Message from the President

Transforming Tokuyama into a corporategroup that contributes to the realization of asustainable society based on three domains:electronics, healthcare, and the environment
Tokuyama is stepping away from a business structure that is energy intensive to one
that is value creative, contributing to resolving social issues through proprietary
technologies. Looking ahead to 2030, we are now working on transformation in ourbusiness portfolio. President and Executive Officer Hiroshi Yokota will introduce theGroup’s Vision and medium- to long-term growth strategy, or where we are headed
as a Group.

Representative Director, President and Executive Officer

6

TOKUYAMA REPORT 2023

Tokuyama Value Creation

Tokuyama Value
Creation Strategy

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate DataManagement Approach

Business Always Grows During the Hard Times andDeclines During the Easy Times
When managing Tokuyama, my primary concern is to breakaway from the old, energy-intensive business structure, which
requires large capital investment, and to transform Tokuyama
into a youthful company that can respond quickly to changes
in the business environment and take on the challenge ofcreating new businesses.
Since our founding in 1918, Tokuyama has continued to
grow progressively by supplying basic materials, such as
caustic soda, cement, and PVC resin, to a wide array of
industries. Throughout our history, employees have come tobelieve that the company would be secure for many years aslong as we adhered to traditional business practices.
However, Tokuyama is now facing a historic wave of change.
There is a strong requirement to build a new business portfoliothat is flexible, one that responds to carbon-neutral initiatives
and structural changes in the economy and society. At thesame time, with a declining birthrate and an aging populationin Japan, it is essential for Tokuyama to grow businessglobally, not only in the downward-trending Japanese market,
but in overseas markets with real growth potential.
For Tokuyama to continue to prosper in the future, it isnecessary to restructure. We will consolidate our management
structure to include overseas expansion and new businesses,
moving away from having standalone businesses, being
product and Japan focused, and maintaining the familiar
mindset that employees now have. To successfully restructure
into a value-creative company, it is critical to include diversity
into an organization with employees who are on the same
wavelength. I am adamant that it is important to havediversity—employees with different genders, nationalities,
values, and lifestyles—to improve our productivity andcompetitiveness.

Tokuyama’s Mission and Value Creation

Becoming a Market-Focused Company That Places the Customer
First with Products and Services Based on Market Needs
We have continued to grow by being a product-focusedcompany developing businesses based on our strengths andproprietary technologies. For example, during soda ash
production, our legacy business, quicklime (calcium oxide) is
created as a byproduct. To capitalize on this byproduct, theCompany began producing cement made from quicklime. Byutilizing this strategy, we extended our business domains
based on our own products. Using our own byproducts wasan economic, rational strategy. By integrating our businesses,
we strengthened the competitiveness of the Tokuyama
Factory, our main factory. I believe that our previous businessstrategy—energy-intensive businesses based on coal-fired
power generation—was sound.
Today, however, the structure of industry is changing due
to the digital revolution. Being product focused is becoming
outdated now that responding to ESG (environmental, social,and governance) issues is becoming more and more serious.
How can we create new products and services that will be
demanded by society in the future? How can we create new
business models that contribute to economic development
while minimizing impact on the environment? Right now is thetime when the success or failure of these initiatives will

determine the fate of the company, being market andcustomer focused is vital for developing and supplying
products and services that are based on customer needs.
To transform Tokuyama into a company focused on
customers and markets, I believe we need to review ourmanagement principles, the foundation of our business. In
2021, we redefined our Mission as “To create a bright futurein harmony with the environment, in collaboration with its
customers, based on chemistry.” For realizing this Mission,
we established our Vision, or becoming the company that wewant to be. We also developed and are disseminating the“four values” that all employees must follow. At the same, we
formulated and announced Medium-Term Management Plan
2025, covering the five years from FY2021 to 2025. This plan
clearly presents the vision Tokuyama is aiming for and theinitiatives for achieving our goals.
I believe that through these initiatives we will convey toboth society and employees our management’s determination
for a sweeping change of course. Our founder, Katsujiro Iwai,
had a saying: “Business always grows during the hard times
and declines during the easy times.”* Doing things the sameway does not solve problems. I will continue to lead theTOKUYAMA REPORT 2023

7

Message from the President

transformation of Tokuyama’s business portfolio and ourrestructuring that is a prerequisite for that transformation.

*“It is in trying times that business grows. On the other hand, if a company iscontent with maintaining the status quo, business will begin to decline even if
conditions are favorable.”Business Portfolio Makeover

For the Electronics, Healthcare, and Environment Domains: Enhance
the Share of Consolidated Net Sales from Growth Businesses to 50%
In Medium-Term Management Plan 2025, announced in
February 2021, Tokuyama set three pillars as priority issues:
Transform the business portfolio, Contribute to mitigating
global warming, and Practice socially responsible
management. “Transform the business portfolio” is the mostimportant management theme so that we can forge ahead toachieve sustainable growth.
Tokuyama’s basic strategy for the future is to focus on
creating new businesses that help resolve social issues rather
than those business that are based on conventional energyintensive materials. Our new strategic targets are threebusiness domains: electronics, healthcare, and theenvironment. While generating sustainable cash flow in the
traditional Chemicals and Cement business segments, we willconcentrate our management resources on the three growth
segments: Electronic & Advanced Materials, Life Science, andEco Business. We will increase the share of consolidated net
sales of these growth business segments to more than 50%
by FY2025 and more than 60% by FY2030. In the electronics
domain, Tokuyama will capture the top share in high-purity
and thermal management materials, while forging ahead with
globalization. In the healthcare domain, we intend to become
the industry leader in the vision, dental, and diagnostic fields,
where we can differentiate ourselves with proprietary
technologies. In the environment domain, Tokuyama will
boost production capacity for water treatment membranes,
grow the waste gypsum board recycling business, andpromote recycling photovoltaic panels from the R&D stage, inthis way making the environment business a new pillar for theGroup’s future. In April 2021, we reorganized to build ournext-generation business portfolio, adding the Eco Businessto Chemicals, Cement, Electronic & Advanced Materials(Electronics), and Life Science (Healthcare) to form fivebusiness divisions. In April 2023, we reorganized Electronic
Materials and established the Electronic & Advanced Materials
Business Headquarters.
Restructuring our business portfolio does not mean that
our traditional businesses will be downsized or eliminated. For
example, the Cement business is mature, having
comparatively small growth potential. However, there isenormous potential for resource recycling. I believe that
reexamining existing businesses from the perspectives ofelectronics, healthcare, and the environment thenincorporating those businesses into a new corporate structure
is another way of transforming our business portfolio.
We are currently in the third year of Medium-Term
Management Plan 2025. We will mobilize the collective
strength of the Group to transform our business portfolio,
aiming to achieve net sales of 320 billion yen, operating profitof 45 billion yen, and ROE (return on equity) of 11% or more in
the final year of the plan (FY2025).
*After a change in depreciation method, we updated the FY2025 targets for
operating profit and ROE from 40 billion to 45 billion yen and from 10% to 11%,
respectively (announced on April 28, 2023).
Notice Concerning the Revision of Targets for the Final
Year of the Company’s Medium-Term Management Plan
https://www.tokuyama.co.jp/eng/news/pdf/20230428_02_
Release_e.pdf

Priority Issues in Medium-Term Management Plan 2025

Transforming the business portfolio

Increase the share of consolidated net sales from growth businesses toContribute to mitigating global warming

Expedite the development/commercialization of nextgen energy technologies; Reduce greenhouse gas (GHG)

emissions by 30%*Reduction target: Base year FY2019 GHG emissions of approximately 7.26 million tonnes

8

TOKUYAMA REPORT 2023

over 50%

Practice socially responsible management

Step up high-priority CSR initiatives to lay thegroundwork for growth and to realize our VisionTokuyama Value Creation

Tokuyama Value
Creation Strategy

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate Data

Transforming the Company to Realize Our Vision

Focusing on Four Themes: “Reform Organizational Culture,” “Strengthen
R&D,” “Promote DX,” and “Accelerate International Expansion”
To successfully reach the goals of Medium-Term Management

have been developed and utilized only for our current

Plan 2025 and realize Tokuyama’s redefined Vision, it isbusinesses, so it is essential for us to always consider whatessential to promote the four reforms described below.

we can do with our technologies in the new domains—

The first is “Reform Organizational Culture.” Tokuyama’s

electronics, health, and the environment—then convert thosehistory spans more than a century, having developed a wideideas into real-world products and services. There is a limit torange of businesses centered on bulk materials. At the same

what we can do on our own. To quickly provide the new value

time, the frontier spirit, which should be part of the Group’sthat society will demand in the future, we will acquire theDNA, has weakened, since the number of employees whofunctional strengths and development skills that we needfocus on stability has risen during our growth. This trend has

through collaborations with other companies, open innovation,

persisted among executives and mid-career employees who

and M&As. By promoting marketing-driven R&D, we will

have experienced success in the conventional sense, so theretransform into a value-creating company.

is a tendency to view the adventurous spirit and challenges of

The third theme is “Promote DX.” In addition to improving

younger employees less favorably. However, to pioneer theour operations by introducing digital technology, Tokuyama

three new domains—electronics, healthcare, and thewill utilize AI and IoT (Internet of things) in various areas,

environment—we need an aggressive group of people who

including by upgrading supply chain management systems

are fulfilled and satisfied by taking on challenges in unknown

and boosting productivity at our plants. The goals are to

fields. I believe that restructuring our business portfolio will

fundamentally change the way we work and to strengthen ourchange our organizational culture and the current mindset ofcompetitiveness. We also intend to utilize materials informatics

our employees. I envision a future where a change in(MI) to accelerate R&D.

awareness will lead to a change in behavior, which in turn will

For the fourth theme, “Accelerate International Expansion,”transform our business structure and way of doing business.

we will continue growing overseas production and sales, while

For the second theme, “Strengthen R&D,” we willdeveloping our international markets, aiming to become aencourage customer-oriented R&D (research andglobal company with growth potential Tokuyama currently has

development) with marketing as the cornerstone. Over our

manufacturing and sales bases in eight countries and regions

long history, we have developed and built up a storehouse ofaround the world, mainly in Asia. The percentage of overseas

technologies that have changed the nature of industry andsales in FY2022 was 29%, and we plan to increase this toenriched people’s lives. However, many of these technologies

50% or more in FY2030. We have formed joint ventures withTOKUYAMA REPORT 2023

9

Message from the President

Formosa Tokuyama Advanced Chemicals Co., Ltd. (FTAC) inhigh-purity IPA for the electronics industry where theTaiwan and STAC Co., Ltd. (STAC) in Korea, both leading

demand is.

companies in their countries, so that we manufacture and sell

Contribute to Mitigating Global Warming

Becoming Carbon Neutral by Decarbonizing through Developing
and Supplying Environmentally Friendly Products

10

Tokuyama is one of the largest CO2 emitters among Japanese

One specific initiative for becoming carbon neutral is oncompanies. In addition to CO2 from our own power plants, fortrack: converting our captive power plants to biomass co-fired

example, CO2 is emitted from our core soda ash operations.

generation. Using palm kernel shells (PKS), among other

Much CO2 is also produced when limestone and coke arewaste biomass, we have started to convert one of thecalcined in lime furnaces. As well, ships that transport

Tokuyama Factory’s four power plants to biomass co-fired

limestone burn heavy oil. In other words, our current businessgeneration and are set to increase, from FY2025, thestructure is the basic reason for the amount of CO2 that wepercentage of power from biomass co-fired generation. Also,

generate.

the Shunan Industrial Complex Decarbonization Promotion

On the other hand, global industry is making major strides

Council, a public-private organization, has been studying a

toward achieving carbon neutrality by 2050. For Tokuyama tocarbon-free supply chain for ammonia, a fuel for in-houseremain a sustainable corporate group, it is essential to quickly

power generation. We have a plan to utilize over one million

determine a carbon-neutral/decarbonized business model

tonnes of ammonia annually at the Shunan Complex

while consistently producing and supplying basic materials(Yamaguchi Prefecture) by 2030.

that support industry, including caustic soda, PVC resin, andIn addition to developing and supplying environment-

polycrystalline silicon. Given this recognition, we have set

friendly products, we are developing CCU (carbon capture“Contribute to mitigating global warming” as a priority issue inand utilization) technologies to recycle CO2 into raw materials

our Medium-Term Management Plan 2025. By decarbonizing

for chemical and other products while extending ourwhile developing and supplying environmentally friendly

environmental management. We intend to keep contributing

products, we intend to reduce GHG (greenhouse gas)

to a sustainable global environment and industry byemissions by 30% in FY2030 compared with FY2019 levels,

establishing an environmentally conscious business model

putting us on a strong path for carbon neutrality.

that is not heavily dependent on fossil fuels.

TOKUYAMA REPORT 2023

Tokuyama Value Creation

Tokuyama Value
Creation Strategy

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate Data

Practice Socially Responsible Management

Aiming to Realize our Vision through Materiality Initiatives
Tokuyama has identified 10 key CSR material issues inchange society for the better do not come from staying the

Medium-Term Management Plan 2025 as an action plan tocourse; new products and services are born from a vibrantrealize our Vision, redefined in 2021. These CSR materialorganizational culture with diverse employees and values thatissues include “Helping to fight global warming” andadapt over time. It will be necessary for us to hire and“Conserving the environment.” We believe that a businesspromote a diverse workforce. New employees will havestructure with less environmental impact—from transforming

different genders, nationalities, races, and values, and weour business portfolio—will result in improved CSR

should support their development through internal andmanagement. One initiative for security and disasterpersonnel management systems. Transforming our businessprevention as well as occupational safety/health isportfolio should go smoothly if we build an organization that

encapsulated in the material issue “Preventing accidents andwelcomes diversity and offers job satisfaction.

preparing for disasters,” a fundamental and important theme
for our business operations.

In the past, CSR was seen as making a social contribution
separate from a core business. Today, however, I view CSR

To deepen our relationship with society, we haveinitiatives as inseparable from the company’s Mission, social

positioned “Developing human resources,” “Promotion of

obligation, and growth strategy. I believe that sincerely

diversity and career fulfillment,” and “Promotion of physical &addressing material management and social issues will be themental health” as important issues. New businesses that

predominant driving force behind our sustainable growth.

A Message for Our Stakeholders

My Paramount Responsibility as President and Executive Officer isto Transform Tokuyama into a New Company
My most important responsibility as President and Executive

important management themes. Given the limited

Officer is to transform Tokuyama into a new company. This

management resources we have, it is not possible tostatement really says it all. We will change the mindset of our

implement all of these measures in a comprehensive way, so

employees, the organizational culture, systems, and businesswe must identify businesses and initiatives that we need tostructure. The Company will consistently take on new

focus on now by backcasting from where we want to be inchallenges, while adapting to the times and communicating

2030, and to optimally allocate funds, mainly to growth areas.

Tokuyama’s unique value to industry and society. I believe

Although the business environment is likely to remainthat this is the only way to live up to the trust and expectations

uncertain with rising geopolitical risks associated with Russia’sof our stakeholders.

invasion of Ukraine, soaring raw material prices, andWe have a mountain of work ahead of us, including

fluctuating exchange rates, Tokuyama is determined to

streamlining our traditional technologies through DX, R&D andpromote assertive, bold management under a solid

capital investment in growth businesses, on top of developing

governance structure to achieve sustainable growth andand growing our global operations. Improving our financial

maximize corporate value into the future. We sincerely ask for

position and further enhancing shareholder returns are also

the continued support of our stakeholders.

TOKUYAMA REPORT 2023

11

Value Creation Process
The Tokuyama Group is contributing to resolving social issues through business operations and to creating asustainable future, in line with our Mission. These steps are highlighted in the Value Creation Process.

Management challenges
SocietyJapan

Planet Earth

Accelerated change in industrial structure,
rapid digital revolution

Domestic demand shrinkage,
growing health consciousness

Growing environmental
consciousness, environmental
regulatory tightening

InputsBusiness

Stable financial baseTotal assets: ¥478.3 billion

Financial
Capital

Net assets: ¥241.6 billion

Tokuyama’s Strengths

Rating*: A*R&I Issuer Rating

Regionally oriented manufacturing base
Capital expenditures: ¥35.6 billion

Manufacturing
CapitalUnique technology/
manufacturing
processes

Steps towardachievingour Vision
Restructure theorganizational
cultureNumber of production plants:


20 in Japan, 5 overseas
Strengthen R&D

Unique technologies and manufacturing processes
developed over more than a century

Intellectual
CapitalR&D expenses: ¥13.6 billion
Number of patents held: 2,537

Manufacturing bases
for more efficient
production
Promote DX

Human resources with a common sense of values
Turnover*: Under 1%
Percentage of female managers: 4.7%

Human Capital*Non-consolidated

Zero
waste emissions

Accelerateinternational
expansion

Long valued customer and partner network
Number of countries and regions with sales1: 40 countries
Amount subsidized by Tokuyama Science Foundation2:

Social Capital
Approx. ¥1.23 billion
Number of times of stakeholder engagement: 144
1. Non-consolidated
2. Cumulative total for FY1998 to FY2022

Efficient use of stable supply of resources
Energy input: 57,300 TJ
Water resources input*: 41,932,000 m3

Natural Capital

CSR Priorities• Helping to fight global warming• Conserving the environment• Preventing accidents andpreparing for disasters*Excluding seawater used for cooling

Toward Tokuyama’s
12

TOKUYAMA REPORT 2023

Tokuyama Value
Creation Strategy

Tokuyama Value Creation

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate Data

To create a bright future in harmony with the environment,in collaboration with customers, based on chemistry

MissionVisionValues• Be a value-creative company that places first priority on R&D and marketing• Be a company that never stops challenging new domains while refining
and exploiting its unique strengths• Be a company with healthy employees who have healthy families
and take pride in their work at their company• Be a company that fosters bonds with people in communities
and societies worldwide• Commitment to customer satisfaction as a profit source• A broader, loftier perspective• Employees who consistently surpass their predecessors• Integrity, perseverance, a playful spirit and boldness

Model

Outputs and Outcomes

Growth businesses

Research anddevelopment capabilities
Marketing Strengths

Electronic& Advanced
Materials

Supply products and services
required throughout society
Maintain performance of advanced
electronic equipment and energy
savings through:• Semiconductor miniaturization• Higher semiconductor performance

Improve quality of life with better
health and preventive care

Traditional businesses• Better performing eyeglass lenses• Enhanced dental care
• Support clinical examinations for faster andAdvance unique
technologies, explore newtechnologies, streamline
business operations,
expand overseas

more accurate diagnosis and treatment

Chemicals

Transform
Business
Portfolio

Contribute to a closed-loop society
by recycling waste
Life Science• Develop a closed-loop society throughwaste recycling• Contribute to mass-processing of waste• Conservation of aquatic environments with

Cementinitiatives such as waste liquid desalination

Outputs (FY2022 results)

DX
Human capital strengths
Eco BusinessNet sales¥351.7 billion

Consolidated operating profit¥14.3 billion

Current net income attributed
to shareholders of theparent company¥9.3 billion

FY2030 target• Developing products and technologies
that address social issues•P romoting CSR procurement• Improved chemical management andproduct safety•P romotion of diversity and career fulfillment• Engaging with local communities•D eveloping human resources•P romotion of physical/mental health

Percentage of consolidated net
sales from growth businesses 60% or more
Percentage of consolidated
overseas net sales
GHG emissions

50% or more
30% reduction(compared with FY2019 levels)

Sustainable Growth
TOKUYAMA REPORT 2023

13

Tokuyama’s Strengths Supporting Value Creation
Tokuyama’s technologies are the foundation for creating value, over the course of more than a century

Uniquetechnology /manufacturing
technology
Along with the development of the Japanese chemical industry, Tokuyama has added
cement and chemical products to the product lineup. The Company is currently
developing businesses based on our proprietary strengths in technology, mainly inthe advanced electronic materials that support cutting-edge semiconductor
manufacturing, as well as the life sciences and the environment.

Separation Technology using Ion-Exchange Membranes

Molecular Design / Organic Synthesis Technology

In the 1960s, the Company was the first in Japan to commercialize ion-

Photochromic materials used for photochromic lenses require

exchange membranes. Today we offer separation technology for an array ofmolecular technology to design and control the chemical structure forapplications that use membranes that are resistant to chemicals as well asa specific purpose, such as color tone and fading as well as advanced

selective permeation, allowing only the target substance to pass through.

organic synthesis technology to create specific substances. The

This advanced technology is used in a

Company excels in all of thesewide range of industries, including thetechnologies, having a strong track

production of salt from seawater, therecord in the eyeglass lensrecovery of specific valuable materials,

materials sector. In the future,refining and producing food such asthese technologies will be extended

wine and soy sauce, as well as thefor use in a wider range
of applications.

production of acids and alkali fromneutral salt waste liquids.

Ion-exchange membrane

High Purity / High-Sensitivity Analysis Technology

Eyeglass lens materials

Direct Nitriding / Reductive Nitriding Technology

Our polycrystalline silicon for semiconductors, a raw material for

The Company’s high-purity aluminum nitride has the world’s top

silicon wafers, has the highest level of purity in the world. In addition,market share. Their excellent sinterability (hardens easily) is due thehigh purity IPA for the electronics industry, used for precision cleaning

reduction nitridation method a proprietary manufacturing process.

of semiconductor wafers and electronic devices, is characterized by aThis material is highly valued for its thermal conductivity and thermal

low level of impurities due to a

expansion coefficient, far

unique manufacturing method. The

exceeding competitors’ products,

Company’s high level of purity andand is used as a material forhigh-sensitivity analysis technology,

semiconductor heat dissipationthat does not overlook minute

substrates and semiconductor

amounts of impurities, facilitates

manufacturing equipment.

the development andmanufacturing of these products.

High-purity polycrystalline silicon

Waste Treatment Technology

Powder Control Technology

Since our beginning, the Company has worked hard on effectively

Using technology gained through years of experience, we provide

using and recycling waste in the cement manufacturing process, as

advanced powders, such as silica and aluminum nitride, for filling inwell as accepting large amounts of other waste, such as waste

resins and producing high-level functionality for composite materials

plastic, from sources outside of the Company. The cement kiln’s

by applying certain technologies including particle shape control andcombustion temperature is

the surface modification of powders.

extremely high (1,000 to 1,800˚C),

These techniques are developing

so combustible materials arequickly, and the Company is at theburned completely and thefrontier of the commercialization of

noncombustible materials can be

powders with unique properties,

used as substitute raw materials

including spherical aerogels andfor cement. This processing
technology leaves no residue.

14

Thermal management materials

TOKUYAMA REPORT 2023

hollow silica.
Resource recycling

Sunseal™

Tokuyama Value Creation

Manufacturingbases formore efficient
production

Tokuyama Value
Creation Strategy

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate Data

Zero waste
emissions

Tokuyama has manufacturing bases for production worldwide: in eight countries andregions around the world, mainly in Japan and Asia. In addition to making production
more efficient at every site, the Company is reducing waste and recycling, aiming forzero waste emissions.

Tokuyama Factory

Kashima Factory

The Tokuyama Factory, located in Shunan City, Yamaguchi Prefecture,

The Kashima Factory, Kamisu City, Ibaraki Prefecture, Japan started

Japan, where Tokuyama was founded, is mainly responsible for

operations in 1985 as a manufacturing plant for life science products.

producing chemical products, cement, advanced electronic materials,

Using organic synthesis technology, accumulated over many years as

and products for eco-businesses. Starting with the production of soda

the company’s core technology, we have developed more efficientash, the company’s original business, we expanded the product range,

production in a wide range of fields, including APIs and intermediates,

while responding rapidly to changes in social and economic requirements.

eyeglass lens materials as well as dental materials and equipment.

What sets us apart from our competitors is the technology we have

We provide these products to more than 70 countries and regions

developed and the knowledge gained from every business; materials,

around the world. In particular, photochromic materials that change

including by-products; and the integrated, cooperative use of energy.

color in response to ultraviolet rays and dental materials and equipment

These factors are the source of Tokuyama’s market dominance. The

manufactured by Tokuyama Dental Co., Ltd. have a strong presence in

Factory has a zero waste emission rate of 99% or more fromthe global market. The Company is also working on reducing theprocessing waste at cement

environmental impact ofplants. In recent years, wemanufacturing processes,

have strengthened

and in 2023 we installed

cooperation with nearby

solar panels at this facility

companies and local

to utilize moregovernment, and are

renewable energy.

accelerating thedecarbonization of the
Shunan Industrial Complex.

Tokuyama Factory aerial photoTokuyama Chemicals (Zhejiang) Co., Ltd. (China)
Tokuyama Chemicals (Zhejiang) Co., Ltd., a subsidiary in China 100%

Kashima Factory building with solar
panels installed

Formosa Tokuyama Advanced Chemicals Co., Ltd.
(FTAC) (Taiwan)

owned by Tokuyama, was established in 2005 to fill the robust

The global semiconductor industry is expected to continue growing

demand from local customers. This company produces advanced

due to the spread of 5G and the penetration of AI. Demand for theelectronic materials, including fumed silica, high purity chlorosilane,chemicals essential for precision cleaning semiconductors andand high purity chemicals for the electronics industry. In particular,

electronic components is also intensifying. In light of these trends, in

fumed silica, with a broad range of applications, such as rubber andOctober 2020 the Company established and took a 50% stake inelastomers, maintains a solid share of the Chinese domestic market,

FTAC, a joint venture in Kaohsiung, Taiwan that manufactures and sells

and its superb quality is highly appreciated by our customers. Thishigh purity IPA for the electronics industry. Together with Taiwan

company will complete construction work in FY2023 to increase

Tokuyama Corporation, also a manufacturer of high purity IPA, theproduction of a hydrophobic grade of fumed silica, for which demandCompany has built a production and supply system for fulfilling local

is expected to grow. Going forward, Tokuyama Chemicals (Zhejiang)

demand in the Taiwanese

will satisfy customer

semiconductor market.

requirements with a

FTAC will grow andstrong production

intensify the business for

system that supports

advanced electronic

the competitiveness ofmaterials in Taiwan by

local production andleveraging our strengths in

the consistent supplyof products.

integrated production from
Tokuyama Chemical (Zhejiang)raw propylene.

FTAC

TOKUYAMA REPORT 2023

15

Improving Value Creation —Four Driving Forces for Transforming the Business Portfolio—Marketing Strengths
Fortifying customer-oriented marketing,refining Tokuyama Group’s unique
technologies to create new value
Director, Managing Executive Officer, General Manager of the Research andDevelopment Division

Fumiaki Iwasaki
Tokuyama’s R&D has two “wheels.” The first wheel is development

information gained through marketing, the Company is evaluating agroups under business divisions that are directly connected to

new business model: using the Group’s unique technologies toexisting businesses, and the other wheel is the R&D Division

create ideas for researching and developing new business. For

responsible for strategic medium- to long-term themes. In Medium-

example, our silica-based products have strengths in powder

Term Management Plan 2025, the Company has set one part ofcontrol technology, so the Company is developing new applications,

the Vision as “being a value-creative company that places first priority

including cutting-edge semiconductor materials and cosmetics. The

on R&D and marketing.” The mission of the R&D Division is toCompany has already begun making some sample shipments.

reinforce Tokuyama’s technological strengths by cultivating unique

To capitalize on high-purity technology for semiconductor

technologies and acquiring new ones. The overall goals are toindustries, it is necessary to improve our analysis technology.

create new value in growth businesses and for R&D to become theTokuyama Taiwan Corporation, an R&D center in Taiwan, along

driving force for transforming the business portfolio.

with the Tsukuba and Tokuyama research laboratories in Japan, is

In the past, the Company tended to be focused on the

now improving the ability to analyze trace impurities indevelopment of existing products and was softer on marketing.

semiconductor materials using new analytical equipment. For

There are many definitions of marketing, but generally speaking,Tokuyama to steadily capture opportunities for growth in themarketing means “creating a system that sells and selects products

semiconductor industry, we have a system in place that supports

and services (that makes customers want to buy them).” We believe

business growth through technology.

that R&D in a company boils down to “the act of creating productsTechnical human resources are essential for the successfulthat customers want to buy.” So, the Company established atransformation of organizational culture. To create new value in new

specialized marketing organization under the R&D Division in Aprilmarkets, the Company will cooperate with external organizations, in

2021 and strengthened this system for marketing that anticipates

industry, academia, and government, as well as recruit

market needs and technological change. Today, based on

career professionals.

Focusing on new applications—Developing silica-based products for cosmetics—
The mission of the Marketing Group is to contribute to achieving thebusiness strategies of Medium-Term Management Plan 2025 as well
as formulating and executing of the Group’s technology strategy. The
Group marketing teams anticipate market requirements andtechnological trends using specialists from each business field. To
develop new applications for silica-based products, the Groupparticipated in exhibitions for cosmetics in the United States, the EU,
and Japan. We exhibited cosmetics formulated from the Company’s
products by showing visitors to the exhibitions the outstanding
characteristics of these cosmetics, such as their smoothness. The
Group will capitalize on the strengths of our silica-based products by
anticipating the demand to replace plastic microbeads, now being
restricted to help protect the environment.

16

TOKUYAMA REPORT 2023

Exhibition in New York

Tokuyama Value Creation

Tokuyama Value
Creation Strategy

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate Data

Research and Development Capabilities
Improving and strengthening corporate development centers

Opened the Tsukuba Second Research Laboratory
The Company will open the Tsukuba Second Research Laboratory in the fall of 2023 to transform thebusiness portfolio and to strengthen R&D for the new domains: electronics, healthcare, and the environment.
The Tsukuba Second Research Laboratory will receive some of the roles of the existing Tsukuba ResearchLaboratory as well as conduct R&D in the healthcare field, centered on developing medical materials anddiagnostic reagents, and in the environmental field, including ion-exchange membranes used in waterelectrolysis to produce hydrogen.
For its part, the Tsukuba Research Laboratory will focus on R&D in the electronics domain, centered on
next-generation semiconductor-related materials, while retaining R&D for eyeglass lens materials as well as
dental material and equipment made by Tokuyama Dental Corporation. Tokuyama also plans to install pilot

Tsukuba Second ResearchLaboratory exterior

equipment at all research laboratories to build a development approach that responds quickly to customers’
needs. As a result, the two research laboratories will have an R&D system with about 300 people aiming tobecome a unified R&D base that creates new value by integrating technology and expertise in a wide rangeof fields, including organic and polymer chemistry, biotechnology, and inorganic chemistry.

Strengthening the Tokuyama Research Laboratory
The Tokuyama Research Laboratory, our R&D center in western Japan, takes advantage of being locatedon the site of the Tokuyama Factory to research and develop new materials and technologies, while working
closely with business divisions. This research laboratory, with a key responsibility for using DX for R&D, isworking to speed up research and development by utilizing the latest digital technologies, such as materials
informatics. At the Analytical Science Department located in this laboratory, we are refining our own uniquehigh sensitivity analysis technology and improving the overall ability to analyze trace impurities in the
Silica Developed Products

advanced electronics device field, including ultrahigh purity polycrystalline silicon and chemicals for advanced
semiconductor manufacturing processes.

Research at Tokuyama Taiwan
The Taiwan Research Laboratory, established in 2018 as the Group’s first overseas R&D center, has been
growing through stages, first becoming a local subsidiary then full-scale operations in December 2022 as
Tokuyama Taiwan. As a company responsible for both sales and R&D, this center jointly develops productswith the Industrial Technology Research Institute (ITRI) of Taiwan, Tokuyama’s partner since the time of the
Taiwan Research Laboratory, and is working on new business development in Taiwan. The number of
personnel is increasing, and a new cleanroom will start operating in July 2023. Through R&D at the cuttingedge of the semiconductor industry, this center will hone our technological strengths and nurture humanresources as well as bolster their technical support for customers looking toward the growth of thesemiconductor industry.

Health food products soldin Taiwan

In the healthcare field, Tokuyama Taiwan launched a health food business in Taiwan in January 2023
after developing a brand name called Vitura—combining the words vivid and natural—selling health foodsupplements through the Vitura website in Taiwan.

Strengthening Open Innovation
To speed up our R&D, the Group conducts joint research with universities in and outside Japan, as well aswith national research institutes. In Taiwan, where the semiconductor industry is concentrated, the Grouphas worked the Industrial Technology Research Institute (ITRI) of Taiwan since 2018 through our contact
point Tokuyama Taiwan, which is responsible for research and development. We are continuing to work ontechnological developments for the miniaturization and sophistication of semiconductors. In recent years, wefirmed up partnerships in other fields than electronics by jointly developing useful technologies in thehealthcare field, and by working on next-generation technology themes in the environmental field.

TOKUYAMA REPORT 2023

17

Improving Value Creation —Four Driving Forces for Transforming the Business Portfolio—DX
DX (Digital Transformation) at Tokuyama
For Tokuyama, DX is not simply about streamlining operations byn

TDX Basic Policy

Tra
Co
rp
ns
f
rm orate A orm
ati
on
cti
ati
aim
vi
on
ed ty
at
ac
hie
vin
gv
isio

using digital technology. We think of DX (TDX*) as using the power ofdigital technology to help restructure our organization and operations
to achieve our medium- and long-term goals that will transform theCompany’s business portfolio. We are using AI and big data to ramp
up our R&D, as well as to improve supply chain management. At the

ns

tan

Phase 1: Steps to ensure corporate
survivalCo

DX initiatives from the perspective of overall optimization. By steadilyt tr

key people who will lead the transformation were assigned to eachdepartment. The Company has established a system to acceleratesfo

The DX Promotion Group was established, in April 2021, and thePhase 2: Preparing foundations
for transformationanpass on expertise.

Prsales departments to expedite decision-making and to visualize andomotesame time, we are using digital technologies in our corporate andPhase 3: Promoting
transformation

executing a multifaceted DX strategy, Tokuyama will create new
business models that anticipate the changing times.

Changes in the World
Declining workforce, progress in digitalization,changes in competitive environment*TDX: Tokuyama’s name for DX

FY2030Overcome Change

TDX Overview and Initiatives by Area
Tokuyama is now concentrating management resources on

Image recognition technology and AI are used to improve quality

Medium-Term Management Plan 2025, which ends in FY2025.

traceability throughout all processes, from raw materials to

Under this medium-term plan—based on the idea of building a new

products. Workstyle DX focuses on building an efficient,business portfolio where businesses in the domains of electronics,

comfortable work environment for going paperless, while R&D on

health, and the environment account for more than 50% of sales—

DX focusses on innovative new materials using materials informatics

the Company has set using DX as a management theme for(MI) and information sharing among researchers. For theserestructuring. Tokuyama will invest up to 10 billion yen over the

initiatives, the Company has set 15 quantitative targets to be

five-year period covered by the plan and will invest the resulting

achieved by FY2025, and we are working hard to achieve them.

cash and human resources into the three growth business domains

Tokuyama was designated as a DX certified business operator
by the Ministry of Economy, Trade and Industry (METI) in January

for higher growth and to improve corporate value.
Eight categories have been set for the development of DX, such

2022 in recognition of transforming the Company through DX.

as manufacturing, workstyles, R&D, and business transformation. A

Tokuyama will continue to improve productivity, enhance

project promotion team has been set up for each category tofunctionality, and speed up corporate initiatives by utilizing data anddesign and put into place specific initiatives. In manufacturing DX,

digital technology, with the goal of becoming a corporate group that

digital technology is used to improve plant management and to

grows sustainably.

stabilize operations, with the goal of making factories “smarter.”

TDX Promotion System

DX Certification (Acquired January 2022)
Project Owner: President

Steering Committee:
Executive Committee Members

PM: General Manager,
Corporate Planning Division

TDX ProjectWorkstyle
DX Project

Corporate
DX Project

Manufacturing DX Project
BusinessInnovation PJ

18

TOKUYAMA REPORT 2023

DigitalPlatform PJ

Quantitative Target: DX Promotion Index
R&D
DX Project
SCM DX Project
Other DX activities
in Tokuyama GroupImprove to 3.5 points by FY2025 (perfect socore of 5 points)

FY20200.80 pts.

FY20222.43 pts.

(Average score of 2.04 points for large Japanese corporations)*DX Promotion Index: Simplified self-diagnostic metrics for promoting digital management
reforms (formulated by the Ministry of Economy, Trade and Industry, Japan)

Tokuyama Value Creation

Tokuyama Value
Creation Strategy

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate Data

Human Capital Strengths
Our Approach to Human Capital
Tokuyama sees employees as indispensable for sustainable growth

realize our Vision, as well as the direction for growth. This policy

because they are the most important “management capital.”

includes 10 articles as the basic principles of the human resources

Employees, or human capital, need the courage to changesystem and our policies, and underscores our maximum support

themselves, the courage to change the system, and the courage tofor the success of executives and employees.

take on challenges in new fields in order for us to transform ourIn FY2022, we developed a formal Human Recourses

business portfolio and provide solution-oriented products andManagement Strategy that links to our Medium-Term Management

services in the global market. The Company expects and supports

Plan 2025. This strategy includes initiatives such as collaboration

the growth of employees who embody the “four values” set out inwith business divisions, the revitalization of human resources

our Vision.

accustomed to Tokuyama, proactive recruitment, retention, and the

The Tokuyama Group Human Resources Policy states clearly

development of strategic human resources.

what the company expects of executives and employees who will

Investing in Human Capital
Tokuyama has set up training programs to foster and strengthen

The human resources system that supports the goals ofhuman resources, the source of our corporate competitiveness,

Tokuyama’s Vision was introduced ahead of Medium-Termand to help improve the next generation of employees.

Management Plan 2025, and assessing behavior in relation to the

In April 2022, we developed and released the Tokuyama Group
Human Resource Development Platform within the Company. This

“four values” has been added to the evaluation items forhuman resources.

platform includes and aligns the types of employee that theCompany expects and the skills required for each type of employee.
The platform is also used for guidelines that help develop current
job skills, as well as the skills required for career development.

Tokuyama Group
Human Resource
Development Platform(1) Personnel Policy

While nurturing the advanced engineers who support business(2) Career Plan

execution, the Company is focusing on global human resources
and conducting training for the skills necessary for the global
market. In addition, we reviewed the content and restarted next-(3) Human Resource
Development Systemgeneration leader training (NBL training) in FY2018 to cultivate themanagers, at an early stage, who will be responsible for the future(4) Individual Education
Training Menu

development of the Company.

Initiatives for Revitalizing the Organization
In FY2022, the Company examined our job rotation system andCompany has started new initiatives, such as opening You You

organized personnel information using a talent (HR) management

Terrace, a place of employment for people with disabilities, and wesystem. And in April 2023, we established HRBPs (Humanfounded an agricultural corporation, Tokuyama You You Farm Co.,

Resource Business Partners) in growth business divisions to bolster

Ltd. to support the independence of people with disabilities andcooperation between business divisions and the Human Resources

contribute to local communities. As well, Tokuyama received

Division. The Company encourages individual growth, including

Platinum Kurumin Certification from the Minister of Health, Labour

through job rotation, as well as placing the right people for

and Welfare in July 2022, as an excellent child-rearing support

restructuring the business portfolio based on training programs

company that is improving the work-life balance of employees.

from the career development system.
Tokuyama’s promotion of diversity creates an environment

The Company uses health management to encourage bettermental and physical health of employees and their families and for awhere all employees can thrive and be more assertive, emphasizing

more comfortable work environment. In recognition of thediversity of knowledge (knowledge and wisdom) as well as improving

management of health andproductivity through workplace reforms for more comfortable andproductivity, the Company

satisfying work. For the active participation of women, the Company

has been certified by Whitehas formulated an action plan in line with the Act on the Promotion

500 as an outstanding Healthof Women’s Active Engagement in Professional Life. We are

and Productivity

working hard to achieve several targets, such as the percentage ofManagement Organization

women in management. The Company, to employ more people(Large Enterprise Category)with disabilities, intends to reach the legally mandated employment

for two years in a row and as

level, and we are working to improve the work environment by, fora Health and Productivity

instance, making offices and plants barrier free. In addition, theStock for the first time.
TOKUYAMA REPORT 2023

19

Progress of Medium-Term Management Plan 2025

Transform Business Portfolio

Increase growth businesses’ share of
consolidated net sales to over 50%
FY2021-25 Plans

Priorities and Initiatives• Redefine/reorganize growth businesses around thethree themes of electronics, healthcare, and theenvironment, and proceed to move ahead withexpanding them• Chemicals and cement businesses to promoteincreased efficiency while generating sustainable
cash flows

Technology

Pursue added value and promote technologicaldifferentiation by collaborating more withexternal partners

Efficiency
Gains

Pursue company-wide operational efficiency,
mainly through DX

International
Expansion

Expand operations in growing overseas markets

Target Business Portfolio
Breakdown of Consolidated Net Sales by Business
FY2022Growth Businesses

FY2030

39 %

22%
3%

4%

10%

10%

Targetingat least

34%

60

33%

25%
1%

18%

11%

18%

32%

30%

16%

16%

17%
12%

19%

13%

10%

9%

FY2020(Results)

FY2022(Results)

FY2025(Forecast)

FY2030(Target)

29%

20%

%

Electronic &Advanced Materials
Life Science
Eco Business
Chemicals
Cement
Other

10%

28%

Breakdown of Consolidated Overseas Net Sales

FY2020(Results)

FY2022(Results)≥50%

FY2030(Target)FY2020 was created using reference values that include the financial impact of the current AccountingStandard for Revenue Recognition, etc.

➡ pp. 6–11

Message from the President➡ pp. 24–33

Progress of Strategy by Business Segment➡ pp. 44–45

Dialogue with External Directors

Contribute to Mitigation of Global Warming

Expedite development/commercialization of next-gen energy technologies
Reduce GHG emissions 30% by FY2030**Reduction target: GHG emissions of approximately 7.26 million tonnes base year FY2019➡ pp. 34–35

Message from the Executive in
Charge of Sustainability➡ pp. 40–42

Disclosures Based on TCFD
Recommendations➡ pp. 52–55

Financial and
Non-Financial Highlights

Practice Socially Responsible Management

Step up high-priority CSR initiatives to lay the groundwork forfurther growth and realize our Vision➡ pp. 36–39

20

TOKUYAMA REPORT 2023

Vision and Materiality➡ pp. 50–51

Risk Management

Tokuyama Value Creation

Tokuyama Value
Creation Strategy

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate Data

Progress toward Achieving Targets
FY2020results

FY2021
results

FY2022
results

FY2025targets2

Keys to achieving
target259.21

293.8

351.7

320.0

Maintain growth whiletransforming portfolio

30.9

24.5

14.3

45.0

Growth toward FY2025

Growth business net sales
growth rate (CAGR)3 (%)

—

19.9

20.1

≥ 10

Strengthen R&D, accelerateinternational expansion

ROE (%)

13.4

13.2

4.1

≥ 11

Balance efficiency ofshareholders’ equity andfinancial base

KPI
Net sales(billion)

Operating Profit(billion)

1 FY2020 net sales are approximate amounts based on application of Accounting Standard for Revenue Recognition, etc., and are listed as reference values
2 Due to changing the depreciation method, the targets for operating profit for FY2025 (target) were updated from 40 billion yen to 45 billion yen and ROE was changed from
10% to 11% (announced April 28, 2023).
3 CAGR (compound annual growth rate): The annual geometric mean rate calculated from the growth rate over multiple years

Progress in FY2022
To transform our business portfolio, we are investing
management resources in promoting international expansion as
well as three growth business domains: electronics, healthcare,and the environment. In FY2022, net sales increased year on
year due to aggressive actions taken to adjust the sales pricesof chemicals, cement, and semiconductor-related products in
response to soaring raw material and fuel prices triggered by

Russia’s invasion of Ukraine. The growth rate of sales (CAGR)
for growth businesses was 20.1%, far exceeding the target of
10%. On the other hand, despite passing on raw material andfuel costs through sales price adjustments, operating profit fell
due to higher logistic costs and a decline in overseas market
conditions for chemical products. ROE also fell below theprevious year’s level.

Initiatives for Business Portfolio Transformation
High-Purity IPA for the Electronics Industry

Dental Materials and Equipment

Start of shipments from Taiwan JV factory andconstruction of South Korea JV factory

Expansion of production capacity

Formosa Tokuyama Advanced Chemicals Co., Ltd. (FTAC) is a
joint venture with Formosa Plastics Corporation for the productionof high-purity IPA for Taiwanese semiconductor manufacturers.
Commercial operation has begun and customer approval isprogressing smoothly. Our intention is to begin full-scale
operations by the end of FY2023. Similarly, STAC Co., Ltd.
(STAC) was established in South Korea as a joint venture with SK
Geo Centric Co., Ltd. (SKGC). Construction of the factory inSouth Korea is already underway, and work is going smoothly forthe start of operations in summer 2024. We intend to put theoperations of these twoplants on track as planned,
which will help transform ourbusiness portfolio andincrease the percentage ofnet sales coming fromoverseas.
Groundbreaking ceremony at JV
factory in South Korea

At the Kashima Factory, a new building for Tokuyama Dental
Corporation will be constructed to increase the production
capacity of composite resins. Sales of dental materials have been
growing steadily because of rising demand for OMNICHROMA
and resin blocks for CAD/
CAM crowns, mainly inEurope and the UnitedStates. To respond to thisgrowing demand, we are
now boosting production
capacity with this new
Rendering of new building forbuilding, which is scheduled
Tokuyama Dental Corporation
to start operations in
October 2024. When
expansion is complete,
production capacity is
expected to approximately
double, establishing arobust production system
to meet the strong demand.
Resin block for CAD/CAM crowns

TOKUYAMA REPORT 2023

21

Message from the CFO

Maximizing corporate value by improving
earnings from traditional businesses andaggressively investing in growth businesses
based on a sound financial position
Representative Director, Senior Managing Executive Officer
General Manager, Corporate Planning Division

Hideo Sugimura

What I Value as CFO
As CFO, I specifically focus on implementing a dynamic
business strategy based on future investment plans while
maintaining sound financial discipline. The Corporate Planning
Division is responsible for corporate planning as well as
accounting/finance. Since I have the responsibility for these tworoles—much like the gas pedal and brakes of an automobile—I
recognize that balancing them is also essential for risk
management. As well, I keep an eye on our ability to generate
cash, in this way maintaining a more stable financial foundation
while closely watching ROE, an indicator of management
efficiency.

In FY2015, Tokuyama recorded a significant impairment loss
related to Tokuyama Malaysia Sdn. Bhd, our former subsidiarythat we were worked with in polycrystalline silicon operations in
Malaysia. Since that loss was recorded, the Company’s financial
position has improved through consistent profits. However, as
the equity increases in the future, whether or not the Company
will be able to generate returns in proportion with this increase will
become an important part of our financial strategy. Although it is
not possible to predict future business conditions, including trends
in the costs of energy and resources, as CFO, I will take the leadin realizing sustainable growth and increasing corporate value.

Review of FY2022 and Outlook for FY2023
We continued to face tough business conditions in FY2022.
International concerns over energy and resource shortages
following Russia’s invasion of Ukraine triggered global inflation,
while in Japan the weak yen caused price hikes for imported
goods, putting pressure on corporate earnings. Given these
conditions, we came together as a group to work on tackling
the priorities of Medium-Term Management Plan 2025. As aresult, net sales increased year on year due to successfully
revising sales prices for chemicals, cement, andsemiconductor-related products. However, operating profit andother profit measures fell due to higher raw material and fuelcosts, logistics costs, and lower market prices. FY2022 was ayear when we learned many lessons, including the apparent
weaknesses of the energy-intensive business model.
For FY2023, we expect that the methods we have been
focused on—boosting profitability and setting proper pricing—will gradually produce tangible results. Nonetheless, there is alingering uncertainty over trends in raw material and fuel prices
as well as the slow semiconductor market. We expect net sales
to increase 8% year on year and the various profit indicators torise significantly, all exceeding 100% year on year. On thefinancial front, I want to see the Company continue to manage
funds effectively and carefully in preparation for redeeming asubordinated loan of ¥60 billion in September 2023.
22

TOKUYAMA REPORT 2023

Capex Plan Breakdown (FY2021–2025)

17%
At the time of planning

13% ¥160.0

36%billion~

15%
16%

32%
¥200.0

9%

20%

Results until FY2022,
estimates after thatbillion

10%

10%
4%

18%
Growth businesses
Rationalization / energy savings /CO2 emission reductions
Infrastructure for growth

R&D
Traditional businesses
OthersKeywords are priority investment in growth fields,
reduction of CO2 emissions,and energy savings
Major Capex Results• Construction of the factory of joint • Waste gypsum board recycling
venture company in Taiwan for
high-purity IPA• Construction of the factory of joint
venture company in Korea forhigh-purity IPA• Production capacity expansion ofdental materials

business Construction of a new plantin Muroran• Establishment of the Center forCommercialization of Advanced
Technology

Tokuyama Value
Creation Strategy

Tokuyama Value Creation

Progress of Strategy
by Business Segment

Management for
Sustainable Growth

Corporate Data

Financial and Capital Strategy
Since experiencing an impairment loss related to Tokuyama
Malaysia Sdn. Bhd., our former subsidiary, we have focusedon restoring our financial strength by limiting capital
expenditures to within the operating cash flow. As a result,
our ability to generate cash as well as avoid taking on interestbearing debt have both been reinforced, and a solid financialbase is supporting our medium- to long-term businessstrategy. The transformation of our business portfolio andinitiatives that are contributing to the mitigation of global
warming—set as Medium-Term Management Plan 2025
priorities—will require significant funding. While maintaining
the basic policy of making investments using our own funds,
we intend to bring about sustainable growth by investing

management resources in nurturing growth businesses and ininitiatives for creating a carbon-neutral society.
In addition to investing resources in the three growthbusinesses, electronics, healthcare, and the environment, we
will improve the efficiency of traditional businesses and securestable earnings through an energy transition plan that is
focused on carbon neutrality. At the same time, we will invest
in DX to support our business model transformation as well as
human capital and R&D, the sources of corporate
competitiveness. Total capital investment during the period
covered by Medium-Term Management Plan 2025 is
expected to exceed ¥160 billion.

Basic Policy on Shareholder Returns
Our basic shareholder return policy is to increase retained
earnings while providing consistent dividends to shareholders.
During the past several years, we have worked hard to gain
equity by positioning the cultivation of growth businesses andimproving our financial base as priority initiatives. From
FY2023, we will consider, once our business strategy
achieves results, revising our shareholder return policy, suchas improving dividends or raising the dividend payout ratio,
the result of an increase in the ratio of consolidated net salesof growth businesses and accelerated global expansion.
I am aware that having an appropriate share price is also
an important issue for improving shareholder value. As of
March 2023, the price-to-book ratio has been between the
0.6x and 0.7x level, which is below 1x. However, I do notbelieve this is an accurate reflection of our business results or
potential. We communicate information on the progress andresults of our business strategy to capital markets toencourage understanding and a shared among investors.

A Few Words for Our Stakeholders
One of Tokuyama’s strengths is a well-balanced businessportfolio that does not rely on a specific market. We willcontinue to develop growth businesses through investmentsthat fully consider financial soundness, while increasing theearnings of traditional businesses through efficient business
operations. This basic policy will never change. The
subordinated loan redemption will broaden our financial options
and allow the Company to further increase investment ingrowth businesses with the goal of boosting our top line. To
further develop our unique value creation process, I would liketo see the Company formulate and execute an effective
financial strategy for total optimization.
Tokuyama has achieved steady growth with support frommany stakeholders, including shareholders, investors,
customers, business partners, and local communities. We willcontinue to communicate information at shareholders’ meetingsand investor relations briefings to deepen our dialogue withstakeholders. I sincerely ask for your continued support.

Cash Flow Generation and Allocation (when Medium-Term Management Plan 2025 was formulated)
Operating Cash Flow

• Earnings growth• Cash flow from new

Cumulative ¥250.0 billion over 5 years• Screen prospective investments• Reduce inventory

products

Capex¥200.0 billion

Strategic Investment

Shareholder Returns(M&A, new business development)

Dividends
20-30% payout ratio

Max ¥30.0 billion

Consider acquisition ofown sharesTOKUYAMA REPORT 2023

23