A n n u a l

20

A TECHNOLOGY AND INTELLIGENCEO R I E N T E D C O M P A N Y T H AT T U R N S
WISDOM INTO BUSINESS

R e p o r t

05

Contents

P ro f i l e
The Nagase Group provides its customers with trading,Nagase at a Glance ........................................................ Inside Covermarketing, R&D, manufacturing and processing functions in
Financial Highlights ........................................................

1

four key business areas: Chemicals, Plastics, Electronics
and Health Care.
Nagase & Co., Ltd., the nucleus of our group, was estab-

Message from the Management ..................................

2lished as a dyestuffs wholesaler in Kyoto in 1832. In 1900, it
started importing synthetic dyestuffs from ChemicalInterview with the President .............................................

4

Industry of Basel. In the ensuing years, it has opened up
new markets worldwide together with its customers andProgress of WIT21 ..........................................................

10

accumulated considerable know-how in its role as “a technology and intelligence oriented trading company.” At thesame time, it has enhanced its capabilities in new productCorporate Social Responsibility (CSR) Activities ....

15

R&D, manufacturing and processing.
Today, the Nagase Group comprises more than 100

Corporate Governance...................................................

17

companies in Japan and overseas. The Group is building a
new business model that organically combines the trading,marketing, R&D, manufacturing and processing functions ofBoard of Directors, Corporate Auditors andExecutive Officers ......................................................

18

these companies to provide a high-level response to customer needs. In doing so, we aim to offer new proposals as“a technology and intelligence oriented company that turns

Review of Operations.....................................................

19

wisdom into business.” Looking ahead, along with its customers worldwide, the Nagase Group will seize business
opportunities to continue to develop and grow.

Bases for Growth in the Four Strategic Areas of WIT21:
Nagase ChemteX and Nagase R&D Center ................

33

Six-year Summary ...........................................................

37

Notes on Financial Data and Graphs●

All yen amounts presented in this annual report have been truncated after thesecond decimal point in the case of billions of yen and yen amounts, and after thelowest whole number in the case of millions of yen amounts. Percentages arerounded to the nearest decimal point.

Management’s Discussion and Analysis ofOperations and Finances ...........................................

38●

U.S. dollar amounts are converted from full yen amounts at the rate of¥107.69=U.S$1. In the case of thousand dollar amounts, portions less than one
thousand dollars have been truncated.

Consolidated Financial Statements ...........................

44●

Years in graphs represent fiscal years ended March 31.

A Cautionary Note on Forward-looking Statements

Organization .....................................................................

61

Major Consolidated Subsidiaries,
Affiliates and Offices...................................................

62

Company Information.....................................................

66

Investor Information .......................................................

67

This annual report contains statements regarding Nagase’s corporate views offuture developments that are forward-looking in nature and are not simply reiterationsof historical facts.
These statements are presented to inform shareholders of the views of Nagase’s
management but should not be relied on solely in making investment and otherdecisions. You should be aware that a number of important risk factors could
lead to outcomes that differ materially from those presented in such forward-looking
statements.
These include, but are not limited to, (i) change in economic conditions that may
lead to unforeseen developments in markets for products handled by Nagase,(ii) fluctuations in currency exchange rates that may cause unexpected deteriorationin the value of transactions, (iii) adverse political developments that may create
unavoidable delays or postponement of transactions and projects, (iv) changes inlaws, regulations, or policies in any of the countries where Nagase conducts its
operations that may affect Nagase’s ability to fulfill its commitments, and (v)significant changes in the competitive environment.
In the course of its operations, Nagase adopts measures to control these andother types of risks, but this does not constitute a guarantee that such measures
will be effective.

Financial Highlights
Nagase & Co., Ltd. and Consolidated Subsidiaries(Years ended March 31)
Millions of Yen

ChangeThousands of
U.S. Dollars (Note)2005/2004

2005

2005

2004

2003

Net Sales..............................................................................

¥575,636¥ 533,301¥ 503,688

7.9%$5,360,240

Chemicals........................................................................

251,725

231,360

223,6568.8

2,344,034

Plastics ............................................................................

188,456

170,996

165,81010.2

1,754,879

Electronics .......................................................................

122,632

118,978

99,7593.1

1,141,932

Health Care......................................................................

12,821

11,966

14,461

7.2

119,394

Gross Profit ..........................................................................

61,96053,49451,89915.8

576,971

Operating Income.................................................................

13,256

10,244

8,433

29.4

123,440Net Income (Loss).................................................................

10,384

7,010

4,186

48.1

96,694

Total Assets ...............................................................................

¥335,290¥ 310,793¥ 284,800

7.9%$3,122,175

Shareholders’ Equity .................................................................

167,092

156,210140,9447.0

1,555,943

For the Year:At the Year-end:

Millions of Yen

ChangeU.S. Dollars

31.72

48.1%

$

Per Share Data:
Net Income........................................................................... ¥

81.00

¥

54.69

¥

0.75

Shareholders’ Equity ............................................................

1,311.37

1,227.82

1,107.54

6.8

12.21

Cash Dividends ....................................................................

10.00

9.00

8.00

11.1

0.09

%

ChangeRatios:Shareholders’ Equity Ratio....................................................

49.8

50.3

49.5

(0.5) points

Ratio of Operating Income to Net Sales.................................

2.3

1.9

1.7

0.4

Return on Equity (ROE) .........................................................

6.4

4.7

2.9

1.7

Return on Assets (ROA).........................................................

3.2

2.4

1.4

0.8

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥107.69=U.S.$1, the approximate Tokyo exchange market rate as of March 31, 2005.

Net Sales

Net Income (Loss)Net Income (Loss) per ShareTotal Assets(¥ Billion)(¥ Billion)(¥)(¥ Billion)

600

575.6

559.3

500

12

100

533.3
490.5 503.6

10.3

9

400

80

300

400

7.0

60

4.9
4.1

3

200

335.2
300.0

310.7
284.8

54.69

6
300

353.7

81.00

40

200
35.28

31.72

20
100

100
(15.39)(2.0)
Years ended 2001
March 312002 2003 2004 2005

Years ended
2001
March 312002 2003 2004 2005

Years ended 2001
March 312002 2003 2004 2005

NAGASE & CO., LTD. ANNUAL REPORT 2005

Years ended 2001
March 312002 2003 2004 2005

1

Nagase at a GlanceManagement Philosophy
The Nagase Group is a member of the worldsociety. As such, it is our duty to maintain goodand fair business practices and, throughcontinued growth and development, provide
society with the goods and services needed while
improving the welfare of our employees.

Comprehensive Strengths of
the Nagase Group
Chemicals
Plastics
Automotive
Life Sciences
Electronics

Management Vision“A technology and intelligence oriented
company that turns wisdom into business.”

ss

sine

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elop
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From our base in chemicals, we will provide
new functions and services on a global scaleand continue to create new high-value-added
businesses that solve customer issues.
By doing so, we aim to achieve consolidated
operating income of ¥20 billion, a gross profit
margin of 15 percent and revenues higher thancost of capital in the year ending March 2013.

rsea

Long-term Vision

Ove

Nagase has adopted “A technology andintelligence oriented company that turns wisdom
into business” as its management vision for the
21st century. Rooted in a thoroughgoingcustomer-oriented approach that insists “themarket provides all the answers,” this vision
expresses our determination to exploit our
technology, information and wisdom, enhancedby experience, to create businesses that go
beyond the intermediary role of the trading
company. Customer demands are becoming
more diverse, more complex and moresophisticated. The straightforward intermediarybusiness approach is no longer enough to satisfy
these demands. At the same time, we are awarethat regardless of the industry, the era in which asingle company can meet all market needs alone
is long gone. To help customers create new value,
therefore, we will continue to propose anddevelop new businesses while strengthening ourrole as a reliable business partner.

pt.
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Net Sales by Region

r
nte

e

DC

&
eR

(Year ended March 31, 2005)

North America

Others 2.4%

3.0%

s

ga

Na

teX

m
he

Asia

31.4%

¥575.6billion“The Nagase Way” Action Principles

1 Always be customer-oriented.
2 Always be a creative challenger.
3 Always use the power of the Nagase Group.
4 Always think globally and act locally.
5 Always think systematically and act speedily.

Japan

63.2%

Nagase’s Strengths■ Relationships developed over many years with more than 6,000 excellent companies■ Group manufacturing, research, development and marketing functions to provide

superior products and services■ The ability to create and propose business models that go beyond being just anintermediary to maintain leadership■ Innovative technological and information-gathering capabilities based in the field ofchemicals■ Solid finances

Chemicals
43.7%

Departments

Customer Segments

Main Products and Services

Colors & Imaging
Department

Textile processing (clothing, other fabrics,
car interiors), plastic coloring, synthetic
fiber, paint and ink, pigment dispersion,
printing, inkjet toner, thermal paper,
photoactive chemicals, flat panel displays,
information recording paper

Dyestuffs, dyeing auxiliaries, finishing agents, textile-processing resins,
adhesives for textiles, pigments, pigment dispersing agents, resin
additives, UV cured resins, toner resins, silicones, dyes and related
chemicals for imaging and recording, chemicals for paper
manufacturing, additives for paints and inks

Performance Chemicals
Department

Paint and ink, resins, synthetic fiber,urethane foam, flame retardants, FRP,
plasticizers, film

Plastic materials, plastics and pigments, solvents, additives for paints
and inks, urethane materials, flame retardants, plastic additives, plasticizers, polymer filters

Speciality Chemicals
Department

Organic synthesis, surfactants

Petrochemical products, raw materials for household products,
cosmetics, surfactants, fluorochemicals, materials for silicones,
electronics chemicals development

Pharmaceuticals, food/feed chemicals,
agricultural chemicals, household products

Pharmaceuticals (APIs, IND substances, intermediates, raw materials,
formulations, excipients), diagnostics (bulks, intermediates, instruments& kits), laboratory and research products, agricultural chemicals(intermediates, bulks, formulations, submaterials), household insecticides(bulks, formulations), animal health products, enzymes, fermentation
products, toiletries (raw materials, products), functional food ingredients,
health food materials, food additives, nutritional supplements, feed, feed
additives

Fine Chemicals
Department

Electrical, electronics, office automationequipment, consumer electronics,
packaging materials

General-purpose resins, functional resins, auxiliaries, plastic products,
plastic-related equipment, devices and dies, software engineering

Automotive Solutions
Department

Automotive

General-purpose resins, functional resins, auxiliaries, plastic products,
plastic-related equipment, devices and dies, software engineering,facility equipment

Eco-Materials
Department

Construction, building materials, housing

Building materials, housing equipment, plastic materials, construction
services

Advanced Polymers
Department

40.4%

Net Sales

Operating Income

Plastics

32.3%
32.8%
Net Sales

Operating Income

Electronics
21.3%
20.1%

Semiconductors, liquid crystal, electronics
components

Semiconductor manufacturing equipment, chemical management
systems, chemicals for the production of semiconductors and liquid
crystal, epoxy resin-related products, electroless plating systems

Information & Functional
Materials Department

Semiconductors, liquid crystal,communications, imaging

Semiconductor packaging materials, semiconductor packaging systems,
insulating materials, fluoroplastic-related materials, precision abrasive
materials, wireless communication modules and systems, communicationsrelated integrated circuit chips, surface defect inspection systems

Display & Electronics
Components
Department

Displays, computer monitors, televisionassemblies

Liquid crystal displays (LCDs), materials, manufacturing devices andoptical films for LCDs and organic light-emitting diodes (LEDs),
processed aluminum products, processed glass products

Beauty Care Products
Department

General consumer market

Cosmetics, health foods, beauty foods

Medical institutions, clinical testing
centers, universities, laboratories

Microbiological test devices and reagents, clinical diagnostic systems,
infectious disease control systems, patient identification wristbands,
radiation measurement-related products and systems, electronic
medical record systems

Electronic Chemicals
Department

Medical Care Products
Department

Net Sales

Operating Income

Health Care
2.2%

4.7%

Net sales and operations income of the Health Care segment include Other businesses.

Net Sales

Operating IncomeM e s s a g e f ro m t h e M a n a g e m e n t

Hiroshi Nagase President

Hideo Nagase Chairman

In the second year of the Medium-term Management Plan WIT21, Nagase & Co.,
Ltd. took aggressive initiatives to expand its business. Supported by a favorable
market environment, Nagase achieved record sales and profits for the third
consecutive fiscal year, and also reached the numerical targets of WIT21 a year
earlier than planned. From its base in chemicals, Nagase has become a technology
and intelligence oriented company that turns wisdom into business with abroad portfolio of business activities consisting of R&D and manufacturing.
Nagase will continue to devote efforts to creating high-value-added businesses
and to grow and develop with its stakeholders.

2

NAGASE & CO., LTD. ANNUAL REPORT 2005

Results for the Fiscal Year Ended
March 31, 2005
Expanding exports that reflected good economic

Moving toward Achievement of WIT21
Objectives with Quality and Quantity
As stated earlier, we achieved the numerical targets

conditions worldwide, combined with solid domesticof WIT21 in the plan’s second year. Therefore, wedemand, supported generally positive conditions inhave revised the targets upward for the current fiscal

the Japanese economy in fiscal 2004, the year

year, the final year of the plan.

ended March 31, 2005, despite signs of a slowdown

Nevertheless, we have not yet reached a satisfactoryin some sectors during the second half. In the mate-level of achievement in our strategic objective of

rials market, prices increased due to a rise in crude

deepening and expanding our presence in key

oil prices, but prices for LCD-related components

strategic business areas by transforming into a true

decreased, reflecting concerns about excess supply.

business solutions-oriented company. Therefore, we

In these market conditions, the entire Nagase

will work even harder to advance the organizational

Group worked to improve sales and earnings. As astructure we established in April 2004 to strengthen

result, domestic sales increased 4.0 percent andcollaboration based on a consensus of our major

overseas sales expanded 15.3 percent year-on-year.

strategic business areas. By doing so, we aim toConsolidated net sales increased 7.9 percent toachieve the objectives of WIT21 by including qualita-¥575.63 billion.

tive as well as numerical targets. In addition, we will

Reflecting the increase in net sales, operating

also focus on creating new targets for the post-

income increased 29.4 percent to ¥13.25 billion.

WIT21 period, which will start in the next fiscal year.

Net income rose 48.1 percent to ¥10.38 billion as
negative factors such as decreased equity inIncreasing Shareholder Valueearnings of affiliates were more than offset by

Since its establishment, Nagase has followed agains on sales of investments in securities andmanagement philosophy of carrying out good and fair

property, plant and equipment. Net income perbusiness practices. In other words, Nagase’s first priori-

share increased strongly to ¥81.00 from ¥54.69

ty is to meeting its responsibility to shareholders, cus-in the previous fiscal year.

tomers, business partners, employees, society and all

While following the Company’s long-standing
policy of paying stable dividends, in light of thestrong performance for the fiscal year and in

stakeholders by expanding its profits and continuing togrow through honest, transparent management.
By achieving the objectives of WIT21 and setting

response to the support of our shareholders, weambitious new targets, we will work to increase

increased the ordinary dividend to ¥10.00 per

Nagase’s corporate value and further raise sharehold-share from ¥9.00 per share (ordinary dividend of

er value. We are counting on your continued guidance¥8.00 and commemorative dividend of ¥1.00) inand support in these efforts.

the previous fiscal year.
July 2005

Hideo Nagase

Hiroshi Nagase

ChairmanPresident

NAGASE & CO., LTD. ANNUAL REPORT 2005

3

I n t e r v i e w w i t h t h e P re s i d e n t
President Hiroshi Nagase discusses the strengths of the Nagase
Group, which achieved the targets of WIT21 ahead of schedule,
and the Group’s new targets and future growth strategy.
Nagase posted solid results in the second year of WIT21, andreached the numerical targets of WIT21 a year ahead of schedule.
What were the factors behind this strong performance?
In our general distribution business, which has grown into our core function as a
trading company, major commercial rights were terminated with the expiration of ourcontract with General Electric Company in 2004. So I am delighted that our strong
performance reflects the success of our efforts over the last several years to focus
employees’ energies on creating new businesses through collaboration among internal
divisions and Group companies.
In addition, we had a favorable business environment. A major factor was thatconditions were positive in three of the strategic business areas of WIT21 — electronics,
automotive and overseas markets, primarily China. Demand increased substantially in
the Chinese market, which the Nagase Group has focused on during the last several
years, and this contributed to higher demand from domestic customers as well. The key
reason we achieved the WIT21 numerical targets ahead of schedule is that the reboundin the economy was much more robust than we had assumed when we drew up theplan three years ago, and demand increased in each of our markets.
Medium-term Management Plan WIT21 Goals and Progress (Fiscal 2003-Fiscal 2005)

Achieved the numerical targets of
WIT21 one year ahead of schedule
Fiscal 2003 (Actual)

Net Sales

Fiscal 2004 (Actual) Fiscal 2005 (Original Targets)

Fiscal 2005 (Projected)¥533.3 billion ¥575.6 billion¥550.0 billion¥600.0 billion

Domestic ¥349.5 billion ¥363.7 billion¥330.0 billion¥370.0 billion

Overseas ¥183.7 billion ¥211.9 billion¥220.0 billion¥230.0 billion¥11.0 billion¥16.1 billion

Operating Income ¥10.2 billion

4

Set higher numerical targets for fiscal 2005,
the final year of the plan

¥13.2 billion

NAGASE & CO., LTD. ANNUAL REPORT 2005

The basic strategies of WIT21 are to (1) set the company apart fromcompetitors by creating a wholly customer-oriented business, (2) nurtureand strengthen market-leading businesses, and (3) make use of theGroup’s resources and distinctive identity to create new businesses.
What progress has Nagase made in implementing these strategies?
Until now, our organizational structure and ways of working have been built aroundthe distribution business. Fortunately, this business was based on distribution rights
with major companies such as Ciba-Geigy Limited, Union Carbide and Carbon Corp.
and General Electric Company, and thus was able to grow. However, these distribution
contracts have been ending. Therefore, over the last several years we have been shifting our customer orientation toward an emphasis on proactively proposing solutions tocustomer needs.
As Nagase is a company with expertise in chemicals, we are basing internal collaboration on our strengths in the chemical industry and technology, which is also leading to
the creation of new businesses in other industries. In the fast-growing automotive field,
for example, we are broadening our business focus, which has been centered on the
Plastics business division, to include collaboration with the Chemicals business divisionin areas such as urethane. From the customer’s standpoint, Nagase does more thanjust supply materials; we are able to combine our diverse functions to provide comprehensive strengths not limited to a single division. Our customers are increasingly valuingthat approach. Similarly, we are promoting collaboration as a Group, and we are broadening our business by taking advantage of the presence of our affiliated companies,
particularly our manufacturing companies and the Nagase R&D Center, which are
unique advantages of the Nagase Group. One business has developed to a profitablelevel on a scale of ¥1.5 to ¥1.6 billion with a staff of 50 people. Examples such as this areevidence that we are making steady progress. However, we have still had cases in which
we acted as if our customers were in the chemicals sector, when in fact a large part oftheir business was in electronics. So a key task will be improving the depth and speed of
our understanding of customer needs.
Progress in Strategies of Medium-term Management Plan WIT21
Business reform and creation of
new business still only half done

Basic Strategies➀ Set the company apart from competitors by creating
a wholly customer-oriented business➁ Nurture and strengthen market-leading businesses➂ Make use of the Group’s resources and distinctive

Ongoing promotion of qualitative
strategies of WIT21

Four Strategic Areas➀ Electronics➁ Life Sciences➂ Automotive➃ Overseas Operations

identity to create new businesses

NAGASE & CO., LTD. ANNUAL REPORT 2005

5

What progress has the Group made in its strategic business areas ofelectronics, life sciences, automotive and overseas operations?
In electronics, we are making steady progress in areas such as semiconductor and
LCD optical film and LCD modules. We are expanding in the semiconductor market inparticular, with a focus on the products of Nagase ChemteX Corp., the largest manufacturer in the Nagase Group. However, because we are concentrating on those twoareas, we believe there is still ample room for further development. We expect to makevarious developments in the electronics business, which will also extend to the automotive field. We also have a regional bias, and in my view, we have not yet taken sufficient
steps toward our optimal structure.
In the life sciences sector, which remains a major challenge, last year we adopted amanagement system in the fine chemicals business that fosters a sense of unity from a
consolidated perspective. We strengthened collaboration between Nagase ChemteX
Corp. and Nagase’s sales divisions, and are also considering collaboration in businessstrategies and policies. Although the operating environment for pharmaceuticals andother industries is challenging, we will build on these activities to grow with a focus on
high-value-added products and businesses that take advantage of our proprietary technologies. The beauty care and medical related businesses are also poised for expansion
now that business restructuring and other measures have clarified the future direction ofthese businesses.
In the automotive sector, we have built good relationships with customers by selling raw
materials for plastics and molding equipment to automobile components manufacturers.
Based on these relationships, we are expanding our business domain into areas such as
integration of the component design business with the molding business, and purchasing
and distribution of raw materials and components on behalf of customers at overseas
bases. We plan to continue building a structure that enables us to respond to automobile
manufacturers’ global manufacturing operations and to propose original solutions. In China,
in addition to the sales activities of our subsidiaries in Tianjin, Shanghai, Guangzhou andother cities, we will enhance mold production capabilities at Nagase Plastics Design and
Die (Tianjin) Co., Ltd., which was established in 2004 and is beginning full-scale operations.
In addition, Guangzhou Nagase Trading Ltd. will open a representative office in the interior
city of Wuhan, a future strategic region, and study business possibilities there.
We will also reinforce theNagase Group’s Network in Greater China
functions of our well-established molding and raw
Tianjinmaterial and product busiDaliannesses in North America andEurope. In Southeast Asia,
besides expanding businessin Thailand, we are starting
up a business to assemble
Shanghaicomponents in Indonesia,
which will be supplied tocustomers in Europe andother regions.
TaipeiHong Kong

6

NAGASE & CO., LTD. ANNUAL REPORT 2005

Sales
Manufacturing

In fiscal 2004, you continued to carry out the reorganization process
begun in the previous year. Please describe the purpose and benefitsof this organizational reform and give us your evaluation of thereorganization implemented last year.

Chemicals

One of the benefits of the changes we made to our organization in 2004 is that our
executive officers have also changed the way they look at things. We now judge management completely from the standpoint of the consolidated Group. We are now realizing collaboration and synergy throughout the Group by viewing and discussing how to makebusiness investments or conduct business operations in terms of the consolidated balance sheet. In our regional strategies, the biggest benefit is that we are able to discuss
how to move forward from the standpoint of optimizing the Nagase Group as a whole.
As for the organizational reforms we made in April 2005, given the early achievementof the WIT21 targets, we decided to create a future-oriented organization to facilitate asmooth transition from WIT21 to the next medium-term management plan, which weare now preparing. Actually, rather than reform, it would be more accurate to say that
we have evolved our organization based on the benefits I mentioned earlier.
A key point was clarifying the role of directors and the responsibilities and roles ofdepartment managers so that they can maximize the strategic value of each businessand project and conduct more agile business management.
As a concrete example, directors were previously responsible for departments andbusiness headquarters, but under the new organization, they no longer have these
responsibilities. They are now in charge of managing our strategic business areas, andpromoting business across the organization. Directors will be in charge of company-wide
and strategic functions, specifically industry strategy and extraordinary matters. In
addition, we created the Sales Strategy Committee, made up of directors in charge ofsales, to support me in creating business strategies from a company-wide perspective
so that investment decisions and management decisions on risk management andother matters can be promptly implemented. Until now, I and the managers in charge ofthe relevant departments have been essentially responsible for examining and making
decisions on investments. Now we have adopted a process in which the four directors
in charge of the Company as a whole conduct critical discussions during the decisionmaking process. This environment will greatly facilitate the consideration of matterssuch as future mergers and acquisitions. These
New organization (Shift from products to markets/customers)
four directors will make decisions based on their(As of April 2005)
understanding of businesses other than the
Colors & Imaging Group
Colors & Imaging Dept.
ones they have been in charge of for many
Performance Chemicals Group
Performance Chemicals Dept.
years, so we can also expect a synergistic
Speciality Chemicals GroupSpeciality Chemicals Dept.
effect to emerge.
Fine Chemicals Group
Fine Chemicals Dept.
The essential functions of directors will
Advanced Polymers Dept.
becomevitally important. Their functions are
Plastics First Group
Automotive Solutions Dept.
also critical for corporate management andPlastics Second Groupdevising business strategies, so I believe that
Eco-Materials Dept.
Plastic Third Group
adopting a management format that separates
Electronic Chemicals Dept.
directors and execution is crucial.
Electronics First Group
Information & Functional Materials Dept.
Another point is that marketing activities,
Electronics Second Group
Display & Electronics Components Dept.
which previously were dispersed among busiBeauty Care Products Dept
Beauty Care Products Dept.
ness departments, are now positioned at a
Plastics

Electronics Health Care

Medical Care Products Dept

Medical Care Products Dept.

NAGASE & CO., LTD. ANNUAL REPORT 2005

7

company-wide level. We have launched the Corporate Marketing Office to promote further development initiatives and create new business opportunities. This unit is also
responsible for business incubation and exploration of new themes, which are difficult
for business departments to handle. Regarding sales divisions, we reorganized the
Plastics business and the Electronics business into 12 departments, one office and one
branch to create a flatter organization. We expect this to heighten the strategic value ofeach business and to enable more agile business management.

What are your policies for the final year of WIT21?
As I mentioned before in regard to our business development, we will continue to
implement the strategies we have followed up to now, but with a greater sense ofurgency. We will further promote awareness of our new business approach of proposing
solutions rather than simply acting as an intermediary. In addition, I feel that there has
been some decline in our business and sales consciousness throughout the organization
as a whole, so I want to strengthen basic education on sales and Nagase’s style of business development and execution.
I also want to reinforce Nagase’s technology capabilities. I want Nagase staff to work
together with technology and sales representatives of our customers, primarily in thechemicals business, to obtain greater understanding of customers’ technologies andproducts. They should then use that understanding to propose more effective businesssolutions. However, we cannot deny that we still have a tendency to focus only on selling
products. We also need to raise the Group’s awareness of and approach toward using
technology to come up with new ideas, and to uncover and acquire outstanding technologies from outside the company. Although we have commercialized the Nagase R&D
Center’s chiral technology, I strongly feel the necessity to expand it as a business. Anotherimportant theme is increasing our technological capabilities and the number of engineers,
and we intend to address this issue in the next medium-term management plan.
To improve concrete systems for strengthening technology, we will consider shiftingfrom a uniform personnel system to multiple personnel systems. This will include introducing a system that enables the technology owned by researchers and other employeeswith a high level of knowledge to be further developed and passed on within the company, and a system for qualifying researchers and others as “fellows” and “meisters” whocan be rewarded, even if they do not necessarily become managers.

What are your views on Corporate Social Responsibility (CSR),
including enhancing corporate governance?
Last year we adopted a system of outside directors, which has brought a healthy
sense of critical appraisal to our management team because they are compared to theboards of directors of other companies. Information and materials on reporting and decision-making matters are fully prepared prior to board of directors meetings so that outside
directors understand Nagase and can offer opinions and proposals and invigorate discussion. In the current fiscal year, we have brought in another outside director. We expect thisto further energize board meetings and raise management transparency and objectivity.
As for CSR, I stated in last year’s annual report that Nagase’s social responsibility is to follow good and fair business practices. Our policy is to meet our responsibility to shareholders,customers and all stakeholders by expanding our profits and continuing to grow throughhonest, transparent management. That has not changed. I do think we need to improve our8

NAGASE & CO., LTD. ANNUAL REPORT 2005

communication with society to increase awareness of our CSR policies and activities.
I am also thinking about how to raise our corporate brand value. Nagase is a highly
trustworthy company based in the chemicals business, and our contribution to society
through chemicals is well known among customers, employees, shareholders and otherstakeholders. However, I want to expand recognition of the Nagase brand among society
at large, including the general public. We will consider making investments to enhance ourcorporate brand, including making effective use of advertising.

In the past fiscal year, Nagase took steps to enhance shareholder
returns, including introducing a shareholder benefit program. What
policies do you have for increasing shareholder value in the future?
Our first priority is business investment. As a unique corporate Group based on chemicals, Nagase invests in its businesses, which generates financial results, and the growth ofthe company increases shareholder value. This process is connected to increasing corporate value in the long term. The growth of the Company resulting from business investment based on Nagase’s unique features also serves as a defense against hostile
takeovers.
Based on this policy, we will increase returns in proportion to results. In fact, we haveincreased the dividend in each of the last two years, when results have been good. While
we will continue seeking to maintain a good balance between business investment andshareholder returns, shareholders recently have been asking for a more concrete return
policy. Therefore, we will consider specific targets for the dividend payout ratio at the next
board of directors meeting.
Nagase is steadily strengthening its management capabilities. On that basis, we willcontinue working to create new businesses and increase Nagase’s corporate value. I
would like to thank our shareholders and investors for their ongoing support.
Cash Dividends per Share
(¥)
15

12.0

12

10.0
9

8.0

8.0

2002

2003

9.0

6
3
0
Years ended
March 31

2004

2005

2006
(Projected)

NAGASE & CO., LTD. ANNUAL REPORT 2005

9

P ro g re s s o f W I T 2 1

ELECTRONICS
Steady Strategic Advance

Kazuo Nagashima
Director and Executive Officer
Electronics Businesses;
Electronic Chemicals Department;
Display & Electronics Components Department;
Medical Care Products Department

Electronics, one of the four strategic areas of WIT21, was a major focus of efforts in the year ended
March 2005. As a result, our businesses have taken clearer shape both in Japan and overseas.
Nagase’s electronics businesses do not handle electronic components per se. Rather, we havedeveloped our businesses based on chemicals. We provide such products as chemicals forsemiconductor and liquid crystal production and precision abrasives for the electronic components
industry. In fiscal 2004, we focused on creating and expanding new businesses that incorporate
manufacturing functions in addition to offering the services of a trading company. As a result, weenhanced relationships with traditional business partners and expanded into new business areas
including optical films for LCDs and liquid crystal modules. In addition, we expanded our materials
processing business and undertook other activities toward increasing added value.
In China, where we are focusing particular effort on business development, operations at Nagase
International Electronics Ltd. are right on track. This company, established in 2004, is in charge of
production and hiring at our manufacturing bases in the South China region, and is responsible for
maximizing efficiency. The number of products manufactured by Nagase International Electronics for
direct sale in Greater China (mainland China, Hong Kong and Taiwan) is increasing, and a self-sustaining
business structure is emerging. Sales of formulated epoxy resins in China are also expanding favorably.
Nagase ChemteX (Wuxi) Corp., which commenced commercial operations in 2003, is working toacquire top share in the Chinese market for formulated epoxy resins through yearly capacity
enhancements.

Future Strategies

Nagase’s Strengths■ Highly qualified salespeople

who can communicate withcustomers on a common
technical level■ In-house manufacturing

capabilities that createhigh-value-added businesses

We anticipate continuing growth in the information technology fields that form the core of the electronics business: displays, semiconductors, storage devices, imaging and communications technologies. Worldwide sales of LCDs in particular are expected to reach the ¥10 trillion level by 2010, double
the current figure. The mission of our electronics businesses is to create an operating structure thatenables sustainable growth amid an industry characterized by widely fluctuating demand.
In fiscal 2005, the third and final year of WIT21, we will focus on implementing our action plans anduse the results achieved during the three-year period as a stepping stone toward setting new goals forour next medium-term management plan.
Nagase’s customers are top-class corporations with advanced technological and development
capabilities. Through interaction and networking with customers in the process of providing them withproducts, we are evolving our own original business model in response to immediate issues that theybring to our attention. In addition to expanding core trading company functions, we are working toincrease our competitive edge in the epoxy, electrical machinery and other businesses by anticipating
the needs of our customers in such ways as providing manufacturing capabilities and developing a distribution system that includes pre-delivery quality assurance.
Looking ahead, we will continue to work to instill a consolidated management approach on a global
scale by enhancing mutual cooperation among our operations in Japan and around the world. My mostimportant role in this process is to gather precise, useful information and integrate our businesses by
putting the strengths of the Nagase Group to work. I will work to achieve this by establishing an
employee evaluation system that takes note of contributions outside of designated areas of responsibility, and by vigorously promoting an “on-site” mindset among employees that encourages them to findsolutions through working with customers at the front lines.

■ The network of a global trading

company

10

NAGASE & CO., LTD. ANNUAL REPORT 2005

LIFE SCIENCES
Rethinking strategy: Identifying Nagase’s competitive edge anddeveloping new businesses

Yoshizo Shibata
Director and Managing Executive Officer
Plastics Businesses;
Life Sciences Businesses;
Fine Chemicals Department;
Beauty Care Products Department;
Advanced Polymers Department;
Eco-Materials Department;
Business Administrative Office;
New Business Development Office;Corporate Marketing Office

Nagase’s life sciences business is wide-ranging. Focused on pharmaceutical and agriculturalchemical intermediates, APIs and formulations, and enzymes and fermentation products, it covers
everything from reagents and diagnostic systems for medical institutions to the sale of cosmetics andhealth food. Of Nagase’s four strategic areas, the life sciences business is most strongly affiliatedwith manufacturing.
For more than forty years, we have invested in R&D and production facilities for contract
manufacturing of APIs and intermediates, the core of our life sciences business. Unable tobreak free from a trading company mindset, we were late in developing core in-house technologies.
Over the past year, we studied Nagase’s strengths and weaknesses as a companywide issue andconcentrated on fortifying weak areas and building strategies based on core technologies. Focusing on
the integration of biotechnology and organic synthesis technologies, we worked in close cooperation
with Nagase Chemtex Corp. to enhance relationships with pharmaceutical manufacturers, makeefficient use of existing facilities and respond quickly to inquiries.
In the enzymes and fermentation products businesses, which has long been said to be lagging intechnological development, we introduced new technologies that enable mass-production of proteinsusing actinomycetes and commenced product development. We expect continuing expansion in thefield of enzyme applications to increase opportunities to apply technologies we have developed overmany years.
In the area of medical diagnostics, we took steps toward restructuring by trimming unprofitablebusinesses and simplifying the organizational structure. The door-to-door cosmetics and health foodbusiness once again introduced unique products developed in-house. We are making concentrated
efforts to revitalize our sales network to offset the prolonged decline in door-to-door sales, but results
are as yet unsatisfactory.

Future Strategies

Nagase’s Strengths■ Broad network of contacts

with customers, suppliers,
universities and research
institutions■ Nagase R&D Center, with

R&D capabilities in nicheareas, and Group
manufacturing companies■ Employees with a wide rangeof technical knowledge working
both in Japan and overseas

What sort of life sciences business best suits Nagase’s vision beyond WIT21? In fiscal 2005, we will
work to find an answer to this question and formulate technological strategies, capital investment plans,
human resource development plans and marketing strategies.
Pharmaceutical companies outsource production of pharmaceutical intermediates to spread risk. In
other words, companies such as Nagase that manufacture pharmaceuticals on a contract basis
assume some of that risk. If the side effects of a pharmaceutical produced under contract are major,
production will likely be halted. This has in fact happened to Nagase a number of times over the past
several years. To deal with this situation, our contract manufacturing business will take steps to minimize Nagase’s risk and invest in specialized facilities where core technologies can be utilized as well as
multi-purpose facilities. Contract manufacturing of general-purpose formulations has taken over fromAPIs and is becoming an increasingly important business. Competitors are fewer in this area because
we focus on injectable drugs and liquid medications, and pharmaceutical companies are more inclined
to outsource manufacturing.
Our own enzyme and fermentation products account for one-quarter of Nagase’s food productsales. We will continue our focus on high-value-added products and niche areas while analyzing thecompetitiveness of the Company’s enzyme production technologies and the future potential of our
products.
In the door-to-door sales business, the number of sales staff and sales per employee are in decline.
We will increase the number of sales staff and work to revitalize the organization. Unity of purpose isvital in this business, from top management right down to individual salespeople, so we will work toensure a thorough understanding of our business concept and philosophy.
Looking ahead, we intend to maintain a strict focus on developing high-value-added products thatincorporate our original technologies. We will work to increase technology-based revenue and income
in ways such as applying production technologies for unnatural amino acids and microbial agents tobeautifying the household environment, promoting our rosemary extract brand strategy and expanding
the range of formulations for cosmetics and foods containing rosemary extract, and incorporating
fermentation products in health foods to respond to increasing consumer health consciousness.

NAGASE & CO., LTD. ANNUAL REPORT 200511

AUTOMOTIVESteady Strategic Advance

Reiji Nagase
Director and Managing Executive Officer
Automotive Related Businesses;
Performance Chemicals Department;
Automotive Solutions Department;
Nagoya Branch Office

Nagase’s Strengths■ The Nagase Group’s overseas

network■ Chemical-based

technological expertise■ Unique, multiple capabilities

that can be applied from thedesign stage

12

Automotive businesses expanded steadily with the application of intelligence and technology tocreating new businesses, one of the basic strategies under WIT21.
The main focus of Nagase’s automotive businesses is the sale of raw materials for plastics andmolding equipment to manufacturers of automotive interiors and exteriors. Based on long relationships
with a large number of valuable customers, we have been implementing measures toward the creationof new business models. An automobile contains several hundred thousand components, so ourcustomer base is very wide-ranging. Moreover, each of those components must meet stringent
quality and safety standards. For this reason, the automotive field is especially challenging.
As automakers expand their operations overseas, many midsize and small components manufacturers
come to Nagase for assistance because it is difficult for them to establish overseas businesses on theirown. As the structures and mechanisms of our new business models evolve, we are increasingly
meeting such needs. We currently offer comprehensive services including integrating component
design and mold production and acting as a purchasing and distribution agent to provide customers’
overseas bases with raw materials and components.
Operations are becoming more effective and efficient through increased cooperation with plastics
and chemical departments in accessing customers rather than working through separate channels. In
the automotive interior components business in China, for example, we are developing a frameworkthat will broaden our range of services to cover non-Japanese as well as Japanese manufacturers.
Co-investment in Chinese and Taiwanese partners and other collaborative activities will enable us to
supply both non-Japanese and Japanese manufacturers with raw materials for interior components
such as door and roof interiors as well as urethane and other chemical-related materials, in addition to
supplying Japanese manufacturers with raw materials for plastics, plastic products and urethane.
We have increased the number of overseas bases in Guangzhou, Tianjin and Shanghai and otherregions to 27 through aggressive expansion of sales bases. In the future, we plan to establish a
representative office of Guangzhou Nagase Trading Ltd. in Wuhan, an inland city of China, and explore
the business possibilities in that region.
Our component design and molding businesses commenced operations in North America 16 years
ago. Since then, it has expanded to China, Thailand and other Asian countries. We established Design &Die Co., Ltd. in Japan and Design and Die USA Inc. in Detroit in 2002 to subcontract projects
covering the entire process from advanced 3D solid modeling and the development of prototypes
to mass-production dies. In 2003, we established Nagase Plastics Design and Die (Tianjin) Co., Ltd. in
Tianjin, China. With the same functions as Design & Die Co., Ltd., it has since commenced full-scale
operations. Looking ahead, we will work to expand our business further by enhancing our capabilities.

Future Strategies
We anticipate further growth in overseas automobile manufacturing output in the future. We aim to
be a company that supports the global manufacturing systems of automakers, our customers, bypartnering with them to offer original solutions that other companies cannot provide. Over the next few
years, we will continue to focus on developing the Chinese market while working to expand ourbusiness in ASEAN countries, primarily Thailand and Indonesia. In addition, we will explore the potentialof the huge Indian market. Nagase will also increase Group-wide focus on the United States, as we
anticipate that Japanese manufacturers will continue to shift production there, making it an increasingly
important market. Likewise, with an increasing number of Japanese automakers moving into theEuropean market – especially Eastern Europe – and expansion of the market, Nagase’s approach to
the Eastern European market will become an important issue following WIT21.
Demand for electrical materials and components for automobiles will increase as electrification andcomputerization of automobiles continues. At the same time, demand will rise for plastics with high heat
resistance for engine room components. Efforts to reduce CO2 and improve fuel efficiency are also driving a shift to lighter automobiles, which puts increasing demands on materials. We therefore expect
electrification, computerization, lightweight materials and even responsiveness to the environment to be
major issues in our future businesses.

NAGASE & CO., LTD. ANNUAL REPORT 2005

Progress of WIT21

PLASTICSStrategic progress: Continuing expansion of overseas sales

Yoshizo Shibata
Director and Managing Executive Officer
Plastics Businesses;
Life Sciences Businesses;
Fine Chemicals Department;
Beauty Care Products Department;
Advanced Polymers Department;
Eco-Materials Department;
Business Administrative Office;
New Business Development Office;Corporate Marketing Office

Like the Chemicals business, the Plastics business is a core segment for Nagase. Through many
years of selling engineering plastics, Nagase has developed domestic and overseas sales channels,
affiliated manufacturers and a distribution system that form the basis of an expanding Plastics
business covering a broad range of fields including automotive, one of the four strategic areas under
WIT21; office automation (OA) and electric appliances; eco and housing materials; and packaging
materials and films. In fiscal 2004, we exceeded both sales and operating income targets by a large
margin as a result of continued sales increases centered on Greater China, where we have been
focusing efforts, as well as in ASEAN countries.
Sales growth in Greater China and ASEAN countries was focused on engineering plastics, whilein the domestic Japanese market, it centered on raw materials for plastics and plastic components
used in the automotive industry. Sales to North America and Europe increased as well. Sales of raw
materials for plastics used in OA product housing materials increased in Japan. In the area of ecoand housing-related raw materials and products, sales of products incorporating Pluswood,
Nagase’s original wood composite material, rose steadily.
The Plastics business has the most consolidated subsidiaries of all Nagase’s business segments.
Of these, Setsunan Kasei Co., Ltd., which specializes in plastics coloring and compounds, posted anincrease in sales. Sales were also firm at Totaku Industries, Inc., a manufacturer of flexible hoses andpipes for home electrical appliances such as household vacuum cleaners and washing machines aswell as for industrial use, and at Kotobuki Kasei Corp., which manufactures plastic trays for foodpackaging.

Future Strategies

Nagase’s Strengths■ Global sales network■ Network of on-site customer

contacts established overmany years of developing
end-use applications■ Unrivaled multiple capabilities

that add value to customer
products from the design stage

We foresee a prolonged shortage of petrochemicals as a result of rapid growth of the Chinese
market. In the Plastics business as well, sourcing strategies will become an important issue, just as
customer strategies have. We anticipate that the automotive and OA and electric applianceindustries will continue to actively develop business in China. At the same time, fluctuations in thepolitical climate have raised the issue of spreading risk among firms when relocating production bases
as well as the strategic importance of ASEAN countries. Customers increasingly expect us to respondquickly with flexible proposals that deal with these issues. Amid these circumstances, we will continue
to promote the basic strategies of WIT21, enhance operations to ensure quick response to customers
both in Japan and overseas, and expand our business.
We will continue to enhance advanced polymers and automotive materials-related businesses inGreater China and ASEAN countries. We will work to realize profits quickly at affiliates establishedover the past several years, and invest in a wide range of businesses, including processing andassembly, based on intermediary businesses. Increasing our capabilities, we will also concentrate
further on acquiring new Taiwanese and other non-Japanese customers.
The Plastics business will also work harder to promote collaboration inside and outside theCompany. We will get Sun Delta Corp., a joint venture established with Asahi Kasei Chemicals Corp.,
on track quickly in order to respond to domestic needs for high-performance and specialized products,
integrate marketing and technological development in a single organization, and quickly develop new
applications. Within the Nagase Group, we will collaborate with the Performance Chemicals
Department to expand the automotive-related urethane components manufacturing business in Greater
China. In addition, we will concentrate on developing functional films and other products in cooperation
with the Display & Electronics Components Department and the Information & Functional Materials
Department. Regarding Pluswood, Nagase’s original proprietary product and a promising application ofrecycled plastic, we will work to quickly realize profits and make a positive contribution to the naturalenvironment.

NAGASE & CO., LTD. ANNUAL REPORT 2005

13

Progress of WIT21

CHEMICALS
Strategic advances: Continuing support of four WIT21 strategic areasand cooperation with divisions leads to growth

Eiji Asami
Director and Executive Officer
Chemicals Businesses;
Colors & Imaging Department;
Speciality Chemicals Department;
Information & Functional Materials Department

The chemicals business is the foundation of Nagase’s operations and provides support in the four
strategic areas of WIT21. In fiscal 2004, net sales and operating income were substantially above
projections due to the rise in petrochemical prices and favorable conditions in the automotive and liquid
crystal markets, which led to strong growth in pigment sales for LCDs, and in the master batch
business for plastics. Nagase achieved a growth rate above the market rate through a focus oncooperation.
Our mission in the chemicals business is to raise the level of synergy with other Nagase businesses.
For example, although complex solutions for plastic mold and shoe manufacturers center on color
proposals originating in the colors and imaging business, involvement is not limited to the Colors &Imaging Department alone. Nagase uses a new business model that emphasizes cooperation between
departments. Cooperation greatly increases exchange of information between departments andreinforces a corporate culture of information sharing and utilization. The key to future businessexpansion for Nagase is determining how best to use corporate assets. The chemicals businessdepartments are pursuing a framework and structure for capitalizing on new opportunities in thisregard.

Future Strategies

Nagase’s Strengths■ Global networking anddistribution capabilities
crucial to manufacturers
and users

We met WIT21 targets ahead of schedule, and will continue working to achieve other strategic targets. After the completion of WIT21, we plan to continue pursuing our target of 10 percent annual
growth in operating income.
In fiscal 2005, we will focus business activities under four policies: 1) Strengthen core businesses;
2) Expand business overseas; 3) Expand business through internal cooperation; and 4) Concentrate on
new businesses.
We will strengthen core businesses in response to customers and markets. We will expand sales ofcustomer products to strengthen relationships with customers. Specifically, we will support customer
sales by purchasing products from customers who buy raw materials from Nagase. Moreover, we will
strengthen relationships with our suppliers by giving them direct access to all Nagase departments.
The printing business is central to Nagase’s efforts to expand in new areas. We will broadly
implement our business model for packaging and the printing of playing cards for major game andtoy manufacturers. As the industry shifts from traditional to digital printing, we plan to build a strong
printing business structure covering areas including toner materials and printing paper.
In electronic chemicals, we plan to carry products not handled by the electronics business divisionsof Nagase including fluorene, ionic liquids and electrolytes. In addition, we are considering production of
new chemicals and other products made with a catalyst developed by Professor Keiji Maruoka of Kyoto
University.
Personnel development is absolutely crucial in making the most of our functions and strength, andsteadily advancing our strategies. Increasing each employee’s ability is paramount. For this reason, my
mission is to implement internal training and personnel development in response to new market needs.

■ Connections and knowledge

acquired through longexperience in the business■ Wide range of operations inareas including commodity
chemicals and specialty
chemicals

14

NAGASE & CO., LTD. ANNUAL REPORT 2005

Corporate Social Responsibility (CSR) Activities
The Nagase Group is a member of society and, as such, it is our duty to behave in a manner in keeping with this role by maintaining good and fair business practices and providing society with the goods and services it needs. Through continued
growth and development, Nagase can improve the welfare of its employees, while making a contribution to society. Nagase
aggressively promotes activities in line with this corporate philosophy.
Environmental Preservation Activities
Under the environmental policy of developing businesses thatgive full consideration to environmental issues, we aim tocontribute to environmental preservation through expansion
and creation of eco-businesses. We will use our strength ininformation and technology to implement various measures fromthis perspective.

In addition to Pluswood, an environmentally friendly productthat uses a new type of material made from a composite ofwood and non-vinyl chloride thermoplastic, the Nagase Group
offers resins, fire retardants, chemical substitutes, repairable
adhesives and other eco-materials with an emphasis onlightness, recyclability, safety, and ease of decomposition andseparation.

Dealing with Hazardous Substances

Reducing Energy Used in Shipping

Nagase is putting its strengths in technology and information
to work to prevent pollution by using green chemistry and green
products. We present alternatives to the hazardous substancesthat cause air, soil and water pollution, and provide safetyrelated information on chemical products.

Since 1996, the Nagase Group has implemented joint
distribution, in which we ship dyestuff-related products together
with other companies in the same business. Joint distribution
has allowed us to offer finely tuned customer services, andintegrating storage facilities has made vehicle dispatch tocustomers more efficient. In fiscal 2002, the Nagase Groupbegan offering a “weekly full container service,” which facilitates
distribution by consolidating the cargo of multiple coating
material manufacturers into a single container for overseas shipping.
This service lessens the burden of distribution for customers andcontributes to preserving the environment and conserving fossil
fuels by reducing the energy used in shipping.

ISO 14001
The Company received ISO 14001 certification in April 2000.
In June 2005, the scope of certification was broadened and now
covers Nagase & Co., Ltd. (Tokyo Head Office, Osaka Head
Office, Nagoya Branch Office and Nagase R&D Center), Nagase
Colors & Chemicals Co, Ltd. (Osaka Head Office, Nagoya
Branch Office, Hamamatsu Branch Office and Hokuriku Branch
Office), and Nagase Chemical Co., Ltd. (Tokyo Head Office,Osaka Branch Office and Shizuoka Branch Office).

Zero Emissions*
We have developed a chemical management system and asolvent recovery system that contribute to the realization of thisgoal. The chemical management system controls the concentrations of chemicals used in the manufacture of semiconductors
and LCD panels in order to make the process more stable while
significantly reducing the amount of chemicals used.
The waste solvent recovery system processes waste thatcannot be reduced to zero by a single corporation, and uses it
as raw materials for different industries.

Environmental Research Activities
The Nagase Group actively promotes joint environmental
research, primarily through the Nagase R&D Center. One
example of our efforts to pursue green chemistry is in the area oforganic synthesis, where research is currently underway to
reduce the multi-step manufacturing process for thepharmaceutical intermediate (R)-3-Quinuclidinol to a single stepby using a biocatalyst to induce microbial reduction. In 2004,
this project was selected for a Grant for Industrial Technology
Research by the New Energy and Technology Development
Organization (NEDO).

* The concept of zero emissions, referring to a company’s total emissions ofwaste, was first advocated by the United Nations University in 1994.

Developing Products and Businesses that
Lessen Environmental Impact
We are aggressively developing eco-materials, devices andsystems that contribute to lessening environmental impact.
The Nagase Group established a new manufacturing company in Singapore in September 2001 to serve the Southeast Asia
region. The plant is capable of both producing the chemicals
used to manufacture LCDs, semiconductors and electronic
devices, and recycling those chemicals after use. Nagase
Finechem Singapore (Pte) Ltd. is able to efficiently use limited
resources by recovering, recycling and reusing the chemicals it
produces and sells. The reduced emissions also lessen theimpact on the environment. The company has been granted“Pioneer Status” by the Singapore government, a distinction
given to new companies that benefit the country. The Nagase
Group is building a network linking Japan, Korea, Taiwan andSingapore to enhance the production, sale, recovery and recycling of chemicals used in LCD, semiconductor and electronic
device manufacturing throughout Asia.
Together with engineering companies and general contractors, the Nagase Group also operates a business that decomposes organochlorine compounds.

Pluswood, an environmentally friendly productthat uses a new type ofwood composite material

NAGASE & CO., LTD. ANNUAL REPORT 2005

Chemical management system

15

Supporting and Cooperating with External
Environmental Organizations
Coexisting with society is one of our environmental policies,
and we support and cooperate with other organizations working
to protect the environment. This includes participation in the
Nippon Keidanren Committee on Nature Conservation, theJapan Foreign Trade Council Global Environment Committee,
the Osaka Chamber of Commerce and Industry Environmental
Problem Research Council, and others. We are also part of the
Nihonbashi Kobuna-cho recycling drive, a small but meaningful
contribution to the local community.

Contributing to Growth of Scientific Technology
Nagase has a long history of developing enzymes and technologies for organic compounds for use not only in the chemicalindustry but for a wide range of applications in various industries
including pharmaceuticals. Through these activities we intend topromote awareness of the importance of basic technology inbiochemistry and organic chemistry, and aid in the broad
advance of scientific technology in Japan. To mark the 70th year
since Nagase’s founding, we established the Nagase Scienceand Technology Foundation.
Established in April 1989 and designated a public interest
corporation by the former Science and Technology Agency, theNagase Science and Technology Foundation aims to contributeto the development of the social economy by advancing scienceand technology through assisting research and development
and supporting international exchange in fields including biochemistry and organic chemistry. Including research grants toresearchers, financial support for attendance at overseas anddomestic conferences and support for lectures, the Foundation

has awarded a cumulative 266 research grants and 178 international exchange fellowships totaling approximately ¥713 million.
(International exchange fellowships have been suspended as of
fiscal 2004.)
Researchers who have received Nagase Science andTechnology Foundation grants have won awards from organizations including the Enzyme Engineering Society, the Chemical
Society of Japan and the Society for Biotechnology, and are
active in the fields of biochemistry and organic chemistry. In
addition, the Foundation contributes to conferences by providing
support to participants in the Human Genome Organization,
International Organic Chemistry Conference, the International
Congress of Photosynthesis and other conferences. We believethat R&D in biochemistry and organic chemistry leads to thedevelopment of various applications in the chemical industry andmany others, and substantially contributes to the advancementof scientific technology and the welfare of mankind.

Research Grants Provided in 2005
Name

Present office/Position

Subject matter

Ken-ichi Kimura

Department of Agro-bioscience, Faculty of Agriculture,
Iwate University/ Assistant Professor

Studies on the new function and the structure-activity relationshipof the novel enzyme inhibitor, propeptin

Tomohisa Kuzuyama

Biotechnology Research Center, The University of Tokyo/ Associate Professor

Structure analysis of the rate-limiting enzyme in the newpathway for isoprene units biosynthesis

Kenji Sonomoto

Faculty of Agriculture, Graduate School, Kyushu University/ Professor

Architecture of novel functional peptides based on
biochemical studies on lantibiotics

Hisanori Tamaki

Graduate School of Biostudies, Kyoto University/ Instructor

Analysis of glucose signal transduction pathway in yeast and its application.

Eiichiro Fukusaki

Graduate School of Engineering, Osaka University/ Associate Professor

Developent of a high-resolution metabolome analysis system

Centre of Molecular Biosciences (COMB) Universityof Ryukyus/ Associate Professor

Expression of alkene-monooxygenase by recombinant
actinomycetes and its application to a bioprocess.

Takashi Yamada

Department of Molecular Biotechnology, Graduate School ofof Advanced Sciences of Matter, Hiroshima University/ Professor

Construction and Utilization of Nanoscale Biocomplexes
Made of Self-assembling Molecules.

Akira Watanabe

Department of Life Sciences, Faculty of Agriculture,
Kagawa University/ Associate Professor

Studies of developmental processes in basidiomycetous
mushroom using RNA interference

Kazuaki Ishihara

Graduate School of Engineering, Nagoya University/
Professor

Design of Chiral Organobase Artificial Acylases

Tsuyoshi Kawai

Research and Education Center for Materials Science, Nara
Institute of Science and Technology/ Professor

Fluorescence Study of Chiral Perylene-Dimer in Single
Molecular Level

Michinori Suginome

Graduate School of Engineering, Kyoto University/ Professor

Synthesis of Multifunctionalized Chiral Synthons via
Catalytic Asymmetric Silaborative Couplings

Kazuo Nagasawa

Faculty of Technology, Tokyo University of Agriculture
and Technology/ Associate Professor

Development of multifunctional organocatalyst and its application
to the practical asymmetric reaction

Itaru Hamachi

Department of Synthetic Chemistry and Biological Chemistry,
Kyoto University/ Professor

Screening and Synthesis of Novel Artificial Molecules
That can inhibit a Phosphoprotein/protein Interaction

Tsunehiko Higuchi

Graduate School of Pharmaceutical Sciences, Nagoya City
University/ Professor

Chemical Model Study for Elucidation of Cytochrome
P450 Catalysis

Toshiaki Murai

Department of Applied Chemistry Faculty of Engineering,
Gifu University/ Professor

Development and application of unprecedented chiral discriminating
agentsBiochemistry

Toru Matsui

Organic chemistry

16

NAGASE & CO., LTD. ANNUAL REPORT 2005

Corporate Governance
At Nagase, our management philosophy has always been to carry out good and fair business practices. Aware of the importance of quick decision-making and active, transparent management, we are aggressively working to strengthen corporate
governance in order to implement this philosophy and continue raising corporate value.
Business Execution and Auditing Framework
Nagase has adopted a Board of Auditors system. The Board of
Directors is composed of ten directors, including two from outside
the Company. With regular meetings once a month, the Board of
Directors is clearly positioned as the body in charge of making
decisions on management policies and strategies, and supervisionof the execution of operations. It also reviews and formulates
measures regarding important decisions and tracks business performance.
The Board of Auditors consists of four auditors, including two
from outside the Company. In addition to attending Board of
Directors’ meetings and other important meetings, they closely
monitor the execution of duties by directors and executive officers
through surveys of Company operations and assets andmanagement reports from subsidiaries, which they request on an
as-needed basis. Monitoring and assignment of tasks are basedon policies set at Board of Auditors’ meetings.
The Audit Office is in charge of internal audits, including audits
to assess the appropriateness and efficiency of business activities.
The Audit Office and Board of Auditors regularly exchange information regarding internal audits and audits of domestic and overseas
subsidiaries and hold meetings twice a year with auditors of relatedcompanies. In addition, they perform liaison activities including
receiving regular reports from certified public accountants Shin
Nihon & Co. regarding accounting matters and associated internal
controls, and being present at accounting audits performed by the
independent auditors.
We introduced an executive officer system in June 2001, andhave appointed 20 executive officers (7 serving concurrently as
directors). The Board of Executive Officers holds a regular monthly
meeting to ensure quick decision making for business execution.
Executive officers attend General Managers’ Meetings, where they
discuss sales and marketing issues and Managers’ Meetings,
where they discuss administrative issues and establish concretemeasures based on status reports received from each department.
In addition, we have established an advisory board of outside
experts based on our view that it is important to have theCompany’s management practices evaluated and checked objectively. Certified public accountants Shin Nihon & Co. are commissioned to conduct a fair and impartial audit.
At the Annual General Meeting of Shareholders held on June
28, 2005, the Board of Directors invited Mr. Takuya Goto,
Chairman of the Board of Kao Corporation, to serve as an outside
director of the Company, joining Mr. Haruyuki Niimi, Chairman ofShowa Shell Sekiyu K.K., who has been providing advice as an

outside director since June 2004. Neither the outside directors nor
the outside auditors have any personal, capital or business relationship with, or any other interest in, the Company. Kao Corporation
and Nagase do have a vendor-supplier relationship with regard tochemicals, but all transaction terms are identical to those between
Nagase and other business partners.

Strengthening the Compliance System
In order to achieve management compliance, we established theCompliance Committee in 2001, and have since endeavored toensure compliance with laws and regulations, and realize our corporate philosophy. In November 2003 we established the Nagase
Group Code of Conduct and in fiscal 2004 we set up a compliancecall center where employees can report or discuss issues directlywith the Compliance Committee Office or outside lawyers. We areworking to create a system in which Nagase Group employees candiscuss in-house compliance issues they discover without having togo through established organizational channels.

Strengthening the Compliance System
The Security Trade Control and Chemical Management Committee
ensures that Nagase complies with all laws and regulations inconnection with transactions involving goods and technologies fallingunder such laws as the Foreign Exchange Law and Foreign Trade Law,
which were established to ensure international peace and safety, as
well as regulations pertaining to the Law Concerning the Evaluation ofChemical Substances and Regulation of Their Manufacture, etc. and
the Pharmaceutical Affairs Law. The Environment Protection
Committee has established an environmental policy under which it
ensures thorough compliance with environmental laws and regulations,promotes environmental awareness in business activities, facilitatessocial harmony, establishes and continually improves environmental
management systems and works to enforce and publicize compliancewith the environmental policy at the immediate workplace level.
In August 2004, the Compliance Committee formed an internal
working group to study measures to protect personal information,aware that enactment of the Personal Information Protection Law
in April 2005 would necessitate further enhancements to the
Nagase Group’s information management system. In February
2005, the Committee issued Regulations Regarding the Protectionof Personal Information based on our Personal Information
Protection Policy and held briefing sessions to thoroughly familiarize
management and staff. We will continue working to strengthen our
information management system in the future, because proper
information management is an important social responsibility.

Corporate Governance System
Shareholders’ Meeting
Accounting Auditor

Corporate Auditors

Supervision

Board of Directors(10 including 2 outside directors)

Board of Auditors(4 including 2 outside directors)

Supervision

Supervision Advice

Compliance Committee
Advisory Board

Compliance Call Center

PresidentInternal
External

Audit Office

Supervision

Supervision(includes one person employedoutside the company)

Supervision

Security Trade Control and Chemical
Management Committee
Environment Protection Committee
Supervision

General Managers’ Meeting (Sales)

NAGASE & CO., LTD. ANNUAL REPORT 2005

Managers’ Meeting (Administration)17

B o a rd o f D i re c t o r s , C o r p o r a t e A u d i t o r s a n d
E x e c u t i v e O ff i c e r s(As of June 28, 2005)

Seated (from left): Reiji Nagase, Hideo Nagase, Hiroshi Nagase, Yoshizo Shibata
Standing (from left): Haruyuki Niimi, Eiji Asami, Kyoichi Zushi, Makoto Tsuruoka, Kazuo Nagashima, Takuya Goto

Board of Directors
Representative Director and Chairman

Hideo Nagase

Representative Director,
President and CEO

Hiroshi Nagase

Director and Managing Executive Officer

Reiji Nagase

Director and Executive Officer(GM, Finance Divison; GM, Accounting Division; GM, Legal &Credit Division; GM, Osaka Administrative Division; GM, IT
Planning Office)Director and Executive Officer

Yoshizo Shibata(Plastics Businesses; Life Sciences Businesses; Fine Chemicals
Department; Beauty Care Products Department; Advanced
Polymers Department; Eco-Materials Department; Business
Administrative Office; New Business Development Office;Corporate Marketing Office)Eiji Asami(Chemicals Businesses; Colors & Imaging Department; Speciality
Chemicals Department; Information & Functional Materials Department)(Automotive Related Businesses; Performance Chemicals
Department; Automotive Solutions Department; Nagoya Branch Office)Director and Managing Executive Officer

Makoto Tsuruoka

Director and Executive Officer

Kazuo Nagashima(Electronics Businesses; Electronic Chemicals Department;
Display & Electronics Components Department; Medical Care
Products Department)

Independent Director

Haruyuki Niimi(Representative Director and Chairman, Showa Shell Sekiyu K.K.)

Director and Executive Officer

Kyoichi Zushi(President, Nagase ChemteX Corporation)

Independent Director

Takuya Goto
(Chairman of the Board, Kao Corporation)

Corporate Auditors
Standing Corporate Auditors

Shunsuke Okabe

Corporate Auditors

Yasuhiro Kashiwada
Eisaku Kimura

Hideo Yamashita

Executive Officers
Beauty Care Products Department

Makoto Ono

GM, Automotive Solutions Department

GM, Information & Functional Materials Department

Shingo Bamba

GM, Performance Chemicals Department Toshiro Yamaguchi

GM, Corporate Management Office;
GM, Human Resources & General Affairs Division; Koji Kuramitsu
GM, Audit Office18

Masao Hidaka

GM, Nagoya Branch Office

Masami Takeuchi

GM, Business Administrative OfficeOsamu MorikiyoCEO, China

Takashi Okamoto

President, Hoei Sangyo Co., Ltd.

Kazushi Sayanagi

CEO, ASEAN

Masamichi Kan

GM, Advanced Polymers Department

Shunichi Kawashiri

GM, Eco-Materials Department

Osamu Kitaguchi

GM, Fine Chemicals Department;
Nagase R&D Center

Masuhiro Nojiri

NAGASE & CO., LTD. ANNUAL REPORT 2005

REVIEW OF OPERATIONSColors & Imaging Dept.
Performance Chemicals Dept.
Speciality Chemicals Dept.
Fine Chemicals Dept.
Advanced Polymers Dept.
Automotive Solutions Dept.
Eco-Materials Dept.
Electronic Chemicals Dept.
Information & Functional Materials Dept.
Display & Electronics Components Dept.
Beauty Care Products Dept.
Medical Care Products Dept.
Nagoya Branch Office

A technology and intelligence oriented company
that turns wisdom into business
Creating Business through WIT21
Wisdom
Traditional Functions ofa Trading Company
Distribution
Risks (Credit, Finance)
Basket sales

Development

Integration

Business Creation

Nagase’s Strengths
Own products (manufacturing)
Strengthening
Technologies, information
R&D Center
Flow from upstream to downstream(Value chain)
Investment
Asian network

NAGASE & CO., LTD. ANNUAL REPORT 200519

Colors & Imaging Department
The Colors & Imaging Department sells materials and systems under the theme of “color and light.” It offers products including cutting-edgecolor materials as well as light related functional products and data displays (imaging). The electronics and IT businesses comprise data processing technologies, but for data to become usable information, it must first be expressed in the form of visible images or signals. Many
products handled by the Colors & Imaging Department play a role in binding electronics and the human eye.

Strategies and Results

Hiroshi Hanamoto
GM, Colors & Imaging Department

In fiscal 2004, net sales and operating income increased year-on-year. Sales of printers, copy
machine ink ingredients, toner ingredients and color filter materials used in liquid crystal displays (LCDs),
all targeted growth areas, were favorable. Sales of chemicals used in plasma displays and DVDs also
increased, and sales of color formers used as raw material in thermal and pressure-sensitive paper,
chemicals for paper production and textile dyestuffs were essentially even.
We are making steady progress on WIT21 numerical and strategic targets, and conducting businessin a wide range of areas from small lots of highly designed products to mass-produced goods.
Although contraction continued in the domestic textile processing market, concentration on exports
to China and development of new materials, targeted primarily at Japanese companies with productionin China, contributed significantly to performance. Our business model for expanding in China provides
comprehensive support in areas including procurement of raw materials and product sales, particularly
for Japanese companies expanding operations there. In fiscal 2004, we established a foundation for
operations by dispatching full-time personnel and providing access to the Shanghai Techno Center, ourtechnical support center in Shanghai. In fiscal 2005, we will commence commercial scale operations
and strengthen our local sales force through alliances with production and sales partners in China.
The Color Workshop has been working closely with users to create custom-made colors with functional
color materials, and has steadily accumulated an excellent track record since beginning operations in 2001.
In fiscal 2004, we worked on numerous projects including co-development of new colors with mobile
phone manufacturers and the application of our colorants for new color impressions for bathtubs.
In a project where our light effect pigments were used in artificial leather for a U.S. sports shoe manufacturer, we capitalized on Nagase’s unique strengths in the area of offering customers end-user solutions. We worked directly with the customer, handling everything from making color proposals to providing the ingredients involved.
In the printing field, we continued to develop printing projects that provide printing products to major
game and toy manufacturers through alliances with the Japanese printing company in our business ofmanufacturing products in China for global markets. At the same time, we expanded sales of related
products such as ink and printing media. We will continue to develop our global printing products business with a focus on manufacturing in China with technical origins in Japan. We will commence overseas sales activities targeting the Chinese, Korean, and American markets, offering everything fromdesign solutions to materials development.
In the area of imaging and recording materials, sales were strong, primarily in the emerging IT industry for flat panel displays and DVD-R functional dyestuffs and related products. In the thermal paper
field, in light of a feasibility study concerning OEM production in China conducted in response to declining market prices, we plan to start marketing activities in fiscal 2005 through alliances with chemical
manufacturers in China targeting contracted production of developer and sensitizer.

Future Direction
Nagase holds the leading market share worldwide for red pigment for liquid crystal display color filters,
colorants for backlight reflectors for LCDs, light absorbers for specified wavelengths that coat plasma display panels (PDPs), and black color former for thermal paper. In the future in the display field, we will promote LCD-related products including light reflector colorants, and LCD protective films. We will also concentrate on providing a wide range of PDP-related products including light absorbers for specified wavelengths and related products, electromagnetic interference shield materials, AR materials and hard coating
materials. In addition, Nagase holds the largest share of the market in Japan for high-performance organic
pigments used in automotive paints, and dyestuffs used in automobile seats and seatbelts. We will
enhance marketing in the automotive field through cooperation with other departments.
We will develop businesses that capitalize on our superiority in “color and light” by expanding in areas
where other marketing companies and manufacturers – major or otherwise – cannot.

TURNING WISDOM INTO BUSINESSSales of the organic conductive film DENATRON, developed in-house, were favorable. Standard conductive film
uses inorganic black carbon and surfactants, and often has low water resistance. By comparison, DENATRON
is a highly transparent and durable organic conductive material used primarily in products such as protective film
for LCD panels. Applications in electronic components have also been expanding. Conductive film is poised to
become the fastest growing product in the industry, with sales expected to double year-on-year in fiscal 2005.

20

NAGASE & CO., LTD. ANNUAL REPORT 2005

Performance Chemicals Department
The Performance Chemicals Department is responsible for Nagase’s core business as a chemical-based company. Handling a broad range of
petrochemical products, from commodities to high-value-added products, we enhance Nagase’s core function by further strengthening its
operating base. In addition, as our customers’ business activities become more global in nature, we are working to provide high-quality
proposals and create new business models encompassing materials and products by elevating the importance of exports and overseas
production and maximizing the collective strength of the Nagase Group.

Strategies and Results

Toshiro Yamaguchi
Executive Officer
GM, Performance Chemicals
Department

Although growth was nearly flat in the Japanese markets for coating materials and urethane, theestablishment of joint ventures and other measures we have taken in this strategic area began to yieldpositive results. Sales increased due primarily to overseas sales of urethane materials used in
automobile seats and other cushion material applications. In addition, sales of additives forflame-proofing paints and plastics increased, particularly overseas. As a result, net sales increased
significantly year-on-year.
The Performance Chemicals Department comprises the coating materials, urethane, plastic
additives and filter businesses.
In the coating materials business, sales increased in the information recording and display-related
fields due to measures targeting users in the ink-related industry, contributing significantly toperformance. We conduct our “weekly full container service,” which increases distribution efficiency byconsolidating the cargo of multiple customers into a single container, as part of our focus on
solutions-oriented businesses. In addition, we steadily grow sales and further deepen customer
relations by developing new sales of customer products overseas through cooperation with Nagase’s
overseas bases.
In the urethane business, the Chinese sector continues to grow, particularly with sales to theautomobile industry. Toyo Quality One Ningbo Co., Ltd. and Guangzhou Kurabo Chemicals Co., Ltd.,
two joint ventures established together with customers to manufacture urethane products in China,
have been contributing to growth in sales since they began operating in 2002. In response to strong
demand, these companies are taking aggressive measures to further increase their production
capacity. In addition, we established an automotive foam manufacturing company in Guangzhou in
December 2004, scheduled to begin operations in spring 2006. To build a value chain in theautomotive business covering upstream urethane materials to downstream automotive components,
we are also forging alliances between other divisions and related companies.
In the filter business, sales of our patented Denafilter polymer filter and in our cleaning business werestrong, centered on the film industry. We plan to develop our business in the optics field, where further
growth is expected, and in overseas markets.
In the commodity products business, the Performance Chemicals Divisions sell competitive materials
to manufacturers of chemical intermediates, and the Coating Materials Division provides manufactured
resins to paint manufacturers. We have strengthened cooperation of this kind between divisions. As aresult, the positioning of the commodity products business within Nagase has been clarified, andcustomer service has been enhanced through thorough focus on customer-oriented policies andcooperation.

Future Direction
We achieved the targets of the Medium-term Management Plan WIT21 ahead of schedule. Positioned
as the core business in the Nagase Group with a broad range of operations, the Performance Chemicals
Group will continue to expand the possibilities of new businesses, using the current year as a foundation
for setting new post-WIT21 targets.
During fiscal 2005, we will establish a structural foundation, promote further unification of information
and alliances with other business departments and enhance global strategies. We also plan to expand ourbusiness in the Greater China region by procuring urethane materials locally and developing businesses
for product processing in conjunction with plastics-related divisions. In the commodity products business,
we aim to expand business in the medium to long term so that they are not unduly affected by futurechange.

TURNING WISDOM INTO BUSINESS
Conventional paints contain large amounts of solvents called volatile organic compounds (VOCs), which are amajor cause of air pollution. We are concentrating on development and sales of materials for water-based
paints, and materials such as paint additives that eliminate pollutants, to achieve low VOC. In addition, we arecollaborating with engineering and general construction companies to launch a business that effectively uses
by-products from pigment production to break down organic chlorinated compounds found in soil.

NAGASE & CO., LTD. ANNUAL REPORT 200521

Speciality Chemicals Department
The Speciality Chemicals Department supplies a range of products, including raw materials for household products, cosmetics, surfactants,
fluorochemicals and silicones, to industries involved in surfactants or organic synthesis products such as chemical intermediates. We areconcentrating on adding value to our operations by focusing on the specific needs of customers, improving the productivity of our salesorganization and developing electronics chemicals.

Strategies and Results
In fiscal 2004, we focused on expanding businesses with high profit margins in niche areas using
the Nagase Group’s information and business development capabilities, and worked to achieve thenumerical targets of WIT21 ahead of schedule. Sales were slightly short of target despite solid
performance centered on products of Nagase ChemteX Corp., but operating income reachedtarget levels one year early.
Our core businesses are organic synthesis, surfactants and Nagase ChemteX products, which we
carry out in cooperation with the Performance Chemical Department of Nagase ChemteX. In all threebusinesses we are expanding our range of activities from supplying raw materials to developing
speciality chemical materials and applications in order to achieve higher added value. In particular, weare focused on developing products for the electronics and automotive markets through cooperation
with customers and existing partners in core business areas as well as with Nagase ChemteX andNagase’s Electronics divisions. In fiscal 2004, sales in this steadily expanding business area increased
more than 10 percent year-on-year. Good examples of products we offer in this area are raw
materials for resist used in electronics materials and rechargeable batteries for computers and hybrid
automobiles. The market for rechargeable batteries is expanding rapidly.
In China, where we dispatch engineers and possess original analysis and production capabilities, we
are working to expand a business model that makes use of Nagase’s total strengths. To ensure
uniform product quality, we undertake pre-shipment quality testing of Chinese manufacturers’ chemical
products at NCC Shanghai Techno Center Co., Ltd. in collaboration with the Colors & Imaging
Department.

Kazuo Mitsuhashi
GM, Speciality Chemicals
Department

Future Direction

Global Market for Hybrid
Automobiles
100(10,000 cars)

8
64
22000 2001 2002 2003 ......

2007

Looking ahead to the final year of WIT21 and beyond, we will promote two key strategies in fiscal 2005
in line with overall strategies pursued over the previous one-year period. The first is to continue
cost-structure improvements and increase productivity through greater use of human, informationand organizational resources. The second is to increase sales and income by offering unique andbest-in-class products and services that help customers increase their profits.
We will work to further enhance marketing for Nagase ChemteX’s performance chemicals by linking
the Performance Chemicals Department of Nagase ChemteX to the Speciality Chemicals Department. In
addition, we will strive to become a group of specialists capable of developing businesses throughcustomer-centered, solution-oriented activities that increase corporate value. Possessing a sales force
that can perform at a professional level is vital because we deal with specialized, high-value-added
products. To develop high-level, specialized expertise, we will plan and undertake ongoing professional
training for our sales force. We will also work to strengthen our organization and enhance our analyticaland strategy-formulation capabilities through measures such as incorporating IT to back up the sales force
and improving our support staff.

(Projected)

TURNING WISDOM INTO BUSINESSThe Speciality Chemicals Department is particularly focused on developing new materials in the area of organic
synthesis. Target markets include the automotive, electronics chemicals and next-generation energy storage
device industries, with a focus on automotive products such as rechargeable batteries and capacitors. We are
creating businesses in conjunction with other companies in different fields at each stage of the development
process, from exploring and identifying future needs to optimizing the seeds of research. We will continue towork closely with customers to create new materials with defined functions through an empirical process.

22

NAGASE & CO., LTD. ANNUAL REPORT 2005

Fine Chemicals Department
The Fine Chemicals Department provides a broad range of highly functional products and services related to pharmaceuticals, food and living
environments in the field of life sciences, which is one of the key strategic areas of WIT21. We also concentrate on establishing new businesses using our proprietary fermentation technology in fields including functional foods and health foods

Strategies and Results

Masuhiro Nojiri
Executive Officer
GM, Fine Chemicals Department;
Nagase R&D Center

During fiscal 2004, net sales were essentially even year-on-year. Sales in the agricultural chemicals business decreased due in part to the effects of a business review conducted to enhance the profit margin.
However, sluggish first half sales in the pharmaceuticals-related business recovered in the second half andsales for the full year were essentially even year-on-year. In addition, sales of enzymes for use in starch
processing and overseas sales of fragrance agents increased.
We set three basic strategies for the Fine Chemicals Group under WIT21: 1) Develop marketablebusinesses related to medicine, food and living environments; 2) Create businesses that capitalize on Group
strengths; 3) Shift the orientation of existing businesses from an intermediary role to a solutions focus.
In the pharmaceutical business, two important factors in recent years have affected our business—one
negative and the other positive. The negative factor is that the number of new drugs developed has
declined with the decrease in the number of pharmaceutical companies, which is due to factors including
domestic and overseas M&As and integration, while the positive factor is that outsourcing of drug
manufacturing has increased, although competition has intensified. In fact, in fiscal 2004, we achieved
notable success in our contract business, which focuses on manufacturing processes and analyticaldevelopment for investigational new drug (IND) substances and intermediates. We reorganized ourpharmaceutical contracting business to make the most of Group strengths in developing businesses for
manufacturing generic drugs (APIs and formulations), in addition to intermediates.
We set four basic strategies to guide operations: 1) Continuously promote the API, intermediates and raw
materials businesses; 2) Enhance generic drug (API and formulation) businesses; 3) Expand business with
our Chinese and Indian partners for contract manufacturing; and 4) Pursue new technology businesses.
In the reagents business, we began sales of fecal occult blood testing instruments and reagents foruse in colorectal cancer screening in the United States in October 2004 through alliances with Eiken
Chemical Co., Ltd. and Polymedco, Inc. This immunoassay-based product requires no dietary restriction
and offers easier, faster and more accurate testing. We intend to capture over 10 percent of this growing
market, which, due in part to increased insurance coverage for immunological methods, is expected to be
worth ¥20.0 billion.
In the food business, we conduct highly profitable problem-solving and solutions-oriented businesses
globally by providing original solutions created through Group strengths centered on Nagase ChemteX
Corp., in the fermentation research and development and industrial production areas of the domestic andoverseas food, functional food products and related industries. In the enzyme business, we are concentrating on development of high-value-added new fermentation production agents through fusion of highly
functional materials for use with enzymes developed in-house, organic synthesis technologies and enzyme
and fermentation technologies. In addition, in the rapidly growing health food market, said to be worth¥1 trillion, we are conducting development focused on phospholipids, a promising ingredient for health foods.
In the agricultural chemicals business, we provide raw materials, intermediates and finished products
worldwide, and are developing solutions-oriented businesses. Sales of intermediates imported from China
and India continued to grow. We aim to enhance our profit margin by further increasing efficiency in thehousehold market and reviewing our product mix.

Future Direction
Fiscal 2005 is the final year of WIT21. We will focus on three tasks to expand business: Strengthen
consolidated operations and management; develop businesses that capitalize on R&D Center technologies;
and provide original solutions using production functions of both Nagase ChemteX Corp. and Nagase Medicals
Co., Ltd. In the pharmaceutical business, we will continue to implement basic policies and develop highly
profitable solutions-oriented businesses globally, through original solutions created with Group strengths in R&D
and production areas for domestic and overseas pharmaceutical and related industries.

TURNING WISDOM INTO BUSINESSThe Fine Chemicals Department’s work toward production of unnatural amino acids is steadily progressing.
Unnatural amino acids include α-distributed amino acids that do not exist in nature. Previously considered difficult
to produce, α-distributed amino acids can now be produced selectively using a sophisticated chiral phase-transfer
catalyst developed by Professor Keiji Maruoka of Kyoto University. Nagase has pursued development of technologies for mass production of unnatural amino acids as pharmaceutical intermediates using this catalyst, and is now
in the pilot-scale production phase. Interest in this technology is increasing among pharmaceutical companies. We
expect this technology to contribute to significant expansion of the Fine Chemicals Department’s business, especially in the contract manufacturing business of pharmaceutical intermediates.
NAGASE & CO., LTD. ANNUAL REPORT 200523

Advanced Polymers Department
The Advanced Polymers Department is the largest of the plastics-related businesses, accounting for over 60 percent of sales in thissegment. It offers plastics, processed goods, auxiliaries, packaging materials, equipment, facilities and software for a wide range ofmarkets and industries, other than the automobile and the building and construction industries, both in Japan and overseas. The
Advanced Polymers Department promotes strategic partnerships with other companies in the Nagase Group in order to focus on thecreation of new plastics-related businesses and overseas expansion.

Strategies and Results

Shunichi Kawashiri
Executive Officer
GM, Advanced Polymers Department

Business in the Greater China region, a strategic focus of WIT21, grew significantly over the fiscal year
ended March 31, 2005. Sales of engineering plastics and general-purpose resins continued to increase asa result of ongoing initiatives to concentrate personnel and expand the number of sales offices in responseto the relocation of customer production bases to the Greater China region. In the newly added officeautomation customer segment, sales of plastic materials for computer peripheral enclosures and otherproducts increased significantly both domestically and overseas supported by strategic partnerships withmain customers. In addition, response to sales promotion for components, plastic materials and equipment packaging related to liquid crystal displays has been strong, and increases in sales are expected in
the future.
In Japan, sales of plastic materials to packaging and consumer electronics customers were favorable
overall due to strengthened relationships with important users and expansion of the product range. During
the fiscal year under review, the component assembly business for plastic molded parts and other products used for electronics devices made a notable contribution to sales. Although it is still a relatively small
business, there was remarkable growth in sales. Sales of Eastman Chemical Company’s specialty polyester resin also increased. This product’s unique properties make it useful for a wide range of applications:its melt viscosity facilitates development of new products that require irregular-shape extrusion molding
and its transparency is well-suited to the production of cosmetics containers.
Business results of affiliates were also strong. Setsunan Kasei Co., Ltd., which handles plastic coloring andcompounds, continued to increase its sales supported by a shift to functional resins from general-purpose
resins for its main product. Sales were also favorable at Totaku Industries, Inc., a manufacturer of flexible
hoses and pipes for industrial and household use including vacuum cleaners, washing machines andother electrical appliances, and at Kotobuki Kasei Corp., which produces trays for food packaging.

Future Direction
Our efforts to expand business in the Greater China region will continue. We will strengthen our marketing
capabilities further by enhancing cooperation between the domestic and overseas digital electronics and OArelated businesses and establishing a system that focuses on strategically important customers. Moreover, we
will concentrate specifically on marketing liquid crystal display-related products.
Aside from the Greater China region, we will enhance the functions of our offices in Vietnam, where a growing number of our customers are located. Our goal is to build a solid business base in preparation for creating a
local subsidiary.
We have changed to a departmental structure from the previous Strategic Business Unit (SBU) structure inorder to strengthen our operational organization. This change will promote efficient assignment of personnel andenhance selection and concentration in core development areas.
Strengthening partnerships within the Group and with outside businesses is another of our priorities. We
formed a joint-venture company with Asahi Kasei Chemicals Corporation in March 2005 to manufacture, selland develop applications for specialty resins. Through this company we will promote processed products ofspecialty resins and develop the market for functional films. By cooperating with the Display & Electronics
Components Department and the Information & Functional Materials Department, we will develop functionalfilms for use in liquid crystal displays and recordable media. In addition, we will collaborate with the Performance
Chemicals Department to reinforce development of our resin filter business.

TURNING WISDOM INTO BUSINESSAs more and more of our customers expand overseas and the focus of business shifts to overseas markets, it is
becoming increasingly important for them to focus on high performance products and specialty products inJapan. Responding to market demand, Sun Delta Corporation aims to provide business solutions by combining
Asahi Kasei Chemicals Corporation’s technological strengths, mainly in materials development, and Nagase’s
resin marketing capabilities to develop highly processed products with high added value for downstream
sectors. Sun Delta’s goal is to achieve yearly net sales of ¥5 billion within five years.

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NAGASE & CO., LTD. ANNUAL REPORT 2005

Automotive Solutions
The Automotive Solutions Department offers comprehensive business solutions in the automotive area, one of the four strategic areas outlined in WIT21. We handle everything from the sale of materials, products and equipment to component design, development of prototypes
and production of dies, as well as acting as a purchasing agent for our customers’ overseas facilities. We will continue to develop new businesses with companies in the increasingly global automotive industry while growing our operations both in Japan and abroad.

Strategies and Results

Masao Hidaka
Executive Officer
GM, Automotive Solutions
Department

Number of Light Vehicles
Produced in China

Sales rose significantly in fiscal 2004, not only in Japan, China and other Asian countries where
we expanded our bases, but also in North America and Europe. Sales in Japan grew over 20 percent year-on-year, while sales in overseas markets were up more than 50 percent.
The Automotive Solutions Department works to strengthen and develop Nagase’s automotive
business, one of the four strategic areas outlined under WIT21. We promote selective concentration
and a customer-focused, solutions-oriented approach through global operations that include 3
design bases, 14 production bases (including partners’ facilities) and 27 sales bases. We expand
our business through a strategy of selective concentration, in which we use a time scale to choose
customers, products, regions, partners and alliances. Our continued focus on offering a wide
range of integrated business packages including everything from raw materials to finished products and equipment began to show results during fiscal 2004. Contributions to sales came not
only from traditional general purpose resins but from functional resin materials as well.
Design & Die Co., Ltd., which subcontracts projects from component design and the development of prototypes to mass-production dies, performed strongly. One project undertaken by
Design & Die during fiscal 2004 included everything from design to mass-production die for the
instrument panel of an automobile being jointly developed by Toyota Motor Corporation and PSA
Peugeot Citroën. We are using the same business model in China at Nagase Plastics Design and
Die (Tianjin) Co., Ltd. and in North America at Design and Die USA Inc., located in Detroit.
The Automotive Solutions Department also promotes collaborative business with Nagase’s
other departments. During fiscal 2004, we sold the powdered urethane of a customer of the
Performance Chemicals Department as a raw material for instrument panels used in luxury
automobiles. We also established a new distribution channel by purchasing nonwoven fabric froma customer of the Colors & Imaging Department and selling it to our customers.

(10,000 cars)

Future Direction

800

600

400

200

0
2003 2004 2005 2006 2007
(Projected) (Projected)

We will continue to promote the basic strategies of WIT21 and pursue expansion of not only
the products business but also of new business models, business based on alliances, and product and software engineering businesses. We will focus on North America, Thailand and China,
with particular emphasis in China on business with Chinese as well as Japanese automakers.
Chinese automakers are increasingly seeking enhancements to their own designs, and there are
significant opportunities for the Nagase Group to provide support in this area. We plan to expandin this business and increase the staff of Nagase Plastics Design and Die (Tianjin).
In China, we will participate in Guangzhou GRG Lamko Mold Manufacturing Co., Ltd., a joint
automotive die manufacturing venture in Guangzhou.
In addition, we will begin purchasing fabric and external skins for automotive interiors from urethane manufacturers Toyo Quality One Ningbo Co., Ltd. and Guangzhou Kurabo Chemicals Co.,
Ltd., in which Nagase’s Performance Chemicals Department is investing, and sell their urethane
laminates.
The Automotive Solutions Department also pursues integration with businesses in different
fields. In the Chinese city of Foshan, located in Guangdong, we will be jointly establishing Tokai
Spring Mfg. (Foshan) Co., Ltd. to manufacture and sell precision leaf springs for automobiles,
press products, precision press products and assembly and processing products.

TURNING WISDOM INTO BUSINESSThe Nagase Group was contracted to undertake a comprehensive project including everything from design tomass-production of the instrument panel for a new small car model that Toyota Motor Corporation and PSA
Peugeot Citroën began producing jointly in February 2005. In an excellent example of the Nagase Group’s
strengths, we are controlling all stages of the process, from product design and die production to inspection
tooling, manufacturing of prototypes, assembly, die shipment and mass production in the Czech Republic, incooperation with business partners and the Tier 1 manufacturers who ordered the instrument panels. An estimated 300 thousand automobiles per year will be manufactured at the Toyota Peugeot Citroën Automobile
Czech (TPCA) joint venture factory in the Czech Republic.

NAGASE & CO., LTD. ANNUAL REPORT 200525

Eco-Materials Department
The Eco-Materials Department, operating under a new name from April 1, 2005, pursues a unique business approach to the field oflifestyles, housing and the environment based on a policy of contributing to environmental preservation through the provision of environmentally friendly materials, products and systems. That approach consists of offering a lineup of other companies’ products (building materials
and housing equipment) and materials (resins) centered on Nagase’s own product, Pluswood, a new type of eco-friendly material made froma composite of wood and non-vinyl chloride thermoplastic. In the future, we aim to broaden the range of our environmental business by promoting recycling and making use of natural materials such as polylactic acid.

Strategies and Results

Osamu Kitaguchi
Executive Officer
GM, Eco-Materials Department

Pluswood continued to perform strongly, with sales nearly doubling year-on-year. Sales of resins andplastic products to manufacturers of housing and building materials increased significantly due to implementation of Nagase’s international procurement service (IPS) that makes use of its overseas networkof bases. Net sales increased approximately 40 percent compared with the previous fiscal year.
Pluswood, an environmentally friendly building material made from a composite of wood and nonvinyl chloride thermoplastic, combines the texture of wood with the functionality of plastic. Tough yeteasy to work with, it does not rot, splinter, or fade. Capitalizing on these properties, we use Pluswood
to make original products such as decking, louvers, latticework, insert panels for under windows, andrailings, and have put together a product lineup that includes superior products made by other companies such as plastic framing, double flooring, bathroom units, aluminum fencing, kitchens, bathroom
counters, fixtures and furniture. Our salespeople explain products directly to general contractors anddistributors, and even carry out installation. This unique business approach has been extremely wellreceived by clients, architectural firms and general contractors. We are also working to enhance online
sales of Pluswood by expanding our e-business infrastructure. At present, we have over 10 thousand
individual online customers and have expanded our lineup beyond decking to include new products
such as exterior garden latticework and benches.
During fiscal 2004, we also took steps toward improving profit margins by cooperating with ourmanufacturing partners to lower production, distribution and storage costs.

Future Direction
The Eco-Materials Department’s business extends from the upstream sector, which involves supplying
raw materials to building materials and housing manufacturers, to the downstream sector of providing
goods and services either directly to end-users or through general contractors and distributors. Our business vision has three core components: Providing a lineup of other companies’ products centered on ourown product, Pluswood; maintaining our core products business while pursuing synergies and higher
returns by developing the raw materials business; and retaining a focus on direct sales to businesses andindividuals while also selling components to large-scale manufacturers.
In fiscal 2005, we will undertake three key initiatives to achieve this vision: First, in addition to undertaking internal departmental restructuring we will reorganize our businesses, including our affiliate Delta
Twenty-One Corp., which will specialize in Pluswood. Second, we will expand business of related products by increasing our roster of manufacturing partners and expanding the range of related products
offered. We will also work to increase sales of products and resins by reinforcing our IPS functions. In
addition, we plan to increase our focus on developing the market for eco-friendly materials such as polylactic acid. Third, we will optimize our business structure and style. Currently, we follow a cell approach tomarketing, under which individual salespeople handle everything from planning to sales and collection. To
maximize the efficiency of their efforts and achieve best results, we will develop a support system to backthem up at each stage of the process. We will also continue to expand online sales.
Moreover, the Eco-Materials Department will focus on collaborating with other departments. In theautomotive and office automation fields we see opportunities for cooperative recycling by matching theseeds of our open recycling research to the recycling needs of clients of the Advanced Polymers
Department and Automotive Solutions Department. We will also study the development of epoxy resinsfor our own customers in the construction and civil engineering industries in cooperation with theElectronics businesses.

TURNING WISDOM INTO BUSINESS
Pluswood has gained an excellent reputation through its use in famous hotels, hospitals, nursing homes and otherfacilities. It is recognized by professionals for its flexibility of design and maintenance-free qualities and has become
established in the market as a new material that goes beyond wood and plastic. As a result, in fiscal 2004 businessbegan to expand beyond isolated projects to include repeat clients and standardized use. One example was anationwide condominium project targeting elderly people. The Kyoto Protocol came into force in February 2005,
and we believe full-fledged demand for eco-materials will emerge as calls to reduce CO2 emissions increase. As
such, we expect recognition of Pluswood as a valuable new eco-material will grow in the future.

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Electronic Chemicals Department
The Electronic Chemicals Department produces materials, chemicals and equipment used in the manufacture of semiconductors, liquid
crystal and electronics components, and provides related system solutions to manufacturers in those industries. We are actively working
to expand our overseas operations in China, Taiwan, Singapore and Southeast Asia, while creating a highly profitable business that
integrates both manufacturing and trading.

Strategies and Results

Tomitaka Ito
GM, Electronic Chemicals Department

Strong performance in the semiconductor and liquid crystal industries during the first half of fiscal 2004
offset a sharp drop in prices during the second half caused by oversupply and production adjustment in
the liquid crystal industry and a period of slow sales of digital home electronics. As a result, we were able
to achieve the goals of WIT21.
Sales of businesses centered on Nagase ChemteX’s formulated epoxy resin were almost flat, but overallsales increased, supported in part by acquisition of new business in China aimed at the heavy electricalmachinery industry. In the photolithography chemicals business, which supplies products andmanagement systems for the upstream production processes of liquid crystal and semiconductors, alarge increase in sales to Taiwan and other overseas locations centered on equipment and products
manufactured by Nagase Group companies drove overall sales upward.
The Electronic Chemicals Department works together with eight consolidated subsidiaries to offer
manufacturing capabilities in addition to trading company functions. To fulfill one of the basic strategies of
WIT21, which is to set ourselves apart from competitors by creating a thoroughly customer-oriented
business, the Nagase Group is developing technologies in Japan and expanding its production bases in
Asia in response to the shift of customers’ production bases overseas.
Nagase ChemteX (Wuxi) Corp., a manufacturer of formulated epoxy resins in China that began
operating commercially in 2003, achieved net monthly operating profit in fiscal 2004. It is increasing
production capacity and expanding its business to become the leading manufacturer of formulated epoxy
resins in China. Nagase Finechem Singapore (Pte) Ltd., which in 2002 began commercial-scale productionof chemicals used in manufacturing semiconductors and LCD panels, is working to realize profits quickly byfocusing on the domestic chemical recycling business in Singapore. Nagase Engineering Service Korea
Co., Ltd. has begun local production and marketing of semiconductor and liquid crystal equipment in
Korea, joining Nagase CMS Technology, Ltd., which markets the same products in Japan. Initial operations
have gone smoothly and the company has already gained a good reputation among local customers.
In Japan, the Electronic Chemicals Department is currently developing a business model thatemphasizes effective joint development and marketing through partnerships with manufacturersthat possess specialized technologies. In April 2005, we formed a tie-up with derivatives manufacturer
Silecs, Inc. in the United States for the production and sale of its products in Japan. We expect this tie-up toenhance the Nagase Group’s ability to offer high-level solutions to Japanese semiconductor manufacturers.

Future Direction
During fiscal 2005, the final year of WIT21, the Electronic Chemicals Department will continue to work
toward increasing profits centered on overseas operations we have invested in as well as our domestic
niche market businesses. We will strive to enhance stability of raw materials supply even when products
are in short supply by establishing closer ties with reputable chemical manufacturers and other business
partners with which we have developed long relationships through the Nagase Group’ s broad productofferings. In addition, we will continue to concentrate on developing products for high-value-added nichemarkets in the semiconductor and liquid crystal fields by seeking out and promoting alliances with suchcustomers and promising venture businesses. Moreover, we will work to expand our business by
reinforcing our role as an information source for upstream and downstream business partners to provide
customer satisfaction as only Nagase can.
In-house organizational changes in April 2005 clarified the emphasis on the Electronic Chemical
Department’s position as a manufacturer. As a result, our role of transmitting and sharing information withother departments on market trends and customers needs has become larger. We intend to actively
establish a cooperative business structure, which we view as a growing departmental responsibility.

TURNING WISDOM INTO BUSINESS
Nagase CMS Technology researches, develops, designs and manufactures liquid crystal manufacturing equipment,
primarily production control equipment used in the manufacture of developers. Sales are growing strongly. In 2004,
liquid crystal manufacturers in Taiwan, China, Japan and other countries around the world purchased such equipment
to increase capacity. Nagase CMS Technology products accounted for more than 90 percent of sales in the area of
manufacturing equipment for developers. Nagase Engineering Services Korea, a manufacturing and marketing company established in Korea to expand high-value-added and highly profitable business, is also performing well. These
two companies are responding to strong demand and helping us establish a good reputation worldwide.
NAGASE & CO., LTD. ANNUAL REPORT 200527

Information & Functional Materials Department
The Information & Functional Materials Department handles products in three business fields: functional materials, communication and imaging systems and electronics media. We provide products to meet market needs by leveraging the strengths of the Nagase Group centering onmaterials for upstream and downstream semiconductor production processes, products of Gigatec Inc., a manufacturer of components formobile phone base stations, and Scantech, an imaging inspection system for detecting surface defects. We are gathering customer-focused
information and establishing a business model that enables us to keep pace with extremely rapid technological advances in the electronics
and communications industries.

Strategies and Results
In fiscal 2004, sales of products for downstream semiconductor production processes, including
Nagase ChemteX’s liquid encapsulant and other high-value-added products, were substantiallyflat year-on-year. Sales of precision abrasives and related products grew significantly both inJapan and overseas.
In the area of communications products, which is centered on Gigatec’s products and services
for power amplifiers for mobile phone and personal handy-phone system (PHS) base stations,sales declined sharply year-on-year. Demand in China and other regions fell after a cycle of rapid
expansion and failed to recover during fiscal 2004 despite the development of next-generation
mobile phones and vigorous sales efforts. Sales of Scantech, an imaging inspection system usedin the production of optical film, were relatively small in scale but exhibited solid growth.
Shingo Bamba
GM, Information & Functional
Materials Department

Future Direction
The Information & Functional Materials Department was established in April 2005 to integrate theFunctional Materials Division of the former Electronics First Group and the Communications & Imaging
System and Electronics Media Divisions of the former Electronics Second Group. In the past, we
employed a vertical organizational structure in which one person was in charge of abrasives and anotherin charge of insulating materials. Under the new organization, we will focus on building a business modelthat leverages the strengths of the Nagase Group and allows us to offer different solutions to match eachcustomer’s specific needs.
Nagase’s strength lies in its unique know-how and network built up over many years in the areas ofchemicals and plastics, which larger trading companies cannot match. The Information & Functional
Materials Department has many reputable customers who expect much from us, and we deliver.
The number of customers entering overseas markets is also increasing. We believe Nagase can play alarge role in supporting their expansion from a distribution and information standpoint.
The key to effectively implementing these initiatives is to maximize effective collaboration within andbetween departments. For example, semiconductors are increasingly being incorporated in automobiles
with the shift towards electric and hybrid models. We expect corresponding expansion in the semiconductor market, and will therefore reinforce the establishment of new customer relationships by working
together with the Automotive Solutions Department.

TURNING WISDOM INTO BUSINESSThe Communications & Imaging System Division concentrates on the sale of viewing angle inspection equipment for LCD panels. In 1995, the division began importing and selling products made by the French company
ELDIM SA. As a result of these efforts, ELDIM’s products have achieved a very good reputation in the LCD
panel measurement industry, where they have become the de facto standard. We expect the demand for LCD
panels to grow in the future, and will continue to develop products that match market needs.

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Display & Electronics Components Department
Display & Electronics Components Department handles products near the downstream sector of the electronics market, including liquid
crystal displays (LCDs) and organic light emitting diode (LED) assemblies and the materials, devices and optical films used in their production
and processing, and operates a glass processing business.

Strategies and Results

Mitsuro Naba
GM, Display & Electronics
Components Department

The Display & Electronics Components Department is divided into two divisions: the Display
Components Division and the Electronics Components Division.
Sales of display components were firm during the first half of fiscal 2004, primarily due to strong performance of optical films used in LCDs. During the second half, however, a slowdown in the liquid crystal
industry resulted in lower sales, mainly to overseas markets. As a result, display component sales for theyear were flat. The glass processing business, however, posted strong results.
Sales of electronics components declined due to a drop in prices for liquid crystal modules and othercomponents. A large increase in sales of aluminium products including housing materials for mobile telephones was not sufficient to offset the decline in electronics components sales.
Because demand fluctuates greatly in the device industry, it is important to take initiatives that anticipate market trends. Consequently, we established our production base Nagase International Electronics
Ltd. in March 2004 to maintain close contact with customers in the region. Its operations are progressing
smoothly. The factory of Nagase International Electronics is vital to our assembly and processing facilities
in South China. It forms close technical alliances with partners to provide quality-assured LCD panel
assembly, optical film processing and backlight assembly. In addition, Nagase International Electronics isleveraging our ASEAN sales network to expand business.

Future Direction
In fiscal 2005, the final year of WIT21, we will concentrate on three areas.
First is our traditional business as a broker. Here we will focus on supplying optical film and liquid crystalrelated components such as manufacturing devices to flat panel display (FPD) manufacturers, and increase
sales by leveraging our network in Japan and overseas.
Second is the liquid crystal module business. We expect dramatic growth in demand for LCDs for
televisions as the 2008 Games of the XXIX Olympiad in Beijing draw near. In anticipation of this, we will
work to increase sales of LCDs to assembly manufacturers by enhancing marketing activities including
establishing sales channels.
Third is our assembly and processing business. In addition to Nagase International Electronics, we plan toestablish assembly and processing facilities in Taiwan, Korea and other regions in China.
Looking ahead, we intend to pursue collaboration further, including forming tie-ups with Nagase’s local
operations in Taiwan, China, Korea, Singapore and other countries, and exchanging information on certain fineprocess technologies with the Electronic Chemicals Department.

TURNING WISDOM INTO BUSINESS
Toshiba Matsushita Display Technology Co., Ltd., which we supply with optical film, presented Nagase with its
2004 Best Supplier of the Year award in recognition of our outstanding capabilities. Toshiba Matsushita Display
Technology, a joint venture of Toshiba Corporation and Matsushita Electric Industrial Co., Ltd., develops, manufacturers and sells LCDs.

NAGASE & CO., LTD. ANNUAL REPORT 2005

29

Beauty Care Products Department
The Beauty Care Products Department manufactures and sells cosmetics, health foods and beauty foods for the consumer market. Our philosophy is to contribute to the creation of a beautiful, healthy and prosperous society by providing safe, high-quality products and services
that enhance beauty inside and out. Products are sold door-to-door throughout Japan by our team of 40,000 salespeople. We also operate
beauty salons across the country that offer enhanced counseling services using state-of-the-art skin analyzers.

Strategies and Results

Makoto Ono
Executive Officer
Beauty Care Products Department

Growth of Health Food Market(¥100 billion)

16

During fiscal 2004, we revitalized the door-to-door sales network with Nagase Beauty Care Co., Ltd. as
the core, and focused on sales activities tailored to each region where we do business. Aggressive
launches of new skin care products yielded favorable results, but overall sales were flat due toweaker performance of established products.
Maximizing customer contact and satisfaction are vital to success in the door-to-door sales market.
Customers are more likely to purchase products if they are able to test them out and talk to salespeople.
We are therefore shifting the venue of customer contact from customers’ homes to beauty salons. In
addition to the 25 office-salons operated by Nagase Beauty Care throughout Japan, door-to-door sales
managers are establishing salons in their own homes. Over the past several years, we have focused on
assisting in the expansion this home salon network by providing beauty care devices, signs and othernecessary equipment, as well as technical support including training in skin counseling and facial care. As
a result of these efforts, the number of home salons has grown steadily to 135 locations.
Cosmetics developed by Nagase containing rosemary extract are the main products sold by thisbusiness. During fiscal 2004, we undertook development with external research institutions and theNagase R&D Center and aggressively launched new products. In particular, we added Ecolfie-N to ourbasic rosemary extract cosmetics to establish a new prestige lineup for customers seeking the anti-aging
powers of rosemary. To further strengthen the rosemary – Nagase connection, we undertook an
aggressive advertising campaign based on the catch phrase “The blessings of rosemary, for yourskin.” In addition, we introduced new beauty food products based on the concept of “skin care from theinside out.” High acclaim for these new cosmetics and beauty foods helped increase sales and vitalize
the beauty care business.

Future Direction
We will further strengthen the rosemary – Nagase connection by continuing to focus on in-housedevelopment of highly original products to reinforce our lineup of skin care and makeup products as well as
beauty foods and health foods. We will work to enhance and expand our sales organization, educate our sales
force and develop mail-order sales into a full-scale business. Through these initiatives, we will reestablish theidentity of the beauty care products business and lay the foundations for future growth.

12

8

4

0
1999 2000 2001 2002 2003

TURNING WISDOM INTO BUSINESS
Launched in September 2004, Ecolfie-N is a lineup of basic cosmetics made from rosemary developed tocounter aging. Skin cells are initially resistant to the effects of aging. Over time, however, this power weakens.
Ecolfie-N works to revitalize skin cells and restore resilience. Nagase’s established whitening essence line Cella
White Essence V and Sanage AW Excellent, a highly effective wrinkle treatment, both make use of the natural
powers of rosemary. With the addition of Ecolfie-N, customers can now enjoy the combined benefits of rosemary extract offered by a full lineup of basic cosmetic products.

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Medical Care Products Department
The Medical Care Products Department handles a range of medical information systems and clinical diagnostic systems. Business is based
primarily on the sale of medical equipment and reagents to medical institutions. We focus sales efforts on high-growth products by leveraging our accumulated know-how and network in the medical industry that we have been building for more than thirty years in the field ofclinical diagnostics.

Strategies and Results

Toshiaki Nishio
GM, Medical Care Products
Department

A challenging operating environment persisted in fiscal 2004 as medical institutions merged in the faceof curbs on medical costs, reducing our customer base. As a result, sales were largely flat in clinical diagnostic reagents and medical information systems and clinical diagnostic systems for medical institutions,and radiation measurement businesses related to radiation safety.
During the period, we restructured our operations and those of group company Nagase Medix Co.,
Ltd. under a policy of selective concentration to clarify each company’s function and increase efficiency.
We established a new structure under which the Medical Care Products Department handles
development and overseas business while Nagase Medix concentrates on operations in Japan through aregionally focused sales network. In addition, we began adding trading company functions to increase theefficiency of investment. In contrast to our former approach as a manufacturer where we sold in-housedeveloped products through wholesale channels, we consigned production to another manufacturer.
In the field of medical information systems and clinical diagnostic systems, we worked to increase salesof new types of analytical instruments for measuring such things as sedimentation and allergens whileemphasizing cost consciousness in our sales activities.
In the field of microbiological testing, we commenced development of a new 96-hole imaging
microplate reader and 192-hole plate for antibiotics susceptibility tests. We plan to launch themcommercially in autumn of 2005.
Three years ago, we commenced sales of patient identification wristbands. Unlike our core line ofhigh-priced medical equipment products, which are sold on a spot basis, wristbands are consumables.
Once a sales account is established, the probability of reorders is high. We can therefore expect thisproduct to contribute to stabilizing our business. Customer feedback has been very positive and sales are
growing steadily.

Future Direction
Under our new operating structure, we will work to strengthen domestic sales and establish a businessstrategy focused on offering affordable products to the many medical institutions facing the need to cut costs. In
addition to developing our own original products, we will search for products with high future potential andacquire distribution rights. We will also work to develop business outside of Japan through cooperation withother Nagase departments currently active overseas.

TURNING WISDOM INTO BUSINESSOur patient identification wristband was created in response to heightened awareness among medical institutions of the need to prevent medical accidents. Developed through a series of refinements in materials anddesign, it is highly acclaimed for both functionality and comfort. The wristband can be used alone or with a bar
code attached to interact with an electronic medical record system. We are currently bundling this product withmedical information systems, and plan to study the viability of selling it through regular sales channels as well as
direct marketing and other new channels, both domestic and overseas.

NAGASE & CO., LTD. ANNUAL REPORT 2005

31

Nagoya Branch Office
Most Japanese domestic automakers and related component manufacturers are concentrated in Japan’s Chubu district, which centers on
Nagoya. As our local base of operations in this district, the Nagoya Branch Office plays an important role in our automotive businesses, oneof the strategic areas of WIT21. As other trading companies pull out of chemicals and plastics, we are working to develop businesses
centered on these areas by deploying the combined technological capabilities and manufacturing and R&D strengths of the Nagase Groupand our local network of contacts in the Nagoya region.

Business Outline

Masami Takeuchi
Executive Officer
GM, Nagoya Branch Office

Approximately 60 percent of the Nagoya Branch Office’s sales are automobile-related. We deal
directly with Toyota Motor Corporation and other automakers as well as their group companies andaffiliated component manufacturers. In addition, we handle non-automotive products and materials
including urethane and other performance chemical products, coating materials and electronics-related
products. We are also expanding the scope of our operations, and now undertake export functions thatwere formerly the responsibility of the Tokyo Head Office.
Businesses at the Nagoya Branch Office are divided into three divisions: chemicals, plastics andelectronics. Staff of each division exchange information and approach common customers in acoordinated fashion in an effort to maintain a cooperative, horizontal organizational structure. Until theestablishment of the Sales Division in the Nagoya Branch Office in 2003, the organizational structure
was vertical. Personnel in charge of each business area reported directly to their respective superiors at
the Tokyo Head Office. The launch of the Nagoya Sales Division, however, established the current
cooperative framework that has contributed to increasing sales in the strategic automotive businessarea to approximately 60 percent of the Nagoya Branch Office sales. At the same time, higher-echelon
support from the Tokyo Head Office continues to be important to our operations. We will continue toexpand our businesses while maintaining a balance between horizontal and vertical organizational
approaches.

Current Activities
For many years, the Nagoya Branch Office has focused on providing procurement management
services to automotive component manufacturers. As a procurement agent, the Nagoya Branch Office isinvolved in supply chain management. We have established a stock point and make deliveries according
to a kanban, or just-in-time, system. This is different from a direct shipment system where items areshipped directly from the production source on an order-by-order basis.
We are also focusing on the export of goods and services to meet the diverse needs of automotive
component manufacturers who are shifting production overseas, particularly small and medium-sizedcompanies. Compared with Japan, fewer established distribution networks exist overseas, and thepotential for our customers to expand their businesses is growing.
We established a new business in the non-automotive area by developing new products through thecoordination of several different companies in industries handled by our chemical division and assigning
production to the Nagase Group’s manufacturing companies. In addition to delivering materials andchemical products to customers, we are expanding our business by cooperating with customers invarious ways including selling their plastic products.

Future Direction
Providing new materials solutions is indispensable to expansion of the automotive business. The key
to achieving this will be making use of the network of contacts we have developed over many years in
the Nagoya district to keep abreast of current customer needs and the latest market trends, and torespond as swiftly as possible through cooperation among all departments. In the automotive industry,a shift toward hybrid and fuel cell powered automobiles has begun. We are responding to this throughcooperative efforts among our chemicals, electronics and plastics divisions, as well as collaboration
with the Nagase R&D Center.
Overseas, we will build the foundations of a service business by coordinating with other departments and maintaining and enhancing our distribution bases. In this way we will expand our operations
beyond our traditional role of procurement agent.

TURNING WISDOM INTO BUSINESS
Increasing environmental awareness has created a demand for automotive interiors that meet regulations concerning volatile organic compounds (VOCs). Employing patented technologies of our subsidiary Kyoraku Co.,
Ltd., we developed a flooring material for hybrid automobiles made by a company at the forefront in this area.
A combination of carpeting and plastic, the material is highly acclaimed for meeting VOC emission standards
and its superior design. The hybrid automobiles are selling well around the world, and we anticipate that material
sales will increase in the future.

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Bases for Growth in the Four Strategic Areas of WIT21:
Nagase ChemteX and Nagase R&D Center
As the only chemical manufacturer in the Nagase Group, Nagase ChemteX Corp. handles production for all Group companies. Its strengths lie
in its foundations as a manufacturer of original formulated epoxy products with more than thirty years’ experience in production technologies
for industrial and electronics materials. Nagase ChemteX develops high-value-added businesses focused on distinctive products in the fields
of electronics, life sciences and performance chemicals.

Nagase ChemteX
Nagase ChemteX holds the central role for production in the Group, based on our strengths inorganic synthesis and formulated product technologies, application development capabilities andstrong relationships with Nagase Group customers. We develop technologies, as well as produce,
supply and implement quality assurance, for chemicals including plastics. In fiscal 2004, earnings
grew mainly as a result of strong performance in Nagase’s electronics businesses.

Production Structure

Kyoichi Zushi
Director and Executive Officer
President, Nagase ChemteX
Corporation

Nagase ChemteX’s domestic production bases are concentrated at Harima and Fukuchiyama.
The Harima Plant mainly produces electronics and performance chemicals using organic synthesis
technologies and epoxy and other compounding technologies. The Fukuchiyama Factory specializes
in producing pharmaceutical intermediates and enzymes using biotechnology centered on enzymes
and organic synthesis technologies. In fiscal 2005, we are planning to further concentrate operations
at these two locations to establish a more efficient production structure.
Nagase ChemteX has overseas production bases in Singapore, China and Taiwan. At Nagase
Finechem Singapore (Pte) Ltd., which handles manufacturing and recycling of chemicals used in theelectronics field, earnings are improving. We expect operations to achieve a net profit during fiscal
2005. The company is working in various ways to increase its capacity utilization rate including
expanding its recycling business. In China, our manufacturing subsidiary Nagase ChemteX (Wuxi)
Corp., established through a joint venture with Nagase & Co., Ltd. to produce formulated epoxy
resins, continues to operate at full capacity. We expect to achieve profitability during fiscal 2005, thesubsidiary’s second year of operation, by expanding production facilities and increasing local market
share, and plan to develop business over the medium term. In Taiwan, the Nagase ChemteX Taiwan
Branch is operating at full capacity and working to improve profitability. In Europe, we are undertaking contract production with local partners.

R&D Structure
Nagase ChemteX cooperates closely on research and development with the Nagase R&D Center,the research and development organization for Nagase. We dispatch research and development
staff in the life sciences field to the Nagase R&D Center to conduct joint research by forming teams
with researchers there. In fiscal 2004, we continued to achieve solid results through cooperative R&D
activities. For example, we received the Chemical Society of Japan Award for TechnicalDevelopment for 2004. The Harima Plant is central to research and development of electronics andother industrial materials.
Our numerous research themes are based on a keen understanding of customer needs gained
through the synergies created between our R&D and trading company functions.

Electronics
Our electronics business focuses on the fields of microelectronics, organic devices, semiconductors and electronics components, and offers original products centered on liquid encapsulant for
semiconductors, adhesives for optical devices related to image sensors and materials for organic
electroluminescence. We will continue to concentrate on developing advanced products and work toachieve their early commercialization.

NAGASE & CO., LTD. ANNUAL REPORT 200533

Some is sold directly

Manufacturing contracts

Nagase ChemteX (NCX)
Development of new products,
change in specs, customized to
specialized niche areas

Interactive support between
technology development andhuman resources

Global sourcing

Nagase & Co., Ltd.
Understanding ofcustomer needs andmarket trends
Customers
Sales to outside
the Group

Chemicals
Plastics

Electronics

NagaseR&D Center

Manufacturing
partners

HealthCareLife Sciences
In life sciences, Nagase ChemteX does business in two fields: pharmaceutical intermediates andenzymes. Production of pharmaceutical intermediates is primarily conducted under contract and isspecialized in areas that make use of our specialized technologies and those of the Nagase R&D
Center. At the Fukuchiyama Factory, we are increasing utilization of cGMP-compliant production
facilities for investigational drugs, low-volume drugs, pharmaceutical intermediates and otherproducts.
In the pharmaceuticals market, a supply imbalance has arisen due to factors including a decreasein the number of new global drugs, lower National Health Insurance (NHI) prices for drugs and theemergence of Chinese, Indian and other new suppliers. Competition is also intensifying in contract
production. To strengthen our competitive edge, we are concentrating on high-added-value
products that combine our technological strengths in the areas of organic synthesis and biology.
In the industrial enzymes field, we went beyond merely selling enzymes to producing and selling
useful fermented products that use our fermentation technologies. We are currently focusing on
entering the market for phospholipids by using a phospholipid-degrading enzyme to create foodemulsifiers, raw materials for pharmaceuticals and ingredients for a rapidly growing array of healthfoods. At the Fukuchiyama Factory, which specializes in pharmaceutical intermediates and enzymes,
we are aiming at increasing synergies between these two product areas.

Performance Chemicals
Over the past several years, Nagase ChemteX has been concentrating on original in-house products: fluorene, polysilane and Denatron. Highly transparent and possessing excellent electrical properties, these high-value-added chemical substances can be used in revolutionary applications. Salesof fluorene, which is mainly used as a material for LCDs, continued to increase steadily in fiscal 2004
due to rapid growth in the large-screen LCD television market. In the future, we plan to concentrate
production of performance chemicals and capital investment in the Harima Plant to increase ourshare of production, especially of high-value-added and functional materials.

Structural Materials
In the structural materials business, Nagase ChemteX provides urethane, UV cure acrylic andmaterials such as tooling resin for master molds and prototype production in the automotive industry. We also offer a range of high-strength adhesives for the electrical, automotive, machinery andmany other industries. All are extremely high-value-added products. In fiscal 2005 we plan to further
increase our focus in this area.

TURNING WISDOM INTO BUSINESSIn March 2005, Nagase ChemteX received the Kinki Chemical Society’s 2004 Chemical Technology Award fordeveloping a UV cure adhesive for organic electroluminescent (EL) displays. This award, which is given for theindustrialization of substances through chemical research and development and for outstanding contributions toindustrialization, recognizes our accumulated efforts and achievements. We will continue to focus on developing
high-added-value products for the liquid crystal industry. In fiscal 2005, we plan to undertake facility
enhancements toward producing liquid crystal intermediates.

34

NAGASE & CO., LTD. ANNUAL REPORT 2005

Nagase R&D Center
Under its policy of serving the Nagase Group as the driving force behind R&D in the twenty-first century, the Nagase R&D Center fulfils threebasic functions: in-house creation of research themes; identification of market needs; and providing solutions for customers’ problems.
The R&D Center also helps strengthen Nagase ChemteX Corp.’s organic synthesis technology and biotechnology (fermentation and enzyme
technologies) and focuses on creating new business themes based on these unique technologies and products.

Outline of Nagase R&D Center’s Basic Functions➀ In-House Creation of Research Themes
The Nagase R&D Center not only looks at market needs but also proposes business themes bydeveloping the seeds of technologies. To meet such creative requirements, the Nagase R&D Centercollaborates with universities, public research institutes, and the research organizations of other companies as well as working on its in-house research programs. Recent results include the development of apractical asymmetric molecular catalyst in collaboration with Kyoto University. The patented catalyst
technology, which we have already commercialized, speeds the otherwise difficult processes of producing and supplying unnatural amino acids.

➁ Identification of Market Needs
Nagase’s research and development is exploited systematically for identification of market needs.
We have established our high-level technological capabilities as the Nagase brand by making our R&D
achievements public through patent applications, presentations at academic conferences, lectures andarticle submissions. This culminates in the development of high-value-added businesses that othercompanies find difficult to tackle.

➂ Providing Solutions for Customers’ Problems
Nagase provides customers with new and improved manufacturing processes, develops original
products that are available only through its proprietary manufacturing processes, and helps customers
commercialize their developmental products after identifying new added value through analysis andcustomer evaluation. Nagase maximizes its superior position as a trading company with production
capabilities by providing solutions that make use of the capabilities of the Nagase Group at every stageof business. For example, the Nagase R&D Center works with Nagase ChemteX on process development while Nagase’s sales departments procure raw materials.

Results of Research and Development
In the area of organic synthesis, the Nagase R&D Center developed a practical asymmetric molecularcatalyst. Collaborating with Nagase ChemteX, it also established a production method for pharmaceutical intermediates with complicated structures, the synthesis of which required more than ten-stepchemical reactions, and succeeded in industrializing those synthetic processes at the pilot-scale pharmaceutical production facilities at the Fukuchiyama Factory.
In the area of applied microbiology, the Nagase R&D Center succeeded in developing expoxide hydrolase, an effective hydrolytic enzyme for the stereo-selective production of chiral tertiary alcohols. It also succeeded in developing an engineered Bacillus strain that can produce the enzyme on a commercial scale anda method to immobilize Bacillus cells that paved the way for practical use of the enzyme.
The Nagase R&D Center also developed a technology platform for microbial reduction that should enable stereo-selective production of chiral secondary alcohols. This will
enhance our ability to offer solutions to pharmaceutical manufacturers and accelerate
relevant contract research and manufacturing.
In collaboration with Nagase ChemteX, which is involved in microbial technologies,
the Nagase R&D Center reinforced the lineup of phospholipid-related products,
Nagase’s core biochemical products. We will continue to enhance such collaborative
research and development efforts in expanding those particular product lines.
In the area of beauty care, we have developed functional health food ingredients andskin care products with an emphasis on anti-aging. In particular, we are focusing R&D on
exploring the anti-aging effect of rosemary extract to further strengthen our own brand.

NAGASE & CO., LTD. ANNUAL REPORT 2005

35

Core Technologies and Main Research Themes at the Nagase R&D Center➀ Development of chiral technologies that feature organic synthesis and biotransformations using microorganisms or enzymes;

in particular, development of industrial production processes for fine chemical products including pharmaceuticals, pharmaceuticalintermediates and liquid crystal intermediates➁ Technologies for isolation and biological assay of natural products to develop new ingredients for functional health foods and cosmetics➂ Collaboration with Nagase ChemteX in helping the Group to develop enabling core technologies for life sciences, such as manufacturing
technologies for chiral products, genetic engineering, microbial screening, microbial metabolic pathway engineering, and discovery
technologies to identify new active principles in natural resources➃ Others: Analysis and evaluation technologies (pharmaceutical analysis and plastic additives development) and response to regulatory affairs

Progress under WIT21
The strategic objectives of the Nagase R&D Center are five-fold:■ Focus on developing the select technologies that will help Nagase’s operations in the life

sciences business■ Use the Nagase Group’s R&D resources to full advantage through collaboration with Nagase

ChemteX■ Collaborate with universities and other R&D organizations and take advantage of public funds

to strengthen enabling core technologies■ Build up a brand strategy aimed at the acquisition of research contracts■ Develop core technologies to support Nagase ChemteX and assist in the launch of new

products and the development of manufacturing processes to increase the Group’s profits
In fiscal 2004, the Nagase R&D Center achieved the major target of attaining “independence asa core entity responsible for life sciences R&D.” As a collaborative venue for Group companies, it
now functions as a technology platform for the life sciences business. At the same time, high evaluationsof its R&D capabilities by third parties have led to winning a technology award and public funding.
Moreover, vigorous efforts to submit articles and make presentations at academic conferences
have yielded concrete results including an increase in business inquiries into exploiting Nagase’s
technologies.
In fiscal 2005, the final year of WIT21, the Nagase R&D Center will continue developing enablingcore technologies, further increase research theme
Representative Products Developed
creation capabilities and strengthen initiatives toat the Nagase R&D Center
approach potential customers with research proposals,OH
and will strive to move from being independent to
CO2H
being depended on. Finally, through collaboration
NH2
with business departments within Nagase and Group
(1R,2S)-Norephedrine(S)-2-Phenylpropionic acidcompanies, the Nagase R&D Center will continue toPharmaceutical and resolving agent
Liquid crystal intermediate
pursue the creation and sharing of technologicaldevelopment concepts.
NH2

OH

S-PBA
Resolving agent

HO2C
CO2H

(R)-3-Quinuclidinol

Pharmaceutical intermediate

Pharmaceutical intermediate

TURNING WISDOM INTO BUSINESSThe R&D and planning capabilities of the Nagase R&D Center are highly regarded. In fiscal 2004, it received two
public research grants, one from the New Energy and Industrial Technology Development Organization (NEDO)
and the other from the Hyogo COE Program. The first is to cover research for the period from 2004 to 2006 andis focused on developing versatile microbial reduction processes as exemplified by the production of pharmaceuticalintermediate (R)-3-quinuclidinol. The second was to help fund research on developing a technology platform forthe practical application of expoxide hydrolase in fiscal 2004. The Nagase R&D Center also received the 57th
Science and Technology Award for 2004 from the Kinki Chemical Society in recognition of its process development
for manufacturing (R)-3-quinuclidinol through the combined use of bio- and chemocatalysts.

36

NAGASE & CO., LTD. ANNUAL REPORT 2005

N(S)-Benzylsuccinic acidSix-year Summary
Nagase & Co., Ltd. and Consolidated Subsidiaries(Years ended March 31)
Thousands of
U.S. Dollars (Note)

Millions of Yen

2005

2004

2003

2002

2001

2000

2005

¥568,293$5,360,240

For the Year:Net Sales ............................................

¥ 575,636 ¥ 533,301 ¥ 503,688 ¥ 490,583 ¥ 559,372

Gross Profit ........................................

61,96053,49451,89946,97655,14055,287576,971

Operating Income ...............................

13,256

10,244

8,433

1,673

7,752

8,147

123,440Net Income (Loss) ................................

10,384

7,010

4,186

(2,097)

4,945

6,371

96,694¥ 335,290 ¥ 310,793 ¥ 284,800 ¥ 300,073 ¥ 353,776¥316,657$3,122,175

At the Year-end:
Total Assets........................................
Shareholders’ Equity...........................

167,092

156,210140,944

144,176

153,498

134,838

1,555,943

Interest-Bearing Debt..........................

14,01916,417

16,578

16,67723,87826,681

130,552

Yen

U.S. Dollars (Note)

Per Share Data:
Net Income (Loss) .............................

¥

81.00 ¥

54.69 ¥

31.72 ¥

Shareholders’ Equity...........................

1,311.37

1,227.82

1,107.54

Cash Dividends...................................

10.00

9.00

8.00

(15.39) ¥35.28¥ 44.24$0.75

1,082.15

1,104.80

952.67

12.21

8.00

8.00

8.00

0.09

（％）

Ratios:Ratio of Gross Profit to Sales...............

10.8

10.0

10.3

9.6

9.9

9.7

Total Asset Turnover (Times)...............

1.8

1.8

1.7

1.5

1.7

1.8

Return on Assets (ROA) ......................

3.2

2.4

1.4

(0.6)

1.5

2.1

Return on Equity (ROE)........................

6.4

4.7

2.9

(1.4)

3.4

4.9

Shareholders’ Equity Ratio ..................

49.8

50.3

49.5

48.0

43.4

42.6

Interest Coverage Ratio (Times) .........

31.0

25.7

22.9

5.8

11.9

13.5

Debt to Equity Ratio (Times) ................

0.08

0.11

0.12

0.14

0.16

0.22

Number of Employees .........................

3,203

2,884

2,790

2,718

2,952

2,954

Note: U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥107.39=U.S.$1, the approximate Tokyo exchange market rate as of March 31, 2005.

NAGASE & CO., LTD. ANNUAL REPORT 2005

37

Management’s Discussion and Analysis of Operations and Finances
Overview of Results
The Nagase Group imports and exports a diverse array of
products and engages in domestic transactions, with
Nagase & Co., Ltd. (the “Company” or “Nagase”) at its center. In addition, the Nagase Group manufactures and sells
products and provides services. These businesses are conducted by 103 related companies, consisting of 71 subsidiaries and 32 affiliates.
The scope of consolidation includes 38 subsidiaries and nine
affiliates accounted for by the equity method. The Company
added eight subsidiaries to the scope of consolidation during
the fiscal year ended March 31, 2005, because these subsidiaries had become increasingly material to consolidated
results. The newly consolidated subsidiaries were: Shanghai
Hua Chang Trading Co., Ltd.; Nagase Engineering Service
Korea Co., Ltd.; Nagase CMS Technology Co., Ltd.; Nagase
Trade Management Co., Ltd.; Nagase Philippines Corp.;
Shanghai Nagase Trading Co., Ltd.; P.T. Nagase Impor-Ekspor
Indonesia; and Nagase Korea Corp. In addition, Shizuoka
Nagase Co., Ltd., merged into another subsidiary, Nagase
Chemical Co., Ltd. in April 2004.

Net Sales
During the year ended March 31, 2005, firm internal demandand expanded exports resulting from favorable global economic
conditions supported the Japanese economy. Despite a slowdown in certain sectors in the second half of the fiscal year,
overall conditions were favorable. Prices rose in the materials
market because of the increase in the price of crude oil. The
market for materials related to liquid crystal displays (LCDs),
however, entered a correction phase in which prices decreased
due to concerns about excess supply.
In these circumstances, we made efforts to improve ourbusiness performance. As a result, consolidated net sales
increased 7.9 percent year-on-year, or ¥42.33 billion, to¥575.63 billion due to growth in both domestic and overseas
sales. Domestic sales increased 4.0 percent year-on-year, or¥14.15 billion, to ¥363.71 billion as plastics sold well due toimproving conditions in the materials market, together with stable sales in the Chemicals business. Overseas sales increased
15.3 percent year-on-year, or ¥28.18 billion, to ¥211.92 billion
due to favorable sales of dyestuffs in the Chemicals business, inaddition to expansion of the functional resin and automotiverelated businesses in North America as well as China and elsewhere in Asia in the Plastics business. As a result, overseas
sales accounted for 36.8 percent of net sales, compared with
34.5 percent in the previous fiscal year.

Gross Profit and Selling, General and
Administrative Expenses
Cost of sales increased 7.1 percent year-on-year, or¥33.86 billion, to ¥513.67 billion. The reason cost of sales
increased at a lower rate than net sales was a reduction in
the costs of service companies. As a result of the increasein net sales, gross profit increased 15.8 percent year-onyear, or ¥8.46 billion, to ¥61.96 billion. The ratio of grossprofit to net sales increased 0.8 percentage points to 10.8
percent.
Selling, general and administrative (SG&A) expenses
increased 12.6 percent year-on-year, or ¥5.45 billion, to¥48.70 billion. The ratio of SG&A expenses to net sales
increased 0.4 percentage points to 8.5 percent.

Research and Development Expenses
The Nagase Group integrates its comprehensive
strengths to engage in research and development with theobjective of developing new products and sharing technological information.
The Nagase R&D Center develops products based onuser needs and conducts applied research. Current
research and development themes include research of fermentation technology using chiral synthesis technology andenzymes for applications in pharmaceutical intermediates,
and the use of natural ingredients in developing cosmetics
and health foods. Customers hold the Nagase Group’s
technology development capabilities in high regard.
In addition, the Nagase Group deploys a precise understanding of customer needs acquired from its marketing
network and its extensive portfolio of organic synthesis andcompounding technologies in developing and expanding
sales of products such as plastics additives and coating
materials. The Nagase Group uses the many patents it has
obtained from its research and development activities toincrease earnings. For the year ended March 31, 2005,
research and development expenses totaled ¥2.34 billion,
compared to ¥2.43 billion in the previous fiscal year.
Research andDevelopment
Expenses(¥ Billion)

3

2.43
2

(¥ Billion)

600
500

559.37575.63490.58 503.68

533.30

400
300
200
100
0
Years ended
March 3138

2001 2002 2003 2004 2005

NAGASE & CO., LTD. ANNUAL REPORT 2005

2.34

2.05
1.63

1
0

Years ended
March 31Net Sales

2.84

2001 2002 2003 2004 2005

Operating Income, Net Other Expenses and Net
IncomeResults by Business Segment

Operating income increased 29.4 percent year-on-year,or ¥3.01 billion, to ¥13.25 billion, as a result of the increasein the gross profit margin. The ratio of operating income to
net sales increased 0.4 percentage points to 2.3 percent.

Net Sales by Business
Segment(¥ Billion)

600

12.65
103.38400
205.46

Operating Income(¥ Billion)

14
12
10
8
6
4
2
0
Years ended
March 31

13.25

8.43

2001 2002 2003 2004 2005(¥ Billion)

10.38

10
8
6
4
2

7.01
4.94

54.69

4.18

35.28

Years ended
March 31(¥)

100
81.00 80

31.72

0Net Income (Loss)Net Income (Loss) per Share

175.25165.81

170.99218.52223.65231.36

12.82
122.63118.97188.45237.87251.720Years ended
March 312001 2002 2003 2004 2005

Chemicals
1.67

Net other income totaled ¥4.30 billion, compared to¥1.47 billion for the previous fiscal year. The interest coverage ratio, defined as the sum of operating income and interest and dividend income divided by interest expense,
improved to 31.0 times from 25.7 times for the previous fiscal year.
Gain on sales of investments in securities increased to¥1.54 billion from ¥0.72 billion in the previous fiscal year,
while loss on sales of investments in securities decreased
to ¥0.00 billion from ¥0.38 billion for the previous fiscal
year. Loss on devaluation of investments in securities
increased to ¥0.42 billion from ¥0.21 billion in the previous
fiscal year. Net gain on sales of property and equipment
increased to ¥1.96 billion compared to ¥0.52 billion in theprevious fiscal year.
As a result of the year-on-year increase in net otherincome and improved operating profitability, income before
income taxes and minority interests increased 49.8 percent
year-on-year, or ¥5.83 billion, to ¥17.55 billion. Income
taxes net of deferrals rose in line with the increase inincome before income taxes. Net income therefore
increased 48.1 percent year-on-year, or ¥3.37 billion, to¥10.38 billion. Net income per share increased to ¥81.00
from ¥54.69 for the previous fiscal year.
Net Income (Loss)/
Net Income (Loss)
per Share

14.46
99.75

200
Chemicals
Plastics
Electronics
Health Care and Others

10.24
7.75

11.96

13.14
83.66

60
40
20
0

2001 2002 2003 2004 2005

Segment sales increased 8.8 percent year-on-year, or¥20.36 billion, to ¥251.72 billion. Segment operating
income increased 27.2 percent year-on-year, or ¥1.14 billion, to ¥5.36 billion. In addition to increased sales of products in fields related to computer peripherals and the automotive industry, improved market conditions for materials
spurred an increase in sales of general-purpose chemicals.
Sales of pigment products increased overall, with solid
contributions from growth products including materials forink and inkjet toner for printers and copying machines andmaterials for color filters for LCDs. Sales of chemicals forplasma displays and DVDs also increased, although sales ofcolor former used as a material for heat-sensitive and pressure-sensitive paper and other chemicals for manufacturing
paper and dyestuffs were flat.
Sales of urethane materials used in applications such as
automobile seat cushions increased, centered on overseas
sales. Factors including the establishment of a joint venture
in China for this key area supported growth. Overseas sales
also drove growth in sales of paint materials and flame-retardant
additives for plastics. A solid market environment for materials
supported sales of general-purpose chemicals. As a result,overall sales of these products increased.
Sales of speciality chemicals, which include surfactants
and oil solutions used as raw materials for detergents andother household toiletries, increased overall due mainly tohigher sales of products manufactured by Nagase ChemteX
Corp., the core of our manufacturing operations.
Sales of fine chemicals, including raw materials and intermediates for pharmaceuticals and agricultural chemicals
and enzymes, remained at the same level as in the previous
fiscal year. A reorganization to improve profitability impacted
sales of agricultural chemical-related products. Sales ofpharmaceutical-related products faltered in the first half ofthe fiscal year but recovered in the second half, while overseas sales of enzymes for beverages and raw materials forfragrances increased.

(15.39)△2.09

NAGASE & CO., LTD. ANNUAL REPORT 2005

39

Plastics
Segment sales increased 10.2 percent year-on-year, or¥17.46 billion, to ¥188.45 billion due to increased overseas
sales and improved conditions in the materials market.
Segment operating income increased 41.7 percent year-onyear, or ¥1.26 billion, to ¥4.28 billion.
Overseas sales of engineering plastics increased substantially, as did sales of general-purpose resins. Overseas
sales are a core focus in this segment, and performanceremained strong in the strategic Greater China region.
Sales of plastic raw materials and products and resin
processing equipment to the automotive industry expanded
significantly. In addition to Japan, sales increased in China
and elsewhere in Asia, supported by expansion in our sales
network, and were also strong in North America andEurope. However, sales decreased at Canada Mold
Technology Inc., in North America.
Sales of materials for plastics and plastic components foruse in computer peripherals increased in Japan and overseas. Sales of original Nagase Group products for woodcomposite materials used in construction and housing also
increased.
Sales of materials for plastics to the packaging andhousehold appliance industries in Japan did not increase
substantially despite improved market conditions for materials. However, sales increased at Setsunan Kasei Co., Ltd.,
which handles plastic coloring and compounding. Sales also
increased at Totaku Industries, Inc., which manufactures
various types of flexible hose for use in household appliances such as vacuum cleaners and washing machines andin industrial applications. Sales of plastic trays used in foodpackaging increased at Kotobuki Kasei Corp.

Electronics
Segment sales increased 3.1 percent year-on-year, or¥3.65 billion, to ¥122.63 billion. Segment operating income
increased 10.7 percent year-on-year, or ¥0.25 billion, to¥2.66 billion. Sales of chemicals, equipment and precisionabrasive materials to the LCD and semiconductor industries
were firm. Lower prices in the LCD industry and a decreasein telecommunications equipment-related sales, however,restrained overall growth in sales to a slight increase.
Sales in the modified epoxy resin business, which mostly
comprises products of Nagase ChemteX Corp., did not increase
substantially in Japan. New customers in China’s heavy electricindustry, however, supported overall sales growth.
Sales of chemicals and related supply and management
equipment for front-end-of-line photolithography for LCDs
and semiconductors increased. Sales of equipment, centered on Nagase Group products, grew substantially in
Taiwan and other overseas markets. Sales for back-end-ofline semiconductor processing applications, including highvalue-added products such as liquid encapsulant, which isan area of focus for Nagase ChemteX, were about the sameas in the previous fiscal year.
Sales of precision abrasive materials for processing
semiconductor silicon wafers increased strongly both inJapan and overseas.

40

Sales of products for LCD optical film and related applications were flat year-on-year. Sales rose in the first half but
decreased in the second half due to the industry slowdown,
particularly overseas. LCD modules and other components
were impacted by lower prices and sales decreased.
However, sales of aluminum products for use in applications
such as the external housing of portable electronic equipment and sales to end users of downstream products
developed from LCD operations, such as DVD players andmovie software, sold well but could not compensate forlower component sales.
Despite aggressive sales efforts, sales of power amps
and other components used in base stations for mobile
phones and PHS decreased substantially, due mainly to thecompletion of a demand cycle in China and elsewhere. We
have already developed next-generation products, which weare energetically promoting to the market. Sales of image
processing inspection equipment used in applications suchas optical film manufacturing processes expanded, although
the scale of the business is still small.

Health Care and Others
Segment sales increased 7.1 percent year-on-year, or¥0.85 billion, to ¥12.82 billion. Segment operating income
increased 80.9 percent year-on-year, or ¥0.27 billion, to¥0.62 billion. Sales in the fields of cosmetics and healthfoods increased, while sales of medical care and radiation
measurement products were essentially unchanged yearon-year.
In the fields of cosmetics and health foods, the Nagase
Group transferred its traditional door-to-door sales functions to Nagase Beauty Care Co., Ltd. in the previous fiscal
year. Sales increased as a result of sales activities tailoredto particular regions.
Sales of the Medical Care Products Department, whichhandles reagents for clinical examinations, medical information and clinical examination systems for health care institutions and radiation measurement products related to thesafe management of radiation, were approximately thesame as in the previous fiscal year.

Results by Geographical Segment
Intersegment sales are excluded from net sales. Results by geographical segment differ from the domestic and overseas net sales figures discussed earlier because sales in Japan discussed below include domestic import and export transactions and the overseas transactions ofNagase Group companies domiciled in Japan. These latter transactions,however, are also included in the overseas sales discussed above.

Net Sales byGeographical
Segment(¥ Billion)

600
500

7.25
10.63
74.94

400

6.90
10.67
73.28

8.78
11.62
80.50

9.21
13.87
85.35

399.72402.76424.859.84
17.35
114.71

300
200
Japan
Asia
North America
OthersNAGASE & CO., LTD. ANNUAL REPORT 2005

466.53433.70100
0Years ended
March 312001 2002 2003 2004 2005

JapanLiquidity and Financial Position

Sales in Japan increased 2.1 percent year-on-year, or¥8.85 billion, to ¥433.70 billion. Operating income in Japan
increased 29.0 percent year-on-year, or ¥1.97 billion, to ¥8.81
billion. Conditions in the materials market improved, and sales
increased in the Chemicals and Plastics businesses.

Cash and cash equivalents as of March 31, 2005
decreased 18.2 percent from a year earlier, or ¥3.81 billion, to¥17.21 billion. Despite an increase in net income to ¥10.38
billion, net cash provided by operating activities totaled ¥1.71
billion. Increases in notes and accounts receivable and inventories resulting from higher net sales used cash totaling¥20.85 billion. Net cash used in investing activities totaled¥1.41 billion as the Nagase Group used cash provided byoperations to purchase property and equipment and investments in securities, and to decrease short-term loans receivable. Net cash used in financing activities totaled ¥5.11 billion
due to redemption of bonds and payment of cash dividends.
From the fiscal year ended March 31, 2005, the Nagase
Group applies accounting standards and guidelines for impairment loss on fixed assets. As a result, income before income
taxes and minority interest decreased by ¥0.31 billion.

Asia
Sales in Asia increased 34.4 percent year-on-year, or¥29.36 billion, to ¥114.71 billion. Operating income in Asia
increased 61.8 percent year-on-year, or ¥1.67 billion, to¥4.38 billion. In the Plastics business, sales increased in the
Greater China region. Sales also continued to expand in theChemicals and Electronics businesses.

North America
Sales in North America increased 25.1 percent year-on-year,or ¥3.47 billion, to ¥17.35 billion. Operating loss in North America
totaled ¥0.04 billion compared to operating income of ¥0.32 billion for the previous fiscal year. In the Plastics business, sales ofautomotive-related plastics increased. The operating loss resulted
from a loss at a subsidiary in the die business.

OthersSales in other regions increased 6.9 percent year-onyear, or ¥0.63 billion, to ¥9.84 billion. Operating income inother regions decreased 28.2 percent year-on-year, or¥0.04 billion, to ¥0.11 billion. In the Chemicals business,sales of pigment-related products increased in Europe.
Operating income decreased due to higher SG&A expenses.

Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased 73.3
percent year-on-year, or ¥4.71 billion, to ¥1.71 billion. Net
income increased ¥3.37 billion year-on-year to ¥10.38 billion.
However, the increase in net sales resulted in the use of cash
totaling ¥13.81 billion to fund an increase in notes andaccounts receivable, and the use of cash totaling ¥7.02 billion
to fund an increase in inventories. This was offset by anincrease of ¥10.73 billion in notes and accounts payable. Gainon sales of property and equipment was ¥1.95 billion, compared with ¥0.52 billion in the previous fiscal year, and depreciation and amortization was essentially unchanged year-onyear at ¥3.07 billion.

Profit Sharing Policy
Dividend Policy

Net Cash Used in Investing Activities

The Nagase Group’s basic policy is to further enhance its
corporate structure and earnings capabilities to continue
generating steady dividends for shareholders.
While maintaining steady dividends, Nagase reflected its
solid performance by increasing cash dividends for the fiscal
year ended March 31, 2005 to ¥10.00 per share, in responseto the support of its shareholders. Cash dividends for theprevious fiscal year were ¥9.00 per share, consisting of an
ordinary dividend of ¥8.00 per share and a commemorative
dividend of ¥1.00 per share. As a result, the dividend payout ratio was 21.4 percent.
The Nagase Group intends to use internal reserves effectively to enhance future business activities and managementfoundations.

Net cash used in investing activities decreased 16.4 percent,or ¥0.28 billion, year-on-year to ¥1.41 billion. Purchases ofproperty and equipment more than doubled to ¥6.53 billion
from ¥3.05 billion for the previous fiscal year, reflecting
aggressive investment in growth opportunities. The Nagase
Group generated net proceeds from sales of investments insecurities totaling ¥1.97 billion to help fund increased purchases of property and equipment. In addition, an increase in
short-term loans receivable, net contributed ¥1.10 billion to
cash flow.

Stock Option System
In the fiscal year ended March 2003, the Nagase Group introduced a stock option system aimed at boosting the motivationand morale of Group employees in order to improve their performance, and at further enhancing the Company’s corporate
value by aligning the interests of the Group with those of shareholders. During the year ended March 31, 2005, the Nagase
Group issued rights to purchase new shares in the form ofstock options to directors, auditors, executive officers andCompany managers, as well as to directors and individuals withan equivalent title at subsidiaries.

Net Cash Used in Financing Activities
Net cash used in financing activities totaled ¥5.11 billion,
compared to ¥1.83 billion in the previous fiscal year. Primaryfactors included redemption of bonds totaling ¥7.00 billion,
which the Nagase Group funded primarily using internal capital resources supplemented with proceeds from long-term
debt totaling ¥2.32 billion. Cash dividends paid increased¥0.95 billion from the previous fiscal year to ¥1.29 billion.

Cash Flow Summary(¥ Billion)

2005

2004

2003

Net Cash Provided by Operating Activities

1.71

6.43

4.39

Net Cash Used in Investing Activities(1.41)(1.68)

0.96

Net Cash Used in Financing Activities(5.11)(1.83)(7.64)NAGASE & CO., LTD. ANNUAL REPORT 200541

Assets

Shareholders’ Equity

Total assets as of March 31, 2005 increased 7.9 percent, or¥24.49 billion, from a year earlier to ¥335.29 billion.
Current assets increased 9.2 percent, or ¥19.83 billion, from ayear earlier to ¥234.66 billion. Primary factors included a ¥13.99
billion increase in notes and accounts receivable and an ¥8.94
billion increase in inventories due to the increase in net sales.
Property, plant and equipment increased 9.9 percent, or¥2.68 billion, from a year earlier to ¥29.67 billion. Main factors
in the increase included construction of a new factory at a
manufacturing subsidiary and an increase in investments insecurities due to higher stock prices. Investments and otherassets increased 2.9 percent, or ¥1.98 billion, from a year earlier to ¥70.95 billion.

Shareholders’ equity increased 7.0 percent, or ¥10.88 billion, from a year earlier to ¥167.09 billion. Retained earnings
increased ¥9.66 billion to ¥134.77 billion due to the increasein net income. In addition, net unrealized holding gain on
securities increased ¥1.49 billion to ¥20.43 billion due to therise in domestic stock prices during the year ended March 31,
2005. Treasury stock, at cost was essentially unchanged froma year earlier at ¥5.90 billion. Consequently, the ratio of shareholders’ equity to total assets was 49.8 percent compared to50.3 percent a year earlier.

Total Assets/
Return on Assets

400

353.77300.07 284.80

310.79153.49 144.17

1.5

60

2

Years ended
March 31156.21

1.4

1Years ended
March 313

2.9

02001 2002 2003 2004 2005

Shareholders’ Equity
Return on Equity(1.4)

Investment in Plant and Equipment

Total liabilities as of March 31, 2005 increased 8.6 percent, or ¥12.96 billion, from a year earlier to ¥163.35 billion.
Current liabilities increased 7.5 percent, or ¥9.82 billion,
from a year earlier to ¥141.24 billion. Although Nagase
redeemed bonds in the amount of ¥7.00 billion, notes andaccounts payable increased by ¥11.61 billion due to theincrease in net sales, and short-term loans increased by¥3.60 billion from a year earlier.
Working capital increased to ¥93.41 billion from ¥83.40
billion a year earlier. The current ratio was 1.66 times, compared to 1.64 times a year earlier.
Long-term liabilities increased 16.6 percent, or ¥3.14 billion, from a year earlier to ¥22.10 billion. Long-term debt
increased ¥1.72 billion. Deferred income taxes increased¥2.42 billion from a year earlier, primarily because the rise instock prices during the year increased net unrealized holding gain on securities included in deferred income taxes.
(¥ Billion)

93.41

100
78.12 76.09
1.47

1.59

82.58 83.40
1.69

1.64

(Times)2.5
2.0

1.66 1.5

40

1.0

20

0.5

0

Years ended
March 313.4

0Liabilities60

62001 2002 2003 2004 2005

(0.6)

80

9

6.4

0

0

Investment in plant and equipment for the year ended
March 31, 2005 centered on production equipment for plastic
products and totaled ¥6.52 billion.
Investment in plant and equipment in the Chemicals segment totaled ¥1.40 billion and included production equipment
at manufacturing subsidiaries for industrial chemicals, pharmaceuticals and enzymes. Investment in plant and equipmentin the Plastics segment totaled ¥3.70 billion and included
plastic molding and production equipment at the Company
and manufacturing subsidiaries. Investment in plant andequipment in the Electronics segment totaled ¥0.92 billion andincluded production equipment related to electronic components at the Company and manufacturing subsidiaries.
Investment in plant and equipment in the Healthcare andOthers segments totaled ¥0.48 billion.
The Nagase Group used both internal and external capital
resources to fund capital expenditures.

Outlook for the Year Ending March 31, 2006
In the third and final year of the Medium-term Management
Plan WIT 21, the Nagase Group will further accelerate its
efforts to strengthen its operations in the strategic sectors ofelectronics, life sciences, automotive-related fields and overseas businesses. The Company projects that market demand
will expand in these four sectors, and believes it will have theopportunity to develop its strengths.
Based on the above, the outlook for the Nagase Group’s
performance for the year ending March 31, 2006 is as follows.

0(¥ Billion)

2001 2002 2003 2004 2005

Year ending March 31, 2006 (Projected)
Year ended March 31, 2005 (Actual)
Projected YOY increase

42

140.94(%)

4.7

4335.29
3.2 3

2.4

100

Working Capital
Current Ratio

167.09

180

(%)

200

Working Capital/
Current Ratio(¥ Billion)

120(¥ Billion)

300

Total Assets
Return on Assets

Shareholders’ Equity/
Return on Equity

NAGASE & CO., LTD. ANNUAL REPORT 2005

Net Sales

Operating
IncomeNet
Income

600.0
575.6
4.2%

16.1
13.2
21.5%

10.8
10.3
4.0%

Operating and Other Risks

5. Product Quality Risk

The following presents an overview of operating and otherissues to which the Nagase Group is subject and that exert or
could exert a significant influence on investor decisions.
Forward-looking statements are Nagase Group estimates asof March 31, 2005.

The Nagase Group operates the Nagase R&D Center andmanufacturing subsidiaries to provide high added value tocustomers, and devotes scrupulous attention to the quality ofthe technologies and products the Group thus provides.
However, issues such as defects in these products would
terminate sales and require the Nagase Group to reimburse
customers, which would have the potential to impact theGroup’s performance and financial position.

1. Impact of Fluctuations in Foreign Currency
Exchange Rates
The Nagase Group undertakes import and export transactions that involve foreign currencies. Fluctuations in foreign
currency exchange rates impact the value of transactions
denominated in foreign currencies when translated into yen.
The Nagase Group works to minimize the risks associatedwith fluctuations in foreign currency exchange rates by hedging these transactions using forward foreign exchange contracts. However, fluctuations in foreign currency exchange
rates have the potential to exert a material impact on the
Nagase Group’s performance and financial position. The
Nagase Group also includes corporations domiciled in countries other than Japan that maintain their financial statements
in currencies other than Japanese yen. Fluctuations in foreign
currency exchange rates therefore have the potential toimpact the consolidated financial statements upon translationof the accounts of these corporations into Japanese yen.

6. Risk of Regulation of Product Shipments
Chemicals are a core business of the Nagase Group, whichships a diverse array of products for a broad range of applications.
The Group is therefore subject to the application of regulations
that aim in part to maintain international peace and safety,
including the Foreign Exchange and Foreign Trade Control
Law and the Export Trade Control Order. The Nagase Group
has therefore established the Security Trade Control andChemical Management Committee, which works to assurecompliance with the above regulatory systems. Contraventionof these regulatory systems would result in restrictions on
business activities, and would have the potential to impact theGroup’s performance and financial position.

2. Risks Involved in Operating Overseas
A significant percentage of the Nagase Group’s activities
involve selling and manufacturing overseas, principally inSoutheast Asia, Europe, North America and China. As a matterof policy, the Nagase Group makes every effort to determine
trends in markets overseas and respond appropriately to them.
However, failure on the part of the Nagase Group to makeaccurate projections based on unexpected events including factors related to the regulatory systems and customs of overseas countries would have the potential to impact the Group’s
performance and financial position.

3. Impact of Changes in Stock Prices
The Nagase Group maintains a stock portfolio, primarily
shares of companies with which the Group transacts business, and is subject to the risk of changes in the prices ofthese shares. As a matter of policy, the Nagase Group seeks
to reduce this risk by divesting unnecessary shares. However,changes in stock prices have the potential to impact theGroup’s performance and financial position.

4. Risk of New Investments
The Nagase Group’s businesses center primarily on low-marginbrokerage transactions, and the Group is working to develop
high-value-added businesses. As a matter of policy, the Nagase
Group is therefore supporting the ability of the Nagase R&D Center,
Group manufacturing subsidiaries and other Group organizations toprovide high-level technologies and information by undertaking
efforts such as aggressively investing in new businesses andpurchasing strategic commercial rights. However, this policy
entails operating risks that are different from those inherent in theGroup’s conventional, low-risk brokerage businesses. The
increased latent risks involved have the potential to impact theGroup’s performance and financial position.
NAGASE & CO., LTD. ANNUAL REPORT 200543

Consolidated Balance Sheets
Nagase & Co., Ltd. and Consolidated Subsidiaries
As of March 31, 2005 and 2004

Thousands of
U.S. dollars (Note 1)

Millions of yen

ASSETS

2005

2004

2005

Cash and cash equivalents .....................................................................

¥ 17,215¥ 21,033$ 160,311

Time deposits (Note 6).............................................................................

637

603

5,940

Unconsolidated subsidiaries and affiliates ..........................................

4,441

7,597

41,362

Trade ....................................................................................................

168,928

151,662

1,573,037

Other ....................................................................................................

1,298

1,747

12,093Current assets:

Notes and accounts receivable:

Less allowance for doubtful receivables..............................................

(1,859)(2,196)(17,317)

172,809

158,810

1,609,176

Inventories ...............................................................................................

36,31627,369338,175

Deferred income taxes (Note 9)...............................................................

2,947

2,719

27,448Other current assets ................................................................................

4,733

4,292

44,073

Total current assets ..........................................................................

234,660

214,828

2,185,124Land.........................................................................................................

9,252

9,429

86,162

Buildings and structures..........................................................................

29,273

26,675272,592

Machinery and equipment .......................................................................

32,05930,667

298,535

Construction in progress .........................................................................

88

170

823

70,674

66,942

658,114

Less accumulated depreciation ..............................................................

(41,000)(39,948)(381,788)

Property, plant and equipment, net.........................................................

29,67426,994

276,325

Unconsolidated subsidiaries and affiliates ..............................................

11,495

11,113

107,043

Other........................................................................................................

55,70153,282518,687

Property, plant and equipment:

Investments and other assets:
Investments in securities (Notes 4 and 6):..........................................................................................................

67,19764,396

625,731

Long-term loans receivable .....................................................................

183

168

1,709

Deferred income taxes (Note 9)...............................................................

827

712

7,708

Other assets ............................................................................................

3,063

3,912

28,529Less allowance for doubtful accounts.....................................................

(317)

(218)

(2,952)

Total investments and other assets..................................................

70,95568,971

660,725

Total assets................................................................................................

¥335,290¥310,793$3,122,175

See notes to consolidated financial statements.

44

NAGASE & CO., LTD. ANNUAL REPORT 2005

Thousands of
U.S. dollars (Note 1)

Millions of yen

LIABILITIES AND SHAREHOLDERS’ EQUITY

2005

2004

2005

Current liabilities:
Short-term loans (Note 5) ........................................................................

¥

9,944

Current portion of long-term debt (Note 5)..............................................

588

¥

6,336
8,321

$

92,597
5,479

Notes and accounts payable:
Unconsolidated subsidiaries and affiliates ..........................................

1,829

2,194

17,032

Trade ....................................................................................................

108,819

96,841

1,013,308

110,648

99,036

1,030,341

3,626

2,587

33,766

Accrued income taxes (Note 9) ...............................................................
Deferred income taxes (Note 9)...............................................................

4

2

40

Accrued expenses ...................................................................................

5,929

5,658

55,214

Other current liabilities.............................................................................

10,506

9,485

97,832

Total current liabilities ......................................................................

141,247

131,427

1,315,272

Long-term debt (Note 5) ..........................................................................

3,487

1,759

32,474

Deferred income taxes (Note 9)...............................................................

9,803

7,381

91,284

Accrued retirement benefits for employees (Note 8)...............................

7,406

8,474

68,966

Accrued retirement benefits for officers ..................................................

941

926

8,763

Long-term liabilities:

Other liabilities .........................................................................................

467

416

4,355

Total long-term liabilities ..................................................................

22,105

18,959205,844

Minority interests...................................................................................

4,844

4,197

45,114

Contingent liabilities (Note 12)
Shareholders’ equity (Note 7):
Common stock:
Authorized — 346,980,000 shares
Issued — 138,408,285 shares .............................................................

9,699

9,699

90,322

Capital surplus.........................................................................................

9,648

9,635

89,846

Retained earnings....................................................................................

134,778

125,116

1,255,042

Net unrealized holding gain on securities................................................

20,431

18,933

190,259

Translation adjustments ..........................................................................

(1,558)(1,195)(14,508)

Less treasury stock, at cost ....................................................................

(5,908)(5,979)(55,018)

Total shareholders’ equity ................................................................

167,092

156,210

1,555,943

Total liabilities and shareholders’ equity ................................................

¥335,290¥310,793$3,122,175

See notes to consolidated financial statements.

NAGASE & CO., LTD. ANNUAL REPORT 200545

Consolidated Statements of Income
Nagase & Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004

Thousands of
U.S. dollars (Note 1)

Millions of yen
2005

2004

2005

Net sales (Note 14)......................................................................................

¥575,636¥533,301$5,360,240

Cost of sales (Note 10)................................................................................

513,675

479,807

4,783,269

Gross profit .................................................................................................

61,96053,494576,971

Selling, general and administrative expenses (Note 10) .............................

48,704

43,250453,530

Operating income (Note 14) ........................................................................

13,256

10,244

123,440

Interest and dividend income ..................................................................

1,363

1,406

12,697

Interest expense ......................................................................................

(471)

(452)

(4,390)Equity in earnings of affiliates..................................................................

312

437

2,907

Gain on sales of investments in securities ..............................................

1,542

726

14,362

Loss on sales of investments in securities ..............................................

(0)

(384)

(7)

Loss on devaluation of investments in securities ....................................

(422)

(215)

(3,931)Gain on sales of property and equipment ...............................................

2,083

585

19,401

Loss on sales of property and equipment ...............................................

(123)

(65)

(1,151)

Loss on impairment of fixed assets (Note 3(a)) .......................................

(314)

—

(2,930)

Amortization of unrecognized prior service cost (Notes 3(b) and 8) .......

—

4,200

—

Gain on return of substitutional portion of Welfare Pension Fund Plans..

—

3,396

—

Amortization of unrecognized actuarial loss (Notes 3(b) and 8) ..............

—(8,232)—Other, net.................................................................................................

333

73

3,103

Income before income taxes and minority interests ...............................

17,558

11,721

163,502

Current.....................................................................................................

5,389

2,961

50,186

Deferred ...................................................................................................

1,046

1,380

9,744

Income before minority interests.................................................................

11,122

7,379

103,571

Other income (expenses):

Income taxes (Note 9):

Minority interests.........................................................................................

738

Net income ..................................................................................................

¥ 10,384

See notes to consolidated financial statements.

46

NAGASE & CO., LTD. ANNUAL REPORT 2005

368
¥

7,010

6,876
$

96,694

Consolidated Statements of Shareholders’ Equity
Nagase & Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004

Millions of yen
Number ofshares ofcommon stock

Commonstock

CapitalsurplusRetainedearnings

Net unrealized
holding gain
on securities

Balance at March 31, 2003 ................. 138,408,285
Net income for the year ........................
—
Gain on sales of treasury stock ............
—
Decrease in retained earnings
resulting from inclusion of
consolidated subsidiaries .................
—
Increase in affiliates accounted for by
the equity method .............................
—Cash dividends ....................................
—
Bonuses to officers ..............................
—Net unrealized holding gain on securities...
—
Translation adjustments .......................
—
Increase in treasury stock ....................
—¥9,699——¥9,634—0¥119,140
7,010—¥ 8,455
—
—

—

—

(222)

—
—
—
—
—
—

—
—
—
—
—
—

Balance at March 31, 2004 ................ 138,408,285—
Net income for the year ........................
Gain on sales of treasury stock ............
—
Increase in retained earnings
resulting from inclusion of
consolidated subsidiaries .................
—
Decrease in retained earnings resulting
from inclusion of consolidated subsidiaries...
—Cash dividends ....................................
—
Bonuses to officers ..............................
—Net unrealized holding gain on securities...
—
Translation adjustments .......................
—
Increase in treasury stock ....................
—
Balance at March 31, 2005 ................ 138,408,285¥9,699——Translation
adjustments¥

Treasury
stock

(22)
—
—

¥(5,963)
—
—

—

—

—

265
(1,017)
(59)
—
—
—

—
—
—
10,477——————(1,172)
—

—
—
—
—
—
(16)

¥9,635—13¥125,116
10,384—¥18,933——¥(1,195)——¥(5,979)
—
—

—

—

489

—

—

—

—
—
—
—
—
—
¥9,699——————¥9,648(12)(1,145)(53)———¥134,778

—
—
—
1,498
—
—
¥20,431

—
—
—
—
(362)
—
¥(1,558)

—
—
—
—
—
71
¥(5,908)

Thousands of U.S. dollars (Note 1)
Commonstock

Balance at March 31, 2004 .....................................
Net income for the year.............................................
Gain on sales of treasury stock.................................
Increase in retained earnings
resulting from inclusion of
consolidated subsidiaries .....................................
Decrease in retained earnings resulting from
inclusion of consolidated subsidiaries...................
Cash dividends .........................................................
Bonuses to officers ...................................................
Net unrealized holding gain on securities .................
Translation adjustments............................................
Increase in treasury stock .........................................
Balance at March 31, 2005 .....................................

$90,322
—
—

—
—
—
—
—
—
—
$90,322

Retainedearnings

Net unrealized
holding gain
on securities

Translation
adjustments

Treasurystock$89,722 $1,165,068—
96,694123—$176,301——$(11,129)——$(55,681)
—
—

4,555

—

—

—

—
(119)
—
(10,662)
—
(495)
—
—
—
—
—
—
$89,846 $1,255,042———
13,957——$190,259————(3,379)—$(14,508)

—
—
—
—
—
663
$(55,018)

Capitalsurplus—NAGASE & CO., LTD. ANNUAL REPORT 200547

Consolidated Statement of Cash Flows
Nagase & Co., Ltd. and Consolidated Subsidiaries
Years ended March 31, 2005 and 2004

Thousands of
U.S. dollars (Note 1)

Millions of yen
2005

2004

2005

¥ 10,384¥ 7,010$ 96,694

3,074
314(1,112)(1,959)(312)(1,541)
422
2,133

3,188
—
(1,669)
(520)
(437)
(342)
215
2,872

28,6302,930(10,355)(18,250)(2,907)(14,355)
3,931
19,869(13,819)(7,028)(1,672)
10,737
1,065
270
759
1,716

(8,526)
1,164(1,056)
3,100
79
750
602
6,431

(128,681)(65,447)(15,572)
99,983
9,918
2,520
7,073
15,982

Investing activities:
Purchases of property and equipment........................................................
Proceeds from sales of property and equipment .......................................
Purchases of investments in securities.......................................................
Proceeds from sales of investments in securities.......................................
Increase (decrease) in short-term loans receivable, net .............................
Other, net ....................................................................................................
Net cash used in investing activities .......................................................

(6,530)2,371(1,700)
3,678
1,109
(341)
(1,412)(3,052)606(4,970)7,628(1,790)(110)(1,689)(60,811)22,087(15,836)
34,252
10,329(3,176)(13,154)

Financing activities:
Increase (decrease) in short-term loans, net...............................................
Proceeds from long-term debt....................................................................
Redemption of bonds .................................................................................
Cash dividends paid....................................................................................
Other, net ....................................................................................................
Net cash used in financing activities .......................................................

708
2,320
(7,000)(1,291)
143(5,119)(1,120)500—(1,196)(16)(1,832)

6,595
21,603(65,182)(12,021)1,337(47,668)(296)(5,111)
21,033(1,004)
1,904
19,044(2,760)(47,601)
195,863

1,293¥ 17,21585¥21,033

12,048$ 160,311¥¥$

Operating activities:
Net income ..................................................................................................
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................................................................
Loss on impairment of fixed assets.........................................................
Decrease in accrued retirement benefits.................................................
Gain on sales of property and equipment ...............................................
Equity in earnings of affiliates..................................................................
Gain on sales of investments in securities ..............................................
Loss on devaluation of investments in securities ....................................
Other, net.................................................................................................
Changes in operating assets and liabilities:
Notes and accounts receivable ...........................................................
Inventories............................................................................................
Other current assets ............................................................................
Notes and accounts payable ...............................................................
Accrued income taxes .........................................................................
Accrued expenses ...............................................................................
Other current liabilities .........................................................................
Net cash provided by operating activities ...............................................

Effect of exchange rate changes on cash and cash equivalents................
Net cash and cash equivalents ...................................................................
Cash and cash equivalents at beginning of the year ..................................
Increase in cash and cash equivalents arisingfrom inclusion of consolidated subsidiaries ............................................
Cash and cash equivalents at end of the year ........................................
Supplemental information on cash flows:
Cash paid during the year for:
Interest.....................................................................................................
Income taxes ...........................................................................................

512
4,324

See notes to consolidated financial statements.

48

NAGASE & CO., LTD. ANNUAL REPORT 2005

461
2,882

4,776
40,267

Notes to Consolidated Financial Statements
Nagase & Co., Ltd. and Consolidated Subsidiaries
March 31, 2005

1. BASIS OF PREPARATION
Nagase & Co., Ltd. (the “Company”) and its domestic consolidated subsidiaries maintain their books of account andtheir records in accordance with the provisions set forth in the Commercial Code of Japan and in conformity with accounting principles generally accepted in Japan. The overseas consolidated subsidiaries maintain their books of account inconformity with those of their countries of domicile.
The accompanying consolidated financial statements have been prepared for domestic reporting purposes and havebeen compiled from the consolidated financial statements prepared by the Company as required under the Securities andExchange Law of Japan, which is different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards.
In preparing the accompanying consolidated financial statements, certain reclassifications and rearrangements havebeen made to the consolidated financial statements issued domestically in order to present them in a format which is morefamiliar to readers outside Japan.
Certain reclassifications of previously reported amounts have been made to conform the consolidated financial statements for the year ended March 31, 2005 to the 2004 presentation. Such reclassifications had no effect on consolidated
net income or shareholders’ equity.
The U.S. dollar amounts in the accompanying consolidated financial statements have been translated from yen amounts
solely for the convenience of the reader and, as a matter of arithmetic computation only, at ¥107.39 = U.S.$1.00, the rateof exchange prevailing on March 31, 2005. This translation should not be construed as a representation that the yenamounts have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.
As permitted by the Securities and Exchange Law of Japan, amounts of less than one million yen for the years ended
March 31, 2005 and 2004 have been omitted. Consequently, the totals shown in the accompanying consolidated financial
statements for the years ended March 31, 2005 and 2004 (both in yen and in U.S. dollars) do not necessarily agree withthe sum of the individual amounts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and significant companies
which it controls directly or indirectly. Significant companies over which the Company exercises significant influence interms of their operating and financial policies have been included in the consolidated financial statements on an equity
basis. All significant intercompany balances and transactions have been eliminated in consolidation.
The overseas consolidated subsidiaries have a December 31 year-end closing date and one domestic consolidated subsidiary’s year end is at the end of February, which differs from the balance sheet date of the Company. As a result, adjustments have been made for any significant intercompany transactions which took place during the period between the year
ends of these subsidiaries and the year end of the Company.
Unrealized intercompany gains and losses among the Company and the consolidated subsidiaries have been entirely
eliminated and the portion attributable to minority interests has been charged to minority interests.
The difference between the cost of an investment in a subsidiary and the amount of the underlying equity in its net assets
is treated as an asset or a liability, as the case may be, and is amortized over a period of five years on a straight-line basis.
The difference between the cost of an investment in an affiliate and the amount of the Company’s underlying equity in its
net assets is amortized over a period of five years on a straight-line basis.
(b) Foreign Currency Translation
All monetary assets and liabilities denominated in foreign currencies are translated into yen at the rates of exchange in
effect at the balance sheet date, except that receivables and payables hedged by qualified forward foreign exchange contracts are translated at the corresponding contract rates. All other assets and liabilities denominated in foreign currencies
are translated at their historical rates. Gain or loss on each translation is credited or charged to income.
Revenue and expense items arising from transactions denominated in foreign currencies are generally translated into
yen at the rates in effect at the respective transaction dates. Foreign exchange gain or loss is credited or charged toincome in the period in which such gain and loss is recognized for financial reporting purposes.

NAGASE & CO., LTD. ANNUAL REPORT 2005

49

The balance sheet accounts of the overseas consolidated subsidiaries are translated into yen at the rates of exchange
in effect at the balance sheet date except that the components of shareholders’ equity are translated at their historicalexchange rates. Revenue and expense accounts are translated at the average rate of exchange in effect during the year.
Adjustments resulting from translating financial statements whose accounts are denominated in foreign currencies are notincluded in the determination of net income but are reported as “Translation adjustments” in a component of shareholders’equity and minority interests in the accompanying consolidated financial statements.
(c) Inventories
Inventories are stated at the lower of cost or market, cost being determined by the weighted-average method.
(d) Investments in Securities
In general, securities are classified into three categories: trading securities, held-to-maturity debt securities or othersecurities. Trading securities, consisting of debt and marketable equity securities, are stated at fair value. Gain and loss,
both realized and unrealized, are charged to income. Held-to-maturity debt securities are stated at their amortized cost.
Marketable securities classified as other securities are carried at fair value with any changes in unrealized holding gain or
loss, net of the applicable income taxes, and reported as a separate component of shareholders’ equity. Non-marketablesecurities classified as other securities are carried at cost determined by the moving average method.
A loss on the impairment of deposits for golf club memberships is also required to be recognized.
Securities held by the Company and its subsidiaries are all classified as “other securities” and have been accounted foras outlined above.
(e) Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost.
Depreciation of property, plant and equipment is computed by the declining-balance method over the estimated useful
lives of the respective assets as prescribed in the Corporation Tax Law, except that the straight-line method is applied tobuildings (other than structures attached to the buildings) acquired subsequent to April 1, 1998. Property, plant and equipment owned by certain consolidated subsidiaries is depreciated by the straight-line method.
(f) Leases
The Company and its consolidated subsidiaries lease certain property and equipment under noncancelable lease agreements referred to as finance leases. Finance leases other than those which transfer the ownership of the leased property to
the lessees are accounted for as operating leases.
(g) Income Taxes
Income taxes are calculated based on taxable income and charged to income on an accrual basis. Deferred income tax
assets and liabilities are computed to determine the temporary differences between the financial reporting and the tax
bases of the assets and liabilities which will result in taxable or deductible amounts in the future. Computations ofdeferred tax assets and liabilities are based on the enacted tax laws.
In accordance with a law on the amendment of local tax laws, and so forth, which went into effect on April 1, 2004, a
corporation with capital in excess of ¥100 million is subject to business scale taxation on the basis of the total amount ofvalue added, the size of its capital and its taxable income. Based on this new accounting standard, the Company has
accounted for business scale taxation with respect to the amount of value added and capital as a component of selling,
general and administrative expenses. Consequently, selling, general and administrative expenses for the year ended
March 31, 2005 increased by ¥161 million ($1,500 thousand) and operating income and income before income taxes andminority interests for the year ended March 31, 2005 decreased by ¥161 million ($1,500 thousand).
(h) Retirement Benefits
The Company has defined benefit pension plans and retirement benefit plans. The Company also has defined contribution pension plans. The domestic consolidated subsidiaries have defined benefit pension plans and retirement benefit
plans. Certain overseas consolidated subsidiaries also have defined benefit plans.
On February 1, 2004, the Company received approval from the Minister of Health, Labour and Welfare with respect toits application for an exemption from the obligation for the payment of future benefits related to prior service cost under
the substitutional portion of the Welfare Pension Fund Plans (“WPFP”) in accordance with the Defined Benefits Corporate
Pension Plan Law. (Refer to Note 8.)
The Company has established an employees’ retirement benefit trust for the payment of retirement benefits.
Actuarial gain or loss is principally credited or charged to income in the year following the year in which such gain orloss is recognized for financial reporting purposes. Prior service cost is credited or charged to income in the year in whichsuch cost is recognized for financial reporting purposes.

50

NAGASE & CO., LTD. ANNUAL REPORT 2005

In addition, directors and corporate auditors (“officers”) of the Company and certain subsidiaries are customarily entitledto lump-sum payments under their respective unfunded retirement allowances plans. The provision for officers’ retirement
allowances is made at an estimated amount.
(i) Derivatives and Hedging Activities
The Company and its consolidated subsidiaries utilize derivative financial instruments principally in order to manage the risk arising from adverse fluctuation in foreign currency exchange rates and to mitigate the risk of fluctuation in interest rates on borrowings.
The Company has established a control environment that includes policies and procedures for risk assessment in accordance with
the Company’s rules for foreign exchange transactions and swap transactions. Under these rules, the Company conducts transactions within a certain range and places limits on the applicable assets and liabilities based on the actual demand. In addition, theCompany also assesses the effectiveness of the hedging and verifies the approval, reporting and monitoring of all transactions
involving derivatives. The Company and its consolidated subsidiaries do not hold or issue derivative financial instruments for speculative trading purposes.
If an interest-rate swap meets certain criteria, the net amount to be paid or received under the contract is added or deductedfrom the interest on the underlying hedged item.
The Company and its consolidated subsidiaries are exposed to certain market risk arising from their forward foreign exchange
contracts. They are also exposed to the risk of credit loss in the event of non-performance by the counterparties to the currency andinterest-rate contracts; however, they do not anticipate nonperformance by any of these counterparties, all of whom are financial
institutions with high credit ratings.
Derivatives are carried at fair value with any changes in unrealized gain or loss charged or credited to operations, except for thosewhich meet the criteria for deferral hedge accounting under which unrealized gain or loss is deferred as an asset or a liability.
(j) Research and Development Costs
Research and development costs are charged to income when incurred.
(k) Appropriation of Retained Earnings
Dividends and other appropriations of retained earnings are approved by the shareholders at a meeting held subsequent to the end of the fiscal year to which the appropriations are applicable. The accompanying consolidated financial
statements do not, however, reflect the applicable appropriations of retained earnings as approved by the shareholders
subsequent to the fiscal year end. (Refer to Note 15.)

3. ACCOUNTING CHANGES(a) Loss on impairment of fixed assets
Effective April 1, 2004, the Company and its domestic consolidated subsidiaries opted for early adoption of a new accounting standard for the impairment of fixed assets which requires that tangible and intangible fixed assets be carried at cost lessdepreciation and be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount ofan asset may not be recoverable. The Company and its domestic consolidated subsidiaries are required to recognize an
impairment loss in the statement of income if certain indicators of asset impairment exist and if the book value of an asset
exceeds the undiscounted sum of its future cash flows. The standard states that an impairment loss should be measured as
the excess of the book value over the higher of (1) the fair market value of the asset, net of its disposition cost, and (2) the present value of future cash flows arising from the ongoing utilization of the asset and from its disposition, if applicable. The standard covers land, factories, buildings and other items of property, plant and equipment as well as intangible assets.
As a result of the adoption of this new accounting standard, a loss on impairment of fixed assets in the amount of ¥314 million ($2,930 thousand) has been recognized in the consolidated statement of income for the year ended March 31, 2005, andincome before income taxes and minority interests decreased by the same amount from the corresponding amount which
would have been recorded under the previous method. The impairment loss on these assets has been deducted directly fromtheir carrying amounts in the consolidated balance sheet at March 31, 2005.
(b) Retirement benefits(i) Accounting for actuarial gain or loss
Through March 31, 2003, actuarial loss was amortized in the year following the year in which the loss was recognizedby the straight-line method over ten years, which was within the estimated average remaining years of service of the eligible employees. Effective April 1, 2003, the Company changed its method of accounting for actuarial gain or loss andadopted the policy of charging the entire amount of actuarial gain or loss to income in the year following the year in which
the actuarial gain or loss was recognized.

NAGASE & CO., LTD. ANNUAL REPORT 2005

51

The accumulated balance of unrecognized actuarial loss has increased primarily as a result of the declining stock market and the low interest rates in the market and because of the method of amortizing unrecognized actuarial loss over ten
years. The resulting increase in the accumulated balance of unrecognized actuarial loss will contribute to a rise in pension
cost in the future.
The Company has established a new retirement benefit scheme for the purpose of reducing future pension cost. Under
this scheme, the following measures have been taken: a reduction of the retirement benefit obligation and pension assets
by way of the return of the substitutional portion of the WPFP, the introduction of retirement benefits based on seniority
and employees’ performance, the imposition of certain limitations in selecting pension plans by employees, the transfer ofa certain portion of the defined benefit pension plans to defined contribution plans, and a reduction in the level of paymentof retirement benefits.
The Company has also altered its pension assets portfolio in accordance with a revision to its investment policies concerning pension plan assets. This change was made in order to reduce actuarial loss in the future.
(ii) Accounting for prior service cost
Through March 31, 2003, prior service cost was amortized by the straight-line method over three years, which was within the estimated average remaining years of service of the eligible employees.
Effective April 1, 2003, the Company changed its method of accounting for prior service cost and adopted the policy of
charging prior service cost to income as incurred.
The changes outlined above were made to reflect more accurately the substance of the revised retirement benefit pension
and retirement benefit plans in the consolidated financial statements and to enhance the financial status of the Company.
The effect of these changes was to decrease operating income and income before income taxes and minority interests by¥590 million and ¥3,855 million, respectively, for the year ended March 31, 2004 from the amounts which would have beenrecorded if the respective methods applied in the previous year had been followed.

4. INVESTMENTS IN SECURITIES(a) Marketable securities classified as other securities at March 31, 2005 and 2004 are summarized as follows:

Cost

Market value determinable:
Stock ...............................................................................................
Government bonds..........................................................................
Total .............................................................................................

¥17,422
14¥17,437

Cost

Market value determinable:
Stock .............................................................................................
Government bonds..........................................................................
Total .............................................................................................

¥17,621
14¥17,635

Cost

Market value determinable:
Stock .............................................................................................
Government bonds..........................................................................
Total .............................................................................................

52$162,237
135$162,372

NAGASE & CO., LTD. ANNUAL REPORT 2005

Millions of yen
2005
Other securities
Gross
Gross
unrealized
unrealized
gain
loss

Book value(estimatedfair value)¥34,5890¥34,589

¥(38)
(0)
¥(38)

¥51,97314¥51,987

Millions of yen
2004
Other securities
Gross
Gross
unrealized
unrealized
gain
loss

Book value(estimatedfair value)¥32,0470¥32,047

¥(88)
(0)
¥(89)

¥49,579
14¥49,593

Thousands of U.S. dollars
2005
Other securities
Gross
Gross
unrealized
unrealized
gain
loss

Book value(estimatedfair value)$322,090
1$322,092$483,967
136$484,103$(361)(0)$(361)

(b) Securities whose market value was not determinable were classified as other securities at March 31, 2005 and 2004
and are summarized as follows:
Millions of yen

Market value not determinable:
Equity securities ........................................................................................
Bonds and debentures..............................................................................

Thousands of
U.S. dollars

2005

2004

2005

Carrying value

Carrying value

Carrying value¥3,67637¥3,713¥3,65137¥3,688$34,232351$34,583(c) The proceeds from sales of, and gross realized gain and loss on, other securities for the years ended March 31, 2005
and 2004 are summarized as follows:
Millions of yen

Proceeds from sales .....................................................................................
Gain on sales ................................................................................................
Loss on sales ................................................................................................

Thousands of
U.S. dollars

2005

2004

2005

¥2,7711,515
0¥4,216659
63$25,805
14,1093

5. SHORT-TERM LOANS AND LONG-TERM DEBT
Short-term loans at March 31, 2005 and 2004 principally represented notes and loans in the form of deeds at averageannual interest rates of 2.55% and 1.59% per annum, respectively.
Long-term debt at March 31, 2005 and 2004 consisted of the following:
Millions of yen

Unsecured loans from banks and insurance companies,
payable in yen, due through 2011 at rates from 0.97% to 4.23%............
1.53% unsecured bonds payable in yen, due 2004 ....................................
Less current portion......................................................................................

Thousands of
U.S. dollars

2005

2004

2005

¥4,075
—
4,075
(588)
¥3,487¥ 3,080
7,000
10,080(8,321)¥ 1,759$37,954—
37,954(5,479)$32,474

The aggregate annual maturities of long-term debt subsequent to March 31, 2005 are summarized as follows:
Millions of yen

Thousands of
U.S. dollars

2006...................................................................................................................................
2007...................................................................................................................................
2008...................................................................................................................................
2009...................................................................................................................................
2010...................................................................................................................................

¥ 588
464
58
558
2,358

$ 5,479
4,323
541
5,197
21,9582011 and thereafter ...........................................................................................................

48¥4,075453$37,954

Year ending March 31,

6. PLEDGED ASSETSAt March 31, 2005, assets pledged as collateral to guarantee all transactions with certain customers were as follows:

Time deposits....................................................................................................................
Investments in securities...................................................................................................

NAGASE & CO., LTD. ANNUAL REPORT 2005

Millions of yen

Thousands of
U.S. dollars

¥ 600
2,713
¥3,313$ 5,587
25,268$30,855

53

7. SHAREHOLDERS’ EQUITYThe Commercial Code of Japan (“the Code”) provides that an amount equal to at least 10% of the amounts to be disbursed as distributions of earnings be appropriated to the legal reserve until the sum of the legal reserve and additional
paid-in capital equals 25% of the common stock account. The Code also stipulates that, to the extent that the sum of theadditional paid-in capital account and the legal reserve exceeds 25% of the common stock account, the amount of any
such excess is available for appropriation by resolution of the shareholders.
Retained earnings include the legal reserve provided in accordance with the Code. The Code provides that neither
additional paid-in capital nor the legal reserve is available for dividends, but both may be used to reduce or eliminate a
deficit by resolution of the shareholders or may be transferred to common stock by resolution of the Board of Directors.
The legal reserve of the Company included in retained earnings at March 31, 2005 and 2004 amounted to ¥2,424 million($22,580 thousand).
In accordance with the Code, a stock option plan for directors, certain key employees of the Company and directors ofcertain subsidiaries was approved at the annual general meeting of the shareholders held on June 27, 2002. Under theterms of this plan, 260,000 shares of common stock have been reserved for issuance at an exercise price of ¥565 pershare, subject to adjustment for certain events including stock splits. The eligible participants may exercise the options if
the closing market price of the Company’s shares on the Tokyo Stock Exchange as of the trading date preceding the dateof the exercise of the options exceeds 1.2 times the exercise price. The options became exercisable on August 1, 2004
and are scheduled to expire on July 31, 2007.
In accordance with the Code, a stock option plan for directors, auditors, certain key employees of the Company anddirectors (and the equivalent officers) of certain subsidiaries was approved at the annual general meeting of the shareholders held on June 27, 2003. Under the terms of this plan, 764,000 shares of common stock have been reserved forissuance at an exercise price of ¥657 per share, subject to adjustment for certain events including stock splits. The eligible
participants may exercise the options if the closing market price of the Company’s shares on the Tokyo Stock Exchange
as of the trading date preceding the date of the exercise of the options exceeds 1.2 times the exercise price. The options
become exercisable on August 1, 2005 and are scheduled to expire on July 31, 2008.
In accordance with the Code, a stock option plan for directors, auditors, certain key employees of the Company anddirectors (and the equivalent officers) of certain subsidiaries was approved at the annual general meeting of the shareholders held on June 29, 2004. Under the terms of this plan, 759,000 shares of common stock have been reserved forissuance at an exercise price of ¥1,023 per share, subject to adjustment for certain events including stock splits. The eligible participants may exercise the options if the closing market price of the Company’s shares on the Tokyo Stock
Exchange as of the trading date preceding the date of the exercise of the options exceeds 1.2 times the exercise price.
The options become exercisable on August 1, 2006 and are scheduled to expire on July 31, 2009.
In accordance with the Code, a stock option plan for directors, auditors and certain key employees of the Company
and directors (and the equivalent officers) of certain subsidiaries was approved at the annual general meeting of the shareholders held on June 28, 2005. Under the terms of this plan, the issuance of up to 850,000 shares of common stock has
been authorized. Eligible participants may exercise their stock options at an exercise price calculated by multiplying the
average of the closing market prices of the Company’s shares on the Tokyo Stock Exchange for all trading days for themonth immediately preceding the date of the issuance of the rights by a factor of 1.05; however, if the exercise pricereferred to above is less than the closing market price of the Company’s shares on the Tokyo Stock Exchange on the dayon which the rights were issued, the closing market price is to be the exercise price. The exercise price is subject toadjustment for certain events including stock splits. The options become exercisable on August 1, 2007 and are scheduled to expire on July 31, 2010.

8. RETIREMENT BENEFITSThe Company and its domestic consolidated subsidiaries have defined benefit plans, i.e., defined benefit pension plan
and lump-sum payment plans. The Company transferred certain defined benefit plans to a defined contribution plan.
Certain overseas consolidated subsidiaries also have defined benefit plans.
The following table sets forth the funded and accrued status of the plans and the amounts recognized in the consolidated balance sheets at March 31, 2005 and 2004 for the Company’s and the consolidated subsidiaries’ defined benefit
plans:
Millions of yen

Retirement benefit obligation........................................................................
Plan assets at fair value ...............................................................................
Unfunded retirement benefit obligation ........................................................
Unrecognized actuarial gain .........................................................................
Accrued retirement benefits recognized in the consolidated balance sheets ..........

54

NAGASE & CO., LTD. ANNUAL REPORT 2005

Thousands of
U.S. dollars

2005

2004

2005

¥(22,104)
15,490(6,613)(792)¥ (7,406)¥(28,580)
20,774(7,805)(668)¥ (8,474)$(205,830)
144,243(61,586)(7,379)$ (68,966)

The total pension liabilities to be transferred over four years to the defined contribution plan system amounted to ¥626
million ($5,837 thousand). The amount to be transferred subsequent to March 31, 2005 to the defined contribution plansamounted to ¥298 million ($2,781 thousand), which has been included under “Other current liabilities” and “Otherliabilities.”
The components of retirement benefit expenses of the Company and the consolidated subsidiaries for the years ended
March 31, 2005 and 2004 are outlined as follows:
Thousands of
U.S. dollars

Millions of yen

Service cost ..................................................................................................
Interest cost .................................................................................................
Expected return on plan assets ....................................................................
Amortization of prior service cost .................................................................
Amortization of actuarial gain .......................................................................
Contributions to defined contribution plans .................................................
Retirement benefit expenses ........................................................................

2005

2004

2005

¥1,019
483
(7)
81
(503)
42
¥1,115¥1,060
692
(7)
—
(41)
44
¥1,750$ 9,493
4,501
(73)
756
(4,691)
396$10,383

As discussed in Note 3(b), unrecognized actuarial loss of ¥8,232 million and unrecognized prior service cost of ¥4,200
million outstanding at March 31, 2003 were fully amortized during the year ended March 31, 2004 and recognized in the
consolidated statement of income.
The assumptions used in accounting for the defined benefit plans for the years ended March 31, 2005 and 2004 wereas follows:
Discount rate ............................................................................................................................
Expected rate of return on plan assets ....................................................................................

2005

2004

2.5%
Mainly 0.0%

2.5%
Mainly 0.0%

9. INCOME TAXES
Income taxes applicable to the Company and its domestic consolidated subsidiaries consist of corporation, inhabitants’and enterprises taxes, which, in the aggregate, resulted in statutory tax rates of approximately 40.7% and 42.1%, respectively for the years ended March 31, 2005 and 2004.
The effective tax rates reflected in the consolidated statements of income for the years ended March 31, 2005 and 2004
differ from the statutory tax rates for the following reasons:Statutory tax rates ............................................................................................................................
Effect of:
Expenses not deductible for income tax purposes ......................................................................
Dividends and other income deductible for income tax purposes...............................................
Net adjustment from elimination of dividend income in consolidation.........................................
Different tax rates applied to income of overseas subsidiaries....................................................
Tax credit ......................................................................................................................................
Other, net ......................................................................................................................................
Effective tax rates .............................................................................................................................

NAGASE & CO., LTD. ANNUAL REPORT 2005

2005

2004

40.7%

42.1%

2.1
(2.9)
2.6
(4.0)
(1.5)
(0.3)
36.7%

3.1
(3.3)
—
(2.6)
(3.8)
1.5
37.0%

55

Deferred income taxes reflect the net tax effect of the temporary differences between the carrying amounts of the deferredassets and liabilities for financial reporting purposes and the corresponding amounts for income tax purposes. The significant
components of the Companies’ deferred tax assets and liabilities at March 31, 2005 and 2004 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen
2005

Deferred tax assets:
Unrealized gain on inventories ..................................................................
Allowance for doubtful receivables ..........................................................
Investments in securities ..........................................................................
Accrued bonuses ......................................................................................
Accrued expenses ....................................................................................
Retirement benefits for employees ...........................................................
Retirement benefits for officers.................................................................
Other .......................................................................................................
Gross deferred tax assets .....................................................................
Valuation allowance ..............................................................................
Total deferred tax assets.......................................................................

¥

366
687
2,627
—
1,197
3,212
384
1,763
10,240
(510)
9,730

2004

¥

347
573
2,865
1,057
—
3,612
509
1,876
10,842(730)
10,112

2005

$

3,413
6,398
24,471—
11,15429,913
3,584
16,42595,361(4,754)90,606

Deferred tax liabilities:
Revaluation of land ...................................................................................
Deferred capital gain on property ............................................................
Deferred revenue on sales of property .....................................................
Special reserve for depreciation ...............................................................
Net unrealized holding gain on securities .................................................
Other .......................................................................................................
Total deferred tax liabilities ...................................................................
Net deferred tax liabilities......................................................................

(371)(1,292)—(37)(14,050)(9)(15,762)¥ (6,031)

(371)
(579)
(106)
(44)
(12,915)(47)(14,064)¥ (3,952)(3,461)(12,035)—(350)(130,834)(92)(146,774)$ (56,167)

10. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses included in selling, general and administrative expenses and manufacturing costs
for the years ended March 31, 2005 and 2004 totaled ¥2,348 million ($21,870 thousand) and ¥2,435 million, respectively.

11. LEASESThe following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of theleased property at March 31, 2005 and 2004, which would have been reflected in the balance sheets if the finance leases
other than those which transfer the ownership of the leased property of the Company and the consolidated subsidiaries(which are currently accounted for as operating leases) were capitalized:
Millions of yen
2005
Acquisition
costs

Buildings and structures .....
Machinery and equipment ..
Furniture and fixtures ..........

¥

—
499
1,145
¥1,644

2004

Accumulated
depreciation

Net bookvalue

Acquisition
costs

¥ —
342
627
¥969

¥ —
157
518
¥675

¥ 53
1,014
1,537
¥2,604

Thousands of U.S. dollars
2005
Acquisition
costs

Buildings and structures .....
Machinery and equipment ..
Furniture and fixtures ..........

56

$

—
4,653
10,663$15,317

Accumulated
depreciation

$ —
3,189
5,840
$9,029Net book
value

$

—
1,464
4,823
$6,288NAGASE & CO., LTD. ANNUAL REPORT 2005

Accumulated
depreciation

¥

13
715
805
¥1,534

Net book
value

¥

40
299
731
¥1,070

The related lease payments and depreciation for the years ended March 31, 2005 and 2004 were as follows:
Millions of yen

Lease payments............................................................................................
Depreciation expense ...................................................................................
Interest expense ..........................................................................................

Thousands of
U.S. dollars

2005

2004

2005

¥483
421
33

¥684
626
50

$4,501
3,921
309

Depreciation is calculated by the straight-line method over the respective lease terms.
Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2005 under financeleases other than those which transfer the ownership of the leased property to the Company and the consolidated subsidiaries are summarized as follows:Year ending March 31,

Millions of yen

Thousands of
U.S. dollars

¥267
448
¥715

$2,4904,175$6,6652006 ..................................................................................................................................
2007 and thereafter ..........................................................................................................

12. CONTINGENT LIABILITIESAt March 31, 2005, the Company and its consolidated subsidiaries were contingently liable as guarantors of loans ofunconsolidated subsidiaries and other in the aggregate amount of ¥1,361 million ($12,677 thousand) and as guarantors of
housing loans of employees in the aggregate amount of ¥150 million ($1,401 thousand).
In addition, at March 31, 2005, the Company and its consolidated subsidiaries had contingent liabilities arising fromnotes discounted by banks and notes endorsed for a total amount of ¥608 million ($5,663 thousand).

13. AMOUNTS PER SHARE
Yen

U.S. dollars

2005

Net income:Basic ........................................................................................................
Diluted......................................................................................................
Net assets....................................................................................................
Cash dividends applicable to the year .......................................................

¥

81.00
80.82
1,311.37
10.00

2004

2005

54.69
—
1,227.82
9.00$ 0.7540.752
12.211
0.093¥

Basic net income per share has been computed based on the net income attributable to shareholders of common stockand the weighted-average number of shares of common stock outstanding during the year. Diluted net income per sharehas been computed based on the amount of net income attributable to the shareholders of common stock and theweighted-average number of shares of common stock outstanding during each year after giving effect to the dilutive
potential of the shares of common stock to be issued upon the exercise of the stock options. The amounts per share of
net assets have been computed based on the net assets available for distribution to shareholders of common stock andthe number of shares of common stock outstanding at the year end.
Cash dividends per share represent the cash dividends proposed by the Board of Directors as applicable to the respective years together with the interim cash dividends paid.

NAGASE & CO., LTD. ANNUAL REPORT 200557

14. SEGMENT INFORMATIONThe Company and its consolidated subsidiaries are primarily engaged in the manufacture, purchase and sale ofproducts in Japan and overseas in four major segments: Chemicals which primarily include coating materials, coloringmaterials, monomers, urethane raw materials, resin additives, dyes, organic fine chemicals, speciality chemicals,
agricultural and ecological materials; Plastics which include synthetic resin, synthetic rubber and building materials,
shaped processed goods; Electronics which include semiconductor wafer processing, semiconductor assembly
processing, liquid crystal display components, communications devices and other electronic devices; and Health careand others which include medical devices, cosmetics and health food, as well as health care services.
The business and geographical segments of the Company and the consolidated subsidiaries for the years ended March
31, 2005 and 2004 are outlined as follows:Business Segments
Millions of yen
Year ended March 31, 2005

Chemicals

Plastics

Electronics

Health careand others

Total

Eliminations
or corporate

Consolidated
sales

Sales to customers.........................
Intersegment sales .........................
Total sales...................................
Operating expenses .......................

¥251,72512
251,738
246,378¥188,456
166
188,622
184,334¥122,632
87
122,719
120,049¥12,821
5,144
17,966
17,342¥575,636
5,411
581,047
568,104¥—(5,411)(5,411)(5,724)¥575,636—
575,636562,379

Operating income ......................
Assets.............................................
Depreciation and amortization .......
Capital expenditures ......................

¥ 5,360¥128,007
1,162
1,439

¥ 4,288¥ 93,576
772
3,720¥ 2,669¥ 63,195
1,008
955

¥ 624
¥10,600
130
501¥ 12,942¥295,379
3,074
6,616

¥ 313
¥39,911——¥ 13,256¥335,290
3,074
6,616

Eliminations
or corporate

Consolidated
sales

¥

—
(4,208)(4,208)(4,452)¥ 244¥37,727——¥533,301—
533,301
523,057¥ 10,244¥310,793
3,188
2,778

Eliminations
or corporate

Consolidated
sales$2,344,034 $1,754,879 $1,141,932 $119,394 $5,360,240 $
—
119
1,548
812
47,90750,387(50,387)
2,344,154 1,756,427 1,142,744
167,301 5,410,628(50,387)2,294,238 1,716,493 1,117,885
161,488 5,290,106(53,305)$ 49,915 $ 39,933 $ 24,859 $ 5,812 $ 120,522 $ 2,918$1,191,983 $ 871,369 $ 588,464 $ 98,710 $2,750,527 $371,648
10,825
7,190
9,394
1,219
28,630—13,40734,641
8,896
4,667
61,612—$5,360,240—
5,360,240
5,236,800$ 123,440$3,122,175
28,63061,612Millions of yen
Year ended March 31, 2004

Chemicals

Plastics

Electronics

Health careand others

Total

Sales to customers.........................
Intersegment sales .........................
Total sales...................................
Operating expenses .......................
Operating income ......................
Assets.............................................
Depreciation and amortization .......
Capital expenditures ......................

¥231,36013
231,374
227,159¥ 4,214¥122,844
1,217
958¥170,99637
171,034
168,006¥ 3,027¥ 80,415
752
634¥118,97816
118,995
116,583¥ 2,412¥ 58,903
1,069
1,004

¥11,966
4,139
16,105
15,760¥ 345¥10,903148
181¥533,301
4,208
537,509527,510¥ 9,999¥273,066
3,188
2,778

Thousands of U.S. dollars
Year ended March 31, 2005

Chemicals

Sales to customers.........................
Intersegment sales .........................
Total sales...................................
Operating expenses .......................
Operating income ......................
Assets.............................................
Depreciation and amortization .......
Capital expenditures ......................

Plastics

Electronics

Health careand others

Total

Effective April 1, 2003, the Company changed its method of accounting for actuarial gain or loss and adopted the policyof charging the entire amount of actuarial gain or loss to income in the year following the year in which it was recognized.
The effect of this change was to decrease operating income in the Chemicals segment, Plastics segment, Electronics
segment and Health care and others segment for the year ended March 31, 2004 by ¥244 million, ¥149 million, ¥131 millionand ¥65 million, respectively, from the amounts that would have been recognized using the method applied in the year
ended March 31, 2003.

58

NAGASE & CO., LTD. ANNUAL REPORT 2005

Geographical Segments
Millions of yen
Year ended March 31, 2005

Sales to customers ..........................
Intersegment sales ..........................
Total sales....................................
Operating expenses.........................
Operating income (loss) ...............
Assets ..............................................

Japan

Asia

North
America

OthersTotal

Eliminations
or corporate

Consolidated
sales¥433,709
59,461
493,170
484,357¥ 8,813¥253,954¥114,719
5,550
120,270
115,888¥ 4,381¥ 45,946¥17,356
2,019
19,376
19,420¥ (44)¥ 5,605¥ 9,849
1,250
11,10010,987¥ 112¥ 2,734¥575,636
68,282643,918
630,655¥ 13,262¥308,240¥—(68,282)(68,282)(68,275)¥(6)¥ 27,049¥575,636—
575,636562,379¥ 13,256¥335,290

Japan

Asia

North
America

OthersTotal

Eliminations
or corporate

Consolidated
sales¥424,855
56,170481,025
474,192¥ 6,833¥246,337¥85,356
5,010
90,36787,658¥ 2,708¥30,663¥13,879
2,339
16,21815,898¥ 320¥ 4,829¥ 9,2101,044
10,254
10,098¥ 156¥ 2,744¥533,301
64,565597,866
587,848¥ 10,018¥284,574¥—(64,565)(64,565)(64,791)¥
225¥ 26,219¥533,301—
533,301
523,057¥ 10,244¥310,793

Eliminations
or corporate

Consolidated
sales$5,360,240 $—
635,832 (635,832)
5,996,072 (635,832)
5,872,570 (635,770)$ 123,502 $(62)$2,870,294 $ 251,881$5,360,240—
5,360,240
5,236,800$ 123,440$3,122,175

Millions of yen
Year ended March 31, 2004

Sales to customers ..........................
Intersegment sales ..........................
Total sales....................................
Operating expenses.........................
Operating income ........................
Assets ..............................................

Year ended March 31, 2005

Japan

Asia

Thousands of U.S. dollars
North
America
Others
Total

Sales to customers .......................... $4,038,640 $1,068,254 $161,625 $ 91,720
Intersegment sales ..........................
553,695
51,68918,804
11,643
Total sales.................................... 4,592,335 1,119,944
180,429
103,363
Operating expenses......................... 4,510,270 1,079,141
180,840
102,318
Operating income (loss) ............... $ 82,065 $ 40,802 $(410) $ 1,044
Assets .............................................. $2,364,789 $ 427,849 $ 52,196 $ 25,458

Effective April 1, 2003, the Company changed its method of accounting for actuarial gain or loss and adopted the policyof charging the entire amount of actuarial gain or loss to income in the year following the year in which it was recognized.
The effect of this change was to decrease operating income in the Japan segment by ¥590 million from the amount thatwould have been recognized using the method applied in the fiscal year ending March 31, 2003.
Sales to Overseas Customers
Year ended March 31, 2005

Asia

Overseas sales.........................................................................
Consolidated net sales ............................................................
Overseas sales as a percentage of consolidated net sales.....

Year ended March 31, 2004

¥181,010¥17,373¥13,544

31.4%

3.0%

2.4%

Asia

Overseas sales.........................................................................
Consolidated net sales ............................................................
Overseas sales as a percentage of consolidated net sales.....

Year ended March 31, 2005

Millions of yen
North America
Others¥153,751¥15,397¥14,594

28.8%

2.9%

2.8%

Asia

Overseas sales.........................................................................
Consolidated net sales ............................................................

Millions of yen
North America
Other$1,685,545

Thousands of U.S. dollars
North America
Others$161,775$126,124

Total¥211,928¥575,636
36.8%

Total

¥183,744¥533,301
34.5%

Total

$1,973,445$5,360,240

15. SUBSEQUENT EVENT
The following appropriation of retained earnings of the Company, which has not been reflected in the accompanying
consolidated financial statements for the year ended March 31, 2005, was approved at a meeting of the shareholders heldon June 28, 2005:

Cash dividends (¥10.00 = U.S. $0.093 per share) ..............................................................

NAGASE & CO., LTD. ANNUAL REPORT 2005

Millions of yen

Thousands of
U.S. dollars¥1,274$11,863

59

Report of Independent Auditors

The Board of Directors
Nagase & Co., Ltd.
We have audited the accompanying consolidated balance sheets of Nagase & Co., Ltd. and consolidated subsidiaries as of March 31, 2005 and 2004, and the related consolidated statements of income, shareholders’equity, and cash flows for the years then ended, all expressed in yen. These financial statements are theresponsibility of the Company's management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nagase & Co., Ltd. and consolidated subsidiaries at March 31, 2005 and 2004, and theconsolidated results of their operations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in Japan.

Supplemental Information
As discussed in Note 3(a), effective April 1, 2004, the Company and its domestic consolidated subsidiaries
adopted a new accounting standard for the impairment of fixed assets.
As discussed in Note 3(b), effective April 1, 2003, the Company changed its methods of accounting for theamortization of actuarial gain or loss and prior service cost.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2005 are presented solely for convenience. Our audit also included the translation of yen
amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis describedin Note 1.
Osaka, Japan
June 28, 2005

60

NAGASE & CO., LTD. ANNUAL REPORT 2005

Organization(As of April 1, 2005)

Research & Development
CenterAuditors
Board of Auditors

Corporate Marketing Office
Shareholders’ Meeting

Compliance Committee

Board of Directors

Security Trade Control andChemical Management Committee

Business Administrative Office

Colors & Imaging Dept.
Chairman

Environment Protection
Committee
Speciality Chemicals Dept.
Information & Functional
Materials Dept.

President

Fine Chemicals Dept.
Corporate Strategy OfficeBeauty Care Products Dept.
Corporate Management Office
New Business
Development Office
IT Planning Office

Advanced Polymers Dept.

Human Resources &General Affairs Div.

Eco-Materials Dept.

Finance Div.

Performance Chemicals Dept.

Nagoya Branch Office
Accounting Div.
Automotive Solutions Dept.
Legal & Credit Div.
Electronic Chemicals Dept.
Osaka Administrative Div.

Audit Office

Display & Electronics
Components Dept.
Medical Care Products Dept.

Nagase ChemteX (NCX)NAGASE & CO., LTD. ANNUAL REPORT 2005

61

Major Consolidated Subsidiaries, Affiliates and Offices(As of March 31, 2005)

Company name

➀Description of business ➁Paid-in capital ➂Date of establishment ➃Equity ownership (*indicates indirect investment)
Address Tel/Fax● Consolidated subsidiary ● Company accounted for under the equity method ● Affiliate

JAPAN■ Manufacturing● Nagase ChemteX Corp.
➀Manufacture of epoxy resins, enzymes, industrial
chemicals ➁¥2,420 million ➂1970 ➃100.0%
1-17, Shinmachi 1-chome, Nishi-ku, Osaka-City, Osaka
Tel: (81) 6-6535-2582 Fax: (81) 6-6535-2174● Grelan Pharmaceutical Co., Ltd.
➀Manufacture and sale of pharmaceuticals➁¥220 million ➂1950 ➃34.0%
6F, Ogura Bldg., 6-6, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-5651-8050 Fax: (81) 3-5651-8059● Nagase Medicals Co., Ltd.
➀Manufacture of pharmaceuticals ➁¥498 million➂1972 ➃100.0%
4-323, Senzo, Itami-City, Hyogo
Tel: (81) 72-778-7501 Fax: (81) 72-778-7506● Honshu Rheem Co., Ltd.
➀Manufacture and sale of fiber drums, import andsale of food processing machines and materials➁¥100 million ➂1968 ➃40.0%
8-11, Minami Hashimoto 4-chome, Sagamihara-City, Kanagawa
Tel: (81) 42-773-3111 Fax: (81) 42-774-4369● Totaku Industries, Inc.
➀Manufacture and sale of plastic products➁¥270 million ➂1952 ➃76.3%
1-33, Mitsuya Minami 1-chome, Yodogawa-ku, Osaka-City, Osaka
Tel: (81) 6-6308-8300 Fax: (81) 6-6308-7020● Kyusyu Totaku Industries, Inc.
➀Manufacture and sale of plastic products➁¥30 million ➂1997 ➃0.0%*9857-11, Ooaza Kawafuru, Wakagicho, Takeo-City, Saga
Tel: (81) 954-26-3637 Fax: (81) 954-20-5006● Thermo Co., Ltd.
➀Manufacture and sale of plastic products➁¥200 million ➂1956 ➃40.2%
15-15, Oomori Kita 5-chome, Oota-ku, Tokyo
Tel: (81) 3-3762-4531 Fax: (81) 3-3762-4530● Gigatec Inc.
➀Design, manufacture and sale of high-frequency
power amplifiers ➁¥97 million ➂1989 ➃41.2%
625, Shimo Ooshimamachi, Takasaki-City, Gunma
Tel: (81) 27-343-1590 Fax: (81) 27-343-3365● Nagase Alphametics Co., Ltd.
➀Manufacture of cosmetics and medicatedcosmetics ➁¥10 million ➂1993 ➃40.0%
4-12, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-3665-3610 Fax: (81) 3-3665-3859● Nagase Cosmetics Co., Ltd.
➀Manufacture of cosmetics and health foods➁¥30 million ➂1983 ➃50.0%
5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-3665-3610 Fax: (81) 3-3665-3859● eX . Grade Co., Ltd.
➀Development, manufacture and sale ofcomponents for electronic equipment➁¥23 million ➂2003 ➃30.4%
5F, Daido-Showacho Dai2 Bldg., 1-30, Showacho
5-chome, Abeno-ku, Osaka-City, Osaka
Tel: (81) 6-6623-7633 Fax: (81) 6-6623-7638● Toyo Beauty Supply Corporation➀Contract manufacture of cosmetics➁40 million ➂1964 ➃40.0%
3-10, Nihonbashi-Hongokucho 3-chome, Chuo-ku, Tokyo
Tel: (81) 3-3241-1410 Fax: (81) 3-3270-6338● Setsunan Kasei Co., Ltd.
➀Coloring and sale of plastics ➁¥105 million➂1966 ➃100.0%
2-22, Takaida Nishi 5-chome, Higashi Osaka-City, Osaka
Tel: (81) 6-6783-5231 Fax: (81) 6-6783-5228● Kyoraku Co., Ltd.
➀Manufacture, processing and sale of plastic products➁¥200 million ➂1917 ➃29.3%
Kawaramachi Chuo Bldg., 3-10, Kawaramachi 2-chome,
Chuo-ku, Osaka-City, Osaka
Tel: (81) 6-6203-1301 Fax: (81) 6-6203-1309● Delta Twenty-One Corp.
➀Marketing, planning and administration of plastics
processing ➁¥50 million ➂1994 ➃100.0%
5F, Libra Bldg., 3-2, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-3665-3700 Fax: (81) 3-3665-3714● Design & Die Co., Ltd.
➀Design, manufacture and sale of automotive
components and plastic products ➁¥50 million➂2002 ➃51.0%
c/o Tatematsu Mold Industry, 27, Okuda Oosawacho,
Inazawa-City, Aichi
Tel: (81) 587-32-6281 Fax: (81) 587-32-5392● Nagase Electronic Equipment Service Co., Ltd.
➀Manufacture, sale and maintenance of lowtemperature vacuum equipment➁¥45 million ➂1989 ➃100.0%
5-10, Higashi Nakajima 3-chome, Higashi Yodogawa-ku,
Osaka-City, Osaka
Tel: (81) 6-6324-7626 Fax: (81) 6-6324-7680● Nagase CMS Technology Co., Ltd.
➀Development, design, manufacture, sale andmaintenance of CMS devices➁¥150 million ➂2001 ➃65.0%
4-9, Chigasaki Minami 3-chome, Tsuzuki-ku,
Yokohama-City, Kanagawa
Tel: (81) 45-948-1072 Fax: (81) 45-948-1070● Nagase Landauer, Ltd.
➀Radiation measuring services ➁¥88 million➂1974 ➃50.0%
11-6, Nihonbashi-Hisamatsucho, Chuo-ku, Tokyo
Tel: (81) 3-3666-4300 Fax: (81) 3-3662-9518● NCC Engineering Co., Ltd.
➀Manufacture and maintenance of therapy devices➁¥20 million ➂1981 ➃61.0%
6-5, Nagatsuta Minamidai 1-chome, Midori-ku,
Yokohama-City, Kanagawa
Tel: (81) 45-986-0781 Fax: (81) 45-986-0787■ Processing● Kotobuki Kasei Corp.
➀Molding, processing and sale of plastic products➁¥20 million ➂1972 ➃57.5%
7-9, Satsukicho, Kanuma-City, Tochigi
Tel: (81) 289-72-0112 Fax: (81) 289-72-0114● Alpha Bumping Technology Co., Ltd.
➀Contract processing for wafer bumping using Ni/Au
electroless plating ➁¥300 million ➂2000 ➃75.5%
5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-3665-3880 Fax: (81) 3-3665-3950■ Servicing

62

NAGASE & CO., LTD. ANNUAL REPORT 2005

● MEDICANET Co., Ltd.
➀Clinical development support and services➁¥20 million ➂2003 ➃50.0%
Ogura Bldg., 6-6, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-5651-8071 Fax: (81) 3-5651-8073● Nagase Logistics Co., Ltd.
➀Warehousing and distribution ➁¥401 million➂1982 ➃100.0%
4-45, Higashi Tsukaguchicho 2-chome, AmagasakiCity, Hyogo
Tel: (81) 6-6427-8651 Fax: (81) 6-6427-8772● Nagase General Service Co., Ltd.
➀Sale and lease of various goods, real estateadministration ➁¥20 million ➂1983 ➃100.0%
1-17, Shinmachi 1-chome, Nishi-ku, Osaka-City, Osaka
Tel: (81) 6-6535-2131 Fax: (81) 6-6535-2124● Nagase Information Development, Ltd.
➀Software development and maintenance➁¥30 million ➂1987 ➃100.0%
Nagase Sangyo Honcho Bldg., 2-8,
Nihonbashi-Honcho 1-chome, Chuo-ku, Tokyo
Tel: (81) 3-3231-3581 Fax: (81) 3-3231-3584● Nippon Vopac Co., Ltd.
➀Warehousing, motor truck carrier business andfreight transportation services ➁¥404 million➂1966 ➃19.9%
5-7, Kajicho 1-chome, Chiyoda-ku, Tokyo
Tel: (81) 3-3254-9571 Fax: (81) 3-3254-9566● Nagase Trade Management Co., Ltd.
➀Business agent for foreign trade documentation➁¥20 million ➂1996 ➃100.0%
5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-3665-3125 Fax: (81) 3-3665-3286● Choko Co., Ltd.
➀Insurance agency ➁¥15 million ➂1971 ➃30.0%
11F, Toho Bldg., 1-13, Nishi Shinsaibashi 1-chome,
Chuo-ku, Osaka-City, Osaka
Tel: (81) 6-6244-0125 Fax: (81) 6-6258-3385● Sun Delta Corporation➀Development of applications for plastics products andmanufacture and sale of processed products➁¥490 million ➂2005 ➃50.0%
9F, Hibiya-Mitsui Bldg., 1-2, Yurakucho 1-chome,
Chiyoda-ku, Tokyo
Tel: (81) 3-3507-2830 Fax: (81) 3-3507-2835■ Sales● Nagase Colors & Chemicals Co., Ltd.
➀Purchasing and sale of dyestuffs, industrial
chemicals, etc. and related information provision➁¥100 million ➂1957 ➃100.0%
1-17, Shinmachi 1-chome, Nishi-ku, Osaka-City, Osaka
Tel: (81) 6-6535-2058 Fax: (81) 6-6535-2054● Nagase Chemical Co., Ltd.
➀Sale of dyestuffs, industrial chemicals, chemicals for
manufacturing paper, plastics and machinery➁¥60 million ➂1995 ➃100.0%
Libra Bldg., 3-2, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-5640-7431 Fax: (81) 3-5640-0791● Nishinihon Nagase Co., Ltd.
➀Sale of dyestuffs, auxiliaries, industrial chemicals
and plastics ➁¥60 million ➂1969 ➃100.0%
7F, Nichido Fukuoka Dai-2 Bldg., 1-3, Shimokawabatamachi,
Hakata-ku, Fukuoka-City, Fukuoka
Tel: (81) 92-272-3661 Fax: (81) 92-272-3667● Nagase Bio-Chemical Sales Co., Ltd.
➀Sale of enzymes and additives for food and feed➁¥30 million ➂1987 ➃87.0%
1-17, Shinmachi 1-chome, Nishi-ku, Osaka-City, Osaka
Tel: (81) 6-6535-2318 Fax: (81) 6-6535-2531● Nagase Chemspec Co., Ltd.
➀Sale and technological servicing of chemicals➁¥30 million ➂1976 ➃100.0%
5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-3665-3726 Fax: (81) 3-3665-3746● Nagase Plastics & Co., Ltd.
➀Sale of raw materials for plastics and plastic products➁¥96 million ➂1975 ➃100.0%
1-17, Shinmachi 1-chome, Nishi-ku, Osaka-City, Osaka
Tel: (81) 6-6533-1181 Fax: (81) 6-6533-1189● Nagase Elex Co., Ltd.
➀Sale of raw materials for plastics and plastic products➁¥20 million ➂1979 ➃100.0%
4F, Nihonbashi Tachibana Bldg., 6-11,
Higashi Nihonbashi 3-chome, Chuo-ku, Tokyo
Tel: (81) 3-3661-0821 Fax: (81) 3-3661-1560● Hoei Sangyo Co., Ltd.
➀Sale of film materials, magnetic products,
information imaging materials, etc. ➁¥250 million➂1974 ➃80.5%
Nagase Sangyo Honcho Bldg., 2-8,
Nihonbashi-Honcho 1-chome, Chuo-ku, Tokyo
Tel: (81) 3-3274-7880 Fax: (81) 3-3274-7882● Nagase Barrel Finishing Systems Co., Ltd.
➀Sale of abrasives and grinding materials➁¥50 million ➂1955 ➃100.0%
3F, Osaka Anniks Bldg., 14-20, Itachibori 1-chome,
Nishi-ku, Osaka-City, Osaka
Tel: (81) 6-6543-7721 Fax: (81) 6-6543-7710● Shinshu Nagase Denzai Co., Ltd.
➀Sale of electronics components, raw materials forplastics and plastic products ➁¥10 million➂1984 ➃70.0%
1-21, Shinmeicho 4-chome, Okaya-City, Nagano
Tel: (81) 266-24-2772 Fax: (81) 266-24-3311● OnFine Co., Ltd.
➀Manufacture and sale of electronics and fluorineand polysilane variants for use in materials➁¥10 million ➂2002 ➃25.0%
1-17, Shinmachi 1-chome, Nishi-ku, Osaka-City, Osaka
Tel: (81) 6-6535-2585 Fax: (81) 6-6535-2174● Nagase Beauty Care Co., Ltd.
➀Sale of cosmetics and health foods➁¥100 million ➂1991 ➃100.0%
5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-3665-3617 Fax: (81) 3-3665-3724● Nagase Medix Co., Ltd.
➀Manufacture and sale of pharmaceuticals andveterinary drugs, and development of medical software➁¥50 million ➂1998 ➃100.0%
5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo
Tel: (81) 3-3665-3288 Fax: (81) 3-3665-3752

NAGASE & CO., LTD. ANNUAL REPORT 2005

63

Company name

➀Description of business ➁Paid-in capital (thousands) ➂Date of establishment ➃Equity ownership (*indicates indirect investment)
Address Tel/Fax● Consolidated subsidiary ● Company accounted for under the equity method ● Affiliate ● Overseas office of Nagase Co., Ltd. ● Office of consolidated subsidiary

ASIA

64

● Shanghai Nagase Trading Co., Ltd.
➀International trade and trade consulting➁RMB1,656 ➂1997 ➃100.0%
18F, Raffles City, No.268 Xizang Road Central,
Shanghai, P.R. China 200001
Tel: 86-(21)63403300 Fax: 86-(21)63403883● Shanghai Hua Chang Trading Co., Ltd.
➀Sale of resins and related products➁RMB19,864 ➂1998 ➃16.3%
Room 605, Aviation Center, 1600 Nanjing Road
West, Shanghai, P.R. China 200040
Tel: 86-(21)62481133 Fax: 86-(21)62486533● Nagase ChemteX (Wuxi) Corp.
➀Manufacture and sale of adhesives and high-techchemical products for electronics, technology service➁RMB28,970 ➂2002 ➃50.0%
B-B, Machinery & Electronics Industry Park,
Wuxi National Hi-tech Industrial Development
Zone, Jiangsu Province, P.R. China 21400
Tel: 86-(510)5200052 Fax: 86-(510)5200209● Tianjin Nagase International Trading Co., Ltd.
➀Import/export and marketing➁RMB2,482 ➂2003 ➃0.0%*
Room 1005, 10/F., The Exchange Office Tower,
189 Nanjing Road, Heping District, Tianjin,
P.R. China 300050
Tel: 86-(22)83191231 Fax: 86-(22)83191122● Nagase Precision Plastics Shanghai Co., Ltd.
➀Plastic tray molding➁RMB16,512 ➂2001 ➃94.0%
B-Block, 1F, 173 Meisheng Road, Wai Gao Qiao
Free Trade Zone, Pudong, Shanghai, P.R. China 200131
Tel: 86-(21)58681661 Fax: 86-(21)58681667● Nagase Plastics Design and Die (Tianjin) Co., Ltd.
➀Design of automotive components and plastic products➁RMB2,483 ➂2003 ➃50.0%
Room 1005, 10/F., The Exchange Office Tower,189 Nanjing Road,
Heping District, Tianjin, P.R. China 300050
Tel: 86-(22)83191234 Fax: 86-(22)83191122● Guangzhou Nagase Trading Ltd.
➀Import/export and marketing ➁RMB1,655➂2002 ➃0.0%*
Room 3303-05, CITIC Plaza Office Tower, 233 Tian
He Bei Road, Guangzhou, P.R. China 510613
Tel: 86-(20)38911101 Fax: 86-(21)38911103● NCC Shanghai Techno Center Co., Ltd.
➀Testing operations for paints and finishing processes➁RMB2,445 ➂2002 ➃0.0%*
6F, No.75 Bldg. No.1066 Qinzhou North
Road Caohejing Hi-Tech Park, Shanghai,
P.R.China 200233
Tel: 86-(21)54261812 Fax: 86-(21)54261811● NWP International Trading (Shen Zhen) Co., Ltd.
➀Sale of plastic products in South China➁US$1,200 ➂2004 ➃0.0%*
No.201, Building 6C, International Commercial
Center, 1001 Hong Hua Road, Futian Free Trade
Zone, Shenzhen, Guangdong, China
Tel: 86-(755)83599372 Fax: 86-(755)83580547● Toyo Quality One Ningbo Co., Ltd.
➀Manufacture and sale of polyurethane➁US$3,350 ➂1993 ➃24.2%
No.302 Chengnan East Rd., Cicheng Town,
Jiangbei Dist., Ningbo City, Zhejiang, China
Tel: 86-(574)8757-0057 Fax: 86-(574)8757-0885● Guangzhou Kurabo Chemicals Co., Ltd.
➀Manufacture of molded urethane products for automobiles➁US$7,000 ➂2001 ➃20.0%
Jingquan 1st Rd., Yonghe Economic Zone,
Guangzhou Economic & Technological
Development Dist., Guangzhou City, Guangdong, China
Tel: 86-(20)8297-0557 Fax: 86-(20)8297-0551● Totaku Industries Suzhou Co., Ltd.
➀Manufacture and sale of plastic products➁US$1,700 ➂2005 ➃0.0%*
9 Datong Road Export Processing Zone,
Suzhou New & Hi-tech District, Suzhou, China
Tel: 86-(512)6269-6006 Fax: 86-(512)6269-6008● Nagase (Hong Kong) Ltd.
➀Import/export, trade agency, market development,
information collection ➁HK$3,120 ➂1971➃100.0%
Suite 3901 & 3912-14, Tower 6, The Gateway Harbour City, 9
Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong, S.A.R., P.R. China
Tel: 852-23750000 Fax: 852-23772728● Nagase (Hong Kong) Ltd.,
Dalian Representative Office
21F, Senmao Bldg., No. 147 Zhongshan Road,
Xigang District, Dalian, P.R. China 116011
Tel: 86-(411)83704270 Fax: 86-(411)83704272● Nagase (Hong Kong) Ltd.,Guangzhou Representative Office
Room 2317, CITIC Plaza Office Tower, 233 Tian
He Bei Road, Guangzhou, P.R. China 510613
Tel: 86-(20)38911101 Fax: 86-(20)38911103● Nagase (Hong Kong) Ltd.,
Tianjin Representative Office
Room 1005, 10/F., The Exchange Office Tower,
189 Nanjing Road, Heping District, Tianjin,
P.R. China 300050
Tel: 86-(22)83191231 Fax: 86-(22)83191122● Nagase (Hong Kong) Ltd.,
Shenzhen Representative Office
Suite 1223 & 24, Kerry Centre,
Renminnan Road, Shenzhen, P.R. China 518001
Tel: 86-(755)25180683 Fax: 86-(755)82317089● Nagase International Electronics Ltd.
➀Management of electronics-related manufacturingbusinesses in Japan and overseas➁HK$10,000 ➂2004 ➃80.0%
Suite 3901 & 3912-14, Tower 6, The Gateway Harbour City, 9
Canton Road, Tsim Sha Tsui, Kowloon, Hong Kong, S.A.R., P.R. China
Tel: 852-23762088 Fax: 852-23761666● Nagase (Taiwan) Co., Ltd.
➀Import/export, trade agency, market development,
information collection ➁NT$45,000 ➂1988➃100.0%4F-1, 248, Sec.3, Nanking E. Rd., Taipei, Taiwan, R.O.C.
Tel: 886-(2)27733668 Fax: 886-(2)27737288● Nagase Wahlee Plastics Corp.
➀Sale of plastics and related products ➁NT$52,000➂1990 ➃55.0%
9F Chuan Ta Bldg., No. 37, Sec. 3, Min Chuan East
Road, Taipei, Taiwan, R.O.C
Tel: 886-(2)25062400 Fax: 886-(2)25062401● Nagase Engineering Service Korea Co., Ltd.
➀Equipment maintenance service and engineering➁WON150,000 ➂1997 ➃100.0%
Anyang Trade Center No.925 1107 Bisan-Dong,
Dongan-ku, Anyang City, Kyongki-do, Korea 431-050
Tel: 82-(31)3890881 Fax: 82-(31)3890884● Nagase Korea Corp.
➀Retail sales ➁WON700,000 ➂2001 ➃100.0%
The Seoul Shinmun Daily & Press Center Bldg. 10F #25,
1-Ga, Taepyung-ro, Chung-ku, Seoul, Korea
Tel: 82-(2)7348745 Fax: 82-(2)7348747● Nagase (Thailand) Co., Ltd.
➀Import/export, trade agency, market development,
information collection ➁BAHT87,000 ➂1989➃100.0%
14F, Ramaland Bldg., 952 Rama IV Road, Khwaeng
Suriyawongse, Khet Bangrak, Bangkok 10500, Thailand
Tel: 66-(2)6327000 Fax: 66-(2)6327111● Sanko Gosei Technology (Thailand) Ltd.
➀Manufacture of automobile components➁BAHT 270,000 ➂1997 ➃40.0%
376 Moo 4 Suksawat Rd., Soi 36, Bangpakok,
Rasburana, Bangkok 10140, Thailand
Tel: 66-(2)4277008 Fax: 66-(2)4274923

NAGASE & CO., LTD. ANNUAL REPORT 2005

● Automotive Mold Technology, Co., Ltd.
➀Manufacture of automotive molds and dies
➁BAHT 280,000 ➂2000 ➃0.0%*
Amata City Industrial Estate 7/117 Moo 4, Mabyangporn
Pluakdaeng, Rayong 21140, Thailand
Tel: 66-(038)956151 Fax: 66-(038)956155● Nagase (Malaysia) Sdn. Bhd.
➀Import/export, trade agency, market development,
information collection ➁RM1,500 ➂1981➃51.0%
Suite 16.01, Level 16, Menara IGB Mid Valley City,
Lingkaran Syed Putra 59200 Kuala Lumpur, Malaysia
Tel: 60-(3)22832366 Fax: 60-(3)22822933● Nagase (Malaysia) Sdn. Bhd., Penang Office
1-5-14&15, 5F, Krystal Point Corporate Park, Jalan
Tun, Dr. Awang, 11900 Sungai Nibong, Penang,
Malaysia
Tel: 60-(4)6430628 Fax: 60-(4)6432490● Nagase (Malaysia) Sdn. Bhd., Johor Bahru Office
Suite 6.5A Level 6, Menara Pelangi, Taman Pelangi,
Jalan Kuning, 80400, Johor Bahru, Malaysia
Tel: 60-(7)3336088 Fax: 60-(7)3339088● Nagase Singapore (Pte) Ltd.
➀Import/export, trade agency, market development,
information collection ➁US$1,738 ➂1975 ➃100.0%
300 Beach Road, #39-00 The Concourse,
Singapore 199555
Tel: 65-63980088 Fax: 65-63980227● Nagase Singapore (Pte) Ltd., Dubai Office
Lob#15-320, Jebel Ali Free Zone, P.O. Box 17865
Dubai-United Arab Emirates
Tel: 971-(4)8871366 Fax: 971-(4)8871377● Nagase FineChem Singapore (Pte) Ltd.
➀Manufacture and recycling of chemical agents forliquid crystals ➁S$8,000 ➂2001 ➃60.0%
9 Tuas View Lane, Singapore 637569
Tel: 65-68989289 Fax: 65-68985313● Chang Fong Overseas Enterprises (Pte) Ltd.
➀Sale of chemical products ➁S$1,000➂1980 ➃85.0%
31 Gul Circle, Jurong Industrial Estate,
Singapore 629569
Tel: 65-68623801 Fax: 65-68622655● Nagase & Co., Ltd., Hanoi Representative Office
Unit 807, Hanoi Tung Shing Square 2 Ngo Quyen
Hoan Kiem Dist., Hanoi, Vietnam
Tel: 84-(4)9350110 Fax: 84-(4)9350108● Nagase Singapore (Pte) Ltd.,
Vietnam Representative Office
Room 1809, Sun Wah Tower, 115 Nguyen Hue
Boulevard, Dist. 1, HCMC, Vietnam
Tel: 84-(8)8219166 Fax: 84-(8)8219139● P.T. Nagase Impor-Ekspor Indonesia➀Import/export sales and import/export consulting➁US$500 ➂1998 ➃90.0%
Wisma Kyoei Prince, 21F JI. Jend. Sudirman Kav.3
Jakarta 10220, Indonesia
Tel: 62-(21)57900391 Fax: 62-(21)57900392● Nagase Philippines Corp.
➀Import/export and retail ➁PHP45,839 ➂1997➃77.0%
18-B Trafalgar Plaza H.V. Dela Costa Street,
Salcedo Village, 1227 Makati City, Philippines
Tel: 63-(2)7502935 Fax: 63-(2)8118296● Nagase & Co., Ltd., Mumbai Liaison Office404, Vaibhav Chambers, Bandra-Kurla Complex (BKC),
Bandra East, Mumbai 400 051, India
Tel:91-(22)26591337 Fax: 91-(22)26591408

NORTH AMERICA● Nagase America Holdings Inc.
➀Holding company in the U.S.
➁US$1,000 ➂2002 ➃100.0%
546 5th Avenue 16F, New York, NY 10036, U.S.A.
Tel: 1-(212)7031340 Fax: 1-(212)3980687● Nagase California Corp.
➀Import/export, trade agency, market development,
information collection ➁US$2,200 ➂1988➃100.0%710 Lakeway, Suite 135, Sunnyvale, CA 94085, U.S.A.
Tel: 1-(408)3281520 Fax: 1-(408)7739567● Nagase America Corp.
➀Import/export and sale of chemical products andelectronic materials ➁US$1,000 ➂1971 ➃0.0%*546 5th Avenue 16F, New York, NY 10036, U.S.A.
Tel: 1-(212)7031340 Fax: 1-(212)3980687● Nagase Plastics America Corp.
➀Sales company focusing on plastics➁US$1,000 ➂2002 ➃0.0%*
Crystal Glen Office Center, Suite 356, 39555 Orchard
Hills Place, Novi, MI 48375, U.S.A.
Tel: 1-(248)3740490 Fax: 1-(248)3740497● Sofix Corp.
➀Manufacture and sale of color formers➁US$20,000 ➂1990 ➃49.0%
2800 Riverport Road, Chattanooga,
TN 37406-1721, U.S.A.
Tel: 1-(423)6243500 Fax: 1-(423)6243587● Design and Die USA Inc.
➀Design of automotive components and plastic products/die
sales ➁US$200 ➂2002 ➃25.0%
Crystal Glen Office Center, Suite 356, 39555
Orchard Hills Place, Novi, MI 48375, U.S.A.
Tel: 1-(248)3740490 Fax: 1-(248)3740497● Canada Mold Technology Inc.
➀Manufacture, sale and maintenance of metal molds➁C$5,000 ➂1989 ④53.0%1075 Ridgeway Road, Woodstock, Ontario,
Canada N4V 1E3
Tel: 1-(519)4210711 Fax: 1-(519)4210706

EUROPE● Nagase & Co., Ltd., London Branch
Room No. 202 12 St. James’s Square, London SW1Y
4RB, U.K.
Tel: 44-(870)3517200 Fax: 44-(20)78496226● Nagase (Europe) GmbH
➀Import/export, trade agency, market development,
information collection ➁ 700 ➂1980 ➃100.0%
Immermannstrasse 65c 40210 Dusseldorf, Germany
Tel: 49-(211)866200 Fax: 49-(211)3237068

NAGASE & CO., LTD. ANNUAL REPORT 2005

● Nagase (Europe) GmbH,
Hungary Representative Office
MADACH TRADE CENTER BT, H-1075 Budapest,
Madach I. ut 13-14. Hungary
Tel: 36-(1)2681705 Fax: 36-(1)2681706

65

Company Information(As of March 31, 2005)

About Nagase & Co., Ltd.
Company Name: Nagase & Co., Ltd.
Founded: June 18, 1832
Established: December 9, 1917
Paid-in Capital: ¥9,699,714,135
Number of Employees: 811 (Consolidated: 3,203)
Main Business: Import/export and domestic sales of dyestuffs, chemicals, plastics, machinery,electronics materials, cosmetics, health foods and medical equipment
Main Offices:

Osaka Head Office: 1-1-17, Shinmachi, Nishi-ku, Osaka City, Osaka, 550-8668 Tel: (81) 6-6535-2114
Tokyo Head Office: 5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo, 103-8355 Tel: (81) 3-3665-3021
Nagoya Branch Office: 3-14-18, Marunouchi, Naka-ku, Nagoya City, 460-8560 Tel: (81) 52-963-5615
Nagase R&D Center: Kobe High Tech Park, 2-2-3, Murotani, Nishi-ku, Kobe City, 651-2241 Tel: (81) 78-992-3162

History●

Nagase founded in Kyoto as a dyestuffs trading concern
Sales of dyestuffs, starches and funori seaweed

1893

●

Established Osaka branch office

1898

●

Head office switched to Osaka, branch office to Kyoto

1900

●

Established business ties with Basel Chemical Co., of
Switzerland (now Ciba Specialty Chemicals Ltd.)

1911

●

Established Tokyo branch office

1917

●

Inaugurated as Nagase Shoten Company with capital of¥3 million

1923

●

Established business ties with Eastman Kodak Co., of
the United States

1930

●

Concluded exclusive distributorship agreements with
Union Carbide and Carbon Corp., of the United States

1940

●

Established Nagoya branch office

1943

●

Company name changed to Nagase & Co., Ltd.

1964

●

Listed Company shares on the Osaka Securities Exchange

1968

●

Concluded an exclusive distributorship agreement with
General Electric Co., of the United States

1970

●

Established Nagase-CIBA Ltd. (now Nagase ChemteX
Corp.) jointly with Ciba-Geigy Ltd.

●

Listed Company shares on the Tokyo Stock Exchange●

Established Nagase (Hong Kong) Ltd. and Nagase
America Corp. (now Nagase America Holdings Inc.)●

Established Engineering Plastics, Ltd. (now GE Plastics
Japan Ltd.), jointly with General Electric Co.

1974

●

Established Nagase Landauer Ltd. jointly with Technical
Operations, Inc., of the United States

1975

●

Established Nagase Singapore (Pte) Ltd.

1980

●

Established Nagase (Europa) GmbH and Chang Fong
Overseas Enterprises (Pte) Ltd.

1832

1971

66

●

1982

●

Established Nagase (Malaysia ) Sdn. Bhd.

1985

●

Established Nagase & Co., Ltd., Seoul branch office

1988

●

Established Nagase California Corp. and Nagase(Taiwan) Co., Ltd.

1989

●

Established Canada Mold Technology Inc.

●

Established Nagase (Thailand) Co., Ltd.

●

Established Nagase Science and Technology
Foundation●

Tokyo branch office became head office; adoption of
Osaka/Tokyo two head office system●

Established Sofix Corp.

●

Set up the Nagase R&D Center in Kobe●

Established joint venture Nagase Wahlee Plastics Corp.
(Taiwan)

1992●

Established London branch office

1997

●

Established Nagase Philippines Corp. and Shanghai
Nagase Trading Co., Ltd.

1998

●

Established P.T. Nagase Impor-Ekspor Indonesia

2001

●

Closed the Seoul branch office, and established Nagase
Korea Corp.

●

Merged four production companies, and established
Nagase ChemteX Corp.

●

Established Nagase Finechem Singapore (Pte) Ltd.

●

Established Nagase America Corp. and Nagase Plastics
America Corp.

●

Established Nagase ChemteX (Wuxi) Corp.

●

Established a representative office in Hungary●

Established Nagase International Electronics Ltd.

1990

2002

2004

NAGASE & CO., LTD. ANNUAL REPORT 2005

Investor Information(As of March 31, 2005)

Stock Listings: First Sections of the Tokyo Stock Exchange andthe Osaka Securities Exchange
Ticker Code: 8012
Authorized Number of Shares: 346,980,000
Issued Number of Shares: 138,408,285
Number of Shareholders: 6,982
Principal Shareholders
Name

Number of Shares Held(Thousands)

Percentage of Total
Shares Outstanding

The Master Trust Bank of Japan, Ltd.

10,205

7.37

Japan Trustee Services Bank, Ltd.

9,346

6.75

The Sumitomo Trust & Banking Co., Ltd.

6,171

4.46

Sumitomo Mitsui Banking Corporation

4,377

3.16

Hiroshi Nagase

4,153

3.00

Nippon Life Insurance Company

3,984

2.88

Reiko Nagase

3,522

2.54

Mitsui Sumitomo Insurance Co., Ltd.

2,951

2.13

The Bank of Tokyo-Mitsubishi, Ltd

2,825

2.04

Nagase Shunzo Co., Ltd.

2,749

1.99

Note: In addition to the above, the Company holds 11,005 thousand shares of treasury stock without voting rights.

Composition of Shareholders
Securities Companies (25)
201 thousand shares (0.15%)

Financial Institutions (67)55,097 thousand shares (39.80%)

Treasury Stock
11,005 thousand shares (7.95%)
Foreign Investors (102)
15,633 thousand shares(11.30%)

Domestic Corporations(276)
25,617 thousand shares(18.51%)
Individuals and Others (6,511)
30,852 thousand shares (22.29%)

Monthly Share Price Range of Nagase
(¥)

TOPIX

1,200

3,000

1,000

2,500

800

2,000

600

1,500

400

1,000

200
0

500

Share Price (left scale)Tokyo Stock Exchange Stock Price Index (right scale)
April 2000

April 2001

April 2002

April 2003

April 2004

April 2005

April 2001

April 2002

April 2003

April 2004

April 2005

0Monthly Trading Volume(Thousands of Shares)

10,000

8,000

6,000

4,000

2,000

0

April 2000

NAGASE & CO., LTD. ANNUAL REPORT 2005

67

NAGASE & CO., LTD.
Osaka Head Office:1-1-17, Shinmachi, Nishi-ku, Osaka City, Osaka, 550-8668
Tel: (81) 6-6535-2114
Tokyo Head Office:5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo, 103-8355
Tel: (81) 3-3665-3021
Nagoya Branch Office:3-14-18, Marunouchi, Naka-ku, Nagoya City, 460-8560
Tel: (81) 52-963-5615

http://www.nagase.co.jp/english

Trademark of American Soybean Association

Printed in Japan with soy ink on recycled paper.