Kurita Water Industries : Reports Earnings for the Nine Months Ended December 31, 2021

FOR IMMEDIATE RELEASE

Kurita Water Industries Reports Earnings for the Nine Months Ended December 31, 2021 Tokyo, Japan, January 31, 2022 - Kurita Water Industries Ltd. (the "Company") (TSE Securities Code 6370) announced net sales of 211,223 million yen and profit attributable to owners of parent of 12,031 million yen, or 107.08 yen per share, for the nine months ended December 31, 2021 (April 1, 2021 - December 31, 2021).

Results of Operations

Total consolidated orders for the Kurita Group (the "Group") in the nine months ended December 31, 2021 rose 16.8% from the level of the year-ago period, to 218,829 million yen, and net sales increased 6.7%, to 211,223 million yen. Business profit* was increased 16.7%, to 25,194 million yen, operating profit was 25,539 million yen, up 8.1% versus the year-ago period, profit before tax was 20,773 million yen, declined 4.1%, and profit attributable to owners of parent amounted to 12,031 million yen, down 18.2%. Profit before tax and profit attributable to owners of parent declined due to finance costs of 4,639 million yen posted in the first nine months under review, which resulted from the subsequent measurement of liabilities related to a forward contract concluded with non-controlling shareholders of US-based Pentagon Technologies Group, Inc. (Water Treatment Facilities business).

In the first quarter of the fiscal year under review, the Group acquired 51% of the shares in Kurita AquaChemie Limited (Water Treatment Chemicals business) in the Middle East and made it and its two wholly owned consolidated subsidiaries. The Group acquired also Keytech Water Management (Water Treatment Chemicals business), making it a consolidated subsidiary. The operating results of those companies are newly consolidated.

The PPA for Pentagon Technologies Group, Inc. (Water Treatment Facilities business), which was consolidated in the same period of the previous fiscal year, was determined at the end of the previous fiscal year, and the results in the same period of the previous fiscal year have been revised retroactively.

During the nine months of the fiscal year ending March 31, 2022, there were signs of a recovery in the world economy as economic activity moved toward normalization, reflecting economic stimulus measures in the world and the increasing pace of vaccinations. Production activities in the manufacturing industry in Japan were weak in certain sectors due to constraints on the supply of raw materials, including semiconductor shortages, but were on a recovery trend. There were signs of a recovery in capital investment. Overseas, European, the U.S. and Chinese economies have recovered gradually. Meanwhile, in some parts of Asia, economic recovery was weak due to a resurgence in COVID-19 infections.

In this environment, the Group stepped up initiatives to expand total solutions by focusing on proposal activities that would help solve customer issues such as the reduction of the environmental impact, including water saving, the reduction of CO2 emissions and waste reduction, and an improvement in productivity based on a deep understanding of social and customers' issues, aiming to become an indispensable partner of customers in the long term.

• Business profit is the Group's own indicator that measures constant business performance. It is net sales less cost of sales and selling, general and administrative expenses. Although business profit is not defined by IFRS, the Group voluntarily discloses it, believing that it is beneficial for users of its financial statements.

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Segment Information

The Group consists of two reportable segments in its segment information: Water Treatment Chemicals and Water Treatment Facilities.

Water Treatment Chemicals

Total Group orders for the Water Treatment Chemicals segment were 87,585 million yen, up 13.0% versus the year-ago period, while net sales rose 13.3%, to 87,852 million yen.

In terms of profits, despite an increase in expenses with business activities returning to a normal condition and the effect of rising raw materials prices, business profit amounted to 10,846 million yen, an increase of 12.3% year on year, chiefly due to an increase in net sales, and operating profit rose to 11,104 million yen, up 19.7% year on year, reflecting foreign exchange gains (other income) at overseas subsidiaries in addition to an increase in net sales.

Orders and net sales in Japan increased due to a rise in capacity utilization at customers' plants, which reflected a recovery in production activities in the manufacturing industry.

Overseas, both orders and net sales rose due to an increase in reaction to a fall in demand a year ago because of stagnant economic activities caused by the spread of COVID-19, the consolidation of the operating results (for nine months) of the subsidiaries in the Middle East and Canada acquired in the first quarter of the fiscal year under review, and an increase in results in yen at overseas subsidiaries due to the weaker yen.

Water Treatment Facilities

Total Group orders for the Water Treatment Facilities segment were 131,243 million yen, up 19.4% versus the same period of the previous fiscal year. Net sales increased 2.4%, to 123,370 million yen.

Business profit rose to 14,377 million yen, up 20.5％ year on year, chiefly reflecting efforts to improve profitability, including cost cutting. Operating profit stood at 14,440 million yen, up 0.8％ year on year, due to the absence of a profit from liquidation of 2,076 million yen related to cancellations of contracts with a certain customer in the ultrapure water supply business posted in other income in the same period of the previous fiscal year.

In Japan, both orders and net sales of water treatment facilities for the electronics industry increased due to the posting of orders for large projects and progress in the construction of large projects. Orders and net sales for maintenance services for the industry increased, reflecting the expansion of facilities and repairs, including the replacement of consumables, against a backdrop of firm capacity utilization at customers' plants.

While orders for water treatment facilities for the general industry increased due to orders for large projects posted, net sales declined as the posting of sales from large projects had run its course. Orders and net sales of maintenance services for the industry climbed, reflecting growth in demand against a backdrop of a recovery in capacity utilization at customers' plants. Both orders for and net sales from water treatment facilities for the electric power industry decreased because orders for large projects declined and the posting of sales from the order backlog ran its course. Orders for soil remediation services increased, but net sales fell as the posting of sales from large projects had run its course.

Overseas, both orders and net sales increased due to the posting of orders and sales of large water treatment facilities projects in the electronics industry in East Asia and an increase in demand for tool cleaning service.

Total net sales in the ultrapure water supply business in Japan and overseas increased due to the contribution of a contract that began in the previous fiscal year.

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Financial Condition

Condition of assets, liabilities and equity

1) Total assets: 457,489 million yen, an increase of 32,561 million yen from the end of the previous fiscal year

Current assets totaled 178,978 million yen at the end of the third quarter (December 31, 2021), an increase of 2,496 million yen from the end of the previous fiscal year (March 31, 2021). This was mainly attributable to an increase of 10,438 million yen in trade and other receivables and a rise of 2,796 million yen in inventories, which more than offset a decrease in cash and cash equivalents of 11,940 million yen, chiefly due to purchase of property, plant and equipment and income taxes paid.

Non-current assets totaled 278,511 million yen at the end of the third quarter, an increase of 30,066 million yen from the end of the previous fiscal year. This chiefly reflected an increase of 33,995 million yen in property, plant and equipment due to the acquisition of new facilities in the ultrapure water supply business (Water Treatment Facilities business) and progress in the construction of a new research and development base, Kurita Innovation Hub, in Akishima-shi, Tokyo, which the Company plans to open in April 2022, despite a decrease of 8,633 million yen in other financial assets chiefly due to the sale of certain investment securities held.

1. Liabilities: 191,279 million yen, an increase of 24,189 million yen from the end of the previous fiscal year

Current liabilities totaled 111,770 million yen at the end of the period, an increase of 36,818 million yen from the end of the previous fiscal year. This is chiefly attributable to an increase in trade and other payables of 17,783 million yen and a rise in other financial liabilities of 17,609 million yen. Other financial liabilities increased due to liabilities related to the forward contract concluded with non-controlling shareholders of US-based Pentagon Technologies Group, Inc. (Water Treatment Facilities business), which were transferred from non-current liabilities and a subsequent measurement after initial recognition.

Non-current liabilities totaled 79,508 million yen at the end of the period, a decrease of 12,629 million yen from the end of the previous fiscal year. This is because liabilities related to the forward contract were transferred to current liabilities, and other financial liabilities decreased 11,524 million yen.

1. Equity: 266,209 million yen, an increase of 8,372 million yen from the end of the previous fiscal year

This principally reflected an increase of 9,127 million yen in retained earnings primarily due to profit attributable to owners of parent posted.

Cash Flows

Consolidated net cash and cash equivalents at the end of the third quarter (December 31, 2021) totaled 50,287 million yen, a decrease of 11,940 million yen from the end of the previous fiscal year (March 31, 2021).

The various cash flows and related factors are outlined below.

1) Cash Flows from Operating Activities

Net cash provided by operating activities during the nine months ended December 31, 2021 totaled 17,764 million yen, a decrease of 14,922 million yen from the same period of the previous fiscal year. Inflows from profit before tax of 20,773 million yen and depreciation and amortization of 17,103 million yen were partly offset by an increase in trade and other receivables of 8,794 million yen and income taxes paid of 12,883 million yen.

2) Cash Flows from Investing Activities

Net cash used in investing activities totaled 24,104 million yen, an increase of 19,279 million yen from the same period of the previous fiscal year. Cash was used mainly for purchases of property,

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plant and equipment of 30,264 million yen and the acquisition of subsidiaries of 2,401 million yen (after deducting cash and cash equivalents included in acquired assets). The cash used was partly offset by an increase in cash, including proceeds from sale of investment securities of 9,194 million yen.

3) Cash Flows from Financing Activities

Net cash used in financing activities totaled 6,774 million yen, a decrease of 10,575 million yen from the same period of the previous fiscal year. Cash used included repayments of lease liabilities of 3,719 million yen and dividends paid of 8,548 million yen, which was partly offset by a net increase in short-term borrowings of 5,676 million yen.

The Group's basic policy is to constantly secure the liquidity necessary for business operations and establish a stable funds-raising system. Short-term working capital is basically supplied by the Group's own funds. Capital investment and other investments in growth fields depend chiefly on the Group's own funds, but the Group considers financing through bond markets and bank loans as needed. As of the end of the period under review, the Group has concluded commitment line contracts with one financial institution (executed and unexecuted borrowings within the commitment line were 0 yen and 20,000 million yen, respectively).

4) Forecasts for the Fiscal Year Ending March 31, 2022

In the fiscal year ending March 31, 2022, net sales are expected to exceed the previous forecast, reflecting a recovery in demand for water treatment chemicals overseas at a faster pace than expected and firm demand in the electronics industry. On the profit front, business profit will likely exceed the previous forecast chiefly given an increase in net sales. Operating profit is also expected to exceed the previous forecast, reflecting a capital gain on sale of fixed assets. The forecast for profit attributable to owners of parent remains unchanged from the previous forecast, reflecting the posting of additional finance costs due to progress in business at US-based Pentagon Technologies Group, Inc. that exceeded the business plan. The dividend forecast remains unchanged.

The business forecasts are made by the Company based on information available at the time of publication of this report and may differ from actual results due to changes in a range of factors.

Revision to the consolidated business forecast for the fiscal year ending March 31, 2022 (April 1, 2021 - March 31, 2022)

						(Million yen)
					Profit attributable	Basic earnings
	Net sales	Business profit	Operating profit	Profit before tax	to owners of	per share
					parent	(yen)
Previous forecast (A)	289,000	33,000	32,000	28,100	18,000	160.19
Revised forecast (B)	291,000	34,000	34,000	29,200	18,000	160.19
Change (B-A)	2,000	1,000	2,000	1,100	0	‒
Percentage change (%)	0.7	3.0	6.3	3.9	0.0	‒
(Reference) Fiscal year	267,749	29,470	31,529	29,150	19,088	169.94
ended March 31, 2021

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Condensed quarterly consolidated financial statements

(1) Condensed quarterly consolidated statement of financial position

		(Million yen)
	As of March 31, 2021	As of December 31, 2021
Assets
Current assets
Cash and cash equivalents	62,228	50,287
Trade and other receivables	97,745	108,183
Other financial assets	2,817	2,613
Inventories	9,911	12,707
Other current assets	3,780	5,185
Total current assets	176,482	178,978
Non-current assets
Property, plant and equipment	117,603	151,598
Right-of-use assets	19,405	18,933
Goodwill	55,596	59,979
Intangible assets	17,320	17,039
Investments accounted for using equity method	1,578	1,128
Other financial assets	33,563	24,930
Deferred tax assets	3,199	4,759
Other non-current assets	177	141
Total non-current assets	248,445	278,511
Total assets	424,928	457,489

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