Annual Report 2 0 1 6Year ended March 31, 2016

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

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

Printed in Japan

Bringing it all together
Contents
About this Report
The NAGASE Group Slogan is “Bringing it all together.” This slogan inspires us to realize a sustainable

Annual Report 2016

About the NAGASE Group

Unique Products

2 Management Philosophy and the NAGASE Vision

40 Global Network

4 NAGASE Group Businesses

46 Main Manufacturing and Processing Functions

6 The NAGASE Group:

50 Major R&D Functions

Blending Tradition and Innovationworld where people live with peace of mind, each of us embodies our value proposition, Identify,

8 How We Create Corporate Value

Develop and Expand through daily activities.

10 Valuable Products and Services

This annual report is our opportunity to communicate to our stakeholders, providing financial
and non-financial information related to the NAGASE Group as a business organization, our issues,and our mid- and long-term strategies in a single, integrated publication.
We intend to continue to evolve this annual report as an effective tool to communicate our activities for improving the NAGASE Group corporate value over the medium and long term.
In creating this report, we referred to version 1.0 of the International Integrated Reporting Framework issued in December 2013 by the International Integrated Reporting Council.

12 13-Year Financial Highlights

Leading Us to the Future
14 Message from the President
20 Our Board

Critical Initiatives for Sustainable Growth
52 Human Rights, Employment Practices
55 Environment
57 Fair Business Practices
60 For Consumer Safety and Security
61 Community Involvement and Development

22 Corporate Governance

Performance by Segment
28 At a Glance
30 Functional Materials
Forward-Looking Statements
Non-historic information contained in this annual report related to NAGASE & CO., LTD. and NAGASE Group revenue andprofit plans, strategies, presumptions, etc. are forward-looking statements that include elements of risk 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 contained in this document. Elements that could impact
earnings results are not necessarily limited to those explicitly noted in this document.

32 Advanced Materials & Processing
34 Electronics
36 Automotive & Energy
38 Life & Healthcare

Financial and Corporate Information
62 Financial Foundation Supporting Business Growth
65 Management’s Discussion andAnalysis of Operations and Finances

72 Comparative Consolidated Financial Statements
98 Consolidated Subsidiaries, Affiliates and Offices
102 Corporate Information
103 Investor Information
NAGASE & CO., LTD.

Annual Report 20161

Management Philosophy and the NAGASE Vision
About the NAGASE Group
Performance by Segment

A sense of values sharedwithin the NAGASE Group2

NAGASE & CO., LTD.

Annual Report 2016

Working with partners to enable new businesses
Driving new technologies with knowledge and experience
Staying a step ahead of the market to actively off­er solutions

Value
Proposition

NAGASE Vision
Visionfor the Future“­The NAGASE Way”
Action Principles Maintaining the highest standards of integrity for almost 200 years We “Identify, Develop and Expand” new businesses

1. Identify : We discover untapped business opportunities
2. Develop: We convert opportunities into customer value
3. Expand : We deliver solutions to multiple fields and regions We will contribute to a sustainable world where people livewith peace of mind

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

Always be customer-oriented.
Always be a creative challenger.
Always use the power of the NAGASE Group.
Always think globally and act locally.
Always think systematically and act speedily.

NAGASEManagement
Philosophy

Strengths/
Characteristics

Critical Initiatives for Sustainable Growth

To realize a sustainable world where people livewith peace of mind, each of us embodies our value proposition,
Identify, Develop and Expand through daily activities.

­The NAGASE Vision
Unique Products

We recognize our responsibility to society and offer beneficial products
and services while maintaining the highest standards of integrity.­
Through our growth, we will contribute to society and enrich the livesof our employees.

Leading Us to the Future

The NAGASE Group updated its philosophy structure as one initiative toward creating sustainable growth andimproving corporate value. We kept the current NAGASE Management Philosophy in place,while defining a new NAGASE Vision and NAGASE Way (employee behavioral guidelines)
to create a shared awareness within the NAGASE Group.
We have launched a new global branding project and created a new NAGASE Slogan
to more plainly declare the NAGASE Vision: Bringing it all together.
This slogan represents our commitment to bringing it all together
into an encompassing whole: our business domains, our operating regions and countries,
our people, our products, our technologies, and our services.
By spreading word of the unique NAGASE concept through our branding project and organization-wide activities,
we hope to create a strong personal vision within each employee.
It is this personal vision within each person that will help us reach sustainable growth.

3

NAGASE Group Businesses

Advanced Materials& Processing

Electronics

Automotive & Energy Colors & Advanced Processing
Department Electronic Chemicals Department Automotive Solutions Department

About the NAGASE Group

Functional Materials

Consolidated
Net SalesLife & Healthcare

Leading Us to the Future¥ 742.1
billionLife &
Healthcare

11.5%

Automotive& Energy

Functional
Materials

21.2%

Fiscal 2015 Results

Electronics

Advanced
Materials &Processing

17.2%

34.4%

<Department Overview><Department Overview><Department Overview><Department Overview><Department Overview>

The Performance Chemicals Department
leverages Group manufacturing and R&D
functions to provide a broad range of goods andservices to the global market, from generalpurpose petrochemical products to high-valueadded products. The department consists of a
raw materials business for the paint and ink
industry and a raw materials business for theurethane industry, each of which is recognized
as an established leader in its respective market.

The Colors & Advanced Processing Department
is mainly involved in handling colors,chemical raw materials, and other products thatare vital components of functional materials
that connect people with information—both
digital and analog. The department also sells
copolyester resins, functional sheets and films,
and plastic molding products manufactured
by Eastman Chemical. This department offers
high-value, proprietary solutions, working
closely with Group manufacturing companies
and the Nagase Application Workshop tobuild a network of businesses across a wide
range of domains.

The Electronic Chemicals Department provides
unique products and services for the electronics
industry, including formulated epoxy resins,
highly pure chemicals, chemical management
equipment, semiconductor equipment, andother proprietary products and services. The
department answers the needs of the Japaneseand overseas markets, focusing on high-valueadded products produced by Group manufacturing companies. The department strives forhigh profitability, integrating trading andmanufacturing functions.

The Automotive Solutions Department operates
in the global automotive industry, which isexperiencing increasingly rapid growth. Here, we
make the most of our superior global network to
expand sales of raw materials and products inglobal markets, particularly China, ASEAN, andNorth America. At the same time, we are working
to improve Group manufacturing functions tooffer greater levels of safety, security, comfort,
and environmental friendliness demanded bysociety now and in the future. In doing so, weplan to contribute to the new automobile
society and grow our business at the same time.

The Life & Healthcare Products Department sets
its sights on contributing to food, beauty, andhealth as a member of the Life & Healthcare
segment. This department is developing highvalue-added products that help people live
better and healthier lives, leveraging the Group’s
comprehensive strengths in trading, R&D, andmanufacturing and processing in the global
food materials, pharmaceutical/medical
materials, cosmetic materials, householdmaterials, agriculture, fisheries, and livestock
fields.

<Main Products and Services>

Functional food ingredients (functionalsaccharides, enzymes, health food materials, andfood additives), cosmetics and householdproduct materials (whitening agents, moisturizing agents, UV absorbers, activators, antibacterial agents, and nutritional supplements,
chelates), pharmaceuticals (active pharmaceutical ingredients [APIs], clinical trial APIs, intermediates, raw materials, formulations, additives),
in-vitro diagnostics, medical materials, relatedmaterials for agriculture, fisheries, and livestock(agricultural chemicals and materials, fertilizers,
feed and feed additives)<Main Products and Services>

Resins, raw materials for resins, pigments,
solvents, and additives for paints and inks,
urethane materials, flame retardants, releaseagents<Customer Industries>

Paints and inks, urethane<Department Overview>

billionLife &
Healthcare

19.0%

Automotive& Energy

6.4%

Functional
Materials

18.1%

Operating
IncomeComposition

Electronics

Advanced
Materials &Processing

24.5%

Petrochemical products, plastic materials andadditives, chemicals for paper manufacturing,raw materials for industrial oil solutions,surfactants and surfactant raw materials,
fluorochemicals, silicone materials, platingchemicals, electronics chemicals andpolymer filters<Customer Industries>

Petrochemicals, plastics, electronic materials,
semiconductors, industrial oil, surfactants,
organic synthetics, etc.

30.8%

<Customer Industries>

Paper manufacturing/thermal paper, cosmetics
and toiletries, electronic equipment, sheets andfilms, printing and print materials, fiber
processing, auto body paint Polymer Global AccountDepartment<Department Overview>

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 andknowledge. The department continues to create
new plastics businesses through cooperative
efforts, reflecting NAGASE Group growthstrategies.
<Main Products and Services>

Functional resins, general-purpose resins,
auxiliaries, plastic products, plastic-related
equipment, devices and moldings<Customer Industries>

Office automation, electronics and consumer
electronics, home appliances, housing andconstruction materials, packaging materials

4

NAGASE & CO., LTD.

Annual Report 2016

<Customer Industries>

Electronic components, displays, heavy electricmachinery, semiconductors, automotive,
environment and energy Electronic Materials Department<Department Overview>

The Electronic Materials Department leverages
its domestic and overseas network to sell display
device peripheral components/cases, internal
components, LED-related materials, and lenses
and other optical components. As well, thedepartment utilizes manufacturing functions in
its glass processing and flame retardant
insulation/thermal conductive sheetsbusinesses.
<Main Products and Services>

Materials for smartphone and tablet cases, touch
panel materials, optical films for liquid crystal
displays, abrasives, LED chips and relatedmaterials, glass processing, anti-reflective sheets
for plastic and glass, materials for backlights,
electronic paper-related materials, materials forflexible displays, organic light-emitting materials,
flame-resistant insulation/thermal conductive
sheetsCommodity plastics and engineering plastics forautomotive interior/exterior components,
automotive interior/exterior and functional
components, lightweight materials andcomponents, electronics components, auxiliaries,
plastic-related equipment, devices and tools<Customer Industries>

Automotive and automotive parts industries Energy Business Office<Department Overview>

The Energy Business Office deals in energy
management systems (EMS) combining andnetworking lithium ion battery (LiB) systems andphotovoltaic (PV) modules. In combination withrelated component materials, NAGASE devises
marketing strategies that anticipate futureneeds, dealing in and sharing information
covering all aspects of the business fromupstream to downstream. Beginning fiscal 2016,
the department will begin dealing in LED opticalcommunications equipment for the safe, stable
control of infrastructure related to the businesses referenced above.
<Main Products and Services>Raw materials for lithium ion battery (LiB),
photovoltaic (PV) modules, LiB systems, PV
materials and applied products in energy
management systems, independently poweredsystems, LED optical communications equipment, wireless communications modules<Customer Industries><Customer Industries>

Smartphones and tablets, displays, touch panels,
LEDs

Batteries, photovoltaics, automotive andautomotive parts, construction, logistics, lighting,commercial facilities, public facilities, etc<Main Products and Services><Customer Industries>

Foods, pharmaceuticals and medical, diagnostic
drugs, cosmetics, household goods, agricultural,fisheries and livestock Beauty Care Products Department<Department Overview>

In keeping with its business philosophy toprovide safe, high-quality products and services
that enhance beauty inside and out, the Beauty
Care Products Department manufactures andsells cosmetics and health foods led by our
popular Rosemary ingredient, which is the resultof state-of-the-art research conducted in Japanand overseas. In addition, the department’s sales
network is comprised of 50,000 people whooffer advanced counseling and facial careservices.

Financial and Corporate Information

Fiscal 2015 Results<Main Products and Services>

Pigments/additives, digital print processing
materials, copolyester resins, functional sheets
and films, organic transparent conductive
materials, dyestuffs, fiber processing agents, auto
body repair paint

Formulated epoxy resins and related products,
photolithography materials for the productionof semiconductors and liquid crystal displays,
chemical management equipment for liquid
crystal display production processes, semiconductor equipment and bumping services

Critical Initiatives for Sustainable Growth¥ 18.0The Speciality Chemicals Department has a longand successful history, serving more than 2,000
customers in the plastic materials and additives,
industrial oil materials, plating chemicals, water
processing agents, photoresist materials,
fluorochemicals, silicone, and other industries.
Today, the department handles more than
10,000 different products. Furthermore, we areworking toward the global expansion of new
businesses and customer products, utilizing
unique customer technologies and our own
value chain.

<Main Products and Services><Main Products and Services>

Unique Products Speciality Chemicals Department

Consolidated
Operating Income Life & Healthcare Products
Department

Performance by Segment

Net Sales
Composition

15.5% Performance Chemicals
Department<Main Products and Services>

Cosmetics (including skin care counseling andfacial care services), health foods<Customer Industries>

General consumers

NAGASE & CO., LTD.

Annual Report 2016

5

The NAGASE Group: Blending Tradition and Innovation
About the NAGASE Group

Right: Nagase-CIBA Ltd. in 1971
Bottom: Newly completed Tokyo branch
office building (October 1969)

Top: Hayashibara Co., Ltd (functionalsaccharides manufacturing plant)
Top Right: Nagase R&D Center

Accelerating
growth in Asiaand othermarkets
overseas

Foundation for Cooperative Growth
Creating new businesses in cooperation
with our customers and business partners
around the world

A chemicals trading company building a strong
reputation in manufacturing, processing,and research and development
Manufacturing
andProcessing

TradingCompany

R&D

Performance by Segment

NAGASE & CO., LTD. is a chemicals trading firm, founded in Kyoto, Japan in 1832.
The NAGASE Group began as a specialized sales agent securing exclusive contracts
to sell industry-leading products from around the world in Japan.
Over the years, we have leveraged our technology and information gathering expertise—as well as our global network—to transform our business into a hybrid model offering superior
manufacturing, processing, and R&D functions as well as trading company services.
Looking forward to our 200th anniversary in the year 2032,
we are creating a platform for sustainable growth.

Unique Functions

Leading Us to the Future

Tradition and Innovation

Expandingmanufacturingbases, R&D
centers

Overseas Network

Supporting Japanese Industry

Our

184th year in business

Overseas
Sales to Net Sales
As of fiscal 2015

51%

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

1971	Established Nagase (Hong Kong) Ltd. and Nagase America

1898 Head office moved to Osaka

1923	Established business ties with Eastman

One of theearliest
companies toexpandoverseas(from sole proprietor to corporation)

1972 Established Nagase Medicals Co., Ltd.
1975 Established Nagase Singapore (Pte) Ltd.
1977 Established Nagase Biochemicals, Ltd.
1980 Established Nagase Chemicals, Ltd.
Established Nagase (Europa) GmbH1982 Established Nagase (Malaysia) Sdn. Bhd.
1985 Established Seoul branch office
1988 Established Nagase (Taiwan) Co., Ltd.
1989 Established Nagase (Thailand) Co., Ltd.

Kodak Co. of the United States

1930 C oncluded an exclusive distributorshipagreement with Union Carbide andCarbon Corp. of the United States

Founding

Corporation
	Established Engineering Plastics, Ltd. jointlywith General Electric Co.

1938	Established Teikoku Chemical

1990	Established Sofix Corporation, a U.S.-based color former

production joint venture
Set up the Nagase R&D Center in Kobe	Established joint venture Nagase Wahlee Plastics Corporation(Taiwan)1997 Established Nagase Philippines Corporation

Founder: Denbei Nagase
Top: NAGASE partner Eastman Kodakin the early 20th century
Left: Osaka Headquarters at incorporation in December 1917

6

NAGASE & CO., LTD.

Annual Report 2016

Established Shanghai Nagase Trading Co., Ltd.
Established Nagase Engineering Service Korea Co., Ltd.

1998 Established P.T. Nagase Impor-Ekspor Indonesia

Established Shanghai Hua Chang Trading Co., Ltd.

2001 N agase ChemteX, Nagase Chemicals, Teikoku Chemical Industries,

and Nagase Biochemicals, merged to Nagase ChemteX Corporation
Closed the Seoul branch office and established Nagase Korea
Corporation

2002 Established Guangzhou Nagase Trading Ltd.

Established Nagase ChemteX (Wuxi) Corporation

2004 Established NWP International Trading (Shenzhen) Co., Ltd.
2005	Established Totaku Industries Suzhou Co., Ltd.

Established Nagase Electronics Technology Co., Ltd.
	Established Nagase Philippines International Services
Corporation

2006	Acquired stock of semiconductor manufacturing equipment
maker Pac Tech-Packaging Technologies GmbH
Established Nagase India Private Ltd.

2007 Established Nagase Application Workshop
2008 Established Sakai Sales Office

Established Nagase Vietnam Co., Ltd.

2009 Established Dubai branch office2012	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

2014 Completion of NAGASE Global HRD Center2015	Created NAGASE Long-Term Management Policy,

Financial and Corporate Information

Established Nagase Science and Technology Foundation
	Tokyo branch office became a head office;adoption of Osaka/Tokyo two head office system

Industries Co., Ltd.

to Nagase ChemteX Corporation

Critical Initiatives for Sustainable Growth1832	Nagase founded in Kyoto as a dyestuffs trading concern

1901 Opened office in Lyon
1911 Established Tokyo branch office1913 Opened offices in London, New York
1917	Established Nagase Shoten Company

Sales of dyestuffs, starches and funori seaweed

1964 Listed Company shares on the Osaka Securities Exchange
1968 Concluded an exclusive distributorship agreement
1970	Established Nagase-CIBA Ltd.

1900s
of Switzerland (now Ciba Specialty Chemicals Ltd.)

1832

1950s
with General Electric Co. of the United States

1900	Established business ties with Basel Chemical Co.

Established in2000	Changed the name of Nagase-CHIBA, Ltd.

Unique Products

Founded as a dyestuffs wholesaler,
we became an industrial raw
materials supplier during Japan’s
high-growth period

2000s

In the 1900s, we signed sales representative agreements with Eastman Kodak and General Electric,building a foundationof trust lasting nearly two centuries

updated Management Philosophy Structure2016 Launched new mid-term management plan
See

P.16

2032 O ur 200th anniversary
NAGASE & CO., LTD.

Annual Report 20167

How We Create Corporate Value
About the NAGASE GroupA Unique Business Model that Extends
Beyond the Traditional Trading Firm Framework

Share of NAGASE Consolidated Operating Income
Represented by Manufacturing Businesses

The NAGASE Group has created a truly unique, highly valuable business modelby integrating traditional trading firm functions with manufacturing, processing, and research and development functions.

30

Leading Us to the Future

24 %

(%)
40

20

Maintain high profit ratios
by offering high-value-added materials

1002011/3

Find needs
and seedsIntellectual capital
Human capitalSocial/relationship capital
Natural capital

20

Business
Investment

Purchasing

Sales

Research/
Application
Development

Manufacturing
and Processing

NAGASE Group(Sales)Co

UniqueNAGASE
Functions
Manufacturing
and Processinga t e Go ver nan

2011/3

B to B&
B to C

2012/3

2014/3

2015/3

2016/3

We improve corporate value through our businessand return profits to shareholders.

User
Consumers

We contribute to creating a sustainable world
where people live with peace of mind.

ce

NAGASEGroup

2013/3

Supporting industry
through materials andfinished products

Financial and Corporate Information

TradingCompany
Functionr por

0

Critical Initiatives for Sustainable Growth

Unique NAGASE Functions

32

Dividends paid
from business profits

10

Ongoingbusiness growth

Trade

¥

2016/3

Unique Products

Manufactured capital

Opportunities and Risks

Financial capital

Information/
Research, Market
Development

2015/330

Trading Company Function

Strategy and Capital Allocation

Main
Management
Resources(¥)
40

ExpandGrow seeds
into businesses

2014/3

Performance by Segment

Develop2013/3

Per Share Dividends

NAGASE

Identify

2012/3

Supporting
beauty and health• Nagase ChemteX Corporation (p.46)• Hayashibara (p.48), 47 Other Companies

Research/Application • Nagase R&D Center (p.50)
Development• Nagase Application Workshop (p.51)

8NAGASE & CO., LTD.

Annual Report 2016

NAGASE & CO., LTD.

Annual Report 20169

Valuable Products and Services

NAGASE delivers value that contributes to creating a sustainable world where people live with peace of mind.
This value is represented in everything from raw materials for plastic materials and additives, functional polymers,
and plastic products to functional food ingredients and pharmaceutical raw materials and intermediates.
We will continue to grow as we work together closely with our customers in producing products and services of value.

Advanced Materials& Processing

Electronics

A Sustainable World Where
People Live With Peace of Mind

Automotive & Energy

Leading Us to the Future

Functional Materials

About the NAGASE Group

Delivering Valuable Products and Services on the Global Stage

Life & Healthcare

Performance by Segment

Coating Raw Materials
Coating raw materials sold by NAGASE are used in
automobile bodies and other applications.

Color Formers
Manufacture and sale of color formers used inthermal paper applications, including cash
register receipts and tickets.

Variety of Electronics-Grade Chemicals
Supply of chemicals and resist for use in the
manufacture of LCD panels, semiconductors, andelectronic components.

Car Electronics
Solutions for new materials, components, andtechnologies for next-generation environmental
applications.

Pharmaceutical and Medical Fields
Manufacture and sale of pharmaceutical raw
materials, anti-cancer drugs, and other healthrelated products.

Unique Products

High-density, flexible urethane materials sold by
NAGASE are used in car seat cushions.

Engineering Plastics

Manufacture and sale of Denafilter™, a filtration
system used in the manufacturing process of highquality films for packaging and optical applications.

10

NAGASE & CO., LTD.

A copolyester resin resistant to temperatures
greater than 100°C. This material is widely used asa substitute to compensate for defects intableware and other glass products.

Annual Report 2016

Sales of plastics for use in office automationequipment and other applications.

Liquid Crystal-Related Products
Sale of display device peripheral components andtouch panel materials to the smartphone andtable PC industry.

Epoxy Resins
Manufacture and sale of adhesives used in liquid
encapsulants for semiconductors and wind
power generation, as well as epoxy resins used indisplays, optical component materials, and otherindustrial applications.

Car Multimedia
Initiatives for components and new materials thatoffer safety, security, and comfort.

Home Energy Management Systems
The affordable Home Energy Management
System (HEMS) is under development to realize
easy access to Zero Energy House (ZEH).

Cosmetics
Manufacture and sale of cosmetics materials,
products, and health foods.

Financial and Corporate Information

Denafilter™

Copolyester Resin (Tritan™)

Critical Initiatives for Sustainable Growth

Urethane Materials

TREHA™
TREHA™ is a functional saccharide that slows
quality degradation caused by freezing or drying.
Manufacture and sale of trehalose used in a wide
variety of processed foods.

NAGASE & CO., LTD.

Annual Report 201611

13-Year Financial Highlights(Millions of Yen)

2004/3

2005/3

2008/3

2009/3

2010/3

2011/3

2012/3

WIT2008“CHANGE”11

Investment Amount: ¥23.7 billion

Investment Amount: ¥27.7 billion

Investment Amount: ¥107.4 billion

2013/3

2016/3

Investment Amount: ¥13.7 billion

Region¥ 648,023
222,282229,278
132,086
̶
56,404
7,972
388,470259,553
67,64017,596
12,892¥ 701,321
247,094
244,681
150,796
̶
53,556
5,191
410,789
290,532
73,63921,66913,567¥ 764,755
267,836
274,660
163,833
̶
56,4891,934
432,813331,942
80,50623,063
10,005¥ 715,238
248,461
253,029
153,255
̶
58,905
1,585
394,874
320,364
71,527
12,522
5,808¥ 603,949
237,124
192,569
117,591
̶
55,542
1,121
360,382
243,567
65,415
13,1287,537¥ 660,213
253,290
222,100
133,640
̶
50,247934
389,379
270,833
73,00818,732
12,823¥ 631,854
177,126
217,929
110,495
76,11349,1701,018
366,369
265,484
71,62813,4278,570¥ 666,272
167,017214,214125,01483,06876,116841
361,971304,301
82,583
15,57814,182¥ 723,212
169,973
239,224
137,026
99,441
76,810737
372,939
350,272
88,936
15,78911,663¥ 759,713
168,238
254,165
149,947
109,851
76,609900
374,208
385,505
91,991
18,153
11,318¥ 742,194
157,149
255,505
127,926
115,351
85,571
689
363,038
379,156
91,66318,024
12,316¥310,793
156,210
16,417¥ 335,290
167,092
14,019¥ 396,773
196,620
24,834¥ 422,859
205,083
20,491¥ 419,869
200,554
33,342¥ 340,968
184,599
31,340¥ 368,088
195,344
21,886¥ 375,336
201,516
27,125¥ 450,842
204,706
88,710¥ 486,747
228,505
98,425¥ 498,141
246,723
92,828¥ 546,525
281,398
98,493¥ 512,081
273,963
87,557¥  111.31
1,803.31
26
23.4
1.52

¥   91.86
1,942.20
28
30.5
1.50

¥   89.10
2,215.18
30
33.7
1.44

¥   96.96
2,156.67
32
33.0
1.46

45.7
37.3
2.3
6.5
46.9
0.43

48.4
23.5
2.2
4.9
49.5
0.38

50.7
27.8
2.4
4.3
51.5
0.35

51.1
24.3
2.4
4.4
53.5
0.32

¥  54.69
1,227.82
9
16.3
0.77

¥   81.00
1,311.37
10
12.3
0.79

¥  100.32
1,535.70
15
14.9
1.06

(Yen)

¥  105.84
1,597.27
18
17.0
1.15

¥   77.86
1,559.97
17
21.8
1.08

¥   45.17
1,435.88
16
35.4
1.07

¥   58.64
1,519.61
16
27.3
1.08

¥   99.76
1,568.04
22
22.1
1.42

¥   66.69
1,592.87
24
36.0
1.52

36.8
16.4
2.3
6.4
49.8
0.08

40.1
20.5
2.7
7.1
49.6
0.13

Unique Products

34.5
19.2
1.9
4.7
50.3
0.11

Performance by Segment̶11,966
̶349,557
183,744
53,494
10,2447,010¥ 575,636
251,725
188,456
122,632̶
12,821
̶
363,708
211,928
61,96013,256
10,384(%)

Ratios:Overseas Sales to Net Sales
Manufacturing Ratio (Operating Income)Operating Margin (Operating Income/Net Sales)
Return on Equity (ROE)Net Worth Ratio
Debt Equity Ratio (Times)

2015/3

Investment Amount: ¥41.1 billion(Yen)

Per Share Data:
Net Income (Basic)
Net Assets
Cash Dividends
Payout Ratio (%)
Shareholders’ Equity Dividend Rate (%)

2014/3

Leading Us to the Future

Segments

Other
Domestic
Overseas
Gross Profit
Operating Income
Profit attributable to owners of the parent
Financial Condition:
Total Assets
Equity CapitalInterest-Bearing Debt

(Millions of Yen)

2007/3

WIT21
Performance (Accounting Fiscal Year)¥533,301
Net sales
Functional Materials (formerly Chemicals) 231,360
Advanced Materials & Processing (formerly Plastics) 170,996
Electronics
118,978
Automotive & EnergyLife & Healthcare (former Healthcare/Other)

2006/3

(%)

41.4
22.3
3.1
6.8
48.5
0.10

43.4
24.4
3.0
4.9
47.8
0.17

44.8
15.5
1.8
3.0
54.1
0.17

(Note 2) At the beginning of fiscal 2009, the Company 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.

41.0
29.0
2.8
6.5
53.7
0.13

42.0
31.3
2.1
4.2
45.4
0.43

Critical Initiatives for Sustainable Growth(Note 1) At the beginning of fiscal 2005, 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.

40.3
35.4
2.2
4.0
53.1
0.11

(Note 3) At the beginning of fiscal 2012, 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 anintegrated entity from the Environment & Energy Office (under Other) and the Energy Device Office.
(Note 4) At the beginning of fiscal 2013, the Automotive & Energy Segment was organized by combining the former Automotive Solutions Department (under the Plastics Segment) and the former
Energy Business Office, which was an integrated entity combining the Environment & Energy Office (under the Other Segment) and the Energy Device Office.

Net sales
Trading Business

Operating Income
Manufacturing BusinessTrading Business

Manufacturing BusinessTotal Assets/ROA
Total Assets (left axis)

Net Assets/ROE
ROA (right axis)

Net Assets (left axis)

ROE (right axis)(Millions of Yen)

(Millions of Yen)(%)

(Millions of Yen)(%)

800,000

25,000600,000

6.0

300,000

12.0

500,000

5.0

250,000

10.0

400,000

4.0

200,000

8.0

300,000

3.0

150,000

6.0

200,000

2.0

100,000

4.0

100,000

1.0

50,0002.0

0020,000600,000

Financial and Corporate Information(Millions of Yen)

15,000400,000
10,000200,000

5,000

0

12

0

0

04/3 05/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3

NAGASE & CO., LTD.

Annual Report 201604/3 05/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3

04/3 05/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3

0

04/3 05/3 06/3 07/3 08/3 09/3 10/3 11/3 12/3 13/3 14/3 15/3 16/3

NAGASE & CO., LTD.

Annual Report 2016

About the NAGASE GroupNAGASE & CO., Ltd. and Consolidated Subsidiaries (Years Ended March 31)

13

Message from the President
About the NAGASE Group

Looking Back on Fiscal 2015

2016

2032

We will achieve our goals throughFull Participation

Performance by Segment

200th Anniversary

As the external environment continues to change at a dizzying
pace, we must build a strong sense of unity among ourselves.
We must be fearless in the face of change if we are to maximize
the potential of our organization.
Let’s look at the external environment, for example. While
the Japanese economy plodded along throughout fiscal 2015, theChinese economy was slowing down. The Japanese yen jumped
in valuation at the beginning of the year. These and other factors
combined to make for an extremely challenging and dramaticallychanging year. Despite these challenges, the epoxy resins businessin our Electronics segment performed comparatively steadily.
The same can be said for the ­Hayashibara business and raw
materials for the perfume and cosmetics business in our Life &Healthcare segment. On the other hand, our Automotive &Energy segment underperformed against prior year, mainly due
to expenses involved with getting new businesses up and running.
On the investment front, Hayashibara completed its moveout of the old Okayama factory. The company also added newspace, equipment, and facilities to increase manufacturing
capacity for TREHA™. In the electronics field, we acquired
shares of Nissei Technology Corporation, making that company an equity method affiliate. (See p.28 for more information
on individual segment performance.)

Leading Us to the Future

NAGASE has embarked ona new five-year management
plan to set the course toward
our 200th year in business.

I assumed the office of NAGASE & CO. president a little
over one year ago, in April 2015. At the time, we were justwinding down our
mid-term management
plan. This plan called for us to speed the pace of change instrengthening our functions as a business. Unfortunately, aside
from our investment targets, we underperformed our goals by awide margin. Looking at fiscal 2014 by itself, we anticipatedhigher revenues and profits, though these gains were mainly
due to the positive effects of currency exchange rates. Internally,
we congratulated ourselves on the fact that we posted a shortterm profit. I had concerns that we could not expect sustainablelong-term growth on our current path. I clearly remember
feeling a great sense of impending crisis.
Considering the situation, I discussed in my inaugural
address the keywords “full participation” and “front-line focus.”
These were the concepts I most wanted to impress on our organization. In my New Year’s greeting for 2016, I presented a­message called “ONE STEP FORWARD,” reflecting my desire
for everyone to reaffirm these key concepts. I firmly believe that
corporate culture cannot be reformed without changing thevalues and the mindset of every manager and every employee inour group. Today, the NAGASE Group moves forward on theefforts of more than 6,000 employees worldwide.

andTaking Action Toward our 200th Anniversary
The NAGASE Group is looking forward toits 200th a­ nniversary in the year 2032. As we approach
this turning point in our history, we are already engaged
in a number of actions putting us on a 17-year path.

Representative Director and President

The NAGASE Group has established a set of long-term management policies to take us to our 200th anniversary. These
policies will help us achieve the type of growth not possible
under our old systems and pace of business. Our aim is tonormalization of the profit more than tripled, and we are

already taking measures to this end. The framework of ourlong-term management policy is Challenges for Growth andReinforce the Management Platform for Growth.
Under ­Challenges for Growth, our aim is to realize significant
growth by allocating management resources to focused business and by shifting operation from Japan-centrism to a multinational management system. In so doing, we believe we canachieve the type of growth not possible under our old ways of
doing business. At the same time, under Reinforce the Management Platform for Growth, we are constructing a management
platform that will c­ ontribute to business expansion and globalization as we work to succeed in these challenges.

Critical Initiatives for Sustainable GrowthLong-Term Management Policies

Unique Products

Front-Line Focus.

Summary of Long-term Management Policy

Reinforcethe Management
Platformfor Growth

14

NAGASE & CO., LTD.

Annual Report 2016

(Business Scale)• Increase growth investment• Accelerate organic growth• Expand overseas operations• Restructure global governance• Increase flexibility in HR management• Enhance safety and assurance• Consolidate communications
infrastructure

Image of
Growth Path
Expand overseas
operations

Establish multinational
management system
Enhance overseas
operating structure

Financial and Corporate Information

July 2016

Challenges
for Growth

Goal to 2032

Normalization of the profit
more than tripled.

2015

2032

NAGASE & CO., LTD.

(Year)

Annual Report 201615

Message from the President

To achieve our goal of normalization of the profit more thantripled, we divide 17 years of its term into 3 and start the five
years between fiscal 2016 and fiscal 2020 positioned as

NAGASE Vision

To realize a sustainable world where people livewith peace of mind, each of us embodies our value­proposition, Identify, Develop and Expand
through daily activities.

Stage 1: Reform. The new ACE-2020 mid-term management plan is a plan for executing Reform of Profit Structure andReform of Corporate Culture. The ACE in ACE-2020 stands
for Accountability, C­ ommitment, and Efficiency.

[Focus][Growth/Emerging]

Expected further increase in profit

Transform to “Focus” in 3 years

Life & Healthcare

ACE-2020 Overview➀ Expand scale, ➁ Examine profit structure,➂ Horizontal expansion of market,➃ Strengthen marketing, ➄ Minimize risk

[Improvement]

Resource Allocation Policy:

Priority Measures:

Priority Measures:➀ Reduce fixed and liquidity costs, ­➁ ­Minimize risk, ➂ Group synergy,➃ ­Stabilize business, ➄ Improve profit structure,➅ Rationalize & Restructure

16

NAGASE & CO., LTD.

Annual Report 2016

➀ Review existing strategy➁ Drastic structural reform that involves
withdrawal

Accelerate to withdraw from unprofitable business, solidify management
resource that can be reallocated, conduct aggressive growth investment.

Categorize profitable and unprofitable business by using NPV (Net Present Value) and comparing hurdle rate/IRR
to accelerate asset replacement.

Expand and Strengthen
Revenue Base

Accelerate­Globalization“G6000”

Our trading and manufacturing business sector stands individual KPI to improve eachfunction. We create new business by leveraging entire functions. Our trading businesssector will elevate the presence of the NAGASE Group through increased overseas
sales and accelerated globalization, founded on effective market strategy execution ineach region. The manufacturing business sector will be managed based on long-term
strategy. This strategy will support to raise “Focus” business that prioritizes to increase
mid-term free cash flow and to pursue management stability by effective cost-down.

Proactively execute own market strategy in each area.
Elevate group presence by increase in sales.

Aim for *600 Billion Yen of total salesof overseas group

Improve­Manufacturing
Profitability• Search and execute growth investment (M&A) that matches with themarket strategy of the designated area and accelerate the businessdevelopment to expand business (especially focused in North America).
• New market development via strengthened “out-out” organic ties.

As a long term strategy, group manufacturing companies manage autonomously,
and create a new business based on a scenario agreed upon by manufacturing,development and sales.

Grow focused businesses by prioritizing and improving
mid-term free-cash-flow over the short-term sales profit;
pursue profit structure analysis and management
stabilization via effective reduction in cost
(improve B/E point).

Financial and Corporate Information

Portfolio
Optimization

Withdrawal

Critical Initiatives for Sustainable Growth

Focused Measure (1)-1

We divide our entire business into four sectors, “Growth/Emerging,” “Focus,”“Base,” and “Improvement” to gain maximum efficiency of management resourcesand expand business, executing strategy for each area for growth, profitability, andbusiness scale. In addition, we will solidify management resources that can bereallocated and conduct aggressive growth investment in order to accelerate asset
replacement. Furthermore, we have set a growing investment distribution ratio for
the focus area to greater than 35 percent.

➀ Expand scale, ➁ Examine profit structure,➂ Strengthen marketing, ➃ Minimize risk

Immediately required drastic
improvement in profit structure* The figures on this file are all management accounting data (simple sum)
It is different from the figures disclosed on the consolidated financial statement.

Reform Profit Structure

Priority Measures:

Contributed to stably increase thecorporate value
Resource allocation to sustain businessthat adds into
Growth area

Unique Products

Under ACE-2020, we will step away from the idea of NAGASE as a trading firm first and foremost. We now consider the
trading firm function as another of our Group functions, as we maximize the leverage of our manufacturing, research,overseas network, logistics, and investment functions, uniting as a Group to create and deliver new value to the world.
As part of ACE-2020, we have set aside ¥100 billion for growth investment. Funds exceeding cash flows from operating activities will be procured primarily through interest-bearing bonds, while increased capital efficiency in the use ofoperating capital and replacement of assets will support a stronger financial foundation and stable dividends over the longterm.

Resource allocation to accelerate growth[Base]

Focused Measure (1)-2

Basic Policy

Resource Allocation Policy:

Priority Measures:

Asset replacement andre-allocation

As the business environment undergoes a massive change,
we are striving to achieve sustainable growth as a group,
taking action to reform our organizational culture,
to execute on our strategy, and to commit o­ urselves to achieving our goals.

(ex. utilize the VC)

Intensive resource allocation that accelerate
growthM&A
conducted
by HQ that
adds into
Focus andBase areas

Createthe businessElectronics

Resource Allocation Policy:

NAGASE Group Slogan

Bringing it all together

Divide into 4 sectors, “Growth,” “Focus,” “Base” and “Improvement”
to gain maximum efficiency of management resources and expand business.

Performance by Segment

A New Mid-Term Management Plan

Categorize businesses andexecute strategies suitablefor each category

Leading Us to the Future

As an initiative toward future sustainable growth and corporate
value improvement, we have started the NAGASE Branding
Project. Based on our standing management philosophy toengage in maintaining the highest standard of integrity, we
created the NAGASE Vision and Group Slogan as our promise to all stakeholders. To ensure that all NAGASE Group
employees understand the meaning of the words Identify,
Develop, and Expand, and are able communicate that meaning
to our stakeholders using the same words, we began sending
our chairman and vice-chairman throughout the organization
during fiscal 2015 to discuss and educate on these topics. Our
hope is to ultimately influence our overseas companies andaffiliates directly, instilling a stronger sense of corporate culture
throughout the entire NAGASE Group.

About the NAGASE Group

Global Branding Initiatives• New product development and placement of the product into market,
cultivation of new market and penetrate into high value added field.
e.g. Overseas sales expansion of Trehalose, capital investment of
epoxy sheet material, R&D on conductive material for coating and etc.
• Creating a scenario and HRD which focuses on overseas market
expansion. (Overseas marketing and production)

NAGASE & CO., LTD.

Annual Report 201617

Message from the President

Reform Corporate Culture
Focused Measure (2)-1

Focused Measure (2)-2

Establish four mindset concepts for creating a corporate culture in which the entire
NAGASE Group is aligned toward the same goals: Accountability, Responsibility
and Risk Awareness, Monitoring and Message Sharing, PDCA. Increase accuracy
to achieve target by delegating authority to local units; change HR policies; step up
management visibility; and exercise PDCA through ongoing monitoring.

Pursue efficiency by back office section routine review, redefinition and reconstruction of the organization scale, integrate group companies and segments where
creates the synergy to improve consolidated SG&A ratio by 0.5 percent.
Accelerate HR Development to increase group competition and sustainable
development by carrying long-term career plans and proactively recruit external talent.

Consolidated Sales

Investment

NAGASE Transforms from
“Shosha/Trading” to “Business Designer.”

Business
Designer
GlobalNetwork

1.0 Trillion Yen or more

18 Billion Yen

30 Billion Yen or more

4.4%

6% or more

ROE

KPI (Key Performance Indicator) Factor index to achieve KGIReform/Strategy

Measures

KPI (Index)

FY2015

FY2020Operating Income in Focus Area*
Growing Investment­Distribution Ratio in Focus Area

10.3 B Yen

16.9 B yen

N/A

35% <

Accelerate Globalization(Expand and Strengthen Profit
Structure)

Overseas Group Sales*

424.7 B Yen

600 B Yen

N/A

170%

Increase Manufacturing
Profitability (Expand andStrengthen Profit Structure)

8.3 B Yen

14.4 B Yen

82%

73%

9.9%

9.4%

Increase Focused Business(Portfolio Optimization)

Sales Growth Rate in USA

Corporate Culture
Reform Indicator

Pursue Efficiency (Strengthen
Management Platform)

Operating Income from
Manufacturing*
Break-Even Point Sales Ratio*
Consolidated Selling, Generaland Administrative Ratio

Financial ­Strategy
Indicator

Investment

Growth Investment

N/A**100 B Yen

Financial Structure

Rating (R&I)[A][A] or more

[6 Functions]R&D

742.1 Billion Yen* The figures in this document are all management accounting data (simple sums). It is different from the figures disclosed on the consolidated financial statement.
** Total numbers in 5 years

Trading

Unique Products

NAGASE strings all the groups together
to create and provide new value to the world through 6 key functions.

Logistics

FY2020Consolidated Operating Income

Profit ­Structure
Reform Indicator

ACE-2020 Basic Policy

FY2015

Performance by Segment

Strengthen­Management Platform

KGI

Leading Us to the Future

MindsetAbout the NAGASE GroupKGI (Key Goal Indicator)

Manufacturing

Leverage Group functions to achieve the quantitativeand qualitative targets.

Portfolio Optimization

Mindset• Categorization of business and executionof strategy that matches with the area• Replacement of asset and reallocation of
resources• Acceleration in investment that createscore business of group• Breed independence and responsibility• Share the management’s message• Thorough monitoring and PDCA

Expand and Strengthen Revenue Base• Accelerate globalization “G6000”• Improve manufacturing profitability

18

NAGASE & CO., LTD.

Annual Report 2016

Strengthen Management Platform• Pursue efficiency• HR development

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

Reform Corporate Culture

Looking forward to our 200th anniversary, we are already taking
action, moving ahead under our new five-year mid-term management plan. The environment surrounding the NAGASEGroup remains a challenge. But we will achieve our goals,
inspired by our belief in Full Participation and Front-Line Focus.
The growth of the NAGASE Group relies heavily on maintaining positive relations with our stakeholders, and particularly
on our relations with shareholders and investors. We have done
our best to deliver consistent dividends to our shareholders
based on considerations of consolidated payout ratio and consolidated dividend on equity. I hope to increase opportunities
for constructive dialogue with our shareholders and investors.
We will strive to act on the feedback we receive. I ask for yourcontinued support as the NAGASE Group works to breakthrough to new levels of growth.

Critical Initiatives for Sustainable Growth

Reform Profit Structure

To Our Stakeholders

19Our Board

Sustainable corporate value
through management and disclosure Accountability

Five years
or greater

22%

Less than
five years

22%
Ratio of
OutsideDirectors

About the NAGASE Group(as of June 29, 2016)78%
Length of
Director Service,
by Years

Corporate Auditors

Audit & Supervisory Board Member

Audit & Supervisory Board Member

External Audit & Supervisory Board
MemberExternal Audit & Supervisory Board
Member (part-time)1984	Joined the Sumitomo Bank, Ltd.
(currently Sumitomo Mitsui Banking
Corporation)
2003 General Manager of the London
Group of Global Corporate Investment
Dept. of Sumitomo Mitsui Banking
Corporation and Sumitomo Mitsui
Banking Corporation Europe Ltd.
2006 General Manager of Credit Dept.,
Europe, Middle East and Africa Division(London) of Sumitomo Mitsui Banking
Corporation and Sumitomo Mitsui
Banking Corporation Europe Ltd.
2013	General Manager of Credit Review Dept.
of Sumitomo Mitsui Banking Corporation
2016	Retired from the Sumitomo Mitsui
Banking Corporation
Corporate Auditor, NAGASE & CO., LTD.

1987	Deputy General Manager of theSpecial Investigation Departmentof the Tokyo District Public
Prosecutors Office
2001	Superintendent Public Prosecutorof the Sendai High Public
Prosecutors Office
2004	Superintendent Public Prosecutorof the Nagoya High Public
Prosecutors Office2006 Takano Law Firm2008	Corporate Auditor, NAGASE & CO.,LTD.

Nobuyuki Shirafuji

1

5

4
3

7

9

4. Representative Director andManaging Executive Officer

5. Director and Managing
Executive Officer

Hiroshi Nagase

Reiji Nagase

Kenji Asakura

Mitsuro Naba

Osamu Morishita

6. Director and Executive Officer

7.Director and Executive Officer

8. Outside Director

9. Outside Director

Kohei Sato

Ichiro Wakabayashi

Hidenori Nishi

Nobumasa Kemori

2

20

NAGASE & CO., LTD.

Annual Report 2016

Sales & Marketing
General Executive, Advanced
Materials & Processing Segment
General Executive, Electronics
Segment
Nagase Application Workshop

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 Director, NAGASE & CO., LTD.
2016	Chairman of the Board, Kagome
Co., Ltd.

1980	Joined Sumitomo Metal Mining
Co., Ltd.
2006 	Managing Executive Officer andDirector, Sumitomo Metal Mining
Co., Ltd.
2007	Representative Director andPresident, Sumitomo Metal
Mining Co.., Ltd.
2013	Representative Director andChairman, Sumitomo Metal
Mining Co., Ltd.
2016	Director and Chairman,
Sumitomo Metal Mining Co., Ltd.
Director, NAGASE & CO., LTD.

Hayashibara Co., Ltd.
Nagase R&D Center
Manufacturing

Akihiko Isono

Managing Executive Officer
Nagase ChemteX
Corporation

Katsuhisa Yamaguchi Mitsuru Kanno

Executive Officer
CEO, Greater China and COO,
Nagase Business Management& Planning (Shanghai) Co., Ltd.

Executive Officer
CEO and COO, Nagase(Europa) GmbH

Masatoshi Kamada Masanori Furukawa

Takanori Yamauchi

Satoru Morita

Yasuhiro Mihara

Executive Officer
GM, Electronic
Materials Department

Executive Officer
GM, Intellectual Property
OfficeNaoki Yasuba

Executive Officer
General Executive, Life &Healthcare Segment
GM, Life & Healthcare
Products Department

Executive Officer
Hayashibara Co., Ltd.

Masaya Ikemoto

Executive Officer
General Executive, Automotive& Energy Segment
GM, Automotive Solutions
Department
Nagoya Branch

Executive Officer
GM, Human Resources &General Affairs Division
GM, Logistics Management
Division
Executive Officer
General Executive,
Functional Materials
Segment
GM, Speciality Chemicals
Department

Takahiro Okumura

Executive Officer
GM, Electronic Chemicals
Department

NAGASE & CO., LTD.

Annual Report 2016

21

Financial and Corporate Information

Overseas Operations

Corporate Administration

Executive Officer

Critical Initiatives for Sustainable Growth

6

3. Representative Director andPresident and CEO

Toshio Takano

Unique Products

8

2. Director and Vice Chairman

Masahiko Hamaguchi

Performance by Segment

Kenichi Matsuki

1. Representative Director andChairman

Leading Us to the Future

Directors

Corporate Governance
About the NAGASE Group

Basic Approach
Director Term of Service

Institutional Format

Total Number
of Directors
取締役の人数99名(alloutside directors)（社外役員全員）

44名

Number of Outside Directors

Executive Officer System Adopted

Total Number of Audit &Supervisory Board Members

Number of Outside Auditors

2

Yes

4

2

Number of Board of Directors
Meetings

Compensation Committee

Number of Audit & Supervisory
Board Meetings

Independent Auditors

One Year

14(Attendance by Outside Directors) Mr. Hidenori Nishi, 100%
(Attendance by Outside Corporate Auditors) Mr. Toshio Takano, 93%

Yes

Initiatives to Strengthen Corporate Governance
~2000

14

Ernst & Young
ShinNihon LLC

Hiroshi Nagase

Chairman of theBoard of Directors

Chairman

New Outside Corporate Auditor

Nobumasa Kemori• Background• Reason for Selection

Nobuyuki Shirafuji(p. 21)(p. 27)• Background• Reason for Selection

(p. 21)(p. 27)

English translation of shareholders’meeting convocation
To ensure a proper format for shareholders
to exercise their voting rights in generalshareholders’ meetings, NAGASE & CO.,LTD. uses the proxy voting platform service
operated by Investor Communications
Japan. NAGASE provided an English
translation of the convocation notice ofthe 101st General Shareholders’ Meeting,held June 29, 2016.

Explanations with respect to individual
appointments and nominations of candidates for director and corporate auditor
To ensure the transparency and fairness ofcorporate decisions, as well as to exercise
practical corporate governance, NAGASE &CO., LTD. disclosed the reasons for candidate nominations in reference materials
attached to the convocation notice for the
101st General Shareholders’ Meeting, held
June 29, 2016. (See p. 27 for more aboutoutside directors and outside corporate
auditors.)

Policy for constructive dialogue withshareholders
NAGASE & CO., LTD. has established abasic policy for conducting constructive
dialogue with shareholders to contributeto sustainable growth and improved
corporate value over the medium andlong term. To encourage constructive
dialogue, we have appointed a director in
charge of corporate finance as the director
in charge of investor relations. Our Investor
Relations Department conducts regularconferences with the cooperation ofinternal departments to provide appropriate responses to constructive dialogue.

2008

2009

2010

2012

2015

2016

President

Directors Reduced board10
to 11 directors
20

8

10

9

Chairman10

9

2001~ Adopted Executive Officer System (for faster decisions and stronger business execution)

OutsideDirectors

2004
2005~ 2 Individuals
1 Individual
1994~ 1 Individual, 1998~ 2 Individuals

Risk Management & Compliance Committee

2002~ Established Basic Compliance Policy

Compliance2003~ Established NAGASE Group Compliance Behavior Standards

Revised

2004~ Established Compliance Call Center Rules
2007~ Internal
Controls Promotion
Committee
Director
Compensation

Financial and Corporate Information[Principle 5-1]

2007

2015〜
Kenji Asakura

2001~ Compliance Committee[Principle 3-1 (v)]Annual Report 2016

(Year)

2005

2004
2005~ 1 Individual
2 Individuals

Outside Corporate
Auditors[Supplementary Principle 1-2 (4)]NAGASE & CO., LTD.

2004

Critical Initiatives for Sustainable Growth

22

2003

Advisory Board

Compliance with the Corporate Governance Code (as of July 1, 2016)

Please refer to the NAGASE & CO., LTD. corporate governance report for more information.

2002

Unique Products

New Outside Director

2001

President

Separation ofManagement
and Business
Execution

Outside Director, Outside Corporate Auditor Assignments
One outside director and one outside corporate auditor were newly
appointed at the 101st General Shareholders’ Meeting, held June 29,
2016. The two individuals have been asked to provide independent
insight based on their wealth of experience, exercising oversight andauditing roles to improve NAGASE management prudence andtransparency.

To put these principles and vision into practice, we established aframework for sustainable growth in any business climate. This
framework of our long-term management policy is Challenges for
Growth and Reinforce the Management Platform for Growth. We
are improving our corporate value over the medium and long term
guided by this framework.
We believe that rapid decision-making, execution, and transparency are essential for us to accomplish these initiatives as we engage
in strengthening our corporate governance.

Performance by Segment(same for outside directors)

Corporation with Boardof Directors and Audit &Supervisory Board
Members(Audit & Supervisory
Board)The NAGASE Group is a member of the world society. As such, it
is our duty to maintain good and fair business practices and, throughcontinued growth and development, provide society with the goods
and services needed while improving the welfare of our employees.
Under our management philosophy, we have established the
NAGASE Vision as our promise to our stakeholders: To realize asustainable world where people live with peace of mind, each of us
embodies our value proposition, Identify, Develop and Expand
through daily activities.

Leading Us to the Future

Number of Independent
独立役員の人数
Directors

2009~ Internal Controls Committee

2010~ Director Compensation Committee

Management
Philosophy

NAGASE & CO., LTD.

Annual Report 201623

Corporate Governance4
Shareholders’ Meeting

Liaison

Audit

Corporate Auditors

Board of Directors
9Compliance Committee

Supervision

Risk Management &Compliance Committee

NAGASE & CO., LTD.

Annual Report 2016

6
SupervisionInternal Controls
Committee
7

Security Trade Control
Committee

Audit Office
Audit

3

General Managers’
Meeting (Sales)

General Managers’
Meeting(Administration)

3

Supervision

6 Internal Controls Committee
The Internal Controls Committee
documents the company-wide internal
control conditions and financial statement preparation process to further
enhance its financial reporting credibility, while maintaining and strengthening a structure to carry out evaluationand improvements.

7 Security Trade Control
Committee

Financial and Corporate Information24

Support• Internal• External

Critical Initiatives for Sustainable Growth

Executive officers attend General
Managers’ Meeting (Sales) and
General Managers’ Meeting(Administration) related to theirsales and managerial responsibilities.
Each department provides a status
report, which is discussed by meeting
attendees before an action plan isformulated.

President

As a consultative body for the Board of
Directors, the Risk Management &Compliance Committee establishes andstrengthens 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.

Unique Products

3 Executive Officers

5Compliance Call Center
LiaisonWith the majority of its members madeup of outside directors, the Compensation Committee ensures the objectivity
and transparency of the Company’s
directors and executive officers in thedecision-making process regarding
compensation by screening the appropriateness of every compensation level
and the compensation system to reportand make recommendations to theBoard of Directors.

5 Risk Management &(including 2 outside corporate auditors)

2 Corporate Auditors/

In accordance with audit policy andstandards for responsible work set at
Audit & Supervisory Board’s meetings, corporate auditors attend
important meetings, such as Board of
Directors’ meetings, and conduct
audits of the execution of duties of
directors and executive officers basedon reports solicited from subsidiaries
on an as-needed basis.

(outside directors + directors)(including 2 outside directors)

Audit & Supervisory Board
連携
4

Audit

Audit & Supervisory Board
Members

Compensation Committee

Compensation Committee

Performance by Segment

The Board of Directors is clearly
positioned as the body in charge ofmaking 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 andtracks business performance.

Independent
Auditors

4

1

2

Leading Us to the Future

Under the executive officer system, the NAGASE corporate governance system collaborates various internal committees to appoint outside directors and members to the
Audit & Supervisory Board as well as to reinforce its corporate governance system. Having
secured supervision and auditing functions that operate from diversified perspectives,
including from outside the Company, NAGASE believes the current corporate governancesystem is more rational than ever. We will increase our efforts to further reinforce ourcorporate governance system to secure the trust of our stakeholders.

NAGASE Corporate
Governance System

1 Board of Directors

About the NAGASE Group

Executive Structure

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 9 directors (including 2 outside directors), 16 executive
officers (5 of whom concurrently serve as directors), and 4 corporate auditors­(including 2 outside corporate auditors). NAGASE has also established the following
committees to reinforce its corporate governance function.

The Security Trade Control Committee
thoroughly complies with export related
laws and regulations in relation toforeign currency exchange and foreign
trade for its trading of cargos andtechnologies covered by such laws andregulations.

NAGASE & CO., LTD.

Annual Report 201625

Corporate Governance(Millions of yen)

Total
Compensation

Title

Total Compensation
by Type
Basic
Compensation

Bonus

Number of
Eligible
Directors

Directors(excluding Outside Directors)

304

233

71

10

Corporate Auditors(excluding Outside
Corporate Auditors)

43

43

—

3

49

—

(Millions of yen)

Number of Eligible Directors

Comments

35

4

Paid in an amount equivalent to employee bonus.

NAGASE & CO., LTD.

Annual Report 2016

Hideo Yamamoto

Managing partners

Ernst & Young ShinNihon
LLC

Yasuhiro Takada

Hidenori
Nishi

Hidenori Nishi has been involved in the management of Kagome Co., Ltd.
for many years and possesses advanced knowledge and extensive
experience regarding corporate management. He will use this knowledge
and experience to make proposals concerning the Company’s overallmanagement from a perspective of familiarity with industry and is
expected to enhance the Company’s corporate governance.

14/14

CEO, Kagome Co., Ltd.
Outside Director, Dynapac Co., Ltd.
Chairman, Japan Canners Association

Nobumasa
Kemori

Nobumasa Kemori has been involved in the management of Sumitomo
Metal Mining Co., Ltd. for many years and possesses advanced knowledge
and extensive experience regarding corporate management. He will use
this knowledge and experience to make proposals concerning theCompany’s overall management from a perspective of familiarity withindustry and is expected to enhance the Company’s corporate governance.

Named director in
June 2016

Chairman & Director, Sumitomo Metal
Mining Co., Ltd.

Nobuyuki
Shirafuji

Nobuyuki Shirafuji does not have direct managerial experience, but hepossesses wide-ranging knowledge based on his many years of overseas
experience in financial institutions. He also has many years of experience
concerning audits and audit divisions and possesses considerable
knowledge regarding finance and accounting, and consequently, we
determined that he will properly perform his duties as an External Audit &Supervisory Board Member and we request his election.

Named outside
corporate auditor
in June 2016

N/A

ToshioTakanoToshio Takano does not have direct managerial experience, but he has
many years of experience in legal circles and possesses considerable
knowledge regarding compliance and corporate governance. Consequently, we determined that he will properly perform his duties as
External Audit & Supervisory Board Member, and we request his election.

OutsideDirectors

OutsideCorporate
Auditors

13/14

Concurrent Titles/Responsibilities

Outside Corporate Auditor, Kakaku.com, Inc.
Outside Corporate Auditor, Daicel
Corporation
Outside Corporate Auditor, Fancl
Corporation(Note) The number of Board of Directors meetings noted above does not include resolutions made in writing.

Policies related to Company Information
Disclosure
Pursuant to the Nagase Group Compliance Behavior Standards, we
engage in ongoing communications with society and our stake­holders through timely disclosure of truly important information
over appropriate channels. We are mindful that all corporate activities remain within the bounds of socially accepted norms.
This basic philosophy guides us as we conduct timely, appropriate, and fair disclosure of information through investor relations
activities, public relations programs, and websites for our shareholders and investors to improve management transparency andaccountability.
See Timely Disclosure System on our corporate website for more.

Independence Standards and Policies for
Outside Directors

Major Investor Relations Activities during Fiscal 2015
Activity

No. of
EventsNAGASE & CO., LTD. selects candidates for outside directors inaccordance with the standards of independence stipulated by the
Financial Instruments Exchange, and who have the ability to identify issues from a perspective representing the interests of stakeholders and society at large. The Company selects candidates for outside
corporate auditor who have a wealth of knowledge and experience ina variety of fields, and who have the ability to conduct audits from astandpoint of neutrality and objectivity.
The Company has designated a total of four outside directors as
Independent Directors: Mr. Hidenori Nishi and Mr. Nobumasa
Kemori as outside directors, and Mr. Nobuyuki Shirafuji and Mr.
Toshio Takano as outside auditors.

Conference/briefing for
institutional investors
and analysts

2

Financial results disclosure,forecasts, special topics(year-end, interim)

Individual investor
conferences/meetings

4

Conducted at branches of
securities companies(Osaka 3 times, Aichi once)

Overseas Roadshows

1

President and CFO travel overseas
to meet directly, have discussions
with institutional investors

Overseas Conferences

Various
times

Comments

Participation in conferences
sponsored by securities
companies

Business Continuity Planning
Fiscal 2015 Results
During October 2015, 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.
We also held workshops in June 2015 to discuss issues
and improvements related to business continuity plans
drawn up by each department.
In the event of a large-scale disaster making thecontinued use of our Tokyo headquarters unfeasible, wehave the option of using the NAGASE Global HRD
Center (opened May 2014 in Sendagaya, Tokyo) as a
backup office. In August 2015, we conducted emergency training for our self-defense squad.

Fiscal 2016 Initiatives
As in fiscal 2015, we will continue to conduct emergency
response training to improve initial response quality andspeed. We will conduct BCP training for the NAGASE
Global HRD Center (backup office location) to improve
our disaster preparedness and response.
We plan to encourage business continuity planningat all Group sales companies and manufacturing
companies to improve the Group’s ability to maintaincontinuity along the entire value chain.

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

The Audit Office is in charge of internal audits, including audits toassess the appropriateness and efficiency of the Company’s businessactivities including affiliated companies. The Audit Office is staffedby 14 employees, including certified public accountants, certified
internal auditors (CIA), qualified internal auditors (QIA) and otherindividuals who possess specialized knowledge in internal audits.
The Audit & Supervisory Board consists of four corporate auditors(including two outside corporate auditors) who have a considerable
amount of knowledge about finance and accounting.
The Company established the Audit Office to also ensure corporate auditors’ auditing effectiveness, supplying staff upon request toSpecified limitedliability partners

Attendance at FYE March
2016 Board Meetings

Critical Initiatives for Sustainable Growth

Total

Internal Audit System

26

Mikio Konishi

4

Important Matters regarding Employee Bonuses for Employees
Also Serving as Directors

Auditing Firm

Reason for Appointment

Unique Products

49

Outside Officers

Certified Public Accountants

Name

Performance by Segment

Total Director Compensation by Title, Total Compensation
by Type, Number of Eligible Directors

Category

Leading Us to the Future

Director compensation (excluding outside directors and corporate
auditors) 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 amount based on Company earnings for theperiod in question. The company considers individual performancebased 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.

support the corporate auditors’ work. The Audit Office and the
Audit & Supervisory Board exchange information regarding internal
audits and audits of domestic and overseas subsidiaries as necessary,
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 Corporation’s independent auditors, regarding
accounting matters and associated internal controls; maintaining apresence during accounting audits; and cooperating as needed withaudits conducted at affiliated companies, including those locatedoverseas. In addition to discussing individual matters with corporate
auditors on a quarterly basis, independent auditors also hold meetings twice a year with the Audit & Supervisory Board.
NAGASE & CO., LTD. established the Internal Control Committee and the Committee Affairs Bureau in its internal control
section, and the Audit Office serves as the Company’s independentinternal auditor. The Audit Office reports results of its internal
operational audits to the Internal Controls Committee. The Internal
Controls Committee regularly reports on the status of internal controls to the Audit & Supervisory Board and the Company’s external
auditor.
Audits by certified public accounts are performed in a fair andunbiased manner by a staff of 40, which includes the following
specified limited-liability partners and accountant trainees.

About the NAGASE Group

Director Compensation27

At a Glance Performance Chemicals
Department Polymer Global AccountDepartment

Automotive & Energy Electronic Chemicals Department Automotive Solutions Department Electronic Materials Department Energy Business OfficeLife & Healthcare Life & Healthcare Products
Department Beauty Care Products Department

Net Sales by Segment(¥ hundred million)
10,000

7,500

7,232

7,597

7,421

15/3

16/3

Leading Us to the Future

Speciality Chemicals Department Colors & Advanced Processing
Department

Electronics

About the NAGASE Group

Advanced Materials& Processing

Functional Materials

5,000

2,500

Net Sales

Net Sales

Net Sales

Net Sales(¥ hundred million)
2,000(¥ hundred million)
3,000(¥ hundred million)
2,000(¥ hundred million)
1,200

1,699

1,682

1,500

2,392

1,571

2,541

2,555
1,500

2,000
1,000

1,370

1,499

994
1,279

Net Sales
1,098

1,153

(¥ hundred million)
1,000
800

768

0

766

855

800
600

1,000

14/3

Functional Materials
Electronics
Advanced Materials & Processing
Automotive & EnergyLife & Healthcare
Others

400
1,000

400
500

0

0

14/3

15/3

16/3

15/3

Operating Income by Segment

200

0

14/3

0

16/3

14/3

15/3

16/3

(¥ hundred million)
250

0

14/3

15/3

16/3

14/3

15/3

16/3
200

Operating Income

Operating Income(¥ hundred million)60(¥ hundred million)
50
40

43

Operating Income

43
36(¥ hundred million)
80

48
40

30

Operating Income

49

60

64
55

37

62

(¥ hundred million)
50
40

22

20

20

10

13

10

20

10
0

0

14/3

15/3

16/3

Yasuhiro Mihara

15/3

16/3

0

14/3

15/3

16/3

38
31

15/3

16/3

15/3

16/3

0

20

–50

10

Functional Materials
Electronics
Advanced Materials & Processing
Automotive & EnergyLife & Healthcare
Others

0

14/3

14/3

50

14/3

Director and Executive Officer
General Executive, Advanced
Materials & Processing Segment
and Electronics Segment

Executive Officer
General Executive,
Automotive & Energy Segment

Ichiro Wakabayashi

Masaya Ikemoto

15/3

16/3

Critical Initiatives for Sustainable Growth

Executive Officer
General Executive,
Functional Materials Segment

0

14/3

180

Unique Products

20

181

100

40

30
40

157

150

Operating Income(¥ hundred million)
30

Performance by Segment

500

Executive Officer
General Executive,
Life & Healthcare Segment

Naoki Yasuba

Financial and Corporate Information

28

NAGASE & CO., LTD.

Annual Report 2016

NAGASE & CO., LTD.

Annual Report 201629

Performance by Segment
About the NAGASE Group

Functional Materials
Major Manufacturers

Performance Chemicals Department• Toyo Quality One Ningbo Co., Ltd.
• Guangzhou Kurabo Chemicals Co., Ltd.
• Toyo Quality One (Guangzhou) Co., Ltd.

• PT. Toyo Quality One Indonesia• TIMLE S.A. DE C.V.
• TQ-1 de MEXICO S.A. de C.V.
• Light Chemical (Changzhou) Co., Ltd.

Business Environment

Strengths

Business Environment

Organization and personnel
specializing in the domestic
and overseas paints and ink
industry
Domestic and overseas sales
channels
Unique solutions as a trading
company with R&D, manufacturing, and processing
functions

Growing demand for paints andink in overseas markets
Potential for business with local(non-Japanese) customers
overseas

Greater market globalization
Restructuring in the petrochemical industry (including biochemicals)
Increasing need for high-function, highvalue-added products
Increasing awareness of environmental
issuesStrong customer pipeline
supported by Consultative sales
Packaged sales of various
urethane materials
Overseas sales network

Growing demand for urethane
in emerging countries
Accelerating customer­(Japanese companies) entry inoverseas markets
Higher awareness of energy
conservation, the environment,
and bio-based chemistry

Strong relationships of trust withcustomers
Manufacturing companies within theGroup
Uniquely creative solutions utilizing information from the value chain
Experience in a variety of diverse chemical
products, from general purpose to
specialty
Expert, experienced personnel

GM, Performance Chemicals Department

Masaki Komobuchi

Fiscal 2015 Strategies and Results

Executive Officer
General Executive, Functional Materials Segment;
GM, Speciality Chemicals Department

Yasuhiro Mihara

Fiscal 2016 Strategies

TOPICS New Pat!naLock™ Reactive Paint

Under ACE-2020, the motto of the Speciality Chemicals
Department is Change and Grow! No Excuses. Guided by thismotto, we are working to grow our existing businesses, while
restructuring our profit structure from the perspective ofcustomer-centric value creation. More specifically, we intend tocreate and test a hypothesis for the future of each business,working with our customers, investing in business, and pursuing collaborative ties in building and executing a new strategy(measures). Furthermore, we plan to create new markets bycoordinating technologies based on elemental technologies
found within our customer base.
We will work more closely with our Nagase ChemteX
manufacturing partner, while at the same time generating
greater synergies with Nagase Filter.

TOPICS Contributing to the Production of High-Quality Films New Denafilter™ plant opened in 2016
(Sakai City, Fukui Prefecture)
Nagase Filter deals mainly in filter sales, metal processing, and cleaning.
Denafilter™ is our mainstay product for filter sales. This product is a stainlesssteel polymer filter used for removing (filtering) foreign particles* during the
production process for films used in LCD panels and other applications.
In June 2016, we opened a new filter cleaning plant at Technoport Fukui.
We hope to use clean rooms in this new factory to bolster our ability to develop
applications meeting customer needs and to create new businesses for cleaning components other than filters.
* Clumps of additives in resins and degraded resins, etc.

Leaf Disk Filter(Denafilter™)

Financial and Corporate Information

Using “rust prevention by rust” is a new concept not found in current
anti-rust paint. Based on this concept, we developed a reactive paint thatbrings a new dimension in maintenance management. We have discovered that we can inhibit the progression of common rust by creating a
dense protective rust layer “Patina”
BeforeAfter
BeforeAfterwith anticorrosion properties on asurface to be coated. This technology was awarded the Special Prize inthe 6th Annual Monozukuri GrandAward, sponsored by the Ministry of
Economy, Trade and Industry.

The Speciality Chemicals Department focuses on developing
high-function raw materials in demand by industries involvedin plastics, electronics, automobiles, industrial oil solutions,water processing agents, and more. Despite falling oil prices
and a slowdown in the Chinese economy, the Speciality
Chemicals Department reported strong results, mainly driven
by successful sales of high-value-added products.
In preparation for ACE-2020, which will begin in fiscal
2016, we have initiated dialogues with our customers to gauge
their opinions on the best future direction for the industry.
Internally, we are building risk awareness with respect to ourcurrent situation, while at the same time conducting trainingthat emphasizes customer-centric value creation.

Fiscal 2016 Strategies

Critical Initiatives for Sustainable GrowthIn fiscal 2016, we plan to pursue initiatives to improve customer satisfaction, working to leverage the NAGASE Groupvalue chain in our downstream strategy to build a stronger
foundation for our businesses in Japan. Overseas, we plan to be
active in investing and pursuing joint businesses with local
partners. As we strive to uncover new technologies to restructure our revenue base, we believe we will find new businesses
that will become the pillars of our future growth.
At the same time, we are looking at the implications ofmajor shifts in the supply chain related to Japan’s petrochemicalindustry restructuring, seeking out new business opportunities
over the medium and long term through forward-looking
sourcing activities overseas. We believe these measures will help
us become a department that creates new value by solving issues
in the global market, strengthening the NAGASE brand.

Fiscal 2015 Strategies and Results

Unique Products

During fiscal 2015, the Performance Chemicals Department
engaged in measures to achieve goals in three main areas:(1) Build a stronger domestic business foundation; (2) Strengthen
overseas businesses; and (3) Cultivate new businesses.
The year was a challenging one in building a stronger
domestic business foundation. Negative external factors included
price drops in oil and naphtha, as well as a weak Japanese yen.
Despite these challenges, we worked as a unified team toaccurately identify customer needs and deliver better services.
Overseas, our contract manufacturing subsidiary in China
launched a coatings business in response to increased demand forenvironmentally friendly water-borne resins. This led to new
business opportunities as customers moved to comply withstricter government regulations on chemicals. Our business inIndia used the coatings laboratory effectively to grow our business in that nation. Our urethane foam manufacturing subsidiaryestablished in China enjoyed the support of strong demand forfoam used in furniture and bedding in China. However, excessivecompetition in the foam business for automobile-related components resulted in weaker performance for these products. Towardbuilding new businesses, we focused on projects to commercialize
products and services for VOC* reduction, HVAC*  * energy
efficiency, and other aspects of corporate social value.
Our department experienced weaker profits due to ongoing
declines in oil and naphtha prices, as well as the lower valuationof the Japanese yen on the exchange markets. Stagnation in
auto production resulted in weaker performance for autorelated products and services in the Japanese market. In addition to a slowdown in the Chinese economy, our business was
also impacted by a lack of activity in the ASEAN market as awhole. As a result, we reported lower revenues and profits.

Performance by Segment

Strengths

Leading Us to the Future

Urethane Industry• Nagase ChemteX Corporation• Nagase Filter Co., Ltd.

NAGASE Market Strengths and the Business Environment

NAGASE Market Strengths and the Business Environment

Paints and Ink
Industry

Major Manufacturers

Speciality Chemicals Department

New Nagase Filter Co., Ltd. Fukui Plant* VOC: Volatile Organic Compounds** HVAC: Heating, Ventilation, and Air Condition

30

NAGASE & CO., LTD.

Annual Report 2016

NAGASE & CO., LTD.

Annual Report 201631

Performance by Segment
About the NAGASE Group

Advanced Materials &Processing
Major Manufacturers

Colors & Advanced Processing Department• Fukui Yamada Chemical Co., Ltd.
• Sofix Corporation• Nagase ChemteX Corporation• Hayashibara Co., Ltd.
• Totaku Industries, Inc.
• Kotobuki Kasei Corporation• ON Textile Chemicals (Shanghai) Co., LTD.

Colors & Additives
Industry

GM, Colors & Advanced Processing Department

Kusuo Ota

Fiscal 2015 Strategies and Results

32

NAGASE & CO., LTD.

Annual Report 2016

Materials and systems development in response to overseas
expansion and new round ofindustry digitalization

Relationships with top manufacturers, customers
Expertise in colors and dispersion processing
Ability to distribute a wide variety
of products, small-batch sales
Personnel with international
experience and expertise infilms, resins, molding, andmasterbatches industries
Relationships with suppliers
that have strong productlineups
Information resources at­numerous top-class business
partners

Growing demand for dispersion
processing and decoration
overseas
Growing relationships withdispersion processing
companies

Expanding sales network in
Asia and other regions­(personnel, offices, logistics
bases)
Wealth of experienced, knowledgeable national staff
Direct approach to the end user
(spec business functions)
Size and number of transactions with Japanese- andnon-Japanese affiliatedcustomers

Growing business opportunities
in inland China and newly
emerging countries in­Southeast Asia
Increasing local spec businessBusiness reorganization amongsuppliers

Diversification and polarizationof needs
Increasing awareness of safety
and environmentally conscious
products
Growth of medical, diagnostics,
and nursing care markets

GM, Polymer Global Account Department

Koichi Sagawa

Guided by our fiscal 2016 medium- and long-term policies,
we will work in closer cooperation with Group companies togrow our resins business overseas, to expand sales of strategic
products, to secure more commercial rights for colors andadditives, to increase our dispersion processing business, and to
improve the revenue structure for our thermal business on aGroup-wide basis. At the same time, we will identify moreareas of potential product and service development. Finally, we
intend to sponsor more opportunities for active interchange
among the next generation of leaders to strengthen our overallcapabilities and cohesiveness as a Group.

TOPICS Film Sheets
Wholly owned subsidiary Totaku
Industries, Inc. established a high-­
performance films and sheets test
­production center in their Kansai Rinku
factory. This center engages in the development of films and sheets offering
unprecedented levels of performance.
By leveraging the experience, raw materials procurement expertise, films andsheet processing, and other strengths of
the NAGASE Group, this center is making
great strides in market development,
particularly in the food industry.

Resin Sales
Business

Fiscal 2015 Strategies and Results
For fiscal 2015, the resin sales business reported net sales andoperating income essentially level with the prior fiscal year.
In China, our in-country demand businesses and inland
China business combined for continued growth, contributing
to earnings in a significant way. NWP International Trading(Shenzhen) Co., Ltd., Nagase Marketing and Service(Shenzhen) Ltd., and Guangzhou Nagase Trading Co., Ltd.
represent our in-country demand, while Shanghai Hua Chang
Trading Co., Ltd. represents our East China inland business.
In Southeast Asia, our local entities reported strong sales to
non-Japanese customers. In Japan, we were selected as a
strategic procurement partner for Japanese-affiliated end users,
securing new commercial rights that drove revenues andprofits.
Meanwhile, we experienced a challenging year in terms of adrop in prices, which was caused by cheap oil and weakexchange rates in local currencies overseas.
However, we also began doing business with a new supplier,which has served to build a foundation for growth in 2016 andbeyond.

Fiscal 2016 Strategies

High-performance films and sheets

reinforcing our sales structures in China and Southeast Asia,
while also aggressively pursuing new business in areas outsideAsia.
We have targeted our compound business for further
incubation. In this business, we have plans to improve revenues
at affiliated companies and use our considerable accumulationof technologies to introduce added-value products under ourown brand name.
We will also focus on our packaging materials business,working with partners to expand in Asia, where the market isparticularly promising.

TOPICS Proprietary Denapolymer™ Compound
Wholly owned subsidiary Setsunan Kasei Co., Ltd. launched its own
Denapolymer™ brand of products. Denapolymer™ is a result of thecompany’s strengths in resin processing technologies. This new product line features recycled resins that offer unique features in an environmentally friendly format. Today, high sliding polyethylene is receiving
significant attention in the market. We expect it to provide differentiation from our competition.

Financial and Corporate Information

Over the medium and long term, we plan to establish morebalance among our colors and additives business, functionalfilms business, resin processing business, and digital printing
supply business. We believe this will result in businesses thatgenerate profits more efficiently. More specifically, we intend togrow our resins business overseas, expand commercial rights forcolors and additives, and work more cooperatively with otherGroup companies. To build a more sustainable base for future
growth, we plan to hire younger employees in greater numbers
within the Group.

Manufacturing bases
Highly specialized global
network

Critical Initiatives for Sustainable GrowthFiscal 2016 Strategies

Business Environment

Unique Products

Our pigments, digital print processing materials, and copolyester resins businesses all reported strong results for fiscal 2015.
Profits for inspection systems also improved, owing to orders
for large-scale projects. We also saw strong profit performancefor manufacturing affiliates, resin sales affiliates, and fiberrelated materials sales affiliates, driven by growth in electricalfacilities construction. As a result, earnings outperformed bothplan targets and prior-year figures. Meanwhile, a slowing
mobile device market presented challenges for growth in ourfunctional films business. We also pulled out of the business forin-mold transfer foils for colors and imaging, based on ourassessment of the lack of future development prospects. Affiliated companies dealing in thermal paper materials were
impacted significantly by a downturn in the market, preventing
them from growing profits during the year. We plan to instituteaggressive measures next year that should lead to improvementin growth and profits.

Strengths

Performance by Segment

Polymer Products
Industry

Business Environment

Leading Us to the Future

Digital Printing
Supply Industry• Setsunan Kasei Co., Ltd.
• Dainichi Color Vietnam Co., Ltd.
• Majend Makcs Co., Ltd.

NAGASE Market Strengths and the Business Environment

NAGASE Market Strengths and the Business Environment
Strengths

Major Manufacturers

Polymer Global Account Department

We view fiscal 2016 as a year to pursue new goals in restructuring our revenue base under the ACE-2020 mid-term management plan.
Our resin sales business is a core business in our department. Here, we intend to leverage the NAGASE Group
network to continue securing commercial rights and expanding
our business. By area, we intend to continue strategies for

NAGASE & CO., LTD.

Annual Report 201633

Performance by Segment
About the NAGASE GroupElectronics
Major Manufacturers

Electronic Chemicals Department• Nagase ChemteX Corporation• Nagase ChemteX (Wuxi) Corporation• Engineered Materials Systems, Inc.

• Nagase Techno-Engineering Co., Ltd.
• Pac Tech-Packaging Technologies GmbH
• Nagase Engineering Service Korea Co., Ltd.

NAGASE Market Strengths and the Business Environment
Strengths

Business Environment

Strengths

Business Environment

Electronic­Components(Communication
Devices)

Epoxy sheet encapsulant materials
provide a large share amongcommunication device applications; these materials are based on
our own advanced formulation
technology.

Growth in the communication
device market

Semiconductor
Industry

Technology-based customized
solutions offered by Nagase
ChemteX and the Pac Tech Group

Rising demand in Internet ofThings, automotive, and medical
devices markets

High visibility and advanced
technological capabilities inhigh-grade chemicals and supply
and management equipment

Growth in display applications

Display Industry
Heavy Electric
Machinery Industry(Electricity/Railways)

More than 40 years of strong market
share in high-performance, highly
reliable materials markets in Japan

Global increase in infrastructure
demandCore customer communication
capabilities through global
bases
Brand owner ~EMS~­Components~ Business relationships with material
manufacturers
Professionals with highly
specialized skills
NAGASE network capabilities
focused on East Asia
General handling of mainmaterials

While the market is growing, thefocus of growth has shifted awayfrom the advanced nations
toward the developing nations
The wearable device market isstill immature
Projects launching to build
business for the Internet ofThingsIntensified competition; expectations for new fields
Progress in technologicaldevelopment for new functions

Energy &­Environment
Industry

Group network capable of extending history of successes in domestic
automobiles, aircraft, and wind
power generation to overseas
markets

Growing demand for lightweightcomposite materials

Ability to handle many products; high barriers to entry
Professionals with highly­specialized skills

Emergence of Chinese manufacturers; more intense competition in the LCD panel market
Expectations for organic EL andflexible displays

Fiscal 2015 Strategies and Results

NAGASE & CO., LTD.

Annual Report 2016

TOPICS Global Expansion of Total Solutions based on
Proprietary Group Technologies
The Nagase ChemteX epoxy sheet encapsulant materials and photoresist materials, as well as the Pac Tech bumping services, are enjoying
mass adoption in high-frequency filter manufacturing processes forcore components used in high-performance mobile devices. Risingawareness of the NAGASE Group in these industries has made a significant contribution to our earnings. In fiscal 2016, we will continue toleverage the capabilities of the NAGASE Group to grow our business.

Executive Officer
GM, Electronic Materials Department

Display Industry

Masatoshi Kamada

Fiscal 2015 Strategies and Results
While sales results for silicon wafer manufacturing materials
and smartphone/tablet materials were strong throughout theyear, stagnation in the LCD panel market and greater competition in lighting components materials led to lower revenues
and higher profits. This profit result was mainly due to therecording of an allowance for doubtful accounts at a Taiwanesesubsidiary in the prior fiscal year.
We have made progress in shifting production in our glassprocessing business from Taiwan to China. We plan to expand
our business in China by creating differentiation in the market
based on our surface processing technology, which has been indevelopment for some time.
In our components business, we are making strides in bothlighting components materials and expansion into new products, including lenses and sensors.

Fiscal 2016 Strategies

We have three defined goals under the ACE-2020 mid-term
management plan: Shift to growth businesses, create businessthrough investment, and exercise true global management.
ICT technologies developed for smartphones and tablets
have found applications in other fields as well. The age of theInternet of Things is closer than we imagine, and we believethat borderless initiatives in these new fields will lead to thecreation of new businesses over the medium and long term. For
fiscal 2016, we are performing particular research into potential
new technologies and products for organic EL, cameras andsensors, and car multimedia. We plan to accelerate cooperative
tie-ups and investments in other companies. In our existing

businesses, we will focus on initiatives with global-scale brands
to grow our smartphone materials and expand our operationsin the growing Chinese semiconductor market. We will also
work to further develop the value chain around the lensbusiness, building new business models.

TOPICS Entering the Optics Business in Partnershipwith Nissei Technology Corporation
Nissei Technology is one of the few global makers of plastic lenses
employing superior optics design technologies and precision molding
technologies. The company sells a variety of products in the imaging,lighting, and sensor markets around the world. Working with Nissei
Technology, we intend to leverage their advanced technologies with
our global sales network, growling our mutual businesses and pioneering new markets.

Nissei Technology Corporation

Financial and Corporate Information

The Electronic Chemicals Department will be active inbuilding our business, striving to achieve a five-year goal tointegrate and optimally allocate technologies among our
locations to supply high-value-added products through proprietary NAGASE technologies, contributing to the success of
our local communities and customers.
We plan to continue to pursue five target markets as
defined under ACE-2020 for Nagase ChemteX, our core
epoxy business: Heavy electrical, light electrical, car electronics,
microelectronics, and environment and energy. We plan on
proactively establishing development and manufacturing basesin regions other than China and North America where wealready had to grow our business in these target markets.
In our photolithography business, we intend to make aworld-wide rollout of Nagase ChemteX’s photolithography
technologies. We will use a joint venture established in China
in 2015 to focus on the Chinese LCD panel market, while atthe same time expanding our presence in the promising
semiconductor market. The Pac Tech business is continuing its
push for localizing its bumping services business in the
Chinese market, which is expected to grow in the future.
To further grow our business, we plan to adopt new materials
technologies to provide high-function, value-added productsthat leverage our own unique materials and manufacturing
technology.

Touch Panel
Industry

Critical Initiatives for Sustainable GrowthFiscal 2016 Strategies

Smartphone andTablet Businesses

Unique Products

In our epoxy business we were able to deliver results for new
materials that have become the de facto standard in communication device components and semiconductor applications for
smartphones. Sales of epoxy sheet encapsulant materials forapplications in smartphone electronic components continued
to grow in fiscal 2015. We also launched a new business sellingheavy electric materials for use in Japanese infrastructure.
Working in cooperation with overseas manufacturing bases,
we began a new business for composites in the Chinese andNorth American markets. Our photolithography businessexperienced operational slowdowns in the Japanese display
market; however, sales of chemical management equipment
were strong, particularly in China. At the same time, the Pac
Tech Group, operating in Europe, the United States, and Asia,
reported strong results for semiconductor equipment andbumping services.

34

NAGASE Market Strengths and the Business Environment

Performance by Segment

Takahiro Okumura• Nagase Electronics Technology Co., Ltd.
• Nagase Electronics Technology (Xiamen) Co., Ltd.
• Sun Delta Corporation

Leading Us to the Future

Executive Officer
GM, Electronic Chemicals Department

Major Manufacturers

Electronic Materials Department

Market-leading plastic lenses
produced by Nissei Technology

NAGASE & CO., LTD.

Annual Report 201635

Performance by Segment
About the NAGASE Group

Automotive & Energy
Major Manufacturers

Automotive Solutions Department• Sanko Gosei Technology (Thailand) Ltd.
• Automotive Mold Technology Co., Ltd.

• KN Platech America Corporation• PT. TUNE Manufacturing Indonesia• Tokai Spring Mfg. (Foshan) Co., Ltd.

Strengths

Business Environment

Understanding design needs
based on global partnerships
with leading manufacturers

Growing business opportunities
in North America and Mexico
Introduction of newtechnologies

Battery Industry

Ability to handle both batteries/
PV and systems/materials
The NAGASE Network

Promotional policies for­renewable energy; electric
power deregulation; newemerging markets overseas;
future government subsidies

PV Industry

Ability to handle both b­ atteries/
PV and systems/materials
Fabless

Promotional policies for­renewable energy; electric
power deregulation; newemerging markets overseas

NAGASE Group sales channels

CO2 reduction regulations;
ZEV (zero emissions vehicle)
regulations in the U.S.

Historically strong connections
with the logistics industry fromour background in lighting
equipment sales

Adoption of social security
number/tax number system;
Personal Information Protection
Act

Components
Industry

Global Resin
Industry

Strong global network, including expatriate assignees andlocal staff. Long-standing
relationships with Japanese andnon-­Japanese suppliers; strong
customer baseNew initiatives for bringing
safety, security, comfort, andeco-friendliness to the nextgeneration car society

Growing opportunities inemerging economies (Mexico,inland China, India), global
expansion, growing Out-Out
business

Masaya Ikemoto

Fiscal 2015 Strategies and Results

Growth in Manufacturing Joint Ventures inNorth America and India* HEV: Hybrid vehicle* EV: Electric vehicle* Engineering plastics: Thermoplastic resins

NAGASE & CO., LTD.

Annual Report 2016

We experienced a significant slowdown in sales of electrolytic
additives to domestic battery manufacturers and raw materials
to domestic electrolytic manufacturers. As a result, we only
achieved 80% of plan. While our businesses in China and otheroverseas markets showed positive signs, they were not a significant factor contributing to improved revenues for fiscal 2015.
As such, we plan to continue to focus on these markets.
Our storage battery system business underperformed
against the plan, mainly due to delays in getting our proprietary
electricity monitoring system to market. However, risinginterest in energy management solutions and promising signsof demand for compact mobility and robotics led to an increasein test production projects and higher net sales compared tothe prior fiscal year.
Our Green Energy business reported net sales growth,
mainly driven by sales of overseas PV modules. However,reduced FIT prices for solar power resulted in a dramatic
decrease in applications. At the same time, new output restrictions and the weak yen led to soaring purchase costs foroverseas modules. The impact of these external factors resulted
in sluggish sales for the business.

Helping to Build a Smart Society Infrastructure
Bringing Innovation to Housing, Industry, Traffic, IT, and Communications Infrastructure

Receiving Numerous Orders of Deck
Boards from Auto ­Manufacturers in
the U.S.
KN Platech America Corporation(North America)

Strong Sales of Spoilers to Japanese
Auto Makers
MINDA KYORAKU LIMITED (India)

We created the EBO Vision, aligned with the NAGASEGroup branding activities. Beginning fiscal 2016, the opticalcommunications technology development team, which is
responsible for the development and sale of LED visible light

communications equipment, will work under the Energy
Business Office. This move is intended to bring innovation to
our target infrastructure markets and help us develop proprietary systems that link communications devices with current
energy management equipment.
The April 2016 deregulation of the electricity retail market
in Japan has created new markets. In response, we have begun
development and investment in new concepts for Home
Energy Management Systems in anticipation of the advent of
the Zero-Energy House. We are also engaged in creating andmarketing new energy businesses, focusing on building an
independent sales and aftermarket network.

TOPICS Development of Home Energy Management
Systems for Residential Use
Looking toward a fiscal 2016
market launch, we are working
with NAGASE Group company
CAPTEX Co., Ltd. and major manufacturers to develop a Home
Energy Management System thatwill lead to the realization of thezero-energy house in the residential market.

NAGASE & CO., LTD.

Financial and Corporate Information

36

Fiscal 2015 Strategies and Results

Fiscal 2016 Strategies

Fiscal 2016 Strategies
The direction for the Automotive Solutions Department under
the five-year ACE-2020 plan is to put our current businessgroup on a path toward sustainable growth, while working
globally to promote businesses that offer new functions leading
to the next generation of mobility society.

Kiyoshi Sato

Commercial
Facilities
Logistics Industry

Critical Initiatives for Sustainable Growth

TOPICS

GM, Energy Business OfficeUnique Products

In fiscal 2015, we made further strides in integrating our car
electronics business in the Japan market, winning more orders
for our HEV/EV-related components business. At the sametime, we achieved mass production for certain products,
solidifying our footing ahead of the new ACE-2020 midterm business plan. We saw a downturn in the naphtha market,
which significantly affected sales of internal components in our
resins business. On the other hand, sales of engineering plastics
increased. We incurred expenses in our internal auto components business to get new ventures up and running, which
resulted in a significant decline in profits for the business.
Supported by solid sales to Japanese car makers overseas,
our overseas business reported good results in China andNorth America. Among our affiliated companies, the­Nishinihon Nagase internal auto components business
reported strong revenues, while KN Platech America­Corporation (North American joint manufacturing company)
also reported solid results, contributing to earnings on aconsolidated basis. As a result, profits were lower, despite net
sales level with the prior year.

The resins business is the foundation of our department.
Here, we plan to move forward in our efforts in the United States,
Europe, and China, building a broader business among nonJapanese customers. At the same time, we will pursue safety,
security, comfort, and eco-friendliness in growing our revenues forengineering plastics and new functional materials for the car
electronics business. We intent to market and sell highperformance components that support the transition to electricity.
To build a business structure resistant to naphtha market
fluctuations and other external factors, we will pursue a growthstrategy in fiscal 2016 that expands the volume of our current
mainstay resins business in Japan and overseas. We will also work
harder to sell and grow our engineering plastics/car electronics
materials operations. In our car electronics business, we will lookto market our modular components business in response toneeds for heat management, electromagnetic shielding , andhigher performance. We will also pursue global acquisitions orequity tie-ups designed to evolve our business model.

Automotive/
Components
Materials Industry

Performance by Segment

Business Environment

Leading Us to the Future

Strengths

Close, long-standing relationships with customers

Executive Officer
General Executive, Automotive & Energy Segment;
GM, Automotive Solutions Department, Nagoya Branch• CAPTEX Co., Ltd.

NAGASE Market Strengths and the Business Environment

NAGASE Market Strengths and the Business Environment

Automotive
Interior Industry

Major Manufacturers

Energy Business Office

Annual Report 201637

Performance by Segment
About the NAGASE Group

Life & Healthcare
Major Manufacturers

Life & Healthcare Products Department• Kawai Hiryo Corporation• Nihon Bio Fertilizer Co., Ltd.
• Uma Yasai Farm Corporation• Hayashibara Co., Ltd.
• Nagase ChemteX Corporation• Nagase Medicals Co., Ltd.

Business Environment

Wide range of activities (fromcosmetics to household items)

Major Japanese cosmetics firms
expanding overseas

Manufacture of highly active
injections, formulation­development functions

Policies encouraging use ofgeneric drugs

NAGASE Group global network

Trust in the “Made in Japan”
label

Compliance with global­statutes and regulations

Policies supporting the­Japanese food materials andmedical materials industries

Foods/Medical

Executive Officer
General Executive, Life & Healthcare Segment;
GM, Life & Healthcare Products Department

Legal

Naoki Yasuba

Fiscal 2015 Strategies and Results

38

NAGASE & CO., LTD.

Annual Report 2016

Aging population, Internetbased society, health-oriented
population and growth of thehealth industry, safety andsecurity orientation

GM, Beauty Care Products Department

Masahiro Yoshino

Fiscal 2015 Strategies and Results
Revenues from our direct sales business throughout the firsthalf of fiscal 2015 were strong. In April, we introduced reformulated health foods BM Royal Drink and Belmash R Drink.
In May, we launched the new Day Protect Cream, and in
September, we reintroduced a new version of NAGASE
Cleansing Cream. During the second half of the year, we
introduced an updated version of our Tufteep hair restoration
product, as well as a completely reformulated luxury cream,
Rosemarist. In fiscal 2014, we saw customers limiting theirpurchase volumes in the wake of the consumption tax increasein Japan. As of fiscal 2015, sales had yet to recover completely.
However, strong sales of the reformulated Rosemarist led to
profit growth compared to the prior fiscal year.

We will continue to set our sights on enhancing beauty
inside and out, offering safe, quality products and services that
help build a society of abundant beauty and health.

Fiscal 2016 Strategies
TOPICS

Growing Demand for AA2G™
(stabilized vitamin C) in JapanThe Life & Healthcare Products
Department stepped up promotional activities for Hayashibara’s
AA2G™, capturing demand frominbound tourists to Japan (shoppingsprees, etc.) The whitening effect of
AA2G™ has long been recognized bycosmetics manufacturers in Japanand around the world, selected foruse in many cosmetics products.

AA2GTM

This year marks the 50th anniversary of our direct sales business. In celebration, we plan to hold a number of activities toshow our appreciation to our loyal sales agents and customers.
To see another 50 years of growth in this business, we plan totake the first step in a new direction this upcoming year. To thisend, we plan to introduce five measures: (1) ­Introduce nbcNet,a new direct-shipping system for Beauty Consultants;(2) Revitalize existing areas through a nation-wide officereview; (3) Open new areas and find new customer segments
through HQ-led projects; (4) Step up research and productdevelopment based on herb science and technology;(5) Expand the use of social networks and mobile devices for
greater sales agent efficiency.

TOPICS NAGASE Rosemarist
NAGASE Rosemarist features a formulationof five rosemary extracts, including fermented wolfberry extract (a new component included in DNA recovery systems)
and Rosemary Extract DS (an anti-saccharification agent). With age, the skin’s ability toheal weakens. NAGASE Rosemarist cream,
the pinnacle of our skin care product line,
reactivates this ability to make skin more
supple and rich.

Financial and Corporate Information

In a business environment changing at a dizzying pace, theLife & Healthcare Products Department has set the focus of
our strategy on 1) Global shift, 2) Innovation, and3) ­Sustainability, aiming to establish NAGASE as a leading
bio company.

Our direct sales business boasts
a nearly 50-year history, supporting women in business andan organization of nearly 500
Managers (sales agents) who
are devoted fans of NAGASE
products.

Critical Initiatives for Sustainable GrowthFiscal 2016 Strategies

Business Environment

Unique Products

In the third year since the inception of the Life & Healthcare
Products Department, our continued focus on food andbeverages, cosmetics and toiletries, and pharmaceuticals andmedical materials resulted in double-digit growth in net sales
and profits for fiscal 2015.
Despite the emergence of competitors in the food materials
industry, we have made effective use of our sales agent networkand provided valuable technical support services leading to
growth in net sales. Our enzymes business achieved plan inboth net sales and profits as we answered demand for development projects both in Japan and overseas. In perfume andcosmetics, we significantly outperformed plan as we experienced
accelerated sales of the Hayashibara AA2G™ product (whitening) by answering demand from inbound tourists to Japan. Our
work to strengthen the development pipeline for our pharmaceuticals business and our expansion in the generics market, inparticular, were contributing factors that allowed us to achieve
plan targets in this business. In medical materials, we focused onbuilding a more solid business foundation. While we entered
the Southeast Asian market and achieved plan targets in termsof net sales, our profit results underperformed plan.

In our food business, we plan to accelerate our operations infunctional saccharides (focusing on TREHA™) and enzymes,
as we work closely with local markets in application
development.
In Fragrance/Cosmetics, we intend to step up our marketing activities by using IT, creating a foundation for establishing
NAGASE as a household word in perfume and cosmetics.
In pharmaceuticals, we plan to make further improvements
to our development pipeline, raising our sights to expand ourbusiness in overseas markets as well as in our domestic ones. In
medical materials, our plan is to cooperate with other departments to build a stronger business foundation. We will alsobolster our legal and regulatory department, continuing totransition from “defense” to “offense,” creating profits by offering proprietary functions not available from other companies.

Direct Sales
Industry

Strengths

Performance by Segment

Strengths

Leading Us to the Future

Pharma­ceuticals• Nagase Medicals Co., Ltd.
• Toyo Beauty Supply Corporation

NAGASE Market Strengths and the Business Environment

NAGASE Market Strengths and the Business Environment

Fragrance/
Cosmetics

Major Manufacturers

Beauty Care Products Department

NAGASE Rosemarist
32g¥54,000 (including 8%
consumption tax)

NAGASE & CO., LTD.

Annual Report 201639

Global Network
About the NAGASE Group

Share of Net Sales by Region (Japan/Overseas)■Domestic ■Overseas (left axis)
Overseas Sales to Net Sales (right axis)■Northeast Asia ■Southeast Asia ■North America ■Europe and Others(¥ hundred million)(%)

10,000

60

50.7

48.4

174
306

30

Group companies: 3
Number of employees: 198

Northeast Asia
Net sales: ¥221.1 billion
Group companies: 29

Net sales: ¥363.0 billion

3,855

3,791

2,500

2,211
15

3,729

0

2014/3

3,742
2015/3

3,630
2016/30

Launched in 2016, our ACE-2020
mid-term management plan defines
two pillars for growing and­expanding revenues:

Performance by Segment

Net sales: ¥17.4 billion

Japan

45

1,098
5,000

3,502

Europe & Others

51.1

7,500

Overseas Strategy
Under the New Mid-Term­Management Plan

Leading Us to the Future

Built on a foundation of chemistry, the NAGASE Group is engaged in activities around the worldthat rely on the use of chemicals across a wide spectrum of products and services through our Functional Materials,
Advanced Materials & Processing, Electronics, Automotive & Energy, and Life & Healthcare segments.
These products and services include dyes/pigments, coating materials/inks, surfactants, office automation (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 network with 102 companies
in 22 countries and 6,267 employees (consolidated) worldwide as of the fiscal year ended March 2016.
Today, overseas revenues represents 51.1% of our total business.

1 Accelerate globalization

Group companies: 41
Number of employees: 3,663

2 	Improve manufacturing

profitability

Number of employees: 1,477

Greater China

Americas
Net sales: ¥30.6 billion
Group companies: 9

Southeast Asia

Number of employees: 186

Net sales: ¥109.8 billion
Sales and servicing companies
Manufacturing andprocessing companies

Group companies: 20

Annual Report 2016* Figures represent total sales (simple sum) for overseas local entities
rather than sales by region.

2

Improve Manufacturing Profitability

Creating a scenario and HRD which focuseson overseas market expansion (overseas
marketing and production).

Financial and Corporate Information

NAGASE & CO., LTD.

Aim for ¥600* billion in total sales of ­overseas
group. Search and execute growth investment(M&A) that matches with the market strategy ofthe designated area and accelerate the businessdevelopment to expand business (especially
focused in North America).

Number of employees: 743

Drive Global Business
40

Accelerate Globalization

Critical Initiatives for Sustainable Growth

ASEAN andthe Middle East

Unique Products

1

ForwardNAGASE & CO., LTD.

Annual Report 201641

Regional Overview

ASEAN and the Middle East
Including sales companies, manufacturing companies, branches, and offices, the NAGASEGroup has more than 40 locations throughout Greater China (Mainland China, Hong Kong,
Taiwan). We work closely with our customers and local markets, creating businesses that originate in or derive from unique local characteristics. At the same time, we create globe-spanningbusinesses between and among our worldwide locations, building partnerships with prominentcompanies and leveraging the comprehensive power of the NAGASE Group.
Major Market Trends

Katsuhisa Yamaguchi

Net sales(¥ hundred million)
2,500

2,172 2,211

1,500

1,000

500

14/3

15/3

16/3

*Includes figures for Korea.

Fiscal 2016 Strategies
We bolstered initiatives with our main suppliers in our resin sales business, continuing to
expand sales in the Chinese inland market. We are also developing decorative/functional
materials to sell to non-Japanese customers in the automobile industry. In electricity andelectronics, we are using our development and manufacturing functions locally to expand
application development and sales to local customers. At the same time, we have identified five
fields in which we will target research and development activities: flexible displays, car electronics, security, auto chassis, and glass processing. In semiconductors, which are expected to seeeven greater growth in the future, we have accelerated the roll out of functional materials(mainly NAGASE Group products) looking toward establishing local R&D and production
functions. In functional materials, we plan to use a joint contract manufacturing plant operated
with Light Chemical Industries to introduce raw materials and OEM projects reflecting trends
in the industry toward water-based coatings. Meanwhile, we will work to expand sales of
TREHA™ and other Hayashibara products in our food business. Utilizing this sales network,
we will also offer food materials and packaging materials to our customers. For businesses
targeted as Growth businesses, we intend to introduce Japanese technologies and functional
materials offering safety and security. In the medical field, we plan to build a network that canoffer medical materials and services.

TOPICS Focus on Semiconductor Business

42

NAGASE & CO., LTD.

Annual Report 2016

Fiscal 2015 Results
The economy in China has had a significant impact on the economy of the ASEAN region.
The uncertainty of China’s economic future, however, has led to sluggishness in automobile
production and sales. On the other hand, performance gains in the growth nations Vietnam
and the Philippines, as well as a strong efforts in the synthetic plastics business in Malaysia,
were positive signs of future growth during the year. We established ROC, Regional Operation
Center since 2012 and it has been developing cross regionally such as the sourcing of chemical
products from China and India. Regional business development in the packaging industry has
progressed as well. The Center was also successful in customer development for our foodadditives business, actively participating in expositions and holding technical seminars. The
more mature markets of Singapore and Thailand served as hubs for intra-region operations.

Net sales(¥ hundred million)
1,500

1,200

1,224
1,084

1,098

900

600

300

0

14/3

15/3

16/3

Fiscal 2016 Strategies
As the global economy changes seemingly moment to moment, we believe that our region is
becoming increasingly important as a consumer and production center. To further strengthen
our customer base, we intend to improve our procurement functions from China, ASEAN,
India, and the Middle East, significantly expanding our business within the region. We expect
to see further internal demand growth in the region, and in response, we plan to strengthen ourties to leading companies in each nation. As one example, our manufacturing and sales businessfor insulating panels, which answers needs in the livestock industry for cost reductions andhigh efficiency, is enjoying growth as our leading customers expand into neighboring countries.
As we roll out this successful model into lateral regions, we create a business with a recognizedpresence across the region.

TOPICS Creating New Businesses out of Singapore
In Singapore, our buy-sell business model has becomeless feasible with the move of manufacturing sites intoneighboring countries. In response, we have shifted to a
new regional strategy of building new businesses
through investment in local technology innovations. In
July 2015, we invested in ACM Biolabs Pte Ltd. to gain afoothold in an emerging business field. ACM is the firstcompany in the world to develop an artificial cell membrane protein. This technology is a promising platform
for pharmaceutical drug development, vaccines, andconsumer care product applications.

Financial and Corporate Information

In Shanghai and Taiwan, Pac Tech-Packaging Technologies GmbH opened a semiconductor and electronic component equipment lab, creating a technology services structure for customers in thoseregions. As the Chinese pursue a national policy to expand the semiconductor market, we formed a GC
semiconductor project team led by Shanghai Nagase Trading Co., Ltd. and Nagase (Taiwan) Co., Ltd. This
team is working on establishing an R&D center and local production, looking to accelerate the pace offunctional materials sales, mainly for NAGASE Group and partner products.

Takayuki Masuda

Critical Initiatives for Sustainable Growth0

While sales of plastics and other products for automobiles grew on the whole in fiscal 2015,
component sales for smartphones, tablets, and notebook PCs struggled due to the impact ofmarket changes for certain products. Nagase ChemteX Corporation improved its ability torespond to demand from major customers in the Chinese market. These improvements
included a new joint venture to develop applications for formulated epoxy resins and to
conduct chemical sales. We reported strong sales of Hayashibara products (TREHA™, etc.).
In Shandong, we entered into a joint investment with Kyoraku Co., Ltd. (manufacturer of foodpackaging pouches and trays that allow microwave heating ) and Tianjin Nagase International
Trading Co., Ltd. This venture has already entered into the domestic Chinese market, and we
expect to see tremendous synergies with TREHA™. Our Shanghai regional headquarters is
working in a joint project with a Japanese-affiliated company to launch new businesses in theenvironmental fields, including volatile organic compounds and soil contamination.

ASEAN · India CEO

Unique Products

1,961

Fiscal 2015 Results

Major Market Trends

One of our major customer bases is in the automobile industry. Here, we experienced a challenging year
in the Thai and Indonesian markets. However, more companies are moving their production centers outof China due to soaring personnel costs. As a result, the electricity and electronics industries in Vietnam,
the Philippines, and Malaysia are experiencing a period of prosperity. Major companies across a range ofindustries have established research and development centers in Singapore, which is becoming anever-more important location for the introduction of regional technologies. Expectations are also on therise for India as a production center, as evidenced by the “Make India” promotional campaign. Both
Myanmar and Iran have histories of major economic expansion. As these two nations emerge from
economic sanctions, they are expected to be two major drivers of the future regional economy.

Performance by Segment

Executive Officer
Greater China CEO
Nagase Business Management andPlanning (Shanghai) Co., Ltd. COO

Leading Us to the Future

The economy of the ASEAN region is growing in a significant way, driven by events such as thelaunching of the AEC (ASEAN economic union), expectations for TPP to go into effect, and the
movement toward economic growth in Myanmar. In the Middle East, our Dubai office is becoming
an increasingly important gateway into the region as the African economies expand and the UnitedStates has terminated economic sanctions against Iran, an economic giant in the area. This region
boasts a large population and a growing number of nations with an expanding consumer base. We
plan to manufacture and sell chemicals, synthetic plastics, and other products to J­ apanese-affiliatedcompanies in the region. At the same time, we will grow the sales of Hayashibara-­manufactured
additives, which are perfect for food and lifestyle material applications here.

The automobile industry in China has continued to experience stable growth as a whole. While theelectronics industry remains a central player in the market, intensified price competition and technological trends have resulted in major market shifts. China produces more than 60 percent of the world’s
office equipment and home appliances. However, soaring employee costs and other factors havecaused the supply chain for certain sectors to move to other ASEAN nations, accelerating the China Plus
One model. In the energy, environment, food, and other lifestyle-related industries, rising income levels,
cultural maturity, concerns of product safety and the environment, and other diversified consumer
interests are likely to result in strong growth for businesses that answer domestic demand in China. The
Chinese market for semiconductors and other high-tech industries is also likely to grow even further.

2,000

About the NAGASE Group

Greater China

ACM Strategic Model

NAGASE & CO., LTD.

Annual Report 201643

Regional Overview

Americas

Korea

Major Market Trends

Highly concerned with the environment and safety,
Europe leads the world in developing technologies andproducts sensitive to safety and environmental issues.
This region is also a leader in associated laws andregulations, including REACH and others. Nagase(Europa) provides solutions committed to the environment and safety.

Fiscal 2016 Strategies

Net sales(¥ hundred million)
200

161
129

120

139

Our medium- and long-term policies call for two
main strategies: (1) Transition to a business model
based on the needs of the European markets and(2) Focus resources on cosmetics, food, electronics,
and automobiles as our main target industries.
During fiscal 2016, we intend to strengthen thefollowing three areas to grow our businesses:

1. Portfolio Strategy

80

Step up development activities, particularly in thecosmetics and food industries

40

Nagase America Corporation CEO and COO
Nagase do Brasil Comércio de Produtos
Químicos Ltda. CEO
Nagase Enterprise Mexico S.A. de C.V. CEO

Ryuichi Uchida

While our mainstay automotive solutions andelectronics businesses experienced sluggish sales forthe year, we launched new businesses in the specialty
chemicals and coating materials fields. We are also
making progress in developing new applications
through tie-ups with local Group manufacturing
companies, expanding sales of products under ourown brand name. Further, investments in projects
designed to become core businesses of the future haveshowed promising signs.

Net sales(¥ hundred million)
400

299

300

306

263
200

100

14/3

15/3

16/3

Work more closely with Pac Tech-Packaging
Technologies GmbH and other Group companies tofind technologies and companies available foracquisition

0

14/3

15/3

16/3

3. Build a Stronger Foundation for Operations
Share management messages and improve business
infrastructure to strengthen sales and marketing
functions
TOPICS Focus on Mexico

In Europe, NAGASE is taking advantage of our network among research institutes to create
market-based solutions for the cosmetics, foods, and other major industries. Hayashibara
Co., Ltd. is receiving more attention in the region based on the company’s product safety
and activities for promoting new product applications. These products and activities haveled our customers to develop their own products in turn.

44

NAGASE & CO., LTD.

Annual Report 2016

As Japanese automobile companies
continue their push into Mexico, we have
expanded our sales center in Leon,
Mexico to strengthen our product supply
infrastructure. We also plan to offer new
solutions, utilizing the manufacturingfunctions of local joint venture partners.

Moving forward, we plan to revise our business portfolio
strategy, concentrating resources on businesses deemed
Focus businesses. We also plan to create new businesses
by growing our presence in emerging markets, stepping
up our marketing for Group products, and making
effective investments. In so doing, we expect to make atransition in our profit structure to achieve sustainablegrowth. We will establish a regional headquarters for theAmericas to provide business development support. We
will also provide a more robust shared services function
for Group companies within the region. As we strengthenties among Group companies, we will treat the Americas
as one market. At the same time, we intend to grow ourbusiness and strengthen operations by tailoring operations
to local customs and business practices.
From US
TijuanaMonterrey
San Luis Potosi
Leon
Aguascalientes
From Japan, Asia
Guadalajara
SilaoQueretaro
Mexico City
Handling By Nagase IMMEXSales & Marketing Office
Logistics Point

Takeshi Takada* OLED: Organic Light Emitting Diode

Fiscal 2015 Results
Our automobile decorative parts and plastic materials export business grewin fiscal 2015, driven by favorable business conditions in North America.
Meanwhile, the automobile parts import business also grew, contributing toour profit. In electronics, sales of NAGASE Group smartphone and display
device components experienced significant growth. In addition, semiconductor materials deliveries grew, owing to the strong business for memory.
Fiscal 2016 Strategies
Our goal is to contribute to the profits of the NAGASE Group by creating
and growing Korean-led businesses. In addition to our businesses in automobiles and electronics, sales for Life & Healthcare products (particularly­Hayashibara products) are expanding. Focusing on these products, we plan tostrengthen ties with NAGASE local entities around the world, seeing a future
where we introduce Korean-led businesses to worldwide markets. In particular,
we have focused on North America and the emerging market of Vietnam andbuild share in these markets by leveraging the strong competitive ability of
Korea’s companies to build share in these markets. We will continue to pursue
business in car electronics, flexible display panels, and next-generation semiconductor packaging, which we believe will be the engines driving future growth.
TOPICS Use FTA to Grow Business Originating in Korea
Our share of NAGASE Group products has increased, accounting for nearly 40
percent of our profits. In particular, we have obtained certification for materials
to be used in promising projects in the semiconductor and food industries.
EU, EFTA

From EUNAGASE Group
Sales Network
in Mexico

Korea
ASEAN
Oceania

North America

Financial and Corporate Information

TOPICS Providing Solutions Tailored the Market

Fiscal 2016 Strategies

Nagase Korea Corporation CEO and COO

Critical Initiatives for Sustainable Growth

2. Accelerating Global Business
0

Fiscal 2015 Results

Major Market Trends

Mass production for ultra-high speed memory
has begun in the semiconductor industry.
Changes in the global IT market based on 3D
memory technology have led to the foundationof a new stage of growth through technologicalcapacity. The expanding adoption of OLED* insmartphones has served to maintain Korea’s
influence in the display market, where the nation
holds a 95 percent share of small and medium
format screens. Korean brand strategy has
captured a growing share of the U.S. andChinese markets in the auto industry, while thecountry is also looking to Mexico, the leading
production center in Central and South America.

Unique Products

160

During fiscal 2015, our thermal paper and chemicals
businesses felt the impact of competition fromcheaper Chinese products and stricter EU environmental and safety regulations. We did, however, makeprogress in initiatives to build our environment- andsafety-oriented business in cosmetics, foods, pharmaceuticals, and car electronics.

Major Market Trends

The steady and growing automobile industry has
surpassed 17 million vehicles sold in the United States.
Meanwhile, development for eco-friendly automobiles(EV, HV, etc.) advances at a rapid clip. We plan to focus
more on our car electronics business, which is one of ourstrengths in this region. We have also turned ourattention toward food materials in response to trends inhealthy lifestyle changes. Here, we are strengthening ourmarketing activities in both North and South America.

Performance by Segment

Mitsuru Kanno

Fiscal 2015 Results

Korea represents an important market
internationally. An export-based economy,
Korea’s top corporations now outshine their
Japanese competition, achieving remarkable growth through globally oriented,
speed-based management practices. Korea
is positioned with superior access to the EU,
U.S., China, and ASEAN due to free trade
agreements, and Korea has a history of
success in entering emerging markets.

The NAGASE Group has three local entities (sixlocations) and six Group manufacturing companies
operating in the Americas. We expect stable growth
to continue in the United States, with Mexico garnering more attention as a manufacturing center, andSouth America holding potential for future business.
Over the past three years, we have added a number ofGroup manufacturing companies, and we continue
to bring on more employees.

Leading Us to the Future

Europe is home to numerous leading global companies and research institutes that conduct new technology and product development for the automobile,
cosmetics, and electronics industries. NAGASE is
working to create new business opportunities byworking with global corporations and research institutes, focusing on the products and technologies of
NAGASE Group manufacturing companies.

Executive Officer
Nagase (Europa) GmbH CEO and COO

About the NAGASE Group

EuropeSouth
America

NAGASE & CO., LTD.

Annual Report 201645

Main Manufacturing and Processing Functions
About the NAGASE Group

Nagase ChemteX Corporation
Research and Development Organization

Nagase ChemteX Corporation
Representative Director and President■ Net sales (Left Axis) ■ Operating income (Right Axis)(¥ hundred million)

300

60

263

The electronics field experienced significant growth for the year, pushed by an expanding smartphone market and related needs for small- and medium-sized high-definition displays and electronic
components. However, the large-format TV business experienced challenges in the domestic markets
due to the emergence of Chinese, Korean, and Taiwanese manufacturers. For automobiles and othertransport-related equipment, our response to demands for weight savings and environmental
considerations will likely lead to increase in plastic materials usage, for which we can expect future
growth. The introduction of a government-mandated functional foods labeling program haspresented an opportunity for enzyme production in the food field.

40

20

100

18

20

0

15/3

The NAGASE Group
Continues to Expand
Across the World
Nagase R&D
CenterNAGASE &CO., LTD.

R&D

DesignTesting

Production
Equipment
Manufacturing

Quality
Control
Analysis

Functional Resins
Business
Performance Chemicals
Business

Photolithography
Materials BusinessJapan/Overseas
Proactive Allianceswith Industry,
Academia andGovernment

Photo­
lithography
Materials
Business

Bio Chemicals Business

16/3

Understand
Needs

NAGASE &CO., LTD.
Proposals for
Products/
Solutions

Liaison

Proposals
Liaisonfor New
Development

LiaisonNAGASE Group
Nagase R&D Center, Nagase
Application Workshop,
Hayashibara Co., Ltd.

Research and Development
Head OfficeBusiness Divisions
Product Development
Division

UnderstandNeeds

LiaisonNew Technology/Market Research
New Technologies/Integratewith Existing Technologies
New Product Development for New Markets
Department Technology Support

Nagase ChemteX Corporation

Liaison

Universities/
Research Institutes
Start-up Companies

3

In our Photolithography Materials Business, we are leveraging our storehouse of technologies andexpertise to develop products and manufacture chemicals for photolithography. The display
market was slow throughout fiscal 2015. As a result, revenues for processing chemicals for LCDs
were lower, mainly at our Sakai Factory where this is a mainstay product. Our photoresist
products enjoyed adoption for use in lift-off and masks. Unfortunately, we experienced delays ingetting new products into the market. Meanwhile, adoption of stripping agents has progressed in
Taiwan and China. In response where we are preparing our local production bases to meet local
Stripping Agent Production Facilities indemand for next year.

Bio­Chemicals
Business

Current Testing Conductive
Fiber

The Bio Chemicals Business manufactures and sells our proprietary enzyme products,
mainly to customers in the food industry. We continue to focus on developing products
for use in breads, meat tenderizing, and other food applications. We also propose
value-added ideas to our customers to grow sales in Japan and overseas. We will also
work to improve profits by finding greater production efficiencies in our mainstay
products.

Financial and Corporate Information

With the goal of improving the safety awareness of all employees, webegan an official safety awareness training program during fiscal 2015.
To date, more than 200 individuals in Nagase ChemteX and nearby
companies have received training. To reduce factory energy costs andCO2 emissions, we have adopted and operate high-efficiency freezers
and underground hydrothermal heat pumps, engaging in activities tounderstand and improve our energy unit costs. Further, we are investigating the adoption of sludge reduction equipment to reduce the cost ofwaste water processing from our factories.

In 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.
For epichlorohydrine conductors, we have developed new formats using our proprietary synthesis technologies inlow chlorine/ low-elastic epoxy, low-chlorine/heat-resistant epoxy, and p­ olyfunctional/fully water-soluble epoxy.
Here, we are looking to introduce applications for electronics materials, as well as for water-based coatings andadhesives. In organic/non-organic hybrid materials we have succeeded in developing properties of transparency,
heat-resistance, and durability into the materials themselves. We have also successfully added high performance
characteristics through combinations with nano materials, ready for incorporation into new applications. Ourlineup of Denatron conductive polymer coating materials includes anti-static and highly conductive versions,placing us in a position to actively pursue applications for touch switches and conductive fiber.

Critical Initiatives for Sustainable Growthof our pharmaceuticals business last year and changes we made in sales
channels for our chelates business. Profits were lower mainly due toprice downturns for display materials.

Production Systems

Fiscal 2016 Strategies

Safety Training Area

High-Efficiency Freezer

Annual Report 2016

The Functional Resins Business is engaged in product development andproduction based on advanced formulated epoxy technologies. Sales of resins foruse in hydrogen fuel cell tanks in fuel cell vehicles, heavy electrical products, andsealants for car electronics grew for the year. Sales of sheet encapsulation forhollow package for high-frequency devices ( 1 ) and sealants for displays grew1
significantly, contributing to overall revenue growth.
Photo 1: Sheet encapsulation
We also installed new equipment and began production for solid epoxy forfor hollow package
Photo 2: CT200 Production
heavy electrical applications (CT200). ( 2 ) During the fourth quarter, we
Equipment
began sales of liquid molding compound based on a new application ( 3 ) with2
Photo 3: Liquid molding
the intention of creating a new packaged application.
compound

China

Performance
Chemicals
Business

Net sales for fiscal 2015 amounted to ¥23.77 billion (10% year-onyear decrease), while operating income came in at ¥1.82 billion(11% decline). This decline in revenues was mainly due to the transfer

NAGASE & CO., LTD.

Functional
ResinsBusiness

Nagase ChemteX
Corporation

Fiscal 2015 Results

46

UnderstandNeeds

Nagase ChemteX
Corporation
Research and Development
Organization

Proposalsfor New
Development

Unique Products

0

14/3

Proposalsfor New
Development

New Customers

Fiscal 2015 Operations

237

200

24

New Markets

Performance by Segment

Net sales/Operating income

261

Current Markets

Existing/New Customers

Major Market Trends

Akihiko Isono(¥ hundred million)

Currently, we employ a total of 160 staff who work indepartmental product development or at our Research andDevelopment Head Office. Staff working at our Researchand Development Head Office are responsible for creating
new businesses. Our division product development departments work closely with customers to understand theirneeds, quickly developing new products and improving
existing products. The Research and Development Head
Office coordinates with entities through the NAGASEGroup, analyzing technology trends and noting market
needs. This office also pursues joint development projects
with universities and research institutes to find emerging
business opportunities. During fiscal 2015, the Research andDevelopment Head Office made breakthroughs in a
number of medical materials and additive manufacturing
technologies intended for commercialization.

Leading Us to the Future

Nagase ChemteX Corporation occupies the central role in NAGASE Group
manufacturing, leveraging our long-accumulated proprietary technologies insynthesis, compounding, biotechnology and evaluation. We are a chemicals manufacturer offering a unique line of products and posting a high share of the market
in niche categories. By creating deeper expertise and integrating core technologies,
we are able to develop products that meet the needs of our users. As we build on our
foundational technologies, we continue to add high functionality and differentiation to our products in niche markets, building stronger relationships of trust withour customers. This trust drives us to continue to create high-function, high valueadded products and services for our customers in the electronics, environment,
energy, and biotechnology fields. In addition, Nagase ChemteX plays a lead role inproduction technologies, safety, environmental compliance, quality assurance, andregulatory compliance for Group manufacturing.

Nagase ChemteX has divided the five years of the ACE-2020 into
two phases. The first two-year phase will be one of improving andstrengthening our fundamental condition as a business. In the latter
three-year period, we plan to accelerate the pace of new businessand new product development. Throughout the five years of theACE-2020 plan, we intend to optimize our business portfolio, as
well as expand and strengthen our profit structure. At the same time,
we will instill the ACE-2020 mindset throughout our organization,

working to reinforce the foundation of our management operations.
Fiscal 2016 will be the first year we work under the guidance of theACE-2020 plan. Operating under a division system will allow us tocentralize revenue management under each division, clearly identifying
revenue structures, reducing costs, and merging/divesting unprofitableproducts. We will also train our employees to have a greater sense of
initiative, while improving operations safety, production technologies,
and quality assurance as we focus on creating new businesses.
NAGASE & CO., LTD.

Annual Report 201647

Main Manufacturing and Processing Functions
About the NAGASE Group

Hayashibara Co., Ltd.
Research and Development Organization
Microorganism screening derived from years of expertise and new
research efforts have put us on the course to developing purposedriven research into new enzymes and the development of newsaccharides using enzymes. We collect evidence about market needs
through our own survey system, working closely with our customers
to bring new products and applications to the market quickly.
Meanwhile, we are active in registering our intellectual assets, building
a structure that allows our customers to use our products with confidence. At the same time, we are pursuing strategies in intellectual
property protection and licensing. We plan to work even more closelywith Nagase ChemteX and the Nagase R&D Center to leverage thespecialties of each in advancing research and development.

Leading Us to the Future

Our business is divided mainly into two categories. Our functional saccharides
business leverages biotechnology to manufacture and sell functional saccharides,
including food materials (TREHA™, Hayashibara Hesperidin S, and Fibryxa™
(isomaltodextrin) ), cosmetics materials (AA2G™, stabilized vitamin C), andpharmaceutical materials (maltose). Our Fine & Wellness business utilizes
organic synthesis technologies to offer products in commercial photography anddisplay, as well as pharmaceuticals (LUMIN™-A) and other products in the life
sciences field. To be more global, we intend to strengthen new materials development and new product development in parallel. At the same time, we will establish
a reliable global supply system for high-quality products, promoting food safety
and quality assurance in line with global standards.

Research and Development center

Major Market Trends
Hayashibara Co., Ltd.
Representative Director and President

Net sales/Operating income■ Net sales (Left Axis) ■ Operating income (Right Axis)(¥ hundred million)(¥ hundred million)

90

300

243

237

Fiscal 2015 Operations
Saccharides
Business

241
60

200

49

47

45
30

100

0

14/3

15/3

16/3
TREHA™

Hayashibara Hesperidin S

Fiscal 2015 Resultsbillion, mainly due to temporary cost increases to stabilize productquality in connection with operations at our new plant and temporary cost increases associated with adopting the consolidated
taxation system.

Production System

LUMIN™-A

Fiscal 2016 Strategies
Okayama Functional Saccharide
Plant, S Building

New Okayama Plant I

Okayama Functional Saccharide
Plant, T Building

48

NAGASE & CO., LTD.

Annual Report 2016

While sales of photography and printing plate and other dyes for commercial
use decreased for the year in the Fine & Wellness business, sales of in-vitro
diagnostics and other life science products were strong. We expect future
growth in sales of polarizer and other dyes for use in displays. Here, we are
increasing production, even though we have yet to complete the mass production development stage. Meanwhile, sales of LUMIN™-A experienced an
overall decline for the year, although stronger cooperation with sales agentshas led to a recovery.

Under the ACE-2020 mid-term management plan, we are pursuinga basic strategy of pursuing clear growth markets and regions globally.
More specifically, we are moving forward with new application
development in worldwide for TREHA™ in response to increased
production capacity for this product. In addition, we are expanding our
product lineup in growth markets overseas. We are also making
advancements in developing applications for our core functional
products, including Fibryxa™, Hayashibara Hesperidin S, and Ascofresh™, preparing to introduce them to appropriate markets overseas.

Financial and Corporate Information

We began operations of two new plants to replace the former
Okayama Plant I, establishing systems to supply products reliably
and safely through state-of-the-art manufacturing facilities. We aremoving ahead with plans to build an additional 10,000 tons ofcapacity at the Okayama Functional Saccharide Plant, T Building,which manufactures TREHA™. The new addition should be readyfor operations in late 2016.
In addition to making advances in manufacturing process
improvements and energy efficiencies through our own engineering
methods, we have also adopted quality control systems based on
FSSC22000, ISO9001, and GMP. To answer customer requests
from overseas, we are making progress toward Kosher and Halalcertification.

Fine &
Wellness
Business

Hayashibara exhibit at Medicare Foods 2016

Critical Initiatives for Sustainable Growth

Net sales for fiscal 2015 outpaced prior-year by 2%, reaching ¥24.18
billion. These results were mainly due to aggressive market development in Japan and overseas and an increase in inbound tourist
demand. Meanwhile, operating income decreased 6% to ¥4.51

Press conference announcing Fibryxa™

Unique Products

0

The entire company pulled together in preparing the launch of the newsaccharides plant. In November, we introduced the first new Hayashibara
product, Fibryxa™ (isomaltodextrin), manufactured at this plant. The Japanesefood industry is our core market. Here, demand has been very strong for ourmainstay TREHA™, SUNMALT™, and HALLODEX™ products.
Meanwhile, the market has recognized the antioxidant effects of the highperformance Ascofresh™, as well as the neutral lipid reduction and improved
blood circulation effects of Hayashibara Hesperidin S. We are gratified to see
more cases of adoption of these products in their respective markets. In livestock
feed, nursing care meals, and other applications
where products contain TREHA™ compounds,
we see an accelerating accumulation of evidence
testifying to the effects of these products.
The market for overseas food businesses is
expanding, attracting the entry of several Chinese
manufacturers.
In the perfume and cosmetics field, inboundtourist demand is strong, while our efforts in
intellectual asset and pricing strategies haveworked synergistically to increase business overseas.
In the medical and pharmaceutical fields, we aremaking progress in developing an anti-adhesive
Soluble Dietary Fiber Fibryxa™
agent for use with highly purified trehalose.

Performance by Segment

Osamu Morishita

Our B to B customers give our products high marks not only for their physical properties, but also for
their functionality. Our product line extends widely from the food and cosmetics markets to the
medical and industrial fields. In our food business, we have been proactive in creating a systematic
review process necessary for compliance with the rules for Food for Specified Uses and the rules for
Food with Function Claims, which came into effect in April 2015. This is just one of the ways in which
we are building a support structure for our customers. Japanese products have a reputation for
reliable quality in overseas markets. In addition to this reputation, we offer added value to ourcustomers through protected intellectual property and expertise in our products. We will continue towork together with academia and our clients to conduct advanced research and development inapplications for our saccharide products in the pharmaceutical and medical fields.

On the production front, we are shoring up our technology
development and production centers in Okayama, while researching
the potential for overseas production from the standpoint of consistent
raw materials procurement and competitiveness.
Our highly original materials research is the DNA of our company. Based on our capabilities here, we plan to further deliver added
value combining our own materials, utilizing government-academicindustry projects, and contributing to a healthier and happier society.

NAGASE & CO., LTD.

Annual Report 201649

Major R&D Functions
Nagase Application Workshop
The Nagase R&D Center serves to provide biotechnology research and development functions for the NAGASE Group as a whole, bridging the NAGASEGroup trading company and manufacturing hybrid business model. Our mission isto develop proprietary actinomycetes technologies to bring safe, secure, eco-friendly
chemicals and materials to fruition through biotechnology process innovation. In
doing so, the Center will continue to create the seeds of new businesses not yet
conceived of in our current operations. The watchwords of the R&D Center are“unique, independent, and innovative.” Guided by this motto, we pursue researchand development activities that provide value to both NAGASE Group affiliatedcompanies and our customers. This type of value is distinctive of the research anddevelopment function within the traditional trading company model.

Main Functions

Division Manager, Research & Development Center

Liu Xiaoli

Technologies Fundamental Technologies: Genetic engineering, metabolic engineering, fermentation engineering, bioprocess engineering, bioinformatics Core Technologies: Materials production technologies using actinomycetes, strain improvement
technologies utilizing metabolic engineering
Achievements in Fiscal 2015
Nagase R&D Center

Source: Description of streptomyces coelicolor, Online Digital Atlas,
The Society for Actinomycetes Japan

Fiscal 2016 Strategies• Fundamental actinomycete technologies• Multidisciplinary expertise

Technologicalcapabilities

Expertjudgment• Discover seeds of newtechnologies/businesses• Technology assessment

Survey andanalysis
capabilities• Needs assessment• Value analysis

Annual Report 2016

● Evaluation of raw

materials andprocessing technology● Marketing, including
application
development

NAW
1. Plastics
2. Coating materials
Multipurpose
laboratory

Customers
Automobiles/
Appliances, Office
Equipment, mobile
phones/Amusement/
Games/Housing/
Apparel, Sporting Goods/
Cosmetics, Food Products,
Beverages

2. Coating materials Coating and ink formulation by expert technicians, test production of coatings and inks using
various evaluation equipment, physical property assessment using various evaluation equipment.
(Equipment) • Dry type paint booths • Disperser (paint conditioner, horizontal, vertical bead mill)• UV curing system drying oven • Environment testing equipment (xenon WOM, SUV weathering
test equipment, salt spray test equipment, constant temperature/humidity oven, etc.)
3. Multipurpose
laboratory● Support for local

production overseas● Develop unique

NAGASE brandproducts

Cumulative Total(to Fiscal 2015)

Fiscal 2015
In Japan

Overseas*2

In Japan

Overseas*2

Patent applications*

7

5

875

433

Patents*1

1

0

200

208

1

* The number of patents under the name of the Nagase R&D Center.
Licenses and other intellectual property rights are not included.
*2 Figures include applications for international patents.
1

The NAGASE Group is engaged in development in a variety of fields, including compounding
technologies (plastic, coating, ink, etc.), materials technologies (dyes, additives, fillers, etc.), andprinting technologies (color, surface treatment, etc.). With respect to these technologies in particular, the Group assigns technical staff from other departments, related companies, and affiliates towork in the NAW multipurpose laboratory. In this way, the Group makes more effective use oftechnical support provided by NAW facilities and staff, leading to faster development speed.

Development History
Throughout fiscal 2015, we received a number of inquiries andrequests from customers, materials manufacturers, and processing
companies based on our reputation for conducting applied technology development that meets true market needs. We received
representatives from more than 180 companies, in addition tomore than 260 requests for testing and development. The
NAGASE Application Workshop is indeed playing an active rolein the growth and brand recognition of the NAGASE Group.

Plastics 

Coatings • Develop plastic materials for molding with automotive

Development of Pat!naLock™
(new-concept antirust paintusing “rust prevention byrust”) and a carbon hybrid
coating system thatsignificantly reduces
solvent-based coating VOC

industry parts makers (Tier1, Tier2). Weight savings, highgrade treatment, improvement in scratch resistance, etc.
• Development of compounds/masterbatches for resinsfeaturing new anti-static properties• Development of transparent, highly rigid plastics for use
in cosmetics, medical products, and food applications

Fiscal 2016 Policies
NAW works with customers and suppliers as development partners in
the plastics and coatings fields. Through these activities, we add newlevels of support for technical sales, incorporating advanced technicaldevelopment functions, contributing to the real and perceived value of
the NAGASE name.
During fiscal 2016, we will accelerate the speed at which weengage in cooperative business development with other divisions andaffiliated companies in Japan and overseas. In particular, we aretargeting the commercialization of Pat!naLock™ (antirust paint), a
carbon hybrid coating system, and a highly slidable polyethylene.
Our goal is to uncover new elemental technologies and functional
materials earlier than any other company in the world, contributing to
growth in our markets. We will develop useful formulations and create
proprietary NAGASE technologies that we can suggest as effective
solutions to our customers.

Coating

VOC

Coating

CarbondioxideFinancial and Corporate Information

NAGASE & CO., LTD.

Processing
companies

NAGASE
This mechanism is madeuniquely possible
by NAGASETOPICS Development of a Carbon Hybrid Coating System

Intellectual Property Administration and Usage
The intellectual property team within the Nagase R&D Centersecures the outcomes of research and technological development
activities in the Center as intellectual property. At the same time, theteam proposes patent strategies for use in future businesses, conducting
research and development as business strategy. The team will workwith the Intellectual Property Office to manage and utilize NAGASEGroup property, securing patent rights and coordinating strategicallywith departments at our affiliates.

Materials
manufacturers

Critical Initiatives for Sustainable Growth

The Nagase R&D Center is dedicated to creating a sustainable world
where people live with peace of mind. To this end, we develop valueadded materials utilizing proprietary microorganisms, based on multidisciplinary fields in synthetic biology. At the same time, we continue topropose new ideas to commercialize these technologies, planting seeds
that we hope will one day become new businesses. In fiscal 2016, we plan
to strengthen ties with universities and outside research institutes inorder to be able to take the lead in discovering seeds of new business,quickly conducting validation and feasibility studies of new concepts
guided by surveys of customer needs. This will lead to the creation ofeven more new development concepts for our department to pursue. We
are prioritizing productivity increases for our current development of ananti-aging ingredient, working with affiliated departments in the Groupto commercialize this technology as quickly as possible.

Tetsuya Asakawa

Unique Products Using microbes to produce natural UV absorbers (patented) Publication of a paper explicating the UV-absorbing mechanisms of UV-absorbing substances Publication of a paper on the enzyme preservation effects of new betaine compounds Authorship of a publication on functions, production methods, and applications of phospholipids Feasibility study on the production of anti-aging cosmetics ingredients utilizing actinomycetes Methods for producing proteins as electronic materials utilizing microorganisms

1. Plastics

GM, Nagase Application Workshop

Formula design by expert technicians, test production of compounds (mainly via twin-screw
extruder), test production of molded plastic products (via injection molding), physical property
assessment using various evaluation 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)

Performance by Segment Proprietary biotechnology development functions integrating advanced technologies andacademic knowledge across a wide range of fields(N-STePP™: Nagase Streptomyces Technology for Precious Products) Planning and development functions leading to new businesses that make possible the use of
biotechnologies for the efficient production of useful substances with low environmental impact(Field: Biochemicals, functional materials) External Biotechnology assessment, adoption functions

Leading Us to the Future

The Nagase Application Workshop (NAW) is home to specialized equipment andexpert staff capable of conducting raw materials analysis, application development,
and final product formulation for plastics and coating materials. This organizationis responsible for technological development, incubation, and research. Throughits technological development function, NAW combines the materials and processing technologies from Group manufacturing companies and other business
partners to propose innovative solutions that meet the needs of customers and themarket, after these needs have been identified by the NAGASE Group marketing
function. This is just one way in which NAGASE proves itself to be a unique evolution of the traditional trading company model of business.

Main Functions

50

About the NAGASE Group

Nagase R&D Center

As the world moves to limit emissions of VOCs, pollutants and a threat to human health, NAW is
CarbonVOCdioxidedeveloping a carbon hybrid coating system that will reduce paint and paint thinner VOC by 50
Liquefied carbon
percent. This coating system replaces paint thinner with liquid carbon dioxide as a solventDiluting solvent
dioxidebased coating (Fig. 1, 2) to reduce VOC by a significant amount. In contrast to water- andFigure1
Solvent-Based
Coating(current)
Figure 2 Hybrid Coating
powder-based coating, this method reduces VOC while maintaining membrane quality andexternal appearance after drying. The use of liquid carbon dioxide offers a number of advantages to paint thinner: (1) Not harmful to human health; (2) Low
environmental footprint; (3) High solubility, viscosity reduction, volatility; and (4) cost savings. Industrial-use carbon dioxide is a by-product of the hydrogen
manufacturing process. As such, this method does not contribute to the production of new carbon dioxide, which is known to be a greenhouse gas.
The carbon hybrid coating system can be installed in existing solvent-based coating booths, serving as a promising, environmentally friendly coating
system that can be adopted at lower costs than water- or powder-based systems. The NAW is applying for a number of patents as part of an intellectual
property strategy to commercialize this carbon hybrid coating system.
NAGASE & CO., LTD.

Annual Report 2016

51

Critical Initiatives for Sustainable Growth

Human Rights, Employment Practices

1 Basic Stance on Work-Life Balanceis available in Japanese, English, Chinese, and German, 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, theGroup will take immediate steps to investigate the situation,acting to help the affected individual(s) and to prevent any
recurrence.

The NAGASE Group currently employs a diverse range ofworkers who differ in terms of gender, nationality, age, values
and lifestyles. The NAGASE Group believes that corporate
culture can lead to the creation of new businesses andDiversity in

1 Diversity in attributes

3 thinking-Individuals

4 Diversity in opinionsof knowledge as
5 Synergy
an organization or group

A wide variety of human resources
with different nationalities, genders,business specializations and values

Each individual freely brings ideas
and exercises their capability andoriginality

Each individual confidently
expresses their opinions

Creating synergies and increasing
the value of knowledge byexchanging opinions

Enhanced ­performance­throughout the Group2

2 Diversity Initiatives

Annual Report 2016

➍ Encouraging new breakthroughs to➊ Sharing corporate
traditional approaches
philosophy and vision➋ Enhancement of transparency ➎ Eliminating a mindset that leads to gender bias
➌ Reinforcing relationships offriendly competition➏C reating a work environment in which
employees feel free to utilize the in-housebenefits system

1. In-house education➀	Periodic messages from top management. Broadcasts of related
information➁	Instill deeply into Management Philosophy, Nagase Way, Direction,
Current Conditions
2. Diversity in organization and individuals➂ Improve global communications➃ Support for employees’ career development➄	Continue employing non-Japanese, women for managerial positions;improve corporate culture
3. Develop comfortable workplace➅	Instill awareness and activate initiatives for continuity and productivity
improvements➆	Support employees who are dealing with home care or other challenges

1 The NAGASE Group Professional­Development Policy
The NAGASE Group Approachto 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 realworld work in a variety of roles to gain new knowledge andskills. Off-the-job training also involves training and gaining
skills through both formal classes and self-directed learning.
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 for young staff, training for managers, andposition-specific training to ensure staff have the necessary
knowledge and skills to perform their work.

Promoting Group Functions throughOrganization-Wide Human Resources Development

We offer Group-wide human resources development programs
based on rank, as well as improved headquarters-based training
for overseas national staff designed to more fully deliver the
NAGASE Group functions.

Number of Employees by Gender■ Male ■ Female(Persons)
1,000

961

972

978

973

971

800

335

600

346

346

350

349

400
200

626

0

12/3

626
13/3

632
14/3

623
15/3

622
16/3

Number of Career-track Employees Hiredamong New Graduates■ Male ■ Female (Left Axis)(Persons)
40
30

Ratio of Female Employees (Right Axis)

36

31

(%)
40

2

27 0

4

20

13%

30

23

3

13%

10

27

0

12/4

34
13/4

14/4

27

3

15%

6%
0%

20

20
15/4

17

20
10
0

16/4
Financial and Corporate Information

Our diversity initiatives began in earnest in fiscal 2008 with thelaunch of the Diversity Promotion Committee. We conducteda second survey during fiscal 2011, and will continue to monitor our progress over a three-year span as we introduced newactivities in fiscal 2012.
For fiscal 2015, the NAGASE Group intends to further
develop our diversity, guided by initiatives for more active
intra-Group personnel exchange. A subcommittee consistingof individuals with past exchange experience met to discuss
how best to achieve this goal. Based on these discussions,
NAGASE created policies to launch a cross-Group exchange
project. We will begin implementing the most actionable ofthese policies in fiscal 2016.

Themes for Diversity Promotion

Professional Development

Critical Initiatives for Sustainable Growth

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

Employer support for child care is a major issue in Japan, where thenation is struggling with low birth rates. In light of this social issue,
NAGASE & CO. has expanded eligibility for short-time work arrangements. Beginning fiscal 2015, employees are eligible for this flexible
arrangement for elementary school-aged children up to third grade.

Unique Products

Objectives to Achieve through the Promotion of Employee Diversity

TOPICS Relaxed Standards, Expanded Options
for Temporary Short-Time Work Arrangements

Performance by Segment

improved business performance. Therefore, we want to develop
a corporate culture in which a diverse workforce can shareideas, build a mutual understanding of shared values, and help
each other perform their duties with energy and new synergies.
As such, we at the NAGASE Group believe that diversity is
not only a value but an important corporate strategy.

1 Basic Stance on Diversity

NAGASE & CO., LTD.

2 Work-Life Balance Initiatives
The monthly meeting of the Safety Committee includes a
discussion of policies regarding basic awareness of overtime
and flexible work schedules. The committee uses the results ofDiversity

52

Striking a balance between work and life is indispensable to thepromotion of employee diversity. Therefore, the Group maintains a comfortable workplace for employees with diverse
characteristics to realize a good work-life balance. NAGASE
believes a good balance between work and life will bring
benefits to both the Company and employees, and thus strives
to raise awareness in house and develop work-life balancerelated systems.

workplace surveys to gauge progress, striving with the cooperation of staff and management to make NAGASE a better
place to work. The Company decided to expand options for
shorter work hours beginning fiscal 2015.
As we expect to see more women in the workplace andmore employees dealing with home care for family members,
we have initiated labor-management discussions regarding the
expansion of our current flextime system. We are working to
implement a practical system that allows employees morechoices about their work arrangements.

Leading Us to the Future

Respect for Human Rights
The NAGASE Group has a Code of Conduct which defines
our respect for human rights and our refusal to discriminate
against individuals or groups in any manner. As a corporategroup doing business around the globe, the NAGASE Group
respects the history, culture, and customs of every region, andwe do not engage in harassment or discrimination based on
race, creed, gender, religion, nationality, language, physicalcharacteristics, wealth, or place of birth. This Code of Conduct

About the NAGASE Group

Work-Life Balance

TOPICS The President’s Award
Employees and management have had numerous discussions related topolicies for increasing employee motivation. As a result, NAGASE established the President’s Award as a means to foster a greater sense ofsatisfaction among employees. We believe this program will help us build

a better company, encouraging employees and management to cometogether to find satisfaction in their work and a commitment to fullparticipation. In the future, we intend to roll out this program throughout
the Group to motivate employees and create greater solidarity.

NAGASE & CO., LTD.

Annual Report 2016

53

Critical Initiatives for Sustainable Growth

Strengthening Management Capabilities andBusiness Skills; Fostering Globally Proficient Personnel

Training Program

Fiscal 2013

Fiscal 2014

Fiscal 2015

Rank-Specific

801

896

796

Elective

10

21

8

Overseas

19

16

19

The Business Leadership
Program for Overseas
National Staff

Assign employees to overseas entities, send
employees to business schools, provide
cultural training, offer English language
training support.
Programs to sharpen our competitive ability(send employees to business school or MBA
basics training, etc.).

➋ Train managers

42

37

Using the NAGASE Global HR Development Center
In May 2014, we opened the NAGASE
Global HRD Center in Sendagaya, Tokyo.
The Center serves as our base fordeveloping human resources that willlead us toward sustained growth.
During fiscal 2015, we used the facility
for a number of different purposes. We held major meetings (joint
division council meetings, global meetings, mid-term plan council
meetings), training (HR training, group company training, interntraining, etc.), product training, professional networking opportunities, and more. A total of 3,351 people used the facility during fiscal
2015, including 1,383 room nights and 122 training meetings.

Provide rank-specific training in sharedvalues, offer shared value workshops for
managers, conduct surveys. As the externalbusiness environment changes, we willcontinue to revise and improve our training
programs.

Staff Development Program
For National Staff
SkillsGeneral Manager

Mind

For Clerical Position Staff

Practical

Overseas Business School Enrollment

Division Manager

NMP (Nagase Management Program)Environmental Management Activities

Section Manager
Appraiser Training

Manager Training

GMP(General Management Program)Manager Candidates Training
Management Skills
Seminar

BIP（Business Improvement Program）
SA Training(Promotion)
昇格SA研修Overseas Business On-the-Job Training

Section Staff
Leadership Training

54

NAGASE & CO., LTD.

Practical Skills Seminar

BMP（Basic Management Program）

Business Skills Training

Core/Skill Training

Office Systems Training

Office Systems Training

Introductory Training

Basic Practical Skills
SeminarIntroductory Training

Annual Report 2016

NAGASE & CO., LTD. bases its environmental management
activities on daily operations. Specific activities include thepromotion of environmental businesses and energy conservation activities, as well as the enhancement of operational
efficiency. Our environmental businesses encompass renewableenergy, energy storage, energy/resource conservation, regulatedmaterials replacements, recycling/reuse, and measures tocombat global warming. One company-wide initiative is tocreate and expand businesses utilizing environmental andenergy technologies. We will continue to share informationand functions among and between Group companies tobecome an organization that rapidly develops and deploys
products and services that lead to a more sustainable andlow-carbon society.
Another way we believe we can shrink our environmental
footprint through our business is to be more efficient in our

Risk Management & Compliance Committee

Environmental ISO
Management Organization
Environmental ISO
Management Representative

NAGASE & CO., LTD.

Affiliates
Management

Environmental ISO
Management General Secretariat
Chief Environmental
Management Representative
Environmental Management
Representative

Environmental Management
Representative
Internal Environmental
Audit TeamInternal Environmental
Audit Team
Secretariat

Secretariat

Environmental Protection
Officers

Environmental Protection
Officers

Eco-Leaders

Eco-Leaderslogistics. Reflecting our beliefs, in August 2008 we developedand implemented the Nagase Energy Calculation Online
System. This system uses logistics voucher data from our sales
management system to calculate domestic cargo transportvolumes.
This system makes it possible not only to calculate ourannual cargo transport volume and CO2 emissions but toanalyze transport routes for optimization, which also helps
reduce our CO2 emissions. In such ways, the NAGASE 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 theworkplace and promote energy savings awareness within the
Company.

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

MBA Basic Education
ProgramNAGASE 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. Earlier than othertrading companies in Japan, NAGASE & CO., LTD. obtained
ISO 14001 certification for its environmental management
system in April 2000 in response to societal demands. Since
then, the Environmental Protection Committee has offeredaffiliated 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, Nagase Plastics, Nagase Abrasive Materials,­Nishinihon Nagase, Nagase Elex and Nagase-OG Colors &Chemicals under the Environmental ISO Management
Organization.
Many of our domestic manufacturing, processing, services,
sales, and other Group companies are working independently toacquire certifications and engaged in environmental activities.
These firms include Nagase ChemteX Corporation, Nagase
Medicals Co., Ltd., Setsunan Kasei Co., Ltd., Totaku Industries,
Inc., Nagase Techno-­Engineering Co., Ltd., Nagase Techno
Service Co., Ltd. and Fukui Yamada Chemical Co., Ltd.
We will continue with activities to improve the environmental management systems among certified Group companies.

Environment Management Structure

Critical Initiatives for Sustainable Growth

Domestic Business School Enrollment

NAGASE Group
Environmental ­Management Structure

Unique Products

For Managerial Track Staff, Specialized Position Staff, R&D Position Staff

Environment Management

Performance by Segment➌ Instill shared values

33

Environment

Leading Us to the Future

We have emphasized the following three points among ourvarious development policies. We will continue to revise Group
education and training programs according to changes in theexternal business environment and NAGASE Group strategy.
➊ Promote globalization

About the NAGASE Group

Number of Participants at Main Training Programs

2 Major Policies

55

Critical Initiatives for Sustainable Growth

Fair Business Practices➋ Develop businesses that give full­consideration to environmental issues➌ Fulfill our responsibilities as agood 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 andprotect the environment, and we will make every
possible effort to give full consideration to theenvironment within the limits of technological andeconomic feasibility.

As a good corporate citizen we will work
together with public institutions, industry,and local communities to promote environmental conservation measures that aresuitable for the NAGASE Group.

➍ Establish and continually improve anenvironmental management system➎ 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 theobjectives set out in this Policy. We will continuously make improvements to this system bysetting concrete goals and working to fulfill them.

We will disclose the Policy to the public and makeall who work for the NAGASE Group fully aware ofits contents.

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.
Activities Undertaken by Nagase ChemteX

Fiscal 2014

Fiscal 2015

3,186

3,154

2,490

Fiscal 2013

Fiscal 2014

Fiscal 2015

Paper Usage (sheets: 1,000)

7,720

7,264

6,007

Paper Usage (t)

33.0

31.0

25.8

CO2 Output (t-CO2)
Fiscal 2013

Fiscal 2014

Fiscal 2015

6,091,675

5,861,177

6,110,367

Waste, Recycling
Fiscal 2013

Fiscal 2014

Fiscal 2015

Waste (t)

261

188

217

Recycling (t)

210

149

183

80.0%

79.5%

84.1%

Recycling (Ratio)

Paper Usage

CO2 Output from Logistics Activities

CO2 Output (t-CO2)

Fiscal 2013

Fiscal 2014

Fiscal 2015

1,831

1,727

1,787

Basic Compliance Policy
The Nagase Group is a member of society and, as such, it is our duty to
behave in a manner in keeping with this role by maintaining good and fairbusiness practices and providing society with the goods and services it
needs. Through continued growth and development, Nagase can improve
the welfare of its employees, while making a contribution to society.
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 withthese behavior standards and endeavor to disseminate them to thosewithin the corporate organization, especially those with whom theywork. 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 to improve operations by identifying the causes of problems and taking steps to prevent recurrences.

➊ Compliance with laws, regulations and internal rules andregulations➍ 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 theinternational community to ensure the continuing growth and development of Nagase as a global enterprise.

➋ Elimination of anti-social elements• Nagase will respect the autonomy and creativity of every employee andfoster a corporate culture in which those qualities can be applied tocorporate activities.
• Nagase will protect its employees’ health, respect their human rights,
treat them fairly and without discrimination, and secure and provide safeand enriching work environments.

➎ 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.

➌ Provision of goods and services that are useful to society➏ Preserving the global environment• Nagase will contribute to society by supplying goods and services thatare useful to society.

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

Financial and Corporate Information

Fiscal 2013

The Company established the Risk Management &­Compliance Committee to put into place a structure for risk
management as well as to monitor risk management andcompliance as an advisory body to the Board of Directors. This
Committee determines committee member functions andauthority, operating a structure of clearly defined roles andresponsibilities. Under the committee’s leadership, department
managers address risks in their particular areas by formulating
rules and implementing training. The Company also works
through the Risk Management & Compliance Committee todevelop systems and departments responsible for additionalrisks that materialize and strives to lower the risks that could
impact the Company’s business.
In addition, the Risk Management & Compliance­Committee formulates the basic compliance policy to maintain

Critical Initiatives for Sustainable Growth

Nagase ChemteX Corporation, a core manufacturing subsidiary of the
NAGASE Group, is promoting energy conservation activities by developing an energy-saving framework at all its facilities. Every Nagase
employee is expected to participate in energy conservation activities.
These activities include department-by-department energy conservation targets and monitoring, a system of energy conservation improvement proposals, and Energy Conservation Committee staff members,
helping reduce greenhouse gases through facilities investment andimprovement. To further promote energy conservation activities, wehave subdivided the Energy Conservation Committee into departmentlevel units to exercise even more detailed control over energy usage.
Once again in fiscal 2015, the Kansai Electric Power Co. Inc. asked
Nagase to cooperate with energy-saving measures during the hotsummer months. We signed a special peak-time adjustment contract to cut 10% of used electricity during July, August, and September. We achieved that goal for all three months of the contract,earning a discount on electricity fees.

CO2 Output

Electricity Usage

Electricity Usage (kWh)Identify, Understand, and Control Risk

the Company’s compliance system and uses regular workshops
and other initiatives to ensure that corporate activities arestrictly 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 immediately
report to the Risk Management & Compliance Committee,
which promptly 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 in November 2012, distributing the document to all employees throughout the entire domestic andinternational Nagase organization.
In January 2015, we established the Crisis Management
Guidelines. These rules are part of a structural and communications system that allows us to quickly and properly respondas a cohesive organization, gathering information, providing
reports, and issuing instructions in the event of a crisis that
affects business continuity.

Unique Products

Environmental Performance Data

Identify, Understand, and Control Risk

Performance by Segment

As the core company of the NAGASE Group, NAGASE &CO., LTD. sets an example through activities to reduce its
ecological footprint. In addition, the company views developing
eco-conscious businesses as major component of its environmental policies. NAGASE & CO., LTD. contributes to society
by reducing its own footprint, while discovering and developing the types of eco-friendly products that society demands.
In line with revisions made to the Act on the Rational Useof Energy, NAGASE & CO., LTD. has been designated as a
specified corporation by the Bureau of Economy, Trade andIndustry since its energy usage exceeds fixed levels. Consequently, since fiscal 2011, we have compiled data on theamount of energy consumed at every facility, formulated
medium- and long-term energy reduction plans, and submitted
regular reports to the Bureau of Economy, Trade and Industry.
We adopted and operate a building energy management
system (BEMS) at our Tokyo headquarters building and Nagoya
branch office. We use automated environmental impact reduction controls and energy conversation operations during summer
peak usage times to keep environmental settings within target

Risk Management and Compliance

Leading Us to the Future➊ Comply with all environmental laws,
regulations and other rules

Reducing Our Ecological Footprint

About the NAGASE Group

Environmental Policy

Participating Companies: NAGASE & CO., LTD.
Period: April 2013 to March 2016

56

NAGASE & CO., LTD.

Annual Report 2016

NAGASE & CO., LTD.

Annual Report 2016

57

Critical Initiatives for Sustainable Growth

1. Basic Approach

Implementation
September
2012

Content/Attendance

Seminar on business-related risks inconnection with the Antimonopoly Act
20 attendees

January2013

Hayashibara Co., Ltd.
Mainly for purchasing
and sales personnel

Seminar on business-related risks inconnection with the Subcontract Act
Held twice in Okayama

February
2013

NAGASE & CO., LTD.
Officers

Seminar on the Antimonopoly Act,
delivered by in-house attorney
31 attendees

Nagase ChemteX
Corporation

Seminar on business-related risks inconnection with the Antimonopoly Act
71 attendees

October–November
2013

NAGASE & CO., LTD.,
certain affiliatedcompanies

Subcontract Act E-Learning training
NAGASE & CO., LTD. participation: 97%
Affiliated company participation: 98.7%

November
2013

Hayashibara Co., Ltd.

Seminar on business-related risks inconnection with the Antimonopoly Act
Held once each in Okayama and TokyoNAGASE & CO., LTD.
New employees

Training for new hires related to important points of the Subcontract Act
Held once each in Okayama and TokyoNAGASE & CO., LTD.,
certain affiliatedcompanies

Global trends in bribery prevention
regulations focusing on Foreign Corrupt
Practices Act (U.S.), Bribery Act (UK), andUnfair Competition Prevention Act(Japan), given by outside expert attorney
Held nine times in total(Tokyo, Osaka, Nagoya)

July 2013

April 2014–

June–July
2015

February
2016

NAGASE & CO., LTD.,
certain affiliatedcompanies
Section managers

NAGASE & CO., LTD.

Compliance seminars conducted by rank
Held once each in Tokyo and Osaka

Annual Report 2016

Security Trade Controls
As a trading company specializing in technology and information and which also carries out export business activities, mainlyof chemical products and precision equipment components,
Nagase has set up its own Security Trade Control Regulations
and established the Security Trade Control Committee toappropriately implement security trade control. The Item
Compliance Management Section of the Logistics Management Division serves as the office of the Security Trade Control
Committee. Furthermore, the Item Compliance Management
Section within the Logistics Management Division is responsible for security trade control of the company and acts as the
Security Trade Control Committee’s secretariat.
Meetings of the Security Trade Control Committee andthe Item Compliance Management Council are held as
deemed appropriate. At these meetings, the Security Trade
Control Committee works to understand the export control
situation, the latest revisions to the Foreign Exchange andForeign Trade Control Law and to ascertain a detailed picture

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 by taking the exam offered by theCenter for Information on Security Trade Controls (CISTEC).
As of March 2016, NAGASE had 803 qualified STC Associates in 22 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

At Nagase, internal security trade control training is provided toall employees, and the Human Resources & General Affairs
Division offers various training opportunities such as orientation
for new employees, rank-specific personnel training, and theimplementation of other activities that educate and instillknowledge. In addition, we hold lectures for domestic subsidiaries and affiliates as well as overseas-based subsidiaries, with theentire Group participating.

Regulatory Compliance in ProductsInternational society is becoming more concerned about
environment- and safety-related issues. At Nagase, we continue
to improve product-related compliance and centralized information management, including management of chemical
products. All products we deal in are subject to the management system administered by the Item Compliance Management Section within the Logistics Management Division. This
allows us to comply properly with any laws or regulations that
affect our products.

Strategic Approach to International Chemical­Management (SAICM)

The action plan adopted at the 2002 World Summit on Sustainable Development—also known as the Johannesburg Summit—
is aimed at ensuring that, by the year 2020, chemicals areproduced and used in ways that minimize significant adverse
impacts on the environment and human health. In accordancewith this policy, the entire world is adopting more strict andstandardized regulations concerning chemical management.
Consequently, each nation is witnessing dynamic changes inapplicable 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 andother countries bolstered their respective regulatory systems
relating to chemical management. In such an environment, as anentity engaged in business worldwide, the NAGASE Group
provides support to its overseas subsidiaries for responding tothese legal and regulatory developments via the abovementioned Product Management System.
These legal and regulatory developments naturally affect thefinished products in which Nagase products are used. Therefore,
it is important for the NAGASE Group to offer its customers
relevant information. We work to ensure an accurate understanding of worldwide legal and regulatory trends with regard tochemical management. At the same time, with the aim ofestablishing a system to facilitate the global management of
information related to the chemical products and chemical
substances used in our products, we are providing productmanagement education and guidance to our overseas
counterparts.

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

Totaku Industries, Inc.

All information about our export products, technologies, andoverseas customers is stored in our proprietary Product Management System. Our Sales Division and Item Compliance Management staff confirm whether certain products or technologies
are subject to restriction under the rules of Foreign Exchange andForeign Trade Act and the United States Export Administration
Regulations. Only those products approved by the Item Compliance Management Section are put into the system as products
allowed for export.
Moreover, going one step beyond mere adherence to the law,
we define policies of the entire NAGASE Group associated withsecurity export controls that, as a rule, prohibit trade in productsthat 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.

Critical Initiatives for Sustainable Growth

Company training on Collusion, Cartels,
and the Subcontract Act
Held nine times in total(Tokyo, Osaka, Nagoya)Specific Management Framework

The NAGASE Group checks related laws for the chemicalcomponents and regulated effects of new products that we plan
to introduce to the market. Information related to these products
is managed within the aforementioned Product Management
System database and shared Group-wide. Using this system, weare able to swiftly confirm which products contain regulatedmaterials and ingredients, complying as appropriate with related
regulations and providing our customers with the information
they require to confirm compliance with revised laws in Japanand abroad. Furthermore, to respond to the demands for more
green procurement from our customers, we have establishedGreen Procurement Requirements, procuring and delivering
products after confirming they have been procured in compliance with these guidelines.
We are members of the Japan Chemical Industry Association, the Japan Chemical Exporters and Importers Association,and several other industry organizations. In addition, because we
distribute information on the chemical substances contained in
products along the supply chain, we endeavor to pass 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 MSDSplus
and AIS.

Unique Products

NAGASE & CO., LTD.
Sales personnel(including managers
and sales staff)

October2012

58

Targets

As the NAGASE Group accelerates business globalization, thevolume of off-shore transactions it engages in, as well as
exports to and imports from China, Asia, and other rapidly
growing regions, is increasing. Transactions with suppliers inemerging countries measures be put in place to prevent quality
management and other issues that may arise due to legal andregulatory differences between Japan and the countries inquestion. Therefore, NAGASE & CO., LTD. recognizes theincreasing importance of encouraging overseas suppliers to
conduct sound quality management.
We have also worked on test programs to strengthen andexpand Group-wide research, development, and manufacturingfunctions, recognizing the importance 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 ispromoting the establishment of Group-wide rules regarding
quality management and product quality assurance whileproviding its employees with educational programs. Throughthese activities, we are working to ensure the safety of the
products handled throughout the Group.
As NAGASE changes business models from sales agent tomanufacturing/processing and manufacturer investment, we
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 and conducting
internal training.

Framework for Compliance with Product Laws
and Regulations

Performance by Segment

2. Education Activities (2012–)

Product Safety and Quality Control

of export controls across the entire Group while formulating
related Group policies. The Item Compliance Management
Council is in charge of directing and educating each businessdivision and Group company in matters and statute updates
determined by the Security Trade Control Committee. It is the
responsibility of the Item Compliance Management to protect
the Company and affiliates against the risk of illegal acts withrespect to export controls.

Leading Us to the Future

The risk of cartel enforcement, particularly surcharges, underthe Antimonopoly Act can have a major impact on a business.
Since cartel regulations can be an issue, 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 and subcontractor risks under the
Antimonopoly Act. As such, we hold regular education activities through a variety of means to keep this risk in the forefrontof 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 our business. During fiscal 2016, we plan tocontinue worldwide training and education related to bribery
and fraud prevention.

2 Specific Measures Taken for
Individual Risks

About the NAGASE Group

1 Fair Business Practice Initiatives

59

Critical Initiatives for Sustainable Growth

Community Involvement and Development Basic Approach to Quality Management for Food Safety

60

NAGASE & CO., LTD.

Annual Report 2016

(titles omitted: Japanese syllabary order)

Present office

Position

Subject matter

Organic chemistry

Basic Approach

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

Specific Initiatives

Our research and development pursues herb sciences andtechnology, selecting materials from a variety of plants, seeking
out those that combine safety and functionality. The plantmaterials coming out of our research are used as the raw materials of end products, which are in turn subject to strict quality
management systems in connection with the production process.
At the same time, our designs incorporate considerations forease of use, ease of reading, and ease of understanding to
respond to the shift in age demographics of our customers. If
customers have any questions about their purchases, they cancontact the Nagase Beauty Care after-sales support (support
office). This support office is staffed with experienced beauty
instructors and professionals who work directly with customers.
We have received support from this office in raising the qualityof our products and services in response to customer feedback.
Careful selection of useful herbs fromaround the world. The manufacturing ofproducts that are sensitive to changes
in temperature and humidity requires
efficient extraction technologies andstrict quality management to ensurethat quality standards remain high.

Tatsuya Uchida

Faculty of Arts and Science Kyushu University

Associate Professor Development of Valence-Responding Asymmetric Catalyst

Masaki Kawano

School of Science, Department of Chemistry,
Tokyo Institute of Technology

Professor

Development of conductive porous coordination networks

Eiji Shirakawa

School of Science and Technology Kwansei Gakuin University

Professor

Development of transition metal-free coupling reactions of organozinc reagents with aryl halides

Satoshi Takamizawa

Graduate School of Nanobiosciences Yokohama City University Professor

Investigation of shape-memory effect in organosuperelastic materials

Yutaka Hitomi

Graduate School of Science and Technology
Doshisha University

Professor

Development of molecular probes for real-time non-invasive imaging of the diffusion process ofhydrogen peroxide produced as cellular signals at low levels

Yukari Fujimoto

Graduate School of Science and Technology Keio University

Professor

Development of synthetic methods for lipid conjugates and functional analysis /modulation of the lipid recognition proteins

Tetsuro Murahashi

School of Materials and Chemical Technology
Tokyo Institute of Technology

Professor

Development of Organometallic π-Clusters using π-Conjugated Unsaturated Hydrocarbons

Professor

Photostable Phosphole-Containing Ladder pi-Electron Systems
Understanding of unique biosynthetic machinery of azoxyalkene compound produced by genome
mining of Streptomyces

Shigehiro Yamaguchi Institute of Transformative Bio-Molecules Nagoya University

BiochemistryKenji Arakawa

Graduate School of Advanced Sciences of Matter,
Hiroshima University

Associate Professor

Hiromi Imamura

Graduate School of Biostudies, Kyoto University

Associate Professor Quantitative measurement of ATP concentrations of photosynthetic organisms

Noriyuki Iwabuchi

Department of Applied Biological Science,
College of Bioresorce Sciences, Nihon University

Associate Professor

Structural analysis of non-aromatic fluorescents produced by Pseudomanus sp. ITH-SA-1 fromlignin-derived aromatics

Masanori Osawa

Keio University Faculty of Pharmacy

Professor

Development of novel nanodisc that enables solution NMR analyses of membrane protein interactions in the lipid bilayer

Kohtaro Kirimura

Department of Applied Chemistry, Faculty of Science andEngineering, Waseda University

Professor

Improvement of reversible salicylate decarboxylase and its application to valuable salicylic acidderivatives production by the enzymatic Kolbe-Schmitt reaction

Hirokazu Suzuki

Graduate School of Engineering Tottori University

Associate Professor

Hiroaki Takaku

Niigata University of Pharmacy and Applied Life Sciences

Professor

Shunji Takahashi

RIKEN Center for Sustainable Resource Science, Natural
Product Biosynthesis Research Unit

Unit leader

Hiroyuki Nakai

Faculty of Agriculture Niigata University

Associate Professor Screening of carbohydrate active enzyme for oligosaccharide synthesis

Tatsuya Nishiyama

College of Bioresource Science Nihon University

Research Assistant

Study on the physiological role and function of microbial organocatalyst

Naoko Yoshida

Center for innovative young researchers
Nagoya University of Technology

Assistant Professor

Electrochemical cultivation of dehalorespiring bacteria

Rikiya Watanabe

Graduate School of Engineering, The University of Tokyo

Lecturer

Heterogeneous energy conversion mechanism mediated by enzymes

Development of facile and versatile approach for screening thermostable enzyme variants inthermophile cells
Analysis and application of biosynthesis and degradation mechanism of lipid in the oleaginous
yeast Lipomyces starkeyi
Analysis of unique ester forming enzymes which catalyze a chemically difficult reaction

TABLE FOR TWO Initiative

Blood Donation Activities

Employees at the NAGASE Tokyo Head Office and Osaka Head Office participate in the TABLE
FOR TWO (TFT) Program. When an employee purchases a meal at one of the two corporate
cafeterias, a school meal is donated to children in Africa. Whenan eligible menu item is selected, a ¥20 donation is given to the
TFT office, which represents a school lunch for one student.
NAGASE is proud to be an active participant in this program
since 2008. Through matching gifts, NAGASE donates anequivalent amount to the program. As of April 2016, NAGASE
Source: TABLE FOR TWO
and its employees have donated combined total of ¥2,225,380.

In response to a request from the Japanese Red Cross
Society, we hold blood drives twice annually at ourTokyo and Osaka Head
Offices, using conference
rooms as temporary
donation centers. During
fiscal 2015, nearly 200
employees participated in Letter of Appreciation from theJapanese Red Cross Society
our blood drives.

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

FSSC 22000

Name

Critical Initiatives for Sustainable Growth

We have made quality assurance (QA) and quality control(QC) functions independent from manufacturing and sales
functions, establishing independent QA and QC Departments. The QC Department has responsibility for productquality. The department also takes ultimate responsibility forreleasing products to the sales channels. The QA Department
is responsible for representing the Company, assuring customers that all of our value creation processes are reliable and safe.
To achieve this, the QA Department is responsible for managing QMS to prevent complacency in QMS, to assess theeffectiveness of improvement measures, to introduce crossorganizational improvement measures, and accomplish othertasks by implementing the PDCA cycle.
The Functional Saccharide Plant, T Building, where
TREHA™ is produced, has been certified to operate in compliance with the FSSC 22000 global Food Safety Management

Fiscal 2016 Subsidy Awards

Unique Products

Specific Quality Management Initiatives

Cosmetics

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 organic chemistry and biochemistry fields, and that offering subsidies throughresearch and development and international exchange leads tothe advancement of science and technology. As part of ourcontribution to societal progress, we established the Nagase
Science and Technology Foundation in 1989.
Current programs include research grants to researchers andother subsidies. To date, NAGASE has helped finance 452
research projects, provided support for 178 international exchange
programs (program terminated during fiscal 2004), and contributed a total of ¥1.17 billion to further science.
In fiscal 2011, we reorganized the Nagase Science and Technology
Foundation into a charitable organization that continues to offer
research subsidies as well as the Nagase Research Promotion Award.

Performance by Segment

Hayashibara contributes to realize a sustainable world where
people live with peace of mind. Accordingly, detailed attention
to quality and food safety is indispensable; it is the foundation
for a company that serves society. Hayashibara has established
Quality Policies, and Food Safety Policies and Guidelines for
Product Manufacture and Business Ethics. Hayashibara places
ISO 9001 standards at the center of its organization-wide
quality management system (QMS). In addition, FSSC 22000
standards for food safety are applied for food ingredients, andGood Manufacturing Practices (GMPs) are applied for drug
substances and pharmaceutical excipients as provided under
the Pharmaceutical and Medical Device Act.
We record and manage all processes within our organization, from receiving of raw materials to production, quality
assurance, and delivery of our finished products to the customer. Through a process of continual improvement, weguarantee quality and safety to our customers.

System. Taking what we learned from this experience, we are
adopting similar requirements to the design of our new plants.
In addition to physical measures, we are also employing­systematic measures for food safety and voluntarily operating
HACCP systems at other saccharide plants. We continue toincorporate the newest international standards for the improvement of quality and safety of all saccharides and other products.

Contribution to the Advancement of Scienceand Technology

Leading Us to the Future

The NAGASE Group deals in more than just chemical products. We also manufacture and sell saccharides, enzymes, and otherfood products, cosmetics, and pharmaceutical-related materials, under strict quality management and effective sales systems.
On this page, you will find examples of Group companies that focus on the safety, value, and trust of our customers.
Please read more about Food Ingredients (Hayashibara Co., Ltd.), and Cosmetics (Nagase Beauty Care Co., Ltd. andthe Nagase & Co. Beauty Care Products Department).

Food Ingredients

About the NAGASE GroupFor Consumer Safety and Value

61

Financial Foundation Supporting Business Growth

Net cash provided by (used in) operating activities

Net cash provided by (used in) investing activities

18,576
9,047

5,690

15,474

12,7217,742

0(1,450)–10,000(7,732)(9,529)(75,376)
12/3(81,066)

13/3

14/3

15/3

Equity/Interest-bearing debt/Net worth ratio

Mitsuro Naba

Equity (left)

16/3

Interest-bearing debt (left)

Net worth ratio (right)(millions of yen)
400,000(%)
60.0

300,000

45.4

200,000

204,706

100,000

51.5

49.5

46.9

281,398
246,723

228,505

53.5
45.0

273,963

30.0

98,42588,71098,49392,82815.0

87,557

0

0
13/3

14/3

15/3

ROE
Normalize Over 6%
ROE/Pre-tax ROIC/
Pre-tax Profit Ratio (%)

ROE = Post-tax Profit ÷ Equity

Invested Capital
Turn Over Ratio (Time)For the five years covered by ACE-2020, we anticipate
making ¥100 billion in growth investments, taking a moreaggressive stance than ever in investing for our future. We willsource our investment capital and working capital mainly fromoperating cash flows and interest-bearing debt. At the sametime, efficient use of working capital and asset replacement willserve to preserve our strong financial foundation, a particularstrength of NAGASE & CO. We have established an R&I(Rating and Investment Information, Inc.) rank of A or higher
as an indicator of our financial strength.

Return of Profits to Shareholders
NAGASE & CO. will continue to deliver consistent dividends
to our shareholders, according to our consolidated earnings
results. More specifically, we will strive to improve dividends
per share, considering our consolidated payout ratio andconsolidated dividend on equity.

62

NAGASE & CO., LTD.

Annual Report 2016

ROIC =

6.9%

6.0%

ROE
4.1%

4.0%

4.4%

Pre-tax ROIC
Pre-Tax Profit Ratio
2.1%
2.0 times
Invested Capital Turn Over Ratio
0.0%

16/3

Pre-tax Profit
Sales Amount

Sales Amount
Equity + Interest-bearing debt

Pre-tax Profit Ratio

Invested Capital
Turn Over Ratio

All measures that efficiently
increase profit by reduced cost

All measures that efficiently
increases sales with limited asset

Sales of new andadded-value productIncrease growth investment

Logistics efficiency

M&A

Utilize shared service

Reduce slow-moving,long-term inventory

Withdraw
from unprofitable business

Utilizegroup cash management system

Rationalization

Idle assets liquidation

4.0
3.1%
2.2 times

21/3

0.0

Goal to achieve ROE/Pre-tax ROIC
Pre-tax Profit Ratio Improve 1 point 2.1%➞3.1%
Invested Capital
Improve 10%
2.0 times➞2.2 times
Turnover Ratio

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

With the start of our mid-term management plan ACE-2020,
we are moving forward in our efforts toward Reform of Profit
Structure and Reform of Corporate Culture. Under this plan, ourgoals for fiscal 2020, the final year of the plan, are ¥1 trillion in
net sales, ¥30 billion in operating income, and an ROE of 6% or
greater. We use return on invested capital (ROIC) as a benchmark for achieving our ROE targets, focusing on measures that
contribute to improved net income ratio (before taxes) andreturn on invested capital.
Our basic policy for financial strategy remains a balance ofinvestment in growth businesses, consistent return of profits toshareholders, and a secure, strong financial foundation.

Pre-tax ROIC = Pre-tax Profit ÷ (Equity + Interest-bearing debt)
Critical Initiatives for Sustainable Growth

8.0

8.0%

Capital Procurement

16/3

Unique Products

12/3

Basic Policy

Performance by Segment

Representative Director andManaging Executive Officer(12,600)(14,171)–20,000–80,000

16,776
Leading Us to the Future

NAGASE is working to achieve the targets
identified under ACE-2020,
maintaining a balance between investment
in growth businesses,
consistent return of profits to shareholders,and a secure, strong financial foundation.

Free-cash-flow

29,37620,00010,000

About the NAGASE Group

Cash flows(millions of yen)
30,00063

Six-Year Summary

Management’s Discussion and Analysis of Operations and Finances

2011

2012

2016

¥660,213
389,379
270,833
73,00818,732¥631,854
366,369
265,484
71,62813,427¥666,272
361,971304,301
82,583
15,578¥723,212
372,939
350,272
88,936
15,789¥759,713
374,208
385,505
91,991
18,153¥742,194
363,038
379,156
91,66318,024$6,586,741
3,221,849
3,364,882
813,480
159,957

20,91812,823

16,536
8,570

19,45814,182

18,353
11,663

18,98911,31815,23912,316135,241
109,300

The NAGASE Group imports and exports a diverse array of products
and engages in domestic transactions, with NAGASE & CO., LTD. (the“Company” or “NAGASE”) at its center. In addition, the NAGASE Group
manufactures and sells products and provides services. These businesses are conducted by 102 related companies, consisting of 70
subsidiaries and 32 affiliates. The scope of consolidation includes 60
subsidiaries as well as 25 affiliates, which are accounted for by theequity method.

Overview of Results¥375,336
209,316
27,125990
137,024¥450,842
212,744
88,7101,024
141,730¥486,747
237,806
98,425
1,147
158,754¥498,141
251,892
92,8281,275
176,470¥546,525
287,500
98,493
1,573
200,413¥512,081
279,149
87,5601,237
157,604$4,544,560
2,477,360
777,068
10.98
1,398,686

138,408
5,136
4,693

138,408
6,124
5,545

138,408
6,921
5,897

138,408
6,984
5,960

127,408
6,781
6,259

127,408
7,338
6,267

—
—
—
U.S. Dollars(Note 1)(Yen)

Per Share Data

Profit attributable to owners of the parent
Net Assets
Cash Dividends

Business Lines and Scope of Consolidation¥   99.76
1,568.04
22.00¥   66.69
1,592.87
24.00¥  111.31
1,803.31
26.00¥   91.86
1,942.20
28.00¥   89.10
2,215.18
30.00¥   96.96
2,156.67
32.00$ 0.8619.14
0.28■ Net sales
Stagnation in Japanese consumer spending, as well as the decline inresource prices and the pressure of the strong yen on corporate
earnings have created a gradually increasing sense of uncertainty
about the future direction of the Japanese economy. Despite an
ongoing recovery in corporate activity and consumer spending inNorth America, ongoing growth deceleration in China and otheremerging countries have likewise clouded the direction of the futureof the global economy.
In this environment, the Company recorded domestic sales of¥363.03 billion for the consolidated fiscal year, which represented a
3.0% decrease year on year. Overseas sales amounted to ¥379.15
billion (1.6% decrease). In total, the Company recorded ¥742.19 billion(2.3% decrease) in net sales.

■ Gross Profit and Profit Attributable to
Owners of the Parent
The Company recorded gross profit of ¥91.66 billion (0.4% decrease)in conjunction with lower revenues. Operating income amounted to¥18.02 billion (0.7% decrease). As a result, gross profit ratio rose 0.3
points compared to the prior fiscal year, up to 12.4%, while operating
margin remained level with the prior year at 2.4%.
Ordinary income amounted to ¥18.39 billion (9.7% decrease), a
year-on-year decline mainly due to a loss in equity affiliates and a
downturn in foreign exchange gains. The ratio of ordinary income to
net sales fell 0.2 points to 2.5%.
Meanwhile, profit attributable to owners of the parent amounted
to ¥12.31 billion, an 8.8% increase. While the Company recorded
impairment losses related to goodwill and business assets, the application of the Consolidated Tax Payment System beginning with thefiscal year ending March 2017 resulted in lower tax expenses.

Performance by Segment

As of the Fiscal Year-End:Total Assets
Net Assets
Interest-Bearing Debt
Share Price (Yen)Market Value
Number of Shares Issued and Outstanding(Thousands of Shares)
Number of Shareholders
Number of Employees

2015(Millions of yen)
2013
2014

Leading Us to the Future

For the Fiscal Year:Net Sales
Domestic
Overseas
Gross Profit
Operating Income
Income before income taxes andnon-controlling interests
Profit attributable to owners of the parent

Thousands of
U.S. Dollars(Note 1)
2016

About the NAGASE GroupNAGASE & CO., LTD. and Consolidated Subsidiaries (Fiscal years ended March 31, 2011–2016)

Gross Profit and Operating Income(Billions of yen)100

■ Gross Profit■ Operating Income

75

91.6

91.9

88.9

82.5
71.6

50

25

13.4

15.5

18.1

15.7

18.0

0

2.8

2.1

2.3

2.2

2.4

2.4

—

3.2
1.9
1.8
3.4
6.5
53.7
0.13
200.2
35.40

2.6
1.4
1.5
2.1
4.2
45.4
0.43
155.4
21.26

2.9
2.1
1.4
3.0
6.5
46.9
0.43
184.4
15.46

2.5
1.6
1.5
2.4
4.9
49.5
0.38
187.2
15.8

2.5
1.5
1.5
2.2
4.3
51.5
0.35
187.0
17.86

2.1
1.7
1.4
2.3
4.4
53.5
0.32
200.1
18.69

—
—
—
—
—
—
—
—
—

Note: 1. U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥112.68=U.S. $1.00, the approximate rate of exchange prevailing on March 31, 2016.
Note: 2. Interest coverage ratio is calculated as (operating income + interest income + dividend income)/interest expense.

2013

2014

2015

2016

Net Sales(Billions of yen)
800

600

631.85666.27723.21759.71

742.19

2015

2016

400

200

0
Fiscal years ended 2012
March 31

2013

2014

The Company recorded income before income taxes and noncontrolling interests of ¥15.23 billion (19.8% decrease) with a ratio ofincome before income taxes and non-controlling interests to net sales of
2.1%, which was a 0.4-point decrease compared to the prior fiscal year.
Profit attributable to owners of the parent amounted to ¥12.31
billion, an 8.8% increase, mainly due to the application of the Consolidated Tax Payment System, which resulted in lower tax expenses.
Return on sales increased 0.2 points to 1.7%, while earnings per sharewas ¥96.96, compared to ¥89.10 in the prior year.

Critical Initiatives for Sustainable Growth

Operating Margin(Operating Income/Net Sales) (%)
Ratio of Income before Income Taxes andNon-controlling Interests to Net Sales (%)
Return on Sales (ROS) (%)
Total Assets Turnover (Times)
Return on Assets (ROA) (%)
Return on Equity (ROE) (%)
Shareholders’ Equity Ratio (%)
Debt to Equity Ratio (Times)
Current Ratio (%)
Interest Coverage Ratio (Times) (Note: 2)

Fiscal years ended 2012
March 31

Unique Products

Ratio

Profit attributable to owners of the parent/
Earnings per share(Billions of yen)15

■ Profit attributable to owners of the parent (Left scale)Earnings per share (Right scale)

11.66

111.31

11.31

91.86

8.57

89.10

12.31
100

Financial and Corporate Information

10

(Yen)
150

14.18

96.96

66.69
50

5

0

0
Fiscal years ended 2012
March 3164

NAGASE & CO., LTD.

Annual Report 2016

2013

2014

2015

NAGASE & CO., LTD.

2016

Annual Report 201665

Management’s Discussion and Analysis of Operations and Finances

Functional Materials
Fiscal years ended March 31

2015

2016

¥168,238
4,302
75,590
483
—
—
2,079

¥157,149
3,679
71,042
509
—
—
1,752

330

1,690

Fiscal years ended March 31

2015

2016

¥254,165
4,804
131,543
802
—
—
2,507

¥255,505
4,979
122,802
859
—
—
2,389

1,392

1,466

66

NAGASE & CO., LTD.

Annual Report 2016

¥127,926
6,255
62,912
2,672
132
672
1,968

2,460

2,855

The Electronics segment reported lower net sales compared to thesame period in the prior fiscal year. While sales increased in Europe
and the United States, these gains could not compensate for lower
revenues in Japan and Northeast Asia.
The electronic chemicals business recorded increased sales for theperiod, driven higher by an increase in epoxy resin sales.
The electronic materials business reported lower sales overall,
mainly due to a decline in revenues for liquid crystal-related productscaused by sluggishness in the smartphone market.
As a result, the segment recorded net sales of ¥127.92 billion,
representing a ¥22.02 billion (14.7%) decrease. Operating income
amounted to ¥6.25 billion, which was ¥670 million (12.0%) higher.
This result was mainly due to the impact of the Company’s Taiwanesesubsidiary recording an allowance for doubtful accounts during theprior fiscal year.
Automotive & Energy
Fiscal years ended March 31

Net Sales
Segment Income
Segment Assets
Depreciation and Amortization
Amortization of Goodwill
Goodwill
Investments in Equity Affiliates
Increase in Property, Plant, and Equipment
and Intangible Fixed Assets(Millions of yen)

2015

2016

¥109,851
2,229
45,213
122
—
—
1,932

¥115,351
1,300
42,136
157
—
—
1,355

346

244

Life & Healthcare
Fiscal years ended March 31

Net Sales
Segment Income
Segment Assets
Depreciation and Amortization
Amortization of Goodwill
Goodwill
Investments in Equity Affiliates
Increase in Property, Plant, and Equipment
and Intangible Fixed Assets(Millions of yen)

2015

2016

¥76,609
3,157
98,2503,136
1,502
25,412
2,219¥85,571
3,864
99,6203,258
1,502
23,909
2,385

5,720

2,341

The Life & Healthcare segment reported higher sales with strong
performance in both domestic and overseas markets.
The life & healthcare products business recorded an increase indomestic and overseas sales of TREHA™ and other products to thefood materials industry. In the skin care and toiletries field, the business recorded higher sales of AA2G™, particularly to major customers
in Japan. The segment also showed strong performance in sales ofraw materials to the same skin care and toiletries markets. In thepharmaceuticals and medical fields, sales of raw pharmaceuticals,intermediates, and medical materials rose slightly. As a result, thebusiness reported higher overall net sales.
The beauty care products business, which includes sales of cosmetics and health foods, reported a slight decrease in net sales. Net
sales growth for new products launched during the second half ofthe year could not compensate for the sluggishness in existingproduct sales.
As a result, segment net sales amounted to ¥85.57 billion, which
was an ¥8.96 billion (11.7%) increase. Operating income increased¥700 million (22.4%), reaching ¥3.86 billion.

■ Cash Flows from Operating Activities
Cash flows from operating activities for the consolidated fiscal year
amounted to ¥29.37 billion. This result was mainly due to income
before income taxes and non-controlling interests of ¥15.23 billion
and depreciation and amortization of ¥9.49 billion, offsetting ¥4.54
billion in income tax payments.

■ Cash Flows from Investing Activities
Cash used in investing activities during the consolidated fiscal year
amounted to ¥12.6 billion. This result is mainly due to ¥10.83 billion inpurchases of property, plant and equipment and intangible fixed
assets. The Company also made cash outlays of ¥2.12 billion for purchases of investment securities.

■ Cash Flows from Financing Activities
Cash used in financing activities for the consolidated fiscal year
amounted to ¥12.82 billion. This result is mainly due to ¥6.44 billion in
repayments of long-term loans and ¥3.93 billion in dividend payments.
Cash Flow Summary
Fiscal years ended March 31

Cash Flows fromOperating
Activities
Cash Flows from
Investing
Activities
Cash flows from
Financing
Activities(Millions of yen)

2012

2013

2014

2015

2016

5,690

18,576

12,721

15,47429,376(81,066)(9,529) (14,171)(7,732) (12,600)

56,961

1,164(3,205) (12,822)(11,833)

Other
In our Other business segment, the Company recorded net sales of¥680 million (23.5% decrease), while segment income increased 7.0%
to ¥210 million.

Financial and Corporate Information

The Advanced Materials & Processing segment reported a slightoverall increase in net sales. While sales were lower domestically, thesegment saw higher sales in Northeast Asia and Southeast Asia.
The colors and imaging business recorded lower net sales. Despite
higher sales of plastic materials, sales decreased for dyes and additives, information printing materials, anti-reflective optical sheets,materials for LCD TV reflectors, and conductive materials.

2016¥149,947
5,583
66,862
2,649
120
2,214
132

Cash and cash equivalents (Cash) at the end of the year increased by¥2.37 billion (5.9%) compared to the prior consolidated fiscal year,
amounting to ¥42.9 billion.

Critical Initiatives for Sustainable Growth

Net Sales
Segment Income
Segment Assets
Depreciation and Amortization
Amortization of Goodwill
Goodwill
Investments in Equity Affiliates
Increase in Property, Plant, and Equipment
and Intangible Fixed Assets(Millions of yen)

Net Sales
Segment Income
Segment Assets
Depreciation and Amortization
Amortization of Goodwill
Goodwill
Investments in Equity Affiliates
Increase in Property, Plant, and Equipment
and Intangible Fixed Assets(Millions of yen)

2015

(Summary of Consolidated Cash Flows)

Unique Products

Advanced Materials & Processing

Fiscal years ended March 31

Financial Condition

Performance by Segment

The Functional Materials segment reported lower net sales comparedto the same period in the prior fiscal year. Growth overseas, particularly in the Americas and China, could not outpace the decline indomestic sales.
The performance chemicals business recorded lower net sales.
While overseas sales grew in China and the Americas, domestic­weakness in automotive production volume and slow demand forhouse paints resulted in lower sales of coating raw materials andurethane materials.
The speciality chemicals business reported lower overall net sales.
While sales of plastic additives were strong, sales of chemicals forsemiconductor-related products to the electronics industry andprocessing oils were sluggish.
As a result, the segment recorded net sales of ¥157.14 billion,
representing a ¥11.08 billion (6.6%) decrease year on year. Operating
income for the segment was ¥3.67 billion, representing a ¥620 million(14.5%) decrease. This decrease was mainly due to transfers andfacilities expansions at subsidiary companies.

Electronics

Net sales for the Company’s automobile-related business were levelwith the same period in the prior fiscal year. While domestic sales wereaffected by lower automotive production, sales of products for certain
car models rose over the period. Overseas, the business saw strong
sales in the Americas, China, and Southeast Asia, driving sales higher.
As a result, segment net sales amounted to ¥115.35 billion, a ¥5.5
billion (5.0%) increase. Operating income was ¥1.3 billion, representing a ¥920 million (41.7%) decrease. This decrease was mainly due to
expenses incurred in connection with the launch of a new businessin Japan.

Leading Us to the Future

Net Sales
Segment Income
Segment Assets
Depreciation and Amortization
Amortization of Goodwill
Goodwill
Investments in Equity Affiliates
Increase in Property, Plant, and Equipment
and Intangible Fixed Assets(Millions of yen)

The segment’s business selling plastics and other products to theoffice equipment, appliance and video game device markets reported
slightly higher net sales. This result stems mainly from higher performance in Northeast Asia and Southeast Asia in contrast to lower salesin Japan.
As a result, net sales for the segment amounted to ¥255.5 billion, a¥1.33 billion (0.5%) increase. Operating income increased ¥170 million (3.7%), reaching ¥4.97 billion for the period.

About the NAGASE Group

Results by Business Segment

NAGASE & CO., LTD.

Annual Report 201667

Management’s Discussion and Analysis of Operations and Finances

Research Costs

Working Capital/ Prepaid Cost Recovery■ Assets

150

133.80139.922.39

100

155.44(Month)4

171.48

3

2.53

2.63

2.47

2.38

161.45

2

50

1

0

0

Fiscal years ended 2012
March 31

2013

2014

2015

2016

Total Assets / ROA■ Total Assets (Left scale)
ROA (Right scale)(Billions of yen)
600

498.14(%)
6512.08
4

400

3.0
200

2.4

2.2

2.3

2.1

Net assets amounted to ¥279.14 billion, down ¥8.35 billion. This was
mainly due to decreases in net unrealized holding gains on securities
and translation adjustments, despite the Company recording profit
attribute to owners of the parent in the amount of ¥12.31 billion.
As a result, the Company reported a shareholders’ equity ratio of
53.5%, up 2.0 points compared to the end of the prior consolidated
fiscal year.

00
Fiscal years ended 2012
March 312

■ Net Assets

2013

2014

2015

2016

Shareholders’ Equity Ratio / ROE(%)
60■ Liabilities

45

6.5

45.4

4.2

4.3

4

4.4

15

2

0
Fiscal years ended 2012
March 31

0

2013

2014

2015

2016

Capital Investment(Millions of yen)

¥1,690
1,466
2,855
244
2,341
2,527
11,125

4.61
4

5.17

4.90

5.06

2015

2016

3.37

2

0
Fiscal years ended 2012
March 31

2013

2014

Outlook for the Year Ending March 31, 2017
While the economy in the United States is expected to grow stronger,
supported by the underlying strength of consumer spending, there
are also concerns that interest rate hikes may have an impact on the
U.S. economy, as well as the economies of the emerging countries.
Expected slowdowns in business in China and the negative impact ona stronger yen on corporate earnings in Japan have resulted in predictions of an ongoing unstable business environment.
In light of these expectations, we have forecast earnings of ¥735
billion in consolidated net sales (1.0% decrease year on year) withgross profit of ¥97.3 billion (0.7% increase). We project operating
income of ¥14.5 billion, a 19.6% decrease, mainly due to increases insales, general and administrative expenses. As a result, we forecast
ordinary income of ¥16 billion (13% decrease) and profit attributableto owners of the parent of ¥9.5 billion (22.9% decrease).

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

The NAGASE Group recorded ¥11.12 billion in capital investments(including intangible fixed assets), including ¥1.91 billion in capital
investment for Hayashibara to ensure the stable supply and stronger
competitive position for the company’s functional saccharide products (Life & Healthcare segment). Funds for these investments camefrom both internal reserves and outside financing.
The table below shows a breakdown of capital investments bysegment.

(Billions of yen)
6

Critical Initiatives for Sustainable Growth

Annual Report 2016

53.5

6

4.9

30

Functional Materials
Advanced Materials & Processing
Electronics
Automotive & EnergyLife & Healthcare
Other
Total

NAGASE & CO., LTD.

51.5

46.9

Reportable Segments

68

49.5

(%)
8

Research and Development Expenses

Unique Products

Liabilities amounted to ¥232.93 billion, down ¥26.09 billion comparedto the end of the prior consolidated fiscal year due to decreases inaccounts payable and deferred tax liabilities (non-current).
Current liabilities decreased ¥20.3 billion compared to the endof the prior fiscal year, amounting to ¥156.11 billion. This decrease
was mainly due to decreases in short-term loans and current portion of bonds.
Long-term liabilities decreased ¥5.78 billion to ¥76.81 billion. Thisdecrease was mainly due to decreases in long-term loans anddeferred tax liabilities.
As a result, working capital decreased from ¥171.48 billion at the
beginning of the year to ¥161.45 billion at the end of the year. At thesame time, prepaid cost recovery improved by 0.1 months. Current
ratio was 200.1% compared to 187% at the end of the prior year.

Shareholders’ Equity Ratio (Left scale)ROE (Right scale)

Performance by Segment

450.84486.75546.53To leverage the total capacity of the Group and create new business
opportunities, the NAGASE Group engages in research activities
designed for marketing-driven development of new technologies andproducts, as well as to gather and share technological information.
The Nagase R&D Center works to advance foundational technology development and propose new avenues of research in NAGASEGroup bio-related technologies. In addition to core substance production technology utilizing actinomycetes, the Center is expert in a wide
variety of foundational technologies, including genetic engineering,metabolic engineering, fermentation engineering, bioprocess engineering, and bioinformatics. With these technologies, the Center
references the latest technologies developed at universities and otheroutside research institutes, coordinating with Nagase ChemteX,
Hayashibara, and other NAGASE Group companies to develop ecofriendly chemicals utilizing bio processes. In so doing, the Center
plays an important role in helping create a welcoming society inwhich people can live in peace and safety. At present, the Center ispursuing research across a wide range of disciplines, including thedevelopment of new enzymes, non-natural amino acids, and antiaging substances, as well as research applications for use in cosmetics
and health foods incorporating natural extracts. The Center hasapplied for numerous patents in these and peripheral fields. In thisway, the Nagase R&D Center accomplishes its mission to develop
foundational biotechnologies that usher in the future of the NAGASEGroup, while developing products through the utilization of
biotechnology.
The NAGASE Application Workshop (NAW) is home to specialized
equipment and expert staff capable of conducting raw materials
analysis, application development, and final product formulation forplastics and coating materials. This organization is responsible fortechnological development, incubation, and research. The NAW
combines the materials and processing technologies from Group
manufacturing companies and other business partners to propose
innovative solutions that meet the needs of customers and themarket, after these needs have been identified by the NAGASE Groupmarketing function. This strategy is one way in which the Company
proves itself to be a unique evolution of the traditional trading company model of business. The NAW works to accurately formulate newelemental technologies and functional materials, as well as develop
proprietary technologies we can suggest as effective solutions to ourcustomers, developing new business ideas in cooperation withNAGASE & CO. divisions and Group companies.
Nagase ChemteX Corporation focuses on electronics, life science,
automotive, and environment/energy fields. ChemteX staff, in a crossorganization research and development division, and product development departments in each Group business work together to develop
new products, leveraging proprietary Nagase synthesis, compounding,and bio-technologies, as well as assessment technologies—all developed over many years of technological experience.
In particular, Nagase ChemteX works to develop high-function,
high-value-added products (automobiles, aircraft, and other transport-related equipment, bio materials, etc.) that are lightweight,
durable, and recyclable.

Hayashibara conducts research and development into functionalsaccharides and functional dyes. The functional saccharides businessconsists of screening for microbes leading to the discovery and analysis of new enzyme-producing bacteria and research and development into unique functional saccharides produced from these
enzyme-producing bacteria. The Nagase Group functional saccharides
have applications and usages in a wide variety of fields, from foods tocosmetics and perfumes, pharmaceuticals, health, agriculture, andindustry. On top of our long history of technological development, we
continue to explore and adopt new methods. This work has resulted
in products such as TREHA™, AA2G™, and a new generation of powerful, functional saccharide products. We continue to pursue researchand development programs that create new products and applications, from basic research to applied research, from application development to patents, all linked in a cohesive intellectual property
strategy. In functional dyes business, we are making use of the extensive Hayashibara functional dyes library, pursuing development tooffer products and new applications in photo and printing plate andother commercial fields, as well as in life sciences fields such as
pharmaceuticals.
The Group incurred a total of ¥5.06 billion in consolidated researchcosts for the fiscal year under review.

Leading Us to the Future

Total assets decreased by ¥34.44 billion compared to the end of theprior fiscal year, amounting to ¥512.08 billion. Current assets
amounted to ¥312.33 billion. This represents a decrease of ¥17.51
billion compared to the end of the prior consolidated fiscal year,
mainly due to decreases in accounts receivable and inventories.
Non-current assets amounted to ¥199.74 billion, down ¥16.93
billion. This was due mainly to a fair value decline in investments insecurities.

■ Working Capital(Left scale)
Prepaid Cost Recovery (Right scale)(Billions of yen)200

About the NAGASE Group

Summary of Consolidated Balance Sheets69

Management’s Discussion and Analysis of Operations and Finances(Announced on May 6, 2016)

Net sales

Operating
Income¥735,000¥14,500¥16,000¥ 9,500

742,194(1.0)%

18,024(19.6)%

18,390(13.0)%

12,316(22.9)%

Profit Sharing Policy(%)
40

Consolidated Payout Ratio (Left scale)
Consolidated Dividend to Equity Ratio (Right scale)

36.0
1.52

20

1.52

1.50

33.7

33.0

1.44

1.46

1.5

1.0

23.4

10

0.5

0
Fiscal years ended 2012
March 3170

NAGASE & CO., LTD.

0

2013

2014

Annual Report 2016

2015

2016

(3) Impact of Fluctuations in Foreign Currency Exchange Rates
The NAGASE Group conducts import/export as well as non-tradebusiness transactions denominated in foreign currencies. Fluctuations
in currency markets have a significant impact when prices are converted to yen. While the Group executes exchange contract hedges
for these transactions to minimize exchange rate risk to the greatest
extent possible, currency exchange rate fluctuations could have asignificant impact on Group earnings and financial conditions. The
NAGASE Group owns foreign-domiciled corporations whose financial
statements are prepared using local currencies. The conversion ofthese currencies to Japanese yen for consolidated reporting purposes
entails currency conversion risk due to fluctuating exchange rates.

(7) Counterparty Credit Risk
The NAGASE Group extends credit to domestic and overseas purchasers in connection with various transactions. As a matter of policy, the
NAGASE Group reduces credit risk by obtaining guarantees, collateral,and insurance, etc. according to the financial condition of the purchaser. Although the NAGASE Group strives to ensure stable, uninterrupted product procurement, financial weakness or bankruptcies
among suppliers or others could damage the Group’s ability to procure goods. Such circumstances could have an impact on the Group’s
earnings and financial condition.
(8) Risk of Investments
The NAGASE Group engages in investment activities to establish newcompanies, to invest in equipment at manufacturing subsidiaries, andto acquire other business entities. These types of investment activities
involve certain risks, including the risk of failing to recover investments in cases where the Company is not able to record profits at
initially planned levels, the risk that additional funding may berequired, and the risk that the Group will not be able to withdraw
from investments according to the desired timing and method. The
NAGASE Group strives to reduce risk in this area. Decisions to invest in
new businesses are made after a careful study of the viability ofbusiness plans and profitability. At the same time, the Group regularly
monitors the performance of existing investments. However, even(11) Risks related to Product Laws
The NAGASE Group imports, exports, and sells domestically a wide
variety of chemicals and other products for a broad range of uses. To
maintain international peace and safety, the chemicals and otheritems we export are subject to different laws, including the Foreign
Exchange and Foreign Trade Control Law and the Export Trade Control
Order. Imports and domestic sales are subject to the Chemical Substances Control Law and other related statutes, as well as similar
regulations in foreign jurisdictions. To ensure compliance, the Grouphas established internal Security Trade Control Regulations andChemical/Product Control Regulations. However, a violation of suchlaws and statutes could result in restrictions on Group business activities, having an impact on Group earnings and financial condition.
(12) Risks of Natural Disasters
The NAGASE Group has put emergency response systems in place,including the creation of a business contingency plan, the adoptionof safety confirmation systems, the creation of a disaster-responsemanual, earthquake-response measures, disaster-response training,and other measures to deal with natural disasters. However, as we
conduct business across a great number of countries and regions, weare exposed to the risk of major natural disasters, H1N1 influenza andother communicable diseases, and other emergencies that could
disrupt our supply chain. Such disruptions could prevent us fromselling our products or damage the manufacturing capabilities ofimportant Group facilities. Such interruptions would result in opportunity loss, and could have a significant impact on Group earnings
and financial condition.

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

30.5

30

(%)
2.0

(2) Product Market Conditions
The NAGASE Group handles extensive petrochemicals manufactured
from naphtha in our Functional Materials, Advanced Materials &Processing, and Automotive & Energy segments. Raw materials markets and demand-supply balance are two factors that result in uniquemarket circumstances for each of our products. Fluctuations in thesefactors could affect our revenues and profits in related product lines.
Also, some products manufactured by the Group use raw materials
derived from grains. Raw materials costs fluctuate widely due tochanges in grain market prices; we may not be able to pass on
increased raw materials costs through higher sales prices, which
could affect our profits in related product lines.

(6) Impact of Changes in Stock Prices
The NAGASE Group maintains a portfolio of marketable securities,
primarily equity shares of companies doing business with the Group.
These equity investments are subject to share price fluctuation risks.
As a matter of policy, the NAGASE Group reduces risk by continuously
reviewing and reorganizing its shareholdings. However, changes inshare prices could impact Group earnings and financial condition. A
decline in share prices could damage the value of pension plan assets
managed by the Group, increasing retirement benefit costs andthereby reducing Group profits.

(10) Product Quality Risk
The NAGASE Group operates the Nagase R&D Center and manufacturing subsidiaries to offer high-value-added products to our customers.
We pay detailed attention to the quality of the technologies andproducts that bear the name of NAGASE and our affiliates. We also
bear manufacturers’ liability for imported products, products manufactured on a contract basis, etc. Accordingly, the Group treats theseproducts with the same attention to detail and quality as if they weremade in our own facilities. However, product defects could result incessation of sales and/or product recalls, exposing the NAGASE Groupto liability for damages, which could have an impact on Group earnings and financial conditions.

Critical Initiatives for Sustainable Growth

Consolidated Payout Ratio /Consolidated Dividend to Equity Ratio(1) Overall Operating Risk
The NAGASE Group is engaged in activities that rely on the use ofchemicals across a wide spectrum of products and services throughour Functional Materials, Advanced Materials & Processing, Electronics, Automotive & Energy and Life & Healthcare business. These products and services include dyes/pigments, coating materials/inks,
surfactants, OA, electrical equipment, home electronics, automobiles,
LCDs, semiconductors, and pharmaceutical/medical applications.
Accordingly, significant changes in domestic and international commercial chemicals industry could affect the NAGASE Group’s earnings
and financial condition.

(5) Risks Involved in Operating Overseas
A significant and increasing percentage of NAGASE Group sales andmanufacturing are conducted overseas in locations such as China,
Southeast Asia, Europe, and the United States. While Group management keeps a close eye on local trends and conditions in order to
respond appropriately, unforeseen events stemming from local government regulations, business customs, or other influences could havean impact on Group business performance and financial conditions.

(9) Risk of Asset Impairment
The NAGASE Group owns non-current assets such as business assets
in manufacturing subsidiaries and goodwill. These assets entail therisk of impairment loss if asset value declines. The NAGASE Group
records impairment losses when deemed necessary. However, evengreater impairment losses may be incurred as a result of deteriorating
business profits or other factors in the future, which may have an
impact on Group business performance and financial condition.

Unique Products

Our basic policy is to continue paying a stable dividend to our shareholders in line with our consolidated results as we improve our earnings power and management structure. We look to improve per-share
dividends based on considerations of consolidated payout ratio andconsolidated dividend to equity ratio. We also plan to use funds frominternal reserves effectively in our business activities and to build astronger management foundation.
In addition, the Company has determined in its articles of incorporation, allowances or interim dividend payments according to theprovisions of article 454 Paragraph 5 of the Companies Act. Accordingly, the Company’s board of directors has resolved to adopt a dividend policy calling for two dividend payments every year, one interim
subject to board of director resolution and one at the end of the fiscal
year, subject to approval by the general meeting of shareholders.
The NAGASE Group declared a year-end dividend of ¥16 per sharebased on this policy. As a result, the scheduled full-year cash dividend
will amount to a total of ¥32 per share. Consolidated payout ratio was
33.7%, compared to 30.5% in the prior year.
We forecast a full-year dividend of ¥32 per share for the next fiscal
year, consisting of a ¥16 per-share interim dividend and a ¥16 pershare year-end dividend.
Statements made in this document with respect to the NAGASEGroup’s performance outlook contain forward-looking statements
based on assumptions, projections and plans of the Company as of

The NAGASE Group is engaged in trading, marketing, research anddevelopment, manufacturing and processing in six business segments
across the world: Functional Materials, Advanced Materials & Processing, Electronics, Automotive & Energy, Life & Healthcare, and Other.
The nature of these businesses entails various risks that may havea material effect on investment decisions. We provide a discussion of
the major risks below.
Any forward-looking statements are based on management
decisions as of the end of fiscal year under review.

these management initiatives cannot completely negate potential
investment risk, and such risk may have an impact on Group earnings
and financial condition.

Performance by Segment■ Dividend Policy

Operating and Other Risks(4) Impact of Fluctuations in Interest Rates
The NAGASE Group obtains funds for operating and investing activities through loans from financial institutions; some of these loans areinterest-bearing debt including variable interest terms. The Group
reduces interest rate fluctuation risk related to variable interest loans
by utilizing interest-rate swap contracts. Group earnings and financial
conditions may be affected by future interest rate trends. Interest rate
fluctuations cause variations in discount rates used for retirement
benefit obligations and plan asset investment income, impacting
NAGASE Group business performance and financial position.

Leading Us to the Future

Year ending
March 31, 2017
(Projected)
Year ended March
31, 2016 (Actual)
Change(Millions of yen)
Profit­attributable toowners of
Ordinary Income the parent

May 6, 2016. Forecasts in connection with the Group’s future performance are subject to a variety of risks and uncertainties including
those outlined as follows. As a result, readers are advised that actual
results may differ from projections.

About the NAGASE GroupThe forecast for NAGASE Group earnings is as shown below. These
forecasts have been developed based on a currency conversion rateof ¥108 to the US dollar.

71

Consolidated Balance Sheet

Less accumulated depreciation
Property, plant and equipment, net (Note 21)

9,498
71,847
81,345
1,023
24,582
15,366
1,544
9,584
(174)
133,272¥512,081

18,97654,037
81,968513
2,549
158,046(91,272)
66,7748,280
84,35892,638
1,139
27,626
16,942
2,381
10,553(1,378)
149,903¥546,525$  384,123
1,742,412
558,395
25,222
69,604(7,898)2,771,867

167,820494,595
738,756
4,464
16,6491,422,302(832,357)
589,936

84,292
637,620
721,912
9,079
218,158
136,368
13,70385,055(1,544)
1,182,748$4,544,560

2016

2015

Current liabilities:

Notes and accounts payable (Note 14)
Short-term loans (Notes 8 and 14)
Current portion of long-term loans and finance lease obligations (Notes 8 and 14)
Current portion of bonds (Notes 8 and 14)
Accrued income taxes (Note 11)
Deferred tax liabilities (Note 11)
Accrued expenses
Accrued bonuses for employees
Accrued bonuses for directors
Other current liabilities
Total current liabilities
Long-term liabilities:
Bonds (Notes 8 and 14)
Long-term loans and finance lease obligations (Notes 8 and 14)
Deferred tax liabilities (Note 11)
Liability for retirement benefits (Note 10)
Other long-term liabilities
Total long-term liabilities¥ 97,800
25,294
8,895
—
4,305
13
3,551
4,224
194
11,838156,118¥105,737
31,3886,453
10,000
2,268
19
4,009
4,314
213
12,019176,424$  867,945
224,476
78,940—38,206
115
31,51437,487
1,722
105,059
1,385,499

30,00023,3708,433
14,060949
76,81320,00030,653
20,272
10,803870
82,600266,241
207,401
74,840124,778
8,422
681,692

Contingent liabilities (Note 18)

Net assets:
Shareholders’ equity (Note 12):
Common stock:
Authorized—346,980,000 shares
Issued—127,408,285 shares in 2016 and 2015
Capital surplus
Retained earnings (Note 22)
Treasury stock, at cost (Note 13)—377,300 shares in 2016 and376,363 shares in 2015
Total shareholders’ equity

9,699
11,615
213,572

9,699
11,654205,203

86,076103,080
1,895,385(230)
234,657(228)
226,328(2,041)
2,082,508

Accumulated other comprehensive income (loss):
Net unrealized holding gain on securities (Note 7)
Deferred (loss) gain on hedges (Note 14)
Translation adjustments
Retirement benefit liability adjustments (Note 10)
Total accumulated other comprehensive income

37,074(9)
4,411(2,169)39,30544,9203
9,478
666
55,069329,020(80)
39,146(19,249)
348,8205,185
279,149¥512,081

6,102
287,500¥546,525

46,0152,477,361$4,544,560

Non-controlling interests
Total net assets
Total liabilities and net assets

Critical Initiatives for Sustainable GrowthLong-term loans receivable
Goodwill (Notes 6 and 21)
Technology-based assets
Deferred tax assets (Note 11)
Other assets (Note 6)
Less allowance for doubtful accounts
Total investments and other assets
Total assets (Note 21)

18,91055,731
83,243503
1,876
160,265(93,790)
66,474¥ 40,575
208,209
69,013
4,058
8,797
(806)
329,848

LIABILITIES AND NET ASSETS

Thousands of
U.S. dollars (Note 1)
2016

Unique Products

Investments and other assets:
Investments in securities (Notes 7 and 14):
Unconsolidated subsidiaries and affiliates
Other¥ 43,283
196,335
62,920
2,842
7,843
(890)
312,334

2015

Millions of yen

Performance by Segment

Property, plant and equipment, at cost (Note 6):Land
Buildings and structures
Machinery, equipment and vehicles
Leased assets
Construction in progress

2016

Thousands of
U.S. dollars (Note 1)
2016

Leading Us to the Future

ASSETS
Current assets:
Cash and time deposits (Notes 14 and 20)
Notes and accounts receivable (Note 14)
Inventories (Note 5)
Deferred tax assets (Note 11)
Other current assets
Less allowance for doubtful accounts
Total current assets

Millions of yen

About the NAGASE Group

Nagase & CO., LTD. and Consolidated Subsidiaries (March 31, 2016 and 2015)

See notes to consolidated financial statements.

Financial and Corporate Information

72

NAGASE & CO., LTD.

Annual Report 2016

NAGASE & CO., LTD.

Annual Report 201673

Consolidated Statement of Income

Consolidated Statement of Changes in Net Assets
Nagase & CO., LTD. and Consolidated Subsidiaries (Years ended March 31, 2016 and 2015)

Millions of yen
2016

2015

Thousands of
U.S. dollars (Note 1)
2016$6,586,741
5,773,252
813,481

Selling, general and administrative expenses (Note 16)
Operating income (Note 21)

73,63918,02473,83818,153

653,523
159,957

Other income (expenses):
Interest and dividend income
Interest expense
Equity in earnings of affiliates
Equity in losses of affiliates
Gain on sales of investments in securities (Note 7)
Gain on sales of shares of an affiliate
Loss on sales of investments in capital
Loss on sales of shares of subsidiaries and affiliates
Loss on sales of investments in capital of subsidiaries and affiliates
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 21)
Loss on transfer of business
Loss on withdrawal from employees’ pension funds
Other, net
Profit before income taxes

1,562(1,048)
—
(48)
70
33
—
—
—
(70)
57
(47)
(251)
(2,756)——(287)
15,2391,456(1,098)
616
—
213
—
(20)
(249)
(171)
(479)
392
(69)
(84)
(602)
(114)
(163)
1,212
18,98913,862(9,301)
—
(426)
621
293
—
—
—
(621)
506
(417)
(2,228)(24,459)——(2,547)135,241

Profit attributable to:Non-controlling interests
Owners of parent

6,536(3,763)
12,466

6,238
834
11,91658,005(33,395)
110,632(150)¥ 12,316(597)¥ 11,318(1,331)$  109,301¥ 9,699 ¥  10,242¥  206,351¥ (6,916) ¥ 219,377

—
9,699
—
—
—
—
—
—

1,998
12,240
—
0
—
—
—
(607)

(2,791)
203,560
11,318—(3,683)——(6,081)—(6,916)
—
—
—
(1)
0
6,688

—

21

—

—
—
9,699
—
—
—

—
—
11,654————

Noncontrollinginterests

Total net assets¥    380 ¥   27,346¥ 5,168¥   251,892¥ 24,725¥ (0)¥ 2,239(792)
218,584
11,3180(3,683)(1)
0——24,725
—
—
—
—
—
—

—
(0)
—
—
—
—
—
—

(64)
2,175
—
—
—
—
—
—

—
380
—
—
—
—
—
—

(64)
27,281
—
—
—
—
—
—

—
5,168
—
—
—
—
—
—

(857)
251,035
11,3180(3,683)
(1)
0
—

—

21

—

—

—

—

—

—

21

89
—
205,203
12,316(3,937)
—

—
—
(228)
—
—
(1)

89
—
226,328
12,316(3,937)(1)—
20,19444,920
—
—
—

—
3
3
—
—
—

—
7,303
9,478
—
—
—

—
285
666
—
—
—

—
27,78755,069
—
—
—

—
933
6,102
—
—
—

89
28,720287,500
12,316(3,937)
(1)

(38)

—

—

(38)

—

—

—

—

—

—

(38)

—
—
—
—
¥9,699 ¥11,615(9)—¥213,572

—
(9)
—
—
—
(7,845)¥ (230) ¥234,657 ¥37,074

—
(13)
¥ (9)

—
(5,067)¥  4,411——(2,835) (15,763)¥(2,169) ¥  39,305

Total
Net unrealized Deferred gain
Treasuryshareholders’ holding gain
(loss) on
Translation
stock, at costequityon securities
hedgesadjustments

Retirement
Total
benefitaccumulated
liabilityotheradjustments comprehensive income(Note 10)—(9)(916) (16,679)¥5,185 ¥279,149

Nagase & CO., LTD. and Consolidated Subsidiaries (Years ended March 31, 2016 and 2015)

Millions of yen

Commonstock

Balance at April 1, 2015
Profit attributable to owners of parent
Cash dividends
Purchases of treasury stock
Changes in parent’s ownership interest
due to transactions with non-controllinginterests
Decrease in retained earnings resulting
from changes in scope of consolidation
Other changes
Balance at March 31, 2016

CapitalsurplusRetainedearnings$86,076 $103,426 $1,821,113 $(2,023) $2,008,591 $398,651——
109,301—
109,301———(34,940)—(34,940)
—
—
—
—
(9)
(9)
—
—

(337)

—

—

(337)

—

—
—
(80)
—
(80)
—
—
—
—
—
— (69,622)$86,076 $103,080 $1,895,385 $(2,041) $2,082,508 $329,020

Noncontrollinginterests$    27 $  84,114 $    5,911 $  488,720
—
—
—
—
—
—
—
—
—
—
—
—
—

—

—

—

Total net assets$54,153 $2,551,473—
109,301—(34,940)
—
(9)
—

(337)

Critical Initiatives for Sustainable Growth

Consolidated Statement of Comprehensive Income

—
—
—
—
—
(80)
(115) (44,968) (25,160) (139,892)(8,129) (148,021)$ (80) $  39,146 $(19,249) $  348,820 $46,015 $2,477,361

Thousands of
U.S. dollars (Note 1)
2016

2016

2015

¥  12,466¥11,916$  110,632(7,844)(13)(5,065)(2,835)20,1863
7,339
285(69,613)(115)(44,950)(25,160)(553)(16,312)¥ (3,845)

720
28,536¥40,453(4,908)(144,764)$ (34,123)¥ (3,446)¥   (399)¥39,085¥ 1,367$ (30,582)$  (3,541)

Financial and Corporate Information

Comprehensive (loss) income
Total comprehensive (loss) income attributable to:
Owners of parent
Non-controlling interests

Retainedearnings

Thousands of U.S. dollars (Note 1)

See notes to consolidated financial statements.

ProfitOther comprehensive (loss) income (Note 9):
Net unrealized holding (loss) gain on securities
Deferred (loss) gain on hedges
Translation adjustments
Retirement benefit liability adjustments
Share of other comprehensive (loss) income of affiliates accounted forby the equity method

Balance at April 1, 2014
Cumulative effects of changes inaccounting policies
Adjusted balance at April 1, 2014
Profit attributable to owners of parent
Gain on sales of treasury stock
Cash dividends
Purchases of treasury stock
Disposition of treasury stock
Retirement of treasury stock
Changes in parent’s ownership interest
due to transactions with non-controllinginterests
Increase in retained earnings resulting
from changes in scope of consolidation
Other changes
Balance at April 1, 2015
Profit attributable to owners of parent
Cash dividends
Purchases of treasury stock
Changes in parent’s ownership interest
due to transactions with non-controllinginterests
Decrease in retained earnings resulting
from changes in scope of consolidation
Other changes
Balance at March 31, 2016

CapitalsurplusRetirement
Total
benefitaccumulated
liabilityotheradjustments comprehensive income(Note 10)Unique Products

Income taxes (Note 11):
Current
DeferredProfitCommonstock

Total
Net unrealized Deferred gain
Treasuryshareholders’ holding gain
(loss) on
Translation
stock, at costequityon securities
hedgesadjustments

Performance by Segment¥759,713
667,722
91,991Millions of yen

Leading Us to the Future¥742,194
650,530
91,663

Net sales (Note 21)
Cost of sales
Gross profit

About the NAGASE Group

Nagase & CO., LTD. and Consolidated Subsidiaries (Years ended March 31, 2016 and 2015)

See notes to consolidated financial statements.

74

NAGASE & CO., LTD.

Annual Report 2016

NAGASE & CO., LTD.

Annual Report 201675

Consolidated Statement of Cash Flows

Notes to Consolidated Financial Statements

Nagase & CO., LTD. and Consolidated Subsidiaries (Years ended March 31, 2016 and 2015)

Thousands of
U.S. dollars (Note 1)
2016

Millions of yen

76

NAGASE & CO., LTD.

Annual Report 2016

9,493
1,634
2,756
(848)
(1,562)
1,048
(640)
(10)

9,292
1,623
602
(507)
(1,456)
1,098
882
(322)

84,247
14,501
24,459(7,526)(13,862)
9,301(5,680)
(89)

(94)

228

(834)

6,784
3,162
(3,829)(168)
32,964
1,965(1,013)(4,540)¥  29,376

2,430(7,172)(4,993)
2,324
23,0191,893(1,128)(8,310)¥  15,474

60,20628,062(33,981)(1,491)
292,545
17,439(8,990)(40,291)$  260,703¥ (8,937)
414(2,129)213¥(10,899)
1,022
(624)
2,456

$ (79,313)
3,674(18,894)
1,890

—
(177)
(351)
(1,898)—265(12,600)

(305)
(2)
1,165
(1,046)497
4(7,732)—(1,571)(3,115)(16,844)—2,352(111,821)(3,764)
1,976(6,440)
9,949(10,000)(1)(3,937)(421)(182)(12,822)(1,585)
9,327(6,805)——(1)(3,683)(334)(122)(3,205)(33,404)
17,536(57,153)
88,294(88,747)(9)(34,940)(3,736)(1,615)(113,791)(1,575)2,377
40,522

2,129
6,664
33,825(13,978)
21,095359,620—¥  42,90032¥  40,522—$  380,724

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of Consolidation
The accompanying consolidated financial statements include theaccounts of the Company 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 eliminatedin 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 in consolidation based on a provisional statement of accounts for a full fiscal year ending March 31.
Unrealized intercompany gains among the Company and theconsolidated subsidiaries have been entirely eliminated and the
portion attributable to non-controlling interests has been charged to
non-controlling 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 are translated at thecorresponding contract rates. All other assets and liabilities denominated in foreign currencies are translated at their historical rates. Gainor loss on each translation is credited or charged to income.
Revenue and expense items arising from transactions denominated in foreign currencies are generally translated into yen at therates in effect at the respective transaction dates. Foreign exchange
gain or loss is credited or charged to income in the period in whichsuch 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 thebalance sheet date, except that the components of net assets excluding non-controlling interests, net unrealized holding gain on securities, and deferred gain or 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 of accumulated other comprehensive
income or loss in the accompanying consolidated balance sheets.
(c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, demand deposits,
and short-term investments which are readily convertible to cash
subject to an insignificant risk of any change in their value and whichwere purchased with an original maturity of three months or less.
(d) Inventories
Inventories are stated at the lower of cost or net selling value, cost
being determined primarily by the weighted-average method.
(e) Investments in Securities
Securities are classified into three categories: trading securities, heldto-maturity debt securities or other securities. Trading securities,
consisting of debt and marketable equity securities, are stated at fairvalue. Gain and loss, both realized and unrealized, are credited or
charged to income. Held-to-maturity debt securities are stated attheir amortized cost. Marketable securities classified as other securities are carried at fair value with any changes in unrealized holding
gain or loss, net of the applicable income taxes, reported as a separate component of accumulated other comprehensive income or loss.
Non-marketable securities classified as other securities are carriedat 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 therespective 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 18 years(g) Intangible Assets (except for leased assets)
Technology-based assets recognized upon acquisition are amortizedon a straight-line basis over 13 to 17 years.
Costs incurred for computer software obtained for internal use
are capitalized and amortized on a straight-line basis over an estimated useful life of 5 years.

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

See notes to consolidated financial statements.

$  135,241

Critical Initiatives for Sustainable Growth

Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Increase in cash and cash equivalents resulting from inclusion ofsubsidiaries in consolidation
Cash and cash equivalents at end of the year (Note 20)¥  18,989

The U.S. dollar amounts in the accompanying consolidated financial statements have been translated from yen amounts solely for theconvenience of the reader, as a matter of arithmetic computation
only, at ¥112.68 = U.S.$1.00, the rate of exchange prevailing on March
31, 2016. This translation should not be construed as a representationthat 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 ofJapan, amounts of less than one million yen for the years ended
March 31, 2016 and 2015 have been omitted. Consequently, thetotals shown in the accompanying consolidated financial statements for the years ended March 31, 2016 and 2015 (both in yen
and in U.S. dollars) do not necessarily agree with the sum of theindividual amounts.

Unique Products

Financing activities
Decrease in short-term loans, net
Proceeds from long-term loans
Repayments of long-term loans
Proceeds from issuance of bonds
Redemption of bonds
Purchase of treasury stock
Cash dividends paid
Cash dividends paid to non-controlling interests
Other, net
Net cash used in financing activities¥  15,239

The accompanying consolidated financial statements of NAGASE &CO., LTD. (the “Company”) and consolidated subsidiaries are preparedon the basis of accounting principles generally accepted in Japan,
which are different in certain respects as to the application anddisclosure requirements of International Financial Reporting Standards, and have been compiled from the consolidated financial
statements prepared by the Company 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 domesticallyin order to present them in a format which is more familiar toreaders outside Japan.

Performance by Segment

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
Payments for sales of shares of subsidiaries resulting in change inscope of consolidation
Increase in short-term loans receivable included in other current assets, net(Increase) decrease in time deposits, net
Purchases of intangible fixed assets included in other assets
Proceeds from transfer of business
Other, net
Net cash used in investing activities

2015

1. BASIS OF PREPARATION

Leading Us to the Future

Operating activities
Profit before income taxes
Adjustments to reconcile profit before income taxes to net cash provided
by operating activities:
Depreciation and amortization other than amortization of goodwill
Amortization of goodwill
Loss on impairment of fixed assets
Decrease in liability for retirement benefits
Interest and dividend income
Interest expense
Exchange (gain) loss, net
Gain on sales of property, plant and equipment, net(Gain) loss on sales of investments in securities, investments in capital, sharesof subsidiaries and affiliates, and investments in capital of subsidiaries andaffiliates, 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

2016

About the NAGASE Group

Nagase & CO., LTD. and Consolidated Subsidiaries (March 31, 2016)77

Notes to Consolidated Financial Statements

Inventories at March 31, 2016 and 2015 are summarized as follows:
2016

2015

Thousands of
U.S. dollars
2016¥57,404
1,726
3,789¥62,920¥63,719
1,668
3,625¥69,013$509,443
15,31833,626$558,395

Millions of yen
2016

Thousands of
U.S. dollars
2016

Ohio, U.S.A
Tennessee,
U.S.A¥1,364$12,105

500

4,437

Fujian, China

440

3,905

Kinki

304

2,698

Tokai

36

319

Kanto

19

169

91
¥2,756808$24,459

Millions of yen

Merchandise and finished goods
Work in process
Raw materials and supplies
Total

6. LOSS ON IMPAIRMENT OF FIXED ASSETS
Loss on impairment of fixed assets for the years ended March 31, 2016 and 2015 was as follows:
Major use

Goodwill for developing, manufacturing andselling of industrial adhesives and other
Business-use assets for manufacturing andselling of color formers
Business-use assets for processing of thinglass panels
Business-use assets for processing and sellingof plastic materials

Business-use assets for semiconductors anddisplay devices
Idle assets

Buildings and structures, machinery,equipment and vehicles
Buildings and structures, machinery,equipment and vehicles
Buildings and structures, machinery,equipment and vehicles, intangible assets
included in other assets
Buildings and structures, construction inprogress, intangible assets included inother assets
Machinery, equipment and vehicles,
intangible assets in other assets
Land, buildings and structures, machinery,equipment and vehicles

Area

Kinki and other

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

Total

Classification

Goodwill

Critical Initiatives for Sustainable Growth

Annual Report 2016

5. INVENTORIESUnique Products

NAGASE & CO., LTD.

method of net income was amended, and “minority interests” werechanged to “non-controlling interests.” Certain reclassifications weremade to the previous year’s consolidated financial statements toreflect this change in presentation.

which cannot be scheduled in companies that qualify as­(Category 2)4) Treatment related to the reasonable estimable period of future
pre-adjusted taxable income in companies that qualify as(Category 3)5) Treatment in cases that companies that satisfy the category
requirements for (Category 4) but qualify as (Category 2) or­(Category 3)(2) Scheduled date of adoption
The Company expects to adopt the revised implementation guidancefrom the beginning of the fiscal year ending March 31, 2017.
(3) Impact of adopting revised implementation guidance
The impact of adopting revised implementation guidance on its
consolidated financial statements is nil.

Performance by Segment

78

Implementation Guidance on Recoverability of Deferred Tax Assets
On March 28, 2016, the ASBJ issued “Revised Implementation Guidance on Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26).
(1) Overview
Regarding the treatment of the recoverability of deferred tax assets, areview was conducted following the framework of the JapaneseInstitute of Certified Public Accountants Audit Committee Report
No. 66 “Audit Treatment on Determining the Recoverability ofDeferred Tax Assets,” whereby companies are categorized into fivecategories and deferred tax assets are calculated based on each ofthese categories.
1) Treatment of companies that do not satisfy any of the category
requirements for (Category 1) through (Category 5)2) Category requirements for (Category 2) and (Category 3)3) Treatment related to future deductible temporary differences

Business-use assets for manufacturing andselling of rechargeable battery systems

3. CHANGE IN METHOD OF ACCOUNTING
Accounting Standard for Business Combinations
The Company adopted the provisions of Paragraph 39 of “Revised
Accounting Standard for Consolidated Financial Statements”(Accounting Standards Board of Japan (“ASBJ”) Statement No. 22,
issued on September 13, 2013). Accordingly, the presentation

4. ACCOUNTING STANDARDS ISSUED BUT NOT YET EFFECTIVE

Leading Us to the Future(o) Derivatives and Hedging Activities
Derivatives positions are carried at fair value with any changes in
unrealized gain or loss charged or credited to income, except for
those which meet the criteria for deferral hedge accounting underwhich 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 theinterest rates applied to the swaps had originally applied to theunderlying loans.
Derivative financial instruments are utilized principally in order tomanage the risk arising from adverse fluctuation in foreign currency
exchange rates and interest-rate swaps are also utilized to mitigate
the risk of fluctuation in interest rates on loans. Hedging instruments
are foreign currency forward exchange contracts, foreign currency
deposits, foreign currency loans and interest-rate swaps. Hedged
items are foreign currency receivables and payables, forecast transactions and interest rates on loans from financial institutions.
The Company and its consolidated subsidiaries (collectively, the“Group”) manage derivative transactions in accordance with internalmanagement rules. Under these rules, the Group conducts foreign
currency forward exchange contracts within a range of actual
demand of accounts receivable, accounts payable and actual transactions in foreign currencies. Execution and management of interestrate swaps are based on internal management rules and hedged
items of interest-rate swaps are identified by individual contracts.
The Company and certain consolidated subsidiaries assess theeffectiveness of the hedging activities based on a comparison of theaccumulated fluctuations of the hedged items and those of thehedging instruments in the period from the start of the hedging
activities to the assessment date. However, with regard to interestrate swaps which meet certain conditions, the evaluation 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 approvedby 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 theapplicable distributions of retained earnings as approved by theshareholders subsequent to the fiscal year end. (Refer to Note 22.)

About the NAGASE Group(h) Goodwill
Goodwill is amortized over a period not exceeding 20 years on astraight-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 the lessee are depreciated to a residual value of zero by
the straight-line method over the respective 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 arecomputed 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 of deferred tax assets and liabilities are based on the tax rates
which have been enacted as of the balance sheet date or are
subsequently enacted.
(l) Accrued Bonuses for Employees
Accrued bonuses for employees are provided based on the estimatedamount of bonuses to be paid to employees in the following fiscal
year which is attributable to the current fiscal year.
(m) Accrued Bonuses for Directors
Accrued bonuses for directors are provided based on the estimatedamount 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 amountof the retirement 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 whichsuch 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.

79Notes to Consolidated Financial Statements

Business-use assets for manufacturing andselling of rechargeable battery systems
Business-use assets for manufacturing ofpolymer products

Idle assets
Total

Area

Buildings and structures, machinery,equipment and vehicles, construction inprogress, intangible assets included inother assets
Tokai
Buildings and structures, machinery,equipment and vehicles, intangible assets
included in other assets
Jiangsu, China
Buildings and structures, machinery,equipment and vehicles, construction inprogress, intangible assets included in otherassets, long-term prepaid expenses
included in other assets
Kanto
Land, buildings and structures
Chugoku

2016
Carrying valueMarket value not determinable:
Unlisted equity securities
Total

74

176
273
¥602

2016

Proceeds from sales
Gain on sales
Loss on sales

Acquisition costs

Unrealized
gain (loss)

Carrying value

Acquisition costs

Unrealized
gain (loss)¥69,183¥16,378¥52,805¥81,986¥16,698¥65,287678¥17,056(159)¥52,645

Thousands of U.S. dollars
2016

Unsecured loans primarily from banks and insurance companies, payable in Yen, U.S. dollars,
Euro, and RMB, due through 2023, at rates from 0.54% to 2.60%
Unsecured bonds in Yen, due 2015, at a rate of 0.306%
Unsecured bonds in Yen, due 2017, at a rate of 0.442%
Unsecured bonds in Yen, due 2019, at a rate of 0.753%
Unsecured bonds in Yen, due 2022, at a rate of 0.539%
Lease obligations

80

NAGASE & CO., LTD.

Annual Report 2016

Acquisition costs

Unrealized
gain (loss)$613,978$145,350$468,628

4,597$618,584

6,017$151,367(1,411)$467,208

142¥16,840(3)¥65,2832015¥31,932—
10,00010,00010,000333
62,265(8,895)¥53,370¥  36,700
10,00010,00010,000—407
67,107(16,454)¥  50,653$283,387—
88,74788,74788,747
2,955
552,583(78,940)$473,642

The aggregate annual maturities of bonds, long-term loans and finance lease obligations subsequent to March 31, 2016 are summarized asfollows:
Years ending March 31,

Millions of yen

Thousands of
U.S. dollars

2017
2018
2019
2020
2021
2022 and thereafterTotal¥ 8,895
14,018
10,69910,216
195
18,239¥62,265$ 78,940
124,405
94,95090,664
1,731
161,865$552,583

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 at March 31, 2016 and 2015 is as follows:
Millions of yen

Lines of credit
Credit utilized

Thousands of
U.S. dollars
2016

2016

2015

¥10,000—¥10,000—$88,747—NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

Securities whose carrying value exceeds
their acquisition costs:
Equity securities
Securities whose carrying value does notexceed their acquisition costs:
Equity securities
Total

Carrying value

138¥82,124

2016

Thousands of
U.S. dollars
2016

Millions of yen

Critical Initiatives for Sustainable Growth

Carrying value$1,447621
80Unique Products

2015¥2,456
213
0

Short-term loans at March 31, 2016 and 2015, principally represented notes and loans in the form of deeds at weighted-average annual interest
rates of 1.31% and 1.38% per annum, respectively.
Long-term loans, bonds and finance lease obligations at March 31, 2016 and 2015 consisted of the following:Less current portion
Total

Millions of yen

2015

¥163
70
9

Thousands of
U.S. dollars
2016

8. SHORT-TERM LOANS, BONDS, LONG-TERM LOANS AND FINANCE LEASE OBLIGATIONS(a) Marketable securities classified as other securities at March 31, 2016 and 2015 are summarized as follows:

518¥69,702$19,027$19,027

Millions of yen

7. INVESTMENTS IN SECURITIESSecurities whose carrying value exceeds
their acquisition costs:
Equity securities
Securities whose carrying value does notexceed their acquisition costs:
Equity securities
Total¥2,234¥2,234¥2,144¥2,144(c)	Proceeds from sales of, and gross realized gain and loss on, other securities for the years ended March 31, 2016 and 2015 are summarized
as follows:in use of processing facilities for thin glass panels is measured basedon future cash-flows using a discount rate of 10.1%. Net selling value
was calculated based on the appraisal value published by the tax
authorities or the real estate appraisers.
For the year ended March 31, 2015, due to decreasing profitabilityof manufacturing and selling facilities for rechargeable battery systems, manufacturing facilities for polymer products, and manufacturing facilities for semiconductors and display devices, the carrying
value was reduced to their recoverable amounts. As to idle assets,
due to declining fair value, the carrying values were reduced to theirrecoverable amounts.
The recoverable amounts were measured at net selling value orvalue in use. Net selling value was calculated based on the appraisal
value published by the tax authorities or the real estate appraisers.

2016

2015
Carrying value

Thousands of
U.S. dollars
2016
Carrying value

Millions of yen¥78

Performance by Segment

The Company and its consolidated subsidiaries group fixed assets forbusiness use principally based on its business management segment.
They also group fixed assets to be disposed of and idle assets at each
asset individually as the smallest cash-generating units.
For the year ended March 31, 2016, as achieving the initiallyprojected level of income could no longer be expected, the carrying
value of goodwill mainly for developing, manufacturing and sellingindustrial adhesives was reduced to the recoverable amount. In
addition, due to decreasing profitability on business-use assets, theircarrying values were reduced to their recoverable amounts. As to idle
assets, due to a declining fair value, their carrying values werereduced to their recoverable amounts.
The recoverable amounts were measured at net selling value orvalue in use. The value in use of goodwill is measured based on
future cash-flows using a discount rate of 9.1%. In addition, the value“Acquisition costs” in the above table represent the carrying value after recognizing impairment losses. The Company and its consolidated subsidiaries did not recognize any impairment losses on valuation of marketable securities for the years ended March 31, 2016 and 2015.
(b) Securities classified as other securities for which market value was not determinable at March 31, 2016 and 2015 are summarized as follows:

Millions of yen
2015

Leading Us to the Future

Business-use assets for semiconductors anddisplay devices

Classification

About the NAGASE Group

Major use81

Notes to Consolidated Financial Statements

The changes in plan assets for the years ended March 31, 2016 and 2015 are as follows:

Reclassification adjustments and tax effects allocated to each component of other comprehensive (loss) income for the years ended March 31,
2016 and 2015 were as follows:$(112,070)(435)(112,513)
42,900(69,613)

(16)
(3)
(19)
6
(13)

(200)
206
5
(1)
3

(142)
(27)
(169)
53
(115)

(5,021)—(5,021)(44)(5,065)

7,280
58
7,339
—
7,339

(44,560)—(44,560)(390)(44,950)(3,173)(957)(4,130)1,294(2,835)

847
(439)
408
(122)
285

(28,159)(8,493)(36,652)
11,484(25,160)(553)¥(16,312)720¥28,536(4,908)$(144,764)

10. RETIREMENT BENEFIT PLANSNAGASE & CO., LTD.

Annual Report 2016

The following table sets forth the funded status of the plans and the amounts recognized in the consolidated balance sheets as of March 31,
2016 and 2015 for the Company’s and the consolidated subsidiaries’ defined benefit plans:
2015

Thousands of
U.S. dollars
2016

Unfunded retirement benefit obligation
Net liability for retirement benefits in the balance sheets¥  22,047(18,932)
3,115
10,945
14,060¥  19,340(18,810)529
10,273
10,803$  195,660(168,016)
27,645
97,133
124,778

Liability for retirement benefits
Net liability for retirement benefits in the balance sheets

14,060¥  14,060

10,803¥  10,803

124,778$  124,778

Millions of yen
2016

Funded retirement benefit obligation
Plan assets at fair value

The components of retirement benefit expenses for the years ended March 31, 2016 and 2015 are as follows:
Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial differences
Other
Retirement benefit expenses

2016

2015

¥1,312
382
(400)
(957)
—
¥  337¥1,297
369
(367)
(439)
166
¥1,027

Thousands of
U.S. dollars
2016$11,6143,390(3,550)(8,493)—$ 2,991

Actuarial differences included in other comprehensive (loss) income (before tax effect) for the years ended March 31, 2016 and 2015 are as
follows:
Millions of yen
2016

Actuarial differences

2015¥(4,130)¥408

Thousands of
U.S. dollars
2016$(36,652)

2015¥29,613
1,312
382
2,847
(1,126)—(36)¥32,993¥29,321
1,297
369
197
(1,283)(336)
47¥29,613$262,806
11,644
3,390
25,266(9,993)—(319)$292,803

Millions of yen
2016

Unrecognized actuarial differences¥(3,131)

2015

¥999

Thousands of
U.S. dollars
2016$(27,787)

Financial and Corporate Information

2016

Thousands of
U.S. dollars
2016

Millions of yen

82$166,933
3,550(2,938)6,186(5,609)—(106)$168,016

Unrecognized actuarial differences included in accumulated other comprehensive income (before tax effect) as of March 31, 2016 and 2015 are
as follows:(b) Defined benefit pension plans
The changes in the retirement benefit obligation for the years ended March 31, 2016 and 2015 are as follows:

Balance at the beginning of the year
Service cost
Interest cost
Actuarial differences
Retirement benefits paid
Changes in scope of consolidation
Other
Balance at the end of the year

¥17,559
367
1,044
816
(718)
(271)
13
¥18,810

Critical Initiatives for Sustainable Growthconsolidated 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.

2015¥18,810
400
(331)
697
(632)
—
(12)
¥18,932

Unique Products¥28,014(192)
27,821(7,634)
20,186

Balance at the beginning of the year
Expected return on plan assets
Actuarial differences
Contributions by the Company and its consolidated subsidiaries
Retirement benefits paid
Changes in scope of consolidation
Other
Balance at the end of the year

Performance by Segment¥(12,628)(49)(12,678)
4,834(7,844)2016

Net unrealized holding (loss) gain on investments in securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized in the statement of income
Amount before tax effectTax effectNet unrealized holding (loss) gain on investments in securities
Deferred (loss) gain on hedges:
Amount arising during the year
Reclassification adjustments for gains and losses realized in the statement of income
Amount before tax effectTax effect
Deferred (loss) gain on hedges
Translation adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in the statement of income
Amount before tax effectTax effectTranslation adjustments
Retirement benefit liability adjustments:
Amount arising during the year
Reclassification adjustments for gains and losses realized in the statement of income
Amount before tax effectTax effect
Retirement benefit liability adjustments
Share of other comprehensive (loss) income of affiliates accounted for by the equity method:Amount arising during the year
Total other comprehensive (loss) income

2016

Thousands of
U.S. dollars
2016

Millions of yen

Leading Us to the Future

2015

Thousands of
U.S. dollars
2016

Millions of yen(a) Outline of retirement benefit plans for employees
The Company and its domestic consolidated subsidiaries havedefined benefit plans, i.e., defined benefit pension plans and lumpsum payment plans. Certain overseas consolidated subsidiaries also
have defined benefit pension plans. Also, the Company and certain

About the NAGASE Group

9. OTHER COMPREHENSIVE (LOSS) INCOMENAGASE & CO., LTD.

Annual Report 201683

Notes to Consolidated Financial Statements

2016

74%
15
11
100%

Bonds
Equity securities
Other
Total

2015

71%
17
12
100%

2016

0.8%
2.1%

Discount rate
Expected long-term rate of return on plan assets

2015

1.4%
2.1%

(c) Defined contribution pension plans
Millions of yen
2016

Contributions to defined contribution pension plans by the Company andits consolidated subsidiaries

¥279

2015

¥238

Thousands of
U.S. dollars
2016$2,476

Income taxes applicable to the Company and its domestic consolidated subsidiaries consist of corporation, inhabitants’ and enterprise taxes,
which, in the aggregate, resulted in statutory tax rates of approximately 33.1% and 35.6% for the years ended March 31, 2016 and 2015,
respectively.
The effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 2016 and 2015 differ
from the statutory tax rates for the following reasons:
2016

2015

35.6%

2.4
(12.3)
12.4
(5.9)
(2.5)
3.5
3.0
(1.3)
2.9
(18.3)
1.2
18.2%

2.9
(17.0)
16.8
(6.2)
(1.0)
3.0
—
1.8
2.7
—
(1.4)
37.2%

¥   1,258
417
574
192
14,424
3,487
1,025
791
—
2,254
24,427(9,482)¥ 14,945$   10,126
2,574
4,979
3,364
27,01538,5439,230
9,212
93,77922,941
221,796(49,006)$  172,781

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¥ (4,687)(1,410)
(103)
(255)
(312)
(15,757)(1,002)(23,529)¥ (4,059)¥ (5,443)(1,821)
(216)
(417)
(328)
(20,422)(146)(28,796)¥(13,851)$ (41,596)(12,513)(914)(2,263)(2,769)(139,838)(8,892)(208,813)$ (36,022)

The “Act for Partial Amendment of the Income Tax Act etc.” (ActNo. 15 of 2016) and “Act for Partial Amendment of the Local Tax Act
etc.” (Act No. 13 of 2016) were enacted during the Japanese Diet
session on March 29, 2016. Accordingly, the statutory tax rates used
for calculating deferred tax assets and liabilities were reduced from
32.3% to 30.9% for temporary differences which are expected to berealized during the period from April 1, 2016 to March 31, 2018 andto 30.6% for those which are expected to be realized on or after
April 1, 2018.
As a result of this change, deferred tax liabilities, net of deferred
tax assets, decreased by ¥381 million ($3,381 thousand) and income
taxes—deferred (debit) and accumulated other comprehensive
income increased by ¥448 million ($3,976 thousand) and ¥830 million($7,366 thousand), respectively, as of and for the year ended March
31, 2016.

The Company and certain consolidated subsidiaries have been
approved regarding the application of the consolidated taxation
system from the year ending March 31, 2017. Therefore, effective forthe year ended March 31, 2016, taxes have been accounted forassuming the application of consolidated taxation system in accordance with the “Practical Solution on Tentative Treatment of Tax
Effect Accounting under Consolidated Taxation System (Part 1)” (ASBJ
Practical Issues Task Force (“PITF”) No. 5 of January 16, 2015) and the“Practical Solution on Tentative Treatment of Tax Effect Accounting
under Consolidated Taxation System (Part 2)” (ASBJ PITF No. 7 ofJanuary 16, 2015).
As a result of this change, income taxes—current and deferred(debit) decreased by ¥5,192 million ($46,077 thousand) for the year
ended March 31, 2016.

Critical Initiatives for Sustainable Growth33.1%¥    1,141
290
561
379
3,044
4,343
1,040
1,038
10,567
2,585
24,992(5,522)¥  19,469

2016

Deferred tax assets:
Accrued bonuses for employees
Allowance for doubtful accounts
Unrealized gain on inventories
Accrued enterprise taxes
Tax loss carryforwards
Liability for retirement benefits
Investments in securities
Loss on impairment of fixed assets
Tax goodwill
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets

Unique Products

Statutory tax rates
Adjustments for:Expenses not deductible for income tax purposes
Dividends and other income deductible for income tax purposes
Net adjustment resulting from elimination of dividend income upon consolidation
Different tax rates applied at overseas subsidiaries
Tax credit
Amortization of goodwill
Loss on impairment of goodwill
Valuation allowance
Decrease in deferred tax assets resulting from change in statutory tax rate
Decrease in tax expenses resulting from application of consolidated taxation system
Other, net
Effective tax rates

2015

Thousands of
U.S. dollars
2016

Millions of yen

Performance by Segment

11. INCOME TAXESThe significant components of the Company’s and its consolidated subsidiaries’ deferred tax assets and liabilities at March 31, 2016 and 2015 aresummarized as follows:

Leading Us to the Future

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.
The assumptions used in accounting for the above plans were as follows:

About the NAGASE GroupThe allocation of plan assets, by major category, as a percentage of total plan assets at fair value as of March 31, 2016 and 2015 is as follows:

12. SHAREHOLDERS’ EQUITY

84

NAGASE & CO., LTD.

Annual Report 2016

March 31, 2016 amounted to ¥9,634 million ($85,499 thousand). In
addition, the ­Company’s legal reserve included in retained earnings
at March 31, 2016 amounted to ¥2,424 million ($21,512 thousand).
Under the Law, upon the issuance and sale of new shares ofcommon stock, the entire amount of the proceeds is required to beaccounted for as common stock, although a company may, byresolution of the Board of Directors, account for an amount notexceeding 50% of the proceeds of the sale of new shares as additional paid-in capital.

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

The Corporation Law of Japan (the “Law”) provides that an amountequal to 10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings(other than the legal reserve) be transferred to the capital reserve andthe 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 theshareholders, or by the Board of Directors if certain conditions are met.
The Company’s capital reserve included in capital surplus at

85

Notes to Consolidated Financial Statements

Number of shares
2016
April 1, 2015

127,408,285

Common stock

Increase

Decrease——

March 31, 2016

127,408,285

2015

138,408,285

Increase—

Decrease

March 31, 2015

11,000,000

127,408,285

The decrease in common stock consists of 11,000,000 shares resulting from retirement of treasury stock by resolution of the Board of Directors
for the year ended March 31, 2015.

13. TREASURY STOCK
Movements in treasury stock during the years ended March 31, 2016 and 2015 are summarized as follows:

April 1, 2015

937—

March 31, 2016

377,300

2015
April 1, 2014

Treasury stock

11,375,631

The increase in treasury stock consists of 937 shares resulting fromthe purchase of shares of less than one voting unit for the year
ended March 31, 2016.
The increase in treasury stock consists of 810 shares resulting
from the purchase of shares of less than one voting unit for the year

Increase

810

Decrease

11,000,078

March 31, 2015

376,363

ended March 31, 2015. The decrease in treasury stock consists of
11,000,000 shares resulting from retirement of treasury stock byresolution of the Board of Directors and 78 shares resulting from thedisposition of shares less than one voting unit for the year ended
March 31, 2015.

NAGASE & CO., LTD.

Annual Report 2016

¥ 43,283
196,335¥  ——

69,702¥309,320

69,702¥309,320—¥  —¥ 97,800
25,294
8,823
30,00023,108¥185,027¥ 97,800
25,294
8,823
30,43023,375¥185,723

¥  —
—
—
430
266
¥696

¥    1083¥    111¥    1083¥    111

¥  —
—
¥  —

Carrying value

Millions of yen
2015
Fair value

Difference¥ 40,575
208,209¥ 40,575
208,209¥——82,124¥330,909

82,124¥330,909—¥—¥105,737
31,3886,377
10,00020,00030,322¥203,826¥105,737
31,3886,377
10,002
20,23130,609¥204,345¥   (0)
—
—
2
231
286
¥518

¥    (186)3¥    (183)¥    (186)3¥    (183)

¥—
—
¥—

Financial and Corporate Information

86

currency transactions denominated in the same currency involving
either payables or receivables, foreign currency forward exchange
contracts are used solely 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 withconcern to the status of business and financial transactions.
Short-term loans are raised primarily in connection with businessactivities. Long-term loans and bonds are taken out principally for the
purpose of making capital spending, investments and financing.
Loans with variable interest rates are subject to the risk of fluctuatinginterest 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 fluctuation risk in foreign currency exchange rates andinterest-rate swaps to manage fluctuation risk of interest rates related
to the interest payments for bank loans.
In addition, notes and accounts payable and bank loans are
exposed to liquidity risk. However, the Group manages such risk bymonitoring the balance of inflow and outflow of cash and establishing liquidity on hand in excess of half of the amount ofmonthly net sales.

¥ 43,283
196,335

Critical Initiatives for Sustainable Growth(a) Policy for Financial Instruments
The Group invests excess funds in highly secure and short-term
financial assets, whose principal is guaranteed to be recoverable. With
regard to financing policy, short-term working funds are raised bybank borrowings or issuance of commercial paper and long-term
funds are raised by bank borrowings and the issuance of bonds. The
policy for derivative transactions is that those are utilized to mitigate
the foreign currency exchange rate fluctuation risk arising from thereceivables and payables denominated in foreign currencies, andfluctuation 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 customer, and establishes credit limits byeach customer based on the Group’s internal credit rating policy andmonitors outstanding balances. The Group establishes system underwhich the credit status by each customer is reviewed at least once a
year and the sales limit amount updated as necessary.
In the cases of notes and accounts receivable or payable denominated in foreign currencies, foreign currency forward exchange contracts are used to hedge the risk of fluctuation. However, for foreign

Difference

Unique Products

14. FINANCIAL INSTRUMENTS

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
Current portion of bonds
Bonds
Long-term loans
Total liabilities
Derivatives (*)
Not subject to hedge accounting
Subject to hedge accounting
Total derivative transactions

Carrying value

Performance by Segment

376,363

Treasury stock

Number of shares
2016
Increase
Decrease

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

Millions of yen
2016
Fair value

Leading Us to the Future

April 1, 2014

Common stock

About the NAGASE Group(c) Fair Value of Financial Instruments
The carrying value of financial instruments on the consolidated balance sheets, fair value and the differences as of March 31, 2016 and 2015, areshown in the following table. Financial instruments for which fair value is deemed extremely difficult to determine are not included.

Movements in common stock during the years ended March 31, 2016 and 2015 are summarized as follows:

NAGASE & CO., LTD.

Annual Report 201687

Notes to Consolidated Financial Statements

Millions of yen
Over 1 year andWithin 1 year
less than 5 years

Carrying value

Fair value

Difference$  384,123
1,742,412$  384,123
1,742,412$    ——

618,584$2,745,119

618,584$2,745,119—$    —$  867,945
224,476
78,301
266,241
205,076$1,642,057$  867,945
224,476
78,301
270,057
207,446$1,648,234$    —
—
—
3,816
2,361
$6,177

Time deposits
Notes and accounts receivable
Total$      95827$      985$      95827$      985$     ——
$    —

15. DERIVATIVES AND HEDGING ACTIVITIES¥ 43,252
196,335¥239,588

Time deposits
Notes and accounts receivable
Total

Thousands of U.S. dollars
Over 1 year andWithin 1 year
less than 5 years$  383,848
1,742,412$2,126,269

The currency-related derivatives positions outstanding for which hedge accounting has not been applied at March 31, 2016 and 2015 are
as follows:

Classification

Transaction

2016

2015

Thousands of
U.S. dollars
2016¥ 2,1449,498¥11,642¥ 2,234
8,280¥10,514$ 19,027
84,292$103,319

Millions of yen

Unlisted equity securities
Investments in unconsolidated subsidiaries and affiliates
Total

NAGASE & CO., LTD.

Annual Report 2016

Transaction

Foreign currency forward exchange contracts:
Selling:
U.S. dollars
Yen
Euro
RMB
Over-the-counter transactions
SGD
Others
Buying:U.S. dollars
YenEuro
Others
Total

¥—
—
—
—
—
—

¥ 51
(10)
9
2
0
(0)

¥ 51
(10)
9
2
0
(0)

1,423
563
43
2
¥10,497

—
—
—
—
¥—

54
0
(0)
(0)
¥108

54
0
(0)
(0)
¥108

Millions of yen
2015
Contract value(notional principal
Contract value
amount over(notional principal
one year)
Fair value
amount)Valuation
gain (loss)¥ 8,464
2,386
718
577
99
18

¥—
—
—
—
66
—

¥ (98)
(74)
35
(13)
(2)
0

¥ (98)
(74)
35
(13)
(2)
0

1,683
394
84
14
¥14,443————¥   66

(30)
(0)
(2)
0
¥(186)

(30)
(0)
(2)
0
¥(186)NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

88

Classification¥ 5,629
1,520
656
516
67
74

Critical Initiatives for Sustainable Growth

The carrying value of financial instruments without determinable market value at March 31, 2016 and 2015 is presented as follows:

Valuation
gain (loss)

Unique Products

Foreign currency forward exchange contracts:
Selling:
U.S. dollars
Yen
Euro
RMB
Over-the-counter transactions
SGD
Others
Buying:U.S. dollars
YenEuro
Others
Total

Millions of yen
2016
Contract value(notional principal
Contract value
amount over(notional principal
one year)
Fair value
amount)Performance by Segment

Short-term loans and current portion of long-term loans
Since these items are settled in a short period of time, their carrying
value 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 forlong-term loans are hedged by interest-rate swap agreements andaccounted for as loans with fixed interest rates. The fair value of thoselong-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 15.

$—
—
$—

With respect to the redemption schedule of bonds, long-term loans and finance lease obligations, please refer to Note 8.

(*) Receivables and payables arising from derivative transactions are presented as a net value with the amount in parentheses representing a net liability position.

The calculation methods of fair values of financial instruments andsecurities and derivative transactions are as follows:
Cash and time deposits
Their carrying value approximates the fair value.
Notes and accounts receivable
The fair value of notes and accounts receivable is based on theirpresent values discounted by the interest rate determined taking into
account the remaining period to maturity for each receivable classified by settlement 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 byholding purpose.
Notes and accounts payable
The fair value of notes and accounts payable is based on their present
values discounted by the interest rate determined taking into accountthe remaining period to maturity for each payable classified by settlement date.

¥——¥—
Leading Us to the Future

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

About the NAGASE GroupThe redemption schedule for time deposits and notes and accounts receivable with maturity dates at March 31, 2016 is summarized as follows:

Thousands of U.S. dollars
2016

89

Notes to Consolidated Financial Statements

Transaction$49,956
13,490
5,822
4,579
595
657

$—
—
—
—
—
—

$453
(89)
80
18
0
(0)

$453
(89)
80
18
0
(0)

12,6294,996
382
18$93,158

—
—
—
—
$—

479
0
(0)
(0)
$958

479
0
(0)
(0)
$958

Method for hedge accounting

Transaction

Major hedged item

Accounts
receivable

Accounts payable

Accounts payable

Fair value

¥ 44
204
58
8

¥—
—
—
—

¥  1
3
0
(0)

13
25
20
36

—
—
—
—

(0)
(0)
(0)
(0)

0

—

(*)

49
7
¥469

—
—
¥—

(*)
(*)
¥  3

Transaction

Foreign currency forward exchange
contracts:
Selling:
U.S. dollars
Euro
RMB
Deferral hedge accounting
Others
Buying:U.S. dollars
Euro
THB
OthersForeign currency forward exchange
contracts:
Selling
Allocation method forforeign currency forwardEuro
exchange contracts (Note2(o))
Buying:Euro
Others
Total

Fair value

Accounts
receivable

¥ 39
221
144

¥—
—
—

¥(0)
10
(2)

Accounts payable

25
146
48

—
—
—

0
(4)
(0)

18
0
¥645

—
—
¥—

(*)
(*)
¥3

Accounts payable

Major hedged item

Accounts
receivable

Accounts payable

Accounts
receivable
Accounts payable

Thousands of U.S. dollars
2016
Contract value
Contract value(notional principal(notional principal
amount over one year)
amount)Fair value$  390
1,810
515
71

$—
—
—
—

$ 9
27
0
(0)

115
222
177
319

—
—
—
—

(0)
(0)
(0)
(0)

0

—

(*)

435
62
$4,162

—
—
$—

(*)
(*)
$27

Critical Initiatives for Sustainable Growth

Accounts
receivable

Method for hedge accounting

Major hedged item

Unique Products

Foreign currency forward exchange
contracts:
Selling:
U.S. dollars
Euro
RMB
Deferral hedge accounting
Others
Buying:U.S. dollars
Euro
THB
OthersForeign currency forward exchange
contracts:
Allocation method for
Selling
foreign currency forwardEuro
exchange contracts (Note2(o))
Buying:Euro
Others
Total

Millions of yen
2016
Contract value(notional principal
Contract value
amount over(notional principal
one year)amount)Transaction

Foreign currency forward exchange
contracts:
Selling:
U.S. dollars
Euro
Deferral hedge accounting
Others
Buying:U.S. dollars
Euro
OthersForeign currency forward exchange
Allocation method forcontracts:
foreign currency forward
Buying:exchange contracts (Note
Euro
2(o))
Others
Total

Performance by Segment

The fair value of foreign currency forward exchange contracts is computed using the prices provided by counterparty financial institutions.
The currency-related derivatives positions outstanding for which hedge accounting has been applied at March 31, 2016 and 2015 are
as follows:

Method for hedge accounting

Millions of yen
2015
Contract value
Contract value(notional principal(notional principal
amount over one year)
amount)Leading Us to the Future

Foreign currency forward exchange contracts:
Selling:
U.S. dollars
Yen
Euro
RMB
Over-the-counter transactions
SGD
Others
Buying:U.S. dollars
YenEuro
Others
Total

Valuation
gain (loss)

About the NAGASE GroupClassification

Thousands of U.S. dollars
2016
Contract value(notional principal
Contract value
amount over(notional principal
one year)
Fair value
amount)

The fair value of foreign currency forward exchange contracts is computed using the prices provided by counterparty financial institutions.
(*): The fair value of foreign currency forward exchange contracts that qualify for the allocation method is included in the fair value of the underlying accounts receivable and payable.

Financial and Corporate Information

90

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Annual Report 201691

Notes to Consolidated Financial Statements

Millions of yen

Method for hedge accounting

Transaction

Interest-rate swap transactions(pay—fixed, receive—variable)

Method for hedge accounting

Swap rates applied tounderlying long-term
loansTransaction

Interest-rate swap transactions(pay—fixed, receive—variable)

Transaction

Interest-rate swap transactions(pay—fixed, receive—variable)

Long-term loans

Hedged item

Long-term loans

Hedged item

Long-term loans¥25,626¥20,439

Millions of yen
2015
Contract value
Contract value(notional principal(notional principal
amount over one year)
amount)¥30,705¥25,677

Thousands of U.S. dollars
2016
Contract value
Contract value(notional principal(notional principal
amount over one year)
amount)$227,423$181,390

Fair value(**)

19. AMOUNTS PER SHARE
Amounts per share at March 31, 2016 and 2015 and for the years then ended are as follows:
Yen

Fair value(**)

Fair value(**)(**): 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 the fairvalue of the long-term loans.

16. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in selling, general and administrative expenses for the years ended March 31, 2016 and 2015 totaled¥5,063 million ($44,933 thousand) and ¥4,904 million, respectively.

Profit attributable to owners of parent:
Basic
DilutedNet assets
Cash dividends applicable to the year
Basic profit attributable to owners of parent per share has been
computed based on the profit attributable to owners of parent available for distribution to the shareholders of common stock and theweighted-average number of shares of common stock outstanding
during the year.
Diluted profit attributable to owners of parent per share for theyears ended March 31, 2016 and 2015 have not been presented
because no potentially dilutive shares of common stock were
outstanding.

Millions of yen

Thousands of
U.S. dollars

20172018 and thereafter
Total

¥445
521
¥967

$3,9494,624$8,582¥   89.10—
2,215.18
30.00$ 0.86
—
19.14
0.28

The amounts per share of net assets have been computed
based on the number of shares of common stock outstanding at
the year end.
Cash dividends per share represent the cash dividends proposedby the Board of Directors as applicable to the respective years
together with the interim cash dividends paid.

Millions of yen
2016

2015

¥12,316¥12,316
127,031,413¥11,318¥11,318
127,032,358

Thousands of
U.S. dollars
2016$109,301$109,301

20. CASH AND TIME DEPOSITS
A reconciliation of cash and time deposits in the accompanying consolidated balance sheets at March 31, 2016 and 2015 and cash and cash
equivalents in the accompanying consolidated statements of cash flows for the years then ended is as follows:
Millions of yen

Cash and time deposits
Long-term deposit included in other assets of investments and other assets
Time deposits with maturities of more than three months
Cash and cash equivalents

2016

2015

¥43,2831(384)¥42,900¥40,5751(54)¥40,522

Critical Initiatives for Sustainable GrowthYears ending March 31,¥   96.96—
2,156.67
32.00

U.S. dollars
2016Unique Products

Future minimum lease payments subsequent to March 31, 2016 under operating leases are as follows:2015

The financial data used in the computation of basic profit attributable to owners of parent per share for the years ended March 31, 2016 and2015 are summarized as follows:

Profit attributable to owners of parent
Profit available for distribution to shareholders of common stock
Weighted-average number of shares

17. OPERATING LEASES

2016

Performance by Segment

Method for hedge accounting

Swap rates applied tounderlying long-term
loans

Hedged item

In addition, at March 31, 2016, the Company and its consolidated
subsidiaries had contingent liabilities arising from notes discountedwith banks and notes endorsed for a total amount of ¥209 million($1,855 thousand).

Leading Us to the Future

Swap rates applied tounderlying long-term
loans

Contract value
Contract value(notional principal(notional principal
amount over one year)
amount)18. CONTINGENT LIABILITIESAt March 31, 2016, the Company and its consolidated subsidiaries
were contingently liable as guarantors of loans of customers andother in the aggregate amount of ¥788 million ($6,933 thousand).

2016

About the NAGASE GroupThe interest-related derivatives positions outstanding for which hedge accounting has been applied at March 31, 2016 and 2015 are as follows.

Thousands of U.S.
dollars
2016$384,123
9(3,408)$380,724

Financial and Corporate Information

92

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Annual Report 201693

Notes to Consolidated Financial Statements

Millions of yen
2016
Reportable Segments

NAGASE & CO., LTD.

¥255,505
2,241
257,747¥  4,979¥122,802

Electronics

Life &
Healthcare

Total¥127,926
1,211
129,138¥  6,255¥ 62,912¥115,351
2,626
117,978¥  1,300¥ 42,136¥85,571514
86,086¥ 3,864¥99,620¥741,505
8,549
750,055¥ 20,079¥398,514

OthersTotal¥  6895,851
6,540¥  215¥7,213¥742,194
14,401
756,595¥ 20,295¥405,728

Corporate

Adjustments Consolidated¥       — ¥     — ¥742,194—(14,401)——(14,401) 742,194¥   (2,725) ¥     455 ¥ 18,024¥145,038 ¥(38,685) ¥512,081¥    509—¥    859—¥  2,672
132¥    157—¥ 3,258
1,502¥  7,458
1,634¥  208—¥  7,667
1,634¥  1,826—¥     ——¥  9,493
1,634

—

—

672

—

23,90924,582—

24,582——

24,582

1,752

2,389

1,968

1,355

2,385

9,852

1,944

11,797—(53)

11,743

1,690

1,466

2,855

244

2,341

8,598

158

8,757

2,368

—

11,125

Annual Report 2016

Total

Corporate¥168,238
2,361
170,600¥  4,302¥ 75,590¥254,165
2,224
256,390¥  4,804¥131,543¥149,947
858
150,805¥  5,583¥ 66,862¥109,851
2,827
112,679¥  2,229¥ 45,213¥76,609286
76,896¥ 3,157¥98,250¥758,812
8,559
767,372¥ 20,077¥417,461¥  9004,955
5,856¥  201¥7,210¥759,713
13,515773,229¥ 20,278¥424,671¥      ———¥  (2,600)¥155,720¥    —(13,515)(13,515)¥    475¥(33,866)¥759,713—
759,713¥ 18,153¥546,525¥    483—¥    802—¥  2,649
120¥    122—¥ 3,136
1,502¥  7,193
1,623¥  198—¥  7,392
1,623¥  1,900—¥    ——¥  9,292
1,623

—

—

2,214

—

25,412

27,626—

27,626——

27,626

2,079

2,507

132

1,932

2,219

8,871

1,896

10,768—(57)

10,711

330

1,392

2,460

346

5,720

10,250317

10,568

1,144—

11,712

Automotive &Life &
EnergyHealthcare

Total

OthersAdjustments Consolidated

Thousands of U.S. dollars
2016
Reportable Segments
Functional
Materials

Advanced
Materials &Processing

Electronics

Automotive &Life &
EnergyHealthcare

Sales to customers$1,394,649 $2,267,528 $1,135,304 $1,023,704
Intersegment sales and transfers
17,35019,888
10,74723,305Net sales
1,412,007 2,287,425 1,146,060 1,047,018
Segment income$   32,650 $   44,187 $   55,511 $   11,537
Segment assets$  630,476 $1,089,830 $  558,324 $  373,944
Other items
Depreciation and amortization
other than amortization of
goodwill$    4,517 $    7,623 $   23,713 $    1,393
Amortization of goodwill
—
—
1,171
—
Unamortized balance of
goodwill
—
—
5,964
—
Investments in affiliates
accounted for by the equity
method15,54821,202
17,465
12,025
Increase in property, plant andequipment, net and intangible
assets14,99813,01025,337
2,165

Total

Others

Total

Corporate

Adjustments Consolidated$759,416 $6,580,627
4,562
75,870763,987 6,656,505$ 34,292 $  178,195$884,097 $3,536,688$ 6,115 $6,586,741 $         — $      — $6,586,741
51,926
127,804— (127,804)—
58,040 6,714,546— (127,804) 6,586,741$ 1,908 $  180,112 $    (24,184) $    4,038 $  159,957$64,013 $3,600,710 $1,287,167 $(343,317) $4,544,560$ 28,914 $   66,187
13,33014,501$ 1,846 $   68,042 $   16,205 $      — $   84,247—
14,501——
14,501

212,185

218,158—

218,158——

218,158

21,16687,433

17,252

104,695—(470)

104,215

20,76676,305

1,402

77,71621,015—98,731

Financial and Corporate Information

94¥157,149
1,955
159,105¥  3,679¥ 71,042

Automotive& Energy

Electronics

Critical Initiatives for Sustainable Growth

Sales to customers
Intersegment sales and transfers
Net sales
Segment income
Segment assets
Other items
Depreciation and amortization
other than amortization of
goodwill
Amortization of goodwill
Unamortized balance of
goodwill
Investments in affiliates
accounted for by the equity
methodIncrease in property, plant andequipment, net and intangible
assetsFunctional
Materials

Advanced
Materials &Processing

Sales to customers
Intersegment sales and transfers
Net sales
Segment income
Segment assets
Other items
Depreciation and amortization
other than amortization of
goodwill
Amortization of goodwill
Unamortized balance of
goodwill
Investments in affiliates
accounted for by the equity
methodIncrease in property, plant andequipment, net and intangible
assetsFunctional
Materials

Unique Products(c) Information on net sales, income or loss, assets and other items for each reportable segment
Information by reportable segments for the year ended March 31, 2016 is as follows:

Reportable Segments
Advanced
Materials &Processing

Performance by Segment­materials, resin molding, and functional films and sheets.
The Electronics segment is engaged in the sales of pre-­processing materials and devices for LCD/semiconductors, materials
for LCD panels, materials and devices for semiconductor assembly,
low-temperatures/vacuum equipment, high-function epoxy resins,
precision electronics abrasives, and more to industries related to thedisplays, touch panels, LCDs, semiconductors, HDDs, electronic
components, heavy electrical, and other.
The Automotive & Energy segment is engaged in sales ofplastics products, thermoplastic resins, thermosetting resins,
resins molding tools/dies, battery materials, solar cell/secondary
battery-related materials, and more to industries related to automotive, automotive components, and energy.
The Life & Healthcare segment is engaged in the sales of pharmaceutical/agricultural chemicals and materials, research products, invitro diagnostics, enzymes, food additives, additives for cosmetics,
feeds/fertilizers and surfactants, and radiation measurement services
to industries related to pharmaceuticals, 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, andother items by reportable segments
The accounting policies of reportable segments are generally identical to those described in Note 2. Reportable segment income corresponds to operating income in the consolidated statements ofincome. Intersegment internal income and transfers are determinedbased on the values of transactions at actual market prices.

Millions of yen
2015

Leading Us to the Future(a) Overview of reportable segments
The reportable segments of the Company comprise those entities forwhich 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 and assesses theirperformance.
Reflecting the respective positions of each business in the value
chain, as well as identifying the most closely aligned industries, theCompany 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 thecorresponding industries).
The following describes the major products and services handled
by each reportable segment.
The Functional Materials segment is engaged in the sales ofmaterials for paints/inks, urethane materials, plastic materials, plastic
additives, industrial oil solutions, surfactants, fluorochemicals, encapsulant materials, silicone materials, and more to industries related tothe paints/inks, resins, urethane foam, organic synthesis, surfactants,
semiconductors.
The Advanced Materials & Processing segment is engaged in thesales of dyestuffs, dyes, functional dyes, information printing products, thermoplastic resins, thermosetting resins, synthetic rubber,
inorganic materials, plastics products, resins molding tools/dies, andexternal inspection equipment, and more to industries related todyes/additives, information printing, fiber processing, raw resin

About the NAGASE Group

21. SEGMENT INFORMATIONNAGASE & CO., LTD.

Annual Report 201695

Independent Auditor’s Report

Notes to Consolidated Financial Statements

About the NAGASE Group(d) Geographical information
Net sales by country or region for the years ended March 31, 2016 and 2015 are summarized as follows:Japan
North-east Asia
South-east Asia
North America
Europe/Other
Total

2015

¥363,038
221,197
109,837
30,684
17,437¥742,194¥374,208
217,232
122,493
29,995
15,783¥759,713$3,221,849
1,963,055
974,769
272,311
154,748$6,586,741

Leading Us to the Future

2016

Thousands of
U.S. dollars
2016

Millions of yen

Net sales are classified by country or region based on locations of customers.
Property, plant and equipment by country or region as of March 31, 2016 and 2015 are summarized as follows:

Japan
Other
Total

2015

¥59,646
6,828¥66,474¥58,897
7,877¥66,774$529,340
60,596$589,936

Performance by Segment

2016

Thousands of
U.S. dollars
2016

Millions of yen(e) Information on loss on impairment of fixed assets per reportable segments
Loss on impairment of fixed assets for the years ended March 31, 2016 and 2015 is as follows:
Millions of yen
2016
Reportable Segments

Loss on impairment of fixed assets

Functional
Materials

Advanced­Materials &Processing

Electronics

Automotive& EnergyLife &
Healthcare

¥—

¥818

¥1,862

¥ 36

¥—

Total

¥2,717

OthersEliminations
or corporate

¥—

¥39

Total

¥2,756

Millions of yen
2015

Loss on impairment of fixed assets

Functional
Materials

Electronics

Automotive& EnergyLife &
Healthcare

¥—

¥74

¥176

¥78

¥—

Total

¥328

OthersEliminations
or corporate

¥—

¥273

Unique Products

Reportable Segments
Advanced
Materials &Processing

Total

¥602

Thousands of U.S. dollars
2016
Reportable Segments

Loss on impairment of fixed assets$—

Advanced­Materials &Processing

Electronics$7,259 $ 16,525

Automotive &Life &
EnergyHealthcare

$ 319

$—

Total

$24,113

OthersEliminations
or corporate

$—

$346

Critical Initiatives for Sustainable Growth

Functional
Materials

Total$24,459

22. SUBSEQUENT EVENTSThe 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, 2016, was approved at a meeting of the shareholders held on June 29, 2016:

Cash dividends (¥16.0 = U.S.$0.14 per share)

Millions of yen

Thousands of
U.S. dollars¥2,032$18,033

Financial and Corporate Information

96

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Consolidated Subsidiaries, Affiliates and Offices

Category○ Company accounted for under the equity method
Company name

As of March 31, 2016
Description of business

Location

Year ofestablishment●

Nagase ChemteX Corporation

Category

Company name

Sales

Japan

Manufacturing and Processing

About the NAGASE Group● Consolidated subsidiary

Research, manufacture, and sale of enzymes, fermented products, pharmaceuticalintermediates, disinfecting agents, functional polymers, epichlorohydrine derivatives,electronics materials, etc

Osaka Pref.

1970

Description of business

Location

Year ofestablishment

1995

Nagase Chemical Co., Ltd.

Sale of dyestuffs, industrial chemicals, chemicals for manufacturing paper, plastics andmachineryTokyo Pref.

●

Nagase Plastics Co., Ltd.

Sale of raw materials for plastics and plastic products

Osaka Pref.

1975

●

Nagase Beauty Care Co., Ltd.

Sale of cosmetics and health foods

Tokyo Pref.

1991

●

Nishinihon Nagase Co., Ltd.

Sale of dyestuffs, auxiliaries, industrial chemicals and plastics

Fukuoka Pref.

1969
1979

●

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

●

Nagase Medicals Co., Ltd.

Manufacture and sale of pharmaceuticals, animal drugs, health foods, and cosmetics

Hyogo Pref.

1972

●

Nagase Elex Co., Ltd.

Sale of raw materials for plastics and plastic productsTokyo Pref.

●

Setsunan Kasei Co., Ltd.

Coloring and sale of plastics

Osaka Pref.

1966

●

Nagase Abrasive Materials Co., Ltd.

Sale of abrasives, inorganic materials and related equipment

Osaka Pref.

1955

Nagase Sanbio Co., Ltd.

Sales of medicine for agriculture and additives for fertilizers, feed and foodTokyo Pref.

1987

Totaku Industries, Inc.

Manufacture and sale of plastic products

Osaka Pref.

1952

●

Kotobuki Kasei Corporation

Molding, processing and sale of plastic products

Tochigi Pref.

1972

●

Nagase Tool Matex Co., Ltd.

Sale of auto models, test production materials, and carbon fiber composites

Tokyo Pref.

1965

●

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 theseTokyo Pref.

1989

●

LAUDi Co.,Ltd.

Research and development, manufacturing, processing, domestic sales, and export ofbeauty care products and related raw materials.

Tokyo Pref.

2015

○

Nagase-OG Colors & Chemicals Co., Ltd.

Purchasing and information services related to dyes, industrial chemicals, etc.

Osaka Pref.

1957

●

Fukui Yamada Chemical Co., Ltd.

Manufacture of color former

Fukui Pref.

1985

●

Nagase Filter Co., Ltd.

Planning, production, processing, quality testing and sale of metal filters

Osaka Pref.

2006

OnFine Co., Ltd.

Manufacture and sale of electronics and fluorine and polysilane variants for use inmaterials

Osaka Pref.

2002

●

CAPTEX Co., Ltd.

Manufacture and development of battery power source controllers, battery powersources and power source peripheral equipment

Aichi Pref.

2004

Nihon UNF Co., Ltd.

Manufacture, sale, import/export, management consulting, and investment inpharmaceuticals and non-pharmaceuticals

Shizuoka Pref.

2001

●

Kawai Hiryo Corporation

Manufacture and sale of organic fertilizers and agricultural chemicals and materials

Shizuoka Pref.

1981

○

Sun Delta Corporation

Development of applications for synthetic plastic products and manufacture and saleof processed productsTokyo Pref.

2005

China

2002

○

Honshu Rheem Co., Ltd.

Manufacture and sale of fiber drums, import and sale of food processing machines
and materials

Kanagawa Pref.

1968

○

Toyo Beauty Supply Corporation

Contract manufacture of cosmetics and health foods

Tokyo Pref.

1964

○

eX. Grade Co., Ltd.

Development, manufacture and sale of components for electronic equipment

Osaka Pref.

2003

○

SN Tech Corporation

Manufacture of developer, recycling businessOsaka Pref.

2008

○

Nissei Technology Corporation

Design, development, and manufacture of ultra-precision plastic lenses and opticalunits; manufacture of precision mechanical components and units

Hyogo Pref.

1953

Nihon Bio Fertilizer Co., Ltd.

Manufacture and sale of organic fertilizer

Shizuoka Pref.

1986

Uma Yasai Farm Corporation

Processing and sale of agricultural and livestock goods

Shizuoka Pref.

2008

Greater China and Korea

Manufacturing and Processing
Nagase ChemteX (Wuxi) Corporation

Plastic manufacture and sale of adhesives and high-tech chemical products forelectronics, technology services●

Totaku Industries Suzhou Co., Ltd.

Manufacture and sale of plastic products

China

2005

●

Nagase Electronics Technology Co., Ltd.

Chemical etching of liquid crystal glass panel units

Taiwan2005●

Nagase Engineering Service Korea
Co., Ltd.

Equipment maintenance service and engineering

Korea

1997

●

Nagase Electronics Technology(Xiamen) Co., Ltd.

Chemical etching of liquid crystal glass panel units

China

2010

○

Guangzhou Kurabo Chemicals Co., Ltd.

Manufacture of molded urethane products for automobiles

China

2001

○

Toyo Quality One (Guangzhou) Co., Ltd.

Research and development, manufacturing, processing, sale, technology consulting,and after-sale service for major automotive parts

China

2004

○

Toyo Quality One Ningbo Co., Ltd.

Manufacture and sale of polyurethane foam

China

1993

○

Tokai Spring Mfg. (Foshan) Co., Ltd.

Development, manufacture, and sale of precision press products, spring, and standard
molds

China

2005

○

Light Chemical (Changzhou) Co., Ltd.

Research, development, and after-sale service for high-function composites andintermediates; sales of internally developed products

China

2011

Manufacture, sales, and export/import of textile-related products,
dyeing processing agents

China

2003

China

2013

Construction and maintenance of chemical supply and management equipment

China

2006

NW Consultant Service (Shenzhen) Ltd.

Print quality management consultant

China

2008

Nagase Business Management andPlanning (Shanghai) Co., Ltd.

Management of Nagase Group operations and promotion of business strategies
related to Greater China

China

2011

●

Nagase Logistics Co., Ltd.

Warehousing and distribution

Hyogo Pref.

1982

●

Nagase Techno Service Co., Ltd.

Sales of BPO services, catalog & online commerce, recordable media, RFID; logistics
services

Chiba Pref.

1991

●

Nagase General Service Co., Ltd.

Sale and lease of various goods, real estate administration

Tokyo Pref.

1983

●

Nagase Information Development, Ltd.

Software development and maintenanceTokyo Pref.

1987

●

Nagase Trade Management Co., Ltd.

Import/export and receivables/payables administration; shared services for receipts/
disbursements

ON Textile Chemicals (Shanghai)Co., LTD.

Tokyo Pref.

1996

●

Nagase Chemspec Co., Ltd.

Sale and technical servicing of chemicals

Tokyo Pref.

1976

Wuxi Chenghong Electronic Chemicals Research/Development, manufacture, and sales of electronics chemicals includingCo., LTD.
semiconductors and flat panel display (FPD)○

Nagase Landauer, Ltd.

Radiation measuring services

Ibaraki Pref.

1974

Nagase Logistics Support Co., Ltd.

An exclusive stevedore for Nagase Logistics Co., Ltd.

Hyogo Pref.

1954

Choko Co., Ltd.

Insurance agency

Osaka Pref.

1971

Critical Initiatives for Sustainable Growth●

Unique Products

Servicing○

Performance by Segment●●

Leading Us to the Future●

Servicing

Nagase CMS Technology (Shanghai)Co., Ltd.

Financial and Corporate Information

98

NAGASE & CO., LTD.

Annual Report 2016

NAGASE & CO., LTD.

Annual Report 201699

Consolidated Subsidiaries, Affiliates and Offices

Category○ Company accounted for under the equity method
Company name

Description of business

Location

Year ofestablishment

Sales
Nagase (Hong Kong) Ltd.

Import/export, domestic sales, marketing

China

1971

●

Shanghai Hua Chang Trading Co., Ltd.

Sale of resins and related products

China

1998

Year ofestablishment●

Nagase (Thailand) Co., Ltd.

Import/export, domestic sales, marketing

Eastern Office

Thailand

1989

ThailandChina

Chengdu Branch Office/Chongqing Branch Office

China

Australia Branch

Australia

Nanjing Branch

China

Bangladesh Liaison Office

Bangladesh

Shanghai Nagase Trading Co., Ltd.
Nagase Wahlee Plastics Corp.

Yangon Branch●

Import/export, domestic sales, marketing
Sale of resins and related products

China
TaiwanNagase Singapore (Pte) Ltd.

1990

●

Nagase (Malaysia) Sdn. Bhd.

TaiwanJohor Bahru OfficeGangshan OfficeTaiwanPenang Office

NWP (B.V.I.) Corporation

Vehicle for investments into China from Taiwan●

Guangzhou Nagase Trading Co., Ltd.

Import/export, domestic sales, marketing

British Virgin Islands

2007

China

2002

China

Chengdu Branch Office/Changsha Branch Office

China

Zhengzhou Branch Office

China

Singapore●

PT. Nagase Impor-Ekspor Indonesia●

United Arab Emirates
Import/export, domestic sales, marketing

Malaysia

Nagase (Taiwan) Co., Ltd.

Import/export, domestic sales, marketing

Taiwan1988●

Tianjin Nagase International Trading
Co., Ltd.

Import/export, domestic sales, marketing

China

2003

1981

Malaysia
Malaysia
Import/export, domestic sales, marketingIndonesia

Nagase Philippines Corporation

Import/export, domestic sales, marketing

Philippines

1997

●

Nagase Philippines International
Services Corporation

Domestic sales, import/export

Philippines

2005

●

Nagase Vietnam Co., Ltd.

Import/export, domestic sales, marketing

Vietnam

2008●

Nagase India Private Ltd.

Surabaya Branch

1998

Indonesia

Ho Chi Minh City Branch

●

1975

Vietnam
Import/export, domestic sales, marketing

India

North India Branch (Gurgaon)

2006

India

South India Branch (Chennai)

India

Dalian Branch Office/
Qingdao Branch Office

China

PT. Indonesia Mold Technology

Design changes and maintenance for large-scale plastic automobile component molds

Indonesia

2015

Changchun Branch Office

China

Nagase (Siam) Co., Ltd

Contract services for Group companies

Thailand2000

Landauer Australasia Pty Ltd

Radiation measuring services

Australia

2006

NWP International Trading(Shenzhen) Co., Ltd.

Sale of plastic products in South China

China
China

Guangzhou Branch Office

China

Xiamen Branch Office

China

Manufacturing and Processing●

Nagase Korea Corporation

General import/export trading, retailing/wholeselling, import/export trade agency

Korea

2001

●

Xiamen Nagase International Trading
Co., Ltd.

Import/export, domestic sales, marketing

China

2011

Nagase Marketing and Service(Shenzhen) Ltd.

Import/export, domestic sales, marketing

China

2006

China
Sales of textile-related products, dyeing processing agents, related equipment;
export/import and technology consulting, technological development of dyeing
processing

QINGDAO REPLUS CO., LTD.

Planning and development, manufacturing control, quality control and sales of foodpackaging

China

2002

Engineered Materials Systems Inc.

Research and development, manufacture, and sales of materials for commercial
adhesives, conductive adhesives

America

1993●

Pac Tech USA Packaging Technologies
Inc.

Semiconductor wafer bumping, manufacture and sale of semiconductor
manufacturing equipment

America2001●

Sofix Corporation

Manufacture and sale of color formers

America

1990○

KN Platech America Corporation

Manufacture and sale of blow-formed plastic components and products

America2010○

TIMLE S.A. DE C.V.

Manufacture and sale of automotive laminated frames sale of automotive urethane
foam

Mexico2010○

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

Manufacture and sale of urethane for automotive seat pads

Mexico2012

Nagase America Corporation

Import/export, domestic sales, marketing

America

1971

Sales
●

China

2015

Asean and The Middle East

Manufacturing and Processing

●

●

●

Pac Tech Asia Sdn. Bhd.

Manufacture and sale of semiconductor manufacturing equipment, semiconductor
wafer bumping contract manufacturing

Malaysia

2006○

Sanko Gosei Technology (Thailand) Ltd.

Manufacture of automobile components

Thailand

1994

Bangkok Design Office

ThailandMichigan Branch

America

California Branch

America

Nagase Enterprise Mexico S.A. de C.V.

Import/export sales, intermediate trade, market development, information collection

Leon Branch Office
Nagase do Brasil Comércio deProdutos Químicos Ltda.

MexicoImport/export sales, intermediate trade, market development, information collection

Brazil2012

EuropeManufacturing and Processing

Automotive Mold Technology Co., Ltd.

Manufacture of automotive molds and dies

Thailand

2000○

Nafuko Co., Ltd.

Manufacture, import/export and sale of packaging materials and related equipment

Thailand

1996

●

○

Dainichi Color Vietnam Co., Ltd.

Manufacture and sale of color masterbatch blend for plastic

Vietnam

2005

Sales

○

PT. Toyo Quality One Indonesia

Manufacture of flame lamination products

Indonesia

2008

●

○

Majend Makcs Co., Ltd.

Plastic film processing

Thailand2002

Hungary Representative Office

Hungary○

PT. TUNE Manufacturing Indonesia

Painting of exterior auto parts/Manufacture of automobile components

Indonesia

2013

London Branch

EnglandAnnual Report 2016

Pac Tech-Packaging Technologies
GmbH

Semiconductor wafer bumping, manufacture and sale of semiconductor
manufacturing equipment

Germany

1995

Nagase (Europa) GmbH

Import/export, domestic sales, marketing

Germany

1980

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information○

NAGASE & CO., LTD.

2010

MexicoCritical Initiatives for Sustainable Growth

ON Colors & Chemicals (Shanghai)Co., Ltd.

Americas

Unique Products

Dongguan Branch Office

2004

Performance by Segment

Wuhan Branch Office/Chongqing Branch Office

MyanmarImport/export, domestic sales

Middle East Representative Office

1997

Taichung Office/Taipei Office

Guanlan Branch Co.

100

Location

Suzhou Branch Office/Ningbo Branch Office●●

Description of businessLeading Us to the Future●

Company nameSales and Servicing●●

Category

About the NAGASE Group● Consolidated subsidiary101

Investor Information (As of March 31, 2016)

Overview

Stock Exchange Tokyo (First Section)

Company NameNAGASE & CO., LTD.

Establishment

December 9, 1917

Capital¥9,699 million

Employees

971 (Consolidated: 6,267)

Main Business

Import/export and domestic sales of dyestuffs, chemicals, plastics, machinery, electronics materials, cosmetics andhealth foods

Main Banks

Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Mizuho Bank, Ltd.,
Sumitomo Mitsui Trust Bank, Limited

Main Offices

Osaka Head Office
Tokyo Head Office
Nagoya Branch Office
Nagase R&D Center
Nagase Application Workshop

Shareholders’ Meeting

Stock Status

Authorized Number of Shares 346,980,000 shares
Issued Number of Shares
127,408,285 shares

Number of
Shareholders

7,338

Composition of Shareholders

1-1-17, Shinmachi, Nishi-ku, Osaka City, Osaka, 550-8668 Tel: (81) 6-6535-2114
5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo, 103-8355 Tel: (81) 3-3665-3021
3-14-18, Marunouchi, Naka-ku, Nagoya City, 460-8560 Tel: (81) 52-963-5615
Kobe High Tech Park, 2-2-3, Murotani, Nishi-ku, Kobe City, 651-2241 Tel: (81) 78-992-3162
2-4-45, Higashitsukaguchicho, Amagasaki City, 661-0011 Tel: (81) 6-4961-6730

Treasury Stock (1)377 Thousand shares (0.30%)
Other Investors (215)
18,494
Thousand shares

Securities
Companies (29)896 Thousand shares(0.70%)

14.52%
35.16%
17.76%

Individuals and Others(6,808)22,633 Thousand shares

31.56%

Financial Institutions (55)44,802 Thousand shares

Foreign Investors (230)
40,204 Thousand shares

Number of
Shares Held Percentage of Total(thousands) Shares Outstanding (%)

Name

NORTHERN TRUST CO. (AVFC) RE
SILCHESTER INTERNATIONAL INVESTORSINTERNATIONAL VALUE EQUITY TRUST

6,780

5.32

The Master Trust Bank of Japan, Ltd.
(Trust Account)

6,208

4.87

Sumitomo Mitsui Trust Bank, Limited

5,776

4.53

Japan Trustee Services Bank, Ltd.
(Trust Account)

4,941

3.88

Sumitomo Mitsui Banking Corporation

4,377

3.44

NORTHERN TRUST CO. (AVFC)
RE U.S. TAX EXEMPTED PENSION FUNDS

4,018

3.15

Nippon Life Insurance Company

3,589

2.82

Reiko Nagase

3,565

2.80

Mitsui Sumitomo Insurance Company,
Limited

2,951

2.32

Hiroshi Nagase

2,946

2.31

* Shares owned by Hiroshi Nagase include shares nominally owned by
NAGASE & CO., LTD.

Monthly Share Price Range of Nagase

Organization (as of April 1, 2016)
Audit & Supervisory Board/
Audit & Supervisory Board Members

8012

(¥)

1,800

Risk Management & Compliance Committee

Nagase R&D Center

Internal Control Committee

Nagase Application Workshop

Performance by Segment

June 18, 1832

Code

Leading Us to the Future

FoundedPrincipal Shareholders

Share Price

TOPIX

TOPIX

3,000
2,500

1,200

2,000

900

1,500

600

1,000

Advanced Materials & Processing Segment

300

500

Corporate Planning Div.

Colors & Advanced Processing Dept.

0Intellectual Property Office

Polymer Global Account Dept.

Functional Materials Segment
Performance Chemicals Dept.

Board of Directors

Speciality Chemicals Dept.

President

Electronics Segment

Human Resources & General Affairs Div.

Electronic Chemicals Dept.

Finance Div.

Electronic Materials Dept.

Accounting Div.

Automotive & Energy Segment

Legal & Credit Div.

Automotive Solutions Dept.

Information Technology Div.

Energy Business Office

Audit OfficeLife & Healthcare Segment

2008/4

2009/4

2010/4

2011/4

2012/42013/4

2014/4

2015/4

2016/4

2008/4

2009/4

2010/4

2011/4

2012/42013/4

2014/4

2015/4

2016/4Monthly Trading Volume(Thousands of Shares)

15,00012,000

9,000

6,000

3,000

Beauty Care Products Dept.
0

Nagoya Branch

2006/4

2007/4

Nagase ChemteX Corporation
Hayashibara Co., Ltd.

102NAGASE & CO., LTD.

Annual Report 2016

NAGASE & CO., LTD.

Annual Report 2016

Financial and Corporate Information

Life & Healthcare Products Dept.

2007/4

Critical Initiatives for Sustainable Growth

Logistics Management Div.

2006/4

Unique Products

1,500

Security Trade Control Committee

About the NAGASE Group

Corporate Information (As of March 31, 2016)

103