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0:00:00.0 SEKISUI CHEMICAL CO., LTD. FY2017-FY2019 SEKISUI CHEMICAL GROUP Medium-term Management Plan Medium-term Management Plan Presentation President Teiji Koge 12 April, 2017 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 0:00:24.5 Group-wide Business Plan *FY2016 forecast figures contained in this document are those disclosed at the time of the Company’s FY2016 3Q consolidated financial results announcement. Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 1 0:00:39.3 Review of the Previous Medium-term Management Plan “SHINKA!-Advance 2016” ? Despite operating income falling short of plans, achieved a fourth straight term of record high profit. Projected to achieve through higher net income and ROE ? Sales fell short of plans due mainly to insufficient growth in the growing 8 businesses and delays in the creation of new businesses FY2016 forecasts The Medium-term Management Plan “SHINKA!-Advance 2016” targets Operating profit 100 billion yen 1,250 billion yen 56 billion yen 10% Operating profit Net Sales Net profit ROE 96 billion yen 1,067 billion yen 59 billion yen 11.2% Operating results Core business Frontier Net Sales Net profit ROE Three SHINKA Business Models ? G8 10% growth/year ? Business model change ? Upgrading to growing business ? Establishment of business model ? G8 4% growth/year ? Structural reform progressed ? Delay in commercialization and business establishment Basic strategy (Contribution to sales to be realized in the next fiscal term or later) (Influence of structural reform could not be overcome) Global ? Overseas sales: 330 billion yen ? Penetrate CSR management into throughout the group ? Overseas sales: 245.8 billion yen CSR-SHINKA ? Penetration and dissemination are under way ? Enhancement of governance initiated * Growing 8 businesses (G8): Renovation and Home Assets Management (hereafter the Housing Company), Infrastructure Stock and Functional Materials (hereafter the Urban Infrastructure & Environmental Products (UIEP) Company), Functional Infrastructure Materials, Eco-Friendly Materials, Materials for Mobile Devices and Diagnostic Reagent Systems (hereafter the High Performance Plastics (HPP) Company) Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 2 0:01:17.6 Review of the Previous Medium-term Management Plan “SHINKA!-Advance 2016” (Operating Income) ? Eight consecutive terms of profit growth, fourth straight term of record high profit; steady improvement in profitability Operating Income (Billions of yen) FY2009-FY2013 GS21-SHINKA! 170 FY2014-FY2016 SHINKA!-Advance 2016 150 130 6.9% 4.2% 5.4% 8.1% 9.4% 7.8% 5.8% 7.4% 82.5 10.9% 10.9% 8.2% 11.2% 9.0% 96.0 10.0% 8.0% Leading 7.7% 85.8 89.8 ROE Operating profit ratio 110 5.7% 100.0 45.0 90 3.5% 70 49.3 50 54.6 20.6 31.1 3.0 FY2011 59.6 23.2 54.0 36.1 46.0 53.4 50.0 HPP* 30 36.0 19.2 19.4 -2.4 FY2009 24.4 24.4 1.5 FY2010 Housing* UIEP* Other 10 36.3 1.8 FY2012 41.1 6.5 FY2013 41.3 1.3 FY2014 38.0 36.4 3.6 FY2015 12.0 15.0 -10 FY2016 FY2016 Forecasts Mediumterm Plan * HPP: High Performance Plastics Company; * Housing: Housing Company; * UIEP: Urban Infrastructure & Environmental Products Company Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 3 0:02:08.6 Review of the Previous Medium-term Management Plan “SHINKA!-Advance 2016” (Net Sales) ? Stagnant performance under the previous medium-term management plan; pending issue revolves mainly around securing a return to sales growth Net Sales (Billions of yen) FY2009-FY2013 GS21-SHINKA! FY2014-FY2016 SHINKA!-Advance 2016 1500 1300 1,067.0 1,250.0 858.5 247.7 398.2 1100 915.5 281.6 965.1 296.9 1,032.4 332.0 1,110.9 1,112.7 1,096.3 390.0 353.8 372.3 378.6 356.0 Prioritize reform Structural structural reform and improvements Influence of in profitability tax raise 900 700 HPP 500 418.7 449.4 469.0 496.8 494.1 550.0 473.4 486.0 Insufficient expansion of growing business, etc. Housing UIEP Other 300 100 194.6 FY2009 195.6 200.0 214.5 239.9 227.7 226.3 FY2015 242.0 300.0 ? Mobile ? Renovation ? Social Infrastock -100 FY2010 FY2011 FY2012 FY2013 FY2014 FY2016 FY2016 Forecasts Mediumterm Plan Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 4 0:02:42.6 Recognition of Business Environments Unclear and uncertain fundamental business environments Slowdown in emerging economies' growth Frequent occurrence of regional conflicts and terrorist attacks Rise of protectionism Expanded fluctuation of exchange rate Fluctuation Expansion of before/after next demand led by Tokyo consumption tax Olympics and increase reduction in backlash Unchangeable megatrends Demographics Population growth/expansion of the middle class/aging society Global environment Climate change/ devastated climate/resource issue There are many social issues to which our company can contribute Our business opportunities Improvement in quality of living & environment Safety and security ? Semiconductor for invehicle, display materials ? Reinforcement and renovation of structures ? Flame-resistant and fire-retardant materials Comfort ? Construction and interior materials (sound insulation/heat shielding/heat insulation) ? Organic EL materials ? Automotive interior materials (molded product, tape, etc.) Health ? Contracted manufacturing of raw materials for medicines, intermediate ? Diagnostic reagents and equipment ? Hygiene materials ? Health promotion reform Urbanization ? Urban development, disaster protection/IoT ? High-durability and long-life materials, rain water storage ? Railway sleepers ? Transportation equipment materials Environment ? Smart house ? Energy management ? Utilization of thermal energy ? Materials to save vehicle weight We have a chance to capture many opportunities (possibilities of growth) through development of various businesses. Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 5 0:03:16.7 Positioning of the New Medium-term Management Plan (1) Maintaining our strong corporate presence for 100 years and beyond Take one step forward toward Net Sales Operating Income New MediumTerm Management Plan 2020s 2 trillion yen 200 billion yen "New phase of growth" Adopted a Divisional Company system Tax raise and various backlashes after Tokyo Olympics Net Sales 85.8 89.8 96.0 Operating Income 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 From 2000 to the previous medium-term management plan GROWING SEKISUI 21 / SHINKA! 2X From the new Medium-term Management Plan to the 2020s 6 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 0:04:03.5 Positioning of the New Medium-term Management Plan (2) New phase of growth Quantitative growth Aim to grow sales with profitability by grasping plenty of appropriate potentials for growth Qualitative transition Aim for an operating income ratio of more than 10% through ongoing improvements in profitability and by allocating resources to promising fields Forward-looking investment HPP Company and Constant structural reform HPP Company Strategic capital investments and M&As in four strategic fields Housing Company Increase earnings power by reorganizing the structure of production Housing Company Launch new products to capture a share of volume zone markets UIEP Company Promote cost innovation across the entire supply chain UIEP Company Increase production capacity of highvalue-added products; strengthen the overseas alliance strategy etc. Optimize the structure of production etc. Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 7 0:05:55.5 Approach (Policy) Toward the New Medium-term Management Plan SHIFT 2019―Fusion― ? Policy:Work toward a new phase of growth; “SHIFT” to a growth track by working in unison as a group ? Make it compatible quantitative growth and qualitative transition ? Sustainable growth with social responsibility SHIFT nature of growth S H I F T Sustainable Establish sustainable business base from E/S/G viewpoint Basic Strategy Strengthen the business base Human resources Innovation Frontier Empowerment of diverse employees who support the business Create new products and new businesses with prominent technologies and quality Develop new fields, new area and new applications 3 actions Accelerate "3 actions" with "Fusion" ? Technology Fusion ? Opportunity Fusion ? Resources Fusion Transformation Promote transformation (strengthening earnings power) and establish strong business structure Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 8 0:07:13.3 New Medium-term Management Plan SHIFT 2019―Fusion― Targets Quantitative Plans FY2016 Forecasts Net Sales Operating profit Operation profit ratio Net profit ROE Overseas Sales Domestic Sales HPP FY2019 Medium-term Plan 1,067.0 billion yen 96.0 billion yen 9% 59.0 billion yen 11.2% 245.8 billion yen 821.2 billion yen 1,200.0 billion yen 120.0 billion yen 10% 75.0 billion yen 12% 300.0 billion yen 900.0 billion yen Housing *Assumed exchange rate US Dollar 100 yen Euro 113 yen UIEP 15.2% Operating profit ratio 16.7% 7.8% 486.0 bil. yen 9.1% 550.0 bil. yen 7.2% 5.0% 242.0 bil. yen 356.0 bil. yen Sales 390.0 bil. yen 251.5 bil. yen 18.0 FY2019 Mediumterm Plan 54.0 Operating profit FY2016 Forecasts 65.0 FY2019 Mediumterm Plan 38.0 FY2016 Forecasts 50.0 12.0 FY2019 Mediumterm Plan FY2016 Forecasts Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 9 0:07:56.5 Whole Picture of the New Medium-term Management Plan SHIFT 2019―Fusion― Strategy ? Set new business framework at the axis of Group vision* (4 business groups, Incubation and Creation) ? Expand star businesses by implementing three initiatives: strengthening earnings power, promoting innovation, and cultivating frontier businesses Incubation and Creation Opportunity-Fusion theme New business *Through prominence in technology and quality, Sekisui Chemical Group will contribute to improving the lives of the people of the world and the Earth’s environment, by continuing to open up new frontiers in residential and social infrastructure creation and chemical solutions. F Frontier New business Hope Development of applications and areas Star Growth engine Innovation Create many star businesses with strong presence Technology-Fusion ? Fusion with potential partners through M&A, etc. ? Expand strategic investment Group Vision Management strategy Prominences =competitive edge Philosophy Company **Semiconductor materials, Housing, Functional **High-performance interlayer films, Functional materials, etc. plastic sheet, Diagnostic reagents, etc. Reborn Structural reform Potential Brushing up prominences T Transformation (strengthen earnings power) ResourcesFusion I **High-functionality resin, Molding materials, Real estate, etc. **Domestic general-purpose product business Living & environmental contribution =possibility of market cultivation Manufacturing / technological development Business Empowerment of Sustainable H Human Resources base Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. **FY2016 example S 10 0:08:37.4 Creation and Expansion of Star Business through 3 Actions ? Target image in 2019: Create more than 10 star business groups in 5 growing domains Incubation and creation themes New business :Star businesses in FY2016 Hope Star Create more than 10 star business groups in the 5 growing domains Housing Living and Social infrastructure materials Fire-resistant materials Functional materials Metal substitute piping-materials Industrial Piping High-functionality container, etc. Mobility materials High-performance interlayer film High-functionality foam body Functional plastic sheet Electronics materials Semiconductor materials LCD materials Life science materials and system Diagnostic reagents system Adhesive agent for sanitary materials F Frontier New house building Renovation Grow up to the star Creation of housing and social infrastructure Chemical solutions Transformation (strengthen earnings power) Grow up to the star Innovation T Reborn I Potential Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 11 0:09:03.9 Acceleration through Fusion: Creating Incremental Increases in Existing Businesses Through fusion… 1 2 Create incremental increases in sales in existing businesses Accelerate the commercialization of incubation and creation themes Examples of Fusion Innovation Frontier Transformation Incubation and Creation themes (new businesses) Existing businesses “Co-creation” “Fusion” Details of Incremental Increases in Sales Addressed more than 20 fusion themes to create incremental increases Example of fusion among divisional companies M&A (potential incremental increase) UIEP 1,200 bil. yen Increase attributable to fusion 50 bil. yen 83 bil. yen Functional plastic sheet (Present) Aircraft seat material TechnologyFusion ? Cushioning property ? Heat insulation property, etc. HPP Aircraft manufacturers Highperformance OpportunityFusion interior material Incremental increase in existing businesses 1,067 bil. yen Foam FY2016 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. FY2019 12 0:10:18.1 Acceleration through Fusion: Commercialization of Incubation and Creation Themes ? Creating new businesses in the housing society infrastructure, industrial materials innovation and environmental energy domains 1 2 3 Securing achievements in themes that have already been brought to the market Verifying business model themes currently under development Actively maximizing new theme creation opportunities FY2014-FY2016 Corporate R&D 96 billion yen FY2017-FY2019 120 billion yen Typical Examples of Development Themes FY2016 FY2017 FY2018 FY2019 FY2020 and After ? Film-type lithium-ion battery (Housing x Corporate R&D x External electronic manufacturer) Launch ⇒Stationary use: Enhance performance for housing Automotive use: Improve performance; verify user Launch ? Urban development project (Housing x UIEP x HPP x Corporate R&D) Urban development proposals that seamlessly combine the collective strengths of the Sekisui Chemical Group’s technologies and products ? Carbon fiber reinforced thermal plastic (UIEP x Corporate R&D) Partial Launch Progressively roll out to the civil engineering, construction, transportation and other fields ? Film-type solar cell (dye sensitized) (Corporate R&D x Advanced User Candidates) Partial Launch Improve performance and production technologies Conduct user verification tests Commer -cialize Expand applications ? Town energy management system (Housing x Corporate R&D) Conduct virtual power plant verification tests Consider and verify business models Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 13 0:10:44.7 Forward-looking Investments ? Double strategic investments and establish a new investment framework for M&As; Newly establish an energy saving investment framework ? Strategic investments: Concentrate on star, star candidate as well as incubation and creation businesses ? M&A: Focus on 5 growth domains ? Energy saving investments: Invest an amount equivalent to more than 0.3% of sales with the aim of addressing global warming while securing energy saving effects FY2014-FY2016 Medium-term Management Plan Forecasts Acquired cash *The dotted line refers to the previous medium-term management plan (cash flows from operating activities 250 billion yen/strategic investments 100 billion yen, ordinary investments 80 billion yen) Cash flows from operating flows 240 bil. yen Application Strategic investments 108.1 bil. yen Ordinary investments 80.4 bil. yen Total investments 188.4 bil. yen FY2017-FY2019 Medium-term Management Plan Acquired cash Cash flows from operating flows 300 bil. yen Strategic capital investments Energy saving investments Application M&As 130 bil. yen 70 bil. yen Ordinary investments 88 bil. yen 12 bil. yen Strategic investments 200 bil. yen Total investments 300 bil. yen Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 14 0:11:26.0 Capital Policy Approach ? Undertake aggressive investment activities and utilize borrowings in line with the demand for funds while maintaining a sound financial position Trends in Cash and Deposits, Interest-bearing Debt, and D/E Ratio (Billions of yen) Interest-bearing debt 0.40 0.26 129.4 92.0 30.3 FY2007 Cash and deposits 0.36 0.28 D/E ratio (Times) 0.39 0.37 0.21 133.0 45.2 FY2009 0.12 124.5 75.0 127.1 115.3 107.7 87.2 94.0 91.1 75.4 63.1 0.10 68.0 52.3 FY2015 40.8 FY2008 FY2010 FY2011 FY2012 FY2013 FY2014 Existing Future ? Investment and the return of profits to shareholders within the scope of operating cash flows ? Active investment utilizing borrowings Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 15 0:11:48.0 Returns to Shareholders ? Maintain vigorous and stable returns to shareholders also under the new Medium-term Management Plan Returns to Shareholders Track Record (Billions of yen) Dividends Acquisition of treasury stock Net income attributable to owners of parent 53.0 41.2 56.7 23.6 11.6 0 4.2 FY2009 28.1 30.2 15.0 16.8 13.8 FY2015 2.2 5.3 FY2010 4.5 7.8 FY2011 0 8.8 FY2012 10.0 10.4 FY2013 12.7 FY2014 Commitments under the New Medium-term Management Plan ? Targeting a dividend payout ratio of 30% ? Targeting DOE of 3% ? Flexible acquisition of treasury stock Fiscal Year Net income attributable to owners of parent per share (yen) Cash dividends per share (yen) Dividends payout ratio Acquisition of treasury stock (billions of yen) Total return ratio* ROE DOE Treasury stock retired (thousand of shares) 2009 22.13 10 45.2% 0 45.4% 3.5% 1.6% 2010 44.92 13 28.9% 2.2 38.1% 6.9% 2.0% 2011 53.96 15 27.8% 4.5 43.8% 8.1% 2.3% 2012 58.53 18 30.8% 0 30.8% 7.8% 2.4% 7,000 2013 80.13 23 28.7% 10.0 53.0% 9.4% 2.7% 2014 104.73 27 25.8% 15.0 54.1% 10.9% 2.8% 12,000 2015 115.08 30 26.1% 16.8 55.5% 10.9% 2.9% 10,000 *Total return ratio = (Amount of treasury stock acquired + Total Dividends)/Net income attributable to owners of parent Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 16 0:12:20.3 New CSR Concept ? Review CSR from the E/S/G viewpoints and promote actions integrated with the businesses New CSR Conceptual Scheme Realization of our Group Vision Environment Enhancing natural capital to keep the balance Three prominences Corporate Philosophy HumanResources Promoting diversity CS&Quality Providing products and services that inspire Group Vision Business Partners Shareholders Employees Customers Local Communities and the Environment Business Strategy Resolving social issues through business activities Social responsibility in business processes Stakeholder Engagement Workplace Environment Safety Compliance and Respect for Human Rights Pledge to Society Governance Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 17 0:12:37.6 3 Prominences ? Strengthen the foundation for sustainable growth by maintaining prominence in the “Environment,” prominence in “Customer Service (CS) Quality” and prominence in “Human Resources” Main themes to be carried out FY2016 FY2019 Targets Sales ratio 60% -6% (compared with FY2013) Prominence in the “Environment” ? Expand sales of environmentcontributing products from an SDGs Sales ratio 44% Enhancing and other viewpoints natural capital ? Reduce CO2 emissions utilizing Total amount to keep the balance environment-contributing (energy maintained from saving) investments FY2013 Prominence in “CS Quality” 11 products Providing products ? Create attractive quality products (FY2014-FY2016) (Star products) and services that inspire 130 billion yen ? New product sales (sales ratio 12.2%) 20 products (FY2017-FY2019) 230 billion yen (sales ratio 19.2%) Prominence in “Human Resources” ? Ratio of female managers Promote diversity ? Ratio of women among newly hired employees 111 persons (2.3%) 29% 200 persons (4.4%) 35% Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 18 0:13:16.9 Establishing a Sustainable Business Base ? Further strengthen E/S/G initiatives Environment Social Governance ? Expand contributions to the environment through products ? Strengthen efforts to reduce environmental load ? Entrench natural environment protection activities ? Continue to strengthen compliance management ? Promote work style innovation ? Avoid any complicity with human rights abuses (CSR procurement, etc.) An environment contribution event in New York ? Engage in constructive dialogue with stakeholders ? Enhance governance within Group companies Recognized as a Nadeshiko brand in FY2016 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 19 0:13:47.0 High Performance Plastics Company Company President Keita Kato *FY2016 forecast figures contained in this document are those disclosed at the time of the Company’s FY2016 3Q consolidated financial results announcement. Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 20 0:13:53.6 Performance Trends and FY2019 Targets ? Operating income increased 1.5 times under the previous medium-term management plan; profit ratio also improved substantially (+5%) ? Secured an ample return on investment under the previous medium-term management plan; scheduled to double the amount of investment under the new Medium-term Management Plan and to accelerate growth Performance Trends FY2009-FY2013 GS21-SHINKA! Investment and Return FY2014-FY2016 SHINKA!-Advance 2016 FY2017-FY2019 SHIFT 2019―Fusion― Ordinary Investment Strategic capital investments and M&As Operating income after tax + depreciation and amortization (Billions of yen) Net Sales Operating Income Ratio 400 Operating Income 10.2% 6.9% 296.9 7.0% 332.0 353.8 12.3% 14.1% 15.2% 16.7% 7.8% 8.7% (Billions of yen) 378.6 356.0 54.0 390.0 65.0 80 40 372.3 247.7 200 281.6 19.2 0 24.4 20.6 2011 FY2011 \80/US$ \111/? 23.2 36.1 46.0 53.4 137 176 0 (Fiscal Year) 2009 Foreign Exchange FY2009 \94/US$ Rate *Avg. rate for each fiscal year 2010 FY2010 \87/US$ \115/? 2012 FY2012 \83/US$ \107/? 2013 2014 2015 2016 Forecasts Medium-term Plan FY2019* \100/US$ \113/? *FY2016 Forecasts/FY2019 Assumptions 2019 35 50 157 54 FY2017FY2019 FY2013 FY2014 FY2015 FY2016* \100/US$ \110/US$ \120/US$ \108/US$ \134/? \139/? \133/? \119/? Main M&A Jul. 2008 Mar. 2009 Feb. 2011 Xeno Tech ADI SD Nov. 2015 EIDIA FY2014FY2016 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 21 0:15:05.6 Analysis of Operating Income ? Further accelerate expanding volume and improving the product mix while also increasing investment in order to secure continued growth under the new Medium-term Management Plan ? Four strategic fields to continue driving profit growth ? The impact of high raw material prices to be held to a minimum FY2016 Forecasts compared with FY2013 Results Analysis of Operating Income Selling Quantity Consolidated& basis Foreign Change Exchange Composition Raw Materials And Cost Reduction FY2019 Medium-term Plan compared with FY2016 Forecasts Analysis of Operating Income (Image) Selling ConsolidatedQuantity & basis Foreign Change Exchange Composition Raw Materials And Cost Reduction Selling Price Fixed Costs Selling Price Fixed Costs +17.5 -8.6 +14.9 -5.7 +30.0 -4.0 +2.0 -12.0 -0.9 +0.7 54.0 bil. yen +17.9 bil. yen FY2016 Operating Income Forecasts ±0 -5.0 +11.0 bil. yen 65.0 bil. yen 36.1 bil. yen FY2013 Operating Income 54.0 bil. yen FY2016 Operating Income Forecasts Marginal Profit: +23.8 bil. yen Marginal Profit: about +30.0 bil. yen FY2019 Medium-term Plan Operating Income 22 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 0:16:06.7 President’s Policy ? I. Growth Engine: Realize sales and profit growth by undertaking portfolio reform ? II. Business Structural Reform: End of a round of low-profit business rationalization; aggressive structural reform aimed at further increasing profit ratios ? III. Solid Business Foundation: Solid business foundation that is capable of realizing I & II above “Fusion for New Values” "Resolution" & "Challenge" Ⅰ. Growth Engine Ⅱ. Business Structural Reform Ⅲ. Solid Business Foundation 1 Four Strategic Fields 2 Overseas Business 3 New products and Businesses 1 Safety, Quality, Compliance 2 (Overseas) Business Foundation 23 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 0:17:19.0 Four Strategic Fields: Net Sales Trends and FY2019 Targets ? Steady increase in sales and profits especially in the Automobiles and Transportation field under the previous medium-term management plan ? Continue to target further growth in each of the four strategic fields under the new Medium-Term Management Plan Trends in Net Sales in the Four Strategic Fields Impact of foreign currency exchange rate fluctuation (compared with FY2016) Electronics Automobiles and Transportation Building and Infrastructure Life Science Opearting Income Ratio in 4 Strategic Business Fields within HPP 450 85% 84% 87% 86% about +40.0 bil. 89% 90% 400 yen 350 300 271.8 bil. yen 251.6 bil. yen 52.4 86.4 53.3 59.5 FY2013 280.6 bil. yen 53.7 97.5 57.6 71.8 FY2015 313.0 bil. yen 58.0 106.0 63.0 86.0 FY2019 Mediumterm Plan 80% 70% 274.3 bil. yen 50.5 95.2 56.9 71.6 FY2016 Forecasts 60% 250 58.5 93.5 55.7 50% 200 40% 150 30% 100 20% 50 64.1 FY2014 10% 0 0% Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 24 0:17:59.1 Four Strategic Fields: Identify New Enhancement Areas ? Identify new enhancements areas in each of the four strategic fields and focus the allocation of management resources accordingly ? Growth Enhancement: Target growth in excess of the market ? Cooperation Enhancement: Cultivate a new source of earnings by coordinating efforts both within and outside the company SHINKA! -Advance 2016 Core SHIFT 2019 ―Fusion― Four Strategic Fields Electronics LCD materials Automobiles and Transportation Building and Infrastructure Life Science Diagnostic reagents (in Japan) Medicines ・Diagnostic reagents designed for overseas markets ・Assistance for overseas drug development ・Development of new active pharmaceutical ingredients Industry Core (incl. materials fallen under the category of mobile materials) Automobile materials (Interlayer films, Foam, Moldings) Heat- and fireresistant materials (CPVC・heat-resistant materials) ・Overseas Infrastructure materials ・High-performance PVA ・Thermal insulation+ noncombustible materials Packaging, containers and others Cooperation Growth Enhancement Enhancement Enhancement Area Growth ・Packaging and semiconductor materials ・OLED-related materials ・Interlayer films with new functions ・Automobile interior materials Quantitative evaluation Qualitative evaluation Development & Creation Car electronics materials (Inter-field cooperation) Materials for transport aircrafts and vehicles (Inter-company cooperation) High-value-added materials (Intercompany cooperation) Healthcare (Inter-divisional and - company cooperation) Needs External Environment Product examples Safety and security Interlayer films, car electronics, heat-resistant materials Comfort Interlayer films with new functions, organic EL materials, automotive interior materials Health Diagnostic reagents and equipment, medicines, hygiene materials Urbanization CPVC, heat-resistant materials Environment Materials to reduce the weight of vehicles Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 25 0:19:12.2 Four Strategic Fields: Basic Strategy ? Target an increase in sales of 40 billion yen in the four strategic fields under the new Medium-term Management Plan Net Sales Target for the Four Strategic Fields and Business Policy * The dotted lines in each FY2019 bar graph depict the effects of fluctuations in foreign currency exchange rates compared with FY2016 forecasts. Electronics ? Develop and expand sales of products for semiconductors and organic Els ? Roll out to the car electronics field ? Step up global coordination activities (Billions of yen) CAGR : 5% Automobiles and Transportation ? Expand sales of high-performance interlayer films and interior materials or automobiles ? Develop interlayer films with new functions ? Enter the aircraft and other growth fields (Billions of yen) CAGR : 4% 50.5 FY2016 Forecast 58.0 FY2019 Medium-term Plan 95.2 FY2016 Forecast 106.0 FY2019 Medium-term Plan Building and Infrastructure ? Develop new products peripheral to core products (CPVC, heat-resistant materials, etc.) ? Strengthen global development (Billions of yen) Life Science ? Global management (expand synergies) ? Expand equipment businesses ? Expand drug development assistance and active ingredient businesses (Billions of yen) CAGR : 7% CAGR : 4% 56.9 FY2016 Forecast 63.0 FY2019 Medium-term Plan 71.6 FY2016 Forecast 86.0 FY2019 Medium-term Plan Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 26 0:20:23.2 Main Strategic Investments ? In addition to realizing the benefits of measures implemented under the previous medium-term management plan, undertake proactive strategic capital investment in a bid to secure continuous growth under the new Medium-term Management Plan Main Strategic Investments and Maturation Period Main Areas of Investment ? To develop new products (for OLEDs, substrates and semiconductors) ※ :Begin realizing benefits :Realize benefits in earnest Maturation Period (Image) FY2017 FY2018 FY2019~ Electronics ? To increase mainstay product production capacity ? To increase production of high-performance interlayer films in Mexico Automobiles and Transportation ? To consider increasing interlayer film production capacity ? New foam plant in China Building and Infrastructure ? New function interlayer films (luminous, etc.) ? New CPVC plant in Thailand ? To purchase and integrate EIDIA ? To establish a new diagnostic reagent company in China ? General-purpose film business (Sumika Sekisui Film Holdings Co., Ltd.) Life Science Structural Reform ? Foam business (Europe, US) ? ITO film business (withdraw from mobile applications) ? To reorganize the moldings business Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 27 0:21:49.0 Strengthening Businesses through M&A, Overseas Business Strengthening Businesses through M&A ? Existing M&As: Maximize synergies through M&As ? New M&As: Collect proper information through the effective use of venture funds Electronics Focusing mainly on functions and materials Car electronics, new materials, new areas High-value-added resins Strengthen diagnostic businesses, search for new areas Each field’s policies Automobiles and Transportation Building and Infrastructure Life Science Overseas Business ? Strengthen the marketing function →engage in field-centric marketing, bolster coordination activities ? Optimize sales company structure and organization (structural reform) Trends in Overseas Sales Americas 350 300 Europe Asia Sales ratio within HPP 250 212.5 bil. yen 92.1 58.5 61.9 FY2013 234.7 bil. yen 232.2 bil. yen 219.8 bil. yen 107.6 56.1 68.5 FY2014 62% 63% 245.0 bil. yen +25.2 bil. 0.7 0.6 0.5 0.4 200 105.2 59.1 70.3 FY2015 150 102.0 53.6 64.2 FY2016 Forecasts yen 122.0 0.3 100 56.0 67.0 FY2019 Medium-term Plan 0.2 50 0.1 0 0 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 28 0:23:08.9 New Products and New Businesses ? Position new products and new businesses as major growth engines through intensive investment and consolidating work hours New products ? Expand new product sales led by the R&D Institute ? Enhance technology platforms as well as planning and development capacities ? Promote open innovation Trends in New Product Sales (Billions of yen) * Definition of new product: up to 5 years after being placed on the market +11.4 bil. 43.4 FY2013 yen 47.0 FY2019 Mediumterm Plan 50.3 FY2014 40.6 FY2015 35.6 FY2016 Forecast A new head-up display system that allows information to be displayed across the entire width of windshields Luminous PVB films (planned release in 2018) New Businesses ? Quickly bring to market and secure contribution to earnings from each of inkjet, build-up film, heat dissipation and other materials Light irradiation device Inkjet heads Trends in New Business Sales (Billions of yen) +5.4 bil. yen 7.0 1.5 FY2013 1.8 FY2014 1.4 FY2015 1.6 FY2016 Forecast FY2019 Mediumterm Plan Schematic diagram of inkjet coating application (planned release in 2017) Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 29 0:24:25.4 Housing Company Company President Shunichi Sekiguchi *FY2016 forecast figures contained in this document are those disclosed at the time of the Company’s FY2016 3Q consolidated financial results announcement. Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 30 0:24:36.1 Performance Trends and FY2019 Targets ? In FY2016, return to a profit increase trajectory despite changes in the market environment (tax hike to 8%, FIT problem) ? Making headway with investments aimed at increasing the production efficiency of the company’s eight nationwide plants (total investment 17 bil. yen) ? Upgrade and expand lineup of Smart House products Performance Trends FY2009-FY2010 GS21-SHINKA! (1st Stage) FY2011-FY2013 GS21-SHINKA! (2nd Stage) Operating Income: 108.5 bil. yen FY2014-FY2016 FY2017-FY2019 SHINKA!-Advance 2016 Operating Income: 115.7 bil. yen SHIFT 2019―Fusion― (Billions of yen) Operating Income Ratio Net Sales Operating Income 4.9% 5.8% 418.7 24.4 6.9% 449.4 31.1 7.7% 469.0 36.3 8.3% 496.8 41.1 8.4% 7.7% 473.4 36.4 7.8% 486.0 38.0 9.1% 100 494.1 41.3 550.0 50.0 398.2 50 19.4 FY2009 External Environment 0 FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Forecasts Apr. 2016 Kumamoto Earthquake FY2019 Mediumterm Plan Sep. 2008 Lehman shock Mar. 2011 Great East Japan Earthquake Dec. 2012 Apr. 2014 Sep. 2014 New government Consumption tax FIT problem administration raised from 5% to 8% Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 31 0:25:39.8 Performance Trends by Business; Analysis of Operating Income ? Housing Business: Despite a downturn in earnings due to a hike in the consumption tax rate, return to a profit increase trajectory in FY2016 ? Renovation Business: Delay in recovery from the consumption tax rate hike and FIT problem ? Domestic and Overseas Frontier Businesses: Challenges regarding the ability to achieve growth potential Trends in Operating Income by Business Housing Business (Billions of yen) FY2016 forecasts compared with FY2013 Analysis of Operating Income 31.0 31.7 27.7 29.1 Sales Factor Marginal Profit Factors Fixed Costs Marginal Profit Fixed Costs Marginal Fixed Profit Costs Marginal Profit Fixed Costs -9.8 +5.1 +2.8 -0.9 -1.6 +4.0 -3.3 FY2013 (Billions of yen) FY2014 FY2015 FY2016 Forecast +0.4 +0.2 Renovation Business 10.1 9.5 8.1 7.6 41.1 bil. yen -3.1 bil. yen FY2013 FY2014 FY2015 FY2016 Forecast Domestic Frontier Businesses (Real Estate, Residential Services); Overseas Business (Billions of yen) 38.0 bil. yen FY2013 Operating Income Housing: -1.9 bil. yen -2.5 bil. yen +0.7 bil. yen +0.6 bil. yen Operating Renovation: Frontier (Domestic): Frontier (Overseas): 1.3 0.6 0.1 FY2014 FY2015 FY2016 Forecast FY2016 0.0 FY2013 Income Forecasts Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 32 0:26:25.1 Analysis by Business ? Housing Business (New Housing Orders) ? Increasing our share in the major Tokyo, Nagoya, and Osaka markets a key issue Size and Our Share of the Detached House Market by Area Number and Our Share of Housing Starts by Area * FY2015, Our estimate Detached House Market Size *Our Estimate ? High share in areas outside the three major metropolitan cities ? Top class share in areas other than the three major metropolitan cities ? The impact of the consumption tax rate hike on the three major metropolitan cities, where the decrease in population is relatively small and the ratio of first-home buyers is high, is expected to be comparatively limited 231 thousand units 179 thousand units Three major metropolitan areas FY2013 FY2015 2020s Estimate 276 thousand units 231 thousand units 200 thousand units Other areas 210 thousand units 179 thousand units 100 thousand units about 1.5% Three major metropolitan areas about 3.5% Other areas Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 33 0:27:21.5 Analysis by Business ? Renovation Business ? Need to transition to a proposal-type sales style, enhance customer satisfaction, and strengthen the primary stock business to generate repeat customers Orders by Products ? Drastic drop in PV owing mainly to the FIT problem ? Unable to cover the drop in PV despite strategic products growth Strategic products (for exterior areas, new external walls, bathrooms and kitchens, storage batteries, extensions) PV Maintenance, other (coatings, etc.) (Billions of yen) Repeaters and amount of orders 2 or more times Based on the no. of units Less than 1 time 25% 74% 75% 26% * Orders over the most recent three years Based on monetary amount 106.3 98.3 20.8 26.0 100.1 26.4 92.2 18.6 98.3 29.2 11.1 95.4 29.4 6.9 Image of Capturing Repeat Orders ? Work to enhance customer satisfaction and increase repeat orders 23.6 27.3 24.1 21.6 50.0 50.2 56.2 52.1 58.0 59.1 From a building agebased response approach to strengthening life-stage proposals Enhancing customer satisfaction Increasing repeat orders 0 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 Forecasts Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 34 0:28:41.9 Recognition of the External Environment ? Capture business opportunities by leveraging the competitive advantage of the unit construction method as well as the Smart House’s No. 1 position Trends in the No. of Detached House Starts and the No. of Carpenters ? The shortage of carpenters is expected to increase in severity at a pace that exceeds the decline in detached house starts → Opportunity exists to make the most of the unit construction method’s competitive advantage 40.2 (10 Thousands of Units) Detached Housing Total Built-forSale Housing Expanding Market ? Growing business opportunities on the back of existing stock and such factors as the aging population Acceleration of utilization of existing houses Business opportunities would increase by vitalization of the secondhand market. FY2013 17.9 Renovation Market Secondhand houses No. of carpenters (10 thousands) * Nomura Research Institute, Ltd. estimate 31.0 49 13 23.4 40 41 42 42 43 12 13 13 13 13 FY2025 12 trillion yen 8 trillion yen 42 42 44 11 12 12 7 trillion yen 4 trillion yen 36 11 29 28 29 29 29 29 10 9 9 9 9 9 * Source: Japan’s Ministry of Land, Infrastructure, Transport and Tourism PrivatelyOwned Housing 35 31 30 32 28 28 29 29 30 25 19 19 20 20 20 20 Super Aging Society Expand the business targeted to the elderly mainly in Tokyo, Nagoya and Osaka. FY2010 Elderly aged 75 or above '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 * Our Estimate FY2025 21.79 million The expansion of Smart House Market ? ZEH will be a standard in FY2020 FY2013 2.07 trillion yen FY2020 2.89 trillion yen 14.19 million Increase by 50% in FY2025 (+ 80% in the metropolitan area) * Source: Japan’s Ministry of Land, Infrastructure, Transport and Tourism * Source: Fuji Keizai Marketing Research & Consulting Group Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 35 0:29:59.8 President’s Policy Emphasize the uniqueness of SEKISUI HEIM and strive to transform the core businesses and develop the frontier businesses for sustainable growth. Growth (Innovation) Increase the company’s share of the detached house market in each of the three major metropolitan areas ・Promote an “Area No. 1 Strategy” for areas other than the three major metropolitan cities (Strengthening earning power) Structural Reform FY2016 to FY2019 (billions of yen) Net Sales Operating Income Core Business Reform Housing Cost Innovation through supply chain Improve management efficiency +24.2 +4.9 Renovation for owners Transform sales style +12.0 +2.4 Domestic Frontier (Real Estate, Residential services) Accelerate the pace of growth through aggressive investments Quickly realize contributions to earnings from business activities in Thailand; develop opportunities in new areas Staunch Management Foundation The uniqueness of SEKSUI HEIM +19.8 +3.9 Overseas +8.0 Total: +64.0 +0.8 Total: +12.0 Cutting Edge Going back to the origins of Unit Technology Human Resources 36 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 0:31:16.0 Image of Net Sales Targets and Increased Earnings in Each Business Housing ? Increase in the no. of newly built houses sold ? Hedge the risks of changes in the product mix and fluctuations in component prices through cost innovation across the entire supply chain (Billions of yen) 400 Renovation ? Increase strategic product orders (Billions of yen) Fixed Costs 140 (Billions of yen) 380 360 330.8 355.0 Sales: +1,000 units Marginal Profit (Billions of yen) Marginal Profit Fixed Costs +9.1 -4.2 130 120 340 320 300 280 29.1 +4.9 bil. yen FY2016 Net Sales Forecast FY2016 FY2019 Medium-term Plan Operating Income Net Sales Forecast 34.0 110 98.0 110.0 +4.1 -1.7 10.0 100 90 80 7.6 +2.4 bil. yen FY2016 Net Sales Forecast FY2016 FY2019 Operating Medium-term Plan Net Sales Income Forecast FY2019 Medium-term Plan Operating Income 260 70 240 220 60 200 50 FY2019 Medium-term Plan Operating Income Frontier (Domestic) ? Increase the no. of leasing management dwelling units ? Expand circulation of pre-owned homes (Billions of yen) 120 Overseas ? Increase the no. of houses sold through a joint venture in Thailand (Billions of yen) Marginal Profit Fixed Costs (Billions of yen) (Billions of yen) 12 100 80 55.2 75.0 10.0 Sales: +270 units Marginal Profit Fixed Costs +6.5 -2.6 10 60 40 +19.8 bil. yen (including real estate: 14.0 bil. yen) 6.0 8 6 20 2.1 +3.9 bil. yen (including real estate: 2.6 bil. yen) 4 2.0 FY2016 Net Sales Forecast -0.8 +1.4 -0.6 0.0 2 +0.8 bil. yen FY2019 FY2016 Medium-term Plan Operating Net Sales Income Forecast FY2019 Medium-term Plan Operating Income 0 0 FY2016 Net Sales Forecast FY2019 FY2016 Medium-term Plan Operating Income Net Sales Forecast FY2019 Medium-term Plan Operating Income Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 37 0:31:57.5 Housing Business: Strategies Aimed at Capturing Orders ? Toward the leading market share in detached houses through new hit-selling volume zone products, Smart Houses, land and built-for-sale housing Order Plan (YoY) Housing Order (Units basis) 107 % 107 % (Units) 103% 97% FY2016 FY2019 Housing Net Sales: +24.2 bil. Yen Business Operating Income: +4.9 bil. yen Market Environment ? Structural decrease in housing starts to emerge in earnest from FY2019 ? Market platform to experience a modest improvement owing mainly to a sense that interest rates and the cost of living are high (up to March 2019) ? Incidence of a rush in demand in the lead up to the next consumption tax rate hike; expectations of a correction and decline in demand from April 2019 FY2016 Forecast Price Range FY2017 Plan FY2018 Plan FY2019 Plan FY2020 Estimated Market Size about 20,000 units about 150,000 units about 120,000 units Sales Composition (Current) about 600 units about 8,300 units about 500 units ? Steady upswing the Smart House Market (ZEH standards to apply in FY2020) ? Firm trends in built-for-sale housing demand fueled by first buyers FY2019 (compared with FY2017 to FY2019 Measures the current state) A: Over 40 mil. yen ? Strengthen 3-story in urban area and rebuilding activities ? Strengthen ZEH compliance; strengthen living style proposals (one-story houses, etc.) Launch new products to capture a share of volume zone markets +200 units B: 20 mil. yen to 40 mil. yen Maintain C: Under 20 mil. yen Strengthen Smart Houses Strengthen land and built-for-sale housing Ares marketing and area management ? Introduce new products made from wood (FY2017) Substantial room for development ? Promote 3-item sets as the standard (large capacity PV + storage batteries + HEMS): FY2016 22% → FY2019 60%* ? Bolster options for energy self-sufficient models ? Expand the introduction of Company-owned land by 1.5 times (FY2019 compared with FY2016) +800 units * Share within detached house orders * Share within of all orders ? Housing with Company-owned land order composition ratio FY2013 13% → FY2016 16% → FY2019 21%* ? Increase the number of sales personnel FY2016 1,000 → FY2019 1,200 (mainly in Tokyo, Nagoya, Osaka branch); optimally apply the sales force (sales personnel, model home galleries, etc.) mainly in the three major metropolitan area. Note: The number of dwelling units refers to detached houses only (does not included housing complexes) Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 38 0:33:55.0 Housing Business: Cost Innovation Across the Entire Supply Chain ? Pursue unit construction method productivity; strengthen earnings power (amount of cost improvement: three-year cumulative total of 10 bil. yen) ? Starting from the unification of the operations of production companies in the three major metropolitan areas, promote cost innovation across the entire supply chain ? Work to put in place best practices for purchasing and distribution → roll out to production companies in areas other than the three major metropolitan cities Main Details of Purchasing Reform Important areas subject to reform Reduce the number of parts; promote in-house activities Large volume Breakdown of Cost Reform Increase the efficiency of operations using IT Shift to a large production company structure in the Tokyo, Nagoya, and Osaka areas Optimize core suppliers Small volume General purpose parts and components Specialized parts and components Cost Improvement Target per House ? Targeting a reduction of 1 mil. yen per house in FY2019 Standardization Purchasing / Distribution (Thousands of yen) 1,000 450 Labor saving construction 550 300 250 FY2017 FY2018 FY2019 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 39 0:34:36.0 Renovation Business ? Transition to a proposal-type business model by promoting a transformed approach to sales and strengthening strategic products; work to increase repeat orders Sales Transform ? Shift from a building age-based response approach to a proposal approach by life-stage FY2016 FY2019 Renovation business Net Sales: +12.0 bil. Yen Operating Income: +2.4 bil. yen Transition to a Proposal-type Business Model ? Divide basic (after-sales service, periodic check-up) and sales activities Strategic Products ? Focus on total external wall proposals (new external walls, exterior areas) bathrooms and kitchens, and large-scale renovation ? Proposals aimed at promoting self-sufficiency utilizing lithium-ion batteries manufactured by the Company (end of the FIT system in 2019) Increase repeat orders Orders by Product Strategic products (for exterior areas, new external walls, bathrooms and kitchens, storage batteries, extensions) PV Maintenance, other (coatings, etc.) Number of Renovation Coordinators and Per Capita Orders * RC: Renovation coordinator Number of Renovation Coordinators Per Capita Orders (Mil. yen / month) 111.0 54.3 95.4 (Billions of yen) 29.4 6.9 Strategic products +24.9 bil. yen 1,322 6.0 1,359 1,382 1,409 6.5 1,479 1,460 Strengthen 1,580 female employee sales 5.8 6.0 5.9 5.5 5.5 6.0 59.1 50.7 FY2016 Forecast FY2019 Plan 11 12 13 14 15 16 Forecast 19 Plan Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 40 0:36:01.3 Frontier (Real Estate, Residential Services, Overseas) ? Accelerate Frontier growth through aggressive investments and alliances Real Estate Increase the number of dwelling units under management and roll out high profit models nationwide ? Integrate real estate companies in the three major metropolitan area →horizontally roll out the Company’s know-how in the Tokyo area ? Increase the number of dwelling units under management ? Maintain occupancy rates at their current high level (nationwide leasing rate average: 90.9%*) * Japan Property Management Association FY2016 FY2019 Frontier (Domestic) Frontier (Overseas) Net Sales: +19.8 bil. yen Operating Income: +3.9 bil. yen Net Sales: +8.0 bil. yen Operating Income: +0.8 bil. yen Residential Services Create new markets for second-hand house circulation ? Reinforce resources and strengthen purchase resale activities 150 Expand elderly housing with support service contracts ? Enhance the quality of services for the 7.0 bil. yen elderly; expand areas 2.5 bil. yen Amount of elderly housing with support services orders Overseas Cement unit housing business activities in Thailand; quickly realize contributions to earnings ? Engage in built-for-sale house with land sales in earnest (Units) ? Diversify sales channels 134 No. of houses sold through a joint venture in Thailand 400 345 230 No. of purchase resales 30 FY2016 FY2019 FY2016 FY2019 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 16 17 18 19 41 0:38:17.9 Urban Infrastructure and Environmental Products Company Company President Hajime Kubo *FY2016 forecast figures contained in this document are those disclosed at the time of the Company’s FY2016 3Q consolidated financial results announcement. Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 42 0:38:27.2 Performance Trends and FY2019 Targets ? Achieved record high profits from the effects of portfolio reform under the previous medium-term management plan Profit margins also recovered to record high levels ? Shift to a growth track under the new Medium-term Management Plan Identify a new strategic portfolio; expand sales of growth and high-value-added products on a priority basis FY2009-FY2013 GS21-SHINKA! Performance trends Net Sales (Billions of yen) Operating Income Ratio FY2014-FY2016 SHINKA!-Advance 2016 5.0% 0.8% 2.7% 0.6% 239.9 227.7 1.6% 226.3 242.0 FY2017-FY2019 SHIFT 2019―Fusion― 7.2% Operating Income 0.8% 1.5% -1.2% 194.6 195.6 200.0 214.5 251.5 18.0 12.0 6.5 -2.4 FY2009 1.5 FY2010 3.0 FY2011 1.8 FY2012 FY2013 1.3 FY2014 3.6 FY2015 FY2016 Forecasts FY2019 Mediumterm Plan Oct. 2019 Consumption tax raises from 8% to 10% External Environment 2007 Sep. 2008 Mar. 2011 Dec. 2012 Apr. 2014 Stricter Lehman shock Great East New government Consumption tax Building Japan Earthquake administration raised from 5% to 8% Standards Law Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 43 0:39:35.3 Analysis of Operating Income ? Successful steps to secure improved spreads and reductions in costs in Japan as well as progress in overseas structural reforms under the previous medium-term management plan ? Aggressive investments in new domains (fields and areas) in Japan and overseas, together with a shift toward growth under the new Medium-term Management Plan FY2016 Forecasts compared with FY2014 Results Analysis of Operating Income Raw Materials And Costs Newly Added Businesses Marginal Profit Factors FY2019 Medium-term Plan compared with FY2016 Forecasts Analysis of Operating Income (Image) Marginal Profit Factors Marginal Profit Factors Selling Factors Fixed Costs Fixed Costs Foreign Exchange Fixed Costs Fixed Costs +5.4 +2.7 +5.8 +0.1 -1.2 1.3 bil. yen FY2014 Operating Income Domestic: +7.3 bil. yen -0.2 +5.5 -1.5 +3.0 -1.0 -1.8 12.0 bil. yen 12.0 bil. yen 18.0 bil. yen +6.0 bil. yen +10.7 bil. yen Overseas: +3.4 bil. yen FY2016 FY2016 Operating Operating Income Income Forecasts Forecasts Domestic: bil. yen +4.0 Overseas: +2.0 bil. yen FY2019 Medium-term Plan Operating Income Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 44 0:40:57.3 Business Portfolio by Profits ? Carried out structural reforms and made progress in improving profitability under the previous medium-term management plan; all but eliminated businesses that incurred losses (completion of the structural reform phase) ? Establish a structure in which high profitability businesses account for the majority of operating income under the new Medium-term Management Plan Trends in Operating Income (Billions of yen) 7.2% 5.0% 0.6% 1.6% 2.3 2.4 4.0 2.3 -5.3 FY2014 Newly Added Businesses Business Category (I) (Operating Income Ratio: 10% or more) Business Category (II) (Operating Income Ratio: 5-10%) 3.4 4.0 3.1 -4.0 5.0 7.4 1.0 -0.5 Toward a growth phase Business Category (III) (Operating Income Ratio: 0-5%) Business Category (IV) (Operating Income Ratio: less than 0%) Operating Income Ratio Identify a new strategic portfolio FY2015 FY2016 Forecasts FY2019 Medium-term Plan * FY2015 results are revised to reflect the reorganization. Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 45 0:41:43.2 President’s Policy “Get on the track for Growth” Expanding business Field with Competitive Technology and Products Expand Sales of “Growth Products” (High Prioritized or New Products) by Concentrating Resources on R&D Key word ・・・ Metal Substitute, New Material, New Application 1 2 3 4 5 Expand Sales in Overseas Market by High-value-added Products ? Promote New Strategy by Area Improve Profitability and Efficiency of Core Business - Production, Logistics, Sales Structural Reform of Low-profit Business Improve Fundamental of CSR Management - Safety, Compliance, Human Resources - ~ Make Change, by Product Force ! ~ Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 46 0:42:40.1 New Strategic Portfolio ? Identify a new strategic portfolio; engage in management by field and strategic position Market Category Piping and Infrastructure Asia Building and Living Environment Interior decorative sheets Advanced Materials Aviation and Railroad Australia Europa FY2016 to FY2019 Sales OPI New Field/ New Material Overseas Industrial Piping Australia・ Europe・US (SPR) Asia (Catch Basin/ Fittings) RCP High Grade Plastic Sheet MIGUSA (Resin Tatami) Soundproof Material CFRTP To Domestic FFU (SEW etc.) Blow mold Container Plastic Plate Growth Piping for Building (Metal substitute) High grade Care Rain Gutter Equipment Pipeline Rain Gutter Renewal for Building Aggressive Investment ・ Fusion +8.0 bil. yen +2.0 bil. yen +9.0 bil. yen +2.5 bil. yen ±0 yen +1.0 bil. yen Piping FUU Rail Sleeper Rain Gutter for Housing Core Piping for Building Exterior FUU (Water treatment) Food Tray Improve Efficiency PE pipe for Civil Eng. Reform FY2016 to FY2019 Sales Engineering Panel Tank Unit Bath Agriculture Structural Reform -2.0 bil. yen +0.5 bil. yen 117.0 bil. yen ⇒122.0 bil. yen 60.0 bil. yen ⇒61.0 bil. yen 24.0 bil. yen ⇒29.0 bil. yen 31.0 bil. yen ⇒35.0 bil. yen +5.0 bil. yen +1.0 bil. yen +5.0 bil. yen +4.0 bil. yen Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 47 0:43:42.7 Growth Strategy ? Expand sales of growth products by concentrating resources into R&D Develop metal substitutes , new materials, new applications New Product Sales * Including Core domain new products FY2016 FY2019 Net Sales: Operating Income: 9.0 bil. yen +2.5 bil. yen + (Billions of yen) Advanced Materials Building and Living Environment Piping and Infrastructure Specific Measures Develop New Materials and Cultivate New Application through Fusion Examples of Fusion: CFRTP R&D ? Consolidate the structure of product development (within the Shiga Ritto Plant)) Production ? Undertake large-scale investment in the Shiga Ritto Plant (increase FFU production / R&D base) Sales UIEP core technologies Corporate technologies Profile Extrusion 32.5 7.5 × Composite Extrusion CFRTP Achieve continuously composite extrusion of carbon long filament and thermoplastics Pretreatment of Carbon Fiber 20.8 6.2 4.1 Features Light weight and high intensity Easy to make large size product High productivity 8.3 16.7 10.5 FY2016 Forecasts FY2019 Medium-term Plan ? Set up new businesses that focus on BtoB for large enterprises → Establish a dedicated section ? Assign to the engineering team of the sale section ? Metal substitution of large-sized structural materials ex.) Civil work/Construction/Transportation fields ? Develop new application by collaboration with major clients Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 48 0:44:59.4 Examples of High-Value-Added and New Products ? Cultivate new fields and domains through conventional material (metals, wood, glass) substitutes using plastic products Field Product Piping and Infrastructure Polyvinyl chloride pipes, construction piping materials, industrial piping materials, pipeline renewal, etc. ? Metal substitute: Lightweight, easy installation, corrosion-resistant ? Area: Japan; Expand application domains Overseas; Focus on Southeast Asia Building and Living Environment Designer rain gutters, interior decorative sheets, nursing care equipment, etc. ? Metal substitutes: Helping to reduce the weight and enhancing the easy installation of non-residential rain gutters ? Wood substitutes: Enhancing design through interior decorative sheets Advanced Materials Sheets, FFU, blow-molded containers, CFRTP etc. ? Sheets: Increase production targeting the aviation field 3 expansion fields (railroad, medicine, construction) ? Glass substitutes (low elution sterilization container for medical use) Roll out Examples of products Resin piping for hot and cold water Rehabilitation method (New pipe making technology) Interior decorative sheets SEW Railway Sleepers Aviation sheets Industrial piping Fire-resistant drainage system Designer rain gutters Functional flooring Plastic sheet for medical equipment Low elution sterilization container for medical use Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 49 0:46:05.4 Overseas Strategy ? Roll out alliance strategies by product and area ? Focus on expansion especially in Asia FY2016 FY2019 Net Sales: Operating Income: 8.0 bil. yen +2.0 bil. yen + Step 1 Step Strengthen partner relations ? Enhance structures and systems (JVs, cooperation) ? Increase production capacity Net sales by area 2 Introduce high-value-added products ? Develop new demand ? Penetrate into new markets Step 3 Expand production facilities Products to be Promoted by Area Europe Asia Australia Enhance New entry (Billions of yen) Americas 31.9 24.0 1.6 4.2 4.7 13.5 FY2016 Forecasts Europe FFU Rail Sleeper DC Plate Sheet SPR US Sheet SPR FFU Rail Sleeper 2.1 7.7 6.5 15.6 FY2019 Medium-term Plan Asia Industrial Piping Advanced Resin Catch Basin/Fittings Australia SPR FFU Rail Sleeper Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 50 0:47:23.4 Platform Efficiency ? Raise the level of earnings power by pursuing increased efficiency FY2016 FY2019 Net Sales: Operating Income: + ± 0 yen 1.0 bil. yen Optimize the production structure ?Toward a production structure based on the leveling of shipments (reduce equipment capacity; combine indirect operations; automate production) ?Reorganize bases by item in line with a new distribution network Strengthen the sales structure ?Promote and entrench profitability improvement activities implemented to date through to sales companies and distributors Step Profitability Improvement activities 1 Step 2 Enhance sales productivity Establish a new logistics network ?Measures aimed addressing changes in the logistics market social environment ?Combine the logistics and sales strategies (prioritize partners) The Company Work Together Clients Logistics Company Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 51 This slide presentation may contain forward-looking statements. Such forward-looking statements are based on current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements due to changes in global economic, business, competitive market and regulatory factors. Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 52 Copyrightc SEKISUI CHEMICAL CO., LTD. All Rights Reserved. 53 President" , "Hight Performance Plastics Company Company President" , "Hight Performance Plastics Company Company President" , "Hight Performance Plastics Company Company President Teiji Koge," , "Keita Kato," , "Shunichi Sekiguchi," , "Hajime Kubo,