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To Polyplastics Group Employees,

I hereby report our consolidated financial targets for FY 2016.

1. Consolidated Financial Summary
2. Trend of the World Economy
3. Financial Targets by Product Segment for FY2016
   3-1．POM Business
   3-2 Polyester Business
   3-3 PPS Business
   3-4 LCP Business
   3-5 COC Business
4. Capital Investment
5. Key points of other consolidated budgets

１．Consolidated Financial Summary

1. Sales are expected to decrease for the second consecutive years. Major factors for the decrease are intensified price competition due to the sluggish market conditions and a reduction in selling prices due to pricing formula despite the sales volumes for each product increase by 3 to 5 %. In addition, it is also effected by a shift from the weak Yen trend, which has been continued over the last few years, to the strong yen trend (120→115¥/USD).
2. Due to the prices of raw fuels that remain a low level and the expected cost down efforts of approximately 1.3 billion yen (the cost down achieved in FY2015 was approximately 1.8 billion yen), the financial target is set at a level where the sales profit margin is increased to 30.9% despite a decline in sales.
3. Operating income is budgeted to be approximately 17.1 billion yen (a year-on-year increase of 3%) and we aim to achieve the highest operating income level for the third consecutive years.
4. As for general and administrative expenses (SAR expenses), expenses required for the enhancement of the European business and the future growth such as recruiting are actively included in the budgets. In order to realize these focus investments, the company-wide efforts shall be continuously made to reduce the existing SAR expenses through the promotion of streamlining and optimization. 
5. Net income is budgeted to be approximately 10.5 billion yen (a year-on-year increase of 13%) due to the reduction in the corporate tax and effects of business restructuring for PBT.

Key points are (1) continuation of safe and secure operation, (2) realization of the sales budget that incorporates development of new markets, development of new application and development of new customers with the aggressive sales promotion respectively under the weak business environment, (3)enhancement of product performance that supports the realization of the sales budget, (4) further cost reduction efforts in response to the risk of further yen appreciation and the risk of reversal of crude oil prices.

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2. Trend of the World Economy
In the CEO Message issued in January 2016, it was written that “the world economy in this year may be affected by two factors, the effect of an increase in US interest rates and the slowdown in Chinese economy; however, since then, various destabilizing factors including occurrence of geopolitical risks such as sudden breaking off of diplomatic ties between Saudi Arabia and Iran and North Korean nuclear test, the introduction of negative interest rate by Bank of Japan, a sharp fall in the world stock markets, the sharp yen’s sole appreciation, the long-term price reduction of crude oil and uncertainty over the U.S economy which should have been steady have been emerged one after another and thus the world economic situation is currently unpredictable with the only first two factors.

Also on March 11 when I was writing this script, the European Central Bank announced the monetary easing policy (such as expansion of the negative interest rate and scale of quantitative easing) and there was news concerning violent fluctuations of euro rate and the crude oil prices were gradually increasing. The effects of the fluctuation in such external environmental factors on the consolidated financial targets for FY2016 are not insignificant; however, there will be no change in the basic business strategies as a company we have promoted in the mid management plan. Rather, the best we can do is to surely promote the said plan and we consider that it will produce the maximum profits for the company in the medium term.

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3．Financial Targets by Product Segment for FY2016
3-1．POM Business

1. In FY2015, the total sales volume for POM achieved a year-on-year increase of 4%, which was driven by the growth of the Chinese market (up 6%) and the European market (up 72%). In FY2016, the Chinese market is expected to slightly slow down (up 2%); however, the European market is expected to make a continuous growth (up 64%) and the sales are expected to expand in India, ASEAN and Korean markets. Thus, the total sales volume is expected to increase by 4% year-on-year. In the Japanese market, the sales volume is expected to stay flat compared to the previous year due to effects of a decrease in the number of vehicles produced.
2. In the European market as a focus market, resources such as sales and marketing personnel and sales promotion expenses are actively input and material line ups intended for foods use are enhanced in order to further enhance the corporate value of the company in this market.

3. Owing to the fact that the price of methanol (a main raw material) has remained at a low level and vigorous cost reduction efforts have been made by each production plant, the manufacturing cost rate achieved a year-on-year increase of 5%. Therefore, operating income margin of the POM Business for FY2016 is budgeted as 18.7%, which is the highest in the past 10 years. Operating income for the POM Business alone is budgeted as 9.4 billion yen (a year-on-year increase of 900 million yen), which is almost reaching 10 billion yen.
   
4. The causes for concern include the further decline in the market prices, a shift of exchanges rate toward yen appreciation and a slowdown in Chinese economy.

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3-2 Polyester Business

1. In FY2015, the sales volume in each regional market remained at the same level as an average year and the total sales volume is expected to decline by 1% compared to the previous year. In FY2016, we set the budget to aim to increase the total sales by 3% by expanding the sales in the Japanese, ASEAN and European markets. In the Japanese Market, the Polyester Business is affected by a decline in the number of vehicles produced and offshoring of customers; however, we expect to achieve a year-on-year increase of 2% by expanding adoption of the product and development of new customers. In the ASEAN market, we expected to achieve a year-on-year increase of 5% by the growth of the Indian market and attracting Japanese customers to be offshored to ASEAN countries. In the European market, we expect to achieve a year-on-year increase of 25% by promoting market development, just like the PON Business. Also in the Chinese Market, we have budgeted the business to achieve a year-on-year increase of 3% due to positive factors such as the recovery of the number of vehicles produced and easing of inventory adjustment of air conditioners.
   

2. The PBT Business has been exposed to the fiercely competitive environment under the situation of global oversupply. Even under such circumstance, we expect to achieve a year-on-year increase of 31% in operating income in FY2015 due to factors such as the reduction in prices of raw materials, the expanded adoption of value added products, the expanded sales of low cost materials for Chinese Market. Also in FY2016, we will expand the sales of value added products intended for next generation and environmentally friendly vehicles such as high voltage/charging connectors for HEV and PHEV and promote the restructuring of the PBT Business to enhance the cost competitiveness in order to establish the business structure that enables us to make a profit in the future. In FY2016, we expect a slight decline in operating income as a result of a temporarily increase in costs due to the restructuring of the PBT Business; however, there will be no problem.

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3-3 PPS Business

1. In FY2015, the sales volume in the Chinese market declined by 5% compared to the previous year due to the effects of sharp decline in the sales of metal adhesion grade used for bodies of Chinese smart phones and the sales volume in the Japanese market also decline by 1% compared to the previous year due to the decline in the number of vehicles produced and the sales volume in other markets also failed to achieve a significant growth due to tight supply of resin. Accordingly, the total sales volume is expected to decline by 1% compare to the previous year.
   In FY2016, the sales volume in the Chinese market is expected to decline by 8% due to the continued decline in the sales of PPS used for smart phones; however, we expect that this decline in the Chinese market is covered by the increase in the sales volumes in the Japanese market (up 6%), the Korean market (up 16%) and the European market (up 64%) and have budgeted to achieve a year-on-year increase of 5% so that the sales volume is recovered to be on a growth trend. In the Japanese market, a significant growth is expected by an increase in the number of HEV produced and the sales of next generation and environmentally friendly vehicles such as Toyota TNGA. In addition, the Indian, European and Korean markets are driven by the expansion of adoption of products intended for local auto part manufactures and an increase in sales of products used for connectors.
   

2. As for competitive situation in FY2015, we faced difficulties due to the fact that we were not able to conduct aggressive sales due to resin shortage and TORAY, DIC and INITZ (Korea) conducted the capacity increase (plan) and aggressive sales. As for resin procurement problem, we saw the prospect of securing supply of resin for the next few years in collaboration with Kureha Corporation, our business partner. We also will enhance the compound production capacity at Malaysia PAP plant by 2017. Therefore, with the secured supply, we will go onto the offensive.
   
3. In FY2016, operating income is expected to decline by 19% compared to the previous year due to the decline in the sales of metal adhesion grade used for bodies of Chinese smart phones the effects of an increase in costs owing to procurement of high priced resin from the third party. We believe that the expansion of the share can lead to the income growth of the PPS Business in the medium term, even at the expense of the decline in income for a few years.

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3-4 LCP Business

1. In FY2015, the sales volume of LCP declined (by 7%), which was the first decline in two years due to the effects of the significant reduction in the number of PC/HDD produced and the effects of the globally decreased demand in LCP as a result of factors such as stagnation of growth in smartphones. In only the Japanese market, the sales achieved a year-on-year increase of 1%; however, in all other markets, the sales declined by around 10%. In FY2016, we aim to achieve a positive growth rate in all regional markets (China: up 2%, ASEAN: up 4% and Korea: up 1%) by accelerating the growth of the Japanese market (up 12%) by means of expanding the sales of products used for automobiles and films and increasing the number of items mounted on cameras for smartphones and by mitigating the market environment for PC/HDD and by expanding the adoption of products for new applications such as camera module, cooling fan, automotive relay and we have budgeted the total sales to achieve an increase of 5%.

2. As for the business environment for LCP, the market has seen the rise of the Chinese local manufactures while the market condition is not strong and accordingly the business is in a harsh competitive situation just like other businesses. The important business strategies include the performance improvement of existing products and development of differentiated materials to survive the market competition, the enhancement of the selling ratios in fields such as car-mounted and film areas other than the connector area and the development of markets by the activity of promoting our products to be designated in specifications of products produced in Asia by European customers. Meanwhile, we now have a prospect of the development of new polymer for the purpose of developing new high functional materials in response to the market demands and expect to bring it to the market during FY2016. We thus have a high expectation of it.
   
3. In FY2016, operating income is budgeted to achieve approximately 2.6 billion yen, which is a year-on-year increase of 35%, by contributing factors such as the sales growth, the reduction in the price of the material, monomer and the cost reduction.

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3-5 COC Business

1. In FY2015, the sales volume for the third party by regional market increased by 11% for EU, increased by 10% for US and declined by 14% for AP. The sales volume was particularly low in the AP area of which we are in charge. Major factors include the decline in the sales volume of the product used for shrink label in China, that used for packaging in Thailand and that used for touch panel base material. In FY2016, we expect a sales growth of 8% globally (EU: up 2%, US: up 14%, AP: up 10%).
2. In FY2015, operating income of TAP was in the black again just like the FY2014 (1.4 million euros), which was contributed by the factors such as the cost reduction by the stabilized production, the reduction in the prices of raw materials and various refunds. In FY2016, the operating income is expected to be 1.7 million euros due to an increase in the sales volume of the product intended for TAPI&PPC and higher-margin grades sold more than our sales forcast and the effects of elimination of loss on valuation of inventory despite an increase in expenses due to a statutory periodic repair of the polymerization facility to be conducted in every five years.
   

3. Meanwhile, the COC Business in Japan and Asia in which we are in charge has been in the red for a long time. We have had an expectation in the growth of the produce used for optical purpose; however, in addition to the fact that it is difficult to make significant differences in functions, the significance of fluctuation in this area can be risk factor and therefore we decided to focus on the packaging area which can expect a stable growth and the medical area which is a high value added area. Accordingly, we try to get out of the red by restructuring the TOPAS Business Development Department to reduce resources. 
   
4. As the target for FY2016, we aim to achieve the break-even level of operating income for the global COC Business that consolidated the income of three companies, TAPG, TAPI and PPC.

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4. Capital Investment

1. In FY2016, the total capital investment is budgeted to be approximately 3.5 billion yen, which indicate an increase compared to the said amounts in FY2014 (1.4 billion yen) and FY2015 (2 billion yen). The reason for this increase is that we plan to invest 1.6 billion yen in the restructuring of the utility facility in the Fuji Plant (the details shall be discussed in the next paragraph).
   
2. As 16 years have passed since the installation of boiler/turbine (steam/power generator) at the Fuji Plant, the expense of approximately 2.7 billion yen is expected to replace the aging equipment in the future. In addition to the said expense, considerable expenses such as repair expenses and operating expenses for incidental equipment are required. Meanwhile, the demand for PON in the Japanese market is expected to decline in the future and a capacity of the current boiler/turbine equipment is expected to be highly excessive in the future, upon the expiration of the power purchase agreement with Tokyo Electric Power Company, Incorporated, which may be a factor contributing to putting a squeeze on the manufacturing cost of PON. Therefore, we have determined to minimize the costs by terminating the operation of the current boiler/turbine without replacing aging equipment and, instead, introducing the natural gas fueled package boiler (1.6 billion yen). Moreover, this investment item will achieve the reduction in CO2 released into the atmosphere and accordingly contribute the conservation of the global environment.

5. Key points of other consolidated budgets

1. The Yen’s exchange rates against US$ and Euro shall be set as 115 yen and 125 yen, respectively.
   
2. Methanol and Crude OIL are assumed to be 250US$/ton and 35US$/barrel, respectively.
   
3. According to the personnel planning, the number of employees shall be 1,968 (as of the end of March 2017), which is a year-on-year increase of 63 employees. The details of the increase shall be an increase of 43 employees for the operation of new equipment at PNL (China) and PAP (Malaysia), an increase of 8 employees for the sales and marketing to promote the sales in the European market and an increase of 7 employees for new hires in Japan.
   
4. The reduction in costs is planned to be approximately 1.3 billion yen. We plan to work on reducing the costs in various areas such as energy saving, a reduction in the logistic expense, a shift from outsourcing of manufacturing to internal manufacturing, a reduction in raw material costs by introducing competitive bidding.

In FY2016, we are in a situation where the external environment is largely fluctuated as there are more fluctuation factors than the previous year. It is expected that we require considerable efforts to achieve the budget mentioned above. We strive to achieve our objectives by further enhancing the company-wide team strengths and abilities.

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