Innovation 90 Progress Report

Phase II: Main Initiatives and Targets

Objective
To become “high performance and high value creation company”
Basic Concept
Incorporating successes to get on track for growth
Targets
Sales:50,000 million yen, Operating Profit Margin: 13%, ROE: 10%

Strengthening R&D Capabilities

Resources will be focused on core businesses such as electronics materials and OLED materials, and on the businesses of the future, such as CNT and hair color agents.

By reevaluating our R&D system and strengthening our assessment capabilities, we aim to make new product sales more than 20% of the total (on a non-consolidated basis) by 2010.

Cultivating Human Resources and Innovating the Corporate Culture

In Phase I, we established a ‘Human Resources Development Office’ to help us in our efforts to secure and cultivate the workforce that we need to support our growth.

In Phase II, we plan to strengthen our R&D and business capabilities through focused personnel placement and effective communication of technologies between generations of workers. By shoring up policies and ensuring that adequate training opportunities are available, we hope to create a lively corporate culture, and cultivate a workforce populated by self-motivated individuals who are ready to face challenges.

Main Initiatives

Adding to our High-profit Business Portfolio

We are accelerating growth in the core business areas of electronics materials, including charge control agents (CCA) and organic photoconductors (OPC) materials, and OLED materials.

CCA is used as an additive in copy machine and laser printer toner products. In addition to an environmentally friendly new product for color applications, we have been developing products to meet customers’ needs, and expanding our line of offerings. The synergistic effect of the business we acquired in OPC materials is a great asset in our efforts to meet our customers’ expectations.

The OLED materials market has expanded rapidly, thanks to the cellular phone display application. We are working to develop new applications, such as flat-panel televisions and lights, and as the top manufacturer of hole transport materials, we plan to further expand the market by stepping up our business capabilities in Korea, Taiwan and other markets.

Management resources will also be used to ensure continued growth in developing business areas such as carbon nanotubes and hair coloring agents.

At the same time, we will shore up our basic businesses, such as agro-science, logistics and warehousing, and Hydrogen peroxide, to support stable growth.

Improving Capital Efficiency

While our group possesses ample resources to cope with future risks, our ROE is in the 3% range.

With the measures taken in Phase I and the second group reorganization, we took a big step in our efforts to transform ourselves from a process industry into a high-performance, specialty industry. As a result, we have greatly reduced our exposure to large-scale capital investment burdens and unforeseen business risks. In pursuing our goal of achieving an ROE of 10% by 2010, we will aggressively invest in business and development, and work to increase capital efficiency and shareholder returns.

Shareholder Returns

Our group’s fundamental mission is to build a healthy and stable foundation and consistently increase corporate value so that we can return profits to our shareholders. Shareholder dividends and internal reserves are determined upon an overall consideration of performance trends, future business development needs, unforeseen risks and other factors.

Because of the successes we had in Phase I and with the second group reorganization, we are able to increase dividends from 5 yen per share to 8 yen per share.

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