Basic Policy of PZ-31. Reaffirming our role as a public institution, and in linewith our management principles — speed,communication and contribution to society — we arebuilding a company that can receive the trust of societyand that every employee can be proud of.2. By ensuring consistency between our managementstrategies and our research and development strategies,we will create and continue to develop new areas ofbusiness using our worldleading, original technologies —which are not copied from others and cannot be copiedby others.

Progress of PZ-3In 2005, we established our PZ-3 mid-term managementplan for the period from fiscal 2005 through 2007 in linewith our basic strategies: "to secure steady profits fromcore materials operations and to constantly create newlines of business." As we look ahead to 2010, we setinterim targets for 2007 inthe three-year plan.The objectives of PZ-3 are to improve corporate value andmake great advances. In order to achieve these objectives,under our motto － speed, communication andcontribution to society － we will take on all challenges.To this end, we will review the basics of production andwork toachieve major reforms in order to bring about safeand stable production sites and to further strengthen ourresearch and development capability.

Overview of Fiscal 2006During the consolidated FY2006, the second year of ourPZ-3 mid-term management plan, the ZEON Groupachieved record performance, in both ordinary incomeand operating income, followed by FY2005, the first yearof the plan, thus renewing the previous-year's figures forfive consecutive years. Amid a worldwide trend of risingcrude oil prices, naphtha and other raw materials, someforecasts started predicting signs of a slowdown in theUS economy. On the other hand, the Japanese economycontinued to show mild recovery, driven by domestic

demand, as sound corporate performance helped boostcapital investment and increase personal consumption.Furthermore, demand remained strong due to, amongother factors, brisk exports to the Asian market.Under this business environment, the ZEON Groupendeavored to reduce costs thoroughly through its ZΣactivities, while revising sales prices, pursuing profit-oriented marketing strategies in the elastomer sector,striving to develop high-value-added products using itsoriginal technology and expanding sales in the specialtymaterials sector. As a result, the Group achieved anincrease in both net sales and profit for FY2006, thusdelivering an increase in dividends for four yearsconsecutively. In response to drastic environmentalchanges in the years to come, the ZEON Group willincrease its research and development expenses andactively promote its investment activities to attain the finaltargets set by the PZ-3 plan.

During this fiscal year, our net sales exceeded the final target set byPZ-3 and operating income showed steady growth.

4 ZEON CORPORATION 2007

3-year Mid-term Management Plan PZ-3

Head office

Achievement of PZ-3 targets(assumed exchange rates: ¥118.09/USD and ¥157.41/EUR; assumed naphtha price : ¥46,000/kl)

Basic Policy of PZ-31. Reaffirming our role as a public institution, and in linewith our management principles — speed,communication and contribution to society — we arebuilding a company that can receive the trust of societyand that every employee can be proud of.2. By ensuring consistency between our managementstrategies and our research and development strategies,we will create and continue to develop new areas ofbusiness using our worldleading, original technologies —which are not copied from others and cannot be copiedby others.

Progress of PZ-3In 2005, we established our PZ-3 mid-term managementplan for the period from fiscal 2005 through 2007 in linewith our basic strategies: "to secure steady profits fromcore materials operations and to constantly create newlines of business." As we look ahead to 2010, we setinterim targets for 2007 inthe three-year plan.The objectives of PZ-3 are to improve corporate value andmake great advances. In order to achieve these objectives,under our motto － speed, communication andcontribution to society － we will take on all challenges.To this end, we will review the basics of production andwork toachieve major reforms in order to bring about safeand stable production sites and to further strengthen ourresearch and development capability.

Overview of Fiscal 2006During the consolidated FY2006, the second year of ourPZ-3 mid-term management plan, the ZEON Groupachieved record performance, in both ordinary incomeand operating income, followed by FY2005, the first yearof the plan, thus renewing the previous-year's figures forfive consecutive years. Amid a worldwide trend of risingcrude oil prices, naphtha and other raw materials, someforecasts started predicting signs of a slowdown in theUS economy. On the other hand, the Japanese economycontinued to show mild recovery, driven by domestic

demand, as sound corporate performance helped boostcapital investment and increase personal consumption.Furthermore, demand remained strong due to, amongother factors, brisk exports to the Asian market.Under this business environment, the ZEON Groupendeavored to reduce costs thoroughly through its ZΣactivities, while revising sales prices, pursuing profit-oriented marketing strategies in the elastomer sector,striving to develop high-value-added products using itsoriginal technology and expanding sales in the specialtymaterials sector. As a result, the Group achieved anincrease in both net sales and profit for FY2006, thusdelivering an increase in dividends for four yearsconsecutively. In response to drastic environmentalchanges in the years to come, the ZEON Group willincrease its research and development expenses andactively promote its investment activities to attain the finaltargets set by the PZ-3 plan.

During this fiscal year, our net sales exceeded the final target set byPZ-3 and operating income showed steady growth.

Important Policies to Attain PZ-3 Targets

Elastomer OperationsWe determined three important policies in order to meetthe PZ-3 targets in our elastomer operations: 1）production innovation, 2）production at optimumlocations in the world, and 3）specialization. Under thesepolicies, we will work hard to stabilize our productionprocesses, optimize global operations, develop high-value-added products and new applications, and convertand streamline our production facilities.

• Synthetic RubbersAs a leading producer in this area, we hold the topshares of the world markets for many specialty rubberproducts primarily used in automobile engine parts. Wealso produce general-purpose rubbers, but we pursuespecialization in this sector according to our businessstrategy. We have synthetic rubber production bases in Japan,Europe and the United States. In addition, we havecarbon master-batch production subsidiaries in Japanand three other countries in Asia. Thus, the globalization

of production and sales activities of our synthetic rubberoperations is making steady progress. In the period ahead, we will further promotespecialization, our strong point, and continue to develophigh-quality and advanced synthetic rubber products. Atthe same time, we will strive to secure stable supply ofreasonably priced products by further improving theefficiency of our global production and supply systems.

• Synthetic LaticesSynthetic latices are used in a wide variety of applications,including paper processing, adhesives for carpets andtire cords, products for ABS resins, cosmetic puffs andwork gloves. We have focused on NBR latex for work gloves in recentyears. Demand has grown for our products for thereplacement of natural rubber latex as it has becomeevident that a certain protein in natural rubber may causesome people to experience an allergic reaction. Ourproducts have gained a good reputation for their softtexture and a close fit. Making the best of our polymertechnology, we have quickly responded to the needs ofusers, increasing sales at a steady pace.

ZEON CORPORATION 2007 54 ZEON CORPORATION 2007

3-year Mid-term Management Plan PZ-3Middle Management Plan &

Operation

Gloves made of NBR latexHead office

Synchronous belt using hydrogenatednitril rubber

Automobile tires using SBR, S-SBR,BR, and IR

3-year Mid-term Management Plan PZ-3

6 ZEON CORPORATION 2007

• ChemicalsMain products in the chemicals sector, which areproduced from various C5fractions by the GPI process（ZEON Process of Isoprene）, includeadhesivecompounds foradhesive tapes,petroleum resinsfor road-markingpaints, thermoplastic elastomer usedasbase polymer for nonsolvent adhesive tapes andstyrene-isoprene copolymer（SIS）. During the year underreview, we developed and introduced four new types ofSIS, which offer light adhesion and improvedtransparency, an example of our new proposals.

Specialty Materials OperationsImportant policies in our drive to attain PZ-3 targets inspecialty materials operations are: 1）customer-oriented operations, 2）development of de facto standard technologies, and 3）continuing flow of new products. Under these policies,we will carry out the following measures: sharing of adevelopment road map, promotion of proposal-type salesand developmentactivities, establishment of a system tosupply products that can be made only by us, investmentfocusing on production facilities, strengthening of ourtechnological base, and appointment of researchpersonnel to priority areas. In the specialty materials sector, as our investmentstrategy targeted for 2010, we will invest mainly in thefollowing five priority areas: 1) displays（flat-paneldisplays）, 2) computers（semiconductors）, 3) recording（DVD and other storage media）, 4) communications（optical fibers, insulating materials）, and 5) energy（battery materials）.• Specialty ChemicalsIn mainstay synthetic aroma chemicals, we hold the top

global market share in leaf alcohol, a green-note aromachemical, and the second-largest market share injasmine-note methyl dihydrojasmonate. Our specialsolvents and medical and pesticide intermediates are theresult of unique synthesizing technology. We are theworld’s only company to use C5 fractions in acomprehensive manner. During the year under review,we completed a chemicals laboratory designed toimprove research and accelerate product development.For increased security, we will return to inhouseprototype production.

• Information Equipment-Related MaterialsWe completed a pilot plant for the purpose of developingpolymerized color toners. At present, we have the capacityto produce 2,500 tons of monochrome toners annually.The new pilot plant was constructed to accommodate thegrowing demand for toners for color laser printers andcopiers. Featuring high selectivity and high etching rates,ZEORORA® ZFL-58 is being used worldwide as a dryetching gas for the manufacturing of next-generationsemiconductors. Demand for the product is steadilygrowing. ZEORORA® has been rated highly for its ozone-safe property and minimal global warming potential,winning various environment-related awards. We also developed ZEOMAC®, a low dielectric materialfor interlayer insulation films (low-k material) used forsemiconductor manufacturing. The results of thedevelopment were announced in October 2004.ZEOMAC® enables processing of ultra-fine line widths of65nm, 45nm and 32nm, which previously was believed tobe difficult, if not impossible, to do. ZEOMAC® is apromising material for manufacturing semiconductors,which are expectedto have a furtherincreased degree ofintegration in thefuture.

Perfumes using synthetic aroma chemicals

Aliphatic hydrocarbon resin for usein traffic paints

Adhesives

• Specialty PlasticsOf our specialty plastic products, ZEONEX® featuresexcellent optical properties, high transparency, lowabsorbency and high heat resistance, making possiblethe production of parts with great optical reliability thatcan replace glass. Demand for ZEONEX® is growing forapplications in cameraequipped mobile phones, digitalcameras, optical lenses for DVD recorders and playersand prisms. We alsob developed ZEONEX® 340R as a material foroptical pickup lenses conforming to both the Blu-ray discand HD DVD formats, both of which are promisingcandidates for nextgeneration blue-laser optical disks.This product was put on the market in late 2004. For the ZEONOR® series, in addition to the existingZeonorFilm®, in October 2004, we succeeded indeveloping new ZeonorFilm® for next-generation, largeLCD televisions. Four types of new ZeonorFilm® weredeveloped and have been put on the market. The benefitsof these new films include: 1) having both polarizing

performance and polarizing plant protectionperformance, 2) being capable of producing polarizingplates using rollto-roll pasting technology, and 3)contributing to the improvement of screen stability.Accordingly, the new ZeonorFilm® satisfy requirementsfor next-generation, large flat panel displays and areenjoying steadily increasing sales. To satisfy brisk demand for use in large liquid crystaldisplay televisions, we decided to increase our annualproduction capacity of optical film rolls to 40 millionsquare meters and of new ZeonorFilm® (stretched film) to30 million square meters by autumn 2006, one yearearlier than initially planned for fiscal 2007. This plan hasbeen put into action and some added production lineshave already started operations.With greater demand for these products expected in thefuture, we have begun considering a plan to construct asecond plant for ZeonorFilm®. Demand for ZEONEX® and ZEONOR® products hasbeen very brisk, as described above. In response, in July2005, the Mizushima Plant expanded its capacity toproduce high-quality, thermoplastic transparent resincycloolefin polymer（COP）, a material for these products,from 10,000 tons to 15,000 tons annually.

ZEON CORPORATION 2007 7

Middle Management Plan &

Operation

Lenses for camera-equipped mobile phone ZeonorFilm®ZEONEX®

Laser printer using polymerized toner