitiveness. Furthermore, in order to emphasize the environmental vision that we are aiming for, in November 2020, we formulated "Hokuetsu Group Zero CO 2050," which aims to realize virtually

❷E
x
p
a
n
d
b
u
s	Overseas
n
i
e
s
s
w
o
r
l
d
w
i
d
e

• Promote M&A

• Introduce management

focused on main

businesses

• Develop new businesses and
expand strategic investment
		❸
			S
			t
			r
			e
			n
			g
			t
• Strengthen new material and new		h
	e
product development organization	in Japan	n
b
			u
			s
			i
	• Expand	• Make containerboard	n
• Logistics reforms	e
packaging	into a core business
s
	business		s
		i
			n
			J
• Strengthening profitability	• Build an optimal	a
p
through internal and	production
a
external collaborations	organization	n

Existing business

The business environment surrounding us is expected to continue to be uncertain due to the impact of the COVID-19 pandemic. Given this situation, in April 2020, Our Group launched its new long-term corporate vision "Vision 2030," which aims for sustainable growth, and "Medium-term Management Plan 2023".

zero CO emissions by 2050. To achieve this environmental vision, the Group is considering the building of new or expanded biomass boilers, consignment of privately-generated power between plants, and the introduction of heavy oil alternative technology and equipment at pulp mills.

Strengthen environment		❹Strengthen corporate
competitiveness		governance
• Group Environmental Target 2030 initiatives	• Respect human rights	• Hold Consolidated Management and
• Develop environmentally-friendly products	• Promote work style reforms	Internal Control Meetings
E	S	• Establish a new Audit & Supervisory
Board Member Office
• Enhance the functions of the Group
Administration Department
GovernanceG

Promotion of SDG activities

3

4

Value Creation Strategy

Value Creation Model

Working to improve society globally

Based on the trust of stakeholders, the Hokuetsu Group responds flexibly to changes in the business environment and contributes to solving social issues by "providing socially and environmentally responsible products through innovative manufacturing on a global scale," while at the same time seeking to create economic and social value by performing business portfolio transformation.

Capital to strengthen

Medium-Term Management Plan 2023

From April 1, 2020 to March 31, 2023 (3 years)

(
HOKUETSU			Other		Shift business portfolio
Financial capital
• Expand growth investments			Paper	Expand business
GROUP	Investment
business	worldwide
	business
→ See p.9-24		At the start of the
	Medium-Term
		Management Plan	Strengthen business
Integrated
	Packaging		in Japan
	business		White
Natural capital		Specialty	Strengthen profitability
Report		paper	paperboard	of existing businesses
		business	business
• Announced Zero CO 2050
2021	→ See p.9-10
)
	• Develop environmentally-
	friendly products
	→ See p.20	E	S G	Promote SDG-related
	→ See p.29
	activities
		Strengthen environment

Other

Paper & white

paperboard business

New business

Performance

materials business

E S G

Vision 2030

ENVIRONMENT

A business group that contributes to sustainable social development based on environmental management

KPI

• Group Environmental Target 2030

INNOVATION

A business group that makes use of diverse human resources and the latest technology to challenge ourselves in new business fields in step with the times

KPI

(By March 31, 2026)

• 10% of workforce comprised of women
• 60% paid leave acquisition rate

HOPE

) 2021 Report Integrated GROUP HOKUETSU(

competitiveness

Foundation to support

Human capitalbusinessStrengthen governance management

• Thorough respect for diversity
• Work style reforms
• • See p.26-27
  • See p.36

Reinvest achievements

• "Group Environmental	• Respect human
Target 2030" initiative	rights
• Develop	• Promote work-style
environmentally-	reforms
friendly products

• Hold Consolidated Management and Internal Control Meetings
• Establish a new Audit & Supervisory Board Member Office
• Enhance the functions of Group Governance Administration Department

A business group made up of people working proactively with dreams, hopes and pride

5

6

Value Creation Strategy

Medium-Term Management Plan Progress Highlights

Despite harsh circumstances,

we made steady progress with measures toward achieving the plan in line with our policy.

Progress

The global impact of the COVID-19 pandemic has been significant, even in the pulp and paper industry, and our consolidated sales for the fiscal year ended March 2021 decreased in Japan and overseas. Operating income also fell sharply. However, the paper and pulp market is gradually

Management Plan 2023 one year ahead of schedule. Moreover, we will start the household paper business as an initiative to transform our business portfolio. This is a new investment project based on the basic policy of Medium-Term Management Plan 2023.

Targets and achievements

Net sales

(¥100 million) 4,000

Operating income

(¥100 million)

200

recovering and we expect higher income and profits for the fiscal year ending March 2022 as it is expected to recover a certain extent from the extreme decline in the previous year. The pulp market is also on a recovery trend. As a result, our consolidated earnings forecast will achieve the targets set for operating income, ordinary income, and net income in the Medium-Term

The Group is working to shift its business portfolio, expand business worldwide, and strengthen its business in Japan in accordance with the basic strategy of Medium-Term Management Plan 2023, such as starting the containerboard business from the current fiscal year. We will aim for sustainable growth by accelerating corporate activities based on these basic policies.

) 2021 Report Integrated GROUP HOKUETSU(

2,800

2,550

2,224

2,000

0	Fiscal year ended	Fiscal year ending	Fiscal year ending
	March 2021 (actual)	March 2022 (forecast)	March 2023 (target)

Ordinary income

(¥100 million) 400

200	200
200
97

0	Fiscal year ended	Fiscal year ending	Fiscal year ending
	March 2021 (actual)	March 2022 (forecast)	March 2023 (target)

ROE

(%)

10

8.4

150	150
100
17

0	Fiscal year ended	Fiscal year ending	Fiscal year ending
	March 2021 (actual)	March 2022 (forecast)	March 2023 (target)

Net income attributable to owners of parent company

(¥100 million)
200	170
141	150
100

0	Fiscal year ended	Fiscal year ending	Fiscal year ending
	March 2021 (actual)	March 2022 (forecast)	March 2023 (target)

EBITDA
(¥100 million)
400		350
	330

Measures for Medium-Term Management Plan 2023

Basic Policy	Specific initiative	Related page
	Develop new businesses		(
(1) Shift business portfolio			HOKUETSU
Expand strategic investment
	Introduce management focused
	p15-16	GROUP
	on main businesses
	Strengthen profitability through internal
(2) Expand business worldwide		Integrated
and external collaborations
	Promote M&A
			Report
	Construct an optimal production system
		2021
	Make containerboard into a core business		)
(3) Strengthen business in Japan		p13-24
Expand packaging business
	Strengthen profitability of existing businesses
	Hold Consolidated Management
	and Internal Control Meetings
(4) Strengthen governance	Establish a new Audit &	p37-41
management	Supervisory Board Member Office
	Enhance the functions of the Group
	Governance Administration Department

7.6

5

7.0

248

200

	Group Environmental Target 2030 initiatives
	Develop environmentally-friendly products	p9-10
		p20
(5) Promote SDG-related activities	Promote work-style reforms
p25-36
	Respect human rights	p42

0	Fiscal year ended	Fiscal year ending	Fiscal year ending
	March 2021 (actual)	March 2022 (forecast)	March 2023 (target)

0	Fiscal year ended	Fiscal year ending	Fiscal year ending
	March 2021 (actual)	March 2022 (forecast)	March 2023 (target)

"hSA25" safety and health activities

7

8