Air Water : Businesses

In the Industrial Gas Business, we will aim to function as a shared platform for our customers, markets, and regions both in Japan and overseas. We will seek expansion and growth through our electronics and global businesses, and improved earning power through our domestic regional businesses. To improve our earning power, we will reinforce our making capacity through an enhanced infrastructure network, and boost our selling capacity through our new regional structure. We will proceed with the

Industrial Gas Business

transformation of our business portfolio based on the above.

Review of FY2020

In Japan, growing semiconductor demand in a wide range of fields, including for data centers, smartphones, computers, and automotive applications, saw major semiconductor manufacturers expand their facilities and boost production volumes. As a result, gas supply for electronics manufacturers performed strongly. Elsewhere, results continued to suffer in our on-site gas supply for steelmakers due to, among other factors, the suspension of operations at major clients' blast furnaces. In our tank trunk and cylinder supply business, although demand fell rapidly in early spring due to production adjustments in the domestic manufacturing industry, demand recovered from the second quarter onward thanks to a recovering automobile industry, and results in the second half of the fiscal year were on par with the previous year. Equipment and construction also performed strongly thanks to large-scale projects for gas generation units and supply equipment, and growing sales of gas purification units, thermal control devices, and special chemical material supply units for major semiconductor manufacturers.

In our global business, full-scale operations continued at our on-site gas supply plants for steelmakers in India, while growing sales of tank truck and cylinder supply in the construction and automotive sectors also contributed to solid growth.

Policies and Strategies

01. Focusing on electronics and transforming business portfolio

• • Shifting to a business structure that is centered on the growing electronics market

• • Making unprecedented investments in efforts to capture demand from domestic semiconductor manufacturers who are expanding facilities and boosting production

• • Enhancing large-scale supply of nitrogen and expanding into related domains such as special chemicals, equipment, materials, and construction

02. Expanding our global business

• • Expanding on-site gas supply business for steelmakers in India and enhancing gas manufacturing infrastructure

• • Expanding tank truck and cylinder business in India and Vietnam

• • Building a global engineering system based on plant manufacturing technologies

03. Strengthening our domestic industrial gas business system

• • Expanding infrastructure network-such as VSUs, VHRs and filling stations-and boosting market share

• • Strengthening sales capabilities through integration of regional business companies

• • Reinforcing sales of gas and related equipment for advanced materials such as electronic components and secondary batteries

Strengths

• • Stable supply system comprising optimized equipment and a network of manufacturing, storage, and logistics hubs

• • Direct sales system centered on regional business companies

• • Wide-ranging lineup of products for the electronics segment such as gas supply systems, special materials, and related equipment and construction

• • Extensive track record and expertise in on-site gas supply for steelmakers

• • Full range of plant manufacturing technologies suitable for small- to large-scale plants

Review of FY2020

In our Electronic Material Development Division (formerly the Functional Chemicals Business Division), we increased sales of polymide resin ingredients and other electronic materials. At FILWEL, sales of precision polishing pads grew favorably thanks to growing demand for hard disks for use in data centers, while Daito Chemical-the leading domestic manufacturer of sodium acetate-saw growth in its organic synthesis business for electronic materials. As a result of these new consolidations and the rebuilding of our production system, including the closure of our factories in China, we continued to see progress with profit improvements. At Kawasaki Kasei Chemicals, although sales of basic chemicals fell due to a declining market caused by the pandemic, recovering sales of naphthoquinone for use in agrochemicals ensured that profits remained robust.

Policies and Strategies

01. Quickly displaying positive effects from

Group company integration

• • Having integrated our Electronic Material Development Division, Kawasaki Kasei Chemicals, and Daito Chemical to form a new company (October 1, 2021), reinforce development, production, and sales system across the functional chemicals business, with electronic materials at the core

• • Having integrated Printec and Shin'etsu Lead (April 1, 2021), expand sales of circuit products and materials and develop new applications

02. Improving profitability by optimizing production systems

• • Rebuilding domestic production system using Daito Chemical's organic synthesis equipment

• • Boosting production capacity for succinic acid, naphthoquinone for photosensitizers, and sodium acetate

03. Promoting new M&As and alliances

• • Reinforcing electronic materials and environment-related businesses, where demand continues to grow

• • Expanding businesses through collaboration with other companies, such as ATN Graphite Technology (a joint venture between Air Water, Toyo Tanso, and Nankai Chemical that manufactures thermally expandable graphite)

Strengths

• • Wide-ranging product applications (for electronic materials, food products, medicine, and agrochemicals, etc.)

• • Wide-ranging product lineup in electronic materials, including low dielectric materials, photosensitizers, circuit products, and precision polishing pads

• • A stable business foundation thanks to phthalic anhydride, sodium acetate, and other products for which we have a high market share

• • Unique products such as naphthoquinone and thermally expandable graphite

In the Medical Business, we will use our comprehensive strengths in diverse business domains, from advanced medicine to lifestyle medicine, to respond to society's needs as we live alongside COVID-19, and to create new medical businesses in preventive medicine, health promotion, and other fields

Medical Business

to make healthy living a reality.

President, Medical Company Senior Executive Officer

Toru Watsuji

Review of FY2020

Our facility construction business suffered as a result of the pandemic, with postponements and cancellations in the construction, maintenance, and inspection of hospital facilities. In the medical gas business, overall sales decreased due to continued impacts from a drop in number of doctor consultations and operations in the first half of the year. For the same reason, our medical service business saw a decline in demand for SPD (Supply, Processing and Distribution) services.

On the other hand, our home medical care business performed strongly with many patients continuing to shift to home-based care to avoid in-hospital infections. Further, our medical equipment and sanitary products businesses achieved solid growth thanks to a rise in sales of mainly infection prevention products. At our affiliate Ci Medical, sales of infection prevention products for dental clinics rose mainly through online sales.

Review of FY2020

In the LPG business, although commercial (restaurants, hotels, etc.) and industrial demand was sluggish, an increasing number of people staying at home due to the pandemic saw household consumption rise. Meanwhile, despite LPG import prices experiencing a sharp decline at the start of the year, prices rose toward the second half of the year, and impacts were kept to a minimum. Elsewhere, as a result of an improved direct-sales ratio thanks to our acquisition of distributors' commercial rights and more efficient distribution through use of IoT, overall, the LPG business performed well. Sales volumes of kerosene increased due to a low average winter temperature, but the equipment and installation business was negatively impacted by the cancellation of trade fairs and other events. We also saw positive effects from the consolidation of a Vietnamese LPG wholesale business which we acquired in fiscal 2019. In the natural gas business, in addition to a rise in sales volumes of LNG, sales of our V Satellite LNG supply systems increased thanks to rising environmental awareness.

Policies and Strategies

01. Reforming and reinforcing structure of existing businesses

• • Expanding and streamlining businesses through the reorganization of Group companies and strengthened collaboration

• • Improving operational efficiency of new production plants for the dental and injection equipment businesses

• • Streamlining operations through the integration of warehouses and sales hubs

02. Expanding range of businesses suited to a COVID society

• • Enhancing lineup and increasing sales of infection prevention products, demand for which has been firmly established

• • Enhancing lineup and increasing sales of remote medical support systems and other medical information systems

• • Capturing demand for vaccination needles

• • Expanding business in line with changing medical needs, such as increasing shifts toward home-based care

Strengths

• • Comprehensive strengths in diverse business domains, from advanced medicine to lifestyle medicine

• • Stable medical gas supply system based on an infrastructure network that includes VSUs and filling stations

• • Strong profit base courtesy of the medical gas business, the hospital facility construction business, and others in which we have a high market share

• • Proprietary technologies for the field of advanced medicine, including dental pulp regenerative treatment

Policies and Strategies

01. Reinforcing direct sales

• • Expanding direct-sales ratio through acquisition of commercial rights, aiming to increase the number of direct-sales clients

• • Integrating six direct-sales companies in Hokkaido to reinforce retail business

• • Improving supplementary services such as AW Denki, online billing, and social media, and streamlining distribution, filling, and meter-reading operations through use of digital technologies

02. Promoting carbon neutral initiatives

• • Promoting the switch to environmentally friendly LPG and LNG fuel

• • Commercializing the LNG Filling BOX, a fuel-filling facility for LNG trucks

• • Establishing regional-recycling models using liquefied biomethane and other new energy sources through alliances with local governments and leading companies

03. Reinforcing global businesses

• • Establishing a foundation for the LPG business in Vietnam

• • Touchpoints with 400,000 customers nationwide

• • Stable supply infrastructure covering 99% of Hokkaido (filling, distribution, and sales)

• • Comprehensive ability to propose fuel conversions (LPG, LNG, and natural gas) and supply equipment in line with customer needs

• • Proprietary low-temperature engineering products, such as LNG tank trucks and LNG supply systems (V Satellite and Micro Satellite)

• • Development of new energy business models aimed at carbon neutrality

Strengths

In the Agriculture and Food Products Business, making use of our ability to procure a stable source of ingredient vegetables, our production and processing technologies, and product development capabilities, as well as the Group's regional business foundation and logistics functions, we will work to cater to changes in consumer mindsets-which have been accelerated by the pandemic-

Agriculture and Food Products Business

and boost efforts to reduce food loss.

Review of FY2020

In the agricultural and processed foods business-namely the ham and deli meats and agricultural and processed foods segments-in addition to the development of takeout and delivery products to cope with rising stay-at-home demand, we also focused on expanding sales of our cooked food products for the home. Overall, however, results fell short of the previous fiscal year due to sluggish commercial demand. The sweets segment performed strongly thanks to growing stay-at-home demand and profit improvements in production and logistics.

In the beverages business, although contract production volumes of tea drinks decreased with more people staying indoors, profits improved thanks to the launch of an advanced PET bottle filling line at our production plant in Hokkaido, and increased sales of vegetable drinks driven by a rise in health consciousness.

Elsewhere, the agricultural machinery segment performed well as a result of steady demand. In vegetable retail, although negative impacts were felt from reduced store hours and closures, efforts to improve profitability through store management saw profits exceed those of the previous fiscal year.

Policies and Strategies

01. Strengthening the agricultural and processed foods business

• • Strengthening foundations to ensure stable procurement of ingredients (decentralizing our producing regions and increasing cultivation support)

• • Contributing to sustainable agricultural development and reinforcing our logistics and processing value chain (linking producing regions to consumers)

• • Boosting development of and production capabilities for home-use cooked food products in line with changing consumer mindsets

• • Expanding our regional agricultural produce businesses (farm-fresh products, etc.)

02. Strengthening the beverages business

• • Enhancing lineup of health products

• • Expanding adoption of environmentally friendly packaging

03. Strengthening the vegetable retail business

• • Proactively opening new stores

• • Proceeding with the EC business at full tilt

• • Product development capabilities and production/processing technologies (agricultural produce, livestock products, sweets, etc.)

• • Value chain covering everything from cultivation to procurement, processing, logistics, and retail

• • Ability to procure a stable source of ingredient vegetables through partnerships with producers

• • In-Group food logistics functions

Strengths

Review of FY2020

The business overall performed strongly thanks to a rise in freight volumes in food logistics, positive effects from new consolidations, and improved operational efficiency at our low-temperature logistics center. In the transport business, stagnant economic activity in the first half of the fiscal year saw volumes of construction-related freight fall below the previous fiscal year. This was offset, however, by the construction of a new truck distribution center and the resulting improvements in operational efficiency and costs, as well as a fall in diesel prices. We also saw positive effects from the consolidation of Katsura Commerce, a company we acquired engaged in transport and warehousing operations mainly in West Japan.

In our 3PL business, which is centered on food logistics, an increase in supermarket freight volumes and improved operational efficiency at our low-temperature logistics center ensured solid results.

In the vehicle body business, meanwhile, which is in charge of designing and mounting truck bodies and chassis, despite a fall in the number of units produced, the acquisition of highly profitable projects ensured strong performance.

Policies and Strategies

01. Further reinforcing our cold chain

• • Expanding food logistics businesses utilizing our low-temperature logistics and warehousing network

Opportunities and Risks

02. Enhancing logistics efficiency

• • Reducing manpower in logistics and warehousing through use of IoT, and rolling out truck distribution centers nationwide

• • Promoting enhanced efficiency in Group logistics

• • Rising logistics demand in line with the rise in EC transactions

• • Growing demand for waste recycling

• • Securing truck drivers and catering to workstyle reforms

• • Diversifying cargo owner needs and advanced quality control requirements

• • Negative impact on results due to fluctuations in diesel prices

• • Changes in laws and regulations relating to climate change, such as those involving waste gas

03. Taking on new business fields

• • Reinforcing environmentally friendly logistics businesses, such as the transport and treatment of medical and food waste

President, Seawater Company Executive Vice President

Seawater Business

In the Seawater Business, we will seek expansion using our diverse seawater-derived business foundations, and in order to achieve even further growth, we will work to create new seawater-derived products and businesses and boost efforts in the environmental business, where demand

continues to rise.

Masahiro Kanazawa

About the Air Water GroupAir Water's Value Creation Story

Growth Strategy for Value Creation

In the Aerosol Business, in addition to expanding operations using a unique production system that is capable of producing a wide lineup of products for every industry-including personal care products, household commodities, paint, and automotive and industrial items-we will aim for further growth through full-scale

Aerosol Business

participation in the contract manufacturing of cosmetics.

President, Air Water Sol Inc. Group Executive Officer

Hidetoshi Onoue

Review of FY2020

The salt business was negatively impacted by huge drops in demand for industrial salt caused by a slump in the restaurant industry, and large-scale equipment repairs at the Sanuki Plant. In our environmental and city infrastructure businesses, although sales of magnesium hydroxide-which is used for the desulfurization of flue gas-decreased due to low-level operations at our customers' plants, we saw an increase in orders for water treatment systems from local governments, and the businesses performed well as a result. In the electricity business, despite impacts from the biennial repairs undertaken at the power plant of our affiliate Summit Onahama S Power, the commencement of operations at the Ako No. 2 Biomass Power Station in January 2021 ensured steady growth.

In our magnesia business, meanwhile, sales volumes of ceramic magnesia products decreased due to impacts from declining crude steel production volumes in Japan and Chinese-made low-priced products, and overall sales fell below the previous fiscal year. On the other hand, thanks to a drop in raw material prices, we continued to see profit improvements in our fused magnesia for heaters, and profits grew steadily as a result.

Policies and Strategies

01. Expanding our electricity business

• • Ensuring stable operations at the Ako No. 2 Biomass Power Plant (operations launched in January 2021)

• • Constructing the Fukuoka Kanda Biomass Power Plant (scheduled for launch in autumn 2023)

Opportunities and Risks

02. Expanding our environmental business

• • Expanding global sales of environmental products (adsorbents and flocculants), mainly in Taiwan and Southeast Asia

• • Expanding business operations to include the sale and maintenance of water treatment equipment and facilities

• • Expanding environmental product market due to stronger environmental regulations

• • Expanding demand for infrastructure improvements (e.g., water supply and sewer systems)

• • Expanding demand for magnetic steel sheets for use in transformers in line with growing energy-saving needs

• • Declining demand for salt due to falling population and low-sodium diets

• • Negative impacts from fluctuating prices of LNG, coal, and magnesia, etc.

03. Expanding our magnesia business

• • Increasing sales of magnesia for magnetic steel sheets

• • Increasing sales of magnesium oxide insulators for EV cartridge heaters

• • High share of the domestic industrial salt market

• • High share of the magnesia for magnetic steel sheets market, and high quality and performance

• • Stable profit base thanks to a diverse seawater-derived business portfolio

• • Crystal shape control and other technologies developed through our salt-manufacturing business

• • Profitable and carbon neutral woody biomass power generation business

Strengths

Review of FY2020

In the aerosol business, sales of personal care products such as hair sprays, antiperspirants, and deodorants decreased with more people staying indoors, while low-level plant operations led to a drop in sales of industrial items such as lubricants and rust-proofing agents. On the other hand, sales of pesticides and paints for plastic model kits increased in line with consumers spending more time in their homes.

In our contract manufacturing business for cosmetics, store closures brought about by state-of-emergency announcements, fewer in-store customers, and a sudden fall in demand from tourists due to travel restrictions all led to a drastic worsening of market conditions. Meanwhile, we benefited from a significant growth in sales of our alcohol-based disinfectants due to the spread of the COVID-19 pandemic.

Policies and Strategies

01. Mainstay aerosol business

• • Solving customer issues in diverse industries through individual strategies

• • Establishing even more competitive advantages by reforming business models using digital technologies

02. Contract manufacturing business for cosmetics (ODM/OEM)

• • Advancing from an OEM to an ODM (conducting planning and design in-house)

• • Reinforcing partnerships with major customers using functions of our new plants and research institutes

03. Sanitary products business

• • Shifting from special COVID demand to the stable acquisition of orders, and reinforcing functional product development by making use of plants that can handle hazardous substances

Strengths

• • Ability to flexibly cater to small- and large-lot production through an optimal production system that makes use of individual plant characteristics

• • Stable supply system courtesy of four domestic production hubs

• • Production plants that can handle hazardous substances such as alcohols

• • New research institute complete with an Open Lab, a cell lab, and sensory evaluation room, etc., to ensure continued value creation

• • Marketing capabilities that use market analysis to engage in a planning-and proposal-based sales approach

Basic Information

About the	Air Water's Value	Growth Strategy	The Air Water	Basic
Air Water Group	Creation Story	for Value Creation	Group's Businesses	Environment	Social	Governance	Information

In our Other Businesses, our unique technologies and characteristic products-such as electronic materials and O-rings-are supporting the growth of the Group. We are also trying our hand at new businesses, including woody biomass power generation and global engineering.

Other Businesses

Review of FY2020

In the electronic materials business, while the business as a whole was impacted by a drop in demand in the first half of the year due to the pandemic, profit exceeded that of the previous year thanks to recovering sales of automotive electronic materials in the second half of the year. The industrial gas equipment segment in our global engineering business performed well thanks to rising demand for facilities that contribute to decarbonization, including liquefied hydrogen tanks for hydrogen stations, in the main North American market. In the high-power UPS segment, however, results fell significantly below the previous year due to negative impacts from national lockdowns in Europe and Singapore and the ensuing postponements in maintenance operations and capital investment plans.

In the electricity business, profits decreased over the previous year due to the suspension of operations at our woody biomass and coal co-fired power generation plant (Hofu, Yamaguchi) caused by the first large-scale regular inspection since the facility's launch. The O-ring business benefited from strong sales of products for semiconductor manufacturing equipment.

Policies and Strategies

01. Global engineering business

• • Responding to new demand for carbon dioxide equipment and energy-use hydrogen equipment in the industrial gas equipment and engineering businesses in North America

• • In the high-power UPS segment, acquiring new orders in response to rising demand from data centers, and focusing on sales of package systems that can reduce the manpower required for local construction

Opportunities and Risks

02. Electricity business

• • Continuing stable operations at our Yamaguchi woody biomass and coal co-fired power generation plant and at our Onahama woody biomass power generation plant

• • Growing semiconductor and semiconductor manufacturing equipment markets

• • Growing demand for hydrogen and carbon dioxide equipment in line with decarbonization movements

• • Growing demand in line with the construction of new data centers and semiconductor plants

• • Rising procurement costs for woody biomass fuel (PKS, unused wood)

03. Electronics materials business

• • Expanding sales of automotive electronics materials and chemicals for semiconductors, etc.

04. Other businesses

• • Expanding sales of seal components (O-rings) for semiconductor manufacturing equipment

Strengths

• • Low-temperature equipment production system (North America and Malaysia) and technological capabilities in plant engineering

• • High share of the rotary-type UPS market, and a global maintenance system

• • Global network in the electronics materials business (10 hubs in 6 countries)

• • O-ring production system capable of small-lot production of diverse varieties, and developmental capabilities for highly heat-resistant products, etc.

Business Concept for 2030

In line with huge upcoming social changes, and considering the social value that the Air Water Group must provide, we have established "the global environment" and "wellness" as two axes that will guide the course of our business.

In line with these two axes, to optimize and combine our diverse management resources to generate synergy, we have established four new business domains.

Moving forward, in accordance with these new business domains, we will seek to improve corporate value while considering both economic and social value.

100-year Life Expectancies/ Increasing Global Populations

Better lifestyles

Wellness

Wellness

Healthcare & Safety

Create new markets relevant to people's lifestyles (health, welfare, and disaster prevention) and contribute to longer, more healthy lives

Agriculture & Foods

Establish cultivation and procurement methods resistant to climate change, and ensure stable, safe, and reliable supplies of food