Create New Value

Change and Innovation

Create New Value

MorganStanley MUFG
Chemicals Conference
December 19, 2017

1- 1 -

Create New Value

Contents
Create New Value

Performance Trends

3-9

Business Strategy

10-16

Business Strategy by Sector

17-51

Initiatives for Maintaining
Sustained Growth

52-61

Conclusion

62-64

2- 2 -

Performance Trends

3Create New ValueFY2017 1H vs. FY2016 1H(Billions of yen)

FY20161H

FY2017
1H

Change900.5
47.3

1,054.1
92.0+153.6+44.8(Equity in Earnings ofAffiliates)

18.8

22.6

+3.8

Ordinary Income
Net Income
Attributable to Owners of
the Parents

50.6
19.2

115.0
68.5

+64.4
+49.3

Naphtha Price¥31,500/kl¥37,600/kl

Exchange Rate

¥105.20/$¥111.04/$

Sales
Operating Income4Create New ValueFY2017 1H vs. FY2016 1H: Operating Income by Sector(Billions of yen)

Specialty Chemicals
Energy & Functional
Materials

FY20161H

FY2017
1H

Change

45.4

72.5

+27.2

2.2

9.9

+7.7

Reason for Change

Increased shipment volumesof resorcinol and SEP

IT-related Chemicals

2.5

8.7

+6.2

Health & Crop Sciences

12.9

5.6

-7.2

Increased shipment volumesof polarizing films andtouchscreen panels
Lower methionine market
pricesPharmaceuticals

27.9

48.3

+20.5

Increased sales of Latuda

Bulk Chemicals

6.7

25.0

+18.3

Petrochemicals &Plastics

6.7

25.0

+18.3

Others

-4.8

-5.5

-0.8

Total

47.3

92.0

+44.8

Improved margins of MMA
and synthetic resins5Create New ValueFY2017 Forecast vs. FY2016(Billions of yen)

FY2017(Forecast)

Change1,954.3

2,210.0+255.7

Operating Income

134.3

185.0

+50.7

(Equity in Earnings ofAffiliates)

41.2

43.0

+1.8

Ordinary Income

166.6

215.0

+48.4

Net Income
Attributable to Owners of
the Parents

85.5

120.0

+34.5

Naphtha Price¥34,700/kl¥37,300/kl

Exchange Rate

¥108.34/$¥110.52/$

FY2016Sales

6Create New ValueFY2017 Forecast vs. FY2016: Operating Income by Sector(Billions of yen)

FY2016FY2017(Forecast)

ChangeReason for Change

118.8

160.0

+41.2

Energy & Functional
Materials

7.2

15.0

+7.8

IT-related Chemicals

10.3

21.0

+10.7

Health & Crop Sciences

46.2

50.0

+3.8

Increased shipment volumesof resorcinol and SEP
Increased shipment volumesof polarizing films andtouchscreen panels
Increased shipment volumesof crop protection chemicals

Pharmaceuticals

55.1

74.0

+18.9

Increased sales of Latuda

Bulk Chemicals

26.6

37.0

+10.4

Petrochemicals & Plastics

26.6

37.0

+10.4

Others

-11.0

-12.0

-1.0

Total

134.3

185.0

+50.7

Specialty Chemicals

Improved margins of MMA
and synthetic resins7Create New Value

What Sumitomo Chemical Strives To Be: Ten Years Ahead
Trend of Ordinary Income（Billions of yen）

400

350

Three priority
management issues

Excessive yen
appreciation
Recession

Enhancedfinancialstrength

Invested in
major projects

Profitability decreased
and financial strength
declined

Improvedbusiness
portfolio

300

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

Targetprofit growth7

over %
per year

250

200

Achievesustained growth

150
100
50
0
-50

2000

2005

2010

‘15 ‘16 ‘17(Forecast)

2025 (FY)(Medium- to long-term target)

8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

10

15
2
90.7

10

5

0

64.5
2
3
3

3

3
30.2

3

31.1

34.3
3

7

6

3

3

6

3

3

0

4

5

6

85.5

3
52.2

6
6
14.7

3

24.4 6

6 37.0 6

6

10
6

5.6

0

-50

-51.1

-59.2

50

7

0

-5

150

100

81.5
63.1

3

7

6

93.9

6

120.0

200

-10

-100
2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 （FY）(Forecast)9

Business Strategy

10Create New Value

Corporate Business Plan: Basic Policy
After 2000

Pave the way for
future growth(Tackle three priority
management issues)
Implemented Rabigh Project
Launched DSP and
acquired Sepracor/BBI
Established and expanded
IT-related Chemicals Sector

Previous
Corporate Business Plan

Corporate Business Plan

Enhance financial strength

Further improve business portfolio

Improve
profitability

Rigorously
selectinvestments

Restructure businesses
Exit
underperforming
businesses

Improvebusiness
portfolio

Identify areas ofstrength

Allocateresources toprioritized areas

Generate more cash flow
Increase
profitabove costof capitalMake
active anddisciplined
investments

Streamline
balancesheet

Accelerate the launch of next-generation businesses
Environment
and Energy

Globalization

Improveasset
efficiency

Life Sciences

ICT

Crossover areas

Promote globally integrated management

Ensure full and strict compliance, establish and maintain safe and stable operations
11

Create New Value

Corporate Business Plan: Performance Targets(Billions of yen)

FY2017FY2018(Forecast)(Corporate
Business Plan)

2,210.0
185.0

2,540.0
200.0

43.0

29.0

Ordinary Income

215.0

210.0

Net Income
Attributable to Owners of the Parents

120.0

110.0

Naphtha Price¥37,300/kl¥45,000/kl

Exchange Rate

¥110.52/$¥120.0/$

Sales
Operating Income(Equity in Earnings of Affiliates)

12Create New Value

Corporate Business Plan： Performance Targets by Sector(Billions of yen)

FY2017(Forecast)

FY2018(Corporate
Business Plan)

160.0

192.0

Energy & Functional Materials

15.0

18.0

IT-related Chemicals

21.0

34.0

Health & Crop Sciences

50.0

86.0

Pharmaceuticals

74.0

54.0

Bulk Chemicals

37.0

21.0

Petrochemicals & Plastics

37.0

21.0

Others

-12.0

-13.0

Total

185.0

200.0

Specialty Chemicals

13Create New Value

Corporate Business Plan: Medium- to Long-term vs. FY2018 Performance Targets

Medium- to
Long-term Targets(Reference)

Consistently achieve
the following targets:

FY2018
Corporate
Business Plan

FY2017
Forecast

ROEover 10%

12%

14%

ROI

over 7%

7%

8%

approx. 0.7 times

0.6-0.7 times*2

0.7 times

approx. 30%-

27%

over 7% per year

11% per year-

D/E Ratio
Dividend Payout Ratio

Profit Growth*1*1 Compounded annual growth rate of net income from the last year of the previous Corporate Business Plan
*2 Including the effects of strategic M&A investments
14

Create New Value

Changes in Our Business Portfolio
Changes in Asset Structure*100%

Total assets of
Bulk Chemicals
business

90%
80%
70%
60%
50%

Total assets ofSpecialty
Chemicals
business

40%
30%
20%
10%
0%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 （End of the fiscal year）（Forecast）

Basic Chemicals
Petrochemicals & Plastics
Fine Chemicals
Energy & Functional Materials
Health & Crop Sciences
Pharmaceuticals
IT-related Chemicals* Excluding Others and Eliminations

15

Create New Value

Changes in Our Business Portfolio
Composition of Record-High Profits(Billions of yen)

(Operating Income + Equity in Earnings of Affiliates)*

300
Equity in
Earnings ofAffiliates

250
200

Operating
Income of
Bulk Chemicals

150

Operating
Incomeof Specialty
Chemicals

100
50
0
Exchange Rate：

2006

2015

¥116.97/$¥120.15/$

Equity in Earnings of Affiliates
Pharmaceuticals
Fine Chemicals

Petrochemicals & Plastics
Health & Crop Sciences
Energy & Functional Materials

2017（Forecast）(FY)¥110.52/$
Basic Chemicals
IT-related Chemicals* Excluding the ”Others” sector and eliminations

16

Business Strategy by Sector
 Petrochemicals & Plastics

 Energy & Functional Materials
 IT-related Chemicals
 Health & Crop Sciences Pharmaceuticals
17

Business Strategy by Sector
 Petrochemicals & Plastics
 Energy & Functional Materials
 IT-related Chemicals
 Health & Crop Sciences Pharmaceuticals
18Create New Value

Petrochemicals & Plastics:

Globalization Leveraging the Features of Our Three Centers
Saudi Arabia
Sales: ¥220.0 billion*1
Features: Cost-competitive profit center
leveraging low-cost feedstock*1: Sales for the Petrochemicals & Plastics business,
not including revenues from the Rabigh Phase II
Project

Japan
Sales: ¥320.0 billion
Features: Mother plant & motherresearch center leading thedevelopment of technology,
products and know-how

Ethylene Production Capacity by Location(Units: 10,000 tons)

Singapore
Sales: ¥330.0 billion*2
Features: Center for high added
value strategy, withstrong relations withblue-chip customers*2: Including outside sales of PCS

Saudi Arabia*3
160

Japan
45

Total
Production
Capacity

315

Singapore110*3: Including the production capacity of the Rabigh Phase II Project19

Create New Value

Petrochemicals & Plastics:

Current Status of the Rabigh Project (Saudi Arabia)
Quarterly Net Income/Loss(Millions of dollars)

250
200
150
100
50
0
-50
-100

May 2016
PoweroutageJun-Jul 2016

Jan 2017

EC* stoppage

Utility
Plant
Problems

Stabilizing operations
2016.1Q

2016.2Q

2016.3Q

Progress of the Phase II Project2017 Construction completed

2016.4Q

2017.1Q

2017.2Q

2017.3Q

As of the end of Nov 2017

Commissioning underway

2018Full operation

2016 Expansion of EC* completed; full operation
2015 PF* contract signed; operation of utility plants started
2012 Feasibility study completed
2009 Memorandum of Understanding for F/S signed* EC: ethane cracker

PF: project finance

20Create New Value

Petrochemicals & Plastics:

Progress in Enhancing Competitiveness (Singapore)
PCS’s strengths
 Top-class cost competitiveness(naphtha-based) Strong track record of safe andstable operation

TPC’s strengths
 Strong customer relations
 Strong track record of safe andstable operation
 High-value added products
taking a large share in its
product portfolio (approx. 70%)

Policies to Enhance Competitive Strength

Policies to Enhance Competitive Strength

2006

2006

Production line changeover(standard-grade PE → terpolymer)

2007

Launch of HEVA for use in solar cells

2009

Launch of PP for use in capacitors

2016

Production line modification (co-productionof terpolymer and random copolymer for
use in food packaging)

2018(planned)

Launch of PP for use in separators

2014

Propylene plant started operation(metathesis process)Second butadiene plant started operation

2017

Naphtha storage tanks expanded

2018(planned)

Increased compressor efficiency

Maintain and enhance top-class competitiveness as naphtha-based plants21

Business Strategy by Sector
 Petrochemicals & Plastics

 Energy & Functional Materials
 IT-related Chemicals
 Health & Crop Sciences Pharmaceuticals
22

Create New Value

Sumitomo Chemical Products for Automobiles
Major Products for Automobiles

Petrochemicals & Plastics Sector Products

Plastics

Businesses where high growth is expected

 PP
 PP compound
 TPE
 PMMA ABS resin
 EPDM

Aluminum Electrodeposition Paint

Energy & Functional Materials Sector ProductsSuper Engineering Plastics
 PES (engine and transmission components)
 LCP (external panels, pipe-related components, relays)

Li-Ion Battery Components
 Separators
 CathodeMaterials

 High Purity Alumina

Tire-related products
 Resorcinol (tires)
 S-SBR

Sumitomo Chemical Group’s sales for automotive-related products:¥200.0 billion (fiscal 2017)23

Create New Value

Energy & Functional Materials:

Developing Various Products for Automobiles
Major Products for Automobiles
in Energy & Functional Materials Sector
 EPDM

Aluminum

Businesses where high growth is expected

Super Engineering Plastics
 PES (engine and transmission components)
 LCP (external panels, pipe-related components, relays)

Li-Ion Battery Components
 Separators
 Cathode Materials
 High Purity Alumina

Tire-related products
 Resorcinol (tires)
 S-SBR

Sumitomo Chemical Group’s sales for automotive-related products:¥200.0 billion (fiscal 2017)24

Create New Value

Energy & Functional Materials:

Market Trends for Eco-Friendly Cars
Automobile manufacturers accelerating
shift to eco-friendly cars
Automobile
manufacturer

Share of eco-friendly car sales (Target)

VW

EV: 25%, 3 million units(2025)BMW

EV/PHEV: 15-25%(2025)

Daimler

EV: 15-25%(2025)

Volvo

Eco-friendly cars: 100%

(2019)Tesla

EV: 100%, 500,000 units(2018)

RenaultNissan

Eco-friendly cars: 30%,
4.7 million units

Honda

Eco-friendly cars: 2/3(2022)(2030)

Eco-Friendly Car Market Trends(million units)

14.0
12.0
10.0
8.0
6.0
4.0
2.0
0.0

HEV

2016

PHEV

EV

2018

(Forecast)Even more?

2020

2025
(Year)(Source) “Future Outlook of Energy, Large Scale Secondary Batteries and Materials 2017;
Next Generation Environment and Automotive Field Edition” by Fuji Keizai* ‘HEV’ includes HEV trucks and buses. ‘EV’ includes EV trucks and buses.

Market Outlook for Lithium-Ion Secondary Batteries
and Components and Materials(¥ trillion)

10.0
8.0
6.0
4.0
2.0
0.0

Automotive use
Household appliances, others
Cathode materials (right axis)

ESS
Separators (right axis)(¥ trillion)

2.0
1.5
1.0
0.5

2016

2020

2025

(Forecast)

Toyota

HEV: 1.5 million units(by 2020)(Source) Compiled by Sumitomo Chemical based on the Nikkei andothers0.0(Year)(Source) “Future Outlook of Energy, Large Scale Secondary Batteries and Materials 2017;
Energy Devices” by Fuji Keizai* Cited from: Automotive use: ‘Next-generation eco-friendly car field’
ESS: ‘Energy storage system field’Household appliance, others: ‘Power field’ and ‘Others (household appliances)’25Create New Value

Energy & Functional Materials:

Lithium-Ion Secondary Battery Separator
Advantages of aramid coated separators(compared to ceramic separators)
High heat resistance,
improved safety

Lightweight

No dustgeneration

Best suited for high-capacity batteries forautomotive and other applications
Lithium-Ion Secondary Battery
Separator for Use in Electric Vehicles:
Market Share(2016, by volume)

Sumitomo Chemical’s Business Strategy
Contribute to improvement of thecompetitiveness of
our customer battery manufacturers
Expand business through strategic partnership

Separator production capacity
expansion plan
Production capacity: South Korea production capacity
to be quadrupled
Start of operation: 1Q 2017; in stages

Approx.
40%(Source) Sumitomo Chemical estimate

Accelerating shift toeco-friendly cars

Separator production capacity
FutureJapan

Approx. 100 million m2

South
Korea

Approx. 300 million m2

Total

Approx. 400 million m2

4

times
vs.
2016

Utilize the advantages of aramid coated separators tobuild a strong position in the area of separators forautomotive use
26

Create New Value

Energy & Functional Materials:

Entry into the Cathode Materials Business
Cathode Materials: Development Schedule and Demand Forecast(Sumitomo Chemical estimate)
′16

′17

′18

′25

′20

Start of battery
mass production
Cathodematerialdevelopment

Generation X

Generation Y

Generation Z(Development
finished)(Development
nearly finished)(Concept completed)

Automotive Use

The current situation is given in parentheses

Cathode material demand forecast

Consumer Use

Primarily
automotive use

Entered the cathode materials business, with the aim of securing early adoption in
automotive batteries, an area where demand is expected to grow sharply
August 2016

Acquired Tanaka Chemical Corp.* (2016 sales: ¥13.3 billion)* Market leader in external sales of cathode material precursor

27

Create New Value

Energy & Functional Materials:

Required Functions for Automotive Components (Besides Weight Reduction)
Hood

External Panel

Heat
resistance

Noise control

 Aluminum Aluminum Plastics (SEP, EP)

 Plastics (SEP, EP)

Key properties required
for each component

 Hot-stamped

materials
 Plastics（EP, general) CFRTP AluminumEngineHeat
resistanceTrunk Lid CFRTP CFRTP

Frame
Dimensional
accuracy Aluminum Plastics (SEP) High tensile-strength

steel plate CFRTP Plastics (SEP, EP)

Transmission
Dimensional
accuracyAluminum

Plastics (SEP)

Side Panel Plastics (general) CFRTP28

Create New Value

Energy & Functional Materials:

Advantages of Super Engineering Plastics and Enhanced Production Capacity
Advantages of Super Engineering Plastics Comparedwith General Use Engineering Plastics(beside weight reduction)
General Use EP

SEP

PES Market Trends

PA66(GF30%)PC(GF30%)PES(GF30%)LCP(GF40%)

×(80℃)△(130~145℃)○(220~230℃)○(300℃~)

Dimensional
accuracy

×

△

◎

○

Noise control

×

×

×

○

Oil resistance

○

×

○

○

Material cost

○

○

△

△

Processing cost

○

○

○

◎

Heat resistance(softening point)（1,000 t）

16
12
8
4

Applications requiring each property
Hood, parts near the engine

PES Market andSumitomo Chemical’s Production Capacity

Frame, transmission

Our unique polymer synthesis technology
 Compound technology
 Proposing applications leveraging theadvantages of our SEP
 Proposing designs for parts to automobileand component manufacturers

External panels

0

2016

2017

2018

2019

2020

(Source) Sumitomo Chemical estimate

Plan for PES Production Capacity Expansion
Completion: Spring 2018
Production capacity increase: Approx. 3,000 tons/ year
Location: Chiba Works
Total production capacity after expansion：
Approx. 6,000 tons/ year

Developing New Automotive
Applications

Increased Sales

29

Business Strategy by Sector
 Petrochemicals & Plastics

 Energy & Functional Materials

 IT-related Chemicals
 Health & Crop Sciences Pharmaceuticals
30Create New Value

IT-related Chemicals:

Mobile Display Market Trends
Shipment of Smartphone Panels(Millions of units)

LCD (Left axis)

OLED (Left axis)

OLED as a percentage of the total (Right axis)

1,600

40%

1,200

30%

800

20%

400

10%

0

0%

2015

2016

2017

2018

2019

2020

(Source) IHS Markit Technology
31

Create New Value

IT-related Chemicals:

Business Life Cycle Management in ICT Area
Our products
PLED lighting(general lighting) Organic semiconductor
 Organic thin film solar cells
 Biosensors

Printed Electronics



Development
phase
Our products

OLED Display

Window film
Liquid crystal coated-type
polarizing film Flexible touchscreen panels
 Barrier film（Flexible）
Eve of introduction
phase

Our products

OLED Display（Rigid, Bendable）

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 pipeline of next-generation businesses in anticipation ofa generational shift in display technology
32Create New Value

IT-related Chemicals:Commercialization of Polymer OLED Materials
LG Display’s Plan for OLED Investment
Guangzhou Works, China Paju Works, South Korea
Substrate size: Gen 8.5
Investment amount:
2.6 trillion won*

Substrate size: Gen 10.5
Investment amount:
2.8 trillion won*LG Displays’s share in the investment:
70%.

15
10

White
OLED

OLED TV Market
PLED
printing method Thinner, lighter modules
 Lower set weight through greater

energy efficiency

5

Medical Equipment
monitors

Smartphone10” +tabletcomputers

Flexible panels will
make our displays
viable for newmarkets

Laptop computers

Ultrabook

Lighter0

Our target markets

Weight(millions of units)

Product： 21.6” 4K
Features： 1. RGB printing method (polymer LED materials)
2. Low power consumption (self-lighting)
3. High picture quality (high brightness,high contrast)
Heavier

Increasing W-OLED production capacity andconsidering pilot production
using PLED printing method

JOLED Starts Shipments of Mid-size OLED2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
(Source) IHS Markit

Smaller

Screen size

Larger

Display manufacturers are considering investment inlarge-scale commercial production facilities
33

Create New Value

IT-related Chemicals:

Developing New Touchscreen Panels Products and Technologies
Supply Chain for Touchscreen Panels
Glass, film, andother materials

Evolution of Touchscreen Panels
Glass-type(2012～)

Touchscreen panel
production process

Panel assembly process：Current business areas

New film-type(2017～)
Features• Greater flexibility in basematerials• Accommodates flexible
displaysDownstream

Moduleproduction process

Film-type(2014～)

Planning to Invest in
Module Production Facility
ModuleTouchscreen panel

Polarizing film

FPCB

Touchscreen panel
Barrier film

：Future business areas

Meeting a broad range of customers needs andmaintaining the top share in touchscreen panels
34

Create New Value

IT-related Chemicals:

Current State of the OLED-related Materials Business
Sumitomo Chemical’s OLED-related materials
SC’s products

OLED display
structure
Cover glass

Mobiledisplays

Window film○

Polarizer

Liquid crystal
coated polarizer○

Touchscreen panel

Flexible TSP○

Sealing glass

Large displays

now
mass-produced

Multi-functional materials and components

OLED

PLED light-emitting
materials

Glass

Barrier film○○○

Flexible display： materials
35Create New Value

IT-related Chemicals:

Semiconductor Technology Trends
2016

2017

DRAM
Manufacturing Process

25nm & 21nm

21nm & 19nm

17nm

14/15nmNumber of 3D-NAND Layers

>30

>40

>60

>90

LSI Manufacturing Process

10nm

7nm

2018

2019

2020
12nm

＜7nm

Ultra-miniaturization and greater number of layers for higher circuit integration

Trends in Semiconductor Materials Business Photoresists: Expanding share of immersion ArF in advanced markets
 High-purity chemicals: Accelerating demand for higher purity
36

Create New Value

IT-related Chemicals:

Chemicals for Semiconductor Manufacturing: Sumitomo Chemical’s Products
1.

Metal Vapor High-purity
Chemical
deposition

2. Photoresist
coating

Aluminum Target

Photoresist

4. Development現像液
Developer

5. Etching

Metal

High-purity
Chemical3. Exposure

Mask

Photoresist

Substrate

7. Cleaning

8. Drying
High-purity
ChemicalHigh-purity
ChemicalHigh-purity
Chemical

6. Resist Stripping
Stripper* This process is repeated toform circuits

37Create New Value
IT-related Chemicals:

Semiconductor Materials Business 1 – High Purity Chemicals for Semiconductor Manufacturing

Processing Chemicals Manufacturing Locations in China
Sumika Electronic Materials(Xi’an) Co., Ltd.

Sumika Electronic Materials(Changzhou) Co., Ltd.

Products: Processing chemicals forsemiconductors

Products: Processing chemicals forsemiconductors

Korea: Dongwoo Fine Chem

Established: November 2012

Established: August 2017

Japan: Sumitomo Chemical Ehime Works

Locations

China: Sumika Electronic Materials (Xi’an)

Xi’an

Considering capacity expansion

Sumika Electronic Materials (Chongqing)
Decided to make an investment

Hefei
Chongqing

Changzhou

Trends of Sumitomo Chemical’s Sales（Index）

Sumika Electronic Materials(Chongqing) Co., Ltd.

Sumika Electronic Materials(Hefei) Co., Ltd.

400

Products: Processing chemicals for
LCD panels

Products: Processing chemicals for
LCD panels

300

Established: May 2014

Established: October 2009200

The LCD display market and the semiconductor market are
expanding rapidly in China
Penetrate into the Chinese market in a timely manner andincrease sales

10002012 2013 2014 2015 2016

・・・

2021 （FY）(Forecast)38

Create New Value

IT-related Chemicals:

Semiconductor Materials Business 2 — Photoresists
Our Strengths

 Design and mass production technology for raw materials for high-performance photoresist
 Manufacturing, research and sales functions integrated at our Osaka Works, enabling timely

customer response Good relations with leading semiconductor makers

Estimate for our immersion ArF, thick film KrF and i-line resists sales(Index)Sumitomo Chemical’s Share in the Immersion ArF Resist Market

300

Immersion ArF resist

Over 30%

20-30%
250

Increase share by expanding
customer base

200
150
100

Thick film KrF and i-line resists

50

Increase sales for 3D NAND andback-end process

0
2016

2017

2018

2019

2020 (Year)

Expand business by leveraging our capability of responding todiverse needs of customers’ processes
39Business Strategy by Sector
 Petrochemicals & Plastics

 Energy & Functional Materials
 IT-related Chemicals

 Health & Crop Sciences Pharmaceuticals
40Create New Value

Health & Crop Sciences:

Development and Launch of Next-Generation Blockbusters
Pipeline of New Crop Protection and Household andPublic Hygiene Insecticide Products
Time of launchNewproducts(underdevelopment)2013 to 20152016 to 2019

Agricultural
Fungicide
2 compounds(Ethaboxam and
Mandestrobin)

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

Agrochemicals
outside Japan
8 new products

6 new mixtures

Household &Public Hygiene
Insecticide
2 new devices

2020 and after
B2020
Agricultural
Insecticide

A2020
Agricultural Insecticide
1 compound

1 compound

Agricultural Fungicide
1 compound

Agricultural
Fungicides

Agricultural Herbicide*
1 compound

3 compounds

Household & PublicHygiene Insecticides
1 compound

Plant Growth Regulators
and Biorationals

4 products* PPO inhibitor being co-developed by Sumitomo Chemicaland Monsanto with the aim of creating and promoting
a next-generation weed control system

Expected to grow into blockbusters
 Accelerating development—working to shorten the development period by up to one year Future consolidated sales of B2020 products estimated at over ¥100 billion

41

Create New Value

Health & Crop Sciences:

Expanding Alliances with Major Agrochemical Producers Outside Japan
Development Progress for B2020 Fungicides
Applications: Starting in 2018, in stages

New
Fungicides

Features:

1. Highly effective against major plantdiseases
2. Also effective against strains
resistant to existing fungicides

Global Fungicide Market
Cereals
Rice
TubersSoybeans
Grapes
Other

2,933

June 2017: Collaboration with BASF (Worldwide)
5,641

New
Fungicides
for Soybeans

Applications: Starting in the end of 2017, in stages
Features:

Highly effective against major diseases
such as soybean rustJune 2017: Collaboration with Bayer (Brazil)

2015$13,713 2,265
million

837

998

1,039

(Source) Phillips McDougall,
Crop Section (Ex-Distributor)

42

Create New Value

Health & Crop Sciences:

Crop Stress Management
Crop Yield Loss Caused by Abiotic Stress
Corn

-66%

Wheat

Highest yield everachieved-82%

Soybeans

Abiotic losses-69%

Biotic losses

Sorghum

-81%

Oats

Average yield-75%

BarleyYield

Record yield

-75%
0

5,000

10,00015,00020,000 (kg/ha)

Biotic Losses

Abiotic Losses

Loss of yield caused bydiseases, insects, and weeds,
even with crop protection
chemicals used

Loss of yield caused by hightemperatures, drought, lowtemperatures, salinity, etc.

25,000(Source) Buchanan, Gruissem, Jones
Biochemistry and Molecular Biology of Plants / American Society of Plant Physiologists, 2000

43

Create New Value

Health & Crop Sciences:

Expansion of Our Biorational Business
Products
Year

Event

Microbial
Pesticides

Microbial Agricultural
Materials

Plant Growth
Regulators

2000 Purchased biorational businessfrom Abbot Laboratories○○

2014 Began operation of the Osage plant○○○2015 Purchased Mycorrhizal Applications
Started integrated management ofcrop protection chemicals andbiorationals○○

2016 Contracts signed with
LidoChem and Rizobacter○○

Purchased biorational business2017 from Kyowa Hakko Bio●

Established
Biorational Research Center

●

●

●

Pesticides using natural
substances sourced frommicroorganisms

Organisms that help crops
efficiently absorb waterand nutrients in soil
(mycorrhizal fungi, etc.)

Agrochemicals that
contribute to improved
crop quality and yield

Sales for 2015: ¥25.0 billion

Toward ¥45.0 billion by 202044

Create New Value

Health & Crop Sciences:

Expansion of Our Rice Business
Overview of Our Rice Business

Provideseeds

Provide crop protection chemicals and fertilizer
Provide services, including soil analysis, farming counselling,
and management of farming records

Rice production (contracted out to farmers)

Role of producers, including JA and other agricultural companies

Role of the Sumitomo Chemical Group(including collaborating and partnering companies)(Reference) Rice Business Production Volume Trends

2015 (actual)
900 t

2016 (actual)
3,000 t2017 (actual)
8,000 tPurchase
the total
amount ofcontract
farmers’
yield forresale2018 (estimate)
27,600 t

2020 (estimate)
60,000 t

45

Create New Value

Health & Crop Sciences:

Comprehensive Support for Rice Farmers
1. Develop and Provide New Varieties
Conventional
breeding
methodVariety A

Variety B

Better taste

Higher yield

Time to develop a new variety
New Variety C

Time to develop a new variety

DNA marker
breeding
methodProducts that help increase rice productivity

10-15 years

Better taste andhigher yield
3-5 years

MarkerMarkerVariety A

Variety B

Better taste

Higher yield

3. Support Direct Seeding Farming
Transplanting farming

2. Develop and Provide Pesticides
and Fertilizers

Osakini® Rice Paddy Herbicide for Use with
Wet Direct Seeding or Sowing

Rakuichi® , a one-shot basal
fertilizer with lodging reducer for
use in rice paddies

4. Provide a Variety of Services
Precision agriculture services

Direct seeding farming

Information
Seeds

Seeds
(after seed processing)

Producer

Data
Collection

Database

Sumitomo
ChemicalSeedlings

Transplanting

SowingDrones Sensors

Data analysis and forecasting46

Create New Value

Health & Crop Sciences:

Acquisition of A Supplier of Pyrethrum-derived Insecticidal Compounds
Acquisition of Botanical Resources Australia

Pyrethrum cultivated by the BRA Group Business：Production and sale of pyrethrins and others Location： Tasmania, Australia
 Acquired shares：82.9%

Strengths of Botanical Resources Australia
Seed improvement

Cultivation andproduction know-how

Stable supply of high-quality products
Acquisition of production bases in areas
with different climate conditions

Establish stable supply capability
47

Business Strategy by Sector
 Petrochemicals & Plastics

 Energy & Functional Materials
 IT-related Chemicals
 Health & Crop Sciences Pharmaceuticals
48Create New Value

Pharmaceuticals:

Initiatives to Address Post-LATUDA Patent Cliff
Efforts to Strengthen Our Pipeline
Elevation Pharmaceuticals

Boston Biomedical

Indication

Chronic Obstructive
Pulmonary Disease (COPD)

Indication

CancerFeatures

Administered by nebulizer

Features

Cancer stem cell inhibitor

Acquisition

2012

Acquisition

2012

Purchase Price

Up to $400 million

Purchase Price

Up to $2,630 million

Launch Planned

FY2017

Launch Planned

FY2020-2022

Peak Sales (Target)

On the order of ¥50.0 billion

Peak Sales (Target)

On the order of ¥100.0 billion

SUN-101/eFlow® Electronic Nebulizer

Excellent portability;
designed to deliver medicine
to the affected area in 2-3
minutes, as compared with10 minutes for standard
spray-type nebulizers

Summary of the Mechanism of Action of
Napabucasin (BBI608)/ Amcasertib (BBI503)
Existing anti-cancer
treatments
Cancer stem cells survive
Resistance to chemicaltreatment

Napabucasin (BBI608)
Amcasertib (BBI503)
Cancer stem cell inhibitors

Recurrence
Differentiated cancer cells
are formed by inherited
and acquired changes
Show resistance tochemical treatment
Metastasis

49Create New Value

Pharmaceuticals:

Initiatives to Address Post-LATUDA Patent Cliff
Efforts to Strengthen Our Pipeline
Cynapsus Therapeutics

Tolero Pharmaceuticals

Indication“Off” episodes ofParkinson’s Disease

Indication

CancerFeatures

Sublingual thin film

Features

CDK9* inhibitor

Acquisition

2016

Acquisition

2017

Purchase Price

Up to $635 million

Purchase Price

Up to $780 million

Launch Planned

FY2018

Launch Planned

FY2019Peak Sales (Target)

On the order of ¥50.0 billion

Peak Sales (Target)

On the order of ¥50.0 billion

Administration of APL-130277

Summary of Alvocidib’s mechanism of action
Induced apoptosis

Alvocidib
CDK9
Inhibited

The sublingual film delivery system allows easieradministration than existing subcutaneous injection
systems.

Controls theexpression ofanti-apoptosis
genes

Cancer cell
death

Apoptosis: death of an unnecessary or harmful cell following
a program determined by genes within the cell
* Cyclin-dependent kinase 950

Create New Value

Pharmaceuticals:

Regenerative Medicine and Cell Therapy
Regenerative Medicine and Cell Therapy Development Plan
Partnering

Chronic stroke
SanBio(SB623)Development schedule (calendar year)

Region(planned)

Cell typeNorth
America

Allogeneic
MSC

2017

2018

2019

2020~22
Approval target

Ph-IIbPh-III

Approval target

Age-related
maculardegeneration

Healios
RIKEN

Parkinson’s
diseaseKyoto University
CiRA

GlobalAllogeneic
iPS cellInvestigator initiated clinical trial

Retinitis
pigmentosa

RIKEN

GlobalAllogeneic
iPS cellClinical research

Spinal cord
injuryKeio University
Osaka National
HospitalGlobalAllogeneic
iPS cellClinical researchJapan

Allogeneic Clinical research
iPS cellInvestigator or corporate initiated clinical trial** Start of clinical trial, 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 FY2017
51

Initiatives for Maintaining Sustained Growth52

Create New Value

Initiatives for Maintaining Sustained Growth:

Accelerate the Launch of Next-generation Businesses
Time for full-scale diffusion

2015

2020～

☑ Heat-resistant and□ Power semiconductors (epitaxial wafers) □ Thermoelectric conversion materials
thermal-conductive materials
Printed electronics□ Organic thin film photovoltaics☑ PLED lighting devices

Environment
and Energy□ Next-generation separators
Environmentally-friendly automobiles☑ PES (automobile applications and new applications)□ Cathode materials□ S-DPF☑ DPF☑ CO2 separation□ New gas barrier materials□ Next-generation secondary batteries

Flexible displays□ Multi-functional materials and components□Flexible□ Barrier film
touchscreen□ Window film
□ Liquid crystal coated polarizing film
panels☑ Liquid crystal coated retardation film
☑ Next-generation
Printed electronics
polarizing film
☑ OLED displays (light-emitting materials)□ Organic semiconductors□
Biosensors☑ Optical encapsulant□ OPD☑ Film-type
touchscreen
panelsＩＣＴ

Innovative agricultural solutions☑ Rice variety
development

Life Science□ Development of
new rice varieties☑ Expand mycorrhiza technology business☑ Blockbuster crop protection(including mycorrhizal fungi)
chemicals (B2020)☑ Chemicals safetyassessment anddrug development using
ES and iPS cells□Crop stressmanagement□ Blockbuster
crop protection
chemicals (A2020)

Next-generation medical technology□ Cellular medicine☑ Contract manufacture of active ingredients for □ Regenerative medicine
nucleic acid medicine□ New PET diagnostic agents□ Cancer stem sell inhibitors（brain tumor）☑ New PET diagnostic agents（Alzheimer’s）✔: Next-generation businesses that have been launched or are to be launched soon.

✔: Next-generation businesses that have been launched or
are to be launched soon during this Corporate Business Plan.

53

Create New Value

Initiatives for Maintaining Sustained Growth:Technological Revolution in Biotechnology
Green Bio

White Bio

(Food and plant-related)(Industry and energy-related)Blue Bio(Ocean-related)

Applicable fields forbiotechnology
Grey Bio(Environment-related)

Technological revolution inbiotechnology
Advance of
IT/AI Technology

Reducedcost and timeforgenomesequencing

The advent ofgenome editing
technologies

Fusion of
Biotechnology and Digital Technology

Red Bio(Medical andhealth-related)

Maximal Utilization of
Biological Functions
54

Create New Value

Initiatives for Maintaining Sustained Growth:Expansion of Healthcare Businesses
Red Bio

Nucleic Acid Medicine
Summary ofFurther Investment in Bonac Amount:

Approx. 4.0 billion yen

How Bonac’s Nucleic Acid Medicine WorksDNA

ProteinmRNA

 Percentage: 19.55% (after this investment) Completion: September 25, 2017

Transcription

Translation

Biological
Response

Regulation

Bonac’s Nucleic Acid Medicine
Action: Regulation of mRNA breakdown and translation

Synergies Expected within the Sumitomo Chemical Group
Discovery

Bonac
Sumitomo Chemical
Nihon Medi-Physics
Sumitomo
Dainippon Pharma

Pre-Clinical

Clinical Trials

LaunchDiscovery and licensing of
nucleic acid medicine candidates

Active pharmaceutical ingredient manufacturing and sales
Clinical support(in-vivo pharmacokinetic analysis)

Clinical development and sales

55Create New Value

Initiatives for Maintaining Sustained Growth:Expansion of Healthcare Businesses
Red Bio

Theranostics
Theranostics=

Therapeutics

Diagnostics

Antibody

Horizontal Integration

Diagnosti RI
Ex. 18F

Utilize the identicalcore structure(including molecules
and antibodies)

UnifiedCore Structure

RI
Diagnostic
Agent

Solid Tumors

PeptideTreatment RI

RI
Medicine

Ex. 225Ac

Selectively deliver
both diagnostic agentsand medicine tothe affected area

Step 1:
Diagnosti RI

Step 2:Treatment RI

Scope of Nihon Medi-Physics’ business
56

Create New Value

Initiatives for Maintaining Sustained Growth:Applications of Biotechnology
Grey Bio

Green Bio

Advancing Wastewater Bio-Processing

Increased

Past
CO2
Incineration
treatment
Wastewater¥
Bio
processing

Development of Plant Phenotyping Technology
Administering agriculturalchemicals and materials
under abiotic stresses

High temp./dry

Low temp.

Joint Research
Purdue University
 Developing diagnostic imaging

Metagenome Analysis(Understanding andmanaging the activities of
microorganisms)

technology for above ground
portions of crops

Expandingthe use of
bio-processing

Danforth Center
ReducedCurrent

 Diagnostic imaging technology

for roots, using x-rays

CO2

 Accelerating the selection of candidate

Incineration
treatment

Bioprocessing

Expanded

Wastewater¥compounds and materials
 Identifying optimal formulation andapplication methods

Accelerating the development of agriculturalchemicals and materials that effectively promote
crop growth in a stressful environment
57

Create New Value

Initiatives for Maintaining Sustained Growth:

IoT Project

Digital Plant
Increase efficiency in plantmaintenance and operation

Digital R&D
Speed upthe R&D process

AI

IoT

Digital Marketing

Evolution of ICT

Digital Back Office
Increase efficiency inoffice work and transform
our workstyles*BD: Big Data

Promote more efficient,more effective
sales and marketing

BD*

Digital Global SCM
Achieve real-time visualizationof more in-depth global supply
chain information

58

Create New Value

Initiatives for Maintaining Sustained Growth:

Digital Plant
Current
Status

Policies
 Digitalization of maintenance records

Expected and Actual Results Increased efficiency in maintenance work
 Improved accuracy of maintenance records
 Increased quality of maintenance work

Deployed
Efficiency,
accuracy and quality

UP Building optimal models forfacilities operation

 Increased energy efficiency(reduced environmental burden) Building predictive models for facilities life Facilities renewed at appropriate times

 Building predictive models for Appropriate preventative maintenanceproduct quality

measures (stable product quality)

Increased efficiency in plant maintenance andoperation using IoT technology
59

Initiatives for Maintaining Sustained Growth:Create New Value

SDGs

Second Annual Sustainable Tree Launched
An initiative in which employees post on a dedicated website
what they can do to build a world with hope for the future

Difference fromlast year

Propose initiatives for contributing to
the SDGs through businessTime period: 100 days from June to October, 2017
Participants: Employees of all Group companies
Submissions: 9,099 (as of the end of the campaign)

Reference:
The only company mentioned in the 2017 MOE Annual Report
Sumitomo Chemical is the only company mentioned in the 2017 issue ofthe Annual Report on the Environment, the Ministry of the Environment ofJapan, as an example of “Actions by the Private Sector.”
URL http://www.env.go.jp/en/wpaper/2017/pdf/2017_all.pdf
Attachment: PDF (7 pages)

60Create New Value
Initiatives for Maintaining Sustained Growth:

Promoting the Spread of Environmentally Friendly Products and Climate Change Countermeasures

Sumika Sustainable Solutions
Sales of Designated Products and Technologies

Sumitomo Chemical has signed the
Recommendations on Climate-related
Financial Disclosures, published by TCFD.*(Billions of yen)
600
500

Second Round

Recommendations on
Climate-related Disclosures

DoubleFirst Round

Date: June 2017
Participating Companies:
Sumitomo Chemical and Kokusai Kogyo fromJapan; about 100 companies from around theworld.

400
300
200
100
0
2015

2016

2018

2020

(FY)

(Reference)Contribution to reductions of greenhouse gas emissions:approx. 53 million tons (CO2 equivalent, projected value)
by FY2020* TCFD: Task Force on Climate-related Financial Disclosures,
established by the Financial Stability Board

Promote the development and spread of environmentally friendly
products, while also enhancing information disclosure
61

Conclusion

62

Create New Value

Sumitomo Chemical’s Value Creation
Further Growth

Improve ROI

Focus resources on the three growth areas andcross-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 robust relationships
with stakeholders

Improve the effectivenessof governance

Towards achieving continuous value creation
63

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

Solve issues facing society
Improve quality of life and build
an affluent and comfortable society

Capabilities to reachglobal markets

Loyal employees

 Environment

 Resources and energy Food Health promotion

 Comfortable life

Achieve sustained growth by creating new value
through innovative technologies

64Create New Value

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.

65