CONVOCATION NOTICE OF THE 100TH ORDINARY GENERAL MEETING OF SHAREHOLDERS

Transcription

1 This Convocation Notice is a translation of the original; Teiji Kabunushisoukai Shoushugotsuchi written in Japanese, for convenience purposes only, and in the event of any discrepancy, the original in Japanese shall prevail. To Our Shareholders Securities Code: 4114 May 31, 2012 Masanori Ikeda, President and Representative Director NIPPON SHOKUBAI CO., LTD Koraibashi, Chuo-ku, Osaka CONVOCATION NOTICE OF THE 100TH ORDINARY GENERAL MEETING OF SHAREHOLDERS We at NIPPON SHOKUBAI CO., LTD. (the Company ) express our deepest sympathy for all those affected by the Great Eastern Japan Earthquake and fervently wish fro the early recovery of the region affected. The Company will be holding the 100th Ordinary General Meeting of Shareholders and requests your attendance. The meeting will be held as described below. If you are unable to attend the meeting, you can exercise your voting rights in writing or via the internet. Please review the Reference Materials for the Ordinary General Meeting of Shareholders set forth below and exercise your voting rights by indicating your intention to vote for or against each agenda item and returning the enclosed voting right exercise form or accessing the website for voting right exercise on The voting right exercise form must be received by 5:00 p.m. on June 20, 2011 (Monday). 1. Date/Time: June 21, 2012 (Tuesday) 10:00 a.m. 2. Venue: Kogin Building 5F, Koraibashi, Chuo-ku, Osaka (Osaka Head Office of the Company) 3. Meeting Agenda: [Matters to be Reported] 1. Business report, and financial statements for the 100th Term (from April 1, 2011 to March 31, 2012) 2. Report on results of the audits conducted by the accounting auditor and the board of corporate auditors with respect to the consolidated financial statements for the 100th Term [Matters to be Resolved] 1st Agenda: Appropriation of retained earnings 2nd Agenda: Election of 7 Members of the Board 3rd Agenda: Election of 1 Corporate Auditors 4th Agenda: Bonuses for Members of the Board for the 100th Term ********************************************************************************* When you arrive at the meeting, please submit the enclosed voting right exercise form to the reception desk. In the event that the Business Report, Financial Statements or the Reference Documents for the Ordinary General Meeting of Shareholders need to be amended, the Company will post such amendments on its website (

2 (Attachment) BUSINESS REPORT (April 1, 2011 through March 31, 2012) I. Current Status of the Group 1. Progress and Results of Operations (1) Outline of Business In fiscal 2011, the Japanese economy confronted record high yen levels, the European debt crisis, and concerns of a slowdown of the global economy, but the pick up in production and personal consumption gradually spread as the drop in supplies from the impact of the Great East Japan Earthquake and Thai floods eased. In the chemicals industry, the outlook remained unclear as the pace of demand expansion in emerging countries began to slow, and due to yen appreciation and elevated raw materials prices. In this business environment, the NIPPON SHOKUBAI Group (the Group ) s consolidated net sales rose 11.2% year-over-year to 320,704 million yen (+32,359 million yen) in the fiscal year under review. Yen appreciation reduced the value of repatriated sales, but sales volumes of some products rose on firm demand, and product prices rose due to elevated raw materials prices and tight supply-demand conditions. As for profits, operating income increased 4.3% year-over-year to 31,100 million yen (+1,287 million yen) in the fiscal year under review. Although fixed costs increased mainly due to the bolstering of production capacity for ethylene oxides, acrylic acids and superabsorbent polymers, profitability improved due to an increase in production and sales volumes and a widening of spreads for some products (product prices rose more than raw materials prices in the markets). Ordinary income increased 7.0% year-over-year to 33,114 million yen (+2,159 million yen) as net non-operating income improved by 872 million yen due to a decrease in foreign exchange losses and an increase in dividend income. Net income increased 0.7% year-over-year to 21,257 million yen (+138 million yen). Sales by business segment are as follows. [Basic Chemicals] Although the sales volumes of acrylic acids and acrylates were about the same as one year earlier, there was a big increase in sales as export prices increased along with a surge in market prices driven by tight supply-demand conditions worldwide. Sales of ethylene oxide also increased due to upward revisions to selling prices to reflect higher raw materials prices in addition to a rise in sales volumes on firm demand. Sales of ethylene glycol increased as market prices remained high and sales volumes rose primarily for exports. Sales of higher alcohol increased, despite a decline in sales volumes, primarily for exports, due to upward revisions to selling prices to reflect higher raw materials prices. Sales of ethanolamine decreased as a decline in sales volumes, despite upward revisions to selling prices to reflect higher raw material prices. In summary, sales in the basic chemicals segment increased 9.2% year-over-year to 136,562 million yen. 2

3 [Functional Chemicals] Sales of superabsorbent polymers increased as sales volumes significantly increased on firm demand and also thanks to the bolstering of production capacity. Sales of raw materials for detergents, maleic anhydride, resin modifiers and resins for paints increased due to a rise in sales volumes. Sales of polymer for concrete admixture and electronic and information materials decreased due to a decline in sales volumes. Sales of specialty acrylates and iodine compounds increased due to upward revisions to selling prices, despite a decline in sales volumes. NIPPON SHOKUBAI CO., LTD. (the Company ) made Nippon Polymer Industries Co., Ltd. a consolidated subsidiary in the fiscal year under review. In summary, sales in the functional chemicals segment increased 13.6% year-over-year to 160,762 million yen. [Environment & Catalysts] Sales of automotive catalysts and process catalysts increased due to an increase in sales volumes and upward revisions to selling prices. Sales of wet oxidation catalyst and fuel cell materials decreased due to a decline in sales volumes. In summary, sales in the environment and catalysts segment increased 7.5% year-over-year to 23,380 million yen. (Sales by Business Segment) Fiscal Year ended March 31, 2011 (Apr. 1, 2010 Mar. 31, 2011) Fiscal Year ended March 31, 2012 (Apr. 1, 2011 Mar. 31, 2012) (Unit: Millions of yen) Increase/Decrease Basic chemicals 125, ,562 11,510 Functional chemicals 141, ,762 19,209 Environment & catalysts 21,740 23,380 1,640 Total 288, ,704 32,359 (2) Capital Expenditures The total amount of the Company s capital expenditures for the fiscal year under review was 23,684 million yen (on a construction basis) which mainly includes the followings: Scrap-and-build of superabsorbent polymers production facility (NA Industries, Inc.) Expansion of acrylic acid production facility and establishment of superabsorbent polymers production facility (PT. NIPPON SHOKUBAI INDONESIA) (3) Fund Procurement During the fiscal year under review, the Company met its requirements for funds by using internal resources and taking out loans from financial institutions. Interest-bearing debt as of March 31, 2012 was 59,507 million yen, 4,772 million yen less than one year earlier because of the repayment of loans from financial institutions. (4) Issues to be Addressed The Group will aim for further growth and earnings base expansion based on its long-term business plan TechnoAmenity 2015 (fiscal 2010 to fiscal 2015), launched in fiscal 2010, and the accompanying action plan. 3

4 1) Outline of the Long-term Business Plan TechnoAmenity 2015 a. The slogan of the Company s long-term business plan is Challenge to the future, make dreams come true. b. Performance benchmark targets The Company targets fiscal 2015 consolidated net sales of 400 billion yen, ordinary income of 30 billion yen, and ROA of 7.5%. The performance benchmark targets it places particular importance on are profit margins (ROA, and the operating income margin in each business segment). c. The Company s vision and target (its ideal) for 2025 is a chemical company providing new values through innovative technologies, and it sets 2015 as its goal (its target). The following is its basic business strategy for achieving this: Grow the electronic & information materials business into an earnings pillar Cultivate the new energy business into a next-generation core business Strengthen the competitiveness and improve the earnings power of existing businesses Gain a foothold in the health and medical market 2) Outline of the Medium-term Business Plan The Company targets fiscal 2012 consolidated net sales of 330 billion yen, ordinary income of 22 billion yen, and ROA of 6.3% (reference figure: sales of new products launched to market within the past five years of 57 billion yen). 3) Progress in Medium- to Long-term Business Plan a. Existing businesses The Group s production capacity of superabsorbent polymers expanded to 470,000 tons per annum ( tpa ) in March Also, the Group is planning the scrap-and-build of 60,000 tpa in the US in 2012, the commercialization of 90,000 tpa in Indonesia in 2013, and expansion of 30,000 tpa in China in This would expand the Group s production capacity of superabsorbent polymers to 590,000 tpa, further solidifying its position as the world s top supplier. The Group is planning to bolster its production capacity of acrylic acids in Indonesia to 80,000 tpa and 80,000 tpa in Himeji Plant for starting operation by This would raise the Group s production capacity of acrylic acids to 780,000 tpa. Regarding ethylene oxides and derivatives, the Group finished increasing production capacity of polymers for concrete admixture at the Kawasaki Plant in 2012, and plans to increase production capacity of (meth) acrylic acid special esters at the same plant in Including the expansion of these derivatives, the Group aims to shift to non-eg (ethylene glycol) to establish an earnings foundation resistant to trends in market prices. The Group's Earnings Improvement Committee, whose mission is to improve the profitability of existing businesses, will review all processes from raw materials procurement, to manufacturing, inventory, and supplies to customers regarding ethylene oxide and derivatives, acrylic acid and derivatives, and superabsorbent polymers in order to cut costs, ensure margins by product and customer, and otherwise boost profitability. b. New businesses The Group targets sales of 30 billion yen for the electronic & information materials business by fiscal It aims to improve profitability through expanding sales and boosting capacity utilization centered on acrylic resins for optics materials. The Group targets sales of 5 billion yen for the new energy business by fiscal It aims to bolster capacity and expand sales of fuel cell materials in particular. 4

5 The Group will also work to commercialize lithium ion battery materials and other nextgeneration businesses. c. Reenergizing human resources and the organization The Company plans to bolster training programs for different employee levels, promote the widespread understanding of its corporate and management philosophies, and implement various measures to strengthen corporate governance. It also plans to strengthen the organization by bolstering the functions of business divisions and converting sales personnel to product managers. Finally, it aims to clarify the position of Group companies within the Group and will implement various measures to maximize Group synergies. In this way, the Company will aim to reenergize human resources and the organization to achieve its long-term business plan TechnoAmenity 2015, which is the way it sees itself in 2015, and will work on company-wide challenges of Talent development, Organizational climate, Enhancement of organization, and Group management. The Company also intends to place the promotion of corporate social responsibility (CSR) at the foundation of its management, to engage in corporate activities based on compliance and self-responsibility, to ensure thoroughness in corporate ethics, to promote responsible care regarding the environment, safety, and quality, and to push forward with activities that contribute to society and environmental preservation activities in particular. Lastly, the Company intends to steadfastly carry out its role and mission while ensuring safe operations based on the principle of safety takes priority over production. We would like to ask all our shareholders for your continued support for the future. 2. Financial Condition, Profit and Loss Financial Condition, Profit and Loss of the Group 97th Term (April March 2009) 98th Term (April March 2010) 99th Term (April March 2011) 100th Term (April March 2012) Net sales ( millions) 289, , , ,704 Ordinary income ( millions) ,934 30,955 33,114 Net income ( millions) (5,307) 10,832 21,119 21,257 Net income per share ( ) (29.61) Total assets ( millions) 302, , , ,407 Net assets ( millions) 151, , , ,070 Net assets per share ( ) , ROA (Return on Assets*) (%) * Return on Assets is the ratio of ordinary income to total assets. (1) For the fiscal year ended March 31, 2009 (97th Term), net sales decreased due to factors including (i) the significant decline in sales volume which resulted from the decline in demand and (ii) the decrease of repatriated sales which resulted from the strong yen. With respect to profits, ordinary income decreased due to the decline in production and sales volumes and the incurrence of loss on valuation of inventory which resulted from the sharp decline of raw material prices. Net loss was reported due to the recording of loss on valuation of investment securities and impairment loss on noncurrent assets. (2) For the fiscal year ended March 31, 2010 (98th Term), net sales decreased because product prices declined due to a decrease in raw materials prices and slack in the supply-demand balance among other factors. With respect to profits, ordinary income increased as (i) 5

6 profitability improved due to cost reductions and an increase in production and sales volumes. In addition, (ii) earnings in the previous fiscal year had been held down by a large inventory valuation loss, and (iii) a smaller foreign exchange loss and higher equity-method investment profits further contributed to growth in earnings. Furthermore, losses on valuation of investment securities decreased. As an overall result, the Group returned to a net income. (3) For the fiscal year ended March 31, 2011 (99th Term), net sales increased because sales volumes rose on firm demand, and product prices rose due to elevated raw materials prices and tight supply-demand conditions. With respect to profits, both ordinary income and net income increased as (i) profitability improved due to an increase in production and sales volumes and a widening of spreads for some products, and (ii) an increase in equitymethod investment profits. (4) For information concerning the fiscal year ended March 31, 2012 (100th Term), please refer to 1. Progress and Results of Operation above. (Reference) Financial Condition, Profit and Loss of the Company 97th Term (April March 2009) 98th Term (April March 2010) 99th Term (April March 2011) 100th Term (April March 2012) Net sales ( millions) 207, , , ,119 Ordinary income ( millions) 4,262 11,191 22,898 25,819 Net income ( millions) (7,353) 6,918 16,342 16,277 Net income per share ( ) (41.01) Total assets ( millions) 246, , , ,042 Net assets ( millions) 133, , , ,010 Net assets per share ( ) ROA (Return on Assets*) (%) * Return on Assets is the ratio of ordinary income to total assets. 6

7 3. Significant Subsidiaries Name NIPPON NYUKAZAI CO., LTD. Capital ( millions, unless otherwise quoted) Nippon Shokubai s Shareholding Percentage (%) 1, Nippoh Chemicals Co., Ltd., Nippon Polyester Co., Ltd Major Businesses Manufacture and sale of surfactants and chemical products Manufacture and sale of iodine compounds, natural gas, and raw materials for pharmaceuticals, agricultural chemicals, and fragrances Manufacture, processing and sale of molded plastics Nisshoku Butsuryu Co., Ltd Logistics NA Industries, Inc. * (US$ thousands) 100, Manufacture and sale of superabsorbent polymers, polymers for concrete admixtures, and acrylic acid detergent builders PT. NIPPON SHOKUBAI INDONESIA (US$ thousands) 120, Manufacture and sale of acrylic acids and acrylates NIPPON SHOKUBAI EUROPE N.V. ( thousands) 43, Manufacture and sale of superabsorbent polymers Singapore Acrylic Pte Ltd. (US$ thousands) 27, Manufacture and sale of crude acrylic acids Singapore Glacial Acrylic Pte Ltd. (US$ thousands) 4, Manufacture and sale of glacial acrylic acids NISSHOKU CHEMICAL INDUSTRY (ZHANGJIAGANG) Co., Ltd. (US$ thousands) 48, Manufacture and sale of superabsorbent polymers and polymers for concrete admixtures (Note 1) (Note 2) Asterisk mark (*) in the above list means paid-in capital. Figures listed in respect of the Company s shareholding percentage in the above list are truncated. 4. Description of Principal Businesses The Group mainly manufactures and sells the following products: Business Basic chemicals Functional chemicals Environment & catalysts Principal Products Acrylic acid, acrylates, ethylene oxide, ethylene glycol, ethanolamine, higher alcohol, glycol ether Superabsorbent polymers, intermediates for pharmaceuticals, polymers for concrete admixtures, electronic and information materials, iodine compounds, maleic anhydride, resins for adhesives/paints, molded plastics, processed adhesive products Automotive catalysts, de-nox catalysts, dioxin decomposition catalysts, process catalysts, equipment for waste gas treatment 7

8 5. Principal Offices and Plants (1) The Company Head Offices: Osaka Office (Osaka, Osaka-Prefecture), Tokyo Office (Chiyoda-ku, Tokyo) Laboratories: Advanced Materials Research Center, Strategic Technology Research Center, E&I Materials Research Center, Fine & Specialty Chemicals Research Center (Suita, Osaka-Prefecture), Superabsorbents Research Center, GSC Catalyst Technology Research Center (Himeji, Hyogo-Prefecture) Plants: Kawasaki Plant (Kawasaki, Kanagawa-Prefecture), Himeji Plant (Himeji, Hyogo-Prefecture) (2) Subsidiaries Nippoh Chemicals Co., Ltd. (Head Office: Chuo-ku, Tokyo / Plant: Isumi, Chiba-Prefecture) Nippon Polyester Co., Ltd. (Head Office: Osaka-shi / Plant: Sanda, Hyogo-Prefecture and Isumi, Chiba-Prefecture) NIPPON NYUKAZAI CO., LTD. (Head Office: Chuo-ku, Tokyo / Plant: Kawasaki, Kanagawa- Prefecture and Kamisu, Ibaraki-Prefecture) Nisshoku Butsuryu Co., Ltd. (Head Office: Osaka, Osaka-Prefecture) NA Industries, Inc. (Head Office & Plant: U.S.A.) PT. NIPPON SHOKUBAI INDONESIA (Head Office & Plant: Indonesia) NIPPON SHOKUBAI EUROPE N.V. (Head Office & Plant: Belgium) Singapore Acrylic Pte Ltd. (Head Office & Plant: Singapore) Singapore Glacial Acrylic Pte Ltd. (Head Office & Plant: Singapore) NISSHOKU CHEMICAL INDUSTRY (ZHANGJIAGANG) Co., Ltd. (Head Office & Plant: China) 6. Employees of the Company Group Number of Employees Increase (Decrease) Compared to the End of the Previous Fiscal Year 3,779 Increase of 203 persons (Note) Number of Employees listed above is the number of full-time employees. (Reference) Employees of the Company Number of Employees Increase (Decrease) Compared to the End of the Previous Fiscal Year Average Age Average Length of Service 1,944 Increase of 1134persons 38.0years old 16.2 years (Note 1) (Note 2) Number of Employees listed above is the number of full-time employees. Number of Employees listed above includes employees seconded from affiliates of the Company (25 persons), but excludes employees seconded to affiliates of the Company (222 persons) and temporary employees (127 persons). 8

9 7. Principal Lenders Name of Lender (Millions of yen) Amount Outstanding Syndicated Loan 8,000 Development Bank of Japan Inc. 6,400 Mizuho Corporate Bank, Ltd. 6,293 Resona Bank, Limited 5,035 Nippon Life Insurance Company 4,412 (Note) The Syndicated Loan listed above is co-financing from 22 financial institutions. II. Matters Concerning the Company 1. Matters Concerning the Company s Shares (1) Total Number of Authorized Shares: 636,000,000 (common stock) (2) Total Number of Issued and Outstanding Shares: 204,000,000 (common stock) Note: During this fiscal year, the Company cancelled 8,000,000 shares on November 21, 2011 according to the resolution of the Board dated November 7, 2011 to improve its corporate and shareholders value. (3) Number of Shareholders: 13,618 (4) Major Shareholders (Top 10 shareholders) Name Number of Shares Owned (thousands shares) Shareholding Ratio of the Total Shares Outstanding (%) Sumitomo Chemical Co., Ltd. 19, JX Hojdings, Inc. 10, The Master Trust Bank of Japan Ltd. (Trust Account) 9, Japan Trustee Services Bank, Ltd. (Trust Account) 8, Resona Bank, Limited 6, National Mutual Insurance Federation of Agricultural Cooperatives 6, Sanyo Chemical Industries, Ltd. 6, Mizuho Corporate Bank, Ltd. 4, TOYO INK SC HOLDINGS CO., LTD. 4, Nippon Life Insurance Company 3, (Note 1) (Note 2) (Note 3) Other than the above, the Company holds 1,001 thousand shares as treasury stock. Treasury stock is excluded from the calculation for Shareholding Ratio of the Total Shares Outstanding above. Figures in Number of Shares Owned and Shareholding Ratio of the Total Shares Outstanding are truncated. 9

10 2. Executives of the Company (1) Directors and Corporate Auditors of the Company Position Member of the Board, Chairman Representative Member of the Board, President Representative Member of the Board, Senior Managing Executive Officer Member of the Board, Senior Managing Executive Officer Member of the Board, Senior Managing Executive Officer Member of the Board, Managing Executive Officer Member of the Board, Managing Executive Officer Name Tadao Kondo Masanori Ikeda Yosuke Ogata Yuichi Kita Yasuhito Nishii Kenji Ozeki Haruhisa Yamamoto Responsibility in the Company and/or Important Positions Concurrently held at Other Companies Production and Technology Plant Manager of Himeji Plant Research and Development Director of Research & Development Division Administration Director of Finance & Accounting Division In charge of Information Technology Management Office and Investor & Public Relations Department Director of E&I Materials Business Division In charge of Fine & Performance Chemicals Business Division, Environment & Catalyst Business Division President of Nisshoku Trading (Shanghai) Co., Ltd. Director of Ethylene Oxide Business Division In charge of Acrylic Business Division, and Taipei Office Member of the Board Hidetoshi Nakatani Advisor of Osaka Gas Co., Ltd. Corporate Auditor Shin-ichi Uchida (Full-time) Corporate Auditor Masakazu Onishi (Full-time) Corporate Auditor Yukio Yamagata Director and Senior Vice President of JX Holdings, Inc. Corporate Auditor Kozo Arao Attorney-at-law (Note 1) (Note 2) (Note 3) (Note 4) Mr. Hidetoshi Nakatani is an outside Member of the Board Messrs. Yoshiaki Takahashi and Takaaki Okabe are outside corporate auditors. Mr. Hidetoshi Nakatani, an outside Member of the Board and Mr. Kozo Arao, an outside corporate auditor are registered at Tokyo and Osaka Stock Exchange Markets as independent executives. There were changes in positions, responsibilities in the Company and/or important positions concurrently held at other companies of directors and corporate auditors of the Company as of April 1, 2012 as follows: Representative Member of the Board, Senior Managing Executive Officer Member of the Board, Senior Managing Executive Officer Yosuke Ogata Yuichi Kita Production and Technology Research and Development In Charge of Research Planning & Development Division 10

11 Member of the Board, Managing Executive Officer Member of the Board, Managing Executive Officer Haruhisa Yamamoto Masao Yamamoto Director of Ethylene Oxide Business Division In charge of Acrylic Business Division Director of General Administration & Personnel and Purchasing & Logistics Division (Reference) Executive officers (except individuals who are also members of the Board) are as follows. (As of April 1, 2012) Position Name Responsibility in the Company Managing Executive Officer Shoji Nanda Director of Overseas Project Division Managing Executive Officer Hidetaka Yatagai President of NA Industries, Inc. Executive Officer Kenji Rakutani Plant Manager of Himeji Plant Executive Officer Yojiro Takahashi Director of Corporate Planning Division Executive Officer Koichiro Yamada Director of Acrylic Business Division Executive Officer Nobuyuki Harada Deputy Director of Acrylic Business Division, General Manager of Superabsorbents Research Center Executive Officer Takehiro Takashima Director of Engineering Division Executive Officer Takumi Hatsuda Director Production Division In charge of Responsible Care Division, Kawasaki Plant and Suita Plant Executive Officer Kin-ya Nagasuna Director Research Division (2) Remuneration to Directors and Corporate Auditors 1) Aggregate Amount of Remuneration to Directors and Corporate Auditors Title Members of the Board (incl. Outside Members of the Board) Corporate Auditors (incl. Outside Corporate Auditors) Number of Persons (persons) 10 ( 1) 6 ( 3) Aggregate Amount of Remuneration ( millions) 480 ( 11) 59 ( 10) (Note 1) (Note 2) (Note 3) Number of Persons above includes one member of the Board and two corporate auditors who stepped down during the fiscal year under review together with the remuneration to them contained in the aggregate amount of remuneration. Aggregate Amount of Remuneration above includes officers bonus of 150 million yen which is to be on agenda at the coming General Meeting of Shareholders. The Company paid 11 million yen of retirement benefit to a member of the Board who stepped down during the fiscal year except the above amount. 11

12 2) Policy for Determination of Remuneration for Directors and Corporate Auditors Directors and corporate auditors receive three types of remuneration: a basic salary and a salary for duties performed, which are fixed, and a performance payment that varies depending on the Company s ability to meet its performance targets. Fixed remuneration accounts for about 65% of total remuneration and the variable portion for about 35%. Furthermore, outside directors and corporate auditors, who oversee business operations from an independent standpoint, receive only fixed remuneration because a remuneration linked to earnings is not appropriate for these individuals. The level of remuneration is based on comparisons with companies in the same industry and companies of the same size as well as on the Company s results of operations. The Company abolished the program of retirement benefits for directors at the 93rd Ordinary General Meeting of Shareholders on June 22, To the directors who were incumbent at the closing of the 93rd Ordinary General Meeting of Shareholders and have remained on the board thereafter, retirement benefits are therefore paid upon their retirement. (3) Matters Concerning the Company s Outside Members of the Board and Corporate Auditors 1) Important positions held concurrently such as executive members of the Board (gyoumu shikko torishimariyaku) of other companies Name Hidetoshi Nakatani (Outside Member of the Board) Yukio Yamagata (Outside Corporate Auditor) Kozo Arao (Outside Corporate Auditor) Important Positions Concurrently Held at Other Companies Adviser of Osaka Gas Co., Ltd. Director and Senior Vice President of JX Holdings, Inc. Attorney (Note) There are no special interests between the Company and either of the entities referred to above. 2) Principal activities during the fiscal year under review Name Hidetoshi Nakatani (Outside Member of the Board) Yukio Yamagata (Outside Corporate Auditor) Principal Activities Mr. Hidetoshi Nakatani attended all 13 meetings of the Board of Directors that were held during the fiscal year under review. Due to his experience as an executive of a company that is a manufacturer and has a strong commitment to public service, he provides useful advice concerning the Company s management and supervises the Company s management from an independent perspective. Mr. Yukio Yamagata attended 11 of the 13 meetings of the Board of Directors that were held during the fiscal year under review. At these meetings, he provides his views from the perspective of a corporate executive as required. Mr. Yamagata also attended 11 of the 13 meetings of the Board of Corporate Auditors that were held during the fiscal year, exchanged opinions with respect to the results of audits and discussed important issues regarding such audits. Furthermore, he periodically exchanged opinions with the senior management. 12

13 Kozo Arao (Outside Corporate Auditor) Mr. Kozo Arao attended all 10 meetings of the Board of Directors that were held during the fiscal year under review following his election as a corporate auditor. At these meetings, he provides his views from the perspective of an attorney as required. Mr. Arao also attended all 10 meetings of the Board of Corporate Auditors that were held during the fiscal year following his election as a corporate auditor, exchanged opinions with respect to the results of audits and discussed important issues regarding such audits. Furthermore, he periodically exchanged opinions with the senior management. 3) Summary of Contract for Limitation of Liability The Company has signed liability limitation contracts with outside members of the Board and outside corporate auditors concerning liability as prescribed in Article 423, Paragraph 1 of the Companies Act of Japan. The contracts limit liability to the total of the monetary amounts in all items of Article 425, Paragraph 1 of this act as long as outside members of the Board and outside corporate auditors perform their duties in good conscience and without any gross negligence. 3. Matters Concerning Accounting Auditor (1) Name of Accounting Auditor Ernst & Young ShinNihon LLC (2) Remuneration Paid to Accounting Auditor Classification Amount Paid (1) Total amount payable by the Company to the Accounting Auditor 48 million (2) Total amount of cash and other financial benefits payable by the Company and its subsidiaries to the Accounting Auditor 63 million (Note 1) (Note 2) Because no distinction is made between remuneration for audit services rendered pursuant to the Companies Act and remuneration for audit services rendered pursuant to the Financial Instruments and Exchange Act of Japan under the agreement between the Company and the Accounting Auditor, the amount of remuneration paid to the Accounting Auditor listed above in (1) Total amount payable by the Company to the Accounting Auditor is the sum of these two. Among the significant subsidiaries of the Company, NA Industries, Inc., PT. NIPPON SHOKUBAI INDONESIA, NIPPON SHOKUBAI EUROPE N.V., Singapore Acrylic Pte Ltd., Singapore Glacial Acrylic Pte Ltd. and NISSHOKU CHEMICAL INDUSTRY (ZHANGJIAGANG) Co., Ltd. have been audited by auditing firms other than the Accounting Auditor of the Company. (3) Policies on Dismissal or Non-reappointment of the Accounting Auditor In the event that the Board of Directors determines that the execution of duties by the Accounting Auditor is disrupted, the Board of Directors shall, upon consent of the Board of Corporate Auditors or based on a request by the Board of Corporate Auditors, propose the dismissal or nonreappointment of the Accounting Auditor as an agenda at a shareholders meeting. In the event that the Board of Corporate Auditors determines that the Accounting Auditor falls under any of the items of Article 340, Paragraph 1 of the Companies Act, the Board of Corporate Auditors has a policy to dismiss the Accounting Auditor upon unanimous consent of the Corporate Auditors. In this case, a Corporate Auditor who is appointed by the Board of Corporate 13

14 Auditors shall report the fact that the Board of Corporate Auditors has dismissed the Accounting Auditors and reasons therefore at the first shareholders meeting to be held after such dismissal. III. Systems and Policies of the Company 1. Systems to Ensure Proper Business Activities The Company s basic policy with respect to the development of internal control system is as follows: The Company is guided by the corporate philosophy of TechnoAmenity: providing value and comfort to people and society, with our unique technology. Based on this philosophy, we have established the following fundamental policy for the creation of internal control systems. This policy reflects the understanding that the establishment and operation of a system for conducting business operations properly is vital to the continuous preservation and growth of corporate value. (1) Systems to ensure that members of the Board perform their duties in compliance with laws, regulations and the Articles of Incorporation, and systems to ensure that employees perform their duties in compliance with laws, regulations and the Articles of Incorporation 1. Establish the Corporate Ethics Committee and implement a system to comply with laws and regulations. 2. Formulate a corporate behavior charter and make it a norm for members of the Board, executive officers and employees. 3. Formulate a corporate code of ethics and prevent the violation of laws and regulations. 4. As an internal auditing division, establish the Internal Audit Office which is independent from other executive sections. 5. Establish an internal reporting system under which facts with respect to the violation of laws and regulations and other compliance-related matters will be reported internally. (2) Systems for storing and managing information concerning the execution of duties by the members of the Board Information concerning the execution of duties by members of the Board shall be stored and managed, as the minutes of meetings of the Board of Directors (torishimariyakukai gijiroku), internal memo to obtain approval (ringisho) and other documents, pursuant to the Regulations of the Board of Directors (torishimariyakukai kitei) and the Document Handling Regulations (bunsho kitei), and other rules. (3) Rules and systems with respect to the management of the risks of loss 1. Establish the Risk Management Committee and implement a system to manage risks of loss. 2. Formulate risk management regulations (risuku kanri kitei) to clarify risk recognition and procedures, and prevent such risks from occurring. 3. Upon the occurrence of an unexpected event, establish a special headquarters with the company president as its head and take prompt and appropriate measures pursuant to the rules concerning measures for unexpected events. (4) Systems to ensure that members of the Board execute their duties efficiently 1. In order to deliberate and determine matters with respect to the execution of duties by members of the Board, a meeting of the Board of Directors shall, in principle, be held monthly so that prompt decision-making may be carried out. 2. The Board of Directors shall select executive officers. The Board of Directors is responsible for reaching decisions involving management and supervising business operations and the executive officers are responsible for conducting business operations. 14

15 Separating these functions increases the efficiency of management and clearly defines accountability. 3. The Company shall have outside members of the Board for the purpose of ensuring the suitability of decisions and the oversight of business operations by the Board of Directors. 4. The Company shall have the corporate management meeting consisting of the company president and executive officers named by the president. In principle, this committee shall meet twice each month (including one meeting attended by all executive officers) for the purpose of discussing subjects involving fundamental management policies and actions involving important matters. (5) Systems to ensure proper business activities by the Group, which consists of the Company, its parent company and its subsidiaries 1. In order to properly understand operation status of the group companies, the Corporate Planning Office shall promptly report managerial and other issues to the corporate management meeting and the Board of Directors. 2. In order to ensure proper business activities by the group companies, the Internal Audit Office and the Responsible Care Office shall audit each group company as appropriate. 3. The Corporate Ethics Committee shall make effort to improve corporate ethics across the Group. (6) Matters concerning employees who are allocated to assist the corporate auditors when requested by the corporate auditors, and the independence of these employees from the members of the Board 1. The Audit Office, which shall be established under direct control of the corporate auditors of the Company, and the employees thereof shall assist the corporate auditors in their duties. 2. The Audit Office shall be independent from the Board of Directors, and the employees assigned thereto shall, pursuant to the Business Segregation Rules (gyoumu bunshou), perform their duties independent from the Board of Directors, the respective members of the Board and executive officers. (7) Systems for submitting reports from members of the Board and employees to the corporate auditors, for posting other reports to corporate auditors and for ensuring effective of audits by the corporate auditors 1. In order to understand important decision-making process and the status of executing operations executed/ to be executed, the corporate auditors shall attend important meetings such as the corporate management meetings and budget meetings, in addition to meetings of the Board of Directors. 2. Members of the Board, executive officers, and employees shall report to corporate auditors important information associated with the status of internal audits, risk management and internal reporting. 3. The director of each division shall report the status of executing operations in accordance with the audit plan (annual plan) prepared by corporate auditors. 2. Basic Policies Concerning Control of the Company (1) Summary of basic policy for parties that control the Company s financial and business policies The Group is guided by the corporate philosophy of TechnoAmenity: providing value and comfort to people and society, with our unique technology. Based on this philosophy, we devise and execute management strategies and work on becoming more competitive and profitable in order to achieve the goal of being a chemical company providing new values through innovative technologies. The objective of these activities is to increase corporate value and the common interests of shareholders. 15

16 The Company will take the actions (Takeover Defense Measures) that are needed to protect corporate value and the common interests of shareholders from harm caused by disruptions to the above corporate philosophy and management strategies resulting from a large-scale purchase of the Company s stock. (Articles of Incorporation Articles 33 to 35) When there is a proposal by a third party for a large-scale purchase of the Company s stock (proposed acquisition), the Company believes that its shareholders at that time should be entrusted with reaching the final decision about whether or not to accept the proposed acquisition. Consequently, to allow shareholders to reach a proper decision, the Takeover Defense Measures prescribe the rules and procedures that are needed to give shareholders the necessary information about the proposed acquisition and provide a sufficient amount of time. (2) Special initiatives for the effective use of assets, establishment of a proper corporate group and activities involving other fundamental policies 1) Activities involving the Medium-to Long-term Business Plan In April 2010, the Company formulated and announced a long-term business plan called TechnoAmenity 2015 that ends fiscal 2015 and a medium-term business plan that serves as the action plan for the long-term plan. Based on the slogan Challenge to the future, make dreams come true, the Company s vision (ideal) for 2025 is to be a chemical company providing new values through innovative technologies. As part of this vision, the Company has determined its goal (its target) for 2015 and established basic business strategies for achieving this goal. Many activities are currently under way to achieve the 2015 goal. An overview of the medium-to longterm business plan is provided in 1. (4) Issues to be Addressed. 2) Measures to strengthen corporate governance The Company positions corporate governance as the foundation for activities to build an operating framework capable of adapting to change on a global scale and to become more competitive. The aims of corporate governance are to make the Board of Directors more effective, reinforce the auditing system, create a more efficient management structure, and establish and upgrade the compliance system. One outside member of the Board joined the Board of Directors in June The aim is to strengthen corporate governance by having a member of the Board who can provide useful advice concerning management and supervise management from an independent perspective. In addition, the Company uses the executive officer system for the purpose of separating the roles of management decision-making and oversight and the execution of business operations. The Company is using this system to strengthen corporate governance and increase the speed of management decision-making and the execution of business operations. (3) Summary of measure to prevent a party that is unsuitable with respect to the basic policy from gaining control over decisions concerning the Company s financial and business policies The Company adopted Countermeasures (Takeover Defense Measures) against Large-Scale Purchases of Company Stock on June 20, As the Takeover Defense Measures would expire at the conclusion of the Ordinary General Meeting of Shareholders in June At the Ordinary General Meeting of Shareholders that was held on June 22, 2010, shareholders approved a resolution as submitted to extend the Takeover Defense Measures with some revisions until the Ordinary General Meeting of Shareholders for the last fiscal year that ends within a three-year period. The following section is a summary of the partially revised Countermeasures (Takeover Defense Measures) against Large-Scale Purchases of Company Stock ( the Rules ) that was approved at the Ordinary General Meeting of Shareholders that was held on June 22, The Rules allow the Company s Board of Directors to state a procedure that should be observed by a party that is proposing to purchase the Company s stock (the Large-Scale Purchaser). The procedure provides an amount of time that is both necessary and sufficient for the Company to 16

17 examine, assess and consider the proposed acquisition, and to provide its shareholders with this information as well as the Company s alternative proposal. Shareholders can then decide directly at a general meeting of shareholders which proposal would contribute to the improvement of corporate value of the Company and the common interests of shareholders. However, the countermeasures may exceptionally be exercised pursuant to a resolution of the Board of Directors, without a resolution of the general meeting of shareholders, only in case of (i) failure by a Large-Scale Purchaser to comply with the Rules; or (ii) recognition of the fact that it is evident that the relevant large-scale purchase will significantly damage the interests of the shareholders of the Company. In order to prevent arbitrary decisions by the Board of Directors of the Company when the situation described above in (ii) is being proposed as a justification for exercising countermeasures, the External Committee will be established as an organization independent from the Board of Directors. This highly independent committee consists of at least three individuals, including an outside member(s) of the Board, outside corporate auditor(s) and prominent individual(s) from outside the Group. The External Committee shall receive the Board of Directors request for consultation and shall evaluate and determine whether it is evident that the large-scale purchase under consideration would significantly damage the interests of the shareholders of the Company, and shall subsequently submit its recommendations to the Board of Directors as to whether or not the countermeasures should be exercised. The Board of Directors will afford the recommendations of the External Committee the highest consideration, and will determine whether or not to exercise the countermeasures. For more information about the Rule, please see the May 6, 2010 news release titled Notification with Respect to the Continuation of Countermeasures (Takeover Defense Measures) against Large-Scale Purchases of Nippon Shokubai Co., Ltd. Shares. The news release Notification with Respect to the Continuation of Countermeasures (Takeover Defense Measures) against Large-Scale Purchases of Nippon Shokubai Co., Ltd. Shares is posted on the Company s website ( (4) Decision of the Board of Directors concerning the above measures and reason for decision In the event of a proposed acquisition, the Rules prescribe rules and procedures for the purpose of giving the Company s shareholders the necessary information and sufficient time for consideration to decide whether or not to activate the defensive measure (issue stock acquisition rights). The Rules allow the Company s shareholders to make the final decision as to whether or not to accept the proposed acquisition. As a result, the Board of Directors believes that these measures contribute to protecting and increasing the Company s corporate value and the common interests of its shareholders and that the measures are not harmful to the common interests of its shareholders. Furthermore, protecting the positions of the Company s executives is not the purpose of the Rules. For these reasons, the Board of Directors believes that the Rules are consistent with the above basic policy for parties that control the Company s financial and business policies. The Rules may be abrogated by a resolution of the Board of Directors through the appointment or dismissal of members of the Board pursuant to ordinary resolutions at one general meeting of shareholders. Moreover, the term of office of members of the Board expires within one (1) year after appointment, and the terms of office of members of the Board are not staggered. *** Note: Unless otherwise noted in this business report, amounts and ratios are rounded off to the nearest unit. 17

18 Assets Current assets Consolidated Balance Sheets Fiscal year ended Mar.31, 2011 (As of Mar.31, 2011) (Unit: Millions of yen) Fiscal year ended Mar.31, 2012 (As of Mar.31, 2012) Cash and deposits 39,304 51,764 Notes and accounts receivable-trade 72,676 78,094 Merchandise and finished goods 21,690 24,291 Work in process 5,765 6,761 Raw materials and supplies 11,960 12,960 Deferred tax assets 3,707 3,753 Other 5,806 5,320 Allowance for doubtful accounts (74) (64) Total current assets 160, ,879 Noncurrent assets Property, plant and equipment Buildings and structures 80,741 83,745 Accumulated depreciation (53,445) (56,996) Accumulated impairment loss (1,509) (1,588) Buildings and structures, net 25,787 25,161 Machinery, equipment and vehicles 275, ,374 Accumulated depreciation (219,016) (234,457) Accumulated impairment loss (2,506) (2,447) Machinery, equipment and vehicles, net 53,708 46,469 Tools, furniture and fixtures 16,612 17,676 Accumulated depreciation (14,824) (15,485) Accumulated impairment loss (13) (12) Tools, furniture and fixtures, net 1,775 2,179 Land 31,567 32,271 Lease assets Accumulated depreciation (217) (260) Lease assets, net Construction in progress 2,649 16,363 Total property, plant and equipment 115, ,726 Intangible assets Goodwill Other 2,369 2,247 Total intangible assets 3,305 2,716 18

19 Investments and other assets Fiscal year ended Mar.31, 2011 (As of Mar.31, 2011) (Unit: Millions of yen) Fiscal year ended Mar.31, 2012 (As of Mar.31, 2012) Investment securities 35,181 33,789 Investments in capital 3,677 3,319 Long-term loans receivable Deferred tax assets 3,517 4,617 Prepaid pension cost 3,158 3,168 Other 3,747 3,160 Allowance for doubtful accounts (214) (158) Total investments and other assets 49,399 48,087 Total noncurrent assets 168, ,528 Total assets 329, ,407 19

20 Liabilities Fiscal year ended Mar.31, 2011 (As of Mar.31, 2011) (Unit: Millions of yen) Fiscal year ended Mar.31, 2012 (As of Mar.31, 2012) Current liabilities Notes and accounts payable-trade 39,643 53,137 Short-term loans payable 16,749 14,373 Current portion of long-term loans payable 4,884 9,694 Current portion of bonds - 5,000 Lease obligations Income taxes payable 7,639 7,144 Provision Provision for bonuses 2,798 2,991 Provision for directors' bonuses Provision for repairs 2,586 2,359 Other provision Total provision 5,741 5,647 Other 7,113 10,250 Total current liabilities 81, ,288 Noncurrent liabilities Bonds payable 15,000 10,000 Long-term loans payable 27,418 20,224 Lease obligations Deferred tax liabilities Provision for retirement benefits 9,079 10,251 Other 1,288 1,141 Total noncurrent liabilities 53,267 42,048 Total liabilities 135, ,337 Net assets Shareholders equity Capital stock 25,038 25,038 Capital surplus 22,083 22,083 Retained earnings 158, ,441 Treasury stock (7,990) (890) Total shareholders equity 198, ,672 Valuation and translation adjustments Valuation difference on available-for-sale securities 2,367 1,366 Deferred gains or losses on hedges (17) (2) Foreign currency translation adjustment (9,886) (11,721) Total valuation and translation adjustments (7,536) (10,357) Minority interests 3,709 4,755 Total net assets 194, ,070 Total liabilities and net assets 329, ,407 20