Air Water : Integrated Report 2019 (Year Ended March 31, 2019 )

AIR WATER REPORT 2019

Meeting society's needs with nature's blessings

Management Philosophy

Backed by an entrepreneurial spirit,

we dedicate ourselves and our resources to

the creation and development of businesses linking air, water, and the earth.

The origins of the Air Water Group's business can be found in its name, which consists of two words: "air" and "water."

We make use of the resources of our precious earth to create businesses and contribute to society and everyday life.

Amid a business environment that continues to change at a dizzying pace,

we will continue to leverage the group's collective capacities to tackle problems faced by our customers and society, and will rise to the challenge of creating new value.

	01	Management Philosophy		Business Overview
	03	Timeline of "Value Creation" to Enrich Society	21	Industrial Gas Business
	05	Meeting Society's Needs with Nature's Blessings
	23	Chemical Business
Contents	07	CEO Message
25	Medical Business
13	Air Water's Business Foundation and Growth Strategy
	10	COO Message	27	Energy Business
	15	Rooted in and Growing with Local Communities	29	Agriculture and Food Products Business
	31	Logistics Business
	16	Creating Social Value through Business Activities
	33	Seawater Business
	17	Feature 1: Using Renewable Energy to Generate Electricity
	35	Aerosol Business
	19	Feature 2: Using the Gift of the Sea for Everyone's Benefit
	36	Other Businesses
			37	Global Business
			39	Research and Development

01AIR WATER REPORT 2019

Editorial Policy

In keeping with our mission to help overcome the challenges society faces through our business activities, we have sought to make Air Water Report 2019 an easily understandable source of information. This year's report begins with an overview of the group's growth and its efforts over the years to solve those issues, as seen through the lens of the interaction between our many business activities and the community. Similarly, the business overview and the section on creating social value through business activities now incorporate relevant SDGs as these are now a vital consideration when seeking to create social value. The ESG report states clear key performance indicators, illustrating our dedication to a stronger CSR focus in business management. Also included is a diagram showing the business portfolio and growth strategy forged as part of our All-Weather Management System aimed at ensuring greater robustness.

Forward-looking Statements (Business Risk Factors, etc.)

The forward-looking statements in this Report regarding estimates of business performance and predictions of future developments reflect Air Water's judgments based on currently available information, but do involve potential risks and uncertainties. Actual business performance could be significantly different from the projections made herein due to changes in various factors.

ESG Report

1. Air Water's Approach to CSR
   Environment
2. Key Performance Indicators
3. Air Water Group Basic Environmental Policy/ Material Balance
4. Fighting Climate Change
5. Effective Use of Water Resources/ Effective Use of Food Waste
6. Message from the General Manager of the Compliance Center

Social

47 Key Performance Indicators/ Workforce Diversity

1. Rewarding Workplace
2. Offering Safe and Secure Products and Services/ Enhancing Supply Chain Management to Promote Fair Business Practices
3. Pursuing Stable Return of Profits in Line with Performance and Building Trust/ Promoting Activities Closely Tied to and Rooted in Local Communities
4. Message Head of Human Resources

Governance

1. Enhancing Corporate Governance

1. Enforcing Compliance/ Reinforcing Risk Management/ Information Security

Basic Information

57 Financial Highlights/ Non-Financial Highlights

1. Financial Data(10-Year)

1. Financial Information

1. Major Group Companies
2. Corporate Profile / Stock Information

AIR WATER REPORT 2019 02

Timeline of "Value Creation" to Enrich Society

Before Air Water	Active Merger-Based Expansion Strategy
Air Water Inc. was established in 2000 through the	Starting in the 2000s, we have expanded our business in scale and
consolidation of three companies-Hoxan Corporation, Daido	scope through a series of mergers and acquisitions, particularly in
Sanso Co., Ltd., and Kyodo Oxygen Co., Ltd.-each with	areas such as industrial gas and medical domains, while ventures in
different histories and cultures, but a common interest in air and
new areas like agriculture and food, and seawater, have built the
water.
foundations for our diverse business interests.

Hoxan

1929

Hokkaido Sanso Co., Ltd. is established.

2001

(Company renamed Hoxan Corporation in 1966)

Industrial

●Carbon dioxide and hydrogen gas businesses launched.

transportation conditions and the

Aiming to save lives and help develop local industries

In the years before the war, a certain

2004

individual passed away due to poor

●No. 1 VSU unit (high-efficiency,

inability to receive sufficient oxygen

Gas

compact liquefied oxygen/nitrogen

production plant) begins operations.

inhalation. The deceased's elder

●KOBELCO Air Water Cryoplant, Ltd.

brother, the then head of the Chamber

established.

of Commerce and Industry of Sapporo

1963

City, poured his efforts into founding

Chemical

Production and sales of Bath-All prefabricated bath units begins.

Hokkaido Sanso Co., Ltd.

2002

1929Operation of 30 m3/h oxygen production machinery begins.

●Coal chemical business begins.

1955Begins sales of LPG.

1979Frozen foods business utilizing liquid nitrogen launched.

2001

2007

Sanso Daido

1933

Daido Sanso Co., Ltd. is established.

●Medical services

● Injection needle

Founded in the spirit of a united front and collaboration

Medical

business (SPD)

business

launched.

At the time, industrial gas was

2005launched.

2010

●Medical piping

distributed to the military-support

●Hospital facility (e.g.,

industry, and difficult to obtain for

facilities

operating rooms, ICU)

business

installation business

smaller businesses. Daido Sanso was

launched.

launched.

established when oxygen-using

businesses decided to take matters

2004

into their own hands, and band

Energy

together and produce it themselves.

●Increased

2009

1933Operation of 60 m3/h oxygen production machinery begins.

momentum for

●Sales of VIVIDO, a hybrid

LNG tank container

water warming and heating

1970On-site supply for chemical manufacturers begins.

business.

system, begins.

1983V1 high-purity nitrogen gas generator is developed.

FoodandAgriculture

OxygenKyodo

1988Industrial magnesia business launched.

2002

1962

Kyodo Oxygen Co., Ltd. is established.

●Ham and sausage business begins.

2009

Supporting Japan's rapid economic growth with oxygen

●Air Water Farm

Kyodo Oxygen was established in

established; production

business begins.

the midst of the Japanese economic

miracle. Sumitomo Metal Industries

2002

2008

established Kyodo Oxygen inside its

●Expands aerosol

●Electronic material

Wakayama Ironworks to meet

rapidly increasing steel demand, and

business.

business launched.

the supply of oxygen for converter

2007

1962

Supply of gas to

steelmaking began.

●Seawater business established with salt

Kokura Ironworks

Other

production and industrial magnesia operations.

1978

begins.

Production and sales

Other

Agriculture and

Other

of ELNACKS®welding

19%

18%

argon begins.

Food Products

Industrial

3%

Industrial

Gas

Net sales

Gas

Net sales

38%

220.8 yen

Energy

Energy

471.8 yen

55%

billion

billion

16%

FY2000

10%

FY2010

Japanese Accounting

Standards

Japanese Accounting

Standards

Medical

Medical

10%

14%

Chemical

1930

2000

17%

2010

03AIR WATER REPORT 2019

Air Water Inc. was established in 2000 through the consolidation of three companies-Hoxan Corporation, Daido Sanso Co., Ltd., and Kyodo Oxygen Co., Ltd.-each with different histories and cultures, to begin a new mission and purpose: to provide services that innovate industry and society through "air and water."

Since then, the new company has conducted aggressive M&A activities to reinforce its business foundation, expand its business areas, and improve the comprehensive strength of the group.

Air Water will continue taking on businesses that are ahead of their time, in keeping with the spirit of its founder, which has been passed down in an unbroken line.

Reinforcing the All-Weather Management System

Since 2010, our M&A-based expansion into new lifestyle-related business domains like agriculture and food, and "lifestyle medical," has been designed to ensure Air Water continues to grow in a stable manner. The result is our All-Weather Management System, a finely balanced portfolio covering industrial and lifestyle-related businesses.

Medical Chemical Gas Industrial

LogisticsFood and Agriculture Energy

Other

2013	2019
●Acquires a stake in Elenbarrie Industrial Gases Limited (India).	●Increased momentum for industrial
	gas operations in India.

2014

• VSUA, capable of producing argon, goes into operation in Vietnam.

2016

• Equipment manufacturing business launched in Malaysia.

	2015	2019
	●Naphthoquinone-led quinone business launched.	●Transfers coal chemical business.
2011	2013	2019
●Dental business launched. ●Expands home medical care	●Air Water International Advanced
	and SPD business. 2016	Medical Center opened in Kobe.

• Sanitary materials business launched.
  2017
• • Hospital interior and facility installation business launched in Singapore.

2012

• LPgas-powered mobile power source cars developed.

2011		2015
●Fruit and vegetable wholesale and
●Fruit and vegetable retail business launched.
processing business launched.
2012			2016
●Contract production of beverages
●Chilled desserts and sweets business launched.
business launched.
	2013●Manufacture and sales of agriculture machinery business launched.
2011
●Vehicle body mounting	2013
business launched.

• Low-TemperatureLogistics Center opened; increased momentum for low-temperature logistics business.

2013
●Water treatment facility and pipe	Other
renewal business launched.	(incl. seawater and aerosol businesses)	17%		22%	Industrial Gas
135.6 billion yen
2015			176.4 billion yen
Logistics
●Woody biomass power	6%		Net sales
47.9 billion yen
generation business
		801.5	billion	9%	Chemical
launched.	Agriculture and			yen	75.7 billion yen
	Food Products	17%	FY2018
	Japanese Accounting
	136.6 billion yen
	Standards
	Energy			7%	22%		Medical
				176.7 billion yen
	52.7 billion yen

2019

AIR WATER REPORT 2019 04

Contributing to Manufacturing and Supporting Lifestyles

Meeting Society's Needs

"Meeting society's needs with nature's blessings" was newly established as the group's corporate slogan in November 2018.

It speaks of our strengths and the social value we provide, such as how our technologies, expertise, and business model combine seamlessly to transform air and water into a stable, sustainable supply of invaluable products, services, and solutions for industries and lifestyles. Indeed, it encapsulates our determination to serve as a valued partner, providing essential resources from the earth in ways that meet the requirements of all people, communities, and industries.

Industrial Gas Business

P.21

Our ability to harness the qualities of oxygen, nitrogen, argon, and other gases to benefit everything from manufacturing to everyday life supports the very foundation of society. The Air Water Group stably supplies various industrial gases that meet customer needs through its sales bases and nationwide production network extending from Hokkaido to Kyushu.

Agriculture and Food Products Business P.29

The Food Products Business, which started with the sales of frozen foods utilizing liquid nitrogen, commenced full-scale participation in the agriculture sector in 2009. Our operations in this area now span three domains relevant to ensuring a secure supply of safe food for consumers. These are: processed agricultural products, which covers everything from plant cultivation to procurement, including products such as ham, deli food, frozen food, and confectionery; beverages, covering fruit, vegetables, and juice; and independent food and farming, covering produce retail and agriculture machinery.

05AIR WATER REPORT 2019

Chemical Business

P.23

We are not simply suppliers; we strive to add real value for customers. Our wealth of advanced separation and synthesis techniques, accumulated over many years of experience, enable us to offer a variety of organic acid products. These include electronic materials, pharmaceutical and agricultural intermediates, and circuits, and-thanks to the consolidation of Kawasaki Kasei Chemicals into the Air Water Group in 2015-the world's only commercially produced quinone-based products, phthalic anhydride, and other organics.

Logistics Business

P.31

We operate a comprehensive range of logistics businesses, including container transport between Hokkaido and Honshu, and-taking advantage of the low-temperature transportation technology accumulated in the transportation of high-pressure gases such as oxygen and nitrogen-distribution services with warehouse functions, food logistics for retaining freshness through nuanced temperature control, medical logistics for transporting blood (plasma), and even the manufacturing of vehicles.

with Nature's Blessings

Other

(incl. seawater and

aerosol businesses)

17%

22%

Industrial Gas

135.6 billion yen

176.4 billion yen

Logistics

6%

Net sales

47.9 billion yen

801.5 yen

billion

9%

Chemical

Agriculture and

75.7 billion yen

Food Products

17%

FY2018

136.6 billion yen

Japanese Accounting

Standards

Energy

7%

22%

Medical

176.7 billion yen

52.7 billion yen

Medical Business

P.25

Besides provision of medical gases, Air Water offers comprehensive medical solutions from advanced medical care to everyday, general medical care. The group has expanded its business domain to include the construction of hospital facilities such as operating rooms, respiratory and other medical equipment, SPD and contract sterilization, and medical, as well as sanitary materials, injection needles, and dental materials.

Seawater Business

P.33

Recognizing further potential in industries where air and water combine, we made a capital investment in Tateho Chemical Industries Co., Ltd. in 1988. Since then, we have pursued seawater as a business to effectively harness its resources and create an extensive range of products, including industrial and household salt (in which we have the dominant Japanese market share) as well as high-value-added magnesia products.

						*Incl. -370 mil. yen adjustment
Other					of general administrative and
				other expenses not
(incl. seawater and					attributable to segments.
aerosol businesses)
8.4billion yen			16.6%
Logistics					Industrial Gas
			Ordinary income33.8%
2.6billion yen	5.2%
17.1 billion yen
4.9billion yen
9.7%	47.0
Agriculture and					billion
Food Products					yen*
					FY2018
					Japanese Accounting
Energy	7.9%	Standards
	7.3%
4.0billion yen		Chemical
Medical				19.5%		3.7billion yen
9.9billion yen
				Energy Business	P.27

The Energy Business began in Hokkaido in 1955 with the goal of enriching people's lives. Today, Air Water operates the LP Gas and Kerosene businesses under the Hello Gas brand, still with the same aspiration. The company is also engaged in various other energy businesses, such as supplying LNG, manufacturing and selling LNG tank containers, and retailing electricity, as a comprehensive energy service provider.

Aerosol Business

P.35

Our advanced gas technologies enable us to produce (under contract for clients) a huge variety of aerosols and refill products vital to all facets of industry and life, including paints, auto parts, and industrial components; items for the human body, including cosmetics and quasi-pharmaceuticals; and household items like insecticides.

AIR WATER REPORT 2019 06

CEOME S S A GE

Harnessing Our Diverse Workforce's Talents and Wealth of Data to Achieve Enduring Growth.

Kikuo Toyoda

Chairman and CEO

Our unique business model, based on the All-Weather Management System and "Order Rodentia Style of Business," has seen the Air Water Group grow to incorporate more than 260 companies. This solid growth illustrates how being a tool for public good has enabled us to create an ever-diversifying range of social value and thereby make a greater contribution to society's ongoing quest to solve problems.

Leading such a multifaceted group and ensuring we extract maximum potential will require diligent business management and robust corporate governance. We are fully aware of the magnitude of that task, but we are inspired rather than daunted by the challenge of identifying and overcoming management issues to achieve enduring growth.

Ideal Management Structure and Issues to Overcome

My work as CEO of the Air Water Group is founded on two main pillars: getting the best out of our workforce and our wealth of data. The former relates to channeling the great diversity of the group's people and cultures into a cohesive effort; the latter refers to the constant use of data as a basis for debate regarding our businesses. The cement that holds these pillars firm is our belief that data is a common language that all can "speak" to come together in mutual understanding and sharing of goals.

A team effort to refine and strengthen these two pillars is vital if we are to achieve our goals: becoming a "trillion-yen company" and setting the stage for our second era; nurturing the next generation of Air Water executives as part of our quest for enduring growth; and using our business to help society solve problems, a sentiment encapsulated in our corporate slogan, "Meeting society's needs with nature's blessings."

Our Vision: Becoming a "Trillion-yen Company"

Becoming a trillion-yen company was established as our vision back in 2010, and we are on track to make that vision reality in fiscal 2021. Achieving this, however, still requires us to take stock of our growth engines and fine tune them accordingly. As I see it, we have three growth engines: Our strategic and aggressive pursuit of mergers and acquisitions, further increases in the profitability of existing businesses, and technical innovation.

07AIR WATER REPORT 2019

• A Groupwide Effort to Overcome Serious Challenges

1	Become a "trillion-yen company"	Achieve mid-term	Setting the stage for our second era
management plan targets

1. Nurture the next generation of executives
2. Using business to help society solve problems

Diversity in workforce and

business activities

Meeting society's needs with nature's blessings

Build a foundation for enduring growth

SDGs-conscious creation of value for society

It is essential that future mergers and acquisitions only proceed when we are sure of a balance between investment and restraint in light of our financial health. Specifically, each M&A must be an appropriate part of a detailed grand design for the pertinent business segment, and should have a clear strategic narrative such as strengthening existing business operations or expanding into a new domain. To that end, prior to any decisions, these projects will be subjected to more stringent scrutiny from the Investment Committee and other oversight bodies than ever before.

I believe that, despite the limited growth that mature business domains may yield to markets as a whole, they are still replete with opportunities for companies with refined business models to extract new growth. After all, maturity brings with it morsels that have been overlooked or discarded. Our task, therefore, is to do a thorough stock-take of our existing operations, and dig deep to uncover hidden opportunities to further increase profit-making ability. That is why our focus on data is so important; close study of data is the way to identify untapped potential in mature business areas.

Meanwhile, we intend to drive technical innovation by integrating the many research and development facilities and personnel currently scattered around the group, and strategically pooling their expertise so as to spark radical developments and innovations. Indeed, the sheer variety of core technologies brought to the Air Water Group by our many companies is a source of competitive strength, a point of difference, and a sales advantage. My plan is to make an inventory of each and every such technology and create a groupwide technology platform; I believe that highlighting our technical prowess will surely spark a plethora of open innovation unique to the Air Water Group. Similarly, applying this pan-disciplinary approach to technology to mergers and acquisitions will surely spark new growth.

When these three growth engines run smoothly, we will inevitably achieve our vision of becoming a "trillion-yen company."

Workforce Diversity and Leadership Continuity

The number of companies and employees in the Air Water Group have grown to around three times their volume upon inception in 2000. The many employees and diversity of corporate culture we have gained in that time are the group's foremost strength, and the driving force behind our quest for enduring growth.

I believe that success and growth in business are dependent on people, and that a company's business strategy and its personnel strategy are two sides of the same coin. Thus, the group's personnel strategy, which is aimed at eliciting maximum strength from our broad-ranging workforce, is one of the most pressing aspects of our business, and unleashing the full potential of our female employees is particularly important. The distribution of female employees and managers is uneven across our various businesses, and the group as a whole is failing to tap their potential. If we are to develop our wide ranging businesses, we need to incorporate the views and insights of our talented women, and I am hopeful that doing so will lead to new businesses and services. To that end, we must rapidly make our working environments as welcoming to women as to men, tap female employees for management positions, and develop a pool of women able to strive for executive positions.

Indeed, nurturing the next generation of Air Water executives is also an urgent task. We are currently building an Air Water Group Human Resource Bank, a platform for identifying leadership candidates from among the diverse workforce of our many businesses and developing and applying their executive qualities. Those who score well on the assessment are added to the bank for further development, and in this way, objective data is used to identify, develop, and deploy our human resources optimally.

At the same time, strengthening our human resources worldwide is an urgent problem. As Japan has fewer and fewer young people, globalization is vital to ensuring growth. With that in mind, we have in recent years turned our attention overseas, for instance by gaining a foothold in the Indian industrial gas

AIR WATER REPORT 2019 08

market and laying the foundations for related engineering and equipment businesses in North America and Asia.

If we are to expand swiftly and surely, we need as many talented people as possible, particularly those who can build trust with our global partners, communicate effectively, and negotiate tenaciously in a global setting.

To tackle these challenges, our overseas and career-track hiring programs are geared toward swiftly acquiring and developing a globally capable workforce to propel the group forward.

Unique Strengths Applied to Solve Problems

"Meeting society's needs with nature's blessings" was established as the Air Water Group corporate slogan in 2018, an encapsulation of our determination to create value for society.

The origins of the Air Water Group's business can be found in its name, which consists of two words: "air" and "water." It is the bedrock that underpins our promise to all stakeholders: We will effectively harness the earth's resources to create genuinely beneficial products, services, and solutions; and in doing so, will support industries and lifestyles, and respond to society's needs.

That promise reflects the proximity of our business activities to the Sustainable Development Goals set by the United Nations General Assembly and a task shared by all humankind. At the heart of the SDGs is a desire to balance business activities with the need to resolve social problems, and as a conglomerate of many functions, it is up to the likes of the Air Water Group to maximize the potential of our various businesses to help the world defeat those problems. As things stand, we are able to contribute mainly in four areas-security, safety and disaster prevention; healthcare; clean energy; and water and the environment-and helping to overcome problems in these areas is now the core focus of our activities.

Complementing our contribution to solutions to environmental challenges through our environmental businesses are our accelerated efforts to reducing the environmental impact of our own operations. For instance, striving to cut carbon dioxide and other greenhouse gas emissions is a priority for a group like ours, which is involved in industrial gas and uses vast volumes of electricity. To that end, our mid-term management plan, "NEXT-2020 Final," outlines response to climate change as one of our key challenges and establishes greenhouse gas (CO2)

emission reduction targets: six percent below fiscal 2013 levels by fiscal 2021, and 15 percent below by fiscal 2030. Also, we are adopting carbon-neutral woody biomass power generation, where renewable resources like forest thinnings are used to generate power, thereby further helping cut our greenhouse gas emissions.

Moving forward, conserving energy and adopting renewable energy remain core platforms of our mid-to-long-term planning. Guided by the SDGs and inspired by our Management Philosophy of creating businesses linking to the earth, we at the Air Water Group look forward to applying our unique strengths and achieving breakthroughs that reward the trust and expectation invested in us by the global community.

Kikuo Toyoda

Chairman and CEO

09AIR WATER REPORT 2019

COOME S S A GE

The Courage to Seek New Frontiers, and the Ability to Innovate and Reform.

NEXT-2020 Final: New Mid-Term Management Plan Paves the Way for a Trillion Yen in Sales

Between fiscal 2016 and fiscal 2018, we implemented "NEXT-2020 Ver. 3," stage three of our plan to achieve the long-term vision we established in fiscal 2010: becoming a "trillion-yen company" by fiscal 2020. That period saw solid performance growth in all segments, which drove stable improvements in consolidated sales and income, and resulted in record figures in consecutive years. Moreover, those three years of growth pushed sales in medical segments to levels rivalling those of industrial gas, while sales and profits in our agriculture and food products business also grew dramatically, establishing it alongside industrial gas and medical as one of the three pillars underpinning our operations.

Starting in fiscal 2019, we have a new mid-term management plan covering the next three years: NEXT-2020 Final. The new plan focuses on becoming a trillion-yen company and on innovation as exercises for the Air Water Group to build up the strength to sustain growth long after the plan period comes to an end.

In that sense, the vision of becoming a trillion-yen company is not a goal but a milestone on a longer journey. We need to embrace change rather than fearing it, because innovating will allow us to lay robust foundations to bear the weight of our quest for enduring growth, and become a strong company in both name and substance. With that in mind, we have identified six key areas of reform.

1. Portfolio reform
2. Structural reform
3. Local business policy reform
4. Head office admin division reform
5. Workforce development reform
6. Social value creation reform

These reforms are complemented by three management policies as a means of achieving the plan's targets as well as sustainable growth: mergers and acquisitions, restructuring group companies, and enhancing our product development capabilities.

By the end of the plan in fiscal 2021, we plan to have reached a trillion yen in revenue, 60 billion yen in operating profit, and 37 billion yen in net income. This represents an annual increase of at least nine percent in all these figures. It is a major undertaking,

but achieving these targets will ensure the realization of our vision of becoming a trillion-yen company and propel us to the ideal position for our second era.

Success will require aggressive investment, and we will do so, and we plan to inject 170 billion yen of capital investment over three years. Of this, 40 billion yen will go to maintaining and upgrading existing facilities, and around 130 billion yen will be dedicated to new facilities and extensions. Another 70 billion yen will be spent on mergers and acquisitions over three years, making a total investment of 240 billion yen over the duration of NEXT-2020 Final.

For now, though, our focus for fiscal 2019 is on three areas: improving profitability, generating more momentum for our global expansion, and creating unique local businesses.

Kiyoshi Shirai

President and COO

AIR WATER REPORT 2019 10

Stronger Engineering and Marketing

Across the Whole Air Water Group

Improving profitability is one of our most pressing tasks. Doing so will of course require strict cost cutting and elimination of waste, but it is also vital that we improve the value we provide to customers. Offering unique products, services, and solutions that exceed clients' expectations will establish us as a strong business that does not simply compete on price. To achieve that, we need to bolster our technical capabilities.

A wide-angle view of the group's many businesses highlights one area requiring urgent technical improvement: engineering, where there is considerable room to create new products by improving, customizing, or upscaling existing products. Tackling our engineering strengths and fully nurturing the many "seeds" we have on hand is vital to improve the profitability of our manufacturing operations. To this end, we have established engineering departments in all Air Water Group companies.

Those technical improvements must also be accompanied by innovations in sales and marketing. The first step is to coordinate marketing information held by each company, such as product demand and market share, and subject it to comprehensive analysis. To do this, we have established strategic marketing departments in each company which, in future, will have an expanded role, including using data analyses to formulate sales strategies, identify targets, set product prices, and provide detailed instructions to sales departments. Once in full stride, the strategic marketing departments serve to embed in our DNA the importance of an ongoing cycle of thorough data analysis and improvements based on analysis outcomes, resulting in more efficient sales practices and, eventually, major improvements to profitability.

Ideally, the Air Water Group will be able to continually generate and offer new solutions as each constituent company utilizes and evolves its unique products and technologies, adopting new ideas from outside. The aforementioned dedicated departments in the companies, which are essential to this process, have already been established, and I intend that this will yield positive outcomes and improvements to overall profitability.

Global Expansion Underpins

a New Generation of Growth

The future of the Air Water Group clearly depends on expanding overseas and becoming a genuinely global organization. To achieve this, we have restructured our global business departments, and are focusing our organizational strengths on swift, accurate collation and analysis of information to ensure we are ahead of the game and able to offer timely outcomes. Making use of this new framework, we will seek to enhance our global capabilities, including our risk management and governance. With outstanding "offence" and "defense," we look forward to pursuing greater business success worldwide.

One of our first projects under this new setup is the expansion

• NEXT-2020Final Business and Management Performance Indicators (as per IFRS)

	NEXT-2020		NEXT-2020 Final
	Ver. 3			3-Year
	FY2018	FY2019	FY2020	FY2021	Growth Rate
Revenue	742.3	830	900	1,000	134.7%
Operating	42.8	48	53	60	140.2%
profit
Net income	28.8	30	33	37	128.4%

(billion yen)

		FY2018	FY2021
	ROE	10.6%	10.8%
	ROA	5.7%	6.2%
	% of total	5.0%	10.0%
	global
	revenue

11AIR WATER REPORT 2019

• NEXT-2020Final Concept and Basic Policies

Innovation

	The 6Areas of Reform					How?
Growth	❶Portfolio reform
					Mergers and
opportunities	New seawater company, overseas expansion
				acquisitions
Foundation	❷Structural reform	❸Local business policy reform			Restructuring
for growth	Clarify main pillars of our business Review to identify areas of differentiation			group companies
	❹Head office admin ❺Workforce	❻Social value			Enhancing our
Growth			product development
division reform	development reform	creation reform
drivers			capabilities
A stronger organization for greater innovation

All-Weather Management System & Order Rodentia Style of Business

of our industrial gas operations in the eagerly watched Indian market. Specifically, when global gas giants Linde and Praxair merged in July 2019, we acquired the business in eastern India they were looking to unload and, also in 2019, we are due to acquire their operations in south India by the same method. We hope that this will be the foothold we need to expand our industrial gas interests in India; our goal is that India will contribute around 20 percent toward the 100-billion-yen global sales target set forth in NEXT-2020 Final.

The other driver of our future global expansion is the global engineering business. Merging with Singaporean power protection solutions provider Power Partners in fiscal 2018 and Dutch uninterrupted power supply (UPS) maker Hitec Holding in July 2019 has given us a new core offering: high-output UPS systems. Meanwhile in the North American market, forging partnerships with local dealers to offer local VSU solutions is the next milestone on our quest to, among many other things, establish an industrial gas engineering and equipment business.

North America and Asia will continue to be the dual focal points of our M&A-led efforts to build a foundation for our global engineering business, and thereby lead our global operations.

Growth and Prosperity

Together with Local Communities

The Air Water Group's long involvement in the industrial gas business has given us the foundation on which to build eight companies throughout Japan that are structured around the regions they serve rather than any particular product or service. We call these "regional business companies." Coincidentally, our business interests, which have become increasingly diverse

through mergers and acquisitions, can be broadly divided into eight domains.

Our community-centric strategy is geared toward using our vast platform to configure our many technologies, products, and services for those eight regional business companies so as to generate new products and business models that help resolve local challenges and contribute to local development. The regional business companies are required to know their local communities inside out and use that knowledge to identify local issues. As members of the Air Water Group, they then have access to countless products and services that can be put to use resolving those issues, and in turn create new business opportunities.

That kind of business creation is only possible if the eight regional business companies continue to raise their presence in their communities. To that end, they must take every opportunity to make a contribution and to deepen ties with local governments and businesses. Similarly, we mustn't forget the value of M&As and partnerships in forging unique local business models.

These efforts bring great value: they serve to protect and nurture local businesses and help people build a brighter future. Moreover, such region-centric strategies that value local qualities are one of the Air Water Group's defining features, and we look forward to seeking enduring growth together with our local communities.

Kiyoshi Shirai

President and COO

AIR WATER REPORT 2019 12

Aiming to Be a Company with Enduring Growth

Air Water's Business Foundation and Growth Strategy

Business Foundation

A Broad Portfolio Across Four Domains to Generate Stable Growth

Continuity and development are the overriding obligations of every company. One of the ways we have striven to ensure the continuity and development of the Air Water Group is our All-Weather Management System, which provides stability in all conditions. Thus, in an age when many companies are streamlining and concentrating their operations, we seek diversity by acquiring a variety of businesses to complement our core Industrial Gas Business. Today, our portfolio goes far beyond industrial-related business such as gas and energy to include lifestyle-related businesses like medical, agriculture and food, and seawater. The result is the resilience to withstand the impact of business climate fluctuations.

Straddling four domains (industry, energy, healthcare, and food) ensures our portfolio is balanced across stable markets-not just manufacturing and industry but also those related to daily life. In establishing a conglomerate-based operating

structure supported by eight core businesses, we have brought to fruition our long- standing desire to create an All-Weather Management System.

		Lifestyle-related
	Medical	businesses
Chemical		Aerosol

Others IndustrySeawater

Industrial

Gas

Energy	Agriculture
and Food

Industrial-related

business

Logistics

13AIR WATER REPORT 2019

A Company

with

Enduring

Growth

Growth Strategy

M&A and Technology Strategy Driving Balanced Local and Global Growth

The Air Water Group's more than 260 companies contain many SMEs that seek growth through independent management. On the other hand, organic grouping of these units helps us sustain overall growth as a collective. We call this independent-but-grouped approach the Order Rodentia Style of Business, and have adopted it as a central part of our management. Under this unique system, the group's growth is pulled along by two strategies: our technology strategy and our M&A strategy.

The technology strategy integrates our huge range of technological resources spread across many business domains into a common platform, thereby enabling the creation of new growth drivers. Meanwhile, the M&A strategy provides for the sharing of the Air Water Group's management philosophy and code of conduct among companies that join the group while respecting their independence. We seek to maximize synergies through appropriate combination of the workforces and technical resources

they bring to the mix. By blending these strategies with our community-focused regional businesses and expanding global businesses, we are determined to explore new growth.

Global

Strategy

Led by industrial gas operations

Technology

Strategy

Building a groupwide platform to inte-
grate our R&D, engineering strengths,
and many technological resources pro-	M&A
motes in-house open innovation, which
we believe will spark new technologies
capabilities.	Strategy
and boost our product development

Eight growth-driver business domains

Regional

Strategy

Uncovering new markets

linked to local needs

Mergers and acquisitions are more than a way to add others' technologies, expertise, and clientele to our portfolio; they are ideal vehicles to parlay those into new synergies and new values through combination with our existing resources.

AIR WATER REPORT 2019 14

Rooted in and Growing with Local Communities

Regional Strategy

Our regional business companies operating in eight regions around Japan arrange and deliver a wide variety of technologies, products, and services of the Air Water Group in response to the needs of markets and customers. Their activities include not only selling the group's products and services, but also unearthing regional issues and creating new products and business models that contribute to regional development, in cooperation with Air Water and its group companies. They are also proactively committed to the creation of businesses to support people's lifestyles and local industries taking advantage of regional characteristics.

• NEXT-2020Final Targets

			(Unit: Billion yen)
	2018		2021		Tohoku
Revenue	173.6		217.7
		Air Water
Operating profit	13.7		17.7
		Capital: 100 million yen
			8.1%
Operating margin	7.9%			Sales: 11.8 billion yen
					Employees: 241
		*Total of all 8 companies

Hokkaido

Air Water

Capital: 300 million yen

Sales: 64.4 billion yen

Employees: 1,078

Kinki

Air Water

Capital: 350 million yen

Sales: 27.1 billion yen.

Koshinetsu

Air Water

Capital: 20 million yen

Sales: 6.7 billion yen

Employees: 222

Employees: 280

Kyushu

Air Water

Capital: 350 million yen

Sales: 13.4 billion yen

Employees: 167

Chushikoku

Air Water

Capital: 100 million yen

Sales: 10.8 billion yen

Employees: 160

Kanto

Air Water

Capital: 350 million yen

Sales: 26.7 billion yen

Employees: 321

Chubu

Air Water

Capital: 350 million yen

Sales: 12.8 billion yen

Employees: 104

Sales: Fiscal year ended March, 2019

Employees: As of March 31, 2019; including contract employees, etc.

M&A Strategies in Regional Business Companies

Air Water has expanded its business scale and created synergies under the M&A strategies. In recent years, as the regional business companies have been achieving steady growth under the regional strategies, they have begun to take the initiative in conducting M&As. M&As are an important business approach not only for Air Water but also for the regional business companies. Air Water and regional business companies are both continuing to grow under the same strategies.

15AIR WATER REPORT 2019

Contribution to Society by Regional Businesses Closely Linked to Regional Communities

M&A strategies and regional strategies are inseparable growth strategies of Air Water, and the close ties with local communities inarguably form the core of regional businesses. Air Water believes that the reason for having regional business companies is because they are able to think for themselves about growth in local communities from a regional perspective. Aiming to become companies that are rooted in local communities and that match the local characteristics; growing businesses that are rooted in local communities-in the course of achieving these goals, regional business companies communicate know-how on M&A to local communities and support local companies suffering from a lack of successors. Each regional business company will continue growing along with the people of its local community, being firmly rooted in the region and having a vision for an enriched future.

Creating Social Value through Business Activities

As a company engaged in businesses related to air, water, and the earth

We will harness the earth's resources sustainably to create genuinely beneficial products, services, and solutions; and in doing so, will support industries and lifestyles, and respond to society's needs.

Key Business Domains

Security, safety, and disaster prevention solutions

• A stronger infrastructure

with our VSU strategy (stable

supply of gases vital to life and safety)

• Safety and security with our disaster prevention projects

Clean energy solutions

• Expand our woody biomass power generation

business(approx. 80% of the group's needs supplied with renewable energy)

• Expand LNG and LPG businesses

Segments	Relevant SDGs
	Industrial Gas Business
	Oxygen, nitrogen, argon, and other
	industrial gases, industrial
Industrial	machinery, plant manufacturing, etc.
Carbon materials, electronics
	Chemical Business
businesses	materials, agricultural chemicals,

pharmaceutical and agricultural intermediates, etc.

Energy Business

LPG, kerosene, LNG, energy-related devices, etc

Logistics Business

Logistics for high-pressure gases, food products, medical products, etc., vehicle bodies mounting, etc.

Seawater Business

Salt, environmental products, water treatment, magnesium, etc.

Water and environment

solutions

• Effective use of seawater
• Water treatment and environmental services
• Recycling and use of underutilized resources

Healthcare

solutions

• Reduce burden on medical providers
• Innovation in medical services

businesses related-Lifestyle

Aerosol Business

Aerosol products (items for human body such as cosmetics, industrial items such as paint, etc.)

Other Businesses

Electricity, environment-friendly artificial recycled wood (ECOROCA®), metal surface treatment (NV), O-rings, etc.

Medical Business

Medical gases, hospital facilities, medical devices, medical services, home medical care, hypodermic needles, dental and sanitary materials, etc.

Agriculture and Food Products Business

Agriculture, food processing, contract beverage production, produce distribution, etc.

We contribute to resolving social issues by dedicating

ourselves and our resources to the creation and development

of businesses linking air, water, and the earth.

AIR WATER REPORT 2019 16

Feature1Using Renewable Energy to Generate Electricity

We use our proprietary high-efficiency, compact liquefied oxygen/nitrogen production plants (VSUs) to produce industrial gas close

Our Renewable Energy-Based Electricity Generation Business

to areas of demand. This system ensures stability of supply while the shorter delivery distances result in relatively smaller greenhouse gas emissions. Moving forward, we will continue to pursue our woody biomass power generation business with a view to cutting greenhouse gas emissions from the consumption side of the energy equation, as well. Securing a base power supply allowing for a degree of self-sufficiency is vital for ensuring business continuity in all circumstanc- es, including post disaster situations. When running at full capacity, the four power plants shown to the right generate power equivalent to approximately 80 percent of consumption by the whole Air Water Group.

Air Water & Energia Power Yamaguchi

Joint venture with Chugoku Electric Power based in the Air Water Hofu Plant. Woody biomass and coal co-fired power plant. Began operating in July 2019. Generation capacity: approximately 112,000 kW.

Air Water & Energia Power Onahama

Joint venture with Chugoku Electric Power based at the Nihonkaisui Onahama Plant. Japan's largest woody biomass mono-fired plant under construction; operations scheduled to start in April 2021. Generation capacity: approximately 75,000 kW.

Nihonkaisui Ako Plant (2 power plants)

Nihonkaisui has long had its own generation capacity for its salt production business. No. 1 woody biomass plant began operations in 2015, entering power generation business in earnest; no. 2 woody biomass plant scheduled to begin operations in September 2020. Generation capacity: approximately 46,500 kW (both plants).

Nihonkaisui TTS Kanda Power

Incorporated to bolster Nihonkaisui's power generation business, this woody biomass power plant is situated in Kanda-machi, Fukuoka, separately from the salt factory. Operations scheduled to start in October 2023. Generation capacity: approximately 50,000 kW.

Air Water & Energia Power Yamaguchi

Nihonkaisui Ako Plant

Trusted Local Power Plants Generating a Stable Supply of Clean, Low-Cost Energy

Woody biomass and coal co-fired power generation at Air Water & Energia Power Yamaguchi

Air Water & Energia Power Yamaguchi, a joint-capital venture with Chugoku Electric Power, runs the Hofu Woody Biomass and Coal Co-Fired Power Plant built on unused land at our Hofu Plant. The facility began commercial operation in July 2019, and sells the power it makes taking advantage of feed-in tariffs. Here, we make a genuine effort to help manage local forests, promote the use of renewable energy, and reduce carbon dioxide emissions by using carbon-neutral woody biomass in addition to some coal, which still offers lower costs and better supply stability.

■ Fuel

The industrial gas plant adjacent to the power plant

Palm kernel shells	Wood sourced	Coal
Annual use:	within Yamaguchi	Annual use:
Approx. 240,000 tons	Annual use:	Approx. 180,000 tons
	Approx. 40,000 tons

More than 10,000 tons of palm kernel shells stored in the stock yard

17AIR WATER REPORT 2019

Among Japan's Top Biomass Power Producers

Considering the scale of power generation we seek and the costs of producing electricity, we decided on a balanced mix of woody biomass (which contributes to lower greenhouse gas emissions) and coal. This is made possible by our circulating fluidized bed boiler, which takes air in at the bottom and circulates fuel uniformly through a bed made up of a heat medium (in this case, hot sand) during combustion. The process is ideal for burning roughly cut fuel, and allows for a higher ratio of woody biomass in the fuel mix. This setup also allows for direct in-furnace desulfurization by injecting limestone, and non-catalytic denitration of waste gas by circulating urea. The equipment is therefore compact, as are the costs.

This plant burns approximately 280,000 tons of woody biomass a year (240,000 tons of palm kernel shells and 40,000 tons of thinnings from local Yamaguchi forests) and approximately 180,000 tons of coal. Much effort has gone into establishing transport and loading systems capable of handling such huge quantities of fuel, so as to ensure a stable and efficient supply.

The result is a plant with a generation capacity of approximately 112,000 kW (generator output), and annual generation has now reached around 800 million kWh, equivalent to the entire annual household and industrial consumption of Hofu City. This places this facility among the top echelon of currently operating woody biomass power stations in Japan.

Eco-Considerate Power Plant Uses Plentiful Local Resources

By generating power using carbon neutral woody biomass fuel instead of burning fossil fuels, we contribute to the reduction of greenhouse gas emissions. The Hofu Woody Biomass and Coal Co-Fired Power Plant has a comparatively high ratio of woody biomass to coal-around 50 percent-which slashes the amount of carbon dioxide emitted per unit of electricity generated. Moreover, the plant's low-temperature combustion (between 800 and 900 degrees Celsius) keeps nitrogen oxide emissions lower than high-temperature combustion systems. Other initiatives to protect the environment include using heat-exchanging cooling towers to recycle and reuse industrial water instead of discharging huge volumes of hot wastewater into the surrounding area.

Some of the woody biomass we use comes from underutilized materials such as forest thinnings sourced locally in Yamaguchi Prefecture. Finding uses for forest thinnings is a perennial headache for forestry businesses, and the potential for woody biomass power facilities like ours to offer a long-term solution for this underutilized resource could benefit the local economy. In addition to woody biomass, we use locally sourced resources wherever possible. For instance, we get our water from the plentiful Saba River, a first-grade waterway that flows through Hofu City and provides us with approximately 9,400 cubic meters of water per day (equivalent to twenty-six25-meter swimming pools), and the limestone used for desulfurization in our boilers is mined locally in Yamaguchi Prefecture, too.

A circulating fluidized bed boiler

A steam turbine power generator

The central control room operates 24-hours a day

Bag filters remove hazardous substances from the boiler's combustion gases

Cooling towers use water from the Saba River

Aiming to Be a Familiar Part of the Community

Perhaps strangely for a power station generating more than 100,000 kW, the Hofu Woody Biomass and Coal Co-Fired Power Plant is quite close to the city center. But that proximity makes it easier for us to host tours and show people the impressive scale of our facilities and tell them about our environmental efforts. Local residents naturally want to know more about their city, so they are curious about the power plant that has quickly become a Hofu landmark. We are, of course, happy to show off our plant, and we strive to run the plant in a way that can forge ties of trust with our community.

Shinji Yokota

Director of Air Water & Energia Power Yamaguchi and foreman of the Hofu Woody Biomass and Coal Co-Fired Power Plant

(as of July 2019)

Imported palm kernel shells and coal are transported to Mitajiri Port on the Ishin, a specially built vessel designed to carry cargo from the major ports of Kyushu and the Chugoku region. From Mitajiri Port, the cargo travels the 450 meters directly to the power plant on a closed conveyor belt.

AIR WATER REPORT 2019 18

Feature2Using the Gifts of the Sea for Everyone's Benefit

Our seawater business began as a means of diversifying our portfolio. Today, we are proud to carry on the long tradition of salt production while creating a variety of new derivative products to meet society's needs. In recent years, the seawater business has garnered attention for its potential applications in a variety of domains, including environmental protection, and seawater is fast becoming a major factor in the group's latest movements.

Striving to Unlock the Boundless Potential of Seawater and Build a Better Future

These days, our seawater business is pushing back boundaries and making new discoveries in the quest for seawater applications. It all began with salt production, the process of which requires various items and generates a variety of byproducts, not to mention the many things other than salt which can be derived from seawater. Our mission has been to identify the many business seeds offered by seawater relevant to different industries-including medical, electricity, environmental protection, chemicals, and food-and to nurture them into viable, segment-straddling business ventures. The seawater-based industries we develop have the potential to grow and support social infrastructures; desalination techniques and technologies, for instance, may help alleviate the global shortage of drinking water. Today, as ever, we work hard on doing what needs to be done to unlock seawater's world-changing potential.

In April 2019, the Air Water Group established a new seawater company, which brought the Nihonkaisui Group, Japan's foremost salt producer, and the Tateho Chemical Industries Group, a manufacturer of industrial magnesia, into the fold. Our aim is to combine the various R&D, production technologies, markets, and other resources that each party brings to the company to spark innovation and push back the frontiers of the seawater industry.

The seawater company is already involved in projects with potential to be highly valuable for society. Among these activities, expectations are particularly high for the company's environmental business.

Leveraging Advanced Salt Protection Technologies to Help Protect the Environment

Our seawater business is headed by the Nihonkaisui Group, a collective of Japan's leading salt producers. Now, we are applying the advanced techniques and technologies built up over long years of experience in salt production to contribute to society through our environmental business.

One example is our magnesium hydroxide business, in which we utilize the residual magnesium in seawater after salt extraction. This is used for desulfurization of flue gas and other applications. Another example is "READ," our range of rare earth adsorbents, which developed from our existing technologies to remove boron from seawater. READ is used as an adsorbent to remove arsenic, fluoride, boron, and other heavy metals. For instance, it is used in devices to remove arsenic from drinking water in places like India, Bangladesh, and Europe, where arsenic contamination is a serious issue. Moving forward, we are looking to expand these water treatment successes into broader applications in the public infrastructure sphere, such as the rehabilitation of sewer pipes, so as to make an even greater contribution to society.

The relevant markets are evolving: stricter environmental regulations in Southeast Asia and other regions has boosted demand for READ

adsorbents, and there is considerable expansion in wastewater treatment and infrastructure projects. We are determined to grow our environmental management business by developing more new products and establishing bases in Southeast Asia as a launchpad for greater things.

Teaching people how to use READ in Bangladesh

READ-As, an arsenic removal

An arsenic removal device using adsorbent READ adsorbent

Aquarium business: designed to add to the

Our aquarium business began with an investment in an aquarium scheduled to open in Shikoku in April 2020 in the hope of boosting sales of Sealife, our artificial seawater, and expanding our environmental management business. We are now involved in plans to open other aquariums, and are ideally positioned to offer the necessary technologies, equipment, and materials. Combining the group's many strengths to open and maintain a state-of-the-art aquarium will serve to broaden our operations and promote synergies among group companies.

19AIR WATER REPORT 2019

Expansion of the Air Water Group's Seawater Business

See "Seawater Business" on page 33 for details.

Seawater Research and Development	Table salt, general industrial salt,
Institute, aquariums
snow-melting salts

		New	Salt
		businesses		Artificial seawater, water filters,
Potassium chloride, calcium chloride,						feed, on-land aquafarming,
test gardening	Agricultural				Water	drinking water, other product sales
		chemicals
Seaweed, furikake rice topping,
chazuke rice-and-green-tea
flavoring, food additives, food		Food	Seawater	Salt		Saline solutions,
processing, snacks, magnesium			dialysis agents
supplements	Food	business		Medical
	(derived from
Bittern, magnesium oxide,					Biomass-fired power
		the sea)
magnesium hydroxide, fused					generation, natural-gas-fired
magnesia, magnesium oxide for		Chemicals				power generation, steam sales
heaters, ceramics, thermal							(registered heat supplier)
conduction fillers		Magnesia	Environment		Electricity	Magnesium hydroxide,
Water treatment, pipe rehabilitation,
						READ resin,
environment management machinery,	Social (urban)
underground cables		Environment		soil immobilization agents,
	infrastructure
			wastewater treatment facilities

Research and Development to Create New Value and Businesses

Further broadening of the seawater industry's horizons requires a solid R&D framework to improve our technological prowess, and development aimed at putting those technologies to gainful use. To that end, we are scheduled to launch our seawater R&D project in 2020, with a view to opening the Seawater Research and Development Institute in the spring of 2022.

The institute will be located on the Hibikinada Sea coast of Kitakyushu, a well-appointed site near the Hibikinada Plant of Tateho Chemical Industries, the group's unrivalled manufacturer of magnesia for electromagnetic steel sheets, and overlooking the beautiful sea alongside some of the biggest names in the Japanese corporate community.

Here, we will pursue R&D aimed at combining seawater technologies and creating new and unique technologies; unconstrained by pre-existing concepts, our team will look to harness the powers of the sea, water, land, and air to create new, high-value-added products and services.

The site of the Seawater Research and Development Institute (in the same areas as Tateho Chemical Industries' Hibikinada Plant)

The Concept Behind the

Seawater Research and Development Institute

Sea Water Land Air

Combine to create new,

high-value-added products and services

Bring fresh ideas to the industry

and create new value

group's business domains and generate synergies among group companies

Artist's rendition of the Shikoku aquarium

Sealife,

the standard in artificial seawater

AIR WATER REPORT 2019 20

Air Water Group's Businesses

Industrial

Gas

Business

Business Facts

• Ongoing strong demand for gas from the Japanese manufacturing industry
• Electricity and logistics costs are increasing
• Maintaining a stable supply of helium and carbon dioxide is a challenge
• Increased need for automation andlabor-saving measures at client factories
• Increasingly frequent natural disasters are driving need for business continuity plans

Core Strategy

• Grow share of the Japanese gas market through aggressive capital investment and stronger ties with regional partners
• Foster second and third core businesses through new product/service development and global expansion

Major Measures

1. Deeper mining of Japanese industrial gas market potential

• Open eight new VSUs by FY2021 for a total of 24 nationwide
• Keep abreast of changes in demand from steel and electronics industry clients
• Stay on top of rising costs and revise prices as necessary

1. Expand device and equipment business

• Use mergers and acquisitions to expand operations relating to devices for electronics industry clients
• Undertake structural enhancements to expand air separation unit business
• Configure Japanese business sites to establishcost-competitive engineering framework
• Develop a system integration business able to meet clients' demand for automation andlabor-saving

1. Expand global operations

• Expand industrial gas business in India and Southeast Asia
• Expand procurement and sales of gas applications, special materials and special chemicals

Revenue & Operating Profit (IFRS) (unit: million yen)

■ ■ Revenue		■ ■ Operating profit
250,000			235,000	30,000
	174,147	195,000	21,000
	18,800
150,000	16,721		20,000
				10,000
50,000
0	2018	2019	2021	FY 0
	Actual	Forecast	Plan

Review of FY2018

On-site gas supply for steelmaker clients progressed well in fiscal 2018 thanks to efforts to stabilize operations and improve efficiency. Supply by tank trucks and cylinders was solid overall, sustained by a number of factors, including: deployment of high-efficiency, compact liquefied oxygen/nitrogen production plants (VSUs), as illustrated by the start of operations at the Iwate Plant; stronger ties with major local partners; and firm demand from Japanese manufacturers in the automotive, chemical, and construction industries among others. As a result, industrial gas sales showed robust growth overall, but profit margins were impacted by rising electricity and logistics costs, as well as natural disasters.

Equipment and construction sales grew on the back of orders for gas generators and low-temperature equipment, while the consolidation of Japan Pionics, which we acquired in fiscal 2017, and global subsidiaries into group accounts also contributed.

Net Sales & Ordinary Income (unit: million yen)

■ Net sales			■ Ordinary income
200,000		176,375		25,000
	159,250
			20,000
150,000	16,170	17,132
				15,000
100,000
				10,000
50,000				5,000
0	2017	2018		FY0

Outlook for FY2019

In Japan, we forecast solid demand for gas despite stagnant production in some regions and industries. However, increasingly frequent natural disasters mean business continuity planning is more important than ever before. Mindful of this, we will work to expand our VSUs and other manufacturing sites, as well as cylinder filling stations, thereby ensuring a stable supply network and growing our share of the industrial gas market. Indeed, we have already begun, with VSUs opening in Fukuyama City, Hiroshima, in April 2019, and in Sakaide City, Kagawa, the following month.

Outside of Japan, the foothold we gained in the Indian market (a market for which high growth is predicted) with the consolidation of Elenbarrie Industrial Gases into the group in fiscal 2018 was reinforced by the acquisition of operations in the eastern and southern parts of the country jettisoned as part of a merger of major gas companies. Moving forward, we will strive to capture the demand for industrial gas in India.

21AIR WATER REPORT 2019

Business Overview and Features

The Industrial Gas Business delivers a stable supply of industrial gases, such as oxygen, nitrogen, argon, and carbon dioxide, by the optimum supply method, ranging from supply using cylinders or tank trucks to on-site supply. The Industrial Gas Business also offers gas applications, as well as engineering and industrial equipment, by making effective use of technologies developed in-house.

Relevant SDGs

• Stable supply of industrial gases
• Reduction of environmental load by improving plant efficiency
• Reduction of CO2emissions associated with transportation

Types of Gas

Oxygen	Nitrogen	Welding gas
Argon	Carbon dioxide			ELNACKS®
		DIE ARGON
Hydrogen					AW SHIELD
Helium			HOKUSEAL
Rare gas	Cutting gas	Others
	Xenon		DIETHYLENE			Specialty chemicals
	Krypton		DIE CUT®			Ethylene oxide
	Neon		DIE LASER			Semiconductor
			Acetylene			specialty gas
						Stable isotopic
						gases, etc.

Industrial Gas

On-site Supply

Mini On-site Supply

Supply by Tank Trucks

Air Water installs gas generation equipment on the premises of steelworks, chemical plants, and other facilities that require a large volume of high-purity oxygen or nitrogen and provides gas supply through pipelines.

Air Water ensure stability of supply to	Air Water delivers various types of
industries with medium-scale demand	liquefied gas produced at manufacturing
such as the electronics industry by install-	plants to customers' plants. Thanks to its
ing small- to medium-scale gas genera-	supply network covering the whole of
tion equipment such as the V1, which	Japan, Air Water has established a secure
manufactures high-purity nitrogen gas.	and safe supply structure.

Cylinder Supply

Air Water supplies cylinders, gas cylinder bundles, LGC (ultra low-temperature liquefied gas containers), etc., to various local industries by the method most appropriate to usage and purpose.

Equipment and Construction

VSUs

Balancing Clients' Requirements with Stability of Supply

High-efficiency, compact liquefied oxygen/nitrogen production plants-known as VSUs-are a handy way to produce just the right amount of gas close to the point of demand; they represent a business model with benefits including much shorter transportation distances as we team up with local partners to satisfy local demand. Our 18 VSUs nationwide help make our supply network safer, more stable, and more resilient in disaster and emergency situations, and the shorter distances mean less carbon dioxide emitted during transportation.

The Iwate Plant, our 16th VSU

Under Our VSU networkconstruction

(as of Sep. 30, 2019)

Industrial Equipment

Air Water supplies industrial equipment related to welding and cutting, such as ELNACKS®, an argon-based gas for weld- ing, and offers welding solution services.

Gas Applications

Air Water develops and proposes gas equipment and systems that effectively use the properties of industrial gases to contribute to its customers' improvement of production efficiency or sophistication of technology.

Engineering

Air Water offers integrated solutions based on the process engineering of cryogenic air separation systems, from design and fabrication to safety manage- ment.

AIR WATER REPORT 2019 22

Air Water Group's Businesses

Chemical

Business

Business Facts

• Advancing technologies (e.g., medical and agricultural chemicals, electronic components) mean the functional chemical domain is becoming broader and more sophisticated
• Environmental regulations in China are a risk

Core Strategy

Merge and acquire to expand our functional chemical businesses; utilize the stronger earning power gained from enhancing Kawasaki Kasei Chemicals' quinone- based product line-up to restructure the business and improve operating income.

Major Measures

1. Mergers and acquisitions

• Target the top fine chemical companies in niche markets

1. Strive for ever better performance

of quinone-based products

(i.e., by Kawasaki Kasei Chemicals)

• Make capital investments for a stable,high-efficiency production framework
• Integrate the group's R&D functions to improve product and market development capabilities

3Restructure the independent business foundation

• Strive forintra-group synergies so as to expand into high-value-added segments where we are cost-competitive
• Harness the group's broad range of business fields to mine strengths, including client base, technologies, workforce, and other resources

Revenue & Operating Profit (IFRS) (unit: million yen)

■ ■ Revenue		■ ■ Operating profit
40,000			36,000	2,000
30,000		28,000	1,200	1,500
	22,917
20,000				1,000
10,000	546			500
	300
0	2018	2019	2021	FY 0
	Actual	Forecast	Plan

Review of FY2018

While stricter environmental regulations caused some production flutters in our Chinese production plants, weeding out of unprofitable products, expanded sales and price revisions of products mainly for the electronic materials market, led to a major improvement in fine chemical revenues.

At Kawasaki Kasei Chemicals, China's environmental regulations caused some production fluctuations at clients' factories, resulting in a drop in sales of naphthoquinone, but a rise in the ingredient costs related to organic acid products led to a price rise, which nudged net sales upwards. Meanwhile, fixed cost cuts and procurement streamlining helped lower manufacturing costs, which ensured profits were solid this year.

The coal chemical business also progressed well, buoyed by an increase in the unit price of coke oven gas refinement and increased sales (by quantity) of crude benzene, a basic chemical.

Net Sales & Ordinary Income (unit: million yen)

■ Net sales		■ Ordinary income
80,000	67,984	75,651	5,000
	3,706
60,000		4,000
			3,000
40,000	1,854
		2,000
20,000			1,000
0	2017	2018	FY0

Outlook for FY2019

The outlook for the chemical industry remains tough, particularly with the ongoing impact of stronger Chinese environmental regulations. Amid these circumstances, we completed the transfer of our coal chemical business to the Nippon Steel Group on April 1, 2019.

Moving forward, we are eager to expand the horizons of our Chemical Business, for instance through functional chemicals. Here, we will combine fine chemicals, which are focused chiefly on electronic materials, with carbon material products, including the thermally expandable graphite that we retained when offloading the coal chemical business. Similarly, we will work with Kawasaki Kasei Chemicals and its line-up of general-purpose chemicals like phthalic anhydride and quinone-based products like naphthoquinone to extend our existing range of products, while expanding further into the functional chemical domain through mergers and acquisitions.

23AIR WATER REPORT 2019

Business Overview and Features

From electronic materials to medical and agricultural intermediates, through quinone-based chemicals (that only Kawasaki Kasei Chemicals has succeeded in producing at commercial scale), and other organic acid products like phthalic anhydride, as well as high-value-added chemical products like Maximol, which is used for rigid polyurethane foam, we develop, produce, and offer a stable supply of a truly diverse range of products.

Relevant SDGs

• Development and production of pharmaceutical and agricultural intermediates
• Reduction of greenhouse gases through provision of products (Kawasaki Kasei Chemicals, MAXIMOL, SAQ®pulp digesting agent)

	Kawasaki Kasei Chemicals
Functional chemicals	Organic acid products		Quinone-based
	products
Electronics	Phthalic anhydride		Naphthoquinone
materials
Pharmaceutical	Fumaric acid		Naphthoquinone
intermediates		derivatives
Agricultural	Succinic acid
intermediates
Circuit products	MAXIMOL

Functional Chemicals

Electronic Materials

We leverage liquid air oxidation, nitration, and other synthesizing technologies to manufacture and sell a variety of products to satisfy customers' needs, such as the semiconductor sealant SK Resin.

Pharmaceutical and Agricultural Intermediates

The group's strong arsenal of heterocyclic compounds, which play an important physiological role, are used in the synthesis of various derivatives to meet the diverse development needs of customers.

Circuit Products

Printec designs high-density circuits and manufactures and sells high-density mounting boards such as servo motor control boards.

Kawasaki Kasei Chemicals

Organic Acid Products

Here we manufacture and sell the phthalic anhydride used in vinyl chloride plasticizers and the succinic acid and fumaric acid used in food additives.

Organic Acid Products Derivatives

We manufacture and sell organic acid products derivatives, including MAXIMOL, which is used in the urethane base for products like heat insulation.

Quinone-Based Products

As the only company in the world to successfully produce quinone-based products such as naphthoquinone at commercial scale, we manufacture quinones with properties ideal for use in agricultural, medicine, and many other fields.

F	atu	e	Air Water Acquires Filwel
e	r
	1		Precision Polishing Pads Add New Strengths to Electronic
				Materials Operations

Filwel Co., Ltd., (headquarters: Hofu City, Yamaguchi; sales for year ended December

2018: 3.1 billion yen) manufactures and sells artificial leather and precision polishing pads. The company began as a project of Kanebo's R&D department. Its precision polishing pads, which are used in the manufacture of electronic devices, where ultra-high-precision surface finishing is required, account for approximately 70 percent of sales. For our part, adding precision polishing pads to our arsenal of products is a smart expansion of our electronic materials solutions, and as Filwel's head office and plant are located next to our own facility in Hofu City, we believe we can achieve considerable groupwide synergies through shared use of utilities. (Air Water completed acquisition of all Filwel shares on September 27, 2019.)

F	atu	e	Air Water Acquires Daito Chemical
e	r
	2		Japan's Top Maker of Sodium Acetate Brings Unique Particle
				Control Technologies to the Mix

Daito Chemical Co., Ltd. (headquarters: Hiratsuka City, Kanagawa; sales for year ended

March 2019: 7.7 billion yen) is Japan's foremost producer of sodium acetate used in food additives aimed at extending product shelf life and use in (among other applications) dialysis. The company has its own unique particle control technologies, and in addition to manufacturing and selling a range of industrial chemicals like sodium sulfite, also undertakes contract synthesis of organic chemical solutions such as low-molecular synthesis and polymer synthesis. Our intention is to harness Daito Chemical's organic synthesis capabilities and seek synergies in areas such as our production of medical and agricultural intermediates and electronic materials, so as to add further momentum to our functional chemicals business. (Air Water completed acquisition of all Daito Chemical shares on October 30, 2019.)

AIR WATER REPORT 2019 24

Air Water Group's Businesses

Medical

Business

Business Facts

• Increasing demand for greater functionality and efficiency in the advanced healthcare segment
• Declining population and aging society driving increase inlong-term care and preventive medicine needs
• Advancing healthcare in emerging nations

Core Strategy

• Select optimal strengths from the group's wide range of capabilities and concentrate to establish a solid foothold in the market for perioperative solutions
• Aim to spark further growth by working to improve revenues and establish new businesses simultaneously

Major Measures

1. Harness the group's comprehensive strength to anticipate and fulfil all market needs

• Advanced medical solutions: Winall-encompassing orders covering perioperative equipment, peripheral equipment, and medical services
• Lifestyle medical solutions: Develop new dental and oral care products and reinforce sales structure
• Community medical solutions: Expand our share of the medical gas market in conjunction with VSUroll-out
• Global medical solutions: Boost global sales of perioperative equipment and injection needles

1. Improve revenues

• Rectify pricing and improve procurement costs for medical services
• Improve productivity in the manufacture of injection needles and sanitary materials

1. Expand disaster prevention operations

(i.e., at Air Water Safety Service)

• Expandfire-extinguishing equipment business

4Create new businesses

• Launch business operations relating to 8K endoscope cameras, video systems, and regenerative medicine using dental pulp stem cells

Revenue & Operating Profit (IFRS) (unit: million yen)

■ ■ Revenue		■ ■ Operating profit
250,000			210,000		20,000
		187,000
200,000	174,187	13,000	15,000
	11,000
150,000	10,358
				10,000
100,000
50,000					5,000
0	2018	2019	2021	FY 0
	Actual	Forecast	Plan

Review of FY2018

In the advanced medical solutions segment, a trend toward using less medical gas and the exhaustion of potential for new orders for hospital equipment has left us in a tough position. Conversely, medical services progressed robustly, buoyed by the acquisition of new clients for in-hospital SPD (Supply, Processing and Distribution Service) and inventory management systems, as well as streamlining in material procurement and rectification of prices received for sterilization services. Meanwhile, the government's revision of medical remuneration led to growth in sales of high-pressure oxygen devices, providing new wind in the sails of our medical equipment business. Meanwhile, our hospital equipment business in Singapore performed well.

The lifestyle medical solutions segment was buffeted by the severity of the market for home medical care and sanitary materials, as well as rising logistics costs in the dental segment.

Net Sales & Ordinary Income (unit: million yen)

■ Net sales			■ Ordinary income
200,000	170,897	176,653	20,000
150,000			15,000
100,000	10,317	9,859
		10,000
50,000			5,000
0	2017	2018	FY0

Outlook for FY2019

While potential for new hospital equipment orders has been exhausted, the demand for higher hospital functionality and efficiency is expanding needs. In order to keep abreast of these new needs, we are striving to position ourselves as an all-round provider of perioperative solutions by offering a comprehensive range of solutions by adding peripheral equipment, sterilization, surgical kits and other disposables to our existing line-up of operating theater and ICU equipment. To that end, we established Air Water International Advanced Medical Center, a broad-ranging hub for R&D and information dissemination at the Kobe Biomedical Innovation Cluster. At the same time, we are working hard to develop products with a difference, such as endoscope cameras and surgery video systems using 8K imaging technology.

25AIR WATER REPORT 2019

Business Overview and Features

Here, we offer a broad spectrum of products and services, from sophisticated medical solutions underpinning the increasingly advanced healthcare sector to lifestyle medical solutions. The former includes state-of-the-art hospital equipment, medical gas supplies, contract hospital services, and equipment maintenance, while the latter includes dental supplies, sanitary materials, injection needles, and other items needed by local clinics and home care providers.

Relevant SDGs

• Providing products and services for advanced medical treatment
• Providinglifestyle-related products
• Contributing to the enhancement of infrastructure through disaster prevention projects

Advanced Medicine

Advanced	Lifestyle
medicine	medical
Global	Hospital	Injection	Dental
medical
facilities	needle
equipment	business
business	business
business
Medical	Medical	Sanitary	Home
medical
services	gas	materials
care
business	business	business
business

Hospital Equipment

We have the largest share of Japan's market for the design and installation of operating theaters, ICUs, and medical gas piping systems. We have the versatility to offer everything from basic systems to specialized solutions for ultra-advanced surgical facilities.

Medical Services

Air Water helps hospitals to operate more efficiently by providing medical outsourc- ing services to support hospital management and operations, including in-hospital logistics management and the sterilization or disinfection of medical instruments.

Medical Equipment

We offer an extensive menu of equipment sales and maintenance, including surgical devices like 8K rigid endoscopes, hyper- baric oxygen chambers, and respiratory equipment.

Advanced Medical

Lifestyle Medical

Medical Gas

From medical oxygen (for which we have the top share of the Japanese market) to sterilizing gas and liquefied helium for use in MRIs, our nationwide network ensures we can offer a stable supply of medical gas throughout Japan.

Home Medical Care

Air Water helps patients with respiratory problems to live comfortably every day through home oxygen therapy, which involves breathing in air that contains more oxygen than normal using a home oxygen concentrator.

Sanitary Materials

Air Water has strength in the development of products with special features such as sterilized gauze and sterilized BEMSHEETS, which are mainly used in operating rooms, and it is also putting effort into products for general consumers such as oral care products and baby products.

Lifestyle Medical

Disaster Prevention

Dental

We manufacture and sell dental and orthodontic equipment for dental clinics and orthodontists, and offer online sales of dental care products in general. We are also working to establish regenerative treatments using dental pulp stem cells.

Injection

Air Water manufactures general hypodermic needles as well as a variety of other needles for dental, aesthetic, and veterinary purposes using outstanding grinding and machining technologies in Japan, and exports them to over 80 countries around the world.

Disaster Prevention

Responding to disaster situations requires a variety of gases, which we provide through fire extinguishers and air respirators, and with our own fire-fighting and earthquake-resistance test facilities, we are uniquely positioned to offer protection through safer products when communities need them most.

AIR WATER REPORT 2019 26

Air Water Group's Businesses

Energy

Business

Business Facts

• Energy consumption down due to declining population and global warming
• Shortage of people to take over LPG retail businesses
• Market competition following deregulation of electricity and city gas supply markets
• Switch to clean energy amid efforts to minimize carbon emissions
• Mergers of major wholesalers

Core Strategy

• Increase market share in Hokkaido, principally through stronger direct sales of LPG
• Expand industrial energy operations and reinforcelifestyle-oriented operations

Major Measures

1Strengthen direct sales of LPG for civil use

(increase direct sales from 250,000 customers in FY2018 to 300,000 by FY2021)

• Strengthen direct sales through mergers and acquisitions
• Increase customer numbers andlock-in potential/existing customers through enhanced lifestyle-oriented operations and services
• Launch new model of the VIVIDO hybrid water supply and heating system

1. Expand industrial energy operations (LPG, LNG)

• Strengthen ourin-house distribution platform and expand sales of industrial LPG
• Promote switch from fuel oil to LPG and LNG
• Expand operations relating to LNG equipment

1. Strengthen LPG purchasing power

• Strengthen LPG purchasing power by expanding industrial LPG operations and global operations

Revenue & Operating Profit (IFRS) (unit: million yen)

■ ■ Revenue		■ ■ Operating profit
80,000			74,000	8,000
60,000	52,732	57,000		6,000
	3,877	4,000	4,400
40,000		4,000
20,000				2,000
0	2018	2019	2021	FY0
	Actual	Forecast	Plan

Review of FY2018

Measures aimed at increasing customer numbers, coupled with a concerted push to drive direct sales by acquiring distributors' commercial rights, sparked solid increases in civil-use LPG customer numbers and volume sold, and ensured solid performance in this segment. Conversely, equipment sales trended low-perhaps because exhibitions and spot sales events were cancelled in the wake of the Hokkaido Eastern Iburi Earthquake in 2018-while rising distribution and security costs also had an impact. Industrial LPG operations tracked robustly. Factors included a large increase in sales volumes, buoyed by close coordination with local operators nationwide aimed at encouraging customers to switch their fuel from heavy oil to LPG.

Warmer winters are dampening demand for kerosene, resulting in a significant drop in sales volumes, but innovative purchasing strategies and more efficient distribution kept the impact to a minimum.

Meanwhile, the ultra-low-temperature expertise built up through our Industrial Gas Business is paying dividends elsewhere, such as in the form of solid sales of LNG tank trucks.

Net Sales & Ordinary Income (unit: million yen)

■ Net sales			■ Ordinary income
60,000	51,459	52,741	6,000
40,000	3,996	4,009
		4,000
20,000			2,000
0	2017	2018	0
	FY

Outlook for FY2019

The civil-use LPG market environment is increasingly fraught, buffeted by decreasing consumption caused by Japan's declining population and climate warming and extreme competition with electricity and city gas supply. We are endeavoring to weather the storm by increasing direct sales as a percentage of sales overall (for instance by acquiring distributors' commercial rights) and teaming up with the group's lifestyle-oriented operations, such as those relating to energy retail and home renovations, to bolster our range of customer services. In this way, we aim to increase our share of the Hokkaido market.

Strengthening our in-house distribution platform in Honshu has propelled efforts to encourage customers to switch their fuel to industrial LPG, and given that the LNG market is predicted to expand, we will focus on capturing sales and developing new equipment in this area, too.

27AIR WATER REPORT 2019

Business Overview and Features

Air Water has been supplying LP gas and kerosene as energy for daily life to general households, commercial facilities, hospitals, and other public facilities, and also as energy for industrial uses to plants. Air Water is also engaged in the supply of LNG as well as the manufacture and sale of LNG-related equipment, playing an essential role in community life.

Relevant SDGs

• Stable supply of energy for daily life and industry
• Reduction of environmental load by promoting fuel conversion

	LP gas	Kerosene
Expansion of			Development of
area of operation	LNG	Electricity	applications
Further development			Engineering
of services

LP Gas/Kerosene

LP Gas

In Hokkaido and others, Air Water delivers LP gas under the Hello Gas brand as environmentally friendly, clean energy essential for regional communities and industry.

LP Gas Supply Processes

			Gas cylinder	Customers
			delivery truck
	Gas filling station
			Bulk tanker truck	Customers
Secondary
terminal
		Gas stand			Taxi
Secondary	Tanker truck	Gas stand	Bulk tanker	Bulk filling	Gas cylinders
terminal			truck

Kerosene

Energy Equipment

Mobile Power Source Cars

In Japan, kerosene is just as important an energy source as LPG, as it is used daily for water and heating. We work hard to maintain our framework for safe, stable, direct delivery of kerosene to households.

Besides energy supply-related services, Air Water works to provide total support services from diverse perspectives by staying close to customers and remaining deeply rooted in community life.

Mobile power supply vehicles generate electricity using easily procured LP gas as fuel, thereby playing an important role as emergency power providers during a disaster or power failure.

LNG

Electricity

LNG-related Equipment

Utilizing ultra-low-temperature technology and unique know-how it has built up over many years, Air Water manufactures and sells LNG tanker trucks and transportation containers, for which it holds one of the top shares in Japan.

LNG Satellite Supply

Air Water designs and installs unloading facilities for LNG transported to areas of demand by tanker trucks, etc., according to customers' usage requirements.

Electricity Retailing

Hokkaido Air Water, a regional business company of Air Water, collaborates with Hokkaido Electric Power Co., Inc. to sell electricity generated by Hokkaido Electric Power under the label "Air Water Electricity Powered by Hokuden."

AIR WATER REPORT 2019 28

Air Water Group's Businesses

Agriculture

and Food

Products

Business

Business Facts

• Declining Japanese population leading to lower consumption and labor shortages
• Changingmake-up of households (older occupants, more people living alone)
• Changes in food perceptions(health-conscious diets, demand for convenience)
• Abnormal weather making procurement of vegetables difficult
• Increased buying power of retailers

Core Strategy

Target the growth potential of the pre-made meal market, and use the group's ingredient procurement capacity, food processing plants, and sales networks to make vegetables a core weapon in our arsenal.

Major Measures

1. Strengthen our ability to procure a stable source of ingredient vegetables

• Triple the area of farmland under contract (to 30,000 hectares), and pursue development of vegetable farms in Japan and overseas
• Spread farming over different areas to reduce natural disaster risks; promote improvement of farming and preservation technologies

1. Add momentum topre-made meal business through vegetables and processed livestock products

• Main target:pre-made meal products sold at supermarkets and convenience stores
• Build processing facilities near major consumption centers and provide those markets withhigh-quality vegetables processed to their desired degree

1. Strengthen our beverage business foundation

• Expand our beverage market share through capital investment

Revenue & Operating Profit (IFRS) (unit: million yen)

■ ■ Revenue		■ ■ Operating profit
200,000			170,000		10,000
150,000	136,443	140,000			8,000
6,000
			6,000
100,000	4,214	4,000
			4,000
50,000					2,000
0	2018	2019	2021	FY	0
	Actual	Forecast	Plan

Review of FY2018

In the agriculture business, although we managed to expand sales by establishing new vegetable retail outlets, operations were impacted by the one-off costs of setting up those stores and wild fluctuations in vegetable market prices. On the other hand, sales of agriculture machinery grew, and the overall performance of the agriculture business was solid.

The food solutions business suffered from stagnant sales of confectionery and ongoing depression in the ham and sausage sector. Conversely, growth in frozen vegetable sales and production efficiencies in our food processing operations, combined with the consolidation into the Air Water Group of a producer of frozen cooked meals, ensured that profits remained robust.

In the beverage business, increases in labor costs and depreciation resulting from capital investments were balanced by growth in orders for production of vegetable drinks and teas. These, combined with structural reforms in our home delivery water operations ensured strong performance overall.

Net Sales & Ordinary Income (unit: million yen)

■ Net sales			■ Ordinary income
150,000	133,702	136,568		8,000
10,000	4,850	4,905	6,000
				4,000
5,000				2,000
0	2017	2018		FY0

Outlook for FY2019

Labor shortages in the food service industry have driven demand for frozen vegetables and frozen cooked foods as a means of eliminating some cooking processes and ensuring diners' orders can be filled quickly. On the other hand, we are faced with the challenge of navigating the effects of climate change to source stable supplies of ingredient vegetables in Japan and overseas.

To that end, we are putting systemic improvements in place, such as bolstering our procurement strengths (particularly in Kyushu and the Kanto region), making sure we contract with farms in multiple regions, and utilizing our overseas produce purchasing hubs to ensure a stable supply of high-quality vegetables. In 2019, we made Ecofroz, an Ecuadorian producer of broccoli and other foods, a subsidiary of the Air Water Group.

Meanwhile, we will continue with capital investments aimed at keeping abreast of changing client needs in the beverage business in order to win more orders.

29AIR WATER REPORT 2019

Business Overview and Features

The Agriculture and Food Products Business started with sales of frozen foods utilizing liquid nitrogen. Through the integration into the Air Water Group of functions ranging from vegetable production to the distribution of processed foods and beverage products across Japan, the Agriculture and Food Products Business is creating a new value chain that maximizes group synergies.

Relevant SDGs

• Improving stability and productivity of agriculture
• Stable supply of safe and secure food products
• Reduction of waste and loss

Agricultural	We handle the cultivation and
procurement of livestock
and
	products, frozen foods, and
Processed
sweets.
Foods
Independent	Beverage
We provide retail services		We are expanding with high
and food safety guidance,		quality OEM products and
as well as manufacture and		water delivery services.
sell agricultural machinery.

Agricultural and Processed Foods

Ham and Deli Meats

With the top share of Japan's cured/un- cured hams market, we offer discerning customers throughout Japan top-quality ham and deli foods in three brands: Syunsetsu, Sagami Ham, and Daisen Ham.

Agricultural and Processed Foods

Agricultural and Processed Foods

Air Water manufactures high-quality frozen vegetables such as broccoli, sweetcorn, and pumpkin as well as flavorsome cooking sauces, and satisfies the needs of professional chefs and the food service industry by proposing new applications and menus.

Sweets

Taking advantage of its strength in product de- velopment, Air Water offers a wide range of confectionery, mainly chilled desserts, for both general consumers and businesses. In Sep- tember 2018, a state-of-the-art plant was completed in Atsugi City, Kanagawa Prefecture.

Beverages

Cultivation	Procurement and Processing
Air Water is involved in the production of	With over 700 contracted farmers in Japan
tomatoes and other vegetables at the	alone, we have considerable purchasing
Chitose Farm in Hokkaido, which has one	power, and provide customers nationwide
of Japan's largest greenhouses, and the	mealtime favorites like frozen pumpkin from
Azumino Farm in Shinshu.	Hokkaido as well as grated daikon radish in
	volumes suitable for industry use.

Vegetable and Fruit Beverages

Air Water sells vegetable juices, of which it has the largest OEM production share in Japan, as well as other high-quality bever- ages, both on an OEM basis and under its own brands.

Beverages

Water Delivery

Air Water delivers snowmelt water from the Northern Alps to the homes of its customers by employing the non-heating method to maintain the original natural taste of the water.

Independent Food and Farming

Agricultural Machinery	Distribution and Sales
Air Water manufactures and sells agricul-	We offer safe and delicious vegetables
tural machinery that supports Hokkaido's	and fruit to customers via the nationwide
industry, such as beet harvesters and	network of Kyushuya fruit and vegetable
cultivators.	specialty stores and Takaya Shoten, a
	wholesaler at the Otsu Market.

AIR WATER REPORT 2019 30

Air Water Group's Businesses

Logistics

Business

Business Facts

• Demand for improved working practices, shortage of drivers
• Long-termdeclining trend in Japanese freight transport
• Average 2% p.a. growth inlow-temperature food distribution market
• Diversifying cargo owner needs and advanced quality control requirements

Core Strategy

• Occupy the position of no. 1 provider of quality services in thelow-temperature freight transport domain, and create new businesses in that space
• Build a nationwide network forlow-temperature freight transport

Major Measures

1. Leverage our quality, technology, and infrastructure strengths to create new businesses in thelow-temperature logistics space

• Establish a dominant position in Hokkaido markets through deeper mining of local potential (e.g., Sapporo, Chitose)
• Establish alow-temperature network (i.e., Atsugi, Oarai) covering the Kanto region
• Try to gain a foothold in the West Japan (e.g., Kinki, Kyushu)low-temperature logistics space

1. Further strengthening and expansion of core businesses

• Use ferries to wring further potential from our container network
• Seek further efficiencies and labor savings in transportation operations, and revise prices
• Acquire vehicles, business places, workers, and commercial rights through mergers and acquisitions

1. Integrate the group's logistics

• Promote cooperation among agriculture and food products, industrial gas, energy, and medical businesses

Revenue & Operating Profit (IFRS) (unit: million yen)

■ ■ Revenue		■ ■ Operating profit
80,000				5,000
			66,000
60,000		52,000		4,000
47,947	3,000
	2,217	2,200		3,000
40,000
				2,000
20,000				1,000
0	2018	2019	2021	FY0
	Actual	Forecast	Plan

Review of FY2018

The transport business performed solidly, buoyed by an increase in freight volumes arising from the acquisition of new clients and better balancing of arrivals and departures of containers to and from Hokkaido and Honshu.

Our third-party logistics business, which mainly involves food transport, also performed well, boosted by the start of chilled deliveries for major convenience store chains. Although rising labor costs and diesel prices meant the business climate remained severe, diligent negotiation with clients ensured we received appropriate prices, which kept the impact of rising costs to a minimum.

Expanded sales for specialized vehicles, combined with improved earning capacity thanks to the previous year's capital investments, ensured solid performance in the vehicle body business (i.e., design and mounting of truck bodies and chasses).

Net Sales & Ordinary Income (unit: million yen)

■ Net sales		■ Ordinary income
50,000	44,933	47,947	4,000
40,000		2,649	3,000
30,000	1,888
		2,000
20,000
10,000			1,000
0	2017	2018	FY0

Outlook for FY2019

In light of projected ongoing growth in the low-temperature logistics segment, an area of strength for the Air Water Group, we are focused on building a logistics network around the Low-Temperature Logistics Center. Fiscal 2019 saw work on the construction of centers in Ibaraki Prefecture and Chitose City, Hokkaido, and using these as key midway points in Hokkaido and Kanto deliveries will allow us to better eliminate wasted truck capacity and thus improve efficiency.

Meanwhile, the chronic shortage of drivers and the resulting increase in delivery costs and in-warehouse labor costs will continue to be a challenge, but we aim to counter those trends with better work efficiency and correct pricing.

31AIR WATER REPORT 2019

Business Overview and Features

The Logistics Business started with the transportation of high-pressure gases, such as industrial and medical gases. Today, the business has expanded into a variety of fields, including food logistics (mainly 3PL), medical logistics for the transportation of blood, general cargo transport, container transport, and even design and mounting of truck bodies, etc.

Relevant SDGs

• Stable supply of industrial and medical gases
• Providing highvalue-added logistics services
• Efforts to improve logistics efficiency

	High-pressure
	gas
General	transport	Container
cargo
	transport
transport
Special	A variety of	Food
logistics
transport	logistics
	services
Vehicle		Distribution
body		and
mounting		processing
	Medical
	and
	environment

Logistics

High-pressure Gas Transport

Transport

3PL

Air Water delivers high-pressure gases such as oxygen, nitrogen, and argon by the optimum transport means, ranging from liquefied gas tank trucks to trailers, in a safe and speedy manner. The transport know-how and constant low-temperature technology, which have been developed for high-pressure gas transport, have provided the basis for various logistics services that Air Water offers today.

Utilizing the transportation network centered on Hokkaido that connects the sites around Japan, Air Water transports all types of cargo, from construction materials and general cargo such as livestock feed and fertilizers to food and beverag- es, in different temperature zones, from room temperature to chilled to frozen. The transport business is also available for container transport using ferries between Hokkaido and Honshu.

Mainly in the food logistics field, Air Water aims to provide efficient and high added-value logistics services by comprehensively taking care of the entire logistics operations of shippers, business restructuring, and management.

Main vehicle bases

Main vehicle bases with warehouse functions

Medical and Environment

Vehicle Bodies Mounting

Taking advantage of its advanced constant low-temperature technology developed through transportation of high-pressure gases, Air Water conducts all types of transportation related to blood collected at blood centers around the country, including transportation of raw blood plasma, blood samples, raw blood, and blood for transfusion.

Air Water meets customers' vehicle body needs through integrated production systems spanning the design and production of various truck bodies, truck trailers, and tanker trucks to specialty vehicles, and ranging from the processing of materials to the production of finished products.

The Group's Nationwide Distribution Network

(As of March 31, 2019)

Mainly in the Hokkaido, Tohoku, and Kita Kanto regions, Air Water maintains a cold chain for convenience stores and supermarkets. It is also involved in the production of specialty vehicles. The group also leverages its temperature control technology to provide logistics services for the transportation of raw blood plasma.

Five group companies

Employees: 3,375

Operating sites: 92

Vehicles: 1,871

Warehouses: 48

AIR WATER REPORT 2019 32

Air Water Group's Businesses

Seawater

Business

Business Facts

• Demand for salt is down due to declining population andlow-sodium diets
• Expanding environmental market due to more stringent regulations
• Expanding demand for infrastructure improvements (e.g., sewer systems)
• Expanding demand for electricity infrastructure (e.g., magnetic steel sheets for transformers)

Core Strategy

Use product and technology development and mergers and acquisitions to expand existing operations (e.g., environmental business) and nurture new enterprises, thereby diversifying seawater-based business.

Major Measures

1. Expand environmental business

• Expand sales of water and soil treatment agents in Japan and overseas
• Expand business domains through mergers and acquisitions

1. Expand power generation business

• Commence operations at Ako No. 2 Power Station

1. Revamp magnesia business

• Improve operating rate of Hibikinada Plant and create new businesses; expand sales of magnesia for magnetic steel sheets

1. Establish Seawater Research and Development Institute

• Develop new products based on separation and refining of seawater elements

Revenue & Operating Profit (IFRS) (unit: million yen)

■ ■ Revenue		■ ■ Operating profit
60,000			50,000	5,000
40,000	40,217	41,000	3,300	4,000
	2,600		3,000
	2,359
20,000				2,000
				1,000
0	2018	2019	2021	FY0
	Actual	Forecast	Plan

Review of FY2018

Our Seawater Business was buffeted by strong headwinds in fiscal 2018, including the collapse of a large-scale water treatment facility project received in fiscal 2017 and construction delays caused by torrential rains in West Japan. Nonetheless, the Nihonkaisui Group's successful raising of industrial salt prices ensured that revenues in this segment remained robust.

The Tateho Chemical Industries Group saw increased sales of general magnesia products such as those for fire-resistant bricks, but a sharp increase in the price of fused magnesia (used in heaters) in the first half of the year, coupled with a temporary drop in demand for magnesia for magnetic steel sheets, resulted in a disappointing year.

Net Sales & Ordinary Income (unit: million yen)

■ Net sales	■ Ordinary income
50,000					6,000

40,000	39,050	40,217
3,838
	3,685	4,000
30,000
20,000			2,000
10,000
0	2017	2018	FY0

Outlook for FY2019

In April 2019, the Air Water Group established a new seawater company, which brought the Nihonkaisui Group, Japan's foremost salt producer, and the Tateho Chemical Industries Group, a manufacturer of industrial magnesia, into the fold. Under the leadership of the seawater compa- ny, we will endeavor to spark maximum synergies from the combination of Nihonkaisui's and Tateho's R&D, production technologies, and markets. Through aggressive mergers and acquisitions and cooperation with other companies, we will also strive to expand existing opera- tions, such as in the environmental segment, and nurture new enterprises. Through these activities, we are determined to expand our seawater-related business.

Moreover, we look forward to enhancing our seawater technology R&D in the run-up to the opening of the Seawater Research and Development Institute in the spring of 2022.

33AIR WATER REPORT 2019

Business Overview and Features

Our Seawater Business is based on a long tradition of salt production, and we are proud to hold the top share of the Japanese industrial and household salt markets. Our operations in this segment are aimed at upholding the stable supply of this basic necessity, and providing seawater-derived foods and environmental products. Beyond these, we pursue a variety of activities aimed at extracting maximum potential from seawater. For instance, our crystal control technologies enable us to develop high-value-added magnesia products.

Relevant SDGs

• Offering water treatment services
• Offering environmental products

		Agriculture
Salt		and food
		products
Environment	Seawater
and urban	Magnesia
industry
infrastructure
Electricity		New
	businesses

Salt

Salt

Nihonkaisui Co., Ltd., the leading producer of salt in Japan, provides a stable supply of high-quality salt products to regions throughout Japan from its Ako and Sanuki plants.

Environment

Water and Soil Treatment Agent

Air Water is utilizing seawater resources and technologies to expand a wide range of its business areas, particularly environmental products such as absorbent for water and soil treatment and magnesium hydroxide.

Urban infrastructure

■Diagram of a heating system using warm water

	Boiler truck	All Liner
		Method
		Forming a resin
		liner pipe inside a
Water stop	Mounted pipe	sewer pipe to
cure problems
plug
		inside the pipe
		without digging
	Warm water circulation hose	up the ground

Regeneration of Sewer Pipes

Aquaintec Corporation employs the "All Liner" method, an innovative technology to regenerate aged underground pipes without digging up the ground, thereby contributing to safe and comfortable communities.

Electricity		Agriculture		Food Products

Woody Biomass Power Generation

In 2015, the Ako Plant of Nihonkaisui Co., Ltd. introduced an integrated cogeneration power system that uses woody biomass and natural gas. The generated electricity is used for its own purposes and also sold.

Magnesia

Agricultural Fertilizers

Nihonkaisui Co., Ltd. utilizes seawater resources to supply potassium chloride, one of the three major fertilizers, for fertilizer manufactur- ers. The company is exploring applications of seawater resources other than fertilizers with the aim of further expanding its business.

Seawater-derived Food Products

Air Water has commercialized bittern generated in salt production processes as a food additive. The company also offers products from seaweed grown in the Ariake Sea, Kyushu, as well as Italian food ingredients and seawater-derived mineral water.

Magnesia for Oriented Electromagnetic Steel Sheets

Oriented electromagnetic steel sheets, used as the iron core of a transformer, etc., are indispensable for electric devices. And magnesia is a raw material indispensable for the manufacturing of electromagnetic steel sheets.

Magnesia for Heaters and

Insulation Materials

Mainly used as insulating filler for sheathed heaters, which are used as heating elements in a broad range of equipment, from home appliances such as electric rice cookers, irons, and hot plates to various types of industrial heating equipment.

Magnesia for Fire-Resistant Materials

Magnesia is a key ingredient in the mag-carbon bricks used for particularly demanding applications, like lining steel- works' converter furnaces.

AIR WATER REPORT 2019 34

Ibaraki No. 2 Plant

Air Water Group's Businesses

Aerosol

Business

Business Overview

Business Overview and Features

The Aerosol Business provides various aerosol products and liquid-filled products that have today become indispensable in our daily life and business activities. By making use of its advanced gas technologies, it offers products ranging from quasi-pharmaceutical products, cosmetics, and household commodities to industrial items.

Relevant SDGs

• Reduction of environmental load by using alternative CFC

Major Products

Air Water conducts a broad range of businesses on an OEM/ODM basis, flexibly responding to diverse needs of customers by manufacturing aerosol products and other liquid-filled products in both large and small lots, from items for the human body and household commodities to paint, automotive parts, and industrial items.

Production Sites

Items for Human Body

Hair spray, hair dye, hair care spray, hair mousse, hair growth tonic, natural water/lo- tion spray, shaving foam, UV cut spray, asthma drug, anti-inflammatory analgesic, etc.

Four sites in Japan manufacture aerosol products and liquid-filled products. The Gifu Plant excels in the manufacture of paint while the Gunma Plant has strengths in cosmetics and items for the human body. The Ibaraki Plant is capable of manufacturing all types of products, including pharmaceutical and quasi-pharmaceutical products, industrial items, and other miscellaneous goods. Meanwhile, the Sanyo Plant produces liquid-filled products for gardening applications. In this way, each plant is unique, and the combined network enables us to provide the right products to fulfill customers' needs.

Business sites

Gunma Plant
Gifu Plant			Quality Assurance
				Dept.
Sanyo Plant			Research and
				Development Dept.
				Ibaraki No. 1 Plant
				Ibaraki No. 2 Plant
Osaka Sales			Tokyo Head Office
Dept.			Tokyo Sales Dept.

Household Commodities

Pesticide, glass cleaner, room deodorant, shoe deodorant, waterproof agent, antistatic agent for clothes, disinfectant spray, portable fire extinguisher, cooking spray, pet items, gas cylinders for portable cookers, dust blower, etc.

Research and Development

With the aim of satisfying customers, Air Water's research and development is focused on launching onto the market safe and environment-friendly aerosol products developed from unique ideas. Based on the pursuit of quickly responding to customer demand by utilizing data in the broad fields in which Air Water has experience in formulation development, we conduct marketing for upcoming demands and needs, and offer new solutions.

Onward and Upward:	Feature
Custom Manufacturing of Cosmetics

The expansion of cosmetic markets in Japan and overseas have transformed this into a growth sector (especially production of liquid cosmetic-filled products under consignment), and we are working to turn our foothold into a full-blown operation. Construction of a second plant on the site of our existing Ibaraki Plant was completed in November 2018, and a new research facility is scheduled for completion, also at Ibaraki, in 2020, armed with around four times the equipment currently in place. We intend to make this another core pillar of our business alongside aerosols; strengthening our R&D

capabilities relating to the OEM production of cosmetics will enable us to develop better quality products with higher added value, while cooperation between our production and research functions will bring new efficiency and urgency to our product development framework.

Paint

Repair paint for automobiles, household paint, construction paint, etc.

Automotive and Industrial Items

Defogger, glass polisher for cars, tire/leather protectant, carburetor cleaner, brake cleaner, car air conditioner deodorant, anticorrosive lubricator, metal flaw detector, mold release agent, adhesive, etc.

35AIR WATER REPORT 2019

Other

Businesses

Electronics Materials

Leveraging its global network, Air Water offers a wide range of chemical products for various industries, from basic chemicals to high-purity chemicals, electric insulating materials and resin molded items for the electronics field. Air Water also jointly develops materials for customer products with manufacturers and provides state-of-the-art information and materials.

Business Overview and Features

With unique technologies and products such as O-rings, ECOROCA®building material made from recycled wood, and NV metal surface treatments, our operations in this segment underpin the growth of the Air Water Group. It is also an area of exciting frontiers as we pursue new ventures such as power generation using woody biomass.

Relevant SDGs

• Providing construction materials using waste materials and waste wood (ECOROCA®)
• Woody biomass power generation by effectively using thinned wood and PKS (palm kernel shell)

O-rings

Air Water manufactures and sells various types of seal materials such as rubber O-rings and other rubber products for industrial use. For semiconductor manufacturing systems, it offers a lineup under the Pororoca brand of ultra

high-performance rubber O-rings. Recently, it has developed and started selling O-rings made of perfluoroelastomer (FFKM), which have the world's highest level of heat resistance, and O-rings made from general-purpose fluoroelastomer rubber (FKM).

BELLPEARL®	ECOROCA®
Air Water offers "Bellpearl®," an environ-	Air Water manufactures and sells ECOROCA®,
mentally friendly particulate phenolic resin;	a new compound recycled material made from
"Bellfine®," a functional new carbon made	underutilized resources such as waste wood
by the highly controlled burning and	and waste plastic. Delivering excellent strength
carbonizing of Bellpearl resin; and "Bells-	and safety while maintaining the texture of
wing®," a PSA-type nitrogen gas generator	wood, ECOROCA®is used as decking
that uses Bellfine carbon as an absorbent.	material, louver material, and wall material at
		various sites, mainly public facilities.

Electricity

Our Industrial Gas Business consumes a vast amount of electricity in its manufacturing processes. To ensure business continuity in all circumstances, including major disasters, we believe it is crucial to become self-sufficient by securing baseload power. To this end, we have begun power generation using woody biomass, a renewable energy source.

Air Water & Energia Power Yamaguchi

Air Water & Energia Power Onahama

	Completion image
Woody biomass and coal co-fired power generation	Woody biomass mono-fired power generation
Generation capacity: approx. 112,000 kW	Generation capacity: approx. 75,000 kW
(Began operations in July 2019)	(Start of operation scheduled for April 2021)

P.17See Feature 1 "Using Renewable Energy to Generate Electricity" for details.

NV (Metal Surface Treatments)

We offer a range of unique surface treatments, including: NV nitriding, which uses gas activation and atmospheric control to improve the abrasion resistance of metal; Pionite, which hardens stainless steel without compromising its corrosion resistance; and CR-NITE, which can withstand 1000°C temperatures.

SiC

Air Water has developed its own SiC substrate for products such as power semiconductors and super luminosity LEDs. Air Water successfully established a technology for large-diameter substrates of up to eight inches and mass-produced the substrates, which are deemed the most suitable for the growth of GaN (gallium nitride).

AIR WATER REPORT 2019 36

Air Water Group's Businesses

Global

Business

Air Water is moving forward with global business expansion, as a powerful driver for its growth in 2020 and beyond.

Global Expansion and Future Approach

To date, the Air Water Group's growth has been founded on a strategy of diversification within Japan. That strategy has worked: we now have an all-weather portfolio that provides for stable growth in all conditions, and by the end of the current mid-term management plan, we will have completed the nationwide roll-out of VSU plants-the core measure of our plans for the Japanese industrial gas business-and gained enough momentum in our power generation business to provide high revenues for 20 years. In that sense, the end of the current plan marks a major transition point for the group. Moving forward, we are determined to continue pursuing solid growth with our all-weather conglomerate of businesses in Japan, and to balance this by expanding our global operations as a means of seeking significant growth in markets where high earning capacity is forecast.

Our Direction

Industrial

gas business

	in India	Sales target
		for FY2021
		100billion yen
		% of total provided
Sales in		by global sales
FY2018		10%
37billion yen
% of total provided
by global sales
5%	Global
	engineering
	businesses

Air Water Group Global Operations As of September 2019

• Business sites: 63 companies in 16 countries
• Sales: 37 billion yen (FY2018)
• Workforce: 4,260 (incl. 66 on secondment from Japan)

denotes recent global M&A

The Netherlands: Hitec Holding

India:

USA: Air Water-AMCS

Ellenbarrie Industrial Gases

Belgium: Dohmeyer

India: Praxair India

(assumption of operations)

USA:

Tomco2 Systems Company

USA:

India: Linde India

Taylor Wharton America

(assumption of operations)

Singapore:

Ecuador: Ecofroz

Globalwide

Malaysia:

Taylor Wharton Malaysia

●Global engineering

Singapore:

Power Partners

●Indian industrial gas

●Other

37AIR WATER REPORT 2019

Entering the Indian Market

Establishing a Sure Foothold in High-GDP-Growth India

When Plaxair (USA) and Linde (Germany) merged, we acquired some of their industrial gas operations in India. One we took over was an onsite gas supply business for steelworks, an area in which we already have a considerable track record in Japan. Another was a liquefied gas production and supply business, which perfectly complements our existing subsidiary, Ellenbarrie, which deals with cylinder and tank truck supply. These acquisitions have enabled us to establish a strong foothold in the Indian industrial gas market.

Industrial Gas Business Growth Strategy in India

• Satisfy rising demand for industrial gas caused by increasing crude steel production in India
• Expand onsite supply contracts for small andmid-sized plants
• Seek further synergies with Ellenbarrie to boost market share in and around southeast India

New Delhi
Jamshedpur
Key Strategic	Kolkata

Acquisition of

Praxair India's

business

Acquisition of

Linde India's

business

Ellenbarrie

Industrial Gases

Size of business: Approx. 7.9 billion yen (year ended December 2018)

Acquired in: July 2019 (consolidated starting from FY2019 2Q)

Price:Approx. 23.8 billion yen

Facilities: 3 × ASU; 2 × filling stations

Size of business: Approx. 5.7 billion yen (year ended December 2018)

Price:Approx. 20.4 billion yen

Facilities: 1 × ASU; 2 × filling stations

NB: Basic agreement regarding acquisition executed on August 13

Established: 1973 (became an Air Water Group subsidiary in 2013

Facilities: 3 × ASU; 5 × filling plants

Size of business: Approx. 2.6 billion yen (year ended March 2019)

Areas

Visag

Hyderabad

Ballari

Chennai

●Praxair India

●Linde India

●Ellenbarrie Industrial Gases

Global Engineering Businesses

Our global engineering businesses are centered on two main operations: industrial gas engineering and equipment, mainly in North America, and high-power UPS systems. Here, we endeavor to build a foundation strong enough to uphold sustainable growth.

Industrial Gas Engineering and Equipment

We are working hard to establish an engineering and equipment framework with a view to pursuing industrial gas supply in the North American market.

In addition to bolstering our line-up of solutions by acquiring companies with distinctive technologies and products, we hope to utilize our network of equipment manufacture and sales hubs to raise recognition of Air Water in the North American market. At the same time, we are endeavoring to enhance our engineering functions and forge partnerships with local gas distributors to pave the way for our VSU strategy.

High-Power UPS Systems

The market for high-power uninterruptible power supplies (UPS) is forecast to grow as construction of new semiconductor factories and data centers, spurred by the development of cloud computing and IoT, drives demand. We established a foothold in this sector by acquiring Power Partners (Singapore) in August 2018 and Hitec Holding (the Netherlands) in July 2019, both producers of rotary UPS.

Designed for high-power output above 1,500kVA, these devices are used mainly in data centers and large-scale semiconductor and pharmaceutical factories. By installing UPS, these facilities seek to mitigate the risk of damage caused by power outages and low voltage to ensure a continuous stable power supply. Our involvement in the UPS sector is part of our strategy to offer utility solutions such as power supplies and industrial gas. These are key elements for our customers' business continuity planning, and help to keep vital production facilities up and running.

High-Power UPS Growth Strategy

• Global market forhigh-power UPS systems is worth approximately 160 billion yen, and forecast to grow by at least six percent per year
• Potentialintra-group synergies with Air Water Safety Service and industrial gas supplies for electronics manufacturers
• Use the group's network todeep-mine the Japanese market

FeatureAir Water Buys Cryoplant Outright

On October 1, 2019, Air Water acquired Kobe Steel's 40% stake in the two companies' joint venture, Kobelco Air Water Cryoplant, Ltd. Upon becoming a wholly owned subsidiary of the Air Water Group, the company's name was changed to Air Water Cryoplant, Ltd. (AWCP).

If we are to advance our global industrial gas business, then a solid foundation of gas production plant technologies and engineering is vital, and in tandem with our endeavors in India and North America, we are also working to reconfigure our engineering system

throughout Japan and around the world. The launch of AWCP, a designer and manufacturer of cryogenic air separation units, has not only allowed us to acquire technology regrading large-scale cryogenic air separation units, but also establishes us firmly as a comprehensive manufacturer of ASU systems able to provide everything from small and mid-sized solutions like V1 and VSU to mega-plants. We look forward to leveraging these plant-building strengths as a means of bolstering our ability to compete internationally in the industrial gas engineering space.

AIR WATER REPORT 2019 38

Research and

DevelopmentAs a group that harnesses the Earth's resources to we must pursue a variety of pan-disciplinary R&D

Air Water's research and development is aimed at constantly sophisticating the core technologies developed in the industrial gas businesses and

Research and Development Domains

applying them to various other fields, such as medical and agriculture, while actively introducing new technologies under the open innovation initiative. Thus the continuous growth and robust development of technologies support the Group's All-Weather Management System.

Air Water's growth strategy also supports technology development of the entire group, encouraging further advancement of the group's high value-added technologies while also incorporating advanced technologies to create the technologies that will drive the further growth of the group.

R&D activities are conducted through close collaborations with relevant

Industrial domains

• Gas processing technologies
• Welding technologies
• Gas application technologies
• Low-temperatureequipment technologies
• Gas collection and recycling technologies
• Energy solution technologies
• Metal surface treatment technologies

• Electronic material technologies
• Fine chemical technologies
• New material technologies
• Plasma surface treatment technologies
• Functional resin and carbon material technologies
• Numerical analysis technologies

business divisions in each business field on themes set in view of future business needs. Such activities have generated various achievements that are useful to society.

Lifestyle-related domains

• Medical technologies
• Agriculture and food products technologies

Research and Development Institute (Development Structure and Recent Achievements)

Research and Development Institute Structure

				Process	Industrial gas technology, including cryogenic
				Development
				Group	air separation units and PSA
				Equipment	Industrial equipment, including the V-AQUAGAS fuel
				Development
				gas generator for welding and LNG pumps
				Group
				Gas	Gas applications including atmospheric pressure
Research and				Applications	plasma surface treatment technology and dry ice
			Group	snow precision cleaning equipment
Development
Institute				Numerical	Simulator-based design and development necessary
				Analysis Group	for development processes of all R&D operations
				New Business
				Creation Project

• Development project across themes
• Development project in response to local needs

Sakai Institute

Matsumoto Institute

VHR Next-Generation Hydrogen Gas Generator

The VHR is a world-class hydrogen gas generator offering an innovative reformer structure and an optimized heat collection process. It also makes use of hydrogen purification technology to enable a high hydrogen recovery rate. Compared with the existing VH series, the VHR reduces city gas consumption by six percent and, reduces carbon dioxide emissions by ten percent (including the reduction in electricity needed to power the unit). Moreover, the VHR eliminates the need for oxygen additives used by previous systems, which helps reduce running costs by around 25 percent,

making it highly cost competitive.

High-Purity Carbon Monoxide Generator Makes Effective Use of Carbon Dioxide

Our high-purity carbon monoxide generator uses catalysts from the VH series of hydrogen gas generators, and combines two existing technologies (i.e., the technology to create a mixture of hydrogen and carbon monoxide gas, and the technology to recover carbon monoxide) to cause a reforming reaction between the ingredient gases (carbon dioxide and natural gas), resulting in a mixed gas with a one-to-one ratio of hydrogen and carbon monoxide, which is then further refined. By making effective use of carbon dioxide and converting it into carbon monoxide, which is used in a broad variety

of industrial processes, these units help lower the burden on the environment.

	A high-purity carbon
Our first 300N m3/h unit	monoxide generator

39AIR WATER REPORT 2019

create new businesses,

projects to seek new solutions for the benefit of all society.

Research and Development Structure

◆R&D focused mainly on gas
production, storage, transport,	Research and
and supply	Air Water
◆Promoting R&D based on open	Development
innovation	Biodesign
Institute
◆Cooperating with regional
business companies to identify
new development themes

• Scheduled to open in the

spring of 2022 at the	Seawater
Hibikinada Plant in	Research and
Kitakyushu
Development
◆Combining seawater
Institute
technologies to create
new products and unique	See pages 20 and 33
technologies

• Development focused on medical, healthcare, agricultural, and food solutions
• Established in March 2019 R&D facility housed in Air Water International Advanced Medical Center, Kobe

Air Water Biodesign

Health-oriented innovation in the medical, agricultural, and food sectors

Air Water Biodesign, the group's state-of-the-art development center

Air Water Biodesign Inc. was incorporated in March 2019, and began operations at Air Water International Advanced Medical Center, which opened in Kobe two months later. The company is a development center focused on the medical, healthcare, and agriculture and food industries, and its 50 or so researchers and developers are experts in electronic engineering technologies like optical sensing, vital-sign processing, and data analysis. Here, our aim is to channel those strengths into R&D to come up with timely lifestyle solutions matched to specific needs among our clients and in the community relevant to the medical, agricultural, and food space.

1.New product	2.Contract product	3.New business
development	development		development
Design and develop	Combine technological	Add our unique
innovative products to	elements to meet a	technologies and
meet clients' needs.	variety of technical		services to others'
	requirements.		products to add new
			business value.
Identify	Establish	Build	Begin
needs	concept	structure	operations

Biodesign

In 2001, together with his colleagues, Dr. Paul Yock of Stanford University developed a curriculum that brought multi-perspective study (incorporating disciplines such as medicine, engineering, business planning, and product design) to the initial stages of the development process in order to inject innovation into the development of solutions to problems that arise in medical work.

Air Water Biodesign incorporates those processes as a way to speed up development of products and businesses.

Structural	Study	Software
design	technical problems	Products and
development
technology	from multiple
technology	services with
Circuit design	perspectives to
identify the best	Marketing	new value
technology
solutions

Air Water International Advanced Medical Center: The R&D Facility Where Air Water Generates Ideas for a Healthier Tomorrow

Located in the Kobe Biomedical Innovation Cluster (one of the largest medical clusters in Japan), Air Water International Advanced Medical Center is the Air Water Group's R&D facility for products and services aimed at bringing people healthier lifestyles. It began operations in May 2019. In addition to Air Water Biodesign Inc., one center occupant is Aeras Bio Inc., which is engaged in a range of R&D activities, including joint work with medical schools involved in regenerative medicine-with a particular focus on dental pulp-as well as moves to establish a "bank" of dental pulp stem cells. Another group company, Kairos Co., Ltd., endeavors to adapt 8K imaging technology for state-of-the-art medical applica- tions. The ability to see, touch, and get an instinctive feel for Kairos's products-and, indeed, a range of other products and services-provides a clearer view of latent needs and ideas than might otherwise be possible. Then, the huge range of resources held by the Air Water Group can be harnessed to spark further innovation.

AIR WATER REPORT 2019 40

Air Water's

Approach to CSR

The origins of our business can be found in its name, which consists of two words: "air" and "water." Our aim is to create businesses by making use of these natural resources and thereby contribute broadly to society and everyday life. This means that our business activities bear significant social responsibilities.

As our group companies cooperate in conducting diverse businesses to support social development and enriched living, we bear responsibilities toward a broad range of our stakeholders; namely, the "social responsibility of a company" to aim for growth together with its employees, shareholders, investors, suppliers, and other business partners through the sustainable growth of our group companies, and the "social responsibility of a corporate citizen" to contribute to the global environment and local communities, which is a basic requisite for a company that is demanded and needed by society.

For Air Water, CSR is an integral part of its management in all aspects. Since Air Water's management is inseparable from its CSR, we must further enhance our CSR management to achieve the group's sustainable growth.

Being constantly aware of its multifaceted corporate social responsibilities, Air Water will enhance its CSR management from the standpoint of its stakeholders, and thereby raise its corporate value.

Social

responsibility

in business

activities

Air Water's social

responsibilities

Social	Social
responsibility
responsibility
of a corporate
of a company
citizen

CSR activities

integralto

management

Customers

Local

communitiesEmployees

	Stakeholder
	relations
Shareholders	Global
and	environment
investors
	Suppliers

Enhancement of CSR Management

E	Environment P.42

S G

Social P.47

Governance P.53

41AIR WATER REPORT 2019

Environment

The Air Water Group's business activities are founded on harnessing natural resources like air and water. As such, not only is environmental conservation essential to sustainable corporate growth, but it is only right that we lead efforts to preserve the global environment for future generations. To that end, we have brought the issue front-and-center by establishing our key environmental challenge as "fighting climate change" in 2019, and the whole group is working hard to reduce greenhouse gas emissions.

Key Performance Indicators

Air Water Group Basic Environmental Policy

Material Balance

Fighting Climate Change	Key
Effective Use of Water Resources	environmental
challenge:
Effective Use of Food Waste	Fighting climate
	change

Key Performance Indicators

Having made "fighting climate change" the group's key environmental challenge, we have established a greenhouse gas (i.e., carbon dioxide) emission reduction target to chart our progress, and announced that target as one of the group's KPIs in NEXT-2020 Final, our mid-term management plan.

Efforts to cut the group's carbon dioxide emissions and achieve that target are underway. They include the installation of high-efficiency plants and upgrading of existing plants groupwide, a thorough energy saving regime, and use of renewable energy sources.

In addition to our own efforts, we are working to calculate carbon dioxide emissions throughout our supply chain, beginning by gauging the emissions (scope 3) of suppliers, clients, and other relevant parties.

Fighting Climate Change

KPI: Rate of CO2emission reduction*

Mid-range target

Reduce by 6%compared with FY2013 levels by FY2021

Long-range target

Reduce by 15%compared with FY2013 levels by FY2030

CO2emission reduction targets

Initiatives to reduce total CO2emissions

(%)

100

95

90

85

80

▲6%

▲15%

	CO2emissions
Reductions	Reductions
through	through use of
energy savings	renewable energy
	CO2emissions

Volume of CO2emissions

reduction

CO2emission reductions through energy saving and use of renewable energy sources

Energy saving	Renewable energy
Installation of high-efficiency plants,	Adoption of renewable energy
upgrading of existing plants	sources

2013

2021

2030 FY

Thorough energy saving regime	Purchase of energy made from
renewable sources

*Scope

Manufacturing companies of the Air Water Group classified as Specified Business Operators under the Act on the Rational Use of Energy (incl. Air Water, Inc., and 22 other group companies)

AIR WATER REPORT 2019 42

Air Water Group Basic Environmental Policy

Basic Philosophy

We are concerned not only with harnessing air and water resources to make products that benefit industry and lifestyles, but also with ensuring our manufacturing benefits nature itself. Having served their commercial purpose, those resources should return gently and cleanly to their original environment. As a company founded on the laws of nature and the cycle of natural life, acting in accordance with this philosophy is our responsibility to future generations.

Basic Environmental Policy

(1)	We work on prevention of environmental pollution, global warming		components, etc.) required for business activities that satisfy
	countermeasures (mitigation of and adaptation to climate change),		technological and economic demands, but which also have a small
	effective use of resources, and reduction of chemical risk in all our		environmental impact and little negative effect on local residents and
	business activities from research and development to production,		employees.
	sales, logistics, and service.	(5)	Our research & development gives consideration to the environment,
(2)	We research and examine the impact on the environment resulting		safety, and quality, and provides products and goods and develops
	from our business activities, establish technically and economically		technologies that contribute to the environment.
	feasible goals for reducing environmental load, and promote	(6)	We promote acquisition of the ISO 14001 international standard for
	environmental conservation activities. At the same time, we		environmental management systems, and arrange structures for
	continually try to improve our environmental management system.		implementing our Basic Environmental Policy.
(3)	We comply with environmental laws and regulations, establish	(7)	We use internal publicity and other activities to boost the
	voluntary standards as necessary, and work for environmental		understanding and awareness of all employees regarding the Air
	conservation.		Water Group Basic Environmental Policy. We disclose this Basic
(4)	We select resources (facilities, raw materials, subsidiary materials,		Environmental Policy to the general public.

Material Balance

Material Balance: Our Overall Environmental Impact

Providing customers with products created from the earth's natural resources such as air and water, and returning them to nature after they have been used. The Air Water Group's work is intimately related to the earth. We therefore promote reductions of our environmental load by tracking inputs like resources

and energy and outputs like products and waste at our major manufacturing facilities.

INPUT

Raw materials

Containers

Energy

Chemical

Water resources

and packaging

substances

Tap water:

0.7 million m³

materials

Industrial water: 16 million m³

Underground

7.7 million m³

Air, coal, seawater,

Electricity:

Fuel:

Steam:

water:

248,000 t

food ingredients, etc.

572 t

2.3billion kWh 116,000kL

775 TJ

Seawater:

221 million m³

Air Water Group Production Activities

in FY2018

Industrial Gas Business

Chemical Business

Medical Business

MgO

Energy Business

Production of nitrogen,

Agriculture &

Production of

Production of oxygen,

Supply of LPG, LNG, etc.

oxygen and other

pharmaceutical intermediates,

carbon dioxide,

industrial gases

Food Products Business

Logistics Business

Seawater Business

electronic materials, etc.

and other gases

Cultivation of agricultural products and

Transport of high-pressure gas,

Production of table salt,

production of ham, juice, and other food products

food, products, pharmaceuticals, etc. for medical use

magnesium oxide, etc.

OUTPUT

Products

Industrial

Greenhouse

HCFCs

Chemical

Public water:

waste

CO2

gases

leak level

substances

230million m³

1.599million t-CO2

Sewerage:

O2 N2 Ar

0.7million m³

HCFC

Air pollutants

Water pollution

50,000 t

SOx:

727 t

2,000 t-CO2

1,028 t

COD:

549 t

NOx:

620 t

Nitrogen:

73 t

Soot and dust: 20t

Phosphorus: 253t

Material balance: 68 domestic plants of 28 companies below

Scope of collection of environmental performance data

Air Water Inc. and 27 consolidated subsidiaries* (28 companies in total)

*Consolidated subsidiaries (as of FY2018) selected as having a high environmental load under the Air Water criteria (CO2emission coverage: 95% or above)

	Industrial Gas: 6 companies; Chemical: 2 companies; Medical: 2 companies; Agriculture and Food Products: 7 companies;
27 group companies
Logistics: 1 company; Seawater: 2 companies; Other: 7 companies

43AIR WATER REPORT 2019

Environment

Fighting Climate Change

CO2Emission Reduction Targets

Here at the Air Water Group, we use vast amounts of energy and emit large volumes of carbon dioxide in our business activities such as producing oxygen and nitrogen at industrial gas plants. We are always striving to reduce carbon dioxide emissions, for instance through efficient plant operations and by using the latest high-efficiency equipment. In fiscal 2018, emissions by those group companies classified as Specified Business Operators under the Act on the Rational Use of Energy* were 1,594,000 t-CO2, approximately 3.2 percent below fiscal 2013 levels. Moving forward, we are enhancing our emission reduction initiatives with the aim of reducing total carbon dioxide emissions even further: six percent below fiscal 2013 levels by fiscal 2021, and 15 percent by fiscal 2030.

*Air Water Inc. and 22 group companies (23 companies in total)

Mid-to-Long-Term CO2Emission Plan

As part of the group's efforts to reduce greenhouse gas emissions over the mid-to-long term, those energy-hungry group companies classified as Specified Business Operators under the Act on the Rational Use of Energy have enacted a mid-to-long-term plan, which sets forth actions such as capital investment and improved operations. Under the plan, those companies are indeed working aggressively to cut emissions. Key initiatives stipulated in the plan for fiscal 2019 are shown in the table below.

Key Initiatives of the Air Water Group's Mid-to-Long-Term Plan to Cut CO2Emissions (From 2019 Onwards)

Target plants	Initiative (target year)	Reduction
(t-CO2/year)

CO2emission reduction targets

■ ■ Greenhouse gas emissions (t-CO2)		Change from FY2013 (%)

(Unit: 1,000 t-CO2)
	100	97				(%)
2,000		94			100
	1,646	1,594	1,547	85		90
1,500				1,399		80
						70
1,000						60
						50
500						40
						30
0	2013	2018	2021	2030	FY	20
			(Target)	(Target)

Third-party Verification of Greenhouse Gas Emissions

The Air Water Group discloses greenhouse gas emissions in the Air Water Report and on its website. To ensure that the data we provide are highly transparent and verified from an independent, objective perspective, we have received third-party verification for our greenhouse gas emissions since fiscal

2017.

We will continue working to provide even more reliable data to outside stakeholders through third-party veri- fication of our greenhouse gas emissions.

Greenhouse Gas

Emission Verification

Report

Air Water Inc.	Build new high-efficiency
oxygen plant	9,598
Kashima Plant
(FY2021)
Kinki Air Water Inc.	Upgrade equipment for
reuse of nitrogen plant waste	4,904
Mie Gas Center
gas (FY2021)
Air Water Inc.	Build new composite
storage tank	2,401
Utsunomiya Plant
(FY2019)
Gold-Pak Co., Ltd.	Improve energy-efficiency	927
overall through upgrading of
Eniwa Plant
PET line no. 1 (FY2019)

Initiatives to Cut CO2Emissions at Industrial Gas Plants

Using air to make oxygen, nitrogen, argon, and other industrial gases at our industrial gas plants takes vast amounts of electricity. The power supplied by utility companies is generated at thermal power plants, and in that way, we indirectly emit carbon dioxide-a serious challenge to our mission to cut emissions.

The Air Water Utsunomiya Plant replaced its old plant in 2017 with a VSUA plant (high-efficiency, compact, liquefied oxygen, liquefied nitrogen, and argon production plant) in an effort to achieve more efficient manufacturing. In fiscal 2017, the plant's carbon dioxide emissions were down 7.7 percent year-on-year, and 13 percent the

following year. The Utsunomi- ya Plant is scheduled to upgrade its old storage tanks in fiscal 2019 to new models that reduce loss, thereby further cutting greenhouse gas emis- sions.

Toshifumi Imanishi

Factory Manager

Air Water Inc., Utsunomiya Plant

AIR WATER REPORT 2019 44

Toshiaki Momose

Executive Officer and

Production Manager

Gold-PakCo., Ltd.

Reuse of Groundwater at the Azumino Plant

Effective Use of Water Resources

At the Air Water Group, many of our manufacturing businesses rely on water. Some 90 percent of the water we use is seawater, which is used for cooling the heat generated in the course of producing industrial gases and chemicals, and a plentiful source of salt, magnesium, and other elements.

Elsewhere, groundwater is used as an ingredient or coolant when making beverages (in our Agriculture and Food Products Business). Here, too, we are sure to use this precious resource as efficiently as possible, and we work closely with regional governments, residents, and businesses to help maintain the quantity and quality of the local water.

Water Usage	Tap water: 0.3%

Groundwater:

3.1%

Industrial water:	Seawater: 90.2%
6.4%	Total
	water usage
	(FY2018)
	245
	million m3

Efficient Use of Water at Beverage Plants

Gold-Pak is the Air Water Group's producer of beverages for major drink companies, and we focus mainly on making drinks in cans, paper cartons, and plastic bottles.

Beverage production involves the use of huge volumes of groundwater, so we are careful to use that precious resource as efficiently as possible. For instance, the Azumino Plant uses the same water three times. First, groundwater is used for air conditioning as it maintains a steady temperature all year round, but it is still clean after that, so it is reused in the beverage chilling process, and reused again at the wastewater

treatment plant.

Water from other sources is also reused to eliminate waste. For instance, clean water from the production process is reused in boilers.

We are dedicated to making the most efficient use of resources possible to ensure our business is always in harmony with the natural environment.

Water reused 24%

Effective Use of Food Waste

At the Air Water Group, we work aggressively to reduce food waste at our agriculture and food products business plants, and to recycle any waste that does arise. Naturally, we report to the government on the outcomes of these efforts, as required under Japan's food recycling laws. Groupwide, food recycling exceeds 95 percent of the government's target rate; in fiscal 2018, increased use of carrots to make vegetable juice and a jump in tea production meant more food waste was generated, but improved recycling meant the overall recycling rate exceeded the preceding year's figures. Moving forward, we are determined to improve the recycling rate through a range of initiatives, such as partnering with waste contractors to use vegetable scraps as fertilizers.

Food Waste and Recycling Rate

■ Increase (in tons) due to broadened scope of data, e.g., resulting from M&As (compared with FY2014)

■ Amount of food waste (t) Recycling rate (%)

(t)	98.6	99.1	99.6	98.3	99.2	(%)
20,000						100

				1,457
12,814	10,628	12,581	14,492	16,898
				FY

Effectively

At Tomiichi, we turn potatoes, pumpkins, daikon radishes, and other produce from Hokkaido into processed foods for sale nationwide.

Making pre-cut vegetables, for instance, inevitably leaves large volumes of offcuts and other waste, so we are serious about finding ways to use these effectively. In fiscal 2018, we recycled fully 100 percent of food waste; 97.6 percent was composted and the rest

recycled for livestock feed.

In fact, we have achieved 100 percent recycling for the last six years, and we are determined to continue making efficient use of resources by recycling food waste.

Kota Kamata

Production Manager

Tomiichi Co., Ltd.

Food Waste Generated by Tomiichi

■ Food waste generated		Recycling rate

(t)							(%)
8,000							100
6,000
4,000							50
2,000
0	2013	2014	2015	2016	2017	2018	0
	FY

45AIR WATER REPORT 2019

Environment

Message

from the General Manager of the Compliance Center

Fighting Climate Change: The Whole Air Water Group Is Working to Cut Carbon Dioxide Emissions

Yukimasa Takeuchi

Executive Officer & General Manager

Compliance Center

Air Water Inc.

Our Key Environmental Challenge

As the world maneuvers to limit environmental damage, for example through the Paris Agreement and Sustainable Development Goals, it is clear, in light of our philosophy ("we proudly dedicate ourselves and our resources to the creation and development of businesses linking air, water, and the earth"), that fighting climate change is one of our core responsibilities. Our wide-ranging manufacturing activities make us a major consumer of electricity and fuel, which is why we have made reducing overall carbon dioxide emissions our key environmental challenge. As part of this, we have publicly stated our KPIs for this initiative: reducing total carbon dioxide emissions to six percent below fiscal 2013 levels by fiscal 2021, and 15 percent by fiscal 2030. Why begin with six percent? When we aggregated the reduction targets of our various business sites, it came to around five percent; the extra one percent is a show of our determination. After that, we intend to increase the reduction rate by one percentage point each year until we reach 15 percent in fiscal 2030. These figures are far more aggressive than the 6.5 percent target for the industrial sector under the Japanese government's Plan for Global Warming Countermeasures and the 10.7 percent stipulated by the Japan Chemical Industry Association in its plan for a "low-carbon society," but we believe they are achievable when factors such as Japan's changing energy mix are taken into account.

Savings and Renewables: Dual Approach to Achieve KPIs

One key element of our efforts to achieve our KPIs is capital investment. Air Water Inc., and 22 other group companies are classified as Specified Business Operators under the Act on the Rational Use of Energy. In terms of company numbers, that is only around 20 percent of the whole group, but those companies account for at least 95 percent of the group's energy consumption. Unsurprisingly, all of these companies are working to cut carbon dioxide emissions, mainly by upgrading facilities to significantly

improve their base rates of energy consumption. For instance, upgrading to state-of-the-art VSUA at Air Water's Utsunomiya Plant cut carbon dioxide emissions by 13 percent year-on-year in fiscal 2018-more than 4,000 tons of CO2. Similarly, the company's Kashima Plant plans to reduce carbon dioxide emissions by almost 10,000 tons a year by fiscal 2021 (compared with current levels) by installing high-efficiency oxygen production units. In parallel to the adoption of efficient equipment, it is also vital what we work diligently every day to conserve energy, and each company is striving to do so from the bottom up. Through organized collection and administration of these various activities, we seek to build upon success to gain further achievements.

The other way in which we approach emission reduction is the use of energy made from renewable sources like woody biomass. In fact, our power generation operations bring dual benefits: not only are they a new way for us to cut carbon dioxide emissions, but they also provide us with our own power supply in disaster situations. Operating these power stations boosts our contribution to climate change solutions, and even allows us to sell excess electricity to the grid via the feed-in tariff system. In addition to the two existing power stations in Ako City, Hyogo, and Hofu City, Yamaguchi, three new facilities are scheduled to begin operations soon-a second unit in Ako (in 2020), and one each in Iwaki City, Fukushima (2021), and Kanda-cho, Fukuoka (2023). These power stations are designed to run on under-utilized resources from the local area and around the world, and to be carbon neutral so as to minimize impact on the local environments. When all of the power stations in planning begin operating, they will generate the equivalent of 80 percent of the Air Water Group's power consumption, and will effectively make a huge contribution to the reduction of carbon dioxide emissions.

A Groupwide Effort for SBT Certification

These are just some of the ways in which the Air Water Group is active in protecting the environment, but there is still more to be done. For instance, the group's publication of carbon dioxide emissions has been limited to Scope 1 (i.e., those emitted directly by the group by burning fuel) and Scope 2 (those emitted indirectly through the use of electricity). A group like ours really needs to calculate emissions throughout our supply chain, and that means Scope 3 (emissions of all companies relevant to the Air Water group's activities). Gauging the Scope 3 emissions of a conglomerate as broad and complex as the Air Water Group takes a gargantuan effort, but we are currently maneuvering to do so and look forward to expanding disclosure of Scope 3 carbon dioxide emissions in future.

Meanwhile, when NEXT-2020 Final, our current mid-term management plan, concludes in fiscal 2021, we establish to set even loftier targets for the subsequent years. We are determined to make a cohesive, groupwide effort to reduce carbon dioxide emissions with a view to being Science Based Target* certified.

*Science Based Targets are greenhouse gas emission reduction targets for companies, which are recognized as being in-line with current climate science. SBTs aim to keep the rise in global temperatures within two degrees Celsius of pre-industrial revolution levels.

AIR WATER REPORT 2019 46

Social

Products and services provided by Air Water contribute to people and society in broad fields, such as manufacturing, medical and nursing care, food, energy, and logistics. NEXT- 2020 Final, the mid-term management plan we launched in fiscal 2019, obliges the group to take action to address workforce potential (diversity and greater opportunities for female employees), improved compliance relating to quality, and elimination of industrial accidents.

Key social challenges

	Harnessing
	workforce potential
	• Diversity
	• Greater opportunities
	for female employees
	Improved	Elimination
	compliance	of industrial
Key Performance Indicators	relating to quality	accidents

Workforce Diversity

Rewarding Workplace

Offering Safe and Secure Products and Services

Enhancing Supply Chain Management to Promote Fair Business Practices

Pursuing Stable Return of Profits in Line with Performance and Building Trust

Promoting Activities Closely Tied to and Rooted in Local Communities

Key Performance Indicators

Targets for improving the gender balance of management-level employees and reducing the frequency rate of accidents associated with days away from work are listed as KPIs in NEXT-2020 Final, our mid-term management plan.

Greater opportunities for female employees

KPI: Gender balance of management-level employees

Target10% of management positions held by women by FY2021

Gender balance of management-level employees

(Air Water Inc. only)

(%)
15
10	10
5
1.5
0	2021
2018	FY

Elimination of industrial accidents

KPI: Frequency rate of accidents associated

with days away from work*

Target0.90 or lower by FY2021

Frequency rate of accidents associated with days away

from work (groupwide)

2.0 1.72

1.5
1.0
								0.90
0.5
0
			2021
2018		FY

*Number of people involved in an accident per one million total working hours

Workforce Diversity

(Commitment to Employees)

Basic Approach to Employees

The Air Water Group is made up of a variety of group companies engaged in a range of business activities. We protect the human rights of diverse personnel, respect their individuality and character, ensure safety and health, and strive to create workplaces that allow each person to work with energy and a sense of purpose.

Basic Policy on Human Resources

Respect for the Individual

We strive to establish programs that can be chosen by employees in order to respect the will of each and every individual.

Recognition of Ability and Performance

We appropriately recognize ability and performance without regard to age or educational background and structure compensation accordingly.

Personnel Development

We support each employee's desire for growth through a development-oriented support system and help them achieve their career plans through ongoing skill development and performance opportunities.

Workplaces for Women's Participation and Advancement

• Women's Participation and Advancement Promotion Project

The Women's Participation and Advancement Promotion Project was launched in 2016 in order to further develop a corporate culture and workplace conditions that enable women to work with energy and a sense of purpose at the Air Water Group. The themes of the Project's activities are as follows:

1. Improving workplace culture:We offer training programs for management-level employees, such as a workshop on staff management, with the aim of establishing a nurturing culture.
2. Proactive hiring of women:As a result of our efforts to enhance the recruitment of women, which began in 2016, the recent three-year average of female employees among total new recruits exceeded 30% (which is higher than our initial target).
3. Support for career advancement:We modified the personnel system in fiscal 2018 so as to allow every worker to advance in his/her career; specifically, integrating clerical workers in the category of

47AIR WATER REPORT 2019

area-specific management track. We also provided career training as a means for women to consider their careers over the mid-to-long term, as well as career management training for those women's managers. In addition, we provided opportunities for one-on-one career counselling, including discussions with managers and HR, as well as counselling with outside career counsellors.

1. Actively promoting motivated women:The number of female managers and supervisors (superintendent rank) has been steadily increasing. In particular, women now make up 13.4 percent of allsuperintendent-rankedemployees, a significant rise over June 2018's figure of 8.8 percent.
2. Realizingwork-life balance: We introduced programs to facilitate continued employment, such as aflex-timeprogram, a leave of absence program (to be used upon a spouse's transfer), and a job return program. Other initiatives aimed at fostering a culture of healthy balance between work and family life for employees of both genders include encouragement for male employees to take childcare leave, and our own childcare leave system in addition to the regular system of leave.

• Air Water Makes the MSCI Japan Empowering Women (WIN) Select Index

Air Water was selected for the MSCI Japan Empowering Women (WIN) Select Index in June 2019 in recognition of our efforts toward promoting female participation in the workforce. The index was developed by MSCI to boost investment in businesses with positive ESG (environment, social, and governance) credentials.

THE INCLUSION OF [ISSUER ENTITY NAME] IN ANY MSCI INDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE A SPONSORSHIP, ENDORSEMENT OR PROMOTION OF [ISSUER ENTITY NAME] BY MSCI OR ANY OF ITS AFFILIATES. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS AFFILIATES.

Promoting a Healthy Work-Life Balance

• Flexible Working Options

We want employees to become, and remain, motivated in their careers at the Air Water Group. As part of that, we offer various options regarding working schedules when major life events come calling.

1. Flex time (when employees need to provide childcare orlong-term care)

7	9		11	12	13	15	17：40	19
					(Break)
	Flexible hours				Core hours			Flexible hours
					(Standard work day)

1. Shortened working hours
   (available until employee's child finishes 3rd grade of elementary school)

	Less than	Up to starting	Up to the end of 3rd	Up to starting
	1 y.o.	elementary school	grade elementary school	middle school
			(6 y.o.)	(9 y.o.)	(12 y.o.)
Childcare leave					(Extension
				available)
Shortened working
hours
Flex time
Regular working
schedule

• Support for Balancing Work and Nursing Care

In order to promote continued employment by employees providing nursing care to family members, Air Water has instituted various support programs related to working hours, including nursing care leave, vacation days, and a flex-time program.

Going forward, we will work to further develop employment conditions in line with Air Water's characteristics that help employees balance nursing care and job responsibilities.

Social

• Mental Healthcare Initiatives

A stress check program is among Air Water's comprehensive initiatives for employee mental health care, which we conduct on a planned, ongoing basis.

The results of the stress check are conveyed directly by the outside professional organization to the employees checked, and employees are also able to consult with specialists via an outside consultation desk without going through the company. In addition, when submitting a request to the company, employees are able to talk with an industrial physician or other specialist and receive guidance.

Personnel Development

• Skill Development

At Air Water, we use the following training systems to help our people attain the skills they need in current and future positions, thus encouraging employees to develop their own careers.

(1) Employee Training

Training Structure(as of September 2019)

Rank-specific

Language skills

Manufacturing

Sector-specific

Skill

development

training

training

skills training

specialist training

assistance

managerial)not,.e.(iGeneral Managerial staffstaff

worker

Language training for

•Task-related skills

system Assistance qualifications&learningdistancefor Incentives

•Industrial

New manager training

•Chemical

•Medical

Language training

•Energy

New post training

(by invitation)

•Agriculture & food

Management skills

•Logistics

development training

•Seawater

•Research

Group leader training

Worksite

•Administration

Grade-1 employee

Group language

supervisor training

Etc.

training

training for young

Year 2 follow-up

employees

How to be a

•Specialist skills

training

manufacturing

New recruit training

new recruits

Rank-Specific Training

Under this system, we instill the attitudes and mindsets needed to perform the roles and obligations of each specific grade. The training uses self-analysis and a variety of tasks to encourage employees to make discoveries for themselves and apply those in their work. Starting in fiscal 2019, new post training for those assigned to ranks on the cusp of promotion to managerial posts instills the basics of management, thus better enabling us to harness the potential of younger employees.

Language Training

This involves a variety of programs, including basic language training to seed new recruits and younger employees with the potential to become globally capable workers, as well as invitation-only language instruction for mid-career employees with a view to overseas postings. Moreover, "language training" is not just about foreign languages, but also teaches practical skills such as presentation, meeting strategies, and debating. Moving forward, we will continue to enhance the globalization of our workforce to prepare for the group's ongoing internationalization.

Manufacturing Skills Training

Worksite supervisor training is a groupwide initiative limited to employees in our manufacturing businesses. Based on solving actual problems from the factory, trainees receive guidance from instructors on how to implement improvements and identify and resolve issues, as well as on workplace leadership.

(2) Career Path Design System

Under this system, employees can set the career path they want to pursue. Following self-assessment in their current positions, participants declare the roles they would like to progress to next, regardless of whether or not it is in the same department or business segment.

AIR WATER REPORT 2019 48

Rewarding Workplace

(Commitment to Employees)

Reducing Work-related Accidents

No company can thrive without a safe, secure work environment, and workplace safety is our overriding priority. To illustrate our commitment, we established a target for work-related accident reduction: to keep the number of accidents associated with days away from work per million work hours at 0.90 or less by fiscal 2021.

This figure was reached in light of the Ministry of Health, Labour and Welfare's work-related accident statistics, the size of the Air Water Group's workforce, and the nature of the businesses we are involved in.

Creating Safe and Secure Workplace Environments

• Safety and Health Basic Policy

1. We aim to achieve zerowork-related accidents, and advance comprehensive and systematic safety measures.
2. We promote the formation of a comfortable workplace environment, while securing employee safety and health.
3. We comply with all related laws and operating procedures, and create workplaces with clear lines of responsibility concerning occupational safety, traffic safety, and occupational health, as well as safety and disaster prevention.

Under the above Basic Policy, through providing safety and health education, we raise the awareness of each employee and promote the creation of a corporate culture that places the highest priority on safety and health.

• Safety and Health Structure

At Air Water, we have established a Central Safety and Health Committee to secure workplace safety and health. The committee meets regularly under the supervision of the director of the Safety and Health Management Headquarters.

The Safety and Health Management HQ director selects the supervisory executives, and is responsible for governing safety and health groupwide, and for eliminating work-related accidents. The assistant director of the Safety and Health Management Headquarters appoints the general manager of the Compliance Center, and assists the director.

In addition, committee members responsible for safety management and health, and the heads of the various safety and health departments, form the Central Health and Safety Committee, and labor union representatives also participate to reflect the workforce's views in proceedings.

The central committee meetings minutes are disclosed internally to ensure broad dissemination of information.

Safety and Health Structure Chart

Chairman, President

Central Safety and Health Committee

Safety and Health Management Headquarters Director

(Supervisory Executive of Administrative Division)

Safety and Health Management Headquarters Assistant Director

(General Manager, Compliance Center)

Committee member responsible for		Committee member responsible
safety management (General Manger		for health (General Manager of the
of the safety management division)		human resources division)

Chairperson of each Health and Safety Committee,

Chairperson of the labor union's Central Executive Committee

Subcommittees in each region/business division

• Work-relatedAccident Reduction Initiatives

In fiscal 2018, the group's priority focus was on preventing work-related accidents involving falls. Initiatives to reduce accidents included the following.

1. Training
2. • Technical safety training and safety staff training
   • Training for staff in charge of safety at workplaces with high accident rates
   • Risk assessment training
   • Safety awareness training for new recruits
3. Reducing Traffic Accidents
4. • Set and revise rules for vehicles and safe driving
   • Traffic safety meetings and administrator seminars at companies with a high accident risk
5. Preventing Repeats of Similar Accidents
6. • Lateral sharing ofwork-related accident information via safety information bulletins
7. Safety Audits
8. • Safety and security audits
   • Special audits of workplaces where accidents occur
   • Safety diagnoses of manufacturing workplaces by independent experts

• Work-relatedAccident Statistics

At the Air Water Group in fiscal 2018, there were 83 accidents associated with days away from work, roughly similar to the previous year (84). The frequency rate* of such accidents was 1.72, an improvement over the previous year (1.88).

*The number of people involved	Deaths and injuries resulting
in accidents resulting in death	Frequency rate＝fromwork-relatedaccidents	×1,000,000
or injury per one million total
working hours.	Total working hours

FY2018 Analysis and Priority for FY2019

At Air Water, some 21 percent of work-related accidents associated with days away from work in fiscal 2018 involved falling. This was due to an increase in falling accidents in the transport business.

In fiscal 2019, we are working to identify tasks and locations prone to falling accidents, and are carrying out risk assessments to find ways to reduce those risks.

Frequency rate of accidents for cases associated with days away from work

2.0
	1.91		1.88
1.5	1.73	1.61	1.72
	1.43	1.23
1.0

0.90

0.5Medium-term Target

0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 FY

Breakdown of accidents associated with days away from work

		Collisions and falling down
Other 30%		21%
FY2018
Cuts and grazes 2%	83	Falls and stumbling 19%
Traffic accidents 13%		Caught or pinched in
		machinery 15%

*Categories based on those used in government industrial accident statistics

49AIR WATER REPORT 2019

Compliance training

Offering Safe and Secure

Products and Services

(Commitment to Customers)

Basic Approach to Customers

Air Water is working every day to offer products and services that meet its customers' high expectations and earn their trust.

We are making groupwide efforts toward further improvement of quality, focusing on safety and security.

Company-wide Policy on Quality and Company-wide Quality Targets

The Air Water Company-wide Policy on Quality is designed to encourage quality assurance and raise employees' awareness of the importance of quality. We have set company-wide targets as a means of improving quality levels, and are working to reduce quality risks.

Company-wide Policy on Quality

Offering products, goods, and services with quality appreciated by our customers with a word of thanks.

Company-wide Quality Target

Follow the Quality Compliance Guidelines and reduce

quality risks in Air Water Group products.

Initiatives to Boost Quality Compliance

• Quality Compliance Guidelines

The steady stream of cover-ups at famous Japanese companies regarding quality problems has made people sensitive to such issues. Any such wrongdoing, major complaints, and large-scale recalls may undermine society's trust in us and cause untold economic losses. To help avoid such disasters, we instituted the Air Water Group Quality Compliance Guidelines in 2018. The guidelines stipulate the basics of the group's activities toward reducing quality compliance risks, and set forth policies for departments and group companies to improve their risk management.

Meetings were held in Osaka, Tokyo, and Sapporo in January 2019 to explain the guidelines to quality assurance staff from various group companies, so that they could then relay the relevant information throughout the group.

• Quality Risk Surveys

Since fiscal 2017, we have conducted internal surveys to identify the risk factors of the group's products, and to determine the nature of risks and the status of risk control within the group.

• Quality Assurance Workshops

Workshops are an effective means of pursuing quality assurance activities groupwide.

For instance, in fiscal 2018, we held workshops in order to increase the number of in-house auditors who can respond to the 2015 version of ISO9001. Workshops were held in Osaka, Tokyo, and Sapporo to explain about the switch to the 2015 certification and new qualifications, and to instill understanding about the essential requirements of ISO 9001. A total of 107 employees attended.

Social

Enhancing Supply Chain Management to Promote Fair Business Practices

(Commitment to Suppliers)

Basic Approach to Suppliers

For the continued growth of its business, Air Water strives to comply with laws and observe agreements with customers, suppliers, and other parties, and to maintain and improve trust-based relationships with its stakeholders. We promote fair business practices and hope to grow together with our stakeholders.

Purchasing Approach

Air Water has established its purchasing approach in the Purchasing Management Regulations as follows.

• Air Water selects its suppliers based on a comprehensive evaluation rooted in economic rationality. Selection is made without regard to nationality, location, or size of business, and new entrants are always given a fair and impartial opportunity to participate.
• In conducting its purchasing activities, Air Water considers conservation of resources and environmental protection. In addition, the company ensures that related laws as well as its own regulations and circulars are fully understood and observed.

Fair Dealings

• Compliance Training Seminars

Maintaining and developing good relations with suppliers based on fair dealings is not only the bedrock on which our business is founded, it is also key to enhancing compliance.

In fiscal 2018, we held compliance training seminars for newly appointed managers and newly hired employees, as well as the representatives and management supervisors of companies new to the Air Water Group. The seminars focused on compliance with relevant laws, including:

• The Act on Prohibition of Private Monopolization and Maintenance of Fair Trade

• The Act against Delay in Payment of Subcontract Proceeds, Etc. to Subcontractors
• The Construction Business Act.

Promoting Green Procurement

Some Air Water Group companies promote "green procurement" practices as a means of reducing their environmental footprint. These companies consider environmental factors of the goods and services which they procure in addition to quality, price, and delivery time and thus endeavor to purchase raw materials, chemical additives, fuels, packaging materials, product transport, and products from suppliers that work proactively to preserve the environment.

• Principles in Selecting Goods

We adopt the following principles in order to select goods that have little environmental impact in all stages of manufacturing, use, and disposal.

(1)	Raw materials	(4)	Durability
(2)	Controlling use of hazardous	(5)	Packaging materials
	substances, etc.	(6)	Energy-saving
(3)	High reusability and	(7)	Low environmental load in
	recyclability		disposal

AIR WATER REPORT 2019 50

Pursuing Stable Return of Profits in Line with Performance and Building Trust

(Commitment to Shareholders and Investors)

Basic Approach to Shareholders and Investors

We actively communicate with shareholders and investors to help deepen their understanding of Air Water's businesses and management strategies and also work to build trust on a stable, long-term basis by returning profits to shareholders in line with performance.

Communication with Shareholders and Investors

In order to make it easier for shareholders to have their say, we publish convocation notices regarding meetings quickly on our website, and allow online voting. We also issue shareholder reports twice a year to provide a clear representation of our business activities and performance.

For institutional investors and analysts, we hold quarterly conference calls and individual meetings, and organize briefings led by the president relating to the second and fourth quarter accounts. Moreover, we endeavor to strengthen direct communication with overseas investors through overseas roadshows and conferences, again with the participation of the president.

We also provide relevant information in a timely manner to individual investors through a variety of direct communication means, including informational events and our well-maintained website.

We will continue to communicate proactively, and to maintain and develop stable, long-term,trust-based relationships with our shareholders, investors, and analysts.

Institutional investor and analyst outreach in FY2018

• Briefing for institutional investors and analysts: 2
• Teleconferences for institutional investors and analysts: 3
• Conferences hosted by securities firms: 4
• Individual meetings with institutional investors and analysts: 158

Financial results briefing

Our shareholder report

Disclosure Policy

Air Water endeavors to ensure prompt information disclosure to its shareholders and investors based on the principles of transparency, fairness, and continuity. In disclosing information, we comply with the Rules on Timely Disclosure of Corporate Information by Issuers of Listed Securities of the Tokyo Stock Exchange (hereinafter, "Timely Disclosure Rules"). We also endeavor to proactively disclose information not subject to the Timely Disclosure Rules in a timely manner.

Promoting Activities Closely Tied to and Rooted in Local Communities

(Commitment to Local Communities)

Basic Approach to Community Relations

The Air Water Group has eight regional business companies throughout Japan, and over 260 group companies in various industries. These companies are closely tied to their local communities and pursue businesses rooted in those communities, while contributing to local development and deepening communication with local residents.

• Well-RoundedPersonal Development Classes for Elementary School Kids

At Air Water, we were proud to help hold a special science class at Kyoto University on February 11, 2019, where we sponsor the American football team.

The team's athletes hold a regular event for elementary school children, where sports and academic learning are used to promote well-rounded personal development, and we were brought in to conduct science experiments using liquid nitrogen. Two young staff from our research facilities were the "teachers" that day, and enthralled the kids with a demonstration of how liquid nitrogen is made from air.

Kids participate in experiments using liquid nitrogen

• Emergency Drills and Information: Forging Stronger Bonds with the Community

As natural disasters become increasingly common, close coordination with local communities will be vital in emergency situations.

With that in mind, we are taking a variety of action. For instance, three Air Water Group companies held a joint seminar in March 2019 to teach people what to do with medical gas and in-home oxygen supply devices in emergencies. The seminar was attended by 83 medical professionals from local hospitals and clinics, whose well-justified unease about what to do in emergencies were addressed with real-world examples such as Hokkaido Air Water's reaction to the large-scale blackouts that followed the Hokkaido Eastern Iburi Earthquake of September 2018. In this instance, the company teamed up with relevant group subsidiaries to quickly inspect medical gas supplies and facilities, provided necessary support to at-home patients, checked on the wellbeing of some 4,300 people, and secured Hokkaido's oxygen reserves with product from Honshu.

On September 6, 2019, the anniversary of the aforementioned earthquake, we held drills at 11 Air Water sites in Hokkaido to reinforce proper action regarding LPG supplies in emergency situa- tions. The drills assumed difficult circumstances-blackouts across the whole of Hokkaido and malfunction of the devices that fill tank trucks with gas-and drilled participants on how to restore gas supplies using mobile

power supply vehicles.

LPG supply restoration drills

51AIR WATER REPORT 2019

Social

Message

Head of Human Resources

Building Resilience to Today's Unrelenting Social

Change through Fearless HR Management

Workforce Is Key to Our Commitment to the Community

NEXT-2020 Final, the Air Water Group's new mid-term business plan, provides six areas of reform as part of our basic policies. One of those is reform in social value creation, and as part of that, we are working to further clarify the materiality of ESG and KPIs. For the first year of the plan, we are focusing on boosting workforce diversity and opportunities for women to advance; this is an important facet of the "S" (social) in ESG, and one of three KPIs ("improved gender balance of management-level employees"). Elsewhere, we are working hard in another of the six areas of reform: reform of workforce development.

These activities are based on diversity and inclusion, and designed to boost the workforce diversity-one of the group's core strengths. Channeling the skills of our many individuals is not just a way to add to our collective strength, but is also a vital means of making a rewarding workplace for our people.

People and Data Drive a Balanced Policy

Our three-day training program for managers at Air Water and the regional business companies is gradually being expanded to incorporate the whole group. Our aim is to ascertain the individual skills and qualities of our employees by creating a databank of objective data obtained from the "human assessments" conducted as part of this training.

In the future, we intend to have a holistic training framework encompassing all ranks of all Air Water Group companies worldwide, and to conduct these "human assessments" so as to have a databank not only of the individual qualifications, experience, and achievements of our workforce, but also their personal qualities and skills. Such data is universal in nature, and will therefore allow us to manage our workforce on a groupwide basis without the restrictions that company boundaries throw up. We hope that, in addition to ensuring that the most suitable people are assigned to the most suitable positions, this system will fluidize our human resources in a way that makes it easier for individuals to pursue growth. It is essential that we provide talented employees, who have traditionally been shackled by managers who guard such resources jealously, broader opportunities, and that those employees take these chances to advance. A talented employee's departures for fertile fields in other areas of the group is not a loss; it is a churning of the local soil and a chance for budding employees to grow.

Our overall aim is to better harness the Air Water Group's human resources in a way that complements the data-driven side of management, and to better harness data in a way that complements the people-driven side of management. In doing so, we seek to maximize the value offered by one of the Air Water Group's foremost strengths: our diverse workforce.

Yasunori Kato

Corporate Director and General Manager of Human Resources Air Water Inc.

Parlaying Innovative HR Policies into Greater Social Value

Another important facet of our HR policies today is hiring more women and non-Japanese people, and ensuring our working environments are as welcoming to them as to everyone else.

Improving the gender balance of company management is one of our KPIs, and we are determined to achieve large increases. First, we must increase the percentage of our female workforce. Our lifestyle-related business, in particular, can benefit from the approaches, perspectives, and ways of working unique to women employees, so we are working proactively to hire more women in this area. We hope that greater numbers of female employees in management positions will serve to motivate the women in our workforce and contribute to our efforts to attract and retain talent.

In addition, we have plans to further globalize our workforce, such as by expanding our hiring for overseas operations to include overseas students studying in Japan and Japanese studying abroad. Those who have qualifications and communication skills that hint at potential for high-level performance will receive commensurate compensation packages, and those who acquire these after joining our team will also be considered for placement in the international section of workforce and overseas postings.

In April 2020, we will launch our New Manager Development Program (name TBC), which seeks to place talented employees in management positions early on, regardless of gender or nationality. The program is intended to speed up the process of getting the right people into the right positions by simplifying the rules, which have traditionally been rigid in their requirement that every single step on the path to promotion must be observed.

Meanwhile, as game-changing technologies like 5G, the internet of things, and artificial intelligence become increasingly commonplace, change itself is becoming increasingly fast. At the Air Water Group, we believe that HR policies based on diversity and inclusion are key to ensuring we can stay abreast of those advancements and boosting our value to society as a whole.

AIR WATER REPORT 2019 52

Governance

The Air Water Group believes that conducting fair business activities, using general common sense, and gaining trust from all stakeholders is essential for continuous business growth and the maximizing of enterprise value. To this end, we believe that our most important management task is to make ceaseless efforts to establish comprehensive corporate governance by enhancing the internal control system, enforcing compliance, and reinforcing risk management.

Enhancing Corporate Governance

Enforcing Compliance

Reinforcing Risk Management

Information Security

Enhancing Corporate Governance

Compliance with Japan's Corporate Governance Code

Details regarding some of Air Water's activities in line with Japan's Corporate Governance Code-established by the Tokyo Stock Exchange, effective June 1, 2015-are reported in our Corporate Governance Report, which is available to the public on the company's official website.

Corporate Governance Report

http://www.awi.co.jp/csr/governance/

Corporate Governance Structure

Summary of Corporate Governance System

Air Water is a company with an Audit & Supervisory Board, where the Board of Directors is responsible for making important management decisions and supervising business execution, and auditing of the execution of director duties and other matters is accomplished through Audit & Supervisory Board members attending meetings of the Board of Directors and other important committees. This management framework ensures appropriate decision-making and prompt business execution by directors while enabling proper supervision and monitoring of each director's performance of duties.

General Shareholders' Meeting

Appointment and dismissal

Appointment and dismissal

Appointment

Management

and dismissal

Board of Directors

Auditing

Audit & Supervisory Board

Cooperation

Accounting Auditors

20 (incl. 2 outside directors)

5 (incl. 3 outside auditors)

15 meetings per year

16 meetings per year

Accounts

Supervision

Operations audit

audit

Cooperation

Submission

and reporting

Appointment and dismissal

Reporting

Corporate Management Committee

Representative Director

Business

Reporting

Supervision

execution

and direction

Submission and reporting

Reporting

Operating Companies, Business Divisions, Administration Division, Research Division, Group Companies

Reporting

Internal auditing

Reporting

Auditing and

Internal

Cooperation

reporting guidance

control

Internal Auditing Office

Compliance Center

NB: Board meeting frequency based on FY2018 numbers.

53AIR WATER REPORT 2019

Directors and the Board of Directors

In addition to matters stipulated in laws, regulations and the Articles of Association, Air Water's Board of Directors makes decisions and receives reports on important matters related to the Air Water Group's management and business execution and also supervises and monitors individual directors. Moreover, Air Water appoints two outside directors so as to receive recommendations and opinions that are beneficial to Air Water's management from an outside, objective perspective in order to further reinforce the Board of Director's management supervisory function. The term of office for directors is set at one year in order to make it possible to flexibly construct the optimal management framework in a rapidly changing business environment and to further clarify the management responsibilities of directors each fiscal year.

Gauging the Board's Efficacy

As part of Air Water's efforts to bolster the effectiveness of the Board of Directors as a whole, the board is subject to an annual analysis and assessment.

FY2018 Assessment Method

All members of the Board of Directors and the Audit & Supervisory Board answered a self-assessment questionnaire, and the responses were analyzed with input from external institutions to identify current conditions and weaknesses in the board's overall effectiveness.

Effectiveness Assessment Questionnaire:

Main Areas Covered

• Make-upof the Board of Directors
• Operation of the Board of Directors
• Training
• Individuals' efforts relating to the board

FY2018 Assessment Results

The effectiveness assessment resulted in a mostly positive outcome, showing that the Air Water Board of Directors had the requisite size and diversity to engage in meaningful deliberations; that the number and contents of matters tabled for discussion at board meetings were appropriate; and that matters were fully deliberated upon, with members making statements and asking questions proactively. Thus, the board was, in general, deemed to be performing its corporate governance roles and responsibilities, and was therefore assessed to be sufficiently effective. Conversely, issues were raised, such as the need to secure more time to discuss matters, more easily understandable explanations and materials relating to matters tabled before the board, and other issues to improve function of the board.

Moving forward, we will use the outcomes of the effectiveness assessments as part of our ongoing efforts to improve the board's functions.

Corporate Management Committee

As the body that supports accurate and quick decision-making in the group's wide-ranging fields of business, the Corporate Management Committee is comprised of executive directors at the level of managing director and higher, the general managers of each business division, and other key managers. The Corporate Management Committee, which meets once a month, in principle, conducts advance deliberations on the agenda items of the Board of Directors from wide-ranging and diverse standpoints, and also deliberates on important items related to the Air Water Group's business execution.

Governance

Audit & Supervisory Board and A & SB Members

Air Water appoints three additional outside A & SB members so as to receive recommendations and opinions that are beneficial to Air Water's auditing from an outside, objective perspective in order to further reinforce monitoring and supervision of management.

A & SB members work to grasp and monitor management execution by such means as attending Board of Directors meetings and other key meetings in accordance with the auditing policies and standards, etc., stipulated by the Audit & Supervisory Board, and conduct auditing to ensure that the execution of duties by directors conforms with laws, regulations, and the Articles of Association and that corporate operations are being executed properly through supervision and verification of the design and operation, etc., of the internal control system, including internal controls related to financial reporting.

A & SB members receive regular reports from the accounting auditors and internal auditing unit on the status of audits and findings, and exchange information and opinions with them.

Internal Audits

Internal audits are conducted regularly by the Internal Auditing Office, the company's internal auditing unit, on the Air Water Group's compliance with laws, regulations, and internal rules and on the appropriateness and adequacy of the group's business processes. The Internal Auditing Office also conducts monitoring and supervision of the construction and operation of the internal control system for ensuring the reliability and appropriateness of financial reporting, and with respect to evaluations of the system's effectiveness, the Office fulfills the role of lead managing division under the responsibility and direction of the representative director.

In addition, along with the Internal Auditing Office, Air Water has established the Compliance Center as the dedicated department for cross-group management and governance in connection with compliance, disaster prevention, and environmental protection. When facts are found through internal audits that have the potential to seriously impact Air Water's management, there is a system for appropriately reporting them to the Audit & Supervisory Board and the representative director.

Accounting Auditors

With regard to accounting audits, Air Water has concluded an auditing agreement with KPMG AZSA LLC, and this firm carries out the audits.

Independent Officers

In order to ensure that the management supervisory function of the Board of Directors is highly effective, Air Water appoints independent outside directors and independent outside auditors with the capability and experience to contribute to the company's sustained growth and help increase its corporate value over the medium-to-long term.

Independence Judgment Criteria and Qualifications for Outside Officers

Air Water appoints as outside officers individuals who meet requirements and criteria stipulated in the Companies Act and by financial instrument exchanges and who meet the Judgment Criteria for the Independence of Outside Officers, which has been established by resolution of the Board of Directors. In addition, in selecting candidates for outside officer positions, the company puts emphasis on a high level of expertise and extensive experience that make possible honest and constructive recommendations and opinions with respect to the company's management.

Details of the Judgment Criteria for the Independence of Outside Officers are provided in our Corporate Governance Report.

AIR WATER REPORT 2019 54

Reasons for Appointment of Independent Officers

We chose these five people because they meet the company's Judgment Criteria for the Independence of Outside Officers, and we have judged that there is no reason to suspect the existence of "potential conflicts of interest with general shareholders" as stipulated by the Tokyo Stock Exchange.

Outside DirectorYukiko Sakamoto

Board of Directors meeting attendance: 15/15

Yukiko Sakamoto has held key positions in the Ministry of Health, Labour, and Welfare; and has served as the deputy governor of Shizuoka Prefecture and as a member of the House of Councilors. She therefore has extensive experience and a high level of expertise. In light of her leveraging of that experience and expertise to provide beneficial advice regarding Air Water's overall management, we believe she is indeed an appropriate appointment.

Outside DirectorIsamu Shimizu

Board of Directors meeting attendance: 11/12

(board meetings held on and after his appointment on June 27, 2018)

Isamu Shimizu is a professor emeritus of Kyoto University and a long-standing researcher of ecology. He therefore has extensive experience and a high level of expertise. In light of the beneficial advice he provides regarding Air Water's overall management, we believe he is indeed an appropriate appointment.

Outside Auditor Kouichi Nakagawa

Board of Directors meeting attendance: 15/15

Audit & Supervisory Board meeting attendance: 16/16

Kouichi Nakagawa has had a long career in the financial industry, and therefore brings a wealth of experience and expertise. In light of the useful guidance and advice he provides regarding the appropriateness of Air Water's pursuit of business operations, we believe he fulfils the auditory functions required of an outside auditor, and is therefore an appropriate appointment.

Outside AuditorAkihiko Takashima

Board of Directors meeting attendance: 9/15

Audit & Supervisory Board meeting attendance: 8/16

Akihiko Takashima has had a long career in the steel industry (one of the main purchasers of industrial gas), and therefore brings a wealth of experience and expertise. In light of his leveraging of that experience and expertise to provide useful guidance and advice from an independent perspective regarding the appropriateness of Air Water's pursuit of business operations, we believe he fulfils the auditory functions required of an outside auditor, and is therefore an appropriate appointment.

Outside Auditor Atsushi Hayashi

Board of Directors meeting attendance: 14/15

Audit & Supervisory Board meeting attendance: 15/16

Atsushi Hayashi has a wealth of experience and expertise as a judge and attorney. In light of his leveraging of that experience and expertise to provide useful guidance and advice regarding the appropriateness of Air Water's pursuit of business operations, we believe he fulfils the auditory functions required of an outside auditor, and is therefore an appropriate appointment.

NB: Board meeting attendance based on FY2018 numbers.

Support for Outside Officers

The General Affairs Department, which provides admin functions for the Board of Directors, distributes to outside directors materials pertaining to board meeting agendas and reports well in advance of meetings, and explains them where required.

Information and materials about the company that outside auditors require (or that are otherwise deemed appropriate for sharing among auditors) are relayed to them mainly by the standing statutory auditors.

Officers' Remuneration

Directors are paid remuneration within a scale approved by a shareholders' meeting resolution, and adjusted in accordance with each individual's roles and responsibilities. Another consideration when deciding on remuneration is our belief that it is a powerful incentive for working to improve corporate value over the medium-to-long term. For remuneration to be approved, the representative directors deliberate on the matter before drawing up a remuneration table and receiving the input of the independent outside directors before tabling it for approval at a Board of Directors meeting. Similarly, auditors are paid remuneration within a scale approved by a shareholders' meeting resolution, and finalized after discussion and decision by the auditors.

Composition of Officers' Remuneration

Remuneration paid to directors (excluding outside directors) comprises three parts: a base fee, which is a fixed amount; bonuses, which are determined in accordance with the company's business performance; and stock options, which serve as an incentive to pursue progress in business performance and share price over the medium-to-long term. In addition, starting in fiscal 2019, we have instituted a remuneration system to ensure that directors shoulder a greater share of the benefits and risks of share price movement along with shareholders. The new system assigns shares with transfer restrictions to directors (excluding outside directors) as a means of motivating them to work hard to drive share prices upward and improve corporate value. The remuneration paid to outside directors and auditors comprises only the basic fee and bonuses.

Officers' Remuneration in FY2018

		Remuneration by type (million yen)
	Total
Category	remuneration,			Stock	No. of
	etc.	Basic fee	Bonuses
	options	officers
	(million yen)
				included
Director*	1,041	785	176	79	19
Auditor*	49	43	5	-	2
Outside	60	55	4	-	6
officer
*Excl. outside officers
*Incl. 1 director or outside officer who resigned in FY2018

55AIR WATER REPORT 2019

Enforcing Compliance

Compliance Structure Overview

In the organizational structure for compliance management, the Compliance Center has been set up as the supervising department under the direct control of the representative director, and is in charge of integrated management of compliance-related problems. The chief of the Compliance Center is appointed from among executive officers. Starting from January 2018, each company has a department responsible for compliance associated with organizational reform to expedite decision-making for ensuring thorough compliance. The responsible department of each company seeks to closely cooperate with the Compliance Center, thereby enhancing the compliance structure of the group companies.

Air Water Group Code of Ethical Conduct

The Air Water Group Code of Ethical Conduct provides all officers and employees of Air Water and its group companies with guidelines to help them act in strict conformance with the laws and regulations and behave in an ethical manner. In addition, we have a Compliance Handbook, which breaks down the code and provides examples of violations in an easy-to-understand manner. The handbook is distributed to all group employees with the aim of raising their awareness of the vital importance of ethical conduct and compliance.

Compliance Committee

Air Water has established the Compliance Committee as a consultative body in which relevant divisions get together and discuss compliance issues. The Committee considers specific measures concerning the policies and instructions on compliance given by the representative director, and other issues, and also discusses ways to deal with compliance violations if they occur.

Internal Reporting System

Air Water has established an internal reporting system in order to ensure compliance-based management. Anyone who becomes aware of violations of laws or internal rules, or any acts which may violate them, can make a report. Points of contact for reporting have been established both inside and outside the company, and there is a provision ensuring that a person who makes a report will not suffer any disadvantage.

The points of contact, or hotline, for this internal reporting system are communicated to all group employees by such means as the "compliance poster" displayed at all business sites.

See our website for more on our compliance-related activities.

Compliance at the Air Water Group

https://www.awi.co.jp/esg/governance/compliance.html

Governance

Reinforcing Risk Management

Risk Management Structure

The Compliance Center, which is under the direct control of the representative director, manages, as the supervisory division for the entire group, the risks recognized as particularly important for business activities of the Air Water Group; namely, the risks concerning compliance, safety, disaster prevention, environmental preservation, and quality assurance.

Individual risks concerning information security, intellectual property, expansion of overseas businesses, business contracts, etc., are managed through actions at the level of each responsible division such as by formulating internal regulations, preparing manuals, and providing education and training, as well as through prior inspection and authorization procedures.

With the Compliance Center serving as the secretariat, the risk management examination meeting is held regularly, helping to bolster the risk management framework of the entire group.

Crisis Management Framework

Audit & Supervisory Board Members

Reporting

Auditing

Crisis Management

Reporting

Committee / Emergency

Representative Director

Headquarters

Order to

Direction

establish headquarters

and take countermeasures

Reporting

Direction

Compliance Committee

Prompt

Direction

Response

Consultation reporting

Contacting

Management

Compliance Center

Reporting

Direction

Reporting

Prompt reporting

Direction

Risk occurrence department

(incidents, disasters, compliance violation)

See our website for more on our risk-management activities.

Risk management at the Air Water Group

https://www.awi.co.jp/esg/governance/risk_management.html

Information Security

Initiatives for Information Security

Air Water is fully aware that protecting the information of customers, etc., is an important social responsibility of any company. This means not only complying with laws and regulations related to specific personal information or personal information protection but also requiring all officers, employees, and other related parties engaged in corporate activities to ensure information security and protection of information in accordance with internal information security management regulations.

Major Information Security Measures

Category	Measures
Dissemination of rules	· Conducting training against targeted email attacks
Management of	· Encryption of information devices
information devices	· Periodic inventory counting using asset management tools
Illegal use prevention	· Password control and periodic changing of password
	· Controlling entry into/departure from data center
	· Banning connection of personal PC to company network,
	banning connection of personal media to company PC
Measures against	· Complete separation of external network and intranet
external threats	using firewall
· Introduction of latest antivirus software
	· Web filtering and blocking unsolicited emails
	· Monitoring unauthorized communication with outside
	parties

AIR WATER REPORT 2019 56

Financial Highlights

Net sales(million yen)
1,000,000
800,000
600,000	660,541	660,622	670,536	753,559	801,493
400,000
200,000
0
	2014	2015	2016	2017	2018	(FY)

Profit attributable to owners of parent

(million yen)

30,000
20,000		22,337	25,173	26,468
20,702	20,139
10,000
0
2014	2015	2016	2017	2018	(FY)

Operating income (million yen)

50,000
40,000			41,341	42,398	43,580
30,000	36,126	39,524
20,000
10,000
0
	2014	2015	2016	2017	2018	(FY)

Capital investment & depreciation

(million yen)

80,000
70,000								78,526
60,000
50,000							61,309
40,000			42,236
30,000	32,028			40,587
20,000	25,222	26,620	25,524	27,119	27,620
10,000
0
	2014	2015	2016	2017	2018 (FY)
■ ■ Capital investment		■ ■ Depreciation

Ordinary income (million yen)
50,000
40,000			41,251	44,691	46,977
30,000	38,159	35,075
20,000
10,000
0
	2014	2015	2016	2017	2018	(FY)

Free cash flow (million yen)

40,000
30,000
20,000
10,000	15,587	2,864	14,516
0
-10,000
-20,000				13,872-	32,114-
-30,000
-40,000
	2014	2015	2016	2017	2018	(FY)

Total assets (million yen)& equity capital ratio (%)

(million yen)						(%)
1,200,000						45
41.3	40.8	40.7	40.1
1,000,000			40
					37.2
800,000						35
600,000			629,115	693,101	783,047	30
400,000	547,642	575,832	25
200,000						20
0						15
2014	2015	2016	2017	2018	(FY)

■ ■ Total assets				Equity capital ratio

ROE & ROA (%)
10	9.6		9.4	9.3
	9.1
	8.7
8
	7.1	6.8	6.8	6.4
	6.2
6

4

2

0

2014 2015	2016 2017 2018 (FY)
ROA				ROE

Interest-bearing debt balance (million yen)& net D/E ratio

(million yen)

500,000						1.0
400,000					0.79	0.8
				0.65
300,000	0.58	0.57				0.6
			0.55		263,165
200,000					0.4
100,000	154,864	157,795	172,403	203,183	0.2
0						0
	2014	2015	2016	2017	2018	(FY)

■ ■ Interest-bearing				Net D/E ratio
debt balance

57AIR WATER REPORT 2019

Non-Financial Highlights

Greenhouse gas emissions (thousand tons)

2,000
1,500	1,679		1,552	1,567	1,594
	1,461
1,000
500
0
	2014	2015	2016	2017	2018	(FY)

Water used (million m3)

300
200	238	248	264	242	245
100
0
	2014	2015	2016	2017	2018	(FY)

Industrial waste generated (tons)

50,000
40,000				42,210
30,000		35,650	36,148
	28,783
20,000
21,598
10,000
0
2014	2015	2016	2017	2018	(FY)

*Group companies (23) classified as Specified Business Operators under the Act on the Rational Use of Energy

*Amount generated by group companies (10) deemed to be major generators of industrial waste in FY2018

No. of new recruits &

percentage of women among new recruits

	(%)
60	60
50	50
	42.9

Percentage of women among supervisor	Average years of service
ranks
		(%)	20
60			15
	13.4		19.0	18.7

40																						40
									33.3
30																			33			30
25.0
										23.5
20						22																20
													21
					18.2
				17
10		16																			10
0																					0
	2014 2015			2016 2017 2018	(FY)

■ ■ New recruits				% of women
*Air Water Inc. only

Turnover rate (%)

40					10
				8.8	38
	5.7	5.1	5.4	28
20				5
	18	17	18		2.1
			1.1	1.1
	0.8	0.8		10
		3	5	7
0	2	0
	2015/6	2016/6	2017/6	2018/6	2019/6(Year/month)

■ ■ No. of women in				% of women in
managerial positions				managerial positions
■ ■ No. of women in				% of women in
superintendent positions				superintendent positions
*Air Water Inc. only

Frequency rate of work-related accidents associated with days away from work (%)

16.2

15.8

15	14.6

10

2014 2015 2016 2017 2018 (FY)

*Air Water Inc. only

Incidents reported internally by whistleblowers

6

4

2

5.36

4.84

4.23

2.08

0.00

2

1.88

1.731.72

1.61

1.5

1.23

20
	18
15
	15
10
9	9
8
5

0
2014	2015	2016	2017	2018	(FY)

*Within 3 years of employment

1

2014 2015 2016 2017 2018 (FY)

0

2014 2015 2016 2017 2018 (FY)

AIR WATER REPORT 2019 58

Financial Data (10-Year)

Fiscal year	2009	2010	2011	2012	2013	2014
Net sales	426,357	471,809	492,679	540,016	641,256	660,541
Operating income	28,202	31,268	31,672	27,897	35,078	36,126
Ordinary income	29,020	32,958	33,601	35,155	36,281	38,159
Profit attributable to owners of parent	13,916	11,680	17,167	18,365	19,225	20,702
Capital investment	25,356	33,820	22,843	34,110	32,348	32,028
Depreciation	17,044	19,423	20,373	22,058	24,337	25,222
Cash flows from operating activities	44,592	32,576	39,661	30,057	48,248	51,071
Cash flows from investing activities	(25,820)	(34,766)	(28,695)	(42,501)	(52,186)	(35,483)
Cash flows from financing activities	(20,615)	(1,591)	(7,611)	10,253	4,620	(7,940)
Free cash flow	18,772	(2,190)	10,966	(12,443)	(3,938)	15,587
Fiscal year end
Total assets	392,758	407,639	430,547	484,328	528,092	547,642
Interest-bearing debt	114,787	122,317	119,385	141,295	155,479	154,864
Equity capital	153,140	157,636	170,448	185,599	203,500	226,375
Per-share data
Earnings per share (EPS, yen)	73.64	61.24	89.35	94.04	98.32	105.75
Net assets (BPS, yen)	789.89	822.05	873.78	949.63	1,040.22	1,155.80
Dividend (DPS, yen)	22	22	22	24	26	28
Major indicators
Recurring margin (%)	6.8	7.0	6.8	6.5	5.7	5.8
Return on asset (ROA, %)	7.5	8.2	8.0	7.7	7.2	7.1
Return on equity (ROE, %)	9.7	7.5	10.5	10.3	9.9	9.6
Equity capital ratio (%)	39.0	38.7	39.6	38.3	38.5	41.3
Net D/E ratio	0.60	0.66	0.57	0.65	0.66	0.58
Payout ratio (%)	29.9	35.9	24.6	25.5	26.4	26.5
Non-financial information
Consolidated number of employees	7,925	8,237	8,062	8,937	9,557	10,147
as of fiscal year-end (persons)
Number of consolidated subsidiaries	62	65	65	68	75	81

59AIR WATER REPORT 2019

			(Unit: million yen)
2015	2016	2017	2018
660,622	670,536	753,559	801,493
39,524	41,341	42,398	43,580
35,075	41,251	44,691	46,977
20,139	22,337	25,173	26,468
42,236	40,587	61,309	78,526
26,620	25,524	27,119	27,620
43,512	58,873	47,764	56,690
(40,647)	(44,357)	(61,637)	(88,804)
(8,115)	(8,553)	4,489	40,905
2,864	14,516	(13,872)	(32,114)
575,832	629,115	693,101	783,047
157,795	172,403	203,183	263,165
234,726	255,984	277,954	291,211
		Yen
102.73	114.53	128.95	135.34
1,196.92	1,312.55	1,422.60	1,487.58
28	34	38	40
5.3	6.2	5.9	5.9
6.2	6.8	6.8	6.4
8.7	9.1	9.4	9.3
40.8	40.7	40.1	37.2
0.57	0.55	0.65	0.79
27.3	29.7	29.5	29.6
11,334	12,580	14,265	15,757
85	101	111	130

• Net Sales Analysis(million yen)

						+10,225	801,493
					+3,014
	+7,666	+5,755	+1,281	+2,866
+17,124
753,559
2017							2018	(FY)
Business GasIndustrial	BusinessChemical	BusinessMedical	BusinessEnergy	Food andAgriculture BusinessProducts	BusinessLogistics	BusinessesOther

■ Ordinary Income Analysis (million yen)	+199
					+760
	+1,851
			+72	+54
								46,977
+961		-457					-1,157
44,691
2017								2018	(FY)
Business Gas Industrial	Business Chemical	Business Medical	Business Energy	Food and Agriculture Business Products	Business Logistics	Businesses Other	Adjustment

• Cash Flow Analysis(million yen)

+56,690

+40,905	+245
			31,470

22,433

2017						2018(End of FY)
		-88,804
equivalents cash and Cash year of beginning at	operating from flows Cash activities	investing from flows Cash activities	financing from flows Cash activities	rate exchange of Effect and cash on changes other equivalents, cash	cash and Cash year of end at equivalents

AIR WATER REPORT 2019 60

Financial Information

Consolidated Balance Sheet

		(Million yen)
	As of	As of
	March 31, 2018	March 31, 2019
Assets
Current assets
Cash and deposits	23,298	32,621
Notes and accounts receivable - trade	185,216	194,938
Merchandise and finished goods	28,896	33,740
Work in process	8,442	9,238
Raw materials and supplies	15,902	17,167
Short-term loans receivable	10,736	5,269
Other current assets	12,280	14,689
Allowance for doubtful accounts	(1,781)	(2,343)
Total current assets	282,991	305,323
Noncurrent assets
Property, plant and equipment
Buildings and structures (net)	61,089	76,760
Machinery, equipment and vehicles (net)	78,528	86,876
Land	74,735	84,173
Lease assets (net)	20,444	22,765
Construction in progress	33,847	52,134
Other property, plant and equipment (net)	5,632	6,879
Total property, plant and equipment	274,277	329,590
Intangible assets
Goodwill	17,408	24,353
Other intangible assets	14,185	14,980
Total intangible assets	31,594	39,334
Investments and other assets
Investment securities	79,270	77,349
Long-term loans receivable	2,805	8,133
Net defined benefit assets	7,444	4,407
Deferred tax assets	5,260	5,926
Deferred tax assets for land revaluation	65	85
Other investments and other assets	10,969	15,942
Allowance for doubtful accounts	(1,578)	(3,045)
Total investments and other assets	104,236	108,798
Total noncurrent assets	410,109	477,723
Total assets	693,101	783,047

		(Million yen)
	As of	As of
	March 31, 2018	March 31, 2019
Liabilities
Current liabilities
Notes and accounts payable - trade	114,429	127,670
Short-term loans payable	32,836	54,906
Current portion of long-term loans payable	20,530	17,498
Current portion of bonds	-	250
Lease obligations	2,676	2,968
Accrued expenses	18,463	16,855
Income taxes payable	8,009	8,000
Provision for directors' bonuses	334	361
Other provisions	1,067	1,167
Other current liabilities	24,856	32,836
Total current liabilities	223,205	262,516
Noncurrent liabilities
Bonds payable	20,000	30,250
Long-term debt	108,030	136,013
Lease obligations	19,108	21,277
Deferred tax liabilities	10,635	7,151
Deferred tax liabilities for land revaluation	902	921
Provision for directors' retirement benefits	927	1,214
Other provisions	823	370
Net defined benefit liabilities	8,664	9,153
Other noncurrent liabilities	6,157	5,480
Total noncurrent liabilities	175,251	211,832
Total liabilities	398,456	474,348
Net assets
Shareholders' equity
Capital stock	32,263	32,263
Capital surplus	37,060	36,651
Retained earnings	209,570	228,015
Treasury stock	(4,089)	(3,463)
Total shareholders' equity	274,805	293,466
Accumulated other comprehensive income
Valuation difference on available-for-sale	10,558	6,831
securities
Deferred gains or losses on hedges	(545)	368
Revaluation reserve for land	(8,503)	(8,503)
Foreign currency translation adjustments	442	201
Accumulated remeasurements of defined	1,196	(1,153)
benefit plans, net of tax
Total accumulated other comprehensive	3,148	(2,255)
income
Subscription rights to shares	379	423
Non-controlling interests	16,311	17,063
Total net assets	294,644	308,698
Total liabilities and net assets	693,101	783,047

61AIR WATER REPORT 2019

Consolidated Statements of Income

		(Million yen)
	Year ended	Year ended
	March 31, 2018	March 31, 2019
Net sales	753,559	801,493
Cost of sales	592,616	631,232
Gross profit	160,943	170,261
Selling, general and administrative expenses	118,545	126,681
Operating income	42,398	43,580
Non-operating income
Interest income	157	184
Dividend income	873	1,019
Share of profit of entities accounted for using equity method	676	1,307
Rent income on facilities	888	944
Other non-operating income	2,691	3,167
Total non-operating income	5,287	6,624
Non-operating expenses
Interest expenses	1,181	1,438
Rent expenses on facilities	774	940
Other non-operating expenses	1,038	848
Total non-operating expenses	2,994	3,227
Ordinary income	44,691	46,977
Extraordinary income
Gain on sales of noncurrent assets	294	201
Gain on sales of investment securities	1,180	477
Gain on bargain purchase	1,017	-
Other extraordinary income	67	154
Total extraordinary income	2,559	833
Extraordinary losses
Loss on sales and retirement of noncurrent assets	2,136	2,947
Loss on liquidation of business	-	2,816
Other extraordinary losses	4,612	2,208
Total extraordinary losses	6,748	7,972
Income before income taxes and minority interests	40,501	39,838
Corporate, inhabitant, and enterprise taxes	13,250	13,708
Deferred income taxes	263	(1,940)
Total income taxes	13,513	11,768
Net income	26,988	28,070
Net income attributable to non-controlling interests	1,815	1,601
Net income attributable to shareholders of the parent	25,173	26,468

Consolidated Statements of Comprehensive Income		(Million yen)
	Year ended	Year ended
	March 31, 2018	March 31, 2019
Net income	26,988	28,070
Other comprehensive income
Valuation difference on available-for-sale securities	1,358	(3,593)
Deferred gains or losses on hedges	(478)	1,515
Foreign currency translation adjustments	45	(286)
Remeasurements of defined benefit plans, net of tax	(292)	(2,442)
Share of other comprehensive income of associates accounted for using equity method	90	(192)
Total other comprehensive income	722	(4,999)
Comprehensive income	27,711	23,070
Comprehensive income attributable to:
Shareholders of the parent	25,683	21,048
Non-controlling interests	2,027	2,022

AIR WATER REPORT 2019 62

Financial Information

Consolidated Statements of Changes in Net Assets

(Million yen)

			Year ended March 31, 2018
				Shareholders' equity
	Capital		Capital		Retained		Treasury		Total shareholders'
	stock		surplus		earnings		stock		equity
Balance at beginning of term	32,263		33,705		192,021		(4,645)		253,345
Changes in items during the
period
Change in treasury shares of			3,364						3,364
parent arising from transactions
with non-controlling shareholders
Dividends from surplus					(7,260)				(7,260)
Reversal of revaluation					(0)				(0)
reserve for land
Net income attributable to					25,173				25,173
shareholders of the parent
Change in scope of					(181)				(181)
consolidation
Decrease by merger					(83)				(83)
Change of scope of equity					(98)				(98)
method
Purchase of treasury stock							(8)		(8)
Disposal of treasury stock			(9)				564		554
Net changes in items other
than shareholders' equity
Total changes in items during	-		3,354		17,549		556		21,460
the period
Balance at end of term	32,263		37,060		209,570		(4,089)		274,805

Year ended March 31, 2019

			Shareholders' equity
Capital		Capital		Retained		Treasury		Total shareholders'
stock		surplus		earnings		stock		equity
32,263		37,060		209,570		(4,089)		274,805
		(481)						(481)
				(7,852)				(7,852)
				(0)				(0)
				26,468				26,468
		68		(138)				(69)
				(27)				(27)
				(5)				(5)
						(4)		(4)
		3				630		633
-		(409)		18,445		625		18,661
32,263		36,651		228,015		(3,463)		293,466

Accumulated other comprehensive income

	or gains Deferred hedges on losses	Revaluation land for reserve	currency Foreign translation adjustments	of
	netplans,		Accumulated	income		Total
	defined
differenceValuation availableon- securitiessalefor-	taxof	remeasurements	other
benefit		comprehensive	accumulated

Subscription shares to rights

controlling-Non interests

assets net Total

Accumulated other comprehensive income

	or gains Deferred hedges on losses	Revaluation land for reserve	currency Foreign translation adjustments	of
	netplans,		Accumulated	income		Total
	defined
differenceValuation availableon- securitiessalefor-	taxof	remeasurements	other
benefit		comprehensive	accumulated

Subscription shares to rights

controlling-Non interests

assets net Total

Balance at beginning of term	9,352	(72)	(8,503)	403	1,459	2,638	381	24,385	280,750		10,558	(545)	(8,503)	442	1,196	3,148	379	16,311	294,644
Changes in items during the
period
Change in treasury shares of									3,364										(481)
parent arising from transactions
with non-controlling shareholders
Dividends from surplus									(7,260)										(7,852)
Reversal of revaluation									(0)										(0)
reserve for land
Net income attributable to									25,173										26,468
shareholders of the parent
Change in scope of									(181)										(69)
consolidation
Decrease by merger									(83)										(27)
Change of scope of equity									(98)										(5)
method
Purchase of treasury stock									(8)										(4)
Disposal of treasury stock									554										633
Net changes in items other	1,206	(472)	0	39	(263)	510	(1)	(8,074)	(7,566)	(3,727)	913	0	(241)	(2,349)	(5,404)	43	752	(4,607)
than shareholders' equity
Total changes in items during	1,206	(472)	0	39	(263)	510	(1)	(8,074)	13,894		(3,727)	913	0	(241)	(2,349)	(5,404)	43	752	14,053
the period
Balance at end of term	10,558	(545)	(8,503)	442	1,196	3,148	379	16,311	294,644	6,831	368	(8,503)	201	(1,153)	(2,255)	423	17,063	308,698

63AIR WATER REPORT 2019

Consolidated Statements of Cash Flows

		(Million yen)
	Year ended	Year ended
	March 31, 2018	March 31, 2019
Cash flows from operating activities
Income before income taxes and minority interests	40,501	39,838
Depreciation	27,119	27,620
Amortization of goodwill	2,544	2,676
Gain on bargain purchase	(1,017)	-
Increase (decrease) in allowance for doubtful accounts	716	1,910
Increase (decrease) in net defined benefit liability	183	(631)
Interest and dividend income	(1,031)	(1,204)
Interest expenses	1,181	1,438
Share of (profits) loss of entities accounted for using equity method	(676)	(1,307)
Loss (gain) on sales and retirement of noncurrent assets	1,842	2,745
Loss on liquidation of business	-	2,816
Decrease (increase) in notes and accounts receivable	(25,096)	(3,559)
Decrease (increase) in inventories	(3,076)	(4,000)
Increase (decrease) in notes and accounts payable	17,435	7,312
Other cash flows from operating activities	(31)	(4,517)
Subtotal	60,594	71,139
Interest and dividends received	1,401	1,596
Interest expenses paid	(1,179)	(1,409)
Income taxes paid	(13,051)	(14,636)
Net cash provided by (used in) operating activities	47,764	56,690
Cash flows from investing activities
Purchase of property, plant, and equipment	(53,507)	(69,235)
Proceeds from sale of property, plant, and equipment	4,378	1,318
Purchase of intangible assets	(5,401)	(2,305)
Purchase of investment securities	(4,888)	(7,716)
Proceeds from sale of investment securities	2,207	1,278
Purchase of investments in subsidiaries resulting in change in scope of consolidation	(3,410)	(8,403)
Payments for investments in capital	(1,418)	(2,067)
Payments for transfer of business	ー	(2,016)
Payments of loans receivable	(10,492)	(22,314)
Collection of loans receivable	10,967	22,379
Other cash flows from investing activities	(71)	279
Net cash provided by (used in) investing activities	(61,637)	(88,804)
Cash flows from financing activities
Net increase (decrease) in short-term loans payable	3,758	19,732
Proceeds from long-term debt	32,893	43,962
Repayment of long-term debt	(26,667)	(22,369)
Proceeds from issuance of bonds	10,000	10,000
Additional purchase of investments in subsidiaries	(6,897)	(1,989)
Proceeds from sale-leaseback transactions	4,334	2,434
Repayments of lease obligations	(5,354)	(2,971)
Purchase of treasury stock	(8)	(4)
Proceeds from sale of treasury stock	564	633
Cash dividends paid	(7,272)	(7,868)
Cash dividends paid to non-controlling interests	(861)	(653)
Net cash provided by (used in) financing activities	4,489	40,905
Effect of exchange rate changes on cash and cash equivalents	(104)	(266)
Net increase (decrease) in cash and cash equivalents	(9,487)	8,524
Cash and cash equivalents at beginning of year	30,412	22,433
Increase in cash and cash equivalents resulting from merger	72	81
Increase in cash and cash equivalents from newly consolidated subsidiary	1,436	430
Cash and cash equivalents at end of year	22,433	31,470

AIR WATER REPORT 2019 64

Major Group Companies(as of October 1, 2019)

			Air Water's
			share of voting
Name	Address	Business Activities	rights (%)

Regional Business Companies

Hokkaido Air Water Inc.	Sapporo, Hokkaido	Sale of industrial gas and medical gas, LP gas and kerosene, natural gas, and related equipment	100.0
Tohoku Air Water Inc.	Sendai, Miyagi Prefecture	Sale of industrial gas and medical gas, LP gas and kerosene, natural gas, and related equipment	100.0
Kanto Air Water Inc.	Minato-ku, Tokyo	Sale of industrial gas and medical gas, LP gas and kerosene, natural gas, and related equipment	100.0
Koshinetsu Air Water Inc.	Matsumoto, Nagano Prefecture	Sale of industrial gas and medical gas, and related equipment	100.0
Chubu Air Water Inc.	Nagoya, Aichi Prefecture	Sale of industrial gas and medical gas, LP gas and kerosene, and related equipment	100.0
Kinki Air Water Inc.	Osaka, Osaka Prefecture	Sale of industrial gas and medical gas, LP gas and kerosene, natural gas and related equipment	100.0
Chushikoku Air Water Inc.	Hiroshima, Hiroshima Prefecture	Sale of industrial gas and medical gas, and related equipment	100.0
Kyushu Air Water Inc.	Fukuoka, Fukuoka Prefecture	Sale of industrial gas and medical gas, and related equipment	100.0

Industrial Gas Business

NSCC Air Water Inc.	Chuo-ku, Tokyo	Manufacture and sale of industrial gas (including onsite supply)	65.0
Air Water Carbonic Inc.	Minato-ku, Tokyo	Manufacture and sale of liquid nitrogen gas and dry ice	100.0
Air Water Hydrogen Corp.	Minato-ku, Tokyo	Manufacture, sale, recycling, etc., of industrial hydrogen gas	95.0
Nihon Dennetsu Co., Ltd.	Azumino, Nagano Prefecture	Manufacture and sale of electric heating devices and controllers for industrial applications	100.0
Shinko Air Water Gas, Ltd.	Osaka, Osaka Prefecture	Sale of industrial gas	60.0
Air Water Plant & Engineering Inc.	Sakai, Osaka Prefecture	Design, production, sale and maintenance of various types of gas generation units and gas applications, and LNG-related equipment	100.0

Chemical Business

Kawasaki Kasei Chemicals Ltd.

Kawasaki, Kanagawa Prefecture

Manufacture and sale of organic acid products, organic acid derivatives, and quinone-based products

100.0

Medical Business

Ikiken Co., Ltd.	Sayama, Saitama Prefecture	Manufacture and maintenance of medical oxygen concentrators	100.0
Air Water Medi H, Co., Ltd.	Shinagawa-ku, Tokyo	Contract sterilization of medical equipment and materials, and SPD solutions and services for medical institutions	100.0
Air Water Link Inc.*	Kyoto, Kyoto Prefecture	Sale and maintenance of cardiovascular devices, dialysis devices, and surgical equipment	97.2
Kawamoto Corporation	Osaka, Osaka Prefecture	Manufacture and sale of sanitary materials, medical supplies, etc.	50.1
Air Water Safety Service Inc.	Kobe, Hyogo Prefecture	Installation of medical gas pipes, and design, manufacture and sale of ventilators, fire extinguishing units, etc.	100.0
Ci Medical Co., Ltd.	Hakusan, Ishikawa Prefecture	Online sale and wholesale of dental and medical supplies	40.0
Globalwide International Pte. Ltd.	Singapore	Design and installation of hospital equipment	55.0
Globalwide M&E Pte. Ltd.

*Name changed to Air Water Link on May 1, 2019, when Nishimura Kikai absorbed Handa as part of a merger.

Agriculture and Food Products Business

Saveur SS Inc.	Sapporo, Hokkaido	Manufacture and sale of processed meat products (ham and delicatessen), ingredient-type frozen foods,	90.9
cooking sauces and confectionery
Tomiichi Co., Ltd.	Asahikawa, Hokkaido	Wholesale and processing of fruit and vegetables for processing, and sale of frozen foods, etc.	90.0
Gold Pak Co., Ltd.	Shinagawa-ku, Tokyo	Manufacture and sale of fruit and vegetable juices and other beverages including some soft drinks	100.0
Kyusyuya Co., Ltd.	Hachioji, Tokyo	Operation of fruit and vegetable retailing stores in department stores, station buildings and shopping centers, and operation of supermarkets	55.0
Sagami Ham Co., Ltd.	Yokohama, Kanagawa Prefecture	Sale of processed meat products and meat and prepared dishes	100.0
Plecia Co., Ltd.	Atsugi, Kanagawa Prefecture	Manufacture and sale of Japanese confectionery and Western confectionery	100.0
Daisen Ham Co., Ltd. *	Yonago, Tottori Prefecture	Manufacture of ham, bacon, sausage and other processed foods	100.0

Logistics Business

Air Water Logistics Co., Ltd.	Sapporo, Hokkaido	Distribution of high-pressure gas, general freight, food, medical and environmental items, and distributive processing services	100.0
Hokkaido Shatai Co., Ltd.	Kitahiroshima, Hokkaido	Design, manufacture, sale, and repair of truck bodies; vehicle inspection and certification	82.6
East Japan Air Water Logistics Co., Ltd.	Yokohama, Kanagawa Prefecture	Distribution of high-pressure gas, general freight, food, medical and environmental items, and distributive processing services	100.0
West Japan Air Water Logistics Co., Ltd.	Osaka, Osaka Prefecture	Distribution of high-pressure gas, general freight, food, medical and environmental items, and distributive processing services	100.0

Seawater Business

Nihonkaisui Co., Ltd.	Chiyoda-ku, Tokyo	Production and sale of salt and salt byproducts; environmental business, electric power business	75.6
Tateho Chemical Industries Co., Ltd.	Chiyoda-ku, Tokyo	Production and sale of magnesium oxide, fused magnesia, magnesium hydroxide, and ceramic products	100.0
Aquaintec Corporation	Kakegawa, Shizuoka Prefecture	Pipe renewal business, manufacturing of water treatment machinery, and sale of environmental equipment and materials	100.0

Other Businesses

Air Water Sol Inc.	Chiyoda-ku, Tokyo	OEM supply of aerosol products, and manufacture and sales of its own branded products	100.0
Air Water Materials Inc.	Minato-ku, Tokyo	Sale and export/import of semiconductor manufacturing chemicals, chemical industry chemicals,	100.0
synthetics resins, and electric and electronic materials
K&O Energy Group Inc.	Mobara, Chiba Prefecture	Business management of subsidiaries which are engaged in the gas business, iodine business, etc.	16.9
Air Water Mach Inc.	Matsumoto, Nagano Prefecture	Manufacture and sale of industrial rubber products and resin products	100.0
Power Partners Pte. Ltd.	Singapore	Engineering and maintenance of uninterruptible power supplies	60.0

65AIR WATER REPORT 2019

Corporate Profile / Stock Information

Corporate Information	(As of March 31, 2019)
Company name	AIR WATER INC.
Head Office	12-8,Minami-Semba2-chome,Chuo-ku, Osaka,
	542-0081, Japan
	Tel: [phone] Fax: [phone]
Registered Address of Head	2, Kita-Sanjo-Nishi1-chome,Chuo-ku, Sapporo,
Office	060-0003, Japan*
Tokyo Office	18-19, Toranomon 3-chome,Minato-ku, Tokyo,
	105-0001, Japan
Established	September 24, 1929
Paid-in Capital	¥32,263 million
Number of Employees	15,757 (consolidated)
URL	https://www.awi.co.jp/

*Changed address to that of the head office on June 26, 2019 (2-12-8 Minamisemba, Chuo-ku, Osaka).

Board of Directors	(As of June 26, 2019)
Honorary Chairman	Masahiro Toyoda	Chairman of the Board
Representative	Kikuo Toyoda	Chief Executive Officer
Chairman of the Board
Vice Chairman	Yasuo Imai	Assistant Chairman
President	Kiyoshi Shirai	Chief Operating Officer
Representative	Masato Machida	Corporate Management Officer
Vice President
Vice President	Yuu Karato	Chief Representative for Hokkaido
Operations
Vice President	Masahiro Kanazawa	President, Seawater Company
Senior Managing	Hideo Tsutsumi	Global Business Officer
Director
Senior Managing	Yoshio Shiomi	President, Industrial Company
Director
Managing Director	Yasushi Sogabe	Corporate Strategy Office
Managing Director	Hirokazu Kawata	President, Logistics Company
Managing Director	Katsumi Kajiwara	President, Life Solution & Energy Company
Managing Director	Atsushi Iinaga	IT Promotion Officer
President, Air Water Softech Inc.
Managing Director	Kosuke Komura	President, Medical Company
Corporate Director	Akihiro Toyonaga	General Manager, Accounting
Corporate Director	Ryosuke Matsubayashi	President, Air Water America Inc.
Corporate Director	Yasunori Kato	General Manager, Human Resources
Corporate Director	Koji Tanaka	General Manager, Engineering Integration
Department & Japanese Operations
		Planning Department
Corporate Director	Yukiko Sakamoto	Independent Director
Corporate Director	Isamu Shimizu	Independent Director
Standing Statutory	Hirohisa Hiramatsu
Auditor
Standing Statutory	Kouichi Nakagawa
Auditor
Standing Statutory	Hiromi Yanagisawa
Auditor
Auditor	Akihiko Takashima	Outside Corporate Auditor (Part-time)
Auditor	Atsushi Hayashi	Outside Corporate Auditor (Part-time)

Principal Shareholders		(As of March 31, 2019)
Company	Number of shares held	Ratio of shares
(thousands)	held (%)
The Master Trust Bank of Japan, Ltd.	11,549	5.88
(trust account)
Nippon Steel & Sumitomo Metal Corporation*	10,000	5.09
Japan Trustee Services Bank, Ltd. (trust account)	9,203	4.69
Sumitomo Mitsui Trust Bank, Limited	7,936	4.04
Sumitomo Mitsui Banking Corporation	6,196	3.16
Air Water Customers' Stockholding	5,463	2.78
GOLDMAN, SACHS & CO. REG		5,433	2.77
The Hokkaido Bank, Ltd.		4,113	2.10
North Pacific Bank, Ltd.		3,874	1.97
Osaka Gas Liquid Co., Ltd.		3,787	1.93
*Trade name changed to Nippon Steel Corporation on April 1, 2019
Information on Shares
Fiscal Year	From April 1 to March 31
Annual General Meeting of	Held in June every year
Shareholders
Record Dates	Annual meeting of shareholders: March 31
	Year-end dividend: March 31
	Interim dividend: September 30
Total Number of Issued	198,705,057 shares
Shares
Number of Shares per Unit	100 shares
Manager of the Register of	Sumitomo Mitsui Trust Bank, Limited
Shareholders	4-1, Marunouchi 1-chome,Chiyoda-ku, Tokyo, Japan
Telephone Number for	TEL: [phone](toll-free in Japan)
Inquiries
URL	http://www.smtb.jp/personal/agency/index.html
Method of Public Notice	Electronic public notice
	[URL of Air Water Inc. on which public notice will be
	posted] http://www.awi.co.jp/ir/koukoku.html
Listed Financial Instruments	Tokyo, Sapporo
Exchange
Securities Code	4088

AIR WATER REPORT 2019 66