President
Katsunobu Inoue
1.Evaluation of business results for the term

Q1.
What is your analysis and evaluation of the business environment and results for the term under review (FY2007)?
A1.
During fiscal 2007, though there was a headwind of increases in the prices of raw materials and fuel, the Japanese economy continued to grow gradually backed by strong corporate performances in the first half. However, financial turmoil triggered by the U.S. subprime loan problem revealed a slowdown in the U.S. economy in the second half. In particular, the rapid appreciation of the yen starting from the beginning of year and increases in the prices of raw materials and natural resource energy, especially, crude oil and naphtha, had effects on the Japanese economy. As a result, we saw rapid deterioration in the business environment.
In such a situation, the Nippon Soda group posted net sales of ¥157.5 billion, operating income of ¥9.8 billion, ordinary income of ¥10.7 billion, and net income of ¥5.1 billion with all figures increased from the previous year. Consolidated ordinary income reached a historical high of ¥10.7 billion for the period ended March 2008.
The increases in sales and profits year-on-year were attributable to a contribution of the Treatment System by Dechlorination for PCBs committed to for many years to the results, all efforts to revise prices of industrial chemicals, strong market conditions for the feed additive Methionine, sales expansion of pharmaceutical intermediates and the pharmaceutical and food additive “HPC,” and a rise in overseas sales volume of agricultural chemicals including “Mospilan” and “Nissorun.” A company-level cost reduction, in particular fixed costs and expenses, backed by a lean management structure constructed the previous year and solid results in the transportation and warehouse category and the construction category also contributed to sales and profit growth.
For the reduction of total assets, we achieved the target by reducing total assets to ¥134 billion, down ¥9 billion from the previous term, on a non-consolidated basis at the end of March 2008, which resulted in an operating profit return on total assets of 5.4%. As a result, we decided to propose a final dividend per share of ¥6 for year ended March 31, 2008, up ¥1 from the previous year.


2.New medium-term business plan

Q1.
Please tell us the positioning and basic policy of the new medium-term business plan (fiscal 2007 to fiscal 2009) in the target for fiscal 2011, reflecting the results for the previous medium-term business plan.
A1.
We implemented a variety of different measures to reform the corporate structure and construct a lean management structure in the previous medium-term business plan. We will strengthen and expand the existing businesses based on the newly constructed management structure during the new medium-term business plan and take aggressive measures for expansion and development with the three areas of agro products, functional materials, and precise organic synthetic targeted in R&D.
The fiscal 2009 consolidated medium-term plan aims to achieve net sales of ¥162 billion, operating income of ¥11 billion, ordinary income of ¥11 billion, and net income of ¥6 billion. We also set another target to achieve net sales of ¥170 billion, operating income of ¥13 billion, ordinary income of ¥13 billion, net income of ¥7 billion, and a return on assets (ROA) of 8% or more on a consolidated basis for fiscal 2011.
We position the period for the new medium-term business plan through fiscal 2009 as a test period for the fiscal 2011 target. We will promote the development of high value-added products by aggressively allocating necessary management resources to the above three targeted areas.


Q2.
What are the measures for strengthening and expanding the key business to achieve the target? Please tell us about the agro products business.
A2.
The agro products business, a core business of the Nippon Soda Group, has a basic policy to continuously focus on development and launch of new agricultural chemicals. We aim at expanding the existing chemicals by increasing the registration of the core products “Topsin” and “Mospilan” and the fungicide “Pancho,” backed by overseas bases to promote the development of mixed chemical agents and the marketing of the fungicide “Befran” and “Bellkute” and the in-licensed insecticide “Phoenix” in Japan. Additionally, measures for cutting production costs are enhanced to increase price competitiveness.
In the greenery field, the new herbicide for lawns “Conclude,” which is effective for several types of weeds, is scheduled to be launched in the second half. Using this opportunity, we will strive to expand the area. From the view of economic rationality, some agents, where the production has been outsourced, will be manufactured in house during the next fiscal year. Additionally, we aim to achieve efficient production by renovating plants for agricultural chemicals.

Q3.
Please tell us about the Functional Chemical business.
A3.
In the functional material field which we now focus on, it is “SAM” (self-assembled monolayer) adopting a nanometer surface-treatment technology that we have the highest expectation among several promising development themes, including themes related to electronic materials. As many consumers begin to appreciate surface-treatment functions for various dies and substrates, we will do our utmost to improve performance by accelerating future development through upgrading valuation functions.
Hardening accelerators for resin adopting a clathration technology, shipments of which have steadily increased, are scheduled to be launched as products for sale. Among many existing products with characteristics, we strive to expand the functional polymer business applied anion living polymerization technology, enhancing product offerings of the photosensitive resin for semiconductors “VP-Polymer” and production capacity to maintain the leading share in the Krf market and to expand overseas operations of the food and pharmaceutical addictive HPC.
For a Treatment System by Dechlorination for PCBs, which enjoys strong performance as an environmental business, equipment has been completed and operates steadily at Tohoku Electric Power Co., Inc. following the Kita-Kyushu project of JESCO (Japan Environmental Safety Corporation). We are considering the development of new deals with experience in the Kita-Kyushu second phase project of Hokuriku Electric Power Company and JESCO under construction as well as generating chemical process-based environmental businesses.

Q4.

Please tell us about the Basic Chemicals business.
A4.
A year has passed since the spin-off of the Industrial Chemicals business at the Nihongi Plant. Though we recently experienced an adverse business climate due to the recent increase in the prices of raw materials and fuel, cost cutting and upward revision to product prices helped us to achieve our initial targets. We plan to enhance measures to further improve profitability.
In the dye field, we, as a developer for thermal paper hold the world´s premier brands “D-8” and “D-90” and will enhance the production bases while developing safer, higher-quality improved products.

Q5.
Please tell us about the progress of R&D in the medium-term business plan.
A5.
In the agro products field, we mainly allocate research resources to the Odawara Research Center as our core business and make every effort to promote the in-house creation of new promising agents. A fungicide effective for soil borne diseases has been found. We will focus on entering a new development phase rapidly.
At present, people desire for safety and relief in foods. We promote the R&D of biological agricultural chemicals. We plan to file an application for registration of the biological agricultural chemical for vegetables “Agrocare” by the first half of the fiscal year under review.
To accelerate development in the functional material area, we will establish the “Processing Technology Center” in the premise of the R&D Laboratory for High-Performance Materials located in Ichihara, Chiba Prefecture. The center, which is scheduled to be completed in fiscal 2009, will be equipped with up-to-date film deposition equipment and property measurement instruments for manufacturing prototype related to the above “SAM” and electronic materials and establishing evaluation technology. This enables us to accelerate development and aim to launch products as soon as possible.
In the precise organic synthesis filed, we are focusing on high organic functional products including pharmaceutical intermediates in the precise organic synthetic area. We will enhance “multi-test equipment” to promote the development of new products and create opportunities for contract manufacturing in the area and drive prompt development by immediately responding to consumers.

Q6.
Please tell us about investments in targeted businesses.
A6.
The new medium-term business plan suggests that R&D is focused on three areas: “agro products, functional materials, and precise organic synthetics” as well as investments. Specifically, we plan to invest about ¥5 billion in the establishment of the “Processing Technology Center,” in-house production of agricultural chemicals that are currently outsourced, and the renovating plants for agricultural chemicals and the enhancement of “multi-test equipment” for expanding the contract production business including pharmaceutical intermediates. M&A and alliances are also considered in terms of businesses and products in the areas targeted for business expansion.

Q7.
Please tell us about expanding overseas business.
A7.
Agricultural chemicals are our core business in overseas. From a global view, we expect demand for agricultural products to grow further as countries see a rapid increase in the prices of corn, soybeans, and wheat due to the population increase and an improvement in meals, in particular developing countries, and an increase in demand for bio-fuel. We will take advantage of this opportunity to promote global measures to increase the sales volume of agricultural chemicals, a production material for agricultural products, by fully taking advantage of five overseas bases. Excluding agricultural chemicals, functional polymers, developer for thermal papers, special ISOCYANATE, and fine chemical products, including the pharmaceutical additive “HPC,” also have a high export rate. We will make a substantial commitment to expanding into overseas markets by efficiently using overseas subsidiaries.


3.Outlook for the next fiscal year, and message to shareholders and investors

Q1.
Please tell us about the earnings forecast for fiscal 2008, which have been disclosed in the brief announcement of financial results.
A1.
As described above, the Japanese economy faces adverse conditions. The economy, the recovery of which had been driven by external demand, rapidly deteriorated due to a slowdown in the U.S. economy from the beginning of the year and appreciation of the yen and crude oil and corporate earnings suddenly failed to recover. Many companies have been forced to substantially reduce earnings on a year-on-year basis for the fourth quarter (January-March).
Our export rate, mainly in agro products, is above 30% on a non-consolidated basis. As the recent appreciation of the yen has negative effects on management, and higher raw materials and fuel caused an increase in production costs, we see an adverse business climate.
Under such an environment, we expect to record net sales of ¥160 billion, operating income of ¥6.2 billion, ordinary income of ¥6.7 billion, and net income of ¥3.7 billion on a consolidated basis for the next fiscal year. The projected income will decline from the previous year, but we intend to work to exceed this minimum target even to some degree.

Q2.
Please tell us about other tasks and measure for the next fiscal year.
A2.
For fiscal 2008, the main task is to execute the medium-term business plan and construct a corporate structure to achieve the fiscal 2011 target. We expect to face an adverse corporate climate; however, we intend to establish competitive businesses, reduce total costs, amend prices, and enhance our financial positions in order to build a lean management structure so that we can post stable earnings under adverse conditions.

Q3.
Please send messages to shareholders and investors.
A3.
The Group celebrated its 10th anniversary of starting “Responsible Care Activities” for environmentally friendly operations for the fiscal year. The “Environmental Report,” which is regularly issued every year, was disclosed to discuss our activities and the companies under the Group. We also promote the enhancement of a compliance system along with the “Nippon Soda Group Code of Conduct,” a set of behavior guidelines for all officers and employees of all group companies, based on the “compliance and corporate ethics.”
Meanwhile, we are obliged to file an “Internal Control Report” on the financial statements effective this fiscal year. To carry out the basic management policy of compliance with laws and execution of robust and transparent management, we will strive to establish a system for evaluation and management centered on the Internal Control Audit Department.
The environment around the chemical industry is becoming more serious. The Group relatively suffers from these effects including appreciation of the yen and the higher costs for raw materials and fuel. Under such conditions, our survival and the achievement of “expansion and development” depend on the expansion of existing products and the peripheral areas as well as development and launch of value-added products based on long-term technologies in the targeted areas.
With the continuously holding slogan of “speed-up and execution,” we intend to overcome adverse conditions by bringing together group companies and enhancing the management structure of the Group. We sincerely ask for your continued understanding and support.