Kurita Water Industries Ltd. · 3. Capital Policy. 1. Uses of Cash (policy) Generation of cash Uses of cash Invest in the ultrapure water supply business, among other businesses,

FY2016 Shareholder Relations Meeting

Kurita Water Industries Ltd.

(Securities code: 6370)

February 2017

Overview of the Kurita Group

Corporate Governance Initiatives of Kurita

(Reference) Efforts for Dialogue with Shareholders

Ⅰ

Ⅱ

Ⅰ. Overview of the Kurita Group

1.

2.

3.

4.

5.

6.

Company Profile and Shareholder Composition

Framework of “The Kurita 21st Century Vision”

Kurita’s Business Domains

Status of Competition and Kurita’s Strengths

Net Sales and Business Mix

Priority Measures


1. Company Profile and Shareholder Composition

1

Other Domestic Firms

8.3%

Securities Firms 1.4%

Financial Institutions

30.9%

Individuals 11.3%

Foreigners 45.7%

Treasury Stock* 2.5%

Shareholder Composition (Top 10) Shareholding Ratio

Corporate Data

In addition to the above, the company has 2,968 thousand shares of treasury stock. Japan Trustee Services Bank, Ltd. (Trust Account) includes 339 thousand shares of treasury stock for performance-linked stock remuneration for directors.

Note :

Ranking Name Shareholdings

(Thousand shares)

Percentage of total

shares issued

1 Japan Trustee Services Bank, Ltd. (Trust Account) 6,439 5.40%

2 Nippon Life Insurance Company 5,979 5.01%

3 The Master Trust Bank of Japan, Ltd. (Trust Account) 3,620 3.03%

4 Japan Trustee Services Bank, Ltd. (Trust Account 9) 2,847 2.38%

5 Tokio Marine & Nichido Fire Insurance Co., Ltd. 2,155 1.80%

6 The Bank of Tokyo-Mitsubishi UFJ, Ltd. 2,056 1.72%

7 NORTHERN TRUST CO. (AVFC) RE - SSD00 1,861 1.56%

8 NORTHERN TRUST CO. (AVFC) RE U.S. TAX EXEMPTED PENSION FUNDS 1,772 1.48%

9 NORTHERN TRUST CO.(AVFC) RE - HSD00 1,663 1.39%

10 BANK JULIUS BAER AND CO., LTD. 1,579 1.32%

Company Name Representative Date of Establishment Head Office Location

Fiscal year end Stock Exchange Listing Paid-in Capital Issued Common Stock Number of Shareholders

: Kurita Water Industries Ltd. : Michiya Kadota, President : July 13, 1949 : Nakano Central Park East, 10-1, Nakano 4-chome, Nakano-ku, Tokyo

: March 31 : First Section of the Tokyo Stock Exchange : ¥13,450,751,434 : 119,164,594 shares : 26,681 (As of September 30, 2016)


2

2. Framework of “The Kurita 21st Century Vision”

Kurita Group Code of Conduct

Corporate Philosophy

Corporate Vision

Management Guidelines

Core Values

Relationship with society and the global environment Relationship with shareholders and investors Relationship with customers and business partners Relationship with employees

Study the properties of water, master them, and we will create an environment in which nature and man are in harmony

Becoming an advanced water and environmental management company

1. World’s Top-Class Water and Environment Business

2. Creation of New Business

3. Technology-Driven Company

4. Full Use of the Group’s Comprehensive Strength

5. Enhanced Development of Human Resources

6. Fulfillment of Social Responsibility

Fairness Transparency Integrity

Safety Compatibility


3. Kurita’s Business Domains

3

Manufacturing line

Cooling tower

Water Treatment

Wastewater Reclamation

Power generation systems

Air conditioning systems

Utilities

Wastewater treatment

Manufacturing process

Pre-treatment Soft water production Pure water

production

Boiler, vaporizer Condenser water treatment

Water Treatment Chemicals

Boiler

Water Treatment Facilities

Industrial water/tap water/ groundwater



Cooling water treatment


Refrigeration systems


Water Treatment

Ultrapure water production


Industrial waste

Waterway and sewage discharge

Process treatment


From Factory Entrance to Exit


4. Status of Competition and Kurita’s Strengths

4

Nomura Micro Science

Ecolab (Nalco)

Miura

Hakuto

Kurita Organo

Solenis

Hitachi

Ovivo

Kobelco Eco - Solutions

Water Treatment Chemicals Water Treatment Facilities, and Maintenance Services

Kemira

Several dozen companies

Combine water treatment chemicals, water treatment facilities, and maintenance services to provide optimal solutions

33.6 27.7 34.5 31.8 35.2

90.3 91.5 94.9 98.9 98.1

56.1 58.8 60.0

83.7 82.7 180.1 178.1

189.4

214.4 216.0

0

110

220

03/2013 03/2014 03/2015 03/2016 03/2017 Projection

5


5. Net Sales and Business Mix

49.4 51.8 54.4 60.6 63.2

8.5 8.1 8.3 6.3 6.3

32.4 31.6 32.2

32.0 28.6

90.3 91.5 94.9 98.9 98.1

0

50

100

03/2013 03/2014 03/2015 03/2016 03/2017 Projection

182.6 146.4 150.4

154.9 180.8

Service business revenue

(Billions of Yen)

(Billions of Yen)

Maintenance, etc.

Tool cleaning

Ultrapure water supply

business

Service Business Revenue in the Water Treatment Facilities Segment

Water treatment chemicals

Water treatment facilities (services)

Water treatment facilities (hardware)


6. Priority Measures

6

Expansion of the Water Treatment Chemicals business overseas 1-1

Expansion of synergy with KEG in products,

development and production

Establishment of a local subsidiary in Vietnam

Implementation of North American

M&A

Strengthening of business in the Middle East

Establishment of a local subsidiary in UAE

Rebuilding and strengthening of the base function in

Southeast Asia



7

Overview of M&A in North America 1-2

Company Overview

Name : Fremont Industries, LLC

Location : Shakopee, Minnesota, U.S.A.

Businesses : Manufacture and sale of water treatment chemicals

Sales : US$30.94million (2015)

Aim of Acquisition

To gain a water treatment chemicals business base in North America

Acquisition Overview

Percentage of Equity Interests Acquired

: 100%

Acquisition Cost : Approximately US$40million

Agreement Signing Date : December 19, 2016

Closing : January 3, 2017

* Above dates are in U.S. Central Time (CST)



8

Change of the service business, using IT 2

Analysis

Customer’s facilities such as boilers, cooling tower and water

treatment facilities

Monitor screen

Proposal Real-time monitoring

Data collection

Cloud

Optimum chemical dosing control and maintenance

Change of the way of working and how to proceed with work

Creation of competitive advantage

Establishment of the IT Strategy Division

Sensor


9


Promotion of services in the Water Treatment Facilities business 3

Kurita

Build, own, operate and maintain

Ultrapure water

Payment

Customers’ Semiconductor/

LCD manufacturing plant

Ultrapure water supply business More aggressive overseas development

Exploitation of the small and midsize market by KWSS

(Kurita Water Supply Service)

Exploitation of other markets that use ultrapure water

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

Basic Concept and Basic Policies

Corporate Governance System Chart

Capital Policy

Evaluation of the Board of Directors

Continuous Board of Directors' Reforms

Independent External Directors

Criteria for Determining Independence

Composition and Actions of the Nomination & Remuneration Advisory Council

Changes in Compensation System for Directors and Members of the Audit & Supervisory Board

Holding of Listed Shares Owned for Policy Purposes

Ⅱ. Corporate Governance Initiatives of Kurita


10

1. Basic Concept and Basic Policies

Respect for the rights and position of stakeholders and meeting their expectations

Purpose

Basic Concept Basic Policies (5 Items)

(1) Ensuring the rights and equality of shareholders

(2) Appropriate level of cooperation with stakeholders other than shareholders

(3) Ensuring appropriate information disclosure and transparency of information

(4) Duties of the Board of Directors and the Audit & Supervisory Board, etc.

(5) Dialogue with shareholders and investors

Corporate Philosophy

Sustainable Growth and Medium- and Long-term Enhancement of Corporate Value

Establishment of Corporate Governance

Transparent, fair, prompt and decisive decision-making

Highly effective management supervision

Shareholders Customers Employees Local Communities

Business Partners

Study the properties of water, master them, and we will create an environment in which

nature and man are in harmony

Policies (16 Items)

Review the Policies at least once a year or when necessary.


11

2. Corporate Governance System Chart

Board of Directors Accounting Auditor

Internal Auditing Department

Operating Divisions

Compliance Committee & various committees

General Meeting of Shareholders

Election & Dismissal Election & Dismissal Election & Dismissal

Audit Cooperation

Cooperation Cooperation Audit Resolution,

Election & Supervision

Discussion & Report

Report

Instruction

Audit Report

Internal Audit

Accounting Audit & Internal Control Audit

Business Operations

Company with the Audit & Supervisory Board

Discussion & Report

Nomination and Remuneration

Advisory Council

Consultation Advisory

Audit & Supervisory Board

Members of the Audit & Supervisory Board

President

Executive Committee

There are at least three directors on the Board of Directors, of which two or more are external directors. The inclusion of external directors is meant to ensure the independence and objectivity of the Board of Directors.

The Board of Directors consists of human resources with high level of expertise in business areas, corporate planning, finance, accounting, legal affairs and technologies, etc.

Current Board of Directors

Number of directors 11

Number of directors who are external directors

2 (Designated as independent officers)

Term of office 1 year

Current Audit & Supervisory Board

Number of members of the Audit & Supervisory Board 3

Number of external members of the Audit & Supervisory Board

2 (Designated as independent officers)

Term of office 4 years

[Size and Structure of the Board of Directors]


12

3. Capital Policy

Uses of Cash (policy) 1

Generation of cash Uses of cash

Invest in the ultrapure water supply business, among other businesses, in Japan and overseas.

Strive to continue raising dividends, aiming for a payout ratio of 30-50% over 5 years.

Prioritize investment in promising businesses and consider share buybacks using surplus funds.

Consider M&A in North America.

Capital Expenditures

Dividends

Share buybacks

¥85.0 ‒ ¥88.0 billion ¥85.0 ‒ ¥88.0 billion

We will endeavor to curb surplus funds and increases in shareholders’ equity upon securing operating funds and contingency funds.

We will maintain ROE at a level that exceeds cost of shareholders’ equity and will strive to increase it.

M&A Operating cash flow

For three years from the fiscal year ended March 31, 2016 to the fiscal year ending March 31, 2018

177.3 192.6 198.0

208.9 207.9 217.7 222.3 227.9

9.4 9.3 8.8 8.1

5.5 4.4 4.7

5.6

0.0

110.0

220.0

0

8

16

3/2009 3/2010 3/2011 3/2012 3/2013 3/2014 3/2015 3/2016


13

3. Capital Policy

Past ROE 2

(%) (Billions of yen)

Equity = Net assets – Non-controlling interest For ROE, equity is calculated using the average from the beginning to the end of the period.

Notes : * *

Return on equity (ROE) Equity

18 22 28 32 34 36 38 40 42 44 46 48 50

25.1 26.9 25.4 22.5

26.8 26.8 28.4 30.6

45.4

56.1 52.4

44.3 48.3

0

10

20

30

40

50

60

0

10

20

30

40

50

60

3/2005 3/2006 3/2007 3/2008 3/2009 3/2010 3/2011 3/2012 3/2013 3/2014 3/2015 3/2016 3/2017 Projection


14

3. Capital Policy

(Yen) (%)

Rough standard of dividend payout ratio is the average of

30 to 50% over five years

Dividend Policy 3

Dividend payout ratio Dividend per share


15

4. Evaluation of the Board of Directors

Implementation method Evaluation Results

Average of self-evaluations generally good in all 6 items

There were some disparities among items

External directors indicated that “setting longer-term goals and deliberations on strategic proposals” and “deliberations for more specifically carrying out policies” are inadequate

Issues and Initiatives

Enhance the Board of Directors so that it can focus deliberations on priority issues

Bolster the business execution framework and transfer authority from the Board of Directors to personnel who carry out business operations

Frequency

Method

Evaluation Items

Once a year

Self evaluation Discussion of written survey (with respondents identified) and tabulated results

1.Board of Directors roles and responsibilities

2.Collaboration with external directors and external members of the Audit & Supervisory Board

3.Board of Directors composition

4.Board of Directors operation

5.Contributions of individual directors and members of the Audit & Supervisory Board

6.Dialogue with shareholders


16

5. Continuous Board of Directors’ Reforms

FY2016 Initiatives Actions

Organizational Design Consider becoming a company with the Audit & Supervisory Committee

Put off making a change in FY2016, will continue to study this option

Management Oversight and Execution

Narrow the matters approved and deliberated by the Board of Directors Added governance-related agenda items

Transfer business execution authority to the Executive Committee Invigorated discussions in Executive Committee

Board of Directors Size and Composition

Consider the number of members and member composition

Discussed reducing the number of people and possible changes to member composition

Consider securing diversity Considered a female external director nominee

Board of Directors and Executive Committee Operation

Create records of statements at Board of Directors meetings and have all directors review them (perform for each meeting)

Invigorate discussions

Director and Audit & Supervisory Board Member Training

Training and self-improvement utilizing outside management research institutes

Newly-appointed directors regularly participated in external study groups, and other executive officers gave reports following self-improvement initiatives


17

6. Independent External Directors

Role and Duties

Evaluating the outcomes of the management actions of the Kurita Group

Evaluating how directors and executive officers run businesses

Expressing opinions from the standpoint of sustainable growth and the medium-to long-term enhancement of corporate value

Expressing opinions on important decision-making matters, including the selection of candidates for director and deciding on the remuneration of directors, etc.

Term of Office and Restrictions on Serving Concurrently on Other Companies’ Boards or Committees

Appointment term is 1 year, maximum of 4 years

Can serve concurrently at up to 3 companies, including Kurita

Seiji Nakamura

1965 Joins Mitsui O.S.K. Lines, Ltd.

2000 Becomes Representative Director & Executive Vice President of Mitsui O.S.K Lines, Ltd.

2003 Becomes Representative Director & President of MOL Ferry Co., Ltd.

2007 Becomes a member of the Policy Board of the Bank of Japan/Retires in 2012

2013- Becomes Director of the Company (present post)

Tsuguto Moriwaki

1967 Joins Kobe Steel, Ltd.

1999 Becomes Managing Director of Kobe Steel, Ltd. Becomes Representative Director & President of Kobelco Construction Machinery Co., Ltd.

2002 Becomes Representative Director & Executive Vice President of Kobe Steel, Ltd.

2004 Becomes Representative Director & President of Shinsho Corporation

2010 Becomes Adviser to Shinsho Corporation/Retires in 2012

2015- Becomes Director of the Company (present post)

Currently, both directors have attended 100% of FY2016 Board of Directors Meetings.

Notes :


18

7. Criteria for Determining Independence

Criteria for Judging Independence

a. A person who currently executes the operations of the Company or its subsidiary or has executed such operations in the past 10 years

b. A person whose major business partner is currently the Company*2 or was the Company at some time during the past year, or an individual who executes the operations of this party

c. A current major business partner of the Company*3 or a major business partner at some time during the past year, or a person who executes the operations of the major business partner

d. A consultant, an accountant, or a legal professional who currently receives or has received at some point during the past year a lot of money or property other than remuneration for officers from the Company

e. A current major shareholder of the Company*4 or a person who executes the operations of a major shareholder

f. A person who executes the operations of an organization in which an external officer also currently assumes office (the person only)

g. A person who executes the operations of an organization to which the Company currently makes a donation (the person only)

A candidate for independent external director or any of his/her close relatives*1 must not fall under any of the following items.

*1 The term “close relatives” means relatives within the second degree of kinship. *2 The term “person whose major business partner is the Company” means a person whose sales in transactions with the Company make up 10% or more of

that person’s net sales. *3 The term “major business partner of the Company” means a business partner with whom the Company’s sales in transactions make up 2% or more of the

consolidated net sales of the Company, or a business partner from which borrowings make up 1% or more of the consolidated total assets of the Company. *4 The term “major shareholder of the Company” means a shareholder who has voting rights that account for 10% or more of the voting rights of the Company.

Notes


19

8. Composition and Actions of the Nomination & Remuneration Advisory Council

Members FY2016 Actions

Nomination

Candidates for directors

Candidate for representative director

Candidates for directors with special titles

2 external directors

Full-time external member of the Audit & Supervisory Board

President

Decided the suitability of all candidates

Candidates for member of the Audit & Supervisory Board


Full-time internal member of the Audit & Supervisory Board

President, General Manager of Administrative Division

General Manager of Corporate Planning Division

Decided the suitability of Audit & Supervisory Board candidates

Remuneration

2 external directors


President

Evaluated directors’ performance

Deliberated the appropriateness of ROE level


20

9. Changes in Compensation System for Directors and Members of the Audit & Supervisory Board

New policy

Current policy

(1) Directors (excluding external directors)

(2) External directors, Members of the Audit & Supervisory Board

Fixed compensation Performance-

linked component

Contribution to shareholding

scheme Fixed compensation

Performance-linked stock

compensation

Performance-linked

component

Fixed compensation Contribution to shareholding

scheme

Contribution to shareholding

scheme

Paid at retirement


21

10. Holding of Listed Shares Owned for Policy Purposes

Policies In some cases, Kurita Water Industries Ltd. holds stock of listed companies as strategic cross-holdings in order to strengthen business relationships

Review of Holdings

Frequency Once a year and as necessary

Criteria If the total of the business profits and the dividends received

fall short of expectations for 5 consecutive years Scandals, etc.

FY2016 Activity Sold 3 stocks Deliberated the criteria for review of holdings Shared an awareness of issues related to cross-holdings

(Reference) Efforts for Dialogue with Shareholders

22

New Efforts

Preparation of English translation of CG report

Quick disclosure before sending out General Meeting of Shareholders convocation notice

Providing more detailed information in the convocation notice

Activities of external directors are described in greater detail.

Current Matters of Focus

Implementation of roadshow overseas (three times a year)

Early forwarding of the convocation notice

Adoption of the platform for the electronic exercise of voting rights of ICJ, Inc.

SR visit

Preparation of the convocation notice (reference materials) in English

Results briefing for institutional investors (four times a year)

June 2016-

2016 Notice

October 2016-

June 1999-

June 2006-

November 2011-

June 2013-

This document is prepared for the purpose of providing information. The plans and values contained in this document are decided based on information available at the

present time. They contain risks and uncertainties, and therefore may differ from actual results.

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■ M A I L ■

h t t p : / / i r . k u r i t a . c o . j p / e n /

i r @ k u r i t a . c o . j p

Documents

Kurita Water Industries Ltd. · 3. Capital Policy. 1. Uses of Cash (policy) Generation of cash Uses of cash Invest in the ultrapure water supply business, among other businesses,