Change and Innovation

Create New Value

Current Priority
Management Issues andBusiness Strategy

Masakazu Tokura
President

June 2, 2017
Current Priority Management Issues and Business Strategy

1- 1 -

Contents
Create New Value

Performance Trends

03-06

What Sumitomo Chemical
Strives To Be

07-13

Progress in Achieving Goals
Mainly in Core Businesses

14-51

Initiatives toward Sustained
Growth52-64

Conclusion

65-67(Reference) Topics by Sector

69-92

Current Priority Management Issues and Business Strategy

2- 2 -

Performance Trends

Current Priority Management Issues and Business Strategy

3Create New Value

Performance Trends
Record highprofits(Billions of yen)

Record high All-time
profits
high (Billions of yen)

3,000

2,500

2,000

1,500

300
Net sales(left axis)
Operating income(right axis)
Ordinary income(right axis)
Net income(right axis)

250

200

150

1,000

100

500

50

0

0

(500)

-50

(1,000)-100
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (FY)
(Forecast) (Target)

Current Priority Management Issues and Business Strategy

4Create New Value

Change in Business Portfolio
Composition of Record Profits (Operating Income + Equity in Earnings of Affiliates)*(Billions of yen)
250

Equity in
Earnings ofAffiliates
Operating
Income from
Bulk Chemicals

200

150

Operating
Income fromSpecialty
Chemicals

100

50

0
2006
Exchange Rate: ¥116.97/$

2015

2017

¥120.15/$¥110.00/$

Equity in Earnings of Affiliates

Petrochemicals & Plastics

Basic Chemicals

Pharmaceuticals

Health & Crop Sciences

IT-related Chemicals

Fine Chemicals

Energy & Functional Materials※Excluding the ”Others” sector and elimination

Current Priority Management Issues and Business Strategy

5Create New Value

Dividend Policy
We consider shareholder return as one of our priority management issues and have made it a policy
to maintain stable dividend payment, giving due consideration to our business performance and adividend payout ratio for each fiscal period, the level of retained earnings necessary for future growth,and other relevant factors.
（Billions of yen）
（Yen）

Interim dividend (left axis)

Year-end dividend (left axis)

Commemorative dividend (left axis)

Net income (right axis)

20

200

15

150
2
90.7

10
64.5
2
5

3
3

3

3
30.2

3

31.1

34.3
3

7

6
3

3

6

3

3

0

63.1
5

6

52.2

6

24.4 6
14.7

0

100.0

85.5

3

6
4

110.0
100

81.5

6

7

6

93.9

3

7

3

6 37.0 6

6

50
6

7

7

5.6

0

0

-5

-50

-51.1

-59.2

-10

-100
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018 （FY）(Forecast) (Plan)

Current Priority Management Issues and Business Strategy

6What Sumitomo Chemical Strives To Be

Current Priority Management Issues and Business Strategy

7Create New Value

What Sumitomo Chemical Strives To Be
 Commit ourselves to creating new value by building on innovation
 Work to contribute to society through our business activities

Business
Philosophy

 Develop a vibrant corporate culture and continue to be a company thatCore
Competence

Challenges&
Business Opportunities

society can trust
Capabilities to develop
innovative solutions
by leveraging
its technologicalexpertise in diverse areas

Capabilities to reachglobal markets

Loyal employees

 Environment

 Resources and energy

Solve issues facing society

Improve quality of life and build
an affluent and comfortable society

 Food Health promotion

 Comfortable life

Achieve sustained growth by creating new value
through innovative technologies

Current Priority Management Issues and Business Strategy

8Create New Value

What Sumitomo Chemical Strives To Be: Achieve Sustained Growth

Medium- to long-term targets
Consistently achieve
the following targets:ROE
over 10%

ROI
over 7%

approx.

Dividend
payoutratio

0.7 times

approx.30%

D/E ratio

Profitgrowthover 7%
per yearBecome a more resilient Sumitomo Chemicalthat achieves sustained growth

Current Priority Management Issues and Business Strategy

9Create New Value

What Sumitomo Chemical Strives To Be: Current Business Portfolio

Invested Capital and ROI by Sector (Forecast for FY2017)
15.0

Health & Crop
Sciences

10.0

ROI (%)
5.0

7%

Petrochemicals &Plastics

Pharmaceuticals
IT-related
Chemicals
Energy &Functional
Materials

0.0
0

500

1,000

1,500

2,000

Invested Capital (billions of yen)
Current Priority Management Issues and Business Strategy

10Create New Value

What Sumitomo Chemical Strives To Be: Improvement of

Business Portfolio

Invested Capital and ROI by Sector
15.0

Health & Crop
Sciences

10.0

ROI (%)Petrochemicals & Plastics

7%

Pharmaceuticals
IT-related
Energy & Chemicals
Functional
Materials

5.0

0.0

0

500

1,000

1,500

2,000

Invested Capital (billions of yen)
Current Priority Management Issues and Business Strategy

11Create New Value

What Sumitomo Chemical Strives To Be: Ten Years Ahead

Trend of Ordinary Income（Billions of yen）

Targetprofit growth

400
350

300

Three priority
management issues

Excessive yen
appreciation
Recession

Enhancedfinancialstrength

Invested in
major projects

Profitability
decreased andfinancial strength
declined

Improvedbusiness
portfolio

Continually develop
new businesses and maximize
free cash flows of theexisting businesses

7

over %
per year

250

200

Achievesustained growth

150
100
50
0
-50
2000

2005

2010

‘15 ‘16 ‘17 ‘18(Forecast)(Plan)

Current Priority Management Issues and Business Strategy

2025 (FY)(Medium- tolong-term target)

12Create New Value

What Sumitomo Chemical Strives To Be: First Steps Toward Our Goals

Basic Policy for FY2016-FY2018 Corporate Business Plan
Further improvebusiness portfolio

Identify areas ofstrength

Allocate resources toprioritized areas* Pursue cost competitiveness and asset efficiency in fields where differentiation is difficult

Generate morecash flow
Accelerate thelaunch ofnext-generation
businesses

Increase profit
above cost ofcapitalMake active anddisciplined
investments

Streamline
balance sheet

Environment
and EnergyLife Sciences

ICT

Cross-over areas

Promote globally integrated management
Ensure full and strict compliance,and establish and maintain safe and stable operations
Current Priority Management Issues and Business Strategy

13

Progress in Achieving Goals

Mainly in Core Businesses

 Core Business Trends and Business Strategy
 Results for FY2016

Current Priority Management Issues and Business Strategy

14

Progress in Achieving Goals

Mainly in Core Businesses

 Core Business Trends and Business Strategy
 Results for FY2016

Current Priority Management Issues and Business Strategy

15

Create New Value

Health & Crop Sciences: Roadmap Towards Our Goal
Current Challenges(Agro Solutions and Environment Health)
Build a global business foundation
as a solution provider
Basic Strategy(Strategic Themes)

FY2016-18
Business
Strategy/
Action Plan Improve competitiveness of products
 Enhance global footprint Strengthen and increase earning power ofexisting businesses

Our Long-Term Goal (For Around FY2025)

FY2019Business
Strategy/
Action Plan

Contribute to resolving problems facing society* bybuilding on our R&D capabilities*global issues related to food, health, hygiene and the environment

Current Priority Management Issues and Business Strategy

16

Create New Value

Health & Crop Sciences: Business Environment
Food Demand Forecast（Billions of people）

Population (left axis)(Millions of tons)

Demand for grains (right axis)

10

4,000

Doubleddemandfor grains

8

3,200

6

2,400

4

1,600

2

800

0

0
1950

1960

1970

1980

1990

2000

2010

2020

2030

2040

2050

（Source） FAO, “World agriculture: towards 2030/50”; UN Population Fund
Current Priority Management Issues and Business Strategy

17Create New Value

Health & Crop Sciences: Current State of the Crop Protection Chemicals Business（Millions of US dollars）

3,000

OthersBiorationals

Insecticides

Crop Protection Product sales by Region

FY2016crop protection
product sales byproduct category(Estimate)

2,500

Herbicides

Fungicides

2,000

1,500

1,000

500

0

07

08

09

OthersAsia

Europe10

North America

Current Priority Management Issues and Business Strategy

11

12

Japan

13

14

15

16
（Estimate）* Including environmental health products
Calendar year until 2011, April–March fiscal year after 201218

Create New Value

Health & Crop Sciences: Roadmap Towards Our Goal
Current Challenges(Agro Solutions and Environment Health)
Build a global business foundation
as a solution provider

Basic Strategy(Strategic Themes)

Improve competitiveness of products

Enhance global footprintStrengthen and increase
earning power of existing businesses

FY2016-18 Business Strategy/Action Plan
 Accelerate development of next-generation blockbuster
crop protection chemicals (B2020/A2020）
 Acquisition of Excel Crop Care
 Enhance synergies of alliances/acquisitions
 Expand business areas(expand biorationals/post-harvest, seek synergies for crop
protection chemicals and biorationals)
 Expand methionine business

FY2019- Business Strategy/Action Plan
Our Long-Term Goal
(For Around FY2025)

Contribute to resolving problems
facing society by building on
our R&D capabilities

Current Priority Management Issues and Business Strategy

 Launch/promote sales of next-generation blockbuster
crop protection chemicals (B2020/A2020）
 Maximize synergies of alliances/acquisitions
 Explore M&A opportunities
 Expand biorational and crop stress management businesses

19Create New Value

Health & Crop Sciences Sector: Development and Launch of Next-Gen Blockbusters

Pipeline of New Crop Protection and Household and Public Hygiene Insecticide Products
Time of launchNewproducts(underdevelopment)2013 to 20152016 to 2019

Agricultural
Fungicide
2 compounds(Ethaboxam and
Mandestrobin)

Agrichemicals inJapan
Focused on mixtures
7 new mixtures
5 new productsHouseholdInsecticide
1 compound(Sumifreeze)

Agrichemicals
outside Japan
8 new products

6 new mixtures

Household &Public Hygiene
Insecticide
2 new devices

2020 and After
B2020
Agricultural
Insecticide
1 compound

Agricultural
Fungicides
3 compounds

Plant Growth Regulators
and Biorationals

A2020
Agricultural Insecticide
1 compound
Agricultural Fungicide
1 compound
Agricultural Herbicide*
1 compound
Household & PublicHygiene Insecticides
3 compounds
4 products* PPO inhibitor being developed by Sumitomo Chemical with thegoal of creating and promoting a next-generation weed control
system with MonsantoExpected to grow into blockbusters
 Working to shorten the development period by up to one year Future consolidated sales of B2020 products
Current Priority Management Issues and Business Strategy

Over ¥100 billion
20

Create New Value

Health & Crop Sciences Sector: Expand the Scope of Crop Protection Businesses

Expansion oftargeted businesses

Seeds
種子

Seed
treatment
種子処理

Cultivation/
pest control/
fertilizer application

Seeds

Crop protection
chemicals

Crop protection
chemicals• Insecticides andfungicides• Insecticides, fungicides,
and herbicides

Product formulation
and application
technologies

Biorationals• Coating agents

Sales of targetedbusinesses• Microbial pesticides¥37billion Biorational¥45 billion• Insecticides forseed treatment• Plant growth
・微生物農薬• Plant growth
regulators

Post-harvest• Plant growth
regulators forseed treatment• Microbial agricultural
materials¥15 billion

Services• Seed treatment
technology

Fertilizers• Post-harvest
treatment• Sunflower• Rapeseed• Sorghum• RicePost-harvest

Year 2020

Products• Fungicides• Freshness
preservers¥25 billion

regulators• Coated fertilizers• Pre-shipment
treatment

Product formulation
technology• Residue analysis¥80 billion

Year 2015¥7 billion¥255billionSeed treatment

Total sales of crop
protection chemicals
business¥5 billion
Rice¥0 billion¥10 billion¥10 billion• Microcapsule
Targeted business areas for expansion

Current Priority Management Issues and Business Strategy

21

Create New Value

Pharmaceuticals: Roadmap Towards Our Goal
Current Challenges
 Address the Latuda patent cliff
 Develop next-generation pharmaceuticals
Basic Strategy(Strategic Themes)

FY2016-18
Business
Strategy/
Action Plan Address patent cliff
 Develop next-generation pharmaceuticals
 Strengthen cost competitiveness

Our Long-Term Goal (For Around FY2025)

FY2019Business
Strategy/
Action Plan

 Focus on the areas of psychiatric and neurologicaldisorders and cancer/regenerative and cellular medicine
 Become an R&D-driver company that can compete globally

Current Priority Management Issues and Business Strategy

22

Create New Value

Pharmaceuticals: Business Trends
Early Recovery from LATUDA Patent Cliff
While revenues are expected to decline for FY2019 because of the expiration of US patent for
LATUDA, we aim to achieve speedy recovery in and after FY2020 by launching and expanding salesof products currently in late stages of development
Additional sales possible
through productin-licensing and M&A

Net sales
LATUDA®
patent expires

New products(Oncology)

BROVANA®
APTIOM®

New Products(excluding Oncology)

LATUDA®

Operating profit trend
Other products

Research and development expenses trend
FY2017FY2018FY2019FY2020

FY2021(created on May 2016)

Current Priority Management Issues and Business Strategy

23

Create New Value

Pharmaceuticals: Roadmap Towards Our Goal
Current Challenges
Address the Latuda patent cliff
Develop next-generation
pharmaceuticals

Basic Strategy(Strategic Themes)

Address patent cliff

Develop next-generation
pharmaceuticals

Strengthen cost competitiveness

FY2016-18 Business Strategy/Action Plan In-license and acquire products under development(3 COPD drugs, Parkinson’s disease drug, hematologic
cancer drug) Accelerate development/launch products in late-stage
development (COPD drug, ADHD/BED drug, cancer stem
cell inhibitor)
 Develop next-generation pharmaceuticals(regenerative and cellular medicine) Reform cost structure (optimize Japan/US sales forces)

FY2019- Business Strategy/Action Plan
Our Long-Term Goal
(For Around FY2025)
 Focus on the areas of psychiatric Launch various cancer drugs(e.g.: cancer stem cell inhibitor, hematologic cancer drug) Launch cellular medicine businessand neurological disorders andcancer/regenerative and cellular
medicine Become an R&D-driver company
that can compete globally

Current Priority Management Issues and Business Strategy

24

Create New Value

Pharmaceuticals Sector: Launch and Development of Major Products

Introducing 3 COPD Treatments*1

ADHD/BED Treatment*

Indications

Chronic obstructive pulmonary
disease (COPD)

Indication

Features

Can provide a wide range oftreatment options

Features

Development
and Launch
Schedule

2012: ARCAPTA (US)*2
April 2017: UTIBRON (US)During FY2017: SEEBRI (US)SUN-101 (US)*3

Development
and Launch
Schedule*1 Introducing 3 COPD Treatments:
Signed a license agreement with Novartis for
3 COPD treatments in the US in December 2016
*2 Promotion by Sumitomo Chemical to begin in FY2017*3 Applied for approval in U.S.

Attention deficit hyperactivity
disorder (ADHD)/
Binge eating disorder (BED)
Long half-life(24 hour dosage interval)

Current: Phase III clinical trials completed for
adult and pediatric ADHD (U.S.)
In phase III clinical trials for BED (U.S.)
FY2018: Planned launch for ADHD (U.S.)
FY2019: Planned launch for BED (U.S.)* Dasotraline

Expected peak sales about 50 billion yen

Expected peak sales about 50 billion yen

Making progress in new product development and in-licensing for post-LATUDA period
Current Priority Management Issues and Business Strategy

25

Create New Value

Pharmaceuticals Sector: Major Products Under Development

Acquisition ofParkinson’s disease treatment*

Acquisition ofhematologic cancer treatment*

Indications“Off” episodes ofParkinson’s disease

Indications

Hematologic cancer

Features

Sublingual thin film

Features

Cyclin-dependent kinase 9(CDK9) inhibitor (injected)

Development
and Launch
Schedule

Administration of
APL-130277

At present: In phase III clinical
trials (U.S.)
FY2017:

Submit new drug
application

FY2018:Planned launch* Acquired in the acquisition of Cynapsus
Therapeutics Inc. in October 2016 for
635 million dollars

Expected peak sales about 50 billion yen

Development
and Launch
Schedule

At present:
In Phase II clinical trials (U.S.)(Acute myeloid leukemia)
FY2019: Planned launch* Acquisition of hematologic cancer treatment:
In the acquisition of Tolero Pharmaceuticals in January 2017, we
gained 6 compounds including alvocidib, a hematologic cancer
treatment, for an upfront payment of $200 million, a development
milestone payment of $430 million (max) and a sales milestones
payment of $150 million (max)Expected peak sales about 50 billion yen

Making progress in new product development and in-licensing for post-LATUDA period
Current Priority Management Issues and Business Strategy

26

Create New Value

Pharmaceuticals Sector: Regenerative Medicine and Cell Therapy

Regenerative Medicine and Cell Therapy Development Plan
Partnering

Chronic stroke(SB623)

SanBioAge-related
maculardegeneration

Healios
RIKEN

Development schedule (calendar year)

Region(planned)

Cell typeNorth
America

Allogeneic
MSC

2017

2018

2019

2020～22
Approval target

Ph-IIbPh-III

Approval target

Japan

Allogeneic Clinical research
iPS cellInvestigator or corporate initiated clinical trial*

Parkinson’s
diseaseKyoto University
CiRA

GlobalRetinitis
pigmentosa

RIKEN

GlobalSpinal cord
injuryKeio University
Osaka National
HospitalGlobalAllogeneic
iPS cell
Allogeneic
iPS cell

Allogeneic
iPS cellInvestigator initiated clinical trial

Clinical research

Clinical research* Start of clinical studies originally scheduled for 2017 is expected to be delayed due to changes in non-clinical study plans.

Planning to start the operation of cell processing center in FY 2017
Current Priority Management Issues and Business Strategy

27

Create New Value

Energy & Functional Materials Sector: Roadmap Towards Our Goal
Current Challenges

 Review of business portfolio
 Build foundation for growth
Basic Strategy(Strategic Themes)

FY2016-18
Business
Strategy/
Action Plan Select and foster growth businesses Restructure underperforming businesses

Our Long-Term Goal (For Around FY2025)

FY2019Business
Strategy/
Action Plan

Contribute to resolving environmental/energy
issues through innovative technology

Current Priority Management Issues and Business Strategy

28

Create New Value

Energy & Functional Materials: Business Trends
Market for Lithium-Ion Secondary Batteries for Automotive Use（Billions of yen）
6,000

5,000

4,000

Expected to
expandsevenfold inten years

3,000

2,000

1,000

0
2014

2015

2016

2017

2018

2020

2025

(Source) “Future Outlook of Energy, Large Scale Secondary Battery, and Materials 2016; Energy Devices” by Fuji Keizai
Current Priority Management Issues and Business Strategy

29

Create New Value

Energy & Functional Materials: Current State of Battery Materials Business

Market of 4 major components and materials
for lithium-ion secondary batteries

Our productsElectrolyte
8%

Anode
materials
16%

Separators
26%

CY2015

Separators¥635.6billion

Sumitomo
Chemical’s
target markets

Panasonic and others

Cathodematerials
50%

76%
Lithium-ion secondary batteries(Source) “Future Outlook of Energy, Large Scale Secondary Battery, and Materials 2016; Energy Devices” by Fuji Keizai
Current Priority Management Issues and Business Strategy

30Create New Value

Energy & Functional Materials Sector: Roadmap Towards Our Goal
Current Challenges
 Review of business portfolio
 Build foundation for growth

Basic Strategy(Strategic Themes)
 Select and foster growthbusinesses

FY2016-18 Business Strategy/Action Plan Expand separator business (expand production capacity,
develop new products, expand customer base) Grow cathode materials business(acquire, develop and launch new products)
 Expand super engineering plastics business(develop new uses, expand production capacity)
 Establish S-SBR joint venture Restructure underperforming

businesses

FY2019- Business Strategy/Action Plan Expand battery materials business Expand super engineering plastics business
Our Long-Term Goal
(For Around FY2025)

 Full-fledged sales of CO2 separation membrane

Contribute to resolving
environmental/energy issues throughinnovative technology

Current Priority Management Issues and Business Strategy

31Create New Value

Energy & Functional Materials Sector:
Decided to Increase Lithium-Ion Secondary Battery Separator Production Capacity
Eco-car market trends

Advantages of aramid-coated separators(million units)

14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

HEV

PHEV

High heat resistance,
greater safety

EV

1.7

2015

0.7
0.7

Less
powder dust

2.6

Best suited for high-capacity batteries forautomotive and other applications

4.1

0.4
0.2

Lightweight

1.3
1.7

2.6

3.5

2017

2020

5.3

Increasing demand for use in eco-friendly cars
2025

(Source) “Future Outlook of Energy, Large Scale Secondary Batteries, and Materials
2016; Energy Devices” by Fuji KeizaiMarket outlook for lithium-ion secondary batteries
and components and materials
Automotive use
Household appliances, others
Positive-electrode materials(right axis)

ESS
Separators (right axis)

Separator production capacity expansion plan
Production capacity: South Korea production capacity to bequadrupled
Start of operations: In stages from August 2017(¥ trillion)(¥ trillion)

10.0

1.5

Separator
production capacity

8.0
1.0

6.0
4.0

0.5

2.0
0.0

0.0
2015

2020

2025

(Source) “Future Outlook of Energy, Large Scale Secondary Batteries, and Materials
2016; Energy Devices” by Fuji Keizai

Japan
South
Korea
Total

4

times

FutureApprox. 100 million m2
Approx. 300 million m2
Approx. 400 million m2

Expand market share of lithium-ion secondary battery separator for automotive use
Current Priority Management Issues and Business Strategy

32Create New Value

Energy & Functional Materials: Development of Automotive Applications for SEP

Features of Sumitomo Chemical’s SEPs
LCP

PES

SEP for Automotive Use
HEV/EV and transmission
1 Engine,components

 High strength and Heat resistant

stiffness
 Heat resistant High liquidity
 High dimensional
accuracy Flame retardant High creep resistance

LCP: Liquid crystal polymer

PES: Polyethersulfone

 Dimensional stability

4 External panel
components

 Flame retardant Hydrolysis resistanceLong Fiber Compound
Technology Development

3 Electricalcomponents

 Similar stiffness to metal Freedom in component design Reduced component numbers

due to one-piece casting(e.g., relays)

Possible

2 Headlight components

SEP is expected to replace metal for light weight and also to be used in new applications
that will emerge due to the advance of automatic driving technology and increased use ofelectrical and electronic components and systems in cars.
Current Priority Management Issues and Business Strategy

33

Create New Value

IT-Related Chemicals: Roadmap Towards Our Goal
Current Challenges
Address the generational shift in display technology
from LCD to OLED
Basic Strategy(Strategic Themes)

FY2016-18
Business
Strategy/
Action Plan Expand OLED materials and components business Improve cost structure of LCD materials andcomponents business Explore and develop next-generation businesses

Our Long-Term Goal (For Around FY2025)

FY2019Business
Strategy/
Action Plan

Provide new materials/solutions that promote theadvance of the ICT industry
Current Priority Management Issues and Business Strategy

34

Create New Value

IT-Related Chemicals: TV Display Market Trends

Supply Capacity for LCD panels for TVs by Country(million units)

Japan

TaiwanSouth Korea

China

140
120
100
80
60
40
20
0
2014

2015

2016

2017

2018

2019

2020

(Source) IHS Markit Technology
Current Priority Management Issues and Business Strategy

35

Create New Value

IT-Related Chemicals: Market Trends of Displays for Mobile Devices

Shipment of Smartphone Displays by Type(million units)

LCD

OLED

1,400
1,200
1,000
800
600
400
200
0
2015

2016

2017

2018

2019

2020

(Source) IHS Markit Technology
Current Priority Management Issues and Business Strategy

36Create New Value

IT-Related Chemicals: Roadmap Towards Our Goal
Current Challenges
Address the generational shift indisplay technology

FY2016-18 Business Strategy/Action Plan

Basic Strategy(Strategic Themes)

 Expand touchscreen panel business (expand product lineup,
strengthen production capacity, expand customer base) Launch flexible display materials business Launch PLED business Restructure LCD materials and components business(restructure production capabilities increase cost reduction
effort)

Expand OLED materials andcomponents business Improve cost structure of
LCD materials andcomponents business Explore and develop
next-generation businesses

Our Long-Term Goal
(For Around FY2025)

FY2019- Business Strategy/Action Plan Expand flexible display materials business(launch multi-functional materials and components, etc.)
 Expand PLED business Maximize cash flow of LCD materials andcomponents business

Provide new materials/solutions that
promote the advance of the ICT
industry

Current Priority Management Issues and Business Strategy

37

Create New Value

IT-related Chemicals: Business Life Cycle Management in ICT Area
Our products

Printedelectronics



PLED lighting(general lighting) Organic semiconductor
 Organic thin film solar cells
 Biosensor

Development
phase

OLED display（flexible）

Our productsWindow film
Liquid crystal coated-type
polarizing film Flexible touchscreen panels
 Barrier film

Eve of introduction
phase

OLED display（rigid, bendable）

Our productsCircularly polarizing film
Touchscreen panels
PLED light-emitting materials

Growth phase
Our products

LCD
Maturing phase

Past

PresentPolarizing film
Color filter
Color resist
Aluminum sputtering target, etc.

FutureDevelop the next-generation business pipeline in anticipation ofgenerational shift in display technology
Current Priority Management Issues and Business Strategy

38

Create New Value

IT-related Chemicals Sector: State of the OLED-related Materials Business

Sumitomo Chemical’s OLED-related materials
OLED display
structure

SC’s products(already in market)

SC’s products (under development)
Mobiledisplays

Cover glass

Window film

Y

Liquid crystal
coated polarizer

Y

Flexible TSPY

Large-scale
displays

Polarizer

Polarizer
ITO (xy)

Touchscreen panel
(TSP)

Y

Sealing glass
OLED

PLED light-emitting
materials

Glass

Barrier film

- Already in market
Current Priority Management Issues and Business Strategy- Under developmentYYY

Y: Used39

Create New Value

IT-related Chemicals: Business Strategy Going Forward

Composition of display materials and components sales
OLED Components

LCD Components

100%

80%

Significantly
expand sales of
OLED materials
and components

60%

40%

20%

0%
2015

2016

Current Priority Management Issues and Business Strategy

2017

2018

2019

2020

40

Create New Value

Petrochemicals & Plastics: Roadmap Towards Our Goal
Current Challenges
 Maintain a high operating rate at Petro Rabigh Enhance high value-added business in Singapore

Basic Strategy(Strategic Themes)

FY2016-18
Business
Strategy/
Action Plan Enhance high value-added business Stabilize operations at Petro Rabigh Restructure businesses

Our Long-Term Goal (For Around FY2025)

FY2019Business
Strategy/
Action Plan

 Provide solutions throughhigh value-added products
 Maintain stable supply of cost-competitive
general-purpose products
Current Priority Management Issues and Business Strategy

41

Create New Value

Petrochemicals & Plastics: World's Ethylene Production by Feedstock(million tons)

NaphthaEthaneOthers

（%）

180
160
140

120

17

19

18

20

21

22

21

21

100

21

22

40

40

34

35

35

35

36

36

38

39

49

47

46

45

43

42

41

40

39

38

0
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

80
60
40
20

(Source) The Chemical Daily

Current Priority Management Issues and Business Strategy

42Create New Value

Petrochemicals & Plastics: Roadmap Towards Our Goal
Current Challenges
 Maintain a high operating rate at
Petro Rabigh Enhance high value-added businessin Singapore

Basic Strategy(Strategic Themes)Enhance high value-added
business Stabilize operations at Petro Rabigh Restructure businesses

FY2016-18 Business Strategy/Action Plan Enhance high value-added business (modify TPC’s
production facilities, develop and launch new products)
 Rabigh Phase I project: Stable operations
 Rabigh Phase II project: Construction and start operations

 Restructure businesses

FY2019- Business Strategy/Action Plan Enhance high value-added business (Singapore, Japan)

 Stabilize operations (Rabigh Phase I and Phase II projects)
Our Long-Term Goal
(For Around FY2025)

 Provide solutions throughhigh value-added products
 Maintain stable supply of
cost-competitive general-purpose
products

Current Priority Management Issues and Business Strategy

43

Create New Value

Petrochemicals & Plastics: TPC Shift to High Value-added Products(1,000 tons)
800

80%High value-added products Sales (left axis)

600

EVA
HEVA
High value-added LDPE
Random copolymer
Terpolymer
Polypropylene for capacitors

70%

60%

Proportion of high value-added products (right axis)

50%

400

40%

30%

200

20%

10%

0

0%
2003

2004

2005

Shifted production at GLS
plant from PE to PP in 2006
Launched and expanded salesof a new grade of random
copolymer and terpolymer

2006

2007

2008

2009

Launched HEVA
for solar cells in 2007

Current Priority Management Issues and Business Strategy

2010

2011

2012

2013

2014

2015

2016

Launched polypropylene
for capacitors in 2009

Remodeled GPS-2 production
line in 2016

Remodeled SPP production
line for capacitor

Enabled production of random
copolymer and terpolymer used asfood packaging materials

44Create New Value

Petrochemicals & Plastics: Petro Rabigh Complex（Capacity 1,000t/yr）

Phase I
Crude Oiland others

Phase II Project
Naphtha（2,900）Oil refining
facilities(400,000 barrels/ day)

（900→1,100）
Propylene

Naphthareformer

Paraxylene/Benzene（1,300/400）

KeroseneGas OilFuel Oil
Gasoline

Nylon-6(75)

PP Homo (350)
PP Block (350)
PO (200)

Phenol/Acetone（250/150）

MMA/PMMA（1,200→1,600）（90/50）（1,300→1,600）

EthaneEthaneCracker

Ethylene

LLDPE（600）
HDPE（300）
MEG（600）

EPDM/TPO（70/10）
EVA/LDPE（70/80）

Investment in acrylic acid, SAP, and polyols is under consideration

Current Priority Management Issues and Business Strategy

45

Progress in Achieving Goals

Mainly in Core Businesses

 Core Business Trends and Business Strategy
 Results for 2016

Current Priority Management Issues and Business Strategy

46

Create New Value

Results for FY2016: Life Sciences
Health & Crop Sciences Sector

Pharmaceuticals Sector

Business Expansion
M&A Acquired Indian

agrochemicals company

Organic Growth(Production capacity
expansion)
Organic Growth(Others)

 Acquired a Phase III productcandidate for Parkinson’s
disease Acquired a hematologic
cancer Licensed COPD treatments

 Decided to expand

methionine production
capacity Decided to expand R&D
facilities and experimental
field for agrochemicals
 Collaboration with Monsantoin herbicide development

Business
Restructuring
Current Priority Management Issues and Business Strategy

 Applied for U.S. FDA

approval of COPD treatments

 Early retirement program(Sumitomo Dainippon Pharma)
47

Create New Value

Results for FY2016: Environment and Energy/ICT
Energy & Functional Materials Sector

IT-related Chemicals Sector

Business Expansion
M&A Entered cathode materials

business
Organic Growth(Production capacity
expansion)

Organic Growth(Others)

Business
Restructuring

 Decided to expand separator

 Expanded glass-based

touchscreen panel production
production capacity
capacity Decided to expand for super Decided to expand film-basedengineering plastics production
touchscreen panel production
capacity
capacity Advancing development ofmaterials for flexible displays
 Advancing development ofpolymer OLEDs
 Establishedjoint venture in
S-SBR businessCurrent Priority Management Issues and Business Strategy

 Polarizing film
 Sapphire substrates

48

Create New Value

Results for FY2016: Bulk Chemicals
Petrochemicals & Plastics Sector

Business Expansion
M&A Made polycarbonate joint venture

a wholly owned subsidiary
Organic Growth(Production capacity
expansion) Proceeding with construction

for Rabigh Phase II Project Expanded polypropylene

compound production
capacity
Organic Growth(Others)

Business
Restructuring

 Accelerating the shift

to high value-added products
at TPC Consolidation of film businessCurrent Priority Management Issues and Business Strategy

49

Create New Value

Capital Expenditure and Investment Plan for FY2016-FY2018 (By Fiscal Year)
Capital expenditure and investment plan for FY2016-FY2018(decision-making basis)
Capital expenditure and investment(Billions of yen）

Strategic M&A

800
700
600

Up to
¥300 billion

500
400
300
200
100
0
FY2016FY2017FY2018(Forecast)(Forecast)(Forecast)More than half of investments for
FY2016-FY2018 decided in FY2016
Current Priority Management Issues and Business Strategy

FY2016-2018 Total FY2016-2018 Total(Forecast)（Corporate Business Plan）

Accelerate our efforts tocreate new value
50

Create New Value

Capital Expenditure and Investment Plan for FY2016-FY2018 (By Sector)
Major Capital Expenditures and Investments
Pharmaceuticals
Acquired a Phase III product candidate for Parkinson’s
disease (about $635 million) Acquired a leukemia treatment candidate (about $780
million, including development and sales milestone
payments)


Petrochemicals &Plastics

GeneralHealth & Crop Sciences

Capital expenditure andinvestment plan for
FY2016-FY2018(decision-making basis)

About ¥600bn

Increase methionine production capacity (about ¥50
billion) Acquired Indian agrochemicals company (about ¥13.9
billion) Expanded R&D facilities (about ¥10 billion)

IT-related Chemicals
Expanded film-based touchscreen panel production
capacity (about ¥9 billion) Flexible display materials

Energy & Functional Materials
Specialty Chemicals

Current Priority Management Issues and Business Strategy

Expand separator production capacity(about ¥25 billion)
 Entered cathode materials business(about ¥7 billion)

51

Initiatives toward Sustained Growth Build Foundations for Sustained Growth ESG Initiatives

Current Priority Management Issues and Business Strategy

52

Initiatives toward Sustained Growth Build Foundations for Sustained Growth ESG Initiatives

Current Priority Management Issues and Business Strategy

53

Create New Value

What Sumitomo Chemical Strives To Be: Initiatives For Enhancing Enterprise Value

Improve ROE
Improve ROI

Initiatives for improving profitability
Expansion by M&A

 Earmark funds forinvestment in M&A

Leverage

Initiatives for improving asset turnoverRestructuring

Selective investment

Asset sales

 Close and downsize

 More rigorous investment

 Sale of equity securities
 Sale of non-operating

underperforming business Enhance competitivenessby partnerships

decision-making andmanagement

Cash conversion cycle
improvement

Organic expansion

Cost reduction

 Identify areas of strength Strengthen research,

 Reduce Head Office Shortening accounts

overhead cost
 Reduce costs inbusiness sectors

 Reducing the number ofmanufacturing andmarketing functions

receivable terms

product lines
 Optimizing inventory levels

real estate
Effective use of cash
and cash equivalents
on hand Promoting M&A in
Pharmaceuticals Sector

Promote initiatives for enhancing enterprise value (ROI)
Current Priority Management Issues and Business Strategy

54

Create New Value

What Sumitomo Chemical Strives To Be: Further improve business portfolio

Operating Income from Specialty Chemicals
TargetProfit growth of

7% per year

FY2017¥165.0 billion

FY2015¥164.4 billion

Specialty
Chemicals
83%

Specialty
Chemicals
85%

Business portfolio centered on
areas where we havetechnological advantages
Stably achieve ROI
significantly above the cost of capital

Bulk Chemicals

FY2006

Specialty
Chemicals* 72%¥139.6 billion
Specialty Chemicals※Excluding the ”Others” sector and elimination

Current Priority Management Issues and Business Strategy

55

Create New Value

Initiatives Maintaining Sustained Growth: Cash Flow Management

Interest-Bearing Liabilities and Debt to Equity Ratio(Billions of yen)(Times)1,600

1.6Interest-bearing liabilities (left axis)

1,400

1.4

Debt to equity ratio (right axis)

1,200(Reference)

1.2

When notImplementing

1,000

strategic M&A

1.0

investments

800

0.8

600

0.6

400

0.4

200

0.2

0

0.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
(Forecast)2018 2018(FY)(Target*1) (Target*2)※1 Including investment in Rabigh Phase II Project; including the effects of investments in strategic M&A※2 Including investment in Rabigh Phase II Project; not including the effects of investments in strategic M&A
Current Priority Management Issues and Business Strategy

56

Create New Value
Initiatives Maintaining Sustained Growth: New Business Development By Leveraging Core Technologies

Amorphouschemistry
Organic
semiconductors
S-DPF

Organic-inorganic
hybrid technology

Positive-electrodematerial

Catalyst
designOpticalencapsulant
Window film
Flexibletouchscreen
sensorInorganic
materialfunctiondesignBarrier film
Thermoelectric
conversion
materials
Power semiconductors

Precision
processing

Six coretechnologies

Biologicalmechanism
analysis

New PET diagnostic agent(for image diagnosis of CNS and tumors)
Cancer stemness inhibitor

Regenerative medicine and cell therapy
Current Priority Management Issues and Business Strategy

Molecular
orientation
technology

Coating-type
polarizing film

無機材料
Device
機能設計
designBiosensors
Next-gen coretechnologies
Next-gen business in
ICT area
Next-gen business inlife sciences area
Next-gen business inenvironment andenergy area

CO2 separation
membraneseparators
Next-generation
secondary batteries

Organic&無機材料
polymermaterial
機能設計
functiondesignPolymer organic LED

Active ingredients fornucleic acid medicine

Rice variety development

Organic thin film
photovoltaics

Precision designof organic andpolymer material
functions

Crop stress management

Blockbuster crop protection
chemicals (B2020)

Blockbuster crop protection
chemicals (A2020)57

Create New Value

What Sumitomo Chemical Strives To Be: Promote Open Innovation
Environment and EnergyLife Sciences
RIKEN

ImPACT*3

SIP*4

RIKEN

Tough polymer(high-toughnesstransparent
resin)

EnergyCarriers

Next-generation
environment &energy-relatedmaterials

New applications of
ES/iPS technologies
in agriculture

Sumitomo Chemical
Group

BASF
Chemical safetyassessment system

PurdueUniversity
Image diagnosis
technology forplant(above-ground)Research by Sumitomo Dainippon Pharma
Licensed to Nihon Medi-Physics

JAPERA*1
Materials
for printed
electronics

NagoyaInstitute ofTechnology
Compoundsemiconductormaterials

ICT

Kyoto University,
RIKEN,
Keio University, etc.*2

Kagoshima
Kyoto
Drug discovery andUniversity
regenerative
University
Theranostics
medicine using *1 Japan Advanced Printed Electronics
technology
Technology Research Association
New cancer drugs,
iPS cells, etc.
*2
ResearchCenter Network for Realization of
new cancer
development
Regenerative Medicine
treatments(antibody marker*3 Impulsing Paradigm Change throughDisruptive Technologies Program
treatments and*4 Cross-ministerial Strategic Innovation
diagnostics)
Promotion Program

Accelerate the development of next-generation businesses by leveraging both internal and external expertise
Current Priority Management Issues and Business Strategy

58

Create New Value

Initiatives Maintaining Sustained Growth: IoT Project
Digital Plant
Increasing efficiency of plantmaintenance and operation

Digital R&D
Speeding up the R&D
processAI

IoT

Digital Marketing

Evolution of ICT

Digital Back OfficeTransforming workstyles
through greater efficiency
in office tasks

Efficient and effective sales
and marketing

BD

Digital Global SCM
Greater depth and realtime visualization of global
supply chain information

Current Priority Management Issues and Business Strategy

59

Initiatives toward Sustained Growth Build Foundations for Sustained Growth ESG Initiatives

Current Priority Management Issues and Business Strategy

60Create New Value

Initiatives Maintaining Sustained Growth: Corporate Governance

Change in the Functions of Board of Directors

High

Current functions ofBoard of Directors

Board of Directors with weight ondecision-making

Board of Directors with weight onoversight of management

Scope of decision-making by
Board of Directors

Expansion ofoversight scope

Scope of oversight by
Board of Directors

Narrowing ofdecision-making

Scope of decision-making by
Board of Directors

Newly
established

Board of Corporate Auditors

Scope of oversight by
Board of Directors

Compensation
Advisory Committee
Nomination
Advisory Committee

Board of Corporate Auditors

Importance of issues
Low

Previous functions ofBoard of Directors

Specific measures for revising functions
 Enhanced reporting to Board of Directors
 Revision of the criteria for matters subject toBoard of Directors resolution
 Leveraging the functions of outside directors

Current Priority Management Issues and Business Strategy

61

Create New Value

Initiatives Maintaining Sustained Growth: Governance
PDCA cycle for further improving the effectiveness of the Board of Directors
Surveys for all
Directors andAuditors
Opinions of Board of
Corporate Auditors

Outside Directors
meetings

Deliberation at
Board of Directors

Management meetings

Review and implement
policies for improvement
Disclosure in corporate
governance report

Examples of Policies for Improvement

Outside directors visiting Sumitomo Chemical Singapore

Strengthened reporting on task execution status to outside directors✔ Rotation reports and spot reports on important casesShared discussion with outside directors in internal meetings✔ Disclosure of the content discussed in management meetings
Factory tours for outside directors✔ Twice-yearly inspections of plants both inside and outside Japan
Rotation report: A comprehensive and systematic report at a set time for each field; Spot reports on important cases: Advance reports on potential large-scale investments etc.

Current Priority Management Issues and Business Strategy

62

Create New Value

Initiatives Maintaining Sustained Growth: CSR Activities Based on SDGs
Major themes for Sumitomo Chemical Group’s CSR Activities for FY2017
Each of us will always be aware of how we contribute to society through our work
1. Each of us will play on active role in economic, social and responsible care activities
2. We will deeper our understanding of SDGs, ask ourselves what to do to further
contribute to the future of society and take action while enlightening one another.
3. We will effectively communicate the significance of the ties of business and society,both internally and externally

Each Sectors’ ‘SDGs’
Petrochemicals& Plastics

IT-related Chemicals

Energy &Functional
Materials

Health & Crop
Sciences

Current Priority Management Issues and Business Strategy

63

Create New Value

Initiatives Maintaining Sustained Growth: Sumika Sustainable Solutions
Sales of SSS-Certified Products and Technology(Billions of yen)
600
Second round of certification
First round of certification
500

SSS-Certified Products and Technologies

1 Contribution to promoting
the use of EVs

 Lithium-ion secondary

battery separator PERVIO®

400

Double2

300
200

Contribution to fuel efficiency improvement by
reducing the weight of aircraft


100
0
2015

2016

2018

2020 (FY)

3 Significant energy saving in

CO2 separation in hydrogenproduction process(Reference)Certification Committee convened in May 2017

４
Certified 13 additional products and technologies(In total, 34 products and technologies have been certified)

Provide solutions to build a sustainable society
Current Priority Management Issues and Business Strategy

Polyethersulfone
SUMIKAEXCEL®

CO2 separation membrane

Reduced GHG emissions by
reducing the nitrogen content
in livestock wasteFeed additive methionine
SUMIMET®

Address global challenges such as climate change
64Conclusion

Current Priority Management Issues and Business Strategy

65

Create New Value

Sumitomo Chemical’s Value Creation
Improve ROI

Improve Growth Rate
Concentrate management resources on thethree growth areas and cross-over areas
Environment
andEnergyLife
Sciences

Improve
profit margin

ICT

Improveasset
turnover rate

Continuation of the ESG initiatives
Environment

Society

GovernanceContribute to sustainable
development of society
through business

Build good relationships withstakeholders

Improve the effectiveness ofgovernance

Towards achieving continuous value creation
Current Priority Management Issues and Business Strategy

66

Create New Value

What Sumitomo Chemical Strives To Be: Ten Years Ahead

Trend of Ordinary Income（Billions of yen）

Targetprofit growth

400
350
300

Three priority
management issues

Excessive yen
appreciation
Recession

Enhancedfinancialstrength

Invested in
major projects

Profitability
decreased andfinancial strength
declined

Improvedbusiness
portfolio

7

Continually develop
new businesses and maximize
free cash flows of theexisting businesses

over %
per year

250
200

Achievesustained growth

150

100
50
0

-50
2000

2005

2010

‘15 ‘16 ‘17 ‘18(Forecast)(Plan)

Current Priority Management Issues and Business Strategy

2025 (FY)(Medium- tolong-term target)

67

Create New Value

Creative Hybrid Chemistry

Current Priority Management Issues and Business Strategy

68

(Reference) Topics

Current Priority Management Issues and Business Strategy

69

Contents
Create New Value

Entire Company

71-73

Health & Crop Sciences Sector

74-78

Pharmaceuticals Sector

79-82

Energy & Functional Materials
Sector

83-85

IT-related Chemicals Sector

86-89

Petrochemicals & Plastics Sector

90

ESG Initiatives
Current Priority Management Issues and Business Strategy

91-92- 70 70

Create New Value

Sumitomo Chemical’s DNA
Sumitomo Values
The Sumitomo Family’s “Business Principles”
state that as we conduct business, we mustvalue trust and integrity, and thereby strive tothrive, and that we must closely watch thechanging of the times, carefully weighing
opportunities and risks, never chasing shortterm gains, in good times and bad.

At Sumitomo Chemical we adhere to theprinciple that our business must not only
benefit our own interests but also society
at large.

The origin of Sumitomo Chemical
Sumitomo Chemical’s history dates back to 1913.
The company got its start by producing fertilizer fromharmful gas emitted in copper smelting operations.
The business helped mitigate the environmental
problem caused by the emissions, while also
contributing to increasing agricultural crop production.

Technology Wisdom Passion

Sulfur dioxide(gas emissions)

Environmental problem

Current Priority Management Issues and Business Strategy

Sense ofmissionCalciumsuperphosphate(fertilizer)

Increase in crop production

71Create New Value

Performance Targets under the Corporate Business Plan
(Billions of yen)

FY2018Target

FY2015FY2016FY20172,101.8

1,954.3

2,190.0

2,540.0

Operating Income

164.4

134.3

165.0

200.0

（Equity in
Earnings of Affiliates）

20.2

41.2

35.0

29.0

Ordinary Income

171.2

166.6

185.0

210.0

Net Income

81.5

85.5

100.0

110.0

Interest-bearing
Liabilities

831.5

875.3

870.0

1,000.0*1

Naphtha Price¥42,800/kl¥34,700/kl¥37,000/kl¥45,000/kl

Exchange Rate

¥120.15/$¥108.34/$¥110.00/$¥120.00/$

Net Sales

Forecast*1: Including the effects of investments in strategic M&A
Current Priority Management Issues and Business Strategy

72

Create New Value

What Sumitomo Chemical Strives To Be: Ten Years Ahead
Consistently
achieve thesetargets

FY2006FY2015FY2017FY2018（Forecast）（Plan）

Targets

ROI

8%

6%

7%

7%

Over 7%

ROE

12%

10%

12%

12%

Over 10%

0.7 times

Approx.
30%

D/E ratio

0.6times

0.8times

0.7times

0.6～0.7*1
times

Dividend
payout
ratio

21%

28%

23%

Undecided*1: Including the effects of investments in strategic M&A
Current Priority Management Issues and Business Strategy

73

Create New Value

Health & Crop Sciences Sector: Biorationals
Microbial pesticides

Plant growth regulators

Microbial agricultural materials

Core
products

Major applications

Core
products

Core
products

Microbial pesticide that canbe used for a wide varietyof crops

ProGibb®

DiPel®

XenTari®

Major applications
Controls growth andsize of crops

Promalin® Thins out fruits,

Same as above

Major applications

Mycorrhizal Promotes efficientfungi
absorption of water andnutrients in soil

controls size

ReTain®

Regulates harvest time forfruits, prevents fruit drop

ProTone®

Controls coloring of fruits,
delays germination

Our strengths

Our strengths

Our strengths

 Pioneer of the plant growth Technology for mass

(fermentation) expertise

regulator business Selling a wide range ofplant growth regulators inmore than 90 countries
 Capabilities to develop newmarkets by creating new
solutionsproduction of mycorrhizal
fungi Expertise and proven trackrecord for applying
mycorrhizal fungi for a wide
range of crops

Stable supply of highly
effective microbial pesticides

Support for the cultivation ofhigh quality crops

Stable supply of high quality
mycorrhizal fungi

 Superior BT (Bacillus

thuringiensis) strains Outstanding production

Current Priority Management Issues and Business Strategy

74

Create New Value

Health & Crop Sciences Sector: Development of Rice Business

Rice business objectives
 Solve the problems facing the agricultural sector

in Japan Consolidate our Total Solution Provider business Develop high-yield, tasty rice varieties

Help strengthen Japan’s agricultural sector

Three varieties currently cultivatedTsukuba SD1
Hikari no Sumika

Tsukuba SD2
Low-amylose rice

Tsukuba SDHD
Late-ripening rice

Development of new varieties
High-speed breeding technology by using DNA markers

4 varieties registered and1 variety applied for registration
To develop more varieties to expand
the rice business nationwide and to meetvarious customer needs for rice properties

2018

2015

900
tons

Future: Expand sales to a wider range of customers,
including consumers and sake manufacturers,
and also increase export sales
Current Priority Management Issues and Business Strategy

3,000
tons

27,60060,000tons

tons

Customers
Product nameCurrent: Focusing on sales tolarge-scale rice businesses

2016

2020

SD1
(Hikari no Sumika)

SD2

Prospective customers

Major restaurant chains (franchises)
Major noodle-shop chains
Major delicatessen companies
Major bento (boxed meals) suppliers
Major supermarkets (prepared food)
Major convenience store chains(low-amylose)75

Create New Value

Health & Crop Sciences Sector: Enhance Global Footprint

Excel Crop Care Limited
1 Acquisition of Excel Crop Care,
Indian Agrochemicals Company
Business:

Development, manufactureand sale of agrochemicals
Sales:
9.5 billion rupees (about 15.5
billion yen) in FY2016
Headquarters: Mumbai, India

2 Outline of the stock acquisition
Acquired stake:
65%
Acquisition value: 9 billion rupees(about 13.9 billion yen)

Aim of acquisition
 Expand sales channels in India
 Leverage Excel Crop Care’s brand

The world agrochemicals market in FY2015(millions of U.S. dollars)
12,00010,000
8,000
6,000
4,000
2,000
0
Brazil

USA

China

Japan

France Germany

India

Source: Phillips McDougall

Share in the Indian agrochemicals market in FY2014
1st Bayer

12%

2nd Syngenta

10%

2nd United Phosphorus

10%

4th Rallis8%

5th Excel Crop Care

5%

10th
Sumitomo Chemical India 4%

Excel Crop Careand
Sumitomo Chemical
India combine tobecome thefourth largest
Aiming to become themarket leader in India
Source: Phillips McDougall

Increase our presence in the growing Indian market and enhance our global footprint
Current Priority Management Issues and Business Strategy

76Create New Value

Health & Crop Sciences Sector: Accelerating the Search for Agrichemicals andTaking on the Challenge of New Agrichemicals Businesses

Agrichemicals until Now

New Field of Agrichemicals

 PesticidesIncreased yieldEnhanced Fungicides

tolerance Herbicides

Plant stimulation

Target: Harmful Life

Target: Crops

Kill organisms harmful to crops

Controlling crops to increase yield

Treatment

Pointof
ActionDeathTreatment

Pointof
action？

Increased
Yield

Build a technology platform that can respond to new waves
Current Priority Management Issues and Business Strategy

77

Create New Value

Health & Crop Sciences Sector: Increase Methionine Production Capacity

Competitive advantage inmethionine business
Integrated
production
from rawmaterial

Advanced
production
technology

Methionine Demand Forecast by Region

Waste liquidand gastreatment
capacity（1,000t）
2,400

East Asia
EuropeMiddle East & Africa

China
North America

Asia & ANZ
South America

Growing at approx.
6% per year

2,000
1,600
1,200
800
400

Stable supply of high quality products

0

2014

2016

2025 （年）2020

Methionine Production Process

Production capacity expansion

Raw Materials

Product: DL-methionine

Methanol

Production capacity:
100,000 tons

SulfurLocation: Ehime Works

PropeneStart of operation:
Mid 2018

2015

Intermediates
中間体

Products

Methylmercaptan
MMP

Methionine

Acrolein
Byproducts

Hydrocyanic
acid etc.

Recycled

Reinforce our position as Asia’s leading methionine player
Current Priority Management Issues and Business Strategy

78

Create New Value

Pharmaceuticals Sector: Planned Future Launches
Treatments Acquired Since May 2016
Parkinson’s Disease Treatment
 Acquired Cynapsus Therapeutics in October

2016
 APL-130277 (Phase III in U.S.)

Other Planned Launches
Oncology area
 Cancer stem-cell inhibitor Napabucasin*(Japan and U.S.) Cancer stem-cell inhibitor Amcasertib*(Japan and U.S.)

ＣＯＰＤ Treatments
 License agreement signed with Novartis in

December 2016
 UTIBRON, SEEBRI, ARCAPTA(Approved in U.S.) Cancer peptide vaccine DSP-7888(Japan and U.S.)* Introduced by Boston Biomedical,Inc

Other areas
 COPD treatment SUN-101 (U.S.)

Hematologic Cancer Treatment
 Acquired Tolero Pharmaceuticals in January

2017
 Alvocidib (Phase II in U.S.)

Current Priority Management Issues and Business Strategy

 ADHD/BED treatment Dasotraline (U.S.) Chronic stroke treatment SB623 (U.S.) Atypical antipsychotic Lurasidone (Japan)
 NASH treatment DSP-1747 (Japan)

79Create New Value

Pharmaceuticals: Portfolio for COPD

Chronic Obstructive Pulmonary Disease (COPD)
The 3rdleading
cause ofdeath in
U.S.

*

>120k
deaths per
year in the
U.S.

~15.7madultsaffected in
the U.S.

**

Increasing
prevalencewith aging
population* MMWR: Morbidity and Mortality Weekly Report. Employment and Activity Limitations Among Adults with Chronic Obstructive Pulmonary Disease.

Disease Severity
For new COPD
patients

For patients
symptomatic on
LAMA or LABA

For patients
symptomatic on
LABA/ICS

orFull trade names are: Seebri™ Neohaler®, Utibron™ Neohaler® and Arcapta® Neohaler®
ARCAPTA andare registered trademarks of Novartis AG, used under license
SEEBRI and
are trademarks of Novartis AG, used under license
UTIBRON and
are trademarks of Novartis AG, used under license

Current Priority Management Issues and Business Strategy

For patients who would
benefit from nebulized
medication

LABA add-on for
uncontrolled patients

SUN-101 / eFlow®

eFlow® device technology licensed from PARI Pharma GmbH80

Create New Value

Pharmaceuticals: Major Products under Development

COPD Treatment (NDA filed)

Cancer Stem Cell Inhibitor

Indication

Chronic obstructive pulmonary
disease (COPD)

Indication

CancerFeatures

1. Administered by nebulizer*
2. Short delivery times (2-3 min)FeaturesFirst-in-class molecularly targeted
treatment

Development
and Launch
Schedule

Current: NDA filed (US)During FY2017:
Planned launch (US)Development
and Launch
Schedule

Inhibits cellular proliferation andinduces apoptosis forcancer cells and cancer stem cells

Napabucasin* Nebulizer: Device for delivering drugs
through the lungs

Amcasertib

SUN-101/eFlow ®
electronic nebulizer

Expected peak sales about 50.0 billion yen

Current: In phase III clinical trials*1
FY2018: Submission planned*2
FY2019: Planned launch*2
Current:

In phase II clinical trials(U.S. and elsewhere)
FY2020-22: Submission and planned launch
for U.S. and elsewhere*1 Including gastric and gastro-esophageal junction cancers, colorectal cancer,
pancreatic cancer (U.S. and elsewhere)*2 Gastric and gastro-esophageal junction cancers (U.S. and elsewhere)

Expected peak sales about 100 billion yen

eFlow® device technology
licensed from PARI Pharma GmbH

Making progress in new product development and in-licensing for post-LATUDA period
Current Priority Management Issues and Business Strategy

81Create New Value

Pharmaceuticals Sector: Regenerative Medicine and Cell Therapy
Short History of the Development of the
Regenerative Medicine and Cell Therapy Fields
1990
2001

Joint research with Harvard University on neuron
regeneration
Joint research with Keio University Professor
Hideyuki Okano on spinal cord injuries

Collaboration Network for the Developmentof Regenerative Medicine and Cell Therapy
RIKEN

CiRA, Kyoto University

Keio University

Osaka Medical Center, NHO
Academic Collaborations

2001-05 Joint research with Nara Institute of Science andTechnology Professor Shinya Yamanaka
2006

Joint research with RIKEN on ocular development(Sumitomo Chemical)

2010

Licensed SB623 (treatment for chronic stroke)

2013

Collaboration with Healios to commercialize
regenerative medicine
Started research under the Research Center
Network for Realization of Regenerative Medicine
program(spinal cord injury, Parkinson’s disease)2015

Acquired a stock of iPS cells for regenerative
medicine from Kyoto University’s Center for iPS
Cell Research and Application (CiRA)Engaged in research leading to thedevelopment of regenerative medicine andcell therapy for 25 years
Current Priority Management Issues and Business Strategy

Sumitomo Chemical Group
Sumitomo Dainippon Pharma

Sumitomo Chemical

Regenerative & Cellular Medicine
Kobe Center

Environmental Health
Sciences Laboratory• Research on induced differentiationof iPS and other stem cells• Expertise in induced
differentiation of
ES and iPS cells• Research on efficient production
methods of various types ofdifferentiated cells (completed
production of master cell bank)Sumika Chemical
Analysis Service
Collaborations withstart-up companies

Healios K.K.

SanBio, Inc.

82

Create New Value

Energy & Functional Materials Sector: Investment into Cathode Materials BusinessProfile of Tanaka Chemical Corporation

Became Sumitomo Chemical’s
subsidiary through private shareplacement
Shares acquired:10.5 million(subscription value: Approx. ¥6.6 billion)
Shares owned:
12.7 million (investment ratio of 50.1%)

Products under development
High output

Business: Manufacture and sale of cathodematerials and catalyst raw materials
Net sales: Approx. ¥13.3 billion in FY2016

Sumitomo Chemical,
Tanaka

PHEV
ST-6

EV

NCM523NCA

NCX

Aim of acquisition
Accelerate development and launch of highly
functional cathode materials for automotive
batteries by leveraging the two companies’
strengths.

High capacity

Stepped up the investment in cathode materials business, aiming to haveour products adopted for automotive batteries as soon as possible
Current Priority Management Issues and Business Strategy

83

Create New Value

Energy & Functional Materials Sector: CO2 Separation Membrane

The CO2 selective membrane system, installed upstream of CO2 chemical
absorption plants, removes approx. 50% of the CO2 contained in the sourcegas, reducing the steam cost incurred in the absorption plant
CO2 chemical
absorption plant

Source gas

H2
CO2
CO₂

H₂

CO2 absorbent

H₂＋CO₂
Remove approx. 50%of the CO2 in source gas
CO2 selective
membrane system

H₂＋CO₂

Absorbing
tower

Regeneration
tower

Halve steam
consumption
Steam
H2O

CO₂

Current Priority Management Issues and Business Strategy

84

Create New Value

Energy & Functional Materials Sector: CO2 Separation Membrane

CO2 Separation Market （Forecast for 2030 ）Natural gas
Market: 600 million tons

Hydrogen production(refinery and chemical plants）
Market: 520 million tons

Coal gasification combined
power generation
Market: 500 million tons

Market Size
2.62 billion tons

Coal to liquid
Market: 200 million tons

Power generation andSteel manufacturing (CCS/EOR)
Market: 500 and 300 million tons

Current Priority Management Issues and Business Strategy

Hydrogen stations
Market: Unknown- Separation of H2 and CO2- Separation of CH4 and CO2- Separation of N2 and CO2

85

Create New Value

IT-related Chemicals Sector: Increase Film-type Touchscreen Panel Production
Summary of Capacity Increase Product:Film-type touchscreen panel

 Production capacity:

3 times the current capacity

 Location:

Dongwoo Fine-Chem

 Start up:

January 2018

Dongwoo Fine-Chemtouchscreen panel plant

Sumitomo Chemical’s Touchscreen Panel Production Capacity
フレキシブルリジッド

Film-type

Glass-type

3 times the Current
Capacity

2013

2014

2015

2016

2017

(FY)

2011

2012

2013

2014

2015

2016 (FY)

Supporting flexible OLEDs in a variety of forms,
from rigid types to foldable types and rollable types
Current Priority Management Issues and Business Strategy

86Create New Value

IT-related Chemicals Sector:

OLED-related Materials

Roadmap for OLED-related materials development
Flexible OLED panel(First generation)

Current OLED panel
Cover glass
Polarizer

Flexible OLED panel(Second generation)

Window film
Glass replacedwith plastics

LC coated polarizer

Functional
integration

Multi-functional
materials
and components

TSP

Flexible TSP

Sealing glass

Barrier film

Barrier film

OLED

OLED

OLED

Glass

Barrier film

Barrier film

Sumitomo Chemical’s competitive advantages
Material development capability

Product development capability
Processing technology

as a diversified chemical company

acquired through display materials businessContribute to the evolution and diffusion of OLED technology
Current Priority Management Issues and Business Strategy

87Create New Value

IT-related Chemicals Sector: PLED Materials
PLEDs’ Advantages (Printing Methods) over Small
Molecular LEDs (Evaporation Methods)

PLEDs’ Advantages over LCDs
 Superior contrast, resolution, response speeds,

 Applicable to larger displays

and viewing angle
 Lower energy consumption
 Self-luminescent (no backlights required) andsimpler display structure Greater potential to realize more cost-effective

production

Structure of Organic Light Emitting Diodes

CathodeSmall-moleculeorganic lightemitting diodes

Polymer lightemitting diodes

Multifunctional emissive layer

Interlayer

SimpleStructure of layers

ComplicatedAnode (ITO)
Glass substrate

CathodeElectron injection layer
Electron transport layer
Emissive layer
Hole transport layer
Hole injection layer
Anode(ITO)
Glass substrate

Manufacturing Process
Inkjet and other printing methods

Light-emitting material

Vacuum deposition method

Vacuum processing inorganic layer deposition

Necessary

Unnecessary

Expensive mask

NecessaryHigh

Material use-efficiency

Low

Easy

Manufacture oflarge-sized display

Difficult

Unnecessary

Current Priority Management Issues and Business Strategy

Light-emitting
material

Mask

88

Create New Value

IT-related Chemicals Sector: Strengthen Competitiveness of Polarizing Business
TV LCD Panel Supply Capacity by Country

Basic Strategy
 Capture demand from continually growing

Chinese LCD manufacturers
 Thorough cost rationalization
 Global production balance optimization

 Expand sales for the growing OLED market

Japan(Millions)

China

2015

2016

2017

2018

2019

2020

Source: IＨS Markit Technology

LCD

For TVs✔ Strengthen supply capabilities in China□✔ Expand sales of polarizing film using our□materials✔ Each line producing the kind of products it□
can most efficiently produce

For mobile devices✔ Focus on models where a certain level of□profit can be expected✔ Expand sales of□ultra-thin PVA stretched films

Current Priority Management Issues and Business Strategy

South Korea

140
120
100
80
60
40
20
0
2014

Specific Initiatives

TaiwanOLED✔ Launch coating-type retardation film□

✔ Expand sales of circularly polarizing film□
□ Launch liquid crystal coated-type
polarizing film

89

Create New Value

Petrochemicals & Plastics Sector: Rabigh Project
Progress on Rabigh Phase II Project

April-June 2017

March 2016
March 2015

PF*agreement
signed* EC: Ethane cracker
FS: Feasibility study
PF: Project financing

April 2009

April 2016

Expanded EC* infull operation

May 2012

Feasibility
confirmed

EC*
expansion
completed

All plants
scheduled forcompletion

December
2015

Utility plants
started operation

Memorandum of Understanding signed and FS* started

Current Priority Management Issues and Business Strategy

90Create New ValueESG Initiatives: Strengthening Corporate GovernanceCorporate Governance CodeComply with all general principles, principles, and supplementary principles
Increase the number ofoutside directors
 Increased from one to three 40 percent of the directors,
including corporate auditors,
are now outside directors

Established non-mandatorycommittees
 Set up a nomination committee
and a remuneration committee(The majority of the committee
members are outside directors.)

Strengthening
the governancesystemStrengthened the oversightfunctions of the Board of Directors
 Strengthened outside directors’monitoring and advisory functions
 Assess effectiveness of the Board
through discussions at outside
directors meetings and other means

Further enhance the effectiveness of governanceby making full use of this reinforced system
Current Priority Management Issues and Business Strategy

91Create New ValueESG Initiatives: SDGs
SDGs (Sustainable Development Goals)

Reference: 17 Sustainable Development Goals

The Sustainable Development Goals, adopted by
the United Nations in 2015, consist of 17 goals and
169 targets, and represent a historical agreement
involving all 193 UN member nations

Sumitomo Chemical’s initiatives towards
achievement of the SDGs
Time

Initiatives

Sep. 2015

SDGs adopted at United Nations
Sustainable Development Summit
SDGs discussed at SCC’s CSR Promotion
Committee

Feb. 2016
May.2016

SDGs webpage opened on SCC’s website

June.2016

Launched Sustainable Tree program
Workshop held at the Officers Liaison
Meeting (4 times)
Internal seminars(twice with 400 participants in total)

July.2016
Aug. 2016

Presented SCC’s policy on SDGs in
its CSR report
Reported its SDGs initiatives at
the Board of Directors Meeting

Current Priority Management Issues and Business Strategy

An initiative for officers and employees to post
on a dedicated website their ideas as to what
they can do at work and in their private life tobring about a society with hope for future.
Period: 100 days from June to October 2016
Target: Officers and employees of all group companies
Number of posts: 6,005 in total

92

Change and Innovation

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 and beliefs in light of the information currently
available to it, and involve risks and uncertainties.
The important factors that could cause actual results to differ 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’s ability to continue to win acceptance for its products in these highly
competitive markets; and movements of currency exchange rates.

Current Priority Management Issues and Business Strategy

93