JSR : FY2022 Management Policy Briefing QA Summary

JSR Corporation

Summary of FY2022 Management Policy Briefing Q&A Session

(on May 24, 2022)

Overall businesses

1. How do you see the next business opportunity following the Digital Solutions and Life Sciences businesses in next 10 to 20 years?

The Digital Solutions and Life Sciences businesses have a wide range of areas to cover. So we still see high potential within those. As it took more than 10 years for the Life Sciences business development, it will take time to create new businesses. We are now looking ahead and constantly seeking opportunities by thinking openly.

2. Portfolio management. It seems that stock valuation of JSR is fair for the Digital Solutions business, but is undervalued for future possibilities and great track records in Life Sciences business. If you split those two, I believe about 20-30% upside can be achieved immediately. Could you please tell us how to deliver better valuation with today's business portfolio?

• We believe that the market is still at the stage of a show-me state to the Life Sciences business and that it does not properly reflect the potential of the Life Sciences business.
• Although the technology in the life sciences field is relatively new, we are expanding by leveraging our already established technological capabilities rather than emerging from zero. We have been transforming our businesses with core technical capabilities to augment the values of each of those businesses. As an example, JKiC has worked extensively in both the commercial opportunities of microbiomes and organoids to some developments of new models with cancer stem cells that Crown is taking advantage of. We believe that by instilling different cultures, we can enhance our unique technologies, which will expand our business and increase our corporate value.
• We believe that the future is bright if we can leverage our strengths in all business areas. In addition, we believe that operational improvements, such as at where impairment losses due to delays in the cleans business and delays in the CDMO business, are necessary for JSR to be recognized.

3. You mentioned that you are reviewing your portfolio for mid to long-term business optimization. Does it mean that you don't think it is optimized now?

• In terms of portfolio optimization, we are constantly reviewing opportunities and will continue
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to do so in the future.

• I have mentioned much about the Digital Solutions and Life Sciences businesses, but I would like to touch on the Display materials and Plastics businesses as well.
• • The direction of the Display materials business has changed slightly since last year's policy. Last year, we executed reduction of fixed costs through business restructuring. We expect to increase our market share in the future by increasing our passivation coats applied and providing mobile OLED materials as the market shifts to larger TVs, higher definition of IT- related products, and adoption of flexible OLEDs. At the same time, we have transferred our business management functions to China and have eight sales offices there, giving us a strong presence in China. We also believe that we can put our business on a growth trajectory by enhancing our technical service capabilities and developing OEM production in China.
  • In the field of synthetic resins, there were about 11 companies until about 20 years ago, but they were consolidated. Therefore, we have the current TUM. We have become very lean, with very little investment, and our finances are in good shape. ROIC is in a good position to consistently achieve more than 12% in FY24.

4. I think that soaring labor costs in the US could be a risk. Could you tell us about how it could affect JSR's business and how you will handle it?

• We are having to develop conversations with our customers and will pass on to our prices as supply chain and labor costs soar. Inflation is a concern, but it is within our ability to manage.
• In the Life Sciences business, in order to attract and retain key talents, we are working on a number of programs like employee engagements, making sure not only that they are appropriate compensated but also, they feel rewarded. We are also working hard to improve efficiency through automation and digitalization.

Digital Solutions Business

5. The silicon wafers market has some upsides from its previous growth rate of +3 - 4%. Looking at the past history, there has been a cycle and a downturn is possible, but what is changing the cycle this time?

• As a macro trend, we're seeing a real acceleration of supply chain crunch. We think that'll probably continue through this year.
• As for the inventory visibility, some people are projecting that it'll be softening towards the end of this year or the beginning of next year. But, we're not seeing that in our order patterns.

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Regardless, our business fundamentals are strong and there is no change in our mid-term outlook.

• In addition, unlike 20 years ago, the value proposition for semiconductors has increased. You're seeing significant investment in order to ensure capacity commercially for cars, phones and others. Also, you're seeing national investment. Therefore, the adoption of strategic capacity expansion is a very important trend in this space going forward.

6. Please tell us about the technical advantages and potential of JSR's metal oxide resist (MOR), cleans, and back-end materials.

• In the technical area, our long-term strategy is to acquire Inpria's MOR technology. After the acquisition of Inpria, evaluation of MOR is realistically moving forward for its adoption in customers' commercial production lines. MOR has some overlap with CAR, so we can successfully capture evaluation opportunities. Among resist manufacturers, our strength is that we also have an underlayer materials. Requiring a high level of defect control, we can offer the optimized and low-defect quality with the combination of MOR, CAR, and underlayers, which is a major point of our differentiation.
• Although the startup of cleans was slower than originally planned, this has resulted in new cleans areas to be targeted. We plan to establish the technology by the end of this fiscal year.

7. What are JSR's opportunities/risks in the supply chain risks?

• We have a very strong global infrastructure that allows us to respond quickly, which we believe gives us an advantage. However, the semiconductor industry is highly disciplined in terms of BCP. We're constantly looking for possible risks.

8. What do you think about the trade friction between the US and China? Which products do you ship to China? What measures are being taken regarding the shipment of cutting-edge products to China?

• We have exported ArF and KrF products to China. EUV technology has not been developed in China, and therefore we have not shipped any EUV products to China. In terms of the fairness of the different political situations, that's not for me to comment on. Our point is that we respect all of the sensitivities amongst our customers and do the best that we can to support them within given regulatory regimes. We are committed to make sure that we're very responsible in that regard.

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9. What is the capacity of photoresists for semiconductor materials in relation to demand, and how do you plan to increase the capacity in the face of expected growth in the mid to long-term?

• We are investing a new facility at our Yokkaichi Plant to expand our manufacturing capacity. Shipments are scheduled to begin next year. We expect that it'll be able to cover demand until around 2025. The capacity itself is being built in a way that allows us to quickly add incremental capacity going forward.
• Since the supply chain is a critical issue at the moment, we are taking proactive measures. There are various grades of products, from advanced products to other products. We are working to develop a common grade to increase the supply volume to customers.
• While 3 nm and 2 nm logic products are in the process of commercial production, we described last year that we were aiming for a 30% share of the EUV CAR market for 3 nm and 2 nm. We are currently on track to achieve this goal. Toward 2nm, we are aiming to obtain higher market shares.
• Inpria is investing to reinforce their manufacturing capability in Oregon, US and also is working to expand it to commercial levels.

Life Sciences Business

10. I think you were considering M&As mainly in the Semiconductor materials business rather than the Life Sciences business, but has anything changed after one year? Also, there are some thoughts on M&A including, buying capacity, starting new modalities with higher growth potential and planning gene therapy like you mentioned. What is your thought on it?

• As for M&A opportunities in the semiconductor field, there's large value generation opportunity within this field, if we can engage constructively with some of other companies. To do so, it is necessary to have willing engagement for building relationships. We believe our balance sheet is in good shape. We would not hesitate to use it, even for a large investment, if we think it makes sense.
• In terms of capital markets in the gene therapy sector, it has seen severe over the past 6-10 months, making gene therapy companies and assets more considerable to buyers than in the past. While we remain cautious, we are still actively considering M&A.
• For the past few years, after acquiring KBI, we had considered M&A opportunities to increase our capacity, but the multiples in biopharmaceuticals have rapidly become more expensive. We have also seen that a quality went down for those assets. Therefore, we have decided to make

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significant investments internally such as the ones in North Carolina and Geneva.

• Also, as we want to grow faster, the limiting factor is not the money, but human resources and the ability to properly execute on those expansions. We are already looking at what's next after North Carolina. We will continue to expand aggressively, but we will do so in a way that maintains our ability to deliver quality.

11. After the new facility of KBI is fully operational, the next increase in capacity will be necessary. How do you think about the capacity expansion? Also, is there any risk since it is first commercial production in Geneva facility?

The differences and risks between North Carolina and Geneva

• First, the Geneva facility has two 2,000L bioreactors. It is dedicated to clinical programs, not commercial programs.
• Second, the two sites have different implementations of automation and digitalization; the North Carolina facility was built as a completely paperless operation. As a result, equipment and process validation took longer than planned and delayed the start of production. However, the full digitalization and paperless operation significantly reduce risk, which was a significant accomplishment. After the North Carolina facility is fully operational, we will digitalize our other facilities to a similar level to further reduce risk.
• The Geneva facility, on the other hand, is only a clinical manufacturing facility, so it has not taken the new approach of going completely digital and paperless. Therefore, we expect less startup issues. In fact, there's already some work taking place for analytical development.

Expansion of Production Capacity

• The new commercial facility in North Carolina currently occupies about 2/3 of the core shell. Since there is enough space for expansion, it would be relatively easier and faster to bring online by adding capacity here.
• Expanding operations in Europe will require greenfield investment.
• We are also planning to add a clinical production facility in North Carolina. Additional investments will be needed in both clinical and commercial areas as the business expands over the mid-term.

12. I have the impression that KBI's operations have not stabilized. How do you plan to handle it? What changes can we expect from the new CEO?

• We are working on improving operations, including a third-party consultant. The following are
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