Kuraray : Jun. 2023, Management briefing Q&As (160KB)

[Time & Date]

From 10:00 to 11:10, June 19, 2023

[Place]

Kuraray Head Office *Hybrid conference

[Speakers]

Hitoshi Kawahara

President and Representative Director

Hiroaya Hayase

Representative Director and Senior Managing

Executive Officer, Vinyl Acetate Film Company

Executive Supervisor

Christian Herrmanns

Executive Officer, General Manager of

MonoSol Division, MonoSol, LLC. President

Shinichi Takizawa

Senior Manager, Corporate Communications

Department

Q&As

Q1

About sales regions and current status for soluble unit dose (SUD) films for laundry and

dishwasher detergents.

A1

Our main growth markets are Europe and North America, which have each almost

achieved a 30% penetration of the laundry SUD category. Our short to medium growth

target here is to grow that to 50%. Our emerging growth markets are Japan and China.

Japan is at a penetration level of almost 20%. China is at a very small base, given the

size of its market. However, it has the largest growth potential, and the SUD form is

very popular amongst Chinese consumers.

With regard to the macroeconomic environment, consumers in Europe and North

America, where are our main markets today, are impacted by inflation. However, as we

are seeing inflation coming down, we also expect CPI to come down to levels that

consumers will soon be driving the category growth in these markets as well.

The distribution between laundry detergent and dishwashing detergent is two-thirds for

laundry and one-third for dishwashing. By region, Europe and the US are of equal size

and represent a combined around 80% of the business today. Japan and China

represent the remaining 20% of the business.

Q2

About the competitive landscape for laundry detergent SUD.

A2

We expected competitive pressure much earlier in the growth of this category. However

up to this point, we were able to maintain and even expand our market share. As shown

in the slide that explains our business model, integration with Kuraray is a differentiating

products companies in the world that I believe sets us apart.

Q3

About the major customers for laundry detergent SUD.

A3

The number one customer accounts for 65% to 70% of the market. This would suggest

that, obviously, we need to put a strong focus on the number one player. However, it is

also true that competition drives the growth of SUD category, and we believe that

competition itself is necessary.

Q4

Regarding applications that are expected to grow the most.

A4

The laundry and dishwasher SUD market is the fastest growing market and our most

focused area. It is also relevant for other applications, but the size and growth potential

are smaller than SUD. We believe that the personal care market is the next growth

market, but there are still significant growth opportunities in the home care market for

laundry detergents and dishwasher detergents.

Q5

About the background and timeline that can be expected to achieve 50% market

penetration.

A5

First, our innovation, whether it's faster dissolution, faster degradation or reduced

greenhouse gas emission films, is an enabler to our customers. That requires film

technologies that are second to none in their dissolution profile. Our customers invest

in the superiority of cleaning performance of SUD because its concentrated form that

also gives them the opportunity to separate different chemistries in the different

compartments of the end product that is unique to the SUD form. This requires our

innovation on resin level, as well as on film level and help drive the category

penetration in North America and Europe to 50%. Regarding the timeline of achieving

50%, we do believe that this can be achieved over the next five years.

Q6

About the advantages over competitors.

A6

Our competitor also has the same value chain as we do. However, we have the

experience and capabilities that we have developed over the last 20 years in this area.

Also, the business model that we have chosen is a very close collaboration with our

customers. We do business with our customers to develop new products starting from

the polymer, through the film, all the way to the end product. I believe, in combination

with the capabilities that we have developed over the last two decades and our

experience will set us apart going forward as well.

Q7

About regions where growth is expected in the future.

A7

The growth in the recent past has been the slowest in the European market. I do

believe that is because of the pressure on consumers that comes from inflation. On

the other hand, the North American consumer has continued helping to grow the

2

category. What is the key here is that we have consumer prices coming down again to

give consumers a breathing room and to then move back into the category. In terms of

the strongest growth markets going forward, we believe North America and Europe

have an equally high potential. Outside of Europe and North America, I do believe that

the largest growth potential is in China. Now, China is going economically through

some challenges. That's something that we need to keep an eye on, but outside of

Europe and North America, I believe the strongest growth potential is indeed in China.

Q8

About future growth for laundry detergents and dishwasher detergents.

A8

The largest growth potential is in laundry SUD because the share right now there is

significantly lower than automatic dishwash, roughly 30% in Europe and North America.

In automatic dishwash, the share is already at 65% to 70%.

The only growth that can come in automatic dishwash is by increasing the utilization

of automatic dishwash machines. Today, it is not just important how many machines

are installed, but how frequent they are being used. That is a big hurdle for us for

growth. Our customers are looking into strategies, how to shorten the cycles of a

dishwashing machine. Reducing that cycle will also help with water consumption and

energy consumption. However, that will require films that dissolve faster. This is where

our innovation will help our customers to drive that.

Q9

About the assumed risks.

A9

The current economic environment is not helping consumption amongst premium

products. In the short term, that's the largest hurdle for growth. However, I think this is

just temporary.

In the longer run, I think the key to driving to 50% penetration is really to make sure

that we can continue enabling our customers to move to what they call cold and fast,

which is washing with much shorter cycles with cold water temperature.

In terms of risk, there have been child safety issues in the past but we work together

with industry associations to have appropriate standards put in place that today, the

entire industry must obey.

Q10

About the ratio of the Russian market and industrial applications.

A10

The loss of Russian SUD market was a one-time adjustment and was a minor impact

overall. As for the ratio by application, SUD is about 70%, of which laundry detergents

account for two-thirds, dishwashing detergents for one-third.

Q11

Issues about SUD, such as residue of detergent or film.

A11

My apologies for the residue experience. If users put SUD first and then the laundry,

the remaining of the solvent or film can be greatly reduced. However, it is necessary to

pursue solubility without the need for such guides. With regard to size of SUD, our

3