Current Management
Priority Issues andBusiness Strategy
目 次

Masakazu Tokura
President
November 27, 2014
Current Management Priority Issues and Business Strategy

1

Contents

目 次

1. Overview of Corporate Business Plan FY2013 - FY2015
2. Overview of FY2014 Performance and FY2015 Outlook
3. Progress on Corporate Business Plan
(1) Restructure Businesses① Expand Specialty Chemicals Business② Restructure Bulk Chemicals Business(2) Enhance Financial Strength(3) Develop Next-Generation Businesses
4. Shareholder Return

Current Management Priority Issues and Business Strategy

2Overview of Corporate Business Plan目
次
FY2013 - FY2015

Current Management Priority Issues and Business Strategy

3

Priority Management Issues & Business
Strategy目
次Since the Beginning of the Century

Priority
Issues

Major

Radically improve
competitiveness of
petrochemicals
business

Implementation of
Rabigh Project(includes ¥100.0 bn investment in phase 2)

Projects

Results:
Sales Increase
FY2000 vs. FY2012

Approx. ¥266.0 bn

Gain critical massin pharmaceuticals
business to achievestrong growth

Developnew businesses
with potential to
become corebusinesses

Launch ofDainippon Sumitomo Pharma& Acquisition of
Sepracor (Sunovion) in US

Establishment and expansionof
IT-related Chemicals Sector

Approx. ¥249.0 bn

Approx. ¥440.0 bn(equity investment and lending)(increased shareholding and acquisition)(cumulative capital expendituresin 12 years since inception)

Petrochemicals & Plastics
SectorPharmaceuticals
SectorIT-related Chemicals
Sector(¥375.5 bn ⇒ ¥693.9 bn)(¥156.7 bn ⇒ ¥378.6 bn)(¥60.2 bn ⇒ ¥300.0 bn)

Approx.

1.7 times

Current Management Priority Issues and Business Strategy

Approx.

2.3 times

Approx.

5.0 times

4目 次
Where We Have Been Heading
Last 10 Years

2 to 3 Years

Next 10 to 20 Years

Enhance financial strength
Pave the way for future growth

Improve
profitability

Rigorously
selectinvestments

Improveasset
efficiency

Tackled three priority management issues

Implemented Rabigh Project
Launched DSP and
acquired Sepracor/BBI
Established and expanded ITrelated Chemicals Sector

Globalization

Restructure businesses
Exit
underperforming
businesses

Improvebusiness
portfolio

Develop new businesses
Environment
and Energy

Life
Sciences

ICT

Promote globally integrated management

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

5Performance Targets

目 次Targets for FY2015
Sales¥2,400 Billion

Operating Income¥140 Billion

Ordinary Income¥150 Billion(Equity in Earnings of Affiliates)¥25 Billion

Net Income¥90 Billion

Interest-Bearing Liabilities

Below ¥900 Billion【Assumptions】
Exchange Rate
Naphtha Price

Current Management Priority Issues and Business Strategy¥80 /$US¥60,000 /kl

6Cash Flow Targets

目 次
FY2010 – FY2012

FY2013 – FY2015

Corporate
Business Plan

Corporate
Business Plan
(Target)Cash flows
from operating activities¥472.3 billion¥540 billion

Cash flows
from investing activities- ¥445.7 billion

Below - ¥400 billion（注）¥26.6 billion

Free cash flows*1

Over ¥200 billion（注）現預金等の減少を含む。

Note *1: Includes decreases in cash and cash equivalents

End of FY2012

End of FY2015(Target)Interest-bearing liabilities

Current Management Priority Issues and Business Strategy¥1,060.6 billion

Below ¥900 billion

7

Overview of FY2014 Performance and目
次
FY2015 Outlook

Current Management Priority Issues and Business Strategy

8

FY2014 First Half Results 目 次(Billions of yen)

FY2013.1H

FY2014.1H

Change1,050.8

1,128.4+77.6

Operating Income

46.3

36.2

-10.2

(Equity in Earnings ofAffiliates)

-1.3

13.8

+15.1

Ordinary Income

44.3

52.8

+8.6

Net Income

12.5

22.6

+10.1

Naphtha Price¥64,700/kl¥70,500/kl

Exchange Rate

¥98.86/$¥103.01/$

Sales

Current Management Priority Issues and Business Strategy

9

目 次

Outlook for FY2014(Billions of yen)

FY2013

FY2014(Forecast)

Change2,243.8

2,320.0+76.2

Operating Income

100.8

105.0

+4.2

(Equity in Earnings ofAffiliates)

12.0

20.0

+8.0

Ordinary Income

111.1

120.0

+8.9

Net Income

37.0

45.0

+8.0

Naphtha Price¥67,300/kl¥66,200/kl

Exchange Rate

¥100.17/$¥104.00/$

Sales

Current Management Priority Issues and Business Strategy

10

目 次
Outlook for FY2014 : Operating
Income by Sector

FY2013

FY2014(Forecast)

ChangeSpecialty Chemicals

120.2

107.0

-13.2

IT-related Chemicals

Pharmaceuticals

34.9
38.2
47.1

35.0
46.0
26.0

+0.1
+7.8
-21.1

Bulk Chemicals

-5.9

5.0

+10.9

Basic Chemicals

-10.9
4.9

-7.0
12.0

+3.9
+7.1

-13.4
100.8

-7.0
105.0

+6.4
+4.2

Health & Crop Sciences

Petrochemicals & Plastics

Others
Total

Current Management Priority Issues and Business Strategy

11目 次 FY2014 1H/2H Comparison
Operating Income by Business Segment:(Billions of yen)

1H

2H

41.3

65.7

Specialty Chemicals

Change Contributing factors+24.3

IT-related Chemicals

14.5

20.5

+6.0

Health & Crop
Sciences

11.4

34.6

+23.2

Pharmaceuticals

15.4

10.6

-4.9

Bulk Chemicals

0.6

4.4

+3.8

• Improved demand andincreased sales• Weaker yen• Seasonality(higher demand in 2H)• Weaker yen

Basic Chemicals

-3.9

-3.1

+0.8

• One-time licensing
revenue• Improved MMA margin

Petrochemicals &Plastics

4.5

7.5

+3.0

• One-time licensing
revenue

Others

-5.8

-1.2

+4.5

Total

36.2

68.8

+32.6

Current Management Priority Issues and Business Strategy• One-time service revenue

12

目 次

Targets for FY2015(Billions of yen)

FY2014(Forecast)

FY2015(Target)Change2,320.02,400.0

+80.0

105.0

140.0

+35.0

20.0

25.0

+5.0

120.0

150.0

+30.0

45.0

90.0

+45.0

Naphtha Price¥66,200/kl¥60,000/kl

Exchange Rate

¥104.00/$¥80.00/$

Sales
Operating
Income(Equity in Earningsof Affiliates)

Ordinary Income
Net Income

Current Management Priority Issues and Business Strategy

13

目 次
Targets for FY2015: Operating
Income by Sector
FY2014(Forecast)

FY2015(Target)ChangeSpecialty Chemicals

107.0

114.0

+7.0

IT-related Chemicals

Pharmaceuticals

35.0
46.0
26.0

34.0
45.0
35.0

-1.0
-1.0
+9.0

Bulk Chemicals

5.0

39.0

+34.0

Basic Chemicals

-7.0
12.0

15.0
24.0

+22.0
+12.0

-7.0
105.0

-13.0
140.0

-6.0
+35.0

20.0

25.0

+5.0

Health & Crop Sciences

Petrochemicals & Plastics

Others
Total
Equity in Earnings ofAffiliates
Current Management Priority Issues and Business Strategy

FY2015 outlook
against target

14

Progress on Corporate
目 次 Business Plan

Current Management Priority Issues and Business Strategy

15

Restructure Businesses
目 次Current Management Priority Issues and Business Strategy

16

目 specialty
次Restructure Businesses: Expand
chemicals business

ExpandRestructure

specialty chemicals
businessbulk chemicals
business

Improve business portfolio
Current Management Priority Issues and Business Strategy

17

IT-related Chemicals Sector

Features and advantages• A wide range of display material product

目 次
Trends in Sales and Operating Income（Billions of Yen）

400.0
300.0

lines

• Swiftly meeting customer needs

Sales (left axis)

500.0
322.3
26.1

200.0

Operating Income (right axis)

300.0

11.0

11.7

2011

2012

100.0
0.0
2010

（※） Assumed exchange rate: ¥80.0/$

Future growth drivers• Increase sales of polarizing films andtouchscreen panels for small- to mediumsized displays• Improve cost competitiveness of polarizing
films for televisions• Develop and launch materials andcomponents for next-generation flexible
panels• Increase sales of Li-ion secondary battery
separators

435.0 60.0
50.0
34.0 （※）

400.0

362.3
293.1

（Billions of Yen）

40.0
30.0
34.9
35.0
20.0
10.0
0.0
2013
2014
2015 （FY）（Forecast） （Target）

Smartphone and Tablet PC Demand（Million Units）

2,500
2,000
1,500
1,000
500
0

Tablet PC

2012

2013

Smartphone

2014

2015

2016

2017

2018

Production Capacity of Touchscreen
Panels for OLED Panels
Production capacity
×1.7

Production capacity
×1.9

2012.2Q 2012.3Q 2012.4Q 2013.1Q 2013.2Q 2013.3Q 2013.4Q
Current Management Priority Issues and Business Strategy

18

IT-related Chemicals Sector

Progress

Next steps

Expanded small and medium-sizedpolarizing film production capacity

 Increase sales of next-generation polarizingStarted mass production of nextgeneration coated polarizing films

 Increase market share for polarizing films

Expanded customer base and increased
market share for polarizing films used insmartphones

 Further increase sales of the newPromoted a new polarizing film replacing
a protection film

laminated type polarizing films



Increased on-cell touchscreen panel
production capacity

Built manufacturing plant for cover-glass
integrated touch sensors

Launched film touch sensors (UBT)

Decided to expand production capacity
for aramid coated Li-ion secondary
battery separators to 110 million ㎡/year

Business area

Polarizing films

Touchscreen
panel

Others次Next Steps
Progress目andfilms

used in tablet PCs

polarizing film replacing a protection film

 Develop and launch next-generation

 Promote on-cell touchscreen panel sales
 Expand product lines
 Expand customer base
 Further expand separator production
capacity Develop and launch new films replacing
glass

Current Management Priority Issues and Business Strategy

19

IT-related Chemicals Sector

Achieve Stable
目 次Growth inTouchscreen Panel Business

Smartphone market is expanding

Expanding touchscreen panel
product lines

Broaden product lines, promote use
in a greater variety of devices, andexpand customer base

Display technology

Reduce the impact of device demand
fluctuation over revenues
Aim for stable growth

LCD

OLED

Flexible

OCTL
etc.

OCTA

UBT
etc.

Existing products

New products

Tablet PC Market

Smartphone Market(Million units)(Million units)

2,000

500

1,500

400
300

1,000

200

High-growthsmartphone market

500

Growth also continues
in tablet PC market

100

0

0
2013

2014

2015

2016

2017

(Source: Display Search)

Current Management Priority Issues and Business Strategy

2018

2013

2014

2015

2016

2017

2018

(Source: Display Search)20

IT-related Chemicals Sector

目capacity次
Separator
expansion

Li-ion secondary battery separator business--current state and outlook

Reference: Tesla Motors vehicle production outlook

Aramid coated separator demand
for use in automobiles is growing(1,000s)

600
500
400

Expanding production capacity of aramid coated separator
to 110 million m2/year in 2015

300
200

Model Xon saleModel Son saleGen 3
on sale100
Considering further expansion for Tesla’s Gigafactory

Reference: Overview of Tesla’s Gigafactory plan
Products
Capacity
Investment

0
2012

2013

2014

2015

2017

2020

Our separator production capacity

LiB cells, LiB packs
LiB cells 35 GWh/year
LiB packs 50 GWh/year
US$4 to 5 billion

Tesla Motors Model S

Under review
Under review

Location
Schedule

Nevada, USA
2017 Production start2020 Full production

2012

2013

2014

2015

2017

2020

Tesla Motors Model X

Current Management Priority Issues and Business Strategy

21

Health & Crop Sciences Sector

目 次

Features and advantages• Strong R&D capabilities and robust product pipeline• Product lines differentiated from major competitors• Products with largest market shares in Japan andlarge global market shares• Global sales network

Trends in Sales and Operating Income(Billions of Yen)

Sales（left axis）

Operating Income（right axis）

400.0
300.0

327.0
264.1

250.8

262.6

(Billions of Yen)

360.0

350.0

46.0

45.0

（※）

38.2

200.0
23.3

26.5

26.3

2010

2011

2012

100.0

60.0
50.0
40.0
30.0

0.0
2013

（※） Assumed exchange rate: ¥80.0/$

20.0
2014
2015 (FY)(Forecast) (Target)

Flumioxazin Herbicide Production Capacity
Production
capacity
×2.0

Future growth drivers• Achieve greater synergy• Expand into new business areas• Enhance business in niche areas• Continuously launch new products

2011

2012

2013

2014

2015

Number of Countries in which Sumitomo Chemical
Has Formed Sales Alliance with Nufarm(Countries)

25
20
15
10
5
0

20

21

2012

2013

23

15
8

2010
Current Management Priority Issues and Business Strategy

Production capacity
×1.2
Production capacity
×1.2

2011

2014

22

Health & Crop Sciences Sector

目 and
次 Next Steps
Progress

Business area

Progress

Next steps

 Formed sales alliance with Nufarm for crop protection  Seek to create more synergies from thechemicals for professional turf, ornamental andaquatics uses in the US

alliance with Nufarm

 Extended the period of the collaboration with
Crop
protection
chemicals

Monsanto and expanded the collaboration into Brazil
and Argentina

 Expanded Flumioxazin herbicide production capacity
 Acquired Pace International to enter post-harvest
business

 Began operation of a new biorational plant Acquired a rice seed business to enter “total solution
provider” rice business Expand seed treatment business Expand post-harvest business Expand biorational business Respond to changes in the Japanese crop
protection chemicals market

 Accelerate the development of new active
ingredients

 Acquired shares in U.S.-based McLaughlin Gormley
Environmental
health Expand into new areas

King Company to make it a wholly-owned subsidiary Integrated distribution channels in North America
 Expanded businesses of animal health products andpharmaceuticals

OthersCurrent Management Priority Issues and Business Strategy

 Commercialize active pharmaceuticalingredients of nucleic acid pharmaceuticals
23

Health & Crop Sciences Sector

Business area

目 次
ExpandingBusiness Areas
Startup of new biorational plant

Growth drivers

Location: Iowa, USA

Biorational

Start of operation: July 2014
Microbial
pesticides

Use in resistancemanagement

Investment: US$150 million

Growing demand in use
for organic crops

Biorational and post-harvest sales trendsExpansion of applications600



Use in crop stressmanagement

500

Plant growth
植物成長調整剤（$mil.）

regulators
Post-harvest
ポストハーベストPost-harvest

New microbial
pesticide plant

Capacity: 15 million gal/yearPlant growth
regulators

Expansion of applications

Expansion into markets
outside the US, e.g., Brazil

400

Microbial pesticides
微生物農薬

Developing into
the Sector’s corebusiness

列2

300
200

•
•

Biorational and post-harvest sales havethe potential to more than double
Develop biorational and post-harvest into corebusiness of Health & Crop Sciences Sector

100
0
2009

2010

2011

2012

2013

2020
（イメージ）(Image)Current Management Priority Issues and Business Strategy

24

Health & Crop Sciences Sector

目 次 Management
Crop Stress

Crop Yield Loss Caused by Abiotic Stress

Crop Stress Management with Chemicals

Current Management Priority Issues and Business Strategy

25

Health & Crop Sciences Sector

目 Rice次 BusinessEntering

Total solution provider businesses

Building rice R&D capabilities• Supply seeds, crop protection chemicals, and fertilizers• Provide cultivation management support• Sell rice

• Acquired rice varieties and related technologies
a new research team for developing rice
• Launchedvarieties

Targets: Cultivation area 10,000 ha
Sales
10 billion yen• Strengthening existing cultivation and application

research teams
Contributeto agriculture through variety
development and cultivation technology
development

Overview of plans for rice businessSupply seeds

Supply crop protection chemicals, fertilizers, and agricultural
materials and provide soil analysis, cultivation consulting,and operation records management services

Collect andsell rice

Cultivate rice based on contract

Roles of agricultural corporations, etc.
Current Management Priority Issues and Business Strategy

Roles of Sumitomo Chemical Group (including business partners)
26

Pharmaceuticals Sector

目 次Trends in Sales and Operating Income

Features and advantages

Sales（left axis）
Sales of DSP（left axis）
Operating Income（right axis）
Operating Income of DSP（right axis）(Billions of Yen)

• Drug discovery platform in the areas of
psychiatry & neurology and oncology• New drug development capabilities andsales network in the U.S.

500.0

300.0
200.0
100.0
0.0

Future growth drivers• Increase sales of LATUDA by adding new
indications and expanding sales territories• Enhance product pipeline in the areas of

100.0
90.0
418.8
385.0
378.6
387.7
80.0 80.0
379.5 380.5
366.0
347.7
350.4
350.0
70.0
60.0
47.1
50.0
35.0
40.0
30.9
42.1
31.0
30.0
20.9
26.0
30.0
28.7
25.0
20.0
20.0
20.4
10.0
0.0
2010
2011
2012
2013
2014
2015
2017 (FY)(Forecast) (Target) (Target)

410.6
400.0

by using cell technologies

Current Management Priority Issues and Business Strategy

450.0

400.0

Atypical Antipsychotic LATUDA Sales Projections(Millions of US Dollars)

North America

Europe

Japan

Asia

Others

1,000

749
421

500

psychiatry & neurology and oncology• Regenerative medicine and drug discovery(Billions of Yen)

86

202

0
2011

2012

2013

2014

2015

(Forecast) (Target)

2017 (FY)(Target)Note: Data for sales of our business partners in Europe (except U.K.) are our estimates.

27

Pharmaceuticals Sector

Business area

目 Next次 Steps
Progress andProgress Additional indication approved in the Increase LATUDA sales in the U.S. and

U.S. for use of atypical antipsychotic
LATUDA in treating bipolar I
depression

 Obtain approval for LATUDA in Japan Atypical antipsychotic LATUDA
approved in Europe as a treatment
for schizophrenia

Prescription
pharmaceuticals

Next steps

 APTIOM launched in the U.S. as atreatment for epilepsy

 Established drug discovery team andsales force for anticancer drugs

Alliance with Healios in regenerative
medicine and cell therapy business Restructured North American
operations

Europe Increase APTIOM sales
 Develop and launch BBI608 and BBI503,
anticancer drugs targeting cancer stemcells

 Commercialize cell therapy drug SB623 forstroke recovery

 Commercialize cell therapy drug HLS001
for eye diseases, such as age-related
macular degeneration

 Develop first-of-a-kind therapies• EPI-743 for mitochondrial diseases• DSP-1747 for non-alcoholicsteatohepatitis

Current Management Priority Issues and Business Strategy

28

Pharmaceuticals Sector

Sumitomo Dainippon
目 次 Pharma’s
Mid-term Business Plan
Business Targets for FY2017(Billions of Yen)

Targets
after review

Original targets(announced Feb 2013)

Changes(announced Oct 2014)

Sales

450

450

No change

Operating Income

80

80

No change¥80.00/$¥100.00/$+¥20.00/$

Exchange Rate
Sales target for FY2017

LATUDA Sales in North America(original vs. after review)(Millions of US dollars)

Original target

Actual growth

Original forecast

1,000

Revised downward due to delayed
BBI launch
Revised upward due to LATUDA
sales growth

500

Revised upward due to weaker yen～～

Targetafter review

0(Billions of Yen)

350

400

Current Management Priority Issues and Business Strategy

450

0
2012

2013

2014

2015

2017

(Forecast) (Target)(Target)29

Pharmaceuticals Sector

目 BBI608/503
次Progress on
Clinical Trials
Progress as of October 30, 2014

Brand name/Product code

Generic
name

BBI608TBD

BBI503

TBD

Indication

Development
location

Phase
I

Colorectal cancer (Monotherapy)(Global clinical trial)

U.S. / Canada/ Japan, etc.

Accrual of new patientshas been stopped

Gastric cancer, Gastro-esophageal junction
adenocarcinoma (Combination therapy) (Global
clinical trial)

U.S. / Canada/ Japan, etc.

Colorectal cancer (Combination therapy)

U.S. / Canada

Solid tumors (Combination therapy)

U.S. / Canada

Gastrointestinal cancer (Combination therapy)

U.S. / Canada

Pancreatic cancer (Combination therapy)

U.S.

Hepatocellular carcinoma (Combination therapy)

U.S.

Solid tumors (Monotherapy)

U.S. / Canada

Renal cell carcinoma, Urothelial carcinoma,
Hepatocellular carcinoma, Cholangiocarcinoma,
Gastrointestinal stromal tumor (Monotherapy)

CanadaHepatocellular carcinoma (Combination therapy)

U.S.

※1 Phase ll of Phase I/II study ※2 Phase I of Phase I/II study

Development target for BBI608
Gastric cancer, Gastro-esophageal junction
adenocarcinoma (Combination therapy)
File applications in North America & Japan in FY2017

Current Management Priority Issues and Business Strategy

Phase
II

Phase
III

Submitted

※1

※2
※1

※2

Revisions during 2014.2Q are in red.

Development target for BBI503
Solid tumors (Monotherapy)
File applications in North America & Japan in FY201730

目 次bulk chemicals businessRestructure Businesses: Restructure

ExpandRestructure

specialty chemicals
businessbulk chemicals
business

Improve business portfolio
Current Management Priority Issues and Business Strategy

31

目 次

Bulk Chemicals
Sales and operating incomein Basic Chemicals Sector（Billions of Yen）

400.0

Sales (left axis)

Operating Income (right axis)

284.3

286.9

302.3

300.0
200.0

263.5

320.0

Sales and operating income
in Petrochemicals & Plastics Sector（Billions of Yen）

350.0

30.0

15.0

20.6

20.0

（※）

.9.3

100.0

40.0

0.0

0.0

-100.0-200.0

10.0

2010

2011

-6.4
2012

（※） Assumed exchange rate: ¥80.0/$

-10.9
2013

-7.0
2014
(forecast)

-10.0
2015

(FY)

-20.0

（Billions of Yen）

900.0
800.0
700.0
600.0
500.0
400.0
300.0
200.0
100.0
0.0
-100.0

649.9

672.4

693.9

792.0

805.0
780.0

45.0

39.0

35.0

（※）

25.0

27.0
17.4
6.2

1.9

13.5

11.1
2010

5.9
2011
2012-3.2 2013

(target)Business Restructuring Initiatives（Billions of Yen）

Sales (left axis)
Operating Income (right axis)
Operating income + net income (right axis)

24.0

15.0

12.0
5.0

4.9
2014

2015

(forecast)(target)

(FY)

-5.0

（※） Assumed exchange rate: ¥80.0/$

Business Restructuring Initiatives

the foundations for underperforming• Rebuildbusinesses

unprofitable businesses and reform• Exitproduction operations

next-generation business in the field of• Grow
inorganic materials

competitiveness by expanding• Improvehigh-value added product businessstable operation of Petro Rabigh’s• MaintainplantsCurrent Management Priority Issues and Business Strategy

32

Bulk Chemicals

目 Steps
次Progress and Next

Business area

Progress Decided to close down liquid-phase processcaprolactam plantBasicchemicalsPetrochemicals

Petro Rabigh Closed down P-MMA plant in Japan Completed construction of DPF production facilities
 Expanded production capacity for high-purity alumina

Next steps
 Improve competitiveness of caprolactam business Improve competitiveness of MMA business Increase sales of DPF and develop next-generation
DPF

and increased sales

 Decided to close down ethylene plant at Chiba
 Decided to close down PO/SM plant Expanded S-SBR production capacity

 Restructure Chiba Works Develop and expand sales of high value-added, Strengthened support from founding shareholders
 Amended the terms of transactions with founding Maintain high-rate, stable operation of Rabighdifferentiated products

Phase I Project facilities

shareholders

 Secured compensation from utilities supplier

Current Management Priority Issues and Business Strategy

 Execute Rabigh Phase II Project33

Bulk Chemicals

次 Works
Restructuring of目
Chiba

Business environment：
Declining domestic demand and increasing imports
Optimize production capabilities (May 2015)
Strengthen and maintain petrochemicals business in Japan
Cease operation of Nihon Oxirane

Shut down ethylene plant
Ethylene
Production Capacity(Thousand tons per year)

700

Keiyo Ethylene* Reduce
production
capacity to
two-thirds

600
500
400

(Thousand tons per year)

Sumitomo Chemical

300
Over
400

200
100

500

192

0

(Thousand tons per year)

Nihon Oxirane
Sumitomo Chemical

400
300

415

After
restructuring

Current Management Priority Issues and Business Strategy

Nihon Oxirane

300

181

200

200
100

500
400

200

200

425

Reducedto zeroPresent

After
restructuring

100
0

0
Present

Styrene Monomer
Production Capacity

Propylene Oxide
Production Capacity

Present

After
restructuring

34

Bulk Chemicals

Restructure Caprolactam
目 次Businessand MMA BusinessRestructure Caprolactam Business

Restore competitiveness of MMA businessBusiness environment

Business environment

Deterioration in supply-demand balance due to a sharp
increase in supply in China

A sharp decline in demand for MMA used inlight guide plates

Shut down liquid-phase process plant

Launched initiatives to restore competitiveness

which has been in operation for over 39 years• Closed down MMA polymer production facilities in Ehime,• Close down by the end of 2015 liquid-phase process plant,• Improve vapor-phase process technology• Keep the optimal size of caprolactam business andmaintain the supply to key customers by using the capacityof the vapor-phase process plant and procuring
caprolactam from a third party as needed

Caprolactam Production Capacity（Thousand tons
per year)
Liquid-phase process plant

200
150

95

Reduceproduction
capacity by
half

85

85

Before restructuring

After restructuring

100
50

Vapor-phase process plant

0Japan, in December 2013

• Shifted major part of MMA operations to Singapore
Initiatives to restore competitivenessShort term

Mid to long term

• Rationalization• Rabigh Phase II Project• Price increases• Development of new
applications and sales
expansion• In-house production of
raw materials• Development of highperformance catalysts

Note: The liquid-phase process plant began operation in 1965, and the gas-phase process plant in 2003

Current Management Priority Issues and Business Strategy

35

Bulk Chemicals

目Income次
Petro Rabigh: Net(US$ million)

300
250

200

3Q

150

2Q

100
1Q

50
0
FY2010FY2011FY2012FY2013

FY2014.1Q-3Q(9 months)

Outlook for Petro Rabigh’s FY2014 earnings:
record-high resulting from stable high operating rate

Current Management Priority Issues and Business Strategy

36

Bulk Chemicals

Achieve Higher Added
目 Value
次 in Petrochemicals
Business

Global Vehicle Production

Global Automotive Plastics Market(millions of units)

100

Market size

80

（2012）

60
40
20

Growth rate

0(2012-2016）

13 million
tons/year

5% per year

2010 2011 2012 2013 2014 2015 2016 2017
（Source: Fuji Chimera Research Institute, Inc.)（Source: Fuji Chimera Research Institute, Inc.)

Reorganization: Established new Automotive Materials Division
PE DivisionPE
PP Division

Automotive PP
PP compounds
Non-automotive
PP

Advanced Polymers
Division

Polyolefines Division

SBR
TPE
EPDM
Specialcopolymers

Non-automotive
PP

Current Management Priority Issues and Business Strategy

Automotive Materials
Division

Advanced Polymers
Division

Automotive PP
PP compounds
TPE

SBR
EPDM
Special copolymers• Consolidated automotive plastics marketing andsales functions• Strengthened planning and management of global
business operations
37

Bulk Chemicals

目Added次 Products Airbag Covers
Example of High-Value

Properties required for TPE
used for airbag covers

Front pillar

Center pillar upper

Center pillar lower

Rear pillar

Common property requirements•••

Airbag inflation performance
Ease of forming and processing
Light resistance+

Key property requirements
for different types of airbags
Driver’s seat
airbagFront passenger
seat airbag

Curtain airbag• Appearance• Weld strength• Rigidity• CostStrengths in TPE business
Airbagcover(TPE)

Producing raw materials(PP and EPDM) in-house
Swiftly develop and supply TPE with specificproperties that customers demand:Airbag for driver’s
seat:Airbag for front
passenger seat

Instrument
panel (PP):Curtain airbags, etc.

Expand sales of plastics for airbag-related parts by leveraging the strengths in TPE businessCurrent Management Priority Issues and Business Strategy

38

Bulk Chemicals

目Materials
次
Expand Inorganic
Business

Features of Sumitomo Chemical's high-purity alumina• Low impurities• Particle size and shape tailored tocustomer needs

Features of Sumitomo Chemical's DPF• Small and lightweight• Low pressure loss（improvement of fuelefficiency）• Low cost

Further expand its market share, currently thelargest in the global market

Planning to begin commercial-scale
production in 2015

Examples of end-uses of high-purity alumina
Sapphire-based LED chip market

Electric vehicle market(billion chips)(1,000 vehicles)

800

1,200

Diesel car market(1,000 vehicles)

2,000

1,000
600

1,500

800
600

400

EuropeIndia

OthersOf the sum,
9 million cars
with DPF

13 million cars
with DPF

2013

2020

φ 144 mm

1,000

400
200

500

200
0

0
2013 2014 2015 2020
Source: Fuji Chimera Research Institute, Inc.

2013 2014 2015 2020
Source: Techno Systems Research Co., Ltd.

0
Source: Sumitomo Chemical estimates

DPF

Developing inorganic materials business into a core business in the future
Current Management Priority Issues and Business Strategy

39

Become a More Resilient Sumitomo
Chemical目
次through Business Restructuring
Sales

Operating Margin

Return on Investment（Billions of Yen）
1,200
1,000
800
600
400
200
0

1,108 1,160 1,170

2013 2014 2015

1,100 1,155
1,079

2013 2014 2015

(Forecast) (Target)(Forecast) (Target)

Specialty

Bulk

（FY）

12%
10%
8%
6%
4%
2%
0%
-2%

10.8%
9.2% 9.7%

3.4%
0.5%
-0.5%
2013 2014 20152013 2014 2015

（FY）

12%
10%
8%
6%
4%
2%
0%
-2%
-4%

7.3%

7.0%

7.0%

5.1%

-2.8%
2013 2014 2015

-0.3%

2013 2014 2015

(Forecast) (Target)(Forecast) (Target)(Forecast) (Target)(Forecast) (Target)

Specialty

Bulk

Specialty

Bulk

（FY）

・ Expand specialty businesses
・ Restructure underperforming
businesses
・ Quickly maximize returns on

Improvebusiness portfolio

Establish robust
businessfoundations

major investments

Current Management Priority Issues and Business Strategy

40Enhance Financial目Strength
次

Current Management Priority Issues and Business Strategy

41

目 次

Cash Flow Projections(billions of yen)

Corporate
Business
Plan
FY2010-FY2012(Result)

New Corporate
Business Plan
FY2013-FY2015(Target)

FY2013(Result)

FY2014(Forecast)

Cash flows fromoperating activities

472.3

540.0

194.4

235.0

Cash flows frominvesting activities- 445.7

Below - 400.0- 135.2

-95.0

59.2

140.0

26.6

Free cash flows*1

Over 200.0

Note *1: Includes decreases in cash and cash equivalents

Interest-bearing
liabilities(billions of yen)

End of FY2012

End of FY2015(Result)(Target)1,060.6

900.0

End of FY2013(Result)

End of FY2014(Forecast)

1,074.6980.0

Note : Rabigh Phase II advance payments: 24 bn yen at the end of FY2012, 75 bn yen at the end of FY2013
Current Management Priority Issues and Business Strategy

42Interest-Bearing Liabilities 目
and次
D/E Ratio(Billions of Yen)

Interest-bearing liabilities (left axis)

Debt to equity ratio (right axis)(Times)

1,600

1.6

1,400

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

(FY)

(Forecast) (Target)

Current Management Priority Issues and Business Strategy

43

Develop Next-Generation
Businesses
目 次Current Management Priority Issues and Business Strategy

44

目 次
Develop Next-Generation Businesses
LaunchEnvironment

2011

2015

2020-

Silicon solar cells (HEVA, electrode paste, etc.)
Organic thin-film photovoltaics
Lithium-ion secondary batteries (separators)
Next-generation secondaryLED lighting applications (sapphire substrates and alumina, etc.) batteries
PLED lighting

and Energy

Power semiconductors (epitaxial wafers)

High heat-resistant and high thermal-conductive resin
Diesel particulate filters
CO2 separation
PLED (light emitting materials)

Organic semiconductors

Next-generation polarizing films
Encapsulation materials for optical use
Flexible display materials and components

ICTDrug for schizophrenia (LATUDA)
Life Sciences

Anticancer drugs targetingcancer stem cells
Cell therapy
 Safety evaluation and drug discovery
using ES and iPS cells

Crop stressmanagement
Regenerative
medicine Commercialized/ready to be commercialized
Current Management Priority Issues and Business Strategy

45

目 次
Build New Businesses on CoreTechnologies
Flexible panel project
Window film

Film-type touchscreen panel

Coated polarizing film

Barrier film

Joint development withcustomers
Open innovation
Technology license
Joint development

Organic/inorganic hybrid technology
Technology to create materials with new functions by designing
functional organic and inorganic components at the nano andmolecular levels
Open innovation
Joint development
Joint developmentwith customers

Encapsulation materials for optical use
Current Management Priority Issues and Business Strategy

46

次 and Components
Commercialize Flexible Display 目
Materials
Creating Next-Generation Displays
Sumitomo Chemical's Strengths
Outstanding material development
capabilities as a diversified
chemical company

Strong product development capabilities andadvanced processing technologies developedin the display materials business

Replace glass with plastics

Significantly reduce display’s thickness
and weight, while also improving durability

Materials and components under development
Current structure of organic LED

Coated polarizing film

Cover glass

Window film

Polarizing film
ITO (xy)

Film-type
touchscreen panels
Current Management Priority Issues and Business Strategy

Sealing glass
OLED
Glass

Barrier
New filmfilm
to rs
Materials and components
under development
47

Shareholder Return
目 次

Current Management Priority Issues and Business Strategy

48

Performance Targets(Billons of Yen)

目 次

Sales (left axis)

Operating income (right axis)

Ordinary income (right axis)

Net income (right axis)(Billions of Yen)

2,500

250

2,000

200

1,500

150

1,000

100

500

50

0

0

-500
-1,000-50

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Current Management Priority Issues and Business Strategy-1002012 2013 2014 2015 (FY)
(Forecast) (Target)

49

目 次

Dividend Policy

We consider shareholder return as one of our priority management issues and havemade it a policy to maintain stable dividend payment, giving due consideration to ourbusiness performance and a dividend payout ratio for each fiscal period, the level ofretained earnings necessary for future growth, and other relevant factors.
(Yen)
16

(Billions of Yen)
210.0

14

180.0

Interim dividend (left axis)

Year-end dividend (left axis)

Net income (right axis)

12
7

150.0

6

10

120.0

6
8

3

93.9
5

6
3

3

2
3

30.2

31.1
3

3

3

60.0

6
5

3

3

63.1

4
34.3

3

90.0

90.7
64.5

3

6

90.0

6

14.7
0

4

0

24.4 6

6

6

30.0

5.6

3

45.0

37.0
6

6

0.0
-30.0

-2

-51.1

-4
2001

2002

2003

2004

2005

Current Management Priority Issues and Business Strategy

2006

2007

-59.2
2008 2009

2010

2011

2012

-60.0
2013 2014 2015 （FY）
(Forecast) (Target)

50

Toward Sustained Growth 目 次
Stewardship CodeCorporate Business Plan
Resolve priority issues

Dialogue anddisclosure

Share management strategy

Sumitomo Chemical’s initiatives

Sustained growth

Contribute to the economy and society at large

Current Management Priority Issues and Business Strategy

51

目 次Value
Initiatives for Raising Corporate
Initiatives for raising ROI/ROE
Main initiatives
Business
expansion
Improve
profitability
Improve ROI• Touchscreen panels• Small/medium-sizedpolarizing films• Separators• Flumioxazin• LATUDA• Rabigh II project• Decided to restructure• Decided to shut down

Business
restructuring

Chiba Works• Amended Petro Rabigh’s
terms of transactions

caprolactam plant• Strengthening MMA
business

Cost
reduction• Head Office overhead cost

• Cost reduction in businessSelective
investment• More rigorous investment decision-making and businessCashconversion
cycle
improvement• Shortening accounts

Asset sales• Sales of stock

Improve ROE

Improve asset
turnoverreduction

management processes

receivable terms• Reducing the number of
product lines

Leverage

Current Management Priority Issues and Business Strategy

sectors• Optimizing inventory levels• Sales of non-operating realestate52

Creative Hybrid
目 次 Chemistry

Current Management Priority Issues and Business Strategy

53

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

目 次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 Management Priority Issues and Business Strategy

54