FY2016 - FY2018 Three-Year Corporate Business Plan Presentation Meeting
Q&A Summary
Date and time:
Presenter:

Tuesday, March 8, 1:30 to 2:45 p.m.
Masakazu Tokura, President

Petrochemicals & Plastics Sector
Q. In the next Corporate Business Plan, you expect a modest increase inequity in earnings of affiliates. How do you see Petro Rabigh’s
contribution to profit?
A. As for Petro Rabigh’s earnings, we estimate the refinery margin very
conservatively. Also, for Petrochemical Corporation of Singapore (PCS),
we cannot expect margins on ethylene to be as high as they were in fiscal
2015. Therefore, we expect a smaller increase in equity in earnings ofaffiliates in fiscal 2018 compared with fiscal 2015.
Q. What do you think about the risk of a further rise in the price of ethane?
A. At the end of last year, the Saudi Arabian government announced a hikein the price of ethane to $1.75/MMBtu. We think the future direction ofthe ethane price is affected by crude oil prices. Oil prices are expected togradually recover, and based on this assumption, we believe the risk of alarge increase in the ethane price is small. At present, majorinternational oil companies and other oil prospecting firms are refraining
from new investments in oil field development, and production of shale oil
is expected to level off at five million barrels a day. Under thesecircumstances, it is said that crude oil supply and demand will bebalanced at below 100 million barrels a day in 2017. The price of Brent
crude oil is slightly more than 40 dollars per barrel at present, and I
think the price of Brent crude may recover to around 50 dollars or 60
dollars per barrel in fiscal 2018, and to around 70 dollars or 80 dollars perbarrel in 2019 and beyond.

Energy & Functional Materials Sector
Q. After the reorganization, the Energy & Functional Materials Sector’soperating income in fiscal 2018 is expected to increase by 12 billion yen
from the projected level of operating income in fiscal 2015. Whichbusiness do you think will contribute?
A. Slide 73 in the presentation shows the business strategy of the Energy &Functional Materials Sector. One of the three priority measures in thesector’s action plan is to promptly make the major investment projectsprofitable. The major investment projects here mean investments insolution styrene-butadiene rubber (S-SBR), diesel particulate filters(DPF), and high-purity alumina. These businesses are all struggling withlow operating rates, but we can expect a steady increase in demand forthese products. We will strengthen marketing activities, such as building
closer ties with customers, to promptly improve capacity utilization.
The second priority measure in the action plan is to shift to highvalue-added products. We aim to launch new high value-added products
mainly for automotive use, as there will be synergy between superengineering plastics, which will be transferred to the Energy &Functional Materials Sector from the IT-related Chemicals Sector in April
this year, and advanced polymers, which was transferred to the Energy &Functional Materials Sector from the Petrochemicals & Plastics Sector in
April last year. We also intend to increase profits in our business inresorcinol, a main product of fine chemicals.
The third priority measure in the action plan is to accelerate the launch of
new products and promptly make them profitable. We will work todevelop S-DPF (a filter that removes nitrogen oxides as well as soot byusing a catalyst for selective catalytic reduction), CO2 separation
membranes, and next-generation heat-resistant separators. Despite
concern about the effect of the diesel emissions scandal on the market,
sales of diesel cars have shown a steady increase in Europe. Given thissituation, we will work on the development of S-DPF for diesel cars.

IT-related Chemicals Sector
Q. Comparing the business performance of the IT-related Chemicals Sector
for fiscal 2018 with that for fiscal 2015, sales are expected to increase
sharply, while the increase in operating income is anticipated to be small.
What is behind this?
A. Slide 75 shows operating income of the IT-related Chemicals Sector. In thereorganization that will take place in April this year, some businesses of
the IT-related Chemicals Sector, which collectively generate operating
income of about 6 billion yen a year, will be transferred to the Energy &Functional Materials Sector. Taking into account this reorganization, theIT-related Chemicals Sector’s operating income for fiscal 2018 is forecast
to be 34 billion yen. Without the reorganization, the sector’s projected
operating income would be 40 billion yen.
We expect profit margins will decline by about 107 billion yen over three
years as the market environment is generally severe for materials forflat-panel displays. We aim to secure profit by offsetting the margin
erosion with streamlining effects and higher sales volumes.
We have the largest share of the market for touchscreen panels for OLED
displays. Our customer is expected to lead the OLED display market for
the time being. We intend to maintain good relationships with thiscustomer and expand the OLED-related materials business.
As for semiconductor materials, the life cycle of ArF resists will beextended until around 2019 or 2020, and we aim to expand sales of thisproduct. The growth market for color resists is shifting from South Korea
to China. We will increase sales in China by taking advantage of thestrength of dye-containing resists.
The challenge for the IT-related Chemicals Sector is to develop a new corebusiness in addition to the polarizer and touchscreen panels businesses.
When the current Corporate Business Plan was launched, we did not
expect touchscreen panels to grow into a core business as it is now. At thispoint, it is difficult to predict what will grow to become a core business. In
this industry, where technological innovation is fast-paced, we will makeevery effort to develop new core businesses during the period of the new
Corporate Business Plan by utilizing our technological capabilities.

Q. Please tell us about the development of flexible display materials and thecompetitive environment.
A. OLED displays are selling very well. A major OLED display manufacturer
uses its OLED displays for its smartphones, and also started selling toother smartphone manufacturers. We were asked to increase productionof glass-type touchscreen panels, and are investing about 20 billion yen toraise output capacity in South Korea. We are advancing the developmentof film-type flexible touchscreen panels, and we are ready for mass
production, expecting sales to increase significantly in fiscal 2016. Incompetition with other manufacturers, we aim for the top position in themarket for flexible touchscreen panels, with a large market share. The
development of window film and barrier film is also proceeding to reachthe stage of receiving customer evaluation.
Q. I hear Chinese liquid crystal display (LCD) manufacturers want LCD
materials makers to set up production plants in China. I fear that thebusiness environment for polarizing film will be very tough. What do you
think of this?
A. As you pointed out, a major Chinese LCD manufacturer plans to usematerials produced in China. But if we significantly increase production
capacity for polarizing film in China, this may result in an oversupply.
Accordingly, we will gradually raise our production capacity for polarizing
film for specific fields in China, while increasing production ofhigh-value-added products for displays in mobile devices in Japan, SouthKorea and Taiwan.
We are a comprehensive materials maker, producing polarizing film, colorresists, high-purity wet chemicals, color filters, and aluminum targets. We
therefore believe building a good relationship with the major Chinese
LCD manufacturer will be highly beneficial for our business. We willcontinue to promote our LCD materials business in China.

Health & Crop Sciences Sector
Q. With the announcements of the merger between Dow Chemical andDuPont and ChemChina’s acquisition of Syngenta, as well as media
reports that BASF is considering a counterbid to acquire DuPont, there
has been a global reorganization in the crop protection chemical field.
What is the medium- and long-term position of your crop protection
business? How will you compete in the global marketplace, and how will
you position your relationship with Nufarm?
A. As you pointed out, reorganization of the crop protection industry isaccelerating. It seems that one of the aims of the merger between Dow
Chemical and DuPont is to offer a combination of genetically modified
organisms (GMOs) and agricultural chemicals. There is a very large
market for GMOs, but investments of over 1 trillion yen will be needed toenter the GMO field of row crops*. We therefore think it is unwise for us
to enter the GMO market for the row crop business in the near future.
Our strength lies in our lineup of superior agricultural chemicals createdby superior R&D capabilities and also having good products in thebiorational and crop stress management areas. We will expand ourbusiness as a manufacturer of specialty agricultural chemicals by offering
a combination of these products.
As we cannot survive only by possessing superior R&D capabilities, weplan to expand our global footprint to promote development, production
and sales of agricultural chemicals worldwide. Strengthening our ties
with Nufarm is one of the possible ways to expand our global footprint,
but our expansion is not limited to Nufarm.
We want to survive as a manufacturer of specialty agricultural chemicals,with R&D capabilities being our core competency, while working toexpand our global footprint.
*Crops that can be planted in rows, such as corn and cotton.

Q. In the Health & Crop Sciences Sector, operating income is expected toincrease to 86 billion yen in fiscal 2018 from 75 billion yen in fiscal 2015.
What is the reason for the increase in income? The global agriculturalchemicals market seems to be experiencing a downturn. How would you
handle this situation?
A. While an expected decline in selling prices of the feed additive methionine
will likely reduce operating income by 13 billion yen, streamlining effects
are anticipated to raise operating income by 6 billion yen, and higher
sales volumes are anticipated to raise operating income by an additional
24 billion yen. The considerable increase in income due to higher sales
volumes is mainly because sales of agricultural chemicals, biorational
crop protection products and methionine are expected to rise.
Major agrochemicals manufacturers with global operations are currently
having a tough time, with increases in inventory due to unseasonable
weather. We are similarly affected, too, but we think it is only a temporary
impact. As I explained earlier, we plan to more than double sales ofbiorational crop protection products over the next five years. We haveconservative outlooks about selling prices of methionine, while we expect
lower prices of propylene as a raw material and benefits from utilities cost
reduction. Sales volume of methionine is expected to increase due to asmall expansion of production capacity by about 10 percent in 2017.
Pharmaceuticals Sector
Q. Under the next Corporate Business Plan, the Pharmaceuticals Sector willcontribute most to the company’s profit growth. Is our understanding
correct that you predict an increase in profit of 20 billion yen afterfactoring in the patent expiration of LATUDA®?
A. As the patent on LATUDA® expires in 2019, it will affect our performancefor the fourth quarter of fiscal 2018. In the U.S. pharmaceuticals market,
after the patent on an original drug expires, we should expect genericdrugs to have about 90 percent of the market share. Our projected profit
increase of 20 billion yen takes into account the effect of the patent
expiration.

Others
Q. Slide 44 indicates investment cash flow is projected to be 540 billion yen
under the new Corporate Business Plan, while slide 36 shows
investments of 400 billion yen. What is the difference?
A. The main difference is investment in the Rabigh Phase II Project. Cashoutflow of about 1 billion dollars is factored into the cash flow statement.
Q. How do you plan to use up to 300 billion yen in investments in strategic
M&A?
A. It was recently reported that Sumitomo Dainippon Pharma plans toinvest about 150 billion yen in M&A. We want to use about half of theinvestments in strategic M&A for the Pharmaceuticals Sector. There areseveral M&A possibilities, and we have not yet made any decision.
(END)

Cautionary Statement
Statements made in this document with respect to Sumitomo Chemical’s
current plans, estimates, strategies, and beliefs that are not historical facts
are forward-looking statements about the future performance of Sumitomo
Chemical. These statements are based on management’s assumptions andbeliefs in light of the information currently available to it, and involve risks
and uncertainties. The important factors that could cause actual results todiffer materially from those discussed in the forward-looking statements
include, but are not limited to, general economic conditions in Sumitomo
Chemical’s markets; demand for, and competitive pricing pressure on,
Sumitomo Chemical’s products in the marketplace; Sumitomo Chemical’sability to continue to win acceptance for its products in these highly
competitive markets; and movements of currency exchange rates.