ＫＨネオケム（4189） – Notice regarding Medium-Term Business Plan

For immediate release Notice regarding Medium-Term Business Plan February 7, 2022 Tokyo, February 7, 2022 – KH Neochem Co., Ltd (TSE: 4189, President and CEO: Michio Takahashi, “KH Neochem”) announced that KH Neochem Group has formulated the 4th Medium-Term Business Plan covering the three-year period from the fiscal year ending December 2022 to the fiscal year ending December 2024. KH Neochem Group has been contributing to solving social issues by providing products that are useful for the environment and people’s lives. In the 4th Medium-Term Business Plan, we will further accelerate this movement by positioning “Driving sustainable management” as our basic policy and pursuing the following three basic strategies. Basic Strategies I. Further Growth in the Strategic Domains II. Medium- to Long-Term Initiatives to Resolve Social Issues III. Improvement of business framework In addition, we have set numerical management targets of achieving accumulated consolidated operating income of 48.6 billion yen, accumulated consolidated EBITDA of 63.5 billion yen, and ROE of 15% or higher for the three-year period. For details, please refer to the attached document, “4th Medium-Term Business Plan: Driving Sustainable Management.” Financial forecasts and other forward-looking statements included in this document are based on the information currently available to KH Neochem and certain assumptions deems reasonable, and KH Neochem makes no commitments regarding their achievability. Actual business results may differ materially from the forecast due to variety of factors. ### 4 th Medium-termBusiness Plan( 2 0 2 2 – 2 0 2 4 )Driving Sustainable ManagementFebruary 7, 2022KH Neochem Co., Ltd.ContentsVISION2030123Review of 3rd Medium-term Business PlanThe 4th Medium-term Business PlanRecognition of the Business EnvironmentBasic Policy and Basic StrategyStrategyⅠ Further Growth in the Strategic DomainsStrategyⅡMedium- to Long-Term Initiatives to Resolve Social IssuesStrategyⅢImprovement of business frameworkInvestment PlanFinancial and Capital StrategyNumerical Management Targets2VISION 2030A Leading Global Specialty Chemical CompanyAmbitions12Providing specialty chemicals that contribute to the reduction of global warming and to a better quality of lifeExpansion of products with the largest global share and new businesses in three strategic domains2030 CY Net Sales 180 bn yenOperating Income over 25 bn yen3Top-class profitability in the chemical industry(Operating income margin of 15%)2018 CYNet Sales 101.2 bn yenOperating Income 10.9 bn yenTaking on New Challenges3rd medium-term plan4th medium-term plan5th medium-term plan6th medium-term plan201920303Review of 3rd Medium-term Business PlanEven under coronavirus crisis, we achieved not only the management targets for the final year of the medium-term business plan but also record high earnings2021（Plan）（Actual）Net SalesOperating Income（bn yen）（bn yen）Net Sales110.0bn yenOperating income13.5bn yen117.1bn yen19.7bn yen101.994.2105.877.312.011.8Return on Equity18%28%110.0117.113.59.65.619.7Equity ratio47%45%PlanActualPlanActual2019202020214Review of 3rd Medium-term Business PlanThe business environment changed drastically, but we mainly executed strategies that will lead to medium- to long-term growthStrategy ⅠProfit Increase by New FacilitiesStrategy ⅡActive Investment for the Expansion of PerformanceChemical BusinessStrategy ⅢImprovement of business framework Start up of new facilities for refrigeration lubricant raw materials and marketing of new products Further increase in production capacity Further introduction of facility control for performance chemicalssystem with latest technologies (AI and IoT) Operate new facilities for the next Creation of new business through the generation semiconductor materials new research hub Improvement of work environment and encouragement of diverse work styles Started operation of new facilities for Decided to increase the production Introduction of advanced plant control refrigeration lubricants raw materials and started production of new productscapacity of the entire Chiba Plant, mainly for refrigeration lubricants raw materialssystems as planned Started operation of equipment for next- Started up new research hub (KH i-Lab)generation semiconductor materialsand accelerated activities to create new business through open innovation Introduction of new personnel system for managers (specified employment) Formulation and implementation of Business Continuity Plan (BCP) and issuance of integrated report5 mret-mudeMiygetarts nalp rojaMstnemevehcai4th Medium-term Business PlanDriving Sustainable Management6Recognition of the Business EnvironmentGlobalExpanded economic growth thanks to recovery from the coronavirus crisis, but also increased volatility and uncertainty Demand remained firm due to the recovery of the global economy from the coronavirus crisis Impact on the economy of prolonged inflation in the United States and risk of a slowdown in the Chinese economyRecognition of the business environment for our companyBasic ChemicalsPerformance ChemicalsSolvents & plasticizerraw materials ：Domestic demand is maturing, but demand is steadily expanding, mainly in AsiaRefrigeration lubricantraw materials: Increase in demand, due to the expansion of the air conditioner market as a result of the economic recovery from the coronavirus disaster, and changes in refrigerants as a result of the Kigali Amendment and U.S. EPA regulationsElectronics materials ： Continuing expansion of demand for semiconductors driven by spread of 5G, IoT and AICosmetic ingredients: Expanding demand in China, South Korea and elsewhere in Asia as the coronavirus crisis subsides7Positioning of the 4th Medium-Term Business PlanA Leading Global Specialty Chemical CompanyBasic PolicyDriving Sustainable Management2030 CY Net Sales 180 bn yenOperating Income over 25 bn yenContributing to the realization of a sustainable society and increasing our company’s corporate valueTaking on New ChallengesDriving Sustainable Management3rd medium-term plan4th medium-term plan5th medium-term plan6th medium-term plan201920308Seven Promises to drive sustainable managementWe declared Seven Promises to our stakeholdersfor the driving sustainable managementSeven PromisesAn environmentally conscious worldA richer life for peopleSustainable ManagementBusiness that contributes to an environmentally conscious world and a richer life for peopleDomainEnvironmentHealthcareElectronicsFundamental businessCreating valueContributing to global warming preventionContributing to improved QoLContributing to an advanced information societyContributing to everyday livingCurrent, main product linesRefrigeration lubricant raw materials, etc.Cosmetic ingredients, etc.Electronic materialsBasic chemicalsContinual creation of new businesseｓ１ We will develop businesses that help resolve social issues２３４５We will conduct business conscious of reducing our impact on the environmentWe will strive to secure trust through safe and stable operationsWe will practice management transparency with high ethical standardsWe will provide a lively work environment that motivates and rewards diverse human resources６ We will promote responsible supply chain managementSafe, secure,andtrustworthy７ We will strengthen our earning power9MaterialitySeven PromisesMateriality１ We will develop businesses that help resolve social issues①Expansion of social problem-solving businesses centered on strategic domains②Promotion of innovation③Strengthening of intellectual property strategies to strengthen the foundation for growth２３４５We will conduct business conscious of reducing our impact on the environmentWe will strive to secure trust through safe and stable operations④Improving energy efficiency and reducing and managing CO2 and other emissions⑤Proper management of chemical substances⑥Safety and disaster prevention at plants with consideration of the local region⑦Responsible and stable supply to customersWe will practice management transparency with high ethical standards⑧Strengthening of corporate governance and risk management⑨Compliance⑩Transparent and responsible communication with stakeholdersWe will provide a lively work environment that motivates and rewards diverse human resources⑪Health and safety of employees⑫Developing and recruiting human resources to support sustainable management⑬Improved employee engagement and the creation of comfortable workplaces to improve productivity６ We will promote responsible supply chain management⑭Promotion of Corporate Social Responsibility (CSR) procurement７ We will strengthen our earning power⑮Optimization of business portfolio for stable profit generation⑯Pursuit of higher productivity and efficiency at plants10Basic StrategyBasic PolicyDriving Sustainable Management Strategy I. Further Growth in the Strategic Domains Steady capture of demand for refrigeration lubricants raw materials through the large-scale expansion and reinforcement of facilities Responding to increasingly sophisticated customer needs in the electronics domain Expanding the lineup in the healthcare domain Strategy II. Medium- to Long-Term Initiatives to Resolve Social IssuesBasic Strategy Accelerating efforts toward carbon neutrality Early creation of new business through open innovation and M&A, etc. Strategy III. Improvement of business framework Improve productivity by utilizing the latest technologies, etc., as a driving force Create a corporate culture in which diverse human resources play an active role and maximize results Strengthening of governance to enhance management transparency11Strategy I. Further Growth in the Strategic DomainsIncrease profits through the large-scale expansionand Reinforcement of facilities as a leading supplier〈Market Environment 〉 Market expands mainly in Asia Shift to environmentally friendly refrigerants,low GWP refrigerants Expanding demand for synthetic oil miscible with low GWP refrigerantsAir conditioner market＊〈Our Company Initiatives 〉 Increase Isononanoic acid production capacity by more than 50% through the large-scale expansion reinforcement of facilities Expand, reinforce and optimize the production capacity of the entire plantMineral oil (For HCFC)Synthetic oils (For HFC/Low GWP refrigerants)Global400overCAGR+6%11520020212030Source : estimates of the Company based on the materials of 2050JARN and International Energy Agency(IEA)「The Future of Cooling」＊excl. car air conditioner（Million units）China46CAGR+5%7120212030Other Asia※excl. Japan51CAGR+14%203016202112Increase profits through the large-scale expansionand Reinforcement of facilities as a leading supplierStrategy I. Further Growth in the Strategic DomainsFurther increase profits from performance chemicals by implementing various measuresPerformance ChemicalsAccumulated consolidated operating incomeRefrigeration lubricant raw materials,Electronics materials,Cosmetic ingredients etc.59.2（bn yen）Increase Operating income of performance chemicalsby 37%４１.143.3Performance Chemicals30.1Basic Chemicals13.2１８.１3rd medium-term plan4th medium-term planNote: When calculating operating profit in results by business field, administrative expenses, etc., which are common to the entire company, are not allocated.16Strategy Ⅱ. Medium- to Long-Term Initiatives to Resolve Social IssuesAim for carbon neutrality by 2050 and 30% reduction by 2030 (compared to 2017 levels)Our company Greenhouse Gas(GHG) emissions (CO2 equivalent)1,000 ton+24-961Increased production2Energy conservationEnergy conversionIntroduction of new technologies, etc.30%Reduction-703Consuming CO2 as a raw material for products332474*To Carbon Neutrality• Procurement of renewable energy power, etc.• Innovation and corporate collaboration• Amount of contribution in the supply chain2017（Criteria）20302050*reported quantity based on Act on the Rational Use of EnergyIncreased production of refrigeration lubricants raw materials that contribute to the realization of an environmentally friendly societyPromotion of energy conservation by expanding the introduction of advanced plant control systemsConsideration of capital investment and introduction of new technologies that are expected to reduce GHG emissionsConsuming CO2 as a raw material for products17123Strategy Ⅱ. Medium- to Long-Term Initiatives to Resolve Social Issues4th medium-term plan(2022～2024)～2030～2050Consume CO2 as a raw material for products. Contribute to CO2 emissions reductionBusinessContribute to an environmentally friendly society through the supply of refrigeration lubricants raw materialsEnergy conservationIntroduction of advanced plant control systems Chiba Plant private power generation facility(Updated 2021)Manufacturing method shift, raw materials shiftCollaboration with industrial complex companiesNew technologiesInnovationCorporate collaborationOxogas usesCO2 as a raw materialMethane + Steam+ CO２OxogasApprox. 70,000 tons of CO2 consumedper year18Strategy Ⅱ. Medium- to Long-Term Initiatives to Resolve Social IssuesContributing to the suppression of global warming through the supply of refrigeration lubricants raw materialsGlobal Greenhouse Gas Emissions（CO2equivalent）Kigali Amendment HFC phase-down schedulesExpanded demand for air conditioners increases GHG emissions from refrigerantsF-gasesapprox.1GｔCO2 eqApprox. 57 GtCO2 eq（２０１９）Source : estimates of the Company based on Trends in global CO2 and total greenhouse gas emissions: 2020 Report PBL Netherlands Environmental Assessment AgencyNote: hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6),and nitrogen trifluoride (NF3)2032Group 2▲10%2029▲10%▲10%▲20%▲30%▲30%▲40%▲50%Group 1▲70%Developed Countries▲80%▲85%▲85%▲80%2019202920362045 2047Switching to environmentally friendly refrigerants is essentialOur refrigeration lubricants raw materials are compatible with environmentally friendly refrigerantsContribute to the suppression of global warming19Strategy Ⅱ. Medium- to Long-Term Initiatives to Resolve Social IssuesAim for sustainable corporate value enhancement through Social Issues Social Issues in strategic domainsSuppression of global warmingMove away from fossil fuelsMiniaturization of semiconductorsGlobal improvement of quality of lifeAcceleration of new business creation through open innovation Co-creation of technology with external partners by utilizing open Sustainable enhancement of corporate valuelabs in KH i-Lab, etc. Investment in startups Alliances and M&AEnvironmentally friendly materials Development of marine degradable resin Electronic materialHealthcare materials Expanding businesses of new products for cutting-edge semiconductors Development of raw materials for pharmaceuticals20Strategy Ⅲ. Improvement of business frameworkStrengthening the business foundations to drive sustainable management through the promotion of various measuresPromotion of DXEquipment reliability improvementTechnology / informationHuman resources /corporate cultureStrengthening competitiveness through intellectual propertyGovernanceStrengthening of human resourcesWorkplace environment improvementFostering a corporate culture in which diverse human resources can play an active roleStrengthening of risk managementPromotionof CSR procurementActive dialogue with shareholders and investors21Strategy Ⅲ. Improvement of business frameworkHuman resources /corporate cultureCreate a corporate culture in which diverse human resources play an active role and maximize resultsStrengthening of human resourcesIntroduction of a new personnel system (specified employment) for non-managerial position employeesSecuring of diverse human resources and promotion of employeesImprovement of employee engagementWorkplace environment improvementEstablishment of new office building including quality control building(Yokkaichi Plant: Scheduled for completion in March 2022)Improving occupational safety and productivity, and promotion of work style reform through systematic renewal of plant office buildings23Strategy Ⅲ. Improvement of business frameworkGovernanceStrengthening of governance to enhance management transparencyStrengthening of risk managementIdentification of important risks by using risk maps and implementation of countermeasuresActive dialogue with shareholders and investorsAppropriate information disclosure as required in the Prime MarketPromotion of IR and SR activities with expanded non-financial information, such as ESG-related information, in addition to business performance and strategies24Investment PlanExpanding both strategic and infrastructure strengthening investments for sustainable growth3rd medium-term plan4th medium-term planInfrastructure strengthening investment 7.1bn yenStrategic investments10.2bn yenInfrastructure strengthening investments13.7bn yenStrategic investments22.0bn yen17.3bn yen35.7bn yen25Financial & Capital StrategiesBasic Policy Further shift to strategic investments thanks to the improvement Stably implement shareholder returns based on medium- to long-of financial soundnessterm growthGeneration of operating cash flow Competitive advantages of performance materials and electronic materials Stable business foundations for basic chemicals Financial cash flow (Focus on cost of capital, use of debt)InvestmentsStrategic investmentsInfrastructure strengthening investmentsBusiness infrastructure investmentsWorkplace environment improvements(Gradual improvement based on the medium-term plan)Shareholder returns(Payout ratio of 30% as a guide, lower limit for dividend per share is 2022 forecast. Flexibly strengthen shareholder returns as our financial foundation strengthens.)26Financial & Capital StrategiesCapital Allocation Operating cash flow increased by 12.4 billion yen from the 3rd medium-term plan More aggressively allocate capital to strategic investments (3rd medium-term plan: 29%, 4th medium-term plan: 46%)4th medium-term plan3rd medium-term planGenerated cashOperating cashflows47.7 bn yen35.3 bn yen46%Strategic investments22.0 bn yen10.2 bn yen29%Business infrastructure investmentsWorkplace environment improvements10.0 bn yen6.4 bn yen3.7 bn yen0.7 bn yenShareholder returns10.0 bn yen6.6 bn yenRepayments and others2.0 bn yen11.4 bn yen27Numerical Management TargetsAccumulated consolidated operating income48.6bn yenAccumulated consolidated operating incomeAccumulated consolidated EBITDA（bn yen）48.6（bn yen）63.5Accumulated consolidated EBITDA63.5bn yen34.931.346.541.5Return on EquityOver 15%Assumption： Domestic naphtha ：60,000 yen/KLExchange rate：113yen/USD2ndmedium-termplan3rdmedium-term plan4thmedium-termplan2ndmedium-termplan3rdmedium-term plan4thmedium-termplanNote: EBITDA = Operating income + Depreciation + Amortization of goodwill28VISION 2030 achievement and further growthAim for further growth through new products and new business creation in addition to achieve steady growth in existing businessTrend in average operating income(bn yen)New productNew businesses25.0aim for further growth through new products and new aim for further growth through new products and new business creationbusiness creation16.210.411.6Existing business2nd medium-termplan（2016～2018）3rd medium-termplan（2019～2021）4th medium-termplan（2022～2024）20272030203329Targets for 2024Materiality No.,②③Key performance indicatorRate of increase in sales volume of refrigeration lubricants raw materials (compared to 2021)Number of collaborations with external organizations in research and developmentGreenhouse Gas(GHG) emissions (CO2 equivalent)Targets for 2024over 17% increaseover 10 per year30% reduction from FY2017 level (2030 target)Energy intensityVolume of final landfill disposal of industrial wasteSystematic introduction of Smart Industrial SafetyProduction plan achievement statusIdentification of important risks by using risk maps and implementation of countermeasuresNumber of compliance education and training sessions at all sitesNumber of dialogues with investorNumber of employee accidents resulting in lost workdaysRatio of female employees in managerial career track positionsRate of recruited personnel leaving work (in less than 3 years)Engagement survey scoreRate of taking of annual paid leaveCoverage ratio of Corporate Social Responsibility (CSR) questionnaire survey of main raw materials (based on purchase amount value)Operating income of core products (performance materials + electronic materials)ROE1% or more improvement per year1% or less of waste generatedProduction achieved as plannedImplementation as plannedImplementation as plannedover 5 times per yearover 220 times per year10% or more improvement0over 15%less than 10%over 80%over 70%over 14.1 billion yenover 15%Improvement of productivity through introduction of advanced control systemsIntroduced as planned and productivity increasedStatus of progress in DX related introductionsImplementation as plannedNote: Materiality No.,：⑮consolidated ：①～⑭、⑯：non-consolidatedWhen calculating operating profit in results by business field, administrative expenses, etc., which are common to the entire company, are not allocated30①④④⑤⑥⑦⑧⑨⑩⑪⑫⑫⑬⑬⑭⑮⑮⑯⑯NotesThe purpose of the information in this material is not to solicit the purchase and sales of our shares. Forward-looking statements in this material, such as forecasts, include assumptions and estimates based on the information available at this time, and the company does not give assurance nor do they guarantee these statements. This material also includes unaudited figures for reference.Therefore, please understand that actual results could largely differ from the forward-looking statements due to a variety of risks and uncertain factors. Also, please understand that the company and information providers are not responsible for any losses incurred from this information.Contact:KH Neochem Co., Ltd.https://www.khneochem.co.jp/contact31