(1) Overall Business Outlook

In the current term, the Japanese economy experienced a decrease in exports reflecting sluggishness in the U.S. economy and corporate earnings also followed a deteriorating trend. With stagnant private-sector investment in plant and equipment as well as continuing dullness in personal consumption, the Japanese economy remained in its prolonged recession.

Takasago has been making efforts to improve business results under these circumstances through concerted efforts in research, marketing and sales. With regard to sales, although fragrances and food flavors of our own manufacture remained strong, sluggishness was seen in the aroma chemical and fine chemical sectors. As a result, sales in the current term were 59,616 million yen, a decrease of 2.6% compared with the figure of 61,177 million yen posted in the preceding term.

Operating profit was 5,445 million yen, an increase of 7.0% over the 5,090 million yen achieved in the preceding term, reflecting lower expenditures due to reductions in raw material costs and a higher sales ratio of products of our own manufacture. Ordinary profit was 5,881 million yen, also exceeding the figure for the preceding term (5,551 million yen) by a margin of 6.0%. However, profit in the current term was 2,335 million yen, a decrease of 3.0% compared with the 2,408 million yen in the preceding term.

(2) Business Outlook by Sector

Fragrance Sector

Fragrances are used in many different products including soaps, detergents, perfumes, cosmetics and air fresheners. Sales in this sector in the current term reached 5,553 million yen (a 5.1% increase compared with the preceding term), due in particular to favorable results for soaps, detergents and shampoos.

Food Sector

The food sector utilizes flavors in beverages (soft drinks, fruit juices, coffee), ice cream, confectioneries (candies, chewing gums, cookies), culinary and processed food products (frozen foods, soups, flavor enhancers), cigarettes, and so on. This sector posted sales of 39,900 million yen in the current term (a 1.0% decrease compared with the preceding term) due to a decline in resale products such as juices, although products of our own manufacture including beverage-related essences remained strong.

Aroma and Fine Chemical Sector

This sector encompasses aroma chemicals such as menthol and musk, as well as fine chemicals including pharmaceutical and agricultural chemical intermediates, photosensitive chemicals, organoelectric materials, and so on. Sales totaled 12,134 million yen (a 9.7% decrease compared with the preceding term), due to the stagnant growth situation of chemicals for the photographic industry, etc. in the fine chemicals field and of menthol in the aroma chemicals sphere.

Among the sales results for the above three sectors, food flavors and fragrances showed a favorable trend in terms of exports. As a result, exports reached 8,388 million yen, an increase of 5.3% compared with the preceding term (7,968 million yen).

Other: Real Estate Sector

Rental income from property including Nissay Aroma Square was 2,027 million yen, a decrease of 6.4% compared with the preceding term (2,165 million yen) due to a decline in land rental fees.

 

(3) Plant and Equipment Investment and Fund-Raising in the Current Term

(a) Plant and Equipment Investment

The total amount of investment in plant and equipment in the current term was 2,171 million yen (1,490 million yen in the preceding term). The main investments were for construction work for distillation tower expansion and rationalization of the manufacturing facilities for aromas and fine chemicals at the Iwata Factory, the construction of a new office building at the Hiratsuka Factory, and construction work to rationalize the manufacturing process at the Kashima Factory.

(b) Fund-Raising

Fund-raising by issuance of corporate bonds or capital increase was not carried out in the current term.

(4) Future Prospects and Challenges

The Japanese economy remained in a serious situation this fiscal year, with economic deterioration from falling exports due to the slowdown of the global economy as well as decreased private-sector investment in plant and equipment and sluggishness in personal consumption. Especially in the latter half of the current term, the economy faced a severe environment with the appearance of issues greatly affecting the business performance of various industries such as the terrorist attacks in the United States and the mad cow disease and product mislabeling scandals in Japan.

Even under these severe circumstances, however, Takasago has been progressively implementing the Program 55 medium-term plan. The aim of this plan is to achieve a nonconsolidated operating profit of 5.5 billion yen in fiscal 2002 so as to establish a global management system and build up our corporate strength leading to long-term stability.

We will also be promoting the Program G2 3-year plan from fiscal 2003, aimed at strengthening our management system based on global research and development, production and sales. The target in this case is a consolidated operating profit of 8.5 billion yen.

In the fragrance sector, we will work to enhance global fragrance creation capability by R&D staff in various countries of the world, as well as cost competitiveness and marketing capability. We will continue to utilize our production bases in Japan, the U.S.A., Europe and the rest of Asia, strengthening our integrated capabilities in the world fragrance market.

In the food sector, taking advantage of our integrated global capabilities to promote the development of new flavors and food materials employing new technologies, we will make efforts to efficiently utilize our production bases in Japan, the U.S.A., Europe and the rest of Asia and to expand our share in the world flavor market.

And in the aroma and fine chemical sector, in the field of pharmaceutical-related products we will continue the development of pharmaceutical intermediates fully utilizing Takasago?fs original asymmetric synthesis technology as well as new products applying biotechnology, at the same time focusing efforts on building a foundation for growth with such products as optically active pharmaceuticals and organoelectric materials. We will also strive to further enhance customer satisfaction by promoting efficient supply systems at our chemical production bases in Japan, the U.S.A. and Spain.

Although the business environment surrounding our company is expected to remain severe for the time being, by steadily promoting our medium- and long-term plans, strengthening profitability and establishing a management foundation that matches the intensifying global competition, we are setting our sights on further enhancing our corporate value.

With the aim of contributing to global environmental preservation, Takasago has also formulated an "Environmental Statement" and will work toward the reduction of burdens on the environment through energy saving, green procurement and other measures.

We look forward to receive the continued support and cooperation of our shareholders in the future.