Since its foundation more than 60 years ago, Yuki Gosei Kogyo Co., Ltd. has used its unique and proprietary technologies to research, develop and manufacture a variety of fine chemical products useful for human life and health.

We will continue to expand our involvement with the pharmaceuticals sector, where Yuki Gosei's experience with fine chemicals can be applied to the manufacturing of starting and intermediate materials of high added value and to the development of new uses for our silicon-based compounds and other unique chemical products.

As a company closely aligned with the needs of society, we intend to further Yuki Gosei's contributions to our community and all stakeholders alike in our endeavor to be a company recognized not only for its technological prowess, but for the trust placed on us by our customers.

The Japanese economy in fiscal year 2010(the term ended on March 31, 2011) took a turn for the better toward the end thanks to multiple governmental measures aimed to stimulate the economy and the consistent demands of neighboring countries, especially those from China.
However, an earthquake struck off the coast of Japan on March 11, 2011, churning up a devastating tsunami that swept over cities and farmland in the northern part of the country as well as the coastal nuclear power site in Fukushima, causing the Japanese economy to plunge into a paralyzed situation without a promising outlook for the foreseeable future.
Our sales revenue for the term was 9,322 million yen, a reduction of 280 million yen compared to the previous term partly due to confusion from the quake. Export sales of glycine and beta-alanine, one of our main pillars, increased steadily. However, export sales of industrial-related products such as agrochemical intermediates declined sharply because of stiff competition and abrupt yen appreciation while domestic sales of silicon wafer surface treatment agents for the IT industry and the specialty ingredients of catalysts also slackened. For pharmaceutical-related products, the reception of outsourcing orders increased. Overall, the expansion of profit-earning products in spite of the slight decrease of total turnover resulted in an operating profit of 307 million yen, which is an ordinary profit of 258 million yen, a prominent improvement from the previous term.
However, we had to factor in 201 million yen worth of damages caused by the quake as a special loss, leaving only 73 million yen in income before taxes. The bottom line resulted in a net loss of 11 million yen after subtracting the deferred income tax, etc.

Although the damages to our facilities at Joban Factory in Iwaki-city, Fukushima were rather limited, we were forced to suspend all production operations immediately after the incident for two months because utilities including industrial waters were shut down, and logistics fell into great confusion. We made the utmost effort to fill both the outstanding orders and the new ones from our stocks as soon as the distribution channels recovered. However, it is our regret that some products were unable to meet requests until we resumed production operation in mid-May of this year. Financially, sales were decreased because our delivery system was seriously affected by the quake for 20 days toward the end of the fiscal term. On top of this, as a result of the special losses caused by the operational shutdown, an allowance for facility repairs offset most of our profit. We are also expecting the same kind of losses for the next term.
Now, our challenges are for the aftermath of the trouble caused by the Fukushima power plant, which is located 50 km away from our Joban factory and still struggling to get things under control. Namely, we are doing our best to ensure quality against nuclear contamination by preventing contact with radioactive materials throughout the production and delivery process. Another challenge is the 15% reduction in electricity aimed to cope with the shortage of electricity during the summer, and we are rescheduling our production shifts so as not to exceed the limit.

In May 2010, a new mid-range business plan (FY 2011-2013) was drawn up to build a foundation for future growth and development. However, while the financial results of the first year fell far short of our targets, which were affected mainly by the quake and the yen�fs abrupt appreciation, our business for the second year (FY 2012) is expected to remain stationary because of the losses carried over from the quake that occurred in the previous term and the nuclear power plant still in trouble. Therefore, we are reviewing the plan so that we can get business back on track as soon as possible by taking the current situation into full consideration.
In spite of the challenges that we are facing with, we believe that the basic strategy for our new business plan will still remain the same; to be successful, the entire company must focus on the following business challenges, further strengthen our corporate culture, and aim to establish a foundation for sustainable growth.

1. Building a foundation for growth and development
• Convert to a profitability model that does not depend on business conditions
• Strengthen and expand existing core businesses
• Strengthen competitiveness through cost reductions
• Develop and foster next-generation products
2. Key R&D areas and activities
• Contract manufacturing for bulk pharmaceuticals and key intermediates
• Pyridine and piperidine derivatives
• Polyolefin catalyst intermediates
• Quest for new mid- and long-term themes

Yuki Gosei places great emphasis on the research, development and creation of high value-added products for use in the pharmaceutical and fine chemicals industries.
In the field of pharmaceuticals, we focus our research and development on raw materials and intermediates such as amino acid derivatives, pyridine derivatives, and piperidine derivatives.
In the fine chemicals field, we focus on our core products with high added value (amino acid derivatives, pyridine derivatives, piperidine derivatives and organic silicon compounds) and on applied research involving our core technologies (organic synthesis technologies such as reduction reactions, Grignard reactions and biological reactions).
We are actively involved in R&D activities to expand our presence in the pharmaceuticals intermediates and fine chemicals markets both overseas and domestic.

Yuki Gosei believes that good corporate governance begins with a clear company-wide understanding of regulatory current compliance. Accordingly, we have established guidelines ("YGK Group's Action Guidelines") and manuals ("YGK Group Compliance Manuals") for all officers and employees of the company to follow, and have set up "Risk Management & Compliance Committee" to oversee these initiatives. By providing educational programs on compliance and ethics, we are taking every effort to ensure not only observance of relevant regulations and social norms by all officers and employees, but also their understanding, sharing and practice of the YGK Group Action Guidelines and YGK Group Compliance Manuals in such ways that will foster good corporate citizenship.

At Yuki Gosei Kogyo Co., LTD., we recognize and will continue to operate on the premise that good corporate governance enhances managerial health, efficiency, and transparency, and heightens the value of our company for all of our stakeholders.

I highly appreciate your continuing understanding and support of Yuki Gosei.

July 2011