Nagase : Medium-Term Management Plan

About this update from Nagase & Co., Ltd.

New Medium-Term Management Plan Walk the Talk 2028 Top Message Over the past five years, we have worked to build a resilient management foundation capable of responding to rapid changes in the external environment by strengthening the earnings base and improving management speed and efficiency. As a result, we have transformed ourselves into an organization capable of delivering results and have achieved our KGIs. We are deeply grateful for the understanding and support of all our stakeholders. In launching the New Medium-Term Management Plan this fiscal year, we have realistically recognized that changes in the external environment will become even more intense. To enable timely scenario reviews, agile decision-making, and disciplined execution, we have revised the planning period from the previous five years to two consecutive three-year cycles. The new plan is positioned as " Building the Foundation for Exponential Growth", with the aim of achieving a market capitalization of JPY 1 trillion at the earliest opportunity. We are fully aware that we are still far from that level today. Over these three years, we aim to close this gap by scaling our business, strengthening our resilience, and above all, developing the human capital that will drive our growth. To achieve this goal, we will improve capital efficiency and enhance the earnings structure of our existing businesses. At the same time, we will fully leverage our three core functions - trading, manufacturing, and R&D - to create high added value across the entire value chain in a way that only NAGASE can deliver. People are the source of all execution capabilities at NAGASE. We position people as our most critical management capital, and by strengthening individual capabilities and harnessing them collectively, we will break through the limits of our organization. By working together across the Group to execute this plan and fully leveraging our strengths, we will achieve sustainable growth and enhance corporate value. NAGASE & CO., LTD. Representative Director and President １． Review of the Previous Medium-Term Management Plan ACE 2.0 ２． Medium-Term Management Plan "Walk the Talk 2028" Under ACE 2.0, we set an overarching goal to transform our earnings structure and corporate culture, and to advance our "pursuit of quality" through building a strong earnings foundation and fostering a growth-oriented mindset. Reform of Profit Structure ❶ Pursuit of profitability and efficiency Execute company-wide business portfolio restructuring and resource reallocation ❷ Strengthen existing businesses Expand business opportunities through globalization Improve productivity of manufacturing businesses and expand value-added through technical innovation Create sustainable businesses Reform of Corporate Culture ❶ Pursuit of economic and social value Fostering a sustainability mindset, and rigorous monitoring of financial and nonfinancial indicators ❷ Pursuit of efficiency Deepen awareness of capital efficiency Improve productivity of core operations Strengthen human capital to drive reforms Functions supporting reforms ① Accelerate DX further ② Promote sustainability ③ Strengthen corporate functions Through return-focused management and accelerated decision-making, we implemented various initiatives to transform into a lean and resilient organization. As a result, we achieved both KGIs: a sustainable operating profit of JPY 35 billion and an ROE of 8.0% or higher. ACE 2.0 550 500 450 400 350 300 250 200 150 KGI ROE8.0% KGI Operating profit JPY 35 billion 5.9 7.7 352 6.6 5.9 333 306 6.4 390 8.0 9 8 7 6 5 4 3 2 1 0 447 219 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 Operating Profit (JPY 100 million) ROE(%) Operating profit（KGI） ROE（KGI） We achieved the non-financial targets under our sustainability initiatives. We also established and monitored three financial KPIs to promote return-focused management, resulting in stronger profitability. Non-Financial Targets Project FY2025 Targets FY2025 Results Carbon Neutrality Reduction of Scope 1 and 2 emissions by 37% or more compared with FY2013 Achieved （49.2％） Employee Engagement (Standalone) Engagement survey score: 60 over Achieved （61.7） (Group) Employee Engagement Survey implementation rate: 100% Achieved （100％） KPI Project KPI FY2020 FY2025 3 Indicators for Return-focused Management Gross profit ratio 18.3％ 19.3％ General & Administrative expense ratio (G&A / Gross profit) 67.9％ 63.8％ Selling expense ratio (Selling expenses / Sales) 2.4％ 2.4％ We shifted our business portfolio from a business-based to a function-based structure, allocating resources to our manufacturing functions (Semiconductor, Food, and Life Science) while restructuring and exiting unprofitable businesses. Through return-focused management, we enhanced profitability and reorganized group companies to reinforce our existing businesses. Reform of Profit Structure ❶ Pursuit of profitability and efficiency Strengthened manufacturing capabilities in Semiconductor, Food, and Life Science Acquired Asahi Kasei Pharma's Diagnostics Business, Sachem's Asia Business and Aplinova (Brazilian food ingredient distributor) Exited unprofitable businesses , including the North American Color former business and resin compounding business ❷ Strengthen existing businesses Reorganized group companies in the chemical and bio-related fields Improved gross profit margins through return-focused management Create sustainable businesses Introduced the concept of "Uniqueness" to drive business creation by leveraging the integrated strengths of manufacturing, trading, and R&D capabilities. Reform of Corporate Culture ❶ Pursuit of economic and social value Set and achieved non-financial targets Reviewed and updated our materiality ❷ Pursuit of efficiency Promoted shareholder-oriented management and expanded stock-based compensation Strengthen human capital to drive reforms Expanded future leadership development programs, introduced "CEO accompaniment program" and "cross-divisional secondment program" Introduced field-led talent development framework (Business Department CHRO system) Increased participation in the employee stock ownership plan (37.8% → 90.3%) Functions supporting reforms Established Nagase Future Investmentｓ (Launch of a CVC) Ongoing Issues Enhancement of DX capabilities • Improvement of productivity in corporate functions Improvement in the ratio of cross-shareholdings to net assets Progress in the "Focus Domain" We actively invested capital in the semiconductor, food, and life sciences areas. We strengthened the Group's manufacturing capabilities and worked to build an earnings base with a clear focus on capital efficiency. Focus Foundation Semiconductor 【Gross profit of the Focus Domain】 Food 491 Unit: JPY 100 million Life Sciences 424 235 3７５ 186 150 238 256 150 336 380 334 190 202 175 159 178 176 244 250 207 81 75 70 137 163 175 FY2024 Result FY2025 Result FY2026 Forecast ・Expanded advanced semiconductor encapsulation materials ・Acquired Sachem's Asian business and established Nagase Circrea ・Launched photoresist developer recycling business ・Initiated a procurement coordination business for Rapidus Corporation FY2024 Result FY2025 Result FY2026 Forecast ・Improved the Prinova Group's Nutrition business ・Acquired of Aplinova (Brazil) FY2024 Result FY2025 Result FY2026 Forecast Acquired Asahi Kasei Pharma's diagnostic enzyme business and established Nagase Diagnostics Strengthened biotechnology R&D capabilities (AI and robotics) Progress in the "Improve Domain" We identified target areas and developed and executed improvement plans. We also reduced losses by exiting businesses and transactions with limited improvement potential and returning commercial rights where appropriate. Areas for Improvement Actions taken Operating loss among subsidiaries and equity in losses of affiliates Assets at risk for impairment loss Unprofitable transactions Developed and implemented improvement plans in a timely manner and assessed withdrawals from businesses with limited improvement potential. Listed and monitored all relevant cases, and returned commercial rights for businesses with limited improvement potential 【Operating Loss, Equity-Method Losses, Impairment Loss, and Unprofitable Transactions at Subsidiaries】 Unit: JPY million FY2021 FY2022 FY2023 FY2024 FY2025 △ 2,974 △ 2,838 △ 2,276 △ 1,173 △ 135 Losses incurred from the withdrawal from the thin glass substrate processing business in China △ 2,048 △ 1,436 △ 2,120 △ 2,726 △ 1,234 △ 516 Impairment of fixed assets Loss on valuation of securities Other Approx. JPY 9.0 billion loss Approx. JPY 8.0 billion loss Approx. JPY 5.0 billion loss Approx. JPY 5.5 billion loss Approx. JPY 5.0 billion loss The Message Embedded in " Walk the Talk 2028" What we aim to achieve over the next three years is to bring to fruition the growth strategies we have pursued under ACE 2.0, while also sowing the seeds for our next stage of growth. Reflecting our commitment to executing these two priorities, we have named our new Medium-Term Management Plan "Walk the Talk 2028". NAGASE - Contributing to the well-being of people and the planet by solving challenges faced by our customers and society through materials Amid a highly uncertain external environment, we will position sustainability at the core of our growth strategy, reｓｔｒｕｃｔｕｒｅ our business portfolio based on materiality, and strive to realize NAGASE's Ideal State Realization of NAGASE's Ideal State Ｌａｕｎｃｈ and ｄｒｉｖｅ businesses that address our materiality Materiality to be addressed Extend a healthy life expectancy Achieve Sustainable supply chains Driving a Circular Economy Realize a Decarbonization Surrounding societal issues Environmental Issues Energy Issues Health Issues Food Issues ※ In September 2024, we partially revised our materiality, in light of changes in the external environment. Positioning of the Medium-Term Management Plan NAGASE's Ideal State Exponential Growth Under ACE 2.0, we have set "p ursuit of quality" as our guiding principle, strengthening our Early achievement of JPY 1 trillion market capitalization Walk the Talk 2028 foundation for transformation and reinforcing our corporate structure, while shifting toward Targets Operating profit: JPY 50.0 billion + ROE: 9.0%＋ management with a stronger focus on shareholders. Building the foundation for exponential growth Realization of growth strategies Build new business pillars for future growth ACE 2.0 Build resilience to withstand transformation Results Operating profit: JPY 44.7 billion ROE: 8.0% Building on the foundation established under ACE 2.0, Walk the Talk 2028 marks a phase transition from "structural reform" to "accelerating growth". Pursuit of Quality Laid the foundation for transformation Transformed into a lean and resilient organization Shareholder-oriented management We will steadily bring our existing growth strategies to fruition, concentrate management resources on creating the next growth driver, and strengthen our resilience and human capital to withstand changes - all with the aim of achieving a market capitalization of JPY 1 trillion at the earliest opportunity. Three Core Policies of the Medium-Term Management Plan With an eye toward evolving into a company worthy of a JPY 1 trillion market capitalization within three years, we will advance three core policies: scaling our business, building resilience, and strengthening the human capital that drives our growth. Execution of Growth Strategies Ensure the monetization of growth investments under ACE 2.0 Create "Uniqueness" through One NAGASE Continuous restructuring and improvement of unprofitable businesses Leverage M&A to expand our business portfolio Development of Human Capital Strengthen individual talent Promote diversity to accelerate behavioral change Pursue capital efficiency Building Resilience Advance corporate governance Strengthen the ability to address emerging risks Growth Strategies Human Capital Resilience Changes to the Segment Structure Materials Performance Chemicals Speciality Chemicals Polymer Global Account Mobility Solutions Electronics Advanced Functional Materials Electronics 14.8 billion JPY 14.8 billion JPY Electronics & Energy Mobility 3.7 billion JPY 7.6 billion JPY Advanced Materials & Processing 20.6 billion JPY 9.3 billion JPY Functional Materials We will reorganize from five to three segments to clarify our business portfolio. This will enable us to fast-track capital allocation to growth areas, reinforce ROIC-based management, and drive a shift toward a more capital-efficient earnings structure Departments Current Segments FY25 Operating Profit New Segments FY25 Operating Profit Life & Healthcare Products Life Sciences Life & Healthcare ９.８ billion JPY ９.８ billion JPY Growth Strategies Human Capital Resilience Business Strategy by Segment We will appoint segment heads for each segment and delegate responsibility and authority to accelerate decision-making, while driving growth through strategies tailored to diverse business environments FY2028 Materials Restructure regional business portfolio Secure new supply chains in response to petrochemical industry restructuring Strengthen production capacity for Group-manufactured products (filters and pipes) Create businesses that contribute to sustainability EBITDA JPY 23.5 billion Operating profit JPY 2２.０ billion Electronics Expand production capacity for advanced semiconductor encapsulation materials Launch new products and establish market traction Expand ultra-high-purity chemical business and launch a recovery and recycling business Build a global supply network for the semiconductor industry EBITDA JPY 21.6 billion Operating profit JPY 17.0 billion Life Sciences Provide solution-based offerings built on ingredients in the food industry Expand global business in personal care and pharmaceuticals Enhance productivity and grow The Prinova Group manufacturing business Create new products leveraging AI and robotics EBITDA Operating profit JPY 20.0 billion JPY 1１.０ billion Growth Strategies Human Capital Resilience Ensuring Monetization of ACE 2.0 Growth Strategies We will steadily execute the growth investments and initiatives planned under ACE 2.0 while maximizing investment returns to achieve sustained enhancement of corporate value Focus Growth Challenge Incubation function Seeding future growth Strengthening our competitive proprietary products Portfolio restructuring Pursuit of efficiency Planned investment: JPY 70 billion Planned investment: JPY 10 billion Planned investment: JPY 20 billion Materials Expand production for hoses used in national resilience applications Strengthen Nagase Filter business Expand trading business driven by petrochemical industry restructuring Restructure regional business portfolio Expand the semiconductor chemicals business MOF product businesses Continuous Flow Synthesis business Electronics Expand liquid encapsulant production capacity Expand production capacity for ultra-high-purity chemicals Launch a chemical solution recovery and recycling business Expand capacity for outsourced semiconductor packaging services Expand footprint in the United States Expand logistics network in India Expand the semiconductor business in China Develop next-generation encapsulant material Strengthen semiconductor packaging development capabilities Build a cold supply chain Life Siences Enhance productivity in the Prinova Group Nutrition business Expand the enzymes (diagnostics) business Strengthen the Prinova Group premix business in Europe Expand Active Pharmaceutical Ingredient business Food business restructuring - Establishment of Nagase Food Solutions Develop saccharide-derived microbeads Launch low-endotoxin business Enhance productivity through AI utilization Establish a new biotechnology research facility 17 Growth Strategies Human Capital Resilience Creating Uniqueness through One NAGASE Antioxidant amino acids Low-glycation technology Bio-response sensors Next-generation cooling technology Biodegradable SAP Bio-stimulants By fully leveraging NAGASE's three functions - trading, manufacturing, and R&D - we will create "Uniqueness" : a business model that only NAGASE can offer, delivering high added value across the entire value chain, and evolving it into a key driver of future growth Uniqueness Key material issues to be addressed Extending healthy longevity Sustainable supply chain Decarbonized society Circular economy Research & Development Biotechnology AI & Robotics Manufacturing Organic synthesis Functional carbohydrates Diagnostics, etc. Trading Global Network Matchmaking capability Intelligence and on-the-ground execution capability Our Three Core Functions × × Reference Growth Strategies Human Capital Resilience Case Study of "Uniqueness" Case Study 1 Resource Circulation (Disposable Diaper Recycling) Case Study 2 Extending Healthy Life Expectancy (Sugar Reduction) Sales Target : JPY 50 billion ～ Sales Target : JPY 45 billion ～ Issue: Greenhouse gas emissions resulting from the mass disposal of single-use diapers. Solution: Establish a unique scheme to separate and purify used diapers containing our proprietary biodegradable SAP to a high-level purity for reuse as recycled pulp, SAF, solid fuel, and other materials. Issue : The health burden, including diabetes and cardiovascular disease, resulting from excessive sugar consumption. Solution : Develop new materials to replace sugar and expand the premix business combining these materials with enzymes and other ingredients Separation and purification Separation and purification Used diapers Pulp SAF Separation and purification Recycled diapers Production Recycled pulp Growth Strategies Human Capital Resilience Execution of Growth Strategies Quantitative Roadmap to Exponential Growth We will prioritize capital allocation to the highly profitable Electronics and Life Sciences segments to achieve a more balanced earnings structure. In parallel, we will create "Uniqueness" and work to close the gap toward a market capitalization of JPY 1 trillion by growing earnings and improving ROE. Unit: JPY 100 million Gross Profit Trends 2,296 1,876 1,146 60% 63% 55% Materials Electronics Life Sciences Uniqueness FY2032 FY2020 FY2025 FY2028 Exponential Growth ROE 5.9％ ROE 8.0％ ROE 9.0％ ROE 10.0％～

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