Change and Innovation

Create New Value

Current Priority
Management Issues andBusiness Strategy
November 30, 2016

Masakazu Tokura
President

Contents

Ⅰ. Overview of FY2016 Outlook
P. 3-7
Ⅱ. Corporate Business Plan
P. 8-13
Ⅲ. Challenges and Strategy for
Our Major Businesses（Efforts to Create New Value）

P.14-47
Ⅳ. Sumitomo Chemical’s
Value Creation
P.48-55
Current Priority Management Issues and Business Strategy

2- 2 -

Overview of FY2016 Outlook

Current Priority Management Issues and Business Strategy

3Create New ValueFY2016 Forecast vs. FY2015(Billions of yen)

FY2015FY2016
Forecast

ChangeOperating Income

2,101.8
164.4

1,960.0
120.0-141.8-44.4(Equity in
Earnings of Affiliates)

20.2

30.0

9.8

Net Income

171.2
81.5

130.0
60.0

-41.2
-21.5

Naphtha Price¥42,800/kl¥32,700/kl

Exchange Rate

¥120.15/$¥105.10/$Net Sales

Ordinary Income

Current Priority Management Issues and Business Strategy

4Create New ValueFY2016 Operating Income Forecast By Sector vs. FY2015(Billions of yen)

FY2015FY2016
Forecast

Change

142.9

114.0

-28.9

Energy & Functional
Materials

2.8

3.0

0.2

IT-related Chemicals

19.9

6.0

-13.9

Stronger yen, lower prices

Health & Crop Sciences

77.5

57.0

-20.5

Stronger yen, lower prices,
lower volumes

Pharmaceuticals

42.7

48.0

5.3

Bulk Chemicals

28.8

17.0

-11.8

Petrochemicals &Plastics

28.8

17.0

-11.8

Others

-7.2

-11.0

-3.8

Total

164.4

120.0

-44.4

Specialty Chemicals

Reason for Change

Higher volumes

Lower margins, lower
upfront license fee revenue(Note) After the sectors have been revised
Current Priority Management Issues and Business Strategy

5Create New ValueBusiness Performance
Operating income from
specialty chemicals(¥ billion)
3,000

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

2,500
2,000

FY2018FY200672%

FY2015FY201683%87%

90% (¥ billion)
300

250
200

1,500

150

1,000

100

500

50

0

0

-500

-50

-1,000

-100

(¥/$)
130
120
110
100
90
80
70

125

122

113

108

113

117

120

114

110
101

100

120
105

93

86

79

83

Exchange rate

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (FY)
(Forecast)(Target)Current Priority Management Issues and Business Strategy

6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 (right axis)(¥)(¥ billion)

20

210

18

180

16
150

14
12

90.7 7

10

64.5

8

6
2

6

3

3

3

3

3

3

63.1

3

6
6

4

5

0

6

120

6

14.7 3

3

0

3

90

3
52.2

24.4

6

5.6

6

6

37.0

6

60

60.0

6

30

7

0

0

-2
-4

3

5

34.3
30.2 31.1

110.0

7

81.5

93.9

6

4

2
6

-59.2

-30

-51.1

-60
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (FY)
(Forecast)

Current Priority Management Issues and Business Strategy(Target)7Corporate Business Plan

Current Priority Management Issues and Business Strategy

8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

9Create New Value

Corporate Business Plan: Further Improve Business Portfolio

Identify areas where we have distinct strength and competitive advantage
Areas for aggressive
investment and expansion• Where we havetechnological advantages

Areas for efficiency improvement• Where it is difficult to achieve
technological differentiation• Where we have market accessadvantages• Where demand significantly fluctuates Focus resources on these areas

 Enhance cost competitiveness and(including M&A)

pursue asset efficiency

Expand businesses that consistently
yield profit above the cost of capital

Achieve profit above the cost of capital
Maximize return on investment

Further improve business portfolio
Current Priority Management Issues and Business Strategy

10Create New Value

Corporate Business Plan: Generate More Cash Flow

Enhance financial strength
Improve
profitability

Rigorously
select investments

Improveasset efficiency

Generate more cash flow
Increase profit above
the cost of capital

Make active anddisciplined investmentsStrengthen
competitiveness Reduce costs

Identify areas for
aggressive expansion
 Identify investment risks

Streamline
balance sheetContinuously improve
cash conversion cycle
 Sell non-operating,non-strategic assets

Build and maintain robust earnings power to consistently generatestrong cash flow that allows us to take advantage oflarge-scale investment opportunities when they arise
Current Priority Management Issues and Business Strategy

11Create New Value

Corporate Business Plan`s Basic Policy: Accelerate The Launch of Next-Generation Businesses

Time for full-scalediffusion

2020 ～

2015☑ 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

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

Flexible displays

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

Innovative agricultural solutions☑ Rice variety
development

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

Next-generation medical technology□ Contract manufacture of active ingredients for nucleic acid medicine□ Cancer stem cell inhibitors□ Cellular medicine□ New PET diagnostic agents□ Regenerative medicine✔: Next-generation businesses that have been launched or are to be launched soon.

Current Priority Management Issues and Business Strategy

12Create New Value

Corporate Business Plan: Performance Targets(Billions of yen)

FY2015FY2018TargetChange2,101.8

2,540.0+438.2

Operating Income

164.4

200.0

+35.6

(Equity in
Earnings of Affiliates)

20.2

29.0

+8.8

171.2

210.0

+38.8

81.5

110.0

+28.5

Naphtha Price¥42,800/kl¥45,000/kl

Exchange Rate

¥120.15/$¥120.0/$Net Sales

Ordinary Income
Net Income

Current Priority Management Issues and Business Strategy

13Challenges and Strategy for Our Major Businesses（Efforts to Create New Value）

 Progress on Efforts to Create New Value Cash Flow Management
 Accelerating Innovation

Current Priority Management Issues and Business Strategy

14

Challenges and Strategy for Our Major Businesses（Efforts to Create New Value）

 Progress on Efforts to Create New Value Cash Flow Management
 Accelerating Innovation

Current Priority Management Issues and Business Strategy

15

Create New Value

Progress on Corporate Business Plan: Progress on Efforts to Create New ValueBusiness Expansion

M&A■ Acquired Indian
agrochemicals
company
Acquired a Phase III
product candidate for
Parkinson’s disease■ Entered cathodematerials businessRestructuring

Organic Growth(Production capacity
expansion)

Organic Growth(Others)■ Decided to expand
methionine production
capacity■ Decided to expand
R&D facilities andexperimental field for
agrochemicals✔
□■Offering
early retirement
program(Sumitomo Dainippon
Pharma)■ Agreed to enter
new collaboration with
Monsanto□■S-SBR businessconsolidation■ Decided to expand
separator production
capacity■ Decided to expand
polyethersulfone
production capacity■ Expanded touchscreen
panel production
capacity■ Proceeding with theconstruction of
Rabigh Phase II Project■ Expanded polypropylene
compound production
capacity

Applied for U.S. FDA
approval of COPD drug
Advancing developmentof ADHD drug

■ Advancing developmentof components forflexible displays✔ Already implemented□□ Being addressed□■Polarizing film✔
□■Filmbusiness
consolidation□■Caprolactam■ Accelerating the shift
to high value-added
products at TPC【Business area 】■ Life Sciences (Health & Crop Sciences)

Life Sciences (Pharmaceuticals)

Current Priority Management Issues and Business Strategy■ Environment and Energy■ ICT■ Bulk Chemicals

16

Create New Value

Progress on Corporate Business Plan: Capital Expenditure and Investment Plan

Capital expenditure and investment plan for FY2016-FY2018 (decision-making basis)(¥ billion)

Capital expenditure and investment

Strategic M&A

800

Investments inspecialty chemicals area

Over 70%

700
600

Up to
¥300 billion

500
400
300
200
100
0
FY2016FY2017FY2018FY2016-2018 Total

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

Two-thirds of investment for
FY2016-FY2018 will be decided in FY2016
Current Priority Management Issues and Business Strategy

Accelerate our efforts tocreate new value
17

Create New Value

Life Sciences (Health & Crop Sciences): Challenges and Business Strategy

Value we create
Offer agrochemicals,
agrochemical materials andother solutions that contribute to
the improvement of foodproductivity

Business trends
Long-term trends Increasing food demand

 Tightening of regulations

on agrochemicals
 Industry consolidation
 Competition withFoundations for value creation
 Capability to develop new agrochemicals

 Lineup and knowledge of biorational

products

off-patent agrochemicals
Short-term trends Decline in methionine price Global sales network Alliance with major agrochemical

manufacturers

Current Priority Management Issues and Business Strategy

18

Create New Value

Life Sciences (Health & Crop Sciences): Tasks
Challenges
and Businessand Business
Strategy
Strategy

Efforts to Create New Value
ChallengesEstablish business foundation as a global solution provider
in crop protection and environmental health areasBusinessstrategy

Enhance our global footprint Accelerate development of new products (B2020, A2020
and in-licensing of third-party products)
 Expand biorational and rice businesses Expand methionine business

Recent initiatives✔ Acquired Indian agrochemicalcompany✔ Decided to enhance methionine

production capacity✔ Decided to enhance R&D facilities

and experimental fields✔ Agreed to build a new partnershipwith Monsanto✔ Entry into the rice businessCurrent Priority Management Issues and Business Strategy

19Create New Value

Life Sciences (Health & Crop Sciences): Enhance Global Footprint

Acquisition of Excel Crop Care,
Indian Agrochemicals Company

The world agrochemicals market in FY2015(millions of U.S. dollars)
12,000

1 Excel Crop Care Limited
Business:

Development, manufactureand sale of agrochemicals
Sales:
8.8 billion rupees (about
16.3 billion yen) in FY2015
Headquarters: Mumbai, India

10,000

8,000
6,000
4,000
2,000
0
Brazil

USA

China

Japan

FranceGermany

India

Source: Phillips McDougall

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

Aim of acquisition
 Expand sales channels in India
 Leverage Excel Crop Care’s brandShare in the Indian agrochemicals market in FY2014
Top Bayer

12%

2nd Syngenta

10%

2nd United Phosphorus

10%

4th Rallis8%

5th Excel Crop Care

5%

10th
Sumitomo Chemical India 4%

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

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

20

Create New Value

Life Sciences (Health & Crop Sciences): Enhance Global R&D Capabilities
Health & Crop Sciences Business: Global R&D Capabilities
Construct Biorational Research Center Aim: Improve efficiency of development ofbiorational products
 Completion: in FY2017
PACE

Agro-

Philagro France chemicals

Agrochemicals

MGK Environmental
HealthVBC Agrochemicals

Agro-

Valent chemicals

Construct New Synthesis ResearchLaboratory at Health & Crop
Sciences Research Laboratory
 Aim: Improve efficiency and speed ofdevelopment of agrochemicals
 Completion: June 2018

Open new experimental fields (U.S.) Aim: Accelerate development ofagrochemicals in U.S.
 Completion: in FY2016

Sumitomo Agrochemicals
Chemical Environmental HealthOpen new R&D center (Brazil)
 Aim: Strengthen development ofagrochemicals in South America
 Completion: November 2016

Vector Health Agrochemicals
International Environmental Health

Environmental Health
Sumitomo Chemical
Enviro-Agro Asia Pacific Feed additives

Enhance global R&D structure and accelerate agrochemical development
Current Priority Management Issues and Business Strategy

21

Create New Value

Life Sciences (Health & Crop Sciences): Increase Methionine Production Capacity

Competitive advantage inmethionine business
Integrated
production fromraw material

Advanced
production
technology

Methionine Demand Forecast by Region

Waste liquidand gastreatment
capacity

East Asia
EuropeMiddle East &Africa（1,000t）

1,600

China
North America

Asia and ANZSouth America

Growing at approx. 6% per year

1,200
800
400

Stable supply of high quality products

0
2014

2015

2016

2020 (year)

Methionine Production Capacity

Production capacity expansion（10,000t）

Product:
DL-methionine
Production capacity:100,000 tons
Location:
Ehime Works
Start of operation: Mid 2018

30
25
20
15
10
5
0
2015

2016

2017

2018

(FY)

* Combined production capacity for DL-methionine and methioninehydroxyl analog

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

22

Create New Value

Life Sciences (Pharmaceuticals): Challenges and Business Strategy

Value we create
Offer pharmaceuticals anddiagnostic agents that
contribute to the improvementof patients’ quality of life

Business trends
Long-term trends
 Innovation in medical
technology
 Increasing pharmaceuticaldevelopment costs Accelerated implementation

Foundations for value creation
 R&D capabilities in the areas of psychiatricand neurological disorders and cancer
 Cooperation inside and outside the Groupin the areas of regenerative and cellular
medicine New drug development capabilities andsales networks in Japan and U.S.

Current Priority Management Issues and Business Strategy

of policy measures to control
national healthcare spending(Japan) Industry consolidation

Short-term trend Increased use of genericdrugs (Japan)

23

Create New Value

Life Sciences (Pharmaceuticals): Challenges and Business Strategy

Efforts to Create New Value

Challenges

BusinessstrategyAddress the patent cliff of Latuda
Manage the effect of policy measures to promote the use ofgeneric drugs






Accelerate the development of products in late-stage development
In-license and acquire third-party products under-development
Accelerate the development of regenerative and cellular medicine
Reform cost structure (Japan and U.S.)

Recent initiatives✔ Acquisition of Parkinson’s disease ✔ Progress in the development ofdrug*
ADHD drug✔ Launched early retirement✔ Filed for U.S. FDA approval of
COPD drug
program in Japan (Sumitomo
Dainippon Pharma)✔ Progress in the development ofcancer stem cell inhibitor* Acquired Cynapsus Therapeutics Inc. in October 2016
Current Priority Management Issues and Business Strategy

24

Create New Value

Life Sciences (Pharmaceuticals): Post-LATUDA Efforts

Despite an expected earnings decline in FY2019 due to the expiration of the U.S. patents for
LATUDA in the second half of FY2018, we aim to achieve an early recovery and growth in
FY2020 and beyond by launching new products and expanding their sales

Net sales(billions of yen)

500

Main launch products (planned)

Additional sales possible
through productin-licensing and M&A

LATUDA®
patent expires

Oncology area
 Anticancer drug Anticancer drug400

New products(Oncology)

BROVANA®
APTIOM®

New Products(excluding Oncology)300 Anticancer drug

Napabucasin (Japan and U.S.)
Amcasertib (Japan and U.S.)
DSP-7888 (Japan and U.S.)

Other areas

LATUDA®

 SUN-101 for chronic obstructive pulmonary

Other products

disease (COPD) (U.S.) Dasotraline for attention deficit hyperactivity
disorder (ADHD) / binge eating disorder (BED)(U.S.)
 SB623 for chronic stroke (U.S.) APL-130277 for Parkinson’s disease (U.S.) Lurasidone atypical antipsychotic (Japan)
 DSP-1747 for non-alcoholic steatohepatitis(Japan)

200

100

0
FY2017FY2018FY2019FY2020

FY2021(Assumption) NHI prices to be revised in FY2018 and FY2020

Current Priority Management Issues and Business Strategy

25

Create New Value

Life Sciences (Pharmaceuticals): Post-LATUDA Efforts – Product Development

Application for approval of drug for chronic
obstructive pulmonary disease (COPD)

Acquisition of Parkinson’s disease drug*

Efficacy

Chronic obstructive pulmonary
disease (COPD)

Efficacy“Off”episodes ofParkinson’s disease

Feature1. Administered by nebulizer*
2. Short administration time
(2 to 3 minutes)

FeatureSublingual thin film

Development plan

Development plan

At present:
Applied for approval (U.S.)In FY2017:
Scheduled for launch (U.S.)* Nebulizer: a device used for inhaling a
medicinal drug

eFlow®, nebulizer for SUN-101

Anticipating peak sales of 50 billion yen

Administration of
APL-130277

At present:
In phase III clinical trials(North America)
FY2017: Submit new drug
application
In 2018: Possible approval* Acquired in the transaction of acquiring
Cynapsus Therapeutics Inc. in October
2016 for 635 million dollars

Anticipating peak sales of 50 billion yen

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

26

Create New Value

Environment and Energy: Challenges and Business Strategy

Value we create

Business trends
Long-term trends

Offer highly functional
materials and solutions forenvironmentally friendly
products, such as eco-cars

 Demands forsustainable society- Measures for addressing
climate change issues- Measures for addressing
energy and resource issues
 Tightening of various

Foundations for value creation
 Capability to develop and offer

highly functional products
 Manufacturing technology forhighly functional products

Current Priority Management Issues and Business Strategy

regulations
 Global competition

Short-term trend Intensifying competition insome businesses

27Create New Value

Environment and Energy: Challenges and Business Strategy

Efforts to Create New Value

Challenges

BusinessstrategyGrow the battery component business into a core business

Nurture eco-car component businessEnhance the lineup of battery components andtheir production capacity



Expand the use of existing materials in eco-car parts

Restructure underperforming businesses

Recent initiatives and issues being addressed✔ Entered cathode materials
business✔ Expansion of separator
production capacity✔ Implemented✔ Decided to increase
PES production capacity
Began the study of
S-SBR business integration

Issues being addressed

Current Priority Management Issues and Business Strategy

28

Create New Value

Environment and Energy: Decided to Increase Lithium-Ion Secondary Battery Separator Production Capacity

Market for 4 main components and materials oflithium-ion secondary batteries
Electrolyte
8%
Anodematerials
16%

High heat resistance,
greater safety

Separators
26%

FY2015¥635.6bn

Cathodematerials
50%

Sumitomo
Chemical’s
target markets

76%（Source） “Future Outlook of Energy, Large Scale Secondary Battery, and Materials 2016;
Energy Devices” by Fuji KeizaiMarket outlook for lithium-ion secondary
batteries and components and materials(¥ trillion)
10.0

5.0

(¥ trillion)
1.5

Household appliances, others
ESS
Automotive use
Separators (right axis)
Positive-electrode materials

1.0(right axis)

0.5
0.0

0.0

2015

2020

Advantages of aramid-coated separator

2025（Source） “Future Outlook of Energy, Large Scale Secondary Battery, and Materials 2016;
Energy Devices” by Fuji KeizaiLightweightLesspowder dust

Best suited for high-capacity batteries forautomotive and other applications

Increasing demand for use in eco-cars
Separator production capacity expansion plan
Production capacity :South Korea production capacity to bequadrupled
Start of operation: In stages from August 2017
Separator
production capacity
FutureJapan Approx. 100 million m2
South
Approx. 300 million m2
Korea
Total
Approx. 400 million m2

4

times

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

29

Create New Value

Environment and Energy:

Entry into Cathode Materials BusinessProfile of Tanaka Chemical Corporation

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

High output

Business: Manufacture and sale ofcathode materials and catalyst
raw materials
Net sales: Approx. ¥15.3 billion in FY2015

Developed products
Sumitomo Chemical,
Tanaka

PHEV

ST-6

EV
NCM523NCA

NCX

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

High capacity

Entry into the cathode materials business, aiming to have our products
adopted for automotive batteries as soon as possible
Current Priority Management Issues and Business Strategy

30Create New Value

ICT: Challenges and Business Strategy

Value we create
Offer highly functional
components that contribute to
the improvement of display
performance

Foundations for value creation

Business trends
Long-term trends
 Maturing LCD markets(Growing production in China)
 Widening use of OLED

displays (Growing productionin Korea, China, etc.)
 Flexible displays beginning tobe adopted

 Close relationships withexcellent customers (customer-oriented
supply chain) Material development capability as an

Short-term trends
 Rebounding demand for

LCD materials

diversified chemicals manufacturer

Current Priority Management Issues and Business Strategy

31Create New Value

ICT: Challenges and Business Strategy

Efforts to Create New Value

Address the generational shift in display technology andgrowing LCD production in China

Establish cost advantage in the LCD component business

Develop new products in the OLED component businessand make investment in a timely manner

Challenges

Businessstrategy

Recent initiatives and issues being addressed✔Completed the expansion of touch
screen panel production capacity✔Accelerate the development offlexible display components✔ Implemented

Reform cost structure of thepolarizing film business(including a restructuring of
the supply capabilities)

Issues being addressed

Current Priority Management Issues and Business Strategy

32Create New Value

ICT: Business Life Cycle Management in ICT Area
Our products

Printedelectronics

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

Development
phase

Our products

OLED display（flexible）

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

Eve of introduction phase Barrier film

Our products

OLED display（rigid）

 Circularly polarizing film
 Touchscreen panels

Growthphase PLED light-emitting

materials

Our products

LCD Polarizing film
 Color filter

Maturing
phase

Past

Present

 Color resist
 Aluminum sputtering target, etc.

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

33

Create New Value

ICT: Sales Outlook of Display Material BusinessChange in composition of display components sales
100%
90%
80%

LCD
components

LCD components

70%

55%

60%

LCD components✔ Increased use ofmaterials made in-house Restructured production
capabilities to enhancecompetitiveness
OLED display components

50%
40%
30%

OLED
components

20%

OLED components

10%
0%
2015

Recent initiatives

2016

2017

2018

2019

2020

45%
(FY)

✔ Expanded touchscreenpanel production capacity✔ Decided to mass-produceand launch coatedretardation film
✔ Making progress in thedevelopment of PLED
light-emitting materials✔ Implemented

Issues being addressed

Shift the pivot of the business from LCD components to OLED components
Current Priority Management Issues and Business Strategy

34

Create New Value

Bulk Chemicals: Challenges and Business Strategy

Value we create

Business trends
Long-term trends

Offer petrochemical
products sought bycustomers

 Stable growth in demand Increase in supply fromnew plants using costcompetitive gases as
feedstock

Foundations for value creation
 Access to cost-competitive ethane Brand power in the Asian market
 Capability to develop high value-added

products
 Close relationships with prominentcustomers

Current Priority Management Issues and Business Strategy

Short-term trend Solid demand and supply

balance in the Asianmarket35

Create New Value

Bulk Chemicals: Challenges and Business Strategy

Efforts to Create New Value

Challenges



Further improve production operations
on a region-by-region basis

Businessstrategy

Enhance high value-added products business(Singapore and Japan)
 Achieve stable operation (Rabigh Phase I project)
 Achieve early start-up (Rabigh Phase II project)

Recent initiatives and issues being addressed✔ Making progress in constructionof Rabigh phase II project✔ Accelerating the shift to highvalue-added products at TPC✔ Expanding polypropylene
compound production capacity
Current Priority Management Issues and Business Strategy✔Integration of film businessRestructuring of the caprolactam
business✔ Implemented
Issues being addressed
36Create New Value

Bulk Chemicals: Rabigh Project

Petro Rabigh’s Net Income(millions of dollars)

200
150

May 2016 June-July 2016100

Oct.-Dec. 201550

Scheduled plantturnaroundPower
outageEC*
stopped2016.2Q

2016.3Q

0

Declinedcrude oil prices

Declinedcrude oil prices

-50
-100
-300
-150
2014.1Q

2014.2Q

2014.3Q

2014.4Q

2015.1Q

2015.2Q

2015.3Q

2015.4Q

2016.1Q

Progress on Rabigh Phase II Project

April-June 2017

March 2016
March 2015

PF*agreement
signedMay 2012

Feasibility confirmed
April 2009

Memorandum of Understanding signed and FS* started
Current Priority Management Issues and Business Strategy

December
2015

EC*
expansion
completed

All plants
scheduled forcompletion

April 2016

Expanded EC* infull operation

Utility plants
started operation* EC： Ethane cracker
FS： Feasibility study
PF： Project financing
37

Create New Value

Progress on Corporate Business Plan: Progress on Efforts to Create New ValueBusiness Expansion

M&A■ Acquired Indian
agrochemicals
company
Acquired a Phase III
product candidate for
Parkinson’s disease■ Entered cathodematerials businessRestructuring

Organic Growth(Production capacity
expansion)

Organic Growth(Others)■ Decided to expand
methionine production
capacity■ Decided to expand
R&D facilities andexperimental field for
agrochemicals✔
□■Offering
early retirement
program(Sumitomo Dainippon
Pharma)■ Agreed to enter
new collaboration with
Monsanto□■S-SBR businessconsolidation■ Decided to expand
separator production
capacity■ Decided to expand
polyethersulfone
production capacity■ Expanded touchscreen
panel production
capacity■ Proceeding with theconstruction of
Rabigh Phase II Project■ Expanded polypropylene
compound production
capacity

Applied for U.S. FDA
approval of COPD drug
Advancing developmentof ADHD drug

■ Advancing developmentof components forflexible displays✔ Already implemented□□ Being addressed□■Polarizing film✔
□■Filmbusiness
consolidation□■Caprolactam■ Accelerating the shift
to high value-added
products at TPC【Business area 】■ Life Sciences (Health & Crop Sciences)

Life Sciences (Pharmaceuticals)

Current Priority Management Issues and Business Strategy■ Environment and Energy■ ICT■ Bulk Chemicals

38

Challenges and Strategy for Our Major Businesses（Efforts to Create New Value）

 Progress on Efforts to Create New Value Cash Flow Management
 Accelerating Innovation

Current Priority Management Issues and Business Strategy

39

Create New Value

Cash Flow Management：Cash Flow Target(Billions of yen)

2016-2018 (Target)
After investments
in strategic M&A(Reference)
Beforeinvestments instrategic M&A

716.4

680.0

680.0

-445.7-245.5-800.0-540.0

26.6

470.9

-120.0140.0

2010-20122013-2015

Cash flows fromoperating activities

472.3

Cash flows frominvesting activities
Free cash flows(Billions of yen)

End of FY2018 (Target)

Interest-bearing
liabilities

End of
FY2012End of
FY2015

1,060.6

831.5

Current Priority Management Issues and Business Strategy

After investments
in strategic M&A

1,000.0(Reference)
Beforeinvestments instrategic M&A

850.0
40

Create New Value

Cash Flow Management: Measures to Improve Cash Flows

Operating cash flows

Investment cash flows

 Stronger yen than planned Strategic M&A investments implemented(Weaker business environment insome businesses)

 Increase in capital investment projects

Lower free cash flows and increased interest-bearing liabilities
Measures
Selective investment

Asset sales

More selective investment
Quickly decide whether toAccelerate asset

continue underperforming
businesses

sales

OthersRedouble rationalization
efforts
Use cash reserves
effectively

Rigorously select and implement investments necessary forsustainable growth, while maintaining sound financial condition
Current Priority Management Issues and Business Strategy

41

Create New Value

Cash Flow Management: Interest-Bearing Liabilities and Debt to Equity Ratio(¥ billion)

Interest-bearing liabilities (left axis)(Times)Debt to equity ratio (right axis)

1,600

1.6
(Reference)
When notimplementing
strategic
M&A
investments

1,400
1,200

1.4
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
(Forecast)

2018

2018

(Target*1)(Target*2)(FY)*1 Including investment in Rabigh Phase II Project; including the effects of investments in strategic M&A*2 Including investment in Rabigh Phase II Project; not including the effects of investments in strategic M&A
Current Priority Management Issues and Business Strategy

42Challenges and Strategy for Our Major Businesses（Efforts to Create New Value）

 Progress on Efforts to Create New Value Cash Flow Management

 Accelerating Innovation

Current Priority Management Issues and Business Strategy

43

Create New Value

Progress in Corporate Business Plan: Accelerating Innovation (IoT Project)
Digital Global SCM

Digital R&D

Global integration andupgrading of the core business IT system Enhancement of external

 Enhancement ofcollaborations
 Real time Strengthening of data
analysis functions

simulation functions
 Improvement of userinterface

Sophistication

Efficiency

e.g., Development of
new materials froma new perspective

e.g., Use of AI to improve
speed and quality ofsearch and research forpatents and papers

Key technologies and know-how
Sharing know-how for
AI utilization

Visualize global supply chain information
on a real time basis

IoT
Project
Digital Back Office
Paperless

Digital Plant
Groupware
utilization

Work style innovation andimprovement of operational efficiency
Greater flexibility of system
Reduction of IT system expenses
Digitalworkspace

Development of
the environment formachine translation

Cloud

Current Priority Management Issues and Business Strategy

Digital Worker

Improvement of safety andefficiency of work process

Digital Asset

Maximization offacility capacity

Digital Operation

Optimization of operationand improvement ofoperational efficiency

Digital Infrastructure

Modernization of digital
infrastructure of plants
44

Create New Value

Progress in Corporate Business Plan: Accelerating Innovation (Improving R&D Productivity)

Utilizing latest information technologies,including
big data and AI in R&D and intellectual property-related activities
1 Utilization of information collection andanalysis tools
Concept
search tool

Text mining
tool

Visualization
tool

Improve speed and accuracy of
information collection
Reference: Case of man-hour reduction in intellectual
property landscape study(person/day)
40

2 Introduction of electronic
lab notebook

 Improve efficiency oflab notebook preparation
 Introduce a format to be followed inlab notebook entry, promoting
information sharing

Improve R&D productivity

Map creation

30

Analysis20

Primary sampling

10

3 Utilization to support decision-making(under consideration)

Population formation0
Existing method

New method ** New method: Utilized concept search tool Utilization of big data insideand outside the company

Improve productivity of R&D activities andaccelerate the launch of next-generation businesses
Current Priority Management Issues and Business Strategy

45

Create New Value

Progress in Corporate Business Plan: Accelerating Innovation (Technology Development by Open Innovation)

Environment and Energy

Basic
Research

SIP*4
RIKEN

ImPACT*3
Tough polymer

Energy carriers(flexible transparent
resin)

Next-generation
environment &energy-relatedmaterials

Materials forprinted electronics
devices

RIKEN
New applicationsof ES/iPS
technologies inagriculture

Life
Sciences

JAPERA*1

Sumitomo Chemical
Group

ICT
NEDO*2BASF

Odor sensor

Chemical safetyassessment
systemPurdueUniversity
Development oftechnology for
analyzing plants’
upper part

Danforth
Technology
development for
observation/
analysis ofplant roots*1 Japan Advanced Printed Electronics Technology
Research Association*2 New Energy and Industrial Technology Development
Organization*3 Impulsing Paradigm Change through Disruptive
Technologies Program*4 Cross-ministerial Strategic Innovation Promotion Program

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

46

Create New Value

Progress in Corporate Business Plan: Accelerating Innovation (Business Development by Open Innovation)

Environment and Energy

Business
Development
Life Sciences

Tanaka Chemical

Renaissance
Energy Research

Positive electrodematerial for
automotive
batteries

CO2 separation
membraneMonsanto
Development of
next-generation
weed control
systemSIP

Industrial Technology
Research Institute(ITRI)RIKEN

ImPACT

Organic-inorganic
hybrid materials

RIKEN

JAPERA

Sumitomo Chemical
Group

IVCC
Development ofinnovative
component for
anti-malaria
measureNEDO

BASF
PurdueUniversity

NufarmJointdevelopment of
mixtureKyoto
University
New cancer drugs,
new cancer
treatments

Joint research implemented by
Sumitomo Dainippon Pharma

ICT

National Institute ofAdvanced Industrial
Science and Technology
Water,
oilrepellent
Nagoyamaterials
Institute ofTechnology
Danforth

PRISM*2Partnership to
Realize Innovative
Seeds and
Medicines

Kyoto University,
RIKEN,
Keio University, etc.*1
Drug discovery andregenerative
medicine using
iPS cells, etc.

Compoundsemiconductormaterials*1 Research Center Network for Realizationof Regenerative Medicine*2 Partnership to Realize Innovative Seeds
and Medicines

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

47

Sumitomo Chemical’s Value Creation

Current Priority Management Issues and Business Strategy

48

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

Solve issues facing societyEnvironment

Improve quality of life and build
an affluent and comfortable societyHealth promotion

Loyal employees

Food




Resources and energy

Comfortable life

Achieve sustained growth by creating new value
through innovative technologies

Current Priority Management Issues and Business Strategy

49

Create New Value

Achieve Sustained Growth

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

ROI

D/E ratio
approx.

over 10%over 7%

0.7 times

Dividend
payout ratio

Profitgrowthapprox.30%

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

Current Priority Management Issues and Business Strategy

50Create New Value

Initiatives For Enhancing Enterprise Value
Improve ROE

Improve ROI

Initiatives for improving profitability
Expansion by M&A

 Earmark funds forinvestment in M&A

Restructuring

 Close and downsize
underperforming business Enhance competitivenessLeverage

Initiatives for improving asset turnoverSelective investment

Asset sales

 More rigorous investment

 Sale of equity securities
 Sale of non-operating

decision-making andmanagement

real estateby partnerships

Organic expansion

Cost reduction

 Identify areas of strength Strengthen research,

 Reduce Head Officemanufacturing andmarketing functions

overhead cost

 Reduce costs inbusiness sectors

Cash conversion cycle
improvement

 Shortening accounts
receivable terms

 Reducing the number ofEffective use of cash
and cash equivalents
on hand Promoting M&A in
Pharmaceuticals Sector

product lines

 Optimizing inventory levels

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

51

Create New ValueESG Initiatives: Corporate Governance
Change in the Functions of Board of Directors

High

Current functions ofBoard of Directors

Board of Directors with weight ondecision-making

Board of Directors with weight onoversight of management

Scope of decision-making by
Board of Directors

Expansion ofoversight scope

Scope of oversight by
Board of Directors

Narrowing ofdecision-making

Scope of decision-making by
Board of Directors

Newly
established

Board of Corporate Auditors

Scope of oversight by
Board of Directors

Compensation
Advisory Committee
Nomination
Advisory Committee

Board of Corporate Auditors

Importance of issues
Low

Previous functions ofBoard of Directors

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

Current Priority Management Issues and Business Strategy

52

Create New ValueESG Initiatives: SDGs

SDGs (Sustainable Development Goals)

Reference: 17 Sustainable Development Goals

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

Sumitomo Chemical’s initiatives
towards achievement of SDGs
Time

Initiatives

Sep. 2015

SDGs adopted at United Nations
Sustainable Development Summit
SDGs discussed at SCC’s CSR Promotion
Committee
SDGs webpage opened on SCC’s website

Feb. 2016
May 2016
June 2016

July 2016
Aug 2016

Launched Sustainable Tree program
Workshop held at the Officers Liaison
Meeting (4 times)
Internal seminars(twice with 400 participants in total)
Presented SCC’s policy on SDGs in
its CSR report
Reported its SDGs initiatives at the Board of
Directors Meeting

Current Priority Management Issues and Business Strategy

An initiative for officers and employees to post
on a dedicated website their ideas as to what
they can do at work and in their private life tobring about a society with hope for future.
Period: 100 days from June to October 2016
Target: Officers and employees of all group companies
Number of posts: 6,005 in total
53

Create New ValueESG Initiatives: Sumika Sustainable Solutions

What are Sumika Sustainable Solutions?

Certified products and technologies

We certify as “Sumika Sustainable solution” ourproducts and technologies that contribute to mitigating
global warming and reducing environmental burden.
We promote the development and the use of theseproducts and Technologies while also enhancing
information disclosure to support the efforts to achieve
the SDGs and build a sustainable society.

1 Contribution to promoting

Certified products and technologies:
21 products (Nov.2016)
Sales of certified products/technologies(¥ billion)

600
500
400
300
200
100
0

the use of EVs

 Lithium-ion secondary

battery separator Pervio®

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

Sumikaexcel®

3 Significant energy saving in

CO2 separation in hydrogenproduction
 CO2 separation membrane

GHG emissions by
４ Reduced
reducing the nitrogen content¥280.0 billion
FY2015

FY2020

Sales volume to be quickly doubled

in livestock waste Feed additive methionine

Sumimet®

Offer solutions to build a sustainable society  Contribute to measures for mitigating global warming
Current Priority Management Issues and Business Strategy

54

Create New Value

Sumitomo Chemical’s Value Creation
Improve Growth Rate

Improve ROI

Concentrate management resources on thethree growth areas and cross-over areas

Improve
profit margin

Improveasset
turnover rate

Environment
andEnergyLife
Sciences

ICTContinuation of the ESG initiatives
Environment

Society

GovernanceContribute to sustainable
development of society
through business

Build good relationships withstakeholders

Improve the effectiveness ofgovernance

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

55

Create New Value

Creative Hybrid Chemistry

Current Priority Management Issues and Business Strategy

56

Change and Innovation

Cautionary Statement
Statements made in this document with respect to Sumitomo Chemical’s current plans,estimates, strategies and beliefs that are not historical facts are forward-looking

statements about the future performance of Sumitomo Chemical. These statements are
based on management’s assumptions and beliefs in light of the information currently

available to it, and involve risks and uncertainties.
The important factors that could cause actual results to differ materially from those

discussed in the forward-looking statements include, but are not limited to, general
economic conditions in Sumitomo Chemical’s markets; demand for, and competitive

pricing pressure on, Sumitomo Chemical’s products in the marketplace; Sumitomo
Chemical’s ability to continue to win acceptance for its products in these highly

competitive markets; and movements of currency exchange rates.

Current Priority Management Issues and Business Strategy

57