Industrial Gas Majors TRIAS CORPORATION Profitability Comparison of Global Leaders August 24, 2017

Industry Analysis Why are margins for Japan majors somewhat lower than global peers?

INTRODUCTION In the simplest terms, air separation, the process of extracting high purity gas and liquid forms of the components of dry air: oxygen 20.9%, nitrogen 78.1%, argon 0.9%, through cryogenic distillation (liquefying air through cooling) is at the heart of industrial gas business. Leading players provide comprehensive solutions for manufacturing, storage and transportation of industrial gases to a Companies covered wide range of industries, including steelmaking, petroleum refining, petro‐ chemicals, pharmaceuticals, food & beverages, medicine/healthcare, elec‐ in this report: tronics, aerospace etc. AI FP Air Liquide LIN GR Linde Group The largest industrial application of oxygen is as an accelerant to raise the PX US Praxair combustion temperature for blast furnaces in steelmaking. Nitrogen is used in Air Products & refining and petrochemical production to purge dangerous vapors after APD US Chemicals production runs, in cooling reactors for pharmaceuticals, and for film deposition 4088 JT AIR WATER in the manufacturing process of semiconductors. Argon is used as an inert shielding gas for high temperature applications like welding and graphiteelectric 4091 JT TAIYO NIPPON SANSO furnaces. 2168 HK Yingde Gases Industrial gas business is inherently capital intensive, and profitability is often a function of raising operational efficiencies through scale merits. As seen in Table 1, it is therefore not surprising that profit margins for the top players are somewhat higher than those of Japan’s big 2, with significantly larger, globally diversified operating structures. However, not satisfied with this as an overly simplified explanation, we examine three specific aspects that shed more light on the differences in profitability. PART ONE looks at differences in synergies achieved from M&A, PART TWO looks at Japan‐specific factors, and PART THREE looks at differences in exposures to global markets. Through these examinations we consider here possible growth directions of Japan’s two majors.

[Table 1] Overview of Global Industrial Gas Majors (Local Currency and Translation into USD ) Company Name Currency Rank FY Sales 5‐year Sales GPM OP 5‐year OP OPM Local Local CAGR USD mn CAGR USD mn currency currency Linde + Praxair (scheduled to merge) EUR (mn) (reference) 12/16 27,482 ‐ 29,623 ‐ 4,421 ‐ ‐ 16.1% Air Liquide EUR (mn) 1 12/16 19,712 4.3% 19,089 N.A . 3,024 4.3% 3,183 16.7% Linde Group EUR (mn) 2 12/16 18,422 1.7% 17,840 36.2% 2,099 0.3% 2,209 12.4% Praxair USD (mn) 3 12/16 10,534 ‐1.6% 10,534 44.4% 2,322 ‐1.2% 2,322 22.0% Air Products & Chemicals USD (mn) 4 9/16 9,524 ‐0.2% 9,524 32.8% 2,199 10.5% 2,199 23.1% Air Water JPY (bn) 5 3/17 6,096 5.6% 6,096 22.9% 41 10.3% 376 6.2% Taiyo Nippon Sanso JPY (bn) 6 3/17 5,287 5.6% 5,287 37.1% 54 21.2% 488 9.2% Yingde Gases Group CNY (mn) 7 12/16 1,261 14.1% 1,177 30.4% 1,932 15.1% 271 23.0% Source: Compiled by Trias Corporation from Bloomberg L. P. data Forex rates used for conversion to USD are: JPY/USD 110 (at March‐end), EUR/USD 0.95 and CNY/USD 0.14 (at December‐end).

PART ONE: Differences in synergies achieved from M&A Industrial gas business is inherently capital intensive business, and consolidation of global leaders driven in part by the trend toward larger projects has proceeded at a breathtaking pace over the last decade, with mega‐deals occurring one after another. In PART ONE, we examine differences in the M&A strategies of Japan’s two majors, which are in fact quite different, and then compare differences in the scale of synergies achieved from M&A with those of global leaders.

During the 1990s after the collapse of Japan’s bubble economy, consolidation proceeded within the industry, creating the two major groups of TAIYO NIPPON SANSO (Nippon Sanso, Taiyo Sanso and Toyo Sanso) and AIR WATER (Kyodo Sanso, Daido Sanso and HOXAN) which together accounted for some 70% of the domestic market for industrial gases including medical use. However, due to the hollowing out of Japan’s industrial base with production for key manufacturing industries being steadily shifted overseas, the domestic market for industrial gases peaked, forcing each to develop new sources of profit, which led each to pursue M&A strategies. However, the strategy objectives for the two are very different.

TAIYO NIPPON SANSO CORPORATION (TNSC) has focused its M&A strategy on expanding industrial gas business overseas, mainly in North America and Asia. Last September, TNSC’s US subsidiary Matheson Tri‐Gas, Inc. acquired assets divested by Air Liquide SA (ALSA) in the U.S. pursuant to its acquisition of Airgas in the U.S. as mandated by the Fair Trade Commission (market shares in the Northeast and Midwest became extremely high), including 18 air separation

units (ASUs), two nitrous oxide plants, four CO2 plants etc. This acquisition for over ¥60bn (over USD550mn) was the largest in its history.

According to a financial news agency Toyo Keizai,TNSCexecuted25M&A transactions in the 10 years through FY3/16, deploying total investment of roughly JPY220bn. In the U.S. in particular, the company acquired 15 companies, 9 in the last 5 years. The decision to focus on the US market is due to it having the largest consumption of industrial gases, and ongoing growth driven by population increases. Until now, the majority of acquisitions were for sales distribution networks that don’t have manufacturing assets, which purchase product from major manufacturers, and distribute the products to final customers in cylinders.

The basic strategy is to raise its distribution share in a certain region, and after sales exceed a certain level, to build its own ASUs. Currently its share in the US market is still low at several percent, having strength in bases in California, Texas and Florida. Nevertheless, Gas Business in the U.S. in FY3/16 under IFRS generated revenue of JPY149.5bn (JPY147.2bn in FY3/17), and together with Gas Business in Asia and Oceania where M&A is similarly proceeding, generating revenue of JPY89.3bn (JPY85.8bn in FY3/17), combined overseas gas revenue reached JPY238.8bn (JPY233.0bn in FY3/17), or the overseas revenue ratio roughly 40%.

Since US majors are thoroughly entrenched in the Northeast and Midwest regions due to long history of industrial clients there, this was a major coup toward making inroads.

There is high medium‐term growth potential for TNSC in the US market given its low overall share. While it’s immediate priority is to upgrade energy conservation and efficiency of acquired manufacturing assets, its new 4‐year Medium‐Term Plan (MTP) “Ortus‐2” through FY3/21 (announced in March 2017) targets allocation of 70% of total investment of JPY340bn into strategic investments in overseas M&A and capacity expansion (nearly JPY60bn per year), including in North America ongoing M&A of distributors and capex in ASUs and

CO2 facilities, in China investments in facilities to produce material gases for semiconductors, and in Southeast Asia and South Asia M&A of local gas

manufacturers and capex in ASUs, CO2,H2 hydrogen gases and specialty gases manufacturing facilities.

At the same time, the main focus of M&A for AIR WATER INC (AWI) has been diversification of its mainly domestic business. According to Toyo Keizai,the company invested roughly JPY60bn in the ten years through FY3/16 in M&A acquisitions and taking stakes in companies, in over 50 transactions. While this targeted a wide range of businesses, the strategic emphasis has been on Agriculture and Food Business and Medical Business. The main attractive point of these two industries is being less susceptible to cyclical fluctuationsinthe business cycle and generating stable cash flow with steady growth.

AWI made full‐fledged entry into food business in 2002 through acquisitionof the Hokkaido Plant of ham and sausage maker Snow Brand Foods forced into liquidation as a result of the scandal of falsely labeling imported beef as Japanese beef. Then in 2012, it acquired Sagami Ham which has high brand recognition in the Kanto region, merging it with Saveur SS Inc, whose predecessor was the former Snow Brand Foods. Then in July 2016, the company acquired all shares of Daisen Ham/Tottori Prefecture from the Nisshin Flour Group, adding to the Saveur nationwide brand, Hokkaido retail brand SHUNSETSU,andSagami Ham brand.

AWI is also focused on M&A in agricultural distribution and processing. In 2012 it acquired Tomiichi in Hokkaido mainly engaged in aggregation and wholesale of vegetables such as potatoes and pumpkins, and Hokkaido frozen vegetables maker Hayashiya Group. Then in 2015, it also entered the downstream market through acquisition of Kyusyuya in Hachioji, Tokyo, which operates a chainof90 vegetable and fruit (fresh produce) retail shops mainly in department stores and station buildings. In 2016 it acquired the frozen vegetables Tokachi Plant/Hokkaido from Maruha Nichiro Northern Japan.

Medical‐related ranks alongside Agricultural and Food Business as an M&A target. In 2005, the company acquired Kawasaki Safety Systems, a maker of medical respirators and fire extinguishing systems. Then in 2010 it acquired Miwa Electrical Medical/Nagoya engagedindesignandconstructionof hospital

operating rooms and intensive care units (ICUs), and in 2013 a logistics management firm for items used in hospitals from ITOCHU.

In FY3/16, combined sales of JPY124.5bn (JPY130.0bn in FY3/17) for Medical Business and JPY91.5bn (JPY118.4bn in FY3/17) for Agriculture and Food Business reached JPY216.1bn (JPY248.4bn in FY3/17), exceeding JPY194.8bn (JPY199.5bn in FY3/17) for traditional Industrial Gas Business. According to Toyo Keizai, the company receives nearly 100 potential M&A candidates each year from banks, investment funds and heads of companies facing lack of successors, upon which the company performs due diligence and evaluates synergies with existing business.

AWI also has a history of retaining employees of acquired companies, implementing appropriate cost‐cutting and sales enhancement measures, and raising margins after acquisition. An example is Gold‐Pak acquired in 2012, a Tokyo firm with strength in vegetable and fruit juice, mainly in the form of consignment production for major beverage makers. This company had struggled in the past with fluctuations in plant utilization rates. After acquiring the firm, it strengthened in‐house brand items, stabilizing plant utilization rates, raising profitability by 20‐30%. In its current 3‐year MTP “NEXT‐2020 Ver.3” through FY3/19, the company is allocating JPY60bn out of total business investment of JPY240bn for M&A.

Although M&A strategies for Japan’s industrial gas majors are quite different, over the 10 years through FY3/16, AWI expanded net sales by 1.76x (+5.8% CAGR), and TNSC by 1.61x (+4.9% CAGR), due in large part to focused and ongoing M&A to offset low growth in traditional Japan industrial gas business.

Now, let’s put Japan’s two industrial gas majors in the context of the global industry. Nippon Sanso, the founding entity of TNSC, was founded in Tokyo in 1910, and HOXAN, the founding entity of AWI, was founded in Hokkaido in 1929. A German scientist Carl Von Linde invented the refrigeration breakthrough necessary for cryogenic air separation in Munich in 1895 (Linde AG, or Linde Group, was founded in 1879 as a chemicals company), receiving a patent for cryogenic air separation in 1903, and ALSA was founded in Paris in 1902. So the Japan companies were one to three decades behind the European pioneers.

Table 2 shows selected major M&A deals in consolidation of the global industrial gas industry. TNSC acquired Valley National Gases, LLC (VNG) in 2009, the largest independent industrial gas distributor in the U.S. with strengthsinthe Midwest and Northeast regions, giving TNSC inroads into important markets within the world’s largest market for industrial gas consumption. The press release for this acquisition said targeted annual synergies were USD18mn.

[Table 2] Selected Major M&A Deals in the Industrial Gas Industry over the Last Decade Year Transaction Description 2006 Linde Group (Germany) acquires BOC (UK) 2007 ALSA (France) acquires Lurgi (Germany) 2009 TNSC acquires VNG (US) 2012 Linde Group acquires the European arm of home healthcare business from APCI (US) APCI a cqui res INDURA (Chi l e) ALSA acquires GASMEDI (Spain) Linde Group acquires Lincare Holdings (US) 2014 Mitsubishi Chemical Holdings (Japan) acquires TNSC (Japan) 2015 ALSA announces it will acquire AGI (US), completed in 2016 2016 Linde Group announces merger with Praxair (US). Expected to be completed 2H 2018, provided German labor union opposition can be overcome

Then dial the clock back 3 years to 2006, when No.3 Linde Group made a successful takeover bid for No. 2 Brin’s Oxygen Company (BOC) in the U.K. BOC was founded in 1886 by two French brothers. 120 years later, BOC Group had over 30,000 employees worldwide, with business diversified one‐third each in Asia Pacific, in Europe and in the Americas. Linde Group’s successful bid valued the company at GBP8.2bn (USD14.4bn, EUR12bn), and leapfrogged Linde back into global no.1. According to the analyst briefing, targeted annual synergies from this deal were EUR250mn (in other words, USD300mn = 16.7x larger than TNSC’s acquisition of VNG).

Air Liquide SA (ALSA) acquired German engineering firm Lurgi AG (Lurgi) in 2007 for EUR550mn, doubling its global engineering capacity to strengthen its business in large industries (30% of revenue). Then in 2015, ALSA acquired Airgas, Inc. (AGI) (completed in spring 2016), the leader in packaged gas inthe U.S., for USD13.4bn, helping it to overtake rivals Linde Group, Air Products & Chemicals, Inc. (APCI) and Praxair, Inc. (Praxair) in North America, and to accelerate diversification from slow growth in Europe, leading to combined sales of over EUR20bn. Targeted annual synergies from this deal are cost reduction of at least USD300mn.

Then in 2016 Linde Group announced that it will merge with Praxair, to create combined market value of USD73bn according to Reuters. The boards of both companies voted to approve the merger on June 1, 2017, and the deal is expected to close in 2H of 2018. Targeted annual synergies from this deal have been revised up from USD1.0bn to USD1.2bn.

PART TWO: Japan‐specific factors including (1) hollowing out of the industrial base, (2) persistent deflationary macro environment, and (3) demographic factors with population already declining In PART ONE, we cited anecdotal evidence that size matters. In PART TWO, we examine negative factors specific to Japan. Point (1) regarding the hollowing out of the industrial base is not unique to Japan. On the contrary, it is a natural progression in all developed economies for primary basic materials industries to shift to countries with lower labor and other operating costs and higher intrinsic growth as developing nations. However, taken in combination with point (2), prolonged period of the “Superstrong Yen” (see Graph 1) weighed heavily on exports, depressing both demand volume as well as pricing.

[Graph 1] Prolonged period of the “SUPERSTRONG YEN”

（JPY/USD） 300

250

200

150

100

0 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 Source: Compiled by Trias Corporation from Bloomberg L.P. data

As can be seen from the IMF World Economic Database updated in April 2017 (see Graphs 2 and 3, and Tables 3 and 4 on the pages 7 and 8), over the last decade, Japan has had the lowest level of GDP output among the major developed nations, and has also suffered the worst deflationary pressures. Conversely, when the LDP returned to power at the end of 2012 and BOJ engineered a rapid depreciation of the yen under “Abenomics,” economic policies of the new Abe administration, GDP, corporate profits and inflation all posted marked improvement in 2013‐2014 with the yen depreciated back at JPY120/USD.

Here we look at five key industries that use industrial gases: steelmaking, petroleum refining, petrochemicals manufacturing, electric power plants and semiconductor manufacturing, and the significant erosion of Japan’s position in those sectors since the height in the late eighties/early nineties. In addition to the aforementioned economic backdrop, each of those sectors has seen significant hollowing out due to distinct industry specific structural factors, making a difficult environment as a provider of industrial gas services in Japan, and the collapse of oil prices has been particularly severe on related engineering businesses.

IMF World Economic Outlook Database (Updated in April 2017)

[Graph 2] IMF World Output Summary (Real GDP)

(YoY, %) 10.0

8.0 World 6.0

4.0 Advanced Economies

2.0 JAPAN

0.0 EM and Developing

‐2.0 EM and Developing Asia

‐4.0

‐6.0

Source: IMF

[Graph 3] IMF World Inflation Summary (Consumer Prices)

(YoY, %) 8.0 7.0

6.0 World 5.0 Advanced Economies 4.0 3.0 JAPAN 2.0 EM and Developing 1.0 0.0 EM and Developing Asia ‐1.0 ‐2.0

Source: IMF

IMF World Economic Outlook Database (Updated in April 2017)

[Table 3] IMF World Output Summary (Real GDP) USD bn, YoY, Nom GDP 1999‐08 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 selected countries 2017 est. avg. est. est. World $77,988 4.2 ‐0.1 5.4 4.2 3.5 3.4 3.5 3.4 3.1 3.5 3.6 Advanced Economies $46,905 2.5 ‐3.4 3.1 1.7 1.2 1.3 2.0 2.1 1.7 2.0 2.0 US $19,417 2.6 ‐2.8 2.5 1.6 2.2 1.7 2.4 2.6 1.6 2.3 2.5 Japan $4,841 1.0 ‐5.4 4.2 ‐0.1 1.5 2.0 0.3 1.2 1.0 1.2 0.6 Germany $3,423 1.6 ‐5.6 4.0 3.7 0.7 0.6 1.6 1.5 1.8 1.6 1.5 UK $2,497 2.6 ‐4.3 1.9 1.5 1.3 1.9 3.1 2.2 1.8 2.0 1.5 France $2,420 2.0 ‐2.9 2.0 2.1 0.2 0.6 0.6 1.3 1.2 1.4 1.7 Canada $1,600 2.9 ‐3.0 3.1 3.1 1.7 2.5 2.6 0.9 1.4 1.9 2.0 South Korea $1,498 5.7 0.7 6.5 3.7 2.3 2.9 3.3 2.8 2.8 2.7 2.8 EM and Developing $31,083 6.2 2.9 7.4 6.3 5.4 5.1 4.7 4.2 4.1 4.5 4.8 EM and Developing Asia $17,085 8.0 7.5 9.6 7.9 7.0 6.9 6.8 6.7 6.4 6.4 6.4 China $11,795 10.1 9.2 10.6 9.5 7.9 7.8 7.3 6.9 6.7 6.6 6.2 India $2,454 6.9 8.5 10.3 6.6 5.5 6.5 7.2 7.9 6.8 7.2 7.7 Brazil $2,141 3.5 ‐0.1 7.5 4.0 1.9 3.0 0.5 ‐3.8 ‐3.6 0.2 1.7 Russia $1,561 6.9 ‐7.8 4.5 4.0 3.5 1.3 0.7 ‐2.8 ‐0.2 1.4 1.4 Indonesia $1,021 4.9 4.7 6.4 6.2 6.0 5.6 5.0 4.9 5.0 5.1 5.3 Mexico $987 2.6 ‐4.7 5.1 4.0 4.0 1.4 2.3 2.6 2.3 1.7 2.0 Turkey $794 4.1 ‐4.7 8.5 11.1 4.8 8.5 5.2 6.1 2.9 2.5 3.3 Source: IMF

[Table 4] IMF World Inflation Summary (Consumer Prices) USD bn, YoY, Nom GDP 1999‐08 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 selected countries 2017 est. avg. est. est. World $77,988 4.5 2.7 3.7 5.0 4.1 3.7 3.2 2.8 2.8 3.5 3.4 Advanced Economies $46,905 2.2 0.2 1.5 2.7 2.0 1.4 1.4 0.3 0.8 2.0 1.9 US $19,417 2.8 ‐0.3 1.6 3.1 2.1 1.5 1.6 0.1 1.3 2.7 2.4 Japan $4,841 ‐0.2 ‐1.4 ‐0.7 ‐0.3 ‐0.1 0.3 2.8 0.8 ‐0.1 1.0 0.6 Germany $3,423 1.7 0.2 1.1 2.5 2.1 1.6 0.8 0.1 0.4 2.0 1.7 UK $2,497 1.8 2.2 3.3 4.5 2.8 2.6 1.5 0.1 0.6 2.5 2.6 France $2,420 1.9 0.1 1.7 2.3 2.2 1.0 0.6 0.1 0.3 1.4 1.2 Canada $1,600 2.3 0.3 1.8 2.9 1.5 0.9 1.9 1.1 1.4 2.0 2.1 South Korea $1,498 2.9 2.8 2.9 4.0 2.2 1.3 1.3 0.7 1.0 1.8 1.9 EM and Developing $31,083 7.5 5.0 5.6 7.1 5.8 5.5 4.7 4.7 4.4 4.7 4.4 EM and Developing Asia $17,085 3.9 2.8 5.1 6.5 4.6 4.6 3.5 2.7 2.9 3.3 3.3 China $11,795 1.8 ‐0.7 3.3 5.4 2.6 2.6 2.0 1.4 2.0 2.4 2.3 India $2,454 4.8 10.6 9.5 9.5 9.9 9.4 5.9 4.9 4.9 4.8 5.1 Brazil $2,141 6.9 4.9 5.0 6.6 5.4 6.2 6.3 9.0 8.7 4.4 4.3 Russia $1,561 21.4 11.7 6.9 8.4 5.1 6.8 7.8 15.5 7.0 4.5 4.2 Indonesia $1,021 10.0 5.0 5.1 5.3 4.0 6.4 6.4 6.4 3.5 4.5 4.5 Mexico $987 6.3 5.3 4.2 3.4 4.1 3.8 4.0 2.7 2.8 4.8 3.2 Turkey $794 29.0 6.3 8.6 6.5 8.9 7.5 8.9 7.7 7.8 10.1 9.1 Source: IMF

Steel Manufacturing Sector According to data by World Steel (see Graphs 4 and 5), Japan’s market share of ASIA production has fallen by half from 18.8% in 2005 to 9.3% in 2015, with production volume posting 10‐year CAGR of ‐1.1%. During the same period, China posted CAGR of +7.4%, India +6.8% and South Korea +4.1%. Japan’s share in ASIA production in 1985 was 54.5%. The future outlook is clouded by the massive overhang of surplus capacity in China, and commodity grade products eventually finding a home in Japan. Despite dominant positions of major automaker and machinery clients in global markets, production has been steadily shifted overseas. [Graph 4] World Steel Association Crude Steel Production by Country 2006 – 2015 (thousand tons) 1,800,000 Rest of World 1,600,000 Brazil 1,400,000 U.S. 1,200,000 Germany 1,000,000 Ukraine 800,000 Russia 600,000 India 400,000 China 200,000 South Korea Japan 0

Source: Compiled by Trias Corporation from World Steel Association Statistical Yearbooks

[Graph 5] Japan’s Share of ASIA Steel Production has halved in the Last decade

(thousand tons) 130,000 20.0% 18.8% Crude steel Japan/ASIA 110,000 17.0%

90,000 14.0%

70,000 9.4% 11.0% 9.3% 50,000 8.0%

30,000 5.0%

Source: Compiled by Trias Corporation from World Steel Association Statistical Yearbooks; 2016 data calculated from monthly press releases

Petroleum Refining Sector As can be seen from Graph 6, total fuel demand briefly rebounded in FY2011 and FY2012 in the wake of the Great East Japan Earthquake/Tsunami and shutdown of all domestic nuclear reactors, boosting demand for heavy fuel oil B/C for electric power generation. However, the outlook is for steady decline due to ongoing improvements in fuel economy of internal combustion engines, shift in consumer preferences toward mini vehicles, and rapid diffusion of hybrid/EVs where Japan has technological leadership globally (see Graph 7).

[Graph 6] Refined Fuel Product Domestic Demand Trend, METI Forecasts

(thousand kl) 250,000 31.4% down from 200,000 1995 peak Gasoline Naptha 150,000 Jet fuel Kerosene 100,000 Diesel Heavy fuel oil A 50,000 Heavy fuel oil B/C

Source: Petroleum Association of Japan based on METI Resources and Energy Statistics

[Graph 7] Trend of Hybrid/EV in Domestic Registered Passenger Vehicles (cars) 6,000,000 12%

5,000,000 10%

4,000,000 8%

3,000,000 6% EV Hybrid 2,000,000 4% Share in RPV

1,000,000 2%

0 0%

Source: Automobile Inspection and Registration Information Association

Petrochemicals Manufacturing Sector According to data compiled by the Japan Petrochemicals Industry Association (JPCA) based on production statistics by METI (see Graph 8 and Table 5), ethylene production in 2016 has declined by 18.9% from the peak in 2007. Similar to petroleum refining, falling demand for final products results in a decline in utilization rates, forcing makers to reduce capacity through consolidation and closures. Also similar to petroleum refining, size matters, and due to the higher efficiency of larger new facilities in Asia, Japan facilities have lost relative cost competiveness on commodities grade products.

[Graph 8] Trend of Ethylene Production in Japan (CY)

(thousand tons) Ethylene production YoY 8,000 16% 6,000 12% 4,000 8% 2,000 4% 0 0% ‐2,000 ‐4% ‐4,000 ‐8% ‐6,000 ‐12% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Source: Compiled by Trias Corporation from data by the Japan Petrochemical Industry Association

[Table 5] METI Forecast of Global Capacity and Demand for Ethylene‐Based Product Production (Ethylene Converted) mn tons, % WorldAsia Europe N/C/S Middle Total Korea Taiwan China ASEAN India Japan America East Capacity 2014 164.5 64.6 8.5 5.0 26.0 12.4 5.4 7.2 24.8 40.0 28.8 2020 200.0 76.5 8.9 5.2 32.4 14.8 8.3 6.9 24.8 50.6 34.7 Net CHG 2014‐20 35.5 11.9 0.4 0.1 6.4 2.4 2.9 (0.3) 0.0 10.6 5.9 CAGR 2014‐20 3.3% 2.9% 0.8% 0.4% 3.8% 3.1% 7.3% ‐0.8% 0.0% 4.0% 3.2% Capacity Shr 2014 100% 39% 5% 3% 16% 8% 3% 4% 15% 24% 17% 2020 100% 38% 4% 3% 16% 7% 4% 3% 12% 25% 17% mn tons, % WorldAsia Europe N/C/S Middle Total Korea Taiwan China ASEAN India Japan America East Demand 2014 131.2 59.9 4.4 2.4 34.7 7.4 6.0 5.0 20.8 34.4 8.1 2020 162.7 78.8 4.5 2.7 49.1 9.1 8.5 4.9 22.3 40.1 11.3 Net CHG 2014‐20 31.5 18.9 0.1 0.3 14.4 1.7 2.5 (0.1) 1.5 5.7 3.2 CAGR 2014‐20 3.7% 4.7% 0.1% 2.5% 6.0% 3.5% 6.0% ‐0.4% 1.2% 2.6% 5.7% Note: Also included in METI's demand forecast is CIS adding 0.5mnt to 4.2mnt (+2.3% CAGR) and Africa adding 1.5mnt to 5.1mnt (+5.9% CAGR) Source: Supply/Demand Outlook for Global Petrochemical Products, METI, July 2016

Electric Power Plant Sector According to data compiled by the Federation of Electric Power Companies of Japan (FEPC) based on METI statistics, total electricity sales declined by 13.3% from the peak in FY3/08 to FY3/16. In the wake of the Great East Japan Earthquake/Tsunami and shutdown of all domestic nuclear reactors, the cost of electricity is roughly 20% higher due to the shift back to fossil fuels, and the government has actively promoted conservation measures. Deregulation has prompted a rise in sales of in‐house generated power back to the grid (purchases), and the tariff system has supported diffusion of alternative energy sources including solar and wind (see Graphs 9 and 10).

[Graph 9] Total Power Generated and Purchased (10 regional utilities) (billion kwh) 1,000 900 800 700 Purch ‐ adj 600 New energy 500 Nuclear 400 Thermal 300 Hydro 200 100 0

Source: Federation of Electric Power Companies of Japan

[Graph 10] 2015 IEA Electricity Prices for Selected OECD Countries

(USD/kwh) 0.350 0.327 0.300

0.250 0.237 0.225

0.200 Residential 0.162 0.181 0.143 0.145 Industrial 0.150 0.127 0.103 0.107 0.110 0.100 0.069 0.076 0.050

0.000 Japan Korea US Canada UK Germany France

Source: Key World Energy Statistics 2016, IEA

Semiconductor Manufacturing Sector According to data by World Semiconductor Trade Statistics (WSTS) Japan’s share in semiconductor manufacturing has declined steadily since the peak levelof 40% in 1988, while at the same time, the share of Asia Pacific has continued to rise to over 60%, driven by Taiwan, Korea and China. Japan’s share dropped below 10% for the first time to 9.3% in 2015. This closely resembles the pattern for steel manufacturing. According to WSTS data, total nominal Japan semiconductor production has declined by 33.9% since the peak in 2007 (see Graphs 11 and 12).

[Graph 11] WSTS Regional Shares in the Worldwide Semiconductor Market

100% 90% 80% 70% China 60% Asia Pacific 50% Europe 40% U.S. 30% 20% Japan 10% 0% Source: WSTS

[Graph 12] WSTS Japan Semiconductor Production Trend

(USD million) （％） 50,000 50.0

40,000 40.0

30,000 30.0

20,000 20.0 Production value YoY 10,000 10.0

0 0.0

(10,000) ‐10.0

(20,000) ‐20.0

(30,000) ‐30.0

Source: WSTS

PART THREE: Differences in exposures to global markets In PART TWO we looked at structural factors making a difficult environment for managing industrial gas business in Japan. In PART THREE, we look at differences in the business portfolios of each of the global majors. Despite the aforementioned structural handicaps from the market in Japan, Japan’s two majors still have high exposures to the domestic market.

TAIYO NIPPON SANSO CORPORATION (TNSC) shown below still has 58% of its sales in Japan (see Table 6). However, the point is that even before the introduction of IFRS accounting and cost savings from no longer having to book goodwill amortization, geographic diversification and synergies achieved through M&A were already starting to boost profit margins, a trend that can likely be expected to continue going forward.

[Table 6] TSNC: Consolidated Financial Results Trend by Segment

JPY mn, % FY3/13 FY3/14 FY3/15 FY3/16 FY3/16 FY3/17 YoY 5‐year J‐GAAP J‐GAAP J‐GAAP J‐GAAP IFRS IFRS CAGR TOTAL SALES 468,387 522,746 559,373 641,516 594,421 581,586 ‐2.2 2.7 Gas Business in Japan 341,883 344,635 332,247 327,952 321,416 ‐2.0 ‐ Gas Business in the United States 107,504 130,983 188,566 149,553 147,274 ‐1.5 ‐ Gas Business in Asia and Oceania 54,349 61,995 93,174 89,375 85,875 ‐3.9 ‐ Thermos and Other Businesses 19,010 21,758 27,528 27,541 27,018 ‐1.9 ‐ CORE OPERATING INCOME* 24,884 31,489 35,297 43,362 47,456 54,736 15.3 14.8 Gas Business in Japan 23,368 25,045 27,539 27,850 29,450 5.7 ‐ Gas Business in the United States 4,714 5,795 6,812 9,241 12,074 30.7 ‐ Gas Business in Asia and Oceania 1,912 2,468 4,461 3,009 5,165 71.7 ‐ Thermos and Other Businesses 3,064 3,437 5,993 9,001 10,017 11.3 ‐ eliminations (1,569) (1,449) (1,445) (1,646) (1,970) ‐ ‐ OIM before eliminations* 5.3% 6.0% 6.3% 6.8% 8.0% 9.4% ‐ ‐ Gas Business in Japan 6.8% 7.3% 8.3% 8.5% 9.2% ‐ ‐ Gas Business in the United States 4.4% 4.4% 3.6% 6.2% 8.2% ‐ ‐ Gas Business in Asia and Oceania 3.5% 4.0% 4.8% 3.4% 6.0% ‐ ‐ Thermos and Other Businesses 16.1% 15.8% 21.8% 32.7% 37.1% ‐ ‐ Reported Operating Income ‐ ‐ ‐ 48,925 53,664 9.7 ‐ *Note: With the introduction of IFRS accounting, core operating income subtracts non‐recurring profit/loss items from OI. **Note: Segment classifications prior to FY3/15 were: Industrial Gas‐related, Electronics‐related, Energy‐related and Others. Source: Compiled by Trias Corporation from company earnings releases

[Table 7] TSNC: Geographic Sales Breakdown

JPY mn, % FY3/13 FY3/14 FY3/15 FY3/16 FY3/16 FY3/17 YoY 5‐year J‐GAAP J‐GAAP J‐GAAP J‐GAAP IFRS IFRS CAGR TOTAL SALES 468,387 522,746 559,373 641,516 594,421 581,586 ‐2.2 5.6 Japan 329,771 352,069 354,241 350,842 346,558 338,239 ‐2.4 0.6 The United States 81,024 102,772 126,203 180,327 143,090 141,009 ‐1.5 14.9 Others 57,592 67,905 78,928 110,346 104,772 102,336 ‐2.3 15.5 % to TOTAL SALES 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ‐ ‐ Japan 70.4% 67.3% 63.3% 54.7% 58.3% 58.2% ‐ ‐ U.S. 17.3% 19.7% 22.6% 28.1% 24.1% 24.2% ‐ ‐ Others 12.3% 13.0% 14.1% 17.2% 17.6% 17.6% ‐ ‐ Source: Compiled by Trias Corporation from company earnings releases

Similarly for AIR WATER INC (AWI) while its business is almost entirely still in the domestic market, management’s long‐term strategy of targeting M&A in Medical Business and Agriculture and Food Business has achieved double‐digit growth in 5‐year CAGR for each in both net sales and profits.

Under the 3‐year Mid‐Term Management Plan “NEXT‐2020 Ver.3” (FY2016‐ FY2018) AWI has been challenging to generate new growth opportunities in human‐related businesses (Medical, Energy, Agriculture and Food, and Other Businesses) based on its cash‐cow businesses (Industrial Gas and Chemical Businesses), and to achieve higher growth with diversified business strengths.

Management’s strategy of targeting Medical Business and Agriculture and Food Business is not only restoring a growth component to overall earnings, but is also improving the quality and stability of cash flow by lowering volatility from cyclical fluctuations in industrial gas demand.

[Table 8] AWI: Consolidated Financial Results Trend by Segment JPY mn, % FY3/13 FY3/14 FY3/15 FY3/16 FY3/17 YoY 5‐year act. act. act. act. act. CAGR NET SALES 540,016 641,256 660,541 660,622 670,536 1.5 5.6 Industrial Gas 173,355 189,175 203,128 194,787 199,452 2.4 3.6 Chemical 93,352 95,160 102,644 86,994 61,343 ‐29.5 ‐10.0 Medical 78,904 120,018 118,323 124,540 129,961 4.4 13.3 Energy 54,090 57,278 52,824 46,356 45,030 ‐2.9 ‐4.5 Agriculture and Food 45,712 71,660 71,394 91,551 118,404 29.3 26.9 Other 94,600 107,961 112,226 116,392 116,343 0.0 5.3 ORDINARY INCOME 35,155 36,281 38,159 35,075 41,251 17.6 4.1 Industrial Gas 13,631 13,072 12,702 14,215 16,591 16.7 5.0 Chemical 3,143 2,892 2,535 (4,867) (985) ‐ into negative Medical 6,479 7,618 7,632 8,668 9,230 6.5 9.3 Energy 3,116 3,238 3,174 3,597 3,851 7.1 5.4 Agriculture and Food 1,355 2,564 2,105 3,016 4,028 33.6 31.3 Other 5,587 7,121 7,964 9,086 8,468 ‐6.8 11.0 Adjustments 1,842 (225) 2,043 1,358 64 ‐ ‐ ORIM before Adjustments 6.5% 5.7% 5.8% 5.3% 6.2% Industrial Gas 7.9% 6.9% 6.3% 7.3% 8.3% Chemical 3.4% 3.0% 2.5% ‐5.6% ‐1.6% Medical 8.2% 6.3% 6.5% 7.0% 7.1% Energy 5.8% 5.7% 6.0% 7.8% 8.6% Agriculture and Food 3.0% 3.6% 2.9% 3.3% 3.4% Other 5.9% 6.6% 7.1% 7.8% 7.3% Note: Ordinary income is used for segment profit/loss to reflect the impact from equity method affiliates. Also, since overseas sales are less than 10% of the total, the company is not required to report geographic segments. Source: Compiled by Trias Corporation from company earnings releases

AsdiscussedinPARTONE,Air Liquide SA (ALSA) acquired Airgas, Inc. (AGI) in the U.S., completing the transaction in 2016. Table 9 shows a strong year‐on‐ year boost for the Americas segment, as well as the Industrial Merchant segment, additionally lifting 5‐year CAGR for each to high levels. Solid 5‐year CAGR for Healthcare, Electronics and the Asia Pacific region are not surprising given their respective latent growth potentials (Electronics is likely more cyclical than structural).

However, the point we want to emphasize is the low growth for its traditional markets in Large Industries and Europe. The company’s 2016 Reference Document highlights “consistent total revenue growth of +6.0% CAGR over the last 30 years,” however, it appears clear that this can only be achieved through ongoing and disciplined reshuffling of the business portfolio.

[Table 9] ALSA: Gas & Services Revenue by Business and Geographic Segments

EUR mn, % FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 YoY YoY adj. 5‐year act. act. act. act. act. CAGR GAS & SERVICES 13,912 13,837 13,800 14,752 17,331 17.5 2.7 5.6 Large Industries 5,015 4,940 4,980 5,201 5,037 ‐3.1 5.4 0.1 Industrial Merchant 5,193 5,081 5,016 5,229 7,565 44.7 ‐1.6 9.9 Healthcare 2,482 2,689 2,570 2,799 3,111 11.2 4.9 5.8 Electronics 1,222 1,127 1,234 1,523 1,618 6.2 4.3 7.3 Europe 7,025 7,058 6,604 6,749 6,593 ‐2.3 2.0 ‐1.6 Americas 3,108 3,225 3,384 3,595 6,230 73.3 1.8 19.0 Asia Pacific 3,416 3,184 3,402 3,850 3,936 2.2 4.2 3.6 Middle East and Africa 363 370 410 558 572 2.5 7.6 12.0 Note: Adjustments for comparison exclude significant scope (AGI, etc.) 2,735, currency (203), natural gas (272), electricity (84). Also, Gas & Services revenues accounted for 93.3% and 95.6% respectively of total FY12/15 and FY12/16 revenues (EUR15,819mn, EUR18,135mn). Source: Compiled by Trias Corporation from the company's presentation material for analysts

[Table 10] ALSA: Gas & Services Operating Income Recurring Margin (OIR/Revenue) EUR mn, % FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 act. act. act. act. act. GAS & SERVICES 18.8% 19.2% 19.5% 20.1% 18.7% Europe 18.3% 19.1% 19.9% 19.6% 20.0% Americas 24.0% 23.6% 22.6% 23.5% 17.3% Asia Pacific 15.1% 15.1% 16.3% 18.2% 18.5% Middle East and Africa 21.2% 17.9% 15.0% 15.9% 19.9% Note: OIR = operating income recurring Source: Compiled by Trias Corporation from the company's presentation material for analysts

Leaving aside the proposed merger with Praxair, Inc. (Praxair), noteworthy for Linde AG (Linde Group) has been its targeted expansion in Healthcare. In 2012, the company acquired the continental European homecare business from Air Products & Chemicals, Inc. (APCI) with annual revenue of EUR210mn, and later in 2012 acquired Lincare Holdings Inc. in the U.S. with annual revenue of USD1.8bn. [Table 11] Linde Group: Business Segments EUR mn, % FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 YoY 5‐year act. act. act. act. act. CAGR Group Revenue 15,280 16,655 17,047 17,944 16,948 ‐5.6 2.6 Gases Division 12,591 13,971 13,982 15,168 14,892 ‐1.8 4.3 Comparable growth* 3.8 3.3 2.7 2.1 1.4 Engineering Division 2,561 2,879 3,106 2,594 2,351 ‐9.4 ‐2.1 Operating Profit 3,530 3,966 3,920 4,131 4,098 ‐0.8 3.8 Gases Division 3,403 3,846 3,835 4,151 4,210 1.4 5.5 Engineering Division 312 319 300 216 196 ‐9.3 ‐11.0 OPM (before corporate elim) 23.10% 23.80% 23.00% 23.00% 24.20% Gases Division 27.00% 27.50% 27.40% 27.40% 28.30% Engineering Division 12.20% 11.10% 9.70% 8.30% 8.30% *Note: Adjusted for exchange rate effects and changes in the price of natural gas Source: Compiled by Trias Corporation from the company’s online earnings database [Table 12] Linde Group: Gases Division Geographic Segments EUR mn, % FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 YoY 5‐year act. act. act. act. act. CAGR EMEA Revenue 5,998 6,090 5,980 6,010 5,736 ‐4.6 ‐1.1 Asia/Pacific Revenue 3,498 3,767 3,812 4,157 4,109 ‐1.2 4.1 Americas Revenue 3,200 4,231 4,314 5,183 5,232 0.9 13.1 EMEA Operating Profit 1,700 1,759 1,778 1,790 1,807 0.9 1.5 Asia/Pacific Operating Profit 935 1,005 1,010 1,063 1,084 2.0 3.8 Americas Operating Profit 768 1,082 1,047 1,298 1,319 1.6 14.5 EMEA OPM 28.30% 28.90% 29.70% 29.80% 31.50% Asia/Pacific OPM 26.70% 26.70% 26.50% 25.60% 26.40% Americas OPM 24.00% 25.60% 24.30% 25.00% 25.20% Source: Compiled by Trias Corporation from the company’s online earnings database [Table 13] Linde Group Revenues Breakdown by Product EUR mn, % FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 YoY 5‐year act. act. act. act. act. CAGR Gases Division by product Bulk 3,381 3,328 3,335 3,616 3,575 ‐1.1 1.4 Cylinder 4,254 4,050 3,890 4,040 3,820 ‐5.4 ‐2.7 On‐site 2,921 3,578 3,698 3,847 3,757 ‐2.3 6.5 Healthcare 2,035 3,015 3,059 3,665 3,740 2.0 16.4 Engineering Division by product Olefin plants 684 378 494 683 819 19.9 4.6 Natural gas plants 471 684 835 572 448 ‐21.7 ‐1.2 Air separation plants 704 959 901 406 419 3.2 ‐12.2 Hydrogen and synthesis gas plants 419 619 631 690 485 ‐29.7 3.7 Other 283 239 245 243 180 ‐25.9 ‐10.7 Source: Compiled by Trias Corporation from the company’s online earnings database

Again, leaving aside the mega‐merger with Linde Group, the striking thing about Praxair’s financial results is the apparent lack of growth here, with 5‐year revenue CAGR of ‐1.6% and 5‐year OI CAGR of ‐2.1% (see Table 14).

[Table 14] Praxair: Operating Segments USD mn, % FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 YoY 5‐year act. act. act. act. act. CAGR TOTAL REVENUE 11,224 11,925 12,273 10,776 10,534 ‐2.2 ‐1.6 North America 5,598 6,164 6,436 5,865 5,592 ‐4.7 0.0 Europe 1,474 1,542 1,546 1,320 1,392 5.5 ‐1.4 South America 2,082 2,042 1,993 1,431 1,399 ‐2.2 ‐9.5 Asia 1,414 1,525 1,619 1,551 1,555 0.3 2.4 Surface Technologies 656 652 679 609 596 ‐2.1 ‐2.4 TOTAL OPRATING INCOME 2,437 2,625 2,608 2,321 2,238 ‐3.6 ‐2.1 North America 1,465 1,538 1,580 1,558 1,430 ‐8.2 ‐0.6 Europe 256 270 291 250 273 9.2 1.6 South America 429 467 449 291 257 ‐11.7 ‐12.0 Asia 246 271 303 289 276 ‐4.5 2.9 Surface Technologies 106 111 123 105 102 ‐2.9 ‐1.0 Eliminations (65) (32) (138) (172) (100) ‐ ‐ TOTAL OIM before Eliminations 21.7% 22.0% 21.2% 21.5% 21.2% North America 26.2% 25.0% 24.5% 26.6% 25.6% Europe 17.4% 17.5% 18.8% 18.9% 19.6% South America 20.6% 22.9% 22.5% 20.3% 18.4% Asia 17.4% 17.8% 18.7% 18.6% 17.7% Surface Technologies 16.2% 17.0% 18.1% 17.2% 17.1% Source: Compiled by Trias Corporation from the company’s online earnings database

[Table 15] Praxair: North America Revenue Breakdown by End Market and Distribution Method USD mn, % FY12/12 FY12/13 FY12/14 FY12/15 FY12/16 act. act. act. act. act. End Markets Manufacturing 32% 30% 30% 30% 29% Metals 14% 13% 12% 11% 12% Energy 17% 19% 20% 18% 17% Chemicals 11% 10% 10% 10% 9% Electronics 5%5%4%5%5% Healthcare 7% 7% 7% 7% 7% Food & Beverage 5% 8% 8% 9% 10% Aerospace 1%1%1%2%2% Other 8%7%8%8%9% Distribution Method On‐Site 27% 28% 30% 28% 28% Merchant 35% 36% 36% 38% 38% Packaged Gases 36% 34% 32% 32% 31% Other 2%2%2%2%3% Source: Compiled by Trias Corporation from the company’s online earnings database

Following ALSA’s acquisition of AGI in 2016, and the proposed merger of Linde Group and Praxair, APCI is confronted with looking for a dance partner after all of the attractive partners appear to have been taken. Although it abandoned plans to acquire Yingde Gases Group Company Limited (Yingde Gases), it just announced winning orders for 6 projects in China for new semiconductor and LCD fabs.

[Table 16] APCI: Operating Segments USD mn, % FY9/12 FY9/13 FY9/14 FY9/15 FY9/16 YoY 5‐year act. act. act. act. act. CAGR TOTAL SALES 9,611.7 10,180.4 10,439.0 9,894.9 9,524.4 ‐3.7 ‐0.2 Industrial Gases ‐ Americas 4,078.5 3,693.9 3,343.6 ‐9.5 Industrial Gases ‐ EMEA 2,150.7 1,864.9 1,700.3 ‐8.8 Industrial Gases ‐ Asia 1,527.0 1,637.5 1,716.1 4.8 Industrial Gases ‐ Global 296.0 286.8 498.8 73.9 Materials Technologies 2,064.6 2,087.1 2,019.5 ‐3.2 TOTAL OPERATING INCOME 1,626.2 1,583.2 1,656.5 1,893.2 2,198.5 16.1 7.8 Industrial Gases ‐ Americas 762.6 808.4 895.2 10.7 Industrial Gases ‐ EMEA 351.2 330.7 382.8 15.8 Industrial Gases ‐ Asia 310.4 380.5 449.1 18.0 Industrial Gases ‐ Global (57.3) (51.6) (21.3) ‐ Materials Technologies 379.0 476.7 530.2 11.2 Eliminations (77.0) (51.5) (37.5) ‐ EQUITY AFFILIATES P/L 151.4 154.5 148.6 ‐3.8 Industrial Gases ‐ Americas 60.9 64.6 52.7 ‐18.4 Industrial Gases ‐ EMEA 44.1 42.4 36.5 ‐13.9 Industrial Gases ‐ Asia 38.0 46.1 57.8 25.4 Industrial Gases ‐ Global 5.8 (0.8) (0.1) ‐ Materials Technologies 2.6 2.2 1.7 ‐22.7 Note: Segment calassifications through FY9/14 were: Merchant Gases, Tonnage Gases, Electronic and Performance Materials, and Equipment and Energy. Source: Compiled by Trias Corporation from the company’s online earnings database

[Table 17] APCI: Sales Breakdown and OPM by Segment USD mn, % FY9/12 FY9/13 FY9/14 FY9/15 FY9/16 act. act. act. act. act. Sales Breakdown 100.0% 100.0% 100.0% Industrial Gases ‐ Americas 39.1% 37.3% 35.1% Industrial Gases ‐ EMEA 20.6% 18.8% 17.9% Industrial Gases ‐ Asia 14.6% 16.5% 18.0% Industrial Gases ‐ Global 2.8% 2.9% 5.2% Materials Technologies 19.8% 21.1% 21.2% OPM before Eliminations 16.9% 15.6% 15.9% 19.1% 23.1% Industrial Gases ‐ Americas 18.7% 21.9% 26.8% Industrial Gases ‐ EMEA 16.3% 17.7% 22.5% Industrial Gases ‐ Asia 20.3% 23.2% 26.2% Industrial Gases ‐ Global ‐19.4% ‐18.0% ‐4.3% Materials Technologies 18.4% 22.8% 26.3% Source: Compiled by Trias Corporation from the company’s online earnings database

Yingde Gases based in Hong Kong is the largest independent industrial gas supplier in China. According to its 2015 financial results presentation shows that 87% of its sales are from on‐site plants, and 4 out of its top 5 customers are Chinese steel mills.

APCI submitted a non‐binding USD1.5bn all cash bid (HKD6.00/share) in December contingent upon examination of its finances. This followed APCI spinning off Electronic Materials, and selling Performance Materials business for USD3.8bn. Then in late March, APCI announced that it was withdrawing its bid, saying it was not in the best interests of its shareholders. However, this came in the wake of a rare Chinese boardroom battle with co‐founders jostling for control. Yingde Gases’s balance sheet is highly leveraged.

CONCLUSION By examining three characteristic aspects, several important points for analyzing Japan’s industrial gas majors have become clear.

[PART ONE] In terms of the size of synergy effects from M&A, although there is a significant difference between those for Japan’s two majors and those for other global industrial gas majors, synergy effects from M&A for Japan’s majors are clearly resulting in margin improvement.

[PART TWO] There are inherent negative factors in Japan, in stark contrast to the market environment for the majority of the rest of Asia and the U.S. It is necessary to take these factors into consideration when looking at the level of profitability for Japan’s majors.

[PART THREE] Even for other global industrial gas majors, a slowdown in the growth trend of existing markets (business and geographical segments) is becoming apparent. For Japan’s two majors, while there is still a large exposure to the domestic market which has inherent negative factors, there is ample future growth potential through diversification into new businesses and new regional markets, and both are realizing profit generation over the medium term.

Based on the aforementioned points, when comparing Japan’s two majors with other global industrial gas majors, although scale merits, specifically the level of profit margins, are inferior for Japan’s majors, through embarking on each of their own unique growth strategies, both are realizing improved profitability, and we conclude that actual growth in profits is not inferior to other global majors.