Central Glass : Financial Report 2023 (Year ended March 31, 2023)（904KB）

1. Review of Operations by Segment Glass Business

Although demand for architectural glass remained on par with the previous fiscal year, net sales decreased year on year due to a review of unprofitable transactions as part of restructuring measures implemented in the previous year as well as a downsizing and consolidation of sales and production locations to an appropriate scale.

In Japan, automotive glass faced the impact of production adjustments of various automotive manufacturers due to the supply shortage of parts for semiconductors and other products and the spread of COVID-19 in the previous fiscal year, but in the fiscal year ended March 31, 2023, net sales increased over the previous fiscal year due to a recovery in automobile production volume as part shortages improved from the second quarter of the fiscal year as well as product price revisions in response to the increase in raw material and fuel prices. Overseas, two U.S. and European operating companies were excluded from the scope of consolidation from the beginning of the fiscal year due to a transfer of shares, and sales are no longer classified as overseas.

Net sales of glass fiber increased year on year due to an easing of production cuts by automotive manufacturers in the automotive sector and product price revisions in response to the increase in raw material and fuel prices.

As a result, net sales of the glass business as a whole decreased by 51.1% year on year to ¥54,684 million, and operating profit improved by ¥5,178 million year on year to ¥2,662 million.

Chemicals Business

Net sales of applied chemicals increased year on year due to strong sales of next-generation blowing agents in hydrofluoroolefin products as well as product price revisions of hydrofluoroolefin, functional materials, and agrochemicals-related products in response to soaring raw material and fuel prices.

Net sales of medical chemicals increased from the previous fiscal year because of recovering sales of pharmaceutical-related products, which had been impacted by COVID-19, and higher export prices due to the depreciation of the yen.

In electronic materials, sales of specialty gas-related products for semiconductors exceeded the previous fiscal year, supported by a strong first half despite a sharp slowdown in the semiconductor market since the end of the previous year. However, net sales declined due to a rebound from special demand for some gas products for uses other than semiconductors in the previous fiscal year and inventory adjustments by users in resist materials and other products.

Net sales of energy materials increased year on year due to continued growth of the EV market and strong sales of electrolyte products for lithium-ion batteries as well as product price revisions in response to soaring raw material and fuel prices.

For fertilizers, although there was a decrease in sales of some items, net sales increased year on year due to product price revisions in response to the increase in raw material and fuel prices.

As a result, net sales of the chemicals business as a whole increased by 21.5% year on year to ¥114,625 million, and operating profit increased by ¥4,316 million year on year to ¥14,095 million.

(2) Analysis of Balance Sheets

Total assets as of March 31, 2023 stood at ¥221,090 million, down ¥69,605 million from the end of the previous fiscal year. The principal factors behind the change were decreases of ¥7,961 million in inventories and ¥31,153 million in property, plant and equipment resulting from the impact of deconsolidation of two U.S. and European automotive glass companies from the beginning of the first quarter of the fiscal year due to transfer of shares, and a decrease of ¥14,921 million in investment securities due to the sale of cross shareholdings.

Total liabilities were ¥113,228 million, down ¥47,404 million from the end of the previous fiscal year. The principal factors were decreases of ¥52,789 million in provisions including provision for business restructuring and provision for loss on transfer of shares of subsidiaries and associates, while interest- bearing debt increased by ¥10,983 million due to an increase in borrowings.

2

Total net assets were ¥107,861 million, down ¥22,201 million from the end of the previous fiscal year. The principal factors were decreases of ¥54,378 million in tender offers for treasury shares and ¥7,892 million in valuation difference on available-for-sale securities due to the sale of cross shareholdings, while retained earnings increased by ¥39,511 million. The equity ratio increased by 3.4 percentage points to 46.8%.

(3) Analysis of Cash Flows

Cash and cash equivalents at the end of the fiscal year stood at ¥16,672 million, down ¥10,234 million from the end of the previous fiscal year.

(Cash flows from operating activities)

Net cash provided by operating activities was ¥16,599 million, compared with ¥14,872 million in the previous fiscal year. The main contributing factors were profit before income taxes of ¥44,618 million, depreciation of ¥9,029 million, gain on sales of investment securities of ¥11,533 million, gain on sales of non-current assets of ¥15,107 million, and income taxes paid of ¥2,463 million.

(Cash flows from investing activities)

Net cash provided by investing activities was ¥19,958 million, compared with ¥1,839 million used in the previous fiscal year. The main cash outflows were purchase of property, plant and equipment of ¥6,359 million and payments for sales of shares of subsidiaries resulting in change in scope of consolidation of ¥7,757 million, while the main cash inflows were proceeds from sales of property, plant and equipment of ¥17,843 million and proceeds from sales of investment securities of ¥16,600 million.

(Cash flows from financing activities)

Net cash used in financing activities was ¥47,039 million, compared to ¥12,744 million used in the previous fiscal year. The main uses of cash were redemption of commercial papers of ¥9,000 million, purchase of treasury shares of ¥54,378 million, and dividends paid of ¥2,982 million, while cash inflows were mainly from proceeds from increase in long-term and short-term borrowings of ¥12,118 million and proceeds from issuance of bonds of ¥8,000 million.

(4) Capital Investment

Capital investment made by the Company and its consolidated subsidiaries (collectively, the "Companies") for the fiscal year ended March 31, 2023 totaled ¥7,061 million.

In the glass business, capital investments amounted to ¥2,155 million, mainly for renewal work to expand manufacturing facilities for flat glass products. In the chemicals business, the Companies made capital investments totaling ¥4,906 million, mainly for manufacturing facilities for electronic materials and applied chemicals products.

Funding requirements for both investments were met with internal cash reserves, borrowings, and bonds. The aforementioned capital investment includes expenditure for intangible assets.

As announced on August 29, 2022, the idle land and building in Midorinominami, Tsukuba City, which made up the production center for architectural processed glass, were sold in the fiscal year ended March 31, 2023. Also, as announced on February 27, 2023, the land and building in Tatsumi, Koto Ward, which comprised a logistics warehouse for lease, were sold in the fiscal year ended March 31, 2023.

(5) Research and Development (R&D)

In keeping with the Companies' basic philosophy of "Creating a Better Future Through Monozukuri- The Central Glass Group will contribute to the establishment of a truly prosperous society through the spirit of Monozukuri," the Companies are accelerating the shift to becoming an R&D-oriented company aiming to continue to grow, driven by new technologies and products created through research and development. We are developing our R&D efforts with a stronger awareness than ever about comfortable living, environmental sustainability, and consideration for health and safety.

In July 2022, we clarified the roles of creating fundamental technology, efficient development of functional materials, and corporate research, and we are promoting new R&D with three research centers: the Fundamental Chemicals Research Center, Applied Chemicals Research Center, and New-

3

STEP Research Center. (We treat R&D in the glass business as a field of chemistry and continue to perform this R&D at the Fundamental Chemicals Research Center (Matsusaka) while further integrating glass and chemical core technologies.)

R&D expenses for the fiscal year ended March 31, 2023 amounted to ¥5,638 million on a consolidated basis. The following is an overview of our major R&D activities and their results.

In division research in the chemicals segment, the Companies conduct R&D with the aim of developing new products using foundational technologies for production, refinement, analysis, and application in the fields of key commodities and fine chemicals. In applied chemicals-related products among key commodities, CELEFIN® 1233Z, which was launched in April 2016, has been anticipated as an environmentally friendly, fluorine-based solvent with both zero ODP and GWP of <1. The Company is increasing production to meet growing demand for use in washing metal components as well as demand from the aerospace and medical equipment fields. In addition, the Company will continue to promote further technological development and commercialization plans to realize CFC-free products in line with social needs.

In fine chemicals, the Companies promote product development focused on growth areas, based on their proprietary fluorine technologies. Among these sectors, we are particularly focused on the electronic materials and energy materials areas, and we are actively promoting joint research with major customers in Japan and overseas, strengthening cooperation with overseas research sites, and boosting capital investment in analysis and evaluation equipment with the aim of strengthening these functional materials businesses. In addition, to strengthen our R&D capabilities, we are moving forward with construction plans of the Functional Materials Laboratory (tentative name), which is scheduled to be completed in fiscal 2024 inside the Applied Chemicals Research Center. In electronic materials, our key targets are the development of fine and complex next-generation processing technology in semiconductor process materials and research on manufacturing SiC, a substrate material for next- generation power semiconductors. In 2020, the Company established the Electronic Materials Research Center Taiwan, in Taiwan, a leading global semiconductor manufacturing hub. The center develops new materials and conducts information gathering activities. Moreover, in the development of SiC substrate material, we set our sights on the manufacturing technology for 6-inch single crystals using the solution method, which allows for higher quality and longer lengths, and for 8-inch single crystals, the Company's "Development of Manufacturing Process for High-quality8-inch SiC Single-Crystal Wafers" was selected in the New Energy and Industrial Technology Development Organization (NEDO)'s appeal for the Green Innovation Fund Project "Next-generation Digital Infrastructure Construction." The Company has begun efforts to develop SiC substrate material since fiscal 2022. In the energy materials sector for lithium-ion battery electrolytes, we are developing an original high- performance additive, building a global production system, and researching the utilization of recycled raw materials. In addition, we are expanding to non-electrolyte components and allocating research resources to the development of next-generation rechargeable batteries.

In the fertilizer sector, we are conducting R&D into environmentally-friendly coated fertilizers. Because plastics used in coating material is difficult to decompose in nature, we are working to develop a coating material with low environmental impact. In addition to preparing to launch a reduced-plastic type coating that maintains the conventional slow-release performance while reducing the amount of resin used, we are also developing a plastic-free type that uses a sustainable plastic alternative material.

R&D expenses in the chemicals business totaled ¥4,852 million.

In the glass segment, the Companies aim to develop products that fit societal needs and changes, and work on developing products featuring new functions that enhance comfort in daily life and safety. In the automotive sector, we are actively promoting the commercialization of windshields for next- generation head-up displays expected for autonomous driving. Meanwhile, in the functional mirror sector, we are looking to launch anti-fogging and dirt-resistant mirrors for bathroom vanities using advanced surface finishing technology.

R&D expenses in the glass business totaled ¥786 million.

4

In addition, as a fluorine manufacturer, we will take a responsible approach to the per- and polyfluoroalkyl substances (PFAS) restriction proposals published by the European Chemicals Agency (ECHA) in February 2023 to restrict PFAS. Not only will we establish a cross-company project team and provide fair public comments on our existing products, but we will also promptly review non-PFAS compound and material alternatives as well as our research topics related to PFAS.

(6) Business Risks

Among the matters related to the Companies' business performance and financial position contained in the securities report, the following risk factors may have a significant influence on the decisions of investors.

Business risks faced by the Companies are stated as of March 31, 2023, and do not necessarily cover all of the risks to which the Companies are actually exposed.

1. Economic trends and market conditions:

Although the Companies perform monitoring as needed and have in place a system to quickly assess the impact on business, remarkable changes occurring in domestic and overseas economic trends or fluctuating market conditions brought on by trends in related industries where the Companies deploy their products may impact the Companies' business results and financial position if there are an unforeseen changes or fluctuations.

1. Competition:

The Companies develop, produce, and market a wide range of products, and as a result compete with a wide variety of companies. Although they enact various initiatives aimed at maintaining and enhancing their competitive strength with strengthening R&D and technical development, if the Companies are unable to maintain their competitive edge, it could affect their performance and financial position.

1. Reliance on specific fields:

The Companies work to strengthen relationships with existing customers and diversify sales outlets by cultivating new customers. However, the Companies rely on specific clients for sales of some products, and changes in the investment and sales plans or material procurement policies of clients could affect the Companies' performance and financial position.

1. Changes in overseas situation:

The emergence of unforeseeable situations abroad such as unanticipated legal or regulatory changes, changes in sociopolitical conditions, or social turmoil brought about by an unexpected situation such as terrorism, war, infectious disease or other factors could affect not only business activities in that region but also the Companies' overall performance and financial position.

1. Raw material market conditions and procurement:

The Companies' products use raw materials such as heavy oil and other raw materials sensitive to changes in market conditions, as well as special raw materials from a limited number of suppliers. Although the Companies are promoting measures for stable supply, such as reducing the purchase price of raw materials, procuring crude oil through derivatives and stockpiling major raw materials, substantial increases in the market price of raw materials or delays in procurement of raw materials due to limited availability could affect the Companies' performance and financial position.

1. Official regulations:

The Companies are subject to permits and licenses related to investments and regulations on imports and exports, as well as various laws and regulations related to commercial transactions, labor, patents, taxation, and currency exchange in the countries and regions where they operate. Although the Companies are committed to strict compliance with laws and regulations, unforeseen changes or new applications of these types of laws and regulations could affect the Companies' performance and financial position.

(vii) Environmental regulations:

The Companies are subject to various environmental regulations. Although they take utmost care to abide by these regulations in the conduct of their business activities, the Companies may have to bear

5