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Question and Answer in Presentation of Financial Results for FY2016

About such key issues as M&As

Have contributions to earnings following the acquisition of management rights to the Polymatech Japan Co., Ltd. Group been factored into FY2017 performance forecasts?
Contributions have not been factored into forecasts.
Turning to the Polymatech Japan Co., Ltd. Group, how have results recovered since incurring a net capital deficiency?
In the past, business activities focused mainly on key sheet pads for feature phones. With the growing popularity of smartphones, however, results deteriorated on the back of a sharp drop in demand. Over the ensuing period, every effort has been made to harness technological capabilities and broaden the scope of activities into the automotive and electronics fields. Buoyed by these endeavors, results have recovered to the levels currently enjoyed.
What direction do you plan to take with respect to M&As under the new Medium-term Management Plan? With the recent acquisition of management rights to the Polymatech Japan Co., Ltd. Group as an example, will you target fields and businesses that offer synergy benefits over the medium and long terms even when contributions to earnings are limited for the foreseeable future?
The recent acquisition of management rights to the Polymatech Japan Co., Ltd. Group is consistent with our policy regarding M&As and our focus on the 5 growing domains identified under our new Medium-term Management Plan.
You are looking at an increase in sales attributable to fusion of 50 billion yen under the new Medium-term Management Plan. How much of an increase are you anticipating in FY2017?
We are already pushing forward more than 20 fusion-based themes in FY2017. One such example is the car electronics-related field, which entails fusion of the electronics as well as automobiles and transportation fields. We are anticipating sales of around 13 billion yen in the current fiscal year as a result of these activities.

About HPP Company results and forecasts

 *HPP Company: High Performance Plastics Company

Looking at the HPP Company’s results in FY2016, operating income came in at 14.8 billion yen for the 3Q. Despite movements in foreign currency exchange rates and a decline in the value of the yen over the 4Q, operating income fell to 12.9 billion yen. What factors are behind this downturn in operating income?
The product mix improved in the 3Q. Fundamentals remain unchanged from the 3Q and over the 4Q.
Again, in the context of the HPP Company’s results in FY2016 and your analysis of operating income, efforts to expand volume and improve the product mix contributed 10.8 billion yen to operating income, which exceeded your forecast of 9.8 billion yen. What factors are behind this upswing compared with your forecast?
We attribute this upswing to the greater than expected recovery in demand in the electronics field.
What is your outlook for demand in the electronics field? Do you anticipate demand will continue to recover throughout FY2017?
We think demand in the electronics field bottomed out in FY2016. In overall terms, demand in FY2017 is expected to surpass FY2016. From our perspective, and in addition to a recovery in market conditions, we will focus on expanding sales of new products targeting organic LEDs where demand in forecast to increase.
How will you expand sales under the new Medium-term Management Plan in each of the HPP Company’s automobiles and transportation fields?
We will increase production of interlayer films for automotive use in Mexico from the 2H FY2017. In addition to expanding volume, we intend to further improve the product mix by ramping up production of high-performance products. The decision has also been made to construct a new factory in China to address the robust demand for foam body materials used in the interior of vehicles. As far as automobile moldings are concerned, we anticipate that strong demand from countries in which we operate including India and Indonesia will contribute to earnings.

About housing orders

Turning to housing order forecasts in FY2017, to what degree will wood frame-based products contribute to results?
We are anticipating an incremental increase following the launch of strategic products in the less than 20 million yen price range volume zone, an area that currently is outside the scope of our product marketing activities. In addition, we are increasing the number of real estate for sale subdivision lots in order to market as a set package with land.
What customer base do you have in mind when marketing wood frame-based products?
We are looking mainly at first home buyers with annual incomes of between 4 and 5 million yen.

About FY2017 forecasts

 *UIEP Company: Urban Infrastructure and Environmental Products Company

As a part of your analysis of operating income in FY2017, you plan to completely offset the impact of any increase in raw materials costs through adjustments to product prices in the UIEP Company. In contrast, any increases in raw materials costs in the HPP Company will for the most part not be passed on through adjustments to product prices. Why is this so?
Despite a downward swing in raw material prices, steps were not taken to reduce product prices in FY2016 in the HPP Company in a bid to maintain spreads. As a result, we feel it would be somewhat difficult to lift product prices in FY2017. In the UIEP Company, we have placed considerable emphasis on maintaining proper product produce prices in order to improve profitability. This awareness toward securing a margin between product prices and raw materials costs is well entrenched throughout the Company as a whole.
Turning to your FY2017 plan and analysis of operating income, a substantial increase in fixed costs is projected to push down earnings. In order to offset this decline, you are shaping up to increase earnings by increasing sales volume and improving the product mix. Will this continue in FY2018 and beyond?
Under the new Medium-term Management Plan, R&D expenditures will increase 24 billion yen compared with the previous Medium-term Management Plan. We intend to accelerate new product and new business growth. We anticipate this will continue in FY2018 and beyond.
As far as your FY2017 plan is concerned, why do you envisage a drop in earnings against an increase in revenue in the Others segment?
A major factor in the increase in revenue is the inclusion of ENAX, Inc. in the Company’s scope of consolidation. While ENAX has also helped boost operating income, the upswing in expenses attributable to promoting various R&D themes including film-type lithium-ion batteries is expected to push down earnings.

About the Company’s dividend policy

Looking at dividends in FY2016 and the Company’s forecast for FY2017, it would appear that you will fall slightly short of the target dividend payout ratio of 30% even with the inclusion of a commemorative payment. What is your approach to the payment of dividends?
Our dividend payout ratio target is 30%. In adding DOE target of around 3% under the new Medium-term Management Plan, our policy is to ensure the payment of stable dividends.