NAGASE & CO., LTD.
ANNUAL REPORT 2014

Annual Report 2014
Year ended March 31, 2014

A technology- and intelligence-oriented Company
that turns wisdom into business.

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

Osaka Head Office:1-1-17, Shinmachi, Nishi-ku, Osaka City, Osaka 550-8668, Japan
Tel: (81) 6-6535-2114

Tokyo Head Office:5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo 103-8355, Japan
Tel: (81) 3-3665-3021

Nagoya Branch Office: 3-14-18, Marunouchi, Naka-ku, Nagoya City 460-8560, Japan
Tel: (81) 52-963-5615

長瀬14̲英文̲表紙̲入稿.indd H4-H1

Printed in Japan

2014/08/15 15:23

Contents

NAGASE:
Past, Present,
and Future

2

To Our Stakeholders

42

Nagase ChemteX Corporation

4

Our History - Evolving Business Model

44

Hayashibara Co., Ltd.

6

Our Strategy - Nagase Group Businesses

46

Nagase R&D Center

8

Our Business Model - Much More than a Trading Firm

47

Nagase Application Workshop

9

NAGASE's Strengths [1]48Nagase Group Sustainability

Major Production/
R&D Functions

Manufacturing and Processing Functions / Research andDevelopment Functions
10

NAGASE's Strengths [2]Global Network

11

Message from the President

16

13-Year Financial Highlights

18

NAGASE's Strengths [3]Financial Foundation Supporting Business Growth19

Business Report
20 Functional Materials
24 Advanced Materials & Processing

Performance bySegment

28 Electronics
32 Automotive & Energy

48 Organization Governance
52 Four Questions for NAGASE Outside Directors

Corporate Social
Responsibility

54 Human Rights, Employment Practices
56 Training Global Business Leaders

36 Life & Healthcare

59 Environment
61 Fair Business Practices
64 Consumer Issues
65 Community Involvement

Regional
Overview

40

Greater China

66

Six-Year Summary

77

Consolidated Statements of Changes in Net Assets

41

ASEAN and the Middle East

67

Management’s Discussion and78

Consolidated Statements of Cash Flows

Analysis of Operations and Finances

79

Notes to Consolidated Financial Statements

74

Consolidated Balance Sheets

97

Independent Auditor’s Report

76

Consolidated Statements of Income

98

Consolidated Subsidiaries, Affiliates and Offices

76

Consolidated Statements of102

Corporate Information

Comprehensive Income

103

Investor Information

Financial andCorporate
Information

Forward-Looking Statements
Non-historic information contained in this annual report related to NAGASE & CO., LTD. and Nagase Group revenue and profit plans, strategies, presumptions, etc. are forward-looking statements that include elements ofrisk and uncertainty. Actual earnings may differ significantly from forecasts due to changes in these elements. Accordingly, the reader is cautioned to refrain from placing undue reliance on such future forecasts containedin this document. Elements that could impact earnings results are not necessarily limited to those explicitly noted in this document.

NAGASE & CO., LTD. Annual Report 20141

To Our Stakeholders

Outside Director

Director and Executive Officer

Director and Executive Officer

Representative Director and Managing Executive Officer

Representative Director, President and CEO

Yasuo Nishiguchi

Mitsuro Naba

Hiroshi Hanamoto

Kenichi Matsuki

Hiroshi Nagase“Maintain Good andFair Business Practices”
We are not satisfied with our fiscal 2013 earnings.
However, we are seeing major changes in our businesses—particularly in thosebusinesses we have identified as core markets. Our employees are dedicated tocreating new and exciting opportunities in pursuit of our management philosophy: tomaintain good and fair business practices.
2

NAGASE & CO., LTD. Annual Report 2014

Representative Director and Senior Managing
Executive Officer

Representative Director and Managing
Executive Officer

Reiji Nagase

Toshiro Yamaguchi

Director and Executive Officer

Director and Executive Officer

Outside Director

Osamu Morishita

Kenji Asakura

Hidenori Nishi

Further, our efforts to encourage cooperative business among segments have begun
to pay off in tangible ways. We believe that this structure is what will ensure sustainable growth for NAGASE, unshaken by the market changes that come and go. We will
walk that good and fair path, managing our business according to the numbers andturning those numbers into earnings success. We thank you and ask for your continued support.
July 2014
The Directors of NAGASE & CO., LTD.
NAGASE & CO., LTD. Annual Report 2014

3

Our History - Evolving Business Model
NAGASE has been in business for 182 years. The Nagase Group began a specialized sales agent company representing the gold standard in the chemicals business, securing exclusive contracts to sell industry-leading products
from around the world. Over the years, we leveraged our technology and information gathering expertise, as wellas our global network, to transform our business into a hybrid offering superior manufacturing, processing, andR&D functions as well as trading company services. We continue to contribute to our customers as a technologyand intelligence-oriented company that turns wisdom into business.
1832• ‌Nagase founded in Kyoto as a dyestuffs trading concern
Sales of dyestuffs, starches and funori seaweed1990• ‌Established Sofix Corp.
• ‌Set up the Nagase R&D Center in Kobe
• ‌Established joint venture Nagase Wahlee Plastics Corp.
(Taiwan)

2014

1997
Nagase R&D Center• ‌Established Nagase Philippines Corp.
• ‌Established Shanghai Nagase Trading Co., Ltd.
• ‌Established Nagase Engineering Service Korea Co., Ltd.

2014
• ‌NAGASE Global
HRD Center

1998• ‌Established P.T. Nagase Impor-Ekspor Indonesia• ‌Established Shanghai Hua Chang Trading Co., Ltd.

2012

1980
• Established‌Nagase Chemicals, Ltd.
• Established‌Nagase (Europa) GmbH1982
• Established‌Nagase (Malaysia) Sdn. Bhd.
1985
• Established‌Seoul branch office

Engineered Materials Systems Inc.

2012
• ‌Acquired stock of Engineered Materials Systems Inc.,
U.S.-based maker of formulated epoxy resins• ‌Acquired stock of Hayashibara Co., Ltd. (Okayama, Japan)• ‌Established local entity in Brazil

1988• Established‌Nagase (Taiwan) Co., Ltd.
1989
• Established‌Nagase (Thailand) Co., Ltd.
• Established‌Nagase Science and Technology Foundation• ‌Tokyo branch office became a head office; adoption of Osaka/
Tokyo two head office system

2005

1970
• Established‌Nagase-CIBA Ltd. (now Nagase ChemteX Corporation)
jointly with Ciba-Geigy Ltd.
• Listed‌Company shares on the Tokyo Stock Exchange

2000

1971
• Established‌Nagase (Hong Kong) Ltd. and Nagase America Corp.
• Established‌Engineering Plastics, Ltd. jointly with General Electric Co.

1898
Head office moved to Osaka2005• ‌Established Totaku Industries Suzhou Co., Ltd.
• ‌Established Nagase Electronics Technology Co., Ltd.
• ‌Established Nagase Philippines International Services Corp.

1990

1972
• Established‌Nagase Medicals Co., Ltd.

1900
• ‌Established business ties with Basel Chemical Co.
of Switzerland (now Ciba Specialty Chemicals Ltd.)2006• ‌Acquired stock of semiconductor manufacturing equipment maker Pac Tech-Packaging Technologies GmbH• ‌Established Nagase India Private Ltd.

1975
• Established‌Nagase Singapore (Pte) Ltd.

1901
• ‌Opened office in Lyon to work directly with Ciba
Specialty Chemicals Ltd.

1977
• Established‌Nagase Biochemicals, Ltd.

2007
• ‌Established Nagase Application Workshop

1980

2008
• ‌Established Sakai Sales Office• ‌Established Nagase Vietnam Co., Ltd.

1970

2009
• ‌Established Dubai branch office

1960

1920

1832

1900
1911
• Established‌Tokyobranch office

1923• Established‌businessties with Eastman
Kodak Co. of theUnited States

1913• Opened‌
offices in London, New York1917
• ‌Established Nagase Shoten Company(from sole proprietor to corporation)

1930• Concluded‌
an exclusive
distributorship agreement with Union Carbide
and Carbon Corp. of theUnited States
1938• Established‌Teikoku
Chemical Industries
Co., Ltd.

Evolving Business Model

Nagase Application Workshop

Nagase ChemteX Corporation, Harima Plant

1930
1910

Hayashibara Co., Ltd., Functional saccharide manufacturing plant1964• ‌Listed Company shares on the
Osaka Securities Exchange
1968• ‌Concluded an exclusive distributorship agreement with
General Electric Co. of theUnited States2000• ‌Changed the name of Nagase-CHIBA, Ltd. to Nagase ChemteX Corporation
2001• ‌Nagase ChemteX, Nagase Chemicals, Teikoku Chemical Industries, andNagase Biochemicals, merged to Nagase ChemteX Corporation• ‌Closed the Seoul branch office and established Nagase Korea Corp.
• ‌Established Nagase FineChem Singapore (Pte) Ltd.

Chemical Recycling Plant within Sakai Display
Products Corporation

2002• ‌Established Guangzhou Nagase Trading Ltd.
• ‌Established Nagase ChemteX (Wuxi) Corporation
2004• ‌Established NWP International Trading (Shenzhen) Co., Ltd.

Overseas Expansion (emerging from anexport-only business model)

Trading Business + Manufacturing Company/Research and Development(revenue source: brokerage fees + high-value-added business creation)
Founded asa dyestuffs
wholesaler

4

Master Distributor License Business (revenue source: brokerage fees)

NAGASE & CO., LTD. Annual Report 2014

NAGASE & CO., LTD. Annual Report 2014

5

Our Strategy - Nagase Group Businesses
Advanced Materials &Processing

Functional Materials

23.5
23.5
% %
22.0
22.0
% %

Net sales
Net sales

23.5
23.5
%Net
23.5
%sales33.1% %Net%sales 33.1
22.0
22.0
22.0
18.8
18.8
% %

OperatingOperatingprofitprofit

Department Overview

Performance Chemicals Department
A parent department positioned in up-stream petrochemical products, core Nagase materials, the Performance Chemicals
Department provides a broad range of goods and services to theglobal market, from general-purpose petrochemical products tohigh-value-added products. The department’s four mainstay businesses are coating materials, urethane, plastic materials and filters.
Each business has established a reputation as a leader in their various markets.
Speciality Chemicals Department
Building total solutions businesses based on a broad range ofdownstream and upstream information, the Speciality Chemicals
Department supplies intermediates and materials with applications
in a range of areas—including industrial oil solutions plating chemicals, water processing agents, photoresist developer, fluorochemicals and silicones. Further, we are focusing energy on new businessproducts that make the most of the unique technological strengthsof our customers and our value chain as well as customer productexpansion.

Main Products and Services

Customer Industry

Electronics

Automotive & Energy

33.1
33.1
33.1 18.9
18.9
% %
18.8
18.8
18.8 30.8
30.8
% %

18.9
18.918.9 13.8
13.8
% %
30.8
30.8
30.8 7.07.0
% %

10.7
10.7
% 10.7
% %
20.3
20.3
20.3
% %

%Net %Net sales
Net sales
Net sales Net sales
sales%%Net sales% %Net sales
Net sales Net sales
Net sales%% %Net sales
Net sales
Net sales
Net sales Net sales

Net sales
Net sales
Net sales

OperatingOperatingOperatingprofitprofitprofit%Operating% Operating% profitprofit

OperatingOperatingOperatingprofitprofitOperating
profit%Operating%profit%profit

OperatingOperatingprofit%Operating
OperatingprofitprofitOperating%profit%profit

OperatingOperatingprofitprofitOperating
profit%Operating
Operating%profit%profit

OperatingOperatingprofitprofitprofit%
OperatingColors & Imaging Department: Whether analog or digital, data that exists anywhere in
the world functions as information only when it is made available to people. Mainly
involved in the handling of essential chemicals that are the functional materials that connect information and people, the Colors & Imaging Department contributes to society in awide range of fields, This department is working to move away from simply selling products and, toward building a network in each of its business area backed by proprietaryproposals that leverage the capabilities of the Nagase Application Workshop (NAW).
Polymer Global Account Department: The Polymer Global Account Department provides plastics, related auxiliaries, equipment and facilities to the domestic and international office automation (OA), electric and electronics, and consumer electronics
industries. The greatest strength of this department is the sheer number of local staff
who maintain networks in Asia, as well as their wealth of experience and knowledge.
The department is putting focus and energy into expanding and creating new plastics
businesses on the back of Group strategies and cooperative efforts.

Electronic Chemicals Department
The Electronic Chemicals Department, which comprises eight manufacturing companies in Japan and overseas, manufactures and sells internallydeveloped formulated epoxy resins and high-grade chemicals along withrelated supply management and manufacturing control systems to thedisplay device, semiconductor, electronic component, automotive, andsolar cell industries. This segment also sells non-Group products that meetthe needs of the market, combining the functions of both a trading company and a manufacturing company in pursuit of high-profit businesses. At
the same time, this department is actively engaged in solving environmental issues, proposing new ways to recycle and conserve resources.

Polymer Products Department: The Polymer Products Department mainly sells copolyester
resins, functional sheets and films, plastic molding products, and materials for optical functional films made by Eastman Chemical. The department works with Group companies tocreate a structure for developing new applications as well as original products. In particular,
this department is concentrating on developing sheets that use Eastman Chemical resins.

Performance Chemicals Department
Plastic materials, plastics and pigments, solvents, additives forpaints and inks, urethane materials, plastic additives, flame retardants, polymer filters

Colors & Imaging Department
Dyes/additives, functional color pigments, functional dyes, digitalprint processing materials, organic transparent conductive materials, dyestuffs, fiber processing agents, and auto body repair paintElectronic Chemicals Department
Formulated epoxy resins and related products, chemicals for
production of semiconductors and liquid crystals, chemical
management equipment for liquid crystal preprocessing

Speciality Chemicals Department
Petrochemical products, raw materials for industrial oil solutions,surfactants and surfactant raw materials, fluorochemicals, rawmaterials for silicone and encapsulants, plating chemicals, electronics chemicals, microorganism pharmaceuticals, nanomaterials,
inorganic materials

Polymer Global Account Department
Functional resins, general-purpose resins, auxiliaries, plastic products, plastic-related equipment, devices and moldings

Electronic Materials Department
Surface treatment materials for smartphone and tablet cases,
optical films for liquid crystal displays (LCDs), materials for
touch panels, glass processing, optical adhesive agents, optical sheets for backlights, abrasives, abrasive pads, electronic
paper-related materials, materials for flexible displays, organic light-emitting materials, LED chip-related materials andtheir assembly and mounting

Speciality Chemicals Department
Oil solution, surfactant, organic synthesis, electronics materials, andsemiconductor industries

13.8
13.8
13.8 10.7
10.7% %7.07.07.0 20.3
20.3
% %

Net sales
Net sales
Net sales

Electronic Materials Department
The Electronic Materials Department leverages its domestic andoverseas network to handle sales of display device peripheral
components/cases, internal components, and LED-related related materials—which is seeing significant growth—for global
smartphone and tablet business brands and materials suppliers.
The department proactively conducts trading as well as the
manufacture and processing of glass and LED assembly.

Performance Chemicals Department
Paint/ink, resin, synthetic fiber, urethane foam and film industries

Life & Healthcare

Polymer Products Department
Copolyester resins, functional dyes, organic transparent conductive
materials, functional sheets and films, sheet and film surface detection machines, plastic molding products and functional polyester
resin master batch

Colors & Imaging Department
Dye/pigment, manufacturing/thermal papers, printing and printing
materials, fiber processing and auto body repair industry industries
Polymer Global Account Department
Office automation (OA) equipment, electronics and consumer electronics industries

Electronic Chemicals Department
Display device industry (LCD/organic EL), semiconductor, electronic components, heavy electric machinery, automotive, andsolar battery industries
Electronic Materials Department
Smartphone and tablet, display, touch panel, and LED industries

Automotive Solutions Department
The Automotive Solutions Department takes advantage of our strong
overseas network to sell all types of raw materials, products, andequipment to the rapidly expanding global automobile industry. At thesame time, this department is working to help grow component manufacturing functions of our affiliates and joint ventures to meet customer
needs. Looking forward to the HEV, EV, and fuel-cell-powered automobiles of the next generation, this department is developing new materials, components and technologies to expand our eco-friendly business.
Energy Business OfficeThis year marks the third of the Energy Business Office, whichbrought the Environment & Energy Office and the Energy Device
Office under one roof. The Energy Business Offices deals mainly with
LiB systems, PV modules, and the component materials used in their
manufacture. This office devises marketing strategies that anticipate
future needs, dealing in and sharing information covering all aspectsof the business from downstream to upstream. The office has developed an energy management system (EMS) combining LiB and PV
technologies, which the office intends to launch in the near future.
Automotive Solutions Department
Functional resins, general-purpose resins, automotive interior
and exterior components and functional components, lightweight materials and components, electronics components,
auxiliaries, plastic-related equipment, devices and moldings
Energy Business Office
Raw materials for lithium ion battery (LiB), photovoltaic (PV)modules, LiB systems, PV materials and Visibility for PowerLine Communication (PLC) Systems

Life & Healthcare Products Department
The Life & Healthcare Products Department sets its eyes oncontributing to food, beauty, and health as a member of theLife & Healthcare segment. This department is developing
high-value-added products that help people live better andhealthier lives, leveraging the Group’s comprehensive
strengths in trading, R&D, and manufacturing and processingin the global food materials, pharmaceutical/medical materials, cosmetic materials, household materials, agriculture,
fisheries, and livestock fields.
Beauty Care Products Department
In keeping with its business philosophy to provide safe, highquality products and services that enhance beauty inside andout, the Beauty Care Products Department manufactures andsells cosmetics and health foods led by its rosemary ingredient, which is the result of state-of-the-art research conducted in Japan and overseas. In addition, the department’s sales
network is comprised of 50,000 personnel who offer
advanced counseling and facial care services.
Life & Healthcare Products Department
Functional food ingredients (functional saccharides, enzymes,
health food materials, and food additives), cosmetic materials(whitening agents, moisturizing agents, UV absorbers, activators, antibacterial agents, and nutritional supplements), pharmaceutical (active pharmaceutical ingredients [APIs], clinical
trial APIs, intermediates, raw materials, formulations, additives), invitro diagnostics, medical materials, related materials
for agriculture, fisheries, and livestock (agricultural chemicals
and materials, fertilizers, feed and feed additives)
Beauty Care Products Department
Cosmetics (including skin care counselling and facial careservices), health foods

Automotive Solutions Department
Automotive and automotive parts industries

Life & Healthcare Products Department
Food, pharmaceutical and medical, diagnostic drug, cosmetics,
household, agricultural, fisheries and livestock industries

Energy Business OfficeBattery, photovoltaic, electric equipment, and automotive andconstruction industries

Beauty Care Products Department
General consumers

Polymer Products Department
Cosmetics and toiletries, electric and electronics, and sheets andfilms industries

Net Sales/Operating Profit

Net sales/Operating profit

Net sales/Operating profit
Net sales (Left axis)(¥ hundred million)
2,000
1,500
1,000

(¥ hundred million)

1,790

1,699

1,670
43

80

43

48

20

13/3

14/3

15/3
(Forecast)

6

NAGASE & CO., LTD. Annual Report 2014

60

0Operating profit (Right axis)(¥ hundred million)(¥ hundred million)

3,000
2,000

40

500
0

Net sales (Left axis)

Operating profit (Right axis)

2,600

2,392

2,142
31

48

37

40

13/3

Net sales/Operating profit

Net sales/Operating profit

Net sales (Left axis)(¥ hundred million)

Net sales (Left axis)(¥ hundred million)(¥ hundred million)

1,500

1,250 64

Operating profit (Right axis)(¥ hundred million)

1,570

1,370
60

67

80

1,000

14/3

15/3
(Forecast)

20

500

0

0

1,000

Operating profit (Right axis)(¥ hundred million)

994
830

1,047

13

13

750
40

1,000
0

60

Net sales/Operating profit

500

10

7

14/3

15/3
(Forecast)

0

0

13/3

1,000
750

761 40Operating profit (Right axis)(¥ hundred million)

768 40816 3814/3

15/3(Forecast)

0

50

25

500
5

250

13/3

15

Net sales (Left axis)

250
0

13/3

14/3

15/3

0

(Forecast)

NAGASE & CO., LTD. Annual Report 20147

Our Business Model - Much More than a Trading Firm

NAGASE's
Strengths

Manufacturing and Processing Functions/
Research and Development Functions

1

The Nagase Group creates value through manufacturing, processing, andR&D functions in the chemical value chain. These functions allow us
to pursue business models beyond the traditional model of the Japanese trading company.

• ‌Nagase ChemteX
Corporation• ‌Hayashibara Co., Ltd.
• ‌45 other companies

Raw Material
SupplyProposal

Proposal

Trading Company
Function

RequestManufacturers in Japanand overseas

Purchasing

RequestPurchasing

Users in Japanand overseas

Sales

Manufacturing/
Processing
Bases

Proposal

Purchasing

companies in 13 countries

RequestNagase Group(Sales)R&D

Sales

Application
proposal• ‌Nagase R&D Center• ‌Nagase Application
Workshop

Typical Trading Company Functions

1

Trade

Our core trading company functions consist of leveraging the supply/demand and information gaps to promote global trade in goods and services. In our trading company aspect,
we provide (1) logistics (transport, customs, processing, warehousing); (2) financing (capital acquisition, management, settlements, foreign exchange); (3) insurance (maritime,
import/export, fire); and (4) legal/screening services.

2

Information/Research, Market Development

We use our global network to collect and analyze information* about a wide range of global
markets. In conducting our analysis, what we look for are gaps between supply anddemand in a market. In this way, we are able to create a variety of new markets globally,
introduce new technologies, find customers, and offer sales support for new products
developed by business partners.
*‌Industrial/corporate information, advanced technology information, market/marketing information, regional information, legal/tax information, etc.

3

Financing

Trading companies offer a different kind of financing than traditional banking institutions.
For example, trading companies can provide business partners with credit services andloan guarantees. Changes in the modern economic environment demand much more of
trading companies in terms of financing complexity and diversity.

Unique Functions
Manufacturing and Processing
The Nagase Group has captured a large share of the market for many niche products. We offer manufacturing services that meet needs not covered by the major
manufacturers and source goods for our customers thatcan only be located via information captured through our
trading company activities.

R&D
Information is an important tool in offering a consultative
sales approach. We take information gathered throughresearch and development activities and then work with
our departments to propose new businesses and technological applications.

While the Nagase Group has worked from day one to expand our business as
an almost exclusive importer and agent for foreign companies, changes in
the market structure of Japan have meant that our competitive advantage inthis country has declined gradually. In response to this trend, we defined a
new business model for the Nagase Group in the year 2000, strengthening
our manufacturing functions to add greater value and improve our business
offerings as a technology- and intelligence-oriented company that turns wisdom into business. Today, the Nagase Group counts 47 manufacturing andprocessing companies in our family. As a Group, we deal in pharmaceutical,
functional polymers, electronics materials, plastics, cosmetics, and functional
food ingredients production and processing, creating our own-value-added
products in addition to intermediary business. In addition, the Nagase Group’s
R&D Center works closely with Group manufacturing companies in all fields,
engaging in research and development activities.
In this way, we integrate our strengths as a trading company with those

Manufacturing Ratio (Net Sales and Operating Profit)
Net sales

40

NAGASE & CO., LTD. Annual Report 2014of a manufacturing, processing, and R&D firm. Nagase has advanced aswitch from our previous sales model that focused on materials exploration to
one that is driven by application proposals and joint development. We believe
this is the best way to meet the needs of our customers and differentiate ourselves from the competition.
During fiscal 2013, Hayashibara continued scrap and build operations at
the Okayama No. 1 Plant to improve manufacturing efficiencies and ensure
the stable supply of existing products. These improvements will help us produce more products and add new products to our lineup.
See page 42

Nagase ChemteX Corporation

See page 44

Hayashibara Co., Ltd.

See page 46

Nagase R&D Center

See page 47

Nagase Application Workshop

Gross Profit Ratio

Operating profit
(％)

(％)

37.3

35.4
29.0

12

10.8

11.1

11.3

10/3

11/3

12/3

12.4

12.3

13/3

14/3

31.3
23.5

20

0

8

47

6

10.0

10.4

10/3

11/3

12.1

13.4

13.0

12/3

13/3

14/3

0

NAGASE & CO., LTD. Annual Report 2014

9

NAGASE's
Strengths2

Global Network

Message from the President

The Globally Expanding Nagase Network

Training Global Business Leaders

The Nagase Group is engaged in activities around the world that rely on theuse of chemicals across a wide spectrum of products and services throughour Functional Materials, Advanced Materials & Processing, Electronics,
Automotive & Energy, and Life & Healthcare segments. These products andservices include dyes/pigments, coating materials/inks, surfactants, officeautomation (OA), electrical equipment, home electronics, automobiles, LCDs,
semiconductors, pharmaceutical/medical applications, cosmetics and functional food ingredients.
We have grown to become a global technology and information networkwith 100 companies in 20 overseas countries and 5,960 employees (consolidated) worldwide.
As a result, overseas sales accounted for 48.4% of consolidated net
sales. We will continue to pursue a course of stronger marketing in all
regions, leveraging investment in growth markets and interregional projects
to create new overseas businesses.
During fiscal 2013, Nagase ChemteX (Wuxi) Corporation completed workon a research and development facility for formulated epoxy resin products in
China.

Nearly 60% of all Nagase Group employees hail from a technical background.
We count our employees and their understanding of advanced technicalinformation as one of our strengths. By fostering a culture of training andthrough a mentoring system, we are creating the next generation of global
business leaders.

See page 56

Comparison of Net Sales by Region
Japan

Asia

America and Europe

Northeast Asia

Southeast Asia

(%)

100

2

6

27

27
42

50

0

71

15

52

01/3

14/3

Net sales¥550.2 billion

Net sales¥723.2 billion

President

Hiroshi Nagase

A Look Back on Fiscal 2013
EuropeNortheast Asia

Net sales ¥19.3 billion
Operating bases: 2 companies
Number of Employees: 186(•: 151, •: 35)

Net sales: ¥196.1 billion
Operating bases: 29 companies
Number of Employees: 1,321(•: 578, •: 743)

The Nagase Group recorded net sales of ¥723.212 billion for the fiscal year ended March2014 (an 8.5 % year-on-year increase) with operating profit coming in at ¥15.789 billion (a1.4 % year-on-year increase). While these results represent year-on-year growth, they significantly underperformed our initial plan for the year. This result was mainly due to expanded net losses at certain of our manufacturing subsidiaries, as well as weakness in our thinglass and other manufacturing and processing businesses.

Japan

At the same time, we experienced slow movement in many of the goods handled by the

Net sales: ¥372.9 billion
Operating bases: 42 companies
Number of Employees: 3,628(•: 1,929, •: 1,699)

NAGASE & CO.,LTD. (non-consolidated) trading company businesses, with the exception of
Net Sales by Segment
13/03

the comparatively healthy automotive, construction, and smartphone/tablet-related business-

14/03

es. The 180-year history of Nagase is the history of our trading company business—trading(¥ hundred million)

2,500Southeast Asia
Net sales: ¥108.4 billion
Operating bases: 18 companies
Number of Employees: 661(•: 130, •: 531)

North, Central, andSouth America
Net sales: ¥26.3 billion
Operating bases: 9 companies
Number of Employees: 164(•: 90, •: 74)

is the foundation of who we are. We have been discussing and analyzing this weakness in

2,392

performance since it first appeared during the summer, and we will not rest until we find and

2,142
2,000

implement a solution.

1,670 1,699
1,500

1,000

1,250

See page 4
Our History – Evolving Business Model

1,370
994
830

761 768

Functional Materials

500•Sales and servicing companies•Manufacturing and processing companies

10

NAGASE & CO., LTD. Annual Report 2014

Our mainstream segment, Functional Materials, sells the majority of its products and servic-

0
Functional Advanced Electronics Automotive
Life &
Materials Materials& Energy Healthcare& Processing

8 7

es to the Japanese market; earnings for this segment in Japan were relatively stable for the

Otherfiscal year. However, this segment underperformed plan significantly when looking at our

NAGASE & CO., LTD. Annual Report 201411

Operating Profit by Segment
13/03

14/03

(¥ hundred million)

100
80

64 60

60
40

43 43
31

40 40

37

20

7

ambitious worldwide sales targets. It goes without saying that we will review operations inLife & Healthcare

this segment with a great sense of urgency. It is not easy to take a business model made for

In our Life & Healthcare segment, we added more personnel and local business partners

the peculiar characteristics of the Japanese market and apply it to markets around with(sales agents) to restructure the overseas sales structure for trehalose, a product with very

world without modification. We believe we can find growth through greater cooperation withhigh market potential. In the future, we plan to engage in marketing activities that will further

other segments and alliances with local entities overseas.

raise our brand presence in overseas markets. Hayashibara has begun construction on a
new plant to take over existing production, scheduled to be completed in March 2015.

See page 20
Functional Materials

See page 36
Life & Healthcare

130Advanced Materials & Processing-20(32) (36)-40-60Functional Advanced Electronics Automotive
Life &
Other,
Materials Materials& Energy Healthcare Corporate,& Processing
Adjustments /Eliminations

Our Advanced Materials & Processing segment had strategic growth plans that came to a

Progress in the second year of Change-S2014

near standstill due to our unprofitable manufacturing subsidiaries. One of those companies

Our Change-S2014 medium-term management plan focused on the bio, environment/

was a leading color former* firm, Fukui Yamada Chemical Co.,Ltd. This company drastically
cut costs and rationalized its manufacturing processes in the fast lane. While Fukui Yamada
Chemical Co.,Ltd. reported a net loss for the period, they have narrowed their losses, and I

Operating Profit Change Factors (¥ hundred million)+13+3

personally believe the company’s future is looking brighter. Setsunan Kasei Co., Ltd. isanother company that reported losses for the year. This company performs coloring for plastics. The decline in customer contracts was the primary factor on this company’s earnings.

(11)

However, a year of re-focus on quality and costs management leads us to believe that this

(9)
+5

155

157

*Heat-sensitive dyes for printing on the de-facto thermal paper used for receipts at convenience stores, taxis, and other similar outlets
Adjustments / Eliminations

Overseas manufacturing

Overseas sales companies, etc

Domestic manufacturing

Domestic sales, etc

company will see improvements moving forward.
See page 24
Advanced Materials & Processing

Electronics
As everyone knows, the markets targeted by the Electronics segment are subject to wide
swings between strength and weakness. However, the fact is that the segment has so many

13/03

14/03

technologies in development and develops with such swiftness that I believe there is stillmuch more room for growth in the future. While Nagase met some challenges in the market
with our epoxy resins, we have made changes to the development structure at our Nagase

Progress in Core Markets
Bio• ‌Expansion of Hayashibara products to overseas markets. New application and new customer development
through reviews of sales agent selection processes ineach region and establishment of Application Lab.
• ‌Nagase R&D Center reorganized to focus on fundamental
research and technologies in the biotechnologies field.

Energy & Environment• ‌The Feed-in tariff scheme for renewable energy has led
to increase in sales of photovoltaic panels for solar
power generation systems.
• ‌Work to accelerate development focused on niche areasin the increasingly competitive storage battery market.

Electronics• ‌Lateral expansion of electronics components and products for the smartphone and tablet markets.

energy, and electronics fields.
In biotechnology, we are focused on (1) restructuring our overseas sales structure fortrehalose and (2) building a more robust research and development function at the Nagase
R&D Center specialized in biotechnology. We have already started seeing the tangible benefits of our efforts. Moving forward, we will be taking the steps necessary to makeHayashibara one of the Group’s central entities.
While we are selling more Photovoltaic Panel related to our environment/energy business goals, at the same time we have a backlog in projects for eco-friendly vehicles. Still, we
have been able to plant many seeds for future business, and now we need to begin theselection and focus process. We will use these seeds to move forward one step at a time,
acknowledging that it may take some time to accomplish our goals.
With respect to our electronics business, we are enjoying a period of strength forcomponents and materials in the smartphone and tablet markets, driven by our own global consulting and procurement activities. For more on our progress, please refer to thechart on the left.
See page 44 Hayashibara Co., Ltd.
See page 46 Nagase R&D Center• ‌Component and materials development for car electronics.

ChemteX manufacturing subsidiary that I believe will put things back on the growth track in

Value Chain Strategies: Intersegment Cooperation

the future.

The Nagase Group has identified five strategic segments aligned with the global chemical

We have also taken measures with respect to our thin glass processing business,value chain (complete upstream to downstream): Functional Materials, Advanced Materials &mentioned previously, which I believe will lead to steady improvement. Further, we con-

Processing, Electronics, Automotive & Energy, and Life & Healthcare. These five segments

verted our Pac Tech-Packaging Technologies GmbH manufacturing subsidiary in Germany

work to collect and analyze information concerning the latest market and technology trends,(semiconductor wafer bumping, etc.) to a wholly owned subsidiary, complete with a newworking in cooperation with other segments in the Group to create new materials that lead topresident. I think we can confidently say that this move has only strengthened our consoli-

new products and services.

dated structure as a group.
See page 28
Electronics

Here is a real-world example. An upstream Functional Materials segment employee told
a downstream Electronics segment employee about a functional coating material that could
be used to win more materials orders from major smartphone and tablet manufacturers in
the United States. That Electronics segment employee took the new material to the manufac-

Automotive & Energy

turer and made a presentation, which led to new business. This kind of case is what a com-Our Automotive & Energy segment experienced a shift in the types of products handled bypany can do when it has the kind of access to global market and technology information likeNagase in the automotive industry. While plastics accounted for the majority of our revenues

Nagase. We see more such examples in the electronics and automotive industries, stemmingin this segment, we haven’t ignored the rapidly evolving electronification of cars around thefrom increasingly frequent communications and coordination among our segments in Japanworld. We accounted for this market change in our medium-term management planand overseas. This trend gives me great confidence about our bright future.

Change-S2014, and now car electronics revenues are growing into a business to rival thatof our plastics. With our ability to sell to the automotive markets, we have been able to enjoy

See page 6 Our Strategy - Nagase Group Businesses
See page 10 Global Network

the benefits of the growth in that industry.
See page 32
Automotive & Energy

12

NAGASE & CO., LTD. Annual Report 2014

NAGASE & CO., LTD. Annual Report 201413

Foundation for Achieving Plan Targets: Human Resources Development

facturing industries, as well as a wealth of management experience in business.

Under our current medium-term management plan, we are pursuing a value chain strategy

Beginning fiscal 2014, in addition to Yasuo Nishiguchi (from KYOCERA Corporation), thethat relies on intersegment cooperation. This kind of cooperation is also the foundation for

Nagase Group welcomed Hidenori Nishi (from KAGOME CO., LTD.) as a new outside director

achieving our plan targets. In this sense, we believe that every single Nagase Group employ-

to strengthen our Board.
Lately, there has been a general call for more diversity within the ranks of Japan’s

ee is busily engaged in cooperation with employees in other segments.
Nagase employees across the globe are involved in workshops to study our products,boards of directors. I believe that naming two individuals as outside directors will do much tofrom coatings to plastics, from automotive to flat panel displays, semiconductors, pharma-

prevent board homogeneity and encourage debate among people holding different philoso-

ceuticals, and more. Some meetings are multi-day inter-group exchanges, attended by morephies. The Nagase Board of Directors has already been a place where directors come tothan 100 employees from our businesses around the world.

meetings fully briefed and prepared to seriously discuss resolutions and other matters. In

Our human resources, finance, IT, and other administrative divisions are no exception,

this sense, I believe that the wealth of experience and knowledge these two individuals bringparticipating in more global interchange designed to standardize corporate policies and rules

to our Board of Directors will be a valuable source of practical insight and advice. Mr.

for the Nagase Group. We offer human resources training programs for employees based on

Nishiguchi, in particular, offers insight into the business of manufacturing, while Mr. Nishi has

seniority and position—as well as certain invitation-only training—available to both

extensive corporate branding and marketing experience in the food industry.

Japanese and global employees.

See page 48 Organization GovernanceSee page 52 Four Questions for NAGASE Outside Directors

In my experience, every one of these intersegment cooperation, workshops, and humanresources trainings improves the atmosphere and culture with the Group. At this point, when
I visit one of our local entities overseas, they tell me that they want Japanese employees to

DOE (right axis)

Our basic policy concerning dividends is to continue to make stable payments to our share-

(%,¥)

(%)

40

2

holders based on consolidated achievements, reflecting improving earnings capacity and

Cash dividends per sharemove faster, with more urgency.
See page 54
Human Rights/Employment Practices

FYE March 2015 Earnings Forecasts
Our earnings forecast for the next fiscal year have been informed by the strength of theeconomies overseas, particularly in North America, which we believe will drive continued

Dividends, Shareholders' Equity Policies

Dividends
Payout ratio (left axis)

per-share dividend of ¥14 (full-year dividend of ¥28 per share, including a ¥14 per share

30

interim dividend). This decision was based on considerations of the consolidated payout
ratio, consolidated debt-to-equity ratio, and a corporate goal to pay increasing dividends.

20

1

10

ations quality under the guidance of our Change-S2014 medium-term management plan,increasing dividends per share through stronger earnings.

represent an 8.3% year-on-year gain. By segment, we forecast net sales of ¥179.0 billion(5.3% year-on-year gain) in our Functional Materials segment, ¥260.0 billion (8.7%
increase) in our Advanced Materials & Processing segment, ¥157.0 billion (14.6% increase)in our Electronics segment, ¥104.7 billion (5.3% increase) in our Automotive & Energy segment, and ¥81.6 billion (6.2% increase) in our Life & Healthcare segment.
We project gross profit of ¥94.7 billion (6.5% year-on-year increase), with operating
profit of ¥19.0 billion (20.3% increase), the result of gains in net sales and gross profit, as
well as a decrease in retirement benefit costs due to amortizing retirement benefit obligation

Based on the preceding policies, the Group has set a goal to improve the dividend on
equity (DOE) ratio over the medium term, working to improve Group-wide business and oper-

growth in the office equipment and appliances business and as well as in the LCD filmrelated business. Accordingly, we project consolidated net sales of ¥783.0 billion, which will

corporate infrastructural integrity. Given this policy, we have committed to an end-of-year0

05/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3
(Plan)

0

The Nagase Group strives to improve overall returns to our shareholder, balancing
investment for continued business growth with direct shareholder returns such as dividends
and stock sales or buybacks.
I wish to thank all of our shareholders for their medium- and long-term view of theNagase Group business, and I ask for your continued support.
See page 18
Financial Foundation Supporting Business Growth

actuarial differences. As a result of the preceding, we project ordinary income of ¥21.5 billion (20.1% increase) and net income of ¥14.2 billion (21.8% increase).
Our earnings forecasts are based on an assumed currency exchange rate of ¥103 to
one U.S. dollar.

July 2014
Hiroshi Nagase
President

Corporate Governance, Dividends, and Shareholders' Equity Policies
The Nagase Group believes that a strong corporate governance function is an
important management issue. As such, the Group actively works to bring in outside directors who have an extensive knowledge of the petrochemical and manu-

14

NAGASE & CO., LTD. Annual Report 2014

NAGASE & CO., LTD. Annual Report 201415

13-Year Financial Highlights
NAGASE & CO., Ltd. and Consolidated Subsidiaries (Years Ended March 31)(Millions of Yen)

2002/3

2003/3

2004/3(Millions of Yen)

2005/3

2006/3

2007/3

2008/3

2009/3

2010/3

2011/3

2012/3

2013/3

2014/3

WIT2000 (Reform)

WIT21 (Promotion)

WIT2008 (Reinforcement)‘“CHANGE”11’ (Improving quality of our business and operations)

Change-S2014

Investment Amount: ¥20.2 billion (3 years)

Investment Amount: ¥23.7 billion

Investment Amount: ¥27.7 billion

Investment Amount: ¥107.4 billion

Investment Amount: ¥12.0 billion

Performance (Accounting Fiscal Year)

Segments

Net Sales¥ 490,583¥ 503,688¥ 533,301¥ 575,636¥ 648,023¥ 701,321¥ 764,755¥ 715,238¥ 603,949¥ 660,213¥ 631,854¥ 666,272¥ 723,212

218,524

223,656

231,360

251,725

222,282

247,094

267,836

248,461

237,124

253,290

177,126

167,017

169,973

175,252

165,810

170,996

188,456

229,278

244,681274,660

253,029

192,569

222,100

217,929

214,214239,224

83,66099,759118,978

122,632

132,086

150,796

163,833

153,255

117,591

133,640

110,495

125,014137,026

—

—

—

—

—

—

—

—

—

—

76,11383,06899,441

13,146

14,461

11,966

12,821

56,40453,55656,48958,90555,54250,24749,17076,11676,810

—

—

—

—

7,972

5,191

1,934

1,585

1,121 		
934

1,018

841

737

Domestic

341,102337,531349,557

363,708

388,470

410,789432,813394,874

360,382

389,379

366,369

361,971372,939

Functional Materials (formerly Chemicals)
Advanced Materials & Processing(formerly Plastics)
Electronics
Automotive & EnergyLife & Healthcare (former Healthcare/Other)

Regions

Other
Overseas

149,481

166,157

183,744

211,928

259,553

290,532

331,942

320,364

243,567

270,833

265,484

304,301

350,272

Gross Profit

46,97651,89953,494

61,96067,64073,63980,506

71,52765,41573,00871,62882,58388,936

Operating Income

1,673

8,433

10,244

13,256

17,596

21,66923,063

12,522

13,12818,732

13,427

15,57815,789Net Income (Loss)(2,097)

4,186

7,010

10,384

12,892

13,567

10,005

5,808

7,537

12,8238,570

14,182

11,663

Total Assets¥ 300,073¥ 284,800¥ 310,793¥ 335,290¥ 396,773¥ 422,859¥ 419,869¥ 340,968¥ 368,088¥ 375,336¥ 450,842¥ 486,747¥ 498,141

Equity Capital

144,176

140,944

156,210167,092

196,620

205,083

200,554

184,599

195,344

201,516

204,706

228,505

246,723

Interest-Bearing Debt

19,677

16,57816,417

14,01924,834

20,49133,342

31,34021,88627,12588,71098,42592,828Financial Condition:

(Yen)

(Yen)

Per Share Data:
Net Income (Basic)¥

Net Assets

1,082.16(15.39)¥31.72

1,107.55¥

81.00¥ 100.32¥ 105.84¥

66.69¥ 111.31¥

1,227.82

54.69¥

1,311.37

1,535.70

1,597.27

1,559.97

77.86¥

1,435.88

45.17¥

1,519.61

58.64¥

1,568.04

99.76¥

1,592.87

1,803.31

1,942.20

91.86

Cash Dividends

8.0

8.0

9.0

10.0

15.0

18.0

17.0

16.0

16.0

22.0

24.0

26.0

28.0

Payout Ratio (%)

—

24.3

16.3

12.3

14.9

17.0

21.8

35.4

27.3

22.1

36.0

23.4

30.5

0.72

0.71

0.77

0.79

1.06

1.15

1.08

1.07

1.08

1.42

1.52

1.52

1.50

Shareholders’ Equity Dividend Rate (%)

(%)

(%)

Ratios:Overseas Sales to Net Sales

30.5

33.0

34.5

36.8

40.1

41.4

43.4

44.8

40.3

41.0

42.0

45.7

48.4

Manufacturing Ratio (Operating Income)

(9.6)

21.4

19.2

16.4

20.5

22.3

24.4

15.5

35.4

29.0

31.3

37.3

23.5

Operating Margin (Operating Income/Net Sales)

0.3

1.7

1.9

2.3

2.7

3.1

3.0

1.8

2.2

2.8

2.1

2.3

2.2

Return on Equity (ROE)

(1.4)

2.9

4.7

6.4

7.1

6.8

4.9

3.0

4.0

6.5

4.2

6.5

4.9

Net Worth Ratio

48.0

49.5

50.3

49.8

49.6

48.5

47.8

54.1

53.1

53.7

45.4

46.9

49.5

Debt Equity Ratio (Times)

0.14

0.12

0.11

0.08

0.13

0.10

0.17

0.17

0.11

0.13

0.43

0.43

0.38

(Note 1) In the fiscal year ended March 2006, the Fine Chemicals Department (part of the Chemicals segment) was integrated with the Healthcare segment. The combined organization is now known as the Life Sciences segment.
(Note 2) Beginning with the fiscal year ended March 2010, the Company has moved its information and functional materials businesses handling materials related to insulating materials and fluoroplastic-related materials from the Electronics
segment to the Chemicals segment. Businesses handling surface detection machines for functional films and sheets have been moved under the Plastics segment.

Composition Ratio of Net Sales by Region

Net Sales/
Net Sales/
OperatingNet
OperatingSales/
ProfitOperating
ProfitProfitEuropeNorth America

2.7%

3.6%

(Note 3) D uring the fiscal year ended March 2013, the Nagase Group reorganized its four business segments into five business segments (Functional Materials, Advanced Materials & Processing, Electronics, Automotive & Energy, and Life &Healthcare) to more fully reflect the respective positions of each business in the value chain. For comparative purposes, fiscal 2011 figures have been calculated using the new business segments. The Colors & Imaging Department
formerly under the Chemicals segment has been moved under the Advanced Materials & Processing segment. The Automotive & Energy segment was organized out of the Automotive Solutions Department (belonging to the Plastic
segment) and the Energy Business Office, which was launched as an integrated entity from the Environment & Energy Office (under Other) and the Energy Device Office.
(Note 4) B eginning fiscal 2013, the Group moved its abrasives business for semiconductor and HDD industries from the Functional Materials segment to the Electronics segment. The Company also moved its raw materials sales business forthe cosmetics industries from the Functional Materials segment to the Life & Healthcare segment. For comparative purposes, fiscal 2012 earnings were calculated reflecting these changes.

Total Assets/ROA
Total Assets/ROA
Total Assets/ROA

TradingTrading
Business
Business
Trading
Manufacturing
Business
Manufacturing
Business
Manufacturing
Business(left axis)(leftBusiness
axis)(left axis)
Business
Trading
Business
Manufacturing
Manufacturing
Business(rightBusinessaxis) (right axis)
TradingTrading
Business
Manufacturing
Business(right axis)(Millions of(Millions
Yen) of Yen) (Millions of Yen)

800,000800,000

800,000

600,000600,000

600,000

Net Assets/ROE
Net Assets/ROE
Net Assets/ROE

Total Assets
Total (leftAssetsaxis)(left
Totalaxis)
Assets(leftaxis)
ROA (right
ROA
axis)
(right axis)
ROA (right axis)

Net Assets
Net (left
Assetsaxis)(left
Netaxis)Assets(leftaxis)
ROE (right
ROE
axis)
(right axis)
ROE (right axis)
(%)

(%)

(%)

(Millions of(Millions
Yen) of Yen) (Millions of Yen)

(%)

(%)

(%

25,000 25,000

25,000500,000500,000

500,000

10.0

10.0

10.0

250,000250,000

250,000

10.0

10.0

10.

20,000 20,000

20,000400,000400,000

400,000

8.0

8.0

8.0

200,000200,000

200,000

8.0

8.0

8.

15,000 15,000

300,000300,000
15,000300,000

6.0

6.0

6.0

150,000150,000

150,000

6.0

6.0

6.

200,000200,000

200,000

4.0

4.0

4.0

100,000100,000

100,000

4.0

4.0

4.

10,000100,000100,000

100,000

2.0

2.0

2.0

50,000 50,000

50,000

2.0

2.0

2.

0

0.0

0.0

0.0

0

0

0.0

0.0

0.

(Millions
Yen) of Yen) (Millions of Yen)
(Millions of(Millions
Yen) of Yen) (Millions of Yen)(Millions ofSoutheast Asia

15.0%

¥723.2
Northeast Asia

billion

Japan

51.6%
400,000400,000

400,000
10,000 10,000

27.1%
200,000200,000

016

NAGASE & CO., LTD. Annual Report 2014

200,000

5,000 5,000

5,000

0
0
0
0
02/3 03/3
02/304/3
03/305/3
04/3
02/3
06/3
05/3
03/3
07/3
06/3
04/3
08/3
07/3
05/3
09/3
08/3
06/3
10/3
09/3
07/3
11/3
10/3
08/3
12/3
11/3
09/3
13/3
12/3
10/3
14/3
13/3
11/314/3
12/3 13/3 14/3

0

0

0

-2.0 -2.0
02/3 03/3
02/304/3
03/305/3
04/3
02/3
06/3
05/3
03/3
07/3
06/3
04/3
08/3
07/3
05/3
09/3
08/3
06/3
10/3
09/3
07/3
11/3
10/3
08/3
12/3
11/3
09/3
13/3
12/3
10/3
14/3
13/3
11/314/3
12/3 13/3 14/3

-2.0

0

-2.0 -2.0
02/3 03/3
02/304/3
03/305/3
04/3
02/3
06/3
05/3
03/3
07/3
06/3
04/3
08/3
07/3
05/3
09/3
08/3
06/3
10/3
09/3
07/3
11/3
10/3
08/3
12/3
11/3
09/3
13/3
12/3
10/3
14/3
13/3
11/314/3
12/3 13/3 14/3

NAGASE & CO., LTD. Annual Report 2014

17

-2.

NAGASE's
Strengths

3

Financial Foundation Supporting Business GrowthBusiness Report
Investing for Greater Corporate Value
The Nagase Group does not engage in investment or financing for purposesof speculative income generation. Through manufacturing, R&D, technology,
business intelligence, and a global network—what we perceive as our competitive strengths along our Group value chain ( See page 8 Our Business
Model – Much More than a Trading Firm)—we create unique and highly
competitive businesses. These businesses allow us to improve our service
quality and value as a corporation. Our Change-S2014 medium-term management plan (fiscal 2012 through fiscal 2014) calls for ¥40.0 billion in
investments and financing. We intend to follow these policies to continue togrow as a business.
When investing, we will always improve cash flows of the businesses,
enhancing systems in order to understand efficiency and effectiveness ofinvestment, and raising corporate value. In order to maintain stable financial
strength, we have determined D/(D+E) = 33% (D:E = 1:2) as the maximum
limit of debt to equity and will try to raise corporate value by maintaining oreven improving our rating.

Cash
Cash Flows
Flows

Liabilities and interest-bearing debt grew significantly during fiscal 2011.
These funds were raised from financial institutions or through the issuance of
unsecured bonds for the purpose of acquiring of Hayashibara Co., Ltd. andthe conversion of that company to a Group subsidiary. Despite the increase inliabilities, the Group maintained a financially sound net worth ratio of 49.5%(as of March 31, 2014).
* D/(D+E) Ratio: ‌Interest-bearing debt (D)/(Interest-bearing debt (D)+Owned
capital (E))
The Nagase group uses the D/(D+E) ratio as an indicator for understanding the balanceof financial resources. Utilization of interest-bearing debt is necessary for effective
investment, but maintaining a sound financial basis is indispensable for continuous
development of our business. We therefore have determined D/(D+E) ratio = 33%(Interest-bearing debt: Owned capital = 1:2) as the maximum limit of debt to equity.

RatingAgencyType

RatingRating and Investment
Information, Inc.

Issuer credit rating

A

Owned
Owned Capital
Capital // Interest-bearing
Interest-bearing Debt
Debt //
D/(D+E)
D/(D+E) Ratio*
Ratio* // Net
Net Worth
Worth Ratio
Ratio

Cash
Cash flows
flows fromfrom operating
operating activities
activities
Free
Free cash
cash flows
flows

Cash
Cash flows
flows fromfrom investing
investing activities
activities

Owned
Owned capital
capitalD/(D+E)
D/(D+E) Ratio
Ratio(Millions(Millions ofof Yen)Yen)(Millions(Millions ofof Yen)Yen)

40,00040,000250,000
250,000

30,00030,00020,00020,00027,87527,875200,000
200,000

18,437
18,437

1,850
1,850

9,047
9,047

5,690
5,690

-80,000-80,000

18(9,147)(9,147)11/3
11/3

50,00050,000(9,529)(9,529)(81,066)(81,066)

10/3
10/3

46.9
46.9

30.2
30.2

30.1
30.1

100,000
100,000(1,450)(1,450)(9,438)(9,438)204,706
204,70645.4
45.4

150,000
150,000

12,721
12,72100-10,000-10,000

201,516
201,516

195,344
195,344(%)(%)

246,723
246,723

228,505
228,505

53.7
53.7

53.1
53.1

60.0
60.0

49.5
49.5
48.0
48.0

18,576
18,576
10,997
10,997

10,00010,000Interest-bearing
Interest-bearing debt
debt
Net
Net Worth
Worth Ratio
Ratio

12/3
12/3

NAGASE & CO., LTD. Annual Report 2014

(75,376)(75,376)

13/3
13/3

(14,171)(14,171)

14/3
14/3

00

98,42598,42588,71088,71010.1
10.1
21,886
21,886

10/3
10/3

36.0
36.0
27.3
27.3
92,82892,828

12.0
12.0

11.9
11.9
27,12527,125

11/3
11/3

24.0
24.0

12/3
12/3

13/3
13/3

14/3
14/3

00

NAGASE & CO., LTD. Annual Report 201419

Performance by Segment

Functional Materials

Global Strategy

Functional Materials Segment
Light Chemical (Changzhou) Co., Ltd.

As Nagase’s parent division, we have accepted
the challenge of creating new value to respond to
the needs of the times, contributing to the value
chain in order to offer complete peace of mind to
all our customers.

Toyo Quality One Ningbo Co., Ltd.
Toyo Quality One (Guangzhou) Co., Ltd.

TQ-1 de MEXICO S.A. de C.V.

Guangzhou Kurabo Chemicals Co., Ltd.
TIMLE S.A. DE C.V.

PT. Toyo Quality One Indonesia：Sales and servicing companies：Manufacturing and processing companies

Medium- and Long-Term Business Environment
The Functional Materials segment (1) earns the majority of its sales inJapan and (2) handles a large volume of raw materials that lie close to the
upstream industry sectors. Accordingly, we anticipate growth in thedomestic market and a challenging external business environment• ‌Important to anticipate environmental changes (e.g. fossil industry consolidation, shift to overseas production)• ‌More opportunities to let local entities overseas operate more independently from Japan

Toshiro Yamaguchi
Representative Director and Managing Executive Officer

Overseas Expansion• ‌Build new business in India, Turkey, Mexico, Thailand, and other emerging
countries for local automotive and construction industries• ‌Chemical sourcing has been in China mainly; based on trends in Japan’s
fossil industry, we plan to procure downstream materials from a wider area(including the Middle East)

Functional Materials Segment

Segment Overview (Functions)
Our operating words in the Functional Materials Segment aresafe, stable, and unique. Developing materials and applications
meeting these standards in this business is our primary focus.
We offer high-function materials to industries and Group segments across the bio, environment/energy, and electronics fields.
Working closely with our customers, we are able to offer
solutions that meet their unique needs, expanding the markets
for all parties. We balance the seeds-oriented and needs-oriented approaches to create maximum opportunity.

20

NAGASE & CO., LTD. Annual Report 2014

Core Markets (Bio, Environment and Energy, Electronics)
Value chain
SupplySupplyCollaboration

Electronics

SupplyCollaboration

Advanced Collaboration
Automotive & Energy Supply
Materials& Processing
Collaboration
Collaboration

Life & Healthcare

Primary Businesses• ‌A business model working closely with customers, offering highlevels of satisfaction, tremendous sales capabilities, and the ability
to collect and share technological information globally among customers and manufacturers

1Understand needs of strategic customer business2

Strengthen overseas networks

3

Greater collaboration with Nagase ChemteX Corporation• ‌Collaboration with our Nagase ChemteX Corporation manufacturing subsidiary

Collaboration

Functional
Materials

Segment Strengths (Businesses)

Supply• ‌Global Network

4 ‌Development, manufacturing, and after-sales service forpolymer filter business (filter contaminants out of resins)• ‌A foundation and strong presence in the chemicals industry

5Create new environmentally-friendly businesses• ‌Enhanced management systems for chemicals-related regulations
and security trade6

Bio business

NAGASE & CO., LTD. Annual Report 201421

Performance Chemicals
Department
Executive Officer;
GM, Performance Chemicals Department

Kohei Sato

Major Industry Trends
Demand in Japan recovered during the fiscal year ended March
2014, with the automobile and construction industries being particularly strong. China recovered from last year’s weakness, and theeconomies of the ASEAN nations continued to grow at a rapid clip.
Meanwhile, many companies in Japan’s petrochemical industry
idled operations due to overproduction, hastening industry restructuring. While the economy will suffer a hit from the impact of higher
consumption taxes during the first quarter of the fiscal year, we
expect to see a gradual recovery beginning in the second quarter ofthe fiscal year ending March 2015.

Major Manufacturers• Nagase Filters Co., Ltd. • Toyo Quality One Ningbo Co., Ltd. • Guangzhou Kurabo
Chemicals Co., Ltd. • P.T. Toyo Quality One Indonesia • TIMLE S.A. DE C.V. • TQ-1 de
MEXICOS.A DE C.V • Light Chemical (Changzhou) Co., Ltd.

TOPICS

Fiscal 2013 Strategies and Results
During fiscal 2013, the Company focused on (1) building strength in our customer base, (2) expanding our overseas business, (3) developing our bio-related business, and (4) improving our filters business. We are expanding
customer service activities to improve customer satisfaction throughout theGroup. Our focus here is to respond accurately to customer needs and offer
better service as an integrated entity. Internationally, we are building moreproduction facilities for our urethane business in Mexico and Thailand. Our filter business worked to develop new applications and related products to add
to existing optical applications. We have seen the structural changes occurringin the petrochemical industry. In response, we have integrated the existing
technological functions inside the Group (both domestic and international) in
pursuit of bio-based chemicals development.
The segment reported higher revenues and profits on a consolidated
basis, mainly due to strong performance in automotive and housing-related
businesses in Japan, as well as growth in the Asian markets.

Fiscal 2014 Strategies
Fiscal 2014 represents the third year of our Change-S2014 business plan.
This plan also calls for us to strengthen our customer base to improve levelsof customer satisfaction. We are making a vigorous push to take advantage of
our Group value chain to allow us to anticipate future customer needs. We
also continue to take measures to strengthen our overseas, bio-related, andfilter businesses.
We are also looking at the implications of major shifts in the supply chain
related to Japan’s fossil industry restructuring, seeking out new business
opportunities over the medium and long term. Executing on these initiatives,
we believe we can further strengthen the Nagase brand in the chemical industry as well as create new value globally.

Speciality Chemicals
Department
GM, Speciality Chemicals Department

Gen Hirao

Major Industry Trends
The Nagase Group is involved in a wide array of businesses. One of
our priorities is the automotive industry. We expect to see a decline
in Japanese auto production and an accelerating shift to move production for industrial oils and plating chemicals overseas, where we
can expect to see lower production in Japan. The devaluation of the
yen against world currencies has helped us compete in the textile
oil market, where we expect to see export growth.
The electronics industry should see a recovery in capital
investment, which will lead to demand for equipment and related
products. We also project higher demand for functional materials,
even though there will likely be strong price competition.

Major Manufacturers• Nagase ChemteX Corporation

Fiscal 2013 Strategies and Results
The Speciality Chemicals Department focuses on developing high-function
raw materials in demand by the electronics, automobile, industrial oil solutions, water processing agents, and other industries.
The business is also creating a global-scale value chain in the rapidlychanging fossil industry, sourcing production with leading domestic and international manufacturers and establishing joint ventures.
We set up a Nagoya sales team in October 2013 to work more closelywith local customers. In addition we extended our environmentally-friendly
business to Europe, the United States, and Brazil, introducing new environmental products and technologies in the European and U.S. markets.

Fiscal 2014 Strategies
Our guiding vision in this business under the Change-S2014 plan is to build
an even stronger transaction foundation, creating new value to respond to theneeds of the times, and contributing to the Group value chain. Of the five
Nagase business segments, Functional Materials occupies the most upstream
position in the value chain. We will create an even more valuable business bycollecting and assimilating information related to organic/inorganic technologies and materials—particularly new and functional materials—from a wide
range of sources. By sharing this information throughout the Nagase Group,
we will contribute to creating new business opportunities that meet technological needs downstream.
We will focus on creating a new parent division and supporting businesses for the company.

TOPICS

Tying CS Activities to Greater Customer Satisfaction

WAGNER Micro-Ceramic Oil Sales•Objective:‌Build and strengthen our customer base, according to “Understanding needs of strategic customer business” across our “Primary Businesses”‌Identify the gap between our current and ideal corporate structure, identifying the needs
that are most important to (1) our customers and (2) their current satisfaction levels

WAGNER has been selling micro-ceramic oils to German auto makers for the past 20
years. Micro-ceramic oil is a pure engine coating material that protects engines, improves
fuel efficiency, and allows for extra torque.
Micro-ceramic oil—also used as an industrial lubricating oil—is one of the main
environmental business products in the Specialty Chemicals department.

NAGASE ECO• Marketing Green Denacol (made from natural materials) in Europe• ‌Equipment to recover environmentally
unhealthy NOx (nitrogen compounds) fromfactory exhaust gases• Lawn‌
mower hydraulic fluid that doesn’tkill grass

NOx Recovery Equipment

Biodegradable hydraulic fluid•Goal:‌Become a company that customers look to for new ideas•Survey:‌We surveyed customers in our functional chemicals business and Nagase ChemicalCo., Ltd. Chemicals Dept.
•Methodology:‌Questionnaires and interviews•Questionnaire Response: 530 (79.9% response rate)•Results and Analysis:‌Almost 90% of respondents said that they are satisfied with Nagase‌NAGASE’s strengths lie in our honesty, speed, and understanding of the customer‌We can contribute to customer satisfaction significantly by anticipating future needs•Issues:‌Improve awareness of Nagase Group analytical, manufacturing functions‌Produce proposals that anticipate customer needs

22

NAGASE & CO., LTD. Annual Report 2014

NAGASE & CO., LTD. Annual Report 201423

Performance by Segment

Advanced Materials & Processing

Global Strategy

Advanced Materials & Processing Segment

This business segment contributes to society
through the growth of the Nagase Group, as we
pursue a global business model that links materials with application development, expanding our
expertise and experience in plastics, dyes, andprocessing technologies.

Sofix Corp.
ON Textile Chemicals (Shanghai) Co.,LTD.
Dainichi Color (Vietnam) Co., Ltd.
Majend Makcs Co., Ltd.

：Sales and servicing companies：Manufacturing and processing companies

Medium- and Long-Term Business Environment• ‌Changes in the supply environment related to China’s environmental regulations and price increases• ‌Bipolarization between China and non-Chinese economic
regions• ‌More diversified demand in Japan

Hiroshi Hanamoto

Overseas Expansion• ‌Faster move to product business equipment and textiles overseas; our response to market differentiation between Chinese/
non-Chinese markets• ‌Develop stronger presence in Chinese market; higher demandfor improved functions in Southeast Asia, South Asia
• ‌Move to procure chemical materials from markets outside of
China

Director and Executive Officer

Advanced Materials & Processing Segment

Segment Overview (Functions)
The Advanced Materials & Processing Segment is positioned
along the next step in the value chain of added-value creation.
The goal of this segment is to propose added function, design,and functionality solutions to the Nagase Group as a wholethrough dispersion, filmification, molding, and other processing technologies.

Core Markets (Bio, Environment and Energy, Electronics)
Value chain
SupplySupplyCollaboration

Electronics

SupplyCollaboration

Functional
Materials

Collaboration

Advanced Collaboration
Automotive & Energy Supply
Materials& Processing
Collaboration
Collaboration

24

NAGASE & CO., LTD. Annual Report 2014

Life & Healthcare

Segment Strengths (Businesses)

Primary Businesses• ‌Offer the strength of the Nagase Group, coordinating withcustomers on everything from raw materials insights toapplication development

1Proposematerials and application solutions to the businessequipment industry

2Expand business via strategy coordination with core suppliers

3

Expand overseas business• Major‌
overseas business partners:
SABIC IP, BASF, Eastman Chemical• Application development functions:‌NAW (Nagase Application Workshop), Shanghai Techno
Center, ‌Color Lab

4 ‌Strengthen integrated management activities with affiliates5 uilding a stronger presence in the packaging materials/conB
tainers/packaging industries

SupplyNAGASE & CO., LTD. Annual Report 201425

Colors & Imaging Department
Executive Officer;
GM, Colors & Imaging Department

Mitsuru Kanno

Major Industry Trends
Performance in Japan’s coating, inks, and plastic coloring markets is directly influenced by general business conditions. Accordingly, these markets have benefitted from Japan’s ongoing recovery,
and we expect them to continue to improve. On the other hand, the markets for chemical and digital printing for thermal paper are more greatly affected by worldwide business conditions. Thismeans that the devaluation of the yen has been a two-edged sword for these products. Despite
this fact, we saw improved export profits during the fiscal year ended March 2014. We expect tosee the same trends continue throughout the next fiscal year.

Major Manufacturers

Fiscal 2013 Strategies and Results
Our most important tasks for medium-term management planning can be summarizedas (1) expanding existing business and (2) project-by-project development. As for the
existing business, as we made progress in working together with our strategic partners, we also saw cost improvements in our color former business, which helped earnings outperform the prior fiscal year. We expect to see continued performance strength
throughout next fiscal year. Regarding the project-by-project development, our digitalprinting system for textiles is becoming more popular among customers as we add
improvements in a few systems we brought to the market. The IM-Mold transfer printing film business was repositioned in line with our plan, and now we are conducting
development activities in earnest. Despite the positive news, both of these projects
underperformed initial sales targets; we will make changes and execute plans toward
better performance during the next fiscal year. As a result of these developments, earnings for the fiscal year ended March 2014 were essentially level with the prior fiscal
year.

Fiscal 2014 Strategies

NAGASE ECO

The fiscal year ending March 2015 is the final year of our current medium-term management plan. During the upcoming year, we plan to (1) grow existing businesses
through stronger relationships with our customers; (2) select and focus development
projects to bring current projects to the market faster and more clearly define our business portfolio. We recognize that human resources development is vital to businessgrowth. Here, we plan to put specific programs in place to help employees be more
effective in their tasks. Looking at the devaluation of the yen, issues in the Chinese
market, and other recent trends, we believe that exports to newly emerging countries
will drive our growth strategy. Among the Nagase Group manufacturing companies,
those that work closely with our department are perhaps the most characteristic. We
plan, leveraging the functions of these companies, to gain greater access to newly
emerging markets overseas and build a foundation for our next medium-term management plan.

Zero-Emission IJ Printer System
The Zero-Emission IJ Printer system offers low-bleed printing without the need for pre-processing (resin processing)with recycled PES fiber or cotton. After printing, heated drying is the only process needed to complete the work.

TOPICS
The IMP development team manufactures and sells
proprietary IM-Mold transfer foils. The team manages the entire process from formulation development of Nagase Application Workshop coating
materials to transfer foil production, printing, diesand molding, offering total surface treatment andmolding product solutions.

• Fukui Yamada Chemical Co.,Ltd. • Sofix Corp. • Nagase ChemteX Corporation • Hayashibara Co., Ltd.

Polymer Global Account Department

Fiscal 2013 Strategies and Results

Fiscal 2014 Strategies

NAGASE ECOEPEAT is a comprehensive environmental rating systemfor electronics. Compliance with EPEAT includes demand
for using more post-consumer recycled materials in applications for TVs, PCs, office equipment, andother electronics. EPEAT is a comprehensive environmental rating system for electronics.
Compliance with EPEAT includes demand for using more post-consumer recycled materials in applications for TVs, PCs, office equipment, and other electronics.

Two major goals for the next fiscal year will be to grow our resin sales business andbring new solutions to market.
To grow our resin sales, in terms of customer strategy, we plan to (1) work withmajor EMS manufacturers; (2) focus on potential customers in leading Taiwanese,
Chinese, and Korean companies; (3) leverage our close relationships with customers inJapan to develop more Japanese-affiliated customers and suppliers around the world.
Geographically, we intend to (1) find new customers in the newly developing markets in
China’s inland regions; (2) capture new demand in the emerging economics ofSoutheast Asia; and (3) work in cooperation with Nagase Plastics to grow our businessin Japan.
We believe that we can accelerate new solutions to the market by establishing overseas production for our packaging materials business. While we were not able to bring
new LED-related business to the market during this past fiscal year, we expect further
market acceptance overseas for materials, dies, machinery, and other products as customers have the chance to use them and spread the word.

• Setsunan Kasei Co., Ltd. • Dainichi Color Vietnam Co., Ltd. • Majend Makcs Co., Ltd.

During fiscal 2013 our major management policies called for cultivating more nonJapanese clients in terms of customer strategy. In terms of regional strategy, we
focused on strengthening our Chinese inland operating bases, committing more management resources to emerging countries in ASEAN, and applications and elemental
technologies in new business.
We worked to put proposals that highlight our capabilities and unique functional
materials in front of more non-Japanese customers.
At the same time, we have achieved growth in our inland-China business by offering our logistics and warehousing services to customers in these regions. Our investment of business resources in the newly emerging ASEAN nations includes adding andtraining sales staff to support our compound business in Vietnam. We are also pursuing
initiatives in the overseas packaging materials business to develop new applications
and develop new elemental technologies, while also seeing positive results from ourwork in selling super engineering plastics in Japan.
As a result of these activities, we recorded higher year-on-year revenues andprofits for the fiscal year ended March 2014.

Polymer Products Department

Fiscal 2013 Strategies and Results

TOPICS

Fiscal 2014 Strategies

Under Change-S2014, the strategies in this department call for developing original products,
strengthening our core businesses, and creating synergies with other group companies.
We saw growth in Eastman Chemical plastics sales for fiscal 2013, mainly in our strategic products related to cosmetics, toiletries, and beverage containers. We have been able toidentify new customer needs in connection with Denaito AceTM sheets and films based on
Eastman Chemical’s copolyester. We will be doing more moving forward to capitalize on thisdevelopment.
Sun Delta Corporation reported lower year-on-year sales due to intense competition in the
TV market. Our SCANTECTM surface detection machines also experienced weak performance.
Slower growth in the LCD/TV markets and design changes to cut costs caused sales ofanti-reflective sheet materials to fall significantly. Anti-reflective materials are the mainstay
product of the Functional Film Division, which joined this segment during fiscal 2013.
As a result of these circumstances, we experienced lower revenues and profits for fiscal
2013. In other news, we began operations at the Vietnam factory (Dong Nai Province) built asa joint venture with Fukuvi Chemical Industry Co., Ltd. in October 2013. We believe this factory will lead to new growth opportunities overseas.

Eastman Chemical’s Copolyester TritanTM

One initiative in original product creation is developing added functionality for Denaito
AceTM and derivatives. Denaito AceTM films and sheets are based on the Eastman
Chemical copolyester. We are executing on policies from Eastman Chemical to expand
sales in the cosmetics and toiletries markets for products that represent our core business. Our plan with respect to Sun Delta Corporation is to market and sell new productlines in close coordination with other business divisions, while the same time growing
sales of our core products. To improve the profitability of our SCANTECTM business, wewill build on prior year efforts to create an organization that more rationally aligns withthe market and market conditions. We are working in with local Nagase entities to sellfunctional materials to film manufacturers and film processors in China and Taiwan tobuild greater revenues for film and related products.
To create more synergies among Group companies, we are actively pursuing greater
cooperation in terms of manufacturing, processing, and sales together with Totaku
Industries, Inc., Kotobuki Kasei Corp., Setsunan Kasei Co., Ltd., and Nagase Plastics
Co., Ltd.

Executive Officer;
GM, Polymer Global Account Department;
CEO, ASEAN/India

Ichiro Wakabayashi

Major Industry Trends
More than 60% of the consolidated net sales generated by the Polymer Global AccountDepartment are in overseas markets. In China and the inland regions, we have noted growth in thenumber of production centers operated by our clients. In ASEAN, new investment from Japan andthe shift of production centers from China have been particularly notable. We believe that both ofthese factors will lead to growth markets and new business opportunities in emerging countries. In
Japan, we plan to grow this business through super engineering plastics sales and by leveraging
the Group network.

Major Manufacturers

Executive Officer;
GM, Polymer Products Department

Kenji Nagafusa

Major Industry Trends
The cosmetics, toiletries, and food businesses represent our highest priorities within the Life &Healthcare segment. Here, we have seen growth in sales of the Eastman Chemical plastics. We
have also identified the medical industry as a priority moving forward, and we have started marketing activities to potential customers. In a joint project with the Functional Film Division, which
was transferred over from the Colors & Imaging Department, we have started developing functional dyes for use in LCD light fixtures, marketing flame-retardant film, and selling packaging materials and optical protective films in Asia.

Major Manufacturers• Totaku Industries,Inc. • Sun Delta Corporation • Kotobuki Kasei Corp. • Nagase ChemteX
Corporation

26

NAGASE & CO., LTD. Annual Report 2014

TOPICSWith more customers moving
their production to inland China,
we opened a branch of Shanghai
Hua Chang Trading Co., Ltd. in
Chengdu in 2011, and anotherbranch in Chong Qing in 2013.
Our business in inland China has
grown significantly since webegan offering logistics andwarehousing services as part ofour new-market strategy.

New Bases of Operations for the Nagase Wahlee Plastics GroupOperating Number ofbases employees
Nagase Wahlee Plastics Corp.
Shanghai Hua Chang Trading Co., Ltd.
NWP International Trading (Shenzhen) Co., Ltd.

3
5
3

64
136
68

Total

11

268

Suzhou Shanghai
Chengdu Chongqing
NingboCopolyester is known for being glass-like andhighly chemical resistant. Eastman Chemical has
been able to retain these features, while adding
heat resistance of more than 100 to a truly
unique plastic product. BPA-free TritanTM copolyester offers tremendous strength and transparency, making it perfect for applications inhousehold products and the medical industry.

XiamenTaipeiTaichung
Shenzhen Gangshan

Guangzhou

Nagase Wahlee
Plastics Corp.
Shanghai Hua Chang
Trading Co., Ltd.
NWP International
Trading (Shenzhen) Co., Ltd.

NAGASE & CO., LTD. Annual Report 201427

Performance by Segment

Electronics

Global Strategy

Electronics Segment

PAC TECH - Packaging
Technologies GmbH
Nagase ChemteX (Wuxi) Corporation

We offer electronics industry worldwide solutions
through a leading business model that predicts
and understands technological and service needsin the market, utilizing the Nagase Group andpartner resources. We believe this business model
will lead to sustained growth in our segment.

Engineered Materials
Systems Inc.
Nagase Electronics Technology Co., Ltd.
Nagase Electronics Technology (Xiamen) Co., Ltd.

PAC TECH USA-Packaging
Technologies Inc.
PAC TECH ASIA
Sdn. Bhd
Nagase FineChem
Singapore (Pte) LTD.
：Sales and servicing companies：Manufacturing and processing companies

Medium- and Long-Term Business Environment• ‌Greater polarization between high-quality and low-cost products in the smartphone and tablet markets; characteristic in
related components likely to mirror this development• ‌China serves as the center of LCD display production growth• ‌Higher expectations for car multimedia components, materials

Kenji Asakura
Director and Executive Officer

Overseas Expansion• ‌Establish a stable, waste-free business by quickly identifying
market trends for the display market in general and developing
closer ties between North America, Asia, and Japan• ‌Make full use of epoxy business production facilities in Japan,
North America, and China to provide customer-focused service
in each region

Electronics Segment

Segment Overview (Functions)
The Electronics Segment offers original products and services,
anticipating big demand in the electronics, while at the sametime offering information from downstream sources to otherGroup segments.

Core Markets (Bio, Environment and Energy, Electronics)
Value chain
SupplySupplyCollaboration

Electronics

SupplyCollaboration

Primary Businesses• ‌Domestic and international manufacturing/processing functionsin the electronics industry

1Smartphone and tablet businesses

2Next-generation display business3

Epoxy business• Greater‌
product and development capacity, concentrating on
Nagase ChemteX Corporation products• In-channel‌information collection, marketing functions

Collaboration

Functional
Materials

Segment Strengths (Businesses)

Advanced Collaboration
Automotive & Energy Supply
Materials& Processing• Solutions‌
proposal (business planning, creation) function

4 ‌Semiconductor postprocessing
5

Environment and energy business

Collaboration
Collaboration

28

NAGASE & CO., LTD. Annual Report 2014

Life & Healthcare

SupplyNAGASE & CO., LTD. Annual Report 201429

Electronic Chemicals
Department
Executive Officer;
GM, Electronic Chemicals Department

Shinji Nakamura

Major Industry Trends
The correction in the valuation of the Japanese yen has helped
Japanese semiconductor, LCD panel, and electronic components
become competitive once again, leading to a trending recovery. As
well, the popularity of smartphones and tablets, together with ongoing incorporation of technology in vehicles, has resulted in continued growth for touch panels, communication devices, and allmanner of sensors. We expect to see higher revenues as our products are adopted for these uses in the future.
However, Japan’s semiconductor and other high-tech production has moved to China and other countries in Asia. This trend,
combined with more intense price competition and other dramatic
shifts in the market have us asking how we can differentiate ourselves from the competition and how we can continue to offer
Group company products to our customers.
Given these circumstances, we believe that the heavy electricalbusiness, on the other hand, will enjoy comparatively stable growth,
driven by demand for infrastructure in newly emerging countries
and the commercialization of the linear motor car in Japan. Facing
two radically different market conditions in one business unit, theElectronic Chemicals Department may experience some structuralchanges, but this should not affect our profit structure stability.

Major Manufacturers• Nagase ChemteX Corporation • Nagase ChemteX (Wuxi) Corporation • Engineered
Materials Systems Inc. • Nagase Techno-Engineering Co., Ltd. • Pac Tech-Packaging
Technologies GmbH • Nagase Finechem Singapore（(Pte)） Ltd.

NAGASE ECOThis department deals in high-grade
chemicals used in the manufacture ofsemiconductors and LCD panels andchemical supply management andDeveloper Control
Developer Filtering System
Equipment
recycling systems.
Panel production, in particular,
involves a large volume of high-grade chemicals used in large substrate products (up to
three square meters). Since the early 1990s when small sized substrate products wereused, our value proposition has been to balance the reduction of chemicals (related toenvironmental considerations) with our need to grow our chemicals business.
Today, our Chemical Management System (CMS) equipment enjoys popularity in themarket due to its ability to provide proper process controls for the major chemicals used indeveloper, stripping agents, etc. as well as to reduce the overall amount of chemicals
needed. We have sold several hundred CMS packages on a cumulative basis.
We are presently developing other related equipment and processes to grow thisbusiness in the future.

30

NAGASE & CO., LTD. Annual Report 2014

Fiscal 2013 Strategies and Results
This department consists mainly of two businesses, one being our formulated
epoxy business and the other being our chemicals business (high-grade
chemicals used in the manufacture of semiconductors and LCD panels;
chemical supply management and recycling systems).
During fiscal 2013, our formulated epoxy business saw strong performance in sheet materials for communication devices and heavy electricalmaterials. However, we did not find the type of growth we had planned forsemiconductor materials, due to delays in market conditions related to customer next-generation packages. As a result, we reported higher earnings inyear-on-year terms, but in figures that were below plan. Meanwhile, ourchemicals business earnings greatly outperformed both prior-year numbers
and plan. This result was mainly due to strong LCD panel sales in Japan,
growth in chemicals for touch panels, and higher sales of associated chemical
management systems.
Overseas manufacturing subsidiary Pac Tech Asia reported significantly
higher results for sales of proprietary laser soldering equipment for hard disk
drives, in figures that greatly outperformed both prior-year numbers and plan.
Considering the Japanese market conditions, we decided to withdraw
from semiconductor bump molding services through nonelectrolytic metal
plating, reallocating our resources to more promising businesses.

Electronic Materials
Department
Executive Officer;
GM, Electronic Materials Department

Masatoshi Kamada

Major Industry Trends
Smartphone and tablet devices are becoming incredibly popular
across the world. While ultra-book computers have not gained asmuch traction as originally expected, we have seen an increase in
the number of low-priced goods aimed at expanding the markets in
newly emerging economics, resulting in increasingly intense competition. The LED lighting market is also expected to continue togrow, with attendant cost competition as these products become
more commoditized.

Major Manufacturers• Nagase Electronics Technology Co., Ltd. • Nagase Electronics Technology (Xiamen) Co., Ltd.

Fiscal 2013 Strategies and Results
Fiscal 2013 saw a higher presence for smartphones and tables in the newly
emerging economies of the world. Where Apple Inc. and Samsung Electronics
Co., Ltd. have enjoyed an overwhelming market share for these devices, alarge number of new players have emerged out of the United States, Europe,and Asia (particularly China), all carving out a growing market share in theindustry. Also, driven by growth in the industry as a whole, demand for touch
panels grew strongly.
In response to these changes in the environment, this department set
three strategic policies to execute: (1) Launch an end-user-focused program
to further strengthen marketing and sales to the world’s smartphone and train
and improve sales staff skills both in Japan and at overseas entities; (2) dedicate more staff to uncovering new products based on market needs andfuture products seeds; and (3) expand our sales and processing capacity forthe challenging panel industry.
Despite these market trends, this department reported lower revenues
and profits year on year, mainly due to the decline of the thin glass panel business associated with the shift in medium and small format LCD demand from
Taiwan to China and Japan, as well as the impact of unstable demand fromexisting end users.

Fiscal 2014 Strategies
Fiscal 2014 Strategies
This department deals in the rapidly evolving display device (LCD panels,organic EL), semiconductor, and solar panel businesses. In order to build core
epoxy business earnings among local entities, our goal is to improve thedevelopment and manufacturing systems at our bases of operations in Japan,
the United States, Europe and Asia, utilizing Nagase ChemteX elemental technologies (epoxy, photosensitive materials and related chemicals, specialty
coatings) to operate a locally autonomous business model, establishing arobust foundation for our display, electronic devices, semiconductor manufacturing processes and environmental businesses. As we create a business to
win in world markets, we plan to review these strategies to determine whether they are appropriate to our goals. Having conducted our review, we will
have more clarity on which businesses to select and focus on in the next
medium-term management plan under fiscal 2014 policies. We will be allocating more resources to staffing and training in the United States and Taiwan
as we execute specific plans to guide our future direction in those markets.

TOPICSTOPICS
Contribution of Surface Treatment Materials for Smartphone andTablet Cases
These products for an America’s leading smartphone
and tablet manufacturer have made a notable contribution to Group profits, which was the direct result of making significant improvements to our employee structure
and logistics functions, as well as the impact of thedevaluation of the yen against other world currencies.

Under Change-S2014, the goal of this department was to learn true customer needs directly from smartphone and tablet brand owners, putting ourselves
into a position to pursue joint development projects and leading to the continued creation of high-value-added businesses.
Guided by this goal, we will continue to improve our global cooperative
business structure and human resources training at local sales and manufacturing entities in Japan, Europe, the United States, China and other Asian
regions, South Korea, and ASEAN regions. In addition, as a business locatednear downstream products, we believe that one of the most important
things we can do is to promote cooperative business ventures with otherGroup segments.
We are working to develop a new customer base and secure stability
for our LED lighting business by improving our sales structure and systems
in Japan.
In our thin glass panel business, we are looking to make existing factories more efficient and flexible, while working to open new factories as
quickly as possible.
We are also focused on development related to wearables, car multimedia, and health applications, preparing for market trends of the near future.

Functional Epoxy Sheets for Communication Devices
Sheet epoxy encapsulant materials represent a product that
we developed based on our storehouse of epoxy resin composition technologies, dense-pack filler technologies, rheology control technologies, dispersion technologies, and sheet
formation technologies. This product is making significant
contributions to small and higher-functioning high-frequency
devices used in smartphones and tablets, offering a highdegree of fluidity control.

NAGASE & CO., LTD. Annual Report 201431

Performance by Segment

Automotive & Energy

Global Strategy

Automotive & Energy Segment

Our goal is to capture growing demand in emerging
countries, as we contribute to the advancement of
new car societies through the expansion of ourplastics and other foundation businesses. We arealso looking to grow in energy management-related businesses, focusing on the application of our
proprietary technologies in the rechargeable battery business.

KN Platech America
Corporation
Tokai Spring Mfg. (Foshan) Co., Ltd.
Automotive Mold
Technology Co., Ltd.

Sanko Gosei Technology(Thailand) LTD.
PT. TUNE Manufacturing
Indonesia：Sales and servicing companies：Manufacturing and processing companies

Medium- and Long-Term Business Environment• ‌More eco-friendly vehicles (hybrid, EV, FCV) toward 2020
• ‌Increasing global production yearly. Slowly decreasing production expected in Japan• ‌More attention to local production/local consumption of energy
associated with 2016 electric power deregulation

Kenji Asakura

Overseas Expansion• ‌Searching for ways to expand business in Central/South America,
Middle East markets for our global automobile-related business• ‌Increase opportunities to work with European auto makers who
have superior technologies• ‌Market Japanese LIB materials to China, Korea

Director and Executive Officer

Automotive & Energy Segment

Segment Overview (Functions)
In our Automotive & Energy Segment, we are pursuing originaltechnological innovation in plastic components and storage battery systems in the automobile and other environmentally-friendly energy business sectors. In doing so, we believe we create
new business models.

Core Markets (Bio, Environment and Energy, Electronics)
Value chain
SupplySupplyCollaboration

Electronics

SupplyCollaboration

Functional
Materials

Collaboration

Advanced Collaboration
Automotive & Energy Supply
Materials& Processing
Collaboration
Collaboration

32

NAGASE & CO., LTD. Annual Report 2014

Life & Healthcare

Segment Strengths (Businesses)

Primary Businesses• ‌Marketing capabilities that uncover the needs and provide new
products to the automobile industry

1Resins related business2

Car electronics business3

Energy storage business• Close‌
coordination between overseas networks and Group
departments• Relationships‌of trust with customers build on our understanding industry and expert knowledge

4 ‌Energy creation/energy conservation business• ‌CAPTEX’s storage battery technologies, other partner company expertise and manufacturing development functions

SupplyNAGASE & CO., LTD. Annual Report 201433

Automotive Solutions
Department
GM, Automotive Solutions Department

Masaya Ikemoto

Major Industry Trends
For fiscal 2013, the Thai market, the strongest in ASEAN, experienced weaker performance due to the end of eco-car tax credits.
While the Thai market may recover during fiscal 2014, the recovery
is not expected to surpass prior year results. At the same time,
Japan’s market is expected to stagnate, while China and North
America are projected to enjoy continued strong demand.

Major Manufacturers• Sanko Gosei Technology (Thailand) Ltd. • Automotive Mold Technology Co., Ltd. • KN

Fiscal 2013 Strategies and Results
Fiscal 2013 was the second year of Change-S2014—a year in which we
strengthened our car electronics business, resins related business, and operational foundation.
In our car electronics business, we created stronger relationships withjoint ventures and affiliated companies, conducting focused development for
strategic customers in western Japan and adopting products for eco-friendly
vehicles. Our resins related business saw significant growth in China andNorth America, where the market is adopting engineering plastics. In Japan,
North America, and China, we are beginning to see large orders for components to be used in cars designed for world markets. All the while, we haveworked to establish a stronger operational foundation as a global manufacturing company.
The department recorded higher revenues and profits owing to a weaker
yen, rapid recovery in China’s auto industry, and strength in the North
American markets.

Platech America Corporation • PT. TUNE Manufacturing Indonesia • Tokai Spring Mfg.

Fiscal 2014 Strategies(Foshan) Co., Ltd.

During the final year of the medium-term management plan Change-S2014,
our task in this department is to provide technologies and products necessary
for the new environmentally friendly car society, contributing to the global
society while at the same time creating a business model supporting the next
generation of products and services in the auto industry through ourAutomotive & Energy segment.
While the resins business has been a traditional strength, we plan to add
to the value of this business through converting metal components to plastics
and developing our own light-weight materials and technologies. We expect
the markets of India, Mexico, and Turkey to continue to lead growth among
emerging economies, and we plan activities to strengthen our presence inthose countries.
In the car electronics field, we are working toward creating a global procurement and supply structure for battery motor power modules components
and materials—products in which Japan has particular strengths. In pursuit ofthis goal, we will be working even more closely with Group operating basesaround the world. We also intend to develop functional products that matchthe needs of the market by creating stronger cooperative ventures within ourown Group and with joint venture partners, as well as making new equity
investments and manufacturing joint ventures.
We forecast another year of revenue and profit growth for this department, driven by world car production in Japan, North America, and China.

TOPICS
Global GrowthWith the surge in car electronics application development, business in electrical component materials hasgrown in both Japan and worldwide.

NAGASE ECO
We invested in Powdec, a company conducting development of low-consumption
gallium nitride power devices that we
believe will contribute to future generationsof eco-friendly vehicles.

Energy Business
OfficeGM, Energy Business Office

Fiscal 2013 Strategies and Results

Kiyoshi Sato

Major Industry Trends
The weak yen has resulted in soaring prices for fossil fuel-basedenergy in Japan. The upcoming Tokyo Olympics and retail electricity
deregulation are two other factors that will have a major impact on
pricing and availability. Given these conditions, we see strong interest
among our customers for energy management and BCP-compatible
rechargeable batteries. More public works projects, expanded subsidies, and deregulation have combined to create greater demand forlithium-ion battery systems (LiB), photovoltaic (solar power) systems,
and combinations thereof. As such, we forecast significant market
growth in this area in the upcoming fiscal year.

Major Manufacturers• CAPTEX Co., Ltd.

During Fiscal 2013 Japan saw the continuation of the Feed-in Tariff related toindustrial photovoltaic energy. For our part, we saw sales revenues of PV modules at 150% compared to the prior fiscal year. However, we experienced stiffcompetition with low-priced Chinese manufacturers and Japanese makers
who have added significant production capacity. As a result, our performancemissed plan targets by a wide margin. Due to strong sales of hybrid vehicles
and electric vehicles in the market, we did see favorable sales of battery
materials for LiB used in those applications as well. Revenues for these products came in at 134% versus prior year and 112% versus plan.
During the March 11 earthquake in northeastern Japan, power outages
and resulting systems crashes meant that cars parked in coin-operated parking lots could not be removed by their owners. In response to these needs, theEnergy Business Office developed and marketed compact power systems for
emergency use. Development delays, however, led to our missing sales plantargets by a significant amount. Meanwhile, we worked with equipment manufacturers to develop these compact storage batteries and combine them with
PV modules for independent solar-powered street lights and entry/exit gate
systems. So far, sales of these products indicate a bright future for this market. These compact storage batteries are manufactured by our wholly owned
CAPTEX subsidiary.

Fiscal 2014 Strategies
NAGASE ECO

PV Street Lights

Monitoring Center

Storage Batteries (LiB)

Solar Power Generation[Communication]

Falling

Checkout System

Monitor storage battery remaining
capacity and safe operation*In development at Tohoku University

Emergency

Recharge

Working with Nagase General Service Co., Ltd., we are developing an independently
powered parking lot system that combines LiB systems with PV modules. This system
integrates the remote monitoring system powered by storage batteries being developedby Our subsidiary,CAPTEX in cooperation with Tohoku and Osaka Universities. We plan
on offering a zero-impact, environmentally sound product to parking system equipment
manufacturers—all with no need to access the power grid.

During fiscal 2014, we will give extra attention to getting our storage battery
systems business off the ground and running. Having received a standard
safety certification for 1.5kWh medium-sized storage batteries, we havealready started mass production for these products. We plan on acquiring thecertification for 10kWh large-scale storage batteries in July 2014, and thenwe will begin high-volume production and marketing for these batteries inAugust. These large-scale batteries have been used at the NAGASE Global
HRD Center. We have received dozens of inquiries about these large-scalebatteries for use in EMS applications, and CAPTEX is enjoying more interest
from the markets than ever before.
Under the umbrella of lithium-ion battery and photovoltaic component
sales, we plan to adopt a consultative sales model which will allow us to takethe initiative in total energy management and business continuity planningmarkets, focusing on lithium-ion battery systems and photovoltaic systems
as our main business, while establishing a stable foundation for businessgoing forward.

TOPICS
Energy Management System used in the NAGASE Global
HRD Center
The NAGASE Global HRD Center is equippedwith an energy management system that combines our LiB system and PV modules. We plan
to conduct real-world testing of this system,
confirming its usefulness as part of a larger
business continuity plan.

34

NAGASE & CO., LTD. Annual Report 2014

NAGASE & CO., LTD. Annual Report 201435

Performance by Segment

Life & Healthcare

Global Strategy

Life & Healthcare Segment

Our philosophy is to contribute to a healthier andricher lifestyle. We have identified our primary markets as the food products/beverages, cosmetics/
toiletries, and pharmaceuticals/medical materials
fields, utilizing Group resources and technologies(saccharides, enzymes, formulation, and compounds) to open global markets.
We believe that we will create maximum business value by delivering safe food, health, andbeauty to consumers.

：Sales and servicing companies：Manufacturing and processing companies

Medium- and Long-Term Business Environment• ‌The improvement in living standards across the world has also
resulted in the rapid spread of lifestyle related diseases, raisingmore awareness of health issues• ‌Beginning with expectations concerning the health and safetyof food, recent years have seen growing interest in beauty,
health, and innovative medical technologies

Osamu Morishita
Director and Executive Officer

Overseas Expansion• ‌Leverage Japan’s advanced technology levels to develop ourglobal saccharides and enzyme induction products• ‌Expand our business fields by offering technology services
tailored to the local market culture and characteristics to winshare of the major local markets

Life & Healthcare Segment

Segment Overview (Functions)
In the Life & Healthcare Segment, we are committed to information collection, technological advancement, and manufacturing
activities that contribute to a richer and healthier lifestyle for ourcustomers. By creating new value in this area, we work together
with our customers and other Group companies to contribute toa better society, becoming a corporate group with a more visible
and respected presence. We are creating new value, cultivating
biotechnology advancement and advancing in developing new
functional materials in anticipation of future human needs.

36

NAGASE & CO., LTD. Annual Report 2014

Core Markets (Bio, Environment and Energy, Electronics)
Value chain
SupplySupplyCollaboration

Electronics

SupplyCollaboration

Functional
Materials

Collaboration

Advanced Collaboration
Automotive & Energy Supply
Materials& Processing
Collaboration
Collaboration

Life & Healthcare

SupplySegment Strengths (Businesses)

Primary Businesses• ‌Our R&D and manufacturing functions related to saccharides, enzymes, formulations, and compounds

1
Deploysaccharide and enzyme businesses to food products
and beverages• ‌A global network extending throughout Asia, ASEAN, theMiddle East, Europe, and North America

2Grow the cosmetics and toiletries businesses• ‌A successful history in the medical business related topharmaceutical administration systems and global compliance serving as the foundation

3E xpand the pharmaceuticals and medical materials businesses globally• ‌A network of sales agents throughout Japan (saccharides, cosmetics)

4 ‌Extend our business to the agriculture, fisheries, and livestockindustry (saccharides, enzymes)5 uild a stronger foundation for beauty care products, expandB
our customer base

NAGASE & CO., LTD. Annual Report 201437

Life & Healthcare Products
Department
GM, Life & Healthcare Product Department

Naoki Yasuba

Major Industry Trends
The business environment among newly emerging countries continues to change, spurred by a new awareness of living standards.
These markets will need even more in the way of high-value foodmaterials, as well as safer and higher-function cosmetics, pharmaceuticals, and medical materials. We are working to create a seamless organization that combines our global network of local entities
overseas and affiliated companies to uncover customer needs at
the local level.

Major Manufacturers• Hayashibara Co., Ltd. • Nagase ChemteX Corporation • Nagase Medicals Co., Ltd.
• Kawai Hiryo Corporation • Nihon Bio Fertilizer Co., Ltd. • Uma Yasai Farm Corporation

Fiscal 2013 Strategies and Results
During fiscal 2013, Hayashibara Co., Ltd. joined the Nagase Group, marketingproducts across the food products and beverages, cosmetics and toiletries,
and pharmaceuticals and medical materials businesses in Japan and aroundthe world. As for the food materials field, Hayashibara successfully reorganized its sales and marketing network in overseas markets to grow sales of its
trehalose (functional saccharide) product in Asia and other markets. To accelerate sales of enzymes on a global scale, Hayashibara obtained Kosher andHalal certification, as well as other local governmental certifications. In thecosmetics field, Hayashibara was able to establish relationships with global
customers for its whitening agent (AA2G) and solidify its position in both theJapanese and international perfumes and cosmetics markets. The pharmaceuticals business is making steady progress. Here, we identified priorities inour development pipeline that will lead to continued growth for the segment,
including Nagase anticancer drugs and generics. Hayashibara is working toquickly build a cooperative sales structure with NAGASE & CO. LTD., particularly one that will support ongoing sales internationally.
By clearly identifying our core businesses, building a more robust sales
structure, and working more cooperatively with other Nagase Group entities,
we were able to report higher year-on-year sales for fiscal 2013.

Beauty Care Products
Department
Executive Officer;
GM, Beauty Care Products Department

Takaaki Hirai

Major Industry Trends
The cosmetics market grow at a 1% crawl during the year.
However, rising needs in the health foods market drive annual
growth of between 3% and 5%. In the door-to-door cosmetics
sales market, we see growth in the small local salon business,
which is finding new ways to interact with customers. Meanwhile,
traditional door-to-door type businesses are struggling.

Major Manufacturers• Nagase Medicals Co., Ltd. • Toyo Beauty Supply Corp.

TOPICS
Global Meeting
This Life & Healthcare department held a global meeting for seamless group operations,inviting personnel from affiliated companies and local entities overseas to attend. The
meeting was run via formal agenda (see below), which serves as the basis for thoroughdiscussions.
(1) How to build seamless team operations, including department, affiliate, and local entities overseas(2) Quickly solving the issues in two-way global information sharing(3) How to leverage the diversity of ideas to create something new

38

NAGASE & CO., LTD. Annual Report 2014

This department is working towards sustained growth in the door-to-doorsales business under the guidance of Change-S2014. To accomplish this, wehave adopted five strategies: (1) Improving Nagase brand recognition in themarket with advertising and promotional videos; (2) speeding up the pace ofsales agent training through a revised sales system; (3) extending the effectiveness of our human resources through the adoption of the Nagase BrushUp System training and human resources development program; (4) engaging
in research based on the theory of herb sciences and technology and clarifying the direction of our product research; and, (5) working to extend our reach
into new regions through development teams directed from our headquarters.
Additionally, we have dedicated time and focus to attracting general customers to NALPHAS, a chain of outlet managed directly by Nagase headquarters.
As a result, fiscal 2013 showed higher revenues and profits, driven not only by
the success of our new Nagase White Program Essence V and a variety ofmonitored product trials, but also due to higher demand prior to the increasein Japan’s consumption tax.

Fiscal 2014 Strategies

Fiscal 2014 Strategies
Fiscal 2014 is the last year of our Change-S2014 medium-term management plan. This year, we plan to integrate our trading company and manufacturing company functions to create the foundation of a new business modeland accelerate the business expansion globally, targeting faster growth in thefood products, beverages, cosmetics, toiletries, pharmaceuticals, and medical
materials markets. To accomplish this, we must keep our eyes locked on market and customer trends, working more closely with affiliates, and investing
the proper planning and resources to train our employees. We aim to build astronger presence in the foods industry by expanding sales and developing
applications for trehalose and other functional saccharides overseas, as wellas finding new sales channels and synergies for enzyme products. In the perfumes and cosmetics field, we are creating a foundation as a global distributor, providing support for Japanese brand-name manufacturers as they growtheir businesses across the planet. We are working with a sense of greaterurgency to add to the number of successes in the development pipeline forstrategic product categories in our pharmaceuticals business.
In the agriculture, fisheries, and livestock fields, we continue to engage inactivities designed to create group synergies with affiliated companies.
Moving forward, we plan to further strengthen and maximize opportunities for the technologies, intellectual assets, personnel, and organizational foundations that we have created to date. Working in seamlesscoordination with affiliates and local entities overseas, we will build sustainable growth in the global market, delivering business models that contribute to a richer and healthier lifestyle through stronger marketing andclear business unit strategies.

Fiscal 2013 Strategies and Results

TOPICSA New Truth about the Skin Pigment Mechanism
for Adults with Onset Skin Discoloration
Introducing Nagase White Program Essence V
We created Nagase Program Essence V by researching how to clear up skin metabolism
and turn the melanin-forming mechanism off. Our new approach blocks age spots fromforming—a new evolution in adult skin whitening. Now available with blue mint extract.

To establish sustainable growth in the door-to-door sales market for fiscal
2014, the department will pursue a six-point plan, (1) improving Nagase
brand recognition in the markets through advertising and public relations
activities; (2) generating more activities and new sales in existing regions,
including a review of offices nationwide; (3) speeding up the pace of sales
agent training through a revised sales system; (4) expanding the number ofNagase partners by actively teaching and using the new Nagase Brush-Up
System (new technique training, staff education program); (5) promoting
research and product development according to the theory of herb sciences and technology; and (6) moving into new areas via business development teams under new headquarters projects.

NAGASE ECO
Beverage Bottle Recycling
We encourage recycling by including a flyer and a C.O.D. coupon (for returning bottles)
with the beverage bottle at the time of purchase. (Nearly 150,000 bottles recycled during fiscal 2012)

Nagase White Program Essence V (Quasi-Drug Product)
Part 1 Powder 0.5g x 4 bottles
Part 2 Solution 7mL x 4 bottles¥20,572 (including 8% consumption tax)

NAGASE & CO., LTD. Annual Report 201439

Regional Overview

Greater China

Executive Officer;
CEO, Greater China

ASEAN and the Middle East

The Nagase Group has more than 40 locations throughout
Greater China (Mainland China, Hong Kong, Taiwan), including
sales companies, manufacturing companies, branches, andoffices. We forecast fiscal 2014 net sales for the region at
approximately ¥226 billion. Here, we are engaged in businessactivities tied closely with customers and markets, while at thesame time creating a business model that maximizes the comprehensive power of the Nagase Group.

Katsuhisa Yamaguchi

Net Sales(¥ hundred million)

1,961

2,000

1,594

1,759
1,556

1,500

1,000

500

0

11/3

12/3

13/3

14/3

Executive Officer;
CEO, ASEAN/India;
GM, Polymer Global Account Department

Ichiro Wakabayashi

Many countries and regions across the world are experiencing
slowing economic growth. However, the ASEAN nations continue
to enjoy strong economies and a growing middle- and upperclass population drives rapid growth and awareness of the consumer markets. Cambodia, Laos, Myanmar, and other Mekong
region nations are emerging as interesting investment targets.
Our ASEAN businesses now encompass additional ten countries,
including India, the Middle East and Oceania (nine sales companies, nine branch offices and nine manufacturing companies),
and this Group network serves as the foundation for our growthacross a great regional span.

Net Sales(¥ hundred million)
1,200

900

1,084
771

858
728

600

300

0

11/3

12/3

13/3

14/3

Major Market Trends

Fiscal 2013 Results

Major Market Trends

Fiscal 2013 Results

The Chinese GDP grew at a brisk 7.7 percent for 2013. Rebounding
from the political friction between Japan and China, the automotive
industry recovered throughout the year, and appears to be on course
for stable growth throughout 2014 as well. While the Electronics market is enjoying explosive growth driven by smartphone and tablet sales,
supply/demand imbalances and costs for popular products and components fluctuate dramatically in rapid turns, making the industry
unpredictable and difficult to work in. The office equipment and home
appliance markets have been comparatively stable, while a notable
trend has been the shift in some supply chains including the electronics supply chain to the China Plus One nations in the ASEAN region.
Fiscal 2013 continued to be challenging for the solar battery industry,
but we believe we will see the markets for solar bounce back during
fiscal 2014. Rising income levels and cultural maturity in China haveresulted in diversified interests across the food and other life andhealth markets, which we believe will continue to grow in that nation.

The recovery in the automotive industry and growth in electronics components and materials markets combined to help net sales reach ¥196.1 billion (11.5 percent year-on-year increase) for fiscal 2013. During the year
we executed a number of cross-regional projects in Greater China, including our China End User Project (marketing unique Japanese components
and materials to leading smartphone, tablet, and notebook PC brands in
China/Taiwan), our China Sourcing Project (setting up strategic partnerships
with globally competitive Chinese chemical manufacturers to leverage ourinternational network), and the formation of our Hayashibara Business
Development Team.

Japan’s office equipment manufacturers are accelerating theirinvestment in Vietnam and the Philippines. At the same time,
ASEAN new car sales grew by 2 percent, reaching 3.55 million
units. Despite a 9 percent decline in new car sales in India (3.24
million units), as a whole, auto production in the region grew astrong 5 percent year-on-year, reaching 4.44 million units. Whilethe economic future of advanced nations remains cloudy, we project that active investment by foreign companies and an expanding
middle class will drive strong economic growth in ASEAN during fiscal 2014, resulting in higher revenues for the Group.

Fiscal 2013 showed significant gains despite deceleration in the important Thai
automotive market and weakness in the Singaporean and Malaysian electronics
business. This growth was mainly due to gains in the VIP (Vietnam, Indonesia,
Philippines) region—areas we are looking to for ongoing growth.
Meanwhile, we continued to bolster cross-regional marketing forHayashibara business, intra-region growth in our packaging business, and concentrated purchasing of resins, utilizing our Regional Operating Centre, which
offers integrated inter-regional functions. Further, we installed unified core IT
systems and improved human resources systems across the region, leading tocontinued consistent operations management. In terms of revenues, we recorded ¥108.4 billion in net sales (26 percent year-on-year increase), owing muchto higher sales in office equipment and appliances and automotive-relatedmaterials.

TOPICS
Completion of Epoxy Resin Research andDevelopment Facility
At the end of 2013, we completed work on
our new epoxy resin research and development facility in Wuxi. We will continue to build
a structure here in China that allows us tointeract with customers on a more technicalbasis, delivering products with applications
tailored to their needs.

NAGASE ECOChina and Taiwan serve as a global production
center for solar cells and lithium ion batteries.
We are developing components and materials
related to these markets for silicon wafers, cell modules, external resin coatings,
silver paste, cathode materials, and more.

40

NAGASE & CO., LTD. Annual Report 2014

Fiscal 2014 Strategies
In Greater China, we are growing our business in targeted fields and optimizing our business portfolio through better customer response andadded services.
Our Hayashibara business is set up for permanent operations with theestablishment of the L' Plaza facility in Shanghai and the assignment of
Hayashibara engineers. We also plan to build a demonstration room for our
semiconductor and electronics components and an applications lab forsmartphones and tablets. Following our new resins and fine chemicals contract manufacturing plant in Changzhou, our plant in Xiamen has started fulloperations for thin glass processing for use in displays, adding to our overall production capabilities.
We are expanding our abilities to export to foreign markets out ofChina. In addition to quality inspection at our Shanghai analysis lab, wehave added other quality assurance functions, including factory audits
and on-site management for Chinese manufacturers.
We are working more closely with and providing logistics services tolocal resins customers in core automotive and office equipment and home
appliance manufacturers markets. At the same time, we are developing
new applications and building a new non-Japanese client base, as well as
exploring new global joint business ventures.

TOPICS
Regional Development of our Thailand Spec Business
The consolidation of operations and R&D functions for automotive and component makers in Thailand means that more specifications for global car models
are being determined in Thailand. We are building stronger intra-region coordination via the Regional Operating TOPICS Centre (ROC), which should help us
create even more successes in Thailand.

India
Thailand

Malaysia

Indonesia

Fiscal 2014 Strategies
The goal under Change-S2014 for this segment is to grow our resin-related
business, while at the same time accelerating the pace of growth in otherfields (electronics, chemicals, life sciences) as we balance our businesses andthe geographical regions in which we operate.
During fiscal 2014, we intend to increase coordination between Japan and
China in our functional and processing materials business, while maintaining
strong relationships with leading suppliers to develop more business in the
Middle East. In the office equipment and resins businesses, we will continue toexpand our sourcing options to capture more business from companies investing in the region.
At the same time, our strategies for growing our nascent businesses
include, (1) stronger intra-regional development of our packaging materials
business throughout China; (2) continued roll-out of our Thai Spec business(Automotive & Energy) to Indonesia and India; (3) more sales of our own
Group products (Electronics), targeting Malaysia and Singapore; and (4)greater sales of Hayashibara products, leveraging regional lab functions.
Further, we plan to strengthen our presence in the growing VIP nations(Vietnam, Indonesia, Philippines), while accelerating our push into
Bangladesh and the Mekong nations (Cambodia, Laos, Myanmar), where weare still gaining a foothold.

NAGASE & CO., LTD. Annual Report 201441

Major Production/R&D Functions

Nagase ChemteX Corporation
Performance Chemicals BusinessResearch and Development System
Nagase ChemteX Corporation occupies the central role in Group manufacturing. Leveraging our long-accumulated, proprietary technologies of synthesis, compounding, biotechnology and evaluation—this company is achemicals manufacturer offering a unique line of products posting high market share in niche categories. By
creating deeper expertise and integrating these core technologies, we are able to offer highly technical services supporting new development and small-run production capabilities to meet the needs of our users. As we
improve our various foundational technologies, adding high functionality and differentiation in various nichemarkets, we will build on the foundation of trust with our users, developing high-function, high-value-added
products and services for our end users and biotechnology, environment, energy, and electronics applications.
In addition, this company plays a lead role in safety, environmental compliance, quality assurance, and regulatory compliance for Group manufacturing.

Nagase ChemteX Corporation
Representative Director, President

Kazuo Mitsuhashi

Net sales/Operating profit
Net sales (Left Axis)

Fiscal 2013 Results

Operating profit (Right Axis)(¥ hundred million)
300

308
269

261

262

50

261

38
200

Net sales for fiscal 2013 amounted to ¥26.13 billion (5.4 percent year-onyear decrease), while operating profit came in at ¥2.4 billion (12.3 percent
decline). While sales of formulated epoxy resin for heavy electrical andvehicles performed well, sales and profits fell, due to price decreases ofmaterials for semiconductors and displays and delays in bringing new
products to market.

(¥ hundred million)

40

32
27

27

24

30
20

100

Production System

10
0

10/3

11/3

12/3

0

14/3

13/3

Major Market Trends
The electronics field experienced growth in medium to small-format displays for smartphones and tablets, but large-format displays for PCs
and TVs experienced significant weakness, resulting in a 10 percent
year-on-year decline. Net sales of materials for semiconductor applications likewise fell, 3 percent lower year-on-year.
While we forecast a moderate recovery during 2014, uncertainties
in world conditions mean that the outcome could be unpredictable.

Globally Expanding
Nagase Group

NagaseNagase & Co., Ltd. R&D Center

Nagase ChemteX
R&D

DesignTesting

Production
Equipment
Manufacturing

Quality
Control
AnalysisElectronics

Formulated Epoxy Resins & Photolithography
Performance Chemicals Business

42

NAGASE & CO., LTD. Annual Report 2014

Bio/Fine Chemicals

Japan/Overseas
Proactive Allianceswith Industry,
Academia
and Government

The Fukuchiyama Plant, which produces
enzymes, fermentation products, andother life sciences-related products,
began production at its new enzymes
facility in compliance with Kosher andHarima Plant: New Microelectronics
Production Facility (exterior)
Halal certification, which should help
expand overseas exports.
The Harima Plant manufactures a wide
variety of electronics and functional chemicals products. Here, we completed extenHarima Plant: New Microelectronics
sion work for more capacity at a new
Production Facility (internal equipment)
production line for microelectronics-related
products, beginning full production.
Further, we have launched new productivity improvement activities to increasecustomer satisfaction in terms of quality
Fukuchiyama Plant: New Enzyme
and cost competitiveness. We began activiProduction Building
ties for OHSAS18001 compliance during
fiscal 2013 as part of maintaining a safe
workplace for our employees. During fiscal
2014, we will establish a practical safety
training facility to improve safety awareChina: Nagase ChemteX (Wuxi)
ness among all personnel.
Corporation R&D Facilities
Overseas, at Nagase ChemteX (Wuxi)
Corporation, in addition to our manufacturing facility for formulated epoxy
resin products, we completed work on an R&D center to expand researchand development functions.

A total of 140 individuals are assigned to the various product development
departments within each business head office and the research and development head office charged with creating new businesses and providing
technological support to the business head offices. Our business head
office product development departments are busy developing new products
and improving existing products that are tailored specifically to individual
client needs. The research and development head office engages in elemental technology development to help the Group maintain the technology
advantage in existing business fields. The research and development head
office supports business head offices, while at the same time creating
opportunities to enter new markets. As a whole, the Nagase Group sets
research priorities in response to perceived market needs, engaging actively with universities and research institutions for joint development. The
Group saw significant breakthroughs during fiscal 2013 in new fields suchas medical materials.

• Epoxy chemical compounddesign• Acrylic polymer design• Conductive materials design•Precision organic synthesis• Composite materials design• Organic/inorganic hybridmaterials design• Nano materials design• Photolithography materials
design• Electrochemical function
control• Thin film solution control• Electrochemical thin film
controlIn our Performance Chemicals business, we were able to expand our offerings of functional materials based on unique organic synthesis technologies,
polymer synthesis technologies, and a variety of formulation technologies.
With respect to epichlorohydrin conductors, we developed and rolled out
unique grades of transparency, light resistance, heat resistance, and low dissipation factors to grow our existing business and provide new applications.
We have also developed well-received nanomaterials that are highly transparent with added high refractive index patterning. We have developed androlled out high-function products for new applications in special acrylic rubber. We have also been very active in developing highly conductive types ofconductive polymer Denatron, not only for use in displays, but for new applications that make use of these characteristic features.

Bio/Fine Chemicals BusinessIn this business, we have focused on application development for ourown enzyme products for use in the food industry, offering valuable ideas
to our clients and marking a steady series of successes, particularly inoverseas markets. Our new enzyme plant is now operating, and has been
designed to produce enzymes manufactured in compliance with Kosher
and Halal certification.
Our phospholipid products use our own phospholipid converting
enzymes and include a phosphatidylserine product we have taken overfrom its former company. We are putting together a structure to build sales
for this product in Japan and around the world.

Change-S2014 and Fiscal 2014 Strategies• Process development, synthesis• Materials analysis, impurity
analysis• High-efficiency production ofactinomycete enzymes• Microbe fermentation, breeding• Microbe exchange, enzymatic
reactions• Epoxy resin/synthesis design• High-density filler, compounddesign• Compounding• Stress-reduction agent
compounds• Rheology characteristics,
compound design• Processing technologies

Nagase ChemteX Corporation Component Technologies

Fiscal 2013 Operations
Electronics Business
The Electronics business performs productdevelopment and production based on
advanced formulated epoxy technologies andchemical formulation technologies. The formulated epoxy business performed well interms of epoxy resins for vehicles and heavy
electrical applications; however, epoxy resin
sales for semiconductors and smartphones
underperformed prior-year results. Our photolithography chemicals business reported
strong results, particularly in for touch panels
and processing chemicals for LCD displays.
Nagase ChemteX (Wuxi) completed work on their R&D Center, and hasformed a medium to long-term growth strategy based on the work of its
applications laboratory.

Started during fiscal 2012, fiscal 2014 marks the final year of ourChange-S2014 medium-term management plan. We intend to continue tofollow the basic policies outlined in Change-S2014, making further
improvements in our foundational management practices.
In research and development projects, we intend to create new business and new products based on our unique development capabilities built
on numerous elemental technologies in order to meet the diverse range ofneeds in the markets. At the same time, we will focus on research andfuture growth areas, leveraging domestic and international network of theNagase Group and the wealth of information available, aiming to solidify ourcore businesses, elemental technologies, and core materials over the medium and long term. Further, we intend to improve productivity and strengthen
our production foundation as a manufacturer, exemplifying operational safety, production technologies, and quality assurance. We will play a central rolein the R&D and manufacturing functions of the Nagase Group, looking to
improve the quality of our technology management.

NAGASE ECOThe Performance Chemicals head office conducts epoxy emulsion and organic EL illumination materials development. Epoxy emulsion development includes epoxides suchas functional types that use biogenic raw materials, eco-friendly low-chlorinated types
for use as electronics materials, and low-volatile organic compounds. The enzymes
business provides enzymes and catalase that allow for the eco-friendly breakdown ofhydrogen peroxide output from industrial facilities. These materials contribute to a significant decrease in the amount of chemicals traditionally used in this process.

NAGASE & CO., LTD. Annual Report 201443

Hayashibara Co., Ltd.

Our business is divided mainly into two categories. Our functional saccharides business leverages biotechnology
to manufacture and sell functional saccharides, including food materials (TREHATM, Saccharide-Coated Glucosyl
Hesperidin), cosmetics materials (AA2GTM, stabilized vitamin C), and pharmaceutical materials (Maltose). Ourfunctional dyes business utilizes organic synthetic technologies to offer products in commercial photography
and display, as well as pharmaceuticals (LUMINTMA), and in-vitro diagnostics in the life sciences field.
As member of the Nagase Group, we will focus more management resources on our own research anddevelopment to speed development of new products, while promoting global standards in food safety andquality management through greater improvements in our production functions, showing that our commitment
extends beyond just ensuring a stable supply of product.

Hayashibara Co., Ltd.
Representative Director, President

Reiji Nagase

Net sales/Operating profit
Net sales (Left Axis)(¥ hundred million)

300

80

256

252

243
56

200

42

Functional Dyes Business

Microorganism screening and other new technologies derived from years of expertise have
put us on the course to developing new saccharides that utilize new enzymes that we haveresearched. By pursuing unique technologies
and materials at the same that we identify marMicroorganism screening
ket needs, we can capture users across a variety of sectors, including food, cosmetics, pharmaceuticals, and commerce.
Working closely with our customers, we can act with speed and efficiency
in bringing products to market, while making strategic use of the intellectual assets produced through our research.
One of our most recent discoveries was the effect of trehalose on preventing metabolic syndrome. We published our findings at the Japan
Society for the Study of Obesity in October 2013.

In our functional dyes business, we have successfully extended applications of the dyes wemanufacture beyond photography and printing
plate commercial sectors into test agents andother life science fields. We will be expanding
Organic EL display
into the display business, beginning with promising polarizer products. Further, as we work ondyes business projects in cooperation withother Nagase Group affiliates, we will find ways
to meet client needs through the developmentof new materials. Our LUMINTMA dye formulation
LUMIN Ahas enjoyed many regular customers who haverelied on this product as a pharmaceutical. Moving forward, we plan toredesign our marketing materials and work more closely with sales agentsto add a new customer base on top of our regular customers.

Fiscal 2013 Operations

Change-S2014 and Fiscal 2014 Strategies

Functional Saccharides BusinessTo bring the entire Nagase Group resources to bear on sales functions, we
moved overseas sales functions for the food sector and both overseas anddomestic management functions for the cosmetics/medical sector of thesaccharides business to NAGASE & CO. during fiscal 2013.
This year marked the second since this transfer. We intend to strengthen our domestic sales structure and global product branding in the foodsector, improving production functions, quality assurance, and research anddevelopment.
We will review our production facilities to ensure a stable supply of
product and to offer uninterrupted improvements in safety, quality, andtechnology. We also plan to make capital investments in our facilities(including new plants in the planning stages), keeping a careful eye on
demand projections. Further, we intend to make the investments necessary
to adopt new technologies that support forward-looking research anddevelopment activities.

49
40

100

Net sales for fiscal 2013 amounted to ¥24.3 billion, representing a 4 percent year-on-year decrease. This result was mainly due to our review anddivestment of unprofitable products. Sales of our mainstay TREHATM productwithin our food materials business, which accounts for 70 percent of worldwide sales, increased by 9 percent compared with the prior fiscal year.
Meanwhile, performance in functional dyes business and pharmaceuticalbusiness were weak.

Our functional saccharides business makes useof the functions at the Tokyo Laboratory, L'Plaza
where we develop recipes that maximize thefunctionality of our saccharide products. Our
goal is to expand the applications of the sacTREHA
charides beyond those mainly associated withconfectionary to cooked rice, bread, noodles
and other staple foods, as well as preparedfoods, beverages, and processed foods.
This fiscal year, we plan to roll out fertilizer,
Saccharide-Coated Glucosyl
Hesperidin
feed, and other products that have been combined with TREHATM, leveraging this functionality in these new fields. We areworking toward lateral extension of these products, appointing managers to
the highest-priority of these new fields, charged with growing new business. In addition, we plan on expanding applications for foods for specified
health uses that utilize the effects of our Saccharide-Coated Glucosyl
Hesperidin product in reducing neutral fats in blood. We are also in application development preparing to market Highly Branched Glucan (isomaltodextrin), which we published at the Japan Society for Bioscience,
Biotechnology, and Agrochemistry last year.
Beginning fiscal 2013, we moved sales operations (excluding domestic food operations) under NAGASE & CO.,LTD. management to take better
advantage of global opportunities. Now, we are working with the Nagase
Group across the board, sharing domestic and international strategies
with the NAGASE Life & Healthcare department
and local entities, exhibiting our products at the
L' Plaza, receiving sales support in terms ofmarketing material production, and working
closely with the Research and Development
head office to develop new functions for existMarketing Pamphlet (multi-language)
ing saccharide products.
TM

Production System
0

12/3

13/3

14/3

0

Major Market Trends
Our products receive high marks not only for their physical properties,
but also for their functionality. We have extended our product line fromthe food and cosmetics markets to the medical and industrial fields. In
particular, recent consumer interest in health and the demographic
shift toward an aging population lead us to project much higher
demand in functional raw materials for the health, nutrition, and beauty
sectors. Here, we believe our superior products will meet the needs ofthese markets.

Functional saccharide manufacturing plantTM

Fiscal 2013 Results

Operating profit (Right Axis)(¥ hundred million)

Research and Development System

Trehalose (powder)

During fiscal 2012, we became certified under the FSSC22000 global
food safety standards at the plant manufacturing TREHATM functional saccharides. Looking to even higher levels of quality and customer satisfaction, we acquired ISO9001 certification during fiscal 2013, and we arepresently engaged in other corporate-wide initiatives, including programs
related to the functional dyes business. In addition, we are working
towards Kosher and Halal certification to increase opportunities for sales inoverseas markets.
We are planning to complete construction on a new plant to take over
the Okayama No.1 Plant’s operations in March 2015. This new plant will
not only ensure the stable supply of existing products, but it will also function as a pilot plant for new product development. The plant features
advanced energy-saving functions that offer flexibility in manufacturing a
number of different types of products.

Trehalose (crystal)

Imabou Plant (working name, concept art)

NAGASE ECO
Pullulan is made from starches, acting as anatural polysaccharide offering reliablemaltotriose properties of bonding, adhesion,coatability, lubricity, and caking, as derived
Pullulan/Biodegradable Plastic(Top: combined with cypress; Bottom:
from a type of black yeast. Of these characunmixed pullulan)
teristics, we focus on bonding and caking,attempting to apply this substance as a binder when compressing wooden powder for
use as a biodegradable plastic.
The preserving properties of trehalose makes it effective in extending the use-by
dates of products, which we believe can make a contribution to improving food conditions around the world.

Fujisaki Plant (working name, concept art)

44

NAGASE & CO., LTD. Annual Report 2014

NAGASE & CO., LTD. Annual Report 201445

Nagase R&D Center

Nagase Application Workshop

The Nagase R&D Center is responsible for the technologies that drive the Nagase Group manufacturing, processing, research, development, marketing, and trading functions. The Center is the organization that drives us
to create value-added business that differentiate Nagase from our competition. Unique, independent, pioneering.
These are the concepts at the heart of our mission to develop products and services based on foundational biotechnologies and biotechnology development that keep the Nagase Group at the forefront of our industry. We
will continue to work in close coordination with each department and sales representatives to understand theneeds of the market and our customers, offering technology-based solutions.
The R&D Center will push on with research and development to advance our Life & Healthcare segment,
introducing new cosmetics, health foods, medical materials, and clinical testing tools.

Biotechnology (microorganisms) and Topics
1 ‌Physical production technologies using actinomycete microorganisms
2 ‌Genetic analysis of physical highly productive strain utilizing bioinformatics
3 ‌Development production technologies for useful chemicals based on metabolic engineering
4 ‌Practical production technology research in non-petroleum dependent andbiochemicals
5 ‌Development and application of naturally bioactive components for cosmetics
and functional food materials
6 ‌Research and development of clinical testing tools
7 ‌Research and development of chemically defined materials contributing to
the advancement of regenerative medicine/biomedicine
8 ‌Drug delivery system (DDS) development
9 ‌Bio-themed research related to ecological and resource conservation

Achievements in Fiscal 2013
Technological Results
1 ‌Development of cosmetics and perfumes materials based on biotechnologies
2 ‌Development of new non-naturally occurring amino acids substance3 ‌Development of bio materials via utilization of lactic acid bacteria
4 ‌Research into the bioactivity and action mechanisms of substance produced
via fermentation technologies
5 ‌Deciphering genetic information of physical highly productive microorganism(conference presentation)
6 ‌Development of a rare metal recovery processing utilizing microorganisms(conference presentation)
7 ‌Nagase Group intellectual property activities (patent search, patent applications, etc.)

Fiscal 2014 Strategies
Beginning with fiscal 2013, we narrowed the focus of the R&D Center tobio-related technologies, delving into our own feature technologies andassociated application development.
Specifically, we are working to further advance our strengths in genetic
engineering and bioinformatics technologies, which we hope will lead to therapid commercialization of effective non-petroleum-dependent chemicalcompounds based on our proprietary actinomycete physical production
technologies. In particular, the R&D Center will work closely with university
and other external research institutions related to metabolic engineering,making the most of the research resources owned by such institutions,while incorporating the latest technologies into our programs. Meanwhile,
we will exercise our ability to judge and perform feasibility studies on promising biotechnologies to create new areas of technology research to industrialize and productize. These new products will go on to become the basis
for new businesses, as we continue to work closely with business departments and affiliated manufacturing companies.

Departments(customers, markets)

R&D(technological expertise)

R&D(unique technologies)

Affiliates(manufacturers)

High-Value-Added
Products/Services

Beginning in fiscal 2014, we will assign an intellectual property manager
for the R&D Center. At the same time, we will apply for patents for the
results of our research and development, treating these results as the intellectual assets they are. These activities are part of our efforts to expand thetools we offer in support of the Nagase businesses. In addition, with respect
to the management and utilization of intellectual property, we will work with
the Intellectual Property office to secure patent rights, as well as coordinate
strategically with departments at various affiliated companies.
Fiscal 2013

Cumulative Total (to Fiscal 2013)

In Japan

Overseas

In Japan

Overseas

Patent applications*1

12

12

861

418

Patents*1

9

3

199

207

*2

*2

*1 The number of patents in the name of the Nagase R&D Center. Licenses and other intellectual property rights
are not included.
*2 Figures include applications for international patents.
NAGASE & CO., LTD. Annual Report 2014

Materials
manufacturers

This mechanism is madeuniquely possible
by Nagase

Process
companies
Evaluate the functionsof raw materials andprocessing technology
Marketing that
includes application
development

NAW
1. Plastics
2. Coating materials
Multipurpose
laboratory

Customers
Automobiles/
Appliances,office equipment,
mobile phones/
Amusement games/
Housing/
Apparel,sporting goods/
Cosmetics, foodproducts, beverages

Support for local
production overseas
Product development
for unique brands

Principal Functions
1. Plastics

Throughout fiscal 2013, we received a number of inquiries and requests from customers, materials manufacturers, and processing companies. More than 120 different companies visited our offices, and we fielded more than 150 requests for test development.
Plastics•‌Development of plastic materials for molding with automotive industry parts makers (Tier1, Tier2). Weight savings, high-grade
treatment (under discussion), improvement in scratch resistance, etc.
•‌Development of functional additive masterbatches that expand degrees of freedom for plastic materials procurement by parts
makers overseas•‌Development of the original plastic grades that make use of recycled materials from OA manufacturers•‌Improvement of the breathability of polyurethane products•‌Development of transparent, rigid resins for use in cosmetics and medical materials

Coatings•‌Sales of coating raw materials in overseas markets, particularly effective technical support of proposals for functional materials contributed quicker development and greater sales.
•‌Development of thermal shielding coatings, special coatings using nano-silver particles, and functional coating materials
jointly with external partners•‌Development of new radiant materials, pigment dispersants, etc. in cooperation with raw materials manufacturers•‌Support for application development for overseas raw materials makers in the Japanese market

Fiscal 2014 Strategies
Formula design function carried out by expert technicians, test
production of compounds centered on a twin-screw extruder,properties assessed using all types of assessment equipment

Equipment •Twin-screw extruders (18 mm L/D = 44 and 26 mm L/D = 64)•Henschel mixers •Injection molding machines (80 t and 110 t) •Analytical equipment (thermal analysis equipment, FT-IR, etc.) •Physical property measurement
equipment (tensile strength, bending, shock testing equipment, HDT testers, etc.)•CCM (computer color matching system)

2. Coating Materials
Coating and ink composition design function carried out by
expert technicians, test production of coatings and inks using
all types of assessment equipment, properties assessedusing all types of assessment equipment

Intellectual Property Administration and Usage

46

The Nagase Application Workshop (NAW) facility is where, jointly with customers, we engage in activities that
range from function and application development of raw materials related to plastics and coating materials to
the formulation development of finished products that use such raw materials. NAW was born of necessity in thecourse of adding R&D, manufacturing and processing functions to our conventional base as a trading company.
Accordingly, NAW is an important tool for advancing a switch from our previous sales model that focused onmaterials exploration to one that is driven by application proposals and joint development. In offering such technological support, NAW is providing unparalleled functions that only Nagase is capable of providing.
The NAW is home to a multi-purpose testing lab which acts as a technology incubator. Here, we support next-generation business development
for our business departments and affiliated companies, utilizing the NAW facilities and our development staff’s experience and expertise to create new
and unique Nagase businesses.

Equipment •Painting booths •Disperser (paint conditioner, horizontal, verticalbead mill) •UV curing system, drying oven •Age testing equipment (xenon WOM,SUV weathering test equipment, constant temperature/humidity oven, etc.)

The NAW is solidifying its reputation as an outlet for unique, original Nagase functions, fully providing continuing development functions and technical customer/user
support befitting a development partner of choice as a plastic and coating applied
technology development center.
During fiscal 2014, we plan to add more urgency to creating marketable resultsfrom application development presently in the works with Nagase departments and affiliate companies and development of new businesses. In particular, we will concentrate on
surface treatment technologies for the automotive and electronics devices industries,
aiming to commercialize composite technologies in plastics, coatings, and printing.
Our goal is to uncover new elemental technologies and functional materials
more quickly than any other company in the world, working every day to offer theright decisions and NAW that we can propose to customers.

3. Multipurpose laboratory
By assigning technical staff from departments, related companies, and affiliates to the NAW multipurpose laboratory to
work with respect to themes related to plastic, coating, ink,
and other compounding technologies, dyes/additives, filler,
and other materials technologies, and color, surface treatment, and printing technologies within various themes developed within the Nagase Group, NAW facilities
and NAW staff-provided technical support are effectively used, leading to fasterdevelopment speed.
Current Major Themes •Development of digital printing technologies•Development of coating agent formulation for thermal paper •Development of inmold transfer foils manufacturing technologies •Development of LED UV lampcompatible UV-cured ink/paint materials •Development of LED lighting module
components

NAGASE ECODevelopment of Thermal Shielding Coatings
A coating that shields out heat during the summer to keep
Analysis of thermal shielding lightindoor temperatures cool. During the winter, this coating reduces
permeability
heat escaping from windows to save energy.
We are developing a coating that offers transparency while shielding out near infrared rays. We
suspend antimony tin oxide (an ultrafine metallic oxide particle that cuts near infrared rays) in
between glass and highly adhesive resin, keeping a low dispersion of the antimony tin oxide.
The coatings materials division of the performance chemicals department is continuing development work with NAW, looking to take this product to market. The photo shows a sample of thiscoating being tested for light permeability. The test indicates, from the top, 9.8 percent ultraviolet
permeability, 0.2 percent infrared permeability, and 42 percent visible light permeability.

NAGASE & CO., LTD. Annual Report 201447

Nagase Group Sustainability

Organization GovernanceCorporate GovernanceCorporate Governance Structure

Directors, Audit & Supervisory Board Members and Executive Officers
Directors(As of July 1, 2014)

Executive Officers
Hiroshi Nagase

Reiji Nagase

Representative Director, President and CEO

Representative Director and Senior Managing
Executive Officer

Managing Executive Officer
Nagase ChemteX Corporation

Hayashibara Co., Ltd.

Ichiro Wakabayashi

Kazuo Mitsuhashi

Executive Officer
GM, Polymer Global Account Dept.
CEO, ASEAN/India

Kenichi Matsuki

Toshiro Yamaguchi

Representative Director and Managing
Executive Officer

Representative Director and Managing Executive
Officer

Human Resources & General Affairs Div., Legal &Credit Div., Logistics Management Div., GM
Intellectual Property Office, Audit Office

Functional Materials Segment, Greater China/
ASEAN/India

Hiroshi Hanamoto

Osamu Morishita

Director and Executive Officer

Director and Executive Officer

Advanced Materials & Processing Segment,
Nagase Application Workshop

Life & Healthcare Segment, R&D Center, Osaka
RegionTakaaki Hirai

Executive Officer
GM, Beauty Care Products Dept.

Kohei Sato

Executive Officer
GM, Performance Chemicals Dept.

Kenji Nagafusa

Executive Officer
GM, Polymer Products Dept.

Katsuhisa Yamaguchi
Executive Officer
CEO, Greater China

Mitsuru Kanno

Mitsuro Naba

Kenji Asakura

Director and Executive Officer

Director and Executive Officer

Business Administrative Div., Finance Div.,
Accounting Div., Corporate Planning Office,Information Technology Div.

Electronics Segment, Automotive & Energy
Segment, America, Europe, South Korea
Nagoya Branch

Executive Officer
GM, Colors and Imaging Dept.

Shinji Nakamura

Executive Officer
GM, Electronic Chemicals Department

Kenichi Horie

Outside Directors

Executive Officer
GM, Corporate Strategy Office

Yasuo Nishiguchi

Hidenori Nishi

Outside Director

Outside Director

1975 ‌Joined Kyoto Ceramic Co., Ltd.
(currently KYOCERA Corporation)
1987 Director, KYOCERA Corporation
1992 ‌Representative Director, Managing Director,
KYOCERA Corporation
1997 ‌Representative Director, Vice President,
KYOCERA Corporation
1999 ‌Representative Director, President,
KYOCERA Corporation
2003 ‌Representative Director President andManaging Executive Officer, KYOCERA
Corporation2005 ‌Representative Director, Chairman andCEO, KYOCERA Corporation
2006 ‌Director, Consultant, KYOCERA Corporation2007 Consultant, KYOCERA Corporation2009 Retired from KYOCERA Corporation2012 Current position

1975 Joined KAGOME CO.,LTD.
2000 Director, KAGOME CO.,LTD.
2003 ‌Director, Executive Officer, KAGOME CO.,LTD.
2005 ‌Director, Managing Executive Officer,
KAGOME CO.,LTD.
2008 ‌Director, Senior Managing Executive
Officer, KAGOME CO.,LTD.
2009 ‌Representative Director, President,
KAGOME CO.,LTD.
2014 ‌Representative Director, Chairman,
KAGOME CO.,LTD.
2014 Current position

Masatoshi Kamada
Executive Officer
GM, Electronic Materials Dept.

Corporation with Board of Directors and Audit & Supervisory Board Members (Audit & Supervisory Board)

Total Number of Directors

10

Number of Outside Directors

2

Executive Officer
GM, Human Resources and General Affairs
Division

Total Number of Audit & Supervisory Board Members

4

Number of Outside Audit & Supervisory Board Members

2

Satoshi Morita

Number of Independent Directors

4 (all outside directors)

Director Term of Service

One year (same for outside directors)

Executive Officer System Adopted

Yes

Independent Auditors

Ernst & Young ShinNihonn LLC

Compensation Committee

Yes

Number of Board of Directors Meetings

14

Outside Director Attendance Percentage

Mr. Yasuo Nishiguchi 100%; Mr. Hidenori Nishi was named an outside director on June 25, 2014

Outside Audit & Supervisory Board Member Attendance Percentage

Mr. Hideo Yamashita, 100%; Mr. Toshio Takano, 93%

Number of Audit & Supervisory Board Meetings

12

Audit & Supervisory Board Meeting Attendance Percentage

Mr. Hideo Yamashita, 100%; Mr. Toshio Takano, 100%

Executive Officer
Hayashibara Co., Ltd.

Takanori Yamauchi

Executive Officer
Nagase ChemteX Corporation

Hideo Yamashita

Masao Hidaka

Masahiko Hamaguchi

Toshio Takano

External Audit & Supervisory Board Member

Audit & Supervisory Board Member

Audit & Supervisory Board Member

1972 J‌ oined The Sumitomo Bank, Limited (currently Sumitomo Mitsui Banking Corporation)2000 H‌ ead Office Senior Management Staff and,
General Manager, Kanda Corporate Banking
Dept at The Sumitomo Bank Limited
2004 Retired‌from the Sumitomo Mitsui
Banking Corporation
2004 Current position

1973 Joined NAGASE & CO., LTD.
2011 Current position

1982 Joined NAGASE & CO., LTD.
2013 Current position

External Audit & Supervisory Board Member(part-time)

NAGASE & CO., LTD. Annual Report 2014

Corporate Governance Structure
Institutional Format

Masanori Furukawa

Audit & Supervisory Board Members

48

Under a corporate system that adopts an Audit & Supervisory Board, Nagase
introduced the executive officer system in June 2001. The Company’s current management framework consists of ten directors (including two outside
directors), 21 executive officers (eight of whom concurrently serve as directors), and four Audit & Supervisory Board Members (including two External).
The Board of Directors is clearly positioned as the body in charge of making
decisions on management policies and strategies, and it supervises the execution of operations. Holding a regular monthly meeting, the Board of
Directors reviews and formulates measures regarding important decisions
and tracks business performance.
In accordance with audit policy and standards for responsible work set atmeetings of the Audit & Supervisory Board, Audit & Supervisory Board
Members attend important meetings, such as Board of Directors’ meetings,
and conduct audits of the execution of duties of directors and executive officers based on reports solicited from subsidiaries on an as-needed basis.
Executive officers determine specific measures for sales-related administrative matters by attending divisional general managers’ meetings andsupervisors’ meetings and discussing each division’s status report.
Furthermore, Nagase established the following committees to reinforce
its corporate governance function.
Director Compensation Committee:
With the majority of its members made up of outside directors, theCompensation Committee ensures the objectivity and transparency of theCompany’s directors and executive officers in the decision-making process
regarding compensation by screening the appropriateness of every compensation level and the compensation system to report and make recommendations to the Board of Directors.

Risk Management & Compliance Committee:
As a consultative body for the Board of Directors, the Risk Management& Compliance Committee establishes and strengthens risk management andcompliance systems that cover not only legal compliance but also corporate
ethics. The Committee also maintains ISO environmental management standards and promotes energy conservation initiatives.
Internal Control Committee:
The Internal Control Committee documents the companywide internal
control conditions and financial statement preparation process to further
enhance its financial reporting credibility, while maintaining and strengthening a structure to carry out evaluation and improvements.
Security Trade Control Committee:
The Security Trade Control Committee thoroughly complies with export
related laws and regulations in relation to foreign currency exchange and foreign trade for its trading of cargos and technologies covered by such laws
and regulations.
Under the executive officer system, Nagase’s corporate governance system collaborates with the abovementioned committees to appoint outside
directors and members to the Audit & Supervisory Board as well as to reinforce its corporate governance system. Having secured supervision andauditing functions that operate from diversified perspectives, including fromoutside the Company, Nagase believes the current corporate governance system is more rational than ever. We will increase our efforts to further reinforce
our corporate governance system to secure stakeholders’ trust.

1987 ‌Deputy General Manager of the Special
Investigation Department of the Tokyo
District Public Prosecutors Office
2001 ‌Superintendent Public Prosecutor of the
Sendai High Public Prosecutors Office
2004 ‌Superintendent Public Prosecutor of the
Nagoya High Public Prosecutors Office2006 Takano Law Firm2008 Current position
NAGASE & CO., LTD. Annual Report 201449

Nagase’s Corporate Governance System

Audits by certified public accounts are performed in a fair and unbiased
manner by a staff of 40, which includes the following specified limited-liability partners and accountant trainees.

Shareholders’ Meeting

Certified Public Accountants
Independent Auditors

LiaisonAudit

Audit & Supervisory Board Members

Compensation Committee

Board of Directors
Audit(4 including 2 external audit &supervisory board members)

Supervision

Takao Okamoto(outside directors + directors)(10 including 2 outside directors)

Audit & Supervisory Board

Auditing Firm

Specified limitedliability partners
Managing partners

Risk Management & Compliance Committee

Yuka Hayashi

Ernst & Young ShinNihonn LLC

Hideo Yamamoto

Compliance Cell Center

Security Trade Control Committee

Audit Office

Supervision

Supervision

SupportLiaisonInternal Control Committee

Name

Reason for Appointment

Major Actions in Fiscal 2013

OutsideDirectors

Yasuo
Nishiguchi

Mr. Nishiguchi has served in management positions at KYOCERA Corporation.
He has a wealth of knowledge and experience to call on in offering expert
industry management advice to the Company, which we expect will lead tostronger corporate governance.

Mr. Nishiguchi attended all 14 Board of Directors meetings (100%attendance), offering appropriate opinions and advice.

Hidenori
Nishi

Mr. Nishi has a wealth of knowledge and experience in corporate management,
serving for many years in management positions at Kagome Co., Ltd. We
believe he will be able to call on in offering expert industry management advice
to the Company, which we expect will lead to stronger corporate governance.

—

Hideo
Yamashia

Mr. Yamashita has a wealth of knowledge and experience in the workings offinancial institutions, serving many years in various positions in Japan andoverseas. We believe he will be able to call on this wisdom and experience toproperly conduct his duties as an outside corporate auditor.

Mr. Yamashita attended all 14 Board of Directors meetings (100%attendance), as well as all 12 Audit & Supervisory Board meetings.
Mr. Yamashita offered appropriate opinions based on his breadthof knowledge from serving in financial institutions overseas.

ToshioTakanoMr. Takano served many years in the Lawyers Association gaining experienceand knowledge. We believe he will be able to call on his expertise to properly
conduct his duties as an outside corporate auditor.

Mr. Takano attended 13 Board of Directors meetings (93% attendance), as well as all 12 Audit & Supervisory Board meetings(100% attendance). Mr. Takano offered appropriate opinions basedon his expertise as an attorney.

Audit

Category

Supervisors’ Meeting (Administration)

Director Compensation

Internal Audit System

Director compensation (excluding outside directors and audit & supervisoryboard members) consists of basic salary and performance incentives (bonuses). The Company calculates compensation based on director compensation
rules, contingent on approval by the Board of Directors. Performance incentive (bonus) amounts are determined according to a basic payment amountbased on Company earnings for the period in question. The Company considers individual performance based on the Goal Management System when
determining basic salary and director bonuses.
The Compensation Committee, at least half of whose members are outside directors, assesses the validity of compensation standards and systems, reporting to and advising the Board of Directors. This ensures
improved objectivity and transparency in the director compensation decision-making process.

The Audit Office is in charge of internal audits, including audits to assess theappropriateness and efficiency of the Company’s business activities including
affiliated companies. The Audit Office is staffed by twelve employees, including certified public accountants, certified internal auditors (CIA), qualified
internal auditors (QIA) and other individuals who possess specialized knowledge in internal audits. The Audit & Supervisory Board consists of four corporate auditors (including two outside corporate auditors) who have aconsiderable amount of knowledge about finance, accounting, general corporate management, compliance and governance.
The Company established the Audit Office to also ensure audit &supervisory board members’ auditing effectiveness, supplying staff uponrequest to support the corporate auditors’ work. The Audit Office and the
Audit & Supervisory Board regularly exchange information regarding internal audits and audits of domestic and overseas subsidiaries, while holding
meetings twice a year with affiliate companies’ auditors. In addition, they
perform wide-ranging liaison activities, including receiving regular reports
from Ernst & Young ShinNihon LLC, Nagase’s independent auditors, regarding accounting matters and associated internal controls; maintaining apresence during accounting audits; and cooperating as needed with audits
conducted at affiliated companies, including those located overseas. In
addition to discussing individual matters with corporate auditors on a daily
basis, independent auditors also hold meetings twice a year with the Audit& Supervisory Board.
Nagase established the Internal Control Committee and the Committee
Affairs Bureau in its internal control section, and the Audit Office serves as
the Company’s independent internal auditor.
The Audit Office reports results of its internal operational audits to theInternal Controls Committee. The Internal Controls Committee regularly
reports on the status of internal controls to the Audit & Supervisory Boardand the Company's external auditor.

Total Director Compensation by Title, Total Compensation by Type, Number of Eligible Directors(Millions of Yen)

Total
Compensation

Title

Total Compensation by Type
Basic
Compensation

Bonus

Number of
Eligible
Directors

Directors(excluding Outside Directors)

284

181

103

10

Audit & Supervisory
Board Members(excluding external audit &supervisory board members)

43

43

-

3

Outside Officers

46

46

-

4

Important Matters regarding Employee Bonuses for Employees Also Serving as Directors(Millions of Yen)

Total
49

50

Number of Eligible Directors

Comments

6

Paid in an amount equivalent toemployee bonus

NAGASE & CO., LTD. Annual Report 2014

At present, the Company has not established standards or policies for outside
directors' independence; however, the Company does take into consideration
independence standards and disclosure requirements determined by securities exchanges when outside directors are selected.
The Company has designated a total of four outside directors as
Independent Directors: Mr. Yasuo Nishiguchi and Mr. Hidenori Nishi as outside
directors, and Mr. Hideo Yamamoto and Mr. Toshio Takano as outside auditors.

• Internal• ExternalPresident

General Managers’ Meeting (Sales)

Independence Standards and Policies for Outside Directors

External Audit& Supervisory
Board
Members(Note) The number of Board of Directors meetings noted above does not include resolutions made in writing.

Policies related to Company Information Disclosure
We engage in continuing communications with society through the Nagase
Group Compliance Behavior Standards and timely disclosure of important
information through proper channels. Through the establishment of theNagase Group Code of Conduct and the timely disclosure via proper channels
of information needed by society, we engage in continuing communication

with society. In this way, we maintain a fair, transparent dialogue, never allowing corporate activities to deviate from socially accepted norms.
This basic philosophy guides us as we conduct timely, appropriate, andfair disclosure of information through IR activities, public relations programs,
and websites for our shareholders and investors to improve managementtransparency and accountability.
See Timely Disclosure System on our corporate website for more.

Business Continuity Planning
Fiscal 2013 Results

Fiscal 2014 Initiatives

During September 2013, the Group conducted initial response training at
the Tokyo Headquarters, Osaka Headquarters, and Nagoya branch office.
The training tested the response of the Fire Prevention Headquarters,
Self-Defense Squad, Facilities Confirmation Team, Information Systems
Team, and Logistics Confirmation Team during a simulated emergency. In
February 2014, the Group held a workshop to discuss issues related tobusiness continuity plans drawn up by each department.

As in fiscal 2013, we will continue to conduct emergency response training to improve initial response quality and speed. Further, we intend to
hold training during the year for the Fire Prevention Headquarters Office
to test response during a simulated emergency happening during aweekend/holiday.
We plan to encourage business continuity planning at all Group sales
companies and manufacturing companies to improve the Group’s ability
to maintain continuity along the entire value chain.

NAGASE & CO., LTD. Annual Report 201451

Q1‌Tell us how you came to be an outside director at NAGASE.
When I was a young researcher, we purchased Kodak photoresist chemicals from NAGASE, so I’ve know the name for quite a while. So, when I
was first approached about becoming a director, I immediately recognized the name.
After I completed my duties at KYOCERA, I went to graduate school
to earn a Ph.D. in technology management. I learned about managementfrom an academic and theoretical perspective. Today, Japanese growthcompanies tend to first focus on sales, and then later focus on production. It’s no longer a time where good products will sell well. Rather, it’s atime where sellable products sell. In that sense, I think that NAGASE &CO.,LTD. is a company that has grown while existing in the sales phaseas a trading company. Now, the Company is shifting more to focus on
manufacturing. I think this gives NAGASE much more room for growth.
I spoke with President Nagase about my interest in this area andexpressed my ready acceptance to serve as an outside director.

Q2‌What are your thoughts on the significance of therole of an outside director?

What is the difference between managers and outside directors?
Managers are completely responsible for executing on their proposals. In
contrast, external directors don’t actually carry out any of the work—they
really have no responsibility for the outcome. So, how does an outside
director best help a company? Outside directors stand outside the hierarchical structure of a company, so they can look at issues and express
their opinions on both sides of an issue from a neutral standpoint, which
is very valuable to a company.

role of an outside director?

Kagome introduced outside directors just this year, so I can’t speak from

Improve manufacturing business profitability
to create true sustainable growth.

Q3‌What is your outlook on the future of NAGASE & CO.,LTD.?
NAGASE & CO.,LTD. began as a sales company. As a relatively young
manufacturer, there is still plenty of room for improvement. The manufacturing industry involves many more elements and moving parts than a
traditional trading company has to deal with. For example, you have tolook at market trends for clues about product development; what you
should be making, what technologies do you use or develop, what kind of
production system are you going to use, and how are you going to makethe product? What sales channel are you going to use? There are a lot of
decisions involved. The skills involved take more than just a few years tomaster. However, NAGASE & CO.,LTD. has an advantage compared toother manufacturing companies in experience with the essentials ofsales: what to sell and how to sell it. NAGASE is in a position to leverage

52

NAGASE & CO., LTD. Annual Report 2014

I had an interesting conversation with President Nagase in which I could
see many commonalities between NAGASE & CO.,LTD. and Kagome. I
also saw many differences. Both companies have a long tradition, many
ups and downs, and a history of technological innovations. You can’t stayin business for more than 100 years if you don’t have honest management. Those are the similarities between our companies.
We have differences, too. Kagome is in the food manufacturing industry, while Nagase is more of a trading Company. But even though Nagase isa traditional trading company, recently the company has focused on R&D
and manufacturing, which is where I think I can also help. That is why I
happily accepted the invitation to become an outside director at Nagase.

Q2‌What are your thoughts on the significance of theFour Questions for“

Q1‌Tell us how you came to be an outside director at NAGASE.

”NAGASE Outside Directors“

A Company has to clearly define
the core driver of its value proposition.

Former CEO, KYOCERA Corporation

CHAIRMAN, KAGOME CO.,LTD.

Yasuo Nishiguchi

Hidenori Nishi

this experience to put the foundations in place to see the needs of themarket, and then develop and manufacture accordingly. The next step is
to optimize and maximize.

Q4‌What do you hope to see happen during fiscal 2014?
Manufacturing earnings (for fiscal 2013) were not impressive —I can tellthat there were issues that have yet to be resolved. Fixing issues fixes
your numbers. For this upcoming period, I think the single biggest issue
is improving profitability in NAGASE ’ s manufacturing businesses. If
NAGASE can overcome these challenges, then I think the combination of
trading business and manufacturing business will result in truly sustainable growth for Nagase.

experience, but in general, the role of the outside director is to represent
regular shareholders, acting as a monitor to prevent damage to corporate
value. To be honest, however, I’m not completely sure how much influence two or three outside directors have. Today, Kagome has about
200,000 shareholders. In terms of our monitoring, our employees andmanagement are quite aware that they could be within view of our shareholders at any time, in public or private. I think that understanding makes
for a workplace that motivates self-discipline. In other words, I think thisawareness is the most important type of governance. So, when I think
about the role of an outside director, I think it’s important to also offer
advisory services in addition to the generally understood role.
More recently we hear about the need for diversity on corporate boards.
I don’t think diversity is necessarily limited to adding women or non-Japanese to the board. I think people such as myself and Mr. Nishiguchi fit themeaning. If people from different backgrounds can bring their experienceand wisdom to help create corporate value, then that’s a good thing.

”

Q3‌What is your outlook on the future of NAGASE & CO.,LTD.?

Q4‌What do you hope to see happen during fiscal 2014?

In a word, NAGASE is a unique company. Most trading firms will specialize in one area along the value chain, and participate through joint ventures or minority holdings. In the case of NAGASE, the Company has
identified the entire value chain as its business domain, participating as amajority shareholder. To this, the Company adds R&D and manufacturingfunctions, which you don’t typically see in a regular trading company.
The current competitive landscape is similar to that of the food industry. The focus has shifted from a product differentiation strategy to one ofinvesting resources into the core driver of corporate value to create greater value. I think the NAGASE & CO.,LTD. approach is close to this idea. A
company has to clearly define the core driver of its value proposition.

This will be my first time to serve as an outside director at a company, so
I’m not sure I’m in a position to make any bold statements. However,from the standpoint of management, I would encourage boldness in decision-making, while of course balancing risk and reward. I believe outside
directors should be a bit more objective in their approach. Boldness is for
those executing the business plans. In that sense, it’s important for others to provide a viewpoint that is cool, objective, and fair. Obviously, I
think I will be able to provide value as someone who has had experiencein creating a corporate brand as strong Kagome.

NAGASE & CO., LTD. Annual Report 201453

Nagase Group Sustainability

Human Rights, Employment Practices
Respect for Human Rights
Respect for Human Rights

religion, nationality, language, physical characteristics, wealth, or place ofbirth. This Code of Conduct is available in Japanese, English, Chinese, andGerman, distributed as a booklet and available through our corporate intranet
for the reference of all Group employees. We require every Nagase Group
employee to comply with this Code of Conduct. In the event of an incident of
discrimination, the Group will take immediate steps to investigate the situation,
taking steps to help the affected individual(s) and to prevent any recurrence.

The Nagase Group has a Code of Conduct which defines our respect forhuman rights and our refusal to discriminate against individuals or groups inany manner. As a corporate group doing business around the globe, theNagase Group respects the history, culture, and customs of every region, andwe do not engage in harassment or discrimination based on race, creed, sex,

Diversity
1

Basic Stance on Diversity

the Group. These objectives involve the development of a corporate culture inwhich a diverse range of workers can share ideas, build shared acceptancethrough mutual understanding and help each other perform tasks whileworking vigorously and generating new synergies by exchanging values.
Accordingly, the Nagase Group positions diversity as one of its important corporate strategies.

The Nagase Group currently employs a diverse range of workers who differ interms of gender, nationality, age, values and lifestyles. The Group considers
that the development of corporate culture will lead to the creation of new
businesses as well as the improvement of business performance throughout
Objectives to Achieve through the Promotion of Employee Diversity

1

Diversity in
attributes

A wide variety of humanresources with different
nationalities, genders, businessspecializations and values

3

Diversity in thinking-Individuals

Each individual freely brings
ideas and exercises theircapability and originality

4

Diversity inopinions

5

Each individual
confidently expresses
their opinions

Synergy of knowledge
as an organization or group

Creating synergies and increasing
the value of knowledge byexchanging opinions

Enhanced performancethroughout the Group2
Construction of a base for diversity: Corporate philosophy, shared vision, mutual understanding, respect, acceptance, promotion of relationships of mutual support

Themes for Diversity Promotion
1 Sharing corporate philosophy and vision
2 Enhancement of transparency
3 ‌Reinforcing relationships of friendly competition
4 ‌Encouraging a breakthrough to the current situation
5 ‌Eliminating a mindset that leads to gender bias
6 ‌Creating a work environment in which employees feel free to utilize the in-house benefit system

1. In-house educationa Periodic messages from top management・Broadcasts of related informationb Instill deeply into Management Philosophy, Nagase Way, Direction, Current Conditions

2. Diversity in organization and individualsc Improve global communicationsd Support for employees’ career developmente Continue employing non-Japanese, women for managerial positions; improve culture

3. Development of comfortable workplace

2

Diversity Initiatives

Our diversity initiatives began in earnest in fiscal 2008 with the launch of theDiversity Promotion Committee. We conducted a second annual survey during fiscal 2011, and will continue to monitor our progress over a three-year
span as we introduced new activities in fiscal 2012.
During fiscal 2013, we focused on the theme of supporting the successof mid-career hires. We held a subcommittee meeting to draw up a MidCareer Hire Support System. We designed this system to help mid-careerhires understand our Group Philosophy and Vision and to be able to quickly
apply their experience and skills for maximum benefit.
We also completed the Career Support Program trial started in fiscal
2012. Based on the feedback we received, we are currently revising this program and making plans to adopt it as an official corporate initiative.

Work-Life Balance
1

Striking a balance between work and life is indispensable to the promotion of
employee diversity. Therefore, the Group maintains a comfortable workplacefor employees with diverse characteristics to realize a good work-life balance.
Nagase believes a good balance between work and life will bring benefits toboth the Company and employees, and thus strives to raise awareness inhouse and develop work-life balance-related systems.

NAGASE & CO., LTD. Annual Report 2014

Major Topics under Change-S2014 for Nagase & Co

1 The Nagase Group Professional Development Policy

2

The Nagase Group Approach to Professional Development
The Nagase Group professional development program consists of a natural
combination of on-the-job and off-the-job training. On-the-job training lets
employees experience real-world work in a variety of roles to gain new
knowledge and skills. Off-the-job training also involves training and gaining
skills through both formal classes and self-directed learning.
The general consensus is that on-the-job training is an extremely important part of professional growth. However, we believe that on-the-job training
can’t be effective without adding new knowledge, skills, and systems forunderstanding them. The Nagase Group promotes on-the-job training, whileat the same time ensuring employees are able to learn knowledge and skills
for their continued growth. These programs include rank-specific, positionspecific, and elective training, and other education opportunities.

Promoting globalization in our employees and sponsoring management
training to create leaders with business skills
We have identified two major topics under Change-S2014 for professional
development.
1 Promote globalization

Overseas business school enrollment for division managers, overseas business on-the-job training for senior
career-track employees, intercultural education programs

2 Train managers

Division manager/section manager training courses, basic
MBA skills for senior career-track employees

We will continue to revise Group education and training programs according
to changes in the external business environment and Nagase Group strategy.
Number of Participants at Main Training Programs

Promoting Group Functions through Organization-Wide Human Resources
Development
Under our Change-S2014 medium-term business plan, our basic strategy is
to bring to bear the total strength of the Nagase Group into the importantfields along our value chain. The plan also defines Group-wide education programs based on rank, as well as improved headquarters-based training foroverseas national staff.
Instilling Our Management Philosophy and the Nagase Way
The Nagase Way is a common code of conduct that guides Nagase Group
employees in our management philosophy, vision, and strategy.
Rank-specific Nagase Way training and Nagase Way workshops atdomestic affiliates and overseas local entities are two ways that we continue
to instill a better understanding of the Nagase Way among employees.
Number of Employees by Gender
Male

Number of Career-track Employees
Hired among New Graduates
Male

Female(Persons)

Ratio of female employees

Female

(%)

994

963

961

972

978

36

25%
335

330

335

346

346

659

633
11/3

626
12/3

626
13/3

632
14/3

10/4

31

28

(Persons)

16

10/3

54

During fiscal 2013, we have continued to offer home careseminars in conjunction with a third-party not-for-profit
organization as one means to educate employees about
corporate benefits. In addition, labor and management
have come together to address the issue of excessive work hours, aiming toachieve a more comfortable work environment for our employees.

Professional Developmentf Instill awareness and activate initiatives for continuity and productivity improvements
g Support employees who are dealing with home care or other challenges

2 Work-Life Balance Initiatives

Basic Stance on Work-Life Balance

2

4

14%

12

24

Fiscal 2011

Fiscal 2012

Fiscal 2013

Rank-specific

486

527

801

Elective

15

14

10

Overseas

5

15

19

The Business Leadership Programfor Overseas National Staff

29

46

33

Completion of NAGASE Global HRD Center
In March 2014, we completed construction of the NAGASE Global HRD Center in
Sendagaya, Tokyo. This Center will serveas the base of our human resources education programs for sustainable Nagase
Group growth. Here, we will train newhires, offer rank-specific training, educate
staff from overseas, hold global meetings,
sponsor recruiting seminars, and more. This building includes training, short-term accommodation and corporate housing facilities, and features our own storage battery and rooftop solar panel system. This facility was also designed to be part of our business
continuity plan, with the ability to support Tokyo headquarters operations, store power
during an emergency, and feed 150 people for up to three days.

27

4

4

Training Program

13%
6%

11/4

27
12/4

27

34
13/4

14/4

0%

NAGASE & CO., LTD. Annual Report 2014

55

VOICE

Jeremy Smith
Nagase America Corporation(New York), Sales &Marketing Manager

BMP

New York

Company Information
Nagase America (NAM) is active in the five Groupbusiness segments and adds value in both distribution and manufacturing capacities. NAM offices geographically span the western hemisphereand are located in the US, Mexico, and Brazil.
NAM has an energetic attitude focused on
growth, expanding the Nagase brand, and leading the Nagase Group into new markets andtechnologies.

Post-Training Reflections
The experience and content of BMP training is key for understanding Nagase,as well as identifying crucial new opportunities and models for creating valuethat fit within the Nagase Group.
My Goals
My goal is to help NAM achieve aggressive mid-term sales & profit targets byfocusing on providing solutions to customers, emphasizing Nagase Group products, and identifying and cultivating opportunities for high value activities suchas manufacturing.

VOICE

Hungary

BMP

Attila Komlos

Company Information
Established in 2002, Nagase (Europa) GmbH Hungarian
Representative Office is currently importing, stocking, anddistributing automotive grade materials, especially engineering plastics. In the recent years we started to concentrate on
portfolio diversification and exploring opportunities that point
beyond the conventional buy-sell business scheme.

Post-Training Reflections
BMP training provided good opportunity to learn more about
the activities of different departments, meet fellow Nagase
members both from Japan and overseas, and create bonds ofcollegiality through unforgettable memories and shared fate. During the course I havelearned that events like BMP/NMP/GMP, where education, networking, and informationsharing happens, are of utmost importance for a company whose main asset is its people.
Nagase (Europa) GmbH
Hungarian Representative
Office, Marketing Manager

My Goals
For European customers, the conventional role of a trading company is hard to justify. To
create a strong foothold in the European market, strategic investment in related industries isneeded. Besides maintaining our core business and expanding our activities beyond the EU,
my goal is to identify opportunities and create businesses that not only have long-term, stable profitability potential, but also add value to the Nagase group.

VOICE

Guangzhou

BMP

Company Information
Guangzhou Nagase was founded in 2002, focusing on
the automotive business. With the rapid growth in the
Chinese market, Guangzhou Nagase has expanded its
core business to important regions, setting up offices in
Wuhan, Chongqing, Chengdu and Changsha.
Post-Training Reflections
Finance and Administration
Through BMP, I learned more about HQ functions and theDivision-HR & Administration
Nagase corporate history. This has helped me when I oriSection/Manager
ent new employees as part of my job. BMP group discussions with Nagase colleagues from around the world hashelped me see new ways of thinking and understand different cultures. I enjoyed theexperience and gained a lot of value from it.

Yuki Ruan

My Goals
As a member of Nagase Group, I hope we can create more relationships with othercompanies of the Nagase network, improving ourselves by learning from others andmaking greater contributions to the Company. As an HR manager of Nagase
Guangzhou, my goal is to help develop our staff as the company grows and have each
employee find fulfillment in their work.

VOICE

Shanghai

BMP

Company Information
Shanghai Nagase is growing just as fast as thecity of Shanghai. There are now more than 140
local staff, all working towards the same goal &direction—the Nagase Way.
Post-Training Reflections
I received headquarters training for one month.
Electronics Department/Manager
There, I learned various methods of management,
communications skills, and how to identify new
business opportunities. I think that I can apply allof this new knowledge to my day-do-day job.

Libo.Cheng

My Goals
As a member of Nagase Group, I hope to continue to attend regular trainings,
not only to improve my professional knowledge, but also to participate in the
management of the company. In the coming days, I believe I can grow together
with NAGASE.

Training
Global Business Leaders
NMP(Nagase Management Program)

GMP(General Management Program)

BMP(Basic Management Program)•Participants
Nagase Group managers expected to become the next
generation of Nagase leadership•Participants
Overseas General Managers and General Manager
Candidates•Participants
Overseas Local Entity Managers and Manager
Candidates•Details
Teach marketing and leadership to the next generationof Nagase Group leaders at overseas business schools
to develop the knowledge and skills necessary to
manage a business of the future. Hold post-training
group discussions to understand Group-wide management issues and discuss strategic solutions.

•Details
Train participants in finance, marketing, the Nagase
management philosophy, and the Nagase Way. Haveparticipants present issues in their local markets/
operations, future measures and outlook, businesstargets, etc. Certain elements of the program to be
conducted in cooperation with headquarters andJapan Group company employees.

•Details
Educate participants in Group organizations and businesses, including the Group Management Philosophy,
the Nagase Way, domestic manufacturing Group companies, the Nagase R&D Center, NAW, and headquarters administration activities. Study management
strategy and marketing; establish strategies to implement locally. Participate with headquarters anddomestic Group employees to learn how to work successfully with people of different values, business customs, and communication styles.

•Objective
Train the next generation of leaders in comprehensive
strategic business thinking; how to see the overall picture from a more objective standpoint.

56

NAGASE & CO., LTD. Annual Report 2014

•Objective
Train the next generation of Nagase business leaders(future general managers and higher) through education in our management philosophy, the Nagase
Way, and proposed future strategic measures in local
markets.

•Objective
Train managers and future Nagase business leaders in
the Nagase Management Philosophy, the Nagase Way,
our organization, and businesses. Generate strategies
to implement locally.

VOICE

Chutapat
Mongkolchaitawon
Nagase (Thailand) Co., Ltd.
Advanced Materials
Division Manager

GMP

BMP

ThailandCompany Information
Nagase Thailand Co., Ltd. is the leader in SEA subsidiaries. We have a big growth opportunity market in the automotive, office automation, home appliance, and foodindustries. We have two branches located in Thailand(Bangkok office and Eastern office), and we are a shareholder in several manufacturing and processing companies: Sanko Gosei Technology (Thailand) Ltd. (automotive
business), Automotive Mold Technology Co., Ltd. (automotive business), Nafuko Co., Ltd. (packaging business),and Majend Makcs Co., Ltd. (packaging business).

Post-Training Reflections
I completed the BMP and GMP training programs. These programs updated my business knowledge and gave me insight in how to share this knowledge with my team tohelp them improve. Nagase is an enormous company with many kinds of business. I
think it is important that we understand all of the Nagase group businesses to identify
what opportunities there are for cooperative ventures and synergies.
My Goals
My goal is to implement the Nagase in my own team to promote good teamwork,
cohesiveness, and growth as the Company grows. I hope Nagase becomes a top
global company in the days, weeks, and years to come.

VOICE

Overseas Business On-the-Job Training

Japan

Q1. What type of training did you participate in?
a‌Six Months, Nagase Group Accounting Standards
Promotion in ASEAN
To improve management transparency and trust, we
unified accounting policies and engaged in activities topromote the adoption of the same. Group accounting
policies allow us to measure results by the same stanMisa Tamura
dards to understand what is happening in any of our
NAGASE & CO.
Public & Investor Relations
businesses around the world, not to mention allowing
Section of the Finance Division
us to work more effectively with local auditing firms.
Our goal was to unify all accounting policies by the end of fiscal 2013.
b Understanding Local Administration and Management Operations

I studied local management operations with a local manager. I also met with theASEAN management team to learn about the conditions in each country, as well as
how decisions are made in each location.
Q2. How will, or how should, the results of this training be applied to operations?
I was able to understand opinions from an on-site perspective, which I never would
have learned without actually going out into the field. I hope to use this new understanding in the future. I was also able to communicate with local staff, which has
been extremely valuable for me.

NAGASE & CO., LTD. Annual Report 201457

Nagase Group Sustainability

Environment

Staff Development Program

For Admin Staff

Rank-specific, Position-specific, Elective
General Manager

Department Manager

Overseas Business School Enrollment

VOICE

Department Manager Education Program(Domestic/International Business School Enrollment)

VOICE

Other

For National Staff

Environment Management

Department Manager Training Program (Coaching)
NMP(Nagase Management Program)

NMP (Nagase Management Program)ManagerManager Training

MBA Basics Education Program

Overseas Business On-the-Job Training

Specific Activity Training (Promotion)
VOICE

Strategic Planning Basics (Sixth Year)

Section Staff

New employees

VOICE

Core/Skill Training (Second Year)

Clerical Position Business
Skills Training (Second Year)

Follow-Up Training

Follow-Up Training

Core Businesses Training

Office Systems Training

On-the-job Training

Introductory Training

Supervisor training

Strategic Planning Training

Elective training

MBA Basics Education Program

Pre-assignment training

Management Skills Seminar

VOICE

GMP
(General Management Program)

VOICE

BMP
(Basic Management Program)

Introductory Training

Department Manager
Overseas Business School Training
Q1. Tell us about the school you attended and the coursework.
Harvard Business School
AMP（Advanced Management Program）

Q2. What types of classes did you take, and what did you learn?
I was one of more than 160 business leaders from over 40 countries
to attend. We went through case study discussions and heard presentations from top executives, giving us insight into the meaning of
Takanori Yamauchi
business leadership and business frameworks.
Executive Officer
GM, Human Resources andI was exposed to a global perspective and a variety of different
General Affairs Division
approaches, which allowed me to look at my own experience andskills and reflect on the role of leadership. It was also a valuable
opportunity to take a look at my own career as a professional.
Although I rarely have the chance to speak English, this course required reading 20 to 30
pages of English text every night, listening to eight weeks of lectures by native speakers, and participating in daily discussions. My team members hailed from the United Kingdom, the U.S., Australia,
Switzerland, Panama, and the UAE—everyone a strong and distinct personality. We sponsored aJapan Night which more than half of the participants attended. We were able to demonstrate theessence of Japanese-style hospitality. Coincidentally, this was right around the time that Tokyo waschosen to host the 2020 Olympics.

VOICE

Department Manager Education Program(Domestic/International Business
School Enrollment)
Q1. ‌Tell us about the school you attended and the coursework.
Columbia Business School
Columbia Senior Executive Program (CSEP)）

Q2. ‌What types of classes did you take,and what did you learn?
The course was attended by 28 managers
Koichi Sagawa
from around the world, representing a
General Manager
Shanghai Hua Chang
range of different-sized companies. We
Trading Co., Ltd.
spent four weeks gaining an appreciationof each others’ culture and lifestyles, whilelearning leadership skills, how to adapt to changing conditions, and how
to make innovative leaps forward.
Q3. ‌How do you think you will apply what you learned to yourwork?
During the course we came up with our own Leadership Credo, which I
am using as the basis for the Shanghai national staff and our operations.

Nagase Group Environmental Management Structure
NAGASE began building an environmental management structure in May
1999 by establishing an Environmental Protection Committee, a role currently
assumed by the Risk Management & Compliance Committee. Relatively earlier than other trading companies in Japan, NAGASE obtained ISO 14001 certification for its environmental management system in April 2000 in response
to societal demands. Since then, the Environmental Protection Committee
has offered affiliated companies advice and support for obtaining ISO certifications and thereby expanded the scope of certification. We conduct activities together with six sales companies, Nagase Chemical Co., Ltd., Nagase
Plastics Co., Ltd., Nagase Abrasive Materials Co., Ltd., Nishinihon Nagase
Co., Ltd., Nagase Elex Co., Ltd, and Nagase-OG Colors & Chemiclas Co., Ltd.
under the Environmental ISO Management Organization.
In addition, many domestic Nagase Group manufacturing, processing,
services, sales and other Group companies, having acquired certification
independently, including Nagase ChemteX Corporation, Nagase Medicals Co.,
Ltd., Setsunan Kasei Co., Ltd., Totaku Industries, Inc., Nagase TechnoEngineering Co., Ltd., Nagase Logistics Co., Ltd., and Hoei Techno Service
Co., Ltd. are conducting their own environmental activities.
We will continue with activities to improve the environmental management systems among certified Group companies.

Environmental Management Activities
NAGASE bases its environmental management activities on daily operations.
Specific activities include the promotion of environmental businesses (See
NAGASE ECO) and energy conservation activities, as well as the enhancement of operational efficiency
Our environmental businesses encompass renewable energy, energy
storage, energy/resource conservation, regulated materials replacements,
recycling/reuse, and measures to combat global warming. Under our threeyear plan Change-S2014, Nagase emphasized creating and expanding
environmental and energy technology. By promoting information sharing andcomplementing functions among its departments and business groups, theCompany will further reinforce the business structure required for the efficient and flexible provision of products and services that contribute to therealization of a sustainable, recycling-oriented and low-carbon society.
In addition, NAGASE is promoting activities aimed at reducing the environmental impact of its business operations. Still, we believe that we canEnvironmental Management Structure
Risk Management & Compliance Committee

Environmental ISO
Management Organization
Environmental ISO
Management Representative
Affiliates

NAGASE & CO., LTD.
Management

Environmental ISO Management
General Secretariat
Chief Environmental
Management Representative
Environmental Management
Representative
Internal Environmental
Audit Team

Environmental Management
Representative
Internal Environmental
Audit Team

Secretariat

Secretariat

Environmental
Protection Officers

Environmental
Protection Officers

Eco-Leaders

Eco-Leaders

reduce the environmental impact of our business activities by, for example,
improving the efficiency of our logistics operations. Acting on this belief, wedeveloped the Nagase Energy Calculation Online (NECO) System, whichenables the automatic calculation of domestic cargo transport volume using
distribution receipt data managed by our sales control system, bringing it online in August 2008.
This system makes it possible not only to calculate our annual cargotransport volume and CO2 emissions but to analyze transport routes for optimization, which also helps reduce our CO2 emissions. In such ways, theNagase Group is striving to reduce energy consumption in its logistics operations, thereby contributing to the prevention of global warming.
Beginning fiscal 2012, we have held regular Safety Patrols and Energy
Conservation and Recycling Patrols in buildings owned by the Company.
These patrols ensure safety in the workplace and promote energy savings
awareness within the Company.

Q3. How do you think you will apply what you learned to your work?
I learned that ultimately interpersonal skills, rather than the technical analytical skills, are what’s
most needed in the world of business. I want to be that kind of leader.

58

NAGASE & CO., LTD. Annual Report 2014

NAGASE & CO., LTD. Annual Report 201459

Nagase Group Sustainability

Fair Business Practices

Environmental Policy
1.‌Comply with all environmental laws,
regulations and other rules

2.‌Develop businesses that give full consideration
to environmental issues

3.‌Fulfill our responsibilities as a good
corporate citizen• ‌We will observe all environmental laws, municipal
bylaws, environmental regulations and other rules as
we conduct our business activities.

• ‌We will conduct our business activities in full awareness of the need to preserve the ecosystem and protect
the environment, and we will make every possible effort
to give full consideration to the environment within thelimits of technological and economic feasibility.

• ‌As a good corporate citizen we will work together withpublic institutions, industry, and local communities topromote environmental conservation measures that aresuitable for the Nagase Group.

4.‌Establish and continually improve anenvironmental management system

5.‌Disclose and make the relevant parties fully
aware of our Environmental Policy• ‌We will work to construct an environmental management system in order to fully achieve the objectives set
out in this Policy. We will continuously make improvements to this system by setting concrete goals andworking to fulfill them.

• ‌We will disclose the Policy to the public and makeall who work for the Nagase Group fully aware of its
contents.

Environmental Burden Reduction Activities

Risk Management and ComplianceComprehensive Identification, Understanding and Control of Risks

Activities Undertaken by Nagase ChemteX

Together with efforts to reduce its environmental impact, NAGASE & CO., LTD.,the core company of the Nagase Group, intends to “develop businesses thatgive full consideration to environmental issues” as one important element of
its environmental policy. NAGASE contributes to reducing environmental burden through the discovery and development at Group manufacturing companies of environment-oriented products and materials that are vital to society.
In line with revisions made to the Act on the Rational Use of Energy,
NAGASE has been designated as a “specified corporation” by the Bureau of
Economy, Trade and Industry since its energy usage exceeds fixed levels.
Consequently, since fiscal 2011, we have compiled data on the amount ofenergy consumed at every facility, formulated medium- and long-term energy
reduction plans, and submitted regular reports to the Bureau of Economy,
Trade and Industry.
In conjunction with upgrading the centralized monitoring equipment at theNagase Tokyo head office, we have also adopted a building energy management system, which began full operations during fiscal 2013. We use automated controls and energy conversation operations during summer peak usage
times to keep environmental settings within target levels. The building energy
management system gives us more visibility in building operations, allowing us
to publish electricity usage to company personnel in real time, helping employees understand the need for and status of our energy conservation.

Nagase ChemteX Corporation, a core manufacturing subsidiary of the Nagase Group, is promoting
energy conservation activities by developing anenergy-saving framework at all its facilities.
Nagase ChemteX is also working to reduce greenhouse gases. To this end, Nagase ChemteX has
undertaken the following key energy-conservation
measures: formulated and monitored energy conservation targets at each department based on theefforts of all employees; established a system toimprove energy conservation-related proposals;
and improved capital investment activities undertaken by Energy Conservation
Committee staff members.
Once again in fiscal 2013, the Kansai Electric Power Co. Inc. asked Nagase tocooperate with energy-saving measures during the hot summer months. In
September, we signed a special peak-time adjustment contract to cut 10% of usedelectricity. We achieved that goal for all three months of the contract, earning a discount on electricity fees.
Our Fukuchiyama Plant No. 1 received subsidies to implement energy conservation measures, and the plant was recognized as a successful case of METI Kansai
energy conservation subsidy activities. (Energy savings via high-efficiency boilers,
inverter-equipped water cooling equipment, high-efficiency compressors)

Environmental Performance Data
Electricity Usage
Electricity Usage (kWh)

CO2 Output
Fiscal 2011

Fiscal 2012

Fiscal 2013

27,024,091

28,029,476

27,710,904

Fiscal 2013

19,07920,822

Fiscal 2012

Fiscal 2013

Fiscal 2011

Fiscal 2012

Fiscal 2013

6,471

6,394

7,034

Paper Usage (sheets: 1,000)

7,877

7,951

7,720

Paper Usage (t)

33.6

34.0

33.0

Fiscal 2011

Fiscal 2012

Fiscal 2013

1,565

1,746

1,831

Recycling (t)

3,675

3,613

4,030

36%

36%

36%

Participating Companies: NAGASE & Co., LTD., Nagase ChemteX Corporation, Nagase Application Workshop
Period: April 2011 to March 2014
*Paper Usage and CO2 Output from Logistics Activities applicable to NAGASE & CO., LTD. only.

NAGASE & CO., LTD. Annual Report 2014

Fiscal 2012

14,720Fiscal 2011

Recycling Ratio

60

Fiscal 2011

Basic Compliance Policy
As a member of world society, the Nagase Group must maintain good and fairbusiness practices and, through continued growth and development, provide
society with the goods and services needed while improving the welfare of its
employees. Based on this corporate philosophy, Nagase has adopted and will
implement the following Basic Compliance Policy.
This policy defines the behavior standards that NAGASE and its officers
and employees will observe as it carries out its various business activities.

Officers and employees of Nagase must behave in accordance with thesebehavior standards and endeavor to disseminate them to those within thecorporate organization, especially those with whom they work. If circumstances arise in which there is a risk that these behavior standards may be compromised, officers and employees must work to resolve problems without
delay and improve operations by identifying the causes of problems and taking steps to prevent recurrences.

1. ‌Compliance with laws, regulations and internal rules and regulations

4. ‌Respect for the qualities and individuality of employees• ‌Corporate activities will be conducted fairly and in good faith, in accordance with laws
and rules, and without any deviation from social standards.
• ‌Business activities will be conducted in accordance with the rules of the international community to ensure the continuing growth and development of Nagase as a
global enterprise.

• ‌NAGASE will respect the autonomy and creativity of every employee and foster a corporate culture in which those qualities can be applied to corporate activities.
• ‌NAGASE will protect its employees’ health, respect their human rights, treat themfairly and without discrimination, and secure and provide safe and enriching work
environments.

2. Elimination of anti-social elements

5. Disclosure of information to stakeholders• ‌Anti-social elements that threaten public order and safety will be met with firmness
and resolutely eliminated.

• ‌NAGASE will strive to ensure transparency by fairly and actively disclosing corporate
information to stakeholders, including customers, suppliers, employees and shareholders.

3. Provision of goods and services that are useful to society

6. Preserving the global environment• ‌NAGASE will contribute to society by supplying goods and services that are useful to society.

• ‌NAGASE recognizes its responsibility to maintain the global environment in a better condition and will act in accordance with that responsibility.

Paper Usage

Waste, Recycling
Waste (t)CO2 Output (t-CO2)

The Company established the Risk Management & Compliance Committee to
put in place a comprehensive structure for risk management as well as tomonitor risk management and compliance as an advisory body to the Boardof Directors. This Committee determines committee member functions andauthority, creating a structure of clearly defined roles and responsibilities.
Under the committee’s leadership, department managers address risks intheir particular areas by formulating rules and implementing training. The
Company also works through the Risk Management & Compliance
Committee to develop systems and departments responsible for additionalrisks that materialize and strives to lower the risks that could impact theCompany’s business.

In addition, the Risk Management & Compliance Committee formulates
the basic compliance policy to develop and maintain the Company’s compliance system and uses regular workshops and other initiatives to ensure that
corporate activities are strictly in line with the Nagase Group Code of
Conduct. Should employees of Nagase or its Group companies becomeaware of legal or other compliance issues, they report to the Risk
Management & Compliance Committee, which immediately reports to the
Audit & Supervisory Board. In addition, the Company has introduced an internal reporting system wherein employees and others can report or discuss
issues directly. The Company revised the Nagase Group Code of Conduct inNovember 2012, distributing the document to all employees throughout theentire domestic and international Nagase organization.

CO2 Output from Logistics Activities
CO2 Output (t-CO2)

NAGASE & CO., LTD. Annual Report 201461

1

Fair Business Practice Initiatives

2

Specific Measures Taken for Individual Risks:
Product Safety and Quality Control

1. Basic Approach
The risk of cartel enforcement, particularly surcharges, under the Antimonopoly
Act can have a major impact on a business. Since cartel regulations can be anissue, particularly for manufacturing firms, the Nagase Group actively conducts
education activities, mainly for our manufacturing companies.
Our sales companies (including NAGASE & CO.,LTD.), must be continually aware of the risks associated with violating sales agent regulations andsubcontractor risks under the Antimonopoly Act. As such, we hold regulareducation activities through a variety of means to keep this risk in the forefront of the minds of our employees.
Moving forward, we will continue to educate our employees about laws
related to fair business practices, particularly those directly affecting ourbusiness. During fiscal 2014, we intend to focus our education efforts on
anti-bribery regulations.

2. Education Activities (2012 - )September 2012
Company Training on Collusion, Cartels, and the Subcontract Act (NAGASE &CO.,LTD.)
Seminar regarding legal remedies and business-related risks in connection with the
Antimonopoly Act and the Subcontract Act. Sales personnel (including managers and sales
staff) required to attend. Seminars held at the Tokyo headquarters five times, and twice at
the Osaka headquarters and Nagoya branch office.

October 2012
Company Training on the Antimonopoly Act (Totaku Industries)
Seminar on business-related risks in connection with the Antimonopoly Act for Totaku
Industries employees and management (20 attendees).

January 2013
Company Training on the Subcontract Act (Hayashibara)
Seminar on business-related risks in connection with the Subcontract Act for purchasing andsales personnel, held twice in Okayama.

February 2013
Company Director Training on the Antimonopoly Act (NAGASE & CO.,LTD.)
Seminar on the Antimonopoly Act and related legal remedies, conducted for NAGASE &CO.,LTD. directors and employees (31 attendees) by Mr. Osanai, NAGASE in-house attorney.

July 2013
Company Training on the Antimonopoly Act and Subcontract Act (Nagase ChemteX)
Seminar on business-related risks in connection with the Antimonopoly Act and Subcontract
Act, conducted once each at Harima and Fukuchiyama for a total of 71 attendees.

October 15 through 29, 2013; November 6 through 20, 2013
E-Learning on the Subcontract Act (NAGASE & CO.,LTD. Affiliated Companies)
Subcontract Act E-Learning training for all NAGASE employees and interested affiliated company employees. Final test, eight correct answers to questions required to complete thecourse. Of 987 NAGASE employees, 957 passed the course (97% pass rate). Of 465 affiliated company employees, 459 pass the course (98.7% pass rate).

November 2013
Company Training on the Antimonopoly Act (Hayashibara)
Seminar on business-related risks in connection with the Antimonopoly Act conducted forHayashibara employees once each in Okayama and Tokyo. Reviewed topics covered during
January 2013 seminar and discussed regulations related to sales agents (resale price maintenance, etc.).

62

NAGASE & CO., LTD. Annual Report 2014

As the Nagase Group accelerates business globalization, the volume of offshore transactions it engages in as well as exports to and imports from China
and other rapidly growing countries is increasing. The Company’s principal
suppliers to date have been major chemical manufacturers in Europe and theUnited States, which differ from new suppliers in emerging countries in thattransactions with the latter require that initiatives be put in place to ensure
quality management and prevent the occurrence of other issues due to legal
and regulatory differences between Japan and the countries in question.
Therefore, Nagase recognizes the increasing importance of encouraging
overseas suppliers to conduct sound quality management.
We have also worked on test programs to strengthen and expand Groupwide research, development, and manufacturing functions, recognizing theimportance of continuing quality improvement for the Group as a whole.
Accordingly, pursuant to the Nagase Group Product Safety Principles,
formulated in October 2008, the Company is promoting the formulation ofGroup-wide rules regarding quality management and product quality assurance while providing its employees with educational programs. Throughthese activities, we are working to ensure the safety of the products handled
throughout the Group.
In tandem with its growth as a business engaged in manufacturing,Nagase will increasingly be called upon to assume responsibility for quality
assurance. To assist in this area, the Company established the Quality
Assurance Support Team within the Intellectual Property Office in December
2010. Quality Assurance Support manages vendors and contract manufacturers, supporting Group manufacturing companies, as well as providing
internal education and other services for sales divisions.

Regulatory Compliance in Products
Specific Management Framework
At NAGASE, with regard to all products for export, the Compliance
Program Procedural Administration System (CP-PAS) for goods andtechnology is employed to record data on export products and overseas customers. Furthermore, these activities are regulated by theForeign Exchange and Foreign Trade Control Law and the UnitedStates’ Export Administration Regulations (EAR), while the Sales
Division and export control officers confirm whether or not permission
to export is required. This system is designed to ensure that only
those products approved by the Security Trade Control Office areavailable for export.
Moreover, going one step beyond mere adherence to the law, we
define policies of the entire Nagase Group associated with security
export controls that prohibit trade in products that are military-related
items or that have military applications. We also make the Nagase
Group fully aware of Group policies to prevent any exposure to security export control risks.

Efforts to Promote Personnel Development
Every year, the practical business of security trade controls becomes
ever more complex. To keep pace with developments, the Nagase
Group encourages its employees—primarily those involved in export
operations—to become Security Trade Control (STC) Associates bytaking the exam offered by the Center for Information on Security
Trade Controls (CISTEC). As of March 2014, the Company had 666
qualified STC Associates in 20 Group companies. We continue to
strive to foster personnel with a high level of knowledge and expertise.

Aiming to Raise Awareness of Security Trade Controls
Security Trade Controls
As a trading company specializing in technology and information and which
also carries out export business activities, mainly of chemical products andprecision equipment components, Nagase has set up its own Security Trade
Control Regulations and established the Security Trade Control Committee toappropriately implement security trade control. Furthermore, the Company
has established a department-level Security Trade Control Office within the
Logistics Management Division to specialize in export controls and act as the
Security Trade Control Committee’s secretariat.
The Security Trade Control Committee meets once quarterly, while theExport Management Council meets on a monthly basis. At these meetings,
the Security Trade Control Committee works to understand the export control
situation, the latest revisions to the Foreign Exchange and Foreign Trade
Control Law and to ascertain a detailed picture of export controls across theentire Group while formulating related Group policies.
The Export Management Council is in charge of directing and educatingeach business division and Group company in the matters and statute
updates determined by the Security Trade Control Committee. It is the
responsibility of the Export Management Council to protect the Company andaffiliates against the risk of illegal acts with respect to export controls.

At NAGASE, internal security trade control training is provided to all
employees, and the Human Resources & General Affairs Divisionoffers various training opportunities such as orientation for new
employees, personnel training according to level, and the implementation of other activities that educate and instill knowledge. In addition, we hold lectures for domestic subsidiaries and affiliates as well
as overseas-based subsidiaries, with the entire Group participating.
During fiscal 2013, a total of 1,010 individuals participated in training lectures.

Because of a rising awareness of safety and security in the international
community, and against the backdrop of increasing concern with regard tochemical substances, including those that are used in finished products,
Nagase continues in efforts to improve chemicals management and compliance with related laws, as well as to centralize information management.
This strengthens the Company's internal logistics management systems forhandling chemicals and managing products in compliance with relevantlaws and regulations.

Framework for Compliance with Product Laws and Regulations
Every time Nagase begins handling a new product, it conducts stringent
investigations into the chemical components involved and regulated
effects in connection with related laws and regulations, while efficiently
managing data compiled through such investigations using the above
mentioned CP-PAS system. In this way, we are able to swiftly confirm
which products contain regulated materials and ingredients, complying as
appropriate to related regulations and providing our customers with theinformation they require to confirm compliance with revised laws in Japanand abroad. To meet our own and customers’ green procurement requirements, we established Green Procurement Management Regulations, providing for the procurement/supply of appropriate goods after verification.
In addition, because we distribute information on the chemical substances contained in products along the supply chain, we endeavor topass on accurate information by participating in the Joint Article
Management Promotion-consortium (JAMP) and by using specialized tools
for products containing chemical substances, such as MSDS Plus and AIS.

Strategic Approach to International Chemical Management(SAICM)
The action plan adopted at the 2002 World Summit on Sustainable
Development—also known as the Johannesburg Summit—is aimed atensuring that, by the year 2020, chemicals are produced and used inways that minimize significant adverse impacts on the environment andhuman health. In accordance with this policy, the entire world is accelerating the tightening and standardization of regulations concerning chemical
management. Consequently, each nation is witnessing dynamic changes
in applicable laws and regulations.
Also, the Registration, Evaluation, Assessment of Chemicals (REACH)
regulations took effect in Europe in 2007. Following this, from 2009,
China, South Korea, Taiwan, Malaysia and other countries bolstered theirrespective regulatory systems relating to chemical management. In suchan environment, as a company promoting business worldwide, Nagase isproviding support to its overseas subsidiaries in responding to these legal
and regulatory developments.
These legal and regulatory developments naturally affect the finishedproducts in which Nagase products are used. Therefore, it is important for
the Nagase Group to offer its customers relevant information, and theCompany works to ensure an accurate understanding of worldwide legal
and regulatory trends with regard to chemical management. At the sametime, with the aim of establishing a system to facilitate the global management of information related to the chemical products and chemical
substances used in our products, we are providing product management
education and guidance to our overseas counterparts.

NAGASE & CO., LTD. Annual Report 201463

Nagase Group Sustainability

Nagase Group Sustainability

Consumer Issues

Community Involvement

Food Materials

Cosmetics Materials

Contribution to the Advancement of Science and Technology

Basic Approach to Quality Management (Food Safety)

Basic Approach

Our Hayashibara businesses products include food, pharmaceuticals, andcosmetics—products that are consumed or used on the human body. In recognition of the importance of product quality, Hayashibara has acquired
FSSC22000 and ISO9001 international certification as part of our process tocontinue to improve product quality. We do not deal with quality issues in a
passive manner to merely respond to regulatory requirements. We are actively engaged in a continual process of improvement, implementing measuresthat assure compliance with global standards. In this manner, we believe wewill enjoy the acceptance of society and our end users. We also believe that
this is the basis for surviving in today’s competitive marketplaces.

We sell beauty care business department products mainly through a direct
consumer sales organization, managed by Nagase Beauty Care. Because
these products are cosmetics or health foods that come in direct contact withthe human body, product manufacturing must adhere to the strictest quality
control standards. Our highest priority is offering safe, secure products andservices to our customers, both old and new.

NAGASE has a long history of technological development beyond chemicals.
We have also been very active in technological and application development
for enzymes and organic compounds used in the pharmaceuticals markets.
We believe in the importance of fundamental research in the biochemistry
and organic chemistry fields, and that offering subsidies through researchand development and international exchange leads to the advancement ofscience and technology. As part of our contribution to societal progress, weSpecific Quality Management Initiatives
On April 1, 2014, we launched the Quality Management Office, which reports
directly to the president of the Company. This Office is charged with driving
the continual improvement of our quality management systems, based on
FSSC22000 and ISO9001. In preparation for this organizational change, we
separated the quality assurance operations and quality management operations from manufacturing and sales functions, where they had been conducted on an individual basis within our manufacturing head office and thefunctional dyes business. Our ISO9001 program is now a Group-wide initiative, applicable to both manufacturing and non-manufacturing operations. We
are conducting activities to raise the awareness of ISO9001 throughout theentire Group.

Specific Initiatives

Fiscal 2013 Subsidy Awards
Name

Present office

Position

Subject matter

Institute for Sustainable Science and Development, Hiroshima University

Assistant
Professor

Awakening from dormancy by inter-species interactions - Cultivation of unculturables

Hiroshi Abe

Faculty of Pharmaceutical Sciences, Hokkaido University

Assistant
Professor

Rolling circle translation of circular RNA

Kazunori Imaizumi

Graduate School of Biomedical & Health Sciences, Hiroshima University

Professor

Development of novel therapeutic strategies for cancers by regulation of endoplasmic reticulum stress response

Toshio Iwasaki

Department of Biochemistry and Molecular Biology,
Nippon Medical School

Hiroshi Ueda

Chemical Resources Laboratory, Tokyo Institute of Technology

Professor

Satoshi Okabe

Faculty of Engineering, Hokkaido University

Professor

Cell density-dependent regulation of activity and niche differentiation of anaerobic ammonium oxidizing bacteria

Professor

Studies on the function of polyunsaturated fatty acids in the formation of higher-order structures of membrane proteins andtheir post-translational modification

Biochemistry
Yoshiteru Aoi

Our research and development pursues herb sciences and technology,
selecting materials from a variety of plants, seeking out those that combine
safety and functionality. The plant materials coming out of our research areused as the raw materials of end products, which are in turn subject to strict
quality management systems in connection with the product creation process. At the same time, we are incorporating universal design for ease ofuse, ease of reading, and ease of understanding to respond to the shift inage demographics in our direct sales organization. We are working in close
coordination with Nagase Beauty Care to provide customers with after-sales
support (support office). This support office is staffed with experienced beauty
instructors and professionals well-versed in customer support, working
directly with customers. This new office has been invaluable in raising thequality of our products and services in response to customer feedback.

established the Nagase Science and Technology Foundation in 1989.
This organization has provided research subsidies to 412 researchersand projects to date, as well as 178 international exchange programs (international exchange support was suspended beginning March 2005). In total,
we have provided ¥1.07 billion in funding.
Beginning with fiscal 2011, the Nagase Science and Technology
Foundation was reorganized as a charitable organization, continuing to offer
research subsidies as well as the Nagase Research Promotion Award.

Tatsuo Kurihara

Institute for Chemical Research, Kyoto University

Group Leader
Probing redox roles of bacterial mitoNEET homologs
and Lecturer
Development of manufacturing method for fluoroimmunoassay probes using native antibody

Yukiko Goto

Graduate School of Pharmaceutical Sciences, The University of Tokyo

Professor

Differential control of interferon and apoptotic responses to viral infection

Hirohide Saito

The Hakubi Center for Advanced Research & Center for iPS Cell Researchand Application (CiRA), Kyoto University

Associate
Professor

Controlling cell fate by using synthetic RNA nanosystems

Susumu Mitsutake

Faculty of Agriculture, Saga University

Associate
Professor

Regulation system of cells through the plasma membrane-lipid dynamics, and pathogenic mechanisms of related disease

Hisakazu Mihara

Graduate School of Bioscience and Biotechnology,
Tokyo Institute of Technology

Professor

Development of cell-analyzing biochips

Nobuyuki Yoshida

Graduate School of Engineering, Shizuoka University

Associate
Professor

Studies on low-energy type carbon dioxide fixation system in an extremely oligotrophic bacterium

Daisuke Watanabe

Graduate School of Biological Sciences,
Nara Institute of Science and Technology

Assistant
Professor

Analysis and application of organic acid stress responses via the ubiquitin system of the yeast Saccharomyces cerevisiae

Masayuki Inoue

Graduate School of Pharmaceutical Sciences, The University of Tokyo

Professor

Development of new convergent strategy for total synthesis of complex natural products

Masami Kamigaito

Graduate School of Engineering, Nagoya University

Professor

Development of novel bio-based polymers via precision polymerization of pinocarvone derived from - pinene

Ken Kamikawa

Graduate School of Science, Osaka Prefecture University

Associate
Professor

Free construction of three dimensional chiral network based on asymmetric carbon-carbon bond formation by transition metal
catalysis

Hiroyuki Kusama

Faculty of Science, Gakushuin University

Professor

Development of new methodologies for construction of heterocyclic compounds using photo-induced carbene formation

Koichi Fukase

Graduate School of Science, Osaka University

Professor

Development of selective inhibitors for fucosyl transferase 8 and its application to cancer immunotherapies

Takamitsu Hosoya

Institute of Biomaterials and Bioengineering, Tokyo Medical and Dental
University

Professor

Azido-type selective reactions for innovative synthetic method of multifunctional molecular probes

Yoshihiro Matano

Faculty of Science, Niigata University

Professor

Novel -expanded diazaporphyrin derivatives: synthesis and application to dye-sensitized solar cells

Organic chemistry

Nagase Beauty Care Customer Support

ISO9001

TABLE FOR TWO Initiative
In October 2008, Nagase Tokyo Head Office participated in
the TABLE FOR TWO (TFT) program operated by the NPO
organization TABLE FOR TWO International as part of its
employee-participatory social contribution activities. The
Osaka Head Office also took part in the TFT program in
January 2009. TFT was launched to reduce the incidence of lifestyle-related diseases caused byovereating and obesity in advanced countries including Japan, while extending food assistance todeveloping countries where people suffer from the shortage of food.
Every time a TFT healthy meal—a meal that includes an ample portion of vegetables—isbought at our employee dining halls, the employee who makes the purchase and the Company
each donate 10 yen to the TFT office. This buys one highly nutritious school meal for a child in

64

NAGASE & CO., LTD. Annual Report 2014

the developing world. The total number of meals donated was 76,491 as of February 2014.
As there is no employee dining hall in the Nagoya Branch, the facility participates in TFT activities via vending machines. Purchasing beverages at special vending machines results in a contribution of a percentage of the sale. The Osaka branch has also installed TFT vending machines, making
more opportunities available for social contributions outside the employee dining hall.

Collecting Used Stamps and Prepaid Cards
All NAGASE locations have a place for collecting used stamps
and prepaid cards. These items are regularly donated to theJapan Overseas Christian Medical Cooperative Service, whichuses them to support overseas medical activities.

NAGASE & CO., LTD. Annual Report 201465

Six-Year Summary

Management’s Discussion and Analysis of Operations and Finances

NAGASE & CO., LTD. and Consolidated Subsidiaries (Fiscal years ended March 31, 2009–2014)

Thousands of
U.S. Dollars (Note 1)(Millions of yen)

2009

2010

2011

2012

2013

2014

Strong performance in the automobile-related business and office equipment and2014

For the Fiscal Year:Net Sales Gross Profit and Net Income

Business Lines and Scope of Consolidation¥715,238¥603,949¥660,213¥631,854¥666,272¥723,212$7,026,933

Domestic

394,874

360,382

389,379

366,369

361,971372,939

3,623,581

Overseas320,364

243,567

270,833

265,485

304,301

350,272

3,403,342

Gross Profit

71,52765,41573,00871,62882,58388,936

Operating Income

12,522

13,12818,732

13,427

15,578

Income before Income Taxes and Minority
Interest

11,183

13,534

20,918

16,536Net Income

5,808

7,537

12,8238,570

The Nagase Group imports and exports a diverse array of products and engages

appliances business and higher net sales in film used in LCDs led to gross profit

in domestic transactions, with NAGASE & CO., LTD. (the “Company” orof ¥88.93 billion (7.7% year-on-year increase). As a result, our gross profit ratio“NAGASE”) at its center. In addition, the Nagase Group manufactures and sells

decreased 0.1 points to 12.3%.

products and provides services. These businesses are conducted by 100 related

Operating profit amounted to ¥15.78 billion (1.4% increase), due in part to ancompanies, consisting of 72 subsidiaries and 28 affiliates. The scope of consoli-increase in retirement benefit costs related to amortization of actuarial differenc-

864,127

dation includes 60 subsidiaries as well as 25 affiliates, which are accounted for

es in retirement benefit obligations. The Group’s operating margin decreased 0.1

15,789153,410by the equity method.

points compared to the prior fiscal year, amounting to 2.2%.

19,45818,353

178,322

Overview of Results

14,182

11,663

113,321

Gross Profit and Operating Profit
Gross Profit

 Net Sales
As of the Fiscal Year-End:During the period under review, Japanese government and central bank econom-

Total Assets¥340,968¥368,088¥375,336¥450,842¥486,747

498,141$4,840,079

ic policies continued to drive the yen lower and stock prices higher. At the same

Net Assets

191,931202,753

209,316

212,744

237,806

251,892

2,447,454

time, the economy experienced signs of a moderate recovery, with improvement

Interest-Bearing Debt

31,34021,88627,12588,71098,42592,828

901,943

in both capital investment and personal consumption. Globally, the economies of

50

761

1,169

990

1,024

1,147

1,275

12.39

the United States and Europe also showed signs of gradual improvement. At the25

105,328

161,799

137,024

141,730

158,754

176,470

1,714,632

same time, China (which showed signs of economic decline) and the rest of the

Share Price (Yen)Market Value
Number of Shares Issued and Outstanding(Thousands of Shares)

138,408

138,408

138,408

138,408

138,408

138,408—

In this environment, the Company recorded domestic sales of ¥372.93 billion

Number of Shareholders

5,801

5,446

5,136

6,124

6,921

6,984

—

(3.0% year-on-year increase) and overseas sales of ¥350.27 billion (15.1%

Number of Employees

4,506

4,469

4,693

5,545

5,897

5,960

—

increase), resulting in total net sales of ¥723.21 billion, representing an 8.5%
increase year on year

Net Income¥ 45.17¥ 58.64¥ 99.76¥ 66.69¥ 111.31¥

Net Assets

1,435.88

1,519.61

1,568.04

1,592.87

1,803.31

1,942.20

18.87

16.00

16.00

22.00

24.00

26.00

28.00

0.27

Cash Dividends

91.86

$

0.89

Operating Margin(Operating Income / Net Sales) (%)

1.8

2.2

2.8

2.1

2.3

2.2

Ratio of Income before Income Taxes andMinority Interests to Net Sales (%)

1.6

2.2

3.2

2.6

2.9

2.5

—

Return on Sales (ROS) (%)

0.8

1.2

1.9

1.4

2.1

1.6

—

—

Total Assets Turnover (Times)

1.9

1.7

1.8

1.5

1.4

1.5

—

Return on Assets (ROA) (%)

1.5

2.1

3.4

2.1

3.0

2.4

—

Return on Equity (ROE) (%)

3.0

4.0

6.5

4.2

6.5

4.9

—

Shareholders’ Equity Ratio (%)

54.1

53.1

53.7

45.4

46.9

49.5

—

Debt to Equity Ratio (Times)

0.17

0.11

0.13

0.43

0.43

0.38

—

Current Ratio (%)

197.3

195.3

200.2

155.4

184.4

187.2

—

Interest Coverage Ratio (Times) (Note 2)

13.5

23.2

35.4

21.26

15.46

15.80

—

Note: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥102.92=U.S. $1.00, the approximate rate of exchange prevailing on March 31, 2014.
Note: 2. Interest coverage ratio is calculated as (operating profit + interest income + dividend income)/interest expense.

nag14̲E̲財務̲最終引き取り.indd 66-67

2011

2012

2013

2014

The Company recorded ordinary income in the amount of ¥17.9 billion (0.1%

Income ratio decreased 0.2% compared to the prior fiscal year, amounting to 2.5%.

Net Sales

Net income before income taxes and minority interest amounted to ¥18.35 billion, which was a 5.7% year-on-year decrease. Net sales Ratio of Income before(¥ Billion)
800

Income Taxes and Minority Interests to Net Sales decreased 0.4 points to 2.5%.
As a result, the Group recorded net income of ¥11.66 billion, a 17.8% yearon-year decrease. Return on sales (ROS) decreased 0.5 points to 1.6%. Net

Ratios:NAGASE & CO., LTD. Annual Report 20142010

decrease in gain on investment in equity method affiliates. Net sales Ordinary

600

66

Fiscal years
ended March 31

year-on-year decrease), reflecting increased foreign exchange gains offset by a

U.S. Dollars (Note 1)

Per Share Data:

75

0world’s emerging economies experienced slowing growth.

(Yen)

Operating Profit(¥ Billion)
100

400

income per share fell from ¥111.31 in the prior fiscal year to ¥91.86 for the year

200

under review.

0
Fiscal years
ended March 31

2010

2011

2012

2013

2014

Net Income / Net Income per ShareNet Income (Left)

Net Income per Share (Right)(¥ Billion)
15

(¥)
150

10

100

5

50

0
Fiscal years
ended March 31

0
2010

2011

2012

2013

2014

NAGASE & CO., LTD. Annual Report 201467

2014/08/18 11:41

in Northeast Asia and Southeast Asia.

Results by Business Segment

Our business focusing on functional films and sheets and plastic molding
Functional Materials

products showed lower net sales overall, caused mainly by lower year-on-year

Fiscal years ended March 31

Net Sales(¥ Million)

performance in anti-reflective materials for LCD TVs and anti-reflective sheets for

Automotive &Energy saw overall gains in net sales, with solid gains in automo-

12.4%), while operating profit showed a ¥0.05 billion year-on-year decrease

tive-related business revenues in Northeast Asia, the United States, Europe, and(18.9%) to ¥0.21 billion.

Japan, as well as growth in battery-related materials revenues.
Our automobile-related business recorded overall net sales improvements com-

Financial Condition

2013

2014

167,017

169,973

As a result, net sales for the Advanced Materials & Processing segment

light/small automobiles in Japan, as well as significantly higher revenues related to(Summary of Consolidated Cash Flows)pared to the prior fiscal year. This result was mainly due to improved revenues fromgame devices, more than offsetting gains in sales of synthetic resins.

Segment Profit

4,368

4,328

amounted to ¥239.22 billion, which was a ¥25 billion (11.7%) increase year on

resin sales to Japanese car manufacturers in China. The Company also recorded

Cash and cash equivalents at the end of the year decreased by ¥11.99 billion

Segment Assets

76,77975,491

year. Operating profit increased ¥530 million (16.9%), reaching ¥3.7 billion, mainly

improved sales of products and services to North America.

(26.2%) compared to the prior fiscal year, amounting to ¥33.82 billion.

Depreciation and Amortization

418

407

due to higher gross profit from revenue gains and better profitability among manu-

Amortization of Goodwill——

facturing subsidiaries that operate in the colors and imaging business.

Goodwill——

Investments in Equity Affiliates
Increase in Property, Plant, and Equipment andIntangible Fixed Assets

1,781

1,850

612

399

Electronics
Fiscal years ended March 31

Net Sales(¥ Million)
2013

2014

125,014137,026

In our energy business, higher year-on-year performance in solar power related products and products for lithium ion batteries lifted net sales higher for the Cash Flows from Operating Activities

business as a whole.

Cash flows from operating activities amounted to ¥12.72 billion for the fiscal year

As a result, segment net sales for the fiscal year amounted to ¥99.44 billion,

under review. This increase was mainly due to net income before income taxes

representing a ¥16.37 billion (19.7%) increase year on year. Operating profit

and minority interests of ¥18.35 billion, offsetting ¥6.31 billion in income tax

increase ¥610 million (80.9%) compared to the prior fiscal year, reaching ¥1.38

payments. In addition, the Company recorded ¥8.63 billion in depreciation andbillion for the segment.

amortization, which has no effect on cash flows

Functional Materials saw overall gains in net sales. Net sales fell in Southeast

Segment Profit

6,421

6,067

Asia, while net sales in Japan and Northeast Asia performed well.

Segment Assets

65,45369,824

Life & Healthcare

2,323

Fiscal years ended March 31

The performance chemicals business recorded higher overall net sales compared to the prior fiscal year. While sales of basic chemicals in Southeast Asiaand additives for the Middle East struggled, production recoveries among
Japanese automobile manufacturers in China and strong demand for housingrelated services in Japan drove performance growth in urethane materials andDepreciation and Amortization
Amortization of Goodwill
Goodwill
Investments in Equity Affiliates
Increase in Property, Plant, and Equipment andIntangible Fixed Assets

coating raw materials revenues.

1,508
96
2,046
56

75

2,788

2,015

In our specialty chemicals business, the group recorded lower comparative
net sales. Despite solid results related to special epoxy resin exports, sales of raw

The Electronics segment reported higher overall revenues, driven by growth inmaterials for fluorochemical materials and electronics materials were weak.

Japan, Northeast Asia, and Southeast Asia, which all outperformed lower results

As a result, net sales for the Functional Materials segment amounted toin the United States and Europe.

2014

under review. This was mainly due to payments of ¥11.8 billion for the acquisition

Net Sales

76,11676,810of tangible and intangible fixed assets and ¥3.36 billion in purchases of invest-

Segment Profit

4,093

4,000

ment securities, offsetting ¥1.83 billion in cash from the sale of investment secu-

Segment Assets

95,73596,205rities.

Depreciation and Amortization

2,025

2,993

Amortization of Goodwill

1,516

1,516

 Cash flows from Financing Activities

Goodwill

28,67927,163

Cash used in financing activities amounted to ¥11.83 billion for the fiscal year

Investments in Equity Affiliates

1,856

2,070

Increase in Property, Plant, and Equipment andIntangible Fixed Assets

3,028

4,488

The electronic chemicals business experienced overall sales gains year. While

profit for the segment came in at ¥4.32 billion, representing a ¥30 million (0.9%)

formulated epoxy resin for the semiconductor industry showed lower net sales,

year-on-year decline. This was due to increased gross profit in Japan and Northeast

the decrease was more than offset by higher sales in chemicals used in the man-

Asia offset by decreased gross profit of manufacturing subsidiaries.

ufacture of LCD panels.
Net sales in our electronic materials business were level with the prior fiscal

whole, driving mainly by sales of functional saccharides to the food industry in

Advanced Materials & Processing

year. Sales in film for LCDs were strong, while touch-panel materials experienced

Japan and overseas and revenues from sales of cosmetics and health foods ingains as well. However, these gains were offset by declines in the sales of LED-

Japan.

Net Sales(¥ Million)

Fiscal years ended March 31

2013

2014

214,214239,224

As a result, we recorded total net sales of ¥137.02 billion in this segment,

industry in Japan and overseas drove strong performance and higher revenues.
Despite a contraction in Japan’s whitening cosmetics market, the Company

related materials.

Sales of trehalose and other functional saccharides to the food materials

Segment Profit

3,171

3,707

Segment Assets

108,713

119,202

amounted to ¥6.06 billion—a ¥350 million (5.5%) decrease compared to therecorded year-on-year gains in sales of raw materials to the toiletries market in

647

prior consolidated fiscal year, mainly due to weak performance in thin-glass pro-the skin care and toiletries business. However, sales of pharmaceutical raw mate-—cessing revenues in Northeast Asia that offset gross profit gains owing to higher

rials, intermediates and reagents in the pharmaceuticals and medical fields weretouch panel materials sales.

level with the prior year.

Automotive & Energy

foods. Sales for this business grew overall, owing to strong performance of new

Amortization of Goodwill
Goodwill
Investments in Equity Affiliates
Increase in Property, Plant, and Equipment andIntangible Fixed Assets

553
—
—

—

1,545

2,245

863

862

Fiscal years ended March 31(¥ Million)
2014

83,06899,441

As a result, segment net sales amounted to ¥76.81 billion for the fiscal year,

Segment Profit

763

1,381

which was a ¥690 million (0.9%) increase year on year. Operating profit fell toand the United States.

Segment Assets

37,38740,792¥4.0 billion, ¥90 million (2.3%) lower than the prior fiscal year. This decrease was

Depreciation and Amortization

250

262

Amortization of Goodwill——

Goodwill

—

—

1,613

1,777

92

369

Our office equipment and appliance business reported higher net sales on thewhole. This result stems mainly form increased plastics sales in Japan, as well as

Investments in Equity Affiliates
Increase in Property, Plant, and Equipment andIntangible Fixed Assets

68

NAGASE & CO., LTD. Annual Report 2014

nag14̲E̲財務̲最終引き取り.indd 68-69

2012

2013

2014

Cash Flows fromOperating Activities

27,875

10,997

5,690

18,576

12,721

Cash Flows from
Investing Activities(9,438)(9,147) (81,066)(9,529) (14,171)

Cash flows from
Financing Activities(11,753)

3,564

1,164 (11,833)

56,961

ing demand in advance of Japan’s increase in consumption tax rates.

driven by higher performance in Japan, Northeast Asia, Southeast Asia, Europe,

printing materials.

2011

products in whitening cosmetics and health foods, as well as increased purchas-

2013

Net Sales

the year, with strong gains in sales of dyes/additives business and information(¥ Million)
2010

Our beauty care products business includes sales of cosmetics and health

Advanced Materials & Processing reported higher overall net sales for the period,

The colors and imaging business experienced overall year-on-year growth for

Cash Flow Summary

The Company’s Life & Healthcare business experienced higher net sales as arepresenting a ¥12.01 billion (9.6%) increase year on year. Operating profit

Depreciation and Amortization

under review. This result was mainly due to cash outlays of ¥10.48 billion in
repayments of long-term debt and ¥3.42 billion in cash dividends paid.

¥169.97 billion, which was a ¥2.95 billion (1.8%) increase year on year. Operating

Fiscal years ended March 31

Cash used in investing activities amounted to ¥14.17 billion for the fiscal year

2013

169
2,617

 Cash Flows from Investing Activities(¥ Million)

mainly due to higher general and administrative expenses.

Other
The Other business segment saw lower revenues and lower profits for the fiscal
period under review. Net sales amounted to ¥0.73 billion (¥0.1 billion decrease;

NAGASE & CO., LTD. Annual Report 201469

2014/08/18 11:41

In the Other segment, the Group invested ¥0.04 billion.

Summary of Consolidated Balance Sheets
Working Capital / Prepaid Cost Recovery
Working Capital (Left)

 Assets
Total assets at the end of the fiscal year amounted to ¥498.14 billion, which was

Cash on hand and capital acquired from outside sources were used as fund-Prepaid Cost Recovery (Right)(¥ Billion)
150(Months)
3

100

2

50

1

compared to the end of the prior consolidated fiscal year. This increase wasmainly due to a decrease in cash and time deposits associated with repaymentsof loans, offset by increases in accounts receivable and inventories. Non-current
assets increased ¥10.78 billion compared to the end of the prior fiscal year,
reaching ¥191.77 billion. This increase was mainly due to gains in investments in

0
As of / Years
ended March 31

0
2010

2011

2012

2013

2014

Total Assets (Left)

ROA (Right)(¥ Billion)
500

(%)
5

400

4

300

3

200

2

100

1

0

0
2010

2011

2012

2013

2014

bacteria and research and development into unique functional saccharides produces from these enzyme-producing bacteria. The Nagase Group functional sac-

To leverage the total capacity of the Group and create new business opportuni-

charides have applications and usages in a wide variety of fields, from foods toties, the Nagase Group engages in research activities designed for marketing

cosmetics and perfumes, pharmaceuticals, health, agriculture, and industry. On

driven development of new technologies and products, as well as to gather andtop of our long history of technological development, we continue to explore andshare technological information.

adopt new methods. This work has resulted in products such as TREHATM, AA2GTM,

The Nagase R&D Center is engaged in research designed to create new high-and a new generation of powerful functional saccharide products. We continue topursue research and development programs that create new products and appli-

 Net Assets

narrow the focus of our research to bio-related technology, developing a system

cations, from basic research to applied research, from application development to

Net assets amounted to ¥251.89 billion at the end of the fiscal year underto produce unique technologies and technological applications.

patents, all linked in a cohesive intellectual property strategy. In functional dyes

review, representing an increase of ¥14.08 billion compared to the end of theMore specifically, we plan to further develop our strong genetic engineeringbusiness, we are making use of the extensive Hayashibara functional dyes library,prior year. This increase was mainly due to net income of ¥11.66 billion, an

and bioinformatics technologies to rapidly commercialize useful non-petroleum-pursuing development to offer products and new applications in photo and print-

increase in unrealized holding gain on securities, and improvements in foreigndependent compound production from our unique actinomycete technologies

ing plate and other commercial fields, as well as in Life Sciences fields such as

currency translation adjustments.

researched to date. At the same time, we will work with universities and other out-

pharmaceuticals.

As a result, the Company experienced a 2.6-point increase in shareholders’equity ratio, up to 49.5% as of the end of the fiscal year under review.

side research institutions, particularly in metabolic engineering, maximizing theuse of those research resources, while at the same time strengthening adoption of

The Group incurred a total of ¥5.16 billion in consolidated research costs forthe fiscal year under review.

leading edge technologies. Further, we plan to transfer the process development
for pharmaceuticals and medical intermediates utilizing organic synthesis technol-

Shareholders’ Equity Ratio / ROE
As of / Years
ended March 31

and functional dyes. The functional saccharides business consists of screening

value-added bio businesses. During the current fiscal year, we have started tosecurities, due to market price improvements.

Total Assets / ROA

Hayashibara conducts research and development into functional saccharides
for microbes leading to the discovery and analysis of new enzyme-producing

Research Costs

an increase of ¥11.39 billion compared to the end of the prior fiscal year. Current
assets amounted to ¥306.36 billion. This represents an increase of ¥610 million

ing for these capital investments.

market demands for lighter weight, enhanced durability, and recyclability.

Shareholders’Equity Ratio (Left)ogies, development of enzymes and enzyme products using microbe-based tech-

ROE (Right)

nologies conducted by the Nagase R&D Center to our major manufacturing

Research and Development Expenses(¥ Billion)
6

(%)
60

(%)
8

45

6

synergies in our business. We are presently applying for numerous patents to add

30

4

to our catalog of intellectual property. These patents concern inventions related to15

2gies for manufacturing non-natural amino acids, new enzyme development

0(research, manufacturing, application), and applications to cosmetics and health0foods incorporating natural extracts. Our customers and the markets are recogniz-

Fiscal years
ended March 31

subsidiary Nagase ChemteX Corporation in order to speed up the launch of new
products. We have forged deeper ties with the Hayashibara R&D Center to drive Liabilities
The Company recorded liabilities in the amount of ¥246.24 billion, representing a

manufacturing methods for new biochemical production, chiral synthesis technolo-¥2.69 billion decrease compared to the end of the prior fiscal year. This decrease
was mainly due to decreased accounts payable and loans outpacing the increasein deferred tax liabilities due to unrealized holding gains on securities.
Current liabilities decreased by ¥2.16 billion, amounting to ¥163.64 billion at0
As of / Years
ended March 31

2010

2011

2012

2013

2014

the end of the year. This increase was mainly due to decreases in trade payables

ing our ability to engage in technological development through new productand current portion of long-term debt.

launches based on patented technologies. In this way, we demonstrate the Nagase

Long-term liabilities amounted to ¥82.6 billion, representing a ¥520 million

4

Capital Investment

2010

2011

2012

2013

2014

R&D Center mission to develop basic biotechnologies that guide the Group’s existing businesses and new products and services based on biotechnology.

decline compared to the end of the prior fiscal year. While deferred tax liabilities

2

Outlook for the Year Ending March 31, 2015

and net defined benefit liabilities increased year-on-year, the company was able

Capital investment (including intangible fixed assets) during the fiscal period

The Nagase Application Workshop (NAW) is home to expert technical staff,

to pay down long-term debt.

under review amounted to ¥11.11 billion, mainly stemming from investments inprocessing facilities, and assessment equipment related to plastics and coating

As for the business environment for the fiscal year ending March 2015, we fore-

domestic manufacturing subsidiaries.

materials. The Nagase Group sales network brings in many different suggestions

cast the business conditions will continue to improve gradually over the next fis-for development and technical support services related to information devices,

cal year, despite negative factors such as the demand in Japan early in the year

autos, cosmetics containers, and more from their interaction with customers andto make purchased prior to the increase in the consumption tax which will likely

vendors. The NAW looks closely at each idea, working to solve customer needs

lead to lower purchases of automobiles and fewer housing starts. Meanwhile,through technical development.

stability in North America and Southeast Asia contrast with slower growth andAs a result, working capital rose from ¥139.92 billion at the beginning of theyear to ¥155.44 billion at the end of the year. Prepaid cost recovery fell by 0.09
months. Current ratio improved 2.8 points, compared to last year’s 184.4%, rising to 187.2%.

Functional Materials-related capital investment amounted to ¥390 million,
used for improvements and upgrades at Group manufacturing subsidiaries.
The Group added another ¥860 million in capital investment to acquire equipment for improving manufacturing processes related to advanced materials andprocessing at manufacturing subsidiaries.
Electronics-related capital investment amounted to ¥2.01 billion for LCD
panel processing equipment at manufacturing subsidiaries.
Energy-related capital investment amounted to ¥360 million related to purchasing dies at another party and manufacturing subsidiaries.
In the Life & Healthcare business, the Group committed ¥4.48 billion in capital funds to build new functional saccharide product manufacturing lines.
The Group also invested ¥2.92 billion to acquire multi-use training facilities
from another party.

70

NAGASE & CO., LTD. Annual Report 2014

nag14̲E̲財務̲最終引き取り.indd 70-71

Nagase ChemteX Corporation focuses on electronics, life science, automotive,

financial problems in China. Europe is showing signs of recovering from its fiscal

and environment/energy fields. ChemteX staff, in a cross-organization researchcrisis, but concerns remain as to how conditions in Ukraine will affect the regionaland development division, and product development departments in each Groupeconomy.

business work together to develop new products, leveraging proprietary Nagase

In light of these conditions, we have set expectations for earnings at ¥783.0

synthesis, compounding, and bio-technologies, as well as assessment technolo-

billion in consolidated net sales (8.3% year-on-year growth), with gross profit atgies—all developed over many years of technological experience. In particular,¥94.7 billion (6.5% increase). At the same time we predict higher net sales andNagase ChemteX is actively engaged in development for solar cells, hybrid vehi-

gross profit, we also expect lower retirement benefit costs associated with amor-

cles, wind power, bio-materials and other environment/energy-related fields, pro-tizing actuarial differences in retirement benefit obligations. Accordingly, we haveducing high-function, high-value-added products and solutions designed to meetset our projections for operating profit as ¥19 billion (20.3% year-on-year gain),

NAGASE & CO., LTD. Annual Report 201471

2014/08/18 11:41

with ordinary income projected to be ¥21.5 billion (20.1% increase), and net
income to come in at ¥14.2 billion (21.8% increase).
The figures above have been calculated using a currency conversion rate of¥103 to the US dollar.
(Announced on May 9, 2014)

Statements made in this document with respect to the Nagase Group’s per-(4) Impact of Fluctuations in Interest Rates(9) Product Quality Risk

formance outlook contain forward-looking statements based on assumptions,

The Nagase Group obtains funds for operating and financing activities through

The Nagase Group operates the Nagase R&D Center and domestic manufactur-

projections and plans of the Company as of May 9, 2014. Forecasts in connec-

loans from financial institutions; some of these loans are interest-bearing debt

ing subsidiaries to offer high-value-added products to our customers. We paytion with the Group’s future performance are subject to a variety of risks andincluding variable interest terms. The Group reduces interest rate fluctuation risk

detailed attention to the quality of the technologies and products that bear theuncertainties including those outlined as follows. As a result, readers are advised

related to variable interest loans by utilizing interest-rate swap contracts. Group

name of Nagase and our affiliates. We also bear manufacturers’ liability for prod-that actual results may differ from projections.

earnings and financial conditions may be affected by future interest rate trends.

ucts that we handle as an importer, and accordingly treat these products with the Operating and Other Risks(5) Risks Involved in Operating Overseas

However, product defects could result in cessation of sales and/or product

The Nagase Group is engaged in trading, marketing, research and development,

A significant and increasing percentage of Nagase Group sales and manufactur-

recalls, exposing the Nagase Group to liability for damages, which could have amanufacturing and processing in six business segments across the world:

ing are conducted overseas in locations such as China, Southeast Asia, Europe,

significant impact on Group earnings and financial conditions.

Functional Materials, Advanced Materials & Processing, Electronics, Automotive &and the United States. While Group management keeps a close eye on local

same attention to detail and quality as if they were made in our own facilities.

Year ending March 31, 2015
(Projected)(¥ Million)

Net Sales

Operating
ProfitOrdinary
IncomeNet Income

Year ending March 31, 2015
(Projected)

783,000

19,00021,50014,200Year ended March 31, 2014
(Actual)Energy, Life & Healthcare, and Other. The nature of these businesses entails vari-

trends and conditions in order to respond appropriately, unforeseen events stem-(10) Risks related to Product Laws

723,212

15,78917,905

11,663ous risks that may have a material effect on investment decisions. We provide aming from local government regulations, business customs, or other influences

The Nagase Group imports, exports, and sells domestically a wide variety of+21.8%

discussion of the major risks below

could have a significant impact on Group business performance and financial

chemicals and other products for a broad range of uses. To maintain international

conditions.

peace and safety, the chemicals and other items we export are subject to differ-

Change+8.3%+20.3%+20.1%

Any forward-looking statements are based on management decisions as ofthe end of fiscal year under review

Profit Sharing Policy

ent laws, including the Foreign Exchange and Foreign Trade Control Law and the(6) Impact of Changes in Stock Prices

Export Trade Control Order. Imports and domestic sales are subject to the(1) Overall Operating Risk

The Nagase Group maintains a portfolio of marketable securities, primarily equity

Chemical Substances Control Law and other related statutes, as well as similar

The Nagase Group is engaged in activities that rely on the use of chemicals acrossshares of companies doing business with the Group. These equity investments

regulations in foreign jurisdictions. To ensure compliance, the Group has estab-Our basic policy is to continue paying a stable dividend to our shareholders in line

a wide spectrum of products and services through our Functional Materials,

are subject to share price fluctuation risks. As a matter of policy, the Nagase

lished internal Security Trade Control Regulations and Chemical/Product Control

with our consolidated results as we improve our earnings power and manage-

Advanced Materials & Processing, Electronics, Automotive & Energy and Life &Group reduces risk by continuously reviewing and reorganizing its shareholdings.

Regulations. However, a violation of such laws and statutes could result in restric-

ment structure. We look to improve per-share dividends based on considerations

Healthcare business. These products and services include dyes/pigments, coating

However, changes in share prices could impact Group earnings and financial con-tions on Group business activities, having a significant impact on Group earningsof consolidated payout ratio and consolidated dividend to equity ratio. We alsomaterials/inks, surfactants, OA, electrical equipment, home electronics, automo-

dition. A decline in share prices could damage the value of pension plan assets

and financial condition.

plan to use funds from internal reserves effectively in our business activities andbiles, LCDs, semiconductors, and pharmaceutical/medical applications. Accordingly,

managed by the Group, increasing retirement benefit costs and thereby reducing

to build a stronger management foundation.

significant changes in domestic and international commercial chemicals industry

Group profits.

 Dividend Policy

In addition, the Company has determined in its articles of incorporation allow-

could affect the Nagase Group’s earnings and financial condition

ances or interim dividend payments according to the provisions of article 454(11) Risk of Natural Disasters
The Nagase Group has put emergency response systems in place, including the(7) Counterparty Credit Risk

creation of a business contingency plan, the adoption of safety confirmation sys-

paragraph 5 of the Companies Act. Accordingly, the Company’s board of directors(2) Product Market Conditions

The Nagase Group extends credit to domestic and overseas purchasers in con-tems, the creation of a disaster-response manual, earthquake-response mea-

has resolved to adopt a dividend policy calling for two dividend payments every

The Nagase Group relies heavily on petrochemicals manufactured from naphtha in ournection with various transactions. As a matter of policy, the Nagase Group reduc-sures, disaster-response training, and other measures to deal with natural

year, one at interim subject to board of director resolution and one at the end of

Functional Materials, Advanced Materials & Processing, and Automotive & Energy

es credit risk by obtaining guarantees and collateral according to the financial

disasters. However, as we conduct business across a great number of countries

the fiscal year, subject to approval by the general meeting of shareholders.

segments. Raw materials markets and demand-supply balance are two factors thatcondition of the purchaser. Although the Nagase Group strives to ensure stable,

and regions, we are exposed to the risk of major natural disasters, H1N1 influen-

result in unique market circumstances for each of our products. Fluctuations in theseuninterrupted product procurement, financial weakness or bankruptcies amongza and other communicable diseases, and other emergencies that could disrupt

factors could affect our revenues and profits in related product lines.

suppliers or others could damage the Group’s ability to procure goods. Such cir-our supply chain. Such disruptions could prevent us from selling our products orcumstances could have a significant impact on the Group’s earnings and finan-

damage the manufacturing capabilities of important Group facilities. Such inter-cial condition.

ruptions would result in opportunity loss, and could have a significant impact on

The Nagase Group declared a year-end dividend of ¥14.00 per share basedon this policy, resulting in a scheduled full-year cash dividend of ¥28.00 per
share. The consolidated payout ratio increased to 30.5% from 23.4% for the previous fiscal year.

Some products manufactured by the Group use raw materials derived fromgrains. Raw materials costs fluctuate widely due to changes in grain market pric-

We forecast a full-year dividend of ¥30.00 per share for the next fiscal year,
consisting of a ¥15.00 per share interim dividend and a ¥15.00 per share year-

es; we may not be able to pass on increased raw materials costs through higher
sales prices, which could affect our profits in related product linedend dividend.

The Nagase Group business is based on brokered transactions. At the same time,

Consolidated Payout Ratio/
Ratio of Dividends to Net Assets on a Consolidated Basis
Consolidated Payout Ratio (Left)
Ratio of Dividends to Net Assets on a Consolidated Basis (Right)
(%)
40

(%)
2.0

(3) Impact of Fluctuations in Foreign Currency Exchange Rates

the Group continues to look for new high-value business opportunities.

The Nagase Group conducts import/export as well as non-trade business trans-

Accordingly, we support the Nagase R&D Center and domestic manufacturing

actions denominated in foreign currencies. Fluctuations in currency markets havesubsidiaries in their pursuit of new business through proactive investment anda significant impact when prices are converted to yen. While the Group executes

strategic mergers and acquisitions, using advanced technologies and informa-exchange contract hedges for these transactions to minimize exchange rate risktion-gathering capabilities as leverage. As a result of pursuing new business, theto the greatest extent possible, currency exchange rate fluctuations could have aGroup will be exposed to greater risk than were we to follow a conventional bro-significant impact on Group earnings and financial conditions. The Nagase Group

kered business model. The book value of business assets and intangible fixed

30

1.5

owns foreign-domiciled corporations whose financial statements are preparedassets (goodwill, etc.) when acquiring other companies becomes an important

20

1.0

using local currencies. The conversion of these currencies to Japanese yen for

management topic. If future cash flows from new businesses underperform pro-consolidated reporting purposes entails currency conversion risk due to fluctuat-

jections, and the Group records correlating impairment losses, such losses may

ing exchange rates.

have a significant impact on Group earnings and financial condition.

10

0.5

0
As of / Years
ended March 31

72

Group earnings and financial condition.

(8) Risk of Investments

0
2010

2011

2012

NAGASE & CO., LTD. Annual Report 2014

nag14̲E̲財務̲最終引き取り.indd 72-73

2013

2014

NAGASE & CO., LTD. Annual Report 201473

2014/08/18 11:41

Consolidated Balance Sheets

Nagase & Co., Ltd. and Consolidated Subsidiaries (March 31, 2014 and 2013)ASSETS

Thousands of
U.S. dollars (Note 1)

Millions of yen

2014

2013

LIABILITIES AND NET ASSETS

2014

Current assets:

Thousands of
U.S. dollars (Note 1)

Millions of yen

2014

2013

2014

Current liabilities:

Cash and time deposits (Notes 15 and 21)¥ 34,980¥ 46,693$ 339,876

Notes and accounts payable (Notes 15 and 24)¥105,014¥107,941$1,020,346

Notes and accounts receivable (Notes 15 and 24)

202,996

196,001

1,972,367

Short-term loans (Notes 8 and 15)

28,81825,061

280,004

Inventories (Note 5)

57,46051,863558,298

Current portion of long-term loans and finance lease obligations (Notes 8 and 15)

6,642

10,47364,536

Deferred tax assets (Note 11)

4,537

4,282

44,083

Accrued income taxes (Note 11)

3,720

2,947

36,145

Other current assets

7,324

7,967

71,162

Deferred tax liabilities (Note 11)

24

21

233

Less allowance for doubtful accounts(936)(1,057)(9,094)

Accrued expenses

3,493

3,538

33,939306,362

305,751

2,976,700

Accrued bonuses for employees

4,045

3,968

39,302

Total current assets

Accrued bonuses for directors

232

219

2,254

11,655

11,641

113,243

163,646

165,8121,590,031

Bonds (Notes 8 and 15)

30,00030,000291,489

Long-term loans and finance lease obligations (Notes 8 and 15)

27,36732,890265,906

Deferred tax liabilities (Note 11)12,506

9,251

121,512—

10,283—

11,875—

115,381

Other current liabilities
Total current liabilities
Long-term liabilities:

Property, plant and equipment, at cost (Note 6):Land

19,171

19,441

186,271

Accrued retirement benefits for employees (Note 10)

Buildings and structures

51,52650,057500,641

Liability for retirement benefits (Note 10)

Machinery, equipment and vehicles

79,54277,351

772,853

Other long-term liabilities

532

537

5,169

4,247

1,833

41,265155,019

149,221

1,506,209(91,104)(88,254)(885,192)

63,91460,967621,007

Leased assets
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net (Note 22)

Total long-term liabilities

853

703

8,288

82,603

83,129802,594

Contingent liabilities (Note 19)
Net assets:
Shareholders’ equity (Note 12):
Common stock:
Authorized–346,980,000 shares
Issued–138,408,285 shares in 2014 and 2013

Investments and other assets:

9,699

9,699

94,238

Capital surplus

10,242

10,041

99,514Retained earnings (Note 25)
Less treasury stock, at cost (Note 13)–11,375,631 shares in 2014 and 11,693,809 shares in 2013

206,351

199,160

2,004,965(6,916)(7,109)(67,198)

219,377

211,792

2,131,529

24,725

17,943

240,235

(0)

(6)

(0)

Total shareholders’ equity

Investments in securities (Notes 7 and 15):
Unconsolidated subsidiaries and affiliates (Note 22)

7,549

7,770

73,348

Other

58,72549,099570,589

66,27556,870643,947

Net unrealized holding gain on securities (Note 7)Long-term loans receivable

1,168

837

11,349Deferred loss on hedges (Note 15(c))

Goodwill (Note 22)

29,78030,726289,351

Retirement benefit liability adjustments

Technology-based assets

18,517

20,093179,916

Translation adjustments

Asset for retirement benefits (Note 10)

Accumulated other comprehensive income (loss):

113

—

1,098

Deferred tax assets (Note 11)

2,702

2,249

26,253

Other assets (Note 6)

9,525

9,542

92,548Stock acquisition rights

Less allowance for doubtful accounts

(218)

(289)

(2,118)

Minority interests

Total investments and other assets
Total assets (Note 22)

Total accumulated other comprehensive income

380

—

3,692

2,239

(1,223)21,75527,346

16,712

265,702

—

50

—

5,168

9,250

50,214

127,863

120,029

1,242,353

Total net assets

251,892

237,806

2,447,454¥498,141¥486,747$4,840,080

Total liabilities and net assets¥498,141¥486,747$4,840,080

See accompanying notes to consolidated financial statements.

74

NAGASE & CO., LTD. Annual Report 2014

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NAGASE & CO., LTD. Annual Report 201475

2014/08/18 11:41

Consolidated Statements of Income

Consolidated Statements of Changes in Net Assets

Nagase & Co., Ltd. and Consolidated Subsidiaries (Years ended March 31, 2014 and 2013)

Net sales (Note 22)
Cost of sales (Note 17)
Gross profit

2014

2013

2014

¥723,212
634,276
88,936¥666,272
583,689
82,583$7,026,934
6,162,806
864,127

Selling, general and administrative expenses (Note 17)
Operating income (Note 22)

73,146
15,789Other income (expenses):
Interest and dividend income
Interest expense
Equity in earnings of affiliates
Gain on sales of investments in securities
Loss on devaluation of investments in securities
Gain on sales of property, plant and equipment
Loss on sales of property, plant and equipment
Loss on disposal of property, plant and equipment
Loss on impairment of fixed assets (Notes 6 and 22)
Gain on bargain purchase of subsidiaries’ shares (Note 22)
Other, net
Income before income taxes and minority interests
Income taxes (Note 11):
Current
DeferredIncome before minority interests
Minority interests
Net income

67,004
15,5781,304(1,082)
654
867
(3)
519
(45)
(154)
(1,314)528
1,289
18,353

Millions of yen

Thousands of
U.S. dollars (Note 1)

Millions of yen

1,416(1,099)
933
801
(45)
3,358
(98)
(196)
(1,896)—707
19,458710,707
153,410

12,670(10,513)
6,354
8,424
(29)
5,043
(437)
(1,496)(12,767)
5,130
12,524
178,323

7,128
(906)
12,131

6,417(2,004)
15,044

69,258(8,803)
117,868468¥ 11,663

862¥ 14,182

4,547$ 113,321

Nagase & Co., Ltd. and Consolidated Subsidiaries (Years ended March 31, 2014 and 2013)

Retainedearnings

Treasurystock, at
cost

Retirement
Total
Net
benefitaccumulated
Total
unrealized Deferred liability
other
Stock
shareholders’ holding gain loss on adjustment Translation comprehensive acquisition Minority
equityon securities hedges (Note10) adjustments
incomerightsinterests

Total
net assets¥9,699 ¥10,041 ¥186,907¥(5,460)¥201,188 ¥12,731 ¥(21)¥212,744

Commonstock

Balance at April 1, 2012

Capitalsurplus¥—¥(9,191) ¥ 3,518¥110 ¥ 7,927

Net income for the year——

14,182—

14,182

—

—

—

—

—

—

—

14,182Gain on sales of treasury stock

—

0

—

—

0

—

—

—

—

—

—

—

0

Cash dividends——(3,189)—(3,189)

—

—

—

—

—

—

—

(3,189)Purchases of treasury stock

—

—

—

(1,649)(1,649)

—

—

—

—

—

—

—

(1,649)

Disposition of treasury stock
Decrease in retained earnings resulting fromchanges in scope of consolidation
Adjustments due to change in scope of
application of equity method
Changes in fiscal year-end of consolidated
subsidiaries

—

—

—

0

0

—

—

—

—

—

—

—

0

—

—

(66)

—

(66)

—

—

—

—

—

—

—

(66)

—

—

717

—

717

—

—

—

—

—

—

—

717

—

—

609

—

609

—

—

—

—

—

—

—

609

—

Other

—

—

—

—

5,211

15

—

7,967

13,194

(60)

1,322

14,457

Balance at April 1, 2013
Cumulative effects of changes in accounting
policies (Note 3)

9,699 10,041

199,160(7,109)211,792

17,943(6)—(1,223)

16,71250

9,250

237,806

—

—

(671)

—

(671)

—

—

(982)

—

(982)

—

(5)

(1,659)Adjusted balance at April 1, 2013

9,699

10,041

198,489(7,109)211,120

17,943(6)(982)(1,223)

15,73050

9,244

236,146

Net income for the year——

11,663—

11,663

—

—

—

—

—

—

—

11,663Gain on sales of treasury stock

—

201

—

—

201

—

—

—

—

—

—

—

201

Cash dividends——(3,425)—(3,425)

—

—

—

—

—

—

—

(3,425)Purchases of treasury stock

—

—

—

(1)

(1)

—

—

—

—

—

—

—

(1)

Disposition of treasury stock
Decrease in retained earnings resulting fromchanges in scope of consolidation
Adjustments due to change in scope of
application of equity method

—

—

—

194

194

—

—

—

—

—

—

—

194

—

—

(220)

—

(220)

—

—

—

—

—

—

—

(220)

—

—

(154)

—

(154)

—

—

—

—

—

—

—

(154)

Other

—

—

—

—

—

6,782

6

1,362

3,463

11,615(50)(4,075)

7,488¥219,377 ¥24,725 ¥ 0¥ 380¥ 2,239¥ 27,346¥ — ¥ 5,168¥251,892

Retirement
Total
Net
benefitaccumulated
Total
unrealized Deferred liability
other
Stock
shareholders’ holding gain loss on adjustment Translation comprehensive acquisition Minority
equityon securities hedges (Note10) adjustments
incomerightsinterests

Total
net assets

Balance at March 31, 2014

¥9,699 ¥10,242 ¥206,351 ¥(6,916)

See accompanying notes to consolidated financial statements.

Thousands of U.S. dollars (Note 1)

Commonstock

Consolidated Statements of Comprehensive Income
Nagase & Co., Ltd. and Consolidated Subsidiaries (Years ended March 31, 2014 and 2013)

Thousands of
U.S. dollars (Note 1)

Millions of yen

Income before minority interests
Other comprehensive income (Note 9):
Net unrealized holding gain on securities
Deferred gain on hedges
Translation adjustments
Retirement benefit liability adjustments
Share of other comprehensive income of affiliates accounted for by the equity method
Comprehensive income
Comprehensive income attributable to:Shareholders of the Company
Minority interests

2014

2013

2014

¥12,131¥15,044$117,868

6,780
6
3,549
1,368
198
11,903¥24,035

5,212
15
6,181
—
768
12,178¥27,22265,87658
34,483
13,292
1,924
115,653$233,531¥25,674
1,548$225,058
8,463

Retainedearnings

Balance at April 1, 2013
Cumulative effects of changes in accounting
policies (Note 3)$94,238 $97,561 $1,935,095 $(69,073) $2,057,831 $174,339 $ (58) $——(9,541)

Adjusted balance at April 1, 2013

94,238 97,561 1,928,576 (69,073) 2,051,302 174,339(58)(9,541) (11,883) 152,837——(6,520)—(6,520)— $(11,883) $162,379—(9,541)$ 486 $ 89,876 $2,310,591—(49)(16,119)486 89,817 2,294,462

Net income for the year——

113,321—

113,321

—

—

—

—

—

—

—

113,321

Gain on sales of treasury stock

—

1,953

—

—

1,953

—

—

—

—

—

—

—

1,953

Cash dividends——(33,278)—(33,278)

—

—

—

—

—

—

—

(33,278)

Purchases of treasury stock

—

—

—

(10)

(10)

—

—

—

—

—

—

—

(10)

Disposition of treasury stock
Decrease in retained earnings resulting fromchanges in scope of consolidation
Adjustments due to change in scope of
application of equity method

—

—

—

1,885

1,885

—

—

—

—

—

—

—

1,885

—

—

(2,138)—(2,138)

—

—

—

—

—

—

—

(2,138)——(1,496)—(1,496)

—

—

—

—

—

—

—

(1,496)

—

—

—

—

—

65,89658

13,23433,647

112,855(486) (39,594)

72,756

Other¥23,163871

CapitalsurplusTreasurystock, atcost

Balance at March 31, 2014

$94,238 $99,514 $2,004,965 $(67,198) $2,131,529 $240,235 $ 0 $ 3,692 $ 21,755 $265,702$ — $ 50,214 $2,447,454

See accompanying notes to consolidated financial statements.

See accompanying notes to consolidated financial statements.

76

NAGASE & CO., LTD. Annual Report 2014

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Consolidated Statements of Cash Flows

Nagase & Co., Ltd. and Consolidated Subsidiaries (Years ended March 31, 2014 and 2013)

Thousands of
U.S. dollars (Note 1)

Millions of yen

2014

2013

2014

¥ 18,353¥ 19,458$ 178,323

8,634
1,685
1,314
—
1,128
(1,304)
1,082
296
(473)
(840)

7,445
1,612
1,896
205
—
(1,416)
1,099(1,032)(3,259)(800)

83,89016,372
12,767—
10,960(12,670)
10,513
2,876(4,596)(8,162)(1,983)(3,274)(6,488)281
18,412
1,750(1,122)(6,319)12,721

10,357(1,490)(8,771)(1,015)24,2891,724(1,050)(6,387)
18,576(19,267)(31,811)(63,039)
2,730
178,896
17,003(10,902)(61,397)
123,601

Investing activities
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of investments in securities
Proceeds from sales of investments in securities
Purchases of investments in capital included in other assets
Increase in short-term loans receivable included in other current assets, net
Purchases of intangible fixed assets included in other assets
Other, net
Net cash used in investing activities(10,131)812(3,360)1,832(1,143)(542)(1,669)31(14,171)(10,551)
3,235
(214)
1,200
(646)
(380)
(1,709)(464)(9,529)(98,436)
7,890(32,647)
17,800(11,106)(5,266)(16,216)301(137,689)

Financing activities
Increase (decrease) in short-term loans payable, net
Proceeds from long-term loans
Repayments of long-term loans
Proceeds from issuance of bonds
Purchase of treasury stock
Cash dividends paid
Cash dividends paid to minority shareholders
Other, net
Net cash (used in) provided by financing activities

1,337
999
(10,484)—(1)(3,425)(545)
286(11,833)(16,273)
4,665(11,564)
29,855(1,649)(3,189)
(540)
(139)
1,164

12,991
9,707(101,866)—(10)(33,278)(5,295)
2,779(114,973)

1,179(12,103)45,816
113
(1)

2,451
12,66228,517915—

11,455(117,596)
445,161
1,098
(10)

—
¥ 33,825

3,721¥ 45,816—$ 328,653

Operating activities
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes and minority interests to net cash provided
by operating activities:
Depreciation and amortization other than amortization of goodwill
Amortization of goodwill
Loss on impairment of fixed assets
Provision for accrued retirement benefits for employees, net of payments
Increase in liability for retirement benefits
Interest and dividend income
Interest expense
Exchange loss (gain), net
Gain on sales of property, plant and equipment, net
Gain on sales of investments in securities, net
Changes in operating assets and liabilities:
Notes and accounts receivable
Inventories
Notes and accounts payable
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Increase in cash and cash equivalents resulting from inclusion of subsidiaries in consolidation
Decrease in cash and cash equivalents resulting from exclusion of subsidiaries in consolidation
Increase in cash and cash equivalents resulting from changes in fiscal year-end of consolidated
subsidiaries
Cash and cash equivalents at end of the year (Note 21)

Notes to Consolidated Financial Statements

Nagase & Co., Ltd. and Consolidated Subsidiaries (March 31, 2014)

1. BASIS OF PREPARATION
The accompanying consolidated financial statements of NAGASE & CO., LTD. (the“Company”) and consolidated subsidiaries are prepared on the basis of accounting
principles generally accepted in Japan, which are different in certain respects as to theapplication and disclosure requirements of International Financial Reporting Standards,
and have been compiled from the consolidated financial statements prepared by theCompany as required by the Financial Instruments and Exchange Act of Japan.
In preparing the accompanying consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements
issued domestically in order to present them in a format which is more familiar to readers outside Japan.
In addition, a certain reclassification of previously stated amounts has been madeto conform the consolidated financial statements for the year ended March 31, 2013 to
the 2014 presentation. Such reclassification had no effect on consolidated net income

or net assets.
The U.S. dollar amounts in the accompanying consolidated financial statements
have been translated from yen amounts solely for the convenience of the reader, as amatter of arithmetic computation only, at ¥102.92 = U.S.$1.00, the rate of exchange
prevailing on March 31, 2014. This translation should not be construed as a representation that the yen amounts 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 Financial Instruments and Exchange Act of Japan, amounts ofless than one million yen for the years ended March 31, 2014 and 2013 have been
omitted. Consequently, the totals shown in the accompanying consolidated financial
statements for the years ended March 31, 2014 and 2013 (both in yen and in U.S. dollars) do not necessarily agree with the sum of the individual amounts.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of theCompany and significant companies that it controls directly or indirectly. Significant
affiliates over which the Company exercises significant influence in terms of their operating and financial policies have been accounted for by the equity method. All significant intercompany balances and transactions have been eliminated in consolidation.
For consolidation purposes, the financial statements of the consolidated subsidiaries whose fiscal year end date differs from that of the Company have been included inconsolidation based on a provisional statement of accounts for a full fiscal year ending
March 31.
Unrealized intercompany gains among the Company and the consolidated subsidiaries have been entirely eliminated and the portion attributable to minority interests has
been charged to minority interests.
(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 foreign currency forward exchange contracts aretranslated at the corresponding contract rates. All other assets and liabilities denominated in foreign currencies are translated at their historical rates. Gain or loss on eachtranslation 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 to income in the period
in which such gain or loss is recognized for financial reporting purposes.
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 thecomponents of net assets excluding minority interests, net unrealized holding gain on
securities, and deferred loss on hedges are translated at their historical exchange rates.
Revenue and expense accounts are translated at the average rates of exchange in
effect during the year. Adjustments resulting from translating financial statements
whose accounts are denominated in foreign currencies are not included in the determination of net income but are reported as “Translation adjustments” as a component ofaccumulated other comprehensive income (loss) in the accompanying consolidated balance sheets.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and in banks and other highly liquid
investments with maturities of three months or less when purchased.
(d) Inventories
Inventories are stated at the lower of cost or net selling value, cost being determinedprimarily by the weighted-average method.
(e) Investments in Securities
Securities are classified into three categories: trading securities, held-to-maturity debt
securities or other securities. Trading securities, consisting of debt and marketable
equity securities, are stated at fair value. Gain and loss, both realized and unrealized,
are credited or charged to income. Held-to-maturity debt securities are stated at theiramortized cost. Marketable securities classified as other securities are carried at fairvalue with any changes in unrealized holding gain or loss, net of the applicable income
taxes, reported as a separate component of accumulated other comprehensive income(loss). Non-marketable securities classified as other securities are carried at cost determined by the moving-average method.
(f) Property, Plant and Equipment and Depreciation (except for leased assets)
Property, plant and equipment are stated at cost.
Depreciation of property, plant and equipment is calculated by the straight-line
method based on the estimated useful lives of the respective assets.
The estimated useful lives of the principal assets are as follows:
Buildings (other than structures attached to the buildings)
15 to 50 years
Machinery and equipment
2 to 17 years(g) Intangible Assets (except for leased assets)
Costs incurred for computer software obtained for internal use are capitalized andamortized on a straight-line basis over an estimated useful life of 5 years.
Technology-based assets recognized upon acquisition are amortized on a straightline basis over 13 to 17 years.
(h) Goodwill
Goodwill is amortized over a period not exceeding 20 years on a straight-line basis.
When immaterial, goodwill is charged to income as incurred.
(i) Leased Assets
Leased assets under finance lease contracts which do not transfer ownership to thelessee are depreciated to a residual value of zero by the straight-line method over therespective lease terms.
(j) Allowance for Doubtful Accounts
The Company and its consolidated subsidiaries provide allowances for doubtful
accounts based on their historical experience of bad debts on ordinary receivables plus
an additional estimate of probable specific doubtful accounts from customers experiencing financial difficulties.
(k) Income Taxes
Income taxes are calculated based on taxable income and charged to income on an
accrual basis. Deferred tax assets and liabilities are computed based on the temporary
differences between the financial reporting and the tax bases of the assets and liabilities that will result in taxable or deductible amounts in the future. Computations ofdeferred tax assets and liabilities are based on the enacted tax laws.
(l) Accrued Bonuses for Employees
Accrued bonuses for employees are provided based on the estimated amount ofbonuses to be paid to employees in the following fiscal year which is attributable to thecurrent fiscal year.
(m) Accrued Bonuses for Directors
Accrued bonuses for directors are provided based on the estimated amount of bonuses
to be paid to directors in the following fiscal year which is attributable to the current fiscal year.
(n) Liabilities for Retirement Benefits
Liabilities for retirement benefits are provided based on the amount of the retirement

See accompanying notes to consolidated financial statements.

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benefit obligation less estimated pension plan assets at the end of the fiscal year. The
estimated benefit is attributed to each period based on the plan’s benefit formula.
Prior service cost is charged to income in the fiscal year in which such cost is recognized for financial reporting purposes. Actuarial gain or loss is principally credited or
charged to income in the fiscal year following the fiscal year in which such gain or loss
is recognized for financial reporting purposes.
(o) Derivatives and Hedging Activities
Derivatives positions are carried at fair value with any changes in unrealized gain orloss charged or credited to income, except for those which meet the criteria for deferral
hedge accounting under which unrealized gain or loss is deferred as a component of
net assets. Receivables and payables hedged by qualified foreign currency forward
exchange contracts are translated at the corresponding foreign exchange contract rates(“Allocation method”). Interest-rate swaps which meet certain conditions are accounted
for as if the interest rates applied to the swaps had originally applied to the underlying
loans.
Derivative financial instruments are utilized principally in order to manage the risk
arising from adverse fluctuation in foreign currency exchange rates and the Company
also conducts interest-rate swap to mitigate the risk of fluctuation in interest rates onloans. Hedging instruments are foreign currency forward exchange contracts and interest-rate swaps. Hedged items are foreign currency assets, liabilities, forecast transac-

tions and interest rates on loans from financial institutions.
The Company manages its derivative transactions in accordance with its internalmanagement rules. Under these rules, the Company conducts foreign currency forward
exchange contracts within a certain range of actual demand of accounts receivable,accounts payable and actual transactions in foreign currencies. Execution and management of interest-rate swap are based on internal management rules and hedged items
of interest-rate swap are identified by individual contracts.
The Company assesses the effectiveness of the hedging activities based on a comparison of the accumulated fluctuations of the hedged items and those of the hedging
instruments in the period from the start of the hedging activities to the assessment
date. However, with regard to interest-rate swaps which meet certain conditions, theevaluation of effectiveness is omitted.
(p) Research and Development Costs
Research and development costs are charged to income when incurred.
(q) Distributions of Retained Earnings
Dividends and other distributions of retained earnings are approved by the shareholders
at a meeting held subsequent to the end of the fiscal year to which such distributions
are applicable. The accompanying consolidated financial statements do not, however,reflect the applicable distributions of retained earnings as approved by the shareholders
subsequent to the fiscal year end. (Refer to Note 25.)

5. INVENTORIESInventories at March 31, 2014 and 2013 are summarized as follows:graph 37 of the ASBJ Statement No.26, effective April 1, 2013. The effect of thischange is included in accumulated other comprehensive income as “Retirement benefit
liability adjustments.”
The Company adjusted the balance of retained earnings at April 1, 2013 in order toreflect the cumulative effects of changes in the method of calculating the retirement
benefit obligations and service cost.
As a result, effective April 1, 2013, “Liability for retirement benefits” was recordedin the amount of ¥2,562 million ($24,893 thousand), accumulated other comprehensive income decreased by ¥982 million ($9,541 thousand) and retained earnings
decreased by ¥671 million ($6,520 thousand) from the corresponding amounts which
would have been recorded under the previous method.
In addition, for the year ended March 31, 2014, retirement benefit expense including service cost and interest cost decreased from the corresponding amounts which
would have been recorded under the previous method. However, the effect on operating
income and income before income taxes and minority interests is immaterial.

Accounting Standard for Business Combinations
On September 13, 2013, the ASBJ issued “Revised Accounting Standard for Business
Combinations” (ASBJ Statement No.21), “Revised Accounting Standard forConsolidated Financial Statements” (ASBJ Statement No.22), “Revised AccountingStandard for Business Divestitures” (ASBJ Statement No.7), “Revised AccountingStandard for Earnings Per Share” (ASBJ Statement No.2), “Revised Guidance on
Accounting Standard for Business Combinations and Accounting Standard for Business
Divestitures” (ASBJ Guidance No.10), and “Revised Guidance on Accounting Standard
for Earnings Per Share” (ASBJ Guidance No.4).
(1) Overview
Under these revised accounting standards, the accounting treatment for any changes ina parent’s ownership interest in a subsidiary when the parent retains control over thesubsidiary and the corresponding accounting for acquisition-related costs were revised.

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2014$515,692
13,05929,528$558,298

Millions of yen

Thousands of
U.S. dollars

Area

2014

2014

Tokai

¥1,039$10,095

Loss on impairment of fixed assets for the years ended March 31, 2014 and 2013 was as follows:

Major use

Classification

Kanto

40

389

Processing equipment for software duplication business

Land, buildings and structures,
machinery, equipment and vehicles,
leased assets, construction inprogress, intangible assets included
in other assets
Machinery, equipment and vehicles,
intangible assets in other assets
Land

Kanto

194

1,885

Idle assets

Land, construction in progress

Kanto,Kinki

40

389

¥1,314$12,767

Business-use assets for manufacturing and selling of rechargeable
battery systems

Business-use assets for car electronics

Total

Millions of yen

Major use

Processing equipment for plastic materials
Coating equipment for semiconductor wafer
Manufacturing facility for pharmaceutical intermediates
Manufacturing equipment for resin plastic tray products
for transport use

Idle assets
In addition, the presentation method of net income was amended, the reference to“minority interests” was changed to “non-controlling interests,” and transitional provisions for these accounting standards were also defined.
(2) Scheduled date of adoption
The Company expects to adopt these revised accounting standards and guidance withrespect to the accounting treatment for any changes in a parent’s ownership interest,
the accounting for acquisition-related costs, and transitional provisions from the beginning of the fiscal year ending March 31, 2015 and with respect to the presentation
method of net income and the reference to “non-controlling interests” from the beginning of the fiscal year ending March 31, 2016, respectively.
(3) Impact of adopting revised accounting standards and guidance
The Company is currently evaluating the effect of adopting these revised standards on
its consolidated financial statements.

2013¥47,104
1,554
3,204¥51,863

6. LOSS ON IMPAIRMENT OF FIXED ASSETS

Processing facility for optical films for liquid crystal displays (LCDs)

4. ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

2014¥53,075
1,344
3,039¥57,460

Merchandise and finished goods
Work in process
Raw materials and supplies
Total

3. ACCOUNTING CHANGES
Accounting Standards for Retirement Benefits
Effective April 1, 2013, the Company and its domestic consolidated subsidiaries adopted “Accounting Standard for Retirement Benefits” (Accounting Standards Board ofJapan (“ASBJ”) Statement No.26 issued on May 17, 2012) and “Guidance on
Accounting Standards for Retirement Benefits” (ASBJ Guidance No.25 issued on May
17, 2012).
In accordance with the adoption, the retirement benefit obligations after the fairvalue of the pension plan assets are deducted, actuarial gain or loss and prior service
cost that have yet to be recognized in profit or loss are recorded as “Liability for retirement benefits.”
The calculation methods for retirement benefits and service cost were revised, andthe attribution method was changed to the plan’s benefit formula basis from thestraight-line method. In addition, the method of calculating the discount rate wasrevised.
The adoption of these standards follows transitional provisions set forth in para-

Thousands of
U.S. dollars

Millions of yen

Classification

Land, buildings and structures,
machinery, equipment and vehicles
Machinery, equipment and vehicles
Buildings and structures, machinery,equipment and vehicles
Buildings and structures, machinery,equipment and vehicles
Buildings and structures, machinery,equipment and vehicles
Land, intangible assets included inother assets

Total
The Company and its consolidated subsidiaries group fixed assets for business use
principally based on its business management segment. They also group fixed assets tobe disposed of and idle assets at each asset individually as smallest cash-generating
units.
For the year ended March 31, 2014, due to decreasing profitability of manufacturing and selling facilities for rechargeable battery systems and due to a cessation indevelopment activities of car electronics business, the carrying value was reduced totheir recoverable amounts.
Due to declining fair value, the carrying values of certain common-use assets inprocessing equipment for software duplication business were reduced to their recoverable amounts.
Due to declining fair value, the carrying values of idle assets were reduced to theirrecoverable amounts.
The recoverable amounts were measured at net selling value or value in use. Net
selling value was calculated based on the appraisal value published by the tax authorities or the real estate appraisers. Net selling value for assets to be disposed of was set
at zero since it is difficult to sell them or use them for any purpose other than their original purpose.

Area

2013

Kinki

¥1,252

Kinki

269

Kinki

196

Shanghai, China

94

Guangdong, China

56

Kinki

27
¥1,896

For the year ended March 31, 2013, accompanied with the withdrawal from thecorresponding businesses, the carrying values of manufacturing equipment for resin
plastic tray products for transport use, coating equipment for semiconductor wafer, anda processing facility for optical films for LCDs were reduced to their recoverable
amounts.
Due to decreasing profitability in response to the drastic change in the businessenvironment, the carrying values of processing equipment for plastic materials, and amanufacturing facility for pharmaceutical intermediates were reduced to their recoverable amounts.
The recoverable amounts were measured at the higher of net selling value andvalue in use. Net selling value for assets to be disposed of was set at zero since it isdifficult to sell them or use them for any purpose other than their original purpose.
Value in use for the measurement of recoverable amounts is based on the present
value of the future cash flow with the discount rate of 1.239%.
Due to decreasing land prices, the carrying values of idle assets were reduced totheir recoverable amounts and a loss on impairment was recognized. The recoverable
amounts were calculated based on the appraisal value published by the tax authorities.

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7. INVESTMENTS IN SECURITIESThe aggregate annual maturities of bonds, long-term loans and finance lease obligations subsequent to March 31, 2014 are summarized as follows:(a) Marketable securities classified as other securities at March 31, 2014 and 2013 are summarized as follows:Year ending March 31,

2013

Carrying value

Acquisition costs

Unrealized gain
(loss)

Carrying value

Acquisition costs

Unrealized gain
(loss)¥53,938¥16,394¥37,543¥43,727¥16,433¥27,293571¥54,509620¥17,015(49)¥37,494

1,196¥44,923

1,369¥17,802(172)¥27,121

Securities whose carrying value exceeds their acquisition costs:
Equity securities
Securities whose carrying value does not exceed their acquisition costs:
Equity securities
Total

Thousands of
U.S. dollars¥ 6,642
15,943$ 64,536
154,907

2015
2016

Millions of yen

2014

Millions of yen

2017

8,701

84,541

2018

12,300

119,51020192020 and thereafter
Total

10,297
10,124¥64,010100,049
98,368$621,939

In order to achieve more efficient and flexible financing, the Company has concluded line-of-credit agreements with certain financial institutions. The status of these lines of credit atMarch 31, 2014 and 2013 is as follows:

Thousands of U.S. dollars

Carrying value

Acquisition costs

Unrealized gain
(loss)$524,077$159,289$364,778

5,548$529,625

6,024$165,323(476)$364,302

Lines of credit
Credit utilized

Securities whose carrying value exceeds their acquisition costs:
Equity securities

Thousands of
U.S. dollars

Millions of yen

2014
2014

2013

2014

¥13,000¥13,000$126,312———

Securities whose carrying value does not exceed their acquisition costs:
Equity securities
Total

9. OTHER COMPREHENSIVE INCOME

The Company and its consolidated subsidiaries recognized impairment losses on valuation of marketable securities of nil and ¥38 million for the years ended March 31, 2014 and2013.
(b) Securities classified as other securities for which market value was not determinable at March 31, 2014 and 2013 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Market value not determinable:
Equity securities
Total

2014

2013

2014

Carrying value

Carrying value

Carrying value¥4,216¥4,216¥4,176¥4,176$40,964$40,964

Please refer to Note 15 (c).
(c) Proceeds from sales of, and gross realized gain and loss on, other securities for the years ended March 31, 2014 and 2013 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Proceeds from sales
Gain on sales
Loss on sales

2014

2013

2014

¥1,675856
2¥1,199801
0$16,2758,317
19

8. SHORT-TERM LOANS, BONDS, LONG-TERM LOANS AND FINANCE LEASE OBLIGATIONS
Short-term loans at March 31, 2014 and 2013, principally represented notes and loans in the form of deeds at weighted-average annual interest rates of 1.69% and 1.97% perannum, respectively.
Long-term loans, bonds and finance lease obligations at March 31, 2014 and 2013 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

Unsecured loans from banks and insurance companies, payable in Yen, U.S. dollars, Euro, Malaysian ringgit
and RMB, due through 2019, at rates from 0.55% to 5.84%
Unsecured bonds in Yen, due 2015, at a rate of 0.306%¥33,736¥43,022$327,789

10,00010,00097,163

Unsecured bonds in Yen, due 2017, at a rate of 0.442%

10,00010,00097,163

Unsecured bonds in Yen, due 2019, at a rate of 0.753%
Lease obligations

10,000273

10,000341

97,163
2,653

Less current portion
Total

64,010(6,642)¥57,367

73,364(10,473)¥62,890

621,939(64,536)$557,394

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Reclassification adjustments and tax effects allocated to each component of other comprehensive income for the years ended March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

2014

2013

2014

¥11,258(853)¥ 8,420(747)$109,386(8,288)Amount before tax effectTax effect

10,404(3,624)

7,672(2,459)101,088(35,212)

Net unrealized holding gain on investments in securities

6,780

5,212

65,876

(124)
134

(202)
226

(1,205)
1,302

Amount before tax effectTax effect

10
(3)

24
(9)

97
(29)

Deferred gain on hedges

Net unrealized holding gain on investments in securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized in the statement of income

Deferred gain (loss) on hedges:
Amount arising during the year
Reclassification adjustments for gains and losses realized in the statement of income

6

15

58

Translation adjustments:
Amount arising during the year

3,549

6,181

34,483Retirement benefits liability adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in the statement of income

553
1,554

—
—

5,373
15,099Amount before tax effectTax effect

2,108
(739)

—
—

20,482(7,180)Retirement benefits liability adjustments

1,368

—

13,292

198¥11,903768¥12,178

1,924$115,653

Share of other comprehensive income of affiliates accounted for by the equity method:Amount arising during the year
Other comprehensive income, net

10. RETIREMENT BENEFITS(a) Outline of retirement benefits for employees
The Company and its domestic consolidated subsidiaries have defined benefit plans,i.e., defined benefit pension plans and lump-sum payment plans. Certain overseas consolidated subsidiaries also have defined benefit pension plans. Also, the Company andcertain domestic consolidated subsidiaries have defined contribution pension plans. In
addition to the retirement benefit plans described above, the Company and its consolidated subsidiaries pay additional retirement benefits under certain conditions.

(b) Defined benefit pension plans for the year ended March 31, 2014
The changes in the retirement benefit obligation during the year ended March 31, 2014
are as follows:

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Millions of yen

Thousands of
U.S. dollars

2014

2014

The allocation of plan assets, by major category, as a percentage of total plan assets at fair value as of March 31, 2014 is as follows:2014

29,146283,191

Bonds
Stocks
Other

Service cost

1,362

13,234

Total

Interest cost

371

3,605

Actuarial differences

41

398

The expected long-term rate of return on plan assets is determined as a result of consideration of both the portfolio allocation at present and in the future, and long-term rate
expected to earn the profit from multiple plan assets at present and in the future.

Retirement benefits paid

(1,617)(15,711)17¥29,321165$284,891

Retirement benefit obligation at April 1, 2013
Cumulative effects of changes in accounting policies¥28,103
1,043$273,057
10,134

Adjusted balance at April 1, 2013

Other
Retirement benefit obligation at March 31, 2014
The changes in plan assets during the year ended March 31, 2014 are as follows:

Millions of yen

Thousands of
U.S. dollars

2014

2014

¥16,392
368$159,269
3,576

596

5,791

Contributions by the Company

1,086

10,552Retirement benefits paid

(889)

(8,638)

6¥17,559

58$170,608

Plan assets at April 1, 2013
Expected return on plan assets
Actuarial differences

Other
Plan assets at March 31, 2014

Funded retirement benefit obligation
Plan assets at fair value

Millions of yen

2014

2014

¥19,346(17,559)$187,971(170,608)

1,786

17,353

Unfunded retirement benefit obligation

9,975

96,920Net liability for retirement benefits in the balance sheet

11,761

114,273

Liability for retirement benefits

11,875

115,381

Asset for retirement benefits
Net liability for retirement benefits in the balance sheet(113)¥11,761(1,098)$114,273

Millions of yen

Thousands of
U.S. dollars

2014

2014

¥1,362371$13,234
3,605

The components of retirement benefit expense for the year ended March 31, 2014 are as follows:

Service cost
Interest cost
Expected return on plan assets(368)(3,576)

Amortization of actuarial differences

1,554

15,099Other
Retirement benefit expense

27¥2,947

262$28,634

Millions of yen

Thousands of
U.S. dollars

Actuarial differences included in other comprehensive income (before tax effect) for the year ended March 31, 2014 is as follows:

Actuarial differences

2014

2014

¥2,108$20,482

Unrecognized actuarial differences included in accumulated other comprehensive income (before tax effect) as of March 31, 2014 is as follows:
Millions of yen

Unrecognized actuarial differences

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Thousands of
U.S. dollars

2014

2014

¥591

$5,742

100%

The assumptions used in accounting for the above plans were as follows:
2014

Discount rate

1.4%

Expected long-term rate of return on plan assets

2.1%(c) Defined contribution pension plans for the year ended March 31, 2014
Millions of yen

Contributions to defined contribution pension plans

Thousands of
U.S. dollars

2014

2014

¥251

$2,439(d) Accrued retirement benefits for employees for the year ended March 31, 2013
The following table sets forth the funded and accrued status of the plans and the amounts recognized in the accompanying consolidated balance sheet at March 31, 2013 for theCompany’s and the consolidated subsidiaries’ defined benefit plans:

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheet as of March 31, 2014 for the Company’s and the consolidated subsidiaries’ defined benefit plans:
Thousands of
U.S. dollars

68%
17
15

Millions of yen

2013

Retirement benefit obligation¥(28,103)

Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized actuarial differences

16,392(11,710)
1,516

Prepaid pension costAccrued retirement benefits recognized in the consolidated balance sheets(89)¥(10,283)

The components of retirement benefit expenses of the Company and the consolidated subsidiaries for the year ended March 31, 2013 are outlined as follows:
Millions of yen

2013

Service cost
Interest cost

¥1,226
513

Expected return on plan assets(322)

Amortization of actuarial differences

694

Contributions to defined contribution pension plans
Amortization of prior service cost
Retirement benefit expenses

237
92¥2,442

The assumptions used in accounting for the defined benefit pension plans for the year ended March 31, 2013 were as follows:
2013

Discount rate
Expected rate of return on plan assets

Mainly 1.7%
Mainly 2.1%

11. INCOME TAXES
Income taxes applicable to the Company and its domestic consolidated subsidiaries
consist of corporation, inhabitants’ and enterprise taxes, which, in the aggregate,
resulted in a statutory tax rate of approximately 38.0% for the years ended March 31,
2014 and 2013, respectively.

The effective tax rates reflected in the accompanying consolidated statements ofincome for the years ended March 31, 2014 and 2013 differ from the statutory tax rate
for the following reasons:

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Statutory tax rate
Adjustments for:

2014

2013

38.0%

38.0%

Movements in common stock during the years ended March 31, 2014 and 2013 are summarized as follows:
Number of shares

2014

Expenses not deductible for income tax purposes

2.9

2.4

Dividends and other income deductible for income tax purposes(12.9)(11.0)Net adjustment resulting from elimination of dividend income upon consolidation

12.8

10

Different tax rates applied at overseas subsidiaries

(7.5)

(5.7)

Tax credit(0.5)

Amortization of goodwill

3.5

3.2

(4.4)
2.0
33.9%

(11.7)(1.9)
22.7%

Valuation allowance
Other, net
Effective tax rates(0.6)

Common stock

April 1, 2013

Increase

Decrease

March 31, 2014

138,408,285——

138,408,285

April 1, 2012

Increase

Decrease

March 31, 2013

138,408,285——

138,408,285

2013

Common stock

13. TREASURY STOCK
Movements in treasury stock during the years ended March 31, 2014 and 2013 are summarized as follows:
Number of shares

The significant components of the Company’s and its consolidated subsidiaries’ deferred tax assets and liabilities at March 31, 2014 and 2013 are summarized as follows:

2014

2013

2014

Deferred tax assets:
Accrued bonuses for employees
Allowance for doubtful accounts
Unrealized gain on inventories
Accrued enterprise taxes
Tax loss carryforwards
Accrued retirement benefits for employees
Liability for retirement benefits
Investments in securities
Loss on impairment of fixed assets
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets¥ 1,283234
501
288
17,008
—
4,160
1,010
998
2,298
27,785(10,157)¥ 17,628¥ 1,363598
522
221
18,192
3,639
—
1,818
601
2,064
29,022(11,779)¥ 17,243$ 12,466
2,274
4,868
2,798
165,255—
40,4209,813
9,697
22,328269,967(98,688)$ 171,279

Deferred tax liabilities:
Technology-based assets
Deferred capital gain on property
Reserve for special depreciation
Undistributed earnings of overseas subsidiaries
Revaluation of land
Net unrealized holding gain on securities
Other
Total deferred tax liabilities
Net deferred tax liabilities¥ (6,551)(2,062)
(422)
(400)
(378)
(12,792)(311)(22,920)¥ (5,291)¥ (7,183)(1,974)
(728)
(442)
(359)
(9,168)(127)(19,985)¥ (2,741)$ (63,651)(20,035)(4,100)(3,887)(3,673)(124,291)(3,022)(222,697)$ (51,409)

For the year ended March 31, 2014, the “Act for Partial Amendment of the Income Tax
Act, etc.” (Act No.10 of 2014) was promulgated on March 31, 2014 and, as a result,
the Company and its domestic consolidated subsidiaries are no longer subject to theSpecial Reconstruction Corporation Tax effective for fiscal years beginning on or after
April 1, 2014. In addition, the “Act for Partial Amendment of the Local Tax Act, etc.” (ActNo.4 of 2014) and the “Act for Partial Amendment of the Local Corporate Tax Act, etc.”(Act No.11 of 2014) were promulgated on March 31, 2014, and the Company and its

domestic consolidated subsidiaries are subject to the amended Local Corporate Tax
effective for fiscal years beginning on or after April 1, 2015.
As a result, the effective statutory tax rate used to measure deferred tax assets andliabilities of the Company and its domestic consolidated subsidiaries was changed from
38.0% to 35.6% for the temporary differences expected to be realized or settled fromfiscal years beginning April 1, 2014. The effect of this change on the accompanying
consolidated financial statements of the Company was immaterial.

86

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Treasury stock

April 1, 2013

Increase

Decrease

March 31, 2014

11,693,809

922

319,100

11,375,631

April 1, 2012

Increase

Decrease

March 31, 2013

9,893,787

1,800,372

350

11,693,809

2013

Treasury stock
The increases in treasury stock were due to purchase of shares of less than one voting
unit for the year ended March 31, 2014. The decreases in treasury stock consist of
319,000 shares resulting from the exercise of stock option plans and 100 shares
resulting from the disposition of shares less than one voting unit for the year March 31,
2014.

The increases in treasury stock consist of 1,800,000 shares resulting from purchase by the resolution of Board of Directors and 372 shares resulting from purchaseof shares of less than one voting unit for the year ended March 31, 2013. The decreases in treasury stock were due to the disposition of shares less than one voting unit for
the year March 31, 2013.

14. SHARE-BASED COMPENSATIONThe 2008 stock option plan (the 2008 plan) was approved by shareholders of theCompany on June 26, 2008. The 2008 plan provided for granting options to purchase421,000 shares of common stock to directors, executive officers, technology officers
and certain key employees of the Company and directors of certain subsidiaries. The

exercise price was ¥1,114 ($10.82) per share at March 31, 2014. The options became
exercisable on August 1, 2010 and expired on July 31, 2013.
Information regarding the Company’s stock option plans is summarized as follows:
The 2008 plan

Number of shares:
Outstanding at March 31, 2012
GrantedExpiredExercised

414,000—(5,000)—

Outstanding at March 31, 2013
Granted

409,000—

ExpiredExercised(90,000)(319,000)

Outstanding at March 31, 2014—
Yen

Fair value of options as of the grant date

¥124
U.S. dollars

Fair value of options as of the grant date

$1.20

15. FINANCIAL INSTRUMENTS

12. SHAREHOLDERS’ EQUITYThe Corporation Law of Japan (the “Law”) provides that an amount equal to 10% of theamount to be disbursed as distributions of capital surplus (other than the capitalreserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve andthe legal reserve equals 25% of the capital stock account.
Such distributions can be made at any time by resolution of the shareholders, or by
the Board of Directors if certain conditions are met.

2014

Thousands of
U.S. dollars

Millions of yen

The Company’s legal reserve included in retained earnings at March 31, 2014 and2013 amounted to ¥2,424 million ($23,552 thousand).
Under the Law, upon the issuance and sale of new shares of common stock, theentire amount of the proceeds is required to be accounted for as common stock,
although a company may, by resolution of the Board of Directors, account for an
amount not exceeding 50% of the proceeds of the sale of new shares as additional
paid-in capital.

(a) Policy for Financial Instruments
The Company and its consolidated subsidiaries invest excess funds in highly secureand short-term financial assets, whose principal is guaranteed to be recoverable. With
regard to financing, short-term working funds are raised by bank borrowings or issuance of commercial paper and the Group policy is to procure long-term funds with bankborrowings and through the issuance of bonds. The purpose of entering into derivativetransactions is to mitigate the foreign currency exchange rate fluctuation risk arisingfrom the receivables and payables denominated in foreign currencies, and fluctuation
risk related to interest rates with respect to loans payable, and derivative transactions
are not carried out for speculative purposes.
(b) Types of Financial Instruments, Related Risk and Risk Management for
Financial Instruments
Receivables such as trade notes and accounts receivable are exposed to customers’
credit risks. With regard to this risk, the Group manages the settlement date by each

NAGASE & CO., LTD. Annual Report 201487

2014/08/18 11:41

customer, and establishes credit limits by each customer based on the Group’s internal
credit rating policy and monitors outstanding balances in conjunction with an established system under which the credit status by each customer is reviewed at least oncea year and the sales limit amount updated as necessary.
In the cases of those receivables and liabilities denominated in foreign currencies,
foreign currency forward exchange contracts are used to hedge the risk of fluctuation.
However, for foreign currency transactions denominated in the same currency involving
either payables or receivables, foreign currency forward exchange contracts are usedsolely for the netted position.
Investments in securities are subject to market price fluctuation risk. However,these are mainly equity securities of other companies with which the Group has business relationships. The Group regularly monitors both their fair value and the financial
condition of the issuer. The Group also reviews as needed the condition of its holdings
with concern to the status of sales and financial transactions.
Short-term loans are raised primarily in connection with business activities andbridge loans relating to investments and financing. Long-term loans and bonds aretaken out principally for the purpose of making capital spending, investments andfinancing. Loans with variable interest rates are subject to the risk of fluctuating interest
rates. However, to reduce such risk, the Group utilizes derivatives (interest-rate swap
transactions) as a hedging instrument.
Derivatives include foreign currency forward exchange contracts to manage themarket risk of fluctuation in foreign currency exchange rates and interest-rate swaps tomanage the market risk of fluctuating interest rates related to the interest payments forbank loans.
In addition, operating liabilities and bank loans are exposed to liquidity risk.
However, the Group monitors the balance of inflow and outflow of cash, managing suchrisk by establishing liquidity on hand in excess of half of the amount of monthly net
sales.
(c) Market Value of Financial Instruments
Carrying amount, estimated fair value and difference as of March 31, 2014 and 2013
are as follows. Financial instruments for which fair value is deemed extremely difficult
to determine are not included.
Millions of yen

2014

AssetsCash and time deposits
Notes and accounts receivable
Investments in securities
Other securities
Total assets
Liabilities
Notes and accounts payable
Short-term loans
Current portion of long-term loans
Bonds
Long-term loans
Total liabilities
Derivatives (*)
Not subject to hedge accounting
Subject to hedge accounting
Total derivative transactions

Carrying amount

Estimated fair value

Difference¥ 34,980
202,996¥ 34,980
202,996¥ ——54,509¥292,486

54,509¥292,486—¥ —¥105,014
28,8186,596
30,00027,140¥197,569¥105,014
28,8186,596
30,21527,412¥198,056

¥ (0)
—
—
215
272
¥487

¥

¥

¥ —
—
¥ —

¥

(76)
(1)
(78)

¥

(76)
(1)
(78)

Millions of yen

2013

AssetsCash and time deposits
Notes and accounts receivable
Investments in securities
Other securities
Total assets
Liabilities
Notes and accounts payable
Short-term loans
Current portion of long-term loans
Bonds
Long-term loans
Total liabilities
Derivatives (*)
Not subject to hedge accounting
Subject to hedge accounting
Total derivative transactions

Carrying amount

Estimated fair value

Difference¥ 46,693
196,001¥ 46,693
196,001¥ —(0)44,923¥287,618

44,923¥287,618—¥ (0)Thousands of U.S. dollars

2014

AssetsCash and time deposits
Notes and accounts receivable
Investments in securities
Other securities
Total assets
Liabilities
Notes and accounts payable
Short-term loans
Current portion of long-term loans
Bonds
Long-term loans
Total liabilities
Derivatives (*)
Not subject to hedge accounting
Subject to hedge accounting
Total derivative transactions

NAGASE & CO., LTD. Annual Report 2014

nag14̲E̲財務̲最終引き取り.indd 88-89

Estimated fair value$ 339,876
1,972,367$ 339,876
1,972,367

529,625$2,841,877

529,625$2,841,877$1,020,346
280,004
64,089291,489
263,700$1,919,637$1,020,346
280,004
64,089293,578
266,343$1,924,368

$

$

$

$

$

(738)
(10)
(758)

$

¥107,941
25,061
10,40830,26632,994¥206,671

¥ (0)
—
—
266
380
¥646

¥

¥

¥ —
—
¥ —

¥

(385)
(9)
(395)

¥

(385)
(9)
(395)

$

$

—
—
—
—

(0)
—
—
2,089
2,643
$4,732$———The calculation methods of fair values of financial instruments and securities and derivative transactions are as follows:
Cash and time deposits
Since these items are settled in a short period of time, their carrying amount approximates the fair value.
Notes and accounts receivable
The fair value of trade notes and accounts receivable is estimated as the present value of future cash flow of each receivable classified by settlement date and discounted at themarket rate of interest at the reporting date.
Investments in securities
The fair value of investment in securities is based on quoted market prices. Please refer to Note 7 regarding information on securities by holding objective.
Notes and accounts payable
The fair value of trade notes and accounts payable is estimated as the present value of future cash flow of each payable classified by settlement date and discounted at the market
rate of interest at the reporting date.
Short-term loans and current portion of long-term loans
Since these items are settled in a short period of time, their carrying amount approximates the fair value.
Bonds
The fair value of bonds is based on the market price.
Long-term loans
The fair value of long-term loans with fixed interest rates is based on the present value of the total of principal and interest discounted by the interest rate to be applied assuming
new loans under similar conditions to existing loans are made. Floating interest rates for long-term loans are hedged by interest-rate swap agreements and accounted for as loans
with fixed interest rates. The fair value of those long-term loans is based on the present value of the total of principals, interests and net cash flows of swap agreements discounted
by the interest rates, estimated reasonably, applicable to new loans under similar conditions.
Derivative transactions
Please refer to Note 16.
The carrying value of financial instruments without determinable market value at March 31, 2014 and 2013 is presented as follows:
Thousands of
U.S. dollars

Millions of yen¥107,941
25,061
10,40830,00032,614¥206,024

(738)
(10)
(758)

Difference*Receivables and payables arising from derivative transactions are presented as a net amount. Net payables are presented in parentheses.

Unlisted equity securities
Investments in unconsolidated subsidiaries and affiliates
Total

2014

2013

2014

¥ 4,216
7,549¥11,765¥ 4,176
7,770¥11,947$ 40,964
73,348$114,312

For the above securities, there is no market price and it is difficult to determine the fair value. Therefore, the fair value of the securities is not included in investments in securities in the summary table of financial instruments.
The redemption schedule for time deposits and notes and accounts receivable with maturity dates at March 31, 2014 is summarized as follows:
Millions of yen
Over 1 year andWithin 1 year
less than 5 years

Time deposits
Notes and accounts receivable
Total

88

Carrying amount¥ 34,758
202,996¥237,755¥——¥—

NAGASE & CO., LTD. Annual Report 201489

2014/08/18 11:41

Thousands of U.S. dollars
Over 1 year andWithin 1 year
less than 5 years

Time deposits
Notes and accounts receivable
Total$ 337,719
1,972,367$2,310,095

Thousands of U.S. dollars

2014
Type

$—
—
$—

U.S. dollars
YenOver-the-counter transactions

The open currency-related derivatives positions not designated as hedging instruments at March 31, 2014 and 2013 are as follows:

Contract value
over one year

Estimated fair value

Unrecognized gain (loss)

¥—
—

Euro

864

—

(5)

(5)

RMB
Others

506
17

—
—

10
(0)

10
(0)

¥(56)
(8)

¥(56)
(8)

1,975
1,494

—
—

(4)
(11)

(4)
(11)

52
9
¥12,348

—
—
¥—

0
0
¥(76)

0
0
¥(76)

Euro

Others
Total

(49)

(49)

—
—

97
(0)

97
(0)

19,19014,516

—
—

(39)
(107)

(39)
(107)

505
87
$119,977

—
—
$—

0
0
$(738)

00$(738)

Contract value(notional principal
amount)Contract value(notional principal
amount over one year)

Estimated fair value

Accounts receivable

¥ 51
544
63

¥—
—
—

¥(0)
(3)
1

Accounts payable

27
66
29

—
—
—

0
0
0

Accounts receivable

15
11

—
—

(*)
(*)

17
¥827

—
¥—

(*)
¥(1)

Contract value(notional principal
amount)Contract value(notional principal
amount over one year)

Estimated fair value

Accounts receivable

¥221
332
3

¥10
—
—

¥(8)
(3)
(0)

Accounts payable

24
44
12

—
—
—

2
(0)
0

Accounts receivable

13
1

—
—

(*)
(*)

48
0
¥703

—
—
¥10

(*)
(*)
¥(9)

Millions of yen

2014

Type

Contract value

Major hedged item

Selling:

Deferral hedge accounting

U.S. dollars
Euro
Others
Buying:U.S. dollars
Euro

2013
Contract value
over one year

Type of derivative transaction

Foreign currency forward exchange contracts:

Millions of yen

Estimated fair value

Unrecognized gain (loss)

OthersForeign currency forward exchange contracts:

Foreign currency forward exchange contracts:

Selling:¥ 6,392
48¥——¥(303)(0)¥(303)
(0)

Euro

832

—

(7)

(7)

RMB
Others

174
83

—
—

1
6

1
6

2,067
1,651

—
—

(23)
(58)

(23)
(58)

42
1
¥11,292

—
—
¥—

(0)
0
¥(385)(0)0¥(385)

Buying:Others

—

4,916
165

Method for hedge accounting

U.S. dollars
Yen

Total

8,395

RMB
OthersFair value is based on the prices obtained from financial institutions.
The open currency-related derivatives positions designated as hedging instruments at March 31, 2014 and 2013 are as follows:

Buying:

Euro

Euro

Total
¥ 7,102
326

U.S. dollars
Yen$(544)(78)

OthersSelling:Over-the-counter transactions$(544)(78)

Euro

Foreign currency forward exchange contracts:

U.S. dollars
Yen

$—
—

U.S. dollars
Yen

2014

Over-the-counter transactions$ 69,005
3,168

Buying:Millions of yen

U.S. dollars
Yen

Unrecognized gain (loss)

Selling:

16. DERIVATIVES AND HEDGING ACTIVITIESContract value

Estimated fair value

Foreign currency forward exchange contracts:

With respect to the redemption schedule of bonds, long-term loans and finance lease obligations, please refer to Note 8.

Type

Contract value

Contract value
over one year

Selling:
Allocation method for foreign currency
forward exchange contracts (Note 2(o))

EuroOthers
Buying:Euro

Accounts payable

Total

Millions of yen

2013

Method for hedge accounting

Type of derivative transaction

Major hedged item

Foreign currency forward exchange contracts:
Selling:

Deferral hedge accounting

U.S. dollars
Euro
Others
Buying:U.S. dollars
Euro

OthersForeign currency forward exchange contracts:
Selling:
Allocation method for foreign currency
forward exchange contracts (Note 2(o))

EuroOthers
Buying:Euro

OthersTotal

90

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Accounts payable

NAGASE & CO., LTD. Annual Report 201491

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Thousands of U.S. dollars

18. OPERATING LEASES

2014

Method for hedge accounting

Type of derivative transaction

Major hedged item

Contract value(notional principal
amount)Contract value(notional principal
amount over one year)

Future minimum lease payments subsequent to March 31, 2014 under operating leases are as follows:
Estimated fair value

Foreign currency forward exchange contracts:
Selling:
U.S. dollars
Euro
OthersDeferral hedge accounting

Accounts receivable

$ 496
5,286
612

$—
—
—

$ (0)
(29)
10

Accounts payable

262
641
282

—
—
—

0
0
0

Accounts receivable

146
107

—
—

(*)
(*)

165
$8,035

—
$—

(*)
$(10)

Buying:Year ending March 31,

Millions of yen

Thousands of
U.S. dollars

20152016 and thereafter
Total

¥ 413
838
¥1,252$ 4,013
8,142$12,165

19. CONTINGENT LIABILITIES

U.S. dollars
Euro
OthersForeign currency forward exchange contracts:

At March 31, 2014, the Company and its consolidated subsidiaries were contingently
liable as guarantors of loans of customers and other in the aggregate amount of¥1,486 million ($14,438 thousand) and as guarantors of housing loans of employees in
the aggregate amount of ¥8 million ($78 thousand).

In addition, at March 31, 2014, the Company and its consolidated subsidiaries had
contingent liabilities arising from notes discounted with banks and notes endorsed for a
total amount of ¥280 million ($2,721 thousand).

Selling:Euro
Others

Allocation method for foreign currency
forward exchange contracts (Note 2(o))

Buying:20. AMOUNTS PER SHARE
Amounts per share at March 31, 2014 and 2013 and for the years then ended are as follows:Euro

Accounts payable

Total

Fair value is based on the prices obtained from financial institutions.
(*):The fair value of foreign currency forward exchange contracts that qualify for the allocation method is included in the estimated fair value of the underlying accounts receivables and accounts payables.

Net income:
Basic

¥

U.S. dollars

2013

2014

91.86

¥ 111.31———

1,942.20
28.00

1,803.31
26.00

18.87
0.27

DilutedNet assets
Cash dividends applicable to the year

The open interest-related derivatives positions designated as hedging instruments at March 31, 2014 and 2013 are as follows.

Yen

2014

$ 0.89Millions of yen

2014

Method for hedge accounting

Swap rates applied to underlying loans

Type of derivative transaction

Interest-rate swap transactions(pay-fixed, receive-variable)

Hedged item

Contract value(notional principal
amount)Contract value(notional principal
amount over one year)

Estimated fair value

Long-term loans¥26,580¥21,720(**)

Basic net income per share has been computed based on the net income available
for distribution to the shareholders of common stock and the weighted-average numberof shares of common stock outstanding during the year.
Diluted net income per share for the years ended March 31, 2014 and 2013 has
not been presented because no potentially dilutive shares of common stock were outstanding.
The amounts per share of net assets have been computed based on the number ofshares 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.
The financial data used in the computation of basic net income per share for theyears ended March 31, 2014 and 2013 are summarized as follows:

Millions of yen

Method for hedge accounting

Swap rates applied to underlying loans

Type of derivative transaction

Interest-rate swap transactions(pay-fixed, receive-variable)

Thousands of
U.S. dollars

Millions of yen

2013

Hedged item

Contract value(notional principal
amount)Contract value(notional principal
amount over one year)

Estimated fair value

Long-term loans¥35,840¥26,580(**)

Net income
Adjusted net income available for distribution to shareholders of common stock
Weighted-average number of shares

2014

2013

2014

¥11,663¥11,663
126,971,429¥14,182¥14,182
127,406,786$113,321$113,321

Thousands of U.S. dollars

21. CASH AND TIME DEPOSITS

2014

Method for hedge accounting

Swap rates applied to underlying loans

Type of derivative transaction

Interest-rate swap transactions(pay-fixed, receive-variable)

Hedged item

Contract value(notional principal
amount)Contract value(notional principal
amount over one year)

Estimated fair value

Long-term loans$258,259$211,038(**)(**): Since interest-rate swap agreements are accounted for as if the interest rates applied to the swaps had originally applied to the underlying long-term loans, their fair values
were included in estimated fair value of long-term loans.

17. RESEARCH AND DEVELOPMENT COSTS

A reconciliation of cash and time deposits in the accompanying consolidated balance sheets at March 31, 2014 and 2013 and cash and cash equivalents in the accompanying consolidated statements of cash flows for the years then ended is as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and time deposits
Time deposits with maturities of more than three months
Cash and cash equivalents

2014

2013

2014

¥34,980(1,154)¥33,825¥46,693(876)¥45,816$339,876(11,213)$328,653

Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended March 31, 2014 and 2013 totaled ¥5,165
million ($50,185 thousand) and ¥4,610 million, respectively.

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Under the new segmentation policy adopted by the Company, information by reportable segments for the year ended March 31, 2013 would have been as follows:

22. SEGMENT INFORMATION

Millions of yen(a) Overview of reportable segments
The reportable segments of the Company comprise those entities for which obtaining
separate financial reports is possible and that are subject to regular review by the
Board of Directors, which decides upon the distribution of management resources tosaid segments.
Reflecting the respective positions of each business in the value chain, as well as
identifying the most closely aligned industries, the Company defined five segment categories: Functional Materials (located at the top of the value chain), Advanced Materials& Processing (located in the next stage of the value chain), Electronics, Automotive &Energy, and Life & Healthcare (functioning within the corresponding industries).
For the year ended March 31, 2014, the Company has moved its abrasives business for semiconductor and HDD industries from the Functional Materials segment to
the Electronics segment in order to develop new markets and expand applications in asegment aligned more closely with the end user. Similarly, the Company has moved its
raw materials business for the cosmetics industries from the Functional Materials segment to the Life & Healthcare segment. This move was made to capitalize on synergies
with products created by Hayashibara Co., Ltd.
The segment information for the year ended March 31, 2013 was restated to conform to the change in the segmentation in the current year.
The following describes the major products and services handled by each reportable segment.
The Functional Materials segment is engaged in the sales of materials for paints/
inks, urethane materials, plastic materials, plastic adhesives, industrial oil solutions,surfactants, fluorochemicals, encapsulment materials, silicone materials, and more to
the industries of the paints/inks, resins, urethane foam, organic synthesis, surfactants,
semiconductor.
The Advanced Materials & Processing segment is engaged in the sales of dyestuffs,
dyes, functional dyes, information printing products, thermoplastic resins, thermosetting

resins, synthetic rubber, inorganic materials, plastics products, resins molding tools/
dies, and external inspection equipment, and more to the industries of dye/additive,
information printing, textile processing, raw resin material, resin molding, and functionalfilm and sheet.
The Electronics segment is engaged in the sales of pre-processing materials anddevices for LCD/semiconductors, materials for LCD panels, materials and devices forsemiconductor assembly, low-temperatures/vacuum equipment, high-function epoxy
resins, precision electronics abrasives, and more to the industries of the display, touch
panel, LCD, semiconductor, HDD, electronic components, heavy electrical, and other.
The Automotive & Energy segment is engaged in sales of plastics products, thermoplastic resins, thermosetting resins, resins molding tools/dies, battery materials,
solar cell/secondary battery-related materials, and more to the industries of the automotive, automotive component, and energy.
The Life & Healthcare segment is engaged in the sales of pharmaceutical/agricultural chemicals and materials, research products, in vitro diagnostics, enzymes, foodadditives, additives for cosmetics, and feeds/fertilizers and radiation measurement services to the industries of the pharmaceutical, food, cosmetics, and other. In addition,
this segment sells cosmetics, health foods, and beauty foods directly to consumers.
(b) Calculation methods of net sales, income or loss, assets, and other items byreportable segments
Accounting methods for reportable segments are generally the same as those listed in
Note 2. Reportable segment income corresponds to operating income in the consolidated statements of income. Intersegment internal income and transfers are determinedbased on the values of transactions at actual market prices.
(c) Information on net sales, income or loss, assets and other items for eachreportable segment
Information by reportable segments for the year ended March 31, 2014 is as follows:
Millions of yen

2014
Reportable Segments

Sales to customers
Intersegment sales and transfers
Net sales
Segment income
Segment assets
Other items
Depreciation and amortization otherthan amortization of goodwill
Amortization of goodwill
Unamortized balance of goodwill
Investments in affiliates
accounted for by the equity
methodIncrease in tangible and intangible fixed assets

Functional
Materials

Advanced
Materials &Processing

Electronics

Automotive &EnergyLife &
Healthcare

Total¥169,973
2,966
172,939¥ 4,328¥ 75,491¥239,224
2,212
241,436¥ 3,707¥119,202¥137,026
674
137,700¥ 6,067¥ 69,824¥ 99,441
1,886
101,328¥ 1,381¥ 40,792¥76,810418
77,228¥ 4,000¥96,205¥722,475
8,158
730,633¥ 19,485¥401,516

¥ 737
5,773
6,510
¥ 215
¥7,124¥723,212 ¥— ¥— ¥723,212
13,932—(13,932)—
737,144—(13,932) 723,212¥ 19,701 ¥ (4,364) ¥ 452 ¥ 15,789¥408,640 ¥124,035 ¥(34,533) ¥498,141¥¥¥ 2,323
169
2,617

¥

¥ 2,993
1,516
27,163¥ 6,634
1,685
29,780¥ 193——¥ 6,827
1,685
29,780

407
—
—

647
—
—

262
—
—

Others

Total

Corporate¥ 1,806——

Adjustments Consolidated

¥

—
—
—

¥ 8,634
1,685
29,780

1,850

2,245

75

1,777

2,070

8,018

1,838

9,856

—

(54)

9,801

399

862

2,015

369

4,488

8,134

49

8,184

2,929

—

11,1132013
Reportable Segments

Sales to customers
Intersegment sales and transfers
Net sales
Segment income
Segment assets
Other items
Depreciation and amortization otherthan amortization of goodwill
Amortization of goodwill
Unamortized balance of goodwill
Investments in affiliates
accounted for by the equity
methodIncrease in tangible andintangible fixed assets

Functional
Materials

Advanced
Materials &Processing

Electronics

Automotive &EnergyLife &
Healthcare

Total¥167,017
2,373
169,390¥ 4,368¥ 76,779¥214,214
1,133
215,347¥ 3,171¥108,713¥125,014
724
125,738¥ 6,421¥ 65,453¥83,068
1,384
84,453¥ 763¥37,387¥76,116830
76,947¥ 4,093¥95,735¥665,431
6,445
671,877¥ 18,818¥384,069

¥ 841
5,523
6,364
¥ 265
¥6,489¥666,272 ¥— ¥— ¥666,272
11,968—(11,968)—
678,241—(11,968) 666,272¥ 19,083 ¥ (3,672) ¥ 167 ¥ 15,578¥390,558 ¥127,891 ¥(31,702) ¥486,747

¥

¥

553
—
—

¥ 1,508
96
2,046

¥

250
—
—

¥ 2,025
1,516
28,679¥ 4,756
1,612
30,726¥ 202——¥ 4,959
1,612
30,726¥ 2,486
—
—

1,781

1,545

56

1,613

1,856

6,854

1,793

8,648

612

863

2,788

92

3,028

7,385

436

7,821

418
—
—

Others

Total

Corporate

Adjustments Consolidated

¥

—
—
—

¥ 7,445
1,612
30,726

—

—

8,648

3,870

—

11,691

Adjustments

Consolidated

Thousands of U.S. dollars

2014
Reportable Segments
Functional
Materials

Advanced
Materials &Processing

Electronics

Sales to customers$1,651,506 $2,324,368 $1,331,384
Intersegment sales and transfers
28,81821,492
6,549
Net sales
1,680,325 2,345,861 1,337,932
Segment income$ 42,052 $ 36,018 $ 58,949
Segment assets$ 733,492 $1,158,201 $ 678,430
Other items
Depreciation and amortization otherthan amortization of goodwill$
3,955 $
6,286 $ 22,571
Amortization of goodwill
—
—
1,642
Unamortized balance of goodwill——
25,428Investments in affiliates accounted for by the equity method
17,975
21,813
729
Increase in tangible and intangible fixed assets
3,877
8,375
19,578Automotive &EnergyLife &
Healthcare$966,197
18,325984,532$ 13,418$396,347$746,308 $7,019,773
4,061
79,265
750,369 7,099,038$ 38,865 $ 189,322$934,755 $3,901,244$ 7,161 $7,026,934 $— $— $7,026,934
56,092
135,367— (135,367)—
63,253 7,162,301— (135,367) 7,026,934$ 2,089 $ 191,421 $ (42,402) $ 4,392 $ 153,410$69,219 $3,970,462 $1,205,159 $(335,532) $4,840,080$ 2,546——$ 29,081 $ 64,458
14,73016,372
263,923
289,351$ 1,875 $ 66,333 $—
16,372—
289,351

Others

Total

Total

Corporate

17,548 $——— $ 83,890—
16,372—
289,351

17,266

20,11377,905

17,85995,764—(525)

95,2293,585

43,60779,032476

79,51828,459—107,977(d) Geographical information
Net sales for the years ended March 31, 2014 and 2013 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Japan
China
Other
Total

2014

2013

2014

¥372,939
152,373
197,899¥723,212¥361,971
133,076
171,224¥666,272$3,623,581
1,480,499
1,922,843$7,026,934

Net sales are classified by country or region based on locations of customers.
Property, plant and equipment as of March 31, 2014 and 2013 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Japan
Other
Total

94

NAGASE & CO., LTD. Annual Report 2014

nag14̲E̲財務̲最終引き取り.indd 94-95

2014

2013

2014

¥56,862
7,051¥63,914¥54,619
6,347¥60,967$552,487
68,510$621,007NAGASE & CO., LTD. Annual Report 201495

2014/08/18 11:41

Independent Auditor’s Report(e) Information on loss on impairment of fixed assets per reportable segments
Loss on impairment of fixed assets for the years ended March 31, 2014 and 2013 is as follows:
Millions of yen

2014
Reportable Segments

Loss on impairment of fixed assets

Functional
Materials

Advanced
Materials &Processing

Electronics

¥—

¥—

¥221

Automotive &Life & Healthcare
Energy¥1,080Total¥—¥1,301OthersEliminations or
corporate

Total

¥—

¥12

¥1,314

OthersEliminations or
corporate

Total

¥—

¥—

¥1,896

OthersEliminations or
corporate

Total

$—

$117

$12,767

Millions of yen

2013
Reportable Segments

Loss on impairment of fixed assets

Functional
Materials

Advanced
Materials &Processing

Electronics¥—¥1,359¥326

Automotive &Life & Healthcare
Energy

¥—

Total

¥211

¥1,896

Thousands of U.S. dollars

2014
Reportable Segments

Loss on impairment of fixed assets

Functional
Materials

Advanced
Materials &Processing

Electronics

Automotive &Life & Healthcare
Energy$—$—$2,147$10,494$—

Total$12,641(f) Information on gain on bargain purchase per reportable segments
The Company additionally acquired shares of certain consolidated subsidiaries. As a result, the Company recorded gain on bargain purchase of ¥431 million ($4,188 thousand) in
the Functional Materials segment and ¥96 million ($933 thousand) in the Electronics segment for the year ended March 31, 2014.

23. RELATED PARTY TRANSACTION
On August 10, 2012, the Company acquired treasury stock from Mr. Reiji Nagase, a representative director of the Company, and his relatives Ms. Reiko Nagase and Ms. Yoshiko
Umezono as determined by a resolution at the Board of Directors’ meeting held on August 9, 2012 through the off-auction own share repurchase trading system (ToSTNeT-3) on theTokyo Stock Exchange at ¥913 per share, the closing price on August 9, 2012.
The Company and its subsidiary’s transactions with these related parties for the year ended March 31, 2013 were as follows:
Millions of yen

2013

Transactions:With Mr. Reiji Nagase -Acquisition of treasury stock¥584

With Ms. Reiko Nagase - Acquisition of treasury stock
With Ms. Yoshiko Umezono -Acquisition of treasury stock

442
456

24. EFFECT OF BANK HOLIDAYAs the balance sheet date fell on a bank holiday, the following notes receivable and notes payable with due dates of March 31, 2013 were included in the respective balances andwere settled on the next business day.
Millions of yen

2013

Notes receivable
Notes payable¥2,146579

25. SUBSEQUENT EVENT
The following distribution of retained earnings of the Company, which has not been reflected in the accompanying consolidated financial statements for the year ended March 31,
2014, was approved at a meeting of the shareholders held on June 25, 2014:

Cash dividends (¥14.0 = U.S.$0.14 per share)

96

NAGASE & CO., LTD. Annual Report 2014

nag14̲E̲財務̲最終引き取り.indd 96-97

Millions of yen

Thousands of
U.S. dollars¥1,778$17,276

NAGASE & CO., LTD. Annual Report 201497

2014/08/18 11:41

Consolidated Subsidiaries, Affiliates and Offices● Consolidated subsidiary ● Company accounted for under the equity method
Category

Company name

Description of business

Location

Year of establishment

Equity ownership (%)(* indicates indirect
investment)

Category

Company name

Description of business

Location

Year of establishment

Equity ownership (%)(* indicates indirect
investment)

Sales

Japan
Manufacturing and Processing●

Nagase Chemical Co., Ltd.

Sale of dyestuffs, industrial chemicals, chemicals for manufacturing paper, plastics
and machineryTokyo Pref.

1995

100.0

●

Nagase Plastics Co., Ltd.

Sale of raw materials for plastics and plastic products

Osaka Pref.

1975

100.0

●

Hoei Sangyo Co., Ltd.

Sale of film materials, magnetic products, information imaging materials, etc.

Tokyo Pref.

1974

100.0

●

Nagase Beauty Care Co., Ltd.

Sale of cosmetics and health foods

Tokyo Pref.

1991

100.0

●

Nishinihon Nagase Co., Ltd.

Sale of dyestuffs, auxiliaries, industrial chemicals and plastics

Fukuoka Pref.

1969

100.0

●

Nagase Elex Co., Ltd.

Sale of raw materials for plastics and plastic productsTokyo Pref.

1979

100.0

●

Nagase Abrasive Materials Co., Ltd.

Sale of abrasives, inorganic materials and related equipment

Osaka Pref.

1955

100.0

●

Nagase Sanbio Co., Ltd.

Sales of medicine for agriculture and additives for fertilizers , feed and foodTokyo Pref.

1987

100.0 (13.0)●

Nagase ChemteX Corporation

Research, manufacture, and sale of enzymes, fermented products, pharmaceuticalintermediates, disinfecting agents, functional polymers, epichlorohydrine derivatives,electronics materials, etc.

●

Hayashibara Co., Ltd.

Development, manufacture, and sale of food raw materials, pharmaceutical raw
materials, cosmetics raw materials, health foods raw materials, functional dyes, etc.

Okayama Pref.

1932

100.0

●

Nagase Medicals Co., Ltd.

Manufacture and sale of pharmaceuticals, animal drugs, health foods, and cosmetics

Hyogo Pref.

1972

100.0

●

Setsunan Kasei Co., Ltd.

Coloring and sale of plastics

Osaka Pref.

1966

100.0

●

Totaku Industries, Inc.

Manufacture and sale of plastic products

Osaka Pref.

1952

99.9

●

Kotobuki Kasei Corp.

Molding, processing and sale of plastic products

Tochigi Pref.

1972

100.0 (42.5)●

Nagase Techno-Engineering Co., Ltd.

Manufacture, sale and maintenance of low-temperature vacuum equipment, systems
for chemical supply management and recycling processes, inspection systems, andthe peripheral equipment for each of these.

Tokyo Pref.

1989

100.0

●

Nagase Chemspec Co., Ltd.

Sale and technological servicing of chemicals

Tokyo Pref.

1976

100.0

●

Fukui Yamada Chemical Co., Ltd.

Manufacture of color former

Fukui Pref.

1985

90.0

●

Nagase Tool Matex Co., Ltd.

Sale of auto models, test production materials, and carbon fiber composites

Tokyo Pref.

1965

100.0

●

Nagase Filters Co., Ltd.

Planning, production, processing, quality testing and sale of metal filters

Osaka Pref.

2006

100.0

●

Nagase-OG Colors & Chemicals Co., Ltd.

Purchasing and information services related to dyes, industrial chemicals, etc.

Osaka Pref.

1957

50.0

●

CAPTEX Co., Ltd.

Manufacture and development of battery power source controllers, battery powersources and power source peripheral equipment

Aichi Pref.

2004

100.0

●

OnFine Co., Ltd.

Manufacture and sale of electronics and fluorine and polysilane variants for use inmaterials

Osaka Pref.

2002

50.0 (25.0)●

Kawai Hiryo Corporation

Manufacture and sale of organic fertilizers and agricultural chemicals and materials

Shizuoka Pref.

1981

100.0 (33.3)

Nihon UNF Co., Ltd.

Manufacture, sale, import/export, management consulting, and investment in pharmaceuticals and non-pharmaceuticals

Shizuoka Pref.

2001

20.0

●

Sun Delta Corporation

Development of applications for synthetic plastic products and manufacture and saleof processed productsTokyo Pref.

2005

50.0

●

Honshu Rheem Co., Ltd.

Manufacture and sale of fiber drums, import and sale of food processing machines
and materials

Kanagawa Pref.

1968

40.0

Osaka Pref.

1970

100.0

●

Toyo Beauty Supply Corp.

Contract manufacture of cosmetics and health foods

Tokyo Pref.

1964

40.0

●

eX. Grade Co., Ltd.

Development, manufacture and sale of components for electronic equipment

Osaka Pref.

2003

30.4

●

SN Tech Corporation

Manufacture of developer, recycling businessOsaka Pref.

2008

40.0 (5.0)

Nihon Bio Fertilizer Co., Ltd.

Manufacture and sale of organic fertilizer

Shizuoka Pref.

1986

100.0 (100.0)

Uma Yasai Farm Corporation

Processing and sales of agricultural and livestock goods

Shizuoka Pref.

2008

100.0 (100.0)

Warehousing and distribution

Hyogo Pref.

1982

100.0

Servicing●●

Nagase Logistics Co., Ltd.
Hoei Techno Service Co., Ltd.

Sales of BPO services, catalog & online commerce, recordable media, RFID; logistics
services

Chiba Pref.

1991

100.0

●

Nagase General Service Co., Ltd.

Sale and lease of various goods, real estate administration

Tokyo Pref.

1983

100.0

●

Nagase Information Development, Ltd.

Software development and maintenanceTokyo Pref.

1987

100.0

●

Nagase Trade Management Co., Ltd.

Business agent for foreign trade documentation

Tokyo Pref.

1996

100.0

●

Nippon Vopac Co., Ltd.

Warehousing, motor truck carrier business and freight transportation services

Tokyo Pref.

1966

20.0

●

Nagase Landauer, Ltd.

Radiation measuring services

Ibaraki Pref.

1974

50.0

●

TAGCyx Biotechnologies

High-function materials using artificial bases, reagent kits, diagnostic products,
pharmaceuticals

Kanagawa Pref.

2007

36.5

Nagase Logistics Support Co., Ltd.

An exclusive stevedore for Nagase Logistics Co., Ltd.

Hyogo Pref.

1954

100.0 (100.0)

Choko Co., Ltd.

Insurance agency

Osaka Pref.

1971

44.6

98

NAGASE & CO., LTD. Annual Report 2014

GREATER CHINA AND KOREA
Manufacturing and Processing●

Nagase ChemteX (Wuxi) Corporation

Plastic manufacture and sale of adhesives and high-tech chemical products for electronics, technology services

China

2002

100.0 (50.0)●

Totaku Industries Suzhou Co., Ltd.

Manufacture and sale of plastic products

China

2005

100.0 (100.0)●

Nagase Electronics Technology Co., Ltd.

Chemical etching of liquid crystal glass panel units

Taiwan2005

71.0 (11.0)●

Nagase Engineering Service Korea Co., Ltd.

Equipment maintenance service and engineering

Korea

1997

100.0 (100.0)●

Nagase Electronics Technology (Xiamen) Co., Ltd. Chemical etching of liquid crystal glass panel units

China

2010

100.0 (100.0)●

Guangzhou Kurabo Chemicals Co., Ltd.

Manufacture of molded urethane products for automobiles

China

2001

20.0

●

Toyo Quality One (Guangzhou) Co., Ltd.

Research and development, manufacturing, processing, sale, technology consulting,and after-sale service for major automotive parts

China

2004

20.0

●

Toyo Quality One Ningbo Co., Ltd.

Manufacture and sale of polyurethane foam

China

1993

24.2

●

Tokai Spring Mfg. (Foshan) Co., Ltd.

Development, manufacture, and sale of precision press products, spring, and standard molds

China

2005

27.3

●

Light Chemical (Changzhou) Co., Ltd.

Research, development, and afterservice for high-function composites and intermediates; sales of internally developed products

China

2011

33.4

ON Textile Chemicals (Shanghai) Co.,LTD.

Manufacture, sales, and export/import of textile-related products, dyeing processing
agents

China

2003

50.0 (50.0)

Nagase Marketing and Service (Shenzhen) Ltd.

Customer services

China

2006

100.0 (100.0)

Nagase CMS Technology (Shanghai) Co., Ltd.

Construction and maintenance of chemical supply and management equipment

China

2006

100.0 (60.0)

NW Consultant Service (Shenzhen) Ltd.

Print quality management consultant

China

2008

60.0 (30.0)

Nagase Business Management and Planning(Shanghai) Co., Ltd.

Management of Nagase Group operations and promotion of business strategies
related to Greater China

China

2011

100.0

Servicing

NAGASE & CO., LTD. Annual Report 201499

Category

Company name

Description of business

Location

Year of establishment

Equity ownership (%)(* indicates indirect
investment)●

Nagase (Hong Kong) Ltd.

Import/export, domestic sales, marketing

China

1971

100.0

●

Shanghai Hua Chang Trading Co., Ltd.

Sale of resins and related products

China

1998

70.0 (53.8)

Year of establishment

Nagase (Thailand) Co., Ltd.

Import/export, domestic sales, marketing

Thailand

1989

100.0

Eastern Office
Nagase Singapore (Pte) Ltd.

1975

100.0

1981

100.0

Thailand
Import/export, domestic sales, marketing

Singapore

Chengdu Branch Office/ Chongqing Branch Office

China

Australia Branch

Australia

Bangladesh Liaison Office

Bangladesh

China

1997

100.0

●

Nagase Wahlee Plastics Corp.

Sale of plastics and related products

Taiwan1990

60.0 (5.0)

Taichung OfficeTaiwanGangshan OfficeTaiwanNWP (B.V.I.) Corporation
Guangzhou Nagase Trading Ltd.

Vehicle for investments into China from Taiwan
Import/export, domestic sales, marketing

British Virgin Islands
China

2007
2002

100.0 (100.0)
100.0 (100.0)●

Nagase (Malaysia) Sdn. Bhd.

Import/export, domestic sales, marketing

Malaysia

Johor Bahru Office

Malaysia

Penang Office

Malaysia●

P.T. Nagase Impor-Ekspor Indonesia

Import/export, domestic sales, marketingIndonesia

1998

99.8

●

Nagase Philippines Corp.

Import/export, domestic sales, marketing

Philippines

1997

100.0

Wuhan Branch Office/Chongqing Branch Office

China

●

Nagase Philippines International Services Corp.

Domestic sales, import/export

Philippines

2005

100.0

Chengdu Branch Office/Changsha Branch Office

China

●

Nagase Vietnam Co., Ltd.

Import/export, domestic sales, marketing

Vietnam

2008

100.0

2006

100.0 (0.1)

2000

49.0 (49.0)

Nagase (Taiwan) Co., Ltd.

Import/export, domestic sales, marketing

Xiamen Representative Office
Tianjin Nagase International Trading Co., Ltd.

Import/export, domestic sales, marketing

1988

100.0

China

Ho Chi Minh City Branch
●

2003

-

China
Sale of plastic products in South China

China

2004

100.0 (100.0)

Nagase India Private Ltd.

Vietnam
Import/export, domestic sales, marketing

North India Branch (Gurgaon)

100.0

China

Changchun Branch Office
NWP International Trading (Shenzhen) Co., Ltd.

TaiwanChina

Dalian Branch Office/Qingdao Branch Office

●

●

●

Import/export, domestic sales, marketing●

Equity ownership (%)(* indicates indirect
investment)

Location

China

Shanghai Nagase Trading Co., Ltd.

●

Description of businessSuzhou Branch Office/Ningbo Branch Office●●

Company name

Sales

Sales

●

Category

India
India

Nagase (Siam) Co., Ltd.

Contract services for Group companies

Nagase Middle East Branch

BranchThailand
United Arab Emirates

AMERICAS
Manufacturing and Processing

Dongguan Branch Office

China

Guangzhou Branch Office

China

●

Nagase Korea Corp.

General import/export trading, retailing/wholeselling, import/export trade agency

Korea

2001

100.0

●

Xiamen Nagase International Trading Co., Ltd.

Import/export, domestic sales, marketing

China

2011

100.0 (100.0)

ON Colors & Chemicals (Shanghai) Co., Ltd.

Sales of textile-related products, dyeing processing agents, related equipment;
export/import and technology consulting, technological development of dyeing processing

China

2002

50.0 (50.0)

ASEAN AND THE MIDDLE EAST
Manufacturing and Processing●

Nagase Finechem Singapore (Pte) Ltd.

Manufacture and recycling of chemical agents for liquid crystals

Singapore2001

100.0 (40.0)●

Pac Tech Asia Sdn. Bhd.

Manufacture and sale of semiconductor manufacturing equipment, semiconductor
wafer bumping contract manufacturing

Malaysia

2006

100.0 (100.0)●

Sanko Gosei Technology (Thailand) Ltd.

Manufacture of automobile components

Thailand

1994

40.0

●

Engineered Materials Systems Inc.

Research and development, manufacture, and sales of materials for commercial
adhesives, conductive adhesives

America

1993

100.0 (50.0)●

Pac Tech USA-Packaging Technologies Inc.

Semiconductor wafer bumping, manufacture and sale of semiconductor manufacturing equipment

America

2001

100.0 (100.0)●

Sofix Corp.

Manufacture and sale of color formers

America

1990

100.0

●

KN Platech America Corporation

Manufacture and sale of blow-formed plastic components and products

America

2010

50.0

●

TIMLE S.A. DE C.V.

Manufacture and sale of automotive laminated frames sale of automotive urethane foam

Mexico

2010

15.0

●

TQ-1 de MEXICO S.A. DE C.V.

Manufacture and sale of urethane for automotive seat pads

Mexico2012

25.0

Import/export, domestic sales, marketing

America

1971

100.0

Sales
●

●

Bangkok Design Office
Automotive Mold Technology Co., Ltd.

Manufacture of automotive molds and dies

Thailand

2000

32.1

●

Nafuko Co., Ltd.

Manufacture, import/export and sale of packaging materials and related equipment

Thailand1996

28.0 (28.0)●

Dainichi Color Vietnam Co., Ltd.

Manufacture and sale of color masterbatch blend for plastic

Vietnam

2005

40.0

●

P.T. Toyo Quality One Indonesia

Manufacture of flame lamination products

Indonesia

2008

25.0

●

Majend Makcs Co., Ltd.

Plastic film processing

Thailand2002

30.0 (30.0)●

PT. TUNE Manufacturing Indonesia

Painting and sales of exterior auto parts

Indonesia

2013

35.0 (25.0)

長瀬14̲英̲本文̲fin.indd 100-101

America

California Branch

America

Nagase Enterprise Mexico S.A. de C.V.

Import/export sales, intermediate trade, market development, information collection

Mexico2010

100.0 (100.0)

NAGASE DO BRASIL REPRESENTAÇÃO
COMERCIAL LTDA.

Survey biomedical businesses in Brazil and South America; review other development businesses in the region

Brazil2012

100.0 (0.1)

Semiconductor wafer bumping, manufacture and sale of semiconductor manufacturing equipment

Germany

1995

97.2

Import/export, domestic sales, marketing

Germany

1980

100.0

EuropeManufacturing and Processing●

Pac Tech-Packaging Technologies GmbH

Sales
●

NAGASE & CO., LTD. Annual Report 2014

Michigan Branch

Thailand●100

Nagase America Corp.

Nagase (Europa) GmbH
Hungary Representative Office

Hungary

London Branch

England

NAGASE & CO., LTD. Annual Report 2014101

2014/09/08 11:21

Corporate Information

Investor Information(As of March 31, 2014)

Overview

Company NameNAGASE & CO., LTD.

FoundedJune 18, 1832

Establishment

December 9, 1917

Capital
Employees

978 (Consolidated: 5,960)

Main Business

Import/export and domestic sales of dyestuffs, chemicals, plastics, machinery, electronics materials, cosmetics and health foods

Listings Tokyo (First Sections)

Code

8012

Authorized Number of Shares
Issued Number of Shares

346,980,000
138,408,285

Number of Shareholders

6,984

Principal Shareholders

Securities Companies (30)627 Thousand shares (0.45%）

Treasury Stock (1)11,375 Thousand shares

Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
Mizuho Bank, Ltd. Sumitomo Mitsui Trust Bank, Limited

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

Other Investors (216)
19,605 Thousand shares

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

Nagase Application Workshop

2-4-45, Higashitsukaguchicho, Amagasaki City, 661-0011 Tel: (81) 6-4961-6730

14.16 %

Financial Institutions (50)43,061 Thousand shares

31.11%

18.28 %
27.76 %

Individuals and Others(6,488)25,311 Thousand shares

Number of
Shares Held(thousands)

Percentage ofTotal Shares
Outstanding (%)

NORTHERN TRUST CO. (AVFC) RE SILCHESTER INTERNATIONALINVESTORS INTERNATIONAL VALUE EQUITY TRUST

6,028

4.36

Sumitomo Mitsui Trust Bank, Limited.

5,776

4.17

The Master Trust Bank of Japan, Ltd. (Trust Account)

5,549

4.01

Sumitomo Mitsui Banking Corporation

4,377

3.16

Japan Trustee Services Bank, Ltd. (Trust Account)

4,303

3.11

NORTHERN TRUST CO. (AVFC) SUB A/C NON TREATY

4,296

3.10

Hiroshi Nagase

4,142

2.99

Nippon Life Insurance Company

4,037

2.92

Reiko Nagase

3,573

2.58

NORTHERN TRUST CO. (AVFC) RE U.S. TAXEXEMPTED PENSION FUNDS

3,539

2.56

Name

8.21%

Main Banks

Foreign Investors (199)38,425 Thousand shares

Notes: 1. In addition to the above, the Company holds 11,375 thousand shares of treasury stock (8.21%) without voting rights.
2. Shares owned by Hiroshi Nagase include shares nominally owned by NAGASE & CO., LTD.

Monthly Share Price Range of Nagase

Organization (as of April 1, 2014)

Shareholders’ Meeting

Stock Exchange

Composition of Shareholders¥9,699 million

Audit & Supervisory Board /Audit &Supervisory Board Members(As of March 31, 2014)

(¥)

TOPIX

Nagase R&D Center

1,800

3,000

Internal Control Committee

Nagase Application Workshop

1,500

Security Trade Control Committee

Business Administrative Div.

1,200

2,000

Performance Chemicals Dept.

900

1,500

Speciality Chemicals Dept.

600

1,000

Colors & Imaging Dept.

300

Risk Management & Compliance Committee

Share Price
TOPIX

2,500

Board of Directors

President
Corporate Strategy Office

Polymer Global Account Dept.

Corporate Planning Office

Polymer Products Dept.

Intellectual Property OfficeElectronic Chemicals Dept.

Monthly Trading Volume

Logistics Management Div.

Electronic Materials Dept.

15,000

Human Resources & General Affairs Div.

Automotive Solutions Dept.

NAGASE & CO., LTD. Annual Report 2014

0April 2004

April 2005

April 2006

April 2005

April 2006

April 2007

April 2008

April 2009

April 2010

April 2011

April 2012

April 2013

April 2014

(Thousands of Shares)

12,000Finance Div.

Energy Business Office

Accounting Div.

Life & Healthcare Products Dept.

Legal & Credit Div.

Beauty Care Products Dept.

6,000

Information Technology Div.

Nagoya Branch

3,000

Audit Office

Nagase ChemteX Corporation
Hayashibara Co., Ltd.

102

500

9,000

0

April 2004

April 2007

April 2008

April 2009

April 2010

April 2011

April 2012

April 2013

April 2014

NAGASE & CO., LTD. Annual Report 2014103