Air Water : CEO Messages

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

Considering the Next 10 Years as Our Third Start, and Promoting Sustainable Management to Fulfill Our Purpose

Looking Back at Air Water's Growth Trajectory

Twenty years ago in 2000, despite different histories and cultures, a common interest in air and water saw Hoxan, Daido Sanso, and Kyodo Oxygen join forces to form Air Water. Prior to its launch, I was manager of the human resource department and oversaw two mergers, while post-launch, I took charge of the setting up and development of new projects as we sought to expand the scope of our medical business. In this way, I have closely followed the growth of the company. Looking back over the past 20 years, we have evolved through each successive ten-year growth stage. (See p. 3 "History of the Air Water Group")

In the first 10 years after our launch, we used the verticalintegration of our industrial gas business-a result of the merger- and our nationwide network to expand our industrial gas business to include carbon gas and hydrogen, while we also created new business domains in chemicals and seawater. In a sense, the first ten years allowed us to build our foundations. For the next ten years we set out our one-trillion-yen corporate vision. More so than ever before we proactively sought M&As, with a particular focus on expanding our lifestyle-related businesses, including medicine, agriculture, and food products. This latter period allowed us to grow into a conglomerate with diverse business domains.

In this twenty-year period, our sales rose approximately fourfold while our profit increased fivefold, and our presence and standing grew significantly. If we look at our dealings outside the company, as of the end of October 2021, we have been involved in 138 technological development projects with those from the industrial, governmental, and academic sectors. With many opportunities for us to work with other corporations, universities, and regional governments, we continue to deepen and expand the scope of our interactions with society. Internally, we have built up a diverse workforce of varying specialties and skills in every domain, and it is these individuals who are helping to grow our technological fields and reinforce our stakeholder relations.

The Next Ten Years

We have positioned the next ten years as our third start. That is, we will use the management resources we have accumulated over the past twenty years-our diverse businesses, technologies, and personnel-to advance our conglomerate management and achieve further growth. As we've lived alongside the pandemic, I've gained new realizations about the company's mission. The most important thing for us-that is, our raison d'être-is to, like air and water, become an essential element for people and communities, and to support healthy lifestyles and manufacturing. Our purpose is to meet society's needs with nature's blessings, and by pursuing the true value of our diverse businesses, I hope the next ten years can be spent enhancing the level to which we fulfill our purpose.

All of our businesses are in some way linked to healthy lifestyles. We aim to support the lives of consumers and local communities who use our products and services, and at the same time ensure that Air Water Group employees can maintain a healthy body and mind and work with a sense of fulfillment. As we aim to fulfill our purpose, I will go about managing the company with the strong belief that people and business go hand in hand.

Our Purpose Meeting Society's Needs with Nature's Blessings

I have come up with three concepts to determine the course of company management for the next ten years. The first is our mission, which is to generate synergy by combining our resources. Rather than simply utilizing our diverse businesses, technologies, and human resources individually, we will work to combine them to maximum effect in order to generate greater synergy. The second is our vision, which revolves around the global environment and wellness. Here, we will aim to achieve a recycling-oriented society through coexistence with society and the earth. The third is our keyword: From partial optimization to total optimization. To date, each of our businesses has grown through independent optimization based on our Order Rodentia Style of Business. However, we must switch from a quantitative to a qualitative approach in order for us to achieve further growth. To demonstrate the true value of our Order Rodentia Style of Business, we must now look at total optimization from a wide range of perspectives, including the course of action for our business.

The Next Ten Years (2021-2030)-Our Third Start

Generate synergy by combining our resources

Utilize our diverse businesses, technologies, and human resources to tackle social issues and maximize corporate value

The global environment and wellness

Achieve a recycling-oriented society through coexistence with society and the earth

From partial optimization to total optimization

Demonstrate the true value of our Order Rodentia Style of Business

MISSIONVISIONKEYWORD

Looking ahead, our basic policy for further growth is to reinforce the profitability of our domestic businesses, and use this robust, profitable foundation to expand our global businesses. In line with this policy, we will implement focused measures from three perspectives: advancement of our business organization, promotion of our domestic regional businesses, and expansion of our global businesses. Based on an entirely new business plan, in advancing our business organization we will utilize a market-based approach to exceed business boundaries and create new business opportunities. Elsewhere, the three new regional business companies we launched in 2020 will be at the center of efforts to drive our domestic endeavors, and we will work to reinforce growth and profitability through our regional businesses. Finally, we will use our overseas engineering capabilities to expand our global businesses, with a particular focus on our industrial gas business in India and North America. To ensure the above policies succeed, it is essential that we build a virtuous growth and investment cycle-that is, we must achieve growth through our investments, and use the capital earned through this growth for future investments. As such, we will carefully select our investments and strive to generate synergy in the process.

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	Information

Future Growth Strategies

1. Advancement of Our Business Organization

To make the major shift from partial optimization to total optimization, we are moving forward with the integration and reorganization of our 197 major Group companies (as of March 31, 2019) to expand the scale of both our companies and our businesses.

We are also making progress with the creation of a cross-functional foundation to improve groupwide activities. Thus far, we have created the Group Technology Center, which functions as our groupwide technological platform; the Gas Products Center, which serves to unify manufacturing, security, and logistics work in our industrial gas business; and the Engineering Center, which is the platform for our engineering personnel and technologies. Here, we are improving foundations to ensure total optimization of our technologies, gas manufacturing, and engineering, all of which are essential to our growth. In addition to developing and utilizing specialist personnel in each field, we look forward to these establishments playing key roles in the creation of new businesses, be it technology-driven businesses or comprehensive engineering businesses such as contracted plant operation. We are also working to strengthen foundations in logistics, procurement, and management. In logistics, we are strengthening our integrated management of logistics operations by shifting from leased warehouses to in-house warehouses, bringing warehousing operations in-house, and revising ways to optimize inventory. On the procurement side, we are working to optimize groupwide operations while prioritizing efforts to reduce environmental impact. In performance management, financial affairs, and governance, we are looking at ways to strengthen our structures by expanding from an individual company approach to a groupwide approach.

To build an even stronger business foundation while reinforcing our cross-functional operations, digital transformations are essential. The pandemic has enabled me to see just how behind we are with digital developments. By building a management framework for digital transformation, I hope to drive digitalization in business, workstyle reform, and sales reform. Digital transformation presents us with the ideal opportunity to streamline company management and promote data-driven management. As such, I will take the lead in efforts to drive groupwide digital reforms.

Domestic businesses to strengthen profitability, global businesses to drive growth

Play a central role in domestic profitability and drive growth of domestic business by enhancing existing businesses and creating new businesses

2. Enhancement of Our Regional Businesses

Our regional businesses are key to boosting profitability. Our founding businesses-industrial gas and medical gas-have long been driven by a direct-sales system. One of our biggest strengths is our ability to directly respond to the needs of our clients and local governments through a robust business foundation in each region. As the domestic manufacturing industry continues to mature, to grab hold of the remaining profit opportunities and link these to future growth, the key will be to provide new solutions that are ideally suited to our users' needs. In October 2020, we consolidated our eight regional business companies and launched three new regional business companies. As a platform for our regions, these business companies will utilize the Group's comprehensive strengths in diverse products and services to reinforce the profitability of existing businesses, and create new businesses that tackle the issues facing local communities. Each of these regional business companies-which will play a central role in driving our domestic businesses forward-has been assigned marketing, business planning, and other key organizational functions. Through unprecedented efforts to promote their independent growth, I look forward to these companies enhancing their presence and achieving 100 billion yen in sales.

3. Expansion of Our Global Businesses

Powered by the strong profit foundation provided by our domestic businesses, our global businesses will help to drive the future growth of the Group. To date, we have acquired industrial gas businesses in India and enhanced our equipment and engineering business in North America, and these efforts have helped to build the foundations for future growth. Positioning India and North America as our key areas, we will aim to further strengthen our foundations in industrial gases and related equipment and engineering business, two domains in which we can showcase the strengths of our technologies and business models. We are also moving forward with the roll out of our medical business in India and Southeast Asia. With an eye on further expansion of our businesses in this way-through the careful selection of businesses and regions in which we can maximize our strengths- we will proactively examine M&As and collaborations with our business partners.

Two Themes to Guide Us to 2030 and Four Business Domains Key to Achieving a Sustainable Society

Climate Change/Smart Society	100-year Life Expectancies/ Increasing Global Populations
Global Environment Green EnergyDigital & Industry	Wellness Healthcare & SafetyAgriculture & Foods

See p. 36 "Business Plan for 2030" for a more detailed diagram

Promoting Sustainable Management

Looking ahead to the social and management environments of the future, we anticipate a decarbonized society, a smart society thanks to rapid digital developments, the era of 100-year lives, and a global population that nears 10 billion. As such, the promotion of sustainable management, which places equal emphasis on social value and economic value, is essential.

On our path to date, we have grown into a conglomerate engaged in a diverse range of businesses. Looking ahead, rather than partial optimization-that is, the optimization of each individual business-we must look at what course of action to share as a corporate group so that we can maximize corporate value as a whole. Considering changes in society and the social value we should aim to provide, I believe "the global environment" and "wellness" can guide the course of our business. It is important that our existing businesses and new businesses can follow this course, tackle the issues facing society, and generate synergy to drive us toward further growth.

And so, to ensure the growth of the Air Water Group's diverse businesses, we have established four new business domains. For the global environment, we have set out Green Energy and Digital and Industry; for wellness, we have created Healthcare and Safety and Agriculture and Foods.

In the Green Energy domain, we will combine our business models and expertise to provide decarbonization solutions based on local production and local consumption. In the Digital and Industry domain, we will work to create groupwide synergy by combining industrial gases and chemicals and look to enter the electronics field, which saw huge growth as a result of the pandemic. In Healthcare and Safety, as healthy longevity becomes a social concern, we will create new businesses that support preventive medicine (including oral healthcare), health improvement, and disease prevention and treatment. In Agriculture and Foods, in anticipation of problems linked to global population increases and self-sufficiency, we will use our technologies to build a land-based aquaculture platform and create a sustainable food business. We will also develop an agricultural produce and distribution business using our nationwide logistics and regional business company network. As part of these efforts, in November 2021, we acquired Plus, a company that operates direct sales outlets for agricultural produce in the Kansai area. Through a new business structure that brings together our regional business foundation, logistics functions, and agriculture and food products business, we will aim to contribute to the revitalization of regional agriculture, and in the future, improve self-sufficiency rates and reduce loss from food waste.

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	Information

For the environment, we will accelerate efforts to reduce CO2 emissions as we aim to achieve decarbonization. Previously, our goal for 2030 was to achieve a 15% reduction in emissions over fiscal 2013. However, in line with decarbonization trends and requirements, we examined our emissions reduction methods from various angles, and now plan to raise our reduction target for fiscal 2030 to 30% (over fiscal 2020). In the long term, by 2050 we aim to become carbon neutral with net-zero CO2 emissions. Measures to reduce our CO2 emissions include equipment renewals and reduced use of energy through improved productivity. We will also strive to reduce our CO2 emissions from electricity consumption by switching to power from renewable energy. At the same time, by stopping use of coal at our salt factories, we will aim to reduce emissions from coal combustion. Meanwhile, we will also move forward with technological developments and demonstrations for CO2 collection and usage systems and biogas energy systems. At the Air Water Group, in August 2021 we announced our support for the Task Force on Climate-related Financial Disclosures (TCFD), and will proceed with information disclosure based on its framework.

Boosting and Accelerating ESG Initiatives

As we promote sustainable management, as a matter of course, we will simultaneously strengthen our ESG initiatives, which are more important than ever.

For society, we will place priority on strengthening our human resource initiatives. While building a corporate culture that promotes employee independence more than ever before, we will develop and utilize personnel with a firm focus on diversity and inclusion and digital transformation.

Elsewhere, previously our personnel systems have revolved around the simultaneous employment of new graduates, seniority, and lifelong employment. Moving forward, however, we will reexamine our simultaneous employment of graduates and actively look at hiring individuals mid-career to ensure we can

Fulfilling Our Purpose

A combination of people and business

always acquire the necessary personnel. At the same time, we have set up the Air Water Group Talent Bank to discover, develop, and utilize personnel from across the Group, and through digital transformation initiatives, we will work to accumulate and make effective use of personnel data. As we have become a conglomerate through various M&As, not only does the Group have a mix of diverse corporate cultures, it also boasts a workforce with wide-ranging skills and industry experience. We have also been proactively hiring foreign personnel. Thanks to the above, we have developed a corporate culture that is highly accommodating of new trends. Moreover, we have improved our environments to promote women's participation in the workplace-in addition to promoting an optimal work-life balance, we encourage employees to take paternity leave, and provide systems to develop female managers. Through personnel system reforms, we will create unique systems and environments that will enable us to utilize our diverse personnel to maximize synergy.

As to corporate governance, in June 2020 we reduced the number of directors from twenty to nine in order to clearly separate supervisory and business execution functions. Of these nine directors, three are independent outside directors. While improving the decision-making and supervisory functions of the board of directors, this move has allowed operating officers from each department to move away from supervision and focus solely on business execution. To further strengthen our corporate governance, following the general shareholders meeting scheduled for June 2022, we are looking at establishing a nomination and compensation committee with independent outside directors making up the majority. Appointment and remuneration decisions to date have followed thorough deliberation at board of director meetings, including independent outside directors with specialist expertise and experience. Through the establishment of a nomination and compensation committee, the aim is to further enhance the independence, objectivity, and accountability of the board of directors concerning decisions on management and director remuneration and nomination.

For Group governance, while proceeding with the integration and reorganization of our domestic Group companies to improve profitability, we will work to strengthen our management and promotion structure mainly through the Global Management Office, which is responsible for strategic, specialist support of global business development, and efforts to enhance risk management and governance at our overseas subsidiaries.

To our valued stakeholders, I ask for your continued support and understanding of our direction and strategies as we seek to achieve growth over the next ten years.

Chairman and CEO

Boosting Profitability with Our Three New Regional Business Companies and Achieving Growth through the Electronics Domain and Our Businesses in India and North America

Looking Back on Fiscal 2020

Looking back on fiscal 2020, although we felt severe impacts from the pandemic in the first half of the year, in the second half of the year we succeeded in capturing new demand in sanitary products, aerosols, and other infection prevention products, as well as in the energy, agriculture, and food products domains. In addition, our industrial gas business performed strongly in India thanks to continued strong demand from the steel industry, as well as in the electronics domain in Japan thanks to a prosperous semiconductor market. These factors combined with improved productivity brought about by workstyle and other operational reforms saw revenue decrease 0.3% year-on-year to 806.6 billion yen, operating profit grow 1.2% to 51.2 billion yen, and operating profit margin increase to a record high of 6.4% (an increase of 0.1%). Fiscal 2021 marks the final year of our current mid-term management plan NEXT-2020 Final. Although at the start wetargeted 1 trillion yen in revenue, 60 billion yen in operating profit, and 10.8% ROE, in line with our successful response to environmental changes caused by the pandemic, we have revised our full-year forecast for fiscal 2021 to 890 billion yen in revenue and 65 billion yen in operating profit, while we anticipate an operating profit margin of 7.3%.

In fiscal 2018, the year prior to the start of our mid-term management plan, we posted 42.8 billion yen in operating profit and an operating profit margin of 5.8%. Looking at both our results in fiscal 2020 and our forecast for fiscal 2021, we can see that our earnings structure has become significantly stronger in these three years. I believe this is a result of successful structural reforms in each of our businesses and initiatives aimed at total optimization.