Bridge Report:（4205）ZEON fiscal year ended March 2022

Kimiaki Tanaka　President	ZEON CORPORATION（4205）

Company Information

Stock Information

* Share price as of closing on May 2. Each figure is from the financial results for the fiscal year ended March 2022.

Earnings Trend

*Unit: million yen, yen. Estimates are those of the company. As "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29), etc. will be applied from the beginning of FY March 2022, the consolidated financial forecast is the amount after the application of the said accounting standard, etc. Net income is net income attributed to parent shareholders. The same shall apply hereafter.

This Bridge Report presents ZEON CORPORATION’s earnings results for the fiscal year ended March 2022.

Table of Contents

Key Points
1. Company Overview
2. Fiscal Year ended March 2022 Earnings Results
3. Fiscal Year ending March 2023 Earnings Forecasts
4. Status of Activities for the Mid-term Management Plan
5. Conclusions
<Reference 1: Medium-term Management Plan>
<Reference 2：Regarding Corporate Governance>
<Appendix：Fact Sheet>

Key Points

• In the fiscal year March 2022, sales increased 19.8% year on year to 361.7 billion yen, and operating income grew 33.0% year on year to 44.4 billion yen. In the Elastomer Business, sea freight rates soared and repair-related costs augmented, but sales and profit increased due to the revision of selling prices along with the rise in main raw material prices. Due to the shortage of export containers and the impact of issues in ship allotment, there were delays in shipping to Europe and the United States. The price of domestically produced naphtha, a primary raw material, continue to rise. The price of Asian butadiene fell in the third quarter, but rose again toward the end of the term. The sales and profit of Specialty Material Business grew, despite the impact of a shortage of semiconductors. The demand for specialty materials remained firm overall. Both sales and profit exceeded the initial forecasts, and the company's performance was almost in line with the revised forecasts announced on January 31, 2022.

   

• For the fiscal year March 2023, sales are expected to increase 10.6% year on year to 400 billion yen, and operating income is projected to grow 2.4% year on year to 45.5 billion yen. The sales of elastomer are expected to increase while profit is forecasted to decrease. Regarding specialty materials, sales and profit are projected to rise. Logistics status will be the same as in the fourth quarter of the previous term as the impact of the novel coronavirus and the situation in Russia and Ukraine on procurement and production is expected to be minor. The estimated exchange rates are 1 US dollar = 120 yen and 1 euro = 135 yen. The estimated raw material prices are 60,000 yen for domestic naphtha and 1,000 US dollars for Asian butadiene. The dividend is expected to increase by 8 yen/share from the previous term to 36 yen/share (interim dividend: 18 yen/share, term -end dividend: 18 yen/share). The expected payout ratio is 22.1%.

   

• Following the two upward revisions and the double-digit increase in sales and profit in the fiscal year March 2022, the company expects sales and operating income to grow in the fiscal year March 2023 as well. There are many uncertainties in the external environment, due to rising raw material prices, penetration of price revisions, depreciation of the yen, and turmoil in international logistics. Yet, the company increased sales for the second consecutive term by taking advantage of its competitive advantage. We would like to pay attention to whether the company can increase operating income for the third consecutive term. In addition, both businesses are growing their production capacities. Thus, it seems that the medium-term management plan is steadily progressing. We also want to focus on how the profitability of the Specialty Material Business, which is steadily rising, will increase in the future.

1. Company Overview

ZEON CORPORATION is a petrochemical manufacturer that maintains numerous products with a large share of the global markets including synthetic rubber used in automobile parts and tires, synthetic latex used in surgery-use gloves, and other products. The Company’s strengths include its creative technology development function, R&D structure, and high earnings generation capability. Many of the products and materials manufactured by Zeon are used in a wide variety of products including automobile parts and tires, rubber gloves, disposable diapers, cell phones, LCD televisions, perfumes and other products commonly used in everyday life. The Zeon Group is comprised of the parent company 59 subsidiaries and 7 affiliated companies. Zeon also has manufacturing and marketing facilities in 16 countries around the world.
(Annual Securities Report for the fiscal year March 2021)

（Source: the company）

1-1 Company Name and Management Vision

The company name “Zeon” is derived from the Greek word for earth “geo” (phonetically pronounced “zeo” in Japanese) and the English word reflecting eternity “eon,” and reflects the Company’s principle of “deriving raw materials from the earth and perpetually contributing to human prosperity” through the development and application of creative technologies.

(Zeon’s original name “Geon,” used at the time of its establishment, was derived from the trademark acquired for the vinyl chloride plastics “Geon” from B.F. Goodrich Company in the United States, with which it had capital and collaborative technological agreements. The company name was changed to “Zeon” when the capital agreement was dissolved in 1970.)

1-2 Corporate History

Zeon was established as a joint venture company formed by the Furukawa Group of companies: Nippon Light Metal Co., Ltd., Furukawa Electric Co., Ltd., and Yokohama Rubber Co., Ltd. in April 1950 to acquire and use the vinyl chloride resins technology from B.F. Goodrich Chemicals Co.

In 1951, Goodrich acquired 35% of the shares of Zeon for full-scale technological and capital partnership, and in 1952 mass production of vinyl chloride resins began in Japan for the first time.
In 1959, Goodrich transferred synthetic rubber manufacturing technologies to Zeon, which, in turn, started Japan’s first mass production of synthetic rubber. Manufacturing facilities were also expanded to match the growing demand for automobile parts.

In 1965, use of the Company’s unique technology called Geon Process of Butadiene (GPB) for the efficient manufacture of butadiene (main raw material of synthetic rubber) from C4 fraction was operational.
Goodrich transferred its specialty synthetic rubber business to Zeon along with the shift in its main business focus toward vinyl chloride resins. Capital ties were dissolved in 1970. Along with these changes, the Company name was changed from Geon to Zeon in 1971.
Also, in 1971, Zeon developed a unique technology called Geon Process of Isoprene (GPI) and began using it to manufacture raw materials including high-purity isoprene, Petroleum plastics, and synthetic perfume ingredients from C5 fraction.

After entering the 1980s, Zeon aggressively launched new businesses in various fields including photoresists and other information materials, synthetic fragrance, and medical-related applications in addition to its main synthetic rubber business.
In 1984, production of hydrogenated nitrile rubber Zetpol®, which currently has top share of the worldwide market, began at the Takaoka Plant.
In 1990, manufacture of cyclo olefin polymer (COP) ZEONEX®, which is the main product of the specialty materials business using the GPI method to extract and synthesize products, was started at the Mizushima Plant.
In 1993, Zeon entered China with its electronics materials business.
In 1999, Zeon Chemicals L.P. (Consolidated subsidiary in the United States) acquired the specialty rubber business of Goodyear Tire & Rubber Company of the United States to become the world’s top manufacturer of specialty rubber.

In 2000, Zeon discontinued production of vinyl chloride resins at the Mizushima Plant, and thus withdrew from the Company’s founding business.
Since the 21st century came, the company has been operating business actively. For example, by releasing ZeonorFilm®, an optical film for LCD, strengthening global production and sales systems, starting the commercial operation of solution-polymerized styrene-butadiene rubber(S-SBR) in Singapore, upgrading the equipment for optical films for LCD in Himi-shi, Toyama Prefecture, starting the operation of the world’s first mass-production factory for super-growth carbon nanotubes, and establishing a joint venture for manufacturing and selling S-SBR in cooperation with Sumitomo Chemical.

1-3 Business Description

Zeon’s main products use various extracted from naphtha, which is extracted by distillation of crude oil.
When the naphtha is heated, carbon monoxide gas (C1), ethylene (C2), and propylene (C3) are extracted in sequence.
Zeon uses butadiene extracted in the GPB method developed in-house from C4 fraction, isoprene monomer, piperylene, dicyclopentadiene, and 2-butyne extracted from C5 fraction using the GPI method, as raw materials to be processed into synthetic rubber, synthetic latex and various other materials.

（Source: the company）

Zeon has three business segments: 1) the elastomer business, where manufactured basic materials are sold to customers; 2) the specialty materials business, where basic materials are submitted to primary processing for sale to customers as processed materials, and 3) the other business.

*Both are results for the fiscal year ended March 2022. Composition ratio is before elimination and company-wide.

Elastomer Business
Elastomers are “high molecular compounds that have rubber-like elastic properties,” an example of which is synthetic rubber. As described in the corporate history section of this report, in 1959 Zeon became the first company in Japan to mass-produce synthetic rubber, which became the foundation underlying all of Zeon’s businesses. This business includes the segments of synthetic rubbers, synthetic latices, and chemicals products (Petroleum resins, thermoplastic elastomers) businesses.

1) Synthetic Rubbers Business
Example of final product: Tires
Zeon provides the world’s leading tire manufacturers with the world’s highest-quality synthetic rubber for use in tires. Among the various types of synthetic rubber manufactured are styrene butadiene rubber (SBR), which promotes superior abrasion resistance, aging resistance and mechanical strength properties, butadiene rubber (BR), which includes a superior balance between elasticity, wear and low-temperature properties, and isoprene rubber (IR), which features similar properties as natural rubber but with higher quality stability. It is expected that the demand for S-SBR for fuel-efficient tires, which was developed by improving the characteristics of SBR, will grow rapidly. In order to increase the supplying capacity for coping with it, the first line of Singapore Factory started operation in September 2013, and the second line in April 2016. The supplying capacity of Singapore Factory is now 70,000 tons.

Example of product: Automobile Parts

(Source: the company)

Radiator hoses, fuel hoses, fan belts, oil seals, and various other car engine parts use specialty synthetic rubber that has superior oil resistance and heat deterioration-resistant qualities.

Zeon is the world’s number one manufacturer of specialty synthetic rubber and features high quality levels and high market share of specialty synthetic rubber automobile parts. In particular, Zeon’s Zetpol® hydrogenated nitrile rubber, used for timing belts, displays superior heat and oil resistance and mechanical strength characteristic and claims high share of the worldwide market.
Furthermore, a new grade of Zetpol® has vastly improved the performance of products using the original versions of Zetpol®.
Products using the new grade of Zetpol® are heat resistant at temperatures that exceed the limits for the original version of Zetpol® by 10 degrees centigrade, thereby extending the life of seals and gaskets, and are in strong demand for use in next generation bio-fuel engines. The new grade of Zetpol® is well suited to extrusion processing which is being leveraged to expand its usage in various hoses. Products using Zetpol® have also been well received by customers and are being used increasingly as a replacement material for more expensive competitive rubber in Japan, Asia, Europe, and North America.

2) Synthetic Latices Business
Synthetic latex is liquid rubber that synthetic rubber dispersed in water. It is used to manufacture gloves, paper coating, textile processing, adhesives, paints, and cosmetic puffs, etc. Zeon has high share of NBR latex used in cosmetic puffs in the world.

3) Chemicals Business
Zeon produces C5 fraction by its unique in-house GPI method, and turn it into materials for adhesive tapes and hot melt adhesive traffic paint binder and a wide variety of other products.

Specialty Materials Business
Zeon deals in high value-added materials and parts that are created using its unique technologies including polymer design and processing technologies.
This is composed of the specialty plastics business, including optical plastics and optical films, the specialty chemicals business, including specialty chemicals, battery materials, electronic materials and polymerized toners, and the medical devices business.

1) Specialty materials Business
◎ Optical plastics and optical films
Cyclo olefin polymer is thermoplastic polymer developed using raw material extracted from C5 fraction using GPI methods and synthesized with Zeon’s own unique technologies. The commercial products are ZEONEX® and ZEONOR®.
ZEONEX® leverages its high transparency, low water absorption, low absorptive and chemical resistance properties for use in camera and projector lenses and other optical applications and in medical use containers including syringes and vials.
ZEONOR® leverages its high transparency, transferability, and heat resistance properties for use as transparent general use engineering plastics used in light guide plates, automobile parts, semiconductor containers and a wide range of other product applications.

ZeonorFilm® is the world's first optical film by the melt extrusion method from the cyclo olefin polymer. It is excellent in optical properties, low water absorption / low moisture permeability, high heat resistance, low outgassing, and dimensional stability. It is used in a wide range of applications such as displays for LCD TV, smartphones, tablets, and OLED displays.

(Source: the company）

“Diagonally-stretched optical film” is also Zeon’s world first development.
The OELD application as anti-reflection film is progressing, and demand for small- to medium-sized flat panel display applications is growing. The company’s optical films are produced in 3 bases: Takaoka city, Toyama prefecture, Himi city, Toyama prefecture, and Tsuruga city, Fukui prefecture.

ZEOCOAT® is organic insulation material used in electronic devices such as cellphones, smartphones, and LCD televisions.
ZEOCOAT® was successful in improving both the picture quality and reliability of displays because of its high transparency, extremely low water absorption and low gas generation properties. Zeon will aggressively expand its marketing efforts for OELDs, which will be thinner displays than LCD, thin-film transistors using new semiconductors, and flexible displays.

◎ Battery Materials
Zeon provides materials for Li-ion battery in this segment; anode / cathode binders, binder for functional layer (heat resistant separator), and sealant. Currently, Li-ion batteries are widely used as a power source for mobile devices such as smartphone and notebook computers and there is a strong demand for batteries with higher capacity.
Adoption for electric vehicles, including hybrid and plug-in hybrid cars, and industrial power sources (such as smart grids, etc.) is expanding, since it is lightweight and compact and can store a lot of energy. On the other hand, there was a problem that lifetime tends to decrease under high temperature usage. The company has advanced the function of Li-ion battery binder and succeeded in developing an aqueous cathode binder, which greatly contributes to longer battery life. In addition, Zeon succeeded in commercializing anode binder, which can raise the storage capacity of Li-ion battery by 5% to 15%.
The company believes that its binders and sealants for the cathode, anode, and functional layer (heat-resistant separator) will contribute to the improvement of the five major performance parameters of lithium-ion batteries: durability, capacity, productivity, safety, and quick charge, and thus contribute to the popularization of electric vehicles.
The company focused on the promising future of Li-ion batteries and worked on it for a long time. Zeon seeks to keep its top share in the Li-ion battery binder market, aims to expand the diffusion of new material functions that meet the needs of the application and propose functional materials to realize the next generation of new batteries.

(Source: the company)

◎ Specialty Chemicals
Zeon deals in specialty chemicals that use derivatives from C5 fraction, such as synthesized fragrances for cosmetics and flavor used in foods, characteristic solvents, and plant growth regulator.
The Company holds the world’s top share of the synthesized fragrances in green note. They provide a wide range of specialty products including ingredients for intermediary bodies used in medical and agricultural chemicals, alternative solvents to CFCs, cleaning agents, urethane expanding agent, and functional ether agents.

2) Medical Devices Business

Along with the start of development of artificial kidneys in 1974, Zeon aggressively promoted its medical device business. In 1989, a subsidiary Zeon Medical Inc. was established to conduct development, manufacturing, sales, and all other functions of the medical field for the Zeon Group. Zeon has shown bountiful development track record both in gastroenterology and cardiovascular area.
“The Offset Balloon Catheter” as a means of differentiation in the gallstone removal process and with Japan’s first biliary covered stent “Zeostent Covered in the area of gastroenterology products, and the world’s smallest diameter “XEMEX IABP Balloon PLUS” as a device to aid the heartbeat at times of acute myocardial infarction in the area of cardiovascular products.

(Source: the company)

* FFR: fractional flow reserve ratio for quantitatively evaluating the severity of lesions and determining treatment strategies in diagnosing and treating coronary arteries.

【New Specialty Materials Development: ~Carbon Nano Tube (CNT)~ 】
Aggressive R&D activities have allowed Zeon to launch various new materials into the market, and particularly high expectation is in the development of “single-wall carbon nanotubes (CNT)”.

1) What is Single-Walled CNT?
Carbon Nanotubes (CNTs) are cylindrical nanostructure formed by hexagonal lattice of carbon atoms. In 1993, Sumio Iijima, Ph.D., head of the Applied Nanotube Research Center of the National Institute of Advanced Industrial Science and Technology (AIST), discovered this structure for the first time in the world and named Carbon Nanotubes (CNTs). CNTs are categorized into single-walled and multiple-walled CNTs. Multiple-walled CNT is relatively easy to manufacture and the developments for commercial applications already started.

(Source: Homepage of Zeon Nano Technology Co., Ltd.)

Conventional single-walled CNT has several major issues including high levels of impurities, low levels of productivity and high manufacturing costs, which are about several tens of thousands to hundreds of thousands of yen per gram.

2) Zeon’s Efforts and Position
Against this backdrop, the company aims at establishing technologies that are necessary for the commercialization of new products using single-walled CNT developed in Japan with its numerous superior qualities in response to the worldwide social demands to realize a low-carbon society.

3) Future Endeavors
Having established the mass production technology based on the super growth method, Zeon completed the CNT production facility and started mass production, the first in the world in November 2015 in its Tokuyama plant at Shunan-city, Yamaguchi Prefecture.
Zeon is the only company in the world that has established mass production technologies for single-wall CNT. Companies around the world request for its product samples. Consequently, shipments of samples have already begun. Zeon has also begun to propose practical applications of this product.
Developing a technology for suppressing lithium dendrites with the sheets based on carbon nanotubes is expected to contribute to significant improvement in the life of lithium metal electrodes (negative electrodes) and to accelerating the practical application of high energy density and large capacity lithium metal electrodes (negative electrodes) (from the company's press release on January 25, 2022).
At the same time, single-wall CNT is a type of nanomaterial that is extremely small and fiber shape. Therefore, there is a concern that it may have some impact upon biological processes depending upon its size and shape. Currently, the AIST is conducting standardization of the evaluation process, and activities for the OECD endpoint measurement are being conducted, with global standardization and legal and regulatory aspects being considered.

Other Business
The combination liquid for Reaction Injection Molding (RIM) using the ingredient dicyclopentadiene (DCPD) as a raw material.

1-4 ROE Analysis

ROE in the fiscal year March 2022 was higher than 10%, like the previous term, due to the rise in net income margin and total asset turnover. It is expected that profitability will continue to improve, mainly by the growth of the Specialty Materials Segment sales.

1-5 Characteristics and Strengths

1. World’s Leading Creative Technology Development Capability
The GPB method used to manufacture butadiene from C4 fraction is the most important development in Japan’s postwar history of chemicals and is licensed to 49 plants in 19 countries around the world.
In addition, the Mizushima Plant is the world’s only plant with GPI method to extract high-purity isoprene and other effective substances from C5 fraction. This Zeon’s GPI method is a completely unique technology, which is not provided to other companies.
These two technologies represent the creative technological capabilities that are among the strengths of Zeon. They also are highly regarded and have received numerous awards in the global markets. Regarding technologies, Zeon has received 48 awards since 1960 including the GPB and GPI methods, in addition to 26 awards since 1982 for its environment conservation and safety efforts.

2. High Worldwide Share
Zetpol®, ZEONEX®, and ZEONOR® are representative of the products born from Zeon’s highly creative technologies, which have allowed it to acquire high shares of worldwide markets. In addition, their Leaf alcohol for in cosmetics and food flavorings and NBR latex for cosmetic puffs have the world’s top share.

3. R&D Structure that Continues to Yield Creative Technologies
Zeon seeks to conduct R&D activities based upon its basic corporate philosophy of "contributing to society by continuously creating the world's No.1 products and businesses based on innovative and original technologies that are unique to ZEON, even in niche markets, in fields in which ZEON excels, and that no one else can imitate, and that are friendly to the earth."
The Company’s main R&D center is in Kawasaki City, Kanagawa Prefecture. Zeon has also established the Precision Optics Laboratory and Medical Laboratory at the Takaoka Plant, the Specialty Chemical Product Research Facility at the Yonezawa Plant, the Toner Research Facility at the Tokuyama Plant and C5 Chemicals Laboratory at the Mizushima Plant for more efficient R&D activities to be conducted closer to the manufacturing sites. The technical support bases are in the U.S., Germany, Singapore, and China.

New research and development initiatives have also been launched, including the establishment of the Emergence Promotion Center, which specializes in new businesses and technologies, and is taking on the challenge of sustainable research and development, including efforts to address the SDGs, which are to be attained by 2030.

2. Fiscal Year ended March 2022 Earnings Results

2-1 Consolidated Earnings

◎Total Earnings

*Unit: million yen. Forecast (1) and (2) are ratio to the revised forecast announced in May 2021, and January 2022, respectively.

◎Quarterly Earnings

*Unit: million yen.

Sales and profit increased
Sales were 361.7 billion yen, up 19.8% from the previous term, operating income increased 33.0% to 44.4 billion yen.
In the elastomer materials business, sales saw increases in both sales and income due to sales price revisions in line with higher prices of main raw materials, despite higher ocean freight rates and repair-related expenses. Shipments mainly to Europe and the U.S., have been delayed due to shipping congestion and the shortage of export containers . Domestic naphtha, the main raw material, continues to rise. Asian butadiene also fell in the third quarter but rose again toward the end of the fiscal year.
In the specialty materials business, sales and profits increased despite the impact of semiconductor shortages and other factors. Demand for the specialty materials was generally firm.
Both sales and profit exceeded the initial forecast and were almost in line with the revised forecast announced on January 31, 2022.

2-2 Trends by Business Segments

◎Total Earnings

*Unit: million Yen.

◎Quarterly Earnings

*Unit: million Yen

【Elastomers】
Sales and profit increased for the full year.
Sales increased due to price adjustments associated with soaring raw material prices. Although there were negative factors, such as an increase in ocean freight charges and repair costs, operating income rose due to a rise in shipments and price adjustments.
In the fourth quarter, sales increased year on year and quarter on quarter due to price adjustments of synthetic rubbers and chemicals. Regarding operating income, it decreased year on year and quarter on quarter due to declining latex prices, and an increase in ocean freight charges and repair costs.

* Synthetic rubber
Demand remained steady despite decreased automobile production, and so domestic sales, exports, and overseas subsidiary sales were all steady. Both sales and operating profit were substantially higher than the same period of the previous year.

* Latex
Overall sales exceeded those of the previous year owing to steady demand in general, but operating profit dropped due to a lull in the market for medical use and disposable gloves combined with soaring raw material prices and distribution costs.

* Chemicals
Although demand was steady, shipments were adjusted at the Mizushima Plant and the subsidiary in Thailand due to regular inspections, and the business was impacted by the export container shortage and difficulties in arranging ships. As a result, the sales volume was down from the same period of the previous year. On the other hand, the sharp rise in raw material prices and distribution costs was reflected in selling prices, so both overall net sales and operating profit were up from the previous year.

【Specialty Materials】
Sales and profit increased for the full year.
The demand in specialty plastics and specialty chemicals business such as battery materials and optical films remained strong, and sales increased. Profit rose due to increased shipments of optical plastics and battery materials, price adjustments of optical plastics and chemicals, and the reduction of fixed manufacturing expenses owing to increased production and cost reduction.
In the fourth quarter, sales increased year on year and quarter on quarter due to favorable sales of specialty chemicals such as battery materials. Although profit increased year on year, it decreased quarter on quarter due to an increase in ocean freight charges and increased new product development costs.

(Trends in shipment volume by item)
* Battery materials
Annual shipment volume increased 45% year on year.
The sales of products for EVs increased 77% year on year. Demand is strong due to the expansion of the EV and PHV markets, primarily in China, Europe, and the United States.
The sales of products for consumer use and others decreased 8% year on year. The demand for home appliances and mobile devices has increased from the previous quarter, but lull continues.
Shipments of industrial applications (ESS) have increased from the previous quarter, and demand is expected to be strong this quarter as well.

* Optical plastics
Annual shipment volume increased 8% year on year.
The sales of products for optical use increased 12% year on year. Demand for printers was sluggish due to semiconductor shortage, but demand for security cameras was steady.
The sales of products for medical use and other products increased 5% year on year. The demand for medical packaging and containers such as prefilled syringes and other medical packaging containers was steady. In the fourth quarter, shipment volume grew 76% quarter on quarter because portion not shipped in the third quarter due to production and logistical factors shipped together.

* Optical films
Annual shipment volume increased 4% year on year.
Regarding small-to-medium-sized applications, shipment volume decreased 8% year on year due to a reduction in the production of smartphones and tablets because of a shortage of semiconductors. The shipment volume is expected to recover with launch of next model from the first quarter of the fiscal year March 2023.
Regarding large-sized applications, shipment volume increased 8% year on year. Demand was steady, especially in the Chinese market. The impact of changes in the LCD panel market situation on the films is expected to be minor

2-3 Financial standing and cash flows

◎Main Balance Sheet

*Unit: million yen. Receivables include electronically booked receivables; likewise, payables include electronically booked payables.

Total assets increased 35.8 billion yen from the end of the previous term due to increases in receivables and inventories.
Total liabilities rose 12.2 billion yen from the end of the previous term due to increased payables.
Net assets increased 23.6 billion yen from the end of the previous term due to rises in retained earnings and foreign currency translation adjustment.
As a result, the equity ratio decreased by 0.1 percentage points from the end of the previous fiscal year to 65.7%, and the D/E ratio remained unchanged at 0.06.

3. Fiscal Year ending March 2023 Earnings Forecasts

3-1 Earnings Forecast

*Unit: million yen.

Forecasted increase in sales and operating income
Net sales are expected to increase 10.6% year-on-year to 400 billion yen, and operating income is expected to increase 2.4% year-on-year to 45.5 billion yen.
Sales and profits are expected to increase and decrease for elastomer materials, while sales and profits are both expected to increase for high-performance materials.
The logistics situation is expected to be on par with the fourth quarter of the previous year, and the impact of the novel coronavirus and the situation in Russia and Ukraine on production and procurement is expected to be minor.
Exchange rate and raw material price assumptions are USD=JPY120, €=JPY135, domestic naphtha = JPY60,000, Asian butadiene = USD1,000.
The dividend is forecast to be 36 yen per share, up 8yen per share from the previous term (interim 18 yen/share, year-end 18 yen/share). The expected payout ratio is 22.1%.

3-2 Trends by Business Segments

*Unit: million yen.

(1) Elastomer Business
Sales are expected to increase, and profit is projected to decrease.
* Synthetic rubber
Sales are expected to rise due to price revisions along with the soaring prices of main raw materials with adjustment of sales prices associated with soaring raw material prices. However, profit is forecasted to decrease due to the impacts such as an increase in fixed manufacturing expenses associated with repairs at main synthetic rubbers plant.

* Latex
Sales and profit are expected to decline in selling price of glove latex.

* Chemicals
The selling price will be adjusted due to the soaring prices of the main raw materials. In addition, fixed manufacturing expenses will decline due to the completion of regular repairs at main plant in the previous term. Sales and profit are predicted to increase.

(2) Specialty materials
Sales and profit are expected to increase.
* Optical plastics
Demand for optical, medical, and other uses is strong. Thus, sales and profit are expected to increase.

* Optical films
Demand is strong for large and small-to-medium sized applications. Sales are expected to increase and profit to decrease due to an increase in costs for increasing production capacity, such as labor expenses for new large lines.

* Battery materials
Demand is steady in conjunction with expansion of EV market, and sales and profit are expected to increase.

4. Status of Activities for the Mid-term Management Plan

The company is currently promoting a medium-term management plan with the fiscal year ending March 31, 2022 as its first year.

4-1 Overview of the Medium-Term Business Plan

“Contributing to the preservation of the Earth and the prosperity of the human race,” as stated in our Corporate Philosophy, is tantamount to contributing to a “Sustainable Earth” and a “Safe and Comfortable Life for People,” as expressed through our social mission. We have therefore included in our 2030 Vision our goal of becoming: “a company that lives up to societal expectations and the aspirations of employees.” We will seek to achieve the 2030 Vision through our SDG-related initiatives. Also, we have defined “Let’s try first,” “Let’s connect,” and “Let’s polish up” as core values that will guide us in our actions as we endeavor to become the company we envision.

We aim to be a company that meets society's expectations by focusing on the realization of nine of the SDGs.

The new medium-term management plan is positioned as a two-year period for laying the foundation for the realization of this vision for 2030.

4-2 Our Goals and Company-wide Strategies for 2030

Considering these directions for our objectives, we formulated three strategies.

4-3 Overview of Company-wide Strategies and Activities

(1) Company-wide strategies
①Promote a shift to "manufacturing" that realizes carbon neutrality and a circular economy.
Formulate a carbon neutral master plan for 2050, and persistently implement R&D and technological innovation necessary for a long-term shift to "monozukuri" (manufacturing).

In fiscal 2021, the company created the primary master plan for carbon neutrality.
The company will reduce the total carbon dioxide emissions (emissions associated with the production of Scopes 1 + 2) by 50%, from 778,000 tonnes in the fiscal 2019 to 389,000 tonnes in 2030, through energy conservation process inovation and fuel conversion.
Scope 3 (total emissions, associated with purchased raw materials and with use of products including transportation) will be set in the future.

◎ Concrete initiatives
In April 2022, the company started implementing the following initiatives in the plants in Japan.

NEDO (New Energy and Industrial Technology Development Organization) has selected the two demonstration projects, "Development of a manufacturing technology that applies carbon recycling for commodity chemicals used in synthetic rubbers " and "Development of photonic chips for higher performance, energysaving non-volatile memories ," for the Green Innovation Fund projects.

The first demonstration project aims for effective utilization of used tires and their raw materials to meet the growing global demand for tires. The project will establish a technology for high-yield manufacturing of butadiene and isoprene from recyclable carbon resources .
The second demonstration project works on reducing the power consumption at data centers with non-volatile memory using carbon nanotubes (CNTs) in response to the social need to reduce power consumed by rapidly increasing data centers.
Both demonstration projects aim to contribute to the realization of carbon neutrality and the circular economy by making use of the company's technological advantages.

②Polishing up existing businesses + Exploring new businesses + Building a digital finfrastructure to create value for customers
The target for 2030 is to increase the ratio of sales of products contributing to SDGs to 50%, improve ROIC from existing businesses to 9.0%, and grow sales from new businesses by 60 billion yen from fiscal year March 2020.

The ROIC* for the existing business in 2021 was 9.7%, which was higher than the target. There are no plans to change the target at the moment as the company will determine whether the amount should be reviewed after elaborating on the impact of capital investment in anticipation of future business expansion. The net sales of new business were still low due to the first year of medium-term management plan. Additionally, a certification system is considered for products that contribute to the SDGs.
*ROIC = operating income after tax ÷ (average interest-bearing liabilities at the beginning and end of the term + average net assets at the beginning and end of the term)

◎Specific Efforts
＊Polishing up existing businesses
Strengthen specialty plastics and battery materials and ensure the survival of existing SBUs (Strategic Business Units) are positioned as the company's essential measures.

Strengthening specialty plastics
The capacity expansion of the Mizushima Plant was completed in July 2021, and the annual production capacity increased by 4,600 tonnes.
The company is planning to increase the capacity of Takaoka Plant's recycling plant by 6,000 tonnes annually, and preparations are underway for launching operations in August 2024.
The company is considering further capacity expansion over an annual production.

Strengthening battery materials
Zeon Chemicals Asia in Thailand has decided to establish a new base for lithium-ion battery binders. Preparations are underway for launching operations in 2024.

Ensure the survival of existing SBUs
The efforts undertaken in each SBU are as follows:

＊Exploring new businesses
Regarding the resource concentration with specifying priority areas, the priority areas are CASE/MaaS, Healthcare/Life Science, Telecommunication, and Energy Conservation.

◎ Specific initiatives
* Acquiring Aurora Microplates (USA)
In February 2022, the company acquired Aurora Microplates (USA), which sells microplates used in biochemical analysis, as part of the company's efforts to acquire new business opportunities that use cycloolefin polymers.

Zeon’s COPs (product names ZEONEX® and ZEONOR®), well known for their unique properties such as low autofluorescence, high light transmittance, low biomolecules adsorption, and low impurities, have been used for biotechnological/biological products containers, analytical devices, microfluidic chips and other lab equipment associated with biochemical analysis. Under the agreement to acquire Aurora Microplates, Zeon intends to make use of its branded products and customer network centered on Europe and the U.S. while seeking to develop new businesses that leverage its technology.
* Establishing an investment subsidiary, Zeon Ventures Inc. in the United States
In February 2022, an investment subsidiary, Zeon Ventures Inc., was established in California, USA (Silicon Valley) to accelerate the creation of new businesses through strategic investment in start-up companies.
In addition to investing 50 million US dollars in start-up companies in the above four growth fields, the company will support the further growth of investee companies by sharing assets such as research resources and sales channels owned by the group.

* Development of a lithium dendrite suppression technology using sheets based on carbon nanotubes
In January 2022, in collaboration with the National Institute of Advanced Industrial Science and Technology (AIST), the company developed a technology to suppress dendrites (dendritic crystals) generated during the charging and discharging of lithium metal through sheets made using single-walled carbon nanotubes (SGCNT) synthesized by the super-growth method.

Lithium-ion rechargeable batteries are required to have five capabilities: capacity, life, safety, charge and discharge rate, and productivity. This technology achieves a significant improvement in the life of the lithium metal electrode (negative electrode), and enables designing a high energy density and large capacity lithium metal electrode (negative electrode). SGCNT sheets can be mass-produced, and the company aims to put specialty lithium metal electrodes to practical use.

③Work together to create “stages” to be active on
The targets for 2030 are an employee engagement index of 75%, a non-Japanese and female executive ratio of 30% (both inside and outside the company, including directors and corporate auditors), a female employee ratio of about 20%, and a female manager ratio of about 20%.

In 2021, the employee engagement index was 52%, the ratio of female employees was 13%, and the ratio of female managers was 5%.
In the same year, the company renovated the head office to make it "a place to connect and improve one's skills" and started "demonstrating transparency regarding work tasks" to help build autonomous career design. In addition, as part of the open recruitment system DI & B (Diversity, Inclusion & Belonging) promotion project, the company tried implementing a DI & B Week and created an in-house public relations website.
The company aims to achieve its goals by incorporating new concepts and offering more options.

(2) Major outstanding issues
The company believes there is a need to consider introducing ICP as a criterion for investment decisions, introducing certification system for products that contribute to the SDGs, ensuring the diversity in the board of directors, and clarifying financial strategies to achieve the goals for 2030.
*ICP (Internal carbon pricing)
It is a method in which a company sets its own carbon price and uses it for organizational strategy and decision-making. By converting the carbon emitted by the company into monetary value based on its own standards and visualizing it as costs and incentives, companies can utilize it to shift their management to low carbon and decarbonization.

5. Conclusions

Following the two upward revisions and the double-digit increase in sales and profit in the fiscal year March 2022, the company expects sales and operating income to grow in the fiscal year March 2023 as well. There are many uncertainties in the external environment, due to rising raw material prices, penetration of price revisions, depreciation of the yen, and turmoil in international logistics. Yet, the company increased sales for the second consecutive term by taking advantage of its competitive advantage. We would like to pay attention to whether the company can increase operating income for the third consecutive term. In addition, both businesses are growing their production capacities. Thus, it seems that the medium-term management plan is steadily progressing. We also want to focus on how the profitability of the Specialty Material Business, which is steadily rising, will increase in the future.

<Reference 1: Medium-term Management Plan>

The company is currently promoting a medium-term management plan with the fiscal year ending March 31, 2022 as its first year.

1-1 Summary of the Previous Medium-term Management Plan

In the previous medium-term management plan, SZ-20 Phase III, the company set goals of achieving record-high sales in the first year (fiscal year March 2019) and consolidated sales of 500 billion yen or more in the final year, fiscal year March 2021. However, the company did not achieve this goal.
The sales of the Elastomer Business were impacted by the global economic stagnation caused by the US-China trade conflict and the spread of the novel coronavirus. As for the Specialty Materials Business, the sales of optical plastics, optical films, and battery materials were strong.

1-2 Overview of the New Medium-term Management Plan

The corporate philosophy is to contribute to the preservation of the earth and the prosperity of human race.
Zeon’s mission befits the company name’s origin, which is acquiring raw materials from the earth and prospering for eternity. The company’s mission is to contribute to a sustainable planet and a safe and comfortable life for people by providing unique technologies, products, and services.

Based on this mission, the company set its vision for 2030 to be a company that meets the expectations of society and the aspirations of employees.
Furthermore, the company has listed three specific action guidelines for all employees to focus on: “Let’s try first,” “Let’s connect,” and “Let’s polish up.”

Zeon will focus on achieving nine of the SDGs’ target to be a company that meets society’s expectations.

The company views the period of this new medium-term management plan as two years to build a foundation for realizing the vision for 2030.

1-3 2030 Vision and Company-wide Strategies

The company has formulated three company-wide strategies to realize its vision for 2030.

Furthermore, the key measures of the company-wide strategies and the targets for 2030 are as follows.

1-4 Outline of the Company-wide Strategy

(1) Promote the shift to manufacturing that realizes carbon neutrality and a circular economy
The company will formulate a carbon-neutral master plan leading up to 2050 and persistently implement R & D and technological innovation necessary to shift to long-term manufacturing.
The company will reduce the total CO2 emissions (emissions associated with the production of Scope 1 + 2) from the 722,000 tons released in 2013.
Specifically, the company will work on the production of butadiene, a raw material, from biomass.
The company will set the target values for 2030 based on the guidelines of the Japan Chemical Industry Association and such.

(2) “Polish up” existing businesses, “explorie” new businesses, and developing digital infrastructure to create value for customers
The targets for 2030 are a sales ratio of products contributing to the SDGs of 50%, a ROIC of the existing businesses of 9.0%, and an increase in new business sales of 60 billion yen from the fiscal year March 2020.

1) “Polish up” existing businesses
Regarding enhancing specialty plastics, the company will focus on timely capacity-building investments that drive growth markets and improving resilience.
As for the former, the company will increase the production capacity of the Mizushima Plant from 37,000 tons to 41,600 tons per year. The construction is to be completed in July 2021.
As for the latter, the company will proceed with the study of new production bases to reduce the dependence on the Mizushima Plant.

Regarding enhancing battery materials, the company will introduce a new product group that contributes to improving the five major performances required for lithium-ion batteries; durability, capacity, productivity, safety, and charge and discharge rate.
One of them, AFL®, an adhesive for separators, possesses a long lifespan and high productivity, and its sales are expected to grow at a high rate.

Regarding the survival of existing SBUs (Strategic Business Units), Zeon will improve resource and equipment utilization efficiency to pursue sustainability.
For elastomers businesses, the company will work on enhancing differentiated products and improving the efficiency of all production lines. As for specialty materials, the company will work on product development and capacity enhancement to further improve its strengths.

2) “Explore” new businesses
Regarding determining priority fields and concentrating resources, the company has set CASE and MaaS, healthcare and life sciences, information technology, and energy-saving as the priority fields.

3) Developing a digital infrastructure for customer value creation
The promotion of digital transformation is indispensable for creating value for customers and achieving goals of both existing businesses and new businesses.
The company will go through the following stages to promote the reforms leading to 2030.

Build a digital infrastructure: human resource development (such as power user development), advanced simulation of existing businesses, and promotion of smart plants
↓
Transformation of corporate management and business management: understanding global markets and businesses in real-time
↓
Creation of customer value: Transformation of the business model by MI* and AI

* MI stands for Materials informatics, which works on improving the efficiency of material development by using informatics methods that utilize statistical analysis.

(3) Create ”Stages” where everyone can demonstrate their individual strengths
The targets for 2030 are an employee engagement rate of 75% and a foreigner and female executive ratio of 30% (adding both internal and external company directors and audit & supervisory board members).
The company will create an environment that provides more lifestyle options to achieve employees’ well-being, such as work style reforms, childcare and nursing care support, career design, recurrent education, workplace dialogues, and club support to achieve the above goals.

1-5 Financial Targets for 2030 and Shareholder Returns

The company aims to achieve both business expansion through new investments and the improvement of capital efficiency.
The company plans to allocate a total of 350 billion yen for new investments by the fiscal year 2030 to achieve the targets, a ROIC of existing businesses of 9.0% and an increase in new business sales of 60 billion yen from the fiscal year March 2020.
Moreover, the company has continued to increase dividends from the fiscal year 2010 to the fiscal year 2020 and intends to provide continuous and stable shareholder returns.

<Reference 2: Regarding Corporate Governance>

◎ Organization type, and the composition of directors and auditors

◎ Corporate Governance Report
Last update date: ：November, 25, 2021

Basic policy
Our company respects the interests of a broad range of stakeholders, including shareholders, and aims to earn revenue and continuously improve our corporate value while adjusting the relations of interests. To do so, we will make continuous efforts to establish a system for realizing efficient, sound business administration through corporate governance.
In addition, we will make decisions and execute business operations swiftly after clarifying the functions and roles of each institution and each in-company organization by developing internal control systems. We will properly monitor and disclose its progress and results and strive to improve the transparency of our business administration.

Reasons for Non-compliance with the Principles of the Corporate Governance Code (Excerpts)
(All principles are based on the Code revised in June 2021, including the content for the prime market)
Our company follows the principles of the corporate governance code.

Disclosure Based on the Principles of the Corporate Governance Code (Excerpts)

For back numbers of Bridge Reports on ZEON CORPORATION（4205）and Bridge Salon (IR seminar), please go to our website at the following URL. www.bridge-salon.jp/

<Appendix：Fact Sheet>

<Major Shareholders>

*Total number of shares issued at the end of the term　common stock　237,075,556shares

As of Mar 31, 2022

<Selected Financial Data>

(Units: Million Yen)

<Financial Summary>

(Unit: %)

<Segment Information>　

(Unit: Million Yen)