I wish to express my deep gratitude to all stakeholders for always giving us your strong support. As the final fiscal year of the Medium-term Business Plan KAYAKU Vision 2025 (KV25), which spans a period of four years, FY2025 is a critical milestone. In the period of this plan, based on our cash allocation policy, we have steadily advanced portfolio transformation toward future growth and strengthened shareholder returns.
　Supporting such initiatives are the strengths of the financial capital that the Nippon Kayaku Group has built over many years. The three business units are well balanced and supplement each other. They generate stable cash flow which is used as resources for investing in future growth, establishing a virtuous cycle. As a result, we continue to receive a rating of “A” from Rating and Investment Information, Inc. (R&I). This is an objective evaluation of our financial discipline and we truly appreciate it.
　Toward the culmination of KV25 in this fiscal year and the future beyond, we will maintain our solid financial structure while advancing optimization. Using our stable financial foundation as the driving force, we will create economic value and further focus on providing environmental and social value, including Mitigation of Climate Change, to contribute toward the realization of a sustainable society.

In response to Tokyo Stock Exchange’s request for “Action to Implement Management That is Conscious of Cost of Capital and Stock Price,” the Nippon Kayaku Group implements various measures under three pillars: strengthen earning power, improve capital efficiency, and contribute to a sustainable society. Specifically, we work to increase earning power by responding to greater demand in each business unit and expanding new products, and we strive to improve return on equity (ROE) together with our capital policies. In addition, as a company that promotes sustainable management, we work to reduce environmental and other business risks while focusing on human resource development and utilization.

Until around 2022, the Nippon Kayaku Group’s equity ratio had trended at a high level close to 80%. However, this was brought down to 71.6% at the end of FY2024 based on the approach that it is acceptable to go as low as 60% when considering the utilization of borrowing and such. We will continue to maintain an appropriate financial position, including the control of current assets such as limiting the accumulation of cash and deposits, lowering of accounts receivable, and reduction of inventory.

The cumulative cash allocation for KV25 (FY2022 to FY2025) is set as a total of 200 billion yen with additional allocations. Cash inflow considers interest-bearing borrowing and income from the sale of cross-shareholdings, while cash outflow includes an adequate amount necessary for investment for the future. At the same time, we will strengthen shareholder returns.

The Nippon Kayaku Group aims to achieve high capital efficiency through ROIC-based management by department. We monitor company-wide ROIC and ROIC by department. At the same time, implementing and deciding on capital budget with an emphasis on investment effectiveness, shortening collection periods by lowering accounts receivable, reducing inventory, and other such initiatives are undertaken in a multi-faceted manner, from management decisions to front-line activities.

During the period of KV25 (FY2022 to FY2025), we actively invest to increase assets to respond to the strong demand for mainstay products, such as inflators of the Mobility & Imaging Business Unit and epoxy resins of the Fine Chemicals Business Unit. In addition, we constructed a new integrated pharmaceutical quality assurance building at the Takasaki Plant of the Life Science Business Unit to further enhance quality assurance for pharmaceuticals. The four-year cumulative plan for these capital investments is being implemented almost according to plan.

We examine the significance of possessing cross-shareholdings and sell them if we deem that they are not contributing toward improving corporate value over the medium-to-long term. In FY2023, the value of cross-shareholdings increased above expectations due to the rise in the Nikkei Stock Average, but we achieved our target of 10% or less of net asset ratio in FY2024. We will work toward reducing crossshareholdings to less than 6.0% by March 31, 2029.

The Nippon Kayaku Group regards returns to our shareholders as important. Our policy is to target a dividend payout ratio of 40% or higher and progressive dividends. We are also flexibly acquiring treasury stock, seeking to implement a total return ratio of 100% or more until we achieve an ROE of 8%.
　We aim to acquire around 32 billion yen of treasury stock over a two-year period starting April 2025, and for FY2025, we are currently acquiring up to 17 billion yen of treasury stock. We will promptly cancel treasury stock in excess of 0.5% of issued shares.