Nagase : Integrated Report/Annual Report Results for Fiscal 2024

About this update from Nagase & Co., Ltd.

Osaka Head Office: 1-1-17, Shinmachi, Nishi-ku, Osaka City, Osaka 550-8668, Japan Tel: (81) 6-6535-2114 Tokyo Head Office: Tokiwabashi Tower, 2-6-4 Otemachi, Chiyoda-ku, Tokyo 100-8142, Japan Tel: (81) 3-3665-3021 Nagoya Branch Office: 3-28-12, Meieki, Nakamura-ku, Nagoya City, Aichi, 450-6430, Japan https://www.nagase.co.jp/english/ Nagase & Co., Ltd. Integrated Report 2024 Embracing Authenticity, Embracing Change Integrated Report 2024 Printed in Japan | About NAGASE | Contents / Editorial Policy | | About NAGASE | Purpose / Values | Approach to management Who is NAGASE? A company who solves manufacturing issues with materials On sustainability and future return What is NAGASE looking toward? This earth is borrowed from future generations, and we must use corporate activity to return it in pristine condition. For achieving that, we have the... Medium-Term Management Plan Supported by ... Reform of Growth ROIC Our Profit Strategy Structure Supported by ... Reform of People Framework Our Corporate Culture What drives it all is "dialogue" Integrated Report 2024 CONTENTS About NAGASE Contents / Editorial Policy Purpose / Values What Kind of Group Is NAGASE? NAGASE's History NAGASE's Value-Producing Resources NAGASE's Forward-Looking Challenges Our Approach to Value Creation CEO Message CFO Message Medium-Term Management Plan Promoting Sustainability Implementing Value Creation -Reform of Our Profit Structure- 29 Dialogue with Directors in Charge of Sales 31 Initiatives in the Four Areas of "Foundation," "Focus," "Development," and "Improvement" 41 List of Segments 43 General Manager's Message Implementing Value Creation -Reform of Our Corporate Culture / Functions Supporting Reforms- Toward a Decarbonized Society Improve Employee Engagement Stakeholders Communication Dialogue NAGASE's Human Capital Management Message from the General Manager of Human Resources & General Affairs Department Promoting Diversity Talent Management Work Style Innovation Human Resources Initiatives Special Feature: Roundtable Discussion with President Ueshima and High School Students NAGASE's Management Philosophy Maintaining the highest standards of integrity We recognize our responsibility to society and offer beneficial products and services while maintaining the highest standards of integrity. Through our growth, we will contribute to society and enrich the lives of our employees. Over a period of more than 190 years, NAGASE has constantly maintained the highest standards of integrity, delivering the products and services that are needed by our customers, and by society as a whole. What we have built up over that time is the trust that our partners and society place in us. Going forward, besides working to solve the problems of "today," the NAGASE Group will be delivering "next" by addressing the new problems affecting society and the whole of humanity through 01 NAGASE Integrated Report 2024 Editorial Policy The NAGASE Group has created this integrated report to help our diverse stakeholders better understand the Group's wide-ranging business fields and business activities, as well as its unique value creation process. Going forward, we will continue to improve this report as a communication tool for conveying the Group's corporate value enhancement activities in an easy-to-understand manner. Referenced Guidelines: The International Integrated Reporting Framework developed by the International Integrated Reporting Council (IIRC) Ministry of Economy, Trade and Industry's Guidance for Collaborative Value Creation Period Covered: April 2023 - March 2024 (FY2023) Some information after March 2024 is also included. Organizations Covered: Nagase & Co., Ltd. and the NAGASE Group Governance 73 Management Structure Interview with the Outside Directors Corporate Governance Sustainability Management Risk Management and Compliance Data Section 11-Year Financial Highlights Financial Section Non-Financial Highlights and Corporate Information About the Front Cover The fiscal 2024 corporate report was used for the cover. As we strive to reform and continuously grow amid changes, we feel that "things that don't change" and "things that change" are both important. So, "Embracing Authenticity, Embracing Change" That catch phrase summarizes our feelings. The illustration is an illustration by Ilya Kuvshinov, which we first used in a corporate advertisement in fiscal 2019 and has been decorated with a new color scheme. The striking red of the illustration alludes to the color of the safflower, the symbol used at NAGASE's founding. the provision of new materials. "The Earth is borrowed from future generations." To help realize a sustainable future society, NAGASE will continue working together with partners throughout the world to build a future where people can live with peace of mind. 02 NAGASE Integrated Report 2024 | About NAGASE | What Kind of Group Is NAGASE? | Consolidated net sales 900.1 billion yen Overseas gross profit ratio 54.4 % Operating income rate by industry Manufacturing Trading 1832 29 % 71 % Founded NAGASE's History P.5 CFO Message P.19 11-Year Financial Highlights P.85 (As of end of March 2024) 03 Five business Functional Materials Advanced Materials & 2024 segments Processing Report We are developing our business broadly Integrated from upstream to downstream on supply chains in various industries. NAGASE List of Segments P.41 Electronics & Energy Mobility Life & Healthcare Number of bases 25 countries and regions 106 companies Number of partner corporations Approx. 18,000 companies Consolidated number of employees 7,528 NAGASE's Human Capital Management P.59 (As of end of March 2024) Added value born from unique functions We are creating added value through masterful use of "manufacturing" and "R&D" functions in light of the needs of 04 2024 customers and society grasped through the information and networks gained through our "trading" function. Providing materials and solutions that make full use of NAGASE's unique functions Report Integrated Trading function Manufacturing function Customer and Working with our partners Solving problems through Achieving a NAGASE to solve problems NAGASE's original materials societal issues • Ability to extract perceptive • Innovative materials and sustainable and needs insights from information technologies society • Exploring issues and identifying • Manufacturing and quality matching opportunities management • Global network • Materials customization Research & development function Solving problems through development of new materials and uses | About NAGASE | NAGASE's History | NAGASE's History 1832- Founding The NAGASE Group traces its roots to 1832 when founder Denbei Nagase established Urokogataya, a dyestuffs wholesale business that handled safflower, funori seaweed and starches in Nishijin, Kyoto. This Founding as a wholesaler Safflower - founding symbol Commencing business with overseas manufacturers Bringing manufacturing technology to Japan by importing foreign products Chemical 1901 Established branch office in Lyon, France Forging ties with leading overseas manufacturers Strengthening manufacturing, processing and R&D functions Successive establishment of plants with manufacturing functionality Co-creating with partners Full synergistic creation and global development by group expansion Five business segments that Establishing a foundation in the chemical industry undergird present-day NAGASE Becoming a group of experts with insight and experience in the chemical industry, domestically and overseas Functional Materials is beginning of NAGASE Group's history which continues to present day. Later on, we established a foothold in the chemical industry by starting to handle synthetic dyes in Expanding from natural dyes to synthetic dyes At the time, there was demand for synthetic dyes not available in Japan, so after assiduous negotiations with Ciba in Switzerland, we began importing them. We brought back methods for use and technologies, and set up an internal laboratory. Strengthening research & development function Strengthening processing functions addition to natural dyes. Biotechnology Expansion into biotechnology Began import of industrial use enzymes from Europe for use in glue removal or de-gluing for textile products. 1939 Manufacturing enzymes Put effort into domestic production of enzymes, succeeding in 1939 in production of a high-quality glue remover (enzyme) for staining which exceeded products from overseas. Expanded into manufacture of enzymes for industrial use and for food use. 1990 Established a biotechnology-related research and development center (Presently "Nagase Bio-Innovation Center") 2012 Enhancement of biotechnology functions Formed subsidiary Nagase Viita (at the time "Hayashibara") Life & Healthcare Food 2019 Formed subsidiary Prinova USA Epoxy resin 1970 Commencement of epoxy resin imports Commencement of epoxy resin production 05 Founder Denbei Nagase Through tumultuous times from its founding to present-day, NAGASE has a history of expanding business and continuous growth. "If only this existed, it would help solve customer and Began import of epoxy resin, which was not widely distributed in Japan at the time, from Ciba Inc. Supported long-term, high-level economic growth of Japan with its diverse uses. Movie film semiconductor Nagase & Co., Ltd. established a joint venture with Ciba Inc. and began domestic production. Electronic parts and semiconductor technologies that support development in every industry Electronics & Energy 06 NAGASE Integrated Report 2024 societal issues." That thought spurred us to action, and as we entered the 1900s, managers started looking overseas. When we found some "eureka" technology or product on site, we would negotiate tenaciously to bring it back to Japan, so that one day we could develop the technology to manufacture it ourselves, and deliver it to society. In addition to clearly apparent existing needs, we detected potential needs, and we kept our focus on things and technologies that could meet all of those needs. Furthermore, we had the ability to horizontally expand our business by leveraging the knowhow and network we built, which led to the diverse areas of business we engage in now. 1926 Exclusive agency agreement with Eastman Kodak in America Began import of movie film to help entertain Japan suffering from the Great Kanto Earthquake. Closer ties with Eastman Kodak Company. Plastics & Resin Introduction of photoresist into Japan Imported and sold photoresists from Eastman Kodak Company, which were used in the photolithography process in film development technology. Deepened connections with domestic semiconductor-related corporations, and began NAGASE Microelectronics Seminar in 1974. 1982 Commencement of production of developer and stripping agent Established a photoresist refining plant in former Nagase Chemicals. Also, began production of developer and release agent. NAGASE Integrated Report 2024 1968 1971 1980s onwards Advanced Materials & Processing Sales agreement with GE Shift to engineering plastics Enhancement of Began partnership with GE production and sales overseas networks Mobility (General Electric Company). Entered into a joint venture with GE to establish Dedicated efforts to export to and Engineering-Plastics Corporation. increased share in Asian countries. | About NAGASE | NAGASE's Value-Producing Resources | NAGASE's Cultivated Strengths A key strength that the NAGASE Group has cultivated is the six types of capital that support the Group's sustainable growth and provide the foundation for its value creation: human capital, intellectual capital, manufactured capital, social and relationship capital, natural capital, and financial capital. By integrating these different types of capital, we are proceeding with business activities that help to solve various problems affecting society. Management capital NAGASE's Unique Functions NAGASE offers a uniqueness only possible through their integration of the functions of "trading," "manufacturing," and "R&D." Human capital Business designers that integrate the NAGASE Group's diverse functions to solve problems NAGASE's Management Philosophy We recognize our responsibility to society and offer beneficial products and services while maintaining the highest standards of integrity. Through our growth, we will contribute to society and enrich the lives of our employees. Consolidated Number of Employees 7,528 See P. 59-66 for initiatives in human capital management Customers Global users Trading Manufacturing Solving problems through customer-oriented sales activities Providing value through our own in-house materials and Intellectual capital Leveraging knowhow across a wide range of fields to create new business in collaboration with partners Number of Group patent applications in the past 20 years: approx. 1,500 (base of domestic application number) Number of partners with whom we filed joint applications in the past 20 years (industry, government, academic): 200+ [Main R&D function] Nagase Bio-Innovation Center and Nagase Application Workshop [Main business development function] Future Co-creation Office [Examples of joint applications / development that featured integrated Group functions] Biodegradable superabsorbent polymers and ergothioneine (rare amino acid) See P. 38 for development details that are based on high levels of technological knowhow, and proprietary processing knowhow, from functional resins to through NAGASE's global logistics network food materials Functional Advanced Materials Electronics Nagase ChemteX Corporation Prinova Group LLC Materials & Processing & Energy 07 Manufactured capital Increasing value-added through enhanced productivity, technical innovation, and group synergy A total of 43 manufacturing sites in 15 countries and regions Material development featuring integration of the Group's functions as a manufacturer, researcher, developer, and trader See P.33 Built a system for strengthening the competitiveness of Group materials leveraging the latest evaluation technology (Use of the NanoTerasu 3GeV high brightness light source facility at Tohoku University, etc.) Mobility Life & Healthcare Totaku Industries, Inc. Nagase Viita Co., Ltd. R&D Materials development Offering solutions for resin and process innovation and coating material 08 NAGASE Integrated Report 2024 Social and • Approximately 18,000 partner companies relationship capital Partnerships and • A global network of 106 business locations in 25 countries and regions supply-chains built on trust • Energy use 264,569 MWh (Fiscal year ended March 31, 2024) Natural capital Initiatives aimed at • Total water intake 3,877 ML (Fiscal year ended March 31, 2024) enhancing the sustainability of the global environment See P. 87 for other non-financial highlights and external evaluations • Shareholders' equity ratio: 49.7% (Fiscal year ended March 31, 2024) Financial capital • Operating CF: 72.9 billion yen • Rating: Rating & investment information center (R&I) long-term A short-term a-1 Financial soundness and • Sustainability link loan framework selected as a model example strict financial discipline (Formulated in collaboration with MUFG Bank) that take biotechnology as evaluation and analysis, their foundation application development, and formulation design Nagase Bio-Innovation Center Nagase Application Workshop (NBIC) (NAW) Business partners Domestic & overseas manufacturers NAGASE Integrated Report 2024 09 NAGASE Integrated Report 2024 | About NAGASE | NAGASE's Forward-Looking Challenges | Sustainable innovation achieved through the commitment of every individual employee Building on the commitment that each individual employee has to playing a useful role in society, we are working to generate multi-faceted value through collaborations with our colleagues, by having faith in our potential. Nagase & Co., Ltd. T akaki Iizuka Third Sales Section, Functional Materials Division, Performance Chemicals Department, Functional Materials Segment By utilizing previously unused bio-materials, we are aiming to build a future in which people can say "Plastics? People used to use those years ago, didn't they!" Nagase Enterprise México S.A. de C.V. Leader M aria Elizabeth Gutierrez Perez Mobility Team 1, Plastic Division Mobility Department We integrate to put our mark on caring for the environment, contributing to the reduction of the carbon footprint. Nagase & Co., Ltd. J uno Cox PM Section and NVI Section, Product Management Division, Life & Healthcare Products Department, Life & Healthcare Segment We are expanding the use of bio-derived cosmetics materials throughout the world to enable everyone to enjoy safe, sustainable beauty! Nagase & Co., Ltd. Blind runner S hinya Wada PR Section, Corporate Relations Division, Corporate Management Department I will continue to keep running as long as I can to help realize a society that is barrier-free not just physically but also in people's hearts. Nagase & Co., Ltd. E iko Matsumoto Assistant Director, Nagase Bio-Innovation Center As a research-oriented generalist, I provide support for our rapidly-accelerating bio- related research, with the aim of promoting sustainable environmental, health and safety (EHS) management systems and promoting effective compliance. Nagase ChemteX Corporation S ou Mutobe G Materials Section, Product Development Division, Performance Chemicals Department By effectively utilizing the organic synthesis knowhow and technologies that we have cultivated over the years, we are taking on the challenge of developing "green" materials! Nagase & Co., Ltd. Guide runner T akumi Hasebe PR Section, Corporate Relations Division, Corporate Management Department By doing our utmost when running, we are aiming to help realize a society that is full of energy and vigor! Nagase & Co., Ltd. Y uka Kono MaaS Automated Driving Development Section, Advanced Mobility Unit, Mobility Solutions Department, Mobility Segment While enjoying the way times are changing, I will be striving to realize personal growth by mastering a wide range of fields! Nagase Viita Co., Ltd. Unit Leader O oi Lia, Ph.D. Plant Research Unit, Research, Technology & Value Creation Division 10 NAGASE Integrated R eport 2024 We pioneer the development of innovative biostimulants in contribution to combat climate change, promote sustainable agriculture, and eradicate world hunger. Our Approach to Value Creation 11 12 NAGASE Integrated Report 2024 NAGASE Integrated Report 2024 C O N T E N T S CEO Message CFO Message Medium-Term Management Plan Promoting Sustainability | Our Approach to Value Creation | CEO Message | Developing a sustainable business in the global market while fostering our NAGASE people Hiroyuki Ueshima Representative Director, President and CEO Nagase & Co., Ltd. In my first year, I focused on business restructuring to set a firm foundation for the Ideal NAGASE. Fiscal 2023, my first year as president, was largely spent responding to changes in our business environment, which ranged from broadening geopolitical risk to persistently high raw material prices and widely fluctuating foreign exchange rates. In fact, 9 of our 10 business fields faced extremely harsh conditions during the year. The strongest impacts on our business performance came from the stagnant Chinese economy, downward price pressure on food ingredients and functional materials due to cut-rate prices at Chinese companies, and a spike in costs owing to delays installing automation equipment at the Prinova Group plant in Utah of the United States. The conditions forced us to lower our consolidated earnings forecast in November 2023 when we reported a profit decline for the second quarter, which was a direct reflection of shortcomings in our capabilities. In that environment, we focused on laying the foundation for growth by continuing to advance the key measures of the Medium-Term Management Plan ACE 2.0 and by implementing our QUICK WINS initiative to maximize and optimize the use of our core management resources of people, finances, and time as we develop our business and financial portfolios, enhance governance of management processes, and rebuild our human resources portfolio. These efforts, in fact, produced some positive results as, despite the decline in operating income for the year, strong performances by our highly profitable manufacturing subsidiaries helped lift gross profit to an all- time high. I view my first year as one in which we continued the ACE 2.0 plan's core drive for the "Pursuit of Quality," progressed with our business restructuring, and laid the foundation to foster the mindset of the Ideal NAGASE. In fiscal 2024, we will continue to strengthen ROIC management and address the factors that led to our profit decline while aiming to raise operating income to a record high. We will continue developing our businesses as we seek to fulfill the performance expectations of our shareholders and investors. Using our trading, manufacturing, and R&D functions for the well-being of people and the planet I spent a lot of time last year pondering the questions of who are we as NAGASE? and Why do we exist? The answer that came to me is that our purpose is to use materials to overcome challenges for manufacturers. Our business is founded on our ability to use our materials to provide solutions for our clients, which in turn provides solutions for issues being faced by industry and society. Therefore, the NAGASE Group's businesses reduce environmental impacts and support manufacturing activities that are directly connected to people's health, safety, and comfort. Although we have little direct contact with the end users, NAGASE is proud that our BtoB transactions provide materials that support the well-being of people and the planet. During the year, when I met with the top executives of our business partners, I always asked, "What do you consider to be NAGASE's strengths?" Most of the answers boiled down to: NAGASE's strength is that it encompasses the three functions of a trading company, manufacturer, and an R&D company. This perception of NAGASE gave us the idea for recasting our framework, and last year we reorganized the four quadrants of the Group's growth strategy from being divided along business lines to being delineated by function. However, when we look at how the Group works internally, it seems that not many employees conduct their daily activities with an awareness of how unique and powerful it is to have the three functions of a trading company, manufacturer, and R&D. In addition, employees seem to underestimate their abilities. At every opportunity, I remind them that "The skills you use at the worksites and your ability to generate profits are greater than you think. We need to have more confidence in ourselves." Of the three functions, the trading function is our greatest strength. As a trading house, we provide the materials and solutions that match our clients' needs, which become a key source of information for directions to create new businesses. The uncertain times we are living in are presenting a growing number and variety of risks, including risk of changes to environmental regulations and risk of supply chain disruption. Our business partners and society are facing a growing number of problems that will have to be overcome. For NAGASE, however, this is a business opportunity. We are perfectly positioned to use our direct dialogue with our business partners to quickly identify their issues and apply our three functions as trading company, manufacturer, and R&D to deliver a wide variety of value. What we ask of our employees is not to wade into a market that is already overrun with players but to look for little gems that the world has not found yet and where we can get excited about their uniqueness. We have an exceptional uniqueness and ability to win in the global market by providing manufacturers with the materials to overcome their challenges. I want to raise the quality of our management to a higher level so NAGASE is the company that companies turn to for solutions. 14 NAGASE Integrated Report 2024 | Our Approach to Value Creation | CEO Message | Fiscal 2024 growth strategies in the Foundation, Focus, and Development domains I would now like to provide an overview of the growth strategy we are implementing in fiscal 2024. For our trading function, which we set as a foundation in the four quadrants, we are examining our business prospects in each country and will shift our global resource investment to countries and regions with the highest growth potential. In the manufacturing function in specific areas, which are in the focus quadrant, we will advance the stages of planned investments in the food, semiconductor, and life sciences fields. In the semiconductor field, this will mean continuing our original plan for fiscal 2024 to start a wafer bumping business in Malaysia and a recovery and recycling business for photographic developer fluids used in the manufacturing process. In the development area, which includes our R&D function, we will accelerate development of businesses being groomed as future revenue sources, including preparing to commercialize businesses for the rare amino acid ergothioneine and for biodegradable superabsorbent polymers. In the areas for improvement, we have a specific action plan that includes reviewing unprofitable businesses and subsidiaries and other steps to reduce losses to under ¥1 billion in fiscal 2025. Laying the foundation for our transformation with QUICK WINS I would also like to talk more about the QUICK WINS measures we launched in June 2023 to set a foundation for our transformation. QUICK WINS has specific measures aimed at the three objectives to develop our business and financial portfolios, enhance governance of management processes, and rebuild our human resources portfolio. As shown in the QUICK WINS status in fiscal 2023 diagram at the bottom of the right page, we track our progress with each measure using green markers on five levels. Within the Group, we also distribute our Quarterly Paper with its easy-to- understand summaries of only a few pages so all employees can apply the measures in their daily work. I bring copies of the Quarterly Paper with me when I visit business sites and Group companies in Japan and overseas so I can talk directly with employees about the measures. The objective of developing our business and financial portfolios is to establish the optimal resource allocation and business structure to be resilient to changes in market conditions and the external environment. In this direction, we continued to consolidate unprofitable transactions and clarified our growth strategy by thoroughly applying ROIC management to each business unit. I believe the ROIC management is gaining traction as we are already seeing its effects, including better inventory turnover rates and improving gross profit margins. Another area where we are making steady progress is in introducing digital marketing in countries and regions with specific challenges for travel time, cost, and other conditions. The necessary digital technologies and infrastructure are now in place, and in the second half of fiscal 2024, the business units and DX department will begin using a fully integrated analysis platform of all Group data related to sales. Our measures to enhance governance of our management processes include the major step of consolidating the number of business divisions from 11 to 7 in October 2023. The expanded divisional umbrellas covering more business units allow us to select and focus resources more quickly and delegate authority more effectively. We also reorganized the Group Management Committee and other management groups targeted at various issues to give us more opportunities to discuss and deliberate on agenda items related to important management decisions. The first steps for rebuilding our human resources portfolio were to incorporate succession planning into the structure and create more opportunities and mechanisms for developing management talent. In fiscal 2024, we added liberal arts-type training to our management development programs. To maximize the value of our human capital, in April 2024 we introduced a performance-based evaluation system with a clear concept of fairness and transparency. As a result, for example, we now have younger employees in their 20s and 30s in supervisory positions. We are continuing to modify the system so it will provide visualization of the evaluation criteria and enable more dynamic promotion of employee talent. We are testing a new "15% rule" to promote employee development where we assess an individual's current abilities and set a goal of improving by 15% each year. At that pace, an employee will double their capabilities in five years. To support this new approach to employee development, we are modifying our personnel systems and mechanisms and creating an environment that encourages our employees' steady growth. A growth strategy for the future Reorganizing each of our business domains along the lines of our trading, manufacturing, and R&D functions QUICK WINS status in fiscal 2023 QUICK WINS is an initiative launched in June 2023 to maximize and optimize the use of our management resources of people, finances, and time as we develop our business and financial portfolios, enhance governance of management processes, and rebuild our human resources portfolio. 15 NAGASE Integrated Report 2024 Foundation Trading function Generate the cash flow and data that will allow us to strengthen our manufacturing function in focus and development areas Development Future revenue sources Pursue new challenges in areas that will be future sources of revenue Focus Manufacturing function in specific areas Leverage our unique products and technologies to increase overall profitability Improvement Reduce operating losses, equity-method losses, impairment losses, and unprofitable transactions at operating subsidiaries Potential investments for focus and development areas from FY2024 (approximately ¥80 billion) Development Focus Future revenue sources Manufacturing function in specific areas R&D (biotechnologies) Food New businesses Semiconductors (new products, etc.) New regions (Global South) Life sciences Improvement Foundation Trading function Unprofitable businesses Semiconductors Electrical Businesses at risk appliances of impairment Food Mobility Chemical Life sciences industry Develop our business and financial portfolios Strengthen workplace capabilities and improve capital efficiency Strengthen workplace ROIC management capabilities Growth strategies Use digital technologies Eliminate unprofitable businesses Enhance governance of management processes Improve management efficiency and speed up decis ion-m aking Restructure the Establish decision-making organization procedures Delegate authority Eliminate unnecessary processes Speed up management Create horizontal decision-making collaboration Rebuild our human resources portfolio Maximize human capital and improve engagement Conduct succession Promote engagement planning Use an extended Develop human resources workforce D&I 16 NAGASE Integrated Report 2024 | Our Approach to Value Creation | CEO Message | 17 NAGASE Integrated Report 2024 The NAGASE Group companies overseas enjoy workforces with a wide variety of nationalities, religions, and values. Unfortunately, we cannot say the same for the parent company, Nagase & Co., Ltd., in Japan. We are taking steps to improve diversity and inclusion (D&I) at the parent company, but we understand that progress will require changing our awareness of D&I concepts. One of our areas of weakness has been our management training programs, which are critical to advancing women's empowerment in the workplace. One step we took to address this weakness in fiscal 2023 was to invite Reiko Shiota, former member of the Japanese national badminton team and representative of the Woman's Ways organization promoting awareness of women's issues, to present a management seminar on physical and mental issues that affect women. The response to the seminar was tremendous. I look forward to hosting more events and introducing ideas that will spark changes in our way of thinking and consciousness. Improving employee engagement is particularly crucial to increasing our human capital, and I intend to use the results of our regular employee surveys to increase and strengthen our engagement initiatives. We will create opportunities for executives and employees to share their perspectives and engage in small meeting discussions about ways to solve any issues. This will be the first step to creating an environment where executives and employees fully appreciate each other's perspectives and work together as equals for mutual improvement. Cultivating younger employees through experiences and learning opportunities Since becoming president, I have tried to create as much time as possible to talk with employees and outside directors. I regularly meet outside directors for lunch meetings where we engage in open discussions with a frankness that is at a different level than at Board of Directors meetings. I also make it a point to bring different young employees with me on each business trip overseas. When I myself first joined the Company, I was given many opportunities to listen to all types of discussions while sitting right beside the Company president. Hearing what managers think and how they approach things was eye-opening, and it greatly influenced me in both my life and how I set goals. Around 1994, when I was in my twenties, I drafted an investment project proposal that was submitted to then- President Hideo Nagase for final approval. One day, I received a telephone call from the secretary's office calling my general manager and me to the president's office. The president surprised me by asking, "Mr. Ueshima, for this proposal, how much money would you have to lose before you stopped the project?" This was the exact opposite of the question I was expecting-"How much do you expect to make?" After taking a few seconds to think about it, I said, "If it loses ¥100 million, I'll stop it." He agreed and signed his approval right then. The lesson I learned that day was that managers are not looking just at profits; they're also considering business continuity. The time to decide when to exit a business is not when it starts drawing losses, it's when the business is started. At the time, exit strategies were not yet common in the business world, so it was a great learning experience. I want our younger employees to have as many experiences and learning opportunities as possible because they are invaluable to their growth. Increasing our profitability and instilling management centered on the cost of capital and stock value ACE 2.0 targets raising ROE to 8.0% by fiscal 2025, the plan's final year. Achieving that level will require that we continue improving our capital efficiency. As announced in May 2024, in addition to our current policy to consistently increase our dividend distribution, we decided to provide a total shareholder return ratio of 100% as a limited measure for two years. Currently, our ROE is below 8.0%; the price-to-book ratio (PBR) is less than 1x; and the ratio of strategic cross- shareholdings to net assets is above 15%. We recognize each of these as important issues for management to address and will continue to focus on increasing profitability, considering the cost of capital and the share price in management decisions, and enhancing corporate value. We will also place more emphasis on dialogue with shareholders and investors. In fiscal 2024, we will increase the number of financial results briefings from two to four and hold more small meetings so we have more opportunities to hear investor opinions and recommendations. As president, it is my responsibility to present the Company so that our investors see that NAGASE is seeking further transformation and that they can expect further growth. Throughout its 190-year history, NAGASE has expanded its business based on the philosophy of "We recognize our responsibility to society and offer beneficial products and services while maintaining the highest standards of integrity." Our efforts to fulfill this philosophy have accumulated into one of our biggest assets-stakeholder trust in our company. We comply with laws and regulations as a matter of course, and we have an ingrained culture of "doing the right thing, the right way" in accordance with the common sense and ethics of society. At the same time, laws and regulations are becoming increasingly complex, so we are constantly strengthening our structure for compliance monitoring. This structure includes an internal reporting (whistleblowing) system centered on the Compliance Consultation and Reporting Desk, where all Group executives and employees in Japan and overseas can seek counsel and report concerns anonymously and with strict confidentiality. I often tell our employees that society sees more of what we do than we may realize. We always comply with the law, but we should also always be asking ourselves, "is it the right thing for NAGASE to be doing?" Keeping that in mind is how we can pass on the NAGASE Group philosophy and positive corporate culture to the next generation. Steadily reforming our profit structure and corporate culture The objective of the QUICK WINS initiative discussed above is to drive rapid progress in all measures toward four or five on the five-point scale shown on page 16. For the remainder of the ACE 2.0 plan, we will continue reforming our profit structure and corporate culture while paying close attention to the rapidly changing external environment. We will also concentrate management resources in our core trading function, which is in the Foundation quadrant, and in the food, semiconductors, and life sciences, which are in the Focus quadrant, with the aim of generating momentum for continuing growth through fiscal 2026 and beyond. I believe our business, using sustainable materials to solve client issues, contributes to the well-being of people and the planet and helps pass on a clean Earth to future generations. In April last year, we introduced "Delivering next." as the NAGASE Group slogan. Group companies, business divisions, and employees in Japan and around the world have each found their own "next" that they are pursuing to create a new future. NAGASE is using its three functions of trading company, manufacturing, and R&D to create new and unique materials that will open new possibilities for the future. We look forward to your support as we advance to our next challenge. September 2024 Hiroyuki Ueshima Representative Director, President and CEO Nagase & Co., Ltd. 18 NAGASE Integrated Report 2024 Discussing the Quarterly Paper with employees Talking and making connections with stakeholders Lively meetings with employees at overseas companies Joining a supervisor D&I training group

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