FY2016 Shareholder Relations Meeting Kurita Water Industries Ltd. (Securities code: 6370) February 2017
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
Ⅰ. Overview of the Kurita Group
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)
Ⅰ. Overview of the Kurita Group
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
Ⅰ. Overview of the Kurita Group
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
Water Treatment Chemicals
Water Treatment Facilities
Cooling water treatment
Water Treatment Chemicals
Refrigeration systems
Water Treatment Facilities
Water Treatment
Ultrapure water production
Water Treatment Facilities
Industrial waste
Waterway and sewage discharge
Process treatment
Water Treatment Chemicals
From Factory Entrance to Exit
Ⅰ. Overview of the Kurita Group
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
Ⅰ. Overview of the Kurita Group
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)
Ⅰ. Overview of the Kurita Group
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
Ⅰ. Overview of the Kurita Group
6. Priority Measures
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)
Ⅰ. Overview of the Kurita Group
6. Priority Measures
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
Ⅰ. Overview of the Kurita Group
9
6. Priority Measures
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
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.
Ⅱ. Corporate Governance Initiatives of Kurita
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]
Ⅱ. Corporate Governance Initiatives of Kurita
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
Ⅱ. Corporate Governance Initiatives of Kurita
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
Ⅱ. Corporate Governance Initiatives of Kurita
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
Ⅱ. Corporate Governance Initiatives of Kurita
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
Ⅱ. Corporate Governance Initiatives of Kurita
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
Ⅱ. Corporate Governance Initiatives of Kurita
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 :
Ⅱ. Corporate Governance Initiatives of Kurita
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
Ⅱ. Corporate Governance Initiatives of Kurita
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 external 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
Full-time external member of the Audit & Supervisory Board
President
Evaluated directors’ performance
Deliberated the appropriateness of ROE level
Ⅱ. Corporate Governance Initiatives of Kurita
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
Ⅱ. Corporate Governance Initiatives of Kurita
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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