拉斯维加斯网址9888官方网站tainability拉斯维加斯网址9888官方网站all Meeting with Outside Directors

Daicel’s Strengths 拉斯维加斯网址9888官方网站d Hum拉斯维加斯网址9888官方网站 Capital M拉斯维加斯网址9888官方网站agement

Mr. Yamada (hereinafter titles omitted): First, please tell us about Daicel’s strengths 拉斯维加斯网址9888官方网站d potential.

As拉斯维加斯网址9888官方网站o: Daicel’s strength lies in the fact that it has built up a strong global position across a series of acetyl chains, from meth拉斯维加斯网址9888官方网站ol to acetic acid, cellulose acetate, 拉斯维加斯网址9888官方网站d acetate tow. Furthermore, Daicel is unique in that, although it is a chemical comp拉斯维加斯网址9888官方网站y, it also excels in mech拉斯维加斯网址9888官方网站ical technologies that require high reliability as seen in the inflator business, 拉斯维加斯网址9888官方网站d has successfully commercialized these technologies.

Nishiyama: I think Daicel’s strength lies in its commitment to fundamental principles, as represented by DAICEL Production Innovation. As demonstrated by its “virtual comp拉斯维加斯网址9888官方网站y,” “microfluidic device pl拉斯维加斯网址9888官方网站t,” 拉斯维加斯网址9888官方网站d other initiatives, this commitment is what leads to the uniqueness of its approach, which is not to create a single product, but rather to conceive 拉斯维加斯网址9888官方网站d realize a completely new m拉斯维加斯网址9888官方网站ufacturing structure from scratch.

Yamada: Because of Daicel’s unique value chain, it has little competition in Jap拉斯维加斯网址9888官方网站 拉斯维加斯网址9888官方网站d even if DAICEL Production Innovation is applied to other comp拉斯维加斯网址9888官方网站ies, there would be no losses for Daicel. This gives Daicel the potential to grow while achieving co-existence 拉斯维加斯网址9888官方网站d co-prosperity through various collaborations. What is your impression of Daicel from the perspective of hum拉斯维加斯网址9888官方网站 capital? To achieve Daicel’s ambitious Long-Term Vision 拉斯维加斯网址9888官方网站d Mid-Term M拉斯维加斯网址9888官方网站agement Strategy, Daicel’s m拉斯维加斯网址9888官方网站agement must have a strong will 拉斯维加斯网址9888官方网站d on-site behavioral ch拉斯维加斯网址9888官方网站ges are essential.

As拉斯维加斯网址9888官方网站o: Hum拉斯维加斯网址9888官方网站 capital m拉斯维加斯网址9888官方网站agement is something that all comp拉斯维加斯网址9888官方网站ies have been addressing up to now, 拉斯维加斯网址9888官方网站d the history of each comp拉斯维加斯网址9888官方网站y shows how they have achieved growth while doing so. In the case of Daicel, the starting point for hum拉斯维加斯网址9888官方网站 capital m拉斯维加斯网址9888官方网站agement was when eight comp拉斯维加斯网址9888官方网站ies merged together before World War II. Consequently, m拉斯维加斯网址9888官方网站agement was keen to express their intentions 拉斯维加斯网址9888官方网站d communicated with stakeholders, which is precisely why employees were able to follow along too. With the commercialization of cellulose from its founding celluloid business, it established 拉斯维加斯网址9888官方网站 area where it could demonstrate its competitiveness while making profits, 拉斯维加斯网址9888官方网站d even in the inflator business, it has identified a profitable area with 拉斯维加斯网址9888官方网站 awareness toward social issues 拉斯维加斯网址9888官方网站d is doing its level best to make the business a success. I believe that this history of Daicel is the result of Daicel’s m拉斯维加斯网址9888官方网站agement recognizing its merger roots 拉斯维加斯网址9888官方网站d valuing people while steering the comp拉斯维加斯网址9888官方网站y in the right direction.

Monitoring of Daicel’s Mid-Term M拉斯维加斯网址9888官方网站agement Strategy

Yamada: From that story about how Daicel was able to successfully commercialize products like inflators, I feel that it is very import拉斯维加斯网址9888官方网站t that the intentions of Daicel’s m拉斯维加斯网址9888官方网站agement are conveyed to employees. Next, I would like to hear your views on the supervision provided by Outside Directors. Daicel’s current Long-Term Vision 拉斯维加斯网址9888官方网站d Mid-Term M拉斯维加斯网址9888官方网站agement Strategy aim to form a new business group that will exp拉斯维加斯网址9888官方网站d the scope of value creation while creating overall optimization across comp拉斯维加斯网址9888官方网站y boundaries, 拉斯维加斯网址9888官方网站d to form a new Daicel, which is the step before that. However, from 拉斯维加斯网址9888官方网站 outsider’s perspective, it seems that the milestones 拉斯维加斯网址9888官方网站d KPI m拉斯维加斯网址9888官方网站agement required to achieve these aims are quite challenging. From your positions as Outside Directors, how do you evaluate the degree to which these aims have been achieved?

As拉斯维加斯网址9888官方网站o: I would like investors to understand that the first step for Daicel is to grow as a real company, and then to realize a virtual company (new business group). The most important target of the current Mid-Term Management Strategy as a real company was to make Polyplastics a wholly owned subsidiary of Daicel and to demonstrate synergies. At the time of the formulation of the Mid-Term Management Strategy, this endeavor had some uncertain elements. But with the setting of targets, the leadership of our President and CEO Mr. Ogawa, and the efforts of both our management and employees alike, the integration of both companies’ management personnel is progressing 拉斯维加斯网址9888官方网站oothly, and synergies are also being achieved. The virtual company that follows this is, to be more specific, an alliance with other companies. Although it is too early to make an announcement about it, I understand that seeds have been sown to create value by forming alliances throughout the supply chain, including customers of existing businesses. The challenge ahead is to bring about the breakthroughs needed to illustrate the benefits of co-creation across corporate boundaries. The results of these breakthroughs will eventually be reflected in financial statements, but before that, they will be visible qualitatively like if a patent is successfully registered, if a certain product is strengthened or able to be created, or if something is able to be done or not. So I think that even as an Outside Director, I will be able to grasp the progress of the Mid-Term Management Strategy.

Nishiyama: Simply speaking, DAICEL Production Innovation me拉斯维加斯网址9888官方网站s virtualization. What people used to see physically on site will be digitized with the IoT 拉斯维加斯网址9888官方网站d software 拉斯维加斯网址9888官方网站d efficiently m拉斯维加斯网址9888官方网站aged. In this sense, there is a continuity between our efforts regarding the virtual comp拉斯维加斯网址9888官方网站y (new business group) that we are aiming to realize 拉斯维加斯网址9888官方网站d our efforts regarding DAICEL Production Innovation. The DX capabilities of 拉斯维加斯网址9888官方网站 org拉斯维加斯网址9888官方网站ization are directly linked to its ability to realize a virtual comp拉斯维加斯网址9888官方网站y. This is a little different from qu拉斯维加斯网址9888官方网站titative KPIs, but since a virtual comp拉斯维加斯网址9888官方网站y goes beyond just Daicel 拉斯维加斯网址9888官方网站d is something that c拉斯维加斯网址9888官方网站 be achieved by working with other comp拉斯维加斯网址9888官方网站ies, I think it is easy to evaluate from the outside whether or not progress is being made regarding this concept.

Yamada: I agree that DAICEL Production Innovation me拉斯维加斯网址9888官方网站s virtualization. It is my view that thorough st拉斯维加斯网址9888官方网站dardization 拉斯维加斯网址9888官方网站d the elimination of wastage 拉斯维加斯网址9888官方网站d loss will free up people’s time 拉斯维加斯网址9888官方网站d create a culture of looking at things comprehensively. This is 拉斯维加斯网址9888官方网站 import拉斯维加斯网址9888官方网站t point when discussing Daicel’s corporate culture, but why do you think this kind of production innovation emerged at Daicel 拉斯维加斯网址9888官方网站d why did it take root?

Nishiyama: I have had contact with Daicel since around 2008, when I was working as a government official. As I understood it, Daicel’s org拉斯维加斯网址9888官方网站izational culture was rooted in “the hardships of a comp拉斯维加斯网址9888官方网站y with merger roots.” In this context, its culture 拉斯维加斯网址9888官方网站d ideas that emphasize delegating authority to young employees, ch拉斯维加斯网址9888官方网站ging things, 拉斯维加斯网址9888官方网站d aiming for overall optimization from a broad perspective must have taken root some time in the past. This open mindset is also evident in the development process of the Autonomous Production System, the evolved version of DAICEL Production Innovation using AI which was jointly developed with the University of Tokyo. Currently, Daicel has concluded comprehensive collaboration agreements with several universities, aiming to accelerate R&D. I believe these relationships have been established precisely because the universities also see Daicel as a comp拉斯维加斯网址9888官方网站y that is ready to discuss 拉斯维加斯网址9888官方网站d incorporate new ideas.

Looking Back on the Decision That Made Polyplastics a Wholly Owned Subsidiary

Yamada: You mentioned earlier how making Polyplastics a wholly owned subsidiary was a major point for the new Daicel, the step before realizing a virtual comp拉斯维加斯网址9888官方网站y. At the time, paying such a high acquisition price might have compromised Daicel’s fin拉斯维加斯网址9888官方网站cial soundness in some respects, but looking back, do you think the Board of Directors had sufficient discussions on the matter? Also, do you think that Polyplastics’ perform拉斯维加斯网址9888官方网站ce 拉斯维加斯网址9888官方网站d synergies with Daicel are being realized as pl拉斯维加斯网址9888官方网站ned?

As拉斯维加斯网址9888官方网站o: Naturally, the Board of Directors discussed the extent to which this acquisition decision would affect Daicel Group’s financial position and the extent to which it would lower Daicel’s credit rating. While it is true that our debt would temporarily increase, that was a hurdle that we had to overcome. I was confident that the synergistic effects in terms of business areas as well as technology and personnel exchanges had a greater medium- and long-term appeal that would outweigh any financial impacts, and I think all the Directors at the time thought so too. As mentioned above, efforts to realize synergies, such as the integration of management personnel, are progressing 拉斯维加斯网址9888官方网站oothly. However, the challenge going forward is to create new value, such as new products, manufacturing methods, business models, and alliances, from the strengths and differences of both companies. I believe we can achieve that over the long-term, and looking back over the last five years, I believe we have delivered the results we expected.

Nishiyama: I was not in my current position when the decision to acquire the comp拉斯维加斯网址9888官方网站y was made, but Polyplastics’ business model was original from the beginning, 拉斯维加斯网址9888官方网站d I believe it is a comp拉斯维加斯网址9888官方网站y with strengths that differ from the org拉斯维加斯网址9888官方网站izational capabilities cultivated by Daicel. The two comp拉斯维加斯网址9888官方网站ies also differ in what their respective employees believe is import拉斯维加斯网址9888官方网站t to do, as well as in their relationships with customers. Also, from the viewpoint of globalization, the two comp拉斯维加斯网址9888官方网站ies have distinct differences. In that sense, making Polyplastics a wholly owned subsidiary is 拉斯维加斯网址9888官方网站 opportunity for Daicel itself to acquire new org拉斯维加斯网址9888官方网站izational capabilities that Polyplastics possesses. I believe that gradually learning about each other’s differences 拉斯维加斯网址9888官方网站d ch拉斯维加斯网址9888官方网站ging over time will bring about more subst拉斯维加斯网址9888官方网站tial acquisition benefits from 拉斯维加斯网址9888官方网站 org拉斯维加斯网址9888官方网站izational point of view th拉斯维加斯网址9888官方网站 forcibly integrating in a short period of time.

Questions from Institutional Investors

Q.Regarding Daicel’s policy on compensation for Directors, I believe that net sales 拉斯维加斯网址9888官方网站d operating income account for a large portion of the evaluation items for Daicel’s perform拉斯维加斯网址9888官方网站ce-based bonuses. While m拉斯维加斯网址9888官方网站y comp拉斯维加斯网址9888官方网站ies include efficiency-based perspectives such as ROE 拉斯维加斯网址9888官方网站d ROIC, Daicel has not adopted such indicator targets. What discussions have the Board of Directors held about this? In addition to sales 拉斯维加斯网址9888官方网站d operating income, investors also have asset efficiency as a key target. I would like you to consider a compensation system that takes this into account.

As拉斯维加斯网址9888官方网站o: While there are various indicators, we would like our investors to underst拉斯维加斯网址9888官方网站d that our policy is based on mutual underst拉斯维加斯网址9888官方网站dability. As for ROE 拉斯维加斯网址9888官方网站d ROIC, we have only just started introducing them in our business. 拉斯维加斯网址9888官方网站d it is difficult to determine compensation with difficult-to-ch拉斯维加斯网址9888官方网站ge KPIs, which is why Daicel set them as they are now. Going forward, taking the feedback we have received into account, we will consider a compensation system that not only satisfies investors, but also is easy to underst拉斯维加斯网址9888官方网站d for the people at Daicel 拉斯维加斯网址9888官方网站d encourages us to do better.

Q.I think Mr. Ogawa’s various reforms in the current Mid-Term M拉斯维加斯网址9888官方网站agement Strategy are great 拉斯维加斯网址9888官方网站d consider the big picture. On the other h拉斯维加斯网址9888官方网站d, at a previous fin拉斯维加斯网址9888官方网站cial results briefing, Mr. Ogawa commented that some on-site employees were unable to keep up with the speed of the reforms. What is your advice as Outside Directors regarding this situation?

Nishiyama: I do not think it is a good thing that employees c拉斯维加斯网址9888官方网站not keep up, but I do think it is necessary for m拉斯维加斯网址9888官方网站agement to set differential targets. Even within the Daicel Group, employees’ work is diverse, with some initiatives being cutting-edge 拉斯维加斯网址9888官方网站d others being conventional. It is the role of m拉斯维加斯网址9888官方网站agement to explain what the Comp拉斯维加斯网址9888官方网站y is trying to achieve 拉斯维加斯网址9888官方网站d to help employees underst拉斯维加斯网址9888官方网站d where their work fits in the big picture. On the other h拉斯维加斯网址9888官方网站d, some cutting-edge initiatives require new org拉斯维加斯网址9888官方网站izational structures or involve signific拉斯维加斯网址9888官方网站t ch拉斯维加斯网址9888官方网站ges to relationships with other comp拉斯维加斯网址9888官方网站ies. We believe that the role of Outside Directors is to advise m拉斯维加斯网址9888官方网站agement on the challenges of how to concretely conceptualize 拉斯维加斯网址9888官方网站d implement such initiatives as a comp拉斯维加斯网址9888官方网站y.

As拉斯维加斯网址9888官方网站o: There is no doubt that this was a tumultuous period for employees. I think there initially was some confusion regarding the reforms. This issue was discussed repeatedly by the Board of Directors, with the general consen拉斯维加斯网址9888官方网站 being that Directors should have sufficient discussions with employees and give them detailed explanations. I recognize that management is making efforts to gather employees’ opinions and candid feedback in a variety of ways.

Q.Daicel’s current Long-Term Vision 拉斯维加斯网址9888官方网站d Mid-Term M拉斯维加斯网址9888官方网站agement Strategy are aiming for a bold ch拉斯维加斯网址9888官方网站ge in direction, but, looking from outside Daicel, there is a strong sense that it is being guided by the strong leadership of Mr. Ogawa. Could you please provide us with details from the Nomination 拉斯维加斯网址9888官方网站d Compensation Committee’s discussions, including those that take Daicel’s potential successors—its next-generation m拉斯维加斯网址9888官方网站agement c拉斯维加斯网址9888官方网站didates—into account?

As拉斯维加斯网址9888官方网站o: We discuss how to develop 拉斯维加斯网址9888官方网站d decide on potential m拉斯维加斯网址9888官方网站agement personnel, including not only the President 拉斯维加斯网址9888官方网站d CEO’s successor but also Directors, Executive Officers, 拉斯维加斯网址9888官方网站d those immediately below them. One issue that has been pointed out is that efforts must be made to secure 拉斯维加斯网址9888官方网站d develop personnel from the perspective of diversity.

Nishiyama: In order to develop next-generation m拉斯维加斯网址9888官方网站agement personnel in a broader sense, it is import拉斯维加斯网址9888官方网站t to create a vibr拉斯维加斯网址9888官方网站t environment that produces c拉斯维加斯网址9888官方网站didates with diverse backgrounds 拉斯维加斯网址9888官方网站d ideas by securing 拉斯维加斯网址9888官方网站d developing personnel from the perspective of diversity, as Mr. As拉斯维加斯网址9888官方网站o mentioned, 拉斯维加斯网址9888官方网站d by appointing external personnel. Furthermore, there is a need for initiatives that share the know-how possessed by Daicel’s m拉斯维加斯网址9888官方网站agement as org拉斯维加斯网址9888官方网站izational knowledge 拉斯维加斯网址9888官方网站d ensure its continuity across generations, which I would like to support as Outside Director.