Expanding and Strengthening Our Businesses

Transcription

1 Expanding and Strengthening Our Businesses Feature: Working toward Our Fiscal 2007 Management Targets Initiatives in Fiscal 2004 and Beyond Hitachi Chemical is working to expand its business fields and improve results to achieve its targets of net sales of 600 billion, operating income of 60 billion and an operating income ratio of 10 percent in fiscal The following report on initiatives in fiscal 2004 and future developments follows the five Guidelines for Fundamental Activities incorporated in the Mid-Term Management Policy. 1 Create new businesses and products based on strengthening the technology platform for materials. 2 Maximize Group management efficiency by innovating productivity. 3 4 Strengthen the basis for increased sales and income through optimal deployment of management resources. Fulfill corporate social responsibility (CSR) and implement environmental management to enable sustainable growth. 5 Cultivate employees to be the next generation of leaders. Hitachi Chemical Co., Ltd. Annual Report

2 Feature: Working toward Our Fiscal 2007 Management Targets _ Initiatives in Fiscal 2004 and Beyond Expanding and Strengthening Our Businesses CREATE NEW BUSINESSES AND PRODUCTS BASED ON STRENGTHENING THE TECHNOLOGY PLATFORM FOR MATERIALS. Calcium-fluoride single crystals for nextgeneration semiconductor lithographic lenses for illumination and projection Strategic Development Projects In next-generation research and development, Hitachi Chemical has identified 10 Strategic Development Projects from among its target market areas encompassing telecommunications and displays, energy, life sciences and automobiles, and has selectively concentrated R&D resources on these projects. As a result, one of the Strategic Development Projects progressed to the trial mass production stage in fiscal 2004, while sample work production commenced for two others. The product now in the trial mass production stage is an ultra-thin (50 micrometers), flexible base material for multilayer printed wiring boards (PWBs) that enables production of multilayer PWBs that are less than half the thickness of existing four-layer PWBs. This is a breakthrough material that will facilitate production of even smaller and thinner portable digital devices including digital camcorders and mobile phones. We aim to develop it as a strategic technology that will contribute to the expansion of the Electronics-Related Products business. The first product that has started sample work production is a calcium-fluoride single crystal for next-generation semiconductor lithographic lenses for illumination and projection. Since fiscal 2004, Hitachi Chemical has been strengthening sample work production of this new product, which was developed by capitalizing on the large-scale single crystallization technology for high-melting-point Technological and Business Fields Carbon Brushes Insulating Varnishes Porcelain Insulators Industrial Laminates Technology Platform Material Technology Molecular and Particle Design Organic and Inorganic Synthesis Purification, Extraction, Growth Nanotechnology Function Design Process Technology Original Products Molding Impregnation and Coating Lamination Dispersion Surface Treatment and Evaluation Technology Interface Control Micro Interconnection Material Property Evaluation Electronics Packaging Process Evaluation Electronics Packaging Reliability Evaluation Analysis Platform the Combining and Harmonizing Main Product Groups Semiconductor- and Display-Related Materials Technology Printed Wiring Boards and Materials for Printed Wiring Boards Organic and Inorganic Chemical Products Advanced Functional Films Automotive Parts Diagnostics Housing Equipment and Environmental Facilities Incubation and Customer Needs from Market Trends Key Business Fields Telecommunications & Displays Energy Life Sciences Automobiles 8 Hitachi Chemical Co., Ltd. Annual Report 2005

3 materials cultivated through development of a gadolinium silicon oxide (GSO) single crystal scintillator for the positron emission tomography (PET) system. The second product is a heat-resistant adhesive. This product resists ultra-high heat using thermosetting siloxane-modified polyamideimide resin as its main component. We have already obtained customer certification for its use in flexible PWBs and electronic components, and we aim to expand sales in the future. At the beginning of fiscal 2005, we scrutinized the progress of the Strategic Development Projects. Effective from the current fiscal year, we have reduced the number of the Strategic Development Projects by four, including upgrading the ultra-thin base material for multilayer PWBs mentioned above from a Strategic Development Project to a Key Growth Product, while adding five new projects. With the smooth launch of these businesses, we plan to achieve 25 billion in sales from the new Strategic Development Projects in fiscal Strengthening the Technology Platform for Materials A critical element in enhancing Hitachi Chemical s competitive strength is the technology platform for materials accumulated over many years, as well as various application technologies. Hitachi Chemical is therefore conducting research and development for new highperformance polymer material technologies and nanotechnologies at the Laboratory for Polymer Technology affiliated with the Advanced Materials R&D Center. In fiscal 2004, we explored applications for new materials in collaboration with universities and other research institutions, and also implemented feasibility studies and commercialization support for newly developed resins. These efforts are yielding steady results. Stage-by-Stage Management of Research and Development Hitachi Chemical introduced a stageby-stage management system in fiscal 2003 under which allocation of R&D resources is managed by classifying R&D projects into four stages incubation, pilot, expansion and preservation according to the scale and growth prospects of the target products. Previously, we had a tendency to allocate a relatively large portion of funds and human resources to expansion and preservation, with an emphasis on nearterm sales expansion. However, creating new businesses and products is critical to achieving sales and profit growth on a medium- and long-term basis, and we therefore raised the proportion of R&D expenses allocated for incubation and pilot to 38 percent in fiscal 2004 from 29 percent in fiscal Stage-by-Stage Management and Allocation of R&D Resources Fiscal 2003 Fiscal 2004 I : Incubation II: Pilot 29% 38% III: Expansion 41% 41% IV: Preservation 30% 21% Research and Development Structure Hitachi Chemical s research and development activities are conducted under a global tripolar structure consisting of the research institute and the development departments of the business divisions in Hitachi Chemical Advanced Technology Seminar Hitachi Chemical Co., Ltd. Annual Report

4 Feature: Working toward Our Fiscal 2007 Management Targets _ Initiatives in Fiscal 2004 and Beyond Intellectual Property Report R&D Organization President and Chief Executive Officer New Business Development Office Business Divisions Research & Development Division High Performance Materials R&D Center Electronic Materials R&D Center Advanced Materials R&D Center Technology Innovation Management Division Japan as its core, along with Hitachi Chemical Research Center, Inc. in the United States and Hitachi Chemical- Shanghai Jiao Tong University Research and Development Center in China. At Shanghai Jiao Tong University, where joint research activities are conducted, the Hitachi Chemical Advanced Technology Seminar on the topic of environmentally friendly materials for electronics packaging for telecommunications equipment was held in September In Japan, the R&D structure was reorganized in April 2005 from a single research laboratory structure consisting of the Research & Development Center into a three-part research institute structure consisting of the High Performance Materials R&D Center, the Electronic Materials R&D Center and the Advanced Materials R&D Center. With the integration of some of the planning and development functions that had been performed within each business division and the removal of the barriers that had separated the development functions in each business division and the Research & Development Center, we will accelerate development of new products that meet customer needs. Intellectual Property Strategy For the Group, whose Corporate Vision is to contribute to society through the development of superior technologies and products, continuously developing high-value-added products based on our extensive technology platform and accumulating intellectual property are fundamental to our business activities and vital to our continued success. Under these circumstances, the Group is aggressively developing inventions and securing patent rights for profitable, high-potential products and technologies. Furthermore, as part of our efforts to establish a strong patent portfolio, we are pursuing the Five Fighting Patents (5FP) Program aimed at securing at least five patents for product technologies that will prevent our competitors from entering the relevant markets. Among the successful results of such efforts is our acquisition in fiscal 2004 of a basic patent for assembly tape used in the Quad Flat Non-Leaded Package (QFN) method, an IC packaging mount. We also moved to expand the scope of related patents. In June 2004, Hitachi Chemical published an Intellectual Property Report on the intellectual property supported by 10 Hitachi Chemical Co., Ltd. Annual Report 2005

5 Create New Businesses and Products Based on Strengthening The Technology Platform for Materials. such activities in an effort to illuminate the corporate value that is not reflected in financial statements. In fiscal 2005 and beyond, we will continue to use this report to deepen the understanding of our shareholders, investors and other stakeholders in regard to our research and development activities and intellectual property initiatives. Development of Strategic Alliances Hitachi Chemical actively pursues alliances for the introduction and provision of technology, production outsourcing, joint R&D and business tie-ups, and venture capital investments. The purpose of these alliances and investments is to efficiently supplement the resources we lack to increase the speed of R&D and new business creation. Among such business alliances within the Hitachi Group is the establishment in June 2004 of Hitachi Vehicle Energy, Ltd. by Hitachi Chemical subsidiary Shin-Kobe Electric Machinery Co., Ltd., Hitachi, Ltd. and Hitachi Maxell, Ltd. With the establishment of this joint venture, the three companies plan to combine their respective technologies and resources to develop rechargeable lithium ion batteries for hybrid and electric vehicles and accelerate the commercialization of this business. Following the introduction of stateof-the-art processing equipment and evaluation/analysis equipment in fiscal 2003, the Consortium for Advanced Semiconductor Materials and Related Technologies (CASMAT), established by ten domestic semiconductor material manufacturers including Hitachi Chemical, commenced with the fullscale evaluation and analysis of new semiconductor materials compatible with φ300mm silicon wafers. Hitachi Chemical has received feedback on the results of these efforts, and is now receiving customer certification for a number of products. In addition, Hitachi Housetec Co., Ltd., a subsidiary of Hitachi Chemical in the field of housing equipment and environmental facilities, has had a business alliance with Sun Wave Corporation since fiscal This alliance has been achieving steady results since fiscal 2004 by successfully launching sales of new vanity tables. The artificial marble counters of these tables, including the wash basin, and the entire vanity mirror were jointly developed by the two companies, and the product has received a favorable market response. The New Business Development Office was established in April 2005 to aggressively promote development of new businesses. Its full-time staff is headed by an executive officer. The New Business Development Office will collaborate closely with business divisions to make full use of the business network Hitachi Chemical has already established in Europe and North America in order to create new businesses and reinforce existing businesses through acquisitions and business alliances. Consortium for Advanced Semiconductor Materials and Related Technologies (CASMAT) Vanity tables developed jointly with Sun Wave Corporation Hitachi Chemical Co., Ltd. Annual Report

6 Feature: Working toward Our Fiscal 2007 Management Targets _ Initiatives in Fiscal 2004 and Beyond Expanding and Strengthening Our Businesses MAXIMIZE GROUP MANAGEMENT EFFICIENCY BY INNOVATING PRODUCTIVITY. Reorganization of Group Companies and Measures to Address Money- Losing Businesses and Products Hitachi Chemical is developing and implementing concrete measures to eliminate money-losing products, including withdrawal from the market in some cases. Through these efforts, led by the Product Transformation Committee, the number of money-losing products was reduced from 25 in fiscal 2003 to 3 in the second half of fiscal Among measures to deal with styrene-related businesses, which had been an area of concern, we integrated our unsaturated polyester resin business with that of Dainippon Ink and Chemicals, Incorporated and decided to sell the thermoplastic molding material business. We expect these and other measures to contribute to improved earnings. We also undertook decisive measures to deal with unprofitable subsidiaries, Interest-Bearing Liabilities and Cash and Cash Equivalents (Billions of yen) including liquidation and business restructuring. As a result, the number of money-losing subsidiaries decreased from seven in fiscal 2003 to just two, including a newly established company, in the second half of fiscal To further increase the efficiency of Group operations, in January 2005 Hitachi Chemical made a commitment to reorganize its domestic subsidiaries by the end of fiscal In addition to reducing overlapping businesses among Group companies, we will promote optimal allocation of management resources within the Group to build a leaner Group operating structure. Strengthening Our Financial Position Hitachi Chemical reduced interestbearing liabilities from billion at the end of March 2000 to 36.2 billion at the end of March 2005 to improve its financial position. As a result, the Group s balance sheet is now essentially debt-free. The stockholders equity ratio was 44.0 percent as of the end of March We intend to use this stronger financial platform as a base for further strengthening and expanding our businesses in the year ending March 2006 and beyond (Years ended March 31) Interest-bearing liabilities Cash and cash equivalents 12 Hitachi Chemical Co., Ltd. Annual Report 2005

7 STRENGTHEN THE BASIS FOR INCREASED SALES AND INCOME THROUGH OPTIMAL DEPLOYMENT OF MANAGEMENT RESOURCES. Building a Balanced Business Portfolio Hitachi Chemical is diversifying its business operations to achieve sustainable growth in sales and income under any economic conditions. At the same time, the Group is working to build a balanced business portfolio by concentrating investments of limited management resources on target business areas. We have therefore selected 10 Key Growth Products as target products with strong growth prospects, and are focusing timely investments of management resources on these products. As a result, sales of these 10 products, which totaled 52.1 billion in the year ended March 2004, expanded to 64.0 billion in the year ended March 2005, exceeding our original target of 60.0 billion in the year ending March 2006 a year ahead of schedule. We revised the Key Growth Products at the beginning of fiscal As a result, we eliminated three products, including anisotropic conductive films for chip-onglass (COG), which had reached a specified scale, and added three new products: ultra-thin materials for multilayer PWBs, IC tags for the apparel and amusement industries, and resist materials for color filters for LCDs. With the expansion of these new Key Growth Products, we plan to achieve sales of 90.0 billion in fiscal Participation in Overseas Growth Markets Hitachi Chemical plans to increase overseas sales to 30 percent of total net sales in fiscal Accordingly, the Group is aggressively expanding overseas Key Growth Products Telecommunications CMP Slurry Die Bonding Films High-Performance Multilayer Materials Protective Coating Materials for Packaging Ultra-Thin Materials for Multilayer PWBs IC Tags Life Sciences Single Crystals for Scintillators production and sales. We began increasing investment and sales activities in fiscal 2004, primarily in China. Following the establishment of the China Marketing & Sales Operations Department in April 2004, we increased production capacity at the photosensitive dry film plant in Dongguan, China, and commenced construction of production facilities for semiconductor epoxy molding compounds in Suzhou, electric insulating varnishes and powdered metal products in Dongguan, and automotive friction materials in Foshan. In fiscal 2005, we expect steady returns on these investments in China, and plan to increase our overseas sales ratio from the current level of 26 percent to 27 percent or higher. In April 2005, we complemented the China Marketing & Sales Operations Department by establishing the Korea Marketing & Sales Operations Department and the Global Marketing & Sales Operations Department. We will also focus on expanding sales by achieving greater penetration for our products not only in China, but also in the United States and Europe, where growth potential remains. Displays Films for Displays (for Electromagnetic Interference Shields, Surface Protection) Resist Materials for LCD Color Filters Automobiles / Energy Material for Lithium Ion Batteries Ultra-Thin Multilayer Printed Wiring Board Base Material Electronic devices continue to become smaller and more sophisticated. As a result, the printed wiring boards (PWBs) used to electronically control these devices require a high-density, multilayer structure that also allows flexibility in space-constrained installations. Hitachi Chemical has developed an ultrathin multilayer PWB base material that uses extremely thin glass cloth of 20 micrometers or less as the core material. The core material is coated and impregnated with an epoxy resin developed by Hitachi Chemical for high strength, dimensional stability and the ability to be freely deformed as needed. Benefits of the new base material include production of PWBs that are less than half the thickness of conventional four-layer PWBs. With other advantages such as foldability, this new product should help customers make portable digital products such as digital camcorders and camera phones smaller and thinner. Hitachi Chemical Co., Ltd. Annual Report

8 Feature: Working toward Our Fiscal 2007 Management Targets _ Initiatives in Fiscal 2004 and Beyond Expanding and Strengthening Our Businesses FULFILL CORPORATE SOCIAL RESPONSIBILITY (CSR) AND IMPLEMENT ENVIRONMENTAL MANAGEMENT TO ENABLE SUSTAINABLE GROWTH. CSR Policy of Hitachi Chemical Hitachi Chemical believes that contributing to protection of the environment is a basic premise of its corporate activities, and that building relationships of trust with all of its stakeholders is critical to achieving sustainable growth as a member of society. Based on this awareness, the Group considers CSR a management priority. As a manufacturer of chemical products, Hitachi Chemical views its social responsibility as more than just carrying out the bare minimum in areas such as legal compliance. We also aim to be a Commitment to Corporate Social Responsibility Hitachi Chemical, including all its executives and employees, recognizes CSR as a vital part of corporate activity and is fully committed to carrying out its social responsibility in accordance with this CSR policy for the sustainable development of society and business. Contribution to Society through our Business Hitachi Chemical will contribute to realization of a prosperous and vibrant society by providing safe, high-quality products and services through business activities based on its superior research, technology and product development. Disclosure of Information and Stakeholder Engagement Hitachi Chemical will disclose information of legitimacy and transparency in order to maintain and develop a relationship of trust with its various stakeholders, and act responsibly towards them through various means of communication. Corporate Ethics and Human Rights Hitachi Chemical will undertake its business based on the principles of fairness and sincerity, act with the utmost respect for human rights and pursue a high standard of corporate ethics in the global business environment encompassing diverse cultures, morals, ethics and legal systems. Environmental Conservation Hitachi Chemical will strive to minimize environmental footprints and utilize resources towards the development of a sustainable society that is in harmony with the environment. Corporate Citizenship Activities Hitachi Chemical will promote social contribution activities as a good corporate citizen in order to realize a better society. Working Environment Hitachi Chemical will make every effort to create a pleasant and motivating working environment for all its employees and to fully support those employees who are capable of carrying out self-fulfillment and self-development through their work. Responsible Partnership with Business Partners Hitachi Chemical will make every effort to promote fair and sound business practices among our business partners by fostering a common awareness of social responsibility. corporation that can contribute to the advancement of society through our businesses by developing green products that contribute to energy savings and resource conservation. CSR Activities 1) Formation of the CSR Policy As part of its effort to enhance its CSR activities, Hitachi Chemical established the Group CSR Policy in March We are conducting specific CSR activities to achieve the targets of the Fiscal 2005 CSR Action Plan, which was formulated based on the Group CSR Policy. 2) CSR Promotion Structure Hitachi Chemical established the CSR Office in April 2004 as a unit to oversee the promotion of CSR activities. In addition, the Across-the-Board CSR Conference, headed by the president and CEO, was established as a unit for discussion and decision-making on groupwide policies and important matters related to CSR activities, and to promote consistent CSR activities throughout the Group. Furthermore, a number of committees have been set up under the CSR Office according to activity themes such as environmental and safety management and auditing, and waste reduction. These include the CSR Planning Committee, which plans, studies and implements matters concerning CSR activities. We have thus established a structure in which the Group works together to implement the activity policies and measures set by the Across-the-Board CSR Conference. 14 Hitachi Chemical Co., Ltd. Annual Report 2005

9 3) Issuance of CSR Guidebook Hitachi Chemical first issued its Corporate Ethics Guidebook in In April 2005, we undertook a comprehensive revision of this guidebook and issued the Hitachi Chemical Group CSR Guidebook. In addition to covering the area of compliance, the new guidebook includes enhanced content on social contribution and the environment. This guidebook has been distributed to all Group employees, and will provide guidance for carrying out CSR activities and will also serve as a text for compliance education and training. 4) Communication with Stakeholders As part of its communications with stakeholders, Hitachi Chemical has issued an Environmental Report each year starting in The 2004 edition was renamed the Social and Environmental Report, and the 2005 report will be entitled the Sustainability Report. In addition to our environmental activities, it will broadly cover the measures Hitachi Chemical is taking to fulfill its corporate social responsibility. In October 2004, Hitachi Chemical s Goshomiya Works provided factory tours for local residents. Besides receiving a basic overview of the site and a report on its environmental activities, participants were able to observe the production lines and solvent exhaust treatment facilities, and gained a better understanding of Hitachi Chemical s business. We will continue our commitment to carrying out positive measures such as these. 5) Social Contribution Activities Hitachi Chemical is keenly aware of its role as a responsible member of society, and strives to contribute to the realization of a truly prosperous society as a good corporate citizen. Based on this fundamental philosophy, the Group carries out a variety of social contribution activities. In fiscal 2004, we provided support for community programs such as employee clean-up campaigns, as well as regional cultural and sports activities. In addition, we contributed to disaster relief in the Niigata-Chuetsu earthquake in October and the Sumatra earthquake and tsunami in December. 6) Worker Health and Safety Activities To eliminate accidents in conducting its business activities, Hitachi Chemical promotes the intrinsic safety of its facilities. Unfortunately, ten incidents during fiscal 2004 resulted in work stoppages. With this situation in mind, the Group will use ISO12100 international safety standards to implement new measures for the intrinsic safety of equipment and facilities in fiscal ) Outside Evaluation of Our CSR Program Hitachi Chemical was 65th among manufacturers in the 8th Nikkei Environmental Management Survey conducted by Nihon Keizai Shimbun, Inc. in December In addition, Hitachi Chemical ranked 40th (and 4th in its industry) in the same company s Corporate Social Responsibility Survey in January Since March 2004, Hitachi Chemical has continued to be included in the FTSE4 Good Global Index Series, a socially responsible investment (SRI) index published by FTSE International, a major equity index developer from the United Kingdom. An employee clean-up campaign Sustainability Report Hitachi Chemical Co., Ltd. Annual Report

10 Feature: Working toward Our Fiscal 2007 Management Targets _ Initiatives in Fiscal 2004 and Beyond Expanding and Strengthening Our Businesses Environmental Initiatives 1) Zero Emissions Activities Hitachi Chemical s efforts to achieve zero emissions focus on reducing to zero not only the final disposal of wastes, but also the loss of necessary resources in all production processes. Our zero emission targets are a final landfill disposal rate of 1.0 percent or less and a reduction in the volume of industrial waste for final landfill disposal to less than five tons annually by fiscal In fiscal 2004, all of Hitachi Chemical s manufacturing facilities and eight Group company sites achieved zero emissions. 2) Compliance with the PRTR Law Hitachi Chemical has been voluntarily working to reduce emissions of chemical substances since before the enactment of the PRTR (Pollutant Release and Transfer Register) Law. The Group s original target was to reduce Volume of industrial waste disposed Final landfill disposal rate (%) = the volume of chemical emissions to 70 percent of fiscal 2000 levels or below by fiscal 2005 through measures including the introduction of a solvent recovery system and an exhaust treatment system. However, we reached this target a year ahead of schedule in fiscal 2004, with emissions at 38 percent of fiscal 2000 levels. 3) Expanding the Range of Green Products Hitachi Chemical is promoting the development of products and technologies that help to solve environmental problems. As part of this effort, the Group conducts Green Product Assessment, which evaluates Hitachi Chemical products and defines as green products those that have met or exceeded standards for eight criteria, including resource conservation and recyclability. In fiscal 2004, the Group expanded sales of halogen-free epoxy Volume of Industrial Waste Disposed and Final Landfill Disposal Rate Volume of industrial waste disposed Amount of waste generated X 100 Non-consolidated Consolidated* Final landfill disposal rate Final landfill disposal rate (Kilotons) 41.3 (Non-consolidated) (Consolidated) (%) (Years ended March 31) * Consolidated figures represent combined data for Hitachi Chemical Co., Ltd. and 13 main Group companies with a significant impact on the environment. Final landfill disposal rate (%) molding compounds for semiconductors and copper clad laminates for PWBs. As a result, green products increased to 73 percent of net sales from 66 percent in fiscal Halogen-free copper-clad laminates for printed wiring boards 4) Disclosing Information Using Quality Assurance Tools Including MSDS Hitachi Chemical issues Material Safety Data Sheets (MSDS) to ensure safety in handling chemical substances and to disclose up-to-date information at any time. Yellow Cards (emergency communication cards) are issued to ensure safety during transportation and Yellow Cards for Packaging have been adopted to provide information on first-aid treatment in case of an emergency. 16 Hitachi Chemical Co., Ltd. Annual Report 2005

11 CULTIVATE EMPLOYEES TO BE THE NEXT GENERATION OF LEADERS. Basic Policy on Hiring and Promotion To ensure sound employment and work environments, Hitachi Chemical follows a basic policy of treating employees in compliance with the relevant laws and regulations in each country and region where it operates. In hiring, the Group s fundamental policy is not to discriminate on the basis of gender, age, nationality, race, ethnicity, ideas, beliefs, religion or physical disability. At the same time, the Group respects the diverse views of individuals, and believes it is vital to reflect them appropriately in management. Establishment of Various Personnel Systems Hitachi Chemical has created various systems to increase the motivation of employees in their jobs and to use human resources effectively. Thus, the Group supports the self-actualization of every employee. 1) Open Offering of New Positions When needs for new employees occur, such as when launching a strategic new business, we recruit broadly from people within the Group through company intranets. 2) Internal Free Agent System This is a system that enables motivated employees who want to apply their skills to a different job to declare their wish to transfer to another department, and facilitates their transfer to suitable jobs according to their own preferences. 3) Career Management System The career management system enables employees to discuss their career plans with their superiors, such as the future position they hope to attain and the skills they want to acquire or improve. This system motivates employees to consider their own career plans and supervisors to promote the training and education of their staff. 4) Senior Employment System Respecting the wishes of people who want to stay in the workforce even after reaching the mandatory retirement age, we have set up the senior employment system to take advantage of their many years of experience and knowledge. Senior employees are rehired at the set retirement age if they wish to continue working and a suitable position is available. Skill Improvement Education and Training Hitachi Chemical helps employees develop their abilities through a variety of training programs that enable them to acquire skills to make the most of their potential. These include training programs based on rank, job skills, objectives and job function, as well as training for internationalization. In fiscal 2004, we initiated a program to develop the next generation of key executives. Compensation System for Inventions Hitachi Chemical Co., Ltd. has established its Rules for Handling Inventions in regard to acquisition and management of intellectual property, and is working to implement these rules appropriately. For employee inventions, we have improved our system for compensating inventors in accordance with the revised Japanese Patent Law enacted in April The new system facilitates more effective application of research and development results to business strategies, and inventors are compensated proportionately based on the degree of contribution of their inventions to the Company s business. In addition, the Company is working to maintain and increase the motivation of inventors by disclosing both the criteria and reasons for such compensation to gain their understanding and acceptance of the system. Hitachi Chemical Co., Ltd. Annual Report