Change and Innovation

Create New Value

Current Priority
Management Issues andBusiness Strategy
November 27, 2018
Current Priority Management Issues and Business Strategy

Masakazu Tokura
President
1- 1 -

Contents
Create New Value

Performance Trends

3-6

Progress on
Corporate Business Plan (Overall) 7-18
Business Strategy and Topics(by Sector)

Direction of
Future Business Strategy

Current Priority Management Issues and Business Strategy

19-39
40-59

2- 2 -

Performance Trends

Current Priority Management Issues and Business Strategy

3Create New ValueFY2018 1H vs. FY2017 1H(Billions of yen)

FY20171H

FY2018
1H

ChangeSales Revenue

1,040.3

1,122.1

+81.8

Core
Operating Income

127.0

102.1

-24.9

Operating Income(IFRS)

136.1

91.9

-44.2

Net Income
Attributable to Owners of
the Parent

77.1

61.5

-15.6

Naphtha Price¥37,600/kl¥51,100/kl

Exchange Rate

¥111.04/$¥110.26/$

Current Priority Management Issues and Business Strategy

4Create New ValueFY2018 1H Core Operating Income by Sector vs. FY2017 1H(Billions of yen)

FY20171H

FY2018
1H

ChangeSpecialty Chemicals

85.9

69.4

-16.5

Energy & Functional
Materials

10.3

12.8

+2.5

Sales increase of separators

IT-related Chemicals

9.0

14.8

+5.8

Health & Crop Sciences

8.4

2.5

-5.9

Pharmaceuticals

58.1

39.3

-18.9

Sales increase ofpolarizing films
Loss on equity method in
NufarmTemporary gains on
the transfer of business in
FY2017

Bulk Chemicals

41.9

35.4

-6.5

Petrochemicals &Plastics

41.9

35.4

-6.5

Others

-0.7

-2.7

-2.0

127.0

102.1

-24.9

Core Operating Income

Current Priority Management Issues and Business Strategy

Reasons for Change

Implementation of periodical
maintenance shutdowns in
FY20185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.
(¥)

Interim dividend (left axis)

Year-end dividend (left axis)

Commemorative dividend (left axis)

Net income attributable to owners of the parent (right axis)(¥Billion)

25

200
12
11
133.8 130.0

20
15

120
90.7

10

5
0

160

3

3

3

64.5
2

34.3 330.2 31.1
3
3
3
3

93.9
6
4

2
6
63.1

7
6

5

85.5

81.5
3

3
6

6

6

14.7 324.4 6

5.6

3

0

3

6

6 37.0 6

52.2

80
6

7

6

7

11

10

0

0

-5

-40

-51.1

-59.2

40

-10

-80
2001

2002

2003

2004

2005

2006

2007

2008

2009

J-GAAP

2010

2011

2012

2013

2014

2015

2016

2017

2018

(Forecast)

(FY)

IFRS

* J-GAAP used through FY2016, IFRS adopted from FY2017.

Current Priority Management Issues and Business Strategy

6Progress on Corporate Business Plan (Overall)Current Priority Management Issues and Business Strategy

7Create New Value

Corporate Business Plan: Basic Policy
Last 10 Years

Where We Are
Enhance financial strength

Pave the way for
future growth(Tackle three priority
management issues)
Implemented Rabigh Project
Launched DSP and
acquired Sepracor/BBI

Improve
profitability

Rigorously
selectinvestments

Improveasset
efficiency

Restructure businesses
Exit
underperforming
businesses

Established and expanded
IT-related Chemicals Sector

Improvebusiness
portfolio

Where We Are Going
Further improve business 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

Life Sciences

ICT

Crossover areas

Promote globally integrated management

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

8Create New ValueFY2018 Forecast vs. FY2018 Target(Billions of yen)

FY2018
Forecast

FY2018TargetChange2,490.0

2,540.0

-50.0

Core
Operating Income
Operating Income(IFRS)

240.0

240.0

±0

205.0

190.0

+15.0

Net Income attributableto owners of the parent

130.0

110.0

+20.0

Naphtha Price¥47,000/kl¥45,000/kl

Exchange Rate

¥110.00/$¥120.00/$

Sales Revenue* Forecast and target both based on IFRSCurrent Priority Management Issues and Business Strategy

9Create New Value
Corporate Business Plan:

Medium- to Long-term vs. FY2018 Performance Targets

FY2018
Forecast

FY2018
Corporate
Business Plan

Medium- to
Long-term Targets
Consistently achieve
the following targets:

ROE

13.4%

12%

over 10%

ROI

7.4%

7%

over 7%

approx. 0.7 times

0.6-0.7 times*

approx. 0.7 times

D/E Ratio

Dividend Payout Ratio

28%-

approx. 30%

Profit Growth--over 7% per year

* Including the effects of strategic M&A investments

Current Priority Management Issues and Business Strategy

10Create New Value

Capital Expenditure and Investment Forecast for FY2016-FY2018 (decision-making basis)(¥ Billion)

Capital expenditure and investment

Strategic M&A

800
700
600
500

More than half ofthe planned expenditureand investment for
FY2016-FY2018
decided during FY2016

Up to¥300 billion

400
300
200
100
0
FY2016FY2017

Current Priority Management Issues and Business Strategy

FY2018FY2016-2018 Total

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

11

Create New Value

Capital Expenditure and Investment Plan for FY2016-FY2018 (decision-making basis)
Energy & Functional Materials

Pharmaceuticals□ Expand separator production capacity□ Entered cathode materials business□ Acquired Parkinson’s disease treatment□ Acquired a leukemia treatment, among others

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

Petrochemicals& Plastics

Approx.

Specialty chemicals
account for: 75%¥690bnHealth & Crop Sciences

IT-related Chemicals□Expanded touchscreen
panel production capacity□ Built and expanded
semiconductor materials
production capacity□ Flexible display materials
Current Priority Management Issues and Business Strategy□ Increase methionine
production capacity□ Acquired Indian agrochemicals
company, Excel Crop Care Ltd.
□ Acquired insecticidal compounds
manufacturer Botanical Resource
Australia Group□ Expanded R&D
12

Create New Value

Research and Development Expenses Plan for FY2016-FY2018
Energy & Functional Materials□ Battery materials

Petrochemicals& Plastics

IT-related Chemicals□ Flexible display
materials□ Compound
semiconductors

GeneralEstimated R&D Expenses for
FY2016-FY2018

Approx.

Specialty chemicals
account for: 90%¥490bnPharmaceuticals

Health & Crop Sciences□ Next-generation blockbuster
crop protection chemicals□ New rice varieties□ Active ingredients fornucleic acid medicines
Current Priority Management Issues and Business Strategy□ Napabucasin / Amcasertib（Cancer stemness inhibitor）□ Dasotraline（Treatment for attention-deficit hyperactivity
disorder (ADHD)/binge eating disorder (BED)）□ LONHALA® MAGNAIR®
（Treatment for chronic obstructive pulmonary
disease (COPD)）

13

Create New Value

Major Investments and Commercialization Schedule (Overall)
Investments
Investment Total
Rabigh Phase II Project

Building and expansion ofheat-resistant separator
plantsCorporate Business Plan
for FY2019 to FY2021

Corporate Business Plan
for FY2016 to FY2018
2016

2017

2019

2020

2021

Growth in a wide range of industries,
particularly in Asia

$9.1 billion USD(PRC’s total investment)

Approx.
25 billion yen

2018

Growth of the electric vehicle andenergy storage system markets(Expansion)

Growing demand for aircraft and automotive structural materials
and high performance membranes

Expansion ofpolyethersulfone
production capacity

A few billion yen

Expansion offlexible touchscreen panel
production facilities

Approx.
9 billion yen

New plants for high-purity
semiconductor chemicals(Xi’an and Changzhou, China)

A few billion yen
each

Growth of the semiconductor market

Increase of stake in Chinese
polarizing film manufacturingsubsidiary(Non-disclosure)

Growing demand for polarizing film in China

Expansion of methionine
production capacity

Approx.
50 billion yen

Growing methionine demand(increasing global population/
growing demand for meat)■ Petrochemicals & Plastics ■ Energy & Functional Materials■ IT-related Chemicals ■ Health & Crop Sciences■ Pharmaceuticals

Current Priority Management Issues and Business Strategy

Shift of smartphone screens to OLED and flexible screens: Investment decision made14

Create New Value

Major Investments and Commercialization Schedule (Overall)Corporate Business Plan for FY2016 to FY2018 Corporate Business Plan for FY2019 to FY2021

Investment Total

2016

2017

2018

2019

2020

2021

Research and development
facilities （Brazil, North
America, and Takarazuka）

Approx.
10 billion yen

Construction of new LNG
thermal power plant

Approx.
35 billion yen*1

Construction of regenerative
medicine and cell therapy
manufacturing plant

Approx.
3.6 billion yen

Building a GMP production framework/
Manufacturing allogeneic iPS cell-derived products

Acquisition of
Excel Crop Care

Approx.
13.9 billion yen

High growth in India’s agrochemicals market(Expansion of food production driven by population growth)

Acquired
Botanical Resources
Australia Groupundisclosed

Growing demand for insecticides for crop protection andhousehold, vector control applications.

Acquisition of
Cynapsus Theruapeutics

Approx.
66 billion yen

Improved convenience for patients(film formulation to replace administration by injection)

Acquisition ofTolero Pharmaceuticals

Approx.
23.6 billion yen

Accelerating discovery and development of
new crop protection chemicals
Reducing environmental burden throughfuel and raw material conversion

Acquisitions

Providing options for treatment ofrefractory acute myeloid leukemia(upfront payment)*2■ Petrochemicals & Plastics ■ Energy & Functional Materials■ IT-related Chemicals ■ Health & Crop Sciences■ Pharmaceuticals

Current Priority Management Issues and Business Strategy: Investment decision made*1 Including power plant construction expenses and investment in the complex*2 Not including payments for development and sales milestones

15Create New Value

Change in Business Portfolio
Change in core operating income and its composition*Through FY2015: sum of operating income and equity in earnings of affiliates under J-GAAP.

New record high(¥ billion)

2,627

300
250

1,847

Core Operating Income*

200

2,400

150
100
50
0
(50)

2005

2006

2007

Specialty
Chemicals

Bulk Chemicals

26%
FY2015

74%

2008

2009

2010

2011

2012

2013

2014

Specialty
Chemicals

Bulk Chemicals

36%
FY2017

65%

2015

2016

Bulk Chemicals

26%
FY201820172018 (FY)（Forecast）

Specialty
Chemicals

74%

Steady increase in profitability of specialty chemicals businessCurrent Priority Management Issues and Business Strategy

16

Create New Value

Changes in Our Business Portfolio
Changes in Asset Structure*
100%
90%

Total assets of
Bulk Chemicals
business

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

2018 (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
Current Priority Management Issues and Business Strategy

17Create New ValueManagement of Cash Flow
（Billions of yen）

Trends of Interest-bearing Liabilities and D/E Ratio

1,600（times）
1.6

Interest-bearing liabilities (left axis)
1,400

Debt to Equity ratio (right axis)

1.4

1,200

1.2

1,000

1.0

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 2018
(Forecast) *2*1*1 J-GAAP used through FY2016, IFRS adopted from FY2017.
Information for FY2016 restated in accordance with IFRS.
*2 Including investment in Rabigh Phase II ProjectCurrent Priority Management Issues and Business Strategy(End of the fiscal year)18Business Strategy and Topics (by Sector)

Current Priority Management Issues and Business Strategy

19Create New Value

Petrochemicals & Plastics: Challenges and Business Strategy and Progress Status

Challenges□ Maintain a high operating rate at Petro Rabigh□ Enhance high value-added business in Singapore

Business Strategy
Rabigh Phase I Project:
Stable operation

Progress Status
 Maintaining high and stable operation (since Q2 2017)

Rabigh Phase II Project:

Construction andstart of operation

Enhancehigh value-added
business

Restructurebusinesses
Current Priority Management Issues and Business Strategy

 Shipment started for all products

 Modified polypropylene lines(from automotive use to food packaging use)
 Launched polypropylene for separators (TPC) Enhanced polypropylene compounding capacity(capacity expansion in the US and China,
new facilities constructed in India)
 Restructuring of caprolactam business(under consideration)
20

Create New Value
Petrochemicals & Plastics:

Expanding the Technology Licensing BusinessLine-up of technologies available forlicensing
PO-only Process(Cumene PO-only Process) No byproducts
 Higher yields impact, lower environmental

Licensee facilities steadily increasing
（KTA）

1,400
PO-only Process
1,200

Hydrochloric acid oxidation process

1,000 Significantly saves energy Recycling by-product into raw materials

800

Others Technologies
LLDPE● MMA / PMMA●LDPE（EVA）● EPDM●

600

PP● C4’s●

Decision to Enhance
Catalyst Production Capacity
Start of operations

Hydrochloric acidoxidation process

400
200

PE・PP Catalyst

PO Catalyst

Q1 FY2019

Q3 FY20190
11 12 13 14 15 16 17 18 19 20 21 22 23 (CY)

Expand technology licensing and→ Achieve stable revenue
catalyst sales businessCurrent Priority Management Issues and Business Strategy

21

Create New Value
Petrochemicals & Plastics:

Rabigh Phase II Project

Progress of the Phase II Project

As of November 2018
Currently preparing
for full operation

March 2018

2019

・・・

Commercial operation
planed to start

All products compliedwith specifications
End of 2017

Commissioning
2017

Construction completed
Naphtha reformer

Aromatics plant

Configuration（Capacity 1,000t/year）

Phase I

Phase II Project
Paraxylene/Benzene

Oil refining
facilities

EthaneCracker

NaphthaNaphthareformer

Propylene（900→1,100）

Ethylene（1,300→1,600）

Current Priority Management Issues and Business Strategy（1,300/400）

Nylone-6(75)

Phenol/Acetone（250/150）

EPDM/TPO（70/10）
EVA/LDPE（70/80）

MMA/PMMA（90/50）22

Create New Value

Energy & Functional Materials: Challenges and Business Strategy/Progress

Challenges□ Develop the battery materials business into
a core business□ Build eco-friendly car components businessBusiness Strategy
Enhance the lineup
of battery materials
and increase
production capacity

Progress Entered cathode materials business(Acquired a majority stake in Tanaka Chemical Corp.)
 Expand separator production capacity(Production capacity: 100 million m2/year to 400 million m2/year)

Expand the use of
our existing products
in eco-friendly carcomponents

 Expanded PES production capacity(Production capacity: 3,000t/year to 6,000t/year)
 PES adopted for use in engine control valves

Restructure
underperforming
businesses Decided to exit the DPF business Restructured S-SBR business(Established ZS Elastomer Co., Ltd.)

Current Priority Management Issues and Business Strategy

23

Create New Value
Energy & Functional Materials:

Expand the Lithium-ion Secondary Battery Separators Business
Studying possible production capacity
expansion in South Korea (Daegu)

Separator Production Capacity
Currently studying thenext phase of
expansion in response
to growing demand

Separator Market Trend
Amount (left axis)

Volume (right axis)(Billions of yen)

(Millions of m2)

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

400 Million m2

18,000

South
Korea

12,000200 Million m2
6,000

Japan

0
2016 2017 2018 2019 2020 2025 2030
(Estimate)(Forecast)

Phase I
CY2016～

Phase II
CY2017～

Phase III

(Source) “Future Outlook of Energy, Large Scale Secondary Battery, andMaterials 2018; Energy Devices” by Fuji Keizai

Initiatives to Expand Business Responding to existing customers’ increasing demand Adopted by new customers in Japan

 Currently working with prospective customers outside
Japan, primarily in China and Europe

SSLM Co., Ltd.

Quickly responding to increasing demand of new and existing customers
Current Priority Management Issues and Business Strategy

24

Create New Value
Energy & Functional Materials:

Expansion of Liquid Crystal Polymer (LCP) business
LCP for Supporting Next-Generation Mobile
Telecommunications (5G) Society

Trends in high-frequency substrate materials market(thousands of ㎡)

Characteristics ofHigh-Frequency Materials Required by 5G

12,000

 Low permittivity/low dielectric loss tangent

8,000

 Low water absorption(under high temperature and high humidity)

6,000

10,000

LCP

4,000
2,000

The characteristics of LCP well matchthese requirements.

02017 2018 2019 2020 2021 2022 2023 2024 2025 (CY)■Millimeter-wave automotive radar■Next-generation (5G) communications ■Others

Our product lineup
Melt type with excellent processability
Solution type most suitable for thin film

Firmly seize business opportunities in next-generation high-speed communications
Current Priority Management Issues and Business Strategy

25

Create New Value
IT-related Chemicals: Challenges and Business Strategy/Progress on Strategic Initiatives

Challenges

 Develop and launch new materials supporting
the advance of display technology
 Strengthen the foundations of Sumitomo Chemical’s
semiconductor materials business, which is expected to growon the back of digital transformation

Business Strategy

Progress

ExpandOLED materials andcomponents business Expanded sales of circularly polarizing film
 Launched and expanded applications forliquid crystal coated-type polarizing film
 Enhanced production capacity for touchscreen panels (Glass, Film) Full-scale launch of polymer OLED materials business(acquired new shares in JOLED)

Accelerate
the development offlexible display materials
and components

 Studied mass production of window film
 Development of multi-functional materials and components inprogress

Optimize
production capabilities

 Expanded production capacity for photoresists(Osaka Works, Dongwoo Fine-Chem)
 Expand and strengthen production capacities forhigh-performance chemicals in China (Xi’an, Changzhou)(for photoresists, high-purity
chemicals and other highperformance materials)

Current Priority Management Issues and Business Strategy

26

Create New Value

IT-related Chemicals: Business Development for Medium-size Displays Applications

Full-scale Launch of Polymer OLED Materials Business
JOLED’s Nomi Site

Capital Raise

TargetMedium-size displays（10 to 32 Inch）

Capital raise by share placement

Subscriber

Billions of
yen

DENSO

30

Toyota Tsusho

10

Sumitomo
Chemical5

Screen Finetech
Solutions

2

Total

47

Start operation in 2020

Construction of
printed OLED display
commercial production line

To supply our polymer
OLED materials

High-end monitors

Anticipating printed OLED displays will be used in a wider range ofapplications such as automotive use
Current Priority Management Issues and Business Strategy

27

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
Total investment:
2.6 trillion won*

Substrate size: Gen. 10.5
Total investment:
2.8 trillion won*

* LG Display invested 70% of
the total investment.

* For TFT substrate production
equipment only

Advantages of the Printing Method forPolymer OLEDs
Manufacturing process
RGB Printing Method

White Vapor-Deposition
MethodIn a vacuum

Expansion of White-OLED

Expansion of OLED
(W-OLED, Printed OLED*)
Mask* Started evaluation of devices
equipped with printed OLED(Millions of units)

20.0
15.0

White
OLED

Vapor
deposition
sourceOLED TV Market
Printed OLED
method

10.0
5.0
0.0

Light-emitting material

Advantages
No expensive masking required High material-use efficiency
 Excellent resolution (8K)2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

（CY)
Data based on IHS Markit, Technology Group, Display Long-term Demand Forecast Tool, Q2 2018.
Results are not an endorsement of Sumitomo Chemical. Any reliance on these results is at the third party’s own risk. Visit
technology.ihs.com for more details.

Commercial production expected to start as early as in FY2019
Current Priority Management Issues and Business Strategy

28

Create New Value

IT-related Chemicals:Compound Semiconductor Business Development for Automotive Applications
Growing Demand for GaAs epiwafer
for Use in VCSEL* 3D Sensors
GaAs epiwafer
p-metal contactoxide aperture
Q.W.

VCSEL Wafer Market
1000 units, 6inch equivalent
700
600
500
400
300
200
100
0

Light Output
Pad-metalp-DBR

Polyimiden-DBR
Substrate
n-metal contact* Vertical Cavity Surface Emitting Laser

Smartphones

Automobiles

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
（CY)

(Souce) Daiwa Capital Markets, June 2018

VCSEL applications
Present

Smartphone, 3D imaging(face authentication) andothersFutureAutomotive applications＋

Driver Attentive
Eye openess
Blinks per minute
Gaze vector＋

Driver monitoring

Driving support

Autonomous driving

GaAs epiwafer market expected to expand driving by demand growth in automotive applications
Current Priority Management Issues and Business Strategy

29

Create New Value

Major Products in the Mobility Sector *Including projects under development
Front Window, Roof Materials

Products of Petrochemicals & Plastics Sector

Developed PMMA-based transparent resin

Products of Energy & Functional Materials Sector
Products of IT-related Chemicals SectorResins

Aluminum Electrodeposition Paint

 PP

Super Engineering Plastics
 PES
 LCP

 PP compounds

Lithium-ion Battery Materials

 TPE

 Separators

 PMMA Cathode materials

 ABS

 High purity alumina

 EPDM

GaAs epiwafers (for VCSEL)

Current Priority Management Issues and Business Strategy

Display materials

Tire-related products

 Polarizing films

 Resorcinol

 Polymer OLED materials

 S-SBR30

Create New Value

Health & Crop Sciences:

Challenges and Business Strategy/Progress on Strategic Initiatives
課題
Challenges

Build a global business foundation as a solutions provider
in crop protection and environmental health businesses

Business Strategy

Progress

Enhanceour global footprint Acquired Excel Crop Care Ltd.,an Indian agrochemicals company, which will merge with
Sumitomo Chemical India

Accelerate
development of
new products(B2020, A2020)

 Development of B2020 in progress（Registration applications filed for a product）
 Alliances with major agrochemical companies
 Expanding R&D facilities and test fields

Expandour differentiatedbusinesses（biorational andrice businesses)

 Acquired a plant growth regulator businessfrom Kyowa Hakko Bio.
 Acquired Botanical Resources Australia Group Entered into the rice business

Expandmethionine business Commercial production begun at our new plant Expand sales through collaboration with ITOCHU

Current Priority Management Issues and Business Strategy

31Create New Value
Health & Crop Sciences:Strengthening Crop Protection Business India

Merger of Excel Crop Care Ltd. and Sumitomo Chemical India
Growth of India’s crop protection market

ECC

SC India

Growing at approx. 6%
per annum
6th largest market in the world

 Strong sales channel in Strong sales channel in（Millions of USD）

3,500
2,800
2,100
1,400
700
0

2010

2015

Aiming to become
the market leader
in India by 2020
（Millions of USD）

300
250
200
150
100
50
0

northwest India
 Sales channels toover 4,700 wholesalers Three production bases
 Broad product portfolio
2022 (Year)

2017

Crop protection market
by Company in India
2nd largest whencombined (2016)

Profile of the new company
The surviving company：Sumitomo Chemical India
Sumitomo Chemical’s shareholding ratio: 75% after listing
To be merged in 2019ECC

SC India

Major synergies

252
180

southeast India
 Sales channels toover 9,000 wholesalers Two production bases
 Strong sales inthe specialty area

144

90

90

90
Bayer

RallisDhanuka

Dow

UnitedPhosphorus

SCIPL + ECC

Syngenta

SCIPL + ECC(Source) Phillips McDougall

Sales expansion byleveraging the
Launch andrespective companies’ promotion ofsales channels and mixture products
product portfolios

Establish
a global production
network

Contribute significantly to increasing our presence inthe fast growing crop protection market in India
Current Priority Management Issues and Business Strategy

32Create New Value
Health & Crop Sciences:

Progress in Pipeline Development

B2020
Compound
INDIFLINTM(inpyrfluxam)

PAVECTOTM(methyltetraprole)

ALLESTM(oxazosulfyl)

Product Name
Undecided(pyridaclomethyl)

Use
Agricultural fungicide
e.g. Soybean rust
Agricultural fungicide
e.g. Septoria
Agricultural insecticide
e.g. Major rice pests etc.
Agricultural fungicide
e.g. Field crop and vegetable diseases

Evaluation

Full-scale
development

Registration

 Completed

 Submitted
in 2017

 Completed

 Submitted
in 2018
 Plan to submit
in Q1 2019

 Completed
 Completed

A2020
Pipeline A

Next generation herbicide effective
against weeds having resistance issue

Pipeline B

Agricultural plant growth regulator

Full-scale developmentin progress

Pipeline C

Botanical insecticide for agriculture andhousehold hygiene

Full-scale developmentin progress

Pipeline D

Agricultural insecticide to control
insecticide-resistant pests

Full-scale development
startedEvaluation inprogress

Business Potential: approx. ¥150-200 billion
Current Priority Management Issues and Business Strategy

33

Create New Value
Health & Crop Sciences:

Expansion of Our Biorational Business

Expansion of our Biorational Business

Biorationals Market
Annualgrowing rate

Year

TopicsMarket size

2000

Purchased microbial pesticides business from
Abbott laboratories→ Established Valent Biosciences (VBC)

For agricultural use:
¥50 billion

2014

Built Valent Biosciences LLC, Osage Plant (Iowa)

2015

Purchased Mycorrhizal Applications

2016

Signed two agreements on licensing,development and commercialization cooperation
with Lidochem and with Rizobacter

2017

Purchased biorational business from
Kyowa Hakko Bio

2018

Built Biorational Research Center

Microbial
pesticides

For household andpublic hygiene:¥11.7 billion

9-11%

Plant growth
regulators¥33 billion

3-5%

Biorational
rhizosphere¥28 billion

10-12%

Total sales ofour biorational business¥45 billion¥26 billion
2017
Current Priority Management Issues and Business Strategy

2020

34

Create New Value

Pharmaceuticals: Progress on Strategic Initiatives□ Sustained growth after the LATUDA business transition period

Challenges □ Manage the effect of public policy measures to promote
the use of generic drugs
Business Strategy

Progress

In-license and acquire
third-party products
under development

 Launched COPD treatments (Peak revenue: Approx. 50 billion yen)
 NDA field for Parkinson’s treatment(Peak revenue: Approx. 50 billion yen)

Accelerate
the development of
products inlate-stage development

 Acquired Cynapsus Therapeutics (Parkinson’s treatment) Acquired Tolero Pharmaceuticals (hematologic cancer treatment) Acquired the license for diabetes treatment Imeglimin

Accelerate
the development ofregenerative andcellular medicine

 Began operation of the regenerative medicine and cell therapy
manufacturing plant Began physician-initiated clinical trials for
Parkinson’s disease treatment

Reform the structure of
our pharma businessin Japan Implemented an early retirement program in Japan(Sumitomo Dainippon Pharma) Established the Japan Business Unit as a cross-functional
virtual organization for strengthening domestic businessCurrent Priority Management Issues and Business Strategy

35

Create New Value
Pharmaceuticals: Initiatives in Regenerative Medicine & Cell Therapy Business
Proposed indication,
etc.

Partnering

Region(planned)

Clinical research/
Clinical study

Chronic stroke(SB623)

SanBioNorth
AmericaPhase 2b study
in progress*1

AMD(age-related maculardegeneration)

Healios
RIKEN

Japan

Preparing forclinical study

Parkinson’s disease(Designated as a
"SAKIGAKE")

Kyoto Univ
CiRA

GlobalClinical study started
august 2018

Retinitis pigmentosa

RIKEN

GlobalPreparing forclinical research

Spinal cord injury

Keio Univ
Osaka National
HospitalGlobalPreparing forclinical research

World’s First Commercial
Manufacturing Facility for
Allogenic iPS Cell-derived
Medicines”SMaRT”
Aim tolaunch in
FY2022*2*1 Planning to conduct Phase 3 study, but aiming to apply for accelerated approval,
depending on Phase 2b study results.

 GMP Compliant
 Closed production lines* forall processes Independent HVAC systems foreach production zone

* Raw materials and products are not exposed to theoutside environment (non-sterile environment)*2 Launch schedule is based on our plan and not agreed on by partners.

• Advance development of fiveprojects in Japan and the U.S.
a GMP production
1st Stage • Build
framework(early 2020s)• Continue striving fornext-generation technologies

2nd Stage(late 2020s)• Launch a product inJapan and the U.S.
• Enhance and expand
next-generation pipeline• Commence full-fledged
3rd Stage commercialization of multiple(around 2030) products in Japan and the U.S.
• Roll out new businesses

Expected to grow into a core business of the Pharmaceuticals sector by 2030
Current Priority Management Issues and Business Strategy

36Create New Value

Status of LATUDA® ANDA litigations (U.S. Patent No.9,815,827 / 9,907,794)
 Litigations filed in February 2018
Focused efforts concerning ‘827 patent, while reserving the right to dispute the court’s
construction of claim and assert infringement regarding ‘794 patent in an appeal
 Claim construction ruling (Markman Ruling) issued by the court on October 5, 2018
 Preparing for the trial, expected to be an intensive one for a week in late November to early
December 2018
In parallel with the preparation for the trial, the court has required that, under its direction,
DSP/Sunovion participate in separate settlement negotiation with each defendant Number of defendants has been reduced from the original 16 defendants to 10 defendants(as of October 29, EST), thanks to settlement efforts made so far

 Litigations newly filed after May 2018
 Subsequent to May 2018, we filed, similarly to the above February litigation, three additional
lawsuits to assert ‘827 and ‘794 patents (one filing each in August, September and October)against three generic manufacturers who newly filed ANDA The trial schedule of the February litigations not affected by these new litigations, as theselitigations proceed independently of the above February litigations(Source) Dainippon Sumitomo Pharma Investors Meeting Presentation for Q2 FY2018 presented on October 30, 2018

Current Priority Management Issues and Business Strategy

37

Create New Value
Pharmaceuticals:

Initiatives in Nucleic Acid Medicine

Nucleic Acid Medicine

DNA

Next-generation treatment following
small molecule pharmaceuticals andbiopharmaceuticals, such as antibody drugs

ProteinmRNA

Biological
Response

Regulation

Transcription
ActionBonac nucleic acid
Action: Regulation of mRNA breakdown and translation

Sumitomo
Chemical

Bonac
Equity investment
andbusiness alliance

Uniquenucleic acidplatformDrugdevelopment
Manufacturing ofactive ingredients
Medicalexaminations
Safety evaluation

Current Priority Management Issues and Business Strategy

NewsPhase I clinical trials have begun for nucleic
acid medicine TRK-250 (idiopathic pulmonary
fibrosis treatment), jointly developed by
Bonac and Toray Industries.
SC is to supply
the active ingredient Compliant with GMP
 High yield Scalable

Seek to enhance synergies of the alliance,
including application of the long-chain nucleic
acid synthesis technology to gene therapy
38

Create New Value
Pharmaceuticals:

Nihon Medi-Physics Expansion of Healthcare Businesses

Theranostics
Theranostics=

Therapeutics

Diagnostics

Construction of CRADLE*3 Building

Basic Concept of Theranostics(planned for completion Sep 2019)

Diagnostic RI

e.g.

18F

Identical core
structure

RI
diagnostic
agent

Treatment RI

RI
therapeutic
agent

e.g. 225
Ac

Research and development of radioactive
diagnostic agents, and manufacturing andshipment of radioactive therapeutic agents• Collaborate with neighboring Nihon MediPhysics Chiba Works and Research Center• Total construction costs: 3.3 billion yen

Selectively deliver
both diagnostic agent
and therapeutic agent
to the affected area

Utilize an identicalcore structure(including molecules
and antibodies)

Adopted in CiCLE*1 of AMED*2

Develop Theranostics as soon as possible*1 CiCLE: Cyclic Innovation for Clinical Empowerment *2 AMED: Japan Agency for Medical Research and Development *3 CRADLE: Consortium for Radiolabeled Drug Leadership

Current Priority Management Issues and Business Strategy

39

Direction of Future Business Strategy

Current Priority Management Issues and Business Strategy

40Create New ValueManagement Strategy and Performance Trends from the early 21st century
Three priority
management issues

Excessive yen
appreciation Recession

Change & Innovation

 Drastically enhanced the（¥ Billion）
400
4,000

3,500
350

Enhance financial strengthcompetitiveness of bulk chemicals
 Secured a critical mass inlife sciences Developed new businesses

3,000
300

Further improvebusiness portfolio

Profitability decreased andfinancial strength declined

Accelerate the lauch ofnext-generation businesses

Invested in major projects

2,500
250
■J-GAAP Ordinary income(loss)

2,000
200

■IFRS Core operating income

150
1,500
100
1,000
500
50
0

Previous Corporate Current Corporate
Business Plan
Business Plan

-500
-50
2000

2005

2010

FY2013~FY2015

FY2016~FY2018

‘13

‘16

‘14

‘15

‘17

‘18

（FY）

（Forecast）

J-GAAP
Current Priority Management Issues and Business Strategy

IFRS
41

Create New Value

Current Management Strategy and Performance Trends: Management by Phase
Change and Innovation

Change and Innovation

For the next hundredth anniversary

Create New Value

Phase 1

Phase 24,000
400

Enhanced financial strength

Generate more cash flow

3,500
350

Improved business portfolio

Further improve business portfolio

3,000
300

Developed
next-generation businesses

Accelerate the launch ofnext-generation businesses（¥ Billion）

Phase 32,500
250

 Radical improvementof productivity throughdigital innovation
 Initiatives for global
environmental issues
 Acceleration of
innovation■ J-GAAP Ordinary income (loss)

2,000
200

■ IFRS Core operating income

1,500
150
100
1,000
50
500
0
2013

2014

2015

J-GAAP

2016

2017

2018
(Forecast)

2019

2020

2021 (FY)IFRS

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

42Create New Value

Initiatives for Global Environment Issues
Change in Global Temperatures from 1800A.D. to 2100A.D.
(Observed and Forecast)(℃)
6.0

Up to a 4.8℃
increase*

5.0
4.0
3.0
2.0
1.0
0.0
-1.0
1800

1900

2000

2100 (year)* The difference between the average temperatures from 1986-2005 and forecasted average temperatures from 2081-2100(Source) IPCC 5th Assessment Report

Current Priority Management Issues and Business Strategy

43

Create New Value

Initiatives for Global Environment Issues
G
F
E
D

4℃

C

2℃

B

A

F

Risk of extinction for many species
Risk of crisis in global food production
Loss of ice sheet in large scale,sea level riseE

Loss of biodiversity in many areas

D

Loss of usable water

Hold the increase intemperature frompre-industrial levels

C

Regional decrease in crop production yields

below 2℃

B

High risk to systems, such as coral reefs or arctic sea ice
Expansion of tropical infectious diseases,
such as malaria

A

Increased damage from abnormal weather,such as heat waves and floods

G

3℃

1℃
It is assumed thattemperatures havealready increased byapprox. 0.8 ℃(Source) Partially modified https://www.wwf.or.jp/activities/2015/08/1279626.html(based on IPCC AR5 WG2 SPM)

Current Priority Management Issues and Business Strategy

44

Create New Value

Initiatives for Global Environment Issues
Participation in external initiatives
Since August 2018:
Joined in the “TCFD Study Group,” led by Ministry of Economy Trade andIndustry for mobilizing green finance through proactive corporate disclosure
Studying how to improve disclosure so thatJapanese companies’ strengths will be fully valued

TCFD: Task Force on Climate-related Financial Disclosures,
established by the Financial Stability Board

Our Efforts
Expanding Opportunities

Risk Management(Contributing through own business)
Sales of environmentally friendly products

October 2018,
first certified among
diversified chemicalcompanies
Fuel conversion

Sumika Sustainable Solutions
Expand sales of the products designated as SSS

Technology development

Reduction of emissions
from our own operations
Current Priority Management Issues and Business Strategy＋

Reduction of emissions throughout
the product life cycle

Contribution throughenvironmentally friendly products
45

Create New Value

Initiatives for Global Environmental Issues
Our greenhouse gas reduction targets have been certified by
the SBT Initiative
Committed
Companies:

503

Certifiedcompanies
Companies: 156 including 32 Japanese(As of November 21, 2018)

Scope 1＋2 *1

Scope 3 *2

By FY 2030

By FY 2050

Reduce by

Reduce by

30%*3

57%*4

*1 Scope1 : Direct emissions from factory operations, such as fuel use in manufacturing processes
Scope2: Indirect emissions from purchases of power and heat from outside the factory*2 Scope3 : Emissions from the manufacturing and transportation of purchased raw materials*3 Compared to FY2013

Current Priority Management Issues and Business Strategy

By FY 2024
*5

※4

Have major suppliers
set reduction targets*4 Compared to FY2013. In addition to Scope1 and Scope2 GHG
emissions reduction, the company provides solutions to significantly
reduce GHG emissions across the value chain.
*5 Engage major suppliers (suppliers who in aggregate account for
90% of purchased raw materials on a weight basis) in the SBT
efforts so that they set their own science-based GHG reduction
targets.

46

Create New ValueThe Issue of Plastic Waste
Our commitment through participation in external initiatives
 Collaboration
with partners
 Implementationof specificmeasures ofindustrialization① Plastic waste
Problems related to the use,
disposal and recovery of plastics② Microplastic
Ingestion by marine organisms➡Hazardous substancestaken into the body system

International alliance Scientificverification
 Clarificationof definition
ICCA CP&H LG* 1③ Alternatives
Effectiveness of the replacementby biodegradable plastics
*1
*2

ICCA
Microplastic
Task Force Social Awareness Information
sharing andcommunication
JaIME

*2

International Council of Chemical Associations, Chemical Policy & Health Leadership Group
Japan Initiative for Marine Environment

Current Priority Management Issues and Business Strategy

47

Create New ValueThe Issue of Plastic Waste
Flowchart of disposal and recovery of domestic plastic waste, 2016
(1,000 tons)(1,000 tons)

Mechanical Mechanical recycling
2,060

recycling
FeedstockTotal
plastic waste
discharge

recycling

8,990

Energyrecovery23%

Utilized
plastic waste

7,590
84%

Blast-furnace, coke-oven
raw materials, among
others360

4%・Densified-refuse derived
fuel・ Incineration with power
generation
5,170

57%

16%

・Incineration without

Non-utilized power generation or heatutilization facility
plastic
・Landfilling
waste

1,400

16%

Non-utilized
plastic waste

1,400(Source) PWMI (Plastic Waste Management Institute),“An introduction to Plastic Recycling in Japan 2018”, partially modified by Sumitomo Chemical
Current Priority Management Issues and Business Strategy

48

Create New Value

Drastic Improvement of Productivity through Digital Innovation
From Introduction of Prototypes to Full-scale Rollouts
Next Steps
High-performance of
production byleveraging AI

Previous Initiatives
Partialintroductionof AI-IoT

More efficient,high-performance R&D
by leveraging AI

Full-scale
Introduction of
S/4 HANA

Partialintroduction ofMaterials
Informatics(MI)

Integration of MI into
own standard R&D tools

Digital
Plant

DigitalR&D

DigitalSCM

Business Standardizationand Work Style Reform
Partialintroduction of
S/4HANA(Including
marketing)

Digital
OfficePartialintroduction of
RPA
Introduction of
Office365

Full-scale
introduction of
RPA Use
Vitalization ofcommunication

Promote value creation through digital innovation
Current Priority Management Issues and Business Strategy

49

Create New Value

Digital Innovation in Production and Research
Digital Plant

Decreasing
working
population

Efforts to secureinternational
competitivenessGlobal commitment
to low-carbon
society

Digital Innovation
Sustainable Production Operations
Increase data scientists
and data engineers

PeopleSafety Quality
Productivity

Software AI

Facilities
SupportdecisionmakingStreamline
work flows

Current Priority Management Issues and Business Strategy

Monitor theoperation offacilities for signsof malfunction

Stabilize andautomate
operations

Optimize
production
operations

50

Create New Value

Digital Innovation in Production and Research
Digital R&D
Electronic
Laboratory
Notebook
Development of
Data Platform

Materials Informatics
for all Researchers

Database

Human
Resource
Data
Scientists
Development
Developmentof Predictive
Technology

Create andExpandNew Value

Data Analysis
Data
Engineers

Materials
Informatics
Platform

Current Priority Management Issues and Business Strategy

51

Create New Value

Initiatives to Accelerate Innovation
Accelerate new business development byfurther strengthening in-house technology development andmore actively promoting external collaboration
In-house developed
technology

Academia

Advanced Stage Gate
Management

Open Innovation

Start-ups

Accelerate
New Business
Development

Create autonomous and sustainable innovation
Current Priority Management Issues and Business Strategy

52

Create New Value

Collaboration with Start-up Companies
Commercialization Phase
Development Phase
CDT

Research Phase(Polymer OLED for
displays)

SanBioBonac(Chronic stroke)(Polymer OLED forlightings)(Nucleic Acid
Medicine)

Healios(Age-related
maculardegeneration)

CDT

Nileworks

CDT(Precision agriculture)(Polymer LED fororganic photodiodes)

Renaissance
Energy Research

Plant Genome
Center *(CO2 separation
membrane)(Rice seeds)* Included in Rice Business

Collaboration with startup companies →Current Priority Management Issues and Business Strategy

Accelerate the development of
next-generation businesses
53Create New Value

Promote Open Innovation
Basic Research
RIKEN
ImPACT*3
Tough polymer(High-toughnesstransparent resin)

Environment and Energy

Next-generation
environment &energy-relatedmaterials

NIMS*4
Materials
Open Platform

JAPERA*1
RIKEN
New applications of
ES/iPS technologies
in agriculture

Sumitomo Chemical
Group

Materials forprinted electronics
devicesICT
NEDO*2
Odor sensor

BASF
Chemical safetyassessment system

Life Sciences
Current Priority Management Issues and Business Strategy

PurdueUniversity
Image diagnosis
technology for plants(above-ground)

Danforth
Image diagnosis
technology forplant roots*1 Japan Advanced Printed Electronics
Technology Research Association*2 New Energy and Industrial Technology
Development Organization*3 Impulsing Paradigm Change throughDisruptive Technologies Program*4 National Institute for Materials Science54

Create New Value

Promote Open Innovation
Environment and Energy

Business Development
TanakaChemicalConagen
Biochemicals

Cathode materials
for automotive
batteries

CO2 separation
membrane

Bayer（Monsanto）
Development of
next-generation
weed control
system

IVCC

RIKEN

ImPACT

ISORG

NIMS
JAPERA

RIKEN

NEDO

BASF
PurdueUniversity

Bonac

SanBioOligonucleotides

Regenerative
medicine andcell therapyLife Sciences

Danforth

Nileworks

Kyoto University,
RIKEN,
Keio University, etc.*
Drug discovery
and regenerative
medicine using
iPS cells, etc.

ICT

Development ofOrganic Photodiode

Sumitomo ChemicalGroup

NufarmDevelopment ofnovel insecticide Joint development of
mixture products
products formosquitoes thattransmit malaria

Renaissance
Energy ResearchPrecision agriculture
with autopilot drones
and data science bypartnering with
Nileworks

NagoyaInstitute ofTechnology
Compoundsemiconductormaterials

Joint research implemented by
Sumitomo Dainippon Pharma* Research Center Network for Realization of Regenerative Medicine

Current Priority Management Issues and Business Strategy

55

Create New Value

Initiatives for Sustainability
Sumika Sustainable Solutions
Top Commitment

T
Top
Commitment

SDGs
Badge

Designated 10 additional
products and technologies
Sales of SSS-Designated Products andTechnology（¥Billion）
6,000
600

Promoting
Sustainability

500
5,000

S

P

Solutions

Participation

Third round of designation
Second round of designation
First round of designation

Double

4,000
400

300
3,000

Through Business
Sumika Sustainable
Solutions□ OlysetTM Net

Full Participation
2,000
200

Sustainable Tree

□ Separators andothers

1,000
100
0
2015

Current Priority Management Issues and Business Strategy

2016

2017

2018

2020
（FY）

56

Create New Value

Held the Second Sustainability Promotion Committee
SOLUTION
Contribute to the sustained growth ofsociety through our business

Sustainability Promotion Committee
Organization
Board of Directors

INITIATIVE
Report / Direction

Sustainability Promotion Committee

Participate in international initiatives
Report /AdviseENGAGEMENT

Chairman ：President
Members ：Executive officers responsible
for each business sector：Presidents of regional
headquarters

Communicate with stakeholders

1.

9 Corporate
Departments
Business
Sectors

Corporate
Departments

PurposeSecretariat

Oversee the Group’s overall activities topromote sustainability

Perform bird’s-eye evaluation of
2. the contributions of the Group’s
operations to sustainability
3. Accelerate integrated efforts to solve

issues in society, such as the SDGs

Oversee the Group’s overall activities and take an integrated approach
Current Priority Management Issues and Business Strategy

57

Create New Value

Initiatives for Sustainability (External Evaluation)
Received the Deputy Chief’s Award(by Minister for Foreign Affairs)in the Japan SDGs Awards

Sumitomo Chemical’s Initiatives
covered by the White Paper on theEnvironment (2017 Ver.)(Reasons for the award)
Track record in initiatives to achieve the SDGs

Sumitomo Chemical was the only
private-sector company featured as a“company incorporating the SDGs into
corporate strategy.”

Evaluated: Over 280 companies andorganizations applied
Recipients: 4 companies and 7 organizations

Recognized as a Lead Participant
in the UN Global Compact
34 companies and organizations
have been recognized for their contribution
to the Global Compact, two of which are
Japanese companies.

Current Priority Management Issues and Business Strategy

58

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

59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.

Current Priority Management Issues and Business Strategy

60