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TO OUR SHAREHOLDERS AND INVESTORS

Review of Fiscal Year 2009 (April 1, 2009, to March 31, 2010)

Business Outlook for Fiscal Year 2010 (April 1, 2010, to March 31, 2011)

Toward Medium- and Long-term Growth

Financial Strategy and Shareholder Return Policy

In Closing

Naofumi Negishi, President

In fiscal year 2009, we launched our five-year medium-term management plan "GS21-SHINKA!" (fiscal years 2009 to 2013), designed to fulfill our Group vision of establishing the Sekisui Chemical as a "Prominent & Profitable Premium Company."

This plan aims to increase the Company's operating income to 80.0 billion yen in fiscal year 2013. The first phase of the plan (fiscal years 2009 and 2010) sets an agenda for advancing specific measures centered on reinforcing our earnings power under the themes of “overcoming the recession and preparing for future growth.”

The earnings goal for this first phase is to regain the 40 billion yen operating income level the Company had attained in fiscal year 2007, prior to the Lehman shock, which took place in November 2008. In the second phase, we will work to double that earnings level to 80 billion yen by fiscal year 2013, the plan's final year.

The Group struggled to produce results in the first half of fiscal year 2009 as the stagnant economic conditions and accompanying low level of demand that took hold in fiscal year 2008 persisted. Demand recovered in the second half, but the improving earnings trend was unable to make up for the impact from the first half, and full-year net sales ended at 858.5 billion yen, down 75.7 billion yen from the previous fiscal year.

Sales and Operating Income by Division Company

Anticipating the severe business environment, we started working on strengthening the Group's earnings structure from the very beginning of the fiscal year. We implemented various measures to reduce fixed costs and variable costs, such as raw materials costs, and successfully lowered the sales break-even point to compensate for the decrease in sales. As a result, operating income increased 2.4 billion yen year on year, to 36.0 billion yen. We originally set as our target operating income of 27.5 billion yen for fiscal 2009. However, with our steady progress in strengthening the earnings structure and the earlier-than-anticipated recovery in demand in the IT field and other segments, we generated operating income at a level that substantially exceeded our target. Thus, we got off to a strong start in fiscal year 2009, and made considerable progress toward meeting our goals for the first two-year phase of "GS21-SHINKA!," which are to overcome the recession and prepare for future growth.

In terms of the progress made by each company during fiscal 2009 in the achievement of fiscal 2010 targets, the High Performance Plastics Company and the Housing Company are within easy striking distance of their fiscal year 2010 targets. If demand in their core markets remains relatively steady, it is almost certain that the continued application of their current strategies will enable them to achieve their goals.

The Urban Infrastructure & Environmental Products Company posted declines in both sales and operating income under harsherthan-expected business conditions in fiscal year 2009, which included a substantial slowdown in new housing starts in Japan and a significant number of project order postponements due to unseasonable weather overseas. However, we recognize that the company has steadily implemented measures to lower the sales break-even point.

Our objectives for fiscal year 2010 will be to regain the fiscal year 2007 profit level and the historical growth rate, and lay a foundation for growth in fiscal year 2011 and beyond. Our efforts to achieve these objectives will be guided by two fundamental strategies: vigorously respond to growing demand, and continue strengthening the revenue structure.

"Vigorously responding to growing demand" will center on the "Frontier 7" businesses where we expect growth in the medium-term. We aim to increase sales by focusing our globally competitive products and operations in areas expected to see a recovery in demand and subsequent growth. We have numerous products and businesses that are highly competitive in the global market, including our interlayer films for automotive applications, IT-related products, medical products, the pipeline renewal business, and performance materials business (plant materials, sheets for aircraft interiors, sheets for vehicle interiors & exteriors and fiber-reinforced foamed urethane). Demand for each of these products and businesses is expected to increase as the global economy improves. When demand revives, we aim to be in a position to take full advantage of the opportunity to grow sales of interlayer films, IT-related products, medical products, and performance materials business in Asia and other high-growth markets and to expand the pipeline renewal business using our fortified business bases in Japan, the United States, Europe and Asia.

We will also implement measures to meet the anticipated growing demand for products catering to the needs of domestic customers. The measures include increasing sales of environmentally friendly products, such as our houses with built-in solar power generation systems, and expanding the living environment business by focusing on the refurbishing business for existing housing stock. We expect a continuing contraction in the volume of new public works projects and only marginal improvement in the pace of recovery for new construction investment in condominiums and commercial buildings. The housing construction market, however, is moving toward recovery with support of various government measures to promote housing purchases.

We plan to act on signs of market recovery and growth by increasing production capacity, reinforcing sales operations, and implementing the measures necessary to meet demand in each business field.

The second fundamental strategy for the year—to continue strengthening the revenue structure—will entail further curbing investment outside our growth fields to minimize fixed costs, and making swift decisions on whether to eliminate unprofitable and low-profit businesses to further enhance our earning power. We will also seek to reduce variable costs by offsetting the anticipated rise in raw material prices during the year mainly through value engineering and other cost-cutting measures, as well as by continuing with our Manufacturing Development SHINKA activities and the integration of the Housing Company's production and sales operations.

Based on the results we expect from these strategies, we aim to increase net sales by 61.5 billion yen year on year, to 920.0 billion yen, and operating income by 6.0 billion yen, to 42.0 billion yen, in fiscal year 2010.

We are aiming to cultivate paths for business growth over the medium-and long-term by applying the three initiatives of accelerating global business development, expanding profit through value chain development, and pioneering new growth business segments to create new revenue sources while continuing to strengthen our current revenue drivers.

Under the first initiative of accelerating global business development, we have launched our housing business in Thailand and the reinforced plastic piping business in Libya. We are also developing medical field sales in the United States and Europe through subsidiaries American Diagnostica Inc. and Xenotech.

The second initiative of expanding profit through value chain development is being applied by leveraging the technical synergy possibilities with the PVA resin operation that was added to the business portfolio last year to develop new high-performance interlayer films and other products.

At the same time, we are developing LED-related and photovoltaic battery materials under the third initiative of pioneering new growth business segments.

We are cultivating these endeavors to supplement our current core businesses and become drivers of new growth for the Company as we seek to achieve our 80 billion yen operating income target for fiscal year 2013.

Our financial strategy is based on the key management policies of increasing corporate value and ensuring a return of profit to shareholders. In line with this policy, we have established a target dividend payout ratio of 30% on a consolidated basis to be returned to shareholders in each fiscal term. We surpassed the target payout ratio for the year under review, but are maintaining the annual dividend payment at the previous year's level of 10 yen per share, reflecting the priority we place on returning profit to shareholders. We will retain internal cash reserves of an amount sufficient for covering R&D expenses, capital expenditures, strategic investment, financing activities, and other activities that we consider vital to assuring further improvement in corporate value into the future.

Cash flow during the year will be utilized for capital investment, financial structure reinforcement, and shareholder return. Capital investment will focus on strategic investment in growth frontier development, specifically for capital expenditures, M&As, and the construction of our overseas business structure, which will be essential for the Company's future growth. The amount allotted to other ordinary investments will be limited only to items deemed absolutely necessary.

Since its founding, Sekisui Chemical has been working to develop products that are useful to the daily lives of individuals, contribute to the protection of the natural environment, and meet the needs of society. Initiatives aimed at contributing to the protection of the global environment and the daily lives of people worldwide are equal to contributing to society through our business activities. That is to say, CSR activities are crucial for the achievement of sustainable growth.

Through our products and businesses, we intend to continue contributing to the resolution of social issues and guiding the Group to fulfill the expectations and hopes of our shareholders and stakeholders.

We thank you for your continued understanding and support of the Sekisui Chemical Group.

July 2010

Naofumi Negishi, President

The economic crisis that erupted in the autumn of 2008 forced companies around the world to adopt austere management policies. In the midst of a widespread economic recession, we launched our medium-term management plan in fiscal year 2009. For the Sekisui Chemical Group, fiscal year 2009 was a year of gaining a foothold to survive the global recession. Sales were inevitably down for the year, but operating income increased, putting us back on a recovery track.

Meanwhile, changes in the earth's climate are having an everincreasing impact on the economy and society. The new administration's international pledge to lower greenhouse gases, the United Nations Framework Convention on Climate Change, and other important policies and treaties are forcing Japanese companies to reduce the amount of greenhouse gases emitted by their operations. Corporate management can no longer avoid these environmental issues.

That said, we believe that we must earnestly implement CSR initiatives at all times and under any kind of business conditions to realize the Group's transformation and evolution. And thus, we have made every effort to fulfill our CSR management duties during the year under review.

The Sekisui Chemical Group's concept of its Corporate Social Responsibility (CSR), represented by the Three Prominences—the Environment, Customer Service & Quality, and Human Resources—and the Three Attitudes of Sincerity: Compliance, Risk Management, and Disclosure & Communication, is the core of CSR management, and is one of the priority initiatives in our medium-term management plan.

These CSR initiatives can only be realized through the efforts of each individual employee. We took special steps in fiscal year 2009 to raise CSR awareness and deepen the practice of CSR in each of our business departments. Every year, I make it a point to meet and speak with employees throughout the Group. In fiscal year 2009, I discussed both our medium-term management plan and CSR with employees at our 12 business sites across Japan. CSR is an integral part of management, which should be incorporated into each company's business activities. Accordingly, every department must take the initiative in implementing CSR activities.

To encourage a proactive response to CSR in all of our departments, we held brainstorming sessions on CSR with division managers and the presidents and executives of our subsidiaries, and had them discuss and consider concrete ways to reflect CSR considerations in their duties and business practices. The brainstorming sessions are merely a starting point. The primary aim is for every department to better integrate CSR initiatives into its activities. The positive results of these sessions are reflected in the various action plans for the fiscal year ending March 31, 2011.

We are planning to hold CSR brainstorming sessions worldwide, as well as in Japan. In fiscal year 2009, we held the first CSR brainstorming session in China. In fiscal year 2010, we are going to hold such sessions in Europe and the United States to identify and discuss the common issues for each region, and make CSR management a higher priority in our overseas operations.

Our Group Vision of contributing to the daily lives of individuals and the protection of the global environment means contributing to society through our business activities, while simultaneously growing our businesses. This, itself, is CSR management.

Our principal management policy in fiscal year 2010 is to strengthen our ability to realize sustainable growth. To this end, we need to make our Three Prominences—Environment, Customer Service & Quality, and Human Resources—even more prominent, and contribute to society through our businesses while working to achieve sustainable growth in tandem with society as a whole.

Regarding the environment, the situation necessitates swift and decisive action to halt global warming and protect the earth's biodiversity. With regard to the operating environment, the environmental field, as well as the Asian markets and the stock markets are important to our business growth. We have created products and businesses that have pioneered new directions for houses with built-in solar power generation systems, sewage pipe rehabilitation methods, and heat insulation interlayer films. As we look to the future, we will continue to create next-generation businesses and technologies centering on the environmental and energy fields, to further expand our lineup of products that contribute to the environment.

We believe that the Three Attitudes of Sincerity provide a crucial backbone to our operations, and are indispensable for the Company's continued existence. Therefore, we intend to make earnest efforts in these three areas.

We will implement CSR initiatives on a global basis as our business activities become increasingly global. Each area of the world has its own customs and values, and the social issues and CSR priorities may differ depending on the region. Accordingly, we will address CSR issues, utilizing brainstorming sessions and other means. Through local CSR meetings and diligent study, we will conscientiously and purposefully develop our CSR activities in each region.

Last year, we announced our unmitigated support of the United Nations Global Compact. In the spirit of the Global Compact, we will do our part to help resolve social issues and contribute to society in Japan and around the world as we continue to earn the trust of society and grow as a company.

Naofumi Negishi
President

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