Consolidated Financial Statements for the Fiscal Year Ended March 31, 2007
April 27, 2007
These financial statements have been prepared for reference only in accordance with accounting principles and practices generally accepted in Japan.

Nagase & Co., Ltd.

Stock exchange listing:Tokyo, Osaka (First Section)
Code number:8012
http://www.nagase.co.jp
Representative: Hiroshi Nagase, Representative Director and President
Contact: Takahide Nagata, Manager, Corporate Accounting Division
Annual General Meeting of Stockholders (scheduled):
June 27, 2007
Start of distribution of dividends (scheduled):
June 28, 2007
Filing of Securities Report (Yuka Shoken Hokokusho) (scheduled): June 28, 2007

1. Consolidated Results for the Fiscal Year Ended March 31, 2007 (April 1, 2006 – March 31, 2007)(1) Revenues and Income
Revenues(¥ million)
Fiscal 2007
Fiscal 2006

701,321648,023(Percentages represent change compared with the previous fiscal year.)Year-on-yearchange
(%)
8.2
12.6

Operatingincome(¥ million)
21,66917,596Year-on-yearchange
(%)
23.1
32.7

Ordinary income(¥ million)
23,231
18,798Net
Year-on-year
Earnings
Earnings per
Return on
Ordinary
incomechangeper shareshareequityincome/total(¥ million)(%)(¥)(diluted) (¥)(%)
assets (%)
Fiscal 2007
13,5675.2
105.85105.51
6.8
5.7
12,89224.2
100.33100.057.1
5.1
Fiscal 2006
(Reference) Equity in earnings of affiliates: Fiscal 2007: ¥519 million (Fiscal 2006: ¥120 million)

Year-on-yearchange
(%)
23.6
24.0
Operatingincome/total
revenues (%)3.1
2.7(2) Financial Position
Total assets
Net assets
Net worth ratio(¥ million)(¥ million)(%)
Fiscal 2007
422,859
211,672
48.5
396,773
196,620
49.6
Fiscal 2006
(Reference) Equity capital: Fiscal 2007: ¥205,083 million (Fiscal 2006: ¥ — million)

Net assets
per share (¥)
1,597.27
1,535.70(3) Cash Flows

Fiscal 2007
Fiscal 2006

Cash flows fromoperating activities(¥ million)
9,832(2,341)

Cash flows frominvesting activities(¥ million)(4,181)(3,809)Cash flows fromfinancing activities(¥ million)(8,420)9,330

Cash and cash
equivalents at end of
period (¥ million)
21,91922,936

2. Dividends
Total dividends
Dividends per share (¥)
Payout ratio
paid (full year)
InterimYear-end
Full year
Fiscal 2007
—
15.00
15.00
1,920
15.0
7.50
10.50
18.00
2,310
17.0
Fiscal 2006
Fiscal 2008 (est.)
8.50
8.50
17.00
—
15.5
Note: Dividends for the year ended March 2007 include a commemorative dividend of ¥2.00 per share.

Dividends/net
assets
1.1
1.1—

3. Projected Results for the Fiscal Year Ending March 31, 2008 (April 1, 2007 – March 31, 2008)(Percentages represent change compared to the previous interim period or fiscal year, as applicable)
Earnings
Revenues
Operating income
Ordinary income
Net income
per share(¥ million)(%) (¥ million) (%) (¥ million)(%)(¥ million)(%)(¥)
Interim Fiscal 2008
376,000
9.6
11,0003.8
11,900
4.1
7,000
7.9
54.52
Fiscal 2008 (Full year) 752,000
7.2
21,9001.1
23,6001.6
14,1003.9
109.82

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4. Other(1) Changes in Scope of Consolidation and Application of Equity Method: No(2) Changes in Accounting Rules, Procedures, Presentation Method, etc. for the Consolidated Financial Statements(a) Changes in consolidated accounting methods: Yes(b) Changes other than (a) above: Yes(3) Number of shares issued and outstanding (common stock)(a) Number of shares at end of period (including treasury stock): Fiscal 2007: 138,408,285 shares, Fiscal 2006:
138,408,285 shares(b) Treasury stock at end of period: Fiscal 2007: 10,012,431 shares, Fiscal 2006: 10,426,874 shares(Reference) Summary of Nonconsolidated Results

1. Nonconsolidated Results for the Fiscal Year Ended March 31, 2007 (April 1, 2006 – March 31, 2007)(1) Revenues and Income
Revenues(¥ million)
Fiscal 2007
Fiscal 2006

497,116
473,351
Net income(¥ million)

Fiscal 2007
Fiscal 2006

7,770
7,747

(Percentages represent change compared with the previous fiscal year.)Year-on-yearchange(%)
5.0
7.0

Operatingincome(¥ million)
8,246
6,822

Year-on-yearchange
(%)
0.3
29.0

Earnings per
share
(¥)
60.61
60.10

Year-on-yearchange
(%)
20.9
31.7

Ordinary
income(¥ million)
12,872
10,329Year-on-yearchange
(%)
24.6
21.5

Earnings per
share (diluted)
(¥)
60.42
59.94

(2) Financial Position
Total assets
Net assets
Net worth ratio(¥ million)(¥ million)(%)
Fiscal 2007
321,537
150,14246.7
305,347
148,920
48.8
Fiscal 2006
(Reference) Equity capital: Fiscal 2007: ¥150,019 million (Fiscal 2006: ¥ ― million)

Net assets
per share (¥)
1,168.07
1,162.72

2. Projected Nonconsolidated Results for the Fiscal Year Ending March 31, 2008 (April 1, 2007 –March 31, 2008)

Interim Fiscal 2008
Fiscal 2008 (Full year)(Percentages represent change compared to the previous interim period or fiscal year, as applicable)
Earnings
Revenues
Operating income
Ordinary income
Net income
per share(¥ million)(%)(¥ million)(%)(¥ million)(%)(¥ million)(%)(¥)
260,000
5.5
3,500(13.1)
7,200
(7.0)
5,000
(6.8)
38.93
520,000
4.6
7,000(15.1)
11,800
(8.3)
7,800
0.4
60.73

Note: Cautionary Remark Regarding Forward-Looking Statements
statements made in this document with respect to Nagase’s plans, strategies, beliefs and other statements that are not historicalfacts are forward-looking statements based on the assumptions and beliefs of the Company’s management in light of theinformation currently available to it and involve risks and uncertainties which may affect the Company’s future performance.

21. Business Performance(1) Analysis of Business Performancea. General Summary of Results
During the fiscal year ended March 31, 2007, the Japanese economy was steady due to expansionof capital investment and an increase in exports aided by a weaker yen. The global economy wassolid, with no significant slowdowns, despite factors including a growing sense of uncertainty
regarding the outlook for the U.S. economy.
As a result of Nagase’s efforts to expand its business results under such conditions, domestic
sales increased 5.7 percent year-on-year to ¥410.78 billion and overseas sales increased 11.9
percent to ¥290.53 billion, for total net sales of ¥701.32 billion, an increase of 8.2 percent.
As for profits, due to the increase in net sales and other factors including amortization of actuarial
gains on pension fund investments that arose in the previous fiscal year, operating income
increased 23.1 percent year-on-year to ¥21.66 billion and ordinary income increased 23.6 percent
to ¥23.23 billion. However, net income increased only 5.2 percent due to factors including a large
year-on-year decrease in gains on sales of property and equipment and investments in securities.
b. Summaries by Business Segment
Starting from the fiscal year ended March 31, 2007, business segment classifications have been
partially revised..
[Chemicals] Sales: ¥247.09 billion, 11.2 percent increase year-on-year
The Chemicals segment performed strongly overall due to higher sales of chemicals with final
applications in the automotive sector, and because sales in the general-purpose chemicals sector
increased mainly due to the effect from improved conditions in the materials market.
• In the performance chemicals business, which covers relatively upstream areas, sales
increased as a result of our focus on businesses related to the automotive industry, such as
urethane materials and coating materials. Both domestic and overseas sales of additives forplastics increased, and the increase in sales of general-purpose chemicals also contributed,
resulting in strong sales overall.
• In the colors and imaging business, which handles pigments, dyestuffs and other products
related to color, sales of ink and toner materials for printers, copiers and other officeequipment were flat, but sales of products such as functional additives for flat-panel displays
and conductive polymers increased. Sales of dyestuffs were flat, including overseas sales, on
which we are focusing our efforts. Overall sales of the colors and imaging business increasedslightly.
• In the speciality chemicals business, where we handle a wide range of surfactants used as raw
materials for detergents, cosmetics and other household toiletries, as well as materials fororganic synthesis such as oil solutions, silicones and fluorochemicals, sales were generally
strong. Overseas sales of epoxy compounds made by Nagase ChemteX Corp., the Group’s
core manufacturer, showed particular growth.
[Plastics] Sales: ¥244.68 billion, 6.7 percent increase year-on-year
The Plastics segment performed strongly overall due to increased sales overseas, mainly in Asia,and expansion of domestic sales to the automotive and other industries.

1

•

•
•
•

•

Sales of plastics for printers, copiers and other precision equipment applications were strong,
mainly in Southeast Asia. In Greater China, including Hong Kong and Taiwan, sales ofengineering plastics for CDs, DVDs and other media applications decreased, but sales
increased overall.
Sales to the automotive industry increased in Asia, primarily in Southern China. Sales inNorth America were flat, but sales of plastics and components expanded in Japan, resulting instrong sales overall.
In the business of materials and products for housing equipment and building materials, salesof our original products using wood composite materials increased. Sales of other building
materials and plastics also increased marginally, and sales increased overall.
In sales of products to the packaging industry in Japan, sales of materials for cosmetics
containers increased, but sales of products for household materials applications decreased. In
addition, sales of the electronic component assembly business, which we conduct as part ofthe plastics business, decreased.
Among the Group’s domestic manufacturing companies, sales were flat at Totaku Industries,
Inc., a manufacturer of flexible hoses and pipes for household appliances and industrial
applications and at Kotobuki Kasei Corp., a manufacturer of plastic trays used in foodpackaging. Sales at Setsunan Kasei Co., Ltd., which manufactures plastic coloring andcompounding, increased marginally.

[Electronics] Sales: ¥150.79 billion, 14.2 percent increase year-on-year
The Electronics segment performed strongly overall due to a general expansion of LCD-related
business and an increase in sales of precision abrasive materials for semiconductors and otherapplications.
• In business centered on original products manufactured by Nagase ChemteX Corp. and otherGroup companies, sales of modified epoxy resins increased steadily. Sales of supply andcontrol equipment and chemicals for front-end-of-line photolithography for LCDs andsemiconductors also increased, resulting in substantial growth in sales overall.
• In the LCD display-related business, including post-processing, sales of LCD modules
decreased sharply, and sales of optical film were down slightly. However, sales of derivative
businesses including LCD component processing and aluminum housing materials forelectronic equipment increased substantially, resulting in overall sales at the same level as theprevious fiscal year.
• Sales of materials for precision abrasives used in silicon wafer processing for semiconductors
expanded significantly, and sales of substrates for hard disks also increased. In addition, salesof encapsulants and other products used in post-processing of semiconductors were strong.
As a result, overall sales increased substantially.
• Sales of communication and imaging-related products, including Nagase’s original surface
inspection systems, were basically unchanged from the previous fiscal year.
[Life Sciences] Sales: ¥53.55 billion, 5.0 percent decrease year-on-year
In the Life Sciences segment, sales in the fine chemicals business were flat, while sales in thebeauty care products business decreased slightly. In addition, sales were affected by the drastic
restructuring of the medical care business which included withdrawal from businesses in theprevious fiscal year. As a result, sales decreased overall.
• In the fine chemicals business, sales of pharmaceutical intermediates decreased, but sales of
enzyme and inspection related products increased, resulting in flat sales overall.
• In the beauty care products business, which handles cosmetics and health foods, sales
increased slightly, centered on new cosmetic products. However, sales of health foods weresluggish, resulting in a slight decrease in sales overall.

2[Others] Sales: ¥5.19 billion, 34.9 percent decrease year-on-year
Sales of the Others segment decreased sharply overall due to the transfer of the business of direct
sales of products such as DVD movie software to end-users.
(3) Forecast for the Next Fiscal Year
Year ending March 31, 2008
Year ended March 31, 2007

Net Sales
752,000
701,321

Operating Income
21,90021,669Ordinary Income
23,60023,231(Million yen)
Net Income
14,10013,567Year-on-year increase (%)

7.2%

1.1%

1.6%

3.9%

The forecast for the next fiscal year is calculated on the basis of information available to theCompany at present. However, the forecast may differ significantly from actual results due tounforeseen changes in economic conditions or the operating environment, including the effect of
economic trends in the United States and China, the effect of changes in crude oil prices on thematerials industry, and changes in the supply/demand balance in the market, particularly for
LCDs and other electronic equipment related products.
(2) Analysis of Financial Positiona. Summary of Consolidated Balance Sheets
Total assets increased ¥26.08 billion compared with the end of the previous fiscal year to ¥422.85
billion. Investments in securities decreased due to a drop in stock prices, but notes and accounts
receivable and inventories increased due to the increase in net sales and because the balance sheet
closing date was business holiday.
Net assets including minority interests increased ¥9.29 billion compared with the end of theprevious fiscal year to ¥211.67 billion, despite a decrease in net unrealized gain on securities, as aresult of the increase in retained earnings and other factors.
As a result, the net worth ratio declined 1.1 percentage points from 49.6 percent to 48.5 percent.
b. Summary of Consolidated Cash Flows
Despite payment of accrued income taxes and other items, net cash provided by operating
activities was ¥9.83 billion due to income before income taxes of ¥23.09 billion.
Net cash used in investing activities was ¥4.18 billion due to factors including purchases ofproperty and equipment and purchases of investments in securities.
Net cash used in financing activities was ¥8.42 billion due to factors including a decrease incommercial paper and cash dividends paid.
As a result, the balance of cash and cash equivalents at the end of the period was ¥21.91 billion, adecrease of ¥1.01 billion compared with the end of the previous fiscal year.

c. Trends in Cash Flow Indicators
Year ended
March 31, 2003

Year ended
March 31, 2004

3

Year ended
March 31, 2005

Year ended
March 31, 2006

Year ended
March 31, 2007

Net worth ratio
49.5%
50.3%
49.8%
49.6%
48.5%
Net worth ratio based on
23.2%
38.8%
40.8%
51.0%
45.1%
market value
Interest-bearing debt to cash
3.8 years
2.6 years
8.2 years-2.1 years
flow ratio
Interest coverage ratio
10.1
13.9
3.3
-11.4
Notes: Net worth ratio = (Net assets – Stock acquisition rights – Minority interests) / Total assets
Net worth ratio based on market value = Market capitalization of shares / Total assets
Interest-bearing debt to cash flow ratio = Interest-bearing debt / Operating cash flow
Interest coverage ratio = Operating cash flow / Interest expense*All indicators are calculated on the basis of consolidated financial figures.
*Market capitalization of shares is calculated by multiplying the closing price of shares at the end of the period.
*Operating cash flow refers to net cash provided by operating activities in the Consolidated Statements of Cash Flows.
Interest-bearing debt refers to all debt for which interest is payable as declared in the Consolidated Balance Sheets.
Interest expense refers to the amount of interest paid as shown in the Consolidated Statements of Cash Flows.

(3) Dividend Policy and Dividends for the Fiscal Years Ended March 31, 2007 and Ending
March 31, 2008
The Nagase Group’s basic policy is to further enhance its corporate structure and earnings
capabilities to continue generating steady dividends for shareholders, based on comprehensive
consideration of medium-to-long-term demand for funds to meet future growth and consolidated
business performance trends. The Nagase Group intends to use internal funds effectively toenhance future business activities and its management base.
Based on this policy, for the year-end dividend applicable to the fiscal year ended March 31, 2007,
Nagase will increase the ordinary dividend by ¥1.00 per share and add a special dividend of ¥2.00
per share to commemorate the Company’s 175th anniversary, for a total dividend of ¥10.50 per
share. As a result, total dividends for the year, including the interim dividend, will increase by¥3.00 to ¥18.00 per share.
For the year ending March 31, 2008, Nagase plans to pay total dividends of ¥17.00 per share.
(4) Operating and Other Risks
The Nagase Group conducts business on a global basis. We provide trading, marketing, researchand development, and manufacturing and processing services in the five business fields ofchemicals, plastics, electronics, life sciences, and others. Due to the nature of these businesses,
the Nagase Group is exposed to a variety of risks. The following presents an overview ofoperating and other issues to which the Nagase Group is subject and that exert or could exert asignificant influence on investor decisions.
a. Risks Associated with Business Activities in General
The Nagase Group conducts a broad range of businesses in the fields of chemicals, plastics,
electronics and life sciences. Accordingly, significant changes in trends of the Japanese andglobal economies and the chemical industry in general have the potential to impact the Group’s
performance and financial position.
b. Influence of Market Conditions for Products
The Nagase Group has wide-ranging business operations centered on the chemical and plastics
businesses, which handle petrochemical products manufactured with naphtha as a raw material.

4Market conditions specific to each petrochemical product are shaped by the market conditions fortheir raw materials and the supply/demand balance. Changes in these factors have the potential toimpact the sales and profits of such transactions.
c. Impact of Fluctuations in Foreign Currency Exchange Rates
The Nagase Group undertakes import, export and non-trade business transactions that involve
foreign currencies. Fluctuations in foreign currency exchange rates impact the value oftransactions denominated in foreign currencies when translated into yen. The Nagase Group
works to minimize the risks associated with fluctuations in foreign currency exchange rates byhedging these transactions using forward foreign exchange contracts. However, fluctuations inforeign currency exchange rates have the potential to impact the Group’s performance andfinancial position. The Nagase Group also includes corporations domiciled in countries other thanJapan that maintain their financial statements in currencies other than Japanese yen. Fluctuations
in foreign currency exchange rates therefore have the potential to impact the consolidated
financial statements upon translation of the accounts of these corporations into Japanese yen.
d. Risks Involved in Operating Overseas
A significant percentage of the Nagase Group’s activities involve selling and manufacturing
overseas, principally in China, Southeast Asia, Europe and North America. As a matter of policy,
the Nagase Group makes every effort to determine trends in markets overseas and respond
appropriately to them. However, failure on the part of the Nagase Group to make accurate
projections due to unexpected events including factors related to the regulatory systems andcustoms of overseas countries would have the potential to impact the Group’s performance andfinancial position.
e. Impact of Changes in Stock Prices
The Nagase Group maintains a portfolio of marketable stock, primarily shares of companies withwhich the Group transacts business, and is subject to the risk of changes in the prices of theseshares. As a matter of policy, the Nagase Group seeks to reduce this risk by continuously
reviewing and reorganizing its shareholdings. However, changes in stock prices have the potential
to impact the Group’s performance and financial position. In addition, an erosion in the value ofpension fund investments due to a drop in stock prices would have the potential to impact profits
due to increased pension benefit costs.
f. Risks Associated with Customer Credit
The Nagase Group extends credit to domestic and overseas customers as part of its diverse
commercial transactions, and therefore assumes credit risk. To prevent these credit risks, theGroup hedges risks in ways such as obtaining collateral or guarantees, depending on thecustomer’s credit standing. However, there is no absolute certainty that these credit risks can becompletely avoided, and deterioration in the credit standing or the failure of a customer has thepotential to impact the Group’s business performance and financial position.
g. Risk of New Investments
The Nagase Group’s businesses center primarily on brokerage transactions, and the Group is
working to develop high-value-added businesses. As a matter of policy, the Nagase Group istherefore supporting the ability of the Nagase R&D Center, Group manufacturing subsidiaries
and other Group organizations to provide high-level technologies and information through5

measures such as aggressively investing in new businesses and strategic mergers and acquisitions.
However, this policy entails operating risks that are different from those inherent in the Group’s
conventional, low-risk brokerage businesses. The increased latent risks involved have thepotential to impact the Group’s performance and financial position.
h. Product Quality Risk
The Nagase Group operates the Nagase R&D Center and manufacturing subsidiaries to provide
high added value to customers, and devotes scrupulous attention to the quality of the technologies
and products the Group thus provides. However, issues such as defects in these products would
terminate sales and require the Nagase Group to reimburse customers, which would have thepotential to impact the Group’s performance and financial position.
i. Risks of Handling Various Chemicals
Chemicals are a core business of the Nagase Group, which imports and exports a diverse array of
products for a broad range of applications. The Group’s exports are therefore subject to theapplication of regulations that aim in part to maintain international peace and safety, including theForeign Exchange and Foreign Trade Control Law and the Export Trade Control Order, andimports are subject to the Chemical Substances Control Law and other laws and regulations. The
Nagase Group has therefore established the Security Trade Control Committee and the Chemical
Management Committee, which work to assure compliance with the above regulatory systems
and chemical management laws and regulations in China, Europe, the U.S.A. and other countries.
Contravention of these regulatory systems would result in restrictions on business activities, andtherefore have the potential to impact the Group’s performance and financial position.

2. Overview of the Nagase Group6

3. Management Policies(1) Basic Management Policy
The content has not changed significantly from that announced with the Summary ofConsolidated Interim Business Results on October 30, 2006, and is summarized as follows:
Nagase seeks to become a unique company that combines the functions of a trading company
and a manufacturer by exploiting technology, information and wisdom enhanced by experience.
We will continue reinforcing these functions and offering business solutions in order to be ourcustomers’ partner of choice in their business operations.
The summary of consolidated interim business results in which the management policy is
described in greater detail is available at the following URL:
http://www.nagase.co.jp/english/investor/08.html(2) Management Objectives and Medium-Term Strategies
The content has not changed significantly from that announced with the Summary ofConsolidated Interim Business Results on October 30, 2006, and is summarized as follows:
Medium-term Management Plan WIT2008
The Nagase Group has launched WIT2008 (W: Wisdom, I: Intelligence, T: Technology), a new
medium-term management plan for the three years from April 2006. We believe that now, when
performance is good, is the best time to reinforce our corporate structure in order for the Nagase
Group to continue to grow for the long term. Therefore, we have designated WIT2008 as aperiod of reinforcing our corporate structure for sustainable growth by balancing offensive anddefensive strategies while strengthening both. Accordingly, we have set numerical targets forfiscal 2008, the final year of WIT2008, of consolidated net sales of ¥770 billion andconsolidated operating income of ¥24 billion. As a management indicator, we will place
primary importance on consolidated operating income, which clearly indicates the performanceof main businesses in absolute amounts as well as explicitly showing changes in performance.
The summary of consolidated interim business results in which the management objectives andmedium-term strategies are described in greater detail is available at the following URL:
http://www.nagase.co.jp/english/investor/08.html(3) Issues to be Addressed by the Company

Implementation of the Company-wide Strategies of WIT2008
To reinforce the corporate structure for sustainable growth, we are conducting operations
according to the following seven strategies.
a. Expand the Business Base
We are working to expand existing businesses, establish new ones and expand our production
bases. Our aim is to further solidify the industry position that we have established to date througha variety of business activities that leverage the relationships with many excellent customers wehave cultivated and our network of sales and production bases, primarily in Asia.

7During the year ended March 31, 2007, Nagase Philippines International Services Corp., which
was established in the export processing zone of the Philippines in December 2005, began fullscale operations. In Vietnam, our plastics coloring joint venture also commenced production, andis expanding steadily. In addition, our sales companies in China have obtained permission to
conduct domestic sales in renminbi under that country’s new law. In India, we established asubsidiary in November 2006, and have set up operating bases in Mumbai and New Delhi.
b. Invest Aggressively in Strategic Areas
Centered on electronics, life sciences, automotive and overseas operations, which are the strategicareas of WIT2008, we will invest in carefully selected projects while ensuring they arecompatible with our technology and market strategies. In total, we plan to make investments on
the order of about ¥30 billion over three years for projects such as new construction andrenovation of production facilities at Group manufacturing companies. In the electronics sector,
our thin glass processing joint venture for LCD glass panel units, which we established in Taiwan
in November 2005, began full-scale operation during the past fiscal year, and we made additional
capital investments in anticipation of further expansion of production capacity. We also opened
the Semiconductor Applications Development Center in the Kitakyushu Science and Research
Park to promote development of elemental technologies in the semiconductor post-processing
business. German subsidiary Pac-Tech Packaging Technologies GmbH established a subsidiaryin Malaysia to strengthen its production of semiconductor manufacturing equipment and wafer
bumping services in Asia. In the life science sector, we constructed new facilities for commercial
production of phospholipids, which are a functional ingredient in foods, at Nagase ChemteX
Corp., and decided to further expand facilities for sterile preparations at Nagase Medicals Co.,Ltd.
c. Restructure for High Profitability
To increase our proportion of higher-margin businesses, we developing original Nagase Groupbusinesses centered on our manufacturing companies and the Nagase R&D Center. In this way,
we are working to achieve higher profitability for the entire Group by increasing the proportion ofhigh value-added businesses. During the past fiscal year, we expanded electronics related
production at Nagase ChemteX Corp. At the same time, we continue to address underperforming
businesses through restructuring and other measures. During the past fiscal year, we dissolved ourbase in Singapore, a subsidiary offering services such as analysis and design of energy-efficientfacilities, and transferred our business of direct sales of DVD movie software and other products
to end-users.
d. Maintain a Sound Financial Position
Nagase will continue to emphasize cash flow oriented management. While working to improve
operating cash flow, we will constantly review assets and focus on maintaining a sound financial
position. In particular, to manage the operating assets of our overseas bases, we are promoting thedevelopment of an inventory management and operating structure that achieves a balance
between meeting customer needs and minimizing stock requirements.
e. Ensure Thorough Risk Management
To comprehensively identify, understand and control the various types of risk that arise inconjunction with its operations, the Nagase Group must further enhance its risk management
system. Given this situation, we are reviewing our organizational structure to implement andenhance thorough regulatory oversight in all our business activities. We have been introducing
various measures, including the establishment of a new Compliance Division. In addition, weestablished the Internal Control System Committee to improve our internal control system, andinitiated a project to conduct specific inspections, confirmations and record-keeping as a group.

8

f. Improve the Consolidated Management System
To strengthen Group management, the Nagase Group is stepping up the measures it has been
taking to enhance ties with subsidiaries and affiliates in each business. These measures include
promoting sharing of strategies and information, and personnel exchange. In addition, we areworking to enhance the Group operating structure by reviewing the functions of domestic andoverseas subsidiaries and affiliates and by promoting more efficient use of management resources.
g. Enhance Personnel Quality and Quantity
Nagase’s most important asset is its people. We are currently hiring diverse personnel with a highlevel of expertise who are able to respond to the changes in our business structure and handle new
businesses. In addition, we have established a Human Resources Development Team and are
conducting a training program that will ensure employees of overseas subsidiaries and affiliates
contribute strongly to the Nagase Group’s future growth. In these and other ways, Nagase ispromoting human resource development at all levels, including at subsidiaries and affiliates.

9