Nagase 8012
長瀬産業
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Osaka: 1-1-17 Shinmachi, Nishi-ku, Osaka City, Osaka 550-8668
Tokyo: 5-1, Nihonbashi-Kobunacho, Chuo-ku, Tokyo 103-8355
Summary
Nagase & Co. Ltd. is a specialist trading company. It primarily imports, exports, and sells chemicals, but is also involved with such
products as plastics, electronic materials, cosmetics, and food additives. It is Japan’s biggest chemical trading company by revenues and earnings. The company has been actively involved in research and manufacturing to deepen its technological
expertise and capture more added value.
Trading Companies & Distributors
Key dates
2014-10-20
Coverage initiation
Executive summary
Business overview
Nagase & Co., Ltd. is a trading company that specializes in chemicals. It possesses research facilities and operates manufacturing business while differentiating itself from the competition through its technological capabilities. In addition to importing and exporting of a wide variety of products and its business dealings in Japan, the company manufactures and sells its own products while also providing services. Nagase divides its operations into five reporting segments: Functional Materials, Advanced Materials and Processing, Electronics and Energy, Mobility, and Life & Healthcare. The company’s operations cover a broad range of categories, including dyes and pigments, coating materials and inks, surfactants, office equipment, electrical equipment, home electronics, automobiles, LCDs, semiconductors, and pharmaceutical and medical applications. In terms of both sales and profits, Nagase is the largest trading company specializing in chemicals within Japan. Its corporate group comprises 117 companies, including 83 subsidiaries and 34 affiliates. Out of these 117 group companies, 77 are consolidated subsidiaries and 26 are accounted for using the equity method.
The company was established in December 1917 as a trading company specializing in chemical products, but its origins can be traced back to a dyestuff wholesaler in Nishijin, Kyoto, founded in 1832. In 1900, the company began handling synthetic dyestuffs from Basel Chemical Industries (later Ciba-Geigy) of Switzerland. Subsequently, in response to the direct entry of overseas manufacturers into the Japanese market and the bursting of the IT bubble, the company has been focusing on the development of manufacturing bases and research facilities since 2000, and has established a unique position as a specialized trading company with technological capabilities. (Please refer to the "Business" section below.
Trends and outlook
FY03/22 results: Nagase reported full-year consolidated sales of JPY780.6bn (+24.8% YoY), gross profit of JPY139.5bn (+21.7% YoY), operating profit of JPY35.3bn (+60.9% YoY), recurring profit of JPY36.5bn (+59.7% YoY), and net income attributable to owners of the parent of JPY25.9bn (+37.8% YoY). Sales and profit increased in all segments, as new record highs were set at all profit levels. Particularly strong trends could be seen in the automotive, resin, and electronics related businesses, and in the nutrition related business at Prinova Group, LLC in the US (acquired in August 2019). In terms of profit, although the company posted impairment losses on assets with reduced profitability, net income also increased, in part because profit was posted from the sale of cross-shareholdings. Year-end dividends per share were JPY24 for regular dividends and JPY6 for special dividends, while annual dividend was JPY54, representing a JPY8 increase YoY.
The full-year company plan for FY03/23 calls for gross profit of JPY159.0bn (+14.0% YoY), operating profit of JPY38.0bn (+7.8% YoY), recurring profit of JPY39.0bn (+6.9% YoY), and net income attributable to owners of the parent of JPY28.5bn (+9.9% YoY). (From FY03/22, the company discloses gross profit instead of sales in accordance with its adoption of the ASBJ’s Accounting Standard for Revenue Recognition.) The company is planning a JPY6 increase in annual dividend per share, to JPY60. Assumptions for exchange rates are JPY120/USD (versus JPY112.4/USD in FY03/21) and JPY18.5/CNY (versus JPY17.5/CNY in FY03/21).
In May 2021, the company announced its medium-term business plan, ACE 2.0. Nagase’s key goal indicators for FY03/26 include consolidated operating profit of JPY35.0bn or above, and ROE of 8.0% or above. The company projects that operating profit will increase by 60% compared to FY03/21 in the Functional Materials segment and by 120% in the Life and Healthcare segment. The basic policy of ACE 2.0 calls for the ongoing pursuit of quality leading up to 2032, the 200th anniversary of the company’s founding.
Strengths and weaknesses
Shared Research thinks Nagase’s strengths are its solid customer base earned through many years of operations, its synergy with subsidiary Hayashibara serving as a driver of profitability, and its steady revenue from a range of products with differing business cycles. Nagase’s weaknesses are the low brand recognition of its life and healthcare products, its lack of interdepartmental cooperation due to its overly-complex business structure, and its focus on the shrinking domestic market where clients are increasingly moving production overseas.
Key financial data
Note: Figures may differ from company materials due to differences in rounding methods.
Note: From FY03/22, the company discloses gross profit instead of sales in accordance with its adoption of the ASBJ’s Accounting Standard for Revenue Recognition.
Note: FY03/21 sales figures have been retroactively adjusted based on accounting standards applied from FY03/22.
Note: The company revised regional categories in FY03/17, and figures for FY03/11 and later reflect the revision. “Northeast Asia” was renamed to “Greater China,” “Southeast Asia” to “ASEAN,” and “North America” to “the Americas.” In addition, “Europe, others” was split into “Europe” and “Others.” Brazil, which had previously been included in “Europe, others,” was moved to “the Americas,” and South Korea, which had been included in “Northeast Asia,” was moved to “Others.”
Note: In FY03/20, the name of the Automotive and Energy segment was changed to the Mobility and Energy segment.
Recent updates
Introduction of a share-based compensation system for directors that is linked to performance/Issuance of Sustainability-linked Bonds
On May 10, 2022, Nagase & Co., Ltd. announced the introduction of a share-based compensation system for directors that is linked to performance.
Nagase & Co. announced that at a meeting of the Board of Directors held on May 10, 2022, the company decided to introduce a share-based compensation system for the company’s directors that is tied into business performance, using a trust, and that the new system will be proposed at the annual shareholders' meeting scheduled on June 20, 2022.
Up to now, compensation for Nagase & Co.’s directors has comprised a fixed compensation and a performance-linked compensation. The purpose of introducing the new system is to clarify the interrelation between compensation and the company’s business performance and stock prices, and to share benefits and risks of fluctuations in stock prices with the shareholders, thereby increasing directors’ awareness of contributing to improving business performance and increasing corporate value in the medium and long term. In this system, a trust established through a monetary contribution by the company will acquire the company’s shares, and those shares will be granted to directors through the trust in numbers corresponding to points allocated to each director by the company. The trust amount contributed will have an upper limit of JPY280 million, and the scheduled trust period will be approximately four years, from February 2023 to August 2026.
On May 10, 2022, Nagase & Co., Ltd. announced the issuance of Sustainability-linked Bonds.
Nagase & Co., Ltd. announced that it will issue Sustainability-linked Bonds to contribute to resolving social and environmental issues through corporate activities. The issuing term will be ten years, the issuing amount will be JPY10 billion, and the KPI will be the Nagase Group’s greenhouse gas emission volumes.
Trends and outlook
Quarterly trends and results
Note: Figures may differ from company materials due to differences in rounding methods.
Note: The company began applying the ASBJ’s Accounting Standard for Revenue Recognition in FY03/22.
Note: In FY03/22, the “Electronics” segment was renamed “Electronics and Energy” and the “Mobility and Energy” segment was renamed “Mobility.”
Gross profit by segment through FY03/21 was disclosed rounded down to the nearest JPY100mn.
Note: The company began applying the ASBJ’s Accounting Standard for Revenue Recognition in FY03/22. At the same time, the “Electronics” segment was renamed “Electronics and Energy” and the “Mobility and Energy” segment was renamed “Mobility.”
Gross profit by segment through FY03/21 was disclosed rounded down to the nearest JPY100mn.
Full-year FY03/22 results (out May 10, 2022)
Full-year FY03/22 results (April 2021–March 2022)
*Net income attributable to owners of the parent
Gross profit margin: The gross profit margin was down 0.4pp from 18.3% in FY03/21 to 17.9%. Progress versus plan (revised upward on February 9, 2022): FY03/22 gross profit achieved 101.1% of the full-year target, while operating profit reached 100.8%, recurring profit 100.0%, and net income attributable to owners of the parent 103.8%.
In regions where the company conducts business, there has been strong movement in economic activities, particularly in greater China, and substantial recovery can be seen. In North America, economic activities on the whole have been strong, due to recovery in employment and growth in individual consumption. In Japan, although some improvement can be seen in corporate performance, individual consumption is restrained due to pandemic prevention measures, so a substantial economic recovery has not yet been achieved.
Reasons behind increased profits
In FY03/22, the company reported profit growth in all segments, and all categories of profit reached all-time highs for the business year. Strong performance was driven by a recovery in the automobile-related business (which had been severely impacted by the COVID-19 pandemic in 1H of FY03/21), strong movement in the resin and electronics-related businesses which began in 2H FY03/21, and strong performance in the Prinova Group’s nutrition-related business in the Life and Healthcare segment. Operating profit increased 60.9% YoY and recurring profit increased 59.7% YoY, but net income only increased 37.8% due to the effects of impairment losses and loss on valuation of investment securities.
Overview by segment
Functional Materials segment
Compared to Q1 FY03/21, which was affected by COVID-19, profits increased due to a recovery in automobile production.
Performance chemicals
In the performance chemicals department, the turnaround in automobile production caused sales of coating and urethane materials, and metal working oil products and resin-related raw materials to increase.
Specialty chemicals
Sales of electro-chemicals, mainly for semiconductor and other electronics manufacturers, were firm.
Advanced Materials and Processing segment
Profit rose as a result of strong resin sales in Japan and overseas, and with increased profitability amid a sharp improvement in market conditions.
Colors and advanced processing
Sales of information printing related materials and conductive materials continued to be sluggish. Sales of pigments and additives increased in line with a recovery in demand, resulting in an overall increase in sales for the business.
Polymer global account
In sales of synthetic resins targeting the office equipment and video game device industries, a sharp improvement in market conditions led to improved profitability.
Electronics and Energy segment (name changed from FY03/22)
The upturn in performance which began in 2H FY03/21 continued into Q2, driving higher sales and profits. Sales of display materials and precision processing materials for semiconductor production were up. In addition, the company observed an increase in sales related to photolithography materials, resulting in an overall increase in sales for the segment. Operating profit increased due to growth in gross profit.
Mobility segment (name changed from FY03/22)
The rise in gross profit led to an increase in operating profit.
Mobility solutions
Sales of resins increased in Japan and overseas, mainly in ASEAN countries, buoyed by recovery in automobile production, while profitability was up amid sharp improvement in market conditions. In addition, sales of performance materials and components increased, including new adoptions of structural materials for interior/exterior and electrification applications.
Life and Healthcare segment
Operating profit increased on the back of an increase in gross profit.
Food ingredients
Sales in food ingredients were up, driven by recovery in demand for trehalose (Treha®), the department’s mainstay product. In the nutrition-related business, both food ingredients sales and manufacturing/processing operations performed well.
Life and healthcare products
In the medical and pharmaceutical fields, sales increased due to strong demand for pharmaceutical raw materials and intermediates. Sales of cosmetic materials, mainly AA2G® in the skin care field, increased due to the recovery of demand in Europe, the United States and China.
Full-year company forecast for FY03/23
Note: Figures may differ from company materials due to differences in rounding methods.
Company forecast for full-year FY03/23 consolidated results (out May 10, 2022)
From FY03/22, the company discloses gross profit instead of sales in accordance with its adoption of the ASBJ’s Accounting Standard for Revenue Recognition.
The full-year company plan for FY03/23 calls for gross profit of JPY159.0bn (+14.0% YoY), operating profit of JPY38.0bn (+7.8% YoY), recurring profit of JPY39.0bn (+6.9% YoY), and net income attributable to owners of the parent of JPY28.5bn (+9.9% YoY). (From FY03/22, the company discloses gross profit instead of sales in accordance with its adoption of the ASBJ’s Accounting Standard for Revenue Recognition.) The company is planning a JPY6 increase in annual dividend per share, to JPY60. Assumptions for exchange rates are JPY120/USD (versus JPY112.4/USD in FY03/21) and JPY18.5/CNY (versus JPY17.5/CNY in FY03/21).
The assumptions behind the company’s full-year forecast are that restrictions on economic activities due to the COVID-19 pandemic will be limited, and that economic activities will develop further based on an assumption of coexistence. Because the company has extremely few direct transactions with either Russia or Ukraine, the company does not expect that the current conflict will have a significant impact on business. Nevertheless, it does expect indirect effects, in terms of changes in raw materials market conditions due to increased crude oil prices and increased logistics costs resulting from a rapid increase in ocean freight costs. In addition, the company is concerned that global inflation or sudden fluctuations in exchange rates and interest rates could impact individual consumption or corporate performance.
In the food-related business, which is a core field in the medium-term management plan, the company expects that the Prinova Group’s sales will increase due to increased awareness of health and expanding consumption activities in Europe and the US. Furthermore, in the semiconductor-related business, the company expects to see a recovery in the supply of high-end models for electronic devices, resulting in strong performance. In the automobile related business, although there are still concerns about the impact on production volumes from the shortage of general-purpose semiconductors, the sharp improvement in the resin market that started in FY03/22 is expected to contribute to strong movement in this area. As it implements various initiatives, including investments in R&D and digital transformation, the company expects to secure a certain level of increased profit by replacing businesses and reallocating resources on a company-wide scale, and by improving profitability and efficiency.
The full-year earnings forecast by segment is as follows.
Historical company forecasts versus actual results
Note: Figures may differ from company materials due to differences in rounding methods.
Nagase supplies a wide range of products, and it essentially compiles forecasts by adding up earnings projections for each business department. Consequently, its forecasts are highly susceptible to changes in the market environment during the year. Over the last 10 years, sales and profit exceeded initial forecasts in FY03/18 supported by a favorable market environment.
In FY03/12, sales and profit came in below initial forecast as profit fell substantially due to an economic slowdown overseas, a sudden upsurge in the yen, and the impact of flooding in Thailand that occurred in FY03/12.
In FY03/13, sales and profit rose but fell short of initial forecast mainly due to impact from an economic slowdown in Europe prompted by a renewed European debt crisis in 1H, and from boycotts of Japanese products in China triggered by a dispute over the Senkaku Islands.
In FY03/14, sales and operating profit both expanded but came in sharply below initial forecast due to (1) widening losses at some manufacturing subsidiaries, (2) sluggish momentum for products in industries other than automobiles, construction, electronics (which held strong), (3) lackluster thin-glass processing operations, (4) and an increase in retirement benefit expenses due to amortization of actuarial differences for retirement benefit obligations accounting. In FY03/15, sales increased 5% YoY and operating profit 15% YoY. However, both missed initial forecast—albeit only slightly—mainly due to the booking of an allowance for doubtful accounts at a Taiwanese subsidiary and sluggish demand for whitening agents amid unseasonable summer weather.
In FY03/17, sales finished slightly below the initial forecast mainly due to impact from yen appreciation and falling naphtha prices. However, operating profit and recurring profit both exceeded initial forecast thanks to sales expansion in the Functional Materials and the Automotive and Energy segments and to rapid advances made by manufacturing subsidiaries, including in efforts to reduce costs. In FY03/18, sales were strong across all segments, and yen weakness also contributed to sales growth. Meanwhile, profit expanded thanks to sales growth, a review of unprofitable businesses and related improvements, and a JPY2.8bn YoY decline in actuarial differences for retirement benefit obligations accounting.
In FY03/18, sales and all profit lines finished sharply above initial forecast supported by benefits of yen weakness, favorable market conditions, the acquisition of new commercial rights in line with the medium-term management plan ACE-2020, and contributions from a review of unprofitable businesses and related improvements. The company revised up its initial forecast during the year, but results came in above the revised forecast.
In FY03/20, sales of automotive products slowed down considerably from 2H, and a decline in selling prices for organic resins driven by lower crude oil and naphtha prices had a major impact on results.
In Q1 FY03/21, the automobile-related business was heavily impacted by the COVID-19 pandemic. However, starting in Q2, the company reported recovery in both the resins business and the electronics-related business, due primarily to demand associated with telework, and received full-year contribution from Prinova Group. Consequently, growth in sales and profits outpaced the upward revisions to its forecast released in February 2021.
Medium- to long-term outlook
Previous medium-term management plan ACE*-2020
Nagase released the medium-term management plan ACE-2020 (ended March 31, 2021) along with its FY03/16 earnings results. The key goal indicators (KGIs) under the prior medium-term plan were consolidated sales of JPY1tn or above (compared with JPY722.4bn in FY03/17), operating profit of JPY30.0bn or above (JPY15.0bn), and ROE of 6.0% or above (3.7%). ACE-2020 called for “early normalization” of quantitative targets rather than for the objectives to be achieved in the final year of the plan. The company chose to use the term normalization rather than setting specific objectives for the final year of the plan because it anticipated impact from changes in exchange rates and naphtha prices.
Three stages to prepare for the company’s 200th anniversary in 2032
Leading up to 2032, which will mark 200 years since Nagase was founded, the company aims for the “normalization of a profit level triple the current level” as a long-term goal. In order to achieve this, growth efforts during the 17 years leading up to 2032 will be conducted in three stages. These three stages were initially Stage 1, “Innovation,” from FY03/17 to FY03/21, Stage 2, “Growth,” from FY03/22 to FY03/26, and Stage 3, “Progress,” from FY03/27 to FY03/33. Nagase intended to innovate its earnings structure and corporate culture during Stage 1, while Stage 2 would ensure that the two types of innovation introduced in Stage 1 really took hold and accelerated growth. Stage 3 would see the company experiencing dramatic growth.
Changing Stage 2 from “Growth” to “Pursuit of Quality”
In FY03/21, the final year of ACE-2020, the external environment surrounding the company underwent drastic changes due largely to the COVID-19 pandemic. In response to these changes, the company changed the theme of Stage 2 from “Growth” to “Pursuit of Quality.”
Summary of ACE-2020 (FY03/18–FY03/21), the company’s previous medium-term management plan
In FY03/21, consolidated sales were JPY830.2bn, operating profit JPY21.9bn, and ROE 5.9%. Versus the company’s key goal indicators (KGI), sales reached 83%, and operating profit 73%; ROE fell short of its KGI by 0.1pp.
The company achieved targets for its core Electronics and Life and Healthcare segments but fell short of targets for its Mobility and Energy segment, which incurred heavy impact from the COVID-19 pandemic. According to the company’s evaluation of its performance, it made progress in expanding its business in the focus areas of Electronics and Life and Healthcare and in priority regions including North America. It also made headway in optimizing its business and regional portfolio, and laid a groundwork for future growth.
With regard to profit structure reform (withdrawal from unprofitable businesses, sale of cross-shareholdings, improvement of profitability and efficiency associated with the company’s manufacturing, etc.), the company still faces some challenges but has made measurable headway. In terms of corporate culture reform, the company solidified its overall mindset through measures such as the sharing of its management’s message and made progress with efforts aimed at building a framework for overall optimization.
New medium-term management plan ACE 2.0 (out May 11, 2021)
When the company's full-year results for FY03/21 were released, Nagase also announced a new medium-term management plan; it covers the five-year period from FY03/22 to FY03/26. In essence, it continues to implement the profit structure and corporate culture reforms detailed in the company's previous medium-term management plan. As mentioned above, the five years of Stage 2 in the plan were changed to a theme of "Pursuit of Quality" in response to shifts in Nagase's external environment. Being a trading company specializing in chemicals, it has mainly dealt in products derived from raw fossil materials. With the adoption of SDGs at the United Nations Summit in September 2015 and the increased awareness of the need for a sustainable society around the world, the company has begun emphasizing a policy of "inorganic growth*" in both its previous medium-term management plan and its current businesses. The ACE 2.0 plan demonstrates a shift in thinking away from mere corporate growth towards improving society as the company expands.
Basic policies of the ACE 2.0 medium-term management plan
The company has established a vision of becoming a “business designer that creates a sustainable future” by 2032 and revised its sense of values. Additionally, it formulated a Sustainability Basic Policy to serve as a shared philosophy, cementing its sense of values. Nagase will aim to achieve both qualitative and quantitative targets by continuing to implement the profit structure and corporate culture reforms detailed in its previous medium-term management plan. The company has devised three measures that will support these two types of reform: further acceleration of digital transformation, promotion of sustainability, and enhancement of corporate functions.
Further acceleration of digital transformation
Nagase will endeavor to further enhance and expand its existing strengths by promoting and exploring efforts to stockpile demand through improvement in face-to-face and digital communication skills; identify issues through data analytics and strengthening of its “nose for business”; and create value through problem solving that utilizes digital technology and the collective strength of its entire corporate group. The company launched ongoing digital marketing* initiatives in FY03/20 and is considering the adoption of customer relationship management (CRM)** in FY03/22 with the goal of improving the quality and quantity of its business negotiations.
Pursuit of profitability and efficiency
Nagase plans to reform its profit structure by reconstructing its businesses on a companywide scale and reallocating resources. The core measures for the profit structure reform include thorough monitoring and the securing of management resources from businesses with low capital efficiency. The company will then reinvest these management resources in businesses that have high capital efficiency and growth potential, thereby targeting improvement in its profit structure. As a key performance indicator to be achieved on the way to meeting its key goal indicators (KGIs), the company will aim to reinvest 10% of its total invested capital into focus and growth areas. As focus and growth areas, the company has identified fields related to the environment, next-generation communication (5G, 6G, and CASE), energy, biotechnology, semiconductors, and food, among others.
Note: FY03/21 results have been retroactively adjusted to reflect changes to reporting segments implemented in FY03/22.
Enhancement of existing businesses
Nagase believes that demographic changes will have an impact on its existing businesses as Japan’s relative position as a foundational base for the company declines along with trends such as the rise of emerging nations and as consumption and production areas shift from developed to emerging markets. The company has also identified as potential risks a decrease in distribution volume stemming from population decline and aging in Japan and supply chain changes in areas where development remains incomplete. Accordingly, Nagase plans to expand its business opportunities through globalization. Specifically, the company’s globalization efforts will include the establishment of strategic operations overseas and the creation of businesses based on local needs and industrial trends, as well as area-based creation of new businesses achieved through the transfer of administrative authority and the local development of human resources capable of conducting management.
Manufacturing operations account for a high percentage of the company’s business, so Nagase will aim to increase the value-added generated by these operations by improving their productivity and innovating associated technologies. The company will provide new value through businesses in focus and growth areas by enhancing and expanding elemental technologies and product development functions, establishing new materials through the application of materials informatics (TABRASA)*, and opening up new markets through the use of digital marketing. It will aim to reduce the environmental footprint of its production activities and further strengthen its footing by promoting production reforms implemented through digital transformation. Nagase has set an operating profit target of JPY20.0bn or above (simple total) for the manufacturing companies in its corporate group for FY03/26, the final year of ACE 2.0.
Creation of sustainable businesses (N-sustainable businesses)
Nagase maintains a policy of improving societal and environmental value through the creation of sustainable businesses (N-sustainable businesses)*. As areas of focus for its N-sustainable businesses, the company will concentrate on environment and energy (contribution to mitigating climate change and water shortages), next-generation communication (establishment of societies that can communicate safely and conveniently), and life and healthcare (contribution to improvements related to food and nutrition shortages and health maintenance). The company believes that N-sustainable businesses will drive the future growth of its corporate group and has accordingly set an operating profit target of JPY5.0bn (target based on internal management) for these businesses for the final fiscal year of ACE 2.0 (FY03/26).
Enhancement of corporate functions
Nagase’s corporate group currently has about 7,300 employees in Japan and overseas. The company will aim to raise the level of engagement between itself and its employees and achieve sustainable growth and development for both parties by establishing a virtuous cycle of measures related to human resources, environment, and culture. At the same time, it will secure and develop superior human resources, implement workstyle reforms, and diversify its staff, thereby strengthening its pool of human resources capable of driving future change.
Targets of medium-term plan ACE 2.0
Through ACE 2.0, Nagase aims to achieve (as KGIs) operating profit of JPY35.0bn and ROE of 8% (versus ROE of 5.9% in FY03/21) by FY03/26. To facilitate attainment of its ROE target, the company has adopted ROIC* and WACC** as internal control indexes and aims to achieve ROIC of 5.0–5.5% (versus 4.2% in FY03/21) and WACC of under 5.0% (versus 5.7% in FY03/21), for a greater ROIC than WACC. Nagase will maintain its strategy of active investment while shifting resources to focus and growth areas. Additionally, Nagase plans to enhance its companywide efficiency in part through improvements in the productivity of core operations while reducing its WACC primarily by maintaining a net debt-to-equity ratio of less than 0.5x when taking on interest-bearing debt and raising dividends.
The company expects its operating activities to provide JPY150.0bn in cumulative net cash over five years and plans to invest JPY100.0–150.0bn of this cash in N-sustainable businesses, new businesses, digital transformation-related operations, R&D, and working capital. In the event that no high-efficiency investments can be made, the company will allocate this cash to capital strategy. Nagase will also limit the amount of money it spends on share buybacks to the amount of gains generated through the sale of cross-shareholdings.
Note: The FY03/21 SG&A expense to gross profit ratio indicates an average for the five-year period spanning from FY03/17 through FY03/21.
Initiatives related to next-generation information and communication technology
With an eye toward the rollout of 5G (and 6G in the future), the Nagase Group established a next-generation information and communication technology (ICT) project team in 2020 that will leverage its elemental technologies and networks, and supply the high-performance materials and technological solutions sought by the market. In 2021, it also established an Energy Business Office and an Information Communication and Energy Business Office (Electronics and Energy segment).
5G initiatives
Characteristics of 5G technologies include ultra-reliable and low latency communications (URLLC), enhanced mobile broadband (eMBB), and massive machine-type communications (mMTC), which all use high frequency radio waves.* The key challenge for high frequency radio waves is the loss of electronic signals. The common understanding is that electronic signal loss happens inside the devices, in and around the circuit board or wiring. Nagase believes the development of low loss circuit board technology is critical.
The company has been working to develop components such as low dielectric materials, interposer materials*, glass antennas, and storage batteries by combining Nagase group technologies with 3D Glass Solutions’ high precision glass processing technologies.
Investment in 3D Glass Solutions, Inc. (based in the US; unlisted; accounted for using equity method; investment conducted in 2018)
3D Glass Solutions mainly manufactures and sells semiconductor packages and devices that use photosensitive glass. The company’s strength is in component design technology, patented photosensitive glass, and three-dimensional processing technology (technology used to design complex three-dimensional elements and circuits using photosensitive glass).
Technology: The company holds specialized technologies, including low-cost three-dimensional glass processing technology using patented glass compositions and high frequency device module design technology using specialized CAD software.
5G: 3D Glass Solutions is able to make low loss a reality through the use of hollow structure antennas and elements. Additionally, the company can miniaturize components with micromachining. Hence, 3D Glass Solutions expects to apply its technologies to 5G-compatible base stations, telecommunication modules, and high-speed image processors.
Nagase’s technology network: The key difference between Nagase and its competitors is that Nagase is a trading company that is also equipped with manufacturing, processing, and R&D functions. In addition to 3D Glass Solutions mentioned earlier, leading chemical manufacturer Nagase ChemteX Corporation and the group’s manufacturing companies (mainly for semiconductor and electronic component industries) are focused on 5G, rapidly developing technologies and expanding product lineups. Together with Nagase ChemteX America Corporation (formerly Engineered Material Systems, Inc (USA)), Nagase ChemteX is developing insulation and conductive material technologies. Pac Tech-Packaging Technologies GmbH (based in Germany; unlisted; consolidated subsidiary), which has operations in Germany, the US, and Malaysia, is researching wafer bumping processes, bonding technology, and device technology. Meanwhile, Finland-based Inkron Oy (unlisted; consolidated subsidiary) is working on optical material technology. The companies are in the middle of creating synergies together by incorporating 3D Glass Solutions’ three-dimensional glass processing technologies.
5G technology and product development at Nagase group manufacturing companies
Nagase ChemteX Corp.: Insulation, conductive, and optical materials for 5G-compatible electronic devices, nano materials for micro lens and storage mediums, low temperature wiring ink
Pac Tech-Packaging Technologies GmbH: Wafer bumping process, bonding technology, and device technology for 5G-compatible electronic devices
Nagase ChemteX America Corporation (formerly Engineered Material Systems, Inc.): Insulation, conductive, and optical materials for 5G-compatible electronic devices, stretchable conductive ink for wearable devices
CAPTEX Co., Ltd.: High-end lithium-ion storage battery systems, emergency power supply systems charged by renewable energy
Inkron Oy: Siloxane insulation and conductive materials for 5G-compatible electronic devices, functional ink and optical coating materials containing nano particles and dispersing agents
Mobility Solutions Offerings
The Nagase group has historically been involved in the car electronics business, supplying products such as inverter products for electric vehicles and hybrid electric vehicles, lithium-ion battery materials, and in-car displays materials. Additionally, the company plans to expand the mobility solutions business by focusing on sensors and electronic devices critical to next generation self-driving technology.
Nagase is already conducting operations related to CASE (connected, autonomous/automated, shared, and electric) mobility, providing products that are pivotal to automatic driving technology, including sensors and peripheral devices. Specifically, the company has launched sales of products related to on-board light detection and ranging (LiDAR)* technology in collaboration with LeddarTech (based in Canada; unlisted).
Materials informatics SaaS
As part of its digital transformation (DX) strategy, Nagase established its New Value Creation (NVC) Office in April 2017 and launched a materials informatics SaaS business. Materials informatics is a field of study that combines the latest data processing techniques with materials science to improve the development and discovery of materials. Research and development conducted by scientists can be streamlined through the application of AI; by analyzing big data comprising vast troves of experimental data and information stemming from relevant discourse (e.g., academic journals), companies can discover revolutionary new materials and propose efficient new methods of experimentation and development. Currently, the search for compounds that will serve as new materials accompanies issues related to development costs and the securing of data scientists and other expert personnel. TABRASA*, a materials informatics service from Nagase, provides an R&D platform that is attracting attention for its capacity to facilitate the acquisition of human resources and as a technology capable of significantly reducing time required for R&D. According to the company, generating a chemical structural formula for one compound using human labor normally requires three days. However, when using TABRASA, chemical structural formulas for 10 compounds can be generated within a single day. Nagase also maintains that the TABRASA’s system is easy to use and can be utilized even without the assistance of data scientists or other human resources with special qualifications. TABRASA also eliminates the need for initial investments; customers can utilize the cutting-edge service while only incurring the running costs.
The SaaS business model has advantages to both customers and the company, as long as the company continues to provide a high level of service. Customer benefits of using the company’s service include the following.
Ability to use an advanced engine developed by IBM
Ability to design systems in the cloud while ensuring security
Ability to start materials informatics using a graphical user interface but without large investment or costs, such as for hiring a data scientist
No large investment since the system is subscription-based
One of the primary benefits to the company is that it can stabilize its earnings with revenue from subscriptions.
Business
Description
Japan’s largest specialist chemicals trading house with technological expertise
Industry leader with largest sales and profit size
Nagase & Co., Ltd. is a trading company that specializes in chemicals. It possesses research facilities and operates manufacturing business while differentiating itself from the competition through its technological capabilities. In addition to importing and exporting of a wide variety of products and its business dealings in Japan, the company manufactures and sells its own products while also providing services. Nagase divides its operations into five reporting segments: Functional Materials, Advanced Materials and Processing, Electronics and Energy, Mobility, and Life & Healthcare. In terms of both sales and profits, Nagase is the largest trading company specializing in chemicals within Japan. Its corporate group comprises 117 companies, including 83 subsidiaries and 34 affiliates. Out of these 117 group companies, 77 are consolidated subsidiaries and 26 are accounted for using the equity method.
Origin dates back to wholesaler of dyestuffs founded in 1832 in Kyoto’s Nishijin district
The company traces its roots to 1832, when Urokogataya was founded in the Nishijin district of Kyoto as a wholesaler of dyestuffs. This enterprise established business ties with Basel Chemical Co. (formerly Ciba-Geigy AG, presently known as Novartis) (SWX:NOVN) in 1900, becoming Japan’s first importer of artificial dyes. Later, the company acquired agency contracts from major overseas firms, cementing its business foothold that continues to the present. After overseas rivals increasingly established their own footholds in Japan while the country’s “IT bubble” ended, Nagase shifted its focus to upgrading its production facilities as well as research and development. Now the company has secured its position as a top-notch trading firm specializing in chemicals.
Group management that adds high value by combining R&D and production with trading
The company sells chemicals, plastics, electronic materials, cosmetics, and food additives. Japan’s biggest chemical trading company by revenues and earnings, Nagase differentiates itself from peer companies in that it does not only trade but also has considerable research and manufacturing capabilities represented by Nagase R&D Center, Nagase ChemteX Corporation, Hayashibara, and the Prinova Group.
Wide variety of trade items and business partners
In general, a specialist chemicals trading house focuses on a limited area of business somewhere from upstream to downstream. The company, however, has no capital relationships with large corporate groups and therefore enjoys freedom in operating in wider areas of business with a variety of trade items. Therefore, the company’s business partners add to about 18,000 both at home and abroad, and they are operating in various areas of business. This allows Nagase to reduce dependency on particular types of trade items or areas. Additionally, the proportion of the company’s manufacturing business accounts for about 40% of operating profit (FY03/21 results). This shows Nagase is not simply a trading house; it is a trading house with technological might.
Business segments tailored according to customers’ value chain
Nagase has divided its business segments into five areas in line with customers’ value chain. Meanwhile the company’s previous medium-term management plan called “ACE-2020” has four priority areas: “focus areas” where increased earnings can be anticipated; “growth areas” which can be expected to convert to focus areas within three years; “base areas,” which contribute to the stable growth of corporate value, and “improvement areas,” which require fundamental improvement to profit structure as soon as possible. The company’s new ACE-2.0 midterm plan also seeks to achieve optimal use of management resources by implementing business strategies fit for each area.
Business model
Unlike agents, trading companies and dealers purchase and then sell products. For simple transactions such as those for general-purpose plastics, the producer and the trading company decide in advance on the trading margin, usually several percent of the selling price of the product, and negotiate with the buyer (such as processing manufacturers). For domestic petrochemical product transactions, direct shipments from manufacturers are common as commercial distribution and logistics are separated.
Chemical prices are set using the price of naphtha (the substance that first comes out when distilling crude oil with a pressure distillation apparatus, boiling point of 30–180°C) as a reference and adding manufacturing costs, the cost of additives, and margins, while also taking into account supply and demand. The difference between the price of naphtha and the price of the product (resin) is called the spread. Although the spread fluctuates based on supply and demand, contract prices are often calculated by adding the past spread to the new price of naphtha. Japan’s petrochemical industry uses naphtha as its main raw material and imports roughly 60% of domestic consumption from overseas. A 1982 decision regarding naphtha prices by the Ministry of International Trade and Industry stated: “As a standard, the sum of carrying charges (such as finance costs, storage fees, and taxes) and the average price in Japan of imported Naphtha CIF should be calculated on a quarterly basis and promptly used as a standard.” The price of imported naphtha is linked to crude oil market conditions. As a result, earnings of trading companies increase in periods when naphtha prices are up and decrease in periods when prices fall.
Plastics (an artificially manufactured high-molecular compound, or polymer) are often thermoplastics, which can be melted at 200–300°C and molded into a variety of shapes using injection molding. General-purpose resins such as polyethylene, polypropylene, and chloroethylene are easy to mass-produce and are relatively low cost, and are therefore used in products such as daily goods, building materials, and film sheets.
Nagase’s area of strength, engineering plastics (high functioning plastics), are a general term for high-performance plastics that overcome the problems of general-purpose resins, such as limited heat resistance and tensile strength. They have long-term heat resistance at above 100°C and mechanical strength, and can thus be used for mechanical components. A diverse range of engineering plastics was developed to replace metal and widely used. Engineering plastics with heat resistance above 150°C, fire resistance, shock resistance, and moldability, are called super engineering plastics. They are used as mechanical and engine components of automobiles, electronic components of motors and other machinery, and medical devices such as ventilators and endoscopes. As the synthesis of both engineering and super engineering plastics takes time and labor, and because of their superior performance, they are priced higher than general-purpose resins. Super engineering plastics used in electronic materials that respond to the need for higher performance, multifunctional, and smaller semiconductors and semiconductor packages, increasing value add, and are accordingly more profitable. Nagase’s group companies manufacture value-add products such as photolithography materials for semiconductor elements and printed circuit boards, epoxy resins for semiconductors and electronic parts (global market share leader), films and polarizers for liquid crystal displays, and automotive engineering plastics.
Business segments
Five segments: Functional Materials, Advanced Materials and Processing, Electronics and Energy, Mobility, and Life & Healthcare
The company has five business segments: Functional Materials, Advanced Materials and Processing, Electronics, Mobility and Energy, and Life and Healthcare, which operate nine departments. Although its mainstay chemical business is vulnerable to changes in economic conditions, overall, the company is able to disperse risk due to its range of businesses. For FY03/21, the Advanced Materials and Processing segment generated 32.4% of the company’s overall sales, making it the biggest sales contributor. The Mobility and Energy segment generated the least amount of sales, at 13.4%. The Electronics segment was the biggest contributor to operating profit, at 30.0%. The Mobility and Energy segment contributed the least, at 5.3% of overall operating profit. (The segmentation has been changed from FY03/22.)
Under the previous ACE-2020 medium-term plan, Nagase promoted the focus areas of life and healthcare products and electronics and expects its Life and Healthcare segment and Electronics segment to account for 31.3% and 33.0% of operating profit respectively in FY03/22. In addition, in terms of regions, Asia typically accounted for a large share of consolidated sales, but the company increased the ratio of sales generated in North America, a focus area for the company, as a result of bringing the Prinova Group under its umbrella.
Functional Materials segment (21.2% of sales; 21.2% of operating profit in FY03/20)
High-performance materials centered on chemical operations
Functional Materials consists of performance chemicals and specialty chemicals departments. Through chemical operations, the company provides high-performance materials to other segments and to focus areas (Life and Healthcare, Electronics) and growth areas. This segment had an operating profit margin of 3.2% for FY03/21. It generates about 17% of the company’s overall operating profit, even as it maintains a close relationship with all the other segments.
Interacts with other segments to expand overseas operations
Functional Materials is the backbone segment. Most products are petrochemical materials, vulnerable to changes in naphtha prices. The Functional Materials segment is seeking to expand overseas operations to reduce its dependence on the domestic market and, to this end, plans to work with other segments and cooperate with companies overseas to facilitate expansion abroad.
Performance chemicals department
Main products and services: Resin materials, resins, dyes, solvents, additives used in paints, inks, and adhesives, urethane materials, fire proofing agents, and mold parting agents.
Target industries: the paints/inks and urethane foam industries.
Revenue drivers: Additives used in paints and inks, urethane materials, organic solvents.
This department operates upstream and provides a range of products and services, including general purpose petrochemical products and high value-added items, for global customers. This department is significant to the company since petrochemical materials are its core products.
This department has the following two businesses: coating and ink materials and urethane.
Specialty chemicals department
Main products and services: Petrochemical products, resin materials and additives, paper chemicals, materials for industrial oil solutions, surfactants and surfactant materials, fluorochemicals, raw materials for silicone and encapsulants, 5G-related materials, plating chemicals, electronics chemicals, polymer filters, etc.
Target industries: Resin, electronic materials, semiconductor, oil solution, water treatment-related products, metal processing, surfactants, and organic synthesis industries.
Revenue drivers: Water-soluble epoxy resin, polymer filters (used for cleaning filters).
This department supplies intermediates and materials, such as resin materials and additives, industrial oil solutions, plating chemicals, water processing agents, photoresist developer, fluorochemicals, silicones, and 3D-related materials.
The department also focuses on developing new businesses and products that make the most of the company’s value chain and the technological strengths of its customers.
Advanced Materials and Processing segment
Primary, secondary processing to develop unique applications of materials
This segment consists of a color and processing department, and a polymer global account department. The segment focuses on primary processing (formulations and compounds) and secondary processing (moldings and functional films) to develop unique applications of materials. This segment had an operating profit margin of 2.7% for FY03/21, which falls slightly short of the companywide average. The segment accounts for roughly one-third of the company’s overall sales and roughly 25% of operating profit.
Seeks to add more value through cooperation with Nagase Application Workshop (NAW)
This segment working with Nagase Application Workshop to add more value though material processing services, such as film dispersing and molding, and to offer design and application proposals. Main overseas clients include SABIC Innovative Plastics, BASF, and Eastman Chemical Co.
Color and processing department
Main products and services: dyes/additives, car repair paints, digital print processing materials, dyes, textile finishing agents, copolyester resins, functional sheets and films, organic transparent conductive materials, etc.
Target industries: the paper and thermal paper, printing, printing material, office automation electronics, 3D printing, packaging, cosmetics, hygiene, medical, home appliance, sheet, film, liquid crystal, semiconductor component, colorant, dye, pigment, ink, paint, resin, and textile processing industries.
Revenue drivers: Pigment, transparent conductive coating material, ink and toner materials, color formers.
This department was established by combining the color and the polymer products departments, in order to expand core businesses, improve profits, and accelerate development projects. It mainly handles chemicals essential for the production of functional materials, copolyester resins produced by Eastman Chemical, functional sheets and films, ad plastic molding products. The department leverages the capabilities of Nagase Application Workshop (NAW) to develop products and services that differentiate it from rivals.
Polymer global account department
Major products and services: functional resins; general-purpose resins; auxiliary materials; packaging materials; plastic-related products, devices, and molds.
Target industries: office automation, gaming, electric and electronics, consumer electronics, housing and construction material, and packaging material industries.
Revenue drivers: Polycarbonate resin, PET resin.
This department provides plastics, auxiliary materials, equipment and facilities to office equipment, electric and electronics, and gaming console industries in Japan and abroad. Employee diversity is the greatest strength of this department. The department has workers with useful experience and knowledge, as well as extensive networks in Asia. Nagase is seeking to expand operations and create new plastic businesses by forming strategic alliances with group companies.
Manufacturing subsidiaries in the field of Advanced Materials and Processing
Fukui Yamada Chemical Co., Ltd. (consolidated subsidiary)
Fukui Yamada Chemical, a wholly owned subsidiary of Nagase, is a leading manufacturer of color formers*. It operated in the red in FY03/17 against the backdrop of a fierce competitive environment. The color former market is highly competitive, but Fukui Yamada has partnered with Sofix Corporation (US) to improve profitability through cost reductions achieved by streamlining and a shift to products with high added value. As a result, Fukui Yamada Chemical turned a profit in FY03/18, and has continued to perform well in FY03/19 and beyond. Although demand has contracted sharply since FY03/21, because events and travel were restricted to prevent the spread of COVID-19, the company commented that the color former business remains profitable. Sales of the contract manufacturing business with chemical industry customers are still on a modest scale, but production lines are operating at full capacity.
Setsunan Kasei Co., Ltd. (consolidated subsidiary)
Setsunan Kasei processes synthetic resin compounds. It improved profitability in FY03/17 by increasing order volume and improving manufacturing processes, but posted a small operating loss. It continued working on improving profitability through further increases in order volume, cost reductions, and use of in-house compounds, and as a result, although small in amount, recorded operating profit in FY03/18. However, the company recorded an operating loss again in FY03/19 due in part to customer inventory adjustments. In FY03/20, it recorded an operating profit as earnings improved on a recovery in existing businesses and the launch of new businesses.
Electronics and Energy segment
Provides original products and services jointly with group manufacturing companies
This segment was reorganized in April 2021 to strengthen the trading company function as well as the group’s development, manufacturing, and sales structure. The segment comprises the electronics department, which handles precision processing materials, optical materials, and functional materials for the electronics industry; the functional resins department that handles formulated epoxy resins and related products manufactured by group companies such as Nagase ChemteX, the precision processing materials department, which handles precision processing materials manufactured by group companies including Nagase ChemteX, and IT, communications and energy office, which handles communication devices for a smart society, low-dielectric materials, related equipment and processing technologies, energy infrastructure systems, and storage batteries.
This segment will anticipate potential needs in the electronics field and provide highly original products and services in cooperation with group manufacturing companies and others. It also has the function of providing information from downstream to other segments.
In FY03/21, this segment had an operating profit margin of 7.3%. It provides roughly 14% of the company’s overall sales but roughly 30% of operating profit. Profitability is higher than in other segments but margins vary depending on market conditions in the industries in which client companies operate.
More cooperation with manufacturing subsidiary Nagase ChemteX
The electronics industry is vulnerable to changes in economic conditions. However, the company stated that there was still plenty of growth potential considering the abundance of development themes and the fast development pace. The company’s core epoxy resin business is robust. According to Nagase ChemteX data, it has a top global share in liquid sealing materials for semiconductors. Even as it pushes growth in organics, the company is proceeding with development in other areas, including additive manufacturing, medical life science, and wearable printed electronics. It plans to partner with Inkron, which it made a subsidiary in 2017, on development in the areas of displays, IoT, and wearables.
Electronics department
Main products and services: Precision polishing materials, optical materials for displays, touch panel materials, functional coatings, conductive and insulating materials, adhesives and sealing materials, ultra heat-resistant films, optical lenses, and chemical management systems (hardware) for display manufacturing process.
Target industries: electronic component, semiconductor, silicon wafer, , and display industries.
Revenue drivers: precision polishing materials, optical materials for displays, and touch panel materials.
This department supplies high-performance materials such as precision processing materials, optical materials, optical lenses, ultra heat-resistant materials, functional coatings, conductive and insulating materials, and adhesives and sealing materials, and facility services such as chemical management systems to the electronics industry. The company responds to the needs of the industry in Japan and overseas by supporting the full process from product development activities with partner companies through to setting up a supply structure by making use of Nagase’s global business bases.
The company established Xenomax Japan Co., Ltd. as a joint venture with Toyobo Co., Ltd. (TSE1: 3101). It primarily produces highly heat-resistant polyimide film (product name: Xenomax). This product is characterized by its thinness, lightness, durability, and flexibility. Its primary application is in the field of thin film transistor (TFT) substrate material for e-paper displays (requires processing under high temperatures), flexible OLED displays and various sensors, and next-generation displays such as micro LEDs.
The department is pursuing environmental and recycling operations.
Functional resins and precision processing departments
Main products and services: formulated epoxy resins and related products, photolithography materials for flat panel displays and semiconductors (manufactured by group companies such as Nagase ChemteX)
Target industries: electronic component, semiconductor, heavy electrical machinery and consumer electronics, display, automobile and aircraft, and environmental and energy industries.
Revenue drivers: formulated epoxy resins, photolithography materials for flat panel displays and semiconductors, other
These two departments, whose foundations are the synthesis and formulation technologies of Nagase ChemteX (the core company of the Nagase Group’s manufacturing function), respond to diverse industry needs via a powerful sales network. The functional resins department sells formulated epoxy resins developed based on epoxy resin formulation and design, and compounding technologies, to the electronics, heavy electrical machinery and consumer electronics, and automobile and aircraft industries. The precision processing department supplies high-performance products developed using precision cleaning, surface treatment, anticorrosion and corrosion control, photosensitive resin design, and dimensional control technologies for use in semiconductor devices, flat panel displays, and electronic devices.
IT, Communications and Energy Office
Main products and services: high-frequency devices, base station devices, low-dielectric materials, optical wireless communication systems, storage battery systems, energy management systems, LED lighting, sensing devices, IoT modules, optical materials for XR (VR and AR), semiconductor/electronic device-related equipment
Target industries: telecommunications, electronics, semiconductor, battery, automotive and automotive electronics, building construction, retail/distribution, and lighting industries, and commercial and public facilities
Revenue drivers: the IT, Communications and Energy Office is still at the development stage. Main revenue drivers are currently semiconductor/electronic device-related equipment.
The IT, Communications and Energy Office provides new technologies (materials, processes, and equipment) and systems to create new IT, communications, and energy infrastructure for a smart society, harnessing Nagase’s groupwide product development capabilities.
The company turned 3D Glass Solutions (US) into an affiliate. 3D Glass Solutions is a venture company that designs and manufactures high-frequency devices for next-generation mobile communication systems (5G). It possesses proprietary technology for glass processing (including special glass) used in manufacturing and communication equipment. This technology is the key for 3D Glass Solutions’ design, development, and manufacture of high-frequency devices. The company plans to establish a global supply system centered on Asia by 2021.
Mobility segment
Pursues original innovation with a manufacturing unit, green technology
This segment previously comprised the mobility solutions department (formerly automotive solutions department) and energy business office, but now consists of a single department, because the energy business office was transferred to the Electronics segment in April 2021. As of April 1, 2019, the automotive solutions department was renamed to mobility solutions department and the segment name was changed from Automotive and Energy to Mobility and Energy.
It sells resins and other products to the auto industry, while seeking to create a new business model by focusing on green technology, including sales of high-performance products and materials. In this vein, the company is working to establish a new business model by pursuing unique technological innovation.
Aims to become a global supplier of environment-friendly, safe, and comfortable solutions for next-generation mobility
This segment is progressing the component module business that fulfills market needs for electricity management, heat management, and electromagnetic wave shielding, and advanced performance as cars become more electrified and intelligent.
Mobility solutions department
Main products and services: Functional automobile components and components for automobile interiors and exteriors (as well as functional and general-purpose resins used for these components), high performance materials (decoration and lightweight materials), devices and moldings, car electronics-related high-performance materials and components, etc.
Target industries: automotive, railroad, aviation, aerospace, mobility (mainly small mobility vehicles), and social infrastructure industries.
Revenue drivers: Engineering plastic for automobiles, car electronics components, etc.
This department sells raw materials, products, and equipment through its global network to automakers that are expanding overseas operations. The department is also increasing its production of auto parts through affiliates and joint ventures. In addition, the department will expand new green vehicle businesses through the development of new materials, components and technologies needed for hybrid, electric, and fuel-cell-powered cars. The department primarily focuses on sales of inverter components used in electric and hybrid vehicles, components related to automatic driving (sensor systems, etc.), lithium-ion battery materials, and optical materials used in interior automobile displays.
The company’s equity-method affiliate Atex Co., Ltd. manufactures composite products of functional resins, metals, and other materials using insert molding. Due to the spread of electric vehicles, Nagase predicts expansion in demand for composite material used in onboard devices and modules, such as inverter components used in electric and hybrid vehicles.
Nagase has established a joint venture along with Shenzhen KDL Precision Industry Co., Ltd., the largest Chinese manufacturer of lithium-ion battery cases, and Atex Co., Ltd. This joint venture mainly manufactures cases for molded part (insulated gate bipolar transistor [IGBT]) modules used in hybrid and electric automobiles for sale in China. Nagase is an exclusive distributor of onboard system on chip (SoC) products and ancillary technologies offered by LeddarTech Inc. (Quebec, Canada), which is strong in terms of the development of LiDAR sensor systems used in self-driving technology. LeddarTech’s onboard SoC products are distinguished by their compatibility with short-, medium-, and long-range LiDAR systems.
Life and Healthcare segment
Primarily mobilize the newly acquired Prinova Group and Hayashibara to enrich the food business
This segment consists of the food ingredients department and life and healthcare products department.
The segment’s businesses include saccharide and enzyme development for food and beverages, saccharide and enzyme development for farming, fishing, and livestock, cosmetics and toiletries, and global pharmaceutical and medical materials operations. The segment is seeking to increase sales of beauty care products. This department also includes Hayashibara, acquired in FY02/12, which offers competitive, original products such as trehalose (Treha®) and stabilized vitamin C (AA2G®).
US-based Prinova Group, acquired in FY03/20, is a global manufacturing and sales base for premix products and food material, including vitamins, amino acids, flavoring agents, and sports nutrition materials.
Manufacturing subsidiaries constitute a high ratio of sales; higher profitability than other segments
In FY03/20, the Life and Healthcare segment posted an operating profit margin of 3.3%. Operations have expanded considerably since the acquisition of Hayashibara in February 2012 and of Prinova Group in August 2019. In FY03/20, the segment accounted for roughly 15% of sales and 16% of operating profit.
Less vulnerable to economic changes
The strengths of this segment are its saccharide operations and its research, development, and manufacturing capabilities. The segment operates global biotech businesses with the use of the group’s saccharide, enzyme, drug production, and synthesis technologies to develop new functional materials. As it is less vulnerable to economic changes than the other segments, this is one of the segments the company aims to expand.
Life and healthcare products department
Main products and services: Functional food ingredients (functional saccharides, enzymes, health food ingredients, food additives, flavoring agents, and sports nutrition), perfumes and cosmetics, and household product materials (whitening agents, moisturizing agents, UV absorbers, surfactants, bacteriostatic agents, and chelates), pharmaceuticals (active pharmaceutical ingredients [APIs], clinical trial APIs, intermediates, raw materials, formulations, additives), in-vitro diagnostics, medical materials and equipment, related materials for agriculture, fisheries, and livestock (agricultural chemicals and materials, feed and feed additives), cosmetics (including skin counseling and facial care services), health foods, etc.
Target industries: food, pharmaceutical, medical, diagnostic agent, perfumery and cosmetics, household product, agricultural, fishery, and livestock industries, and general consumers.
Revenue drivers: Hayashibara products (trehalose, AA2G® [stabilized vitamin C, cosmetic materials])
The department contributes to the enhancement of food, beauty, and health by developing high-value-added products that improve health and wellness, taking advantage of the group’s strengths in trading, R&D, and manufacturing and processing. These products span food materials, pharmaceuticals, medical materials, cosmetic materials, household materials, agricultural, fishery and livestock fields.
AA2G® (stabilized vitamin C, cosmetic materials) is a type of vitamin C with a durable and stable composition. It is gentle on human skin and is a high value-added product used primarily in whitening agents. Generally, vitamin C products have fragile constitutions, and it is difficult to maintain their quality for long periods of time. AA2G® is one of subsidiary Hayashibara’s main products, and demand for it has been expanding in recent years.
Treha® (trehalose) is a food additive sweetener with low sugar content. It is one of subsidiary Hayashibara’s core products, and its main ingredient is starch. Treha® is primarily used as a sweetener in both western and Japanese confectionery, and also functions as a softener in candy. It has a long shelf-life, which reduces food loss.
Pullulan is a water-soluble polysaccharide produced by culturing microbes in a medium that contains starch syrup. It has high adhesive properties and excellent coating properties. It is used as a food adhesive, binder, and base material to create edible films, as well as to reduce dripping in frozen foods, and improve the texture of confectionery. As an aqueous solution, it has excellent lubrication properties, and is therefore used as a loosening agent for noodles.
In April 2020, the company established a food ingredients department to oversee food ingredient operations.
Overseas expansion
Global network consisting of 117 companies in 30 countries
Nagase has a network of 117 companies in 30 cou