Overview of Fiscal 2008 During the reporting term (January 1 to December 31, 2008), the Japanese economy decelerated in response to the global economic slowdown triggered by the U.S. subprime mortgage loan crisis. The domestic economy showed clear signs of a recession, as evidenced by a decline in plant and equipment investment and sluggish consumer spending. Business conditions in the chemical industry became severe against a backdrop of large fluctuations in fuel and raw material prices, as well as a substantial plunge in demand toward the end of the year. The Group responded to these developments by cutting costs and raising product prices to reflect higher raw material prices, while simultaneously working to expand sales of high-value added products. However, a decrease in earnings was unavoidable, due to the difficulty in pushing through price hikes and the sharp decline in demand toward the end of the term. The Company recorded sales of \162,615 million (US$1,786 million) on a consolidated basis, down 0.1% from the previous fiscal year. Operating income came to \11,668 million (US$128 million), down 8.3% year-on-year. However, net income fell 70.4% to \1,895 million (US$20 million) due to the registration of a provision to the reserve for doubtful accounts, as well as a loss on valuation of investment securities. In addition, the Company reported a substantial loss on foreign currency exchange translation owing to the yen’s sharp appreciation. Sales by Segment Commodity Chemicals The volume of caustic soda shipments decreased due to production cutbacks, but sales rose thanks to progress in pushing through higher selling prices. Demand for caustic potash remained firm, and we achieved some success in raising selling prices to offset the effect of higher raw materials prices. As a result, sales posted a substantial year-on-year increase. In the field of inorganic chlorides, sales of iron chloride solution declined owing to the closure of Tsurumi Soda’s Mihara Plant during the previous year, while sales of liquid chlorine also fell due to weaker demand. Sales of chlorinated organic solvents were down year-on-year as a result of a decrease in demand in the Japanese market, as well as cutbacks in exports in reaction to worsening profitability. Demand for sulfuric acid was steady, and progress was made in pushing through price raises: sales thus posted growth. Sales of liquefied hydrogen chloride recorded a year-on-year drop owing to a sharp fall in demand in the latter half of the year. Sales of industrial gases registered a decline for the full term owing to a drop in sales in the first half caused by equipment malfunction at one of our equity-method affiliates. Sales of chemical compounds incorporating copper were down slightly from the previous term, owing to lower market prices and weakening demand toward the end of the year. Total sales for the Commodity Chemical segment came to \55,165 million, for a year-on-year increase of 3.2%. Segment operating income was \5,650 million, up 12.9% year-on-year. Management’s Discussion & Analysis ■ Operating income Operating income ratio 0 4,000 8,000 12,000 16,000 0.0 3.0 6.0 9.0 12.0 (Millions of yen) (%) 04 05 06 07 08 Operating income & ratio as a percentage of net sales 0 15 30 45 60 (Yen) 04 05 06 07 08 Net income per share 22 Annual Report 2008