Mitsubishi Chemical HoldingsTHE KAITEKI COMPANY

Management Plan

Mitsubishi Chemical Holdings Corporation (MCHC) is currently implementing its medium-term management plan, APTSIS 15, which covers the five-year period from fiscal 2011 to fiscal 2015. However, in view of changes in the business environment since the time the plan was originally issued and current business conditions, MCHC has reconsidered this plan, as noted below, and prepared APTSIS 15 Step 2 (fiscal 2013 to fiscal 2015). For details regarding the content of Step 2, please refer to the following:

Overview of APTSIS 15 Step 2 (Fiscal 2011 – 2015) (Announced on Mar. 5, 2013)

Reconsideration of Business Management Methods

In addition to MCHC's business portfolio management according to the stage of business development––next-generation growth businesses, growth businesses, cash-generating businesses, and businesses to be restructured––for greater reliability in management of its businesses, MCHC will also manage them by type of growth model as determined by the nature of these businesses, meaning their sensitivity to economic fluctuations (stable, growth-driver, and volatile businesses).

Reconsideration of Targets for Fiscal 2015

MCHC will emphasize improvement in performance through its own autonomous efforts, and has reset its targets to levels that can be attained, as shown in the following table.

Key Numerical Targets and Assumptions

  Revised targets
for fiscal 2015
(Reference)
Original targets
for fiscal 2015
Operating income ¥280 billion ¥400 billion
    Growth & innovation strategies ¥260 billion ¥330 billion
    Leaping ahead (M&A) ¥20 billion ¥70 billion
ROA (income before income taxes) ≧ 7% ≧ 8%
Net D/E ratio 0.8* 1.0**
Net D/E ratio (Including minority interests in consolidated subsidiaries) 0.5*
Overseas sales ratio ≧ 45% ≧ 45%
CAPEX, Investment and loan ¥840 billion ¥1,000 billion
Assumptions
     
Naphtha price ¥65,000/kl ¥55,000/kl
FOREX ¥90/$ ¥80/$
  • **Including Leaping Ahead (M&A)
  • **Excluding Leaping Ahead (M&A)

Operating Income by Segment

(Unit: Billions of yen)

Business domain Segment Revised targets
for fiscal 2015
(Reference)
Original targets
for fiscal 2015
Performance Products Electronics Applications 5 30
Designed Materials 80 100
Health Care Health Care 110 120
Industrial Materials Chemicals 25 35
Polymers 35 70
Others 10 10
Corporate (5) (5)
Subtotal 260 360
Contingency (30)
Subtotal including contingency 260 330
Operating income by Leaping Ahead (M&A) 20 70
Grand total 280 400

APTSIS 15 Step 2

Overview of APTSIS 15 (Fiscal 2011 – 2015) (Announced on Dec. 8, 2010)

Business Strategy and Portfolio Categories

The new plan retains the growth, innovation, and leap ahead (M&A) strategies of APTSIS 10.
The portfolio categories are next-generation growth business, growth business, cash-generating business, and business to be restructured.

Key Numerical Targets

(Unit: Billions of yen, otherwise noted)

  Results forecasts
for fiscal 2010
Targets
for fiscal 2012
Targets
for fiscal 2015
Operating income ¥203 billion ¥230 billion ¥400 billion
    Growth and innovation ¥330 billion
    Leaping ahead (M&A) ¥70 billion
ROA* 4.6% ≧ 8%以上
Net debt-to-equity ratio 1.0
Overseas sales ratio 34% ≧ 45%

*ROA is calculated as income before income taxes and minority interests in consolidated subsidiaries divided by average total assets.

Assumptions Results forecasts
for fiscal 2010
Fiscal 2011 - 2012 Fiscal 2013 - 2015
Naphtha price ¥45,600/kl ¥50,000/kl ¥55,000/kl
FOREX ¥85/US$ ¥80/US$

Operating Income and Net Sales by Segment

(Unit: Billions of yen)

Business domain / Segment Results forecasts
for fiscal 2010
Targets
for fiscal 2012
Targets
for fiscal 2015
Performance Products 42 66 130
    Electronics Applications 4 12 30
    Designed Materials 38 54 100
Health Care 77 79 120
Industrial Materials 89 83 105
    Chemicals 44 35 35
    Polymers 45 48 70
Others 3 7 10
Corporate (8) (5) (5)
Contingency (30)
       
Subtotal 203 230 330
Operating income
by leaping ahead (M&A)
70
       
Total 203 230 400
Net sales 3,190 3,600 4,200
Net sales
by leaping ahead (M&A)
800
       
Total 3,190 3,600 5,000

Investments and R&D

Invest decisively to realize growth and innovation during the next five years.

(Unit: Billions of yen)

Business domain Segment Investments (Planned investments) R&D
Performance Products 440 210
    Electronics Applications 120 70
    Designed Materials 320 140
Health Care Health Care 150 410
Industrial Materials 320 90
Chemicals 120 30
Polymers 200 60
Corporate, and others 90 40
     
Total 1,000 750
  • Excluding resource allocation for leaping ahead (M&A)

Strategies and Initiatives

Basic concept:"Grow, Innovate, and Leap Ahead by orchestrating the Group' s strengths"

ⅰ  Strengthening Fundamentals

Generate synergies, improve financial position, and reform business structure.

ⅱ  Growth Strategy

Accelerate transformation to high-performance and high-value-added business portfolio by orchestrating the Group strengths.

  • ◆ Performance Products
    •     ●Expand high-performance products and high-value-added businesses by integrating key technologies and know-how
    •     ●Expand green businesses
    •     ●Accelerate global expansion
  • ◆ Health Care
    •     ● Strengthen sales of current major products by life cycle management
    •     ● Rapidly maximize profit from new ethical drugs and increase approved products in USA, EU and PRC
    •     ● Strengthen pipeline to fulfill unmet medical needs
  • ◆ Industrial Materials
    •   ● Globalize operations and accelerate increasing value-added product ratio (strengthen ties with regional partners)
    •   ● Balanced growth with product chain optimization
    •   ● Complete restructuring in Japan

ⅲ  Innovation Strategy

Accelerate launch of new growth drivers.

  • ◆ Organic photovoltaic (OPV) modules and materials
  • ◆ Organic photo semiconductors
  • ◆ Advanced performance products
  • ◆ Agribusiness solutions
  • ◆ Healthcare solutions
  • ◆ Sustainable resources

ⅳ  Leaping Ahead (M&A)

Strategically allocate resources in alliances and acquisitions to expand businesses. Policies and priority areas are shown below.

  • ◆ Strengthen growth business and next-generation growth business
  • ◆ Accelerate global expansion
  • ◆ Performance Products and Health Care domains

Strategies by Business Domain

ⅰ  Performance Products

Accelerate launch of green businesses, pursue further value-added, and reach out to global markets.

  • ◆ Growth Strategy
    •     ● Expand high-performance and value-added businesses
      •       ◇ Functional composite materials
      •       ◇ High-performance molding products
      •       ◇ Specialty chemicals
    •     ● Expand green businesses
      •       ◇ White LED lighting materials
      •       ◇ Lithium-ion battery materials
    •     ● Accelerate global operations
      •       ◇ FPD components
      •       ◇ Water treatment system and services
  • ◆ Innovation Strategy
    •     ● Building and expanding new businesses for the future
      •       ◇ OPV modules and materials
      •       ◇ Organic photo semiconductors
      •       ◇ Advanced performance products
      •       ◇ Agribusiness solutions
  • ◆ Cash-Generating Business
    •   ● Increase profit stability
      •       ◇ Recording media
      •       ◇ Performance films (Films and packaging containers)
      •       ◇ Food ingredients

ⅱ  Health Care

Accelerate to be a global research-driven pharmaceutical company and deliver healthcare solutions.

  • ◆ Growth Strategy (Ethical Drugs)
    • ● Strengthen sales of current major products by life cycle management
    • ● Rapidly maximize profit from new ethical drugs and increase approved products in USA, EU and PRC
    • ● Strengthen pipeline to fulfill unmet medical needs
  • ◆ Innovation Strategy (Healthcare Solutions)
    • ● Deliver healthcare solutions through pharmaceuticals and diagnostics
    • ● Collaboration among the Group's healthcare-related operations
  • ◆ Cash-Generating Business
    • ● Stabilize earnings from cash-generating businesses
      •     ◇ Diagnostics and support for new pharmaceutical development
      •     ◇ Generics

ⅲ  Industrial Materials

Transform to profitable portfolio driven by accelerated global operation, shift to high-performance products, and implementation of optimized product chain.

  • ◆ Growth Strategy
    •     ● Accelerate globalization and shift to high-performance products (strengthen ties with regional partners)
      •       ◇ MMA and PMMA
      •       ◇ Performance polymers
      •       ◇ High-performance graphite
  • ◆ Innovation Strategy
    •     ● Deliver new materials that contribute to the environment and the sustainable carbon society
      •       ◇ Sustainable resources
  • ◆ Cash-Generating Business
    •       ● Stabilize earnings and reinforce business structure
      •       ◇ Stabilize operations and minimize environmental impact
      •       ◇ Reinforce business structure by leveraging high-value-added products, expanding knowledge business and improving process technologies: purified terephthalic acid, coke, polypropylene, phleomycin, bisphenol-A, and polycarbonate
  • ◆ Business to Be Restructured
    •     ● Complete restructuring in Japan
    •     ● Restructuring of ethylene center and optimization of derivatives

      Take the following initiatives to respond to the anticipated 1) decrease in demand for derivatives (especially polyolefins), and 2) downsizing naphtha crackers, in ccordance with threat from resource-producing nations.

      ◇ Derivatives
      1. 1) Expand high-value added product line and take countermeasures
      2. 2) Further optimization with partners
      ◇ Crackers (Mizushima)
      1. 1) Unify naphtha cracker operations with Asahi Kasei and downsize capacity
      2. 2) Consider a single cracker with Asahi Kasei and collaboration with refineries
      ◇ Crackers (Kashima)
      1. 1) Increase competitiveness through regional partnership
      2. 2) Further restructuring, including collaboration with refineries

Global Operation

Expand overseas sales ratio and operating income margin (fiscal 2010 vs. fiscal 2015).

    Overseas sales ratio: From 34% to 45%

    Overseas operating income margin: From 26% to 50%

Synergies

Plan to generate major synergies of ¥5 billion in fiscal 2012 and ¥15 billion in fiscal 2015 in carbon fibers and composites, water treatment, specialty chemicals, and others.

Plan to generate cost synergies of ¥6 billion in fiscal 2012 and ¥28 billion in fiscal 2015 in purchasing, logistics, IT, and R&D.

Expect to generate synergies of ¥11 billion in fiscal 2012 and ¥43 billion in fiscal 2015 in total.

Enhancing Shareholder Value and Corporate Value

i  Enhancing Shareholder Value

  • ◆Basic Policy
    •     ◇ Enhance shareholder value by improving corporate value
  • ◆Shareholder Returns
    •     ◇ Maintain sufficient internal reserves to fund business development while paying consolidated results–based dividends
    •     ◇ While targeting a medium-term payout ratio of at least 30%, we will also prioritize stable dividends (maintaining and increasing cash dividends per share)

ii  KAITEKI Indexes    NOTICE

Implement KAITEKI indexes, including the Sustainability index, Health index, and Comfort index that MCHC has developed as part of its business management to monitor progress and manage plan-do-check-act cycles. Here are some concrete examples:

  • ◆Sustainability Index
    •     ◇ Reduce environmental impact by 30% vs. 2005 levels and cut GHG emissions by 17% vs. 2005 levels.
  • ◆Health Index
    •     ◇ Increase index performance, derived from the degree of difficulty in treating diseases and the number of administered patients, by 30% vs. 2009.
  • ◆Comfort Index
    •     ◇ Increase new product development ratio from 16% to 35% in the Performance Products and the Health Care domains by fiscal 2015.

The Mitsubishi Chemical Holdings Group Mid-term Management Plan, APTSIS 15