Kureha : Business Report 2022

Business Report 2022

Year ended March 31, 2022

https://www.kureha.co.jp/

Becoming an Excellent Company in Specialty Chemicals

In pursuit of "a great leap forward," we at Kureha will continue to pursue our goal of being a company that creates the products which meet the needs of the times.

Corporate Identity

	Mission	Kureha aims to be an "Excellent Company."

● We treasure people and the natural environment

Corporate philosophy ● We constantly evolve through innovation

● We contribute to society by developing beneficial products

Editorial Policy

Thank you for reading the Kureha Business Report.

The purpose of this report is to share with stakeholders the current status of the Kureha Group and the direction in which it is headed.

Until fiscal 2020, the Business Report was prepared mainly as English materials to help overseas investor understand the Group, focusing on the contents of the Annual Securities Report. However, from fiscal 2021, we have decided to prepare this report simultaneously in Japanese and English in order to provide information to as many people as possible.

We have also changed the publication format from paper to PDF. Due to the impact of the spread of COVID-19, there are fewer opportunities for face-to-face delivery, and this change is intended to reach more people.

We hope that this Business Report will deepen your understanding of the Company and show its appeal.

Contents of the Report

• Reporting Period

In principle, the reporting period is the same as the fiscal year (April 2021 to March 2022). However, some sections of this report may differ from the fiscal year.

• Reference Guidelines

ISO 26000 Guide to Social Responsibility

Ministry of the Environment "Environmental Reporting Guidelines (2012 Edition)" Ministry of the Environment "Environmental Accounting Guidelines (2005 Edition)"

Employee code of

conduct

We always act as global corporate citizens, recognizing our corporate social responsibilities.

・In relation to our clients

We will act with sincerity and with customer satisfaction as our priority. ・In relation to our work

We will consistently pursue progress and innovation.

We will consistently respond to change and act with a global perspective. ・In relation to our colleagues

We will maintain mutual respect and exhibit teamwork.

• Date of Issue

February 2023 (updated annually in principle)

• Disclaimer

This report includes not only past and present facts about Kureha Corporation and group companies, but also forecasts of the future based on plans and outlooks at the time of publication and issuance. These forecasts are assumptions or judgments based on the information available at the time of writing and can be invalidated by unforeseen changes in conditions. In addition, some of the figures in the tables and graphs have been revised from previous years due to changes in the target range and revision of the calculation method. Thank you for your understanding.

Contents

Kureha Group's Value Creation		Growth Strategy		Foundation for Value Creation

01	Corporate Identity/ Editorial Policy /	15	Review of Operations	23	E: Environmental Initiatives
	Contents of the Report / Contents	19	Research and Development	25	S: Improving Human Capital
03	Top Message
21	Digital Transformation (DX)	27	G: Enhancing Governance System

09 Kureha's History

11 Growth Driver

13 Medium-Term Management Plan

Data Section

39 Financial and Non-Financial Highlights

41 Operating Results and Financial Analysis

1. Consolidated Statements of Financial Position
2. Consolidated Statements of Profit or Loss / Consolidated Statements of Comprehensive Income
3. Consolidated Statements of Changes in Equity

1. Consolidated Statements of Cash Flows
2. Corporate Data and Stock Information

Information Disclosure

The Kureha Group mainly uses the following reporting tools and strives to disclose information systematically.

Kureha Business Report:

PDF (Japanese/English)

Kureha Report: Booklet/

PDF (Japanese)

This report presents the financial, management and overall business conditions of Kureha Corporation, with investors and shareholders as the primary readers.

Kureha website (CSR) This website includes information on CSR activities, detailed performance data, and past reports.

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Kureha Group's Value Creation

Top Message

Foster strength worthy of a company driven by innovation, develop differentiated products in the field

"Making Kureha Better" Was the Only thought That Drove Me Continuously for 10 Years

of specialty chemicals and become a high value-added enterprise that will continuously contribute to society.

Ten years have passed since I was appointed President back in September 2012. Looking back over this period, my only recollection is how I ran through the years, only with the thought of making Kureha better. Kureha Group, which used to be weak in both profitability and finance, has now reached the stage where corporate management can be conducted stably. In the new medium- to long-term management plan to be announced in May 2023, we plan to create a new Kureha Group on an entirely different management stage, a complete departure from the previous 10 years.

The Group has built up solid capabilities in its history spanning more than 70 years. However, it was focused more on product-out, in other words, "if we make it, it should sell." We were concentrating on new product development without conducting any basic market-in surveys, such as asking ourselves who the customers were, what were the cost of sales

and the sales price of our competitors, resulting in many loss making businesses. This was the state Kureha Group was in when I became president.

This being the case, I made every effort to return to the origin of a company driven by innovation. I aimed for "Sampo-yoshi (meaning good for three parties: the Company, the customer and society)," a sustainable management where Kureha Group can make profit and conduct its business soundly, by shifting the axis from product-out to market-in, to provide products that will benefit society and be appreciated by our customers, under the slogan of "Make it if it does not exist."

We are still on route to the set goal, however Kureha Group has now made it to the start line in the last 10 years. Please keep an eye on the challenges to be made by Kureha Group as a company driven by innovation in the coming years.

Kureha Group Value Creation

Growth Strategy

President &

Chief Executive Officer

Yutaka Kobayashi

Fiscal 2021 Proved to Be a Fruitful Year

| Steady Growth in Earnings Supported by a Favorable Turn in Business Environment

Earnings grew in fiscal 2021 supported by the favorable turn in the business environment. The largest contributor was

polyvinylidene fluoride (PVDF), an advanced product for Lithium-ion battery binders for the EV market, which is expanding globally. This is a product where our long-fostered technical prowess has been appreciated by our customers, showing our strength that is worthy of best practice for

Foundation for Value Creation

Data Section

Kureha's Challenge Performance Trends (FY2016 Onward)

(Billions of yen)						(%)
30						10
25						8
20						6
15
10						4
5						2
0						0
2016	2017	2018	2019	2020	2021	(FY)

■ Cash flows from operating activities ■ Operating profit by segment ■ Operating profit ■ Profit attributable to owners of parent

ROE

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Kureha Group's Value Creation

Top Message

sustainability management of being "Sampo-yosh," meaning good for the seller, good for the buyer, and good for society.

Furthermore, New Kurewrap from the Specialty Plastics segment also performed extremely well. With the stay-at-home demand triggered by the COVID crisis, where the lifestyle of eating at home was given a second look, it gained attention as an item that would lessen food waste, which would lead to SDGs, and resulted in a steady increase in sales.

With the promotion of reform within the group, other businesses also grew in both sales and profits, resulting in a

whom we almost split the current market, is also planning on a significant increase in production, as well as improvements of technology being made by other companies, resulting in new competitors entering the market. Intensive competition may occur. In order to prepare for these risks, we will continue to proceed with the development of innovative production technology, and reductions in production costs. In addition, geopolitical risks are becoming apparent with US-China trade friction and the situation in Ukraine. Although we structured our business based on globalization and free trade, we will proceed

environment, there is an issue that must be solved in the	temperature mining areas is growing steadily, we will focus on
Kureha Group. The issue is that PGA plugs for low temperature	technical development required to acquire an even larger
and ultra-low temperature mining areas, which will be the	market share and will make conversions to return to profitability
center of rig development from now, are still under	for the entire business in fiscal 2023 when the new medium- to
development. Although the market for medium and high-	long-term management plan will start.

Fiscal 2022 Will Be the Year for the Finishing Touch towards the New Medium- to Long-Term Management Plan

Kureha Value

significant progress for the entire group.

| Expansion of PVDF Business and Future Challenges

In the PVDF business, we have firmly maintained approximately 40% of the market share of Lithium-ion battery binders for electric vehicles (EV). In fiscal 2021, the Lithium-ion battery market showed significant growth with the growth of EVs (BEV

• PHEV). Market growth is expected to continue over the long term due to policies for carbon neutrality made by various countries, as well as the sales policies of major automobile manufacturers. Although steep increases in raw material prices continued in fiscal 2021, being able to make appropriate transfers of the price increase, and by increasing the ratio of special polymers, we have managed to increase the shipped quantity to Europe and China, resulting in a significant increase in profits. We have embarked on capacity increases at the Iwaki Factory and the Chanshu Factory in Jiangsu Province, China, to enhance binder supply capability to respond to increased demand, however, there are some issues that must be addressed in the medium to long-term.
  The largest issue is that, similar to us, our competitor, with

with decentralization of raw material suppliers and production bases with a view to reconstruct the business structure.

| PGA Business to Turn Profitable in Fiscal 2023

The Company established Kureha Energy Solutions LLC (Houston, United States) in October 2016 and started direct sales of PGA frac plugs to be used for hydraulic fracturing (fracking) of shale oil and gas. Sales expanded steadily until fiscal 2019, but in fiscal 2020 crude oil prices fell rapidly with the stagnation of the economy and sharp fall in energy demand caused by the COVID crisis, and shale oil and gas production in the United States has halved. The PGA business fell into the red, recording product retirement of ¥330 million, and an impairment loss of ¥1,600 million. In fiscal 2021, although crude oil prices continued to rise, recovery of shale oil and gas rig drilling in the United States was slow, and failed to reach pre- COVID levels, resulting in recording an impairment loss of ¥5,300 million in property, plant and equipment. However, with Russia's invasion of Ukraine in February 2022, prices for raw materials and fuel soared, resulting in an increase in shale oil and gas demand, with rig development accelerating once again.

With tail winds actualizing recovery of the business

| Preparations for the Future

For fiscal 2022, similar to fiscal 2021, there are no major changes in social issues to be addressed by our group products, such as reducing the global environment load and SDGs, and response for steady growth in profit can be felt in each business.

Fiscal 2022 is the final year of Kureha's Challenge 2022 (the Final Stage of Kureha's Challenge Extension Plan), and the largest management issue is to complete the tasks that have not been fulfilled in the previous medium-term plan and the preparation of an action plan for the future. This year marks my 10th year as the president and is the year to put the finishing touches towards the new medium- to long-term management plan to start from fiscal 2023. We will make preparations for the future to create a Kureha Group on an advanced management stage.

| Achieve All Unmet Challenges and Make All Businesses Profitable

In the preparations for the future, current progress of priority measures for fiscal 2022 is as follows.

search for new businesses and technologies." KF Piezo will be introduced here as an example. KF Piezo is a ferroelectric macromolecular material developed by Kureha, the first of its kind in the world. Being a polymer film, KF Piezo is more flexible than crystal or ferroelectric ceramics and has good workability, and is attracting attention as a promising product for use in sensor and speaker materials. Furthermore, there are other products in progress using new technologies that cannot be announced at this moment due to patent applications being made, etc.

It is important for Kureha Group, driven by innovation, to have many seeds of new technologies and products like this up its sleeve. The reason is that not all will be successful. There is a need to check the possibility of commercialization with each step of development as it progresses and narrow down the prospective seeds. What started out with 100 seeds will be narrowed down to 50 at the next gate, then further down to 20 at the following gate. Managing these gates is a particularly important point in eliminating businesses that result in losses.

Until now, we had been developing 100 seeds without any gate management to narrow them down. This is the reason why the idea of product-out has taken root.

Group Creation

Growth Strategy

Foundation for Value Creation

Data Section

Operating Profit Trend by Segment

(Billions of yen)

9
8
7
6
5
4
3
2
1
0
2016	2017	2018	2019	2020	2021	(FY)

■ Advanced Materials ■ Specialty Chemicals ■ Specialty Plastics ■ Construction ■ Other Operations

First, regarding "the expansion and enhancement of highly advanced materials businesses" and "improvement of competitiveness and profitability of existing businesses," we will proceed to expand business focused on the PVDF and PGA businesses as explained previously in the performance report for fiscal 2021, and improving the competitiveness and profitability of existing businesses. Furthermore, we will continue to push through all unmet issues through reform with turning all businesses into profitability in mind, including turning the PGA business, which recorded a loss in fiscal 2021, back into the black.

"New business creation projects" will be used in "the

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Kureha Group's Value Creation

Top Message

So, by introducing the feasibility of commercialization, and the market-in gate management, we have reformed the system to concentrate our management resources and invest, to increase the possibility of business success. Individuals in Kureha Group's R&D divisions maintain an extremely high level of inner resources. However, operations and systems to make full use of their resources was missing. Providing a method to transition into an environment and organization allowing expression of ideas freely, together with opportunities to be in direct contact with advanced technologies, including overseas, especially for young researchers with flexible ideas, will be promoted together with the formulation of the new medium- to long-term management plan.

|Coal Power Plant to Be Converted to Biomass Co-Combustion Firing, Based on the Announcement of Support for TCFD Recommendations

Priority measures for fiscal 2022 lists the enhancement of carbon neutrality and zero-emission response. Kureha Group has already announced its support for TCFD recommendations on April 20, 2022, and has disclosed climate related risks, opportunities, and responses of Kureha Group.

The carbon neutral challenge for Kureha Group is the owned coal power plant at Iwaki Factory. CO2 emitted from this coal power plant account for more than 70% of CO2 emission of the entire Kureha Group. We have completed experiments to measure CO2 reduction effects by co-combustion of coal and biomass fuel as the countermeasure, and this is being formulated based on the results. From now on, we will continue with our search for carbon neutrality by 2050 looking at all technological possibilities such as the use of fuels that do not produce CO2, such as hydrogen and ammonia, as well as the recovery and effective utilization of emitted CO2.

In addition, we will accelerate our efforts towards carbon neutrality within the framework of manufacturing technology reform of each product. By facing the review of the production process, such as the development of technology to further reduce energy consumption in production, and the development of products that utilize by-products generated during the production process more than ever, we will reduce our environmental load, including CO2.

If we are to define these actions to reduce environmental load by Kureha Group as Defensive CSR, then as a challenge

of Kureha Group driven by innovation, we will also focus on Offensive CSR, which will develop and commercialize products that will contribute to SDGs in the form of reduction of global environmental load, similar to PVDF, an advanced materials for Lithium-ion battery binders for EVs. There are many products of Kureha Group that can respond to Offensive CSR in diverse forms and technologies and products that will be developed from now already include those with promising possibilities. Kureha Ecology Management Co., Ltd., a group company, conducts business focused on low PCB concentration industrial waste processing. They are also engaged in expanding the environment business.

With the two-front strategy of Defensive and Offensive CSR, we will realize management with sustainability that embodies "Sampo-yoshi" by being appreciated by customers, providing products that are useful to society, and Kureha Group being able to raise profits and be able to conduct sound management.

|How Kureha Should Be Will Be Redefined in the New Medium to Long-Term Business Plan Starting from Fiscal 2023

Many discussions have taken place to define the purpose of Kureha's existence from the start of fiscal 2022 among its directors and executive officers aimed towards the formulation of the new medium- to long-term management plan, starting from fiscal 2023. In the discussions, I have explained sustainable management that embodies "Sampo- yoshi," raising social contribution and reduction in environmental load as keywords, and voicing continuance of challenging to be a company driven by innovation as the figure of what Kureha should be. Furthermore, we intended to turn all businesses into profit by fiscal 2022 and to incorporate it into the new medium- to long-term management plan to create Kureha Group with a higher stage of management from fiscal 2023.

Kureha's Challenge 2022 (Final stage of Kureha's Challenge Extension Plan) has raised "a high value added type enterprise that develops differentiated products in Specialty Chemicals, and continues to contribute to society," as the ideal figure of Kureha.

In the new medium- to long-term management plan, we wish to continue with the discussions to redefine the ideal figure of Kureha and to indicate new keywords and purpose to our stakeholders that is worthy of the Kureha Group with a raised management stage.

| Kureha That Responds to the Expectations of Its Stakeholders

Finally, let me explain about the strengthening of Kureha Group management foundation. In October 2021, a new human personnel system was introduced with the aim of having each and every individual employee play their roles independently and autonomously, with awareness of challenge, speed and growth, and for a corporate climate that is able to swiftly respond to changes in the business environment. It is a system to strengthen the performance based system, aimed at utilization of senior layers whose retirement age has been extended to 65, to form it to be the driver for employee awareness and corporate climate reform.

In addition, we will embark on the strengthening of corporate governance. On December 21, 2021, regulations were revised to strengthen independence, by determining that committee chairs for the Nomination Advisory Committee and the Remuneration Advisory Committee will be selected from independent outside directors. In April 2022, we established the Sustainability Committee to comprehensively supervise and monitor Kureha Group's sustainability management. Then, following the general meeting of shareholders in June 2022, the number of internal directors and outside directors were increased by one each, to achieve seven directors on the board. These efforts have led to achieving active and in-depth discussions to be made in the

Board of Directors, and has become an engine to evolve into an executive system to actively adopt and implement proposals from the directors and auditors.

Regarding shareholder returns, we plan to start a review of our payout ratio in the new medium- to long-term management plan. For the past 10 years, we have been promoting improvements of financial aspects with the strong intent of making Kureha better. With our capital adequacy ratio now exceeding 70%, we plan to steer our course to increase active shareholder returns, including stock buy-backs.

We are only halfway there, but we would like to make Kureha a company that meets the expectations of our stakeholders, namely the customers, society, employees and shareholders. After going through the past 10 years with determination, we have finally reached the starting line. For the past 10 years, we have focused our attention on all areas of concern and have directed and executed measures for each to provide satisfaction to our stakeholders with diverse interests. Making products that satisfy our customers. For society, contribute to solving social issues as a company driven by innovation. For employees, become a company they feel glad to have joined. And for our shareholders, provide sufficient return on their investments. We will continue to actively engage ourselves to conduct dialogue with our stakeholders, listen to their voices, and work for continuous improvement of our corporate value. We look forward to receiving your continued support.

Kureha Group Value Creation

Growth Strategy

Foundation for Value Creation

Data Section

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